Discontinued Operations and Disposal Groups

12 Months Ended

Jun. 30, 2012

Discontinued Operations and Disposal Groups:

Disposal Groups, Including Discontinued Operations, Disclosure

Note 3.   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, a Minnesota limited liability company (“CPC”), controlled by Jay Cohn, at the time, a director and stockholder of HDI. 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 (non-interest bearing) 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 5). We received a letter on July 27, 2012 from CPC indicating they will be paying $200,000 due February 26, 2013. Nearly all of the proceeds received on the Effective Date were allocated to cover severance and other costs related to the transactions contemplated by the Agreement. Severance costs included an agreement by the Company to pay to Greg Guettler, its former Chief Operating Officer, nine months’ salary and health benefits. The Company paid Mr. Guettler $119,463 to fulfill the agreement on March 1, 2012. Pursuant to the Agreement, CPC agreed to pay to the Company a cash payment of $1,200 upon the sale of each of the first 50 units of inventory sold by CPC within 30 days of receipt of cash from such sale. The Company has agreed to pay Mr. Guettler 10% of the royalty proceeds received by the Company less applicable transaction expenses related to such sales.  The Company has earned royalty income of $20,400 less 10% due to Greg Guettler for year ended June 30, 2012. The Company has paid $1,440 and accrued an additional $600 in connection with the amount due Greg Guettler for the year ended June 30, 2012. We have also accrued $15,000 payable to Mr. Guettler for 10% of the proceeds from the promissory note issued to CPC.

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 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’s lease, which expires October 31, 2014, on the same 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 currently 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.

In connection with 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 for the year ended June 30, 2012:

Cash received upon sale	$  125,000
Note receivable (present value)	127,500
Total sales price	252,500
Net assets and liabilities sold:
Inventories, net	370,984
Property and equipment, net	16,059
Accrued royalties over accrued as of June 30, 2011	(10,841)
Net assets sold	376,202
Loss on sale of discontinued operation, before income tax benefit	(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 the former medical device business in the results from continuing operations.  We expect to receive continuing royalties from our licensed technology and from continuing efforts to license and market our intellectual property. Revenue and expenses related to the ongoing licensing activities are reflected as continuing operations. The income (loss) from discontinued operations for the years ended June 30, 2012, and 2011 consists of the following:

Income from Discontinued Operations
	Year ended June 30, 2012	Year ended June 30, 2011
Revenue, net	$                248,923	$             1,389,181
Cost of Goods Sold	10,557	275,848
Gross Profit	238,366	1,113,333
Operating Expenses	265,580	1,045,695
Deferred Compensation expense (benefit)(1)	(360,000)	(693,750)
Income (loss) from discontinued operations	332,786	761,388
Loss on sale of selected assets to CPC	(123,702)	-
Net income (loss) from discontinued operations	$                209,084	$                761,388

(1)      Deferred compensation valuation change relating to the former CEO (Mark Schwartz), who resigned after the medical device assets were sold.

The major classes of assets and liabilities of discontinued operations as of June 30, 2012 and 2011 are as follows:

Assets and Liabilities of Discontinued Operations
	June 30, 2012	June 30, 2011
Accounts receivable	$                            -	$                   4,305
Inventory, net	-	364,952
Prepaid expenses	-	4,873
Current assets of discontinued operations	$                            -	$              374,130
Accrued payroll, vacation, and payroll taxes	$                18,143	$                 51,253
Deferred Compensation (former CEO)	262,500	622,500
Deferred revenue	-	88,819
Accrued commissions	-	46,500
Accrued royalties	-	17,770
Other accrued expenses	-	36,633
Total liabilities of discontinued operations	$              280,643	$              863,475