HEALTH ENHANCEMENT PRODUCTS INC (Form: 10-Q, Received: 08/22/2011 17:18:18)

U.S. Securities and Exchange Commission

Washington, D.C. 20549

Form 10-Q

(Mark One)

X .

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2011

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	(IRS Employer
incorporation or organization)	Identification No.)

7740 East Evans Road, Scottsdale, Arizona 85260

(Address of principal executive offices)

480-385-3800

(Issuer’s telephone number)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by checkmark whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 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 X . No .

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted an posted pursuant to Rule 405 of regulation ST (Sec. 232.405) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes . No X .

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	.	Accelerated filer	.
Non-accelerated filer	. (Do not check if a smaller reporting company)	Smaller reporting company	X .

Indicate by check mark whether the issuer is a shell company (as defined in Rule 12-b2 of the Exchange Act).

Yes . No X .

APPLICABLE ONLY TO CORPORATE ISSUERS

There were 97,769,358 shares of common stock, $0.001 par value, outstanding at August 17, 2011.

FORM 10-Q

HEALTH ENHANCEMENT PRODUCTS, INC.

INDEX

PART I – FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

Item 2. Management’s Discussion and Analysis of Financial

Condition and Results of Operations

Item 4T. Controls and Procedures

PART II – OTHER INFORMATION

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Item 6. Exhibits

(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 industry’s 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 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 and


	•	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.

Item 1. Consolidated Financial Statements

HEALTH ENHANCEMENT PRODUCTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEET


		June 30, 2011		December 31, 2010
		(Unaudited)
ASSETS
CURRENT ASSETS:
Cash	$	10,297	$	15,603
Inventories		33,967		10,554
Prepaid Expenses		18,559		10,855
Total Current Assets		62,823		37,012
PROPERTY AND EQUIPMENT, NET		159,882		170,259
OTHER ASSETS:
Definite-life intangible Assets, net		7,684		8,168
Deferred Finance Costs, net		35,341		-
Deposits		125,117		124,482
Total Other Assets		168,142		132,650
	$	390,847	$	339,921
LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES:
Accounts Payable	$	619,175	$	455,589
Customer deposits		40,349		25,194
Loan Payable, Related Party		29,959		12,000
Obligation to issue common stock and warrants		-		50,000
Deferred revenue		15,000		15,000
Convertible Debenture Payable, less Discount of $15,349 and $18,936 at June 30, 2011 and December 31, 2010		69,751		157,064
Current portion, long term debt		13,977		3,516
Accrued Payroll		40,534		32,892
Accrued Payroll Taxes		20,111		5,305
Accrued Liabilities		9,735		23,980
Total Current Liabilities		858,591		780,540
LONG TERM LIABILITIES:
Convertible Debenture Payable, less Discount of $125,293 and $71,037 at June 30, 2011 and December 31, 2010		255,206		104,063
Deferred revenue, noncurrent		227,500		235,000
Deferred rent expense		153,397		171,995
Total Long term Liabilities		636,103		511,058
COMMITMENTS AND CONTINGENCIES
TOTAL LIABILITIES		1,494,694		1,291,598

STOCKHOLDERS' DEFICIT:
Common stock, $.001 par value, 150,000,000 shares authorized 96,645,358 and 92,705,351 issued and outstanding at June 30, 2011 and December 31, 2010		96,645		92,705
Additional Paid-In Capital		26,110,167		25,485,816
Accumulated deficit		(27,310,659)		(26,530,198)
Total Stockholders' Deficit		(1,103,847)		(951,677)

	$	390,847	$	339,921

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.


HEALTH ENHANCEMENT PRODUCTS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


		For the three		For the three		For the Six		For the Six
		Months ended		Months ended		Months Ended		Months ended
		June 30, 2011		June 30, 2010		June 30, 2011		June 30, 2010

REVENUES:
Net Sales	$	24,110	$	19,117	$	56,689	$	33,160
Licensing Fee		3,750				7,500
Total Revenues		27,860		19,117		64,189		33,160

COSTS AND EXPENSES:
Cost of Sales		34,097		16,290		73,626		19,910
Selling		3,414		39,658		8,526		65,895
General and Administrative		69,581		635,207		182,839		711,309
Professional and Consulting		112,151		1,048,925		311,556		1,816,956
Research and Development		72,371		96,535		179,283		199,524

Total Expenses		291,614		1,836,615		755,830		2,813,594

LOSS FROM OPERATIONS		(263,754)		(1,817,498)		(691,641)		(2,780,434)

OTHER INCOME (EXPENSE):
Fair Value Adjustment of Derivative Liability		-		2,240,616		-		(2,223,991)
Amortization of Bond Discount		(28,681)		(36,835)		(63,831)		(99,580)
Amortization of Deferred Finance Costs		(19,018)		-		(22,365)		-
Finance costs paid in warrants, related party		-		(405,925)		-		(405,925)
Interest expense - related party		(243)		-		(459)		-
Interest expense		(1,480)		(2,024)		(2,163)		(8,773)

