Reliv' International (RELV) 10-Q 2008 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2008
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________to_________

Commission File Number

1-11768

RELIV’ INTERNATIONAL, INC.

(Exact name of Registrant as specified in its charter)

Delaware	371172197
(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)

Indicate by check mark whether the Registrant: (1) 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 (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes þ     No o

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o     Accelerated filer þ     Non-accelerated filer o

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o     No þ

The number of shares outstanding of the Registrant’s common stock as of August 6, 2008 was 14,523,097 (excluding treasury shares).

INDEX

Part I – Financial Information
Item No. 1	Financial Statements	1
Item No. 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	8
Item No. 3	Quantitative and Qualitative Disclosures Regarding Market Risk	14
Item No. 4	Controls and Procedures	15
Part II – Other Information
Item No. 1A	Risk Factors	15
Item No. 2	Unregistered Sales of Equity Securities and Use of Proceeds	15
Item No. 4	Submission of Matters to a Vote of Security Holders	16
Item No. 6	Exhibits	17

PART I — FINANCIAL INFORMATION

Item No. 1 - Financial Statements

Reliv International, Inc. and Subsidiaries

Consolidated Balance Sheets

	June 30		December 31
	2008		2007
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	10,352,319	$	11,694,699
Short-term investments		1,521,111		398,592
Accounts and notes receivable, less allowances of $8,600 in 2008 and $8,300 in 2007		443,045		811,634
Accounts due from employees and distributors		238,842		204,705
Inventories
Finished goods		3,515,945		3,290,114
Raw materials		2,296,110		1,630,976
Sales aids and promotional materials		1,075,446		1,258,148
Total inventories		6,887,501		6,179,238
Refundable income taxes		256,825		362,330
Prepaid expenses and other current assets		1,371,602		862,172
Deferred income taxes		531,430		574,430
Total current assets		21,602,675		21,087,800
Other assets		3,032,874		2,999,903
Accounts due from employees and distributors		231,544		319,883
Property, plant and equipment:
Land		829,222		829,222
Building		9,808,973		9,817,692
Machinery & equipment		3,332,135		3,673,515
Office equipment		1,531,099		1,525,905
Computer equipment & software	��	2,737,763		2,665,610
		18,239,192		18,511,944
Less: Accumulated depreciation		9,110,792		9,312,759
Net property, plant and equipment		9,128,400		9,199,185
Total assets	$	33,995,493	$	33,606,771

See notes to financial statements.

1

Reliv International, Inc. and Subsidiaries

Consolidated Balance Sheets

	June 30			December 31
	2008			2007
	(unaudited)
Liabilities and stockholders' equity
Current liabilities:
Accounts payable and accrued expenses:
Trade accounts payable and other accrued expenses	$	4,898,012		$	4,288,481
Distributors commissions payable		3,079,599			3,285,270
Sales taxes payable		327,118			390,585
Payroll and payroll taxes payable		510,704			499,921
Total accounts payable and accrued expenses		8,815,433			8,464,257
Income taxes payable		10,000			110,000
Total current liabilities		8,825,433			8,574,257
Other noncurrent liabilities		1,156,335			1,227,313
Stockholders' equity:
Preferred stock, par value $.001 per share; 3,000,000 shares authorized; -0- shares issued and outstanding in 2008 and 2007		-			-
Common stock, par value $.001 per share; 30,000,000 authorized; 15,877,179 shares issued and 15,662,052 shares outstanding as of 6/30/2008; 15,877,179 shares issued and 15,873,754 shares outstanding as of 12/31/2007		15,877			15,877
Additional paid-in capital		33,221,932			33,100,351
Accumulated deficit		(7,567,534	)		(8,869,332	)
Accumulated other comprehensive loss:
Foreign currency translation adjustment		(407,990	)		(419,179	)
Treasury stock		(1,248,560	)		(22,516	)
Total stockholders' equity		24,013,725			23,805,201
Total liabilities and stockholders' equity	$	33,995,493		$	33,606,771

See notes to financial statements.

