U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(Mark One)
S
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2007
£
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _____________ to ______________
Commission file number: 000-30415
Health Enhancement Products, Inc.
(Exact name of small business issuer as specified in its charter)
Nevada |
| 87-0699977 |
(State or other jurisdiction of incorporation or organization) |
| (IRS Employer Identification No.) |
7740 East Evans Road, Scottsdale, Arizona 85260
(Address of principal executive offices)
480-385-3800
(Issuers telephone number)
(Former name, former address and former fiscal year, if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 S No £
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING
THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under plan confirmed by a court. Yes £ No £
APPLICABLE ONLY TO CORPORATE ISSUERS
There were 43,646,307 shares of common stock, $0.001 par value, outstanding at October 31, 2007.
Transitional Small Business Disclosure Format (Check one):
Yes £ No S
FORM 10-QSB
HEALTH ENHANCEMENT PRODUCTS, INC.
INDEX
PART I FINANCIAL INFORMATION
3
Item 1. Consolidated Financial Statements
3
Item 2. Managements Discussion and Analysis or Plan of Operation
15
Item 3. Controls and Procedures
20
PART II OTHER INFORMATION
20
Item 1. Unregistered Sales
20
Item 6. Exhibits
22
SIGNATURES
23
(Inapplicable items have been omitted)
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements contained in this report are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements involve known and unknown risks, uncertainties and other factors which may cause our or our industrys actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Forward-looking statements include, but are not limited to statements regarding:
| | our ability to raise the funds we need to continue our operations; |
| | our ability 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. |
In some cases, you can identify forward-looking statements by terms such as may, will, should, could, would, expects, plans, anticipates, believes, estimates, projects, predicts, potential and similar expressions intended to identify forward-looking statements. These statements are only predictions and involve known and unknown risks, uncertainties, and other factors that may cause our actual results, levels of activity, performance, or achievements to be materially different from any future results, levels of activity, performance, or achievements expressed or implied by such forward-looking statements. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Also, these forward-looking statements represent our estimates and assumptions only as of the date of this report. Except as otherwise required by law, we expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement contained in this report to reflect any change in our expectations or any change in events, conditions or circumstances on which any of our forward-looking statements are based. We qualify all of our forward-looking statements by these cautionary statements.
2
PART I FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
HEALTH ENHANCEMENT PRODUCTS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
September 30. 2007
ASSETS | ||
CURRENT ASSETS: |
|
|
Cash | $ | 162,375 |
Accounts receivable |
| 11,739 |
Inventories |
| 36,157 |
Prepaid Expenses |
| 35,880 |
Total Current Assets |
| 246,151 |
|
|
|
PROPERTY AND EQUIPMENT, NET |
| 115,024 |
|
|
|
OTHER ASSETS: |
|
|
Definite-life intangible Assets, net |
| 11,310 |
Deposits |
| 122,015 |
Total Other Assets |
| 133,325 |
|
|
|
| $ | 494,500 |
|
|
|
LIABILITIES AND STOCKHOLDERS' DEFICIT | ||
|
|
|
CURRENT LIABILITIES: |
|
|
Accounts Payable | $ | 468,157 |
Note Payable, Other |
| 20,000 |
Current portion, long term debt |
| 5,992 |
Accrued Payroll and Payroll Taxes |
| 29,825 |
Accrued Liabilities |
| 100,824 |
Total Current Liabilities |
| 624,798 |
|
|
|
LONG TERM LIABILITIES: |
|
|
Notes payable, less current portion |
| 18,080 |
Convertible Debenture Payable, net of unamortized discount of $283,552 |
| 491,448 |
Deferred rent expense |
| 63,912 |
Total Long term Liabilities |
| 573,440 |
|
|
|
COMMITMENTS AND CONTINGENCIES |
|
|
|
|
|
TOTAL LIABILITIES |
| 1,198,238 |
|
|
|
STOCKHOLDERS' DEFICIT: |
|
|
Common stock, $.001 par value, |
|
|
100,000,000 shares authorized |
|
|
43,631,311 issued and outstanding |
| 43,631 |
Additional Paid-In Capital |
| 15,008,907 |
Deferred Consulting Fees |
| (67,298) |
Accumulated deficit |
| (15,688,979) |
Total Stockholders' Deficit |
| (703,738) |
|
|
|
| $ | 494,500 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
HEALTH ENHANCEMENT PRODUCTS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
|
| For the three |
| For the three |
| For the nine |
| For the nine |
|
| Months ended |
| Months ended |
| Months ended |
| Months Ended |
|
| September 30, |
| September 30, |
| September 30, |
| September 30, |
|
| 2006 |
| 2007 |
| 2006 |
| 2007 |
|
|
|
|
|
|
|
|
|
NET SALES | $ | 52,607 | $ | 27,939 | $ | 231,347 | $ | 134,675 |
|
|
|
|
|
|
|
|
|
COST OF SALES |
| 64,039 |
| 11,204 |
| 203,921 |
| 96,006 |
|
|
|
|
|
|
|
|
|
GROSS PROFIT (LOSS) |
| (11,432) |
| 16,735 |
| 27,426 |
| 38,669 |
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES: |
|
|
|
|
|
|
|
|
Selling |
| 51,571 |
| 29,772 |
| 180,062 |
| 100,018 |
General and Administrative |
| 771,104 |
| 604,544 |
| 2,690,997 |
| 1,464,931 |
Research and Development |
| 107,338 |
| 74,533 |
| 237,899 |
| 271,798 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Expenses |
| 930,013 |
| 708,849 |
| 3,108,958 |
| 1,836,747 |
|
|
|
|