Total Other Income (Expense)		(49,422)		1,795,832		(88,818)		(2,738,269)

NET INCOME (LOSS)	$	(313,176)	$	(21,666)	$	(780,458)	$	(5,518,703)

BASIC AND DILUTED LOSS PER SHARE	$	(0.00)	$	(0.00)	$	(0.01)	$	(0.07)

WEIGHTED AVERAGE BASIC AND DILUTED SHARES OUTSTANDING		95,589,387		86,876,596		94,809,298		83,666,796

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

HEALTH ENHANCEMENT PRODUCTS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS


		For the Six		For the Six
		Months Ended		Months Ended
		June 30, 2011		June 30, 2010
		(Unaudited)		(Unaudited)
Cash Flows for Operating Activities:
Net Income (Loss)	$	(780,458)	$	(5,518,703)

Adjustments to reconcile net loss to net cash used by operating activities:
Stock and warrants issued for services rendered		33,584		1,450,249
Finance costs paid in warrants, related party		-		405,925
Amortization of prepaid consulting fees		-		73,325
Amortization of deferred finance costs		22,365		-
Amortization of bond discount		63,830		99,579
Amortization of intangibles		484		483
Vendor settlement		-		(4,117)
Depreciation expense		15,097		11,661
Fair value adjustment of Derivative Liability		-		2,223,991
Increase (decrease)in deferred rent		(18,598)		9,591
Changes in assets and liabilities:
(Increase) in inventories		(23,413)		(11,800)
(Increase) in prepaid expenses		(7,704)		(12,595)
(Increase) in security deposits		(635)		(3,815)
Increase (decrease) in accounts payable		163,581		(40,836)
Increase in customer deposits		15,155		-
Increase (decrease) in payroll and payroll taxes		22,447		(145,586)
Increase in obligation to issue common stock		-		477,555
(Decrease) in sales tax payable		(1,275)		-
(Decrease) in deferred revenue		(7,500)		-
(Decrease) Increase in accrued liabilities		(12,967)		(1,139)
Net Cash (Used) by Operating Activities		(516,007)		(986,232)
Cash Flows from Investing Activities:
Capital expenditures		(4,720)		(2,152)
Net Cash (Used) by Investing Activities		(4,720)		(2,152)
Cash Flow from Financing Activities:
Proceed of Loan Payable, related party		31,959		-
Repayment of Loan Payable, related party		(14,000)
Proceeds from other borrowings		13,500		-
Repayment of bank overdraft		-		(9,517)
Repayment of Loans Payable, Other		-		(22,005)
Payments of other borrowings		(3,038)		(3,962)
Proceeds from issuance of convertible debentures		114,500		-
Proceeds from sale of common stock and exercise of warrants		372,500		1,070,229
Net Cash Provided by Financing Activities		515,421		1,034,745
Increase (Decrease) in Cash		(5,306)		46,361
Cash at Beginning of Period		15,603		-
Cash at End of Period	$	10,297	$	46,361
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest	$	3,780	$	3,220
Income Taxes	$	50	$	-

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

HEALTH ENHANCEMENT PRODUCTS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS [Continued]

Supplemental Disclosure of Non-Cash Investing and Financing Activities:

Six Months Ended June 30, 2011:

During the quarter ended March 31, 2011, The Company issued convertible debentures for $62,500 in principal and recorded a discount on the debentures of $62,500. As an inducement to further invest in the Company, warrants were repriced from $.25 to $.15, resulting in deferred finance costs of $57,706.

During the quarter ended June 30, 2011, the Company issued convertible debentures in the principal amount of $52,000 and recorded a discount on the debentures of $52,000. In addition, the Company issued 333,334 shares of common stock in satisfaction of an obligation to issue common stock valued at $50,000.

During the quarter ended June 30, 2011, several three year 1% convertible notes in the aggregate principal amount of $196,000, with various maturity dates during 2011were extended for an additional three years at the request of the noteholder. The Company incurred no additional cost as a result of these extensions.

Six Months Ended June 30, 2010:

During the quarter ended March 31, 2010, $15,000 of convertible debentures and $121 in accrued interest were converted into 302,425 shares of common stock. The Company issued 750,000 shares of stock in satisfaction of an obligation to issue common stock. The Company satisfied a $6,500 loan due to a related party by offsetting it against proceeds due from the related party upon exercise of warrants to purchase common stock. In addition, the Company issued 50,000 shares upon exercise of warrants at $.10 per share. The consideration given for the exercise price was a reduction of indebtedness in the form of accounts payable. The Company recorded an obligation to issue 65,000 shares of common stock in payment of finder’s fees and valued these shares at $36,400. The Company also issued 30,000 shares of common stock valued at $14,035 in payment of finder’s fees. In addition, an obligation to issue 160,000 shares of common stock was recorded in payment of finder’s fees. This stock was valued at $129,050. The Company also issued 500,000 shares of common stock valued at $160,000 in satisfaction of an obligation to issue common stock.

