-----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, HE6eEFhXi2/4eQTKoupPXhnqKhvG/gfe5x1p/RtGpGqJjdS+HxwhhxjdDe+IQ9qS D1f59C+l5kqCg2ahPhTEJA== 0001169232-03-000731.txt : 20030204 0001169232-03-000731.hdr.sgml : 20030204 20030204083110 ACCESSION NUMBER: 0001169232-03-000731 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20021231 FILED AS OF DATE: 20030204 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTEGRATED HEALTH TECHNOLOGIES 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: 03537359 BUSINESS ADDRESS: STREET 1: 201 ROUTE 22 CITY: HILLSIDE STATE: NJ ZIP: 07205 BUSINESS PHONE: 9739260816 MAIL ADDRESS: STREET 1: 201 ROUTE 22 CITY: HILLSIDE STATE: NJ ZIP: 07205 FORMER COMPANY: FORMER CONFORMED NAME: CHEM INTERNATIONAL INC DATE OF NAME CHANGE: 19960716 10QSB 1 d53452_10-qsb.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 December 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 January 31, 2003 ----- ---------------------------------- Common Stock, Par Value 6,228,720 INTEGRATED HEALTH TECHNOLOGIES, INC. INDEX - -------------------------------------------------------------------------------- Part I: Financial Information Item 1: Consolidated Financial Statements Independent Accountant's Review Report ........................... 1 Consolidated Balance Sheet as of December 31, 2002 [Unaudited] ... 2 - 3 Consolidated Statements of Operations for the three and six months ended December 31, 2002 and 2001 [Unaudited] ..................... 4 Consolidated Statement of Stockholders' Equity for the six months ended December 31, 2002 [Unaudited] .............................. 5 Consolidated Statements of Cash Flows for six months ended December, 2002 and 2001 [Unaudited] .............................. 6 - 7 Notes to Consolidated Financial Statements [Unaudited] ........... 8 - 12 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations ...................................... 13 - 15 Part II: Other Information ............................................. 16 Signature .............................................................. 17
. . . . . . . . . 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 December 31, 2002, and the related condensed consolidated statements of operations for the three and six months ended December 31, 2002 and 2001, and condensed consolidated statements of cash flows for the six months ended December 31, 2002 and 2001, and condensed consolidated statement of stockholders' equity for the six months ended December 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.C. January 31, 2003 Edison, New Jersey 1 INTEGRATED HEALTH TECHNOLOGIES, INC. CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 2002 [UNAUDITED] - -------------------------------------------------------------------------------- Assets: Current Assets: Cash and Cash Equivalents $ 2,116,193 Accounts Receivable - Net 1,872,115 Deferred Income Taxes 67,000 Inventories 3,831,814 Due From NuCycle Therapy, Inc. - Related Party 13,194 Prepaid Expenses and Other Current Assets 265,554 ----------- Total Current Assets 8,165,870 ----------- Property and Equipment - Net 2,359,395 ----------- Other Assets: Deferred Tax Asset 90,000 License Fee, less accumulated amortization of $40,000 507,000 Security Deposits and Other Assets 69,410 ----------- Total Other Assets 666,410 ----------- Total Assets $11,191,675 =========== See accompanying notes to condensed consolidated financial statements. 2 INTEGRATED HEALTH TECHNOLOGIES, INC. CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 2002 [UNAUDITED] - -------------------------------------------------------------------------------- Liabilities and Stockholders' Equity: Current Liabilities: Accounts Payable $ 2,407,235 Accrued Expenses and Other Current Liabilities 211,933 Federal and State Income Taxes Payable 31,242 Customer Advances 425,881 Capital Lease Obligation 11,940 ------------ Total Current Liabilities 3,088,231 ------------ Non-Current Liabilities: Capital Lease Obligation 5,337 ------------ Total Non-Current Liabilities 5,337 ------------ Commitments and Contingencies [9] -- ------------ 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 2,000,899 ------------ 8,126,938 Less, Treasury Stock at cost, 25,800 shares (28,831) ------------ Total Stockholders' Equity 8,098,107 ------------ Total Liabilities and Stockholders' Equity $ 11,191,675 ============ See accompanying notes to condensed consolidated financial statements. 3 INTEGRATED HEALTH TECHNOLOGIES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS [UNAUDITED] - --------------------------------------------------------------------------------
