FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2001
Commission File No. 1-11768
RELIV' INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 37-1172197
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
136 Chesterfield Industrial Boulevard, Chesterfield, Missouri 63005
(Address of principal executive offices) (Zip Code)
(636) 537-9715
(Registrant's telephone number, including area code)
Registrant 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 and
has been subject to such filing requirements for the past 90 days.
APPLICABLE ONLY TO CORPORATE ISSUERS:
COMMON STOCK 9,654,505 outstanding Shares as of September 30, 2001
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
The following consolidated financial statements of the Registrant are
attached to this Form 10-Q:
1. Interim Balance Sheet as of September 30, 2001 and Balance Sheet
as of December 31, 2000.
2. Interim Statements of Operations for the three and nine month
periods ending September 30, 2001 and September 30, 2000.
3. Interim Statements of Cash Flows for the nine month periods
ending September 30, 2001 and September 30, 2000.
The Financial Statements reflect all adjustments which are, in the opinion
of management, necessary for a fair statement of results for the periods
presented.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operation
1. Financial Condition
Current assets of the Company decreased during the first nine months of
2001, to $7,866,000 from $9,424,000 as of December 31, 2000. Cash and cash
equivalents increased to $1,357,000 as of September 30, 2001, as compared to
$1,199,000 as of December 31, 2000. Accounts and notes receivable decreased by
$1,641,000 to $926,000 as of September 30, 2001, as compared to $2,567,000 as of
December 31, 2000. Inventory decreased by $200,000 to $4,330,000 as of September
30, 2001. The Company's accounts receivable and inventory decrease is primarily
due to the reduction in the sales and production for the Company's manufacturing
and packaging business. Prepaid expenses and other current assets increased as
the result of advance payments made on a new product line that was introduced in
August 2001, along with advance payments made on upcoming promotional trips.
The Company purchased $225,000 of property, plant and equipment during the
first nine months of 2001.
Current liabilities decreased by $1,875,000 from $9,291,000 as of December
31, 2000 to $7,416,000 as of September 30, 2001. The primary component of the
decrease is the reduction in trade accounts payable. Trade accounts payable
decreased by $1,661,000 from $5,270,000 as of December 31, 2000 to $3,609,000 as
of September 30, 2001. This decrease is related to the decrease in inventory and
reduction in the manufacturing for third-party customers, as discussed
previously. Another significant component of the decrease was the reduction in
balance due on the Company's line of credit. The amount drawn on the line of
credit reduced from $1,918,000 as of December 31, 2000 to $901,000 as of
September 30, 2001. Distributor commissions
2
payable increased from $1,200,000 as of December 31, 2000 to $1,592,000 as of
September 30, 2001. This is the result of higher worldwide network marketing
sales in September 2001, as compared to December 2000.
Long-term debt and capital lease obligations decreased by $306,000 from
$5,046,000 as of December 31, 2000 to $4,740,000 as of September 30, 2001. The
Company incurred $41,000 in additional long-term debt during the first nine
months of 2001.
Stockholders' equity increased from $5,646,000 as of December 31, 2000 to
$5,785,000 as of September 30, 2001, as the result of the net income of the
first nine months of 2001, partially offset by the declining value of the
currencies of most of the Company's key foreign subsidiaries. The balance of the
cumulative foreign currency translation adjustment worsened by $141,000 at
September 30, 2001 as compared to December 31, 2000. The Australian, New Zealand
and Canadian dollars all weakened against the US dollar over the course of the
first nine months of 2001.
The Company's working capital balance has improved from $133,000 as of
December 31, 2000 to $450,000 as of September 30, 2001. The current ratio has
also improved to 1.06 as of September 30, 2001. The Company also has an
operating line of credit, with a limit based on a collateral-based formula of
accounts receivable and inventory, which was renewed in May 2001. The maximum
borrowing limit is $2,000,000. At September 30, 2001, the Company had utilized
$901,000 of the line of credit. Additionally, in March 2001, the Company
obtained a modification agreement related to the term loan that financed the
construction of the 1998 building expansion. The modification agreement
effectively extended the maturity of the loan to March 2004, from March 2001.
Management believes that the Company's internally generated funds together with
the loan agreement will be sufficient to meet working capital requirements for
the remainder of 2001 and 2002.