|
|
|
|
|
LOSS FROM OPERATIONS |
| (941,445) |
| (692,114) |
| (3,081,532) |
| (1,798,078) |
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE): |
|
|
|
|
|
|
|
|
Other income - rent |
| 23,292 |
| 19,047 |
| 44,055 |
| 66,692 |
Cancellation of contract |
| 297,000 |
|
|
| 297,000 |
| 18,000 |
Amortization of Bond Discount |
| - |
| (16,680) |
| - |
| (16,680) |
Interest income |
| 5,805 |
| 1,817 |
| 5,805 |
| 3,067 |
Interest Expense |
| (1,901) |
| (2,098) |
| (4,642) |
| (5,184) |
Interest Expense - Related Party |
| (17,306) |
| (2,907) |
| (51,087) |
| (30,759) |
|
|
|
|
|
|
|
|
|
Total Other Income (Expense) |
| 306,890 |
| (821) |
| 291,131 |
| 35,136 |
|
|
|
|
|
|
|
|
|
NET LOSS | $ | (634,555) | $ | (692,935) | $ | (2,790,401) |
| (1,762,942) |
|
|
|
|
|
|
|
|
|
BASIC AND DILUTED LOSS |
|
|
|
|
|
|
|
|
PER SHARE | $ | (0.02) | $ | (0.02) | $ | (0.08) | $ | (0.04) |
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE |
|
|
|
|
|
|
|
|
BASIC AND DILUTED |
|
|
|
|
|
|
|
|
SHARES OUTSTANDING |
| 36,161,229 |
| 43,262,496 |
| 33,528,792 |
| 41,938,608 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
HEALTH ENHANCEMENT PRODUCTS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
|
| For the Nine |
| For the Nine |
|
| Months Ended |
| Months Ended |
|
| September 30, 2006 |
| September 30, 2007 |
Cash Flows for Operating Activities: |
|
|
|
|
Net Loss | $ | (2,790,401) | $ | (1,762,942) |
Adjustments to reconcile net loss to net cash used |
|
|
|
|
by operating activities: |
|
|
|
|
Non-cash - stock issued for services rendered |
| 640,845 |
| 33,850 |
Stock issued to employees for services |
|
|
| 229,680 |
Warrants granted for services rendered |
| 211,898 |
| 280,464 |
Non-cash - amortization of deferred consulting fees |
| 586,167 |
|
|
Non-cash - reversal of contract |
| (297,000) |
| (18,000) |
Services donated by significant stockholder |
|
|
| 37,913 |
Amortization of bond discount |
|
|
| 16,680 |
Amortization of intangibles |
| 725 |
| 725 |
Depreciation expense |
| 5,378 |
| 20,515 |
Increase in deferred rent |
| 24,724 |
| 30,503 |
Changes in assets and liabilities: |
|
|
|
|
Decrease in accounts receivable |
|
|
| 991 |
(Increase) in inventories |
| (21,607) |
| (5,398) |
(Increase) in prepaid expenses |
| (13,756) |
| (33,058) |
(Increase) in deposits |
| (104,184) |
| - |
(Decrease) in long term deposits |
|
|
| (6,089) |
Increase (decrease) in accounts payable |
| 83,025 |
| (32,390) |
Increase (decrease) in payroll and payroll taxes |
| (147,829) |
| 14,826 |
Increase (decrease) in accrued liabilities |
| 117,736 |
| (3,803) |
Net Cash (Used) by Operating Activities |
| (1,704,279) |
| (1,195,533) |
|
|
|
|
|
Cash Flows from Investing Activities: |
|
|
|
|
Capital expenditures |
| (35,097) |
| (3,702) |
Net Cash (Used) by Investing Activities |
| (35,097) |
| (3,702) |
|
|
|
|
|
Cash Flow from Financing Activities: |
|
|
|
|
Proceeds from shareholder advances |
| 55,000 |
| 180,500 |
Payment of shareholder advances |
| (57,655) |
| (626,678) |
Payments of other borrowings |
|
|
| (4,536) |
Payment of fees in connection with sale of common stock |
|
|
|
|
and warrants |
| (142,150) |
| (89,400) |
Proceeds from issuance of convertible debentures |
|
|
| 775,000 |
Proceeds from sale of common stock and warrants |
| 1,659,976 |
| 1,117,000 |
Net Cash Provided by Financing Activities |
| 1,515,171 |
| 1,351,886 |
|
|
|
|
|
Increase (Decrease) in Cash |
| (224,205) |
| 152,651 |
|
|
|
|
|
Cash at Beginning of Period |
| 603,908 |
| 9,724 |
|
|
|
|
|
Cash at End of Period | $ | 379,703 | $ | 162,375 |
Supplemental Disclosures of Cash Flow Information: |
|
|
|
|
Cash paid during the period for: |
|
|
|
|
Interest | $ | 55,728 | $ | 30,939 |
Income Taxes | $ | - | $ | - |
The accompanying notes are an integral part of these unaudited condensed financial statements.
5
HEALTH ENHANCEMENT PRODUCTS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS [Continued]
Supplemental Disclosure of Non-Cash Investing and Financing Activities:
Nine months ended September 30, 2007
The Company issued convertible debentures for $775,000 principal and recorded a discount on the debentures of $300,232.
The Company accrued cash finders fees of $4,500, and recorded the issuance of warrants to purchase 311,175 shares of common stock as finders fees. These warrants were valued at $187,959 using the Black-Scholes pricing model.
The Company recorded the issuance of a promissory note receivable for $96,000 upon the exercise of warrants to purchase 240,000 shares of stock at $.40 per share. This note was paid in full April 2, 2007.
The Company agreed to issue 60,000 common stock purchase warrants with an exercise price of $.50 per share as a finders fee. Such warrants were valued at $19,304 using the Black-Scholes pricing model.
Nine months ended September 30, 2006
The Company issued 10,000 shares of common stock valued at $36,500 to a consultant. This amount has been included in deferred consulting fees.
The Company issued an aggregate of 6,250,000 shares of its common stock, .001 par value (common stock), in connection with the exercise by the Companys CEO of an outstanding warrant to purchase 6,250,000 shares of common stock. The warrant had an exercise price of $.15 per share. In connection with the exercise of the warrant, the holder, pursuant to the terms of the warrant, surrendered to the Company 288,462 shares of common stock valued at $937,500 issuable upon exercise of the warrant, in payment of the aggregate exercise price.
The Company issued 130,000 warrants valued at $179,190 to four employees as bonus compensation, of which $96,000 was applied against accrued payroll.
