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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-QSB



|x |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
|- |  | --------------------------------------------------------

| |  | SECURITIES EXCHANGE ACT OF 1934
| |  | -------------------------------



| |  | For the quarter ended December 31, 2002
| |  | ---------------------------------------



or



| ̈ |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
|- |  | ---------------------------------------------------------

| |  | SECURITIES EXCHANGE ACT OF 1934
| |  | -------------------------------



Commission File Number 001-16185



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INNOVATIVE
COMPANIES, INC.

(Exact name of small business issuer as specified in its charter)



|STATE OF FLORIDA                                               |  | 59-2600232                       
|-------------------------------------------------------------- |  | ---------------------------------
|(State or other jurisdiction of incorporation or organization) |  | (IRS Employer Identification No.)



|6950 Bryan Dairy Road, Largo, Florida    |  | 33777     
|---------------------------------------- |  | ----------
|(Address of principal executive offices) |  | (Zip Code)



Issuers telephone number, including area code: (727) 544-8866



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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 of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.  x  Yes ̈No



The number of
shares outstanding of the Issuers common stock at $.01 par value as of February 6, 2003 was 7,025,000.



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PART I
 FINANCIAL INFORMATION



Item 1. CONSOLIDATED
FINANCIAL STATEMENTS.



INNOVATIVE
COMPANIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

|                                                                                                                                                                           |  | March 31, 2002 |             |   | December 31, 2002 |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | ----------- | - | ----------------- | -
|                                                                                                                                                                           |  | (Audited)      |             |   | (Unaudited)       |  
|ASSETS                                                                                                                                                                     |  |                |             |   |                   |  
|Current assets:                                                                                                                                                            |  |                |             |   |                   |  
|Cash and cash equivalents                                                                                                                                                  |  | $              | 392,638     |   |                   | $
|Certificate of deposit, restricted                                                                                                                                         |  |                | 679,205     |   |                   |  
|Certificate of deposit                                                                                                                                                     |  |                |            |   |                   |  
|Accounts receivable, net                                                                                                                                                   |  |                | 1,730,261   |   |                   |  
|Accounts receivable, other                                                                                                                                                 |  |                |            |   |                   |  
|Inventories, net                                                                                                                                                           |  |                | 2,121,406   |   |                   |  
|Prepaid expenses and other current assets                                                                                                                                  |  |                | 176,812     |   |                   |  
|Due from affiliates                                                                                                                                                        |  |                | 427,588     |   |                   |  
|Net deferred income tax asset                                                                                                                                              |  |                |            |   |                   |  
|                                                                                                                                                                           |  |                |             |   |                   |  
|Total current assets                                                                                                                                                       |  | $              | 5,527,910   |   |                   | $
|                                                                                                                                                                          
|Property, leaseholds and equipment, net                                                                                                                                    |  |                | 1,612,156   |   |                   |  
|                                                                                                                                                                          
|Intangible assets, net                                                                                                                                                     |  |                | 957,932     |   |                   |  
|                                                                                                                                                                          
|Other assets                                                                                                                                                               |  |                | 127,905     |   |                   |  
|                                                                                                                                                                           |  |                |             |   |                   |  
|Total assets                                                                                                                                                               |  | $              | 8,225,903   |   |                   | $
|                                                                                                                                                                           |  |                |             |   |                   |  
|                                                                                                                                                                          
|LIABILITIES AND SHAREHOLDERS
EQUITY                                                                                                                                       |  |                |             |   |                   |  
|Current liabilities:                                                                                                                                                       |  |                |             |   |                   |  
|Accounts payable                                                                                                                                                           |  | $              | 1,432,917   |   |                   | $
|Credit lines payable                                                                                                                                                       |  |                | 647,789     |   |                   |  
|Current portion of long-term obligations                                                                                                                                   |  |                | 254,234     |   |                   |  
|Accrued expenses                                                                                                                                                           |  |                | 258,349     |   |                   |  
|Obligations to related parties                                                                                                                                             |  |                | 1,151       |   |                   |  
|Obligations to affiliates                                                                                                                                                  |  |                | 404,324     |   |                   |  
|                                                                                                                                                                           |  |                |             |   |                   |  
|Total current liabilities                                                                                                                                                  |  | $              | 2,998,764   |   |                   | $
|Long-term obligations, less current portion                                                                                                                                |  |                | 381,152     |   |                   |  
|                                                                                                                                                                           |  |                |             |   |                   |  
|Total liabilities                                                                                                                                                          |  | $              | 3,379,916   |   |                   | $
|                                                                                                                                                                           |  |                |             |   |                   |  
|Redeemable series A preferred stock, no par value, $10 face value 150,000 shares
authorized; 117,500 and 72,500 shares issued and outstanding, at face value, respectively |  |                | 1,175,000   |   |                   |  
|Commitments and contingencies                                                                                                                                              |  |                |             |   |                   |  
|                                                                                                                                                                          
|Shareholders equity :                                                                                                                                                     |  |                |             |   |                   |  
|Preferred stock, no par value, 5,850,000 Shares authorized; no shares issued and
outstanding                                                                               |  |                |            |   |                   |  
|Common stock, $.01 par value; 24,000,000 Shares authorized; 7,025,000 shares issued and
outstanding                                                                        |  |                | 70,250      |   |                   |  
|Additional paid in capital                                                                                                                                                 |  |                | 29,953,495  |   |                   |  
|Retained earnings (deficit)                                                                                                                                                |  |                | (26,352,758 | ) |                   |  
|                                                                                                                                                                           |  |                |             |   |                   |  
|Total shareholders equity                                                                                                                                                 |  | $              | 3,670,987   |   |                   | $
|                                                                                                                                                                           |  |                |             |   |                   |  
|Total liabilities and shareholders equity                                                                                                                                 |  | $              | 8,225,903   |   |                   | $
|                                                                                                                                                                           |  |                |             |   |                   |  



See
accompanying notes to condensed consolidated financial statements.