Three months ended Six months ended December 31, December 31, ------------ ------------ 2002 2001 2002 2001 ---- ---- ---- ---- Sales $ 5,945,719 $ 6,375,881 $ 10,793,909 $ 11,460,875 Cost of Sales 4,405,182 4,986,562 8,297,696 9,172,835 ----------- ----------- ------------ ------------ Gross Profit 1,540,537 1,389,319 2,496,213 2,288,040 Selling and Administrative Expenses 1,030,105 1,049,458 1,757,136 1,981,508 ----------- ----------- ------------ ------------ Operating Income/[Loss] 510,432 339,861 739,077 306,532 ----------- ----------- ------------ ------------ Other Income [Expense]: Administrative Fee Income 70,039 71,497 140,166 162,056 Consulting Fee Income 12,000 12,000 24,000 24,000 Gain on Settlement of Lawsuit -- -- -- 1,157,960 Interest Expense (1,580) (18,381) (3,629) (39,724) Interest and Investment Income 14,353 5,326 17,308 9,816 ----------- ----------- ------------ ------------ Total Other Income [Expense] 94,812 70,442 177,845 1,314,108 ----------- ----------- ------------ ------------ Income [Loss] Before Income Taxes 605,244 410,303 916,922 1,620,640 Federal and State Income Tax [Benefit] 278,422 202,438 403,590 591,242 ----------- ----------- ------------ ------------ Net Income [Loss] $ 326,822 $ 207,865 $ 513,332 $ 1,029,398 =========== =========== ============ ============ Net Income [Loss] Per Common Share: Basic $ .05 $ .03 $ .08 $ .17 =========== =========== ============ ============ Diluted $ .04 $ .03 $ .07 $ .15 =========== =========== ============ ============ Average Common Shares Outstanding 6,228,720 6,228,720 6,228,720 6,228,720 Dilutive Potential Common Shares: Options 1,212,765 896,630 1,077,415 448,315 ----------- ----------- ------------ ------------ Average Common Shares Outstanding-assuming dilution 7,441,485 7,125,350 7,306,135 6,677,035 =========== =========== ============ ============
See accompanying notes to condensed consolidated financial statements 4 INTEGRATED HEALTH TECHNOLOGIES, INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY FOR THE SIX MONTHS ENDED DECEMBER 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, 2002 6,228,720 $12,457 $ -- $6,113,582 $1,487,567 25,800 $(28,831) $7,584,775 Net Income for the six months ended December 31, 2002 -- -- -- -- 513,332 -- -- 513,332 --------- ------- ----- ---------- ---------- ------ -------- ---------- Balance- December 31, 2002 6,228,720 $12,457 $ -- $6,113,582 $2,000,899 25,800 $(28,831) $8,098,107 ========= ======= ===== ========== ========== ====== ======== ==========
See accompanying notes to condensed consolidated financial statements. 5 INTEGRATED HEALTH TECHNOLOGIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS [UNAUDITED] - --------------------------------------------------------------------------------
Six months ended Decmber 31, ----------- 2 0 0 2 2 0 0 1 ------- ------- Operating Activities: Net Income $ 513,332 $ 1,029,398 ----------- ----------- Adjustments to Reconcile Net Income to Net Cash [Used for] Operating Activities: Depreciation and Amortization 228,236 167,550 Deferred Income Taxes 7,000 61,000 Bad Debt Expense -- 56,782 Changes in Assets and Liabilities: [Increase] Decrease in: Accounts Receivable 400,310 742,243 Inventories (1,126,153) 194,572 Refundable Federal Income Taxes -- 625,000 Due From NuCycle Therapy, Inc. - Related Party 87,088 (44,113) Prepaid Expenses and Other Current Assets (120,006) 18,234 License Fee (355,000) -- Security Deposits and Other Assets 10,811 12,232 [Decrease] Increase in: Accounts Payable 775,123 (183,521) Federal and State Income Taxes Payable (75,020) 305,000 Accrued Expenses and Other Liabilities (18,401) (237,843) ----------- ----------- Total Adjustments (186,012) 1,717,136 ----------- ----------- Net Cash - Operating Activities 327,320 2,746,534 ----------- ----------- Investing Activities: Loans to Stockholders 3,564 (73,075) Repayment of Note Receivable -- 173,993 Note Receivable -- (141,050) Purchase of Property and Equipment (240,104) (144,938) ----------- ----------- Net Cash-Investing Activities (236,540) (185,070) ----------- ----------- Financing Activities: Proceeds from Notes Payable 2,255,954 1,807,245 Repayment of Notes Payable (2,293,864) (2,623,165) ----------- ----------- Net Cash-Financing Activities (37,910) (815,920) ----------- ----------- Net Increase/[Decrease] in Cash and Cash Equivalents 52,870 1,745,544 Cash and Cash Equivalents - Beginning of Periods 2,063,323 375,584 ----------- ----------- Cash and Cash Equivalents - End of Periods $ 2,116,193 $ 2,121,128 =========== ===========
