Reliv' International (RELV) 10-Q 2005 Q3 Quarterly report

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, 2005

Commission File No. 1-11768

RELIV’ INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)

Delaware	37-1172197
(State or other jurisdiction of	(I.R.S. Employer Identification Number)
incorporation or organization)

136 Chesterfield Industrial Boulevard, Chesterfield, Missouri 63005

(Address of principal executive offices) (Zip Code)

(636) 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.

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).    Yes x   No o

As of September 30, 2005, 15,616,607 shares of the Registrant’s common stock were outstanding.

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, 2005 and Balance Sheet as of December 31, 2004.

2. Interim Statements of Income for the three- and nine-month periods ended September 30, 2005 and September 30, 2004.

3. Interim Statements of Cash Flows for the nine-month periods ended September 30, 2005 and September 30, 2004.

The Financial Statements reflect all adjustments which are, in the opinion of management, necessary for a fair statement of results for the periods presented.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

The Company produces a line of food products including nutritional supplements, diet management products and sports drink mixes. The Company also sells a line of skin care products. These products are sold by subsidiaries of the Company to a sales force of independent distributors of the Company that sell products directly to consumers. The Company and its subsidiaries sell products to distributors throughout the United States and in Australia/New Zealand, Canada, Mexico, the United Kingdom/Ireland, the Philippines, Malaysia, Singapore, and Germany. As of September 30, 2005, the Company had approximately 68,400 distributors worldwide.

The Company receives payment by credit card, personal check or guaranteed funds for orders from independent distributors and makes related commission payments in the following month. The net sales price is the suggested retail price less the distributor discount of 20% to 40% of such suggested retail price. Sales revenue and commission expenses are recorded when the merchandise is shipped. In the nine months ended September 30, 2005, sales in the United States made up approximately 90% of worldwide net sales, with the remainder from our international operations. This compares to 86% for all of 2004. The sales breakdown by country is given in greater detail in the “Net Sales by Region” table below.

Cost of products sold primarily consists of expenses related to raw materials, labor, quality control and overhead directly associated with the production and distribution of products and sales materials, as well as shipping costs, duties and taxes associated with product exports.

2

Distributor royalties and commissions are paid to Master Affiliates monthly, based on the sales of their distributor organization in the prior month. These expenses are governed by the distributor agreements. Also, included in this payment are other sales leadership bonuses that are directly related to the level of sales.

Selling, general and administrative expenses include compensation and benefits, all other selling expenses, marketing, promotional expenses, travel and other corporate administrative expenses.

Results of Operations

The Company had net income available to common shareholders of $1,668,000 ($0.11 per share basic and $0.10 per share diluted) for the quarter ended September 30, 2005, compared to net income available to common shareholders of $1,264,000 ($0.08 per share basic and $0.07 per share diluted) for the same period in 2004. Profitability continued to improve as net sales improved worldwide by 18%, led by a 25% increase in net sales in the United States, the Company’s primary market.

For the nine months ended September 30, 2005, net income available to common shareholders was $5,711,000 ($0.36 per share basic and $0.35 per share diluted) compared to $4,094,000 ($0.26 per share basic and $0.24 per share diluted) for the nine months ended September 30, 2004.

The following table summarizes the net sales by geographic region for the three-month periods ended September 30, 2005 and 2004.

Net Sales by Region	Three months ended September 30
(in thousands)	2005					2004					Change from
	$		% of sales			$		% of sales			prior year			Change in %
United States	$	25,823		90.4	%	$	20,705		85.7	%	$	5,118			24.7	%
Australia/New Zealand		486		1.7	%		642		2.7	%		(156	)		-24.3	%
Canada		383		1.3	%		455		1.9	%		(72	)		-15.8	%
Mexico		402		1.4	%		642		2.7	%		(240	)		-37.4	%
United Kingdom/Ireland		240		0.8	%		122		0.5	%		118			96.7	%
Philippines		526		1.8	%		767		3.2	%		(241	)		-31.4	%
Malaysia/Singapore		577		2.0	%		839		3.5	%		(262	)		-31.2	%
Germany		118		0.4	%		-		-			118			N.M.
Consolidated total	$	28,555		100.0	%	$	24,172		100.0	%	$	4,383			18.1	%

3

The following table summarizes the net sales by geographic region for the nine-month periods ended September 30, 2005 and 2004.