During the quarter ended June 30, 2010, the Company issued 180,000 shares of common stock valued at $149,550 in satisfaction of obligations to issue common stock.

During the six months ended June 30, 2010, the Company recognized an additional derivative liability valued at $7,512,913for warrants issued in excess of its authorized shares.

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

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 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.

NOTE 2 – INVENTORIES


Inventories at June 30, 2011 and December 31, 2010 consist of the following:

		June 30, 2011		December 31, 2010
		(Unaudited)

Raw materials	$	11,300	$	5,650
Work in process		11,090		-
Finished goods		11,577		4,904
	$	33,967	$	10,554

NOTE 3 - PROPERTY AND EQUIPMENT


Property and equipment at June 30, 2011 and December 31, 2010 consists of the following:

		June 30, 2011		December 31, 2010
		(Unaudited)
Furniture and fixtures	$	$51,617	$	$51,617
Equipment		112,879		112,879
Leasehold improvements		148,359		143,639

		312,856		308,135
Less accumulated depreciation and amortization		(152,974)		(137,876)

	$	$159,882	$	$170,259

Depreciation and amortization was $15,098 and $11,661 for the six months ended June 30, 2011 and, 2010 respectively.

NOTE 4 - DEFINITE-LIFE INTANGIBLE ASSETS


Definite-life intangible assets at June 30, 2011 and December 31, 2010 consist of the following:

		June 30, 2011		December 31, 2010
		(Unaudited)
Patent applications pending	$	$14,500	$	$14,500
Less: Accumulated amortization		(6,816)		(6,332)

	$	$7,684	$	$8,168

The Company’s 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 was $484 and $483 for the six months ended June 30, 2011 and 2010, respectively.

NOTE 5 – LOAN PAYABLE – RELATED PARTY

In April of 2010 the Company entered into a line of credit agreement with a significant shareholder. Under the terms of this line of credit agreement, the shareholder agreed to advance, upon request, a maximum of $675,000 as needed. The company’s ability to draw from this line of credit expired April 24, 2011, and advances are to be repaid on or before April 24, 2012 with interest accrued at the rate of 7% annually. During 2010 the Company received advances totaling $299,700, and accrued interest totaling $4,209. During the quarter ended December 31, 2010, the Company issued an aggregate of 1,940,000 shares of common stock to the shareholder as follows: (i) 838,986 shares were issued upon exercise of outstanding warrants at an average exercise price of $.23 per share (the shareholder paid the exercise price by forgiving $188,898 in indebtedness owing to the shareholder), and 1,101,014 shares (valued at $374,344) were issued in full satisfaction of the approximately $110,000 in remaining principal amount plus accrued interest owing to this related party in connection with advances made to the Company. In connection with this loan repayment, the Company incurred finance charges of $259,293.

The balance due under this line of credit agreement as of April 24, 2011 was $26,716. Since the expiration of the line of credit, the Company has received an additional $17,000 in loans from this significant shareholder, and repaid $14,000. The balance owing this shareholder as of June 30, 2011 is $29,500 in principal and $459 in accrued interest. Because the terms of the line of credit expired as of April 24, 2011, the net borrowings of $3,000 are due upon demand.

NOTE 6 – LONG TERM DEBT:

Long term debt consists of the following:


Installment note, bearing interest at 8.8% per annum and		June 30, 2011		December 31, 2010
due November 2011. The loan is secured by certain of the		(Unaudited)
Company's equipment	$	1,471	$	3,517

Less current portion		1,471		3,517

	$	-	$	-

NOTE 7 – CONVERTIBLE DEBT

During the first quarter of 2011, the Company sold for aggregate consideration of $62,500, five 1% convertible notes of $12,500 each (Notes), and warrants to purchase 750,000 shares of common stock, at an exercise price of $.125 (Warrants) 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 Company’s 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, upon 75 days written notice of the holder, into shares of common stock, at a rate equal to $.125 per share. Accrued interest will be paid on the maturity date in shares of common Stock, valued at $.125 per share, and, unless the Convertible Note is converted prior to its maturity date, the principal amount of the Note may be repaid in cash or converted into common stock at a rate equal to $.125 per share, at the Company’s discretion.

During the second quarter of 2011, the Company sold for aggregate consideration of $52,000, 1% convertible notes and warrants to purchase 624,000 shares of common stock, at an exercise price of $.125 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 Company’s 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, upon 75 days written notice of the holder, into shares of common stock, at a rate equal to $.125 per share. Accrued interest will be paid on the maturity date in shares of common Stock, valued at $.125 per share, and, unless the Convertible Note is converted prior to its maturity date, the principal amount of the Note may be repaid in cash or converted into common stock at a rate equal to $.125 per share, at the Company’s discretion.