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INNOVATIVE
COMPANIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)



|                                                                       |  | Three Months Ended December 31, |           |   | Nine Months Ended December 31, |  
|---------------------------------------------------------------------- |  | ------------------------------- | --------- | - | ------------------------------ | -
|                                                                       |  | 2001                            |           |   | 2002                           |  
|Revenues:                                                              |  |                                 |           |   |                                |  
|PBM                                                                    |  | $                               | 521,607   |   |                                | $
|Distribution                                                           |  |                                 | 162,788   |   |                                |  
|Manufacturing                                                          |  |                                 | 1,064,369 |   |                                |  
|                                                                       |  |                                 |           |   |                                |  
|Total revenues                                                         |  | $                               | 1,748,764 |   |                                | $
|                                                                       |  |                                 |           |   |                                |  
|Cost of goods sold:                                                    |  |                                 |           |   |                                |  
|PBM                                                                    |  | $                               | 437,031   |   |                                | $
|Distribution                                                           |  |                                 | 54,196    |   |                                |  
|Manufacturing                                                          |  |                                 | 847,789   |   |                                |  
|                                                                       |  |                                 |           |   |                                |  
|Total cost of goods sold                                               |  | $                               | 1,339,016 |   |                                | $
|                                                                       |  |                                 |           |   |                                |  
|Gross profit:                                                          |  |                                 |           |   |                                |  
|PBM                                                                    |  | $                               | 84,576    |   |                                | $
|Distribution                                                           |  |                                 | 108,592   |   |                                |  
|Manufacturing                                                          |  |                                 | 216,580   |   |                                |  
|                                                                       |  |                                 |           |   |                                |  
|Total gross profit                                                     |  | $                               | 409,748   |   |                                | $
|                                                                       |  |                                 |           |   |                                |  
|Selling, general and administrative expenses                           |  | $                               | 815,628   |   |                                | $
|                                                                       |  |                                 |           |   |                                |  
|Operating income (loss) before Other income and expense                |  | $                               | (405,880  | ) |                                | $
|Other income (expense), net:                                           |  |                                 |           |   |                                |  
|Other income (expense), net                                            |  |                                 | (2,745    | ) |                                |  
|Interest expense, net                                                  |  |                                 | (29,336   | ) |                                |  
|                                                                       |  |                                 |           |   |                                |  
|Total other income (expense), net                                      |  | $                               | (32,081   | ) |                                | $
|                                                                       |  |                                 |           |   |                                |  
|Income (loss) before income tax benefit                                |  | $                               | (437,961  | ) |                                | $
|Income tax benefit                                                     |  |                                 |          |   |                                |  
|                                                                       |  |                                 |           |   |                                |  
|Net income (loss)                                                      |  | $                               | (437,961  | ) |                                | $
|Preferred stock dividends                                              |  |                                 | 37,500    |   |                                |  
|                                                                       |  |                                 |           |   |                                |  
|Net income (loss) available to common shareholders                     |  | $                               | (475,461  | ) |                                | $
|                                                                       |  |                                 |           |   |                                |  
|Basic and diluted income (loss) per share                              |  | $                               | (.07      | ) |                                | $
|                                                                       |  |                                 |           |   |                                |  
|Basic and diluted weighted average number of common shares outstanding |  |                                 | 7,025,000 |   |                                |  
|                                                                       |  |                                 |           |   |                                |  



See
accompanying notes to condensed consolidated financial statements.



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INNOVATIVE
COMPANIES, INC. AND SUBSIDIARIES

STATEMENTS OF CASH FLOWS



|                                                                                  |  | Nine Months Ended December 31, |           
|--------------------------------------------------------------------------------- |  | ------------------------------ | ----------
|                                                                                  |  | 2001                           |           
|                                                                                  |  | (Unaudited)                    |           
|Cash flows from operating activities:                                             |  |                                |           
|Net income (loss)                                                                 |  | $                              | (1,211,863
|Adjustments to reconcile net income (loss) to net cash from operating
activities: |  |                                |           
|Depreciation and amortization                                                     |  |                                | 348,150   
|Increase in net deferred income tax asset                                         |  |                                |          
|Changes in operating assets and liabilities:                                      |  |                                |           
|Accounts receivable, net                                                          |  |                                | (321,180  
|Accounts receivable, other                                                        |  |                                |          
|Inventory, net                                                                    |  |                                | (199,306  
|Prepaid expenses and other current assets                                         |  |                                | 177,972   
|Other assets                                                                      |  |                                | (4,754    
|Accounts payable                                                                  |  |                                | 127,837   
|Accrued expenses                                                                  |  |                                | (71,210   
|Due from affiliates, net                                                          |  |                                | (216,175  
|                                                                                  |  |                                |           
|Net cash provided by (used in)                                                    |  |                                |           
|Operating activities                                                              |  | $                              | (1,270,529
|Cash flows from investing activities:                                             |  |                                |           
|Proceeds received for insured disposal of leasehold improvements                  |  |                                |          
|Purchases of property, leaseholds and equipment                                   |  |                                | (794,608  
|Collection on notes receivable                                                    |  |                                | 8,878     
|                                                                                  |  |                                |           
|Net cash used in investing activities                                             |  | $                              | (785,730  
|Cash flows from financing activities:                                             |  |                                |           
|Net change in credit lines payable                                                |  |                                |          
|Proceeds from issuance of long-term obligations                                   |  |                                | 204,456   
|Payments of long-term obligations                                                 |  |                                | (254,118  
|Payments of related party obligations                                             |  |                                | ( 42,263  
|Payments of preferred stock dividends                                             |  |                                | (112,500  
|Redemption of preferred stock                                                     |  |                                |          
|                                                                                  |  |                                |           
|Net cash used in financing activities                                             |  | $                              | (204,425  
|                                                                                  |  |                                |           
|Net increase (decrease) in cash                                                   |  | $                              | (2,260,684
|Cash at beginning of period                                                       |  |                                | 3,280,585 
|                                                                                  |  |                                |           
|Cash at end of period                                                             |  | $                              | 1,019,901 
|                                                                                  |  |                                |           



See
accompanying notes to condensed consolidated financial statements.



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INNOVATIVE
COMPANIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                  |  | Nine Months Ended December 31,2001 |         | Nine Months Ended December 31,2002
|------------------------------------------------- |  | ---------------------------------- | ------- | ----------------------------------
|Supplemental disclosure of cash flow information: |  |                                    |         |                                   
|Cash paid during the period for interest          |  | $                                  | 101,160 |                                   
|                                                  |  |                                    |         |                                   
|Cash paid during the period for income taxes      |  | $                                  |        |                                   
|                                                  |  |                                    |         |                                   



See
accompanying notes to condensed consolidated financial statements.