2

Reliv International, Inc. and Subsidiaries

Consolidated Statements of Income

(unaudited)

	Three months ended June 30						Six months ended June 30
	2008			2007			2008			2007
Product sales	$	21,295,574		$	23,550,919		$	46,492,752		$	54,948,885
Handling & freight income		2,664,136			2,773,618			5,738,344			6,339,296
Net sales		23,959,710			26,324,537			52,231,096			61,288,181
Costs and expenses:
Cost of products sold		4,110,910			4,398,940			8,945,436			10,460,332
Distributor royalties and commissions		9,422,481			10,602,827			20,544,853			24,531,390
Selling, general and administrative		9,589,478			10,199,831			19,521,277			21,229,680
Total costs and expenses		23,122,869			25,201,598			49,011,566			56,221,402
Income from operations		836,841			1,122,939			3,219,530			5,066,779
Other income (expense):
Interest income		100,691			163,514			235,564			376,116
Interest expense		(9,981	)		(447	)		(10,394	)		(573	)
Other income (expense)		17,523			98,305			(17,589	)		195,238
Income before income taxes		945,074			1,384,311			3,427,111			5,637,560
Provision for income taxes		376,000			561,000			1,332,000			2,194,000
Net income	$	569,074		$	823,311		$	2,095,111		$	3,443,560
Earnings per common share - Basic	$	0.04		$	0.05		$	0.13		$	0.21
Weighted average shares		15,821,000			16,135,000			15,847,000			16,282,000
Earnings per common share - Diluted	$	0.04		$	0.05		$	0.13		$	0.21
Weighted average shares		15,821,000			16,308,000			15,847,000			16,453,000
Cash dividends declared per common share	$	0.05		$	0.05		$	0.05		$	0.05

See notes to financial statements.

3

Reliv International, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(unaudited)

	Six months ended June 30
	2008			2007
Operating activities:
Net income	$	2,095,111		$	3,443,560
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		543,958			525,069
Stock-based compensation		119,309			40,013
Deferred income taxes		(29,000	)		110,000
Foreign currency transaction (gain)/loss		(24,200	)		(126,570	)
(Increase) decrease in accounts and notes receivable		433,486			(246,060	)
(Increase) decrease in inventories		(665,730	)		(904,016	)
(Increase) decrease in refundable income taxes		106,931			(946,952	)
(Increase) decrease in prepaid expenses and other current assets		(512,058	)		(200,604	)
(Increase) decrease in other assets		20,830			(382,155	)
Increase (decrease) in accounts payable and accrued expenses		249,481			1,543,712
Increase (decrease) in income taxes payable		(100,000	)		-
Net cash provided by operating activities		2,238,118			2,855,997
Investing activities:
Proceeds from the sale of property, plant and equipment		8,716			4,532
Purchase of property, plant and equipment		(457,074	)		(620,689	)
Purchase of investments		(1,521,111	)		(1,398,592	)
Proceeds from sales or maturities of investments, at cost		398,592			2,328,000
Net cash provided by (used in) investing activities		(1,570,877	)		313,251
Financing activities:
Common stock dividends paid		(793,313	)		(806,763	)
Proceeds from options and warrants exercised		-			49,626
Purchase of stock for treasury		(1,226,044	)		(6,432,527	)
Other		2,272			-
Net cash used in financing activities		(2,017,085	)		(7,189,664	)
Effect of exchange rate changes on cash and cash equivalents		7,464			170,305
Increase (decrease) in cash and cash equivalents		(1,342,380	)		(3,850,111	)
Cash and cash equivalents at beginning of period		11,694,699			9,332,810
Cash and cash equivalents at end of period	$	10,352,319		$	5,482,699

See notes to financial statements.

4

Reliv International, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

June 30, 2008

Note 1— Accounting Policies

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, 2007, filed March 14, 2008 with the Securities and Exchange Commission. The accounting policies used in preparing these financial statements are the same as those applied in the prior year, except that the Company adopted a new financial accounting standard at the beginning of its 2008 fiscal year concerning fair value measurements which is discussed in Note 4. This new standard was adopted prospectively and comparative periods were not restated.

Note 2— Comprehensive Income

Total comprehensive income was $546,263 and $2,106,300 for the three and six months ended June 30, 2008, respectively. For the three and six months ended June 30, 2007, comprehensive income was $894,016 and $3,520,302, respectively. The Company's only component of other comprehensive income is the foreign currency translation adjustment.

Note 3— Basic and Diluted Earnings per Share

Basic earnings per common share are computed using the weighted average number of common shares outstanding during the period. Diluted earnings per share are computed using the weighted average number of common shares and potential dilutive common shares that were outstanding during the period. Potential dilutive common shares consist of outstanding stock options, outstanding stock warrants, and convertible preferred stock.

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

	Three months ended June 30				Six months ended June 30
	2008		2007		2008		2007
Numerator:
Net income	$	569,074	$	823,311	$	2,095,111	$	3,443,560
Denominator:
Denominator for basic earnings per share—weighted average shares		15,821,000		16,135,000		15,847,000		16,282,000
Dilutive effect of employee stock options and other warrants		-		173,000		-		171,000
Denominator for diluted earnings per share—adjusted weighted average shares		15,821,000		16,308,000		15,847,000		16,453,000
Basic earnings per share	$	0.04	$	0.05	$	0.13	$	0.21
Diluted earnings per share	$	0.04	$	0.05	$	0.13	$	0.21

Options and warrants to purchase 805,224 shares of common stock for the three months and six months ended June 30, 2008, respectively, were not included in the denominator for diluted earnings per share because their effect would be antidilutive. Warrants to purchase 25,303 of common stock for the three months and six months ended June 30, 2007, respectively, were not included in the denominator for diluted earnings per share because their effect would be antidilutive.