See accompanying notes to condensed consolidated financial statements. 6 INTEGRATED HEALTH TECHNOLGIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS [UNAUDITED] - -------------------------------------------------------------------------------- Six months ended December 31, ------------ 2002 2001 ---- ---- Supplemental Disclosures of Cash Flow Information: Cash paid during the periods for: Interest $ 3,629 $ 39,724 Income Taxes $459,771 $225,425 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 customers are located primarily throughout the United States. The Company considers all subsidiaries as one segment of business. [2] 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. Intercompany 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, 2002. The results of operations for the six months ended December 31, 2002 are not necessarily indicative of the results for the entire fiscal year ending June 30, 2003. 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, accounts payable, and accrued expenses, it was estimated that the carrying amount approximated fair value because of the short maturities of these instruments. All debt is based on current rates at which the Company could borrow funds with similar remaining maturities and approximates fair value. 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 $188,236 and $167,550 for the six months ended December 31, 2002 and 2001, respectively. Amortization of equipment under capital leases is included with the depreciation expense. 8 INTEGRATED HEALTH TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #2 [UNAUDITED] - -------------------------------------------------------------------------------- [2] Summary of Significant Accounting Policies (Continued) 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 on a timely basis. Advertising - Costs incurred for producing and communicating advertising are expensed when incurred. Advertising expense was $4,637 and $16,333 for the six months ended December 31, 2002 and 2001 respectively. [3] Inventories Inventories consist of the following at December 31, 2002: Raw Materials $1,789,950 Work-in-Process 1,279,104 Finished Goods 762,760 ---------- Total $3,831,814 ========== [4] Property and Equipment Property and equipment comprise the following at December 31, 2002: Land and Building $1,250,000 Leasehold Improvements 1,163,360 Machinery and Equipment 2,956,747 Machinery and Equipment Under Capital Leases 156,561 Transportation Equipment 37,714 ---------- Total 5,564,382 Less: Accumulated Depreciation and Amortization 3,204,987 ---------- Total $2,359,395 ========== [5] Notes Payable Notes Payable: Merchant Financial Corporation (a) $ -- ---------- (a) 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 December 31, 2002 there were no borrowings under the credit line. On January 21, 2003 the credit line agreement was terminated. 9 INTEGRATED HEALTH TECHNOLGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #3 [UNAUDITED] - -------------------------------------------------------------------------------- [6] 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 December 31, 2002 has a cost of $47,016 and accumulated depreciation of $20,292 with a net book value of $26,724. The future minimum lease payments under capital leases and the net present value of the future minimum lease payments at December 31, 2002 are as follows: Total Minimum Lease Payments $ 47,016 Amount Representing Interest (29,739) -------- Present Value of Net Minimum Lease Payment 17,277 Current Portion (11,940) -------- Long-Term Capital Lease Obligation $ 5,337 ======== The following are maturities of long-term capital lease obligations: December 31, 2003 $11,940 2004 5,337 2005 -- 2006 -- ------- Total $17,277 ======= [7] 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 December 31, 2002 the Company's uninsured cash balances totaled approximately $1,863,000. 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 December 31, 2002 is $29,460. [8] Major Customer For the six months ended December 31, 2002 and 2001 approximately 66% and 53% 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 12% of consolidated sales for the six months ended December 31, 2002 and 20% of consolidated sales for the six months ended December 31, 2001. Accounts receivable from these customers comprised approximately 74% and 40% of total accounts receivable at December 31, 2002 and 2001, respectively. 