HYPERTENSION DIAGNOSTICS, INC.
INDEX TO FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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| For the quarterly period ended |
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| or |
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o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the transition period from to |
Commission File Number: 0-24635
HYPERTENSION DIAGNOSTICS, INC.
(Exact name of Registrant as Specified in its Charter)
MINNESOTA |
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(State or Other Jurisdiction of | (I.R.S. Employer Identification No.) | |
Incorporation or Organization) |
10275 WAYZATA BOULEVARD, SUITE 310, MINNETONKA, MN | 55305 |
(Address of Principal Executive Offices) | (Zip Code) |
952-545-2457 | |
( | |
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(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report) |
Indicate by check mark whether the registrant: (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.
YESx NOo
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T ( § 232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files).
YESxo NOo
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filero | Accelerated filer o |
Non-accelerated filer o | Smaller reporting company x |
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YESo NOx
As of NovemberFebruary 10, 2011,2012, there were issued and outstanding 43,325,84352,388,750 shares of the issuer’sissuer’s common stock.
HYPERTENSION DIAGNOSTICS, INC.
INDEX TO FORM 10-Q
Page No | |||
PART I. | FINANCIAL INFORMATION: | ||
Item 1. | Financial Statements | ||
Consolidated Balance Sheets – | 4 | ||
Consolidated Statements of Operations (unaudited) – Three Months and Six Months Ended | 5 | ||
Consolidated Statements of Cash Flows (unaudited) – | 6 | ||
Notes to the Consolidated Financial Statements | 7 | ||
Item 2. |
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Item 3. | Quantitative and Qualitative Disclosures about Market Risk | 19 | |
Item 4. | Controls and Procedures |
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PART II. | OTHER INFORMATION: | ||
Item 1A. | Risk Factors | 20 | |
Item 5 | Other Information | 20 | |
Item 6. | Exhibits |
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SIGNATURES |
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CERTIFICATIONS |
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2
Hypertension Diagnostics, Inc.
Forward-Looking Statements
This report may contain “forward-looking”“forward-looking” statements, as such term inis defined by the Securities and Exchange Commission itsCommission’s rules, regulations and releases, which represent the current beliefs of our management as well as assumptions made by and information currently available to management, including but not limited to, statements concerning the registrant’sregistrant’s operations, economic performance, financial condition, growth and acquisition strategies, investments, and future operational plans. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the generality of the foregoing, words such as “may,“may,” “will,“expect,” “expect,“believe,” “believe,“expect,” “expect,“can,” “can,“estimate,” “estimate,“anticipate,” “anticipate,“intend,” “intent,“could,” “could,“might,” “might,“plan,” “plan,” “predict”“predict” or “continue”“continue” or the negative or other variations thereof or comparable terminology are intended to identify forward-looking statements. We caution readers not to place undue reliance on any forward-looking statements and to recognize that the statements are not predictions of actual future results.
These statements by their nature involve substantial risks and uncertainties, certain of which are beyond the Company’sCompany’s control, and actual results may differ materially depending on a variety of important factors, including our ability to generate acceptable levels of revenues; negative effect on our stock price resulting from available securities for sale; our need for additional capital; significant business risks associated with the start-up of the Company’sCompany’s HDI Plastics, Inc. subsidiary business; the illiquidity of our securities on the OTC Bulletin BoardOTCQB and the related restrictions on our securities relating to “penny stocks”“penny stocks”; and potential violations by us of federal and state securities laws; uncertainty related to acquisitions; governmental regulation; commercial viability of required raw materials, and any other factors discussed in this and other filings of the Company with the Securities and Exchange commission. We undertake no responsibility to update any forward-looking statement. These forwardlookingforward-looking statements are only made as of the date of this report. The following should be read in conjunction with the information presented in our Annual Report on Form 10-K for the year ended June 30, 2011. 2011, filed with the SEC on September 16, 2011, including but not limited to the “Risk Factors” listed in such report.
3
3
Hypertension Diagnostics, Inc.
Consolidated Balance Sheet
(Unaudited)December 31, 2011
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
September 30, | June 30, | |||||
Assets | 2011 | 2011 | ||||
Current Assets: | ||||||
Cash and cash equivalents | $ 683,902 | $ 753,821 | ||||
Prepaids and other current assets | 20,688 | 9,632 | ||||
Inventory | 29,000 | - | ||||
Note receivable-related party-Minot | 80,000 | 125,000 | ||||
Note receivable-related party-CPC | 129,100 | - | ||||
Current assets of discontinued operations | - | 374,190 | ||||
Total Current Assets | 942,690 | 1,262,643 | ||||
Property and Equipment, net | 439,311 | - | ||||
Non-current assets of discontinued operations | - | 16,835 | ||||
Other assets | 43,658 | 6,530 | ||||
Total Assets | $ 1,425,659 | $ 1,286,008 | ||||
Liabilities and Shareholders' Equity (Deficit) | ||||||
Current Liabilities: | ||||||
Accounts payable | $ 55,015 | $ - | ||||
Compass Bank payable (Note 11) | 250,000 | - | ||||
Payable to CP for equipment (Note 11) | 155,000 | - | ||||
Current liabilities of discontinued operations | 181,156 | 240,975 | ||||
Other accrued expenses | - | 3,170 | ||||
Deferred compensation-discontinued operations, current portion | - | 622,500 | ||||
Total Current Liabilities | 641,171 | 866,645 | ||||
Long Term Liabilities: | ||||||
Deferred compensation-discontinued operations, less current portion | 1,312,500 | - | ||||
Total Liabilities | 1,953,671 | 866,645 | ||||
| ||||||
Shareholders' Equity (Deficit): | ||||||
Series A Convertible Preferred Stock, $.01 par value: | ||||||
Authorized shares--5,000,000 | ||||||
Issued and outstanding shares—611,390 at September 30, | ||||||
2011 and June 30, 2011; each share of preferred | ||||||
stock is convertible into 12 shares of common stock at the option | ||||||
of the holder (aggregate liquidation preference $8,841,117 and | ||||||
$8,444,722 at September 30, 2011 and June 30, 2011, respectively) | 6,114 | 6,114 | ||||
Common Stock, $.01 par value: | ||||||
Authorized shares--150,000,000 | ||||||
Issued and outstanding shares—43,325,843 | ||||||
at September 30, 2011 and June 30, 2011 | 433,258 | 433,258 | ||||
Additional paid-in capital | 28,062,670 | 27,998,045 | ||||
Accumulated deficit | (29,030,054) | (28,018,054) | ||||
Total Shareholders' Equity (Deficit) | (528,012) | 419,363 | ||||
Total Liabilities and Shareholders' Equity (Deficit) | $ 1,425,659 | $ 1,286,008 | ||||
See accompanying notes. |
Three Months Ended | ||||||
September 30, | ||||||
2011 | 2010 | |||||
Revenues: | ||||||
Hypertension royalties | $ 1,200 | $ - | ||||
Plastic processing sales | - | - | ||||
Total revenues | 1,200 | - | ||||
Cost of Sales-plastic processing | 38,258 | - | ||||
Gross Profit | (37,058) | - | ||||
Expenses: | ||||||
Selling, general and administrative | 202,473 | 65,096 | ||||
Total Expenses | 202,473 | 65,096 | ||||
Operating loss | (239,531) | (65,096) | ||||
Other Income: | ||||||
Interest income | 2,096 | 1,995 | ||||
Miscellaneous income | 499 | - | ||||
Total Other Income | 2,595 | 1,995 | ||||
Net loss before income taxes | (236,936) | (63,101) | ||||
Income taxes | - | - | ||||
Net loss from continuing operations | (236,936) | (63,101) | ||||
Income (loss) from discontinued operations | (651,362) | 327,322 | ||||
Loss on sale of discontinued operations | (123,702) | - | ||||
Net income (loss) from discontinued operations | (775,064) | 327,322 | ||||
Net income (loss) | $ (1,012,000) | $ 264,221 | ||||
Net Income (loss) from continuing operations: | ||||||
Basic | $ - | $ - | ||||
Diluted | $ - | $ - | ||||
Net Income (loss) from discontinuing operations: | ||||||
Basic | $ (0.02) | $ 0.01 | ||||
Diluted | $ (0.02) | $ 0.01 | ||||
Net Income (loss) per Common Share: | ||||||
Basic | $ (0.02) | $ 0.01 | ||||
Diluted | $ (0.02) | $ 0.01 | ||||
Weighted Average Common Shares Outstanding: | ||||||
Basic | 43,325,843 | 41,995,526 | ||||
Diluted | 43,325,843 | 41,995,526 | ||||
See accompanying notes. |
Three Months Ended | ||||
September 30, | ||||
2011 | 2010 | |||
Operating Activities: | ||||
Net income (loss) | $ (1,012,000) | $ 264,221 | ||
Adjustments to reconcile income(loss) to net | ||||
cash provided by(used in) operating activities: | ||||
(Income) loss from discontinued operations | 651,362 | (327,322) | ||
Loss on sale of discontinued operations | 123,702 | - | ||
Net loss from continuing operations | (236,936) | (63,101) | ||
Stock option expense | 64,625 | 30,250 | ||
Change in operating assets and liabilities: | ||||
Accreted interest on note receivable | 1,600 | - | ||
Inventory | (29,000) | - | ||
Prepaids and other current assets | (11,056) | (7,212) | ||
Other assets | (37,128) | - | ||
Accounts payable | 55,015 | - | ||
Other accrued expenses | (3,170) | - | ||
Net cash used in operating activities | (196,050) | (40,063) | ||
Investing Activities: | ||||
Payment received on note receivable-related party-Minot | 45,000 | - | ||
Purchases of property and equipment | (34,311) | - | ||
Net cash provided by investing activities | 10,689 | - | ||
Financing Activities: | ||||
Proceeds from exercise of warrants | - | 30,000 | ||
Net cash provided by financing activities | - | 30,000 | ||
Net cash used in continuing operations | (185,361) | (10,063) | ||
Discontinued Operations: | ||||
Net cash provided by (used in) operating activities | 115,442 | (154,160) | ||
Net increase(decrease) in cash and cash equivalents | (69,919) | (164,223) | ||