Net Sales by Region	Nine months ended September 30
(in thousands)	2005					2004					Change from					��
	$		% of sales			$		% of sales			prior year			Change in %
United States	$	77,881		90.5	%	$	61,722		86.3	%	$	16,159			26.2	%
Australia/New Zealand		1,567		1.8	%		1,800		2.5	%		(233	)		-12.9	%
Canada		1,290		1.5	%		1,231		1.7	%		59			4.8	%
Mexico		1,237		1.4	%		1,977		2.8	%		(740	)		-37.4	%
United Kingdom/Ireland		642		0.7	%		411		0.6	%		231			56.2	%
Philippines		1,807		2.1	%		2,137		3.0	%		(330	)		-15.4	%
Malaysia/Singapore		1,539		1.8	%		2,263		3.2	%		(724	)		-32.0	%
Germany		118		0.1	%		-		-			118			N.M.
Consolidated total	$	86,081		100.0	%	$	71,541		100.0	%	$	14,540			20.3	%

The following table illustrates the Company’s active distributors and Master Affiliates as of September 30, 2005 and 2004. The total amount of distributors also includes the Master Affiliates. The Company defines an active distributor as one that enrolls as a distributor or renews their distributorship during the prior twelve months. Growth in the number of active distributors and Master Affiliates is a key factor in continuing the growth of the business.

Active Distributors and Master Affiliates by Region
	as of 9/30/2005				as of 9/30/2004				Change in %
			Master				Master					Master
	Distributors		Affiliates		Distributors		Affiliates		Distributors			Affiliates
United States		51,470		14,560		46,030		11,120		11.8	%		30.9	%
Australia/New Zealand		2,570		240		2,990		260		-14.0	%		-7.7	%
Canada		1,270		200		1,440		190		-11.8	%		5.3	%
Mexico		4,020		380		8,000		720		-49.8	%		-47.2	%
United Kingdom/Ireland		640		90		410		50		56.1	%		80.0	%
Philippines		4,930		520		6,710		610		-26.5	%		-14.8	%
Malaysia/Singapore		3,430		620		5,220		710		-34.3	%		-12.7	%
Germany		70		30		-		-		N.M.			N.M.
Consolidated total		68,400		16,640		70,800		13,660		-3.4	%		21.8	%

In the United States, new distributor enrollments, strong retention and strong growth in the number of Master Affiliates continue to be factors in the increased sales in this market. In the first nine months of 2005, over 18,400 new distributors were enrolled, as compared to approximately 17,700 in the same period of 2004. Distributor retention was approximately 62%, compared to a rate of 58% for all of 2004. The number of distributors reaching Master Affiliate, the highest level of discount a distributor can attain, has also continued to improve in the United States. In the first nine months of 2005, over 6,400 distributors achieved Master Affiliate status, as compared to approximately 5,100 in the same period of 2004. The Company attributes the increase in sales and other sales statistics in part to the momentum created by the consistency and reinforcement of its training programs and business opportunity presentations, in the form of regional distributor conferences and other corporate-sponsored meetings. This has resulted in more distributors reaching the Master Affiliate level, who are more experienced and productive distributors.

4

Also contributing to the sales increase in the third quarter of 2005 are sales from the introduction of the Company’s newest product, CardioSentials®. Introduced in February 2005, net sales of this product were $918,000 and $3,113,000 for the three- and nine-month periods ended September 30, 2005, respectively.

During the third quarter of 2005, sales in the Company’s international subsidiaries declined overall. In aggregate, international sales decreased by 21% to $2,732,000 in the third quarter of 2005, compared to $3,467,000 in the third quarter of 2004. For the first nine months of 2005, international sales declined by 16%, compared to the same period in 2004.

Sales in the United Kingdom increased by 97% in the third quarter of 2005, as the efforts of the new general manager and national sales manager in the UK are beginning to show positive results.

Sales in Australia/New Zealand decreased by 24% in the third quarter of 2005, compared to the same period in 2004. The sales manager for that region was terminated during the second quarter of 2005, and the Company named a new sales manager in September 2005. Sales in Malaysia/Singapore decreased by approximately 31% in the third quarter of 2005, while sales in Canada decreased by 16% in the third quarter.

