UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 WASHINGTON,
D.C. 20549
 
 FORM
10-Q
 
 QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d)
 OF THE
SECURITIES EXCHANGE ACT OF 1934
 
 For the
quarterly period ended September 30, 2008
 
 or
 
 TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d)
 OF THE
SECURITIES EXCHANGE ACT OF 1934
 
 For the
transition period from ____________ to ________________
 
 Commission
file number: 000-28277
 
 HERITAGE WORLDWIDE, INC.
 (Exact
name of small business issuer as specified in its charter)
    Delaware
                13-4196258(State
      or other jurisdiction of
                (I.R.S.
      Employerincorporation
      or organization)
                Identification
      No.)
  337
      Avenue de Bruxelles La Seyne-Sur-Mer
      (France)
                83507(Address
      of principal executive offices)
                (Zip
      Code)
 (011)
(33) 494-109810
 (Issuer's
telephone number, including area code)
 
 
 Indicate
by check mark whether the issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act during the past 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes [X] No [ ]
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes [ ]
No [X]
 
 Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a small reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “small
reporting company” in Rule 12b-2 of the Exchange Act. (Check one).
 
 Large
accelerated filer [ ] Non-accelerated filer [ ] Accelerated filer [ ] Smaller
reporting company [X]
 
 The total
number of shares of the issuers’ common stock, $.001 par value, outstanding at
November 14, 2008 was 18,166,858.
 
 Transitional
Small Business Disclosure Format: Yes [ ] No [X]
 
 1
  SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
 
 To the
extent that the information presented in this Quarterly Report on Form 10-Q for
the quarter ended September 30, 2008 discusses financial projections,
information or expectations about our products or markets, or otherwise makes
statements about future events, such statements are forward-looking. Although we
believe that the expectations reflected in these forward-looking statements are
based on reasonable assumptions, there are a number of risks and uncertainties
that could cause actual results to differ materially from such forward-looking
statements. These risks and uncertainties are described, among other places in
our 2008 Annual Report of Form 10-K, in "Management's Discussion and Analysis or
Plan of Operation."
 
 In
addition, we disclaim any obligations to update any forward-looking statements
to reflect events or circumstances after the date of this Quarterly Report. When
considering such forward-looking statements, you should keep in mind the risks
referenced above and the other cautionary statements in this Quarterly
Report.
 
 
 
 2
 HERITAGE
      WORLDWIDE, INC. AND SUBSIDIARIESCONSOLIDATED
      BALANCE SHEETSASSETS
  September
      30,
                
                
                June
      30,2008
                
                
                2008(Unaudited)
                
                
                (1)Current
      Assets:Cash
                
                $
                251,530
                
                
                $
                274,537Accounts
      receivable, net of allowance for doubtful accounts of $941,163 and
      $995,289at
      September 30, 2008 and June 30, 2008, respectively and allowance for
      product returnsof
      $702,619 and $779,249 at September 30, 2008 and June 30, 2008,
      respectively
                
                
                5,947,450
                
                
                
                6,337,562Inventories,
      net of allowance for obsolescence of $685,043 and $760,232at
      September 30, 2008 and June 30, 2008, respectively
                
                
                4,443,248
                
                
                
                5,026,719Prepaid
      expenses and other current assets
                
                
                1,048,116
                
                
                
                1,144,487Total
      current assets
                
                
                11,690,344
                
                
                
                12,783,305Property
      and equipment, net of accumulated depreciation of $5,011,194 and
      $5,299,479at
      September 30, 2008 and June 30, 2008, respectively
                
                
                1,715,697
                
                
                
                2,036,642Goodwill
                
                
                1,263,303
                
                
                
                1,380,778Investment
      in SCI Lucas
                
                
                770,438
                
                
                
                826,421Other
      assets
                
                
                151,641
                
                
                
                165,742Total
      assets
                
                $
                15,591,423
                
                
                $
                17,192,888LIABILITIES
      AND STOCKHOLDERS' DEFICITCurrent
      Liabilities:Lines
      of credit
                
                $
                2,196,019
                
                
                $
                2,424,627Accounts
      payable and accrued expenses
                
                
                8,852,707
                
                
                
                9,014,825Current
      portion of capitalized lease obligations
                
                
                232,551
                
                
                
                278,379Convertible
      debentures, net of discount of $217,571 and $320,368at
      September 30, 2008 and June 30, 2008, respectively
                
                
                2,782,429
                
                
                
                2,679,632Convertible
      debentures and related accrued interest payable, net of
      discountof
      $273 and $4,547-related party at September 30, 2008 and June 30, 2008,
      respectively
                
                
                1,052,028
                
                
                
                1,041,521Current
      portion of long term debt
                
                
                784,684
                
                
                
                429,215Reserve
      for product replacements
                
                
                413,604
                
                
                
                294,187Total
      current liabilities
                
                
                16,314,022
                
                
                
                16,162,386Capitalized
      lease obligations, net of current portion
                
                
                237,367
                
                
                
                304,832Long
      term debt, net of current portion
                
                
                487,794
                
                
                
                988,276Total
      liabilities
                
                
                17,039,183
                
                
                
                17,455,494Minority
      interest
                
                
                536,949
                
                
                
                569,913Stockholders' Deficit:Common
      stock; $.001 par value, 50,000,000 shares authorized,18,160,299
      issued and 17,410,299 outstanding at September 30, 2008 and June 30, 2008,
      respectively
                
                
                17,411
                
                
                
                17,411Additional
      paid-in capital
                
                
                6,279,326
                
                
                
                6,277,883Accumulated
      other comprehensive income
                
                
                3,427,190
                
                
                
                3,698,820Accumulated
      deficit
                
                
                (11,708,636
                )
                
                
                (10,826,633
                )Total
      stockholders’ deficit
                
                
                (1,984,709
                )
                
                
                (832,519
                )Total
      liabilities and stockholders’ deficit
                
                $
                15,591,423
                
                
                $
                17,192,888
  (1)
      Derived from audited financial statementsSee
      Notes to Unaudited Consolidated Financial
  Statements.
 
 3
 
 HERITAGE
      WORLDWIDE, INC. AND SUBSIDIARIESCONSOLIDATED
      STATEMENTS OF OPERATIONS
  For
      the three-month period endingSeptember
      30,2008
                  
                  
                  2007(Unaudited)
                  
                  
                  (Unaudited)Revenues
                  
                  $
                  3,662,061
                  
                  
                  $
                  4,969,299Cost
      of revenues
                  
                  
                  2,171,393
                  
                  
                  
                  2,400,316Gross
      profit
                  
                  
                  1,490,668
                  
                  
                  
                  2,568,983Operating
      expenses:Selling,
      general and administrative
                  
                  
                  1,944,770
                  
                  
                  
                  2,386,637Research
      and development
                  
                  
                  318,530
                  
                  
                  
                  346,305Total
      operating expenses
                  
                  
                  2,263,300
                  
                  
                  
                  2,732,942Operating
      loss
                  
                  
                  (772,632
                  )
                  
                  
                  (163,959
                  )Other
      income (expenses):Gain
      in equity investment
                  
                  
                  14,916
                  
                  
                  
                  11,677Interest
      expense
                  
                  
                  (157,251
                  )
                  
                  
                  (161,034
                  )Total
      other expenses
                  
                  
                  (142,335
                  )
                  
                  
                  (149,357
                  )Loss
      before minority interest
                  
                  
                  (914,967
                  )
                  
                  
                  (313,316
                  )Minority
      interest
                  
                  
                  32,964
                  
                  
                  
                  (4,988
                  )Net
      loss
                  
                  
                  (882,003
                  )
                  
                  
                  (318,304
                  )Other
      comprehensive income, net of taxesForeign
      currency translation adjustment
                  
                  
                  271,630
                  
                  
                  
                  562,562Comprehensive
      (loss) income
                  
                  $
                  (610,373
                  )
                  