Cash and cash equivalents at beginning of period | 753,821 | 1,053,648 | ||
Cash and cash equivalents at end of period | $ 683,902 | $ 889,425 | ||
Supplemental non-cash flow information: | ||||
Compass Bank payable for equipment | $ 250,000 | $ - | ||
Payable to CP for equipment | $ 155,000 | $ - | ||
Note receivable-related party from sale of discontinued operations | $ 127,500 | $ - | ||
See accompanying notes. |
Consolidated Balance Sheet |
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|
| December 31, 2011 (Unaudited) |
| June 30, 2011 |
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Assets |
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Current Assets: |
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Cash |
| $ 92,859 |
| $ 753,821 |
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Accounts receivable |
| 606,457 |
| - |
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Prepaid and other current assets |
| 30,971 |
| 9,632 |
|
Inventory |
| 114,014 |
| - |
|
Note receivable-related party-Minot |
| 42,500 |
| 125,000 |
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Note receivable-related party-CPC |
| 135,810 |
| - |
|
Accrued royalties receivable from CPC |
| 13,200 |
| - |
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Current assets of discontinued operations |
| - |
| 374,190 |
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Total Current Assets |
| 1,035,811 |
| 1,262,643 |
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Property and Equipment, net |
| 618,699 |
| - |
|
Non-current assets of discontinued operations |
| - |
| 16,835 |
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Other assets |
| 43,657 |
| 6,530 |
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Total Assets |
| $ 1,698,167 |
| $ 1,286,008 |
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Liabilities and Shareholders' Equity (Deficit) |
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Current Liabilities: |
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Accounts payable |
| $ 294,885 |
| $ - |
|
Line of Credit-Charter Capital |
| 440,640 |
| - |
|
Payable for equipment (Note 12) |
| 155,000 |
| - |
|
Other accrued expenses |
| 114,635 |
| 3,170 |
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Deferred rent |
| 81,299 |
| - |
|
Current liabilities of discontinued operations |
| 149,619 |
| 240,975 |
|
Deferred compensation-discontinued operations |
| - |
| 622,500 |
|
Total Current Liabilities |
| 1,236,078 |
| 866,645 |
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Long Term Liabilities: |
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Deferred compensation-discontinued operations |
| 1,181,250 |
| - |
|
Total Liabilities |
| 2,417,328 |
| 866,645 |
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Shareholders' Equity (Deficit): |
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Series A Convertible Preferred Stock, $.01 par value: |
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Authorized shares--5,000,000 |
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Issued and outstanding shares—611,390 at September 30, |
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2011 and June 30, 2011; each share of preferred |
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stock is convertible into 12 shares of common stock at the option |
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of the holder (aggregate liquidation preference $9,256,119 and |
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$8,444,722 at December 31, 2011 and June 30, 2011, respectively) |
| 6,114 |
| 6,114 |
|
Common Stock, $.01 par value: |
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|
|
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Authorized shares--150,000,000 |
|
|
|
|
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Issued and outstanding shares—43,325,843 |
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|
|
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at December 31, 2011 and June 30, 2011 |
| 433,258 |
| 433,258 |
|
Additional paid-in capital |
| 28,085,170 |
| 27,998,045 |
|
Accumulated deficit |
| (29,243,703) |
| (28,018,054) |
|
Total Shareholders' Equity (Deficit) |
| (719,161) |
| 419,363 |
|
Total Liabilities and Shareholders' Equity (Deficit) |
| $ 1,698,167 |
| $ 1,286,008 |
|
4
Hypertension Diagnostics, Inc.
Consolidated Statement of Operations
December 31, 2011
Consolidated Statement of Operations (Unaudited) | ||||||||
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| Three months ended |
| Six months ended | ||||
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| December 31, 2011 |
| December 31, 2010 |
| December 31, 2011 |
| December 31, 2010 |
Net Revenues: |
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Plastics |
| $ 1,185,692 |
| - |
| $ 1,185,692 |
| $ - |
Royalties |
| 11,880 |
| - |
| 13,080 |
| - |
Total revenues |
| 1,197,572 |
| - |
| 1,198,772 |
| - |
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Cost of Sales-Plastics |
| 1,196,744 |
| - |
| 1,235,002 |
| - |
Gross Profit (Loss) |
| 828 |
| - |
| (36,230) |
| - |
|
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Expenses: |
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Selling, general and administrative |
| 252,188 |
| 145,141 |
| 454,661 |
| 210,237 |
Total Expenses |
| 252,188 |
| 145,141 |
| 454,661 |
| 210,237 |
Operating loss |
| (251,360) |
| (145,141) |
| (490,891) |
| (210,237) |
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Other Income and (Expense): |
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Interest income |
| 6,760 |
| 6,673 |
| 8,856 |
| 8,668 |
Miscellaneous income |
| - |
| - |
| 499 |
| - |
Interest Expense |
| (19,047) |
| - |
| (19,047) |
| - |
Total Other Income and (Expense) |
| (12,287) |
| 6,673 |
| (9,692) |
| 8,668 |
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Net loss before income taxes |
| (263,647) |
| (138,468) |
| (500,583) |
| (201,569) |
Income taxes |
| - |
| - |
| - |
| - |
Net loss from continuing operations |
| (263,647) |
| (138,468) |
| (500,583) |
| (201,569) |
|
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|
|
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Income (Loss) from discontinued operations |
| 49,998 |
| (42,929) |
| (601,364) |
| 284,393 |
Loss on sale of discontinued operations |
| - |
| - |
| (123,702) |
| - |
Net income (loss) from discontinued operations |
| 49,998 |
| (42,929) |
| (725,066) |
| 284,393 |
Net income (loss) |
| $ (213,649) |
| $ (181,397) |
| $ (1,225,649) |
| $ 82,824 |
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Earnings Per Share: |
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|
|
|
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Basic income (loss) from continuing operations per share |
| $ (0.01) |
| $ (0.00) |
| $ (0.01) |
| $ (0.01) |
Diluted income (loss) from continuing operations per share |
| $ (0.01) |
| $ (0.00) |
| $ (0.01) |
| $ (0.01) |
Net Income (loss) from discontinued operations: |
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Basic income (loss) from discontinued operations per share |
| $ 0.00 |
| $ (0.00) |
| $ (0.02) |
| $ 0.01 |
Diluted income (loss) from discontinued operations per share |
| $ 0.00 |
| $ (0.00) |
| $ (0.02) |
| $ 0.01 |
Net Income (loss) per Common Share: |
|
|
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|
|
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|
Basic income (loss) per common share |
| $ (0.01) |
| $ (0.00) |
| $ (0.03) |
| $ (0.00) |
Diluted income (loss) per common share |
| $ (0.01) |
| $ (0.00) |
| $ (0.03) |
| $ (0.00) |
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Weighted Average Common Shares Outstanding: |
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Basic |
| 43,325,843 |
| 42,234,715 |
| 43,325,843 |
| 42,115,120 |
Diluted |
| 50,662,523 |
| 42,234,715 |
| 43,325,843 |
| 49,627,168 |
5
Hypertension Diagnostics, Inc.
Consolidated Statement of Cash Flows
December 31, 2011
Consolidated Statement of Cash Flows | |||
(Unaudited) | |||
| Six months ended December 31, | ||
| 2011 |
| 2010 |
Operating Activities: |
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|
|
|
|
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Net income (loss) | ($1,225,649) |
| $ 82,824 |
Adjustments to reconcile income(loss) to net |
|
|
|
Cash provided by(used in) operating activities: |
|
|
|
(Income) loss from discontinued operations | 601,364 |
| (284,393) |
Loss on sale of discontinued operations | 123,702 |
| - |
Net loss from continuing operations | (500,583) |
| (201,569) |
Depreciation | 29,957 |
|
|
Stock option expense | 87,125 |
| 61,620 |
|
|
|
|
Change in operating assets and liabilities: |
|
|
|
Accreted interest on note receivable | (8,310) |
| - |
Accounts Receivable | (606,457) |
| - |
Inventory | (114,014) |
| - |
Prepaid Insurance | (21,339) |
| - |
Other Assets | (37,127) |
| (6,996) |
Accounts Payable | 294,885 |
| - |
Accrued Royalties Receivable | (13,200) |
| - |
Accrued Payroll | 82,364 |
| - |
Deferred Rent | 81,299 |
|
|
Other Accrued Expenses | 36,684 |
| - |
Net cash used in operating activities | (688,716) |
| (146,945) |
Investing Activities: |
|
|
|
Purchases of property and equipment | (493,656) |
|
|
Payment received on note receivable-related party-Minot | 82,500 |
| - |
Net cash used in investing activities | (411,156) |
| - |
Financing Activities: |
|
|
|
Proceeds from Charter Capital-line of credit | 433,057 |
|
|
Proceeds from exercise of warrants | - |
| 30,000 |
Net cash provided by financing activities | 433,057 |
| 30,000 |
Net cash used in continuing operations | (666,815) |
| (116,945) |
|
|
|
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Discontinued Operations: |
|
|
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Net cash provided by (used in) operating activities of discontinued operations | 5,853 |
| (12,643) |
Net increase(decrease) in cash and cash equivalents | (660,962) |
| (129,588) |
Cash and cash equivalents at beginning of period | 753,821 |
| 1,053,648 |
Cash and cash equivalents at end of period | $ 92,859 |
| 924,060 |
|
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|
|
Supplemental non-cash flow information: |
|
|
|
Payable for equipment (Note 12) | $ 155,000 |
| $ - |
Note receivable-related party from sale of discontinued operations | $ 127,500 |
| $ - |
6
Hypertension Diagnostics, Inc.