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INNOVATIVE
COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 2001 AND 2002



NOTE 1BASIS OF PRESENTATION



The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information and with the instruction to Form 10-QSB and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted
accounting principles for complete consolidated financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the
three and nine month periods ended December 30, 2001 and 2002 are not necessarily indicative of the results that may be expected for the year ending March 31, 2003. For further information, refer to the consolidated financial statements and
footnotes included in the Companys Form-10KSB as of and for the years ended March 31, 2001 and 2002 as filed June 28, 2002. Effective September 6, 2002, the Company changed its name from Go2Pharmacy, Inc. to Innovative Companies, Inc.



NOTE 2SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



a. Principles of Consolidation



The condensed consolidated financial statements as of
March 31, and December 31, 2002 and for the three and nine months ended December 31, 2001 and 2002 include the accounts of Innovative Companies, Inc. (the Company), (Innovative), which is continuing to doing manufacturing
business as Innovative Health Products, Inc. (Innovative), and its Florida wholly-owned subsidiaries Breakthrough Engineered Nutrition, Inc. (Breakthrough), Belcher Pharmaceuticals, Inc., (Belcher) and Go2PBM
Services, Inc. (PBM). Significant intercompany balances and transactions have been eliminated in consolidation.



b. Industry Segment



In accordance with the provisions of Statement of Financial Accounting Standards No. 131, (SFAS 131), Disclosures about Segments of an Enterprise and
Related Information, a company is required to disclose selected financial and other related information about its operating segments. Operating segments are components of an enterprise about which separate financial information is available and is
utilized by the chief operating decision maker related to the allocation of resources and in the resulting assessment of the segments overall performance. As of March 31, 2002 and for the three and nine months ended December 31, 2002, the
Company had three industry segments: manufacturing, distribution and pharmacy benefit management. The $8,225,903 of total assets as of March 31, 2002 were comprised of $844,469 attributable to corporate, $6,452,907 attributable to manufacturing,
$632,858 attributable to distribution and $295,669 attributable to pharmacy benefit management. The $8,499,505 of total assets as of December 31, 2002 were comprised of $928,454 attributable to corporate, $6,294,041 attributable to manufacturing,
$762,463 attributable to distribution and $514,547 attributable to pharmacy benefit management.





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c. Cash and Cash
Equivalents



For purposes of the statement of cash flows,
the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents.



d. Restricted Cash



Restricted cash is comprised of a one-year certificate of deposit that is collateralizing lines of credit with a Bank.



e. Inventories



Inventories are stated at lower of cost or market. Cost is determined using
the first-in, first-out method.



f. Property, Leasehold
Improvements and Equipment



Depreciation is provided for
using the straight-line method, in amounts sufficient to relate the cost of depreciable assets to operations over their estimated service lives (asset categories range from three to seven years). Leasehold improvements are amortized using the
straight-line method over the lives of the respective leases or the service lives of the improvements, whichever is shorter. Leased equipment under capital leases is amortized using the straight-line method over the lives of the respective leases or
over the service lives of the assets, whichever is shorter, for those leases that substantially transfer ownership. Accelerated depreciation methods are used for tax purposes.



g. Intangible Assets



Intangible assets consist primarily of goodwill and intellectual property.



In June 2001, the FASB issued SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other
Intangible Assets (FAS 141 and FAS 142). FAS 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. FAS 141 also specifies the criteria by which
intangible assets acquired in a purchase method business combination be recognized and reported separately from goodwill. FAS 142 will require that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead be
tested for impairment at least annually. FAS 142 will also require the intangible assets with definite useful lives be amortized over their respective estimated useful lives, and reviewed for impairment in accordance with SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.



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NOTE 2  SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (continued)



We are required
to adopt the provisions of FAS 141 effective July 1, 2001 and FAS 142 effective April 1, 2002. For the year ended March 31, 2002 and for the nine months ended December 31, 2002, amortization expense associated with goodwill was $45,086 and $0. The
unamortized balance of goodwill at March 31, and December 31, 2002 was $728,896.



h. Impairment of Assets



In accordance
with the provisions of Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, the Companys policy is to evaluate whether there has been a permanent impairment in the value of
long-lived assets, certain identifiable intangibles and goodwill when certain events have taken place that indicate the remaining unamortized balance may not be recoverable. When factors indicate that the intangible assets should be evaluated for
possible impairment, the Company uses an estimate of related undiscounted cash flows. Factors considered in the valuation include current operating results, trends and anticipated undiscounted future cash flows. In accordance with the implementation
of FAS 144, a Company is to select an initial valuation and assessment date to perform a valuation to determine whether there is a risk of asset impairment. The Company has selected its annual valuation date for assessment of long-lived assets,
certain identifiable intangibles and goodwill impairment as January 1, 2003 for each of its operating units, for the fiscal year ending March 31, 2003 and then for each fiscal year thereafter. There have been no impairment losses recorded for the
fiscal year ended March 31,2002 or for the nine months ended December 31, 2002.



i. Income Taxes



The Company utilizes the
guidance provided by Statement of Financial Accounting Standards No. 109 (SFAS 109), Accounting for Income Taxes. Under the liability method specified by SFAS 109, deferred tax assets and liabilities are determined based on the difference between
the financial statement and tax basis of assets and liabilities as measured by the enacted tax rates which will be in effect when these differences reverse. Deferred tax expense is the result of changes in deferred tax assets and liabilities.



j. Earning (Loss) Per Common Share



Earnings (loss) per share are computed using the basic and diluted
calculations on the face of the statement of operations. Basic earnings (loss) per share are calculated by dividing net income (loss) available to common stockholders by the weighted average number of shares of common stock outstanding for the
period. Diluted earnings (loss) per share is calculated by dividing net income (loss) by the weighted average number of shares of common stock outstanding for the period, adjusted for the dilutive effect of common stock equivalents, using the
treasury stock method. There were no potentially dilutive instruments outstanding for any of the periods presented.



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k. Use of Estimates



The preparation of financial statements in conformity with
generally accepted accounting principles, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at March 31, and December 31, 2002, as
well as the reported amounts of revenues and expenses for the three and nine months ended December 31, 2001 and 2002. The actual outcome of the estimates could differ from the estimates made in the preparation of the financial statements.



l. Concentration of Credit and Sales Risk



Concentrations of credit risk with respect to trade accounts receivable are
limited due to the distribution of sales over a large customer base as of March 31, and December 31, 2002. As related to consolidated sales revenues for the three months ended December 31, 2001, two customers accounted for 22.2% and 29.8%; the
customer that had 29.8% of revenues is a related party. As related to consolidated sales revenues for the three months ended December 31, 2002, three customers accounted for 5.9%, 26.3% and 27.3%; the customer that had 27.3% of revenues is a related
party.