Sales in Mexico decreased over 37% in the third quarter of 2005, compared to the same period in 2004. Sales declined subsequent to a price increase and change in distributor qualification requirements, effective March 1, 2005, to put the Mexican business model in line with the rest of the markets operated by the Company. Similar changes were made in the Philippines and sales in that market declined by 31% in the third quarter of 2005, compared to the same period in 2004. Although sales levels in these markets are below their levels in the prior year quarter, recent trends are showing improvement. In Mexico and the Philippines, sales in the third quarter of 2005 were up 37% and 10%, respectively, over the second quarter of 2005.

The following table summarizes selected items from the consolidated statement of operations, expressed as a percentage of net sales, for the periods indicated, and should be read in conjunction with the discussion of the components of the consolidated statements of operations that follow:

5

Selected data from the Consolidated	Three Months Ended						Nine Months Ended
Statements of Operations	September 30						September 30
	2005			2004			2005			2004
Cost of products sold		17.1	%		17.1	%		16.9	%		16.8	%
Distributor royalties and commissions		40.0	%		39.4	%		40.1	%		39.7	%
Selling, general, and administrative		33.2	%		34.9	%		32.1	%		33.9	%
Provision for income taxes		3.6	%		3.3	%		4.2	%		3.8	%
Net income		5.8	%		5.2	%		6.6	%		5.7	%

Cost of products sold as a percentage of net sales was 17.1% in the third quarter of 2005. Excluding a $100,000 charge for slow-moving inventory, cost of products sold as a percentage of net sales was 16.7% in the third quarter of 2005, as compared to 17.1% in the third quarter of 2004.

Distributor royalties and commissions as a percentage of net sales were 40.0% and 39.4% in the third quarter of 2005 and 2004, respectively. These expenses are governed by the distributor agreements and are directly related to the level of sales. During the first quarter of 2005, changes were made to the distributor compensation plan in the Philippines and Mexico, resulting in commission payments being made on the full retail value of the products sold. With these changes, commission payments are now being made on the full retail value of the products sold worldwide.

Selling, general and administrative (SGA) expenses increased $1,032,000 in the third quarter of 2005, as compared to the third quarter of 2004. However, SGA expenses as a percentage of net sales decreased to 33.2% in the third quarter of 2005 compared to 34.9% in the third quarter of 2004.

Sales and marketing expenses represented approximately $745,000 of the increase, including increased credit card fees due to the higher sales volume, and increased promotional bonuses and increased promotional trip expenses related to sales volume. General and administrative expenses increased by approximately $248,000, primarily in salaries and bonuses, fringe benefit expenses, travel expenses, professional service fees, and director’s fees. These increases were offset by declines in certain areas. Legal fees decreased by $109,000, and accounting fees and related expenses decreased by $454,000 in the third quarter of 2005, compared to the third quarter of 2004. The decrease in accounting fees and related expenses is due in part because the Company has established an internal audit department to supplement the effort related to management’s documentation and assessment of the Company’s internal control environment. In the prior year, the Company incurred additional third party expenses with the adoption of the internal control documentation requirements of the Sarbanes-Oxley Act.

For the first nine months of 2005, SGA expenses increased by $3,350,000 compared to the first nine months of 2004. However, SGA expenses as a percentage of net sales declined from 33.9% in the first nine months of 2004 to 32.1% in the same period of 2005. The same items creating the significant changes during the third quarter of 2005, as compared to the same period in 2004, were responsible for the increase from the first nine months of 2004 to the same period of 2005.

6

During the third quarter of 2005, the Company incurred SGA expenses of approximately $328,000 in its most recent market entry, Germany. Reliv Germany GmbH began sales on July 18, 2005.

The Company recorded income tax expense of $1,036,000 for the third quarter of 2005, an effective rate of 38.3%. In the third quarter of 2004, the Company recorded income tax expense of $807,000, an effective rate of 39.0%.