2. Results of Operations
The Company had net income of $407,000, or $.04 per share basic and
diluted, for the quarter ended September 30, 2001, compared to net income of
$235,000, on a restated basis, or $.02 per share basic and diluted, for the same
period in 2000. Net sales declined due to the continued decrease in the
manufacturing and packaging business. However, net income improved primarily as
the result of improved results in the international operations. International
operations, as a group, yielded pre-tax earnings of $50,000 in the third quarter
of 2001, as compared to a pre-tax loss of $552,000 in the third quarter of 2000.
Selling, general and administrative expenses decreased as the result of
continued efforts to bring administrative costs more in line with current sales
levels. For the nine months ended September 30, 2001, the Company had net income
of $274,000, as compared to net income of $383,000, on a restated basis, in the
first nine months of 2000.
During 2000, the Emerging Issues Task Force ("EITF") issued EITF 00-10,
Accounting for Shipping and Handling Fees and Costs. Previously, the Company
recognized shipping and handling costs as a reduction to net sales. Effective
with the adoption of Staff Accounting Bulletin No. 101 on October 1, 2000, the
EITF requires shipping and handling costs to be
3
included in cost of sales. The effect of adopting EITF 00-10 increased net sales
and cost of products sold from previously reported amounts by $424,000 and
$1,154,000 for the three and nine months ended September 30, 2000, respectively.
Percentages shown below in the discussion on specific line items of the
statement of operations have been recalculated for prior years based on the
reclassification.
Net sales decreased to $13,418,000 in the third quarter of 2001 as compared
to $17,352,000 in the prior year. The decrease was primarily due to the decrease
in sales by the Company's manufacturing and packaging services segment. Sales in
this portion of the business decreased to $389,000 in the third quarter of 2001,
as compared to $4,393,000 in the third quarter of 2000. Net sales in the network
marketing segment increased slightly to $13,029,000 in the third quarter of
2001, as compared to $12,959,000 in the third quarter of 2000. Network marketing
sales in the United States declined by 9% to $10,654,000 in the third quarter of
2001, as compared to $11,757,000 in the third quarter of 2000. The third quarter
2000 sales in the United States were up as the result of strong sales in advance
of a change in the distributor compensation plan that was effective September 1,
2000. In August 2001, the Company introduced a new line of skin care products at
its International Distributor Conference. Net sales in the United States of the
new skin care line were approximately $500,000 in the third quarter of 2001. The
skin care line has also been introduced in Canada, Mexico, and the Australia/New
Zealand market. Offsetting the decline in the United States was the growth in
sales of the Company's international subsidiaries. Led by the sales growth of
the Company's newest market, the Philippines, international sales increased by
98% in the third quarter of 2001 as compared to the third quarter of 2000.
International sales increased from $1,202,000 in the third quarter of 2000 to
$2,375,000 in the third quarter of 2001. Net sales in the Philippines of
$931,000 accounted for a majority of the increase; however, Mexican sales
increased by 33% in the third quarter. Sales in the Australia/New Zealand market
also increased by 29% in the third quarter of 2001. The Company promoted its
distributor relations and marketing manager into the sales management position
during the third quarter. Sales in this region have also improved in response to
new product introductions. Canadian and UK operations showed a 3% decrease and
1% increase in net sales, respectively.
The Company also provided manufacturing and packaging services, including
blending, processing and packaging food products in accordance with
specifications provided by its customers. Net sales decreased to $389,000 in the
third quarter of 2001 from $4,393,000 in the prior year. Through the first nine
months of the year, net sales in this segment had declined from $13,283,000 in
2000 to $3,861,000 in 2001. This decrease is the result of the Company's
decision to phase out this line of business. The Company's sales to third party
customers primarily consisted of the Company purchasing raw materials, using
customer-specified packaging materials and selling a finished product to the
customer. For the third quarter of 2001, cost of goods sold for these sales were
90% of net sales. Even under optimal operating efficiencies, the gross margin
for unrelated customers was substantially less than margins obtained in the
sales of the network marketing products. The Company concluded production for
the remaining significant customer during the third quarter. As production has
declined over the course of 2001, the Company has taken steps to reduce payroll
through layoffs and attrition. During the course of 2001, the Company has
reduced plant employment by approximately 40 people.