For the nine months ended December 31, 2001, three
customers accounted for 7.4%, 9.6% and 23.6%; the customer that had 23.6% of revenues is a related party. For the nine months ended December 31, 2002, two customers accounted for 21% and 33%. The customer that had 21% of revenues is a related party.



The Company has no concentration of customers within specific
geographic areas outside the United States that would give rise to significant geographic credit risk.



m. Revenue Recognition



In accordance with SAB 101, Revenue Recognition, revenues are recognized by the Company when the merchandise is shipped to the customer.



n. Advertising Costs



The Company charges advertising costs to expense as incurred. Advertising expense was $18,191 and $51,565 for the three and nine months ended December 31,
2002, respectively.



o. Fair Value of Financial Instruments



The Company, in estimating its fair value disclosures for
financial instruments, uses the following methods and assumptions:



Cash, Accounts Receivable, Accounts Payable and Accrued Expenses: The carrying amounts reported in the balance sheet for cash, accounts receivable, accounts payable and accrued expenses approximate their fair value due to their
relatively short maturity.



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Long-term Obligations: The
fair value of the Companys fixed-rate long-term obligations is estimated using discounted cash flow analyses, based on the Companys current incremental borrowing rates for similar types of borrowing arrangements. At March 31, and
December 31, 2002, the fair value of the Companys long-term obligations approximated its carrying value.



Credit Lines Payable: The carrying amount of the Companys credit lines payable approximates fair market value since the interest rate on these instruments corresponds to market interest rates.



p. Reclassifications



Certain reclassifications have been made to the financial statements for the
three and nine months ended December 31, 2001 to conform to the presentation for the three and nine months ended December 31, 2002.



NOTE 3INSURANCE ACCOUNTS RECEIVABLE



On August 27, 2002, a commercial building where one of our manufacturing facilities is located, was involved in a fire. Although this fire was not in our
leased space, nor was the fire caused by the Company or any of its related parties, our facility was exposed to and incurred smoke and water damage. The company that had the fire is not a related party. Innovative has adequate insurance coverage
that covers replacement cost of the facilities contents which includes inventory and leasehold improvements, in addition to business interruption insurance which covers lost profits based on certain coverage formulas and policy limits. As of
December 31, 2002 through the date of this filing (February 12, 2003) the final financial assessment has not been made by our insurance company. The Company has a $5,000 deductible for each policy, or $10,000 in total for both policies, that the
Company believes it will also be able to recoup these deductibles since the claim has been assessed by our insurance company as subrogatable against the other non-related company who is at fault.



As of December 31, 2002, included within accounts receivable-other, the
Company has recorded amounts due from the Companys insurance company that are quantifiable and measurable at this time, in the amount of $233,000 comprised of amounts due and approved for inventory replacement and for amounts due for business
interruption income. For the period of August 27, 2002 through December 31, 2002, the Company has collected approximately $450,000 from the insurance company representing amounts reimbursed for the replacement of damaged leasehold improvements and
business interruption income. For the three and nine months ended December 31, 2002, amounts recorded in other income/(expense), net, included approximately $231,000 and $437,500, respectively.



NOTE 4INCOME TAXES



The provision for income taxes includes the amount of income tax payable for
the period resulting from the application of rates enacted under current tax law to the taxable income for the period and the net change in the Companys deferred income tax assets and liabilities. Deferred income tax assets and liabilities are
determined based on the difference between the financial statement carrying amounts and the tax basis of assets and liabilities as measured by the enacted tax rates which will be in effect when these temporary differences reverse. Deferred tax
expense is the result of changes in deferred tax assets and liabilities.



As of the fiscal year ended March 31, 2002, the Company had a net operating loss carryforward of approximately $1.5 million in addition to a deferred income tax asset and valuation allowance of approximately $330,000, which primarily
represented the potential future tax benefit associated with its operating losses through the fiscal year ended March 31, 2002. Management evaluated several factors including the scheduled reversal of the temporary timing differences, the
Companys actual profitability for the nine months ended December 31, 2002, along with the Companys future projected earnings and believes such information indicates that the Company will be able to generate sufficient taxable income to
utilize the net current deferred tax asset. Based on managements analysis, the Company recognized $147,900 net deferred tax asset and related net deferred income tax benefit as of and for the nine months ended December 31, 2002. As of December
31, 2002, management continues to believe that it is more likely than not that the Company will be able to generate sufficient taxable income to utilize this deferred income tax asset.



NOTE 5RELATED PARTY TRANSACTIONS



Revenues: For the three months ended December 31, 2001 and 2002, manufacturing revenues of approximately $48,879 and $21,799,
respectively, were recorded from sales by the Company to subsidiaries of Dynamic Health Products, an affiliate of the Company, and of which Jugal K. Taneja, the Chairman of the Board of the Company, is a principal shareholder. For the three months
ended December 31, 2001 and 2002, manufacturing revenues of $2,504, and $0, respectively, were recorded from sales by the Company to DrugMax, Inc., an affiliate of the Company, and of which Jugal K. Taneja,



-10-



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the Chairman of the Board of
the Company, is a principal shareholder. For the three months ended December 31, 2001 and 2002, manufacturing revenues of $18,415 and $8,149, respectively, were recorded from sales by the Company to VerticalHealth Inc., an affiliate of the Company,
and of which Jugal K. Taneja, the Chairman of the Board of the Company, is a principal shareholder.



For the three months ended December 31, 2001 and 2002, distribution revenues of approximately $0 and $2,952 were recorded from sales by the Company to VerticalHealth Inc., an affiliate of the Company,
and of which Jugal K. Taneja, the Chairman of the Board of the Company, is a principal shareholder.



For the three months ended December 31, 2001 and 2002, pharmacy benefit management revenues of approximately $521,607 and $895,325 respectively, were recorded from sales by the Company to CarePlus
Health Plan, an affiliate of the Companys board members Mssrs. Lawson and Zappala. Our wholly-owned subsidiary, Go2PBMServices, Inc., derives 100% of its revenues from this contract.



