NAI is committed to the direct sales channels which offer significant advantages over retail because consumers can be educated about product benefits.

By stabilizing the business operationally and financially in fiscal 2002, NAI deepened its relationships with current partners and became a stronger competitor in a supplements industry populated with debt-leveraged companies.

NAI strengthened its position in its core contract manufacturing business and newer direct-to-consumer product line. Our success is driven by focusing on competitive pricing, excellent service, quality manufacturing and efficacious, science-based products.

For the first time in several years, the number of clients for core manufacturing services stabilized while the number of delivered products increased. Two key customers continue to exhibit confidence in NAI. Our largest customer used NAI as its lead supplier while our second largest customer expanded the number of products delivered by NAI. Both companies are strong supporters of science-based formulations and NAI works closely with both companies on educational programs for their distributors and health professionals.

In its second year in the direct-to-consumer market, Dr. Cherry product revenue grew to $8 million, a 47% increase over the prior year. The line expanded to 12 condition-specific formulations targeting men and women over 50. The product line's success is a result of Dr. Cherry's strong relationship with his cable TV audience and NAI's product quality and efficacy.

NAI is exploring additional opportunities in direct-to-consumer marketing. The company believes that this marketing approach has inherent advantages, probably the most important being the ability to educate the consumer about the important benefits and differentiating attributes of various specialty nutritional products.