Overview

An OTCPicks.com Corporate Profile HealthSport Inc.

HealthSport Inc. is a holding company incorporated in Delaware in July 1985, as Horizon Capital Corp. The Company has six wholly owned subsidiaries. The Company along with its subsidiaries is engaged in the development, manufacturing and marketing of nutritional supplements. The Company has revolutionized the delivery system by providing the nutritional supplements in a one-of-a-kind edible film strips that allows rapid dissolution and release of active ingredients leading to faster electrolyte replacement. Following are the six subsidiaries of the Company: Enlyten, Inc., a Nevada corporation organized on November 28, 2006 Health Strip Solutions, LLC, a Nevada limited liability corporation organized on February 13, 2006 Cooley Nutraceuticals, Inc., a Nevada corporation organized on November 17, 2006 Maxx Motorsports, Inc., a Delaware corporation acquired on May 15, 2001 and currently inactive World Championship Poker, Inc., a Nevada corporation acquired on June 28, 2005 and currently inactive Strategic Gaming Consultants, LLC, ("Gaming"), a Nevada limited liability corporation organized on November 8, 2004, and never activated. Health Strip, in conjunction with InnoZen, holds the proprietary technology for the formulation of a thin film electrolyte strip and has filed a provisional patent for this process. Electrolytes such as those found in Health Strip's Enlyten SportStrips (TM) along with water, can be used in oral dehydration therapy. Health Strip and InnoZen also hold the proprietary technology for Enlyten Survival Strips (TM) formulated with antioxidants, non-cavity causing sweeteners, vitamins, herbal extracts, electrolytes, caffeine and other proven beneficial compounds for remedy from fatigue, drowsiness and dehydration. Nutraceuticals’ holds proprietary technology for the formulation of a nutritional supplement that quickly and effectively provides natural energy enhancers, caffeine, electrolytes, antioxidants and other essential vitamins and minerals. In conjunction with InnoZen, Nutraceuticals has designed the Enlyten Energy Film Strips, a formulation to supply the body with a healthy boost of energy, while replenishing and maintaining the essential vitamins and minerals lost during activity, after a long flight, bad night of sleep or over-indulgence in alcohol. Products The Company's products include Enlyten SportStrips, Enlyten Energy Film Strips, and Enlyten Survival Strips. Enlyten SportStrips can be used for oral rehydration therapy to replenish the body's electrolyte levels after dehydration caused by exercise, diarrhea, or vomiting. Enlyten Energy Film Strips are nutritional supplement that provides natural energy enhancers, caffeine, electrolytes, antioxidants, and other essential vitamins and minerals. Enlyten Survival Strips are designed specifically for military personnel as a remedy to fatigue, drowsiness, dehydration, and loss of performance during routine and special operations. Benefits of Strip Delivery System The Strip Delivery System introduced by HealthSport has various benefits over conventional health and sports drinks. Enlyten film strips offer a superior electrolyte delivery method and faster electrolyte replacement. The strip delivery system allows faster absorption into the bloodstream, portability and easily consumed or carried, simple and easy administration process, cost efficient and delivers around 20 mg of an active ingredient. These benefits have made the product popular among the sporting community and the Company is working on introducing a number of products using the strip delivery system. Proprietary Processes and New Products Portfolio HealthSport through its various acquisitions have access to proprietary processes and has developed intellectual property in the field of Strip Delivery System. The recent acquisition of InnoZen has given the Company access to five patents, which are pending and numerous proprietary processes, which HealthSport will utilize to develop various other edible film strips. The Company is working on a portfolio of products including hangover recovery, mineral replacement using the Strip Delivery System. The Company has a strong portfolio of products, which are at various stages of development and will be introduced over the years. Acquisition of InnoZen Inc. On May 07, 2007, HealthSport completed the acquisition of InnoZen for $40 million. With this acquisition the Company has become a fully integrated developer, manufacturer and marketer of unique and proprietary branded and private label edible film strip nutritional supplement and over-the-counter drug products. InnoZen is responsible for the development of some great brands including Chloraseptic Sore Throat Relief Strips, Suppress Cough Strips, and was involved in the development and launch of ZICAM Cold Remedy. The acquisition will give the Company access to InnoZen’s branded product portfolio, in-house research, development and manufacturing capabilities and numerous proprietary processes, which HealthSport will use to formulate and develop new edible film products, various novel delivery systems for nutritional supplements and OTC drugs and in the process grow its branded products business. Aggressive Marketing and Branding Strategy The Company plans to aggressively market its branded products including Enlyten SportStrips, Enlyten Energy Film Strips, and Enlyten Survival Strips. The Company recently signed Buffalo Bills starting quarterback JP Losman to promote its Enlyten SportStrips. JP Losman joins Hall of Fame quarterback Jim Kelly as a spokesman for Enlyten SportStrips, the official SportStrips of the Buffalo Bills. Losman will be featured in marketing campaigns for Enlyten promoting the importance of electrolyte replenishment and hydration, which will create brand awareness, induce other sports personalities and sports aspirants to consume the product. Enlyten, Inc. a subsidiary of HealthSport is partnering AC Milan, one of the world's premier soccer clubs, for testing and endorsement of Enlyten SportStrips. The partnership will enable the Company to reach out to millions of soccer players, aspirants and fans across the world. This will place the Company’s product among the major brands in the world. The Company has also signed up women's professional soccer player, Brandi Chastain a two time Olympic medallist, to become a spokesperson for Enlyten SportStrips. Recent HSPO News: May 23 - AC Milan Refuels With Enlyten(TM) SportStrips(TM) As AC Milan gets ready for their match against Liverpool in the Champions League Final tonight, they are putting the past behind them. When the players take the field in Athens, Greece, AC Milan will look to avenge a devastating loss to Liverpool during the final match in 2005 in Istanbul, Turkey, when the team fell to Liverpool after a 3-0 lead at halftime. Since that loss, many things may have remained the same while others have changed, including use of a new product that will help maximize the players' performance on the field. Earlier this month, Enlyten, Inc. announced a developing relationship with AC Milan. This relationship includes sponsorship of the AC Milan Junior Camps in the United States, product use by the AC Milan players, and testing of Enlyten's marquee product by Milan Lab. The lab has recently completed testing of Enlyten SportStrips, a new and unique film strip delivery system that replaces