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, 2000
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,
P.O. Box 405,
Chesterfield, Missouri 63006
(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 9,560,158 outstanding Shares as of September 30, 2000
<PAGE>
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, 2000 and Balance
Sheet as of December 31, 1999.
2. Interim Statements of Operations for the three and nine
month periods ending September 30, 2000 and September 30,
1999.
3. Interim Statements of Cash Flows for the nine month periods
ending September 30, 2000 and September 30, 1999.
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
Financial Condition
Current assets of the Company increased during the first nine months of
2000, to $12,665,000 from $8,497,000 as of December 31, 1999. Cash and cash
equivalents decreased to $1,265,000 at September 30, as compared to $1,532,000
as of December 31, 1999. Inventory increased by $1,896,000 to $6,601,000 as of
September 30, 2000, as compared to December 31, 1999. The increase in the
Company's inventory is due to sales growth in the network marketing segment,
particularly in the United States, along with additional inventory required for
the primary contract packaging customer. Accounts receivable has increased to
$3,687,000 from $794,000 as of December 31, 1999. The increase is primarily due
to the Company implementing a "full turnkey" operation for its primary
contract-packaging customer. This means the Company is responsible for
purchasing all ingredients and packaging for this customer's product.
Previously, the Company only purchased a portion of the ingredients. Trade
accounts payable has also increased as a result of this "turnkey" arrangement.
The Company purchased $320,000 of property, plant and equipment during
the first nine months of 2000, as compared to $966,000 during the first nine
months of 1999. This is the result of the Company's decision to reduce the
emphasis on the manufacturing and packaging business.
Current liabilities increased by $3,241,000 from $8,307,000 as of
December 31, 1999 to $11,548,000 as of September 30, 2000. The primary component
of the increase was in trade accounts payable. Trade accounts payable increased
by $2,928,000 from $3,994,000 as of
<PAGE>
December 31, 1999 to $6,922,000 as of September 30, 2000. This increase is
related to the change to a "full turnkey" program as discussed earlier.
Long-term debt decreased by $10,000 from $4,991,000 as of December 31,
1999 to $4,981,000 as of September 30, 2000. The Company issued a series of
private placement notes totaling $240,000 as part of the capital investment
required to fund the Company's upcoming entry into the Philippines.
Stockholders' equity increased from $6,819,000 as of December 31, 1999
to $7,269,000 as of September 30, 2000, as the result of the net income for the
first nine months of 2000. However, equity declined by $324,000 as the result of
the foreign currency translation adjustment at September 30, 2000 as compared to
December 31, 1999. The Australian, New Zealand and Canadian dollars weakened
against the US dollar over the first nine months of 2000.
The Company's working capital balance has improved to a balance of
$1,116,000 as of September 30, 2000, up from $190,000 as of December 31, 1999.
The current ratio has also improved slightly to 1.10 as of September 30, 2000.
The Company's line of credit is formula-based and provides a borrowing
arrangement based on a percentage of accounts receivable and inventory up to a
maximum borrowing limit. During the third quarter of 2000, the Company
negotiated an increase in the maximum borrowing limit to $3,000,000. As of
September 30, 2000, the Company was in compliance with all covenants in the new
line of credit agreement. Management believes that the Company's internally
generated funds together with the loan agreement will be sufficient to meet
working capital requirements in 2000.
Results of Operations
The Company had net income of $376,000, or $.04 per share ($.04 per
share diluted), for the quarter ended September 30, 2000, compared to a net loss
of $350,000, or $.04 per share ($.04 per share diluted), for the same period in
1999. Net sales were comparable between the third quarter of 2000, as compared
to 1999. However, the anticipated reduction in manufacturing and packaging sales
were offset by increased sales in the network marketing segment. This change in
the sales mix led to improved margins and profitability. For the nine months
ended September 30, 2000, the Company had net income of $716,000, as compared to
a net loss of $650,000 in the first nine months of 1999.