The Company recorded a deferred debt discount in the amount of $114,500, to reflect the beneficial conversion feature of the convertible debt and fair value of the warrants pursuant to Emerging Issues Task Force (“EITF”) 00-27: Application of EITF 98-5, “Accounting for Convertible Securities with Beneficial Conversion Features on Contingently Adjustable Conversion Rates”, to certain convertible instruments. In accordance with EITF 00-27, the Company valued the beneficial conversion feature and recorded the amount of $39,520 as a reduction to the carrying amount of the convertible debt and as an addition to paid-in capital. Additionally, the relative fair value of the warrants ($74,980) was calculated and recorded as a further reduction to the carrying amount of the convertible debt and an addition to additional paid-in capital. The Company is amortizing the debt discount over the term of the debt. Amortization of discounts related to this convertible debt was $14,554 for the six months ended June 30, 2011.

In addition, as an inducement to make this investment, the Company agreed to reprice 1,240,000 warrants, reducing the exercise price from $.25 to $.15. The Company incurred deferred finance costs of $57,707. These costs will be amortized over the remaining life of the warrants. For the six months ended June 30, 2011 the Company recognized $22,365 in deferred finance cost, and the balance of the finance costs, $35,341 is recorded in other assets.

Amortization of the debt discount on the remaining notes was $49,277 for the six months ended June 30, 2011.


Convertible debt consists of the following:
		June 30, 2011		December 31, 2010
		(Unaudited)
Convertible notes payable, net of unamortized discount
of $140,643 and $130,060 respectively	$	324,957	$	261,127
Less: Current portion		69,751		157,064

Long term portion	$	255,206	$	104,063

NOTE 8 – DEFERRED REVENUE

The Company received a license fee of $255,000 during the fourth quarter of 2010. This license fee is being amortized over the term of the license agreement’s term of 17 years. The Company recognized $5,000 in revenue during the year ended December 31, 2010, and has recognized $7,500 in revenue for the six months ended June 30, 2011.

NOTE 9 - RELATED PARTY TRANSACTIONS

Line of Credit

In April of 2010 the Company entered into a line of credit agreement with a significant shareholder. Under the terms of this line of credit agreement, the shareholder agreed to advance, upon request, a maximum of $675,000 as needed. The company’s ability to draw from this line of credit expired April 24, 2011, and advances are to be repaid on or before April 24, 2012 with interest accrued at the rate of 7% annually. During 2010 the Company received advances totaling $299,700, and accrued interest totaling $4,209.During the quarter ended December 31, 2010, the Company issued an aggregate of 1,940,000 shares of common stock to the shareholder as follows: (i) 838,986 shares were issued upon exercise of outstanding warrants at an average exercise price of $.23 per share (the shareholder paid the exercise price by forgiving $188,898 in indebtedness owing to the shareholder), and 1,101,014 shares (valued at $374,344) were issued in full satisfaction of the approximately $110,000 in remaining principal amount plus accrued interest owing to this related party in connection with advances made to the Company. In connection with this loan repayment, the Company incurred finance charges of $259,293. As of June 30, 2011, there is a principal balance due of $29,500, and accrued interest totaling $459.

Office Space

We are leasing office and production space located in Scottsdale, Arizona from a significant shareholder, Howard Baer, pursuant to an Amended and Restated Sublease that expires on February 9, 2020, subject to our unilateral right to terminate the Lease on March 31, 2013. Under the original terms of the Amended and Restated Sublease, the annual base rent for the 15,000 square foot facility was approximately $237,000, 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 year’s base rent and the percentage increase in the Consumer Price Index. We paid an additional security deposit of approximately $110,000. The Amended and Restated Sublease is a “net lease”, which means that we are responsible for the real estate taxes, maintenance, insurance and repairs related to the premises we are leasing.

In October, 2009, we and Mr. Baer agreed in principle to (i) reduce from 15,000 to 11,000 the square footage of the space we are occupying and (ii) to reduce the base rent from $20,000 to $16,720 monthly (not including real estate taxes (currently $1,480 per month)). In addition, the lessor has assumed the responsibility for maintenance and repairs for the building and we are obligated to reimburse the lessor for 70% of such expenses. We incurred approximately $55,000 in rent expense during the first quarter of 2011.

In May of 2011 we and Mr. Baer agreed to (i) further reduce from 11,000 to 5,600 the square footage we are occupying, and (ii) reduce our rent to $12,320 (not including real estate taxes of $1,480 per month). We incurred approximately $41,000 in rent expense during the second quarter of 2011.

In April of 2011 the Company signed a lease for new office and warehouse facilities. This lease calls for deferred rent payments until September 1, 2011, to allow us time to finish tenant improvements. Monthly rental is approximately $5,400 per month, and is for a term of 42 months. The Company has not yet completed the tenant improvements necessary to occupy the space due to a shortage of funds. We anticipate moving in late in the fourth quarter of 2011.

