For
the quarterly period ended March 31,
2006
|
For
the transition period from _____________ to
______________
|
Nevada
|
87-0699977
|
|
(State
or other jurisdiction of
incorporation or organization)
|
(IRS
Employer Identification
No.)
|
Page
|
|
PART I - FINANCIAL INFORMATION |
4
|
Item 1. Unaudited Condensed Consolidated Financial Statements |
4
|
Item 2. Management’s Discussion and Analysis or Plan of Operation |
10
|
Item 3. Controls and Procedures |
14
|
PART II - OTHER INFORMATION |
14
|
Item 1. Legal Proceedings |
14
|
Item 2. Unregistered Sales of Equity Securities |
15
|
Item 5. Other Information |
15
|
SIGNATURES |
16
|
|
•
|
our
ability to raise the funds we need to continue our operations;
|
|
•
|
our
goal to increase our revenues and become profitable;
|
|
•
|
regulation
of our product;
|
|
•
|
our
ability to expand the production of our product;
|
|
•
|
market
acceptance of our product;
|
|
•
|
future
testing of our product;
|
|
•
|
the
anticipated performance and benefits of our product;
|
|
•
|
our
financial condition or results of operations.
|
ASSETS
|
||||
CURRENT
ASSETS:
|
||||
Cash
|
$
|
113,657
|
||
Inventories
|
10,954
|
|||
Prepaid
Expenses
|
22,297
|
|||
Total
Current Assets
|
146,908
|
|||
PROPERTY
AND EQUIPMENT, NET
|
21,116
|
|||
OTHER
ASSETS:
|
||||
Definite-life
intangible assets, net
|
12,760
|
|||
Deposits
|
8,865
|
|||
Total
Other Assets
|
21,625
|
|||
$
|
189,649
|
|||
LIABILITIES
AND STOCKHOLDERS' DEFICIT
|
||||
CURRENT
LIABILITIES:
|
||||
Accounts
payable
|
||||
Note
payable, related party
|
$
|
85,485
|
||
Loans
payable, Other
|
673,251
|
|||
Accrued
salaries
|
20,000
|
|||
Accrued
payroll taxes
|
195,000
|
|||
Accrued
liabilities
|
14,054
|
|||
183,904
|
||||
Total Current Liabilities |
1,171,694
|
|||
COMMITMENTS
AND CONTINGENCIES
|
||||
STOCKHOLDERS'
DEFICIT:
|
||||
Common
stock, $.001 par value,
|
||||
100,000,000
shares authorized
|
||||
32,865,427
issued and outstanding
|
||||
Additional
paid-in capital
|
32,865
|
|||
Accumulated
deficit
|
10,705,673
|
|||
Deferred
consulting fees
|
(11,352,548
|
)
|
||
(368,035
|
)
|
|||
Total Stockholders' Deficit |
(982,045
|
)
|
||
$
|
189,649
|
For
the Three
|
For
the Three
|
||||||
Months
Ended
|
Months
Ended
|
||||||
March
31, 2006
|
March
31, 2005
|
||||||
|
|||||||
NET
SALES
|
$
|
85,403
|
$
|
8,299
|
|||
COST
OF SALES
|
63,483
|
15,232
|
|||||
GROSS
PROFIT (LOSS)
|
21,920
|
(6,933
|
)
|
||||
OPERATING
EXPENSES:
|
|||||||
Selling
|
51,523
|
23,339
|
|||||
General
and administrative
|
908,304
|
256,998
|
|||||
Research
and development
|
12,504
|
26,232
|
|||||
|
|||||||
Total
Operating Expenses
|
972,331
|
306,569
|
|||||
LOSS
FROM OPERATIONS
|
(950,411
|
)
|
(313,502
|
)
|
|||
OTHER
(EXPENSE)
|
|||||||
Amortization
of deferred finance cost
|
-
|
(30,000
|
)
|
||||
Interest
expense, other
|
(716
|
)
|
(915
|
)
|
|||
Interest
expense, related party
|
(16,606
|
)
|
(11,000
|
)
|
|||
Total
Other (Expense)
|