Financial Condition, Liquidity and Capital Resources

The Company generated $10,355,000 of net cash during the first nine months of 2005 from operating activities, $1,529,000 was used in investing activities, and the Company used $13,903,000 in financing activities. This compares to $5,549,000 of net cash provided by operating activities, $1,484,000 used in investing activities, and $2,792,000 used in financing activities in the first nine months of 2004. Cash and cash equivalents decreased by $5,213,000 to $4,939,000 as of September 30, 2005, compared to December 31, 2004.

Significant changes in working capital items consisted of an increase in inventories of $745,000, an increase in accounts payable and accrued expenses of $1,566,000, and a decrease in refundable income taxes payable of $1,267,000 in the first nine months of 2005. The increase in inventory is to support the higher sales levels of the Company’s sales in the United States, coupled with the initial production requirements for the opening in Germany. The increase in accounts payable and accrued expenses is due to increased production volume and other expenses related to the increase in sales volume, coupled with the increase in distributor commissions payable at September 30, 2005, compared to December 31, 2004. This increase in distributor commissions payable is the result of higher worldwide sales in September 2005, compared to December 2004. The decrease in the refundable income taxes is the result of a refund received from the Internal Revenue Service on the overpayment of income tax deposits.

The Company’s net investing activities in the first nine months of 2005 consisted of $1,587,000 for capital expenditures. The most significant financing activity in the first nine months of 2005 was $9,892,000 in purchases of treasury stock. The majority of this treasury stock was purchased from related parties and is described in Note 7 of the Consolidated Financial Statements. In March 2005, the Company announced that its Board of Directors had approved a stock repurchase plan of its common stock of up to $15 million over the next three years. Approximately $3,482,000 of stock was purchased from the open market during the first nine months of 2005. In June 2005, the Company also paid the remaining balance of the long-term debt on its headquarters facility totaling approximately $3.5 million.

7

Stockholders’ equity decreased to $12,009,000 at September 30, 2005, compared with $18,191,000 at December 31, 2004. The decrease is primarily due to a stock repurchase agreement of $4.05 million of the Company’s common stock from a former officer/director of the Company in the first quarter of 2005, stock purchases from three officer/directors of the Company totaling $5.08 million that took place in May 2005, and other 2005 treasury stock purchases, offset by the net income of the Company during the first nine months of 2005. Under the stock repurchase agreement with the former officer/director of the Company, the Company paid cash of $900,000 in March 2005 and entered into a promissory note for $3,150,000. The stock repurchase agreement is described in Note 7 of the Consolidated Financial Statements. Stockholders’ equity also increased by $1,344,000 as the result of the tax benefit from the exercise of nonqualified options and warrants during the first nine months of 2005.

The Company’s working capital balance was $3,081,000 at September 30, 2005, compared to $11,467,000 at December 31, 2004. The current ratio at September 30, 2005 was 1.29, compared to 2.41 at previous year-end. In June 2005, the Company entered into a new $15 million revolving line of credit facility with the Company’s primary lender. This new facility replaced the Company’s previous operating line of credit that had a maximum borrowing limit of $1 million. The new facility expires in April 2007, and any advances accrue interest at a variable interest rate based on LIBOR. The new facility includes covenants to maintain total stockholders’ equity of not less than $10.5 million, and that the ratio of borrowings under the facility shall not exceed EBITDA by a ratio of 3.5:1. At September 30, 2005, the Company had not utilized any of the new revolving line of credit facility and was in compliance with the minimum stockholders’ equity covenant.

Management believes that the Company’s internally generated funds, and the borrowing capacity under the new revolving line of credit facility will be sufficient to meet working capital requirements for the remainder of 2005.

Critical Accounting Policies

A summary of our critical accounting policies and estimates is presented on page 35 of our 2004 Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 16, 2005.

Safe Harbor Provision of the Private Securities Litigation Act of 1995 and Forward Looking Statements.

The statements contained in Item 2 (Management’s Discussion and Analysis of Financial Condition and Results of Operation) that are not historical facts may be forward-looking statements (as such term is defined in the rules promulgated pursuant to the Securities Exchange Act of 1934, as amended) that are subject to a variety of risks and uncertainties. The forward-looking statements are based on the beliefs of the Company’s management, as well as assumptions made by, and information currently available to the Company’s management. Accordingly, these statements are subject to significant risks, uncertainties and contingencies which could cause the Company’s actual growth, results, performance and business prospects and opportunities in 2005 and beyond to differ materially from those expressed in, or implied by, any such forward-looking statements. Wherever possible, words such as “anticipate,”“plan,”“expect,”“believe,”“estimate,” and similar expressions have been used to identify these forward-looking statements, but are not the exclusive means of identifying such statements. These risks, uncertainties and contingencies include, but are not limited to, 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 detailed in the Company’s other SEC filings.