NOTE 10 – LICENSE AGREEMENT

On September 2, 2010, the Company entered into a multi-year exclusive worldwide License Agreement (“Agreement”) for its ProAlgaZyme ® product (“Product”) with a distributor of health and nutritional products, Zus Health, LLC (“Zus”) (this agreement was assigned by Zus to Ceptazyme, LLC (Zus’ successor). Under the terms of the Agreement, Ceptazyme, LLC has the exclusive right to distribute the Product to customers and distributors worldwide, excluding pharmaceutical applications and food, supplement and medicinal ingredient applications outside of multi-level, network or affiliate marketing (“MLM”). The Company reserved the right to market and sell isolates and natural and synthetic derivatives of the Product in pharmaceutical applications, as well as ingredient applications outside of MLM. The Agreement prohibits the Company from selling ProAlgaZyme for the benefit of customers and distributors worldwide, other than for pharmaceutical and ingredient applications. The Company is also prohibited from selling any product in the MLM market. In November, 2010, the Company received a payment of $255,000, as provided in the Agreement, for the exclusive distribution rights. $242,500 of this payment has been recorded as deferred revenue, and is being amortized over seventeen years. Our receipt of minimum payments under the Ceptazyme, LLC Agreement is subject to among other conditions our product meeting the FDA’s GRAS standard, which we are currently working on. The Agreement remains in effect until the expiration of the last patent with respect to the Product, subject to earlier termination as provided in the Agreement. The minimum payment provisions under the Agreement have not been operative as we do not yet meet the GRAS standard. We anticipate GRAS compliance by the end of 2011, at which time we expect to begin shipments under the contract.

NOTE 11 - STOCKHOLDERS’ DEFICIT

During the quarter ended March 31, 2011, the Company issued 1,866,667 shares of common stock and received proceeds of $180,000 for the exercise of warrants. In addition, the Company issued 400,000 shares of common stock and received proceeds of $50,000 from investors. Pursuant to a private placement, convertible debentures were issued during the quarter ended March 31, 2011, for which a discount of $62,500 was recorded, and warrants to purchase 1,240,000 shares of common stock were repriced, resulting in deferred finance costs of $57,706. Finally, the Company issued 100,000 shares of common stock for services, valued at $25,000.

During the quarter ended June 30, 2011, The Company issued 740,000 shares of common stock and received $92,500 in proceeds from investors. The Company issued 500,000 shares of common stock and received $50,000 in proceeds upon the exercise of warrants. Pursuant to a private placement, convertible debentures were issued during the quarter ended June 30, 2011, for which a discount of $52,000 was recorded. The Company issued warrants to purchase 75,000 shares of common stock valued at $8,584 for services, and issued 333,334 shares of common stock in satisfaction of an obligation to issue common stock valued at $50,000.

A summary of the status of the Company’s warrants is presented below.


	June 30, 2011			December 31, 2010
	Number of		Weighted Average	Number of		Weighted Average
	Warrants		Exercise Price	Warrants		Exercise Price
Outstanding, beginning of year	15,856,999	$	0.17	22,723,401	$	0.50
Issued	3,059,000		0.13	3,880,000		0.21
Exercised	(2,400,000)		(0.10)	(9,951,402)		(0.13)
Repriced $.15 warrants	1,240,000		0.15
Repriced $.25 warrants	(1,240,000)		(0.25)
Expired	(3,058,666)		(0.10)	(795,000)		(0.50)


Outstanding, end of period	13,457,333	$	0.20	15,856,999	$	0.17

Warrants outstanding and exercisable by price range as of June 30, 2011 were as follows:


	Outstanding Warrants			Exercisable Warrants

		Average
		Weighted
		Remaining			Weighted
		Contractual	Exercise		Average
Range of	Number	Life in Years	Price	Number	Exercise Price

$0.10	1,710,000	0.77	$0.10	1,710,000	$0.10
0.125	2,984,000	2.79	0.125	2,984,000	0.125
0.15	3,523,333	1.62	0.15	3,523,333	0.15
0.225	400,000	2.29	0.23	400,000	0.225
0.25	3,825,000	1.32	0.25	3,825,000	0.25
0.50	1,015,000	1.49	0.50	1,015,000	0.50

	13,457,333	1.70		13,457,333	$0.20

NOTE 12- COMMITMENTS AND CONTINGENCIES

Product Liability Insurance - 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 given our liquidity and cash limitations.

Office Lease - We are leasing office and production space located in Scottsdale, Arizona from a significant shareholder, Howard Baer, pursuant to an Amended and Restated Sublease that expires on February 9, 2020, subject to our unilateral right to terminate the Lease on March 31, 2013. Under the original terms of the Amended and Restated Sublease, the annual base rent for the 15,000 square foot facility was approximately $237,000, 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 year’s base rent and the percentage increase in the Consumer Price Index. We paid an additional security deposit of approximately $110,000. The Amended and Restated Sublease is a “net lease”, which means that we are responsible for the real estate taxes, maintenance, insurance and repairs related to the premises we are leasing.

In October, 2009, we and Mr. Baer agreed in principle to (i) reduce from 15,000 to 11,000 the square footage of the space we are occupying and (ii) reduce the base rent from $20,000 to $16,720 monthly (not including real estate taxes (currently $1,480 per month)). In addition, the lessor has assumed the responsibility for maintenance and repairs for the building and we are obligated to reimburse the lessor for 70% of such expenses. We incurred approximately $55,000 in rent expense during the first quarter of 2011.

