-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KvhqWLfnxEBg7ro/ErVkffyNSso+620XhFNwl63Uq6MC9Kp4oELovhAHUzKUH9Ks y2sipRAs45jM76ZkIUm6rQ== 0000891554-02-003127.txt : 20020514 0000891554-02-003127.hdr.sgml : 20020514 ACCESSION NUMBER: 0000891554-02-003127 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHEM INTERNATIONAL INC CENTRAL INDEX KEY: 0001016504 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 133035216 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-28876 FILM NUMBER: 02646238 BUSINESS ADDRESS: STREET 1: 201 ROUTE 22 CITY: HILLSIDE STATE: NJ ZIP: 07205 BUSINESS PHONE: 2019260816 MAIL ADDRESS: STREET 1: 201 ROUTE 223 CITY: HILLSIDE STATE: NJ ZIP: 07205 10QSB 1 d50601_10qsb.txt FORM 10QSB UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington D. C. 20549 ---------- FORM 10-QSB Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarter ended March 31, 2002 Commission File Number 000-28876 INTEGRATED HEALTH TECHNOLOGIES, INC. (Exact name of registrant as specified in its charter) Delaware 22-2407475 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 201 Route 22 Hillside, New Jersey 07205 (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code: (973) 926-0816 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 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 the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding as of April 30, 2002 Common Stock, Par Value 6,228,720 INTEGRATED HEALTH TECHNOLOGIES, INC. INDEX Part I: Financial Information Item 1: Consolidated Financial Statements Independent Auditor's Review Report ............................... 1 Consolidated Balance Sheet as of March 31, 2002 [Unaudited] ....... 2-3 Consolidated Statements of Operations for the three and nine months ended March 31, 2002 and 2001 [Unaudited] ......................... 4 Consolidated Statement of Stockholders' Equity for the nine months ended March 31, 2002 [Unaudited] .................................. 5 Consolidated Statements of Cash Flows for nine months ended March 31, 2002 and 2001 [Unaudited] ............................... 6-7 Notes to Consolidated Financial Statements [Unaudited] ............ 8-13 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations ...................................... 14-16 Part II: Other Information ............................................. 17 Signature .............................................................. 18 Independent Accountants' Review Report We have reviewed the accompanying condensed consolidated balance sheet of Integrated Health Technologies, Inc. and Subsidiaries (formerly Chem International, Inc.) as of March 31, 2002, and the related condensed consolidated statements of operations for the three and nine months ended and the statements of cash flows and statement of stockholders' equity for the nine months ended March 31, 2002. These condensed consolidated financial statements are the responsibility of the company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the accompanying financial statements in order for them to be in conformity with generally accepted accounting principles. /s/ Amper, Politziner & Mattia P.A. April 23, 2002 1 INTEGRATED HEALTH TECHNOLOGIES, INC. CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 2002 [UNAUDITED] Assets: Current Assets: Cash and Cash Equivalents $1,525,848 Accounts Receivable - Net 1,630,348 Deferred Income Taxes 90,000 Inventories 3,110,004 Due From NuCycle Therapy, Inc. 90,530 Prepaid Expenses and Other Current Assets 293,804 ---------- Total Current Assets 6,740,534 ---------- Property and Equipment - Net 2,346,467 ---------- Other Assets: Deferred Tax Asset 115,000 Security Deposits and Other Assets 135,813 ---------- Total Other Assets 250,813 ---------- Total Assets $9,337,814 ========== See accompanying notes to condensed consolidated financial statements. 2 INTEGRATED HEALTH TECHNOLOGIES, INC. CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 2002 [UNAUDITED] Liabilities and Stockholders' Equity: Current Liabilities: Accounts Payable $ 1,549,695 Notes Payable 3,353 Accrued Expenses and Other Current Liabilities 156,451 Federal and State Income Taxes Payable 238,850 Capital Lease Obligation 13,263 ----------- Total Current Liabilities 1,961,612 ----------- Non-Current Liabilities: Capital Lease Obligation 13,761 ----------- Total Non-Current Liabilities 13,761 ----------- Commitments and Contingencies [10] -- ----------- Stockholders' Equity: Preferred Stock - Authorized 1,000,000 Shares, $ .002 Par Value, No Shares Issued -- Common Stock - Authorized 25,000,000 Shares, $ .002 Par Value, 6,228,720 Shares Issued and Outstanding 12,457 Additional Paid-in Capital 6,113,582 Retained Earnings 1,265,233 ----------- 7,391,272 Less Treasury Stock at cost, 25,800 shares (28,831) ----------- Total Stockholders' Equity 7,362,441 ----------- Total Liabilities and Stockholders' Equity $ 9,337,814 =========== See accompanying notes to condensed consolidated financial statements. 3 INTEGRATED HEALTH TECHNOLOGIES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS [UNAUDITED]