(17,322
|
)
|
(41,915
|
)
|
|||
NET
LOSS
|
$
|
(967,733
|
)
|
$
|
(355,417
|
)
|
|
BASIC
AND DILUTED LOSS
|
|||||||
PER
SHARE
|
$ |
(0.03
|
)
|
$ |
(0.03
|
)
|
|
WEIGHTED
AVERAGE
|
|||||||
BASIC
AND DILUTED
|
|||||||
SHARES
OUTSTANDING
|
31,293,647
|
12,294,278
|
For
the Three
|
For
the Three
|
||||||
Months
Ended
|
Months
Ended
|
||||||
March
31, 2006
|
March
31, 2005
|
||||||
Cash
Flows from Operating Activities:
|
|||||||
Net
Loss
|
$
|
(967,733
|
)
|
$
|
(355,417
|
)
|
|
Adjustments
to reconcile net loss to net cash used
|
|||||||
by operating activities:
|
|||||||
Common stock issued for services rendered
|
157,600
|
-
|
|||||
Amortization of deferred consulting fees
|
264,191
|
-
|
|||||
Depreciation and amortization
|
987
|
178
|
|||||
Amortization of deferred financing costs
|
-
|
30,000
|
|||||
Warrants granted for services rendered
|
128,708
|
-
|
|||||
Changes in assets and liabilities:
|
|||||||
(Increase) decrease in inventories
|
(6,732
|
)
|
1,616
|
||||
(Increase) decrease in prepaid expenses
|
(9,057
|
)
|
5,766
|
||||
(Decrease)
in accounts payable
|
(74,654
|
)
|
(99,244
|
)
|
|||
Increase (decrease) in accrued salaries and
payroll taxes
|
(48,684
|
)
|
40,154
|
||||
Increase (decrease) in accrued liabilities
|
45,662
|
(6,341
|
)
|
||||
Net Cash (Used) by Operating Activities
|
(509,712
|
)
|
(383,288
|
)
|
|||
Cash
Flows from Investing Activities:
|
|||||||
Capital
expenditures
|
(5,161
|
)
|
-
|
||||
Net
Cash (Used) by Investing Activities
|
(5,161
|
)
|
-
|
||||
Cash
Flows from Financing Activities:
|
|||||||
Proceeds
from shareholder advances and loans
|
-
|
516,385
|
|||||
Payment
of shareholder advances and loans
|
(654
|
)
|
-
|
||||
Payments
of other borrowings
|
-
|
(150,000
|
)
|
||||
Proceeds
from exercise of warrants
|
25,276
|
-
|
|||||
Net Cash Provided by Financing Activities
|
24,622
|
366,385
|
|||||
Increase
(Decrease) in Cash
|
(490,251
|
)
|
(16,903
|
)
|
|||
Cash
at Beginning of Period
|
603,908
|
17,118
|
|||||
Cash
at End of Period
|
$
|
113,657
|
$
|
215
|
|||
Supplemental
Disclosures of Cash Flow Information:
|
|||||||
Cash
paid during the period for:
|
|||||||
Interest
|
$
|
22,570
|
$
|
11,915
|
|||
Income
Taxes
|
$
|
-
|
$
|
-
|
Finished goods | $ | $10,954 |
Furniture and fixtures | $ | $8,682 | ||
Equipment | 2,329 | |||
Leasehold improvements | 11,176 | |||
22,187 | ||||
Less accumulated depreciation | ||||
and amortization | 1,071 | |||
$ | $21,116 |
Patent applications in process | $ | $14,500 | ||
Less: Accumulated amortization | 1,740 | |||
$ | $12,760 |
Shares
|
Weighted
Average
Exercise
Price
|
||||||
Outstanding
at December 31, 2004
|
|||||||
Granted
(Services)
|
50,000
|
3.75
|
|||||
Granted
(Private Placement)
|
445,000
|
3.00
|
|||||
Outstanding
at March 31, 2005
|
495,000
|
$
|
3.04
|
Outstanding
at December 31, 2005
|
21,761,325
|
$
|
.49
|
||||
Exercised
first quarter 2006
|
(6,502,575
|
)
|
(0.15
|
)
|
|||
Issued
first quarter 2006