The Company was leasing, on a month to month basis, a warehousing and bottling facility. The lease called for monthly rentals of $2,700, plus annual common area maintenance fees. Rent expense under this lease for the quarter ended March 31, 2011 was approximately $9,550. This building was vacated on April 1, 2011.

The Company’s future minimum lease payments are as follows:


Year Ending December 31,
2011	$	189,250
2012		216,925
2013		224,242
2014		206,393
	$	836,810

Business Services Agreement

On October 19, 2009, the Registrant and Great Northern Reserve Partners, LLC (“GNRP”) entered into a Business Services Agreement (“Agreement”), which supersedes the prior agreement between them entered into in February, 2009 (“February Agreement”).

The Registrant entered into the Agreement to continue the pursuit of its strategic product and business development objectives. GNRP was issued 500,000 shares of the Registrant’s Common Stock in connection with the execution of the Agreement, in full payment of any and all amounts owing under the February Agreement (approximately $142,000 per GNRP) and in recognition of GNRP’s contribution to the achievement of recent product testing results. In addition, GNRP will be compensated based on hours expended, sales and other payments (licensing payments, etc.) received by the Registrant, and the achievement of specified milestones.

Workers’ Compensation – The Company does not carry workers’ compensation insurance, which covers on the job injury.

Guarantees – In May, 2010, we entered into an indemnity agreement under which we indemnified a significant stockholder, Howard Baer, for any liability incurred by him in connection with guarantying company obligations. We also issued Mr. Baer warrants to purchase 500,000 shares of common stock as compensation for prior loan guarantees he made with respect to company indebtedness. These warrants have an exercise price of $.15 (cashless) and a term of 3 years. The warrants were valued at $405,925 using the Black Scholes pricing model with the following assumptions: volatility 137.66%; annual rate of dividends 0%; discount rate 3.1%.

NOTE 13 – 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 is anti-dilutive.

NOTE 14 - SUBSEQUENT EVENTS

The Company issued 1,124,000 shares of common stock and received $130,000 in proceeds.

On August 17, 2011, the Company received notice from GNRP (see Note 12) claiming that the Company owes them $220,000 for services rendered from October, 2009 to the present, although the Company has never received a bill detailing any services rendered. Once the Company receives detailed billing records, it will determine the amount if any owed to GNRP.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

The Securities and Exchange Commission (“SEC”) encourages companies to disclose forward-looking information so that investors can better understand future prospects and make informed investment decisions. This report contains these types of statements. Words such as “may,” “will,” “expect,” “believe,” “anticipate,” “estimate,” “project,” or “continue” or comparable terminology used in connection with any discussion of future operating results or financial performance identify forward-looking statements. You are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date of this report. All forward-looking statements reflect our present expectation of future events and are subject to a number of important factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements.

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.

Results of Operations for the three months ended March 31, 2011 and 2010.

Net Sales. Net sales for the six months ended June 30, 2011 were $56,689 as compared to $33,160 for the comparable prior period. These sales reflect principally revenues from the distribution of our ProAlgaZyme® product. The increase in our revenue for 2011 is due to our exclusive distributorship agreement with Ceptazyme, LLC to distribute our product. In the fourth quarter of 2010 we received an initial licensing fee payment of $255,000 under the terms of this exclusive distributorship agreement. We recognized $7,500 in revenue from this licensing fee during the first six months of 2011.

Although we anticipate the realization of increasing revenues from our exclusive distributorship agreement with Ceptazyme, LLC, our ability to realize any such increased revenue is dependent upon the satisfaction of certain conditions, including our product’s meeting the FDA’s GRAS standard or receiving New Diet Ingredient (“NDI”) status form the FDA, which we have not satisfied as of this date, though we are working on meeting the GRAS standard. The minimum payment provisions under the distributorship agreement have not been operative because we do not yet meet the GRAS standard. We anticipate GRAS compliance by the end of 2011, at which time we expect to begin shipments under the contract. If we are unable to meet he GRAS standard (or NDI status), there will be a material adverse affect on our business, financial condition and results of operations.

Throughout 2010 and 2011, we were adversely impacted by a shortage of funds which has severely impeded our ability to market, test and expand the production of our ProAlgaZyme® product. Although we signed an exclusive distribution agreement in September of 2010, we intend to explore additional potential marketing opportunities, consistent with the limitations placed upon us by our exclusive distribution agreement with Ceptazyme, LLC. 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 further evidence of its efficacy, as well as advertising. The testing necessary to further characterize the product, identify its method of action and further substantiate its effectiveness is ongoing.

Cost of Sales . Cost of Sales was $73,626 for the six months ended June 30, 2011, as compared to $19,910 for the comparable prior period. Cost of Sales represents primarily costs related to raw materials, labor and 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 increase in cost of sales for 2011 is due to an increase in overall production, combined with additional costs incurred in bottling our product offsite until the improvements to our new warehouse facility are completed.