5

Reliv International, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

June 30, 2008

Note 4— Adoption of New Accounting Standards — Fair Value

Effective January 1, 2008, the Company adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 157, “Fair Value Measurements,” which defines fair value, establishes a framework for fair value and expands disclosures about fair value measurements required under other accounting pronouncements. SFAS No. 157 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. SFAS No. 157 also requires that a fair value measurement reflect the assumptions market participants would use in pricing an asset or liability based on the best information available. Assumptions include the risks inherent in a particular valuation technique (such as a pricing model) and/or the risks inherent in the inputs to the model. In February 2008, the Financial Accounting Standards Board ("FASB") issued Staff Position No. 157-2 that delays the effective date of SFAS No. 157 for non-financial assets and non-financial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually).

The adoption of SFAS No. 157 did not have a significant impact on the Company’s financial statements. Assets or liabilities measured at fair value are shown below as of June 30, 2008:

			Using Quoted		Using Significant
	Total		Prices in		Other Observable
	Carrying		Active Markets		Inputs
Description	Value		(Level 1)		(Level 2)
Certificates of deposits (1)	$	4,507,183	$	4,507,183	$	-
Marketable securities (2)		924,658		924,658		-
Derivatives (3)		13,622		-		13,622
	$	5,445,463	$	5,431,841	$	13,622

(1) Representing certificates of deposits recorded in cash, cash equivalents, and short term investments.

(2) Representing assets of the Company's Supplemental Executive Retirement Plan (trading securities). Presented within Other Assets in the consolidated balance sheets.

(3) Representing recorded asset of forward currency contracts and is presented within Prepaid Expenses and Other Current Assets in the consolidated balance sheets. The fair values of derivatives are determined either through quoted market prices in active markets for exchange traded derivatives or through pricing from brokers who develop values based on inputs observable in active markets such as interest rates and currency volatilities.

The carrying value of other financial instruments, including cash, accounts receivable and accounts payable, and accrued liabilities approximate fair value due to their short maturities or variable-rate nature of the respective balances.

In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities, Including an Amendment of FASB Statement No. 115.” SFAS No. 159 allows an entity the irrevocable option to elect fair value for the initial and subsequent measurement of certain financial assets and liabilities under an instrument-by-instrument election. Under SFAS No. 159, subsequent measurements for the financial assets and liabilities an entity elects to measure at fair value will be recognized in its results of operations. SFAS No. 159 also establishes additional disclosure requirements. The Company adopted SFAS No. 159 on January 1, 2008 and did not elect to measure any additional assets or liabilities at fair value.

Note 5— Recent Accounting Standards Pending Adoption

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities." SFAS No. 161 requires companies with derivative instruments to disclose information that should enable financial statement users to understand how and why a company uses derivative instruments, how derivative instruments and related hedged items are accounted for under SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities”, and how derivative instruments and related hedged items affect a company’s financial position, financial performance, and cash flows. SFAS No. 161 is effective for financial statements issued for fiscal years beginning after November 15, 2008. The Company is currently evaluating the impact of SFAS No. 161 and has not yet determined the impact on its financial statements.

6

Reliv International, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

June 30, 2008

Note 6— Restructuring of European Operations

In June 2008, the Company began closing the operations of its Reliv Germany subsidiary. Under this restructuring plan, the Company will now manage its sales, marketing, and overall general management for its entire European operations from its existing Reliv United Kingdom office. While this plan results in the closing of the Reliv Germany office, the Company's Germany distribution center will remain open to support that region's customers. In the second quarter of 2008, the Company has incurred a charge of $215,000 ($110,000 on an after-tax basis, or approximately one-half cent per diluted share) for employee severance and lease exit costs. The Company expects that a significant portion of these accrued liabilities will be paid out by the end of 2008.

The following is a summary of the costs incurred and payments made by category. (These costs have been recorded in Selling, General and Administrative within the Consolidated Statements of Income).