For the nine months ended December 31, 2001 and 2002, manufacturing revenues of approximately $191,240 and $69,723,
respectively, were recorded from sales by the Company to subsidiaries of Dynamic Health Products, an affiliate of the Company, and of which Jugal K. Taneja, the Chairman of the Board of the Company, is a principal shareholder. For the nine months
ended December 31, 2001 and 2002, manufacturing revenues of $2,504, and $3,176, respectively, were recorded from sales by the Company to DrugMax, Inc., an affiliate of the Company, and of which Jugal K. Taneja, the Chairman of the Board of the
Company, is a principal shareholder. For the nine months ended December 31, 2001 and 2002, manufacturing revenues of $42,074 and $102,965, respectively, were recorded from sales by the Company to VerticalHealth Inc., an affiliate of the Company, and
of which Jugal K. Taneja, the Chairman of the Board of the Company, is a principal shareholder.



For the nine months ended December 31, 2001 and 2002, distribution revenues of approximately $8,925 and $8,541 were recorded from sales by the Company to VerticalHealth Inc., an affiliate of the
Company, and of which Jugal K. Taneja, the Chairman of the Board of the Company, is a principal shareholder.



For the nine months ended December 31, 2001 and 2002, pharmacy benefit managment revenues of approximately $1,236,999 and $2,301,087 respectively, were recorded from sales by the Company to CarePlus
Health Plan, an affiliate of the Companys board members Mssrs. Lawson and Zappala. Our wholly-owned subsidiary, Go2PBMServices, Inc., derives 100% of its revenues from this contract.



Trade Accounts Receivable/ Trade Accounts Payable: Amounts due to affiliates and amounts due from affiliates represent
balances owed by or amounts owed to the Company for sales occurring in the normal course of business. Amounts due to and amounts due from these affiliates are in the nature of trade payables or receivables and fluctuate based on sales volume and
payments received.



As of March 31, and December 31, 2002, for
the manufacturing segment, $73,895 and $12,179 was due from subsidiaries of Dynamic Health Products. $57,700 and $57,700, respectively, was due to DrugMax., $28,982 and $98,285 was due from VerticalHealth,Inc., and $59,380 and $59,380 was due from
Careplus Health.



As of March 31, and December 31, 2002, for the
distribution segment, $21,534 and $10,470 was due to DrugMax and $0 and $1,176 was due from subsidiaries of Dynamic Health Products



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As of March 31, and December
31, 2002, for the pharmacy benefit management segment, $265,292 and $362,000 was due from CarePlus Health.



Preferred Stock Transactions: In September 1999, the Company issued 150,000 shares of redeemable series A preferred stock to Dynamic Health Products, Inc. in satisfaction of $1,500,000 of outstanding
liabilities. The shares of preferred stock were subsequently transferred to JB Capital Corp., a company affiliated with our Chairman, Jugal K. Taneja. The redeemable series A preferred stock pays dividends at the rate of 10% per annum, which is
cumulative from the date of issuance and payable quarterly which commenced March 31, 2001. For the three months ended December 31, 2001 and 2002, $37,500 and $26,848 of accrued preferred dividends were paid to JB Capital Corp. For the nine months
ended December 31, 2001 and 2002, $112,500 and $93,961 of accrued preferred dividends were paid to JB Capital Corp.



As of December 31, 2002, the holders of the preferred stock have redeemed 60,000 shares, or $600,000. As recorded within due to affiliates, as of December
31, 2002, the balance due was $175,000, or an additional 17,500 shares, are available for redemption based on the Company attaining certain positive net income as defined by the preferred stock redemption agreement.



NOTE 6SUBSEQUENT EVENTS



Stock Dividend



On February 11, 2003, the Companys Board of Directors approved an
ordinary 10% common stock dividend to common stockholders of record as of March 1, 2003 with stock distribution set for March 17, 2003.



Stock Price



On February 3, 2003, we received notification from the NASDAQ Listing Qualifications Department that our common stock has closed below the minimum $1 per
share requirement for continued inclusion under Marketplace Rule 4310(c)(4). Therefore, in accordance with Marketplace Rule 4310(c)(8)(D), we have been provided 180 calendar days, or until August 4, 2003 to regain compliance. If, at any time prior
to August 4, 2002, the bid price of the Companys common stock closes at $1.00 per share or more for a minimum of 10 consecutive trading days, the Company will be provided written notification that compliance has been met. If compliance with
this rule is not met by August 4, 2003, NASDAQ will assess whether the Company has met the initial listing criteria for trading on the NASDAQ SmallCap Market and will determine at that time whether the Company will be granted another 180 day grace
period. Otherwise, NASDAQ will provide the Company written notification that its securities will be delisted. This could have a materially adverse affect on our business, financial condition, results of operations and cash flows.



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Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.



The statements contained in this Report that are not historical are forward-looking statements, including statements regarding the Companys
expectations, intentions, beliefs or strategies regarding the future. Forward-looking statements include the Companys statements regarding liquidity, anticipated cash needs and availability and anticipated expense levels. All forward-looking
statements included in this Report are based on information available to the Company on the date hereof, and the Company assumes no obligation to update any such forward-looking statement. It is important to note that the Companys actual
results could differ materially from those in such forward-looking statements. Additionally, the following discussion and analysis should be read in conjunction with the Financial Statements and notes thereto appearing elsewhere in this Report. The
discussion is based upon such financial statements that have been prepared in accordance with U.S. Generally Accepted Accounting Principles.



General



We manufacture, package and ship high-quality private label dietary supplements, over-the-counter drugs, and health and beauty care
products for companies worldwide from our two manufacturing locations. Through our wholly-owned subsidiary, Breakthrough Engineered Nutrition, Inc. (Breakthrough), we market the Companys product lines, Lean Proteinand Thermo Fuel ZXEThrough our wholly-owned subsidiary, Go2PBM Services, Inc., we administer pharmacy benefit management services to health plans for unions, insurance companies, and other self-insured companies.



Results of Operations



Overview



We derive our revenues from developing, manufacturing, and wholesaling a wide variety of non-prescription
dietary supplements, and health and beauty care products. We also derive revenues from the distribution of our branded product lines, Lean Protein and Thermo Fuel ZXE. In addition, we derive revenues from the services provided in connection with
pharmacy benefit management. Revenues are billed and recognized as product is produced and shipped, net of discounts, allowances, returns and credits. Service revenues are billed and recognized once the service has been provided. We have not
experienced any material loss of revenues and do not anticipate any significant losses in the future.