The Company reversed accrued finders fees of $58,500 previously recorded in error.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
6
HEALTH ENHANCEMENT PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements include the accounts of Health Enhancement Products, Inc. and its wholly-owned Subsidiaries (collectively, the Company). All significant inter-company accounts and transactions have been eliminated in consolidation. In the opinion of the Companys management, the financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the information set forth therein. These consolidated financial statements are condensed, and therefore do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. The condensed consolidated financial statements should be read in conjunction with the Companys December 31, 2006 consolidated audited financial statements and supplementary data included in the Annual Report on Form 10-KSB as at that date.
The results of operations for the nine months ended September 30, 2007 are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2007, or any other period.
In February, 2007, we established HEPI Pharmaceuticals, Inc. as a wholly owned subsidiary of HEPI (HEPI Pharma). The purpose of the pharmaceutical subsidiary is to develop potential pharmaceutical applications for HEPIs primary product, ProAlgaZyme (PAZ). In connection with the formation of HEPI Pharma, we entered into a Pharmaceutical Development Agreement with our new subsidiary. Under the Development Agreement, we granted the subsidiary the right to develop the potential pharmaceutical applications of PAZ and its derivatives. In exchange for these rights, we became the sole stockholder of the subsidiary and are entitled to certain payments based on the attainment of specified development milestones and sales revenues.
The Company incurred net losses of $1,762,942 and $2,790,401 for the nine months ended September 30, 2007 and 2006, respectively. In addition, the Company had a working capital deficiency of $378,647 and a stockholders deficit of $703,738 at September 30, 2007. At October 31, 2007, the Company had had only $35,000 in cash (approximately 30 days of cash based on payment of critical operating expenses, such as payroll, utilities, etc.). These factors continue to raise substantial doubt about the Company's ability to continue as a going concern. The Company is endeavoring to increase the likelihood that it will be able to continue as a going concern by seeking to increase its sales revenue, and by raising additional capital. From February through March, 2007, the Company raised approximately $1 million in net proceeds from the private sale of its common stock and warrants. In July and August of 2007 the Company raised $900,000 through the issuance of convertible debentures and exercise of warrants. There can be no assurance that the Company will be able to increase its sales or raise additional capital.
There can be no assurance that sufficient funds will be generated during the next year or thereafter from operations or that funds will be available from external sources such as debt or equity financings or other potential sources. The lack of additional capital could force the Company to curtail or cease operations and would, therefore, have a material adverse effect on its business. Furthermore, there can be no assurance that any such required funds, if available, will be available on attractive terms or that they will not have a significant dilutive effect on the Company's existing stockholders.
The accompanying condensed consolidated financial statements do not include any adjustments related to the recoverability or classification of asset-carrying amounts or the amounts and classifications of liabilities that may result should the Company be unable to continue as a going concern.
7
NOTE 2 -
STOCK-BASED COMPENSATION
Effective January 1, 2006, the Company adopted SFAS 123(R), which requires all share-based payment transactions with employees, including grants of employee stock options, to be recognized as compensation expense over the requisite service period based on their relative fair values. Prior to the adoption of SFAS 123(R), stock-based compensation expense related to employee stock options was not recognized in the statement of operations if the exercise price was at least equal to the market value of the common stock on the grant date, in accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees. Prior to January 1, 2006, the Company followed the disclosure-only provisions under SFAS 123.
The Company has elected to use the Modified Prospective Application (MPA) method for implementing SFAS 123(R). Under the MPA method, prior periods are not restated and new awards are valued and accounted for prospectively upon adoption. As of January 1, 2007, all outstanding employee warrants were vested and therefore there would have been no impact on compensation cost for the Company during the 2007 period utilizing the fair value method set forth in SFAS 123(R).
NOTE 3 INVENTORIES
Inventories at September 30, 2007 consist of the following:
Raw materials | $ | 16,236 |
Work in process |
| 10,662 |
Finished goods |
| 9,259 |
|
|
|
| $ | 36,157 |
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment at September 30, 2007 consists of the following:
Furniture and fixtures | $ 49,466 |
Equipment | 54,721 |
Leasehold Improvements | 40,175 |
| 144,362 |
Less accumulated depreciation |
|
and amortization | 29,338 |
| $115,024 |
Depreciation and amortization was $20,515 for the nine months ended September 30, 2007, and $5,378 for the nine months ended September 30, 2006.
8
NOTE 5 - DEFINITE-LIFE INTANGIBLE ASSETS
Definite-life intangible assets at September 30, 2007 consist of the following:
Patent applications pending | $14,500 |
Less: Accumulated amortization | 3,192 |
| $11,308 |
The Companys definite-life intangible assets are amortized, upon being placed in service, over the 15 year estimated useful lives of the assets, with no residual value. Amortization expense for the nine months ended September 30, 2007 and 2006 was $725 and $725, respectively. The Company estimates that amortization expense for existing assets for each of the next five years will be approximately $1,000 per year.
NOTE 6 - NOTE PAYABLE - RELATED PARTY
Note payable to the Companys former CEO bears interests at 10% per annum. Commencing 30 days after written demand by the former CEO, the principal amount and any accrued interest will be payable in 12 equal monthly installments. The Company has granted the note holder a security interest in all of the Companys assets related to the Companys ProAlgaZyme Product.
During the nine months ended September 30, 2007, the Company paid the note holder $446,177 in principal and $29,272 in accrued interest. Interest expense was $29,272 and $51,087 for the nine months ended September 30, 2007 and 2006, respectively. This note was paid in full in July of 2007, and the security interest has been released.
NOTE 7 ADVANCES FROM RELATED PARTY
Advances from related party bear interest at 10% per annum, payable on demand. During the nine months ended September 30, 2007, the Company received advances of $180,500 and has repaid this advance in full. Interest in the amount of $1,487 was accrued at June 30, 2007 and paid in July.