	Employee		Lease
	Severance		Exit		Total
Original charges and reserve balance	$	107,000	$	108,000	$	215,000
Amounts settled in second quarter 2008		22,000		-		22,000
Reserve balance at June 30, 2008	$	85,000	$	108,000	$	193,000

Note 7— Subsequent Event

On July 24, 2008, the Company entered into an agreement with two significant shareholders to purchase 1,000,000 shares of the Company's common stock for $6 million. To finance the purchase, the Company utilized cash on hand and borrowed $4 million under its existing line of credit. Prior to this transaction, the Company's line of credit balance was zero.

7

FORWARD-LOOKING STATEMENTS

This quarterly report includes both historical and “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. We have based these forward-looking statements on our current expectations and projections about future results. Words such as “may,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “continue,” or similar words are intended to identify forward-looking statements, although not all forward-looking statements contain these words. Although we believe that our opinions and expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements, and our actual results may differ substantially from the views and expectations set forth in this quarterly report on Form 10-Q. We disclaim any intent or obligation to update any forward-looking statements after the date of this quarterly report to conform such statements to actual results or to changes in our opinions or expectations. These forward-looking statements are affected by risks, uncertainties and assumptions that we make, including, among other things, the factors that are described in “Item No. 1A - Risk Factors” in our 2007 Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 14, 2008, as the same may be updated or amended in our quarterly reports on Form 10-Q.

Item No. 2 - Management’s Discussion and Analysis of FinancialCondition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q. The following discussion and analysis discusses the financial condition and results of our operations on a consolidated basis, unless otherwise indicated.

Overview

We are a developer, manufacturer and marketer of a proprietary line of nutritional supplements addressing basic nutrition, specific wellness needs, weight management and sports nutrition. We also offer a line of skin care products. We sell our products through an international network marketing system using independent distributors. Sales in the United States represented approximately 86.4% of worldwide net sales for the six months ended June 30, 2008 and 90.1% of worldwide net sales for the six months ended June 30, 2007. Our international operations currently generate sales through distributor networks in Australia, Canada, Germany, Ireland, Malaysia, Mexico, New Zealand, the Philippines, Singapore and the United Kingdom. We also operate on a limited basis in Austria and the Netherlands from our United Kingdom office.

We derive our revenues principally through product sales made by our global independent distributor base, which, as of June 30, 2008, consisted of approximately 69,450 distributors. Our sales can be affected by several factors, including our ability to attract new distributors and retain our existing distributor base, our ability to properly train and motivate our distributor base and our ability to develop new products and successfully maintain our current product line.

All of our sales to distributors outside the United States are made in the respective local currency; therefore, our earnings and cash flows are subject to fluctuations due to changes in foreign currency rates as compared to the U.S. dollar. As a result, exchange rate fluctuations may have an effect on sales and gross margins. Accounting practices require that our results from operations be converted to U.S. dollars for reporting purposes. Consequently, our reported earnings 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 us for sale to our foreign subsidiaries are transacted in U.S. dollars. From time to time, we enter into foreign exchange forward contracts to mitigate our foreign currency exchange risk.

Components of Net Sales and Expense

Net sales are comprised of two components. Product sales represent the actual product purchase price typically paid by our distributors, after giving effect to distributor allowances, which range from 20% to 40% of suggested retail prices. Handling and freight income represents the amounts billed to distributors for shipping costs. We record net sales and the related commission expense when the merchandise is shipped.

8

Our primary expenses include cost of products sold, distributor royalties and commissions and selling, general and administrative expenses.

Cost of products sold primarily consists of expenses related to raw materials, labor, quality control and overhead directly associated with production of our products and sales materials, as well as shipping costs relating to the shipment of products to distributors, and duties and taxes associated with product exports. Cost of products sold is impacted by the cost of the ingredients used in our products and the cost of shipping the distributors’ orders, along with our efficiency in managing the production of our products.

Distributor royalties and commissions are monthly payments made to Master Affiliates and above, based on products sold by Master Affiliates and above sponsored by such Master Affiliates or higher-level distributors. “Master Affiliates and above” are active distributors that have attained the highest level of discount on purchases of our products and are eligible for royalties from sales volume generated by Master Affiliates and above that they sponsor. Based on our distributor agreements, these expenses typically approximate 23% of sales at suggested retail. Also, we include other sales leadership bonuses, such as Ambassador bonuses, in this line item. We generally expect total distributor royalties and commissions to approximate 40% of our net sales. Distributor royalties and commissions are directly related to the level of our sales and, absent any changes in our distributor compensation plan, should continue at comparable levels as a percentage of net sales as in recent periods.

Selling, general and administrative expenses include the compensation and benefits paid to our employees, all other selling expenses, marketing, promotional expenses, travel and other corporate administrative expenses. These other corporate administrative expenses include professional fees, depreciation and amortization, occupancy costs, communication costs and other similar operating expenses. Selling, general and administrative expenses can be affected by a number of factors, including staffing levels and the cost of providing competitive salaries and benefits; the amount we decide to invest in distributor training and motivational initiatives; the cost of regulatory compliance, such as the costs incurred to comply with the various provisions of the Sarbanes-Oxley Act of 2002; and other administrative costs.

