<PAGE>
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, 1996
Commission File No. 1-11768
RELIV' INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Illinois 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)
(314) 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 9,015,546 outstanding Shares as of September 30, 1996
<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, 1996 and Balance Sheet as
of December 31, 1995.
2. Interim Statements of Operations for the three and nine month
periods ending September 30, 1996 and September 30, 1995.
3. Interim Statements of Cash Flows for the nine month periods ending
September 30, 1996 and September 30, 1995.
The Financial Statements reflect all adjustments which are, in the opinion
of management, necessary to 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
The current assets of the Company increased at the third quarter 1996, to
$6,290,000 from $5,499,000 as of December 31, 1995. Cash and cash
equivalents increased to $2,042,000 from $1,507,000 as a result of
increased sales and net profits. Inventories remained constant at
$2,491,000 as compared to $2,513,000 at December 31, 1995 as the Company
improved its inventory turnover rate to 3.6 from 2.4 at December 31, 1995.
Efficiencies in the manufacturing process, plus the Company's ability to
manufacture products for its international subsidiaries, contributed to the
improvement. The Company had utilized contract manufacturers for much of
its international production since its facility was flooded in July, 1993.
Prepaid expenses increased $242,000 to $771,000 at September 30, 1996, due
to prepayments for future conferences and sales incentive programs.
Property, plant and equipment (before depreciation) increased $517,000 to
$6,792,000 at September 30, 1996, primarily due to acquisition of
manufacturing equipment as the Company expanded its capabilities to meet
the needs of its contract packaging customers.
Current liabilities increased slightly at the third quarter 1996, to
$3,392,000 from $3,352,000 at December 31, 1995. Trade accounts payable
decreased $502,000 as a result of the cash generated through operations and
the proceeds of a loan agreement entered into in January 1996 to pay for
the purchase of manufacturing equipment, which was recorded as a payable at
December 31, 1995. Distributor commissions payable increased $348,000 as a
result of increased sales volume in September 1996, as compared to December
1995. As a result of increased net income through
2
<PAGE>
September 1996, income taxes payable increased to $290,000 as of September
30, 1996, from $138,000 as of December 31, 1995.
Long-term debt increased to $2,103,000 from $1,417,000 as of December 31,
1995. This increase is primarily a result of a $950,000 term loan, the
proceeds of which were used to retire $423,000 outstanding of a $500,000
term loan, $163,000 outstanding on a line of credit and $364,000 to
purchase manufacturing equipment as stated above. The Company also entered
into operating lines of credit totaling $1,500,000 that replaced a $500,000
line of credit. The Company had utilized $435,000 of these lines of credit
at September 30, 1996.
The Company invested $844,000 in the first nine months of 1996, toward the
repurchase of its common stock.
The Company's working capital balance has improved by $751,000 since
December 31, 1995. The current ratio has improved to 1.85 as of September
30, 1996 compared to 1.64 as of year-end 1995. The Company anticipates that
its cash, working capital balance and existing credit will be adequate to
meet its operating needs in the future, based on current and projected
revenue levels.
2. Result of Operations
The Company had a net profit of $338,000, or $.04 per share ($.03 on a
fully diluted basis), for the quarter ended September 30, 1996, compared to
a net profit of $94,000, or $.01 per share for the same period in 1995. Net
sales for the period increased to $9,934,000 from $6,841,000 in 1995. Net
sales in 1996 comprised of $9,195,000 in network marketing sales and
$739,000 in contract packaging services. Net sales in 1995 were network
marketing sales only.
In the fourth quarter 1995, the Company began providing contract packaging
services, including blending, processing and packaging food products in
accordance with specifications provided by its customers. Net sales in the
third quarter 1996 were $739,000, with direct cost of contract services
sold at 87.6% of revenue. This is an improvement from the second quarter
direct costs which were 99.1% of revenue. The increased margin is due to a
new pricing agreement with a major customer that was put into effect
September 1, 1996, and to improved control of start-up expenses and
inefficiencies caused by the rapid increase in contract packaging services
which hindered net profit. The Company anticipates margins to continue to
improve.
