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 March 31, 1998
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 9,652,507 outstanding Shares as of March 31, 1998
<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 March 31, 1998 and Balance Sheet as
of December 31, 1997.
2. Interim Statements of Operations for the three month periods
ending March 31, 1998 and March 31, 1997.
3. Interim Statements of Cash Flows for the three month periods
ending March 31, 1998 and March 31, 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 Operation
------------------------
1. Financial Condition
-------------------
Current assets of the Company increased during the first quarter 1998,
to $7,749,000 from $6,745,000 as of December 31, 1997, primarily due to an
increase in cash and cash equivalents of $1,133,000 to $3,559,000 primarily as a
result of first quarter 1998 net income of $633,000. Inventories declined
slightly to $2,575,000 from $2,643,000 at December 31, 1997, as the Company was
able to improve its inventory turnover rate to 3.5 from 2.9 at year end 1997. An
increase in accounts payable and accrued expenses of $340,000 also attributed to
the increase in cash.
Net property, plant and equipment increased to $9,529,000 during the
first quarter 1998 from $9,221,000 at December 31, 1997 due to construction and
relocation expenses associated with the expansion of the Company's facility. The
Company added approximately 90,000 square feet to its facility by expanding
office, warehouse and manufacturing areas. The Company completed its relocation
into the additional space in the first quarter 1998.
Current liabilities increased to $4,208,000 at March 31, 1998, from
$3,653,000 at December 31, 1997. Trade accounts payable remained stable at
$1,423,000 compared to $1,433,000 at December 31, 1997. Distributor commissions
payable and sales taxes payable increased to $1,687,000 and $259,000,
respectively, at March 31, 1998, from $1,327,000 and $192,000 at December 31,
1997 as a result of increased sales volume in March, 1998, as compared to
December, 1997.
2
<PAGE>
Stockholder equity increased by $533,000 to $7,701,000 at March 31,
1998 and the Company's working capital balance improved by $449,000 since
December 31, 1997, resulting in a current ratio of 1.84. The improvement is due
to the first quarter net income of the Company. The Company paid a cash dividend
of $96,000 on January 29, 1998. 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. Results of Operations
---------------------
The Company had a net profit of $633,000, or $.07 per share ($.06 per
share diluted), for the quarter ended March 31, 1998, compared to a net profit
of $819,000, or $.09 per share ($.08 per share diluted), for the same period of
1997. Net sales for the period declined slightly to $12,277,000 from $12,670,000
in 1997. During the first quarter 1998, net sales from network marketing
activities increased to $12,118,000 from $11,919,000 in the same period 1997,
while sales of contract packaging services declined to $159,000 from $751,000 in
1997.
The decline in contract packaging services sales in first quarter 1998
as compared to the same period in 1997 was due to a loss of a substantial
customer whose business has not been replaced. As a result of lower sales
volumes, direct cost of contract packaging services in the first quarter 1998
was 84.7% compared to 75.8% in the same period 1997. The Company has increased
efforts to develop new contract packaging services income.
Net sales from network marketing activities were comprised of
$10,765,000 from sales in the United States and $1,353,000 from sales of the
foreign subsidiaries in Australia, Canada, Mexico, New Zealand and the United
Kingdom. This compares to $10,540,000 and $1,379,000 in first quarter 1997. The
distributor sales force in the United States, the Company's primary market,
increased 4% in new sign-ups and distributor renewals when compared to the
quarter ended March 31, 1997. The number of product orders during this period
increased by 14% over 1997 levels.
Cost of network marketing products sold as a percentage of net sales
increased to 17.5% for the first quarter of 1998, from 16.5% in the same period
in 1997. The increase in cost is a result of the decline in contract packaging
services, which absorbed a portion of the fixed expenses of the manufacturing
operation, and the establishment of a reserve for obsolete packaging.
Distributor royalties and commissions remained constant at 36.8% of
network marketing sales in the first quarter 1998, compared to 37.0% for the
same period in 1997. These expenses are governed by the distributor agreements
and are directly related to the level of sales. The Company pays up to 18% of
sales in royalties and as much as 45% in commissions. In addition, the Company
paid royalties of $172,000 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 $180,000 in the first quarter 1997.
3
<PAGE>
Selling, general and administrative expense increased by $51,000, to
$4,432,000, in first quarter 1998 compared to the same period in 1997. Expenses
in first quarter 1998 were affected by new overhead expenses as a result of the
addition to the office, manufacturing and warehousefacility, plus the cost of
relocating the Company's employees into the new facility during the quarter. The
facility was expanded to provide the capacity to meet anticipated sales growth
from network marketing activities and to add capabilities necessary to increase
sales of contract services.
Interest expense increased during the first quarter from $38,000 in
1997 to $120,000 in 1998 due to bank debt necessary to finance the expansion of
the Company's facility.
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 recited in the Company's other SEC
filings.
