Annual Report (10-k)

Date : 09/18/2019 @ 8:23PM
Source : Edgar (US Regulatory)
Stock : Hypertension Diagnostics, Inc. (PN) (HDII)
Quote : 0.0129  0.0009 (7.50%) @ 9:30PM

Annual Report (10-k)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_________________

 

FORM 10-K

_________________

 

 

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended December 31, 2018.

     

or

 

[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _________________

 

Commission File Number: 000-24635

_____________________

 

Hypertension Diagnostics,Inc.

(Exact name of registrant as specified in its charter)

_____________________

 

Minnesota   41-1618036

(State or other jurisdiction of

incorporation or organization)

  (I.R.S. Employer Identification No.)
     
550 Highway 7 East, Unit 316   L4B 3Z4
(Address of principal executive offices)   (Zip Code)

404-449-6151

Registrant’s telephone number, including area code

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class Name of each exchange on which registered
N/A N/A
   

Securities registered pursuant to Section 12(g) of the Act:

(Title of each class)

_________________

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ☐    No  ☐

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ☒    No  ☐

 

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.    Yes  ☐   No  ☒

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes  ☐    No  ☒

 

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.

 

Large accelerated filer ☐   Accelerated  filer ☐
Non-accelerated filer ☐ Smaller reporting company ☒
Emerging growth company ☐  

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

 

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

 

There were 136,813,921 shares of the registrant’s common stock, $.001 par value per share, outstanding as of July 12, 2019.

 

 

     

 

 

Financial Statements

 

Hypertension Diagnostics, Inc.

 

Years Ended December 31, 2018 and 2017

 

 

   
Contents
Unaudited Financial Statements:  
Consolidated Balance Sheets 3
Consolidated Statements of Operations 4
Consolidated Statements of Shareholders’ Equity (Deficit) 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7

 

 

 

 

 

 

  2  

 

 

Hypertension Diagnostics, Inc.
Balance Sheets

 

    DECEMBER 31,  
    2018     2017  
Assets            
Current Assets:                
Cash and cash equivalents   $ 86,392     $ 285,434  
Accounts receivable, net     187,595       180,588  
Inventory, net     189,434       186,494  
Prepaids and other current assets     41,950       39,953  
Note receivable-related party     196,081       186,744  
Accrued royalties receivable from CPC     4,252       3,865  
Total Current Assets     705,704       883,078  
                 
Property and Equipment                
Leasehold improvements     93,235       93,235  
Furniture and equipment     19,907       19,907  
Computer & electronic equipment     672,383       672,383  
Rounding            
Total Property and Equipment     785,525       785,525  
Less accumulated depreciation and amortization     (275,998 )     (239,998 )
Property and Equipment, net     509,527       545,527  
Other Assets     62,598       60,486  
Total Assets   $ 1,277,829     $ 1,489,091  
                 
Liabilities and Shareholders' Equity (Deficit)                
Current Liabilities                
Accounts payable   $ 445,644     $ 422,141  
Accrued vacation, payroll and payroll taxes     37,701       35,905  
Rounding     (1 )      
Other accrued expenses     860,792       1,229,703  
Total Current Liabilities     1,344,136       1,687,749  
                 
Long Term Liabilities:                
Deferred revenue, less current position              
Notes payable – subordinated debt, net     4,685,469       4,417,731  
Sale and leaseback obligation, net                
Total Long-Term Liabilities     4,685,469       4,417,731  
Total Liabilities     6,029,605       6,105,480  
                 
Shareholders’ Equity (Deficit)                
Series A Convertible Preferred Stock, $.01 par value: Authorized Shares – 5,000,000 Issued and outstanding shares – 611,390     6,144       6,144  
Common Stock, $.01 par value: Authorized shares – 150,000,000 Issued and outstanding shares – 52,388,750 issued     523,887       523,887  
Additional paid-in capital     28,462,631       28,462,631  
Accumulated deficit     (33,744,438 )     (33,619,050 )
Total Shareholders’ Equity (Deficit)     (4,751,776 )     (4,626,388 )
                 
Total Liabilities and Shareholders’ Equity   $ 1,277,829     $ 1,479,092  

 

The accompanying notes are an integral part of these financial statements

  

 

  3  

 

 

Hypertension Diagnostics, Inc.
Statements of Operations

 

 