Notes to the Consolidated Financial Statements
September 30,December 31, 2011
Note 1. Basis of Presentation
The accompanying unaudited consolidated financial statements of Hypertension Diagnostics, Inc. (the “Company“Company,” “HDI” “we” or “HDI”“us”) have been prepared in accordance with the instructionsInstructions to Form 10-Q and Regulation S-X, and do not include all the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, these unaudited financial statements reflect all adjustments, consisting only of normal and recurring adjustments necessary for a fair presentation of the financial statements. The results of operations for the three and six months ended September 30,December 31, 2011 are not necessarily indicative of the results that may be expected for the full year ending June 30, 2012. The June 30, 2011 balance sheet was derived from audited financial statements and was adjusted to reflect unaudited adjustments to reclassify discontinued operations, as described in NoteNotes 2 and 3 below. For further information, refer to the financial statements and notes included in the Company’sCompany’s Annual Report on Form 10-K for the fiscal year ended June 30, 2011, filed with the SEC on September 16, 2011. The policies described in that report are used for preparing quarterly reports.
On July 14, 2011, the Company formed HDI Plastics, Inc. (“HDIP”(“HDIP” or “Plastics”), as a wholly-owned subsidiary. The Company anticipates thatsubsidiary of the Company. HDIP which signed a lease agreement for manufacturing space on September 22, 2011 and commenced plastic processing operations in October 2011, will be its2011. HDIP is the principal operating business going forward.of the Company. HDIP is engaged in the processing of recycled plastic material including re-processing into pellet-form for sale to manufacturing customers. (See Note 11.12.)
Note 2. Nature of Business and Summary of Significant Accounting Policies:
HDI formerly was in the business of designing, developing, and manufacturing non-invasive medical devices. Commencing October 2011, HDI, through HDIP, is now in the business of collecting, processing, and recycling plastics into usable form for sale to manufacturing customers. HDIP also acts as a “broker” in arranging and facilitating delivery of recyclable material directly to manufacturing customers.
Discontinued Operations- OnOperations-On August 26, 2011 (the “Effective Date”“Effective Date”), the Company entered into and closed a definitive Asset Purchase Agreement (the “Agreement”“Agreement”) providing for the sale of selected assets from our Hypertension Diagnostics Businessmedical device business to Cohn Prevention Center, LLC, (“CPC”), a Minnesota limited liability company (“CPC”), controlled by a Jay Cohn, a director and stockholder of HDI as of the Effective Date. The terms of the Agreement provided for the sale of selected operating assets of the Company’sCompany’s medical device business (including inventory but excluding cash, accounts receivable, and intellectual property). The Agreement does not limit the ability of CPC to sell the purchased inventory to any customer or in any market where they can be legally sold. Additionally, CPC assumed all warranty and on-going product support required by regulatory agencies related to such inventory. As a result of this agreement, and with the sale of selected assets to CPC, we have reclassified our previously reported financial results to exclude those operations affected by the sale. These results are presented on ana historical basis as a separate line in our income statements and balance sheets entitled “Discontinued“Discontinued Operations.” HDI has retained rights to its intellectual property including the rights to royalty payments from CPC. HDI expects to pursue additional royalty opportunities although there is no assurance it will be successful. Ongoing royalty income derived from the Company’sCompany’s intellectual property is reflected as continuing operations. All of the information in the financial statements and notes to the financial statements has been revised to reflect only the results of our continuing operations from our new recycled plastics process business.
Principles of Consolidation
The Company files consolidated financial statements that include its wholly-owned subsidiary, HDIP. All material intercompany accounts and transactions have been eliminated in consolidation.
Recent Accounting Pronouncements
There were no new accounting standards issued or effective during the three months ended September 30,December 31, 2011 that had or are expected to have a material impact on the Company’sCompany’s results of operations, financial condition, or cash flows.
7
Hypertension Diagnostics, Inc.
Notes to the Consolidated Financial Statements
December 31, 2011
Note 3. Discontinued Operations
Discontinued Operations- On August 26, 2011, (the “Effective Date”“Effective Date”), the Company entered into and closed a definitive Asset Purchase Agreement (the “Agreement”“Agreement”) providing for the sale of selected assets of our medical device business to Cohn Prevention Center, LLC, (“CPC”), a Minnesota limited liability company (“CPC”), controlled by a Jay Cohn, a director and stockholder of HDI as of the Effective Date. The terms of the Agreement provided for the sale of selected operating assets of the Company’sCompany’s medical device business (including inventory but excluding cash, accounts receivable, and intellectual
7
Hypertension Diagnostics, Inc.
Notes to the Consolidated Financial Statements
September 30, 2011
property). The Agreement does not limit the ability of CPC to sell the purchased inventory to any customer or in any market where they can be legally sold. Additionally, CPC assumed all warranty and on-going product support required by regulatory agencies related to such inventory.
In connection with the Agreement, CPC paid the Company on the Effective Date a cash payment of $125,000 and issued a secured promissory note to the Company in the amount of either $150,000 due in 12 months or $200,000 due in 18 months at the discretion of CPC (See Note 4). Nearly all of the proceeds received at closing will beon the Effective Date have been allocated to cover severance and other costs related to the transaction.transactions contemplated by the Agreement. Severance costs include an agreement by the Company to pay to Greg Guettler, its former Chief Operating Officer, six months’months’ salary and health benefits totaling approximately $100,000. AsMr. Guettler has been paid $20,000 as of December 31, 2011 as part of this agreement. Pursuant to the severance agreement, the CompanyAgreement, CPC agreed to pay Mr. Guettler a 10% fee of the proceeds received by the Company less applicable transaction expenses. The Company accrued $12,500 in connection with the 10% fee. Additionally, CPC agreed to pay the Company a cash payment of $1,200 onupon the sale of each of the first 50 units of purchased inventory sold by CPC within 30 days of receipt of cash from such sale. WeThe Company has agreed to pay Mr. Guettler 10% of the royalty proceeds received oneby the Company less applicable transaction expenses related to such sales. The Company has earned royalty paymentincome of $1,200 and $13,200 for the three months ended September 30, 2011.2011 and December 31, 2011, respectively. The Company has accrued $1,320 in connection with the amount due Greg Guettler related to this revenue.
The Company and CPC also entered into a Sublicense Agreement on the Effective Date (the “Sublicense Agreement”“Sublicense Agreement”), pursuant to which the Company granted to CPC a limited license to use the Company’sCompany’s intellectual property, technology, and technical know-how related to the Company’sCompany’s arterial elasticity measurement technology exclusively in CPC clinics and research related exclusively to CPC clinics. All other applications of the Company’s intellectual property, technology and technical know-how will be retained by the Company for the benefit of the Company. The Sublicense Agreement also provides that any development of a next generation arterial measurement device, however, would be limited exclusively to use and sale within the CPC network of clinics and to research exclusively related to CPC clinics.
CPC and the Company also entered into a Sublease Agreement as of the Effective Date, which permits CPC to lease the Waters II Suite 108, Eagan, Minnesota facility of the Company during the remaining term of the Company’sCompany’s lease, which expires October 31, 2014, on the same pass-through economic terms as the underlying lease with HDI which remains as an obligation of the Company.
Upon the closing of this transaction, the Company had limited remaining operations related to its medical device business and intends to seekcurrently is seeking additional opportunities to license its proprietary technology, intellectual property, technical know-how and other core assets, although there is no assurance these efforts will be successful.
As part ofThe Company recorded a loss on the sale transaction the Company recorded the following loss which is reported as “Loss on sale of discontinued operations”in the Consolidated Statementsamount of Operations as of$123,702 in the quarter ended September 30, 2011:2011.
8 |
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The Company
Hypertension Diagnostics, Inc.
Notes to the Consolidated Financial Statements
December 31, 2011
We have has not included the results of operations of our former medical device business in the results from continuing operations. The Company expectsWe expect to receive continuing royalties from itsour licensed technology and isare continuing its efforts to license and market itsour intellectual property and revenueproperty. Revenue and expenses related to the ongoing licensing activities are reflected as continuing operations. The income (loss) from discontinued operations for the quarterthree and six months ended September 30,December 31, 2011, and 2010 consists of the following:
9
September 30, | |||
2011 | 2010 | ||
Revenue, net | $ 234,560 | $ 257,208 | |
Cost of Goods Sold | 10,557 | 37,854 | |
Gross Profit | 224,003 | 219,354 | |
Operating expenses including the deferred compensation fair | |||
value change of $622,500 and ($438,750), respectively | 875,365 | (107,968) | |
Net income (loss) from operations | (651,362) | 327,322 | |
Loss on sale of selected assets to CPC | (123,702) | - | |
Net income (loss) from discontinued operations | $ (775,064) | $ 327,322 |
Hypertension Diagnostics, Inc.
