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, 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 June 30, 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 June 30, 1998 and Balance Sheet as of
December 31, 1997.
2. Interim Statements of Operations for the three and six month
periods ending June 30, 1998 and June 30, 1997.
3. Interim Statements of Cash Flows for the six month periods ending
June 30, 1998 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
Current assets of the Company at June 30, 1998 increased to $7,754,000 from
$6,745,000 as of December 31, 1997, primarily due to increases in cash and cash
equivalents and inventories. Cash and cash equivalents increased $677,000 to
$3,103,000 as a result of 1998 net income of $1,145,000. Inventories increased
to $2,968,000 from $2,643,000 at December 31, 1997, mainly due to the increase
of $249,000 in raw material inventory to meet higher production requirements as
compared to year end 1997.
Net property, plant and equipment increased to $10,030,000 at June 30, 1998
from $9,221,000 at December 31, 1997 due to completion of the expansion of the
Company's headquarters and related increases in office, computer and
manufacturing equipment. The Company added approximately 90,000 square feet to
its facility by expanding office, warehouse and manufacturing areas. The Company
began utilizing the additional space in the first quarter 1998.
Current liabilities increased to $4,390,000 at June 30, 1998, from
$3,653,000 at December 31, 1997. Trade accounts payable increased to $1,775,000
compared to $1,433,000 at December 31, 1997 as a result of the increased
investment in inventories, primarily raw materials. Distributor commissions
payable and sales taxes payable increased to $1,575,000 and $247,000,
respectively, at June 30, 1998, from $1,327,000 and $192,000 at December 31,
1997, as a result of increased sales volume in June, 1998, as compared to
December, 1997.
Stockholder's equity increased by $795,000 to $7,963,000 at June 30, 1998.
The Company's working capital balance increased by $273,000 since December 31,
1997, with a current ratio of 1.77 as compared to 1.85 as of December 31, 1997.
2
<PAGE>
The increase in stockholder's equity and working capital is due to year to date
net income of the Company. The Company paid cash dividends of $96,000 on January
29, 1998 and $145,000 on June 22, 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 $513,000, or $.05 per share, for the
quarter ended June 30, 1998, compared to a net profit of $594,000, or $.06 per
share, for the same period of 1997. Net sales for the period improved slightly
to $11,994,000 from $11,771,000 in 1997. During the second quarter 1998, net
sales from network marketing activities increased to $11,823,000 from
$11,384,000 in the same period 1997, while sales of contract packaging services
declined to $171,000 from $387,000 in 1997.
Net sales from network marketing activities were comprised of $10,663,000
from sales in the United States and $1,160,000 from sales of foreign
subsidiaries in Australia, Canada, Mexico, New Zealand and a licensee in the
United Kingdom. This compares to $10,042,000 and $1,342,000 in the second
quarter 1997. The distributor sales force in the United States, the Company's
primary market, decreased 5% in new sign-ups and distributor renewals when
compared to the quarter ending June 30, 1997.
The Company provides contract packaging services, including blending,
processing and packaging food products in accordance with specifications
provided by its customers. During the expansion of the Company's facility in
1997, efforts to increase contract services were decreased until the facility
was completed. This resulted in the decline in net sales in the second quarter
1998, as compared to the same period in 1997. The Company has increased efforts
to develop new contract packaging services income and has begun providing
services to former customers. The Company anticipates increases in contract
services income in the second half of 1998.
Cost of network marketing products sold as a percentage of net sales
remained constant at 16.9% for the second quarter of 1998 and the same period in
1997. Cost of goods have remained within the guidelines established for product
pricing despite additional overhead realized with the expansion of the
manufacturing facility. The Company has been able to offset these increases by
lowering raw material costs and improving manufacturing controls. The Company
believes an increase in contract packaging services will improve utilization of
its facility and therefore lower costs.
Distributor royalties and commissions declined slightly to 37.4% of network
marketing sales in the second quarter 1998, compared to 37.8% 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 a percent of sales
up to 18% in royalties and as much as 45% in commissions. In addition, the
Company paid royalties of $219,000 in second quarter 1998 through various
incentive programs that reward distributors who have reached, and personally
assisted other qualified distributors to reach specified levels of compensation.
These programs paid $253,000 in the second quarter 1997.
3
<PAGE>
Selling, general and administrative expense increased to $4,438,000, in the
second quarter 1998 compared to $4,168,000 in the same period 1997. Expenses in
the second quarter 1998 were affected by new overhead expenses as a result of
the addition to the office, manufacturing and warehouse facility and increased
efforts and investment made to improve results in international subsidiaries.
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 packaging services.
Interest expense increased during the period from $43,000 in 1997 to
$121,000 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 in the Company's other SEC
filings.