    DECEMBER 31,  
    2018     2017  
Revenue:            
Sales   $ 3,659,168     $ 3,552,591  
Rental / brokered     100,200       95,429  
Service/contract income/royalties     32,738       29,762  
Total Revenue     3,792,106       3,677,782  
                 
Cost of Sales:                
Cost of sales     2,837,632       2,925,394  
Inventory obsolescence reserve            
Net Cost of Sales     2,837,632       2,925,394  
Gross Profit     954,474       752,388  
                 
Expenses                
Selling, general & administrative     917,768       966,072  
Interest Expenses     161,678       158,507  
Depreciation     36,000       31,304  
Total Expenses     1,115,446       1,155,883  
Operating Loss     (160,972 )     (403,495 )
                 
Other Income:                
Interest Income     27,327       26,792  
Other Income     8,255       8,093  
Rounding     2       (1 )
Total Other Income     35,584       34,884  
Net income (loss) before income taxes     (125,388 )     (368,611 )
Income Tax            
                 
Net Loss   $ (125,388 )   $ (368,611 )

 

The accompanying notes are an integral part of these financial statements

 

 

 

  4  

 

 

Hypertension Diagnostics, Inc.

Statements of Shareholders’ Equity (Deficit)

 

 

                            Additional              
    Preferred     Common Stock     Paid-in     Accumulated        
    Shares     Amount     Shares     Amount     Capital     Deficit     Total  
Balance at DECEMBER 31, 2016     611,390     $ 6,114       52,388,750     $ 523,887     $ 28,462,631     $ (33,250,439 )   $ (4,257,777 )
Conversion of Preferred Stock Into Common Stock                                          
Warrants Exercised                                          
Stock based compensation                                          
Net Loss                                   (368,611 )     (386,611 )
                                                         
Balance at DECEMBER 31, 2017     611,390     $ 6,114       52,388,750     $ 523,887     $ 28,462,631       (33,619,050 )   $ (4,626,388 )
Conversion of Preferred Stock Into Common Stock                                          
Warrants Exercised                                          
Stock based compensation                                            
Net Loss                                   (125,388 )     (125,388 )
Balance at DECEMBER 31, 2018     611,390     $ 6,114       52,388,750     $ 523,887     $ 28,462,631     $ (33,744,438 )   $ (4,751,776 )

 

The accompanying notes are an integral part of these financial statements

 

 

 

  5  

 

 

Hypertension Diagnostics, Inc.
Statements of Cash Flows

 

    DECEMBER 31,  
    2018     2017  
Operating Activities:                
Net Loss   $ (125,388 )   $ (368,611 )
Adjustment to reconcile net loss to net                
Cash used in operating activities:                
Deferred stock-based compensation (income) expenses                
Depreciation     36,000       31,304  
Rounding     (1 )      
Allowance for Receivables     361       328  
Inventory obsolescence reserve     1,580       1,519  
      (87,448 )     (335,460 )
Change in operating assets and liabilities:                
Accounts receivable     (17,092 )     (16,329 )
Inventory     (4,520 )     (4,431 )
Prepaid and other current assets     (1,998 )     (1,903 )
Accounts Payable     23,504       21,949  
Accrued vacation, payroll and payroll taxes     1,795       1,710  
Notes, Loans and Lines of Credit     65,391       43,594  
Rounding     1       1  
Other accrued expenses     (368,911 )     204,950  
Net cash used in operating activities     (389,278 )     (85,919 )
                 
Investing Activities                
Issuance of note receivable-related party                
Property, Plant, Equipment and other Assets     (2,111 )     (2,033 )
Net cash used in investing activities     (2,111 )     (2,033 )
                 
Financing Activities                
Proceeds from exercise of warrants                
Proceeds from subordinate debt     81,066       80,063  
Proceeds from Other Debt and Loans     108,281       103,125  
Proceeds from exercise of stock options            
Net cash provided by financing activities     189,347       183,188  
                 
Net increase/(decrease) in cash and cash equivalents     (202,042 )     95,236  
Cash and cash equivalents at beginning of period     285,434       190,198  
Cash and cash equivalents at end of period   $ 83,392     $ 285,434  

 

 

 

The accompanying notes are an integral part of these financial statements

 

 

  6  

 

 

Hypertension Diagnostics, Inc.