10 INTEGRATED HEALTH TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #4 [UNAUDITED] - -------------------------------------------------------------------------------- [9] 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 six months ended December 31, 2002 and 2001 on this lease was approximately $228,000 and $225,000 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 December 31, Commitment Commitment Total - ------------ ---------- ---------- ----- 2003 $ 64,592 $ 323,559 $ 388,151 2004 35,109 323,559 358,668 2005 16,548 323,559 340,107 2006 11,132 323,559 334,691 2007 702 323,559 324,261 Thereafter -- 2,364,577 2,364,577 -------- ---------- ---------- Total $128,083 $3,982,372 $4,110,455 ======== ========== ========== Total rent expense, including real estate taxes and maintenance charges, was approximately $275,000 and $265,000 for the six months ended December 31, 2002 and 2001, respectively. Rent expense is stated net of sublease income of approximately $2,600 and $400 for the six months ended December 31, 2002 and 2001, respectively. [B] 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, 2004. On December 31, 2002 the agreement was modified extending the term of the agreement to December 31, 2005 and providing that Herbalife is required to purchase a minimum quantity of Supplied Products each year for the term of the agreement of $18,000,000. If Herbalife purchases the minimum amount then Herbalife will be entitled to cetain rebates. [10] 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 six months ended December 31, 2002 and 2001, by the Company was $6,600 and $6,600, respectively. 11 INTEGRATED HEALTH TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #5 [UNAUDITED] - -------------------------------------------------------------------------------- [11] 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 meet to 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 was effective as of July 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 adoption of FAS 142 did not have a material impact on the 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] Equity Transactions [A] Incentive Stock Options-On October 11, 2002, the Company granted 614,000 incentive stock options for a term of ten years commencing on October 11, 2002 to its officers and employees at the exercise price of $.33 (representing the market price) per share and 300,000 stock options at $.36 (representing 110% of the market price) per share for a term of five years commencing on October 11, 2002. [B] Non-Statutory Stock Options-On October 11, 2002, the Company granted 75,000 non-statutory stock options to an officer and directors at the exercise price of $.33 (representing the market price) for a term of ten years commencing on October 11, 2002 and 100,000 non-statutory stock options a $.36 (representing 110% of the market price) per share for a term of ten years commencing on October 11, 2002. [13] Subsequent Transactions [A] Equity Transactions-On January 21, 2003 certain employees and officers exercised 201,250 incentive stock options and 418,750 non-statutory stock options at an exercise price of $0.075 per share and 130,000 incentive stock options and 270,000 non-statutory stock options at an exercise price of $.0825 per share. [B] Acquisitions- On January 14, 2003 the Company entered into a letter of intent with Trade Investment Services LLC ("TIS") to acquire all of the interests of TIS in Natex LLC, a limited liability company formed under the laws of the Republic of Gerogia ("Natex"). Also on January 14, 2003 the Company reported entering into a letter of intent with NuCycle Acquisition Corp. (NuCycle") to acquire NuCycle in exchange for NuCycle receiving from the Company shares of stock. [C] Notes Payable-On January 21, 2003 the Company terminated its revolving credit line agreement with Merchant Financial Corporation. 12 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. Six months ended December 31, 2002 Compared to six months ended December 31, 2001 Results of Operations The Company's net income for the six months ended December 31, 2002 was $513,332 as compared to net income of $1,029,398 for the six months ended December 31, 2001. This decrease in net income of approximately $520,000 is primarily the result of a $435,000 increase in operating income resulting from a corresponding increase in gross profit of approximately $210,000, a decrease in other income of approximately $1,100,000 due to the settlement of a Class Action Lawsuit and a decrease in Federal and state income taxes of approximately $190,000. Sales for the six months ended December 31, 2002 and 2001 were $10,793,909 and $11,460,875, respectively, a decrease of approximately $700,000 or 6% For the six months ended December 31, 2002 the Company had sales to one customer, who accounted for 66% of net sales in 2002 and 53% in 2001. The loss of this customer would have an adverse affect on the Company's operations. Retail and mail order sales for the six months ended December 31, 2002 totaled $53,825 as compared to $99,812 for the six months ended December 31, 2001, a decrease of 46%. 