9
NOTE 8 LONG TERM DEBT:
Long term debt at September 30, 2007 consists of the following:
Installment notes, bearing interest at 8.8% and 9.5% |
|
|
per annum and due November 2010 and March 2011. |
|
|
The loans are secured by certain of the Companys |
|
|
Equipment | $ | 24,072 |
|
|
|
Less current portion |
| 5,992 |
|
|
|
| $ | 18,080 |
|
|
|
Maturities of the long-term debt are as follows: |
|
|
|
|
|
September 30: |
|
|
2008 | $ | 5,992 |
2009 |
| 5,965 |
2010 |
| 7,195 |
2011 |
| 4,714 |
2012 |
| 206 |
|
|
|
| $ | 24,072 |
NOTE 9 CONVERTIBLE DEBT
In July and August 2007, the Company sold for aggregate consideration of $775,000 1% convertible notes in the aggregate principal amount of $775,000 (Notes) and warrants to purchase 1,550,000 shares of common stock, at an exercise price of $.50 per share for a term of three years (Warrants). The Company issued warrants to purchase 60,000 shares of common stock at an exercise price of $.50 per share for a term of three years as finders fees. These warrants were valued at $19,304 using the Black-Scholes pricing model with the following assumptions: expected volatility 106.55%; expected dividend 0; expected term 3 years; and risk free rate 3.1%.
The Convertible Notes accrue interest at the rate of 1% per annum, are non-amortizing, have a term of 3 years, subject to the Companys right to extend the term for an additional three years, cannot be prepaid, and are convertible, at any time prior to the maturity date, as the same may be extended, at the discretion of the holder, into shares of common stock, at a rate equal to the lesser of (i) $.50 per share and (ii) the Market Price (as defined) (but not less than $.25 per share). Accrued interest will be paid on the maturity date, as the same may be extended, in shares of Common Stock, valued at the Market Price (as defined), but not less than $.25 per share, and, unless the Convertible Note is converted prior to its maturity date, as the same may be extended, at the Companys option, the principal amount of the Note may, on the maturity date, as extended, be repaid in cash or converted into common stock at a rate equal to the lesser of (i) $.50 per share and (ii) the Market Price (but not less than $.25 per share).
10
The Company recorded as a debt discount in the amount of $300,232, to reflect the fair value of the warrants as a reduction to the carrying amount of the convertible debt and an addition to paid in capital pursuant to Emerging Issues Task Force (EITF) 00-29: Application of EITF 98-5, Accounting for Convertible Securities with Beneficial Conversion Features on Contingently Adjustable Conversion Rates, to certain convertible instruments . The Company is amortizing the debt discount over the term of the debt. Amortization of debt discount for the quarter ended September 30, 2007 was $16,680.
NOTE 10 - STOCKHOLDERS DEFICIT
On February 15, 2007, the Companys board of directors declared a distribution in the form of shares of the common stock of its new wholly-owned subsidiary, HEPI Pharmaceuticals, to all shareholders of record as of March 15, 2007. Each shareholder of record on the record date will receive 1 share of the new pharmaceutical company for every 10 shares of common stock of HEPI they own on the record date. The shares of the pharmaceutical subsidiary will be distributed promptly following compliance with applicable laws, including the Company delivering an information statement to its stockholders pursuant to the requirements of the Securities Exchange Act of 1934 ("Exchange Act") and the effectiveness of the pharmaceutical subsidiary's registration under the Exchange Act. The number of shares to be distributed will at the time of distribution represent 10% of the total outstanding shares of the new company. It is anticipated that the remaining 90% of the equity of the subsidiary will be owned by the Company.
During the quarter ended March 31, 2007, the Company issued to a consultant, for services rendered, 15,000 shares of common stock, valued at $13,550. In addition, the Company issued 261,000 shares of common stock valued at $229,680 to employees for services. From February through March of 2007, the Company privately sold 260,000 shares of common stock and 260,000 warrants (3 year term and $.50 exercise price) for $130,000. Also during February and March, the Company sold 190,000 shares of common stock in a private placement, received $95,000 in proceeds, and incurred cash finders fees of $9,500. In addition, the Company issued 2,540,000 shares of common stock, and received proceeds of $767,000 upon exercise of outstanding warrants, some of which were re-priced. The Company incurred cash finders fees of $79,900 in connection with the exercise of these warrants. In addition, the Company issued 311,375 warrants for finders fees, valued at $187,959 using the Black Scholes option-pricing model with the following assumptions: expected volatility 162.07% and 186.59%; expected dividends 0%; expected term 2 years; and risk free rate 3.1%.
During the quarter ended June 30, 2007 the Company issued to a consultant for services rendered, 5,000 shares of common stock, valued at $3,750. The Company issued 50,000 warrants for Board of Directors fees, valued at $20,000 using the Black Scholes option-pricing model with the following assumptions: expected volatility 150.3%; expected dividends 0%; expected term 2 years; and risk free rate 5.0%
During the quarter ended September 30, 2007, the Company issued 24,000 shares of its common stock, valued at $10,800, to a consultant. In consideration of introducing investors to the Company, the Company extended the term of a previously issued warrant due to expire August 18, 2007. The new term expires August 18, 2010. This term extension was valued at $98,199 using the Black Scholes option-pricing model with the following assumptions: expected volatility 151.92%; expected dividends 0; expected term 3 years and risk free rate 5.0%. As compensation for services rendered, including with respect to the convertible note financing discussed below, the Company repriced outstanding warrants to purchase 300,000 shares of common stock from an exercise price of $2.00 per share to an exercise price of $.50 per share. The Company has recorded compensation expense of $19,262 using the Black Scholes option-pricing model with the following assumptions: expected volatility 249.35%; expected dividend 0; expected term 3 years; and risk free rate 5.0%. The Company issued 325,000 warrants to its former CEO valued at $42,056 using the Black Scholes option-pricing model with the following assumptions: expected volatility 142%; expected dividends 0; expected term 3 years and risk free rate 5.0%.
11
In July, 2007, the Company issued 1,250,000 shares of common stock upon the exercise of warrants for gross proceeds of $125,000. The Company issued 500,000 warrants to a consultant valued at $168,245 using the Black Scholes pricing model with the following assumptions: expected volatility 86.17%; expected dividend 0%; expected term 3 years; and risk free rate 5%. These warrants vest as follows: 200,000 shares on July 9, 2007; 100,000 shares on September 9, 2007 and 200,000 shares on October 9, 2007. The Company has recorded consulting expense for $100,947 and recorded deferred consulting fees of $67,298.