the electrolytes lost during vigorous workouts through a patented delivery system. This mode of absorption is very different from all electrolyte delivery predecessors. When placed between the cheek and gum, gastric absorption is bypassed speeding higher levels of electrolytes directly into the bloodstream. Not only does it dramatically improve hydration on a cellular level, but it also helps athletes to avoid the problems caused by excessive fluid consumption often associated with sports drinks. As part of the sponsorship of the 20 AC Milan Junior Camp programs across the U.S., camp participants will have the opportunity to use Enlyten SportStrips. AC Milan will continue to test Enlyten products at Milan Lab, the club's state-of-the-art testing facilities in Milan. AC Milan is the only professional sports club in the world to have its own sport performance testing laboratory. AC Milan's players are currently using Enlyten SportStrips as part of their daily nutritional regimen to assist in maintaining proper hydration and muscle recovery. "We wish AC Milan the best of luck in their pursuit of victory tonight," said Dan Kelly, president of Enlyten, Inc. "We are extremely proud of the fact that these elite soccer players are using our product during such a momentous match. We know they will be playing their best tonight and we are thrilled that we are able to provide the tools to help them achieve their highest levels." Eddie Marles of AC Milan commented, "We are excited about this partnership agreement with Enlyten. We are thrilled with the test results from our lab, our players are continuing to use the product, and we will certainly recommend the product to our youth camp participants. We see great potential with this relationship." Enlyten is a subsidiary of HealthSport, Inc. (HSPO), a publicly traded company. HealthSport is focused on the development, manufacturing and marketing of nutritional supplements in a one-of-a-kind edible film strip delivery system. HealthSport also recently announced that U.S. soccer star Brandi Chastain will serve as a spokesperson for Enlyten SportStrips. Chastain is an Olympic gold medalist and a member of the U.S. Women's National Soccer Team from 1991 to 2004, including the famous game winning penalty kick against China in the 1999 Women's World Cup final. May 21 - JP Losman Scores a Touchdown With Enlyten(TM) SportStrips(TM) As the Buffalo Bills begin a new season, starting quarterback JP Losman begins a new season of his own with a new running back and a new form of electrolyte replacement. Losman joins Hall of Fame quarterback Jim Kelly as a spokesman for Enlyten SportStrips, the official SportStrips of the Bills. Losman will be featured in marketing campaigns for Enlyten promoting the importance of electrolyte replenishment and hydration. The fourth year quarterback out of Tulane University uses the Enlyten SportStrips during workouts and practices with the team. "Before every practice, I'll put 5 or 6 strips along the inside of my cheek and then add one every half hour or so during practice," said Losman. "I used to go out on the field feeling weighed down, so the strips really help me to stay hydrated without so much fluid intake. Enlyten SportStrips have really helped to put my hydration issues behind me." "We are very proud to have JP as a spokesman for Enlyten SportStrips," said Dan Kelly, president of Enlyten, Inc. "JP is not only the face of the Buffalo Bills, but he's such a hard working player who takes care of himself and knows the importance of staying hydrated and replenished. Other athletes respect him for that and take notice of what JP does to stay fit and on his game." Losman, voted by fans as the NFL's most improved player, is starting his fourth season with the Bills. After a rough start to the 2006 season, Losman silenced his doubters with a stellar performance in the second half of the season. He threw for over 3,000 yards, had a completion percentage of 63% and connected for 19 touchdowns. Losman was rated the 11th best passer in the league with a passer rating of 84.9. Enlyten, Inc., a subsidiary of HealthSport, Inc. (OTCBB: HSPO) announced in March their first NFL sponsorship with the Bills. Their partnership builds on Enlyten's commitment to educating athletes about the benefits of electrolyte replenishment and hydration. Kelly and Losman are joined by Miami Dolphins Defensive End Jason Taylor, Olympic Soccer Medalist Brandi Chastain, Bills Head Trainer Bud Carpenter, San Francisco Giants manager Bruce Bochy, and marathon runner Peter Gilmore. Enlyten SportStrips replace the electrolytes lost while exercising through a patented delivery system. This mode of absorption is very different from all electrolyte delivery predecessors. Gastric absorption is bypassed speeding higher levels of electrolytes directly into the bloodstream. Not only does it dramatically improve hydration on a cellular level, but it also helps athletes to avoid the problems caused by excessive fluid consumption often associated with sports drinks. May 10 - HealthSport Closes $6 Million Fixed Price Private Placement HealthSport, Inc. (OTCBB: HSPO), a fully integrated developer, manufacturer and marketer of unique and proprietary branded and private label edible film strip nutritional supplements and over-the-counter drugs, announced today it has closed a private placement of its shares of common stock in which the Company received total net proceeds of $6 million. Under the terms of the placement, HealthSport sold approximately 4 million shares of common stock at a fixed price of $1.50. The shares underlying the placement carry registration rights calling for the filing of an SB-2 on or before June 1, 2008. Investors in the financing include former NFL stars Bruce Smith, Bernie Kosar and Jim Kelly. Proceeds of the private placement will be used for general working capital as well as to expand the capacity of its recently acquired wholly owned subsidiary, InnoZen, Inc., the preeminent formulator, developer and manufacturer of edible film strips that deliver drug actives through buccal (between the cheek and gum) absorption. HealthSport completed the acquisition of InnoZen on May 7, 2007. InnoZen's patented and proprietary edible film strip delivery technology is superior to any other competitive edible film strips currently on the market. InnoZen has five patents pending and has developed numerous proprietary processes that it incorporates in the development and manufacturing process of edible film strips. InnoZen's key IP is its proprietary and patent-pending bi-layer technology, which results in edible film strips that boast long shelf life, a high tolerance to heat, cold and humidity, and the best overall stability without having to be individually wrapped. HealthSport and InnoZen are the developers, manufacturers and marketers of the edible Enlyten(TM) SportStrips(TM) (http://enlytenstrips.com). Enlyten SportStrips replace the electrolytes one loses while exercising through buccal (cheek) absorption. This mode of absorption is very different from all of Enlyten's electrolyte delivery predecessors. Unlike traditional absorption through the gastric system, which can take up to 30 minutes and may cause bloating, Enlyten SportStrips enable electrolytes to be absorbed directly into the bloodstream in just minutes eliminating over-hydration or bloat that often accompanies the excessive consumption of sports drinks.