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 $1,008,148 for the six months ended December 31, 2002 as compared to $1,235,378 for the six months ended December 31, 2001, a decrease of $227,230 or 18%. 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 six months ended December 31, 2002 totaled $967,268 as compared to $1,695,448 for the six months ended December 31, 2001, decrease of $728,180 or 43%. The decrease in sales is due to Company's desire to pursue greater gross profit at the risk of lower sales. Cost of sales decreased to $8,297,696 for the six months ended December 31, 2002 as compared to $9,172,835 for the six months ended December 31, 2001. Cost of sales decreased as a percentage of sales to 77% for the six months ended December 31, 2002 from 80% for the six months ended December 31, 2001. The decrease in cost of sales is due to greater manufacturing efficiencies. Selling and administrative expenses for the six months ended December 31, 2002 were $1,757,136 versus $1,981,508 for the same period a year ago. The decrease of $224,372 was primarily attributable to a decrease in advertising of $11,696, a decrease in bad debt expense of $49,889, a decrease in royalty and commission expense of $25,131, an increase in officers salaries of $81,268, an increase in auto, travel and entertainment of $49,225, a decrease in office salaries of $158,288 due to a reduction of office personnel, a decrease in public relations fees of $22,982 and a decrease in freight out of $44,152. Other income [expense] was $177,845 for the six months ended December 31, 2002 as compared to $1,314,108 for the six months ended December 31, 2001. The decrease of $1,136,263 is primarily the result of the proceeds received of $1,157,960 from the settlement of a Class Action Lawsuit in 2001. 13 INTEGRATED HEALTH TECHNOLOGIES, INC. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- Three months ended December 31, 2002 Compared to three months ended December 31, 2001 Results of Operations The Company's net income for the three months ended December 31, 2002 was $326,822 as compared to net income of $207,865 for the three months ended December 31, 2001. This increase in net income of approximately $120,000 is primarily the result of a $170,000 increase in operating income resulting from a corresponding increase in gross profit of approximately $150,000, and an increase in Federal and state income taxes of approximately $76,000. Sales for the three months ended December 31, 2002 and 2001 were $5,945,719 and $6,375,881 respectively, a decrease of approximately $430,000 or 7%. For the three months ended December 31, 2002 the Company had sales to one customer, who accounted for 74% of net sales in 2002 and 55% 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 December 31, 2002 totaled $24,785 as compared to $39,208 for the three months ended December 31, 2001, a decrease of 37%. 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 $497,416 for the three months ended December 31, 2002 as compared to $596,852 for the three months ended December 31, 2001, a decrease of $99,396 or 17%. IHT Health Products, Inc. sales for the three months ended December 31, 2002 totaled $468,186 as compared to $719,838 for the three months ended December 31, 2001, a decrease of $251,652 or 35%. The decrease in sales is due to the Company's desire to pursue greater gross profit at the risk of lower sales. Cost of sales decreased to $4,405,182 for the three months ended December 31, 2002 as compared to $4,986,562 for the three months ended December 31, 2001. Cost of sales decreased as a percentage of sales to 74% for the three months ended December 31, 2002 from 78% for the three months ended December 31, 2001. The decrease in cost of sales is due to greater manufacturing efficiencies. Selling and administrative expenses for the three months ended December 31, 2002 were $1,030,105 versus $1,049,458 for the same period a year ago. The decrease of $19,353 was primarily attributable to an increase in officers salaries of $80,022, a decrease in bad debt expense of $40,889 a decrease in freight out of $37,283, an increase in auto, travel, and entertainment of $63,256, a decrease in royalty and commission expenses of $16,099, a decrease in office salaries of $76,032 due to a reduction in personnel and an increase in consulting fees of $32,051. Other income [expense] was $94,812 for the three months ended December 31, 2002 as compared to $70,442 