                  $
                  244,258Basic
      net loss per common share
                  
                  $
                  (0.05
                  )
                  
                  $
                  (0.02
                  )Basic
      weighted average commonshares
      outstanding
                  
                  
                  17,410,299
                  
                  
                  
                  17,410,299Diluted
      net loss per share
                  
                  $
                  (0.05
                  )
                  
                  $
                  (0.02
                  )Diluted
      weighted average commonshares
      outstanding
                  
                  
                  17,410,299
                  
                  
                  
                  17,410,299
  See
      Notes to Unaudited Consolidated Financial
  Statements.
  4
 HERITAGE
      WORLDWIDE, INC. AND SUBSIDIARIESCONSOLIDATED
      STATEMENTS OF CASH FLOWS
  For
      the three-month period endingSeptember
      30,2008
                  
                  
                  2007(Unaudited)
                  
                  
                  (Unaudited)Cash
      flows from operating activities:Net
      loss
                  
                  $
                  (882,003
                  )
                  
                  $
                  (318,304
                  )Adjustments
      to reconcile net loss to net cashprovided
      by (used in) operating activities:Interest
      expense related to debenture discount
                  
                  
                  -
                  
                  
                  
                  116,426Depreciation
      and amortization
                  
                  
                  268,863
                  
                  
                  
                  229,698Fair
      value of options
                  
                  
                  1,443
                  
                  
                  
                  23,162Provision
      for doubtful accounts
                  
                  
                  25,594
                  
                  
                  
                  3,180Provision
      for returns
                  
                  
                  (47,826
                  )
                  
                  
                  (105,142
                  )Provision
      for obsolescence- inventory
                  
                  
                  (14,937
                  )
                  
                  
                  16,769Loss
      on equity investment
                  
                  
                  (9,919
                  )
                  
                  
                  (11,677
                  )Minority
      interest
                  
                  
                  -
                  
                  
                  
                  4,988Change
      in operating assets and liabilities:Accounts
      receivable
                  
                  
                  (127,383
                  )
                  
                  
                  (982,646
                  )Inventories
                  
                  
                  201,647
                  
                  
                  
                  476,001Prepaid
      expenses and other current assets
                  
                  
                  82,990
                  
                  
                  
                  (2,072
                  )Other
      assets
                  
                  
                  (75,929
                  )
                  
                  
                  (43,361
                  )Provision
      for product replacements
                  
                  
                  145,543
                  
                  
                  
                  (4,721
                  )Accrued
      interest on convertible debentures
                  
                  
                  6,233
                  
                  
                  
                  2,521Accounts
      payable and accrued expenses
                  
                  
                  554,284
                  
                  
                  
                  (199,247
                  )Net
      cash provided by (used in) operating activities
                  
                  
                  128,600
                  
                  
                  
                  (794,425
                  )Cash
      flows from investing activity:Purchases
      of property and equipment
                  
                  
                  -
                  
                  
                  
                  (39,041
                  )Net
      cash used in investing activities
                  
                  
                  -
                  
                  
                  
                  (39,041
                  )Cash
      flows from financing activities:(Decrease)
      increase in lines of credit
                  
                  
                  (36,232
                  )
                  
                  
                  325,202Proceeds
      from long term debt
                  
                  
                  17,291
                  
                  
                  
                  534,096Repayment
      of long term debt
                  
                  
                  (42,707
                  )
                  
                  
                  (33,282
                  )Repayment
      of capitalized lease obligations
                  
                  
                  (68,122
                  )
                  
                  
                  (76,712
                  )Net
      cash (used in) provided by financing activities
                  
                  
                  (129,770
                  )
                  
                  
                  749,304Effect
      of exchange rate changes on cash
                  
                  
                  (21,837
                  )
                  
                  
                  (21,251
                  )Decrease
      in cash
                  
                  
                  (23,007
                  )
                  
                  
                  (105,413
                  )Cash,
      beginning of period
                  
                  
                  274,537
                  
                  
                  
                  200,058Cash,
      end of period
                  
                  $
                  251,530
                  
                  
                  $
                  94,645Supplemental
      disclosures of cash flow information:Cash
      paid during the period for interest
                  
                  $
                  40,414
                  
                  
                  $
                  39,004Cash
      paid during the period for taxes
                  
                  $
                  -
                  
                  
                  $
                  -Non-Cash
      Investing and Financing Activities:Acquisition
      of property and equipment financed withcapitalized
      lease obligations
                  
                  $
                  -
                  
                  
                  $
                  -
  See
      Notes to Unaudited Consolidated Financial
  Statements.
  5
 
 HERITAGE
WORLDWIDE, INC. AND SUBSIDIARIES
 NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 
 NOTE
1 - NATURE OF BUSINESS
 
 Heritage
Worldwide, Inc. (the "Company") was incorporated in the State of Delaware in
2001. The Company and its subsidiaries develop, manufacture, and market breast
and other body implants and body support products worldwide. The Company
maintains its production facility and headquarters in the Toulon metropolitan
area in Southern France. It also has a distribution facility in
Spain.
 
 NOTE
2 - BASIS OF PRESENTATION AND CONSOLIDATION
 
 The
accompanying consolidated financial statements present the results of operations
of the Company's French ("PIP France"), Spanish ("PIP Spain"), and United States
subsidiaries for the three-month period ended September 30, 2008 and 2007. All
material inter-company accounts and transactions between the Company and its
subsidiaries have been eliminated in consolidation.
 
 The
accompanying unaudited consolidated financial statements include the results of
operations of SCI Lucas, a real estate holding company, in which the Company
holds an interest of 38.05%. SCI Lucas owns the production facility and
headquarters in which the Company operates in Southern France. The results of
operations of SCI Lucas are accounted for using the equity method of accounting.
All material inter-company accounts and transactions between the Company and SCI
Lucas have been eliminated.
 The
accompanying consolidated financial statements are unaudited. In the opinion of
management, all necessary adjustments (which include only normal recurring
adjustments) have been made to present fairly the financial position, results of
operations and cash flows for the periods presented. Certain information and
footnote disclosure normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United States of
America have been condensed or omitted. However, the Company believes that the
disclosures are adequate to make the information presented not misleading. These
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the June 30,
2008 annual report on Form 10-KSB. The results of operations for the three month
period ended September 30, 2008 are not necessarily indicative of the operating
results to be expected for the full year ended June 30, 2009.
 NOTE
3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 Going
Concern
 
 The
Company's financial statements have been presented on the basis that it is a
going concern, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. During the three-month period
ended September 30, 2008, the Company had a net loss of approximately $882,000.
Furthermore, the Company has two convertible promissory notes amounting to
$4,000,000 maturing within one year. One of the noteholders has indicated that
they are not going to convert their promissory note of $3,000,000 into shares of
the Company's stock. These conditions raise substantial doubt about its ability
to continue as a going concern. In October 2008, the Company
issued756,559shares of common stock to
satisfy its obligations under convertible debentures amounting to
$1,000,000.
 
 As a
result, the Company's current operations are not an adequate source of cash to
fund future operations and the Company does not have sufficient unused lines of
credit to repay the convertible promissory notes. The Company's ability to
continue as a going concern is dependent upon its ability to obtain the
necessary financing to meet its obligations and repay its liabilities when they
become due and to generate profitable operations in the future. The Company
plans to continue to increase its revenues and provide for its capital
requirements through our lines of credit, however, there are no firm commitments
from any third party to provide such revenues or financing and the Company
cannot assure that it will be successful in obtaining such commitments as
needed. The Company will attempt to secure financing which would satisfy its
obligations under the convertible promissory notes and, to a lesser extent,
satisfy its obligations related to our operations. There are no assurances that
the Company will have sufficient funds to
 
 6
 HERITAGE
WORLDWIDE, INC. AND SUBSIDIARIES
 NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 
 NOTE
3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
 
 execute
its business plan, pay its obligations as they become due or generate positive
operating results.
 
