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 December 31, 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
February 16, 2009 was 18,160,299.
 
 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  December
31, 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
  December
      31,
                                            
                                            
                                            June
      30,2008
                                            
                                            
                                            2008(Unaudited)
                                            
                                            
                                            (1)Current
      Assets:Cash
                                            
                                            $
                                            159,284
                                            
                                            
                                            $
                                            274,537Accounts
      receivable, net of allowance for doubtful accounts of $925,136 and
      $995,289at
      December 31, 2008 and June 30, 2008, respectively and allowance for
      product returnsof
      $784,734 and $779,249 at December 31, 2008 and June 30, 2008,
      respectively
                                            
                                            
                                            5,373,575
                                            
                                            
                                            
                                            6,337,562Inventories,
      net of allowance for obsolescence of $815,548 and $760,232at
      December 31, 2008 and June 30, 2008, respectively
                                            
                                            
                                            3,850,760
                                            
                                            
                                            
                                            5,026,719Prepaid
      expenses and other current assets
                                            
                                            
                                            839,797
                                            
                                            
                                            
                                            1,144,487Total
      current assets
                                            
                                            
                                            10,223,416
                                            
                                            
                                            
                                            12,783,305Property
      and equipment, net of accumulated depreciation of $5,045,055 and
      $5,299,479at
      December 31, 2008 and June 30, 2008, respectively
                                            
                                            
                                            1,542,576
                                            
                                            
                                            
                                            2,036,642Goodwill
                                            
                                            
                                            1,232,678
                                            
                                            
                                            
                                            1,380,778Investment
      in SCI Lucas
                                            
                                            
                                            755,567
                                            
                                            
                                            
                                            826,421Other
      assets
                                            
                                            
                                            155,345
                                            
                                            
                                            
                                            165,742Total
      assets
                                            
                                            $
                                            13,909,582
                                            
                                            
                                            $
                                            17,192,888LIABILITIES
      AND STOCKHOLDERS' DEFICITCurrent
      Liabilities:Lines
      of credit
                                            
                                            $
                                            2,222,894
                                            
                                            
                                            $
                                            2,424,627Accounts
      payable and accrued expenses
                                            
                                            
                                            7,805,240
                                            
                                            
                                            
                                            9,014,825Current
      portion of capitalized lease obligations
                                            
                                            
                                            205,307
                                            
                                            
                                            
                                            278,379Convertible
      debentures, net of discount of $110,558 and $320,368at
      December 31, 2008 and June 30, 2008, respectively
                                            
                                            
                                            2,889,442
                                            
                                            
                                            
                                            2,679,632Convertible
      debentures and related accrued interest payable, net of
      discountof
      $4,547-related party at June 30, 2008
                                            
                                            
                                            -
                                            
                                            
                                            
                                            1,041,521Current
      portion of long term debt
                                            
                                            
                                            497,686
                                            
                                            
                                            
                                            429,215Reserve
      for product replacements
                                            
                                            
                                            403,577
                                            
                                            
                                            
                                            294,187Total
      current liabilities
                                            
                                            
                                            14,024,146
                                            
                                            
                                            
                                            16,162,386Capitalized
      lease obligations, net of current portion
                                            
                                            
                                            191,089
                                            
                                            
                                            
                                            304,832Long
      term debt, net of current portion
                                            
                                            
                                            650,764
                                            
                                            
                                            
                                            988,276Total
      liabilities
                                            
                                            
                                            14,865,999
                                            
                                            
                                            
                                            17,455,494Minority
      interest
                                            
                                            
                                            505,638
                                            
                                            
                                            
                                            569,913Stockholders'
      Deficit:Common
      stock; $.001 par value, 50,000,000 shares authorized,18,160,299
      issued and 17,410,299 outstanding at December 31, 2008 and June 30, 2008,
      respectively
                                            
                                            
                                            18,168
                                            
                                            
                                            
                                            17,411Additional
      paid-in capital
                                            
                                            
                                            7,330,040
                                            
                                            
                                            
                                            6,277,883Accumulated
      other comprehensive income
                                            
                                            
                                            3,263,537
                                            
                                            
                                            
                                            3,698,820Accumulated
      deficit
                                            
                                            
                                            (12,073,800
                                            )
                                            
                                            
                                            (10,826,633
                                            )Total
      stockholders’ deficit
                                            
                                            
                                            (1,462,055
                                            )
                                            
                                            
                                            (832,519
                                            )Total
      liabilities and stockholders’ deficit
                                            
                                            $
                                            13,909,582
                                            
                                            
                                            $
                                            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 ending
                                            