Net sales from network marketing activities of $9,195,000 in the third
quarter 1996 is an increase of 34% from the $6,841,000 in 1995. In the
third quarter 1996, net sales in the United States were $7,560,000 compared
to $5,379,000 in 1995 and Canada continued to show improvement with a 270%
increase over 1995. Third quarter net sales in Australia and New Zealand
decreased 8% to $1,141,000 from the quarter ending September 30, 1995, but
have shown a 9% increase over second quarter 1996 net sales of $1,049,000.
Sales in Australia and New Zealand have been affected by decreased momentum
due to delays in new product introductions caused by regulatory policies
and increased competition. The Company expects to be able to introduce
several new products in the next several months and has introduced a new
marketing effort to develop sales and momentum.
3
<PAGE>
Cost of network marketing products sold as a percentage of net sales,
improved to 18.5% for the third quarter of 1996, from 21.0% in the same
period in 1995. The improvement is due to the return to the Company's
manufacturing facility in mid-1995 and improved manufacturing controls.
Distributor royalties and commissions decreased to 35.9% of network
manufacturing sales in the third quarter 1996 compared to 37.2 for the same
period in 1995. The Company pays as a percent of sales up to 18% in
royalties and as much as 45% in commissions. These expenses are governed by
the distributor agreements and are directly related to the level of sales.
Selling, general and administrative expenses, as a percentage of net sales,
decreased to 36.6% for the third quarter of 1996, from 40.5% in the same
period in 1995. The decrease is primarily a result of the increase in net
sales and the Company's ability to operate with limited increases in
operational costs.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
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.
4
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits*
Exhibit 11 Statement Re: Computation of Per Share
Earnings
(b) The Company has not filed a Current Report during the quarter
covered by this report.
* Incorporate by reference the Exhibits filed as part of the S-18
Registration Statement of the Registrant, effective November 5,
1985, and subsequent periodic filings.
5
<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 4, 1996 RELIV' INTERNATIONAL, INC.
By: /s/ Robert L. Montgomery
-------------------------------
Robert L. Montgomery, President,
Chief Executive Officer and
Principal Financial Officer
6
<PAGE>
Reliv' International, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
(Unaudited) (Note)
------------------ -----------------
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 2,041,599 $ 1,507,176
Accounts and notes receivable, less allowances of
$6,711 in 1996 and $29,000 in 1995 684,996 658,607
Inventories
Finished goods 1,186,175 1,012,987
Raw materials 936,244 1,014,385
Sales aids and promotional materials 368,236 485,795
----------- -----------
Total inventories 2,490,655 2,513,167
Refundable income taxes 239,174 229,438
Prepaid expenses and other current assets 770,765 529,364
Deferred income taxes 62,929 61,000
----------- -----------
Total current assets 6,290,118 5,498,752
Deferred costs 99,292 158,734
Property, plant and equipment:
Land 790,677 780,346
Building 2,863,927 2,851,407
Machinery & equipment 1,572,879 1,181,260
Office equipment 326,615 280,978
Computer equipment & software 1,180,067 1,145,944
Construction in progress 57,937 35,500
----------- -----------
6,792,102 6,275,435
Less: Accumulated depreciation (2,061,989) (1,656,687)
----------- -----------
Net Property, plant and equipment 4,730,113 4,618,748
----------- -----------
Total Assets $11,119,523 $10,276,234
=========== ===========
</TABLE>
Note: The balance sheet at December 31, 1995 has been derived from the audited
consolidated financial statements at that date, but does not include all of the
information and footnotes required by generally accepted accounting principles
for complete statements.
See notes to consolidated financial statements.