for the three months ended December 31, 2001. The increase of $24,370 is primarily the result of a decrease in interest expense of $16,801 and an increase in interest and investment income of $9,027. Liquidity and Capital Resources At December 31, 2002 the Company's working capital was $5,077,639 an increase of $178,075 over working capital at June 30, 2002. Cash and cash equivalents were $2,116,193 at December 31, 2002, an increase of $52,870 from June 30, 2002. The Company generated $327,320 and $2,746,534 from operations for the six months ended December 31, 2002 and 2001, respectively. The primary reasons for the increase in cash provided for operations for the six months ended December 31, 2002 are net income of approximately $515,000, a decrease in accounts receivable of approximately $400,000, an increase in inventories of approximately $1,100,000, a decrease in accounts payable of approximately $775,000 and a decrease in Federal and State Income Taxes Payable of approximately $75,000. 14 INTEGRATED HEALTH TECHNOLOGIES, INC. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- Liquidity and Capital Resources - Continued The Company utilized $236,540 and $185,070 in investing activities for the six months ended December 31, 2002 and 2001, respectively. The Company utilized net cash of $37,910 and $815,920 from debt financing activities for the six months ended December 31, 2002 and 2001, respectively. The Company has a $1,000,000 revolving line of credit agreement which bears interest at 4% above the prime interest rate and expires on December 21, 2003. At December 31, 2002 there was no balance due under the revolving line of credit. On January 21,2003 the Company terminated it's credit line agreement. The Company's total annual commitment at December 31, 2002 for the next five years of $1,745,878 consists of obligations under operating leases for facilities and lease agreements for the rental of warehouse equipment and automobiles. 15 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 Current Report on Form 8-K filed January 2, 2003 pursuant to Item 5 (Other Events). Current Report on Form 8-K filed January 14, 2003 pursuant to Item 5 (Other Events). 16 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: January 31, 2003 By: /s/ Seymour Flug ------------------------------------- Seymour Flug, President and Chief Executive Officer Date: January 31, 2003 By: /s/ Eric Friedman ------------------------------------- Eric Friedman, Chief Financial Officer 17 Certification of CFO I, Eric Friedman, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of Integrated Health Technologies, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 45 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date. 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: January 31, 2003 By: /s/ Eric Friedman ----------------- Name: Eric Friedman Title: Vice President & Chief Financial Officer 18 Certification of CEO I, Seymour Flug, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of Integrated Health Technologies, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: d) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; e) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 45 days prior to the filing date of this quarterly report (the "Evaluation Date"); and f) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date. 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): c) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and d) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: January 31, 2003 By: /s/ Seymour Flug ---------------- Name: Seymour Flug Title: President & Chief Executive Officer 19 CERTIFICATION OF PERIODIC REPORT I, Seymour Flug, the President & Chief Executive Officer of Integrated Health Technologies, Inc. (the "Company"), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that: (1) the Quarterly Report on Form 10-QSB of the Company for the quarterly period ended December 31, 2002 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: January 31, 2003 By: /s/ Seymour Flug ---------------- Seymour E. Flug President & Chief Executive Officer CERTIFICATION OF PERIODIC REPORT I, Eric Friedman, the Vice President and Chief Financial Officer of Integrated Health Technologies, Inc. (the "Company"), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that: (1) the Quarterly Report on Form 10-QSB of the Company for the quarterly period ended December 31, 2002 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: January 31, 2003 By: /s/ Eric Friedman ----------------- Eric Friedman Vice President and Chief Financial Officer 20 -----END PRIVACY-ENHANCED MESSAGE-----