 Use
of Estimates
 
 In
preparing financial statements in conformity with accounting principles
generally accepted in the United States, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and revenues and expenses during the reporting
period. Actual results will differ from those estimates. Significant estimates
during the periods include the allowance for doubtful accounts, allowance for
product returns, evaluation of obsolete inventory, the useful life of long-term
assets, such as property, plant and equipment and goodwill, and the accrual of
product replacement reserve.
 
 Cash
and Cash Equivalents
 
 The
Company considers all highly liquid investments with original maturities of
three months or less to be cash equivalents.
 
 Accounts
Receivable
 
 Accounts
receivable are reported at net realizable value. The Company has established an
allowance for doubtful accounts based upon factors pertaining to the credit risk
of specific customers, historical trends, and other information. Delinquent
accounts are written-off when it is determined that the amounts are
uncollectible. At September 30, 2008, the allowance for doubtful accounts was
approximately $941,000. Additionally, the Company has established an allowance
for product returns based upon factors pertaining to historical trends,
including, among other things, recent and historical return rates for both
specific products and distributors, the impact of any new product releases in a
new jurisdiction and projected economic conditions. At September 30, 2008, the
allowance for product returns was approximately $703,000.
 
 Revenue
Recognition
 
 The
Company recognizes product revenue, net of estimated sales discounts and
provisions for returns, in accordance with Staff Accounting Bulletin No. 104,
"Revenue Recognition in Financial Statements" and SFAS No. 48 "Revenue
Recognition When Right of Return Exists." These statements established that
revenue can be recognized when persuasive evidence of an arrangement exists, the
product has been shipped, all significant contractual obligations have been
satisfied, the fee is fixed or determinable and collection is reasonably
assured.
 
 
 7
  HERITAGE
WORLDWIDE, INC. AND SUBSIDIARIES
 NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 
 NOTE
3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
 
 Stock
Options
 
 Effective
January 1, 2006, the Company adopted the fair value recognition provisions of
SFAS No. 123R, Share-Based Payment, and related interpretations using the
modified-prospective transition method. Under that method, compensation cost
recognized in the first quarter of 2006 includes (a) compensation cost for all
stock-based awards granted prior to, but not yet vested as of January 1, 2006
based on the grant date fair value estimated in accordance with the original
provisions of SFAS No. 123 and (b) compensation cost for all stock-based awards
granted on or subsequent to January 1, 2006, based on the grant-date fair value
estimated in accordance with the provisions of SFAS No. 123R. Results for prior
periods have not been restated. Prior to the adoption of SFAS No. 123R, the
Company never recognized tax benefits from deductions resulting from the
exercise of stock options because no options have ever been
recognized.
 
 Foreign
Currency Translation
 
 For
foreign operations with the local currency as the functional currency, assets
and liabilities are translated from the local currencies into U.S. dollars at
the exchange rate prevailing at the balance sheet date. Revenues, expenses and
cash flows are translated at the average exchange rate for the period to
approximate translation at the exchange rate prevailing at the dates those
elements are recognized in the financial statements. Translation adjustments
resulting from the process of translating the local currency financial
statements into U.S. dollars are included in determining comprehensive loss. As
of September 30, 2008, the exchange rate for the Euros (EUR) was $1.45 U.S. for
1.00 EUR.
 
 The
functional currency of the Company's French and Spanish subsidiaries is the
local currency. The financial statements of the subsidiary are translated to
U.S. dollars using period-end rates of exchange for assets and liabilities, and
the average rate of exchange for the period for revenues, costs, and expenses.
Net gains and losses resulting from foreign exchange transactions are included
in the consolidated statements of operations.
 
 Inventories
 
 Inventories
are stated at the lower of cost or market, cost determined by the first-in,
first-out (FIFO) method. The Company writes down its inventory for estimated
obsolescence or unmarketable inventory equal to the difference between the cost
of inventory and the estimated market value based upon assumptions about future
demand and market conditions. The Company writes down inventory during the
period in which such products are no longer marketable in any of their markets
due to governmental regulations as well as inventory which matures within the
next three months of the measurement date.
 
 Property
and Equipment
 
 Property
and equipment are stated at cost less accumulated depreciation and amortization.
Depreciation is recorded on the straight-line basis over the estimated useful
lives of the assets, which range from three to ten years. Amortization of
leasehold improvements and capital leases is recorded over the shorter of the
straight-line basis over the estimated useful life or the lease
  8
 HERITAGE
WORLDWIDE, INC. AND SUBSIDIARIES
 NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 
 NOTE
3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
 
 term of
the asset. Normal maintenance and repairs of property and equipment are expensed
as incurred while renewals, betterments and major repairs that materially extend
the useful life of property and equipment are capitalized. Upon retirement or
disposition of property and equipment, the asset and related accumulated
depreciation or amortization is removed from the accounts and any resulting gain
or loss is charged to operations.
 
 Goodwill
 
 Goodwill
represents the excess of costs over fair value of assets of businesses acquired.
In June 2001, the Financial Accounting Standards Board ("FASB") approved the
issuance of Statement of Financial Accounting Standards ("SFAS") No. 141,
"Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible
Assets." These standards require that all business combinations initiated after
December 31, 2001 be accounted for using the purchase method. In addition, all
intangible assets acquired that are obtained through contractual or legal right,
or are capable of being separately sold, transferred, licensed, rented or
exchanged shall be recognized as an asset apart from goodwill. Goodwill and
intangibles with indefinite lives will no longer be subject to amortization, but
will be subject to at least an annual assessment for impairment by applying a
fair value based test.
 
 The
Company's goodwill at June 30, 2007 results from its 2002 acquisition of its
Spanish subsidiary. Management has established that based on future cash flows
generated from its Spanish operations, the Company's goodwill at September 30,
2008 is not impaired.
 
 Impairment
of Long-Lived Assets
 
 The
Company reviews long-lived assets for impairment whenever circumstances and
situations change such that there is an indication that the carrying amounts may
not be recovered. In such circumstances, the Company will estimate the future
cash flows expected to result from the use of the asset and its eventual
disposition. Future cash flows are the future cash inflows expected to be
generated by an asset less the future outflows expected to be necessary to
obtain those inflows. If the sum of the expected future cash flows (undiscounted
and without interest charges) is less than the carrying amount of the asset, the
Company will recognize an impairment loss to adjust to the fair value of the
asset. At September 30, 2008, the Company believes that there has been no
impairment of its long-lived assets.
 
 Investment
 
 The
Company's investment is reported on the equity method of accounting. Under this
method the initial investment is recorded at cost. Subsequently, the investment
is increased or decreased to reflect the Company's share of income, losses and
dividends paid.
 
 
 9
  HERITAGE
WORLDWIDE, INC. AND SUBSIDIARIES
 NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 
 NOTE
3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
 
 Shipping
and Handling Costs
 
 Shipping
and handling costs are included in cost of revenues in accordance with guidance
established by the Emerging Issues Task Force, issue No. 00-10, "Accounting for
Shipping and Handling Costs."
 
 Research
and Development
 
 Research
and development costs are charged to operations as incurred and consists
primarily of salaries and related benefits, raw materials and
supplies.
 
 Income
(Loss) per Share
 
 The
Company presents basic income (loss) per share and, if appropriate, diluted
earnings per share in accordance with the provisions of SFAS No. 128 "Earnings
per Share" ("SFAS 128").
 
 Under
SFAS 128, basic net income (loss) per share is computed by dividing the net
income (loss) for the year by the weighted average number of common shares
outstanding during the year. Diluted net income per share is computed by
dividing the net income for the year by the weighted average number of common
shares and common share equivalents outstanding during the year. The Company has
1,215,000 options outstanding at September 30, 2008. Additionally, the Company
may have to issue up to 2,256,559 shares upon conversion of certain convertible
debentures. All common stock equivalents outstanding during the three-month
period ended September 30, 2008 are antidilutive.
 