8

Item 3. Quantitative and Qualitative Disclosures of Market Risk

The Company is exposed to various market risks, primarily foreign currency risks and interest rate risks.

Foreign Currency Risk

The Company’s earnings and cash flows are subject to fluctuations due to changes in foreign currency rates as it has several foreign subsidiaries and continues to explore expansion into other foreign countries. As a result, exchange rate fluctuations may have an effect on sales and gross margins. Accounting practices require that the Company’s results from operations be converted to U.S. dollars for reporting purposes. Consequently, the reported earnings of the Company in future periods may be significantly affected by fluctuations in currency exchange rates, generally increasing with a weaker U.S. dollar and decreasing with a strengthening U.S. dollar. Products manufactured by the Company for sale to the Company’s foreign subsidiaries are transacted in U.S. dollars.

The Company enters into foreign exchange forward contracts with a financial institution to sell Canadian dollars in order to protect against currency exchange risk associated with expected future cash flows. The Company has accounted for these contracts as free standing derivatives, such that gains or losses on the fair market value of these forward exchange contracts are recorded as other income and expense in the consolidated statements of operations. The net changes in the fair value of these forward contracts as of September 30, 2005 was a cumulative expense of $99,000. As of September 30, 2005, the Company had no hedging instruments in place to offset exposure to the Australian or New Zealand dollars, Mexican or Philippine pesos, the Malaysian ringgit, the Singapore dollar, the EU Euro, or the British pound.

There have been no other material changes in market risk exposures during the first nine months of 2005 that affect the disclosures presented in Item 7A - “Qualitative and Quantitative Disclosures Regarding Market Risk” on pages 37 and 38 of our 2004 Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 16, 2005.

9

Item 4. Controls and Procedures

Our management, under the supervision and with the participation of our chief executive officer and principal financial officer, has reviewed and evaluated the effectiveness of the Company’s disclosure controls and procedures as of September 30, 2005. Based on such review and evaluation, our chief executive officer and principal financial officer have concluded that the disclosure controls and procedures were effective at the reasonable assurance level as of September 30, 2005, to ensure that the information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934, as amended, (a) is recorded, processed, summarized and reported within the time period specified in the SEC’s rules and forms and (b) is accumulated and communicated to the Company’s management, including the officers, as appropriate to allow timely decisions regarding required disclosure. There were no material changes in the Company’s internal control over financial reporting during the third quarter of 2005 that have materially affected or are reasonably likely to materially affect the Company’s internal controls over financial reporting.

Part II. OTHER INFORMATION

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

ISSUER PURCHASES OF EQUITY SHARES

Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Programs		Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs(1)
July 1-31, 2005		51,911	$	10.37		51,911	$	11,920,000
August 1-31, 2005		10,200	$	8.78		10,200	$	11,830,000
September 1-30, 2005		35,616	$	8.76		35,616	$	11,518,000
Total		97,727				97,727

(1) In March 2005, the Company’s Board of Directors approved a share repurchase plan of up to $15 million over the next 36 months.

10

Item 6. Exhibits

Exhibit No.	Description
3.1	Certificate of Incorporation (incorporated by reference to Appendix B of Form 14A of the Registrant filed on April 22, 1999).
3.2	By-Laws (incorporated by reference to Appendix C of Form 14A of the Registrant filed on April 22, 1999).
3.3	Amendment to By-Laws dated March 22, 2001 (incorporated by reference to Exhibit 3.3 of Form 10-K of the Registrant for the year ended December 31, 2001).
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.
32	Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

11

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, 2005	RELIV’ INTERNATIONAL, INC.
	By:	/s/ Robert L. Montgomery
		Robert L. Montgomery, President,
		Chief Executive Officer
	By:	/s/ Steven D. Albright
		Steven D. Albright, Chief
		Financial Officer