7
<PAGE>
Reliv' International, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
(Unaudited) (Note)
------------------ -----------------
<S> <C> <C>
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable and accrued expenses
Trade accounts payable $ 1,300,260 $ 1,801,965
Distributors commissions payable 1,127,809 780,070
Sales taxes payable 130,011 153,893
Interest expense payable 14,472 8,746
Payroll and payroll taxes payable 241,062 156,347
Other accrued expenses 96,393 87,475
----------- -----------
Total accounts payable and accrued expenses 2,910,007 2,988,496
Income taxes payable 290,057 138,336
Notes payable - short term 100,000 0
Current maturities of long-term debt and
capital lease obligations 57,920 210,256
Unearned income 33,968 14,766
----------- -----------
Total current liabilities 3,391,952 3,351,854
Capital lease obligations, less current maturities 31,209 75,573
Long-term debt, less current maturities 2,071,550 1,341,191
Stockholders' Equity:
Common stock, no par value; 20,000,000 shares
authorized; 9,015,546 shares outstanding as of 9/30/96
and 9,311,301 shares outstanding as of 12/31/95 3,353,835 3,412,986
Notes receivable--officers and directors (4,633) (4,633)
Retained earnings 2,884,935 2,714,723
Foreign currency translation adjustment 10,332 (79,634)
Less cost of treasury stock--223,100 shares as of 9/30/96
and 214,366 shares as of 12/31/95 (619,657) (535,826)
----------- -----------
Total Stockholders' Equity 5,624,812 5,507,616
----------- -----------
Total Liabilities and Stockholders' Equity $11,119,523 $10,276,234
=========== ===========
</TABLE>
See notes to consolidated financial statements.
8
<PAGE>
Reliv' International, Inc. and Subsidiaries
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Quarter Ended September 30, Year to Date September 30,
1996 1995 1996 1995
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Sales at Suggested Retail $14,082,399 $11,137,989 $42,914,171 $35,918,642
Less Distributor allowances on product purchases 4,147,951 4,296,624 14,227,862 13,902,387
----------- ----------- ----------- -----------
Net Sales 9,934,448 6,841,365 28,686,309 22,016,255
Costs and expenses:
Cost of products sold 2,348,313 1,435,771 7,331,330 4,888,020
Distributor royalties and commissions 3,389,495 2,547,923 9,475,884 8,056,164
Selling, general and administrative 3,630,709 2,768,194 10,358,743 8,416,460
----------- ----------- ----------- -----------
Total Costs and Expenses 9,368,517 6,751,888 27,165,957 21,360,644
----------- ----------- ----------- -----------
Income from operations 565,931 89,477 1,520,352 655,611
Other income (expense):
Interest income 9,421 39,830 74,849 98,385
Interest expense (52,820) (39,164) (170,830) (106,025)
Other income/expense 10,068 (10,310) 22,477 88,079
----------- ----------- ----------- -----------
Income before income taxes 532,600 79,833 1,446,848 736,050
Provision for income taxes 194,416 (14,661) 529,125 240,571
----------- ----------- ----------- -----------
Net Income 338,184 94,494 917,723 495,479
=========== =========== =========== ===========
Earnings per share:
Primary 0.04 0.01 0.10 0.05
=========== =========== =========== ===========
Fully Diluted 0.03 0.01 0.09 0.05
=========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
9
<PAGE>
Reliv' International, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Nine Months Ended September 30
1996 1995
(Unaudited) (Unaudited)
Operating activities: ----------- -----------
<S> <C> <C>
Net Income $ 917,722 $ 495,479
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 458,548 313,437
Provision for losses on accounts receivable 13,000 0
Foreign currency translation (gain) loss (3,651) 16,811
(Increase) decrease in accounts and notes receivable (39,111) (258,243)
(Increase) decrease in inventories 59,876 312,127
(Increase) decrease in refundable income taxes (7,352) 41,771
(Increase) decrease in prepaid expenses and other
current assets (238,201) (181,789)
(Increase) decrease in deferred costs 52,334 14,552
Increase (decrease) in accounts payable and
accrued expenses (103,108) (32,987)
Increase (decrease) in income taxes payable 148,729 30,313
Increase (decrease) in unearned income 19,190 (8,788)
---------- ----------
Net cash provided by (used in) operating
actitivies 1,277,976 742,683
Investing Activities:
Purchase of property, plant and equipment (556,858) (941,393)
---------- ----------
Net cash provided by (used in) investing activities (556,858) (941,393)
Financing activities:
Increase in short-term borrowings 100,000 162,297
Proceeds from long-term debt 698,467 500,000
Principal payments on long-term borrowings and notes (119,063) (79,973)
Prinipal payments under capital lease obligations (45,747) (43,690)
Dividends paid (46,688) (47,060)
Purchase of treasury stock (843,503) (335,905)
---------- ----------
Net cash provided by (used in) financing activities (256,534) 155,669
Effect of exchange rate changes on cash and
cash equivalents 69,839 (44,786)
----------- ----------
Increase (decrease) in cash and cash equivalents 534,423 (87,827)
Cash and cash equivalents at beginning of period 1,507,176 2,168,757
---------- ----------
Cash and cash equivalents at end of period $2,041,599 $2,080,930
========== ==========
</TABLE>
See notes to consolidated financial statements.