Notes to the Consolidated Financial Statements
December 31, 2011
Income from Discontinued Operations | Three months ended December 31, |
| Six months ended December 31, | ||||
| 2011 |
| 2010 |
| 2011 |
| 2010 |
Revenue, net | $ 14,363 |
| $ 457,986 |
| $ 248,923 |
| $ 715,194 |
Cost of Goods Sold | - |
| 93,172 |
| 10,557 |
| 131,026 |
Gross Profit | 14,363 |
| 364,814 |
| 238,366 |
| 584,168 |
|
|
|
|
|
|
|
|
Operating Expenses | 95,615 |
| 291,493 |
| 280,980 |
| 561,525 |
Deferred Compensation expense (benefit) | (131,250) |
| 116,250 |
| 558,750 |
| (261,750) |
Income (loss) from discontinued operations | 49,998 |
| (42,929) |
| (601,364) |
| 284,393 |
Loss on sale of selected assets to CPC | - |
| - |
| (123,702) |
| - |
Net income (loss) from discontinued operations | $ 49,998 |
| $ (42,929) |
| $ (725,066) |
| $ 284,393 |
The major classes of assets and liabilities of discontinued operations as of September 30,December 31, 2011 and June 30, 2011 were as follows:
September 30, | June 30, |
| |||||||||
Assets and Liabilities of Discontinued Operations |
|
|
| ||||||||
2011 | 2011 | December 31, 2011 |
| June 30, 2011 | |||||||
Accounts receivable | $ - | $ 4,365 | $ - |
| $ 4,365 | ||||||
Inventory, net | - | 364,952 | - |
| 364,952 | ||||||
Prepaid expenses | - | 4,873 | - |
| 4,873 | ||||||
Current assets of discontinued operations | - | $ 374,190 | $ - |
| $ 374,190 | ||||||
|
|
| |||||||||
2011 | 2010 | ||||||||||
Accrued payroll, vacation, and payroll taxes | $ 61,832 | $ 51,253 | $ 57,119 |
| $ 51,253 | ||||||
Severance payable to former COO | 112,500 | - | 92,500 |
| - | ||||||
Deferred Compensation | 1,181,250 |
| 622,500 | ||||||||
Deferred revenue | - | 88,819 | - |
| 88,819 | ||||||
Accrued commissions | - | 46,500 | - |
| 46,500 | ||||||
Accrued royalties | - | 17,770 | - |
| 17,770 | ||||||
Other accrued expenses | 6,824 | 36,633 | - |
| 36,633 | ||||||
Current liabilities of discontinued operations | $ 181,156 | $ 240,975 | |||||||||
Total liabilities of discontinued operations | $ 1,330,869 |
| $ 863,475 |
Note 4. Notes Receivable – Related Parties
Notes Receivable - On May 3, 2011, the Company entered into a promissory note agreement with Minot 123, LLC, a North Dakota limited liability company (“Minot”(“Minot”) , underpursuant to which HDI loaned Minot $125,000 toward the purchase of an office building (“(“M Building”Building”) located in Minot, North Dakota. At the time the agreement was entered into, Kenneth W. Brimmer, a director of the Company, was one of the three principals of Minot. On July 13, 2011, the Company exercised its option to receive repayment of the Note and subsequently, in accordance with the repayment terms $20,000 wasof the Note, Minot paid to the Company. SixCompany $20,000. The remaining balance on the Note became payable in six monthly payments of $12,500 are due beginning on August 15, 2011, andwith the final payment is due and payable February 15, 2012, which includes accrued and unpaid interest and reimbursement of the Company’sCompany’s legal fees. Minot’sfees expended in connection with the agreement. The Company will not record as income the interest and legal fees until they are actually collected.
10
Hypertension Diagnostics, Inc.
Notes to the Consolidated Financial Statements
December 31, 2011
Minot’s obligation to repay the Note is secured by a second mortgage on M Building, second only to the first mortgage held by the seller of M Building to Minot.Building. As of July 13, 2011, Mr. Brimmer was no longer affiliated with Minot. The balance outstanding at September 30,December 31, 2011 is $80,000.$42,500.
In connection with the Asset Purchase Agreement between HDI and Cohn Prevention Centers, LLC (See Note 3), Cohn paid HDI on the Effective Date a cash payment of $125,000 and issued a non-interest bearing secured promissory note due to HDI in the amount of either $150,000 in 12 months or $200,000 in 18 months, at the discretion of CPC. The promissory note is reflected at an imputed discount rate of 15% based upon the amount due 12 months following the saleEffective Date, and is reflected as a net note receivable of $127,500. The balance of the Note at September 30,December 31, 2011 is $129,100$135,810 after including $1,600$8,310 of accreted accrued interest.
9
Hypertension Diagnostics, Inc.
Notes to the Consolidated Financial Statements
September 30, 2011
Note 5. Property and Equipment
Property and Equipment are as follows:
Property and Equipment |
| |||||
September 30, | December 31, | |||||
2011 | 2010 | 2011 |
| 2010 | ||
Equipment | $ 412,998 | $ - | $ 558,829 |
| $ - | |
Leasehold Improvements | 26,313 | - | 83,110 |
| - | |
Office Furniture | 1,712 |
|
| |||
Software | 5,005 |
|
| |||
Less accumulated depreciation | - | - | (29,957) |
| - | |
Total equipment | $ 439,311 | $ - | $ 618,699 |
| $ - |
The Company did not placeplaced these new assets for the recycled plastics processing business into service untilas of October 1, 2011; as a result, there is no depreciation expense as of September 30, 2011.for the three months and six months ended December 31, 2011 was $29,257.
Note 6. Litigation
The Company is involved in various legal actions in the ordinary course of its business. In addition, HDIP has been cited by the City of Austin Building Department Code Enforcement Division for failure to obtain a building permit and a Certificate of Occupancy at its facility. Although the outcome of any such legal actions cannot be predicted, management believes that there are no pending legal proceedings against or involving the Company for which the outcome is likely to have a material adverse effect upon the Company’sCompany’s financial position or results of operations.
Note 7. Stock Options
The Company regularly grants stock options to individuals under various plans as described in Note 10 of7 to the Company’sFinancial Statements set forth in the Company’s Annual Report on Form 10-K for the year ended June 30, 2011, filed with the SEC on September 16, 2011. The Company recognizes share-based payments, as compensation costs for transactions, including grants of employee stock options, to be recognized in the financial statements. Stock-based compensation expense is measured based on the fair value of the equity or liability instrument issued. Share-based compensation arrangements includes:may include: stock options, restricted share plans, performance-based awards, share appreciation rights, and employee share purchase plans. The Company measures the cost of employee services received in exchange for stock options based on the grant-date fair value of the award, and expenses the cost over the period in which the employee is required to provide services for the award. The Company uses the Black-Scholes option-pricing model that meets the fair value objective.
During the three and six months ended September 30,December 31, 2011and the three and six months ended September 30,December 31, 2010, there were no stock options granted. The Company recognized compensation expense of $64,625$22,500, and $87,125 for the three and six months ended September 30,December 31, 2011, and $30,250$31,370 and $61,620 for the three and six months ended September 30,December 31, 2010, which were related to options previously granted.
Note 8.
Deferred Compensation
The Company is a party to a Deferred Equity Compensation Agreement with its former CEO, Mark N. Schwartz (the “Agreement”“Agreement”), whereby the Company granted 225,000 phantom shares of its common stock to Mr. Schwartz for every
11
Hypertension Diagnostics, Inc.
Notes to the Consolidated Financial Statements
December 31, 2011
month of employment for the period January 1, 2010 through September 30, 2011. Mr. Schwartz resigned as the Company’sCompany’s CEO effective September 22, 2011.2011 and as a result, agreed as of October 1, 2011 that no additional phantom shares will be granted him under the Agreement. Under the agreement, a cash payment will be made equal to the price per share of the Company’sCompany’s common stock times the number of phantom shares accrued at the earliest of certain events.
The Company has accrued a total deferred compensation liability of $1,312,500$1,181,250 at September 30,December 31, 2011, which is the fair market value of 13,125,000 phantom shares granted as of September 30,December 31, 2011. Due to the changes in the average price of the Company’sCompany’s common stock atfrom the beginning of the quarter to the end of the quarter (increase(decrease from $0.05$0.10 to $ 0.10)0.09), the Company recorded a net compensation (benefit) expense of $690,000($131,250) and $558,750 for the periodthree and six month periods ended September 30, 2011.December 31, 2011, respectively. For the periodthree and six month periods ended September 30,December 31, 2010, the Company recorded a net compensation benefit(benefit) expense of $378,000.$116,250 and ($261,750), respectively. An increase in the Company’sCompany’s common stock price would cause an increase in the deferred compensation, while a decrease in the Company’sCompany’s stock price would cause a decrease in the deferred compensation liability. Expenses related to the Deferred Compensation arrangement with its former CEO are accounted for as part of Discontinued Operations.