OTCPicks.com Safe Harbour Statement: Statements contained in this document, including those pertaining to estimates and related plans, potential mergers and acquisitions, estimates, growth, establishing new markets, expansion into new markets and related plans other than statements of historical fact, are forward-looking statements subject to a number of uncertainties that could cause actual results to differ materially from statements made. OTCPicks.com provides no assurance as to the subject company's plans or ability to effect any planned and/or proposed actions. OTCPicks.com has no first-hand knowledge of management and therefore cannot comment on its capabilities, intent, resources, nor experience and makes no attempt to do so. Statistical information, dollar amounts, and market size data was provided by the subject company or publicly available sources believed by OTCPicks.com to be reliable, but OTCPicks.com provides no assurance, and none is given, as to the accuracy and completeness of this information. Disclaimer: The information, opinions and analysis contained herein are based on sources believed to be reliable but no representation, expressed or implied, is made as to its accuracy, completeness or correctness. Past performance is no guarantee of future results. This report is for information purposes only and should not be used as the basis for any investment decision. OTCPicks.com has been compensated up to eight thousand five hundred dollars from BlueWave Advisors for HSPO advertising and promotional services. Write or call OTCPicks.com for detailed disclosure as required by Rule 17b of the Securities Act of 1933/1934. OTCPicks.com is not an investment advisor and this report is not investment advice. This information is neither a solicitation to buy nor an offer to sell securities. It should be considered to be an advertisement. Information contained herein contains forward-looking statements and is subject to significant risks and uncertainties, which will affect the results. The opinions contained herein reflect our current judgment and are subject to change without notice. OTCPicks.com and/or its affiliates, associates and employees from time to time may have either a long or short position in securities mentioned. Information contained herein may not be reproduced in whole or in part without the express written consent of OTCPicks.com.