                                            
                                            For
      the six-month period endingDecember
      31,
                                            
                                            
                                            December
      31,2008
                                            
                                            
                                            2007
                                            
                                            
                                            2008
                                            
                                            
                                            2007(Unaudited)
                                            
                                            
                                            (Unaudited)
                                            
                                            
                                            (Unaudited)
                                            
                                            
                                            (Unaudited)Revenues
                                            
                                            $
                                            3,708,598
                                            
                                            
                                            $
                                            4,434,849
                                            
                                            
                                            $
                                            7,370,659
                                            
                                            
                                            $
                                            9,404,148Cost
      of revenues
                                            
                                            
                                            1,961,943
                                            
                                            
                                            
                                            1,741,388
                                            
                                            
                                            
                                            4,133,336
                                            
                                            
                                            
                                            4,141,704Gross
      profit
                                            
                                            
                                            1,746,655
                                            
                                            
                                            
                                            2,693,461
                                            
                                            
                                            
                                            3,237,323
                                            
                                            
                                            
                                            5,262,444Operating
      expenses:Selling,
      general and administrative
                                            
                                            
                                            1,802,391
                                            
                                            
                                            
                                            2,589,498
                                            
                                            
                                            
                                            3,747,161
                                            
                                            
                                            
                                            4,976,135Research
      and development
                                            
                                            
                                            196,206
                                            
                                            
                                            
                                            324,311
                                            
                                            
                                            
                                            514,736
                                            
                                            
                                            
                                            670,616Total
      operating expenses
                                            
                                            
                                            1,998,597
                                            
                                            
                                            
                                            2,913,809
                                            
                                            
                                            
                                            4,261,897
                                            
                                            
                                            
                                            5,646,751Operating
      loss
                                            
                                            
                                            (251,942
                                            )
                                            
                                            
                                            (220,348
                                            )
                                            
                                            
                                            (1,024,574
                                            )
                                            
                                            
                                            (384,307
                                            )Other
      income (expenses):Gain
      in equity investment
                                            
                                            
                                            2,799
                                            
                                            
                                            
                                            (2,213
                                            )
                                            
                                            
                                            17,715
                                            
                                            
                                            
                                            9,464Interest
      expense
                                            
                                            
                                            (147,332
                                            )
                                            
                                            
                                            (149,977
                                            )
                                            
                                            
                                            (304,583
                                            )
                                            
                                            
                                            (311,011
                                            )Total
      other income (expenses)
                                            
                                            
                                            (144,533
                                            )
                                            
                                            
                                            (152,190
                                            )
                                            
                                            
                                            (286,868
                                            )
                                            
                                            
                                            (301,547
                                            )Loss
      before minority interest
                                            
                                            
                                            (396,475
                                            )
                                            
                                            
                                            (372,538
                                            )
                                            
                                            
                                            (1,311,442
                                            )
                                            
                                            
                                            (685,854
                                            )Minority
      interest
                                            
                                            
                                            31,311
                                            
                                            
                                            
                                            4,139
                                            
                                            
                                            
                                            64,275
                                            
                                            
                                            
                                            (849
                                            )Net
      loss
                                            
                                            $
                                            (365,164
                                            )
                                            
                                            $
                                            (368,399
                                            )
                                            
                                            $
                                            (1,247,167
                                            )
                                            
                                            $
                                            (686,703
                                            )Other
      comprehensive income, net of taxesForeign
      currency translation adjustment
                                            
                                            
                                            (706,913
                                            )
                                            
                                            
                                            363,285
                                            
                                            
                                            
                                            (435,283
                                            )
                                            
                                            
                                            925,847Comprehensive
      loss
                                            
                                            $
                                            (1,072,077
                                            )
                                            
                                            $
                                            (5,114
                                            )
                                            
                                            $
                                            (1,682,450
                                            )
                                            
                                            $
                                            239,144Basic
      and diluted net loss per common share
                                            
                                            $
                                            (0.02
                                            )
                                            
                                            $
                                            (0.02
                                            )
                                            
                                            $
                                            (0.07
                                            )
                                            
                                            $
                                            (0.04
                                            )Basic
      and diluted weighted average commonshares
      outstanding
                                            
                                            
                                            18,117,620
                                            
                                            
                                            
                                            17,410,299
                                            
                                            
                                            
                                            17,765,892
                                            
                                            
                                            
                                            17,410,299
   See
      Notes to Unaudited Consolidated Financial
  Statements.
 