Under the terms of Mr. Schwartz’sSchwartz’s original employment agreement, payment of the deferred compensation benefit would occur upon one of the following events: i) execution of a definitive agreement resulting in a change of control of the Company’sCompany’s common stock; ii) termination of employment; iii) death of the CEO; or iv) no later than January 1, 2012. Upon
10
Hypertension Diagnostics, Inc.
Notes to the Consolidated Financial Statements
September 30, 2011
one of these events, a cash payment over 24 months willwas to be made to the CEO equal to the trading price per share of the Company’sCompany’s common stock times the number of phantom stock shares accrued to date. Mr. Schwartz and the Company modified the original Agreement on September 30,December 31, 2011, whereby Mr. Schwartz has tentatively agreed to change event iv above to: suspendeliminate the requirement for a cash payment as of a date certain pursuant to the Agreement. Also,This deferred compensation is classified as a long-term liability with no definitive payout date specified. The Company and Mr. Schwartz agreed asare continuing to negotiate some sort of October 1, 2011 that no additional phantom shares will be grantedpermanent settlement to Mr. Schwartz under the Agreement.satisfy both parties.
Note 9. Line of Credit - Charter Capital
On October 10, 2011, HDI Plastics, Inc. entered into an Accounts Receivable Discount line facility with Charter Capital Holdings, L.P. (“Charter”). Under the terms of the full-recourse financing agreement, which is guaranteed by HDI, Charter advances to HDIP and amount equal to 80% of eligible pledged receivables up to a total advance of $1 million. Charter retains a priority and perfected security interest in all accounts receivable and inventory of HDI Plastics, Inc. The financing cost under the agreement is 0.59% for each 10-day period or an approximate annualized interest cost of approximately 21.25%. The Company began borrowing under this facility in November 2011. For the quarter ended December 31, 2011, aggregate advances under the facility were $957,999 based upon $1,197,499 in receivables. The outstanding balance as of December 31, 2011 is $433,057 plus accrued interest of $7,583.
Note 10. Net Income (Loss) Per Share
Basic net income (loss) per share is computed using the weighted average number of common shares outstanding during each period. Diluted net income (loss) per share would normally include the dilutive effect of common shares potentially issuable upon the exercise of stock options, warrants, or the conversion of preferred stock.
The following table provides a reconciliation of the numerators and denominators used in calculating basic and diluted earnings per share at September 30,December 31, 2011 and 2010.
September 30 | September 30 | ||||||
|
|
| 2011 | 2010 |
| ||
| Basic earnings (loss) per share calculation: |
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|
|
| Net income (loss) from continuing operations to common shareholders | $ (236,936) | $ (63,101) | ||||
Net income (loss) from discontinued operations | |||||||
to common shareholders. | (775,064) | 327,322 | |||||
Net income (loss) to common shareholders | $ (1,012,000) | $ 264,221 | |||||
| Weighted average of common shares outstanding | 43,325,843 | 41,995,526 |
| |||
| Basic net earnings (loss) from continuing operations | .00 | .00 | ||||
Basic net earnings (loss) from discontinued operations | (.02) | .01 | |||||
Basic net earnings (loss) per share | (.02) | .01 | |||||
| |||||||
| Diluted earnings (loss) per share calculation: | ||||||
| Net income (loss) from continuing operations to common shareholders | (236,936) | (63,101) | ||||
Net income (loss) from discontinued operations | |||||||
to common shareholders. | (775,064) | 327,322 | |||||
Net income (loss) to common shareholders | $ (1,012,000) | $ 264,221 | |||||
| Weighted average of common shares outstanding | 43,325,843 | 41,995,526 | ||||
Series A Convertible Preferred Stock (1) | - | - | |||||
| Stock Options (2) | - | - | ||||
| Warrants (3) | - | - | ||||
| Diluted weighted average common shares outstanding | 43,325,843 | 41,995,526 |
| |||
Diluted net earnings (loss) from continuing operations | (.00) | .00 | |||||
Diluted net earnings (loss) from discontinued operations | (.02) | .01 | |||||
Basic net earnings (loss) per share | (.02) | .01 | |||||
12
Hypertension Diagnostics, Inc.
Notes to the Consolidated Financial Statements
December 31, 2011
Earnings Per Share |
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| |||
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| Three months ended December 31 |
| Six months ended December 31, | |||||||
|
| 2011 |
| 2010 |
| 2011 |
| 2010 | |||
Basic earnings (loss) per share calculation: |
|
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|
|
|
|
| |||
Net income (loss) from continuing operations to common shareholders |
| $ (263,647) |
| $ (138,468) |
| $ (500,583) |
| $ (201,569) | |||
Net income (loss) from discontinued operations to common shareholders |
| 49,998 |
| (42,929) |
| (725,066) |
| 284,393 | |||
Net income (loss) to common shareholders |
| $ (213,649) |
| $ (181,397) |
| $ (1,225,649) |
| $ 82,824 | |||
|
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| |||
Weighted average of common shares outstanding |
| 43,325,843 |
| 42,234,715 |
| 43,325,843 |
| 42,115,120 | |||
|
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| |||
Basic net earnings (loss) from continuing operations |
| $ (0.01) |
| $ 0.00 |
| $ (0.01) |
| $ (0.01) | |||
Basic net earnings (loss) from discontinued operations |
| $ 0.00 |
| $ 0.00 |
| $ (0.02) |
| $ 0.01 | |||
Basic net earnings (loss) per share |
| $ (0.01) |
| $ 0.00 |
| $ (0.03) |
| $ 0.00 | |||
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| |||
Diluted earnings (loss) per share calculation: |
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|
|
| |||
Net income (loss) from continuing operations to common shareholders |
| $ (263,647) |
| $ (138,468) |
| $ (500,583) |
| $ (201,569) | |||
Net income (loss) from discontinued operations to common shareholders. |
| 49,998 |
| (42,929) |
| (725,066) |
| 284,393 | |||
Net income (loss) to common shareholders |
| $ (213,649) |
| $ (181,397) |
| $ (1,225,649) |
| $ 82,824 | |||
|
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| |||
Weighted average of common shares outstanding |
| 43,325,843 |
| 42,234,715 |
| 43,325,843 |
| 42,115,120 | |||
Series A Convertible Preferred Stock | [1] | 7,336,680 |
| - |
| - |
| 7,336,680 | |||
Stock Options | [2] | - |
| - |
| - |
| - | |||
Warrants | [3] | - |
| - |
| - |
| - | |||
Diluted weighted average common shares outstanding |
| 50,662,523 |
| 42,234,715 |
| 43,325,843 |
| 49,451,800 | |||
Diluted net earnings (loss) from continuing operations |
| $ (0.01) |
| $ 0.00 |
| $ (0.01) |
| $ (0.01) | |||
Diluted net earnings (loss) from discontinued operations |
| $ 0.00 |
| $ 0.00 |
| $ (0.02) |
| $ 0.01 | |||
Diluted net earnings (loss) per share |
| $ (0.01) |
| $ 0.00 |
| $ (0.03) |
| $ 0.00 |
| At |
| At
|
| At |
1113
Hypertension Diagnostics, Inc.
Notes to the Consolidated Financial Statements
September 30,December 31, 2011
Note 10.11.
Exercise Dates ofOutstanding Share Purchase Warrants
In February 2010, the Company modified the exercise price on all of the Preferred Stock Warrant B from $2.64 to $1.68 and on all of the Common Stock Warrant B from $0.22 to $0.14 to encourage the exercise of the warrants.$0.14. In July 2010, the Company agreed to extend the modification to September 30,December 31, 2011, to encourage exercising of these warrants in order for the Company to receive additional funding. No additional expense was recorded for this extension due to the warrants being originally connected to a capital raise.
On July 22, 2011, HDI agreed to extend the modificationwarrant expiration to September 30, 2012, to encourage exercising of the warrants in order for the Company to receive additional funding.December 31, 2012. No additional expense was recorded for this extension due to the warrants being originally connected to a capital raise.warrant extension. During the threesix months ended September 30,December 31, 2010, the Company received $30,000 in cash proceeds for the exercise of these common and preferred stock warrants of 122,127 and 7,680 shares, respectively. There were no warrants exercised during the threesix months ended September 30,December 31, 2011.
Note 11.12. Acquisition of Assets
HDI Plastics, Inc.
On September 22, 2011, the Company’s HDI Plastics, Inc. subsidiaryHDIP entered into a five-year lease agreement with Flemtex Properties Corp., a Delaware corporation, for space totaling 104,291 square feet at Suite 100, 5330 Fleming Court, Austin, Texas (the “Lease”“Lease”). The leased space includes 89,452 square feet of warehouse/manufacturing space and 14,839 square feet of office space. Under the terms of the Lease, HDIP shall paypays rent and CAM charges of approximately $26,000$33,650 per month. The rentallease payments over the 64 months of the initial term of the Lease total $1,626,940.$2,154,000. The lease payments are guaranteed by HDI.
On September 26, 2011, HDIthe Company entered into a definitive Tri-Party Sales Agreement (“Agreement”(“Agreement”) providing for the purchase of selected manufacturing assets from Compass Bank (the “Bank”“Bank”), and the purchase of certain manufacturing assets and inventory from Cycled Plastics, LTD,LTD., a limited partnership (“CP”(“CP”). In connection with the purchase of the assets, HDI agreed to pay the Bank a cash payment of $250,000. Additionally, HDI agreed to pay $25,000 at closing to CP and to make future payments of $130,000 to CP for equipment. The Company paid a total purchase price of $405,000 forthe selected assets. The agreementassets was finalized in October 2011.$405,000. In September 2011, the Company paid CP approximately $29,000 for initial inventory. The $250,000 was paid to Compass Bank on October 7, 2011. No payments have been made on the $155,000 due CP as of December 31, 2011.