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
---------------------------------------------------
The Company's annual meeting of shareholders was held on May 21, 1998. 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*
(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.
4
<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 11, 1998 RELIV' INTERNATIONAL, INC.
By: /s/ Robert L. Montgomery
--------------------------------
Robert L. Montgomery, President,
Chief Executive Officer and
Principal Financial Officer
5
<PAGE>
Reliv International, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30 December 31
1998 1997
------------ ------------
(unaudited) (see notes)
Assets
Current Assets:
<S> <C> <C>
Cash and Cash equivalents $ 3,103,247 $ 2,426,426
Accounts and notes receivable, less allowances of
$6,200 in 1998 and $7,600 in 1997 890,024 865,701
Inventories
Finished goods 1,567,316 1,453,282
Raw materials 1,034,924 785,706
Sales aids and promotional materials 366,140 403,830
------------ ------------
Total inventories 2,968,380 2,642,818
Refundable income taxes 164,311 31,303
Prepaid expenses and other current assets 539,813 688,539
Deferred income taxes 88,493 90,065
------------ ------------
Total current assets 7,754,268 6,744,852
Deferred costs 2,777 4,232
Property, plant and equipment:
Land 829,222 790,677
Building 8,196,446 2,854,548
Machinery & equipment 1,900,013 1,723,482
Office equipment 418,892 303,235
Computer equipment & software 1,554,339 1,452,577
Construction in progress 157,525 4,797,090
------------ ------------
13,056,437 11,921,609
Less: Accumulated depreciation (3,026,875) (2,700,745)
------------ ------------
Net Property, plant and equipment 10,029,562 9,220,864
------------ ------------
Total Assets $ 17,786,607 $ 15,969,948
============ ============
</TABLE>
See notes to financial statements.
6
<PAGE>
Reliv International, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30 December 31
1998 1997
------------ ------------
(unaudited) (see notes)
Liabilities and Stockholders' Equity
Current liabilities:
<S> <C> <C>
Accounts payable and accrued expenses
Trade Accounts Payable $1,775,232 $1,432,901
Distributors commissions payable 1,575,045 1,326,579
Sales taxes payable 247,241 192,130
Interest expense payable 24,564 75,321
Payroll and payroll taxes payable 234,277 173,689
Other accrued expenses 123,438 89,511
------------ ------------
Total accounts payable & accrued expenses 3,979,797 3,290,131
Current maturities of long-term debt and
capital lease obligations 367,607 358,124
Unearned income 42,269 5,003
------------ ------------
Total current liabilities 4,389,673 3,653,258
Capital lease obligations, less current maturities 22,869 39,105
Long-term debt, less current maturities 5,410,889 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 (47,867) (4,633)
Retained earnings (770,276) (1,673,164)
Foreign currency translation adjustment (398,445) (289,902)
------------ ------------
Total Stockholders' Equity 7,963,176 7,168,065
------------ ------------
Total Liabilities and Stockholders' Equity $17,786,607 $15,969,948
============= =============
</TABLE>
See notes to financial statements.
7
<PAGE>
Reliv International, Inc. and Subsidiaries
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Quarter ended June 30 Six Months Ended June 30
1998 1997 1998 1997
------------ ------------ ------------ ------------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Sales at suggested retail $ 18,295,012 $ 17,854,584 $ 37,019,418 $ 36,926,934
Less: Distributor allowances on product purchases 6,300,550 6,083,537 12,748,099 12,485,736
------------ ------------ ------------ ------------
Net Sales 11,994,462 11,771,047 24,271,319 24,441,198
Costs and expenses:
Cost of products sold 2,169,183 2,336,675 4,423,591 4,868,920
Distributor royalties and commissions 4,426,699 4,305,055 8,889,439 8,714,204
Selling, general and administrative 4,438,141 4,167,991 8,869,920 8,548,434
------------ ------------ ------------ ------------
Total Costs and Expenses 11,034,023 10,809,721 22,182,950 22,131,558
------------ ------------ ------------ ------------
Income from operations 960,439 961,326 2,088,369 2,309,640
Other income (expense):
Interest income 36,556 29,881 66,763 58,316
Interest expense (120,707) (42,907) (240,248) (80,923)
Other income\expense (36,205) 15,607 (39,470) 27,080
------------ ------------ ------------ ------------
Income before income taxes 840,083 963,907 1,875,414 2,314,113
Provision for income taxes 327,555 369,084 730,162 900,443
------------ ------------ ------------ ------------
Net Income $ 512,528 $ 594,823 $ 1,145,252 $ 1,413,670
============ ============ ============ ============
Basic earnings per share $ 0.05 $ 0.06 $ 0.12 $ 0.15
============ ============ ============ ============