 4
 HERITAGE
      WORLDWIDE, INC. AND SUBSIDIARIESCONSOLIDATED
      STATEMENTS OF CASH
FLOWS
  For
      the six-month period endingDecember
      31,2008
                                      
                                      
                                      2007(Unaudited)
                                      
                                      
                                      (Unaudited)Cash
      flows from operating activities:Net
      loss
                                      
                                      $
                                      (1,247,167
                                      )
                                      
                                      $
                                      (686,703
                                      )Adjustments
      to reconcile net loss to net cashprovided
      by operating activities:Interest
      expense related to debenture discount
                                      
                                      
                                      214,357
                                      
                                      
                                      
                                      225,063Depreciation
      and amortization
                                      
                                      
                                      339,009
                                      
                                      
                                      
                                      624,286Fair
      value of options
                                      
                                      
                                      2,886
                                      
                                      
                                      
                                      46,324Provision
      for doubtful accounts
                                      
                                      
                                      36,537
                                      
                                      
                                      
                                      (23,046
                                      )Provision
      for returns
                                      
                                      
                                      88,892
                                      
                                      
                                      
                                      (130,035
                                      )Provision
      for obsolescence- inventory
                                      
                                      
                                      136,582
                                      
                                      
                                      
                                      9,050Gain
      on equity investment
                                      
                                      
                                      (17,715
                                      )
                                      
                                      
                                      (9,464
                                      )Minority
      interest
                                      
                                      
                                      (64,275
                                      )
                                      
                                      
                                      849Change
      in operating assets and liabilities:Accounts
      receivable
                                      
                                      
                                      158,138
                                      
                                      
                                      
                                      461,763Inventories
                                      
                                      
                                      498,841
                                      
                                      
                                      
                                      (35,769
                                      )Prepaid
      expenses and other current assets
                                      
                                      
                                      172,104
                                      
                                      
                                      
                                      (53,962
                                      )Other
      assets
                                      
                                      
                                      3,223
                                      
                                      
                                      
                                      (58,542
                                      )Provision
      for product replacements
                                      
                                      
                                      140,657
                                      
                                      
                                      
                                      (7,381
                                      )Accrued
      interest on convertible debentures
                                      
                                      
                                      3,960
                                      
                                      
                                      
                                      5,041Accounts
      payable and accrued expenses
                                      
                                      
                                      (364,652
                                      )
                                      
                                      
                                      (126,879
                                      )Net
      cash provided by operating activities
                                      
                                      
                                      101,377
                                      
                                      
                                      
                                      240,595Cash
      flows from investing activity:Purchases
      of property and equipment
                                      
                                      
                                      (63,984
                                      )
                                      
                                      
                                      (292,494
                                      )Net
      cash used in investing activities
                                      
                                      
                                      (63,984
                                      )
                                      
                                      
                                      (292,494
                                      )Cash
      flows from financing activities:(Decrease)
      increase in lines of credit
                                      
                                      
                                      58,240
                                      
                                      
                                      
                                      (258,730
                                      )Proceeds
      from long term debt
                                      
                                      
                                      22,887
                                      
                                      
                                      
                                      542,120Repayment
      of long term debt
                                      
                                      
                                      (139,403
                                      )
                                      
                                      
                                      (160,862
                                      )Repayment
      of capitalized lease obligations
                                      
                                      
                                      (123,997
                                      )
                                      
                                      
                                      (151,253
                                      )Net
      cash used in financing activities
                                      
                                      
                                      (182,273
                                      )
                                      
                                      
                                      (28,725
                                      )Effect
      of exchange rate changes on cash
                                      
                                      
                                      29,627
                                      
                                      
                                      
                                      (33,836
                                      )Decrease
      in cash
                                      
                                      
                                      (115,253
                                      )
                                      
                                      
                                      (114,460
                                      )Cash,
      beginning of period
                                      
                                      
                                      274,537
                                      
                                      
                                      
                                      200,058Cash,
      end of period
                                      
                                      $
                                      159,284
                                      
                                      
                                      $
                                      85,598Supplemental
      disclosures of cash flow information:Cash
      paid during the period for interest
                                      
                                      $
                                      40,414
                                      
                                      
                                      $
                                      74,292Cash
      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 six-month period ended
December 31, 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.
 
 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
six-month period ended December 31, 2008, the Company had a net loss of
approximately $1.2 million but it did provide cash from operating activities of
approximately $100,000. Furthermore, the Company has one convertible promissory
note amounting to $3,000,000 maturing within one year. The note holder has
indicated that they are not going to convert their promissory note
of $3,000,000 into shares of the Company's stock, but that they are willing
to consider alternative terms to the existing $3 million convertible promissory
note which could include the extension of the maturity date.  These
conditions raise substantial doubt about its ability to continue as a going
concern.
 