Results of Operations

The following table sets forth selected results of our operations expressed as a percentage of net sales for the three- and six-month periods ended June 30, 2008 and 2007. Our results of operations for the periods described below are not necessarily indicative of results of operations for future periods.

	Three months ended June 30,						Six months ended June 30,
	2008			2007			2008			2007
Net sales		100.0	%		100.0	%		100.0	%		100.0	%
Costs and expenses:
Cost of products sold		17.2			16.7			17.1			17.1
Distributor royalties and commissions		39.3			40.3			39.3			40.0
Selling, general and administrative		40.0			38.8			37.4			34.6
Income from operations		3.5			4.2			6.2			8.3
Interest expense		(0.0	)		(0.0	)		(0.0	)		(0.0	)
Interest and other income		0.5			1.0			0.4			0.9
Income before income taxes		4.0			5.2			6.6			9.2
Provision for income taxes		1.6			2.1			2.6			3.6
Net income		2.4	%		3.1	%		4.0	%		5.6	%

9

Net Sales. Overall net sales decreased by 9.0% in the three months ended June 30, 2008 compared to the same period in 2007. During the second quarter of 2008, sales in the United States decreased by 12.3%, whereas our international sales increased by 16.6% over the prior year period.

The following table summarizes net sales by geographic market ranked by the date we began operations in each market for the three months ended June 30, 2008 and 2007.

	Three months ended June 30,
	2008					2007					Change from prior year
	Amount		% of Net Sales			Amount		% of Net Sales			Amount			%
	(dollars in thousands)
United States	$	20,435		85.3	%	$	23,303		88.5	%	$	(2,868	)		(12.3	)%
Australia/New Zealand		682		2.8			722		2.7			(40	)		(5.5	)
Canada		436		1.8			378		1.4			58			15.3
Mexico		481		2.0			393		1.5			88			22.4
United Kingdom/Ireland		270		1.1			252		1.0			18			7.1
Philippines		695		2.9			671		2.6			24			3.6
Malaysia/Singapore		850		3.6			424		1.6			426			100.5
Germany		111		0.5			182		0.7			(71	)		(39.0	)
Consolidated total	$	23,960		100.0	%	$	26,325		100.0	%	$	(2,365	)		(9.0	)%

The following table summarizes net sales by geographic market ranked by the date we began operations in each market for the six months ended June 30, 2008 and 2007.

	Six months ended June 30,
	2008					2007					Change from prior year
	Amount		% of Net Sales			Amount		% of Net Sales			Amount			%
	(dollars in thousands)
United States	$	45,120		86.4	%	$	55,206		90.1	%	$	(10,086	)		(18.3	)%
Australia/New Zealand		1,428		2.7			1,375		2.3			53			3.9
Canada		897		1.7			818		1.3			79			9.7
Mexico		880		1.7			804		1.3			76			9.5
United Kingdom/Ireland		557		1.1			539		0.9			18			3.3
Philippines		1,509		2.9			1,299		2.1			210			16.2
Malaysia/Singapore		1,492		2.8			754		1.2			738			97.9
Germany		348		0.7			493		0.8			(145	)		(29.4	)
Consolidated total	$	52,231		100.0	%	$	61,288		100.0	%	$	(9,057	)		(14.8	)%

The following table sets forth, as of June 30, 2008 and 2007, the number of our active distributors and Master Affiliates and above. The total number of active distributors includes Master Affiliates and above. We define an active distributor as one that enrolls as a distributor or renews his or her distributorship during the prior twelve months. Master Affiliates and above are distributors that have attained the highest level of discount and are eligible for royalties generated by Master Affiliates and above in their downline organization. Growth in the number of active distributors and Master Affiliates and above is a key factor in continuing the growth of our business.