Notes to the Consolidated Financial Statements

Fiscal Year Ended December 31, 2018

 

 

 

Note 1. Organization and Significant Accounting Policies

 

Description of Business

 

We were incorporated under the laws of the State of Minnesota on July 19, 1988. We were previously engaged in the medical device business. As of December 31, 2018, HDI had accumulated net tax operating loss carryforwards of approximately $33,744,438. In mid-2011, HDI’s board of directors determined to pursue a change in strategic direction. In August 2011, we sold our medical device inventory, subleased our office and manufacturing facility, and entered into a limited license agreement with a company owned by Jay Cohn, a founder and a director of the Company. In September 2011, we formed HDI Plastics Inc. (“HDIP”), a wholly owned-subsidiary, entered into a new lease agreement, purchased selected manufacturing assets from Compass Bank and Cycled Plastics and began engaging in the business of plastics reprocessing in Austin, TX. Demand for reprocessed plastic is growing, and HDIP has the systems and infrastructure for collecting and processing post-consumer and post-industrial plastic waste into pellets to be resold to domestic manufacturing companies.

 

Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.  Actual results could differ from those estimates.

 

Principles of Consolidation

 

The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary (HDI Plastics, Inc.), after elimination of all intercompany accounts, transactions, and profits.

 

Cash Equivalents

 

The Company considers all highly liquid investments with an original maturity of three months or less at the time of purchase to be cash equivalents.  The Company maintains cash in financial institutions. The balances, at times, may exceed federally insured limits.

 

Accounts Receivable

 

The Company reviews customers’ credit history before extending unsecured credit. Accounts receivable are reviewed to determine the need for an allowance for amounts that may become uncollectible in the future. The necessity of an allowance is based on management’s review of accounts receivable balances and historic write-offs. Invoice terms can vary from at date of shipment to net 30 days. The Company does not accrue interest on past due accounts receivable. The Company writes off receivables when they are deemed uncollectible after all collection attempts have failed. The Company has determined that an allowance for doubtful accounts is not necessary as of December 31, 2018 and 2017.

 

Inventory

 

Inventories are valued at the lower of cost or market with cost based upon the average cost of raw material purchased which includes an allocation of manufacturing overhead if further processing has been done. 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 or write-off and dispose of any material which is not useable. The need for a reserve is based on management’s review of inventories on hand compared to estimated future usage and sales. As of December 31, 2018, there was no reserve for obsolete inventory.

 

 

 

  7  

 

 

Property and Equipment

 

Property and equipment are stated at cost.  Improvements are capitalized, while repair and maintenance costs are charged to operations when incurred. Depreciation is computed principally using the straight-line method. Estimated useful lives for leasehold improvements are the shorter of the lease term or estimated useful life and 3 to 5 years for furniture and processing equipment, and computer equipment.

 

Fair Value of Financial Instruments

 

The Company’s financial instruments are recorded on its balance sheet. The carrying amounts for cash, accounts receivable, note receivable, accounts payable, and accrued expenses approximate fair value due to the immediate or short-term maturity of these financial instruments. The lease obligation and subordinated debt approximates fair value since this debt was recently obtained.

 

Impairment of Long-Lived Assets

 

The Company will record impairment losses on long-lived assets used in operations when indicators of impairment are present and the undiscounted future cash flows estimated to be generated by those assets are less than the assets’ carrying amount. To date, no such losses have been recognized.

 

Revenue Recognition

 

Plastics - Beginning October 2011, HDI Plastics began selling finished goods to manufacturers in the form of pelletized resin and clean shredded and ground plastics material. These sales are recorded as revenue at the time the product is shipped and invoiced to the customer. The Company also engages in “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. In addition, the Company engages in brokerage transactions of plastic material where goods are delivered to a customer without HDIP taking physical possession of the product at its processing facility, although HDIP assumes ownership of the material. The net profit from “brokerage” transactions is recorded as revenue at the time it is shipped to the customer and invoiced. Brokered sales are recorded as revenue net of the cost of the brokered material.

 

Royalties – After the sale of the medical device business in August 2011, the Company is receiving a minor amount of royalty income in connection with the license agreement. This income is being recorded as revenue when a sale is made by CPC to a 3rd party purchaser.

 

Shipping and Handling Costs

 

The Company records all amounts billed to customers in a sales transaction related to shipping and handling as sales. The Company records costs related to shipping and handling in cost of sales.