12

Reliv International, Inc. and Subsidiaries

Consolidated Balance Sheets

	September 30		December 31
	2005		2004
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	4,938,717	$	10,151,503
Accounts and notes receivable, less allowances of
$26,500 in 2005 and $11,500 in 2004		553,333		872,592
Accounts due from employees and distributors		122,534		70,620
Inventories
Finished goods		4,450,245		3,528,135
Raw materials		1,645,248		1,877,210
Sales aids and promotional materials		544,209		491,437
Total inventories		6,639,702		5,896,782
Refundable income taxes		-		1,288,260
Prepaid expenses and other current assets		1,165,203		1,052,428
Deferred income taxes		391,430		286,430
Total current assets		13,810,919		19,618,615
Other assets		1,480,639		1,196,780
Accounts due from employees and distributors		414,882		213,123
Property, plant and equipment:
Land		829,222		829,222
Building		9,516,758		9,027,577
Machinery & equipment		5,095,108		4,926,048
Office equipment		1,445,610		1,092,285
Computer equipment & software		2,529,804		2,719,065
		19,416,502		18,594,197
Less:   Accumulated depreciation		8,942,186		8,626,048
Net property, plant and equipment		10,474,316		9,968,149
Total assets	$	26,180,756	$	30,996,667

See notes to financial statements.

Reliv International, Inc. and Subsidiaries

Consolidated Balance Sheets

	September 30			December 31
	2005			2004
	(unaudited)
Liabilities and stockholders' equity
Current liabilities:
Accounts payable and accrued expenses:
Trade accounts payable and other accrued expenses	$	3,884,764		$	3,155,071
Distributors commissions payable		4,047,860			3,561,110
Sales taxes payable		501,248			493,571
Interest expense payable		12,000			18,000
Payroll and payroll taxes payable		877,540			598,321
Total accounts payable and accrued expenses		9,323,412			7,826,073
Income taxes payable		517,460			-
Current maturities of long-term debt		919,225			325,895
Total current liabilities		10,760,097			8,151,968
Noncurrent liabilities:
Long-term debt, less current maturities		15,098			3,357,691
Promissory note (see Note 7)		2,200,000			-
Deferred income taxes		128,000			289,000
Other non-current liabilities		1,068,598			1,007,255
Total noncurrent liabilities		3,411,696			4,653,946
Stockholders' equity:
Preferred stock, par value $.001 per share; 3,000,000
shares authorized; -0- shares issued and outstanding
as of 9/30/2005 and as of 12/31/2004		-			-
Common stock, par value $.001 per share; 30,000,000
authorized; 15,665,848 shares issued and 15,616,607
shares outstanding as of 9/30/2005; 16,323,668 shares
issued and 16,320,931 shares outstanding as of 12/31/2004		15,666			16,324
Additional paid-in capital		22,955,687			22,661,179
Accumulated deficit		(9,838,046	)		(3,719,711	)
Accumulated other comprehensive loss:
Foreign currency translation adjustment		(700,143	)		(758,331	)
Treasury stock		(424,201	)		(8,708	)
Total stockholders' equity		12,008,963			18,190,753
Total liabilities and stockholders' equity	$	26,180,756		$	30,996,667

See notes to financial statements.

Reliv International, Inc. and Subsidiaries

Consolidated Statements of Income

(unaudited)

	Three months ended September 30						Nine months ended September 30
	2005			2004			2005			2004
Sales at suggested retail	$	41,113,139		$	34,654,446		$	124,124,228		$	102,794,387
Less: distributor allowances on product purchases		12,557,707			10,482,388			38,043,613			31,253,292
Net sales		28,555,432			24,172,058			86,080,615			71,541,095
Costs and expenses:
Cost of products sold		4,873,785			4,139,646			14,528,561			11,994,551
Distributor royalties and commissions		11,416,814			9,534,381			34,507,541			28,417,457
Selling, general and administrative		9,466,159			8,433,789			27,619,467			24,269,000
Total costs and expenses		25,756,758			22,107,816			76,655,569			64,681,008
Income from operations		2,798,674			2,064,242			9,425,046			6,860,087
Other income (expense):
Interest income		40,647			28,849			190,183			77,202
Interest expense		(59,776	)		(65,621	)		(262,443	)		(177,523	)
Other income		(75,109	)		43,662			(26,187	)		65,880
Income before income taxes		2,704,436			2,071,132			9,326,599			6,825,646
Provision for income taxes		1,036,000			807,000			3,616,000			2,719,000
Net income		1,668,436			1,264,132			5,710,599			4,106,646
Preferred dividends accrued and paid		-			-			-			12,292
Net income available to common shareholders	$	1,668,436		$	1,264,132		$	5,710,599		$	4,094,354
Earnings per common share - Basic	$	0.11		$	0.08		$	0.36		$	0.26
Weighted average shares		15,539,000			15,846,000			15,988,000			15,473,000
Earnings per common share - Diluted	$	0.10		$	0.07		$	0.35		$	0.24
Weighted average shares		15,978,000			16,974,000			16,551,000			17,069,000
Cash dividends declared per common share	$	-		$	-		$	0.035		$	0.030

