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 June 30, 1997
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 9,823,635 outstanding Shares as of June 30, 1997
<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 June 30, 1997 and Balance Sheet as of
December 31, 1996.
2. Interim Statements of Operations for the three and six month
periods ending June 30, 1997 and June 30, 1996.
3. Interim Statements of Cash Flows for the six month periods ending
June 30, 1997 and June 30, 1997.
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 Operations
-------------------------
1. Financial Condition
-------------------
The current assets of the Company increased during the second quarter
of 1997, to $7,298,000 from $6,553,000 as of December 31, 1996. Cash and cash
equivalents increased to $2,563,000 at June 30, 1997 from $2,109,000 at December
31, 1996, as a result of increased sales and net profits. Accounts receivable
decreased to $726,000 at June 30, 1997, from $1,056,000 at December 31, 1996, as
a result of a decrease in sales of the Company's contract packaging services,
which are generally paid on 30-day terms. Contract packaging sales declined to
$387,000 for the second quarter as compared to $1,147,000 in the fourth quarter
1996. Inventories increased to $3,211,000 from $2,762,000 at December 31, 1996,
as increased sales volumes and build up for new product introductions in the
United States required greater finished goods levels.
Net property, plant and equipment increased $287,000 to $5,056,000 as
of June 30, 1997, as the Company began the expansion to its facility on land the
Company owns adjacent to its existing building in Chesterfield, Missouri. The
construction agreement of May 9, 1997 includes expanding the office, warehousing
and manufacturing areas by adding approximately 90,000 square feet of space to
its facility. The expansion project is anticipated to cost $5 to $6 million and
will be financed with cash generated through operations and bank debt.
Current liabilities increased to $4,237,000 at June 30, 1997, from
$3,866,000 at December 31, 1996. Trade accounts payable increased slightly to
$1,740,000 from $1,689,000 at December 31, 1996. Distributor commissions payable
increased $324,000 as a result of increased sales volume in June, 1997, as
compared to December, 1996. Short-term notes payable increased to $200,000 at
2
<PAGE>
June 30, 1997, as the Company utilized a portion of its line of credit to fund
the increased expenditures in inventory and plant, property and equipment.
The Company's working capital balance has improved by $375,000 since
December 31, 1996, with a current ratio of 1.72 due to the net profits generated
by the Company in the second quarter. The Company anticipates that its cash,
working capital balance and established 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 $595,000 and $.06 per share earnings
for the quarter ended June 30, 1997, compared to a net profit of $302,000 and
$.03 per share earnings for the same period in 1996. Net sales for the period
increased to $11,771,000 from $9,448,000 in 1996. Net sales in the second
quarter 1997 comprised of $11,384,000 in network marketing sales and $387,000 in
contract packaging services, as compared to $8,794,000 in network marketing
sales and $655,000 in contract packaging services in 1996.
The Company provides contract packaging services, including blending,
processing and packaging food products in accordance with specifications
provided by its customers. Direct costs of contract services in the second
quarter 1997 were 106.4% of net sales, compared to 99.1% in the same quarter
1996. Net sales from contract services declined in the second quarter due to the
loss of a substantial customer. Direct costs increased as a percentage of net
sales due to the inability to immediately reduce costs to offset the decline in
net sales. The Company is taking action to reduce operating expenses to a level
necessary to support the current income.
The increase in net sales from network marketing activities to
$11,384,000 in the second quarter of 1997 was primarily due to a 36% growth in
net sales in the United States to $10,042,000 as compared to $7,395,000 in 1996.
The distributor sales force in the United States grew due to an increase of 8%
in new sign-ups. Distributor retention remained strong as 48% of the required
distributors renewed their distributorships in the second quarter 1997.
Distributors are required to renew their distributorship each year by paying a
$20 renewal fee. The number of product orders in second quarter 1997 increased
by 57% over 1996 levels. Net sales in Canada in second quarter 1997 increased
39% over 1996 to $357,000. Net sales in Australia and New Zealand decreased 14%
during this period to $898,000. The Company is currently searching for a sales
manager for the Australia and New Zealand operations. These operations are
currently operating without a sales manager.
Cost of network marketing products sold as a percentage of net sales,
improved to 16.9% for the second quarter of 1997, from 20.1% in the same period
of 1996. The improvement in gross margins is a result of lower raw material
costs, improved manufacturing controls and utilization of the manufacturing
facility by providing contract packaging services.