 2008
                    
                    
                    2007Numerator:Net
      loss
                    
                    $
                    882,003
                    
                    
                    $
                    318,304Denominator:Denominator
      for basic earnings per share-Weighted
      average shares outstanding
                    
                    
                    17,410,299
                    
                    
                    
                    17,410,299Effect
      of dilutive employee stock options
                    
                    
                    -
                    
                    
                    
                    -Denominator
      for diluted earnings per share-Weighted
      average shares outstanding
                    
                    
                    17,410,299
                    
                    
                    
                    17,410,299Basic
      earnings per share
                    
                    $
                    (0.05
                    )
                    
                    $
                    (0.02
                    )Diluted
      earnings per share
                    
                    $
                    (0.05
                    )
                    
                    $
                    (0.02
                    )
 
 
 10
  HERITAGE
WORLDWIDE, INC. AND SUBSIDIARIES
 NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 
 NOTE
3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
 
 Fair
Value of Financial Instruments
 
 The
carrying amounts of financial instruments, including cash, accounts receivable,
lines of credit and accounts payable and accrued expenses approximate fair value
at September 30, 2008 because of the relatively short maturity of the
instruments. The carrying value of capitalized lease obligations, long-term
debt, and convertible debentures approximate fair value at September 30, 2008
based upon terms available for companies under similar
arrangements.
 
 New
Accounting Pronouncements
   The FASB
issued FASB Statement No. 141 (revised 2007), Business Combinations,and No. 160, Noncontrolling Interests in
Consolidated Financial Statements.Statement 141(R) requires
the acquiring entity in a business combination to recognize all (and only) the
assets acquired and liabilities assumed in the transaction; establishes the
acquisition-date fair value as the measurement objective for all assets acquired
and liabilities assumed; and requires the acquirer to disclose to investors and
other users all of the information they need to evaluate and understand the
nature and financial effect of the business combination. FASB No.141 R is
effective for fiscal years beginning after December 15, 2008. The Company does
not believe that FAS No. 141 R will have any impact on its financial
statements.
    The FASB
issued FASB Statement No. 160, Noncontrolling Interests in
Consolidated Financial Statements. Statement
No.160 requires all entities to report noncontrolling (minority) interests in
subsidiaries in the same way—as equity in the consolidated financial statements.
Moreover, Statement 160 eliminates the diversity that currently exists in
accounting for transactions between an entity and noncontrolling interests by
requiring they be treated as equity transactions. FASB No.160 is effective for
fiscal years beginning after December 15, 2008. The Company does not believe
that FAS No. 160 will have any impact on its financial statements.
    In March
2008, the FASB issued FASB No. 161, Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement No.
133,which
requires additional disclosures about the objectives of the derivative
instruments and hedging activities, the method of accounting for such
instruments under SFAS No. 133 and its related interpretations, and a tabular
disclosure of the effects of such instruments and related hedged items on our
financial position, financial performance, and cash flows. SFAS No. 161 is
effective for the Company beginning January 1, 2009. Management believes that,
for the foreseeable future, this Statement will have no impact on the financial
statements of the Company once adopted.
    In May
2008, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 162, “The Hierarchy of Generally
Accepted Accounting Principles.” The new standard is intended to improve
financial reporting by identifying a consistent framework, or hierarchy, for
selecting accounting principles to be used in preparing financial statements
that are presented in conformity with U.S. generally accepted
accounting
  11
  HERITAGE
WORLDWIDE, INC. AND SUBSIDIARIES
 NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 
 NOTE
3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
   principles
(GAAP) for non-governmental entities. We are currently evaluating the effects,
if any, that SFAS No. 162 may have on our financial reporting.
   Allowance
for Product Returns
 
 In the
normal course of business, the Company does not provide stock-balancing or price
protection rights to its distributors; however, on a non-recurring basis, it has
historically accepted product returns. The Company estimates its allowance for
product returns to amount to approximately $702,000 at September 30, 2008.
Management establishes provisions for estimated returns concurrently with the
recognition of revenue. The provisions are established based upon consideration
of a variety of factors, including, among other things, recent and historical
return rates for both specific distributors and projected economic
conditions.
 
 Allowance
for Product Replacements
 
 The
Company provides a product replacement program on its products. The Company
provides an accrual for the estimated cost of product replacement and product
liability claims at the time revenue is recognized. Such accruals are based on
estimates, which are based on relevant factors such as historical experience,
the warranty period, estimated replacement costs, identified product quality
issues and are discounted to a current value. Management estimated the amount of
potential future product replacement claims based on statistical analysis.
Changes to actual claims and interest rates could have a material impact on the
statistical calculation which could materially impact the Company's reported
expenses and results of operations.
 
 Concentration
of Credit Risks
 
 The
Company is subject to concentrations of credit risk primarily from cash and cash
equivalents and accounts receivable. The Company maintains accounts with French
financial institutions, which at times exceeds the insured French statutory
limit of approximately $150,000. The Company minimizes its credit risks
associated with cash by periodically evaluating the credit quality of its
primary financial institutions. The Company's accounts receivables are due from
surgeons in France and from distributors in all other countries in which it
markets its products. The Company does not require collateral to secure its
accounts receivables. However, the Company regularly insures a proportion of its
accounts receivable through a financial institution.
 
 At
September 30, 2008, the financial institution insured approximately $3.2 million
of the Company's accounts receivables. One of the Company's customers accounted
for 12% of its net accounts receivables at September 30, 2008.
 
 Product
Concentration Risk
 
 Substantially
all of the Company's revenues derive from the sale of breast
implants.
 
 
 12
  HERITAGE
WORLDWIDE, INC. AND SUBSIDIARIES
 NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 September
30, 2008
 
 NOTE
3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
 
 Supplier
Concentration Risk
 
 One of
the Company's suppliers procures titanium which is used as coating in certain of
the Company's breast implants. The agreement with this supplier terminates in
2009. The Company cannot guarantee that it will be able to renew such agreement
on acceptable terms, or if unable to renew the agreement, that it will secure
the procurement of such titanium from other suppliers on similar terms, if at
all.
 
 Customers
Concentration Risk
 
 Two of
the Company's customers accounted for 12% and 18% of its revenues during the
three-month period ended September 30, 2008. Two of the Company's customers
accounted for 25% and 10%, respectively, of its revenues during the three-month
period ended September 30, 2007.
 
 NOTE
4 - INVENTORIES
 
 Inventories
consist of the following:
 
 September
      30, 2008
                    
                    
                    June
      30, 2008Finished
      goods
                    
                    $
                    3,799,962
                    
                    
                    $
                    4,288,873Work-in-process
                    
                    
                    725,392
                    
                    
                    
                    1,073,942Raw
      materials
                    
                    
                    602,937
                    
                    
                    
                    424,1365,128,291
                    
                    
                    
                    5,786,951Provision
      for obsolescence
                    
                    
                    (685,043
                    )
                    
                    
                    (760,232
                    )$
                    4,443,248
                    
                    
                    $
                    5,026,719
 
 NOTE
5 - PROPERTY AND EQUIPMENT
 
 Property
and equipment and related accumulated depreciation consist of the
following:
 
 September
      30, 2008
                    
                    
                    June
      30, 2008Tenant
      improvements
                    
                    $
                    131,196
                    
                    
                    
                    143,396Machinery
      and equipment
                    
                    
                    5,873,657
                    
                    
                    
                    6,407,872Office
      equipment
                    
                    
                    279,931
                    
                    
                    
                    301,634Transportation
      equipment
                    
                    
                    196,481
                    
                    
                    
                    214,752Software
                    
                    
                    245,626
                    
                    
                    
                    268,4676,726,891
                    
                    
                    
                    7,336,121Accumulated
      depreciation
                    
                    
                    (5,011,194
                    )
                    
                    
                    (5,299,479
                    )Property
      and equipment, net
                    
                    $
                    1,715,697
                    
                    
                    $
                    2,036,642
 
 Depreciation
expense amounted to approximately $162,000 and $230,000 during the three-month
period ended September 30, 2008 and 2007, respectively.
 