|
150,000
|
0.25
|
|||||
Outstanding
at March 31, 2006
|
15,408,750
|
$
|
0.63
|
2006 | $ | 210,000 | ||
2007 | $ | 240,000 | ||
2008 | $ | 240,000 | ||
2009 | $ | 240,000 | ||
Thereafter | $ | 840,000 (1 | ) |
Exhibit
Number
|
Description
|
|
3.1
|
Articles
of Incorporation of Health Enhancement Products, Inc., as
amended
|
(1)
|
3.2
|
By-laws
of the Company
|
(2)
|
10.02
|
Amended
and Restated Sublease between Howard R. Baer and the Company dated
April
12, 2006
|
(3)
|
31.1
|
Certification
of the Principal Executive Officer pursuant to Rule 13a-14(a) or
Rule
15d-14(a) of the Securities Exchange Act of 1934, as
amended
|
|
31.2
|
Certification
of the Principal Financial Officer pursuant to Rule 13a-14(a) or
Rule
15d-14(a) of the Securities Exchange Act of 1934, as
amended
|
|
32.1
|
Certification
of the Principal Executive Officer pursuant to U.S.C. Section 1350
as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
|
32.2
|
Certification
of the Principal Financial Officer pursuant to U.S.C. Section 1350
as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
(1) |
Filed
as Exhibit 3.1 to our Form 10-QSB, filed with the Commission on August
30,
2004 and incorporated by this
reference.
|
(2) |
Filed
as Exhibit 3.2 to our Form 10SB, filed with the Commission on April
20,
2000 and incorporated by this
reference.
|
(3) |
Filed
as the same Exhibit number to our Form 10-KSB, filed with the Commission
on April 17, 2006, and incorporated by this
reference.
|
Date: May 12, 2006 | By: /s/Howard R. Baer | |
Howard R. Baer | ||
Chief Executive Officer | ||
Date May 12, 2006 | ||
By: /s/Janet L. Crance | ||
Janet L. Crance | ||
Chief Accounting Officer |
Exhibit
Number
|
Description
|
|
3.1
|
Articles
of Incorporation of Health Enhancement Products, Inc., as
amended
|
(1)
|
3.2
|
By-laws
of the Company
|
(2)
|
10.02
|
Amended
and Restated Sublease between Howard R. Baer and the Company dated
April
12, 2006
|
(3)
|
31.1
|
Certification
of the Principal Executive Officer pursuant to Rule 13a-14(a) or
Rule
15d-14(a) of the Securities Exchange Act of 1934, as
amended
|
|
31.2
|
Certification
of the Principal Financial Officer pursuant to Rule 13a-14(a) or
Rule
15d-14(a) of the Securities Exchange Act of 1934, as
amended
|
|
32.1
|
Certification
of the Principal Executive Officer pursuant to U.S.C. Section 1350
as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
|
32.2
|
Certification
of the Principal Financial Officer pursuant to U.S.C. Section 1350
as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
(1) |
Filed
as Exhibit 3.1 to our Form 10-QSB, filed with the Commission on
August 30,
2004 and incorporated by this
reference.
|
(2) |
Filed
as Exhibit 3.2 to our Form 10SB, filed with the Commission on April
20,
2000 and incorporated by this
reference.
|
(3) |
Filed
as the same Exhibit number to our Form 10-KSB, filed with the Commission
on April 17, 2006, and incorporated by this
reference.
|