Distributor royalties and commissions increased to 37.8% of network
marketing sales in the second quarter of 1997, compared to 35.0% for the same
period in 1996. These expenses are
3
<PAGE>
governed by the distributor agreements and are directly related to the level of
sales. The Company pays a percent of sales up to 18% in royalties and as much as
45% in commissions. In addition, the Company paid royalties and as much as 45%
in commissions. In addition, the Company paid royalties of $253,000 through the
Ambassador Program, an incentive program that rewards distributors who have
reached and personally assisted qualified distributors to reach a specified
level of compensation. The Ambassador Program paid $109,000 in the second
quarter 1996.
Selling, general and administrative expenses, as a percentage of net
sales, decreased to 35.4% for the second quarter of 1997, from 36.8% in the same
period in 1996. In the second quarter 1997, the Company increased sales and
marketing activities to support the plans for sales development. Sales and
marketing related expenses increased $255,000 over 1996 levels, to $1,565,000.
Overall, selling, general and administrative expenses decreased as a result of
the increase in net sales and the Company's ability to operate with limited
increases in operational costs.
Forward looking statements made in this filing involve material risks
and uncertainties that could cause actual results and events to differ
materially from those set forth, or implied, including 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 in the Company's other SEC
filings.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
On May 21, 1997, Timothy Tobin, a former director and officer of the
Company, filed a Demand for Arbitration with the American Arbitration
Association in St. Louis, Missouri. The Demand claimed damages in excess of
$750,000 resulting from alleged misrepresentations made by the Company in
connection with a Stock Purchase Agreement and Consulting Agreement entered into
with Mr. Tobin in October 1992. The Company has filed an Answer and Counterclaim
denying Mr. Tobin's allegations and claiming damages in excess of $150,000
resulting from Mr. Tobin's breach of warranties contained in the October 1992
agreements. The Company intends to vigorously defend Mr. Tobin's claim and to
actively pursue its counterclaim.
Item 2. Changes in Securities
---------------------
Not applicable.
Item 3. Defaults Upon Senior Securities
-------------------------------
Not applicable.
4
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The Company's annual meeting of shareholders was held on May 28, 1997. At
such meeting, the Company's then Board of Directors was re-elected.
Item 5. Other Information
-----------------
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits*
Description No.
----------- ---
Statement Re: Computation of Per Share
Earnings 11
(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.
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: August 12, 1997 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
June 30, 1997 December 31, 1996
(Unaudited) (See Note)
------------- -----------------
Assets
Current Assets:
Cash and cash equivalents $ 2,563,252 $ 2,108,770
Accounts and notes receivable,
less allowances of $11,000 in 1997
and $13,000 in 1996 725,681 1,056,360
Inventories
Finished goods 1,885,876 1,219,295
Raw materials 887,017 1,136,897
Sales aids and promotional materials 438,406 405,768
------------- -------------
Total inventories 3,211,299 2,761,960
Refundable income taxes 275,500 48,949
Prepaid expenses and other current assets 459,207 512,031
Deferred income taxes 63,536 65,000
------------- -------------
Total current assets 7,298,475 6,553,070
Deferred costs 45,156 79,223
Property, plant and equipment:
Land 790,677 790,677
Building 2,854,937 2,863,457
Machinery & equipment 1,763,844 1,693,849
Office equipment 342,137 328,780
Computer equipment & software 1,402,752 1,245,137
Construction in progress 406,991 74,423
------------- -------------
7,561,338 6,996,323
Less: Accumulated depreciation (2,505,533) (2,226,951)
------------- -------------
Net Property, plant and equipment 5,055,805 4,769,372
------------- -------------
Total Assets $12,399,436 $11,401,665
============= =============
Note: The balance sheet at December 31, 1996 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.