Three months ended Nine months ended March 31, March 31, --------- --------- 2002 2001 2002 2001 ----------- ----------- ------------ ----------- Sales $ 5,278,366 $ 4,255,484 $ 16,739,241 $ 9,747,573 Cost of Sales 4,072,267 3,818,379 13,245,102 8,951,027 ----------- ----------- ------------ ----------- Gross Profit 1,206,099 437,105 3,494,139 796,546 Selling and Administrative Expenses 984,936 945,265 2,966,444 2,678,101 ----------- ----------- ------------ ----------- Operating Income/[Loss] 221,163 (508,160) 527,695 (1,881,555) ----------- ----------- ------------ ----------- Other Income [Expense]: Administrative Fee Income 70,994 68,000 233,050 118,000 Consulting Fee Income 12,000 -- 36,000 -- (Loss) on Sale of Fixed Assets -- (14,817) -- (14,817) Gain on Settlement of Lawsuit -- -- 1,157,960 -- Partnership Income -- 8,765 -- 8,765 Interest Expense (1,860) (19,843) (41,584) (68,090) Interest and Investment Income 3,666 46 13,482 18,491 ----------- ----------- ------------ ----------- Total Other Income [Expense] 84,800 42,151 1,398,908 62,349 ----------- ----------- ------------ ----------- Income [Loss] Before Income Taxes 305,963 (466,009) 1,926,603 (1,819,206) Federal and State Income Tax [Benefit] 164,650 (151,968) 755,892 (557.683) ----------- ----------- ------------ ----------- Net Income [Loss] $ 141,313 $ (314,041) $ 1,170,711 $(1,261,523) =========== =========== ============ =========== Net Income [Loss] Per Common Share: Basic $ .02 $ (.05) $ .19 $ (.22) =========== =========== ============ =========== Diluted $ .02 $ (.05) $ .17 $ (.22) =========== =========== ============ =========== Average Common Shares Outstanding 6,228,720 6,228,720 6,228,720 5,876,025 Dilutive Potential Common Shares: Options 1,141,578 -- 864,091 -- ----------- ----------- ------------ ----------- Average Common Shares Outstanding-assuming dilution 7,370,298 6,228,720 7,092,811 5,876,025 =========== =========== ============ ===========
See accompanying notes to condensed consolidated financial statements 4 INTEGRATED HEALTH TECHNOLOGIES, INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY FOR THE NINE MONTHS ENDED MARCH 31, 2002 [UNAUDITED]
Common Stock Additional Treasury Stock Total ------------ Preferred Paid-in Retained -------------- Stockholders' Shares Par Value Stock Capital Earnings Shares Cost Equity --------- --------- ------- ---------- ---------- ------ -------- ---------- Balance- July 1, 2001 6,228,720 $12,457 $ -- $6,113,582 $ 94,522 25,800 $(28,831) $6,191,730 Net Income for the nine months ended March 31, 2002 -- -- -- -- 1,170,711 -- -- 1,170,711 --------- ------- ------- ---------- ---------- ------ -------- ---------- Balance- March 31, 2002 6,228,720 $12,457 $ -- $6,113,582 $1,265,233 25,800 $(28,831) $7,362,441 ========= ======= ======= ========== ========== ====== ======== ==========
See accompanying notes to condensed consolidated financial statements. 5 INTEGRATED HEALTH TECHNOLOGIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS [UNAUDITED]
Nine months ended March 31, --------- 2 0 0 2 2 0 0 1 ----------- ----------- Operating Activities: Net Income [Loss] $ 1,170,711 $(1,261,523) ----------- ----------- Adjustments to Reconcile Net Income [Loss] to Net Cash Provided By [Used for] Operating Activities: Depreciation and Amortization 262,912 262,764 Deferred Income Taxes 109,000 (12,000) Loss on Sale of Fixed Assets -- 14,817 Consulting Expense-Stock Options -- 9,139 Bad Debt Expense 89,391 27,000 Changes in Assets and Liabilities: [Increase] Decrease in: Accounts Receivable 494,535 (519,378) Inventories 488,841 (572,962) Refundable Federal Income Taxes 625,000 (334,648) Due From NuCycle Therapy, Inc. (53,051) -- Prepaid Expenses and Other Current Assets (97,079) (140,068) Security Deposits and Other Assets (18,592) 13,112 [Decrease] Increase in: Accounts Payable (626,457) 904,495 Federal and State Income Taxes Payable 238,850 -- Accrued Expenses and Other Liabilities (487,859) 284,121 ----------- ----------- Total Adjustments 1,025,491 (63,608) ----------- ----------- Net Cash - Operating Activities 2,196,202 (1,325,131) ----------- ----------- Investing Activities: Proceeds From Sale of Fixed Assets -- 7,500 Loans to Stockholders (68,746) -- Repayment of Note Receivable 173,993 -- Note Receivable (141,050) -- Purchase of Property and Equipment (259,067) (106,233) ----------- ----------- Net Cash-Investing Activities (294,870) (98,733) ----------- ----------- Financing Activities: Proceeds from Notes Payable 2,507,245 1,313,038 Repayment of Notes Payable (3,258,313) (1,094,878) ----------- ----------- Net Cash-Financing Activities (751,068) 218,160 ----------- ----------- Net Increase/[Decrease] in Cash and Cash Equivalents 1,150,264 (1,205,704) Cash and Cash Equivalents - Beginning of Periods 375,584 1,823,009 ----------- ----------- Cash and Cash Equivalents - End of Periods $ 1,525,848 $ 617,305 =========== ===========
See accompanying notes to condensed consolidated financial statements. 6 INTEGRATED HEALTH TECHNOLGIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS [UNAUDITED] Nine months ended March 31, --------- 2002 2001 ---- ---- Supplemental Disclosures of Cash Flow Information: Cash paid during the periods for: Interest $ 41,584 $68,090 Income Taxes $405,425 $ 5,620 See accompanying notes to condensed consolidated financial statements. 7 INTEGRATED HEALTH TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [UNAUDITED] [1] Business Integrated Health Technologies, Inc. [the "Company"] is engaged primarily in the manufacturing, marketing and sales of vitamins, nutritional supplements and herbal products. Its manufacturing customers are located primarily throughout the United States. [2[ Liquidity The Company currently has purchases orders of approximately $2 million dollars on hand for shipment in the fourth quarter of fiscal 2002. The Company believes that anticipated sales coupled with the purchase orders and the remaining balance available under the revolving line of credit will meet cash needs for operations. [3] Summary of Significant Accounting Policies Principles of Consolidation - The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly-owned. Inter-company transactions and balances have been eliminated in consolidation. Basis of Reporting - The accompanying unaudited interim financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB and Item 310(b) of Regulation S-B. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, such interim statements include all adjustments, which are considered necessary in order to make the interim financial statements not misleading. It is suggested that these financial statements be read in conjunction with the financial statements and notes thereto, together with management's discussion and analysis of financial condition and results of operations, contained in the Company's annual report to stockholders incorporated by reference in the Company's annual report on Form 10-KSB for the fiscal year ended June 30, 2001. The results of operations for the nine months ended March 31, 2002 are not necessarily indicative of the results for the entire fiscal year ending June 30, 2002. Cash and Cash Equivalents - Cash equivalents are comprised of certain highly liquid investments with a maturity of three months or less when purchased. Inventories - Inventory is valued by the first-in, first-out method, at the lower of cost or market. Depreciation - The Company follows the general policy of depreciating the cost of property and equipment over the following estimated useful lives: Building 15 Years Leasehold Improvements 15 Years Machinery and Equipment 7 Years Machinery and Equipment Under Capital Leases 7 Years Transportation Equipment 5 Years Machinery and equipment are depreciated using accelerated methods while leasehold improvements are amortized on a straight-line basis. Depreciation expense was $262,912 and $262,764 for the nine months ended March 31, 2002 and 2001, respectively. Amortization of equipment under capital leases is included with the depreciation expense. Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts or revenues and expenses during the reporting period. Actual results could differ from those estimates. Revenue Recognition - The Company generally recognizes revenue upon shipment of the product. All returns and allowances are estimated and recorded currently. 