In September of 2007, the Company recorded the value of consulting services contributed by a significant shareholder, valued at $37,913 to contributed capital.
In conjunction with the issuance of convertible debt, the Company issued warrants to purchase 60,000 shares of common stock at an exercise price of $.50 per share for a term of three years as finders fees. These warrants were valued at $19,304 using the Black-Scholes pricing model with the following assumptions: expected volatility 106.55%; expected dividend 0; expected term 3 years; and risk free rate 3.1%.
A summary of the status of the Companys warrants is presented below.
12
Warrants outstanding and exercisable by price range as of September 30, 2007 were as follows:
| Outstanding Warrants | Exercisable Warrants | |||
|
|
|
|
|
|
|
| Average |
|
|
|
|
| Weighted |
|
|
|
|
| Remaining |
|
| Weighted |
|
| Contractual |
|
| Average |
|
| Life | Exercise |
| Exercise |
Range of | Number | in Years | Price | Number | Price |
|
|
|
|
|
|
0.10 | 5,258,750 | 0.89 | 0.10 | 5,250,750 | 0.10 |
0.25 | 150,000 | 1.50 | 0.25 | 150,000 | 0.25 |
0.50 | 3,701,359 | 1.47 | 0.50 | 3,701,359 | 0.50 |
0.60 | 250,000 | 1.17 | 0.60 | 250,000 | 0.60 |
1.00 | 1,690,000 | 1.18 | 1.00 | 1,690,000 | 1.00 |
2.00 | 1,170,000 | 1.19 | 2.00 | 1,170,000 | 2.00 |
3.00 | 275,000 | 0.75 | 3.00 | 275,000 | 3.00 |
|
|
|
|
|
|
| 12,495,109 | 1.14 |
| 12,495,109 | 0.65 |
NOTE 11 - COMMITMENTS AND CONTINGENCIES
Lease Commitments - Related Party - On December 9, 2004, we entered into a lease dated November 1, 2004 with Evans Road, LLC (a company owned by our former CEO, Howard R. Baer), under which we leased approximately 5,000 sq. ft. for a new corporate headquarters and production facility located in Scottsdale, Arizona. The lease had a term of 15 years, subject to the right of either party to terminate the lease after 7.5 years, and provided for base monthly rental in the amount of $8,700 plus monthly taxes. In February, 2005, Evans Road, LLC sold the building which was leased to us, and our former CEO, Howard Baer, leased such building back from the buyer under a master lease. Our former CEO continued to lease the building, as master lessor, to us, under the terms and conditions described above, until March 31, 2006. As of April 1, 2006, we entered into an Amended and Restated Sublease with Mr. Baer. During the nine months ended September 30, 2007, we paid Mr. Baer approximately $138,000 in rent, and $40,000 was accrued and unpaid at September 30, 2007.
Under the terms of the Amended and Restated Sublease, we are leasing an aggregate of approximately 15,000 square feet. We are subleasing approximately 5,000 square feet to a third party under a month to month tenancy at a rate of approximately $6,900 per month, plus rental taxes and electricity. We can terminate this sublease upon thirty (30) days written notice to our subtenant. We believe that we may need additional space in the foreseeable future, and that this space would be suitable for an expansion of our production and office facilities.
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The Amended and Restated Sublease expires on February 9, 2020, provided that we have the unilateral right to terminate the Lease approximately 6 years from now (March 31, 2013). The annual base rent for the 15,000 square foot facility is approximately $237,000 and is payable in equal monthly installments of approximately $20,000. The annual base rent is subject to increase annually in an amount equal to the greater of 2.5% of the prior years base rent and the percentage increase in the Consumer Price Index. We agreed to pay an additional security deposit of approximately $110,000, following which we will have paid an aggregate security deposit equal to six months base rent. This additional security deposit is payable in eighteen equal monthly installments of approximately $6,000 (which commenced in August, 2006). As of September 30, 2007, of the $110,000 in additional security, $85,644 has been paid and $24,356 is owing, which is in accrued liabilities. The Company currently owes approximately $20,000 in rent for the month of September and is in arrears. This arrearage is included in accounts payable. The Amended and Restated Sublease is a net lease, which means that we are responsible for the real estate taxes, maintenance and repairs related to the premises we are leasing from the former CEO.
Lease Commitments Other
The Company has entered into a two year lease commencing September 1, 2006, for a warehousing and bottling facility. The lease calls for minimum annual rents of approximately $25,000 and $26,000 for each of the twelve month periods ending August 31, 2007 and August 31, 2008, respectively. Rent expense under this lease for the nine months ended September 30, 2007 was $19,317.
The future minimum lease payments related to the Amended and Restated Sublease and the new 2 year lease, are as follows:
Year Ending December 31, |
|
|
2007 | $ | 59,232 |
2008 |
| 276,000 |
2009 |
| 282,000 |
2010 |
| 289,000 |
Thereafter |
| 2,711,000 |
NOTE 12 LOSS PER SHARE
Loss per common share is based upon the weighted average number of common shares outstanding during the period. Diluted loss per common share is the same as basic loss per share, as the effect of potentially dilutive securities (convertible debt 1,550,000 shares and warrants 12,495,109 at September 30, 2007 and 15,408,750 at September 30, 2006) are anti-dilutive.
NOTE 13 RELATED PARTY TRANSACTIONS
The Company recognized consulting fees of $37,913 for services contributed by a significant shareholder. In connection with the contribution of these services, the Company recorded a capital contribution of $37,913.
14
Item 2. Managements Discussion and Analysis or Plan of Operation
Critical Accounting Policies
The accompanying discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America ("US GAAP"). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses, and related disclosure of contingent assets and liabilities. These estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We base our estimates and judgments on historical experience and all available information. However, future events are subject to change, and the best estimates and judgments routinely require adjustment. US GAAP requires us to make estimates and judgments in several areas, including those related to recording various accruals, income taxes, the useful lives of long-lived assets, such as property and equipment and intangible assets, and potential losses from contingencies and litigation. We believe the policies discussed below are the most critical to our financial statements because they are affected significantly by management's judgments, assumptions and estimates.