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	June 30, 2008				June 30, 2007				% Change
	Active  Distributors		Master  Affiliates and  Above		Active  Distributors		Master  Affiliates and  Above		Active  Distributors			Master  Affiliates and  Above
United States		55,070		10,080		56,930		13,200		(3.3	)%		(23.6	)%
Australia/New Zealand		2,420		220		2,510		280		(3.6	)		(21.4	)
Canada		1,230		150		1,130		150		8.8			0.0
Mexico		1,540		220		1,300		190		18.5			15.8
United Kingdom/Ireland		750		90		830		130		(9.6	)		(30.8	)
Philippines		4,900		430		3,990		300		22.8			43.3
Malaysia/Singapore		3,040		490		2,260		290		34.5			69.0
Germany		500		80		520		150		(3.8	)		(46.7	)
Consolidated total		69,450		11,760		69,470		14,690		0.0	%		(19.9	)%

In the United States, net sales were down 12.3% in the second quarter of 2008 compared to the same period in 2007. As in the first quarter of 2008, much of the decrease in U.S. sales was due to the decline in the sales of Slimplicity®, the weight control product line we introduced in this market in February 2007. Approximately 55% of the quarter’s overall reduction in U.S. sales was the result of the decline in the sales of the Slimplicity product line. Also contributing to the decline was that fewer distributors qualified for the level of Master Affiliate during the second quarter of 2008, compared to the same period in 2007. In the second quarter of 2008, approximately 1,090 qualified as new Master Affiliates, compared to approximately 1,230 in the prior year quarter, a decline of 11%. Over the past year, we have emphasized the importance of bringing in new distributors at all levels, not just directly into the Master Affiliate level. We intend to continue our distributor growth strategy of bringing in new distributors at all levels. However, we will continue to focus on efforts to teach our newest distributors to build their business to the Master Affiliate level through training and other programs.

In the second quarter of 2008, we processed approximately 70,275 orders for products at an average order of $372 at suggested retail. In the same period of 2007, we processed approximately 84,260 product orders at an average order of $360 at suggested retail. The average order size for all of 2007 was $386 at suggested retail. In the second quarter of 2008, new distributor enrollments in the United States were approximately 4,678 compared to 5,348 in the prior year quarter, a decrease of 12.5%. Distributor retention was 64.3% for the first six months of 2008 compared to a rate of 65.2% for all of 2007. The net number of active Distributors in the United States as of June 30, 2008 decreased by 3.3% to 55,070, compared to the number of active Distributors as of June 30, 2007. Also, the net number of Master Affiliates and above as of June 30, 2008 decreased by 23.6%, as compared to the net number of Master Affiliates and above as of June 30, 2007. This is consistent with reduced number of distributors qualifying for the level of Master Affiliate, as discussed above.

During the three months ended June 30, 2008, net sales in our international operations improved in aggregate by 16.6% to $3.52 million compared to $3.02 million for the three months ended June 30, 2007. Sales results were strong in our Malaysia/Singapore, Mexico, and Canada markets, with sales increases in the second quarter of 2008 of 100.5%, 22.4% and 15.3%, respectively, compared to the same period in 2007. For the six-month period ended June 30, 2008, international net sales increased by 16.9% to $7.11 million compared to $6.08 million in the same period in 2007. Foreign currency fluctuation had an impact on the foreign sales results, as the U.S. dollar weakened against all of the other currencies of the countries we conduct business in, when compared to the rates over the first six months of 2007. When net sales are converted using the 2007 exchange rate for both 2007 and 2008, international net sales improved 6.5% for the first six months of 2008 compared to the first six months of the prior year.

Net sales in Malaysia/Singapore increased by 100.5% in the second quarter of 2008 compared to the same period of 2007. Positive distributor growth continues to take place in this region as new distributor enrollments were approximately 870 in the second quarter of 2008, compared to 330 in the prior year quarter. The active distributor and Master Affiliate totals as of June 30, 2008 were up 34.5% and 69.0%, respectively, when compared to June 30, 2007. As a result of these improved sales results, our loss from operations in the Asia region, which includes the Philippines, has been reduced from a loss of $481,000 for the six months ended June 30, 2007 to a loss of $33,000 for the six months ended June 30, 2008.

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Net sales in Mexico increased by 22.4% in the second quarter of 2008 compared to the second quarter of 2007. Here again, improved distributor growth is leading to improved sales. New distributor enrollments were approximately 330 in the second quarter of 2008, compared to 260 in the year-ago quarter. The active distributor and Master Affiliate totals as of June 30, 2008 were up 18.5% and 15.8%, respectively, when compared to June 30, 2007.

Net sales in Canada increased by 15.3% in the second quarter of 2008 compared to the same period in 2007; however, this increase in sales was entirely the result of the decline of the U.S. dollar versus the Canadian dollars. When net sales are converted using the 2007 exchange rate for both 2007 and 2008, sales in this region decreased by 2.6%.

During the second quarter of 2008, we decided to restructure our European operations and centralize all European call center and administrative functions to our office in the United Kingdom. Our corporate office in Germany will be closed; however, our distribution facility there will continue to ship product orders for the European continent. Orders for the United Kingdom and Ireland will continue to be shipped from our U.K. office. As a result of this restructuring, we have taken a one-time charge of $110,000 after taxes in our second quarter results. This charge relates to severance payments and accrued lease termination costs.