 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 negotiate with the current $3,000,000
noteholder and extend the maturity of this note.  The
Company plans to increase its revenues and/ or to reduce its expenses, and
to extend its payment terms with some of its vendors, if necessary, 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. Finally, at December 31, 2008, the
Company has approximately $1.2 million of unused credit facility with different
financial institutions that it may us to fund some of
 
 6
 HERITAGE
WORLDWIDE, INC. AND SUBSIDIARIES
 NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 
 NOTE
3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
 
 its
operations.  The Company will attempt to extend the maturity of the
$3,000,000 convertible promissory note 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 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 December 31, 2008, the
allowance for doubtful accounts was approximately $925,000. 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 December 31, 2008, the allowance for
product returns was approximately $785,000.
 
 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 December 31, 2008, the
exchange rate for the Euros (EUR) was $1.41 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 December 31, 2008 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
December 31, 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 December 31, 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 765,000 options outstanding at December 31, 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 six-month period ended December 31, 2008 and 2007 are
antidilutive.
 
 
 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 December 31, 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 December 31, 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 StatementsStatement 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 $785,000 at December 31, 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
December 31, 2008, the financial institution insured approximately $2.8 million
of the Company's accounts receivables. One of the Company's customers accounted
for 12% of its net accounts receivables at December 31, 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)
 
 Customers
Concentration Risk
 
 One of
the Company's customers accounted for 14% of its revenues during the six-month
period ended December 31, 2008. Two of the Company's customers
accounted for 25% and 10%, respectively, of its revenues during the
six-month period ended December 31, 2007.
 
 NOTE
4 - INVENTORIES
 
 Inventories
consist of the following:
 
 December
      31, 2008
                    
                    
                    June
      30, 2008Finished
      goods
                    
                    $
                    3,732,116
                    
                    
                    $
                    4,288,873Work-in-process
                    
                    
                    498,168
                    
                    
                    
                    1,073,942Raw
      materials
                    
                    
                    436,024
                    
                    
                    
                    424,1364,666,308
                    
                    
                    
                    5,786,951Provision
      for obsolescence
                    
                    
                    (815,548
                    )
                    
                    
                    (760,232
                    )$
                    3,850,760
                    
                    
                    $
                    5,026,719
 
 NOTE
5 - PROPERTY AND EQUIPMENT
 
 Property
and equipment and related accumulated depreciation consist of the
following:
 
 December
      31, 2008
                    
                    
                    June
      30, 2008Tenant
      improvements
                    
                    $
                    132,822
                    
                    
                    
                    143,396Machinery
      and equipment
                    
                    
                    5,750,145
                    
                    
                    
                    6,407,872Office
      equipment
                    
                    
                    273,273
                    
                    
                    
                    301,634Transportation
      equipment
                    
                    
                    191,718
                    
                    
                    
                    214,752Software
                    
                    
                    239,672
                    
                    
                    
                    268,4676,587,631
                    
                    
                    
                    7,336,121Accumulated
      depreciation
                    
                    
                    (5,045,055
                    )
                    
                    
                    (5,299,479
                    )Property
      and equipment, net
                    
                    $
                    1,542,576
                    
                    
                    $
                    2,036,642
 
 Depreciation
expense amounted to approximately $339,000 and $625,000 during the six-month
period ended December 31, 2008 and 2007, respectively.
 
 
 13
  HERITAGE
WORLDWIDE, INC. AND SUBSIDIARIES
 NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 
 NOTE
6 - INVESTMENTS
 
 At
December 31, 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 $18,000 and $9,000 during the six-month period
ended December 31, 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 $157,000 and $132,000 during the six-month period
ended December 31, 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 $3,000 to
$472,000, with variable interest rates, based on the EURIBOR plus 1.6% to 2.5%,
ranging from 3.95% to 6.6% per year at December 31, 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 $134,000 is secured by
certain equipment with a carrying value of $134,000 at December 31,
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 six-month
period ended December 31, 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.
 
 The
Company issued 756,669 shares of its common stock to satisfy its obligations
under this convertible notes during October 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 six-month period ended December 31, 2008 and 2007, the amortization
of the debt discount amounted to approximately $210,000 and $200,000,
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 December 31, 2008. The lines of credit bear interest at the EURIBOR
rate plus 2.0% to 3.7% at December 31, 2008. The outstanding principal balance
plus any interest is payable on demand and is secured by accounts receivables of
approximately $5.4 million and inventories of approximately $3.9
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
December 31, 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 December
31, 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 six-month periods ended December 31, 2008 and 2007, the
Company recorded share-based payment expenses amounting to approximately
$3,000 and $46,000, respectively, in connection with all options
outstanding at the respective measurement dates. The amortization of
share-based payment were recorded in selling, general and administrative
expenses.
 