Income taxes
We account for income taxes using the asset and liability method described in SFAS No. 109, "Accounting For Income Taxes," the objective of which is to establish deferred tax asset and liabilities for the temporary differences between the financial reporting and the tax basis of assets and liabilities at enacted tax rates expected to be in effect when such amounts are realized or settled. A valuation allowance related to deferred tax assets is recorded when it is more likely than that some portion or all of the deferred tax assets will not be realized.
We have provided a 100% valuation allowance for deferred tax assets, because the ultimate realization of those assets is uncertain. Utilization of net operating loss carry-forwards is subject to a substantial annual limitation due to the change in ownership provisions of the Internal Revenue Code. The annual limitation may result in the expiration of net operating loss carry-forwards before utilization.
Share Based Payment
In December 2004, the Financial Accounting Standards Board ("FASB") issued Statement No. 123R ("SFAS 123R") "Share Based Payment", a revision of Statement No. 123, "Accounting for Stock Based Compensation." This standard requires the Company to measure the cost of employee services received in exchange for equity awards based on grant date fair value of the awards. The Company adopted SFAS 123R, effective January 1, 2006. The standard provides for a prospective application. Under this method, the Company will begin recognizing compensation cost for equity based compensation for all new or modified grants after the date of adoption.
Results of Operations for the three months and nine months ended September 30, 2007 and September 30, 2006.
Net Sales. Net sales for the three and nine months ended September 30, 2007 were $27,939 and $134,675 as compared to $52,607 and $231,347 for the three and nine months ended September 30, 2006. These sales reflect revenues from our ProAlgaZyme product.
15
We believe that the decrease in our sales was due to the absence during 2007 of national publicity about our product. We now believe that national publicity about our product had a temporary effect on our sales for the first half of 2006. We believe that regulatory limitations on our ability to promote our product, has contributed to a low level of net sales. Although our ProAlgaZyme product is available for sale and we are exploring various potential marketing opportunities, as well as advertising the product on a limited basis, we expect only limited sales revenue for the foreseeable future. We believe that our ability to generate sales of the ProAlgaZyme product will depend upon, among other things, further characterization of the product, identification of its method of action and obtaining further evidence of its efficacy, as well as additional advertising. The testing necessary to further characterizing the product, identifying its method of action and establishing its effectiveness has largely been suspended as we do not currently have the funds needed to continue such testing..
Unless and until we receive further positive test results regarding ProAlgaZymes method of action and efficacy, we may not have meaningful sales revenue. Even if we receive positive test results, we cannot be sure that they will lead to an increase in our sales revenue, as our ability to promote our product is limited by applicable law.
Cost of Sales. Cost of Sales was $11,204 and $96,006 for the three and nine months ended September 30, 2007, as compared to $64,039 and $203,921 for the comparable periods in 2006. Cost of Sales represents primarily costs related to raw materials, labor and operation of the laboratory and controlled production environment necessary for the growing of the algae cultures that constitute the source of the biological activity of the ProAlgaZyme product, and for conducting the necessary harvesting and production operations in preparing the product for sale. The decrease in cost of sales for 2007 is a direct result of our decreased sales volume.
Gross Profit. Gross Profit was $16,735 and $38,669 for the three and nine months ended September 30, 2007, as compared to $(11,432) and $27,426 for the comparable periods in 2006. The increased gross profit for 2007 is due to streamlining the bottling process and the automation of the labeling process.
Research and Development Expenses. For the three and nine months ended September 30, 2007, we incurred $74,533 and $271,798 on research and development expenses, as compared to $107,338 and $237,899 for the comparable period in 2006. These expenses are comprised of costs associated with internal and external research. The overall increase in our research and development for the nine months ended September 30, 2007 is due primarily to the initiation and completion of external clinical trials concerning our ProAlgaZyme product.
16
We have completed several studies directed toward determining the products method of action and efficacy. In May, 2006, we commenced two clinical trials in Cameroon, which were substantially completed in September, 2006. The total cost of these trials was $144,000, of which $50,000 is still owing. One trial explored the possible effects of ProAlgaZyme on HIV. In particular, the trial explored ProAlgaZymes potential to reduce viral loads in patients with HIV. The second trial explored ProAlgaZymes potential effects on C-Reactive Protein (CRP) levels and the inflammation process. A third trial was initiated in the first quarter of 2007 in Minnesota to explore ProAlgaZymes potential effects on cholesterol levels, CRP levels and the inflammation process. This trial was suspended due to concerns raised by inconsistent results. The trial was terminated after review of preliminary data on ten early finishing subjects, due to concerns arising out of the lack of positive response with respect to either cholesterol or C-reactive protein levels, both key prospective markers of the study. The lack of positive response with respect to these key prospective markers, in light of positive results in the Cameroon trials and extensive anecdotal reports, raised concerns about the status of the ProAlgaZyme test agent, including potential problems associated with freezing and thawing. We initiated animal model tests to facilitate its inquiry into whether there was a problem with the ProAlgaZyme batch used in the Minnesota study. Some of the product used in the MN trial froze during shipment to the laboratory, which raised concerns as to whether the product may have been degraded as a result. Independent research indicates that, the original clinical product, which had not been frozen, showed the presence of active protein. However, in the same tests, all the returned clinical samples that had been frozen showed signs of loss of active protein. Further testing is needed, for which we do not currently have funding. Subject to the availability of sufficient funding, which we do not currently have, we plan to resume our research and development activities as soon as we are able. We may not be able to raise the funding that we need to undertake further research and development activities. In the event that we are not able to secure sufficient funding to meet our research needs, we will be unable to pursue necessary research activities, in which case our ability to market ProAlgaZyme with objective clinical support for its efficacy will be impeded, thereby hindering our ability to generate sales revenue and impacting negatively our operating results.