Note 13. Other Related Party Transactions
The HDI Corporate office sub-leases space from STEN Corporation for $500 per month. Kenneth Brimmer, the Company’s Chief Executive Officer and a director of the Company, is the Chief Executive Officer and director of STEN Corporation. STEN Corporation’s lease ends in March, 2011. It is anticipated the current rent will continue on a month-to-month rent upon expiration of the lease with an agreement that the landlord will provide a 90-day notice to vacate the premises. If necessary, HDI will then lease office space in another location.
HDIP sells processed recycled materials in the form of pelletized resin to various manufacturing companies. In December 2011, HDIP sold 16,300 pounds of processed polymer to Stencor Company, LLC, a contract molding manufacturing company 85% owned by Kenneth Brimmer, for a purchase price of $8,492. The purchase price for the resin represented a price similar to sales of similar material to unrelated parties. HDIP expects to continue sales to Stencor from time-to-time.
14
Hypertension Diagnostics, Inc.
Notes to the Consolidated Financial Statements
December 31, 2011
15
Hypertension Diagnostics, Inc.
Notes to the Consolidated Financial Statements
December 31, 2011
Note 12.14. Subsequent Events
On October 10,Subordinated Debt Offering
In December 2011, HDI Plastics, Inc. entered into an Accounts Receivable Discount line facilitythe Company commenced a private placement offering of 14.5% Five Year Subordinated Notes with Charter Capital Holdings, L.P. (“Charter”). Under the termsWarrants to its existing preferred shareholders, directors of the financing agreement, which isCompany and certain other accredited investors. The notes are issued by HDIP and are guaranteed by HDI, Charterthe Company. Interest is payable monthly in cash. A preliminary closing of the offering was completed February 10, 2012 and resulted in the issuance of $773,600 in notes and five-year warrants to purchase an aggregate of 11,051,429 shares of the Company’s common stock with an exercise price of $.07 per share. The notes are duefive years from the closing date at 105% of face value. The Notes may be prepaid by the Company in accordance with the following schedule below at the redemption prices (expressed in percentages of principal amount to be repaid), plus unpaid accrued interest to the date of payment:
Loan Year | Redemption Price |
1 | 125% |
2 | 120% |
3 | 115% |
4 | 110% |
Maturity | 105% |
Common Share Issuance to CEO
Effective February 10, 2012, the Company agreed to issue 9,062,907 common shares to Kenneth W. Brimmer its CEO and director. The shares were issued for services rendered in connection with the initial acquisition of the plant and equipment, lease negotiations, and employee recruitment related to development of HDIP. The shares are restricted from sale for a three year period following issuance, except with respect to 500,000 shares that may be transferred to Marilee Douda, the Company’s controller, as a gift. The fair value of the shares totaling $215,697 (calculated by taking the Company’s common stock trading price on February 9, 2011 of $0.028, less a marketability discount of 15%) will advance 80% of eligible receivables upbe recorded as an expense during the quarter ended March 31, 2012.
16
Hypertension Diagnostics, Inc.
Notes to a total advance of $1 million. Charter retains a priority and perfected security interest in all accounts receivable and inventory of HDI Plastics, Inc. The financing cost under the agreement is 0.59% for each 10-day period or an approximate annualized interest cost of approximately 21.25%.Consolidated Financial Statements
December 31, 2011
12
Item 2.
Management’s Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
Historically, we were engaged in the design, development, manufacture and marketing of proprietary medical devices. On August 26, 2011, the Company entered into and consummated an Asset Purchase Agreement providing for the sale of selected assets of the medical device business of the Company to Cohn Prevention Center, LLC (“CPC”(“CPC”). The terms of the Agreement provided for the sale of selected operating assets of the Company’sCompany’s medical device business (including inventory but excluding cash, accounts receivable, and intellectual property). We remain engaged in marketing the core technology developed by HDI in an effort to obtain licensing and/or royalty income.income from such technology.
During the final quarter of fiscal 2011, the Company began to considerwe considered strategic alternatives given itsour limited capital, the challenges associated with marketing its medical devices, the effect of health care reform on reimbursement, and the need to develop the next generation of its medical devices. As a result of this review, the Companywe concluded to change itsour business and exit the medical device business and pursue an opportunity in the plastic recycling and processing business. To facilitate the new direction, the Company formed HDI Plastics on July 14, 2011 and began pursuing negotiations to lease manufacturing space and purchase processing equipment.
In October 2011, HDI Plastics, a wholly owned subsidiary of the Company, began processing operations in Austin, Texas. HDI processes post-consumer and post-industrial thermoplastic waste material into clean, reusable resin sold to manufacturers of plastic products. HDI Plastics is also engaged in “toll”“toll” processing of customer plastic material for a fee and in brokerage sales of recycled plastic material.
Critical Accounting Policies
The financial statements are prepared in accordance with accounting principles generally accepted in the U.S., which requires us to make estimates and assumptions in certain circumstances that affect amounts reported in the accompanying financial statements and related footnotes. In preparing these financial statements, management has made its best estimates and judgments of certain amounts included in the financial statements, giving due consideration to materiality. We do not believe there is a great likelihood that materially different amounts would be reported related to the accounting policies described below. However, application of these accounting policies involves the exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual results could differ from these estimates.
Principles of Consolidation. During the quarter endingended September 30, 2011, HDI finalized a purchase agreement to acquire machinery and equipment to begin operations in Austin, TX under the name ofTexas as HDI Plastics (“HDIP”(“HDIP”), with processing operations commencing in October 2011. The Company files consolidated financial statements that include its wholly-owned subsidiary HDIP. All material intercompany accounts and transactions have been eliminated in consolidation.
Notes Receivable. On May 3, 2011, the Company entered into a promissory note agreement with Minot 123, LLC, a North Dakota limited liability company (“Minot”) , under which HDI loaned Minot $125,000 toward the purchase of an office building (“M Building”) located in, Minot, North Dakota. At the time the agreement was entered into, Kenneth W. Brimmer, a director of the Company, was one of the three principals of Minot. On July 13, 2011, the Company exercised its option to receive repayment of the Note and subsequently, in accordance with the repayment terms, $20,000 was paid to the Company. Six monthly payments of $12,500 are due beginning on August 15, 2011, and the final payment is due and payable February 15, 2012, which includes accrued interest and reimbursement of the Company’s legal fees. Minot’s obligation to repay the Note is secured by a second mortgage on M Building, second only to the first mortgage held by the seller of M Building to Minot. As of July 13, 2011, Mr. Brimmer was no longer affiliated with Minot. The balance outstanding at September 30, 2011 is $80,000.
In connection with the Asset Purchase Agreement between HDI and Cohn Prevention Centers, LLC, Cohn paid HDI on the Effective Date a cash payment of $125,000 and issued a non-interest bearing secured promissory note due to HDI in the amount of either $150,000 in 12 months or $200,000 in 18 months, at the discretion of CPC. The promissory note is reflected at an imputed discount rate of 15% based upon the amount due 12 months following the sale and is reflected as a net note receivable of $127,500. The balance of the Note at September 30, 2011 is $129,100 after including $1,600 of accreted accrued interest.
13
Revenue Recognition. Beginning October 2011, HDI Plastics will sellbegan selling finished goods to manufacturers in the form of pelletized resin and clean shredded and ground plastics material. These sales will beare recorded as revenue at the time the product is shipped and invoiced to the customer. The Company also engages in “toll”“toll” processing of customer-owned material for a service fee. These service fees are recorded as plastic processing revenue at the time the product is shipped back to the customer. TheIn addition, the Company also engages in brokerage transactions of plastic material where goods are delivered to a customer without HDIP ever taking physical possession of the product.product at its processing facility, although HDIP assumes ownership of the material. The net incomeprofit from “brokerage”“brokerage” transactions will beis recorded as revenue at the time it is shipped to the customer and invoiced. BrokerageBrokered sales are recorded as revenue net of the cost of the brokered material.
Inventories and Related Reserve for Obsolete Inventory. Inventories are valued at the lower of cost based upon the average cost of raw material purchased during the month including an allocation of manufacturing overhead, or market andmarket. Typically, the Company holds material for less than 45 days. The nature of the Company’s inventory does not result in obsolescence of either processed or unprocessed material. Inventory on hand at the end of the period is reviewed to determine the need for a reserve for obsolete inventories.or write-off and dispose of any material which is not
17
Hypertension Diagnostics, Inc.
Notes to the Consolidated Financial Statements
December 31, 2011
useable. The need for a reserve is based on management’smanagement’s review of inventories on hand compared to estimated future usage and sales. As of September 30,December 31, 2011 and June 30, 2011, there was no reserve for obsolete inventory.
Research and Development. For the three months ended September 30, 2011 and 2010, we did not incur any research and development costs.
Recent Accounting Pronouncements
There were no new accounting standards issued or effective during the three months ended September 30,December 31, 2011 that had or are expected to have a material impact on the Company’sCompany’s results of operations, financial condition, or cash flows.
