Discontinued Operations and Disposal Groups

3 Months Ended

Sep. 30, 2011

Discontinued Operations and Disposal Groups

Disposal Groups, Including Discontinued Operations, Disclosure [Text Block]

Note 3.   Discontinued Operations

Discontinued Operations- On August 26, 2011, (the “Effective Date”), the Company entered into and closed a definitive Asset Purchase Agreement (the “Agreement”) providing for the sale of selected assets of  our medical device business to Cohn Prevention Center, LLC (“CPC”), a Minnesota company, 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’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.

                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 be allocated to cover severance and other costs related to the transaction. Severance costs include an agreement by the Company to pay to Greg Guettler, its former Chief Operating Officer, six months’ salary and health benefits totaling approximately $100,000. As part of the severance agreement, the Company 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 on each of the first 50 units of purchased inventory sold within 30 days of receipt of cash from such sale.  We received one royalty payment of $1,200 for the three months ended September 30, 2011.

                The Company and CPC also entered into a Sublicense Agreement on the Effective Date (the “Sublicense Agreement”), pursuant to which the Company granted to CPC a limited license to use the Company’s intellectual property, technology, and technical know-how related to the Company’s arterial elasticity measurement technology exclusively in CPC clinics and research related exclusively to CPC clinics.  All other applications of the 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’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 operations related to its medical device business and intends to seek 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 of the sale transaction, the Company recorded the following loss which is reported as “Loss on sale of discontinued operations” in the Consolidated Statements of Operations as of September 30, 2011:

Loss on Sale of Discontinued Operations
Cash	$125,000
Note receivable (present value)	127,500
Total sales price	252,500
Net assets and liabilities
Inventories, net	370,984
Property and equipment, net	16,059
Accrued royalties	(10,841)
Net assets sold	376,202
Loss on sale of discontinued operation, before income tax	(123,702)
Income tax benefit	-
Loss on sale of discontinued operations, net of tax	($123,702)

                The Company has not included the results of operations of our former  medical device business in the results from continuing operations.  The Company expects to receive continuing royalties from its licensed technology and is continuing its efforts to license and market its intellectual property and revenue and expenses related to the ongoing licensing activities are reflected as continuing operations. The income (loss) from discontinued operations for the quarter ended September 30, 2011, and 2010 consists of the following:

Income from Discontinued Operations
	September 30, 2011	September 30, 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

The major classes of assets and liabilities of discontinued operations as of September 30, 2011 and June 30, 2011 were as follows:

Assets and Liabilities of Discontinued Operations
	September 30, 2011	June 30, 2011
Accounts receivable	$             -	$      4,365
Inventory, net	-	364,952
Prepaid expenses	-	4,873
Current assets of discontinued operations	$            -	$374,190
Accrued payroll, vacation, and payroll taxes	$   61,832	$51,253
Severance payable to former COO	112,500	-
Deferred revenue	-	88,819
Accrued commissions	-	46,500
Accrued royalties	-	17,770
Other accrued expenses	6,824	36,633
Current liabilities of discontinued operations	$181,156	$240,975