Cost of goods sold is comprised of direct manufacturing and manufacturing and distribution material product costs, contracted service
fees, direct personnel compensation and other statutory benefits and indirect costs relating to labor to support product manufacture and the warehousing of production and other manufacturing overhead as well as for prescription and claim-related
costs attributable to providing pharmacy benefit management services. Research and development expenses are charged against cost of goods sold as incurred. Selling, general and administrative costs include management and general office salaries,
advertising and promotional expenses, insurance costs, sales and marketing and other indirect operating costs.



Interest expense, net consists primarily of interest expense associated with borrowings to finance capital equipment expenditures and
other working capital needs as partially offset by interest income earned on our funds held at banks.



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On August 27,
2002, a commercial building where one of our manufacturing facilities is located, was involved in a fire. Although this fire was not in our leased space, nor was the fire caused by the Company or any of its related parties, our facility was exposed
to and incurred smoke and water damage. The company that had the fire is not a related party. Innovative has adequate insurance coverage that covers replacement cost of the facilities contents which includes inventory and leasehold
improvements, in addition to business interruption insurance which covers lost profits based on certain coverage formulas and policy limits. As of December 31, 2002 through the date of this filing ( February 12, 2003) the final financial assessment
has not been made by our insurance company. The Company has a $5,000 deductible for each policy, or $10,000 in total for both policies, that the Company believes will also be able to recoup the since the claim has been assessed by our insurance
company as subrogatable against the other non-related company who is at fault.



As of December 31, 2002, included within accounts receivable-other, the Company has recorded amounts due from the Companys insurance company that are quantifiable and measurable at this time, in
the amount of $233,000 comprised of amounts due and approved for leasehold improvement and inventory replacement cost. The Company has written off the net book value of leasehold improvements of approximately $97,000 in addition to inventory with a
FIFO carrying cost of approximately $169,000. The replacement cost coverage of both the leasehold improvements and the inventory coverage exceeds the net book value written off. Directly related to the $233,000 included in the accounts
receivable,other, for the three and nine months ended December 31, 2002, amounts recorded in other income/(expense), net, included approximately $240,000 and $460,000, respectively.



Three Months Ended December 31, 2002 Compared To Three Months Ended December 31, 2001



Revenues. Total revenues increased approximately
$1,532,000, or 87.6%, to approximately $3,280,000 for the three months ended December 31, 2002, as compared to approximately $1,749,000 for the three months ended December 31, 2001. Pharmacy benefit management revenues increased approximately
$374,000, or 71.7%, to approximately $895,000 for the three months ended December 31, 2002, as compared to $522,000 for the three months ended December 31, 2001. Pharmacy benefit management revenues increased for the three months ended December 31,
2002 solely due to the increase of participating plan members in the current period as compared to the three-month corresponding period in 2001. Distribution revenues increased approximately $106,000 to approximately $269,000 for the three months
ended December 31, 2002, as compared to approximately $163,000 for the three months ended December 31, 2001. Distribution revenues increased due to the additional product line, Thermo Fuel ZXE, that was not present in the corresponding quarter in
2001. Manufacturing revenues increased approximately $1,052,000, or 98.9%, to approximately $2,116,000 for the three months ended December 31, 2002, as compared to approximately $1,064,000 for the corresponding period. Increases in manufacturing
segment revenues was primarily caused by the increases in customer base and related volume of recurring and new customer orders as partially offset by the absence of revenues that would have been generated by our manufacturing facility that was
damaged by the fire that occurred August 27, 2002. This facility was back in operation during the quarter ended March 31, 2003.



Gross profit. Total gross profit increased approximately $394,000, or 96.2%, to approximately $804,000 for the three months ended
December 31, 2002, as compared to approximately $410,000 for



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the three months ended
December 31, 2001. Total gross margins increased from 23.4% for the three months ended December 31, 2001, to 24.5% for the three months ended December 31, 2002. Pharmacy benefit management gross profits increased approximately $4,000, or 4.8%, to
approximately $89,000 for the three months ended December 31, 2002, as compared to $85,000 for the three months ended December 31, 2001. Pharmacy benefit management gross margin decreased to 9.9% for the three months ended December 31, 2002 as
compared to 16.2% for the three months ended December 31, 2001. Although gross profits increased as caused by higher sales volumes, margins decreased as higher net claims dollars were incurred and paid per member as compared to the corresponding
three-month period. Distribution gross profit decreased approximately $29,000, to approximately $80,000 for the three months ended December 31, 2002, as compared to $109,000 for the three months ended December 31, 2001. Distribution gross margin
decreased to 29.6% for the three months ended December 31, 2002. Although revenues increased as compared to the 2001 corresponding period, gross profits decreased based on the addition of the new product line, Thermo Fuel ZXE, which incurred
product-related, start-up costs in its initial production run. Manufacturing gross profit increased approximately $419,000, or 193.1%, to approximately $636,000 for the three months ended December 31, 2002, as compared to approximately $217,000 in
the corresponding three-month period in 2001. For the three months ended December 31, 2002, manufacturing gross margin increased to 29.2%, from 20.4% in the corresponding three-month period in 2001. The increases in profits and margins are primarily
attributable to a current change in our contract manufacturing sales portfolio that is yielding a higher gross margin in addition to increases as caused by increased sales volume as partially offset by an absence of gross margins derived from sales
generated from our manufacturing facility that was damaged by the fire that occurred August 27, 2002.



Selling, general and administrative expenses. Selling, general and administrative expenses consist primarily of advertising and
promotional expenses; insurance costs, personnel costs related to general management functions, finance, accounting and information systems, payroll expenses and sales commissions; professional fees related to legal, audit and tax matters; and
depreciation and leasehold amortization expense. Selling, general and administrative expenses increased approximately $70,000, or 8.6%, to approximately $886,000 for the three months ended December 31, 2002, as compared to approximately $816,000 in
the corresponding period. The increase is primarily attributable to rising insurance expenses in addition to increases in advertising and promotional expenses associated with our distribution segment, rents, as well as payroll expenses and costs
associated with fringe benefits to support our distribution, manufacturing and pharmacy benefit management growth. As a percentage of sales, selling, general and administrative expenses decreased to 27.0% for the three months ended December 31, 2002
from 46.6% in the corresponding three-month period in 2001.



