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 Company’s 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.  These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s December 31, 2010 consolidated audited financial statements and supplementary data included in the Annual Report on Form 10-K filed with the SEC on April 15, 2011.

The results of operations for the six months ended June 30, 2011 are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2011, or any other period.

The Company incurred a net loss of $780,458 for the six months ended June 30, 2011, and had net loss of $5,518,703 for the six months ended June 30, 2010.  In addition, the Company had a working capital deficiency of $795,768 and a stockholders’ deficit of $1,103,848 at June 30, 2011.  These factors continue to raise substantial doubt about the Company's ability to continue as a going concern.  During the first six months of 2011, the Company raised $372,500 in net proceeds from the sale of common stock and exercise of common stock warrants, and $114,500 from the issuance of convertible debentures.  There can be no assurance that the Company will be able to continue to raise additional capital.

Although the Company recently signed an exclusive worldwide distribution agreement, it has not yet realized the revenue it was expecting from such distribution arrangement. There can be no assurance that sufficient funds required during the next year or thereafter will be generated 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 resulting from the inability to generate cash flow from operations or to raise capital from external sources would force the Company to substantially 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.

Certain reclassifications have been made to prior-year and prior period comparative financial statements to conform to the current year and period presentation.  These reclassifications had no effect on previously reported results of operations or financial position.