10
<PAGE>
Reliv' International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
September 30, 1996
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,
1996 are not necessarily indicative of the results that may be expected for the
year ended December 31, 1996. 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,
1995.
NOTE 2 -- SHORT-TERM BORROWINGS
In January 1996, the Company secured a $500,000 line of credit with a bank.
Borrowings under the line of credit are due January 1997 and bear interest,
payable monthly, at the prime rate. A portion of the Company's inventory and
property, plant and equipment are pledged as security under the terms of the
agreement. The agreement includes restrictive covenants, including a requirement
that the Company maintain a current ratio of 1.5 to 1.0 and a minimum net worth
of $5,500,000. The bank has agreed to lower the minimum net worth requirement to
$5,250,000 until December 31, 1996. As of September 30, 1996, the Company has
borrowed $100,000 against this line of credit.
NOTE 3 -- LONG-TERM DEBT
As part of the credit facility discussed in Note 2, the Company entered
into a $950,000 term loan. The credit facility also provides for an additional
$1,000,000 line of credit. The term loan is payable in monthly installments of
$19,547, including interest at 8.5 percent, through April 2001. The proceeds of
the term loan were used to pay a previous term loan and line of credit.
Borrowings under the $1,000,000 line of credit are due February 2001 and bear
interest, payable monthly, at the prime rate. As of September 30, 1996, the
Company had borrowed $334,581 against this line of credit. The term loan and
additional line of credit are part of a credit facility with the bank and is
subject to the same security pledges and restrictive covenants as the $500,000
line of credit described in Note 2.
11
<PAGE>
EXHIBIT 11
Reliv' International, Inc. and Subsidiaries
Exhibit (11) -- Statement Re: Computation of Per Share Earnings
<TABLE>
<CAPTION>
Quarter ended Nine Months Ended
September 30 September 30
------------- -----------------
1996 1995 1996 1995
(In thousands, except per share data)
<S> <C> <C> <C> <C>
PRIMARY:
Average shares outstanding 9,044 9,352 9,044 9,352
Net effect of warrants and options 391 36 391 36
------ ------ ------ ------
Totals 9,435 9,388 9,435 9,388
====== ====== ====== ======
Net Income $ 338 $ 94 $ 918 $ 495
====== ====== ====== ======
Per share amount $ 0.04 $ 0.01 $ 0.10 $ 0.05
====== ====== ====== ======
FULLY DILUTED:
Average shares outstanding 9,044 9,352 9,044 9,352
Net effect of warrants and options 674 36 674 36
------ ------ ------ ------
Totals 9,718 9,388 9,718 9,388
====== ====== ====== ======
Net Income $ 338 $ 94 $ 918 $ 495
====== ====== ====== ======
Per share amount $ 0.03 $ 0.01 $ 0.09 $ 0.05
====== ====== ====== ======
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
the balance sheet as of September 30, 1996 and the statement of operations for
the nine months ended September 30, 1996 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 2,041,599
<SECURITIES> 0
<RECEIVABLES> 691,707
<ALLOWANCES> 6,711
<INVENTORY> 2,490,655
<CURRENT-ASSETS> 6,290,118
<PP&E> 6,792,102
<DEPRECIATION> 2,061,989
<TOTAL-ASSETS> 11,119,523
<CURRENT-LIABILITIES> 3,391,952
<BONDS> 2,102,759
<COMMON> 3,353,835
0
0
<OTHER-SE> 2,270,977
<TOTAL-LIABILITY-AND-EQUITY> 11,119,523
<SALES> 28,686,309
<TOTAL-REVENUES> 28,686,309
<CGS> 7,331,330
<TOTAL-COSTS> 7,331,330
<OTHER-EXPENSES> 19,834,627
<LOSS-PROVISION> 13,000
<INTEREST-EXPENSE> 170,830
<INCOME-PRETAX> 1,446,848
<INCOME-TAX> 529,125
<INCOME-CONTINUING> 917,723
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 917,723
<EPS-PRIMARY> .10
<EPS-DILUTED> .09
</TABLE>