Interest income (expense), net. Interest expense, net of interest income, decreased approximately $7,000 to approximately $(22,000) for the three months ended December 31, 2002, from approximately $(29,000) for the three
months ended December 31, 2001. The decrease in net interest expense is primarily attributable to the decline in interest rates in addition to a continued decline in total obligations outstanding.





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Nine Months Ended December
31, 2002 Compared To Nine Months Ended December 31, 2001



Revenues. Total revenues increased approximately $5,732,000, or 109.4%, to approximately $10,970,000 for the nine months ended December 31, 2002, as compared to approximately $5,238,000 for the nine months ended December 31,
2001. Pharmacy benefit management revenues increased approximately $1,064,000, or 86.0%, to approximately $2,301,000 for the nine months ended December 31, 2002, as compared to $1,237,000 for the nine months ended December 31, 2001. Pharmacy benefit
management revenues increased for the nine months ended December 31, 2002 solely due to the increase of participating plan members in the current period as compared to the nine-month corresponding period in 2001. Distribution revenues increased
approximately $778,000 to approximately $1,011,000 for the nine months ended December 31, 2002, as compared to $233,000 for the nine months ended December 31, 2001. Distribution revenues increased due to the introduction of our new product line in
September 2002, Thermo Fuel ZXE. Manufacturing revenues increased approximately $3,890,000, or 103.2%, to approximately $7,658,000 for the nine months ended December 31, 2002, as compared to approximately $3,768,000 for the corresponding period.
Increases in manufacturing segment revenues was primarily caused by the increases in customer base and related volume of recurring and new customer orders as partially offset by the absence of revenues generated from our manufacturing facility that
was damaged by fire on August 27, 2002. This facility went back in production during the quarter ended March 31, 2003.



Gross profit. Total gross profit increased approximately $1,915,000, or 168.7%, to approximately $3,050,000 for the nine months
ended December 31, 2002, as compared to approximately $1,135,000 for the nine months ended December 31, 2001. Total gross margins increased from 21.7% for the nine months ended December 31, 2001, to 27.8% for the nine months ended December 31, 2002.
Pharmacy benefit management gross profits increased approximately $61,000, or 27.4%, to approximately $285,000 for the nine months ended December 31, 2002, as compared to $224,000 for the nine months ended December 31, 2001. Pharmacy benefit
management gross margin decreased to 12.4% for the nine months ended December 31, 2002 as compared to 18.1% for the nine months ended December 31, 2001. Although gross profits increased as caused by higher sales volumes, margins decreased as higher
net claims dollars were incurred and paid per member as compared to the corresponding nine-month period. Distribution gross profit increased approximately $243,000 to approximately $347,000 for the nine months ended December 31, 2002, as compared to
approximately $104,000 for the nine months ended December 31, 2001. Distribution gross margin decreased to 34.4% for the nine months ended December 31, 2002 as compared to 44.8% for the corresponding 2001 nine month period. Although gross profits
increased as caused by higher sales volumes based on the addition of the new product line, gross margins decreased due to product-related start up costs. Manufacturing gross profit increased approximately $1,610,000, or 199.6%, to approximately
$2,417,000 for the nine months ended December 31, 2002, as compared to approximately $807,000 in the corresponding nine-month period in 2001. For the nine months ended December 31, 2002, manufacturing gross margin increased to 31.6%, from 21.4% in
the corresponding nine-month period in 2001. The increases in profits and margins are primarily attributable to a current change in our contract manufacturing sales portfolio that is yielding a higher gross margin in addition to increases as caused
by increased sales volume.



Selling, general
and administrative expenses. Selling, general and administrative expenses consist primarily of advertising and promotional expenses; insurance costs, personnel costs related to general



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management functions, finance, accounting and information systems, payroll expenses and sales commissions;
professional fees related to legal, audit and tax matters; and depreciation and leasehold amortization expense. Selling, general and administrative expenses increased approximately $297,000, or 12.9%, to approximately $2,597,000 for the nine months
ended December 31, 2002, as compared to approximately $2,300,000 in the corresponding period. The increase is primarily attributable to rising insurance expenses in addition to increases in advertising and promotional expenses associated with our
distribution segment, rents, as well as payroll expenses and costs associated with fringe benefits to support our distribution, manufacturing and pharmacy benefit management growth. As a percentage of sales, selling, general and administrative
expenses decreased to 23.7% for the nine months ended December 31, 2002 from 43.9% in the corresponding nine-month period in 2001.



Interest income (expense), net. Interest expense, net of interest income, increased approximately $10,000 to approximately
$(60,000) for the nine months ended December 31, 2002, from approximately $(50,000) for the nine months ended December 31, 2001. The increase in net interest expense is primarily attributable to the decline in interest income earned based on both
declining interest rates in addition to a decline in available interest-bearing funds that partially offsets interest expense incurred on declining obligation balances outstanding.



Income taxes. As of the fiscal year ended March 31, 2002, the Company had a net operating loss
carryforward of approximately $1.5 million in addition to a net deferred income tax asset and valuation allowance of approximately $330,000, which primarily represented the potential future tax benefit associated with its operating losses through
the fiscal year ended March 31, 2002. Management evaluated several factors including the scheduled reversal of the temporary timing differences, the Companys actual profitability for the nine months ended December 31, 2002, along with the
Companys future projected earnings and believes such information indicates that the Company will be able to generate sufficient taxable income to utilize the net current deferred tax asset. Based on managements analysis, the Company
recognized $147,900 net deferred tax asset and related net deferred income tax benefit as of and for the nine months ended December 31, 2002. As of December 31, 2002, management continues to believe that it is more likely than not that the Company
will be able to generate sufficient taxable income to utilize this deferred income tax asset.



Financial Condition, Liquidity and Capital Resources



The Company has financed its operations through available borrowings under its credit line facilities and from cash provided by
operations. The Company had working capital of approximately $2,878,000 at December 31, 2002, inclusive of current portion of long-term obligations and credit facilities, as compared to working capital of approximately $2,529,000 at March 31, 2002.
The increase in working capital is primarily attributable to collection on accounts receivable, the increased turns on inventories and the continued payments on current obligations outstanding. All of which is inline with the Companys business
plans.