Selling and Marketing Expenses. Selling and marketing expenses were $29,772 and $100,018 for the three and nine months ended September 30, 2007, as compared to $51,571 and $180,062 for the comparable period in 2006. The decrease in 2007 was due to a decrease in the use of outside consultants who provided outside marketing support for our product. We intend to direct our in house selling efforts to existing ProAlgaZyme users during 2007. The Company recently engaged a sales and marketing consultant at a cost of $6,000 per month to advise the Company about the promotion of its ProAlgaZyme product. We are currently engaged in limited advertising and marketing related activities. We intend to continue to direct selling efforts to existing ProAlgaZyme users. In addition, we are exploring the establishment of additional distribution channels for ProAlgaZyme. The limit on our ability thus far to advertise our product (due to the need for additional testing and regulatory constraints) has had and, until we are able to advertise our product based upon the results of clinical trials further demonstrating its efficacy, will continue to have, a material adverse effect on our ability to increase our sales revenue and improve our operating results. Subject to the availability of funding, which we do not currently have, we intend to continue to pursue clinical study of our product and, subject to the results of such testing, increase our advertising.
General and Administrative Expenses. General and administrative expense was $604,544 and $1,464,931 for the three and nine months ended September 30, 2007, as compared to $771,104 and $2,690,997 for the comparable period in 2006. The decrease in general and administrative expenses for the nine months ended September 30, 2007 is due primarily to a $940,000 decrease in stock based compensation issued to consultants, and a $150,000 decrease in legal fees.
17
Financing Costs. We incurred $2,907 and $30,759 in interest expense on our indebtedness to our former CEO for the three and nine months ended September 30, 2007, compared to $17,306 and $51,087 for the comparable period in 2006. This note was paid off in July, 2007.
Liquidity and Capital Resources
The condensed consolidated financial statements contained in this Report have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. While we raised an aggregate of approximately $900,000 in July and August, 2007, we currently have an immediate and urgent need for additional capital. As noted below, at October 31, 2007, we had only $35,000 in cash (approximately 30 days of cash based on payment of critical operating expenses, such as payroll, utilities, etc.) For the reasons discussed herein, there is a significant risk that we will be unable to continue as a going concern, in which case, you would suffer a total loss of your investment in our company.
We have had limited revenue ($134,675 for the nine months ended September 30, 2007) and have incurred significant net losses since inception, including a net loss of $1,762,942 during the nine months ended September 30, 2007 and an aggregate net loss of $15,688,979 since inception. We expect only limited revenue for the foreseeable future. Further, since inception, we have incurred negative cash flow from operations. During the nine months ended September 30, 2007, we incurred negative cash flows from operations of $1,195,533. As of October 31, 2007, we had a cash balance of approximately $35,000. As of September 30, 2007, we had a working capital deficiency of $378,646 and a stockholders deficit of $703,738. We are largely dependent upon external sources for funding and, although we recently raised $900,000, we have in the past had difficulty raising capital from external sources. If we are unable to raise additional funds within the next thirty days, it is highly unlikely we will be able to continue as a going concern. These factors raise substantial doubt about our ability to continue as a going concern.
During the nine months ended September 30, 2007 and 2006, our operating activities used $1,195,533 and $1,704,279 in cash, respectively. The decrease in cash used in our operating activities during the nine months ended September 30, 2007 was due largely to a decrease in executive compensation of approximately $155,000, a decrease in stock based compensation of approximately $140,000, and a decrease in legal fees of approximately $200,000. Our financing activities generated $1,351,886 and $1,515,171 during the nine months ended September 30, 2007 and 2006, respectively. The approximate $150,000 decrease in cash generated by our financing activities is primarily attributable to an increase in proceeds from the sale of securities, offset by net repayments to our former CEO. We received a short term advance of $155,000 from our former CEO, Mr. Howard R. Baer, in February of 2007. This was repaid in April of 2007. During July and August of 2007, we raised an aggregate of $900,000, $775,000 of which was raised through the issuance of convertible debentures (in the principal amount of $775,000) and warrants to purchase 1,550,000 shares of common stock, and $125,000 of which was received in connection with the exercise of an outstanding warrant to purchase 1,250,000 shares of common stock at an exercise price of $.10 per share.
18
On February 15, 2005, we entered into a Promissory Note (Note), a Security Agreement and a Patent Security Agreement with our former CEO, Mr. Baer (such documents are collectively hereinafter referred to as the Loan Documents), under which we were indebted to Mr. Baer in the aggregate amount of $847,359. On March 25, 2005, we, Mr. Baer, and our wholly owned Subsidiary, Health Enhancement Corporation (HEC), executed and delivered a Joinder Agreement and First Amendment, which had the effect of making HEC a party to the Loan Documents, including as a co-maker of the note. As a result of entering into the Joinder Agreement and First Amendment, in addition to being a co-maker under the Note, HEC granted Mr. Baer a security interest in all of its assets related to the ProAlgaZume product. As of June 30, 2007, the Note was in the principal amount of $414,391. The Note bore interest at the rate of 10% per annum. As required by the terms of the convertible note offering described above, this note was paid in full on July 26, 2007, and the related liens on our assets have since been released.
We estimate that we will require approximately $1,000,000 in cash over the next twelve months in order to fund our operations. Based on this cash requirement, we have an immediate and urgent need for additional funding. For the foreseeable future, we do not expect that sales revenues will be sufficient to fund our cash requirements. Historically, we have had difficulty raising funds from external sources; however, we recently were able to raise a limited amount of capital from outside sources. As noted above, if we are unable to raise additional funds within the next thirty days, it is highly unlikely we will be able to continue as a going concern, in which case you will suffer a total loss of your investment in our company.
We have only limited product liability insurance. If a product claim were successfully made against us, there could be a material adverse effect on our financial condition.
Significant elements of income or loss not arising from our continuing operations
We do not expect to experience any significant elements of income or loss other than those arising from our continuing operation.
Seasonality
Our product is directed to the improvement of the health of our consumers, and we do not expect that operating results will be affected materially by seasonal factors. In addition, ProAlgaZyme is cultivated in a climate-controlled laboratory environment, not subject to seasonal growing effects or influences.
Staffing
We have conducted all of our activities since inception with a minimum level of qualified staff. We currently do not expect a significant increase in staff.
Off-Balance Sheet arrangements
We have no off-Balance Sheet arrangements that would create contingent or other forms of liability.