Part II. OTHER INFORMATION
-----------------
Item 1. Legal Proceedings
-----------------
On April 27, 1998, Robert Lawrence Kelly, former sales/general director
of Reliv' Canada, filed a Statement of Claim in the Ontario Court (General
Division) against Reliv' Canada Company ("Reliv' Canada") and Reliv' World,
Inc.("Reliv' World"). The Statement of Claim alleges that Mr. Kelly was
wrongfully discharged and that Reliv' World breached an agreement to grant a
license to Mr. Kelly for the sale of the Company's products in Canada. The
Statement of Claim seeks actual damages for the wrongful dismissal, actual
damages for the breach of contract and punitive damages. Alternatively, the
Statement of Claim seeks specific enforcement of the alleged agreement to grant
the license. The Company intends to file an answer refuting the allegations of
the Statement of Claim and filing a counterclaim based on Mr. Kelly's breach of
his employment agreement with Reliv' Canada.
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.
4
<PAGE>
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.
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: May 14, 1998 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>
March 31 December 31
1998 1997
(unaudited) (see notes)
<S> <C> <C>
Assets
Current Assets:
Cash and Cash equivalents $ 3,559,490 $ 2,426,426
Accounts and notes receivable,
less allowances of
$6,200 in 1998 and $7,600 in 1997 795,704 865,701
Inventories
Finished goods 1,406,408 1,453,282
Raw materials 813,998 785,706
Sales aids and promotional materials 354,352 403,830
------------ ------------
Total inventories 2,574,758 2,642,818
Refundable income taxes 20,319 31,303
Prepaid expenses and other current assets 708,597 688,539
Deferred income taxes 90,371 90,065
------------ ------------
Total current assets 7,749,239 6,744,852
Deferred costs 3,531 4,232
Property, plant and equipment:
Land 790,677 790,677
Building 7,813,740 2,854,548
Machinery & equipment 1,725,138 1,723,482
Office equipment 345,372 303,235
Computer equipment & software 1,520,956 1,452,577
Construction in progress 196,550 4,797,090
------------ ------------
12,392,433 11,921,609
Less: Accumulated depreciation (2,863,394) (2,700,745)
------------ ------------
Net Property, plant and equipment 9,529,039 9,220,864
------------ ------------
Total Assets $ 17,281,809 $ 15,969,948
============ ============
<FN>
See notes to financial statements.
</FN>
</TABLE>
7
<PAGE>
Reliv International, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31 December 31
1998 1997
(unaudited) (see notes)
Liabilities and Stockholders' Equity
Current liabilities:
<S> <C> <C>
Accounts payable and accrued expenses
Trade Accounts Payable $ 1,423,286 $ 1,432,901
Distributors commissions payable 1,687,239 1,326,579
Sales taxes payable 258,665 192,130
Interest expense payable 22,895 75,321
Payroll and payroll taxes payable 133,309 173,689
Other accrued expenses 104,456 89,511
------------ ------------
Total accounts payable & accrued expenses 3,629,850 3,290,131
Income taxes payable 201,890 0
Current maturities of long-term debt and
capital lease obligations 371,683 358,124
Unearned income 5,003 5,003
------------ ------------
Total current liabilities 4,208,426 3,653,258
Capital lease obligations, less current maturities 31,082 39,105
Long-term debt, less current maturities 5,340,984 5,109,520
Stockholders' equity:
Common stock, no par value;
20,000,000 shares authorized;
9,652,507 shares outstanding as of 3/31/98
and 9,617,307 shares outstanding as of 12/31/97 9,179,764 9,135,764
Notes receivable-officers and directors (48,633) (4,633)
Retained earnings (1,138,014) (1,673,164)
Foreign currency translation adjustment (291,800) (289,902)
------------ ------------
Total Stockholders' Equity 7,701,317 7,168,065
------------ ------------
Total Liabilities and Stockholders' Equity $ 17,281,809 $ 15,969,948
============ ============
<FN>
See notes to financial statements.