4
Cost of products sold for the network marketing segment as a percentage of
net sales improved from 18.7% in the third quarter of 2000 to 14.9% in the third
quarter of 2001. Part of this improvement is due to a change in the distributor
compensation plan, effective September 1, 2000. This reduced the maximum
discount allowed to distributors from 45% to 40%. However, more of the reduction
is the result of reduced labor and overhead costs related to the manufacturing,
as mentioned above, coupled with strong production requirements, especially for
the foreign operations.
Distributor royalties and commissions as a percentage of network marketing
sales increased from 35% in the third quarter of 2000 to 38% in the third
quarter of 2001. As part of the change in the distributor compensation plan
discussed above, total royalties paid to Master Affiliates increased from 18% to
23% of retail sales. These expenses are governed by the distributor agreements
and are directly related to the level of sales.
Selling, general and administrative (SGA) expenses decreased by $249,000 in
the third quarter of 2001 as compared to the third quarter of 2000. The Company
has taken various steps to reduce administrative costs and will continue these
cost reductions in future quarters.
Effective October 1, 2001, the Company has closed its Colombian operations.
Continued political turmoil in the country made it difficult for the Company to
improve its sales levels and distributor activity there. A charge of $50,000 was
recorded in the third quarter 2001 consolidated statements of operations to
reflect the costs in terminating this operation. This charge was recorded in
selling, general and administrative expenses.
Interest expense decreased from $150,000 in the third quarter of 2000 to
$126,000 in the third quarter of 2001. This decrease is due to less reliance on
the line of credit, along with declining interest rates.
The Company recorded income tax expense of $162,000 in the third quarter of
2001, as the result of its consolidated net income through the first nine months
of the year. On a year-to-date basis, this represents an effective rate of 37%.
Safe Harbor Provision of the Private Securities Litigation Act of 1995 and
Forward Looking Statements.
The statements contained in Item 2 (Management's Discussion and Analysis of
Financial Condition and Results of Operation) that are not historical facts may
be forward-looking statements (as such term is defined in the rules promulgated
pursuant to the Securities Exchange Act of 1934) that are subject to a variety
of risks and uncertainties. The forward-looking statements are based on the
beliefs of the Company's management, as well as assumptions made by, and
information currently available to the Company's management. Accordingly, these
statements are subject to significant risks, uncertainties and contingencies
which could cause the Company's actual growth, results, performance and business
prospects and opportunities in 2001 and beyond to differ materially from those
expressed in, or implied by, any such forward-looking statements. Wherever
possible, words such as "anticipate," "plan," "expect," "believe,"
5
"estimate," and similar expressions have been used to identify these
forward-looking statements, but are not the exclusive means of identifying such
statements. These risks, uncertainties and contingencies include, but are not
limited to, the Company's ability to continue to attract, maintain and motivate
its distributors, changes in the regulatory environment affecting network
marketing sales and sales of food and dietary supplements and other risks and
uncertainties detailed in the Company's other SEC filings.
Item 3. Quantitative and Qualitative Disclosure of Market Risk
The Company's earnings and cash flow are subject to fluctuations due to
changes in foreign currency rates as it has several foreign subsidiaries and
continues to explore expansion into other foreign countries. As a result,
exchange rate fluctuations may have an effect on its sales and the Company's
gross margins. Accounting practices require that the Company's results from
operations be converted to U.S. dollars for reporting purposes. Consequently,
the reported earnings of the Company in future periods may be significantly
affected by fluctuations in currency exchange rates, generally increasing with a
weaker U.S. dollar and decreasing with a strengthening U.S. dollar. Products
manufactured by the Company for sale to the Company's foreign subsidiaries are
transacted in U.S. dollars. As the Company's foreign operations expand, its
operating results will be subject to the risks of exchange rate fluctuations and
the Company may not be able to accurately estimate the impact of such changes on
its future business, product pricing, results of operations or financial
condition.