 As of
December 31, 2008, the unrecognized compensation costs related to
non-vested awards amounted to approximately $8,000, which will be
recognized over the next 17 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
six-month periods ended December 31, 2008 and 2007. Information about the
Company's sales in different geographic locations for the six-month periods
ended December 31, 2008 and 2007, respectively is shown below pursuant to
the provisions of SFAS No. 131, "Disclosures about segments of an
Enterprise and Related Information."
 
 Six-month
      period ended
                      December
      31,2008
                    
                    
                    2007France
                    
                    $
                    1,175,690
                    
                    
                    $
                    1,142,585Outside
      of France
                    
                    
                    6,194,969
                    
                    
                    
                    8,261,563$
                    7,370,659
                    
                    
                    $
                    9,404,148
 
 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 has been
appointed by the court and the Company will have approximately one year, or
until November 2009 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 November 2009 and will seek to negotiate an
extension of the payment terms and/or a reduction of the obligations payable to
the plaintiffs and attorneys.
  Kwartin
Lawsuits
  In
October 1999, June 2000 and July 2003, separate but related complaints were
filed by Saul Kwartin, Ruth Kwartin, Steven M. Kwartin, Robert Kwartin and Nina
Kwartin against our subsidiary Poly Implant Protheses, S.A. (“PIP”), III
Acquisition Corp. d/b/a PIP .America, PIP/USA, Inc., Jean-Claude Mas, our former
CEO, personally, and others, in the Circuit Court of Miami-Dade County, Florida.
Plaintiffs are all members of one family who purport to be shareholders of
PIP/USA, Inc., a distributor of PIP, suing derivatively on its behalf, and
individually, and seeking to rescind various transactions between PIP .America
and PIP, and seeking to impose liability against PIP and its co-defendants for
unspecified monetary damages arising out of alleged tortious and other purported
wrongful acts concerning alleged relationships between plaintiffs, PIP and the
other defendants.
  Initially,
two cases were filed: one in October of 1999 by Saul and Ruth Kwartin and
assigned Case No. 99-25227-CA-01 and one in June of 2000 by Steven Kwartin and
assigned Case No. 00-14665-CA-01. Case No. 99-25227 was voluntarily dismissed by
the Plaintiffs, who then unsuccessfully tried to withdraw their dismissal. The
Plaintiffs then appealed. In May of 2004,
  18
 HERITAGE
WORLDWIDE, INC. AND SUBSIDIARIES
 NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 
 NOTE
12 - LEGAL CONTINGENCIES (continued)
 
 the
appellate court affirmed the trial court’s Order approving the voluntary
dismissal. A motion by PIP/USA and Mr. Mas to recover their attorneys’ fees is
pending in the trial court, as is a motion to disqualify the Plaintiffs’ counsel
in that lawsuit. Case No. 00-14665-CA-01 by Steven Kwartin remains pending. In
June of 2003, Robert and Nina Kwartin commenced a lawsuit assigned Case No.
03-15006. That lawsuit remains pending. In September of 2003, Saul and Ruth
Kwartin filed another lawsuit assigned Case No. 03-22537-CA-27, alleging similar
claims to those included in the dismissed case. Within a day or two of that
lawsuit, Steven Kwartin filed his second lawsuit assigned Case No.
03-22399-CA-15, against Mr. Mas and Donald McGhan only.
  On
December 22, 2005 four of the five lawsuits were consolidated for pre-trial
purposes. They are cases No.: 00-14665-CA-31, 03-15006-CA-31, 03-22399-CA-31 and
03-22537-CA-31, of those four cases three were transferred to the Complex
Business Litigation Section 40 by Order dated December 29, 2006. The cases
transferred were cases No.: 03-15006-CA-31, 03-22399-CA-31 and
0322537-CA-31..  A case Management Order was entered on March 20,
2007, which ordered the case to be tried by May 2009.
  Rondoni
et al v. PIP et al
  In
November of 2003, Jessica Fischer Schnebel and fifteen other women filed a
Second Amended Consolidated Class Action Complaint against PIP, PIP/USA, Inc.
and III Acquisition Corp. d/b/a PIP America in the Circuit Court of Cook County,
Illinois. The Second Amended Consolidated Class Action Complaint contains counts
alleging product liability, breach of the implied warranties of merchantability
and fitness for a particular purpose, violation of the Illinois Consumer Fraud
Act and a contract claim alleging third-party beneficiary status. On July 31,
2007, a Fourth Amended Complaint was filed by twelve women with Mary Rondoni as
the lead plaintiff. The plaintiffs are no longer seeking class action status.
PIP has denied all material allegations. Unspecified monetary damages, exemplary
damages and attorneys fees and costs are sought. The lawsuit no longer seeks
class action status.  Motions to dismiss filed by PIP and PIP .America
remains pending and discovery is on-going. No trial date has been
scheduled.
 