 13
 HERITAGE
WORLDWIDE, INC. AND SUBSIDIARIES
 NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 
 NOTE
6 - INVESTMENTS
 
 At
September 30, 2008, the Company has a 38.05% investment in SCI Lucas, a related
French real estate company. The equity in income of the investee amounted to
approximately $15,000 and $12,000 during the three-month period ended September
30, 2008 and 2007, respectively. SCI Lucas leases its facilities to the Company,
which is the sole tenant. The leases expire in November 2009. The leases are
renewable automatically unless the Company cancels the leases nine months prior
to the renewal date.
 
 The
Company incurred rental expense and paid rent to SCI Lucas in amounts
aggregating approximately $139,000 and $132,000 during the three-month period
ended September 30, 2008 and 2007, respectively.
 
 NOTE
7 - LONG TERM DEBT
 
 The
Company's long term debt consists of various notes payable with outstanding
principal amounts ranging from approximately $4,000 to $526,000, with variable
interest rates, based on the EURIBOR plus 1.6% to 2.5%, ranging from 3.95% to
6.6% per year at September 30, 2008, with due dates between February 2010 and
August 2013. In addition, the Company has received non-interest bearing advances
from ANVAR, an agency of the French government, which finances or subsidizes
certain research and development projects. If the research does not result in a
commercially feasible product and certain other conditions are met, the Company
will not have to repay some or all of the advances. The Company is currently
unable to determine whether the research associated with the advance will result
in a commercially feasible product and does not anticipate knowing the outcome
of such research efforts in the foreseeable future. Accordingly, the Company
includes the advances in the long-term portion of its debt.
 
 One of
the notes payable issued in March 2008 and amounting to $156,000 is secured by
certain equipment with a carrying value of $156,000 at September 30,
2008.
 
 NOTE
8 - CONVERTIBLE DEBENTURES
 
 On
October 9, 2003, OSMXM "OS", Inc., one of the Company's subsidiaries, entered
into a convertible debentures purchase agreement (the "Agreement") with HEM
Mutual Assurance, LLC ("HEM") to sell $1,000,000 of 1% convertible debentures
due on October 9, 2008. Interest accrues from the date of the transaction and is
payable in cash or common stock, at the option of the debenture holder. In the
event of default, as defined in the Agreement, interest shall accrue at 15% per
annum. The conversion price for one convertible debenture amounting to $498,750
shall be the lesser of (a) $1.25 or (b) 100% of the average three lowest closing
bid prices during the last forty trading days immediately preceding the
conversion. The conversion price for one convertible debenture amounting to
$500,000 shall be the lesser of (a) $1.56 or (b) 100% of the average three
lowest closing bid prices during the last forty trading days immediately
preceding the conversion. The conversion price for one convertible debenture
amounting to $1,250 is $0.001. As part of the Agreement, OS was required to
maintain a common stock escrow account with 10,000,000 unrestricted,
free-trading shares of common stock. As part of the Company's merger with OS on
October 9, 2003, the Company assumed all the obligations and responsibilities of
the Agreement. In return for issuing the debentures to HEM, the Company received
$500,000 in December 2003 and the remaining $500,000 on January 9,
2004.
  14
 HERITAGE
WORLDWIDE, INC. AND SUBSIDIARIES
 NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 
 NOTE
8 - CONVERTIBLE DEBENTURES (continued)
 
 On
September 9, 2005, Eurofortune Holding, S.A. ("Eurofortune"), an entity
affiliated with the Company's former chief executive officer purchased three
convertible debentures from HEM. Simultaneously, Eurofortune exchanged the three
debentures for two convertible debentures issued by the Company each having an
aggregate principal amount of $500,000. The outstanding principal amount and
accrued interest at the rate of 1% per annum of the debentures is due and
payable on October 9, 2008. The conversion prices of the debentures are fixed at
$1.25 and $1.56. Additionally, the 10 million unrestricted free-trading shares
of the Company's common stock held in escrow were returned to the treasury.
In
October 2008,
the Company issued756,559shares of common stock to
satisfy its obligations under convertible debentures amounting to
$1,000,000.
 
 The
convertible debentures initially issued to HEM contain an embedded beneficial
conversion feature since the fair market value of the common stock exceeds the
most beneficial exercise price on the debenture issuance date. The value was
computed as $1,000,000, which will be amortized over the respective term of the
debentures. During the three-month period ended September 30, 2008 and 2007, the
amortization of the debt discount amounted to approximately $5,000 and $25,000,
respectively, and has been included in interest expense in the accompanying
consolidated financial statements. Accrued interest associated with the
convertible debentures amounted to approximately $52,000 at September 30,
2008.
 
 In April
2004, the Company sold its Senior Convertible Debenture (the "Debenture") in the
face amount of $3,000,000 to Armadillo Investments, PLC. In consideration for
the Debenture, the Company received 1,595,745 ordinary shares of Armadillo
Investments. The Company immediately sold these shares for approximately
$1,420,000. The Debenture does not bear interest. In the event of default, as
defined under the Debenture. The Debenture accrues interest at the rate of 10%
per annum. The Debenture matures on March 25, 2009. The Debenture is convertible
into our common stock at a conversion price per share of (a) four dollars
($4.00) (the "Fixed Conversion Price") or (b) eighty percent (80%) of the lowest
closing bid price for the Common Stock in the ten (10) business days preceding
the date of conversion, but in no event less than fifty percent (50%) of the
Fixed Conversion Price (the "Floating Conversion Price").
 
 For
purposes of determining the closing bid price on any day, reference shall be the
closing bid price for a share of Common Stock on such date on the OTC Bulletin
Board, as reported on Bloomberg, L.P. (or similar organization or agency
succeeding to its functions of reporting prices). The Company granted piggyback
registration rights with respect to the common stock into which the Debenture is
convertible. The Company is required to maintain in escrow 750,000 shares of
common stock upon conversion of the Debenture.
 
 The
difference between the face amount of the Debenture and the proceeds generated
from the shares received in exchange of the Debentures amounted to approximately
$1,580,000 and has been recorded as a debt discount. Such debt discount is
amortized over the term of the Debenture. During the three-month period ended
September 30, 2008 and 2007, the amortization of the debt discount amounted to
approximately $103,000 and $91,000, respectively, and has been included in
interest expense in the accompanying financial statements.
 
 
 15
 
 HERITAGE
WORLDWIDE, INC. AND SUBSIDIARIES
 NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 
 NOTE
9 - LINES OF CREDIT
 
 The
Company entered into lines of credit agreements with two financial institutions
up to the aggregate amount of approximately $5.0 million. The Company has used
approximately $2.2 million under such lines of credit at September 31, 2008. The
lines of credit bear interest at the EURIBOR rate plus 2.0% to 3.7% at September
30, 2008. The outstanding principal balance plus any interest is payable on
demand and is secured by accounts receivables of approximately $5.9 million and
inventories of approximately $4.4 million.
 
 Effective
March 31, 2004, concurrent with an amended distribution agreement, the Company
issued to a distributor a revolving promissory note for certain sums to come due
to Medicor based on Medicor's and the manufacturer's administration of product
replacement claims. The note bears interest at the rate of 6.75% per annum. The
principal amount under the note as of September 30, 2008 was $0. The distributor
is presently under bankruptcy proceedings. During August 2007, the distributor
claimed that the Company owes $4.8 million under the promissory note. The
Company disputes that it presently owes the distributor the $4.8 million claimed
to be due under the amended distribution agreement and has sought substantiation
for such amount by requesting information from the distributor. To date, the
distributor has not provided the information requested. The Company has notified
the distributor that it is in default under the amended distribution agreement
and terminated the agreement in May 2007.
 