The Company also is exposed to market risk in changes in interest rates on
its long-term debt arrangements and commodity prices in some of the raw
materials it purchases for its manufacturing needs. However, neither presents a
risk that would have a material effect on the Company's results of operations or
financial condition.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
In June 2001, five former distributors of the Company filed lawsuits
claiming wrongful termination, breach of the Distributor Agreement, and
interference with business expectancy. The individuals had been terminated by
the Company in October 2000 for violating certain provisions of the Distributor
Agreement. The Company engaged outside counsel to defend these claims and on
October 17, 2001, the Court dismissed the distributors' Petitions, without
prejudice, based on the binding arbitration clause found in the Distributor
Agreement. To this date, an arbitration claim has not been filed by the
distributors against the Company.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
6
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*
(b) The Company has not filed a Current Report during the quarter
covered by this report.
* Also incorporated by reference are the Exhibits filed as part of
the S-18 Registration Statement of the Registrant, effective
November 5, 1985, and subsequent periodic filings.
7
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: November 13, 2001 RELIV' INTERNATIONAL, INC.
By: /s/ Robert L. Montgomery
--------------------------------
Robert L. Montgomery, President,
Chief Executive Officer and
Principal Financial Officer
8
Reliv International, Inc. and Subsidiaries
Consolidated Balance Sheets
September 30 December 31
2001 2000
------------ ------------
(unaudited) (see notes)
Assets
Current assets:
Cash and cash equivalents $ 1,357,229 $ 1,198,682
Accounts and notes receivable, less allowances of
$5,000 in 2001 and $5,000 in 2000 926,101 2,566,982
Note receivable from officer 59,250 59,250
Inventories
Finished goods 2,588,401 2,584,895
Raw materials 1,315,776 1,459,960
Sales aids and promotional materials 425,811 484,936
------------ ------------
Total inventories 4,329,988 4,529,791
Refundable income taxes 465,765 663,735
Prepaid expenses and other current assets 643,322 322,131
Deferred income taxes 84,527 83,174
------------ ------------
Total current assets 7,866,182 9,423,745
Other assets 676,769 849,691
Property, plant and equipment:
Land 829,222 829,222
Building 8,406,322 8,399,277
Machinery & equipment 4,003,882 3,984,971
Office equipment 559,817 494,266
Computer equipment & software 2,072,210 1,961,969
------------ ------------
15,871,453 15,669,705
Less: Accumulated depreciation (6,088,835) (5,548,026)
------------ ------------
Net property, plant and equipment 9,782,618 10,121,679
------------ ------------
Total assets $ 18,325,569 $ 20,395,115
============ ============
See notes to financial statements.
Reliv International, Inc. and Subsidiaries
Consolidated Balance Sheets
September 30 December 31
2001 2000
------------ ------------
(unaudited) (see notes)
Liabilities and stockholders' equity
Current liabilities:
Accounts payable and accrued expenses:
Trade accounts payable $ 3,608,905 $ 5,269,709
Distributors commissions payable 1,591,868 1,199,522
Sales taxes payable 293,617 171,639
Interest expense payable 63,653 65,478
Payroll and payroll taxes payable 320,918 148,573
Other accrued expenses 15,173 9,494
------------ ------------
Total accounts payable and accrued expenses 5,894,134 6,864,415
Income taxes payable 161,856 --
Borrowings under line of credit 900,618 1,918,080
Current maturities of long-term debt 296,024 332,466
Current maturities of capital lease obligations 163,575 176,094
------------ ------------
Total current liabilities 7,416,207 9,291,055
Capital lease obligations, less current maturities 21,458 143,900
Long-term debt, less current maturities 4,718,641 4,901,788
Other non-current liabilities 384,114 412,610
Stockholders' equity:
Preferred stock, par value $.001 per share; 3,000,000
shares authorized; none issued and outstanding -- --
Common stock, par value $.001 per share; 20,000,000
authorized; 9,654,505 shares issued and outstanding
as of 9/30/2001 and 12/31/2000 9,655 9,655
Additional paid-in capital 9,075,146 9,074,756
Notes receivable-officers and directors (21,171) (26,650)
Accumulated deficit (2,513,605) (2,787,725)
Accumulated other comprehensive loss:
Foreign currency translation adjustment (764,876) (624,274)
------------ ------------
Total stockholders' equity 5,785,149 5,645,762
------------ ------------
Total liabilities and stockholders' equity $ 18,325,569 $ 20,395,115
============ ============
See notes to financial statements.
