Health Sciences Group Closes On $2 Million Funding

LOS ANGELES, Sept. 8 -- Health Sciences Group, Inc. (OTC Bulletin Board: HESG) today announced the closing of a private placement of $2 million of its 8% Series A Convertible Preferred Stock and warrants. The placement was offered to accredited investors introduced to the Company by Spencer Trask Ventures, Inc., its New York-based investment banker.

Holders of the Convertible Preferred Stock have the right to convert their preferred stock into a total of 2,352,941 shares of the Company's common stock at $0.85 per share. They also received warrants to purchase 2,352,941 shares of common stock at an exercise price of $1.10 per share, which, when exercised, could generate an additional $2.6 million for the Company. These warrants are subject to redemption and the Convertible Preferred Stock is automatically converted into common stock in certain circumstances.

The Company will pay cumulative dividends on the shares of Preferred Stock at the rate of 8% payable in cash or, at the Company's sole discretion, in registered shares of common stock of the Company. The Company has agreed to register the shares underlying the Preferred Stock and warrants, and is subject to certain penalties for failing to complete registration within specified time periods.

Commenting on the financing, Fred E. Tannous, co-chairman and chief executive officer, said, "In addition to providing us with working capital for our corporate operations, the net proceeds from the funding will help us to expand our subsidiaries as we streamline operations, acquire new customers, and introduce new products to the nutraceutical, cosmeceutical and functional food industries."

The securities sold in this private placement have not been registered under the Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements. These securities are subject to a registration rights agreement.

This notice is issued pursuant to Rule 135c under the Securities Act of 1933 and does not constitute an offer to sell or the solicitation of an offer to buy the securities, nor shall there be any sale of the securities in any state in which such offer, solicitation or sale would be unlawful prior to the registration or qualification under the securities laws of such state. Any offering of the securities under the resale registration statement will only be by means of a prospectus.

This release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Act of 1934 that are based upon current expectations or beliefs, as well as a number of assumptions about future events. Although the Company believes that the expectations reflected in the forward-looking statements and the assumptions upon which they are based are reasonable, it can give no assurance that such expectations and assumptions will prove to have been correct. The reader is cautioned not to put undue reliance on these forward-looking statements, as these statements are subject to numerous factors and uncertainties, including without limitation, the independent authority of the special committee to act on the matters discussed, the successful negotiation of the potential acquisition and disposal of transactions described above, successful implementation of the company's business strategy and competition, any of which may cause actual results to differ materially from those described in the statements. In addition, other factors that could cause actual results to differ materially are discussed in the Company's most recent Form 10-QSB and Form 10-KSB filings with the Securities and Exchange Commission.

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