<PAGE>
Reliv' International, Inc. and Subsidiaries
Consolidated Balance Sheets
June 30, 1997 December 31, 1996
(Unaudited) (See Note)
------------- -----------------
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable and accrued expenses
Trade accounts payable $ 1,739,688 $ 1,688,777
Distributors commissions payable 1,387,885 1,064,023
Sales taxes payable 210,528 225,509
Interest expense payable 16,645 13,625
Payroll and payroll taxes payable 239,381 391,905
Other accrued expenses 99,611 112,219
------------- -------------
Total accounts payable and accrued expenses 3,693,738 3,496,058
Income taxes payable 36,208 65,102
Notes payable - short term 200,000 0
Current maturities of long-term debt and
capital lease obligations 301,155 282,502
Unearned income 5,824 22,602
------------- -------------
Total current liabilities 4,236,925 3,866,264
Capital lease obligations,
less current maturities 58,569 13,211
Long-term debt, less current maturities 1,346,432 1,464,868
Stockholders' equity:
Common stock, no par value;
20,000,000 shares authorized;
9,823,635 shares outstanding
as of 6/30/97 and 9,900,529 shares
outstanding as of 12/31/96 9,221,513 9,211,826
Notes receivable-officers and directors (4,633) (4,633)
Retained earnings (1,684,886) (2,516,181)
Foreign currency translation adjustment (66,824) 10,970
Less cost of treasury stock-
261,780 shares as of 6/30/97 and
250,580 shares as of 12/31/96 (707,660) (644,660)
------------- -------------
Total Stockholders' Equity 6,757,510 6,057,322
------------- -------------
Total Liabilities and Stockholders' Equity $12,399,436 $11,401,665
============= =============
See notes to consolidated financial statements.
<PAGE>
Reliv' International, Inc. and Subsidiaries
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Quarter Ended June 30, Year to Date June 30,
1997 1996 1997 1996
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Sales at Suggested Retail $17,854,584 $14,762,451 $36,926,934 $28,831,772
Less Distributor allowances on product purchases 6,083,537 5,314,139 12,485,736 10,079,911
----------- ----------- ----------- -----------
Net Sales 11,771,047 9,448,312 24,441,198 18,751,861
Costs and expenses:
Cost of products sold 2,336,675 2,415,506 4,868,920 4,983,017
Distributor royalties and commissions 4,305,055 3,078,274 8,714,204 6,086,389
Selling, general and administrative 4,167,991 3,476,272 8,548,434 6,728,034
----------- ----------- ----------- -----------
Total Costs and Expenses 10,809,721 8,970,052 22,131,558 17,797,440
----------- ----------- ----------- -----------
Income from operations 961,326 478,260 2,309,640 954,421
Other income (expense):
Interest income 29,881 36,987 58,316 65,428
Interest expense (42,907) (46,904) (80,923) (118,010)
Other income/expense 15,607 8,389 27,080 12,409
----------- ----------- ----------- -----------
Income before income taxes 963,907 476,732 2,314,113 914,248
Provision for income taxes 369,084 174,793 900,443 334,709
----------- ----------- ----------- -----------
Net Income $ 594,823 $ 301,939 $ 1,413,670 $ 579,539
=========== =========== =========== ===========
Earnings per common and common equivalent share $ 0.06 $ 0.03 $ 0.14 $ 0.06
=========== =========== =========== ===========
Weighted average shares of common stock
and common stock equivalents outstanding 10,423,176 10,335,241 10,423,176 10,335,241
=========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
Reliv' International, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Six Months Ended June 30
1997 1996
(Unaudited) (Unaudited)
----------- -----------
<S> <C> <C>
Operating activities:
Net Income $ 1,413,670 $ 579,539
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 291,372 303,172
Provision for losses on accounts receivable 0 7,000
Foreign currency translation (gain) loss 9,521 (9,069)
(Increase) decrease in accounts and notes receivable 329,367 30,184
(Increase) decrease in inventories (475,124) (270,717)
(Increase) decrease in refundable income taxes (228,504) 0
(Increase) decrease in prepaid expenses and other
current assets 50,866 (307,195)
(Increase) decrease in deferred costs 29,217 34,892
Increase (decrease) in accounts payable and
accrued expenses 221,434 (15,958)
Increase (decrease) in income taxes payable (26,222) 191,275
Increase (decrease) in unearned income (16,773) 54,539
----------- -----------
Net cash provided by (used in) operating
actitivies 1,598,824 597,662
Investing Activities:
Purchase of property, plant and equipment (485,716) (499,412)
----------- -----------
Net cash provided by (used in) investing activities (485,716) (499,412)
Financing activities:
Increase in short-term borrowings 200,000 100,000
Proceeds from long-term debt 0 763,887
Principal payments on long-term borrowings and line
of credit (108,292) (68,219)
Principal payments under capital lease obligations (38,656) (31,959)
Dividends paid (290,368) (46,688)
Purchase of treasury stock (342,316) (725,281)
----------- -----------
Net cash provided by (used in) financing activities (579,632) (8,260)
Effect of exchange rate changes on cash and
cash equivalents (78,994) 67,210
----------- -----------
Increase (decrease) in cash and cash equivalents 454,482 157,200
Cash and cash equivalents at beginning of period 2,108,770 1,507,176
----------- -----------
Cash and cash equivalents at end of period $ 2,563,252 $ 1,664,376
=========== ===========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
Reliv' International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 1997
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 six-month period ended June 30, 1997
are not necessarily indicative of the results that may be expected for the year
ended December 31, 1997. 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,
1996.