Products

Product Market

HealthSport, Inc. (HSPO) develops the ENLYTEN film strip products, which contain electrolytes used to replenish the body in times of exertion. In addition, the company has additional products in the “strip” genre to develop including hangover recovery, mineral replacement, as well as other products to come.

With the primary business operations focused on the development and marketing of the electrolyte film strips, HSPO is aimed at the activity and replenishment market. Electrolytes have been proven to sustain proper cell function and growth in the body. While sports drinks can supply electrolytes lost while exercising, these drinks do not contain the proper balance of electrolytes and often contain high amounts of sugar. Combating this excess sugar and fluid contained in sports drinks, ENLYTEN film strips offer a superior electrolyte delivery method.

Market Information Supporting the HSPO Strip Delivery System

• Faster absorption into bloodstream compared to traditional systems
• More portable than drinks and tablets
• Easier to administer – pop the strip on the tongue and keep going
• More cost effective than conventional solutions
• Delivers up to 20mg of an active ingredient

Market Information Supporting the HSPO Market

• 40% of all people have difficulty swallowing tablets
• 88% of patients prefer taking medications that incorporate fast dissolve technology
• In 2004 worldwide sales of drugs that incorporate a fast dissolve technology are running at more than $1 billion and have an annual growth rate of 40%
• This market continues to be fueled by patient demand for easy-to-swallow formulations

The market for “strips” or “edible films” has just begun to see light all over the world. With companies in the UK, Europe, and the US developing and manufacturing these products, consumers are accepting and enjoying the ease and novelty of this new delivery system. What the general consumer doesn’t recognize, or even concern themselves with, is that these things really work. Actually they work even more effectively than the traditional formats.

Companies like Pfizer, Cardinal Health, Wrigley, and Novartis have brought strip products to market in many different formats. The base is the same – an edible film that contains active ingredients. And that is where the separation begins. Some strips are built to suppress a cough, some to freshen breath, some to treat a cold, and some even to quell snoring. In the future, other companies are expected to bring their own strip products to market that are geared to treat a multitude of other afflictions and nuisances.

Predicted to be attractive to the broad population, the attractiveness is relative to each. Youngsters like to be hip and have the latest cool fad. Middle-agers like convenience and portability. Elderly like ease of ingestion and premeasured quantities. And with customized flavors, colors, designs, and ingredients, this market could be set to explode. In fact the year 2004 saw breath freshener strip sales in the US of $200 million and worldwide sales of fast dissolve delivery products were more than $1 billion. Expectations are for the strip segment to surpass $300 million in sales next year and sustaining a growth rate of over 40%. Get ready for what could happen in the next wave while HSPO plans to be at the crest of it.