Diluted earnings per share $ 0.05 $ 0.06 $ 0.11 $ 0.14
============ ============ ============ ============
Weighted average shares of common stock
and common stock equivalents outstanding
Basic earnings per share 9,638,000 9,578,000 9,638,000 9,578,000
============ ============ ============ ============
Diluted earnings per share 10,277,000 10,423,000 10,277,000 10,423,000
============ ============ ============ ============
</TABLE>
See notes to financial statements
8
<PAGE>
Reliv International, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30
1998 1997
----------- -----------
<S> <C> <C>
Operating activities
Net Income $ 1,145,252 $ 1,413,670
Adjustments to reconcile net income to
net cash provided by (used in) operating
activities:
Depreciation and amortization 347,848 291,372
Provision for losses on accounts receivable 4,000 0
Foreign currency translation loss 65,219 9,521
(Increase) decrease in accounts and notes receivable (43,139) 329,367
(Increase) decrease in inventories (371,083) (475,124)
(Increase) decrease in refundable income taxes (145,243) (228,504)
(Increase) decrease in prepaid expenses
and other current assets 146,220 50,866
(Increase) decrease in deferred costs 993 29,217
Increase in accounts payable and accrued
expenses: 716,322 221,434
Increase in income taxes payable 9,751 (26,222)
(Decrease) increase in unearned income 37,279 (16,773)
----------- -----------
Net cash provided by (used in) operating
activities 1,913,419 1,598,824
Investing Activities:
Purchase of property, plant and equipment (1,156,875) (485,716)
----------- -----------
Net cash provided by (used in) investing
activities (1,156,875) (485,716)
Financing activities
Increase in short-term borrowing 0 200,000
Proceeds from long-term debt 471,486 0
Principal payments on long-term borrowings
and line of credit (157,464) (108,292)
Principal payments under capital lease
obligations (24,921) (38,656)
Dividends paid (240,963) (290,368)
Proceeds from nores receivable assumed from issusance
of common stock from exercise of options 766 0
Purchase of treasury stock 0 (342,316)
----------- -----------
Net cash provided by (used in) financing
activities 48,904 (579,632)
Effect of exchange rate changes on cash
and cash equivalents (128,627) (78,994)
----------- -----------
Increase (decrease) in cash and cash
equivalents 676,821 454,482
Cash and cash equivalents at beginning
of period 2,426,426 2,108,770
----------- -----------
Cash and cash equivalents at end of period $ 3,103,247 $ 2,563,252
=========== ===========
</TABLE>
See notes to financial statements
9
<PAGE>
Reliv' International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
June 30, 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
six-month period ended June 30, 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:
<TABLE>
<CAPTION>
Quarter ended June 30 Six months ended June 30
1998 1997 1998 1997
----------------------- ------------------------
Numerator:
<S> <C> <C> <C> <C>
Numerator for basic and diluted
earnings per share--net income $512,528 $594,823 $1,145,252 $1,413,670
Denominator:
Denominator per basic earnings per
share--weighted average shares 9,638,000 9,578,000 9,638,000 9,578,000
Effect of dilutive securities:
Employee stock options and other warrants 639,000 845,000 639,000 845,000
------------------------ ------------------------
Denominator for diluted earnings per
share--adjusted weighted average shares 10,277,000 10,423,000 10,277,000 10,423,000
======================= ========================
Basic earnings per share $0.05 $0.06 $0.12 $0.15
======================= ========================
Diluted earnings per share $0.05 $0.06 $0.11 $0.14
======================= ========================
</TABLE>
Note 3-- Subsequent Events
In May 1998, the former sales/general manager of the Company's
Canadian subsidiary filed lawsuit claiming unlawful termination. 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.
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE BALANCE SHEET AS
OF JUNE 30, 1998 AND THE STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE
30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 3,103,247
<SECURITIES> 0
<RECEIVABLES> 896,224
<ALLOWANCES> 6,200
<INVENTORY> 2,968,380
<CURRENT-ASSETS> 7,754,268
<PP&E> 13,056,437
<DEPRECIATION> 3,026,875
<TOTAL-ASSETS> 17,786,607
<CURRENT-LIABILITIES> 3,979,797
<BONDS> 5,433,758
0
0
<COMMON> 9,179,764
<OTHER-SE> (1,216,588)
<TOTAL-LIABILITY-AND-EQUITY> 17,786,607
<SALES> 24,271,319
<TOTAL-REVENUES> 24,271,319
<CGS> 4,423,591
<TOTAL-COSTS> 4,423,591
<OTHER-EXPENSES> 17,732,066
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 240,248
<INCOME-PRETAX> 1,875,414
<INCOME-TAX> 730,162
<INCOME-CONTINUING> 1,145,252
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,145,252
<EPS-PRIMARY> .12
<EPS-DILUTED> .11
</TABLE>