Note 2 -- Stock Dividend
On January 31, 1997, the Company declared a 10 percent stock dividend
on the Company's common stock which was distributed on February 28, 1997 to
shareholders of record on February 14, 1997. The dividend was transferred from
retained earnings to common stock in the amount of $5,848,000, which was based
on the closing price of $6.50 per share on the declaration date and was
reflected in the balance sheet as of December 31, 1996. Average shares
outstanding and all per share amounts included in the accompanying consolidated
financial statements and notes are based on the increased number of shares
giving retroactive recognition to the stock dividend.
Note 3 -- Commitments
The Company began a expansion to its facility on land the Company owns
adjacent to its existing building in Chesterfield, Missouri. The construction
agreement of May 9, 1997 includes expanding the office, warehousing and
manufacturing areas by adding approximately 90,000 square feet of space to its
facility. The expansion project is anticipated to cost $5 to $6 million and will
be financed with cash generated through operations and bank debt.
Note 4 -- Legal Proceedings
On May 21, 1997, Timothy Tobin, a former director and officer of the
Company, filed a Demand for Arbitration with the American Arbitration
Association in St. Louis, Missouri. The Demand claimed damages in excess of
$750,000 resulting from alleged misrepresentations made by the Company in
connection with a Stock Purchase Agreement and Consulting Agreement entered into
with Mr. Tobin in October 1992. The Company has filed an Answer and Counterclaim
denying Mr. Tobin's allegations and claiming damages in excess of $150,000
resulting from Mr. Tobin's breach of warranties contained in the October 1992
agreements. The Company intends to vigorously defend Mr. Tobin's claim and to
actively pursue its counterclaim.
Reliv' International, Inc. and Subsidiaries
EXHIBIT (11) -- Statement Re: Computation of Per Share Earnings
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
June 30 June 30
-------------------- ---------------------
1997 1996 1997 1996
------- ------- ------- -------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Primary:
Average shares outstanding 9,578 10,084 9,578 10,084
Net effect of warrants and options 845 251 845 251
------- ------- ------- -------
Totals 10,423 10,335 10,423 10,335
======= ======= ======= =======
Net Income $ 595 $ 302 $ 1,414 $ 580
======= ======= ======= =======
Per share amount $ 0.06 $ 0.03 $ 0.14 $ 0.06
======= ======= ======= =======
Fully Diluted:
Average shares outstanding 9,578 10,084 9,578 10,084
Net effect of warrants and options 845 448 845 448
------- ------- ------- -------
Totals 10,423 10,531 10,423 10,531
======= ======= ======= =======
Net Income $ 595 $ 302 $ 1,414 $ 580
======= ======= ======= =======
Per share amount $ 0.06 $ 0.03 $ 0.14 $ 0.06
======= ======= ======= =======
</TABLE>
Note: Per share data reflects the effect of the Company's 10 percent stock
dividend declared on January 31, 1997 and distributed on February 28, 1997. The
1996 data reflects the pro forma effect of the dividend.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE BALANCAE SHEET AS
OF JUNE 30, 1997 AND THE STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE
30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 2,563,252
<SECURITIES> 0
<RECEIVABLES> 736,681
<ALLOWANCES> 11,000
<INVENTORY> 3,211,299
<CURRENT-ASSETS> 7,298,475
<PP&E> 7,561,338
<DEPRECIATION> 2,505,533
<TOTAL-ASSETS> 12,399,436
<CURRENT-LIABILITIES> 4,236,925
<BONDS> 1,405,001
0
0
<COMMON> 9,221,513
<OTHER-SE> (2,464,003)
<TOTAL-LIABILITY-AND-EQUITY> 12,399,436
<SALES> 24,441,198
<TOTAL-REVENUES> 24,441,198
<CGS> 4,868,920
<TOTAL-COSTS> 4,868,920
<OTHER-EXPENSES> 17,262,638
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 80,923
<INCOME-PRETAX> 2,314,113
<INCOME-TAX> 900,443
<INCOME-CONTINUING> 1,413,670
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,413,670
<EPS-PRIMARY> .14
<EPS-DILUTED> .14
</TABLE>