Research and Development Expenses . For the six months ended June 30, 2011, we incurred $179,283 on research and development expenses, as compared to $199,524 for the comparable period in 2010. These expenses are mainly comprised of costs associated with external research. Our research and development costs remain relatively stable as we work to complete the research begun in the first quarter of 2011. This research was initiated to further explore ProAlgaZyme®’s potential efficacy on the management of cholesterol levels. We have identified several potential bioactive compounds, but additional research aimed at isolating the compound further is expected to be completed during the fourth quarter of 2011.

Selling and Marketing Expenses . Selling and marketing expenses were $8,526 for the six months ended June 30, 2011, as compared to $65,895 for the comparable prior period. The decrease in 2011 was due to the reclassification of wages paid to our Executive Vice President, combined with increased focus on research, resulting in our de-emphasizing marketing.

In the past we were only accustomed to nominal sales of our sole product, ProAlgaZyme. In September of 2010, we signed an exclusive distribution agreement to sell our product. This exclusive distribution agreement called for an initial licensing fee of $255,000 (received in October of 2010) and monthly orders which increase as our ability to produce product increases, subject to satisfaction of certain conditions, including satisfaction of the GRAS standard (or NDI status); we are still working on meeting GRAS. An initial order of $51,100 was received in December of 2010. Due to several delays in the design of new packaging, this order was shipped in full during the month of April, 2011. During the second quarter of 2011 we received orders for 15,000 bottles. We shipped approximately 6,600 bottles. We delivered an aggregate 2,640 additional bottles during July and August of 2011, and we anticipate further orders in the near term, subject to the ability of Ceptazyme to remit payment as required under the terms of the contract. However, we do not expect the distributor to begin purchasing the minimums until we satisfy the FDA’s GRAS standard (Note 11)

We intend to explore additional third party distribution channels for our product, consistent with the limitations placed upon us by our exclusive distribution agreement with Ceptazyme, LLC. The limit on our ability thus far to advertise our product (due in part to the need for additional testing) has had and, until we are able to advertise our product based upon the results of “class of compound” testing and identification of the bioactive ingredient, will continue to have, a material adverse effect on sales revenue and operating results. We intend to continue to pursue clinical study of our product and, subject to the results of such testing, increase advertising in 2011, subject to availability of sufficient funding, which we do not currently have.

General and Administrative Expenses . General and administrative expense was $182,839 for the six months ended June 30, 2011, as compared to $711,309 for the comparable prior period. The decrease in general and administrative expense during 2011 is due primarily to an approximate $530,000 decrease in administrative salaries, of which approximately $500,000 was in the form of stock based compensation, a non-cash expense.

Professional and Consulting Expenses . Professional and consulting expense was $311,556 for the six months ended June 30, 2011, as compared to $1,816,956 for the comparable prior period. The decrease in professional and consulting expense during 2011 is due primarily to a decrease in stock based compensation of approximately $1,500,000, and a decrease in legal fees of approximately $29,000, offset by an increase in accounting fees of approximately $49,000.

Liquidity and Capital Resources

Historically, we have not generated any material revenues from operations and have been in a precarious financial condition. Our unaudited consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. We have had recurring losses from operations. Our primary source of funds during the six months ended June 30, 2011 was from the sale and issuance of equity securities as well as proceeds from the issuance of convertible debentures. We anticipate that our operations and costs through the 4 ^th quarter of 2011 will be funded from the proceeds from private placements and warrant exercises as well as the issuance of new debentures. We have an immediate and urgent need for additional capital. If we are unable to raise the capital necessary to fund our continuing operations, we will not be able to continue as a going concern and you will suffer a total loss of your investment.

As of August 17, 2011, we had a cash balance of approximately $300. We have had only limited revenue ($64,189 for the six months ended June 30, 2011) and have incurred significant net losses since inception, including a net loss of $780,458 for the six months ended June 30, 2011. Subject to our product’s meeting the FDA’s GRAS standard or receiving New Diet Ingredient (“NDI”) status form the FDA (neither of which standards do we currently meet), the revenue guaranteed to us under the exclusive distribution agreement is expected to contribute significantly to funding our normal operations. However, we have, since inception, consistently incurred negative cash flow from operations. During the six months ended June 30, 2011, we incurred negative cash flows from operations of $516,007. As of June 30, 2011, we had a working capital deficiency of $795,768 and a stockholders’ deficiency of $1,103,848. Although we recently raised a limited amount of capital, we have an immediate and urgent need for additional capital.

During the six months ended June 30, 2011, our operating activities used $516,007 in cash, a decrease of $470,225 from the comparable prior period. The approximate $470,000 decrease in cash used by operating activities was primarily attributable to the following (all of which are approximated): a $4.7 million decrease in net loss, a $2.2 million decrease fair value adjustment of derivative liability (a noncash expense), a $1.4 million decrease in stocks and warrants issued for services (a noncash expense), a $400,000 decrease in finance costs paid with warrants, and a $478,000 decrease in obligations to issue common stock, partially offset by a $205, 000 increase in accrued expenses and accounts payable.