 Based on
the review of certain information supplied by an agent for the distributor to
the Company's consultant on U.S. Food & Drug Administration matters, the
Company believes that the distributor did not comply with its obligations under
the amended distribution agreement. As a result of the distributor's breach of
its obligations to the Company, the Company believes that it has incurred
significant damages in excess of the $4.8 million claimed to be due to the
distributor because of the distributor's breach of its obligations under the
amended distribution agreement. During November 2007, the Company filed proof of
a claim in excess of $28.7 million against Medicor. The Company has provided for
a provision for such claims aggregating $1.5 million at September
30, 2008, as reflected in accounts payable and accrued expenses in the
accompanying balance sheet.
 
 NOTE
10 - STOCK OPTIONS
 
 In July
2004, the Board of Directors adopted the Heritage Worldwide, Inc. 2004 Stock
Option Plan (the "2004 Plan"). The Company intends to attract and retain
employees and valuable contractors by allowing them an additional incentive to
promote the financial success of the Company.
 
 The 2004
Plan allows for the grant of both incentive stock options and nonstatutory stock
options.
 
 The 2004
Plan may be administered, interpreted and constructed by the Board of Directors
or a compensation committee. The maximum number of shares of common stock which
may be issued pursuant to options granted under the 2004 Plan may not exceed
2,000,000 shares. During July 2004, the Company issued 1,175,000 options. If any
options granted under the 2004 Plan expires or terminates without having been
exercised or ceased to be exercisable, such options will be available again
under the 2004 Plan. All employees of the Company and its subsidiaries are
eligible to receive incentive stock options and nonstatutory stock options.
Non-employee
  16
 HERITAGE
WORLDWIDE, INC. AND SUBSIDIARIES
 NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 
 NOTE
10 - STOCK OPTIONS (continued)
 
 directors
and outside consultants who provided bona-fide services not in connection with
the offer or sale of securities in a capital raising transaction are eligible to
receive nonstatutory stock options. Incentive stock options may not be granted
below their fair market value at the time of grant or, if to an individual who
beneficially owns more than 10% of the total combined voting power of all stock
classes of the Company or a subsidiary, the option price may not be less than
110% of the fair value of the common stock at the time of grant. The expiration
date of an incentive stock option may not be longer than ten years from the date
of grant. Option holders, or their representatives, may exercise their vested
options up to three months after their employment termination or one year after
their death or permanent and total disability. The 2004 Plan provides for
adjustments upon changes in capitalization.
 
 During
the three-month periods ended September 30, 2008 and 2007, the Company recorded
share-based payment expenses amounting to approximately $1,400 and $23,000,
respectively, in connection with all options outstanding at the respective
measurement dates. The amortization of share-based payment were recorded in cost
of revenues.
 
 As of
September 30, 2008, the unrecognized compensation costs related to non-vested
awards amounted to approximately $9,000, which will be recognized over the next
21 months.
 
 NOTE
11 - SEGMENT AND GEOGRAPHIC INFORMATION
 
 The
Company operates in one single segment, breast implants and analyzes its
revenues as derived from two geographic locations: France and the rest of the
world. The Company did not have revenues from the U.S. during the three-month
periods ended September 30, 2008 and 2007. Information about the Company's sales
in different geographic locations for the three-month periods ended September
30, 2008 and 2007, respectively is shown below pursuant to the provisions of
SFAS No. 131, "Disclosures about segments of an Enterprise and Related
Information."
 
 Three-month
      period ended
                      September
      30,2008
                    
                    
                    2007France
                    
                    $
                    575,423
                    
                    
                    $
                    1,056,448Outside
      of France
                    
                    
                    3,086,638
                    
                    
                    
                    3,912,851$
                    3,662,061
                    
                    
                    $
                    4,969,299
 
 Substantially
all of the identifiable operating assets and liabilities of the Company are
within France.
 
 17
  HERITAGE
WORLDWIDE, INC. AND SUBSIDIARIES
 NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 
 NOTE
12 - LEGAL CONTINGENCIES
   United
Kingdom Lawsuits
    In May
2006, the Company was sued in the Nottingham County Court by 28 plaintiffs under
the "The Consumer Protection Act" of the United Kingdom. The plaintiffs alleged
that the envelope surrounding their implants, obtained by their respective
surgeons from PIP France, SA, were not resistant enough and could cause pain and
inflammation when they leak.
    In
December 2006, the Company was sued in the London High Court by Ms Allison
Allvey under the “The Consumer Protection Act” of the United Kingdom. The
plaintiff alleged that the envelope surrounding her implants, obtained by her
surgeon from PIP France, SA, was not resistant enough.
    On July
31, 2008, the Company was notified that certain court orders from the Higher
Court of Justice: London and the Nottingham County Court, respectively, in the
matters of Allison Allvey v. PIP and Martignetti & Others v. PIP, required
PIP to pay an aggregate of $2.3 million in damages to the plaintiffs and
attorneys.
    Any
amount unpaid bears interest at 8% per annum.
    On May
19, 2008, the Plaintiffs obtained a court order before the Superior Court of
Toulon to enforce the payment upon PIP, including seizing the assets of PIP, if
necessary. This was served to the Company on July 31, 2008. The Company filed a
motion to dismiss this court order on September 2, 2008. A mediator will be
appointed by the court and the Company will have approximately four months, or
until December 2008 to either negotiate a settlement with the plaintiffs and
attorneys or to pay. The Company does not have the financial resources to pay
the plaintiffs and attorneys by December 2008 and will seek to negotiate an
extension of the payment terms and/or a reduction of the obligations payable to
the plaintiffs and attorneys.
 18
  ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION
 
 Overview
    Heritage
Worldwide, Inc. (the “Company” or “we”) and its subsidiaries develop,
manufacture, and market breast implants worldwide. We ceased making sales in the
U.S. market in May 2000, as a result of changes in FDA regulations. At that
time, the U.S. market represented approximately $4 million, or 40% of our
revenues.
     We are in
the process of developing new products. We expect to introduce a new product
line of breast implants which is based on titanium coating. We are completing
the planning phase of our European clinical trials and anticipate that we will
market such breast implants in the European Union within 24 months, although
this date may be extended subject to the results of our clinical trials. We
believe that the costs of monitoring the clinical trials will be approximately
$500,000 over this period. We will continue to invest in research and
development to enhance and introduce new and existing products. To meet these
operational costs, we depend upon equity financings, collaborations, and
proceeds from short and long-term debt.
    A summary
of significant accounting policies is provided in Note 3 to our consolidated
financial statements included in the 2008 Form 10-K filed on September 29, 2008.
Management believes that the application of these policies on a consistent basis
enables the Company to provide useful and reliable financial information about
the Company's operating results and financial condition.
 
 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 of revenues and expenses during the reporting period.
Actual results will differ from those estimates.
 
 Stock-Based Compensation.
Prior to January 1, 2006, the Company accounted for its stock-based compensation
plans under the recognition and measurement provisions of Accounting Principles
Board (“APB”) Opinion No. 25, Accounting for Stock Issued to
Employees, and related Interpretations, as permitted by SFAS No. 123,
Accounting for Stock-Based
Compensation. The Company did not recognize compensation cost related to
stock options granted to its employees and non-employee directors that had an
exercise price equal to or above the market value of the underlying common stock
on the date of grant in its condensed consolidated statement of income prior to
January 1, 2006. Effective January 1, 2006, the Company adopted the fair value
recognition provisions of SFAS No. 123R, Share-Based Payment, and
related interpretations using the modified-prospective transition method. Under
that method, compensation cost recognized in the third quarter of 2006 includes
(a) compensation cost for all stock-based awards granted prior to, but not yet
vested as of January 1, 2006 based on the grant date fair value estimated in
accordance with the original provisions of SFAS No. 123 and (b) compensation
cost for all stock-based awards granted on or subsequent to January 1, 2006,
based on the grant-date fair value estimated in accordance with the provisions
of SFAS No. 123R. Results for prior periods have not been restated. Prior to the
adoption of SFAS No. 123R, the Company did not recognize any tax benefits from
deductions resulting from the exercise of stock options as operating cash flows
in its statement of cash flows, because no options have ever been exercised.
SFAS No. 123R requires that the portion of benefits resulting from tax
deductions in excess of recognized compensation (the “excess tax benefits”) be
presented as financing cash flows.
 