Results of Operations
As of September 30,December 31, 2011, we had an accumulated deficit of $29,030,054.$29,243,703. Until we are able to generate significant revenue from our activities,plastics processing business, we expect to continue to incur operating losses. As of September 30,December 31, 2011, we had cash and cash equivalents of $683,902.$92,859. Following the end of the quarter, we raised $773,600 in the form of 14.5% subordinated notes, (see Note 14 to the Consolidated Financial Statements.) We anticipate that these funds, less our anticipated operating costs, will allow us to pursue our business development strategy for at least the next twelve months following September 30,December 31, 2011.
Three Months Ended September 30,December 31, 2011 Compared to Three Months Ended September 30,December 31, 2010
Revenue- The Company earned $1,200$1,197,572 and $0 in revenue from continuing operations in the quarters ended September 30,December 31, 2011 and 2010, respectively. The $1,200revenue consisted of $11,880 of royalty income and $1,185,692 of plastic processing income from HDIP. HDIP commenced operations in October 2011. Therefore, there was receivedno continuing operations income for the same period in 2010.
Net revenues from CPC as a resultour new plastics recycling business were comprised of the royalty agreement that was part of the sale of selected assets to CPC. The Company commenced operations of the HDIP business and began recognizing sales revenue in October 2011.following:
| Three Months Ended | |||
| December 31 | |||
| 2011 |
| 2010 | |
|
|
|
| |
Sales – Non-toll | $ 934,360 |
| $ - | |
Sales – Toll Processing | 225,694 |
|
| |
Prepaid discounts | (500) |
|
| |
|
|
|
| |
Sales - Brokered | 250,816 |
|
| |
Less Brokered Purchases and Freight | (224,678) |
|
| |
Net of Brokered Revenue | 26,138 |
|
| |
|
|
|
| |
Net revenue-Plastics | $1,185,692 |
| $ - |
Expenses- Total selling, general and administrative expenses for continuing operations for the three months ended September 30,December 31, 2011 were $202,473$252,188 compared to $67,353$145,141 for the three months ended September 30,December 31, 2010. The following is a summary of the major categories included in selling, general and administrative expenses:
18
Three Months Ended |
| |||||
September 30 |
| |||||
2011 | 2010 | |||||
Wages, expenses, and benefits | $ 67,353 | $ - | ||||
Patent Expense…………………………………………………. | 5,220 | 1,405 | ||||
Rent (building/equipment) and utilities………………………………. | 10,194 | 8,987 | ||||
Insurance-general and directors/officers liability…………………… | 6,019 | 5,006 | ||||
Legal and audit/accounting fees…………………………………….. | 38,531 | 18,213 | ||||
Stock option expense……………………………………………….. | 64,625 | 30,250 | ||||
Other-general and administrative……………………………………. | 10,531 | 1,235 | ||||
Total selling, general and administrative expenses…………. | $ 202,473 | $ 65,096 |
Hypertension Diagnostics, Inc.
Notes to the Consolidated Financial Statements
December 31, 2011
| Three Months Ended | ||
| December 31 | ||
| 2011 |
| 2010 |
Legal | 7,219 |
| 2,394 |
Accounting | 13,121 |
| 9,767 |
Payroll and related taxes | 192,464 |
| 0 |
Travel & meals and entertainment | 7,596 |
| 3,368 |
Merchant processing fees | 176 |
| 4,834 |
SEC filing expenses | - |
| 4,009 |
Stock option expense | 22,500 |
| 31,369 |
Outside Consultants | - |
| 87,154 |
Other G & A Expenses | 9,112 |
| 2,246 |
Total selling, general and administrative expenses | $ 252,188 |
| $ 145,141 |
Wages, related expenses and benefits increased from $0 to $65,096$192,464 for the three months ended September 30,December 31, 2010 and 2011, respectively, a 100% increase. The primary reason for2011due to the increase was discontinued operations
14
for 2010start-up of HDI Plastics including hiring various new administrative and 2011 of the medical device business. The wages, expenses, and benefits that remained in SG&A are for the cycled plastics processing business for the end of the period to set-up the new business.selling personnel.
Legal and audit/accounting fees increased from $18,213$12,161 to $38,531$20,340 for the three months ended September 30,December 31, 2010 and 2011, respectively, a 112%67.3% increase due to the sale of selected assets to CPC, the assignment of lease at the Waters Road address, purchase of CP selected assets from Cycled Plastics, LTD., and timing of invoices for audit for the fiscal year-end dated June 30, 2011.2011 financial statement audit.
Stock option expense was $64,625$22,500 and $30,250$31,369 for the three months ended September 30,December 31, 2011 and 2010, respectively. This expense is based on the grant date fair value related to stock options that vested during the three months ended September 30,December 31, 2011 and September 30,December 31, 2010. The increasedecrease in expense is a result of additional stock options vesting to the Company’sCompany’s former COO as per his severance agreement.
Other general and administrative expenses increased from $1,235 to $10,531 forresigning during the three months ended September 30, 2011, making the options fully vested.
Interest expense increased from $0 to $19,047 for the three months ended December 30, 2010 and 2011, respectively, a 753%respectively. The increase which isin the interest expense related to costs incurred on setting up the new cycled plastics processing business.accounts receivable credit line facility with Charter Capital Holdings, L.P. which began in November 2011.
Our net loss from continuing operations was $236,936$263,647 for the three months ended September 30,December 31, 2011, compared to net income (loss)loss from continuing operations of $63,101$138,468 for the three months ended September 30,December 31, 2010. The primary reason for the large increase in the loss was due to the start-up of the new plastics business during the quarter. For the three months ended September 30,December 31, 2011, basic and diluted net loss per share from continuing operations was $0.00,$(0.01), based on weighted average common shares outstanding of 43,325,843. For the three months ended September 30,December 31, 2010, basic net income per share per continuing operations was $0.00 based on weighted average common shares outstanding of 41,995,526.42,234,715.
Six Months Ended December 31, 2011 Compared to Six Months Ended December 31, 2010
Revenue- The Company earned $1,198,772 and $0 in revenue from continuing operations in the six months ended December 31, 2011 and 2010, respectively. The revenue consisted of $13,080 of royalty income and $1,185,692 of plastic processing income from HDIP. There was no continuing operation’s income for the same period in 2010.
19
Hypertension Diagnostics, Inc.
Notes to the Consolidated Financial Statements
December 31, 2011
Expenses- Total selling, general and administrative expenses for continuing operations for the six months ended December 31, 2011 were $454,661compared to $210,237 for the six months ended December 31, 2010. The following is a summary of the major categories included in selling, general and administrative expenses:
20
Hypertension Diagnostics, Inc.
Notes to the Consolidated Financial Statements
December 31, 2011
| Six Months Ended | |||
| December 31 | |||
| 2011 |
| 2010 | |
Legal | 21,343 |
| 2,608 | |
Accounting | 37,435 |
| 27,767 | |
Payroll and related taxes | 192,464 |
| - | |
Travel & Meals and Entertainment | 7,588 |
| - | |
Outside Consulting | - |
| 87,274 | |
Rent | 23,683 |
| 22,692 | |
Utilities | 3,600 |
| - | |
Merchant Processing Fees | 3,741 |
| 5,035 | |
Stock Option Expense | 87,125 |
| 61,619 | |
Office Supplies | 7,097 |
| - | |
Other G & A Expenses | 70,585 |
| 3,242 | |
Total selling, general and administrative expenses…………. | $ 454,661 |
| $ 210,237 |
Wages, related expenses and benefits increased from $0 to $192,464 for the six months ended December 31, 2010 and 2011, respectively. The primary reason for the increase was due to the start-up of HDI Plastics in October 2011 and the discontinuation of the medical device business in August 2011.
Legal and audit/accounting fees increased from $30,375 to $58,778 for the six months ended December 31, 2010 and 2011, respectively, a 212% increase due to the sale of selected assets to CPC, the assignment of lease at the Waters Road address, purchase of selected assets from Cycled Plastics, Ltd,. and timing of invoices for the June 30, 2011 financial statement audit.
Stock option expense was $87,125 and $61,619 for the six months ended December 31, 2011 and 2010, respectively. This expense is based on the grant date fair value related to stock options that vested during the six months ended December 31, 2011 and December 31, 2010.
Our net loss from continuing operations was $500,583 for the six months ended December 31, 2011, compared to net loss from continuing operations of $201,569 for the six months ended December 31, 2010. The primary reason for the large increase in the loss was due to the start-up of the plastics business during the 2nd quarter. For the six months ended December 31, 2011, basic and diluted net loss per share from continuing operations was $(0.01), based on weighted average common shares outstanding of 43,325,843. For the six months ended December 31, 2010, basic net income per share per continuing operations was $(0.01) based on weighted average common shares outstanding of 42,115,120.
21
Hypertension Diagnostics, Inc.