19
Item 3. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures. The Companys management, with the participation of the chief administrative officer (who functions effectively as a chief executive officer) and the chief accounting officer (the chief administrative officer is also the chief accounting officer), carried out an evaluation of the effectiveness of the Companys disclosure, controls and procedures (as defined in the Securities Exchange Act of 1934 (the Exchange Act) Rules 13a-15(3) and 15-d-15(3)) as of the end of the period covered by this quarterly report (the Evaluation Date). Based upon that evaluation, the chief administrative officer and the chief accounting officer concluded that, as of the Evaluation Date, the Companys disclosure, controls and procedures are effective, providing them with material information relating to the Company as required to be disclosed in the reports the Company files or submits under the Exchange Act on a timely basis.
(b) Changes in Internal Control over Financial Reporting. There were no changes in the Companys internal controls over financial reporting, known to the chief administrative officer or the chief accounting officer that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting.
Item 1. Unregistered Sales
On September 30, 2007, the Company issued 24,000 shares of its common stock, valued at $10,800, to a consultant..
On September 9, 2007, the Company issued warrants to purchase 325,000 shares of its common stock at an exercise price of $.50 per share for a term of three years to its former CEO for services rendered to the Company. These warrants were valued at $42,056 using the Black Scholes option-pricing model with the following assumptions: expected volatility 142%; expected dividends 0; expected term 3 years and risk free rate 5.0%.
In July, 2007, the Company issued 1,250,000 shares of common stock upon the exercise of warrants for gross proceeds of $125,000.
In July and August 2007, the Company sold for aggregate consideration of $775,000 1% convertible notes in the aggregate principal amount of $775,000 (Notes) and warrants to purchase 1,550,000 shares of common stock, at an exercise price of $.50 per share for a term of three years (Warrants). In connection with this transaction, the Company agreed to issue, as a finders fee in connection with the convertible notes, warrants to purchase 60,000 shares, at an exercise price of $.50 per share, for a term of three years. The Convertible Notes accrue interest at the rate of 1% per annum, are non-amortizing, have a term of 3 years, subject to the Companys right to extend the term for an additional three years, cannot be prepaid, and are convertible, at any time prior to the maturity date, as the same may be extended, at the discretion of the holder, into shares of common stock, at a rate equal to the lesser of (i) $.50 per share and (ii) the Market Price (as defined) (but not less than $.25 per share). Accrued interest will be paid on the maturity date, as the same may be extended, in shares of Common Stock, valued at the Market Price (as defined), but not less than $.25 per share, and, unless the Convertible Note is converted prior to its maturity date, as the same may be extended, at the Companys option, the principal amount of the Note may, on the maturity date, as extended, be repaid in cash or converted into common stock at a rate equal to the lesser of (i) $.50 per share and (ii) the Market Price (but not less than $.25 per share).
20
On July 9, 2007, the Company issued warrants to purchase 500,000 shares of its common stock at an exercise price of $.50 per share for a term of three years to a consultant for services to be rendered. These warrants were valued at $168,245 using the Black Scholes pricing model with the following assumptions: expected volatility 86.17%; expected dividend 0%; expected term 3 years; and risk free rate 5%. These warrants vest as follows: 200,000 shares on July 9, 2007; 100,000 shares on September 9, 2007 and 200,000 shares on October 9, 2007. The Company has recorded consulting expense for $100,947 and recorded deferred consulting fees of $67,298.
The Company believes that the foregoing transactions were exempt from the registration requirements under Rule 506 of Regulation D promulgated under the Securities Act of 1933, as amended (the Act) or Section 4(2) under the Act, based on the following facts: there was no general solicitation, there was a limited number of purchasers, all of whom were accredited investors (within the meaning of Regulation D under the Securities Act of 1933, as amended) and all of whom were sophisticated about business and financial matters, and all shares issued were subject to restriction on transfer, so as to take reasonable steps to assure that the purchaser was not an underwriter within the meaning of Section 2(11) under the Act.
21
Item 6. Exhibits
Exhibit Number | Description |
|
2.1 | Agreement and Plan of Reorganization | (1) |
3.1 | Articles of Incorporation of Health Enhancement Products, Inc., as amended | (2) |
3.2 4.1 4.2 4.3 10.1 | By-laws of the Company Form of Convertible Note Subscription Agreement (dated July/August 2007) Form of Convertible Note (dated July/August 2007) Form of Warrant (Convertible Note offering) Consulting Agreement with Dr. Robert Cohen dated July 9 2007 | (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 2.1 to our current Report on Form 8-K, Filed with the Commission on December 9, 2003 and incorporated by this reference.
(2)
Filed as Exhibit 3.1 to our Form 10-QSB, filed with the Commission on August 30, 2004 and incorporated by this reference.
(3)
Filed as Exhibit 3.2 to our Form 10SB, filed with the Commission on April 20, 2000 and incorporated by this reference.
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In accordance with the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
HEALTH ENHANCEMENT PRODUCTS, INC.
Date: November 14, 2007
By: /s/Janet L. Crance
Janet L. Crance
Chief Executive Officer
Date: November 14, 2007
By: /s/Janet L. Crance
Janet L. Crance
Chief Accounting Officer
23
| LIST OF EXHIBITS |
|
Exhibit Number | Description |
|
2.1 | Agreement and Plan of Reorganization | (1) |
3.1 | Articles of Incorporation of Health Enhancement Products, Inc., as amended | (2) |
3.2 4.1 4.2 4.3 10.1 | By-laws of the Company Form of Convertible Note Subscription Agreement (dated July/August 2007) Form of Convertible Note (dated July/August 2007) Form of Warrant (Convertible Note offering) Consulting Agreement with Dr. Robert Cohen dated July 9, 2007 | (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 2.1 to our current Report on Form 8-K, Filed with the Commission on December 9, 2003 and incorporated by this reference.
(2)
Filed as Exhibit 3.1 to our Form 10-QSB, filed with the Commission on August 30, 2004 and incorporated by this reference.
(3)
Filed as Exhibit 3.2 to our Form 10SB, filed with the Commission on April 20, 2000 and incorporated by this reference.