 Revenues. We recognize
product revenue, net of estimated sales discounts and returns and allowances, in
accordance with Staff Accounting Bulletin No. 104, "Revenue Recognition in
Financial Statements" and SFAS No. 48 "Revenue Recognition When Right of Return
Exists." These statements established that revenue can be recognized when
persuasive evidence of an arrangement exists, the product has been shipped, all
significant contractual obligations have been satisfied, the fee is fixed or
determinable and collection is reasonably assured.
 
 Accounts receivables and related
allowance for doubtful accounts. Accounts receivable are reported at net
realizable value. We have established an allowance for doubtful accounts based
upon factors pertaining to the credit risk of specific customers, historical
trends, and other information. Delinquent accounts are written-off when it is
determined that the amounts are uncollectible.
  19
  Inventories. Inventories are
stated at the lower of cost or market, cost determined by the first-in,
first-out (FIFO) method. The Company writes down its inventory for estimated
obsolescence or unmarketable inventory equal to the difference between the cost
of inventory and the estimated market value based upon assumptions about future
demand and market conditions
     Goodwill.At September 30,
2008, we had approximately $1.3 million in indefinite lived goodwill related to
our acquisition of our subsidiary in Spain. We evaluate goodwill based on the
future contributing margins of such subsidiary. We use judgment in assessing
goodwill for impairment. Goodwill is reviewed for impairment annually, or sooner
if events or changes in circumstances indicate that the carrying amount could
exceed fair value. Fair values are based on discounted cash flows using a
discount rate determined by our management to be consistent with industry
discount rates and the risks inherent in our current business model. In
accordance with SFAS No. 142, we completed the required impairment tests of
goodwill at the date of adoption and annually as required. There was no
impairment charges recorded as a result of the adoption of SFAS No. 142 or
annual impairment tests. Due to uncertain market conditions and potential
changes in our strategy and product portfolio, it is possible that the forecasts
we use to support our goodwill could change in the future, which could result in
non-cash charges that would adversely affect our results of operations and
financial condition.
     Product replacements. We
provide a product replacement program on our products. Management estimated the
amount of potential future product replacement claims based on statistical
analysis. Expected future obligations are determined based on the history of
product shipments and claims and are discounted to a current value. Changes to
actual claims and interest rates could have a material impact on the statistical
calculation which could materially impact the Company’s reported expenses and
results of operations.
    RESULTS
OF OPERATIONS
   CONSOLIDATED
      STATEMENTS OF OPERATIONSIncrease/
                
                
                Increase/For
      the three month period ending
                
                
                (Decrease)
                
                
                (Decrease)September
      30,
                
                
                2008
      vs 2007
                
                
                2008
      vs 20072008
                
                
                2007
                
                
                $
                
                
                %Revenues
                
                $
                3,662,061
                
                
                $
                4,969,299
                
                
                $
                (1,307,238
                )
                
                
                -26.3
                %Cost
      of revenues
                
                
                2,171,393
                
                
                
                2,400,316
                
                
                
                (228,923
                )
                
                
                -9.5
                %Gross
      margin
                
                
                1,490,668
                
                
                
                2,568,983
                
                
                
                (1,078,315
                )
                
                
                -42.0
                %Operating
      expenses:Selling,
      general and administrative
                
                
                1,944,770
                
                
                
                2,386,637
                
                
                
                (441,867
                )
                
                
                -18.5
                %Research
      and development
                
                
                318,530
                
                
                
                346,305
                
                
                
                (27,775
                )
                
                
                -8.0
                %Total
      operating expenses
                
                
                2,263,300
                
                
                
                2,732,942
                
                
                
                (469,642
                )
                
                
                -17.2
                %Loss
      before other expenses andOperating
      (loss) income
                
                
                (772,632
                )
                
                
                (163,959
                )
                
                
                (608,673
                )
                
                
                371.2
                %Other
      expenses:Gain
      in equity investment
                
                
                14,916
                
                
                
                11,677
                
                
                
                3,239
                
                
                
                27.7
                %Interest
      expense
                
                
                (157,251
                )
                
                
                (161,034
                )
                
                
                3,783
                
                
                
                -2.3
                %Total
      other expenses
                
                
                (142,335
                )
                
                
                (149,357
                )
                
                
                7,022
                
                
                
                -4.7
                %(Loss)
      income before minority interest
                
                
                (914,967
                )
                
                
                (313,316
                )
                
                
                (601,651
                )
                
                NMMinority
      interest
                
                
                32,964
                
                
                
                (4,988
                )
                
                
                37,952
                
                
                
                -760.9
                %Net
      (loss) income
                
                $
                (882,003
                )
                
                $
                (318,304
                )
                
                $
                (563,699
                )
                
                NMNM:
      not meaningful
  20
     Three
months Ended September 30, 2008 Compared with Three months Ended September 30,
2007
     Revenues
     Revenues
consist primarily of the sale of breast implants and other body support
products. The decrease in revenues during the three-month period ended September
30, 2008 when compared to the prior year period is primarily attributable to
decreased volume of breast implants sold to distributors in Latin America and in
Europe.
     Cost
of Revenues
     Cost of
revenues consists primarily of materials and direct labor expenses associated
with the production of breast implants. The decrease in costs of revenues during
the three-month period ended September 30, 2008 is primarily attributable to an
decrease in volume of product sold, offset by an increase in direct costs which
are incurred in Euros. The Euro exchange rate increased by 8% during the
three-month period ending September 30, 2008 when compare to the prior year
period.
     Selling
and General Administrative Expenses
     Selling,
general and administrative expenses consist primarily of compensation and
related benefits of sales representatives which market our products, general and
administrative staff used to support our operations, as well as
facilities-related expenses, professional fees and provision for bad debts. The
decrease in selling, general and administrative expenses during the three-month
period ended September 30, 2008 when compared to the prior year comparable
period is primarily attributable to the following factors:
     ·
              Decreased
      professional and legal fees related to certain corporate activities as
      well as legal fees incurred in connection with legal proceedings in the
      United Kingdom during the three-month period ended September 30, 2007.
      Such corporate activities and legal proceedings did not occur during the
      three-month period ended September 30,
2008.
   ·
              Decreased
      sales and marketing expenses associated with the development of new
      distribution channels outside of France in an effort to reduce such
      costs.
   ·
              Higher
      local currency rate. A substantial portion of our sales, general, and
      administrative expenses are incurred in Euros, which appreciated by
      approximately 8% during the three-month period ended September 30, 2008
      when compared to the prior year
period.
     Research
and Development
     Research
and development expenses primarily consist of compensation and related benefits
of personnel associated with the development and introduction of existing and
future product lines. The decrease in research and development expenses during
the three-month period ended September 30, 2008 is primarily due to a reduction
of personnel used in connection with the development of new products and the
enhancement of existing products.
     Interest
Expense
     Interest
expense consists primarily of amortization of debt discount associated with the
issuance of convertible debentures and interest expense associated with our
lines of credit and other long-term debt. The interest expense during the
three-month period ended September 30, 2008 is at comparable level to those
incurred during the prior year period.
  21
  Liquidity
and Capital Resources
 
 At
September 30, 2008, our cash amounted to approximately $252,000 and our working
deficit amounted to approximately $4,624,000.
 