Net cash provided by operating activities
was approximately $273,000 for the nine months ended December 31, 2002, as compared to net cash used in operating activities of approximately $(1,271,000) for the nine months ended December 31, 2001. Cash provided is primarily attributable to net
income of $1,002,000 as adjusted by depreciation of approximately $281,000, a decrease in trade accounts receivable of approximately $209,000 based on customer remittances received on customer accounts outstanding, accrued expenses increased
approximately $54,000 all of which is partially offset by an approximate $233,000 increase in accounts receivable, other which represents that measurable and estimatable amounts due from our insurance company due to losses sustained in the August
27, 2002 fire, an increase in inventory of approximately $110,000 as caused by the netting of two offsetting amounts comprised of write-off of the carrying value of the inventory destroyed in the fire on August 27, 2002 of approximately $170,000 as
offset by inventory purchases of approximately $280,000, an increase of $270,000 in prepaid expenses as caused by the annual renewal of the Companys general, product, directors and officers, and health insurance policies, decreases in accounts
payable of approximately



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$121,000 based on net payments made by the Company on vendor and supplier accounts outstanding, an
approximate $386, 000 increase in due from affiliates, net based on the normal sales consummated with our affiliates and an increase in the net deferred income tax asset of approximately $148,000.



Net cash used in investing activities of approximately
$(65,000) results from proceeds received from the insured disposal of the net carrying value of leasehold improvements damaged in the August 27, 2002 fire of approximately $121,000 all of which was offset by approximately $186,000 of purchases of
equipment used in manufacturing and corporate activities.



Net cash used in financing activities was approximately $(324,000) for the nine months ended December 31, 2002 representing proceeds from a draw on the distribution segments credit line of $75,000 and of $284,000 as related to the
financing of our insurance policies all of which is offset by payments on long-term obligations of approximately $313,000 and payments related to the redemption of 27,500 shares of $10 face value preferred stock of $275,000 in addition to preferred
dividend payments of approximately $94,000. The decline in the preferred stock dividends paid in the current period as compared to the prior period is solely due to the decline in the number of preferred shares outstanding. The redemption of the
preferred stock and the payment of the preferred stock dividends is a related party activity.



During December 2002, the Company closed on our increased line of credit (the line) for our manufacturing segment. This line was increased from $650,000 to $900,000 in addition to a
reduction in the amount of the certificate of deposit cross-collateralizing both the distribution and manufacturing lines from $650,000 to $300,000. As of December 31, 2002, $25,000 remained available on the distribution line with approximately
$250,000 available on the manufacturing line.



Management believes that cash expected to be generated from operations, current cash reserves, and existing financial arrangements will be sufficient for the Company to meet its capital expenditures and working capital needs for its
operations as presently conducted. The Companys future liquidity and cash requirements will depend on a wide range of factors, including the level of business in existing operations, expansion of facilities, expected results from recent
procedural changes surrounding the acceptance of manufacturing sales orders, and possible acquisitions. In particular, if cash flows from operations and available credit facilities are not sufficient, it will be necessary for the Company to seek
additional financing. There can be no assurance that such financing will be available in amounts and on terms acceptable to the Company.



Item 3. Controls and Procedures



Based on their most recent review, which was completed within 90 days prior to the filing of this report, the Companys principal
executive officer and principal financial officer have concluded that the Companys disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports that it files or submits
under the Securities Exchange Act of 1934, as amended, is accumulated and communicated to the Companys management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding
required disclosure and are effective to ensure that such information is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms. There were no significant changes in the Companys
internal controls or in other factors that could significantly affect those controls subsequent to the date of their evaluation.



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Part
IIOTHER INFORMATION



Item 1. LEGAL PROCEEDINGS.



From time to time the Company is subject to
litigation incidental to its business. Such claims, if successful, could exceed applicable insurance coverage. The Company is not currently a party to any material legal proceedings.



Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.



None.



Item 3. DEFAULTS UPON SENIOR SECURITIES.



Not applicable.



Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.



Not applicable.



Item 5. OTHER INFORMATION.



Not applicable.



Item 6. EXHIBITS AND REPORTS ON FORM 8-K.



(a) Exhibits.



Exhibit 99.1 Certification Pursuant to 18 U. S. C. Section
1350



(b) Reports on Form 8-K.



The Company did not file any reports on Form 8-K
during the applicable period.



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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.



|                        |  |  |  | Innovative Companies, Inc.
|----------------------- |  |  |  | --------------------------
|                       
|Date: February 12, 2003 |  |  |  | By:                       
|                        |  |  |  |                           



|                       
|-----------------------
|Date: February 12, 2003
|                       





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CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO SECTION 302 OF THE

SARBANES-OXLEY ACT OF 2002



I, Mihir K. Taneja, certify that:



1. I have reviewed this quarterly report on Form 10-QSB of Innovative Companies, Inc.;



2. Based on my knowledge, this quarterly report does not
contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
quarterly report;



3. Based on my knowledge, the
financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in
this quarterly report;



4. The registrants
other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:



a) designed such disclosure controls and
procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;



b) evaluated the effectiveness
of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the Evaluation Date); and



c) presented in this quarterly report our conclusions about the effectiveness of the
disclosure controls and procedures based on our evaluation as of the Evaluation Date;



5. The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee of registrants board of
directors (or persons performing the equivalent function):



a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize and report financial data and
have identified for the registrants auditors any material weaknesses in internal controls; and



b) any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrants internal controls; and



6. The
registrants other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date
of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.



|      
|------
|Dated:
|      



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CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

PURSUANT TO SECTION 302 OF THE

SARBANES-OXLEY ACT OF 2002



I, Carol Dore-Falcone, certify that:



1. I have reviewed this quarterly report on Form 10-QSB of Innovative Companies, Inc.;



2. Based on my knowledge, this quarterly report does not
contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
quarterly report;



3. Based on my knowledge, the
financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in
this quarterly report;



4. The registrants
other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:



a) designed such disclosure controls and
procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;



b) evaluated the effectiveness
of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the Evaluation Date); and



c) presented in this quarterly report our conclusions about the effectiveness of the
disclosure controls and procedures based on our evaluation as of the Evaluation Date;



5. The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee of registrants board of
directors (or persons performing the equivalent function):



a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize and report financial data and
have identified for the registrants auditors any material weaknesses in internal controls; and



b) any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrants internal controls; and



6. The
registrants other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date
of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.



|      
|------
|Dated:
|      



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