Reliv International, Inc. and Subsidiaries
Consolidated Statements of Operations
Three months ended September 30 Nine months ended September 30
2001 2000 2001 2000
------------ ------------ ------------ ------------
(unaudited) (unaudited) (unaudited) (unaudited)
Sales at suggested retail $ 19,052,462 $ 23,969,386 $ 57,051,443 $ 66,499,751
Less: distributor allowances on product purchases 5,634,289 6,617,214 16,146,767 18,142,164
------------ ------------ ------------ ------------
Net sales 13,418,173 17,352,172 40,904,676 48,357,587
Costs and expenses:
Cost of products sold 2,291,278 6,577,838 10,126,701 19,470,019
Distributor royalties and commissions 5,002,213 4,585,720 14,206,330 12,284,126
Selling, general and administrative 5,436,575 5,685,958 15,742,268 15,502,494
------------ ------------ ------------ ------------
Total costs and expenses 12,730,066 16,849,516 40,075,299 47,256,639
------------ ------------ ------------ ------------
Income from operations 688,107 502,656 829,377 1,100,948
Other income (expense):
Interest income 6,955 11,489 25,671 36,661
Interest expense (126,105) (149,999) (413,490) (475,919)
Other income/(expense) (50) 39,986 (5,439) (10,889)
------------ ------------ ------------ ------------
Income before income taxes 568,907 404,132 436,119 650,801
Provision for income taxes 162,000 169,380 162,000 267,879
------------ ------------ ------------ ------------
Net income $ 406,907 $ 234,752 $ 274,119 $ 382,922
============ ============ ============ ============
Earnings per common share $ 0.04 $ 0.02 $ 0.03 $ 0.04
============ ============ ============ ============
Earnings per common share - assuming dilution $ 0.04 $ 0.02 $ 0.03 $ 0.04
============ ============ ============ ============
See notes to financial statements.
Reliv International, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(unaudited)
Nine months ended September 30
2001 2000
----------- -----------
Operating activities:
Net income (loss) $ 274,119 $ 382,922
Adjustments to reconcile net income to
net cash provided by (used in) operating
activities:
Depreciation 558,774 799,176
Amortization of goodwill -- 39,414
Foreign currency translation (gain) loss (27,003) 33,598
(Increase) decrease in accounts and notes receivable 1,641,405 (1,462,637)
(Increase) decrease in inventories 154,780 (1,447,398)
(Increase) decrease in refundable income taxes 196,177 174,139
(Increase) decrease in prepaid expenses
and other current assets (322,012) (21,668)
(Increase) decrease in other assets 200,759 (32,903)
Increase (decrease) in accounts payable and accrued expenses (974,816) 1,649,220
Increase (decrease) in income taxes payable 162,494 (1,392)
----------- -----------
Net cash provided by operating activities 1,864,677 112,471
Investing activities:
Purchase of property, plant and equipment (225,216) (319,522)
Repayment of loans by officers and directors 5,479 110,161
Expense recognized in closing of foreign subsidiary (50,000) --
----------- -----------
Net cash used in investing activities (269,737) (209,361)
Financing activities:
Net repayments under line of credit (1,017,462) 225,885
Proceeds from long-term borrowings 41,102 240,000
Principal payments on long-term borrowings (260,189) (336,793)
Principal payments under capital lease obligations (134,961) (85,099)
Proceeds from warrants exercised 390 1,459
----------- -----------
Net cash (used in) provided by financing activities (1,371,120) 45,452
Effect of exchange rate changes on cash and cash equivalents (65,273) (214,886)
----------- -----------
Increase in cash and cash equivalents 158,547 (266,324)
Cash and cash equivalents at beginning of period 1,198,682 1,531,700
----------- -----------
Cash and cash equivalents at end of period $ 1,357,229 $ 1,265,376
=========== ===========
See notes to financial statements
Reliv' International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
September 30, 2001
Note 1 -- Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form
10-Q 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 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 nine-month period ended
September 30, 2001 are not necessarily indicative of the results that
may be expected for the year ended December 31, 2001.
The balance sheet at December 31, 2000 has been derived from the
audited financial statements at that date but does not include all of
the information and footnotes required by generally accepted
accounting priciples for complete financial statements.