Cost of Products Sold. Cost of products sold as a percentage of net sales was 17.2% and 17.1% for the three- and six-month periods ended June 30, 2008, respectively, compared to 16.7% and 17.1% for the same periods in 2007. Gross margins were impacted in the second quarter of 2008 compared to the same period of 2007 by raw material price increases and higher freight costs. On a six-month basis, these same factors impacted gross margins in 2008. In the first six months of 2007, gross margins were impacted by the sales mix with the 2007 introduction of the Slimplicity product line, as this product line carries a slightly lower gross margin than the rest of our product line.

As a result of the increasing raw material costs, we increased the suggested retail sales price of a number of our products in the United States, effective August 1, 2008. On the products affected, which include our key products of NOW, Classic, Fibrestore, the price increase ranges from 6% to 12%.

Distributor Royalties and Commissions. Distributor royalties and commissions as a percentage of net sales were 39.3% and 39.3% for the three- and six-month periods ended June 30, 2008, respectively, compared to 40.3% and 40.0% for the same periods in 2007. Due to the structure of our distributor compensation plan, we do not expect to experience significant fluctuations in distributor royalties and commissions as a percentage of net product sales. However, the slight decrease as a percentage of net sales is the result of changes made to our handling and freight income rates as of January 1, 2008.

Selling, General and Administrative Expenses. For the three and six months ended June 30, 2008, selling, general and administrative, or SGA, expenses decreased by $610,000 and $1.71 million, respectively, compared to the same periods in 2007. However, SGA expenses as a percentage of net sales were 40.0% and 37.4% for the three- and six-month periods ended June 30, 2008, respectively, compared to 38.8% and 34.6% for the same periods of 2007.

Sales and marketing expenses decreased by approximately $1.3 million in the first six months of 2008, compared to the prior year period. The sales and marketing expenses in 2007 included charges for distributor bonus programs and incentive trips that are not being repeated in 2008. Decreases in other distributor bonuses and expenses directly related to the level of sales also contributed to the decline.

Distribution and warehouse expenses decreased by $104,000 in the areas of wages, contract labor expenses, and shipping supply expenses. General and administrative expenses decreased by approximately $264,000, primarily in professional/consulting fees, and corporate travel expenses. General and administrative expenses also included a pre-tax charge of $215,000 for the German office restructuring.

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Interest Income/Expense. Interest income decreased to $236,000 for the six months ended June 30, 2008, compared to $376,000 for the same period in 2007. The decrease is the result of lower interest rates and a lower level of invested funds.

Income Taxes. We recorded income tax expense of $1.3 million for the first six months of 2008, an effective rate of 38.9%. In the same period in 2007, we recorded income tax expense of $2.2 million, which also represented an effective rate of 38.9%.

Net Income. Our net income for the three and six months ended June 30, 2008 was $569,000 ($0.04 per share basic and diluted) and $2.1 million ($0.13 per share basic and diluted), respectively, compared to $823,000 ($0.05 per share basic and diluted) and $3.4 million ($0.21 per share basic and diluted) for the same periods in 2007. Profitability decreased in the second quarter of 2008 as net sales decreased in the United States, coupled with the restructuring charge for the German office closing.

Financial Condition, Liquidity and Capital Resources

During the first six months of 2008, we generated $2.2 million of net cash from operating activities, used $1.6 million in investing activities, and used $2.0 million in financing activities. This compares to $2.8 million of net cash provided by operating activities, $313,000 provided by investing activities, and $7.2 million used in financing activities in the same period of 2007. Cash and cash equivalents decreased by $1.3 million to $10.4 million as of June 30, 2008 compared to December 31, 2007.

Significant changes in working capital items consisted of a decrease in accounts and notes receivable of $433,000, an increase in inventories of $666,000, an increase in prepaid expenses/other current assets of $512,000, and an increase in accounts payable and accrued expenses of $249,000 in the first six months of 2008. Accounts and notes receivable decreased primarily due to the receipt of a refund due from the promotional trip management company we utilized and payment received on a receivable from a vendor. The increase in inventory is a result of lower than expected sales levels, compared to scheduled production. The increase in prepaid expenses/other current assets represent the annual premium payments made in the second quarter on most of the corporate insurance policies. The increase in accounts payable and accrued expenses is due to an increase in trade payables, partially offset by a decrease in distributor commissions payable.

Investing activities during the first six months of 2008 consisted of $457,000 for capital expenditures, along with net purchases of $1.1 million in short-term investments.

Financing activities in the first six months of 2008 included $1.2 million in treasury stock purchases, and common stock dividends paid of $793,000.