Products Description

HSPO develops and manufactures ENLYTEN, which are edible films (aka “strips”) that contain electrolytes. The company recently completed pre-launch trials of ENLYTEN. The trials conducted in conjunction with physicians and scientists at Duke University Sports Medicine & The Michael J. Krzyewski Human Performance Laboratory (K Lab) involved athletes from various disciplines at the intercollegiate sports level. The preliminary findings of these studies suggest that ENLYTEN strips deliver meaningful amounts of electrolytes to the human body in a safe, fast and effective manner. Through these studies, HSPO believes that their electrolyte strip will be especially effective at replenishing the body's stores of electrolytes. The quick dissolution rate of the electrolyte film strip coupled with the fact that no liquid is needed to deliver the electrolytes to the body will be extremely valuable to athletes as well as for our soldiers in hot spots around the world. When you look at proven technologies for delivery of drug actives in film strips, and marry them with the billion dollar sports product industry, HSPO is confident this will be an enormously successful product.

The product's initial applications will be geared toward professional, college and amateur athletes. The company also sees an enormous market for the product in the non-athletic population, as well as a military application.

ENLYTEN Electrolyte Strips are scientifically formulated to deliver maximum electrolyte concentration levels to the human body, without excessive sugars, carbohydrates, or fluids.

Engineered to enhance athletic performance, and designed to keep athletes performing at peak levels, ENLYTEN electrolyte strips are a perfect nutritional supplement for a “warm-up” loading regiment, the “game-time” electrolyte replenishing needs, or “cool-down” recovery needs.

ENLYTEN Electrolyte Strips allow an athlete to control their fluid intake based on their level of physical exertion, and their individual rehydration plan. Symptoms such as fatigue, cramping, nausea, and physical weakness have long been linked to electrolyte depletion. ENLYTEN Electrolyte Strips put back the vital nutrients that get sweat out.

ENLYTEN Electrolyte Strips come in great flavors, are easy to take on-the-go, and start working fast.

Product Brief

Project Objective: To develop a thin film containing electrolytes to replenish the body while under physical stress. The product will be innovative and will be formulated within the parameters of the Innozen US patent applications (#20040136923, #200400191302) for bi-layer drug delivery via a thin film, and the provisional patent application filed by Hank Durschlag. Further protection of technology will be added through protected trade secrets, manufacturing techniques and trademarks if, as and when the opportunity presents itself. The product will offer as many features and benefits as possible, while maintaining the most competitive price.

Product Description: The product will be classified as a Dietary Supplement under the regulatory guidelines of DSHEA. The manufacture and label also will conform to regulations regarding food products according to 21 CFR. The product will be in a thin film format and have fast dissolution properties. The product will contain no less than 15.5 mg per strip of an electrolyte blend. The goal will be to target a 75mg total weight per strip. The thin film strips will be approximately ¾” wide by 1 ¼” inch long. The bi-layer will contain no less than one partitioning agent. Initial prototype formulations shall be developed using a pectin-based film-forming polymer.

Key Product Benefits: The thin film shall be placed in a small convenient portable primary package that fits discretely in a pocket for “on the go” use. The product will contain no less than 24 strips per cassette for multiple dosages. The product shall be fast acting through rapid dissolution and discrete to ingest. The product shall have a good taste. The product will not require water to ingest. The product will allow a controlled delivery of electrolytes into the body.

Key Points of Difference:
• Can be used with plain water or another liquid (i.e. Gatorade, PowerAde)
• Eliminates overage of salts when thirst is greater than electrolyte needs
• Safe and accurate metered dosage
• Portable, ease of use, discrete
• Fast and effective delivery of electrolytes

Primary Package Offerings:
• Small Cassette
• 24 or 32 strips per cassette
• Flip top dispensing
• Final format for the secondary package can be a blister card or cello wrap in a box
• Product can be formatted for sale with 1 or 2 (or more) primary packages in the secondary packaging

Project Background: Preliminary marketing research shows a growing trend towards the use of thin film technology to deliver various forms of actives. There has been good consumer acceptance of the strip format.