Net sales decreased slightly to $16,928,000 in the third quarter of
2000 as compared to $16,967,000 in the third quarter of the prior year. Net
sales in the network-marketing segment improved to $12,535,000 in the third
quarter of 2000, as compared to $9,730,000 in the third quarter of 1999. This
increase was offset by a decrease in the sales of the manufacturing and
packaging segment. Sales in this portion of the business decreased to $4,393,000
in the third quarter of 2000, as compared to $7,237,000 in the prior year. This
decrease in net sales in this segment was anticipated, as the Company has
continued its plan of eliminating unprofitable and low margin sales and
customers. Network marketing sales in the United States increased by 32% from
$8,558,000 in the third quarter of 1999 to $11,333,000 in the third quarter of
2000. The increase in U.S. sales was due to a change in the compensation plan to
<PAGE>
the independent distributors, along with continued strong sales of the Company's
new product, Reliv ReversAge(TM), a nutritional product that was introduced in
May 2000. The change in the compensation plan did not have as strong an impact
on foreign sales as in the United States. Sales in the Company's international
subsidiaries improved by 3% from $1,171,000 in the third quarter of 1999 to
$1,202,000 in the third quarter of 2000. However, results were mixed in the
various foreign markets. Sales in Mexico improved by 150% over the third quarter
of 1999, but sales in the Australia/New Zealand market continue to struggle with
a 42% decline versus the third quarter of 1999. Sales in the Canadian and United
Kingdom markets remained essentially flat. Sales commenced in the Company's new
operation in the country of Colombia in April of 2000, and sales in the
Philippines are scheduled to launch during November 2000.
The Company also provides manufacturing and packaging services,
including blending, processing and packaging food products in accordance with
specifications provided by its customers. Net sales decreased to $4,393,000 in
the third quarter of 2000 from $7,237,000 in the prior year. Through the first
nine months of the year, net sales in this segment had declined from $22,568,000
in 1999 to $13,283,000 in 2000. This decrease follows the Company's decision to
place less emphasis on this business. The Company's sales to third party
customers primarily consist of the Company purchasing raw materials,
customer-specified packaging materials and selling a finished product to the
customer. For the third quarter of 2000, cost of goods sold for these sales were
94% of net sales. Even under optimal operating efficiencies, the gross margin
for unrelated customers is substantially less than margins obtained in the sales
of the network marketing products. However, profitability in this segment has
improved as costs have been reduced and productivity improved. This segment
showed operating profit of $270,000 in the third quarter of 2000.
Cost of products sold for the network-marketing segment as a percentage
of net sales improved from 18.7% in the third quarter of 1999 to 14.1% in the
third quarter of 2000. A by-product of the manufacturing and packaging business
for unrelated customers is the purchasing power it provides the Company on the
materials it uses to manufacture the network marketing products. This, coupled
with a price increase on some of the Company's network marketing products in the
first quarter of 2000, along with increased production requirements for the
network marketing division accounts for the improvement.
Distributor royalties and commissions as a percentage of network
marketing sales remained constant at 37% in the third quarters of 1999 and 2000.
Effective September 1, 2000, the Company modified its compensation plan for the
distributors. Previously, distributors could purchase products from the Company
at discounts ranging from 25% to 45%, with total royalties of 18% of retail
sales paid to master affiliates on their organization's sales. After the
modification, the discounts at the time of purchase were changed, ranging from
20% to 40%, with royalty payments totaling up to 23% to master affiliates. The
effect of this change on the financial statements is that distributor royalties
and commissions will increase as a percentage of net sales. However, this
increase will be offset by improved gross margins on these sales. These expenses
are governed by the distributor agreements and are directly related to the level
of sales.
<PAGE>
During the second quarter of 2000, the Company closed its Canadian
administrative office facility and has replaced it with a smaller distribution
center. All customer service, sales and marketing support, accounting and other
administrative services for the Canadian operation are being provided from the
corporate office in Chesterfield, Missouri. Expenses related to the closing the
Canadian facility, including severance payments to the office and sales staff,
were incurred during the second quarter. The Company incurred approximately
US$70,000 in expenses to close the office. The benefits of this closing are
already being realized, with the Canadian operation showing a pre-tax profit in
the months of August and September of 2000.