8 INTEGRATED HEALTH TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #2 [UNAUDITED] [3] Summary of Significant Accounting Policies (Continued) Advertising - Costs incurred for producing and communicating advertising are expensed when incurred. Advertising expense was $ 90,596 and $109,592 for the nine months ended March 31, 2002 and 2001 respectively. [4] Inventories Inventories consist of the following at March 31, 2002: Raw Materials $1,575,026 Work-in-Process 661,784 Finished Goods 873,194 ---------- Total $3,110,004 - ----- ========== [5] Property and Equipment Property and equipment comprise the following at March 31, 2002: Land and Building $1,250,000 Leasehold Improvements 1,157,960 Machinery and Equipment 2,896,746 Machinery and Equipment Under Capital Leases 156,561 Transportation Equipment 32,152 ---------- Total 5,493,419 Less: Accumulated Depreciation and Amortization 3,146,952 ---------- Total $2,346,467 ----- ========== [6] Notes Payable Notes Payable: Bio Merieux Vitek, Inc. (a) $ 3,353 Merchant Financial Corporation (b) -- ---------- Totals 3,353 Less: Current Portion 3,353 ---------- Non-current Portion $ -- ========== (a) Five year 10% equipment note dated April 1, 1997 providing for monthly payments of $1,698 for principal and interest. The note is collateralized by laboratory equipment. (b) Under the terms of a revolving credit note which expires on December 21, 2003, the Company may borrow up to $1,000,000 at 4% above the prime lending rate. The loan is collateralized by the inventory, receivables and equipment of Integrated Health Technologies, Inc. and its operating subsidiaries. At March 31, 2002 there were no borrowings under the credit line. The loan agreement with Merchant Financial Corporation contains certain financial covenants relating to the maintenance of tangible net worth as defined. At March 31, 2002 the Company was in compliance with its tangible net worth covenant. 9 INTEGRATED HEALTH TECHNOLGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #3 [UNAUDITED] [7] Capital Lease The Company acquired warehouse and office equipment under the provisions of two long-term leases. The leases expire in March 2003, and July 2003, respectively. The equipment under the capital leases as of March 31, 2002 had a cost of $47,016 accumulated depreciation of $14,967 with a net book value of $32,049. The future minimum lease payments under capital leases and the net present value of the future minimum lease payments at March 31, 2002 are as follows: Total Minimum Lease Payments $ 47,016 Amount Representing Interest (19,992) -------- Present Value of Net Minimum Lease Payment 27,024 Current Portion (13,263) -------- Long-Term Capital Lease Obligation $ 13,761 ======== The following are maturities of long-term capital lease obligations: March 31, 2003 $13,263 2004 9,633 2005 4,128 2006 -- ------- Total $27,024 ------- [8] Significant Risks and Uncertainties [A] Concentrations of Credit Risk - Cash - The Company maintains balances at several financial institutions. Accounts at each institution are insured by the Federal Deposit Insurance Corporation up to $100,000. At March 31, 2002 the Company's uninsured cash balances totaled approximately $500,000. The Company does not require collateral in relation to cash credit risk. [B] Concentrations of Credit Risk - Receivables - The Company routinely assesses the financial strength of its customers and, based upon factors surrounding the credit risk of its customers, establishes an allowance for uncollectible accounts and, as a consequence, believes that its accounts receivable credit risk exposure beyond such allowances is limited. The Company does not require collateral in relation to its trade accounts receivable credit risk. The amount of the allowance for uncollectible accounts at March 31, 2002 is $ 116,648. . [9] Major Customer For the nine months ended March 31, 2002 and 2001, approximately 56% and 31% of revenues were derived from one customer. The loss of this customer would have an adverse effect on the Company's operations. Two other customers accounted for 16% and 10% of consolidated sales for the nine months ended March 31, 2002 and no other customers accounted for more than 10% of consolidated net sales for the nine months ended March 31, 2002. Accounts receivable from these customers comprised approximately 38% and 37% of total accounts receivable at March 31, 2002 and 2001, respectively. 