 Nancy
Ewert et al v. PIP
 
 In
February of 2008, PIP was served with a Complaint filed in federal court in
Houston, Texas by seven women alleging product liability related claims. The
lead plaintiff is named Nancy Ewert. The case was dismissed for lack of
jurisdiction.  The plaintiffs have re-filed their cases but PIP has
not been served yet.
 
 Though it
is not yet possible to predict the outcome of any of the cases described above,
the Company and its subsidiaries, as applicable, have denied plaintiffs'
allegations and are vigorously defending themselves upon the merits of each
lawsuit and against certification of any class in the Illinois Schnebel lawsuit,
which is the only remaining putative class action.
 
 III
Acquisition Corp. d/b/a PIP. America claims indemnification from PIP/USA, Inc.,
Poly Implants Protheses, S.A., and Jean-Claude Mas, personally, from all claims,
including those asserted above. The Company believes the costs associated with
these matters will not have a
   19
 HERITAGE
WORLDWIDE, INC. AND SUBSIDIARIES
 NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 
 NOTE
12 - LEGAL CONTINGENCIES (continued)
 
 material
adverse impact on the Company's business, results of operations or financial
position. The Company has recorded a provision of approximately $2.3 million at
December 31, 2008 in connection with these matters.
 20
 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 Australian
clinical trials and anticipate that we will market such breast implants in the
Australia 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 $200,000 over the remaining
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.
  SIGNIFICANT
ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES
 
 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.
  21
 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 December 31,
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
OPERATIONS
  Increase/
                                            
                                            
                                            Increase/
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            Increase/
                                            
                                            
                                            Increase/For
      the three month period ending
                                            
                                            
                                            (Decrease)
                                            
                                            
                                            (Decrease)
                                            
                                            
                                            For
      the six month period ending
                                            
                                            
                                            (Decrease)
                                            
                                            
                                            (Decrease)December
      31,
                                            
                                            
                                            2009
      vs 2008
                                            
                                            
                                            2009
      vs 2008
                                            
                                            
                                            December
      31,
                                            
                                            
                                            2009
      vs 2008
                                            
                                            
                                            2009
      vs 20082008
                                            
                                            
                                            2007
                                            
                                            
                                            $
                                            
                                            
                                            %
                                            
                                            
                                            2008
                                            
                                            
                                            2007
                                            
                                            
                                            $
                                            
                                            
                                            %Revenues
                                            
                                            $
                                            3,708,598
                                            
                                            
                                            $
                                            4,434,849
                                            
                                            
                                            $
                                            (726,251
                                            )
                                            
                                            
                                            -16.4
                                            %
                                            
                                            $
                                            7,370,659
                                            
                                            
                                            $
                                            9,404,148
                                            
                                            
                                            $
                                            (2,033,489
                                            )
                                            
                                            
                                            -21.6
                                            %Cost
      of revenues
                                            
                                            
                                            1,961,943
                                            
                                            
                                            
                                            1,741,388
                                            
                                            
                                            
                                            220,555
                                            
                                            
                                            
                                            12.7
                                            %
                                            
                                            
                                            4,133,336
                                            
                                            
                                            
                                            4,141,704
                                            
                                            
                                            
                                            (8,368
                                            )
                                            
                                            
                                            -0.2
                                            %Gross
      margin
                                            
                                            
                                            1,746,655
                                            
                                            
                                            
                                            2,693,461
                                            
                                            
                                            
                                            (946,806
                                            )
                                            
                                            
                                            -35.2
                                            %
                                            
                                            
                                            3,237,323
                                            
                                            
                                            
                                            5,262,444
                                            
                                            
                                            
                                            (2,025,121
                                            )
                                            
                                            
                                            -38.5
                                            %Operating
      expenses:Selling,
      general and administrative
                                            
                                            
                                            1,802,391
                                            
                                            
                                            
                                            2,589,498
                                            
                                            
                                            
                                            (787,107
                                            )
                                            
                                            
                                            -30.4
                                            %
                                            
                                            
                                            3,747,161
                                            
                                            
                                            
                                            4,976,135
                                            
                                            
                                            
                                            (1,228,974
                                            )
                                            
                                            
                                            -24.7
                                            %Research
      and development
                                            