Interest expense decreased slightly from $154,000 in the third quarter
of 1999 to $150,000 in the third quarter of 2000. The Company's average daily
balance drawn on the line of credit decreased slightly in the third quarter of
2000, as compared to the third quarter of 1999, and the Company's long-term debt
position has decreased slightly.
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 2000 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," "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,
<PAGE>
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 May 1998, the former sales/general manager of the Company's Canadian
subsidiary filed a lawsuit claiming damages for unlawful termination and breach
of contract. The Company had terminated the individual in April 1998. The
Company engaged Canadian counsel to defend the lawsuit. On September 28, 2000,
all claims against the Company brought by the individual were dismissed by the
Canadian court, which also awarded the Company its legal costs of the
proceedings. The period of time for commencing an appeal of the order of
dismissal under Canadian rules has expired.
Item 2. Changes in Securities
Not applicable.
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*
(b) The Company has not filed a Current Report during the
quarter covered by this report.
* Also incorporated by reference the Exhibits filed as part of
the S-18 Registration Statement of the Registrant, effective
November 5, 1985, and subsequent periodic filings.
<PAGE>
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 14, 2000 RELIV' INTERNATIONAL, INC.
By: /s/ Robert L. Montgomery
------------------------------------
Robert L. Montgomery, President,
Chief Executive Officer and
Principal Financial Officer
<PAGE>
Reliv International, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30 December 31
2000 1999
------------ ------------
(unaudited) (see notes)
Assets
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 1,265,376 $ 1,531,700
Accounts and notes receivable, less allowances of
$200 in 2000 and $430,000 in 1999 3,686,689 794,037
Note receivable from officer 59,250 164,250
Inventories
Finished goods 3,487,056 1,826,748
Raw materials 2,604,196 2,402,006
Sales aids and promotional materials 509,954 476,708
------------ ------------
Total inventories 6,601,206 4,705,462
Refundable income taxes 592,843 855,178
Prepaid expenses and other current assets 319,764 304,734
Deferred income taxes 139,708 141,236
------------ ------------
Total current assets 12,664,836 8,496,597
Other assets:
Goodwill, net of accumulated amortization of
$105,108 in 2000 and $65,692 in 1999 420,430 459,846
Other assets 1,036,295 1,013,130
------------ ------------
Total other assets 1,456,725 1,472,976
Property, plant and equipment:
Land 829,222 829,222
Building 8,388,746 8,384,105
Machinery & equipment 3,975,899 3,870,695
Office equipment 487,752 454,729
Computer equipment & software 1,923,017 1,823,832
------------ ------------
15,604,636 15,362,583
Less: Accumulated depreciation (5,296,695) (4,560,338)
------------ ------------
Net property, plant and equipment 10,307,941 10,802,245
------------ ------------
Total assets $ 24,429,502 $ 20,771,818
============ ============
</TABLE>
See notes to financial statements.
<PAGE>
Reliv International, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30 December 31
2000 1999
------------ ------------
(unaudited) (see notes)
Liabilities and stockholders' equity
Current liabilities:
<S> <C> <C>
Accounts payable and accrued expenses:
Trade accounts payable $ 6,921,669 $ 3,993,555
Distributors commissions payable 1,170,207 1,421,286
Sales taxes payable 211,712 204,552
Interest expense payable 55,257 31,871
Payroll and payroll taxes payable 205,803 127,800
Other accrued expenses 269,751 103,548
------------ ------------
Total accounts payable and accrued expenses 8,834,399 5,882,612
Income taxes payable 119,997 3,391
Borrowings under line of credit 2,018,871 1,792,986
Current maturities of long-term debt and
capital lease obligations 570,115 622,973
Unearned income 5,003 5,003
------------ ------------
Total current liabilities 11,548,385 8,306,965
Capital lease obligations, less current maturities 185,383 305,081
Long-term debt, less current maturities 4,981,303 4,990,639
Other non-current liabilities 445,411 350,415
Stockholders' equity:
Common stock, no par value; 20,000,000 shares
authorized; 9,560,158 shares issued and outstanding
as of 9/30/2000 and 9,551,102 as of 12/31/1999 9,083,841 9,082,382
Notes receivable-officers and directors (33,056) (38,217)
Accumulated deficit (1,121,403) (1,889,297)
Accumulated other comprehensive loss:
Foreign currency translation adjustment (660,362) (336,150)
------------ ------------
Total stockholders' equity 7,269,020 6,818,718
------------ ------------
Total liabilities and stockholders' equity $ 24,429,502 $ 20,771,818
============ ============
</TABLE>
See notes to financial statements.