 During
the three-month period ended September 30, 2008, our operating activities
provided cash amounting to approximately $129,000. Our cash provided by
operating activities was comprised of our net loss of approximately $882,000
adjusted for the following:
 
 ·
              Depreciation
      and amortization of approximately $269,000;·
              Provision
      for obsolescence inventory of approximately $15,000;·
              Provision
      for doubtful accounts of approximately $26,000; and·
              Provision
      for returns of approximately $48,000.Additionally,
      the following variations in operating assets and liabilities impacted our
      cash used in operating activity:
 
 ·
              Increase
      in accounts receivable of approximately $127,000;·
              Decrease
      in inventory of approximately $202,000;·
              Decrease
      in prepaid assets and other current assets of $83,000;·
              Increase
      in current other assets of approximately $76,000;·
              Increase
      in provision for product replacements of approximately $146,000;
      and·
              Increase
      in accounts payable and accrued expenses of approximately
      $554,000.
 
 During
the three-month period ended September 30, 2008, we used cash in our financing
activities of approximately $130,000, which primarily consisted of proceeds from
issuance of long-term debt amounting to approximately $17,000, offset by the
repayment of long-term debt of approximately $43,000, repayment of capitalized
lease obligations of approximately $68,000, and a decrease in the use of our
lines of credit by approximately $36,000.
 
 During
the three-month period ended September 30, 2007, we used cash in operating
activities amounting to approximately $794,000. Our cash used in operating
activities was comprised of our net loss of approximately $318,000 adjusted for
the following:
 
 ·
              Debt
      discount of approximately $116,000;·
              Depreciation
      and amortization of approximately $230,000;·
              Fair
      value of options of approximately $23,000; and·
              Provision
      for returns of approximately
$105,000;
  Additionally,
      the following variations in operating assets and liabilities impacted our
      cash used in operating activities:·
              Increase
      in accounts receivable of approximately $983,000 due to increased revenues
      during the three-month period ended September 30, 2007;·
              Decrease
      in inventories of approximately $476,000 due to increased revenues during
      the three-month period ended September 30, 2007;·
              Increase
      in current other assets of approximately $43,000;·
              Decrease
      in accounts payable and accrued expenses of approximately
      $199,000;
 
 22
 During
the three-month period ended September 30, 2007, we purchased property and
equipment of approximately $39,000.
 
 During
the three-month period ended September 30, 2007, we generated cash from
financing activities of approximately $749,000, which primarily consisted of the
proceeds from issuance of long-term debt amounting to approximately $534,000 and
a higher usage of our lines of credit of approximately $325,000, offset by the
repayment of long-term debt and capitalized lease obligations of approximately
$33,000 and $77,000.
 
 New
Accounting Pronouncements
    The FASB
issued FASB Statement No. 141 (revised 2007), Business Combinations,and No. 160, Noncontrolling Interests in
Consolidated Financial Statements.Statement 141(R) requires
the acquiring entity in a business combination to recognize all (and only) the
assets acquired and liabilities assumed in the transaction; establishes the
acquisition-date fair value as the measurement objective for all assets acquired
and liabilities assumed; and requires the acquirer to disclose to investors and
other users all of the information they need to evaluate and understand the
nature and financial effect of the business combination. FASB No.141 R is
effective for fiscal years beginning after December 15, 2008. The Company does
not believe that FAS No. 141 R will have any impact on its financial
statements.
     The FASB
issued FASB Statement No. 160, Noncontrolling Interests in
Consolidated Financial Statements. Statement No.160 requires all entities to report noncontrolling (minority)
interests in subsidiaries in the same way—as equity in the consolidated
financial statements. Moreover, Statement 160 eliminates the diversity that
currently exists in accounting for transactions between an entity and
noncontrolling interests by requiring they be treated as equity transactions.
FASB No.160 is effective for fiscal years beginning after December 15, 2008. The
Company does not believe that FAS No. 160 will have any impact on its financial
statements.
     In March
2008, the FASB issued FASB No. 161, Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement No.
133,which
requires additional disclosures about the objectives of the derivative
instruments and hedging activities, the method of accounting for such
instruments under SFAS No. 133 and its related interpretations, and a tabular
disclosure of the effects of such instruments and related hedged items on our
financial position, financial performance, and cash flows. SFAS No. 161 is
effective for the Company beginning January 1, 2009. Management believes that,
for the foreseeable future, this Statement will have no impact on the financial
statements of the Company once adopted.
     In May
2008, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 162, “The Hierarchy of Generally
Accepted Accounting Principles.” The new standard is intended to improve
financial reporting by identifying a consistent framework, or hierarchy, for
selecting accounting principles to be used in preparing financial statements
that are presented in conformity with U.S. generally accepted accounting
principles (GAAP) for non-governmental entities. We are currently evaluating the
effects, if any, that SFAS No. 162 may have on our financial
reporting.
    ITEM
3. CONTROLS AND PROCEDURES
 
 Our principal executive officer and
our principal financial officer evaluated the effectiveness of our disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended) as of the end of the period covered
by this report (“Evaluation Date”). Based on this evaluation, our principal
executive officer and our principal financial officer have concluded that, as of
the Evaluation Date, our controls and procedures are effective in providing
reasonable assurance that the information required to be disclosed in this
report has been recorded, processed, summarized and reported as of the period
covered by this report.
 
 There was no change in our internal
control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f)
under the Securities Exchange Act of 1934, as amended) identified in connection
with the evaluation of our internal controls that occurred during our last
fiscal quarter that has materially affected, or is reasonably likely to
materially affect, such controls.
 
 23
 PART II - OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
    United Kingdom Lawsuits
     In May
2006, the Company was sued in the Nottingham County Court by 28 plaintiffs under
the "The Consumer Protection Act" of the United Kingdom. The plaintiffs alleged
that the envelope surrounding their implants, obtained by their respective
surgeons from PIP France, SA, were not resistant enough and could cause pain and
inflammation when they leak.
    In
December 2006, the Company was sued in the London High Court by Ms Allison
Allvey under the “The Consumer Protection Act” of the United Kingdom. The
plaintiff alleged that the envelope surrounding her implants, obtained by her
surgeon from PIP France, SA, was not resistant enough.
     On July
31, 2008, the Company was notified that certain court orders from the Higher
Court of Justice: London and the Nottingham County Court, respectively, in the
matters of Allison Allvey v. PIP and Martignetti & Others v. PIP, required
PIP to pay an aggregate of $2.3 million in damages to the plaintiffs and
attorneys.
    Any
amount unpaid bears interest at 8% per annum.
     On May
19, 2008, the Plaintiffs obtained a court order before the Superior Court of
Toulon to enforce the payment upon PIP, including seizing the assets of PIP, if
necessary. This was served to the Company on July 31, 2008. The Company filed a
motion to dismiss this court order on September 2, 2008. A mediator will be
appointed by the court and the Company will have approximately four months, or
until December 2008 to either negotiate a settlement with the plaintiffs and
attorneys or to pay. The Company does not have the financial resources to pay
the plaintiffs and attorneys by December 2008 and will seek to negotiate an
extension of the payment terms and/or a reduction of the obligations payable to
the plaintiffs and attorneys.
  
 ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 
 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
 
 (a)
              Exhibits
 
 Exhibit
      No.
              Description31.1
              Certification
      of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002. Filed herewith.31.2
              Certification
      of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002. Filed herewith.32.1
                
                32.2
              Certification
      of Chief Executive Officer pursuant to 18 U.S.C Section 1350. Filed
      Herewith
                .Certification
      of Chief Financial Officer pursuant to 18 U.S.C Section 1350. Filed
      Herewith.
 
 
 24
 SIGNATURES
 
 In
accordance with the requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
   HERITAGE
      WORLDWIDE, INC.
                  (Registrant)Date:
      November 14, 2008
                By:
                /s/
      Jean Claude MasJean
      Claude Mas

                  Chairman
      of the Board and Chief Executive Officer
                  (Principal
      Executive Officer)By:
                /s/
      Claude CoutyClaude
      Couty
                  Chief
      Financial Officer and General Manager
                  (Principal
      Financial and Accounting Officer)