                                            
                                            196,206
                                            
                                            
                                            
                                            324,311
                                            
                                            
                                            
                                            (128,105
                                            )
                                            
                                            
                                            -39.5
                                            %
                                            
                                            
                                            514,736
                                            
                                            
                                            
                                            670,616
                                            
                                            
                                            
                                            (155,880
                                            )
                                            
                                            
                                            -23.2
                                            %Total
      operating expenses
                                            
                                            
                                            1,998,597
                                            
                                            
                                            
                                            2,913,809
                                            
                                            
                                            
                                            (915,212
                                            )
                                            
                                            
                                            -31.4
                                            %
                                            
                                            
                                            4,261,897
                                            
                                            
                                            
                                            5,646,751
                                            
                                            
                                            
                                            (1,384,854
                                            )
                                            
                                            
                                            -24.5
                                            %Loss
      before other expenses andOperating
      (loss)
                                            
                                            
                                            (251,942
                                            )
                                            
                                            
                                            (220,348
                                            )
                                            
                                            
                                            31,594
                                            
                                            
                                            
                                            -14.3
                                            %
                                            
                                            
                                            (1,024,574
                                            )
                                            
                                            
                                            (384,307
                                            )
                                            
                                            
                                            640,267
                                            
                                            
                                            
                                            166.6
                                            %Other
      expenses:Gain
      in equity investment
                                            
                                            
                                            2,799
                                            
                                            
                                            
                                            (2,213
                                            )
                                            
                                            
                                            5,012
                                            
                                            
                                            NM
                                            
                                            
                                            
                                            17,715
                                            
                                            
                                            
                                            9,464
                                            
                                            
                                            
                                            8,251
                                            
                                            
                                            
                                            87.2
                                            %Interest
      expense
                                            
                                            
                                            (147,332
                                            )
                                            
                                            
                                            (149,977
                                            )
                                            
                                            
                                            (2,645
                                            )
                                            
                                            
                                            -1.8
                                            %
                                            
                                            
                                            (304,583
                                            )
                                            
                                            
                                            (311,011
                                            )
                                            
                                            
                                            (6,428
                                            )
                                            
                                            
                                            -2.1
                                            %Total
      other expenses
                                            
                                            
                                            (144,533
                                            )
                                            
                                            
                                            (152,190
                                            )
                                            
                                            
                                            (7,657
                                            )
                                            
                                            
                                            -5.0
                                            %
                                            
                                            
                                            (286,868
                                            )
                                            
                                            
                                            (301,547
                                            )
                                            
                                            
                                            14,679
                                            
                                            
                                            
                                            4.9
                                            %Loss
      before minority interest
                                            
                                            
                                            (396,475
                                            )
                                            
                                            
                                            (372,538
                                            )
                                            
                                            
                                            23,937
                                            
                                            
                                            
                                            6.4
                                            %
                                            
                                            
                                            (1,311,442
                                            )
                                            
                                            
                                            (685,854
                                            )
                                            
                                            
                                            625,588
                                            
                                            
                                            
                                            91.2
                                            %Minority
      interest
                                            
                                            
                                            31,311
                                            
                                            
                                            
                                            4,139
                                            
                                            
                                            
                                            27,172
                                            
                                            
                                            
                                            656.5
                                            %
                                            
                                            
                                            64,275
                                            
                                            
                                            
                                            (849
                                            )
                                            
                                            
                                            65,124
                                            
                                            
                                            NM-
                                            
                                            
                                            
                                            -Net
      loss
                                            
                                            $
                                            (365,164
                                            )
                                            
                                            $
                                            (368,399
                                            )
                                            
                                            
                                            (3,235
                                            )
                                            
                                            
                                            -0.9
                                            %
                                            
                                            $
                                            (1,247,167
                                            )
                                            
                                            $
                                            (686,703
                                            )
                                            
                                            $
                                            (560,464
                                            )
                                            
                                            
                                            -81.6
                                            %NM:
      not meaningful
  22
 Three
and Six Months Ended December 31, 2008 Compared with Three and Six Months Ended
December 31, 2007
  Revenues
  Revenues
consist primarily of the sale of breast implants and other body support
products.  The decrease in revenues during the three-month and
six-month periods ended December 31, 2008 when compared to the prior year
periods 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 December 31, 2008 is primarily
attributable to an increase in the allowance for inventory of titanium breast
implants during the three-month period ended December 31, 2008 when compared 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 December 31, 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 and six-month periods ended December
      31, 2007.  Such corporate activities and legal proceedings did
      not occur during the three-month and six-month periods ended December 31,
      2008.
 ·
              Decreased
      sales and marketing expenses associated with the development of new
      distribution channels outside of France in an effort to reduce such
      costs.
  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 and six-month periods ended December 31, 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 and six-month periods ended December 31, 2008 is at
comparable level to those incurred during the prior year periods.
  23
 Liquidity
and Capital Resources
 
 At
December 31, 2008, our cash amounted to approximately $159,000 and our working
deficit amounted to approximately $3.8 million.
 