Competitive Benchmarks: To deliver a balanced load of electrolytes via a thin film so an athlete or physically active individual can get the same balance of electrolytes he/she normally would consume when ingesting a sports drink (i.e. Gatorade or PowerAde) with the use of water and the thin film.

• Suppress TM Cough Strips launched in 4th quarter 2004 with an initial advertising budget of $5 million focused on creative and media. It is anticipated that the “Electrolyte Strip” product will warrant a similar advertising push, with emphasis on athletic endorsements and branding.
• Zicam Cold Remedy launched in 1999. By 2003 the company had reached $40 million in annual sales. Zicam 2004 revenue exceeded $60 million. With the proper exposure and athlete endorsements, the “Electrolyte Strip” product has the same potential.

Marketing Strategy: Create key endorsement relationships with professional athletes, such as NFL, Major League Baseball, NBA, and NASCAR.

Delivery System

Transmucosal Routes

Drug absorption through a mucosal surface is generally efficient because the stratum corneum epidermidis, the major barrier to absorption across the skin, is absent. Mucosal surfaces are usually rich in blood supply, providing the means for rapid drug transport to the systemic circulation and avoiding, in most cases, degradation by first-pass hepatic metabolism.

The amount of drug absorbed depends on the following factors:

• Drug concentration
• Vehicle of drug delivery
• Mucosal contact time
• Venous drainage of the mucosal tissues
• Degree of the drug’s ionization and the pH of the absorption site
• Size of the drug molecule
• Relative lipid solubility

Oral Transmucosal (Sublingual, Buccal) Administration

Oral transmucosal absorption is generally rapid because of the rich vascular supply to the mucosa and the lack of a stratum corneum epidermidis. This minimal barrier to drug transport results in a rapid rise in blood concentrations. The oral transmucosal route has been used for many years to provide rapid blood nitrate levels for the treatment of angina pectoris.

The drug appears in blood within 1 minute, and peak blood levels of most medications are achieved generally within 10 to 15 minutes, which is substantially faster than when the same drugs are administered by the orogastric route. Delivery mechanisms were developed to take advantage of oral transmucosal absorption.
The administration of other active ingredients by this route and with similar delivery systems is being investigated. Most patients swallow medications administered orally, potentially leading to drug degradation in the gastrointestinal system. Oral transmucosal administration has the advantage of avoiding the enterohepatic circulation and immediate destruction by gastric acid or partial first-pass effects of hepatic metabolism. For significant drug absorption to occur across the oral mucosa, the drug must have a prolonged exposure to the mucosal surface.

Taste is one of the major determinants of contact time with the buccal or oral mucosa. Drug ionization also affects drug uptake. Because the pH of saliva is usually 6.5 to 6.9, absorption is favored for drugs with a high pKa. Prolonged exposure to the oral sublingual mucosal surface may be accomplished by repeated placement of small aliquots of drug directly beneath the tongue of a cooperative patient or incorporation of the drug into a sustained-release lozenge. Drug absorption is generally greater from the buccal or oral mucosa than from the tongue and gingiva.

The advantages of relatively rapid absorption offered by this drug delivery system make it a reasonable alternative to intravenous therapy. Some have argued that narcotics administered to children should have a disagreeable taste, precluding the use of this oral transmucosal drug delivery system. This tenet is illogical. No evidence exists to suggest that appropriate narcotic therapy in children increases the risk of addiction in later life. Furthermore, this rationale has never been used to prevent the palatable delivery of other potentially harmful drugs, such as children’s vitamins. Because the relief of pain and anxiety is such an important part of the daily practice of many pediatric care givers, it is appropriate to encourage the development of these innovative, nonpainful, and nonthreatening techniques of drug administration.

Each drug must pass rigorous scientific evaluation to ensure safe usage and to define the precise role of the drug in pediatric health care. It would be wrong to reject this route of drug administration simply because of the concern that children would think that it is pleasurable to take narcotics or sedatives via this route or modality of drug delivery.

Product Financials

HSPO products are planned to be sold in retail outlets at a cost to the consumer of $2.99 per pack. The package will feature one blister style package with an “on the go” style container inside. This container will have a flip-top opening and hold 20 strips. HSPO will sell this product to retail outlets at a wholesale cost of $1.99 per pack, resulting in a 33% markup to the retail price for the stores. Estimated cost to produce one pack is roughly $1.00 with about $0.145 per pack in marketing and advertising costs, equating in about $0.845 per pack in operating profit.