See notes to financial statements.

Reliv International, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(unaudited)

	Nine months ended September 30
	2005			2004
Operating activities:
Net income	$	5,710,599		$	4,106,646
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation		1,012,697			818,814
Stock-based third party compensation		50,024			58,417
Tax benefit from exercise of options		1,344,000			1,026,204
Deferred income taxes		(266,000	)		-
Foreign currency transaction (gain)/loss		184,275			(29,313	)
(Increase) decrease in accounts and notes receivable		77,845			(135,997	)
(Increase) decrease in inventories		(745,134	)		(1,511,459	)
(Increase) decrease in refundable income taxes		1,267,255			(351,452	)
(Increase) decrease in prepaid expenses
and other current assets		(101,436	)		(438,510	)
(Increase) decrease in other assets		(283,847	)		(227,306	)
Increase (decrease) in accounts payable and accrued expenses		1,566,467			2,380,099
Increase (decrease) in income taxes payable		538,094			(147,204	)
Net cash provided by operating activities		10,354,839			5,548,939
Investing activities:
Proceeds from the sale of property, plant and equipment		57,823			119,615
Purchase of property, plant and equipment		(1,587,264	)		(1,603,633	)
Net cash used in investing activities		(1,529,441	)		(1,484,018	)
Financing activities:
Principal payments on long-term borrowings and
capital lease obligations		(3,648,541	)		(355,690	)
Proceeds from sale of common stock		-			48,601
Proceeds from sale of treasury stock		22,547			-
Redemption of preferred stock		-			(975,000	)
Preferred stock dividends paid		-			(12,292	)
Common stock dividends paid		(565,158	)		(460,319	)
Proceeds from options and warrants exercised		179,919			256,602
Purchase of stock for treasury		(9,891,505	)		(1,293,980	)
Net cash used in financing activities		(13,902,738	)		(2,792,078	)
Effect of exchange rate changes on cash and cash equivalents		(135,446	)		(31,637	)
Decrease in cash and cash equivalents		(5,212,786	)		1,241,206
Cash and cash equivalents at beginning of period		10,151,503			7,902,508
Cash and cash equivalents at end of period	$	4,938,717		$	9,143,714

See notes to financial statements

Reliv' International, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

September 30, 2005

Note 1-- Basis of Presentation

The accompanying unaudited consolidated financial statements and notes thereto have been prepared in accordance with the instructions to Form 10-Q and reflect all adjustments which management believes necessary (which primarily include normal recurring accruals) to present fairly the financial position, results of operations and cash flows. These statements, however, do not include all information and footnotes necessary for a complete presentation of financial position, results of operations and cash flows in conformity with accounting principles generally accepted in the United States. Interim results may not necessarily be indicative of results that may be expected for any other interim period or for the year as a whole. These financial statements should be read in conjunction with the audited consolidated financial statements and footnotes included in the annual report on Form 10-K for the year ended December 31, 2004, filed March 16, 2005 with the Securities and Exchange Commission.

Note 2-- Reclassifications

Certain prior year amounts have been reclassified to conform to the current year presentation.