During the six months ended June 30, 2011, our financing activities generated $515,421, a $519,326 decrease from the comparable prior period. The decrease in cash provided by financing activities was due primarily to a decrease in proceeds from sales of securities.

Although we raised a limited amount of capital during the first six months of 2011, we continue to experience a severe shortage of capital, which is materially and adversely affecting our ability to run our business. As noted above, we have been largely dependent upon external sources for funding. We have in the past had great difficulty in raising capital from external sources. Subject to our ability to meet the FDA’s GRAS standard, which we do not yet meet, our exclusive distribution agreement should generate revenue to help cover at least a portion of our normal operating expenses; however we will still be reliant upon external financing for the continuation of our research program. With the leasing of our new manufacturing and office facilities, we anticipate being able to increase our production as necessary to meet the minimum requirements called for in our distribution agreement, subject to having sufficient capital, which we do not currently have.

We estimate that we will require approximately $1,500,000 in cash over the next 12 months in order to fund our normal operations. In addition, we will require additional funding in the range of $500,000 to $1,000,000 to fund our research initiatives. Based on this cash requirement, we have an immediate and urgent need for additional funding. Historically, we have had great difficulty raising funds from external sources; however, we recently were able to raise a limited amount of capital from outside sources.

In addition, 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 given our liquidity and cash limitations.

Significant elements of income or loss not arising from our continuing operations

Except as set forth below, we do not expect to experience any significant elements of income or loss other than those arising from our continuing operation. For the six months ended June 30, 2010, we recognized $2,223,991 of expenses, and for the three months ended June 30, 2010 we recognized $2,240,616 of income for financial statement purposes based on the change in fair value of derivative liabilities.

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.

Item 4

T. Controls and Procedures

Management’s Report on Disclosure Controls and Procedures. We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Securities Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Financial Officer, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, we recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as ours are designed to do, and we necessarily were required to apply our judgment in evaluating the cost-benefit relationship of possible changes or additions to our controls and procedures.

As of June 30, 2011, we carried out an evaluation, under the supervision and with the participation of our management, including our principal executive/principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934. Based upon that evaluation, our principal executive/principal financial officer concluded that our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, are effective in enabling us to record, process, summarize and report information required to be included in our periodic SEC filings within the required time period.

Changes in Internal control Over Financial Reporting. There have been no changes in our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

During the quarter ended March 31, 2011, the Company issued 1,866,667 shares of common stock and received proceeds of $180,000 upon the exercise of warrants. In addition, the Company issued 400,000 shares of common stock and received proceeds of $50,000 from investors. During the quarter ended March 31, 2011, the Company issued (i) Convertible debentures in the principal amount of $62,500 (convertible into common stock at $.125 per share), and (ii) warrants to purchase 750,000 shares of common stock (at an exercise price of $.125 per share), all for gross proceeds of $62,500. In addition, the company re-priced 1,240,000 warrants from $.25 to $.15 per share to induce the convertible note investment. Finally, the Company issued 100,000 shares of common stock for services, valued at $25,000.

During the quarter ended June 30, 2011, The Company issued 740,000 shares of common stock and received $92,500 in proceeds from investors. The Company issued 500,000 shares of common stock and received $50,000 in proceeds upon the exercise of warrants. Pursuant to a private placement, convertible debentures were issued during the quarter ended June 30, 2011, for which a discount of $52,000 was recorded. The Company issued warrants valued at $8,584 for services, and issued 333,334 shares of common stock in satisfaction of an obligation to issue common stock.

We believe 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 investors, each of whom was an “accredited investor” (within the meaning of Regulation D under the “1933 Act”, as amended) and was (either alone or with his/her purchaser representative) sophisticated about business and financial matters, each such investor had the opportunity to ask questions of our management and to review our filings with the Securities and Exchange Commission, and all shares issued were subject to restrictions on transfer, so as to take reasonable steps to assure that the purchasers were not underwriters within the meaning of Section 2(11) under the 1933 Act.

Item 5. Other Information

NONE.

Item 6. Exhibits


Exhibit Number	Description

3.1	Articles of Incorporation of Health Enhancement Products, Inc., as amended
3.2	Amended and Restated By-laws of the Company (1)
10.1	Lease between the Company and BCO, LLC dated February 28, 2011
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 3.2 to the Registrant’s Form 10SB, filed with the Commission on April 20, 2000 and incorporated by this reference

*furnished herewith (all other exhibits are deemed filed).

SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

HEALTH ENHANCEMENT PRODUCTS, INC.

Date: August 22, 2011

By: /s/John Gorman

Executive Vice President

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature

Title

Date

By: /s/ John Gorman

(John Gorman)

Director

August 22, 2011


LIST OF EXHIBITS
Exhibit Number	Description
3.1	Articles of Incorporation of Health Enhancement Products, Inc., as amended
3.2	Amended and Restated By-laws of the Company (1)
10.1	Lease between the Company and BCO, LLC dated February 28, 2011
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