 

Income Taxes

 

The Company accounts for income taxes by following an asset and liability approach to financial accounting and reporting for income taxes. Accordingly, deferred tax assets and liabilities arise from the difference between the tax basis of an asset or liability and its reported amount in the financial statements. Deferred tax amounts are determined using the tax rates expected to be in effect when the taxes will actually be paid or refunds received, as provided under currently enacted tax law. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense or benefit is the tax payable or refundable, respectively, for the period plus or minus the change in deferred tax assets and liabilities during the period. In accordance with the guidance, the Company has adopted a policy under which, if required to be recognized in the future, interest related to the underpayment of income taxes will be classified as a component of interest expense and any related penalties will be classified in operating expenses in the consolidated statement of operations.  

 

 

 

  8  

 

 

The Company recognizes a financial statement benefit of a tax position only after determining that the relevant tax authority would more-likely-than-not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the consolidated financial statements is the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement with the relevant tax authority.

 

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 includes the dilutive effect of common shares potentially issuable upon the exercise of stock options, warrants, or the conversion of preferred stock.

 

Stock-Based Compensation

 

The Company regularly grants options to individuals under various plans. The Company measures and recognizes compensation expense for all stock-based payment awards made to employees and directors on a straight-line basis over the respective vesting period of the awards. The compensation expense for the Company's stock-based payments is based on estimated fair values determined at the time of the grant of the portion of stock-based payment awards that are ultimately expected to vest.

 

The Company estimates the fair value of stock-based payment awards on the date of grant using the Black-Scholes option pricing model. This option pricing model involves a number of assumptions, including the expected term of the stock options, the volatility of the public market price for the Company's common stock and interest rates.

 

Comprehensive Income (Loss)

 

Comprehensive income (loss) includes net income (loss) and items defined as other comprehensive income (loss). Items defined as other comprehensive income (loss) include items such as foreign currency translation adjustments and unrealized gains and losses on certain marketable securities. For the years ended December 31, 2018 and 2017, there were no adjustments to net income (loss) to arrive at comprehensive income (loss).

 

Recent Accounting Pronouncements

 

There were no new accounting standards issued or effective during the year ended December 31, 2018 that had, or are expected to have a material impact on the Company’s results of operations, financial condition or cash flows.

 

Note 2.    Going Concern

 

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, assuming the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. For the year ended December 31, 2018, we incurred losses from continuing operations of $125,388. At December 31, 2018, we had an accumulated deficit of $33,744,438 and negative working capital of $638,432. Our ability to continue as a going concern is dependent on our ability to raise the required additional capital or debt financing to meet short-term needs to relocate our plastics processing facility to a new site and then restart the facility which would include hiring production works.

 

Note 3.     Inventory

 

Raw materials consist of the plastics that arrive at the processing facility that are sorted and staged in the warehouse as bales or in bins. The value of raw material is based on weight and volume and the average cost of purchasing. Finished goods are processed into pellet or regrind form and stored in gaylords. The inventory value of finished goods is based on weight and the cost to convert using a standard labor and overhead rate.

  

4. Subsequent Events

 

None.

 

 

 

  9  

 

 

ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 

We have not had any disagreements with our current auditors.

 

ITEM 9A.  Controls and Procedures

 

(a) Disclosure Controls and Procedures

 

Under the supervision and with the participation of our management, including our Chief Executive Officer and principal financial officer Kenneth W. Brimmer, and members of our accounting staff, 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”)) as of the end of the period covered by this report. (b) Management’s Annual Report on Internal Controls Over Financial Reporting.

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Securities Exchange Act of 1934, as amended). Our internal control system is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles.

 

Under the supervision and with the participation of management, including our Chief Executive Officer and principal financial officer, our management assessed the design and operating effectiveness of internal control over financial reporting as of December 31, 2018 based on criteria established in “Internal Control-Integrated Framework” issued by the Committee of the Sponsoring Organizations of the Treadway Commission (“COSO”).

   

This annual filing does not include an attestation report of the Company's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's registered public accounting firm pursuant to an amendment to the Sarbanes-Oxley Act which exempts Smaller Issuers from the requirements of Section 404(b).

 

(c) Changes in Internal Control Over Financial Reporting

 

There have been no significant changes in our internal control over financial reporting that occurred during the fourth quarter ended December 31, 2018, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

ITEM 9B.  Other Information

 

None.

 

 

 

 

 

 

 

  10  

 

  

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  Hypertension Diagnostics Inc.
   
 Date:  September 18, 2019 By: /s/ Liangjian Peng
  Liangjian Peng

Chief Executive Officer

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

Signature   Title   Date
/s/ Liangjian Peng   Chief Executive Officer   September 18, 2019

 

 

 

 

  11  

 

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