Note 3-- Earnings per Share

The following table sets forth the computation of basic and diluted earnings per share:

	Three months ended September 30				Nine months ended September 30
	2005		2004		2005		2004
Numerator:
Numerator for basic earnings per share--net
income available to common shareholders	$	1,668,436	$	1,264,132	$	5,710,599	$	4,094,354
Effect of convertible preferred stock:
Dividends on preferred stock		-		-		-		12,292
Numerator for diluted earnings per share	$	1,668,436	$	1,264,132	$	5,710,599	$	4,106,646
Denominator:
Denominator for basic earnings per
share--weighted average shares		15,539,000		15,846,000		15,988,000		15,473,000
Effect of convertible preferred stock and
dilutive securities:
Convertible preferred stock		-		-		-		70,000
Employee stock options and other warrants		439,000		1,128,000		563,000		1,526,000
Denominator for diluted earnings per
share--adjusted weighted average shares		15,978,000		16,974,000		16,551,000		17,069,000
Basic earnings per share	$	0.11	$	0.08	$	0.36	$	0.26
Diluted earnings per share	$	0.10	$	0.07	$	0.35	$	0.24

Reliv' International, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

September 30, 2005

Note 4-- New Pronouncements

The Securities and Exchange Commission has deferred the adoption date of Statement of Financial Accounting Standard (“SFAS”) No. 123R, “Share-Based Payment,” to the beginning of the fiscal year that begins after June 15, 2005, (January 1, 2006 for calendar year companies) from a July 1, 2005 adoption date previously set by the FASB. SFAS No. 123R requires the recognition of share-based payments, including employee stock options, in the income statement based on their fair values. The Company expects to adopt this standard on January 1, 2006. Based on stock option grants made in prior years, the Company estimates it will (assuming the modified prospective method is used) recognize expense for stock options for the year ending December 31, 2006 of $63,000, net of taxes.

Note 5-- Comprehensive Income

Total comprehensive income was $1,745,016 and $5,768,787 for the three and nine months ended September 30, 2005, respectively. For the three and nine months ended September 30, 2004, comprehensive income was $1,273,328 and $4,023,771, respectively. The Company's only component of other comprehensive income is the foreign currency translation adjustment.

Note 6-- Stock-Based Compensation

The Company accounts for its stock-based compensation plans under the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. No stock-based employee compensation cost is reflected in net income, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation, to stock-based employee compensation.

	Three months ended September 30				Nine months ended September 30
	2005		2004		2005		2004
Net income available to common
shareholders, as reported	$	1,668,436	$	1,264,132	$	5,710,599	$	4,094,354
Deduct: Total stock-based employee compensation
expense determined under fair value based method
for all awards, net of related tax effects		47,316		5,062		1,537,911		51,390
Pro forma net income available to
common shareholders	$	1,621,120	$	1,259,070	$	4,172,688	$	4,042,964
Earnings per share:
Basic--as reported	$	0.11	$	0.08	$	0.36	$	0.26
Basic--pro forma	$	0.10	$	0.08	$	0.26	$	0.26
Diluted--as reported	$	0.10	$	0.07	$	0.35	$	0.24
Diluted--pro forma	$	0.10	$	0.07	$	0.25	$	0.24

The Company issued 716,321 shares for the nine months ended September 30, 2005, for stock option and warrant exercises. For the nine months ended September 30, 2004, 1,179,915 shares were issued for such exercises.

Reliv' International, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

September 30, 2005

Note 7-- Related Party Tranactions

On March 14, 2005, the Company entered into an employment agreement and a stock redemption agreement with an officer/director. The employment agreement has a term of three years and includes a non-compete clause which extends for six years. Under the stock redemption agreement, the Company will purchase 450,000 shares of the common stock of the Company at a price of $9.00 per share. Payment of the purchase price for the shares will be made in installments over a period not to exceed four years at an interest rate of 4%. The first principal payment of $900,000 was made on March 31, 2005, and future principal payments of $900,000 are due on March 31, 2006, and 2007, and principal payments of $675,000 are due on March 31, 2008 and 2009.

On March 22, 2005, the Company purchased 39,193 shares of the Company's common stock from a former officer of the Company at a price of $9.00 per share.

In May 2005, the Company purchased an aggregate of 535,008 shares of the Company's common stock from three officer/directors at a price of $9.50 per share.

The retirement of the shares purchased in these various transactions reduced stockholders' equity by $9,485,000 as of September 30, 2005.