<PAGE>
Reliv International, Inc. and Subsidiaries
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Three months ended September 30 Nine months ended September 30
2000 1999 2000 1999
------------ ------------ ------------ ------------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Sales at suggested retail $ 23,545,302 $ 21,949,007 $ 65,345,434 $ 69,437,840
Less: distributor allowances on product purchases 6,617,214 4,982,390 18,142,164 15,813,749
------------ ------------ ------------ ------------
Net sales 16,928,088 16,966,617 47,203,270 53,624,091
Costs and expenses:
Cost of products sold 5,926,275 8,981,652 17,778,805 27,969,050
Distributor royalties and commissions 4,585,720 3,551,871 12,284,126 11,742,671
Selling, general and administrative 5,685,958 4,883,658 15,502,494 14,683,105
------------ ------------ ------------ ------------
Total costs and expenses 16,197,953 17,417,181 45,565,425 54,394,826
------------ ------------ ------------ ------------
Income from operations 730,135 (450,564) 1,637,845 (770,735)
Other income (expense):
Interest income 11,489 19,472 36,661 81,172
Interest expense (149,999) (154,410) (475,919) (425,103)
Other income/(expense) 39,986 21,399 (10,889) 65,779
------------ ------------ ------------ ------------
Income (loss) before income taxes 631,611 (564,103) 1,187,698 (1,048,887)
Provision (benefit) for income taxes 255,822 (213,910) 471,900 (398,577)
------------ ------------ ------------ ------------
Net income (loss) $ 375,789 ($ 350,193) $ 715,798 ($ 650,310)
============ ============ ============ ============
Earnings (loss) per common share $ 0.04 ($ 0.04) $ 0.07 ($ 0.07)
============ ============ ============ ============
Earnings (loss) per common share - assuming dilution $ 0.04 ($ 0.04) $ 0.07 ($ 0.07)
============ ============ ============ ============
</TABLE>
See notes to financial statements.
<PAGE>
Reliv International, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Nine months ended September 30
2000 1999
----------- -----------
Operating activities:
<S> <C> <C>
Net income (loss) $ 715,798 ($ 650,310)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Depreciation and amortization 838,590 819,877
Foreign currency translation (gain) loss 33,598 (24,108)
(Increase) decrease in accounts and notes receivable (1,462,637) (430,084)
(Increase) decrease in inventories (1,984,295) (1,385,238)
(Increase) decrease in refundable income taxes 258,163 (397,969)
(Increase) decrease in prepaid expenses
and other current assets (21,668) (102,723)
(Increase) decrease in other assets (32,903) (306,232)
Increase (decrease) in accounts payable and accrued expenses 1,649,220 1,092,281
Increase (decrease) in income taxes payable 118,605 49,607
Increase (decrease) in unearned income -- (102,018)
----------- -----------
Net cash provided by (used in) operating activities 112,471 (1,436,917)
Investing activities:
Purchase of property, plant and equipment (319,522) (966,258)
Repayment of loans by officers and directors 110,161 4,860
----------- -----------
Net cash used in investing activities (209,361) (961,398)
Financing activities:
Net borrowings under line of credit 225,885 1,398,123
Proceeds from long-term borrowings 240,000 300,000
Principal payments on long-term borrowings (336,793) (311,094)
Principal payments under capital lease obligations (85,099) (119,555)
Proceeds from stock options exercised 1,459 --
Dividends paid -- (96,505)
Purchase of treasury stock -- (58,682)
----------- -----------
Net cash provided by financing activities 45,452 1,112,287
Effect of exchange rate changes on cash and cash equivalents (214,886) 79,582
----------- -----------
Decrease in cash and cash equivalents (266,324) (1,206,446)
Cash and cash equivalents at beginning of period 1,531,700 2,816,804
----------- -----------
Cash and cash equivalents at end of period $ 1,265,376 $ 1,610,358
=========== ===========
</TABLE>
See notes to financial statements
<PAGE>
Reliv' International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
September 30, 2000
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,
2000 are not necessarily indicative of the results that may be expected for the
year ended December 31, 2000.