</FN>
</TABLE>
8
<PAGE>
Reliv International, Inc. and Subsidiaries
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Three Months ended March 31
1998 1997
(unaudited) (unaudited)
<S> <C> <C>
Sales at suggested retail $ 18,724,406 $ 19,072,350
Less: Distributor allowances on product purchases 6,447,549 6,402,199
------------ ------------
Net Sales 12,276,857 12,670,151
Costs and expenses:
Cost of products sold 2,254,408 2,532,245
Distributor royalties and commissions 4,462,740 4,409,149
Selling, general and administrative 4,431,779 4,380,443
------------ ------------
Total Costs and Expenses 11,148,927 11,321,837
------------ ------------
Income from operations 1,127,930 1,348,314
Other income (expense):
Interest income 30,207 28,435
Interest expense (119,541) (38,016)
Other income\expense (3,265) 11,473
------------ ------------
Income
before income taxes 1,035,331 1,350,206
Provision for income taxes 402,607 531,359
------------ ------------
Net Income $ 632,724 $ 818,847
============ ============
Basic earnings per share $ 0.07 $ 0.09
============ ============
Diluted earnings per share $ 0.06 $ 0.08
============ ============
Weighted average shares of common stock
and common stock equivalents outstanding
Basic earnings per share 9,624,000 9,620,000
============ ============
Diluted earnings per share 10,275,000 10,381,000
============ ============
<FN>
See notes to financial statements
</FN>
</TABLE>
9
<PAGE>
Reliv International, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31
1998 1997
<S> <C> <C>
Operating activities
Net Income $ 632,724 $ 818,847
Adjustments to reconcile net income to
net cash provided by (used in) operating
activities:
Depreciation and amortization 164,948 147,844
Provision for losses on A/R 1,000 0
Foreign Currency Translation Gain (17,641) 7,411
(Increase) decrease in accounts and notes receivable 60,327 160,145
(Increase) decrease in inventories 61,424 (320,107)
(Increase) decrease in prepaid expenses
and other current assets (20,268) 130,845
(Increase) decrease in deferred costs 511 17,419
Increase in accounts payable and accrued
expenses:
Trade 343,133 520,952
Increase in income taxes payable 211,442 258,271
(Decrease) increase in unearned income 0 (17,600)
----------- -----------
Net cash provided by (used in) operating
activities 1,437,600 1,724,027
Investing Activities:
Purchase of property, plant and equipment (471,842) (136,784)
----------- -----------
Net cash provided by (used in) investing
activities (471,842) (136,784)
Financing activities
Proceeds from long-term debt 319,175 0
Principal payments on long-term borrowings
and line of credit (68,440) (53,608)
Principal payments under capital lease
obligations (13,734) (16,829)
Dividends Paid (96,173) (96,471)
Purchase of treasury stock 0 (289,003)
----------- -----------
Net cash provided by (used in) financing
activities 140,828 (455,911)
Effect of exchange rate changes on cash
and cash equivalents 26,478 (24,447)
----------- -----------
Increase (decrease) in cash and cash
equivalents 1,133,064 1,106,885
Cash and cash equivalents at beginning
of period 2,426,426 2,108,770
----------- -----------
Cash and cash equivalents at end of period $ 3,559,490 $ 3,215,655
=========== ===========
<FN>
See notes to financial statements
</FN>
</TABLE>
10
<PAGE>
Reliv' International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
March 31, 1998
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 three-month period ended March 31, 1998
are not necessarily indicative of the results that may be expected for the year
ended December 31, 1998. 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,
1997.
Note 2-- Earnings per Share
The following table sets forth the computation of basic and
diluted earnings per share:
Quarter ended March 31
1998 1997
------------------------
Numerator:
Numerator for basic and diluted
earnings per share--net income $632,724 $818,847
Denominator:
Denominator per basic earnings per
share--weighted average shares 9,624,000 9,620,000
Effect of dilutive securities:
Employee stock options and other warrants 651,000 761,000
------------------------
Denominator for diluted earnings per
share--adjusted weighted average shares 10,275,000 10,381,000
========================
Basic earnings per share $0.07 $0.09
========================
Diluted earnings per share $0.06 $0.08
========================
Note 3-- Subsequent Events
In April 1998, the former sales/general director of the Company's Canadian
subsidiary filed lawsuit claiming unlawful termination and breach of contract.
The individual had been terminated by the Company in March 1998. The Company
believes the claim is without merit and intends to vigorously defend itself. At
this time, the outcome of this matter is uncertain and a range of loss cannot be
reasonably estimated. However, management believes that the final outcome will
not have a material adverse effect on the financial position of the Company.
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE BALANCE SHEET AS
OF MARCH 31, 1998 AND THE STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 3,559,490
<SECURITIES> 0
<RECEIVABLES> 801,904
<ALLOWANCES> 6,200
<INVENTORY> 2,574,758
<CURRENT-ASSETS> 7,749,239
<PP&E> 12,395,433
<DEPRECIATION> 2,863,394
<TOTAL-ASSETS> 17,281,809
<CURRENT-LIABILITIES> 4,208,426
<BONDS> 5,372,066
0
0
<COMMON> 9,179,764
<OTHER-SE> (1,478,447)
<TOTAL-LIABILITY-AND-EQUITY> 17,281,809
<SALES> 12,276,857
<TOTAL-REVENUES> 12,276,857
<CGS> 2,254,408
<TOTAL-COSTS> 2,254,408
<OTHER-EXPENSES> 8,867,577
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 119,541
<INCOME-PRETAX> 1,035,331
<INCOME-TAX> 402,607
<INCOME-CONTINUING> 632,724
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 632,724
<EPS-PRIMARY> .07
<EPS-DILUTED> .06
</TABLE>