For further information, refer to the consolidated financial
statements and footnotes thereto included in the Registrant Company
and Subsidiaries' annual report on Form 10-K for the year ended
December 31, 2000.
Note 2 -- Shipping and Handling Costs
During 2000, the Emerging Issues Task Force ("EITF") issued EITF
00-10, Accounting for Shipping and Handling Fees and Costs.
Previously, the Company recognized shipping and handling costs as a
reduction to net sales. Effective with the adoption of Staff
Accounting Bulletin No. 101 on October 1, 2000, the EITF requires
shipping and handling costs to be included in cost of sales. The
effect of adopting EITF 00-10 increased net sales and cost of products
sold from previously reported amounts by $424,000 and $1,154,000 for
the three and nine months ended September 30, 2000, respectively.
Note 3 -- Earnings per Share
The following table sets forth the computation of basic and diluted
earnings per share:
Three months ended September 30 Nine months ended September 30
2001 2000 2001 2000
------------------------------- ------------------------------
Numerator:
Numerator for basic and diluted
earnings per share--net income $ 406,907 $ 234,752 $ 274,119 $ 382,922
Denominator:
Denominator per basic earnings per
share--weighted average shares 9,655,000 9,553,000 9,655,000 9,553,000
Effect of dilutive securities:
Employee stock options and other warrants 69,000 371,000 69,000 371,000
------------------------------- ------------------------------
Denominator for diluted earnings per
share--adjusted weighted average shares 9,724,000 9,924,000 9,724,000 9,924,000
=============================== ==============================
Basic earnings per share $ 0.04 $ 0.02 $ 0.03 $ 0.04
=============================== ==============================
Diluted earnings per share $ 0.04 $ 0.02 $ 0.03 $ 0.04
=============================== ==============================
Note 4 -- Comprehensive Income
Total comprehensive income was $316,004 and $133,517 for the three
months and nine months ended September 30, 2001, respectively. For the
three and nine months ended September 30, 2000, comprehensive income
was $49,002 and $58,710, respectively. The Company's only component of
other comprehensive income is the foreign currency translation
adjustment.
Note 5 -- Segment Information
Three months ended Three months ended
September 30, 2001 September 30, 2000
------------------ ------------------
Network Manufacturing Network Manufacturing
marketing and packaging marketing and packaging
---------------------------------- -----------------------------------
Net sales to external customers 13,029,228 388,945 12,959,470 4,392,702
Intersegment net sales -- 2,224,227 -- 1,952,676
Segment profit/(loss) 738,947 490,723 647,922 270,381
Nine months ended Nine months ended
September 30, 2001 September 30, 2000
------------------ ------------------
Network Manufacturing Network Manufacturing
marketing and packaging marketing and packaging
---------------------------------- -----------------------------------
Net sales to external customers 37,043,603 3,861,073 35,074,275 13,283,312
Intersegment net sales -- 5,728,622 -- 5,318,630
Segment profit/(loss) 1,948,568 209,632 2,056,230 261,941
Segment assets 14,609,000 2,359,340 14,111,925 8,599,328
A reconciliation of combined operating profit for the reportable
segments to consolidated income before income taxes is as follows:
Three months ended September 30 Nine months ended September 30
2001 2000 2001 2000
---------------------------------- -----------------------------------
Total profit for reportable segments 1,229,670 918,303 2,158,200 2,318,171
Corporate expenses (541,563) (415,646) (1,328,823) (1,217,222)
Non operating - net 6,905 51,474 20,232 25,771
Interest expense (126,105) (149,999) (413,490) (475,919)
---------------------------------- -----------------------------------
Income before income taxes 568,907 404,132 436,119 650,801
================================== ===================================
Note 6 -- Legal Proceedings
In June 2001, five former distributors of the Company filed lawsuits
claiming unlawful termination, breach of the Distributor Agreement,
and interference with business expectancy. The individuals had been
terminated by the Company in October 2000 for violating certain
provisions of the Distributor Agreement. In October 2001, the Court
dismissed the lawsuits based on the binding arbitration clause found
in the Distributor Agreement. At this time, the distributors have not
filed for binding arbitration.