Notes to the Consolidated Financial Statements
December 31, 2011
Liquidity and Capital Resources
Cash and cash equivalents had a net decrease of $69,919$660,962 and $164,223$129,588 for the threesix months ended September 30,December 31, 2011 and September 30,December 31, 2010, respectively. The significant elements of these changes were as follows:
Three Months Ended September 30 | |||||
2011 | 2010 | ||||
Net cash provided by (used in) operating activities: | |||||
-- Net loss from continuing operations | $ (236,936) | $ (63,101) | |||
-- Non-cash stock option expense | 64,625 | 30,250 | |||
— (Increase)Decrease in inventory: | |||||
– (A) Inventory related to the new recycled plastics processing | |||||
business. | (A) | $ (29,000) | (A) | $ - | |
— Increase(Decrease) in accounts payable: | |||||
– (B) Payable amounts that relate to continuing operations | (B) | $ 55,015 | (B) | $ - | |
— Net cash provided by (used in) discontinued operations: | |||||
– (C) Activity related to discontinued operations | (C) | $ 115,442 | (C) | $ (154,160) | |
Net cash provided by financing activities: | |||||
--- Proceeds from sale of warrants | (D) | - | (D) | 30,000 | |
|
| Six Months Ended December 31 | ||
|
| 2011 |
| 2010 |
Net cash provided by (used in) operating activities: |
|
|
|
|
Net loss from continuing operations |
| $ (500,583) |
| $ (201,569) |
Non-cash stock option expense |
| 87,125 |
| 61,620 |
Increase in inventory related to the new recycled |
|
|
|
|
plastics processing business. |
| $ (114,014) |
| $ - |
Increase in accounts receivable related to the new recycled |
|
|
|
|
plastics processing business. |
| $ (606,457) |
|
|
Increase in accounts payable that relate to continuing |
|
|
| $ - |
operations |
| $ 294,885 |
|
|
Increase in accrued expenses relating to continuing operations |
| $ 119,048 |
| $ - |
Net cash provided by Investing activities: |
|
|
|
|
Purchase of equipment and other fixed assets in setting |
|
|
|
|
up HDIP for operations |
| $ (493,655) |
| $ - |
Payment received on note receivable |
| $ 82,500 |
| $ - |
Net cash provided by financing activities: |
|
|
|
|
Proceeds from sale of warrants |
| - |
| $ 30,000 |
Factoring line agreement with Charter Capital |
| $ 433,057 |
| $ - |
Other: |
|
|
|
|
Activity related to discontinued operations |
| $ 5,853 |
| $ (12,643) |
As of September 30,December 31, 2011, we had cash and cash equivalents of $683,902,$92,859 which, combined with our recently entered into credit facility (see Note 12 to Consolidated Financial Statement), and $773,600 in 14.5% subordinated note proceeds we received on February 10, 2012, we expect that this cash will allow us to operate as a going concern for at least the next twelve months following September 30, 2011. In October,December 31, 2011 $250,000 of the cash on hand was used to purchase equipment for the plastics processing business and the majority of the Company’s remaining cash was invested in HDIP working capital including receivables and inventory.
Net cash provided by financing activities of continuing operation for the three months ended September 30, 2011 and September 30, 2010, was $0 and $30,000 through the exercise of warrants and options held by investors and former employees.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
15
Our exposure to market risks is limited to changes in interest rates. We do not use derivative financial instruments as part of an overall strategy to manage risk.
Item 4. Controls and Procedures.
(a) ( )
Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our Chief Executive Officer, Kenneth W. Brimmer, and Marilee Douda, our Secretary and Manager of Finance and Accounting, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined under Rule 13a-15(e) and 15d-15(e) promulgated under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”“Exchange Act”)) as of the end of the period covered by this report. Based upon that review, our Chief Executive Officer and Manager of Finance and Accounting have concluded that, as of the evaluation date, our disclosure controls and procedures were operating effectively for gathering, analyzingour internal control over financial reporting are currently not effective. The lack of effective internal controls could materially adversely affect our financial condition and disclosing the information that we are requiredability to disclose in the reports we file under the Exchange Act, within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated tocarry out our management, including our Chief Executive Officer and Manager of Finance and Accounting, in a manner that allows for timely decisions regarding required disclosures.business plan.
(b) Changes in Internal Control Over Financial Reporting
22
Hypertension Diagnostics, Inc.
Notes to the Consolidated Financial Statements
December 31, 2011
The Company is currently in the process of assessing, changing, and updating its internal controls over financial reporting due toin connection with the Company’s sale of theits medical device business and startingcommencement of the recycled plastics processing business in October 2011. Until we are able to test the operating effectiveness of remediated internal controls and ensure the effectiveness of our disclosure controls and procedures, any material weaknesses may materially adversely affect our ability to report accurately our financial condition and results of operations in the future in a timely and reliable manner. As we review and evaluate internal control systems to allow management to report on the sufficiency of our internal controls, we cannot assure you that we will not discover additional weaknesses in our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1A.
Risk Factors
The risk factors set forth in the Company’sCompany’s Annual Report on Form 10-K for the fiscal year ending June 30, ,20112011 filed with the SEC on September 16, 2011 contain important factors that could cause our actual business and financial results to differ materially from those contained in forward-looking statements made in this Quarterly Report on Form 10-Q or elsewhere by management from time to time. Investors are encouraged to review and read such risk factors in relation to the statements herein.
Item 5. Other Information
Unregistered Sales of Equity Securities
In December 2011, the Company commenced a private placement offering of 14.5% Five Year Subordinated Notes with Warrants to its existing preferred shareholders, directors of the Company and certain other accredited investors. The notes are issued by HDIP and are guaranteed by the Company. Interest is payable monthly in cash. An initial closing of the offering was completed February 10, 2012 and resulted in the issuance of $773,600 in notes and five-year warrants to purchase an aggregate of 11,051,429 shares of the Company’s common stock with an exercise price of $.07 per share. The notes are duefive years from the closing date at 105% of face value. The Notes may be prepaid by the Company in accordance with the following schedule below at the redemption prices (expressed in percentages of principal amount to be repaid), plus unpaid accrued interest to the date of payment:
Loan Year | Redemption Price |
1 | 125% |
2 | 120% |
3 | 115% |
4 | 110% |
Maturity | 105% |
In connection with the offering, no underwriters were utilized and no commissions were paid. The Company and HDIP relied upon the exemption from registration provided by Section 4(2) of the Securities Act of 1933, as amended, for such issuance.
Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
Effective February 10, 2012, the Company agreed to issue 9,062,907 common shares to Kenneth W. Brimmer its CEO and director. The shares were issued for services rendered in connection with the initial acquisition of the plant and equipment, lease negotiations, and employee recruitment related to development of HDIP. The shares are restricted from sale for a three year period following issuance, except with respect to 500,000 shares that may be transferred to Marilee Douda, the Company’s controller, as a gift. The fair value of the shares totaling $215,697 (calculated by taking the Company’s common stock trading price on February 9, 2011 of $0.028, less a marketability discount of 15%) will be recorded as an expense during the quarter ended March 31, 2012.
23
Item 6.
Exhibits
(a)
The following Exhibits are furnished pursuant to Item 601 of Regulation S-K:
2.1
Asset Purchase Agreement dated August 24, 2011 by and between HDI and Cohn Prevention Centers, LLC(incorporated by reference to Exhibit 10.1 to the Company’sCompany’s Current Report on Form 8-K filed August 31, 2011).
2.2
Tri-Party Sale Agreement dated September 23, 2011 by and among HDI Plastics, Inc., Compass Bank and Cycled Plastics, Ltd.(incorporated by reference to Exhibit 10.2 to the Company’sCompany’s Current Report on Form 8-K filed September 26, 2011).
3.1
Articles of Incorporation(incorporated by reference to Exhibit 3.1 to the Company’sCompany’s Registration Statement on Form SB-2 (File No. 333-53025) filed on May 19, 1998).
3.2
Bylaws (incorporated by reference to Exhibit 3.13.2 to the Company’sCompany’s Registration Statement on Form SB-2 (File No. 333-53025) filed on May 19, 1998).
3.3
Articles of Amendment of Incorporation(incorporated by reference to Exhibit 3.3 to the Company’s Registration Statement on Form SB-2 (File No. 333-53025) filed on May 19, 1998).
10.1
Sublease Agreement dated August 2011 by and between HDI and Cohn Prevention Centers, LLC(incorporated by reference to Exhibit 10.2 to the Company’sCompany’s Current Report on Form 8-K filed August 31, 2011).
16
10.2
Sublicense Agreement dated August 2011 by and between HDI and Cohn Prevention Centers, LLC(incorporated by reference to Exhibit 10.3 to the Company’sCompany’s Current Report on Form 8-K filed August 31, 2011).
10.3
Retention and Separation Agreement by and between HDI and Greg Guettler(incorporated by reference to Exhibit 10.4 to the Company’sCompany’s Current Report on Form 8-K filed August 31, 2011).
10.4
Lease Agreement dated September 20, 2011 by and between HDI Plastics, Inc., a wholly owned subsidiary of HDI, and Flemtex Properties Corp.(incorporated by reference to Exhibit 10.1 to the Company’sCompany’s Current Report on Form 8-K filed September 26, 2011).
31.110.5*
Accounts Receivable Discount Line Facility with Charter Capital Holdings, L.P.
31.1*
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.132.1*
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*
XBRL Instance Document**
17101.CAL*
XBRL Taxonomy Extension Calculation Linkbase Document**
101.DEF*
XBRL Taxonomy Extension Definition Linkbase Document**
101.LAB*
XBRL Taxonomy Extension Label Linkbase Document**
101.PRE*
XBRL Taxonomy Extension Presentation Linkbase Document**
101.SCH*
XBRL Taxonomy Extension Schema Document**
*
Filed herewith
**
In accordance with Rule 406T of Regulation S-T, this information deemed not “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
24
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has caused duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
HYPERTENSION DIAGNOSTICS, INC.
By/s/ Kenneth W. Brimmer
Kenneth W. Brimmer
Chief Executive Officer and Chief Financial Officer
Date: NovemberFebruary 14, 20112012
1825