 During
the six-month period ended December 31, 2008, our operating activities provided
cash amounting to approximately $101,000. Our cash provided by operating
activities was comprised of our net loss of approximately $1.2 million adjusted
for the following:
 
 ·
                Depreciation
      and amortization of approximately $339,000;·
                Provision
      for obsolescence inventory of approximately $137,000;·
                Interest
      expense related to debt discount of $214,000; andAdditionally,
      the following variations in operating assets and liabilities impacted our
      cash used in operating
activity:
 
 ·
              Decrease
      in accounts receivable of approximately $158,000 due to lower
      revenues;·
              Decrease
      in inventory of approximately $498,000 due to decreased manufacturing of
      breast implants in anticipation of lower demand;·
              Decrease
      in prepaid assets and other current assets of $172,000, due to a decrease
      in VAT receivable from the government;·
              Increase
      in provision for product replacements of approximately $140,000;
      and·
              Decrease
      in accounts payable and accrued expenses of approximately $364,000, due to
      the lower level of expenses incurred by the
  Company.
 
 During
the six-month period ended December 31, 2008, we used cash in our financing
activities of approximately $182,000, which primarily consisted of proceeds from
issuance of long-term debt amounting to approximately $22,887, offset by the
repayment of long-term debt of approximately $139,000, repayment of capitalized
lease obligations of approximately $123,000, and an increase in the use of our
lines of credit by approximately $58,000.
 
 During
the six-month period ended December 31, 2007, we generated cash from our
operating activities amounting to approximately $241,000. Our cash used in
operating activities was comprised of our net loss of approximately $687,000
adjusted for the following:
 
 ·
              Debt
      discount of approximately $225,000;·
              Depreciation
      and amortization of approximately $624,000;·
              Fair
      value of options of approximately $46,000;·
              Provision
      for doubtful accounts of approximately $23,000; and·
              Provision
      for returns of approximately $130,000;Additionally,
      the following variations in operating assets and liabilities impacted our
      cash used in operating activity:
 
 ·
              Decrease
      in accounts receivable of approximately $462,000 due to larger collection
      efforts implemented in the second quarter of fiscal 2008;
    and·
              Decrease
      in accounts payable and accrued expenses of approximately
      $127,000;
 
 24
 During the six-month period ended
December 31, 2007, we purchased property and equipment of approximately
$292,000.
 
 During the six-month period ended
December 31, 2007, we used cash in financing activities of approximately
$29,000, which primarily consisted of the proceeds from issuance of long-term
debt amounting to approximately $542,000, offset by the decrease in lines of
credit, the repayment of long-term debt, and capitalized lease obligations of
approximately $259,000, $161,000 and $151,000.
  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
six-month period ended December 31, 2008, the Company had a net loss of
approximately $1.2 million but it did provide cash from operating activities of
approximately $100,000.  Furthermore, the Company has one convertible
promissory note amounting to $3,000,000 maturing within one year. The
note holder has indicated that they are not going to convert their
promissory note of $3,000,000 into shares of the Company's stock, but that
they are willing to consider alternative terms to the existing $3 million
convertible promissory note which could include the extension of the maturity
date. These conditions raise substantial doubt about its ability to
continue as a going concern.
 
 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 negotiate with the current $3,000,000
noteholder and extend the maturity of this note.  The
Company plans to increase its revenues and/ or to reduce its expenses, and
to extend its payment terms with some of its vendors, if necessary, 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. Finally, at December 31, 2008, the
Company has approximately $1.2 million of unused credit facility with different
financial institutions that it may us to fund some of its
operations.  The Company will attempt to extend the maturity of the
$3,000,000 convertible promissory note 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 execute its business plan, pay its obligations as they become due or
generate positive operating results.
 
 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.
   25
  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 were 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.
 
 26
 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 one year, or
until November 2009 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 November 2009 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
 
 27
 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
                  Certification
      of Chief Executive Officer pursuant to 18 U.S.C Section 1350. Filed
      Herewith.32.2
                  Certification
      of Chief Financial Officer pursuant to 18 U.S.C Section
      1350.  Filed
Herewith.
 
 
 28
 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:  February
      23, 2009
                                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)
 
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