The balance sheet at December 31, 1999 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, 1999.
Note 2-- Earnings per Share
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
Three months ended September 30 Nine months ended September 30
2000 1999 2000 1999
-------------------------- -------------------------
<S> <C> <C> <C> <C>
Numerator:
Numerator for basic and diluted
earnings per share--net income/(loss) $ 375,789 ($ 350,193) $ 715,798 ($ 650,310)
Denominator:
Denominator per basic earnings per
share--weighted average shares 9,553,000 9,649,000 9,553,000 9,649,000
Effect of dilutive securities:
Employee stock options and other warrants 371,000 -- 371,000 --
------------------------- -------------------------
Denominator for diluted earnings per
share--adjusted weighted average shares 9,924,000 9,649,000 9,924,000 9,649,000
========================== ==========================
Basic earnings/(loss) per share $ 0.04 ($ 0.04) $ 0.07 ($ 0.07)
========================== ==========================
Diluted earnings/(loss) per share $ 0.04 ($ 0.04) $ 0.07 ($ 0.07)
========================== ==========================
</TABLE>
Note 3-- Comprehensive Income
Total comprehensive income was $190,039 and $391,586 for the three months and
nine months ended September 30, 2000, respectively. For the three and nine
months ended September 30, 1999, comprehensive loss was $397,559 and $561,593,
respectively. The Company's only component of other comprehensive income is the
foreign currency translation adjustment.
<PAGE>
Reliv' International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
September 30, 2000
Note 4-- Segment Information
<TABLE>
<CAPTION>
Three months ended Three months ended
September 30, 2000 September 30, 1999
------------------ ------------------
Network Manufacturing Network Manufacturing
marketing and packaging marketing and packaging
------------------------------- -------------------------------
<S> <C> <C> <C> <C>
Net sales to external customers 12,535,386 4,392,702 9,729,566 7,237,051
Intersegment net sales -- 1,952,676 -- 1,392,638
Segment profit/(loss) 875,401 270,381 361,553 (432,945)
</TABLE>
<TABLE>
<CAPTION>
Nine months ended Nine months ended
September 30, 2000 September 30, 1999
------------------ ------------------
Network Manufacturing Network Manufacturing
marketing and packaging marketing and packaging
------------------------------- -------------------------------
<S> <C> <C> <C> <C>
Net sales to external customers 33,919,958 13,283,312 31,056,509 22,567,582
Intersegment net sales -- 5,318,630 -- 4,677,551
Segment profit/(loss) 2,593,127 261,941 1,320,182 (977,980)
Segment assets 14,564,798 8,599,328 13,370,696 5,790,273
</TABLE>
A reconciliation of combined operating profit for the reportable
segments to consolidated income before income taxes is as follows:
<TABLE>
<CAPTION>
Three months ended September 30 Nine months ended September 30
2000 1999 2000 1999
------------------------------- -------------------------------
<S> <C> <C> <C> <C>
Total profit for reportable segments 1,145,782 (71,392) 2,855,068 342,202
Corporate expenses (415,646) (379,172) (1,217,222) (1,112,937)
Non operating - net 51,474 40,871 25,771 146,951
Interest expense (149,999) (154,410) (475,919) (425,103)
---------------------------- ----------------------------
Income before income taxes 631,611 (564,103) 1,187,698 (1,048,887)
============================ ============================
</TABLE>
Note 5-- Legal Proceedings
In May 1998, the former sales/general manager of the Company's Canadian
subsidiary filed lawsuit claiming unlawful termination and breach of contract.
The individual was terminated by the Company in April 1998. In September 2000,
this lawsuit was dismissed in favor of the Company.