10 INTEGRATED HEALTH TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #4 [UNAUDITED] [10] Commitments and Contingencies [A] Leases Related Party Leases - Warehouse and office facilities are leased from Vitamin Realty Associates, L.L.C., a limited liability company, which is 90% owned by the Company's Chairman of the Board and principal stockholder and certain family members and 10% owned by the Company's Chief Financial Officer. The lease was effective on January 10, 1997 and provides for a minimum annual rental of $346,000 through January 10, 2002 plus increases in real estate taxes and building operating expenses. At its option, the Company has the right to renew the lease for an additional five year period. On April 28, 2000 the lease was amended reducing the square footage and extending the lease to May 31, 2015. Rent expense for the nine months ended March 31, 2002 and 2001 on this lease was approximately $340,000 and $338,000 respectively. Other Lease Commitments - The Company leases warehouse equipment for a five year period providing for an annual rental of $15,847 and office equipment for a five year period providing for an annual rental of $8,365. The Company leases automobiles under non-cancelable operating lease agreements which expire through 2004. The minimum rental commitment for long-term non-cancelable leases is as follows: Related Lease Party Lease March 31, Commitment Commitment Total - --------- ---------- ---------- ----- 2003 $ 90,557 $ 323,559 $ 414,116 2004 50,361 323,559 373,920 2005 26,322 323,559 349,881 2006 16,548 323,559 340,107 2007 7,697 323,559 331,256 Thereafter -- 2,607,245 2,607,245 -------- ---------- ---------- Total $191,485 $4,225,040 $4,416,525 ======== ========== ========== Total rent expense, including real estate taxes and maintenance charges, was approximately $387,000 and $379,000 for the nine months ended March 31, 2002 and 2001, respectively. Rent expense is stated net of sublease income of approximately $800 and $2,600 for the nine months ended March 31, 2002 and 2001, respectively. [B] Employment Agreements - Effective July 1, 1999, the Company entered into three year employment agreements with its four executive officers which provide for aggregate annual salaries of $495,000 for the year ending June 30, 2002. These agreements are subject to annual increases equal to at least the increase in the consumer price index for the Northeastern area. [C] Investment in and Royalties Receivable from Martin Health Care products, Inc. - On February 10, 1998, the Company signed an exclusive manufacturer agreement with Martin Health Care Products, Inc. to provide to Martin Health Care certain products for a ten year period. In connection with the agreement, the Company also agreed to forgive from Martin Health Care outstanding invoices totaling $22,000. In return for the forgiveness, Martin agreed to pay to the Company a royalty on sales of certain products and to issue to the Company 15,000 shares of common stock in Martin Health Care Products, Inc. The Company has recorded the cost for the common stock at $1,000 and has recorded the royalties as a non-current asset in the amount of $21,000. No royalties have been paid as of March 31, 2002. 11 INTEGRATED HEALTH TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #5 [UNAUDITED] [10] Commitments and Contingencies (Continued) [D] Litigation - The Company is unable to predict its ultimate financial exposure with respect to its prior sale of certain products which may have contained allegedly contaminated Tryptophan which is the subject of numerous lawsuits against unrelated manufacturers, distributors, suppliers, importers and retailers of that product. However, management does not presently believe the outcome of these actions will have a material adverse effect on the Company. [E] Development and Supply Agreement - On April 9, 1998, the Company signed a development and supply agreement with Herbalife International of America, Inc. ["Herbalife"] whereby the Company will develop, manufacture and supply certain nutritional products to Herbalife through December 31, 2002. [11] Related Party Transactions During the year ended June 30, 1997, the Company entered into a consulting agreement with the brother of the Company's chairman of the board on a month to month basis for $1,100 per month. The total consulting expense recorded per this verbal agreement for the nine months ended March 31, 2002 and 2001, by the Company was $9,900 and $9,900, respectively. [12] Fair Value of Financial Instruments Generally accepted accounting principles require disclosing the fair value of financial instruments to the extent practicable for financial instruments which are recognized or unrecognized in the balance sheet. The fair value of the financial instruments disclosed herein is not necessarily representative of the amount that could be realized or settled, nor does the fair value amount consider the tax consequences of realization or settlement. In assessing the fair value of financial instruments, the