Current production capacity is estimated to be about 5 million packs or “cassettes” each 6 months. Assuming annual production capability of 10 million packs with projections above, revenues at full capacity are $19,900,000 with operating profit of $8,450,000. When producing this amount, economies of scale can be expected to drive the production costs down by about 10% which would increase the bottom line to roughly $8,750,000. These gross estimations are simply based on current production capacity and if the firm operated at full capacity at that facility.

Expanded production capabilities are expected and are actually quite likely to occur given some strategic relationships HSPO has established. Also, the nearly $20 million in annual revenue could prove to be rather small if certain contracts are agreed to. Imagine if Wal-Mart, CVS, or another major distributor picked up the product to carry in stores. Projections based on stocking, purchase, and fulfillment plans of outlets similar to these show that just this contract alone would translate to $19 million in revenue to HSPO.

Without disclosing possible contracts, the company has stated that $80 million of annual revenues is not beyond the scope of possibilities for HSPO. Figuring a multiple for a company with a plan such as this is always a daunting task, as it is a brand new product type and a brand new company. This HSPO strip product lands directly in an industry I dub the “activity and replenishment” sector. With the best example of the category being Gatorade, we can look at Pepsi’s P/E ratio of 24.51. But HSPO should warrant a higher multiple than PEP given the innovative product driving the company. Using a 30 multiple (we will apply this P/E multiple to the estimated operating income figure for HSPO as interest, taxes, depreciation, and amortization are expected to be negligible) and assuming the $80 million annual revenue number is reached, the operating profit would be $34 million resulting in a valuation of over $1 billion. Using the current share structure of 19.29 million outstanding, this equates to a $52 share price. This does seem a bit dreamy and the expectations lofty for a company that hasn’t sealed up its first contract yet, but HSPO is planning big things.

Trim the revenue projections back some and discount for management bias and just use $20,000,000 for expected annual revs, which happens to be capacity for HSPO current facilities. Keep the operating profit margin at 42% (resulting in operating income of $8,400,000) and increase the shares outstanding by 50% (to roughly 28.9 million). This example still shows HSPO to be at an $8.72 share price based upon these expectations. This represents a 200% upside from the current share price, now HSPO needs to see this through to fruition.

OTCPicks.com Safe Harbour Statement: Statements contained in this document, including those pertaining to estimates and related plans, potential mergers and acquisitions, estimates, growth, establishing new markets, expansion into new markets and related plans other than statements of historical fact, are forward-looking statements subject to a number of uncertainties that could cause actual results to differ materially from statements made. OTCPicks.com provides no assurance as to the subject company's plans or ability to effect any planned and/or proposed actions. OTCPicks.com has no first-hand knowledge of management and therefore cannot comment on its capabilities, intent, resources, nor experience and makes no attempt to do so. Statistical information, dollar amounts, and market size data was provided by the subject company or publicly available sources believed by OTCPicks.com to be reliable, but OTCPicks.com provides no assurance, and none is given, as to the accuracy and completeness of this information.

Disclaimer: The information, opinions and analysis contained herein are based on sources believed to be reliable but no representation, expressed or implied, is made as to its accuracy, completeness or correctness. Past performance is no guarantee of future results. This report is for information purposes only and should not be used as the basis for any investment decision. OTCPicks.com has been compensated up to eight thousand five hundred dollars from BlueWave Advisors for HSPO advertising and promotional services. Write or call OTCPicks.com for detailed disclosure as required by Rule 17b of the Securities Act of 1933/1934. OTCPicks.com is not an investment advisor and this report is not investment advice. This information is neither a solicitation to buy nor an offer to sell securities. It should be considered to be an advertisement. Information contained herein contains forward-looking statements and is subject to significant risks and uncertainties, which will affect the results. The opinions contained herein reflect our current judgment and are subject to change without notice. OTCPicks.com and/or its affiliates, associates and employees from time to time may have either a long or short position in securities mentioned. Information contained herein may not be reproduced in whole or in part without the express written consent of OTCPicks.com.

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