Company uses a variety of methods and assumptions, which are based on estimates of market conditions and risks existing at the time. For certain instruments, including cash and cash equivalents, accounts receivable, notes receivable, accounts payable, and accrued expenses, it was estimated that the carrying amount approximated fair value because of the short maturities of these instruments. Short-term debt and long-term debt including long-term debt to a related party is based on current rates at which the Company could borrow funds with similar remaining maturities and approximates fair value. [13] New Accounting Pronouncements In July 2001, FAS No. 141, "Business Combinations" ("FAS 141)" and FAS No. 142 "Goodwill and Other Intangible Assets" (FAS 142") were issued. FAS 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. FAS 141 also specifies the criteria that intangible assets acquired in a purchase method business combination must be recognized and reported apart from goodwill. FAS 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead be tested for impairment, at least annually, in accordance with the provisions of FAS 142. FAS 142 will also require that intangible assets with definite useful lives be amortized over their respective estimated useful lives to their estimated residual values, and be reviewed for impairment in accordance with FAS No. 121, "Accounting for the Impairment of Long-lived Assets and Long-lived assets to be Disposed of." The provisions of FAS 141 are effective immediately, except with regard to business combinations prior to July 1, 2001. FAS 142 will be effective as of January 1, 2002. Goodwill and other intangible assets acquired in business combinations completed before July 1, 2001, will continue to be amortized prior to the adoption of FAS 142. The Company does not anticipate that this statement will have a material impact on its financial position and results of operations. In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be disposed of." SFAS No.144 establishes a single accounting model for long-lived assets to be disposed of by sale and requires that those long-lived assets be measured at the lower of carrying amount of fair value less cost to sell, whether reported in continuing operations or in discontinued operations. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001. The Company does not anticipate that this statement will have a material impact on its financial position and results of operations. 12 INTEGRATED HEALTH TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #6 [UNAUDITED] [14] Equity Transactions [A] Tender Offer-On May 21, 2001 the company made a tender offer for all of the outstanding common stock of NuCycle Therapy, Inc. and all outstanding warrants. The total consideration offered was $400,000. On July 11, 2001, the tender offer was accepted and resulted in Chem Acquisition Corp.(a wholly-owned subsidiary) acquiring 2,298,309 shares of NuCycle Therapy, Inc. common stock which represented approximately 72% of NuCycle. On September 1, 2001 the Company then sold NuCycle to certain investors for the same $400,000 to recoup the Company's investment. Certain of the investors are also shareholders and officers of the Company. There was no gain or loss on the sale of NuCycle Therapy, Inc. Sales, gross profit and selling and administrative expenses for the period from July 11, 2001(date of acquisition) through September 1, 2001(date of sale), respectively, totaled $30,629, $12,963 and $20,890. The Company, on September 1, 2001, then entered into a Licensing Agreement with NuCycle whereby the Company obtained exclusive license to manufacture, market and sell vitamin and mineral supplements using NuCycle's technology. [B] Incentive Stock Options-On October 19, 2001, the Company granted 236,250 incentive stock options for a term of ten years commencing on October 19, 2001 to its officers and employees at the exercise price of $.075 per share and 130,000 stock options at $.0825 per share for a term of five years commencing on October 19, 2001. [C] Non-Statutory Stock Options-On October 19, 2001, the Company granted 493,750 non-statutory stock options to officers, directors and members of its Scientific Advisory Board at the exercise price of $.075 for a term of ten years commencing on October 19, 2001 and 270,000 non-statutory stock options at $.0825 for a term of 10 years commencing on October 19, 2001. 13 Item 2. INTEGRATED HEALTH TECHNOLOGIES, INC. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the historical information of the Company and notes thereto. Nine months ended March 31, 2002 Compared to nine months ended March 31, 2001 Results of Operations The Company's net income for the nine months ended March 31, 2002 was $1,170,711 as compared to the net loss of $(1,261,523) for the nine months ended March 31, 2001. This increase in net income of approximately $2,400,000 is primarily the result of a $2,400,000 increase in operating income resulting from a corresponding increase in gross profit of approximately $2,700,000, an increase in other income of approximately $1,300,000 due to the settlement of a Class Action Lawsuit and an increase in Federal and state income taxes of approximately $1,300,000. Sales for the nine months ended March 31, 2002 and 2001 were $16,739,241 and $9,747,573 respectively, an increase of approximately $7,000,000 or 72%. For the nine months ended March 31, 2002 the Company had sales to one customer, who accounted for 56% of net sales in 2002 and 31% in 2001. The loss of this customer would have an adverse affect on the Company's operations. Retail and mail order sales for the nine months ended March 31, 2002 totaled $145,316 as compared to $386,452 for the nine months ended March 31, 2001, a decrease of 62%. The Company has been experiencing a decline in mail order sales due to increased competition. The Company closed its retail store on March 2, 2001. On July 1, 2000, the Company began offering solid dosage product development and technical services through its subsidiary, Integrated Health Ideas, Inc. Consulting revenues for the nine months ended March 31, 2002 totaled $353,781 as compared to $333,981 for the nine months ended March 31, 2001, an increase of $19,800 or 6%. Sales under the Roche Vitamins, Inc. distribution agreement were $1,834,634 for the nine months ended March 31, 2002 as compared to $1,753,588 for the nine months ended March 31, 2001, an increase of $81,046 or 5%. On August 31, 2000, the Company began the distribution and sale of fine chemicals through a new subsidiary, IHT Health Products, Inc. Sales for the nine months ended March 31, 2002 totaled $2,520,932 as compared to $2,202,690 for the seven months ended March 31, 2001. Cost of sales increased to $13,245,102 for the nine months ended March 31, 2002 as compared to $8,951,027 for the nine months ended March 31, 2001. Cost of sales decreased as a percentage of sales to 79% for the nine months ended March 31, 2002 from 92% for the nine months ended March 31, 2001. The decrease in cost of sales is due to greater manufacturing efficiencies. Selling and administrative expenses for the nine months ended March 31, 2002 were $2,966,444 versus $2,678,101 for the same period a year ago. The increase of $288,343 was primarily attributable to a decrease in advertising of $18,996, an increase in bad debt expense of $62,391, an increase in royalty and commission expense of $75,251 a decrease in officers salaries of $147,508, an increase in consulting fees of $103,136, an increase in freight out of $31,025, an increase in public relations fees of $15,623 and an increase in office salaries of $125,342 due to the commencement of the IHT Health Products, Inc. distribution business. Other income [expense] was $1,398,908 for the nine months ended March 31, 2002 as compared to $62,349 for the nine months ended March 31, 2001. The increase of $1,336,559 is primarily the result of the proceeds received of $1,157,960 from the settlement of a Class Action Lawsuit and the increase in administrative fee income of $115,050. 14 INTEGRATED HEALTH TECHNOLOGIES, INC. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Three months ended March 31, 2002 Compared to three months ended March 31, 2001 Results of Operations The Company's net income for the three months ended March 31, 2002 was $141,313 as compared to the net loss of $(314,041) for the three months ended March 31, 2001. This increase in net income of approximately $450,000 is primarily the result of a $730,000 increase in operating income resulting from a corresponding increase in gross profit of approximately $750,000, and an increase in Federal and state income taxes of approximately $300,000. Sales for the three months ended March 31, 2002 and 2001 were $5,278,366 and $4,255,484 respectively, an increase of approximately $1,000,000 or 24%. For the three months ended March 31, 2002 the Company had sales to one customer, who accounted for 62% of net sales in 2002 and 36% in 2001. The loss of this customer would have an adverse affect on the Company's operations. Retail and mail order sales for the three months ended March 31, 2002 totaled $45,504 as compared to $116,250 for the three months ended March 31, 2001, a decrease of 61%. The Company has been experiencing a decline in mail order sales due to increased competition. The Company closed its retail store on March 2, 2001. Sales under the Roche Vitamins, Inc. distribution agreement were $599,256 for the three months ended March 31, 2002 as compared to $618,979 for the three months ended March 31, 2001, a decrease of $19,723 or 3%. Sales through its IHT Health Products, Inc. subsidiary totaled $825,484 for the three months ended March 31, 2002 as compared to $1,054,505 for the three months ended March 31, 2001, a decrease of $229,021 or 22%. Cost of sales increased to $4,072,267 for the three months ended March 31, 2002 as compared to $3,818,379 for the three months ended March 31, 2001. Cost of sales decreased as a percentage of sales to 77% for the three months ended March 31, 2002 from 90% for the three months ended March 31, 2001. The decrease in cost of sales is due to greater manufacturing efficiencies. Selling and administrative expenses for the three months ended March 31, 2002 were $984,936 versus $945,265 for the same period a year ago. The increase of $39,671 was primarily attributable to a decrease in officers salaries of $44,744, an increase in advertising of $30,670, an increase in bad debt expense of $23,609, an increase in royalty and commission expenses of $10,322, and an increase in office salaries of $15,815 due to the commencement of the IHT Health Products, Inc. distribution business. Other income [expense] was $84,800 for the three months ended March 31, 2002 as compared to $42,151 for the three months ended March 31, 2001. The increase of $42,649 is primarily the result of a decrease in interest expense of $17,983 and an increase in administrative fee income of $20,994. Liquidity and Capital Resources At March 31, 2002 the Company's working capital was $4,778,922 an increase of $1,091,106 over working capital at June 30, 2001. Cash and cash equivalents were $1,525,848 at March 31, 2002, an increase of $1,150,264 from June 30, 2001. The Company generated $2,196,202 and utilized $1,325,131 for operations for the nine months ended March 31, 2002 and 2001, respectively. The primary reasons for the increase in cash provided for operations for the nine months ended March 31, 2002 are net income of approximately $1,200,000, a decrease in accounts receivable of approximately $495,000, a decrease in inventories of approximately $500,000, a decrease in refundable Federal Income Taxes of approximately $625,000, a decrease in accrued expenses of approximately $500,000 and an increase in Federal and State Income Taxes Payable of approximately $240,000. The Company 15 INTEGRATED HEALTH TECHNOLOGIES, INC. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity and Capital Resources-Continued currently has purchase orders of approximately $2 million dollars on hand for shipment in the fourth quarter of fiscal 2002. The Company believes that anticipated sales coupled with the purchase orders and the remaining balance available under the revolving line of credit will meet the cash needs for operations. The Company utilized $294,870 and $98,733 in investing activities for the nine months ended March 31, 2002 and 2001, respectively. The Company utilized net cash of $751,068 and generated $218,160 from debt financing activities for the nine months ended March 31, 2002 and 2001, respectively. The Company's total annual commitment at March 31, 2002 for the next five years of $1,809,280 consists of obligations under operating leases for facilities and lease agreements for the rental of warehouse equipment and automobiles. Effective July 1, 1999, the Company entered into three year employment agreements with four executive officers which provide for aggregate annual salaries of $495,000 for the year sending June 30, 2002. 16 Part II: Other Information INTEGRATED HEALTH TECHNOLOGIES, INC. Item 1: Legal Proceeding None Item 2: Changes in Securities None Item 3: Defaults Upon Senior Securities None Item 4: Submission of Matters to a Vote of Security Holders None Item 5: Other Information None Item 6: Exhibits and Reports on Form 8K None 17 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. INTEGRATED HEALTH TECHNOLOGIES, INC. Date: May 13, 2002 By:/s/ Seymour Flug ------------------------------------ Seymour Flug, President and Chief Executive Officer Date: May 13, 2002 By:/s/ Eric Friedman ------------------------------------ Eric Friedman, Chief Financial Officer 18 -----END PRIVACY-ENHANCED MESSAGE-----