Stockholders’ equity increased to $24.0 million at June 30, 2008 compared with $23.8 million at December 31, 2007. The increase is due to our net income during the first six months of 2008 of $2.1 million, offset by the treasury stock purchases of $1.2 million and common stock dividends paid. Our working capital balance was $12.8 million at June 30, 2008 compared to $12.5 million at December 31, 2007. The current ratio at June 30, 2008 was 2.4 compared to 2.5 at December 31, 2007.

We also have a $5 million secured revolving credit facility with our primary lender that we entered into in June 2006. This facility was renewed by the bank in March 2008 with an expiration of September 2008. Advances accrue interest at a variable interest rate based on LIBOR, and the credit facility is secured by all of our assets. The facility includes covenants to maintain total stockholders’ equity of not less than $10.5 million, and that the ratio of borrowings to earnings before interest, taxes, depreciation and amortization, or EBITDA, under the facility shall not exceed 3.5 to 1.0. At June 30, 2008, we had not utilized any of the revolving line of credit facility and were in compliance with the minimum stockholders’ equity covenant. In late July 2008, we drew $4 million on this facility as part of stock purchase agreements described in Note 7 to the unaudited Consolidated Financial Statements.

Management believes that our internally generated funds and the borrowing capacity under the revolving line of credit facility will be sufficient to meet working capital requirements for the remainder of 2008.

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Critical Accounting Policies

A summary of our critical accounting policies and estimates is presented on pages 38-41 of our 2007 Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 14, 2008.

Recent Accounting Pronouncements

Effective January 1, 2008, we adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 157, “Fair Value Measurements,” which defines fair value, establishes a framework for fair value and expands disclosures about fair value measurements required under other accounting pronouncements. SFAS No. 157 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. SFAS No. 157 also requires that a fair value measurement reflect the assumptions market participants would use in pricing an asset or liability based on the best information available. Assumptions include the risks inherent in a particular valuation technique (such as a pricing model) and/or the risks inherent in the inputs to the model. In February 2008, the Financial Accounting Standards Board ("FASB") issued Staff Position No. 157-2 that delays the effective date of SFAS No. 157 for non-financial assets and non-financial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). The adoption of SFAS No. 157 did not have a significant impact on our financial statements.

In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities, Including an Amendment of FASB Statement No. 115.” SFAS No. 159 allows an entity the irrevocable option to elect fair value for the initial and subsequent measurement of certain financial assets and liabilities under an instrument-by-instrument election. Under SFAS No. 159, subsequent measurements for the financial assets and liabilities an entity elects to measure at fair value will be recognized in its results of operations. SFAS No. 159 also establishes additional disclosure requirements. We adopted SFAS No. 159 on January 1, 2008 and did not elect to measure any additional assets or liabilities at fair value.

Item No. 3 - Quantitative and Qualitative Disclosures Regarding Market Risk

We are exposed to various market risks, primarily foreign currency risks and interest rate risks.

Foreign Currency Risk

Our earnings and cash flows are subject to fluctuations due to changes in foreign currency rates as we have several foreign subsidiaries and continue to explore expansion into other countries. As a result, exchange rate fluctuations may have an effect on sales and gross margins. Accounting practices require that our results from operations be converted to U.S. dollars for reporting purposes. Consequently, our reported earnings 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 us for sale to our foreign subsidiaries are transacted in U.S. dollars.

From time to time, we enter 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. We have 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. As of June 30, 2008, we were holding Canadian forward exchange contracts with notional values totaling $307,000 with maturities through December 31, 2008, and a related mark-to-market gain of $14,000. As of June 30, 2008, we had no hedging instruments in place to offset exposure to any foreign currencies for any of the other countries in which we do business.

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There have been no other material changes in market risk exposures during the first six months of 2008 that affect the disclosures presented in Item 7A –“Quantitative and Qualitative Disclosures Regarding Market Risk” on pages 41 and 42 of our 2007 Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 14, 2008.

Item No. 4 - Controls and Procedures

Our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, has reviewed and evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2008. Based on such review and evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that the disclosure controls and procedures were effective as of June 30, 2008, to ensure that the information required to be disclosed by us in the reports that we file or submit 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 our management, including the officers, as appropriate to allow timely decisions regarding required disclosure. There were no material changes in our internal control over financial reporting during the second quarter of 2008 that have materially affected or are reasonably likely to materially affect our internal controls over financial reporting.

PART II – OTHER INFORMATION

Item No. 1A – Risk Factors

Risk factors associated with our business activities have not changed materially from the disclosure in our 2007 Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 14, 2008, as updated by our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2008 filed with the Securities and Exchange Commission on May 9, 2008.

Item No. 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)
April 1-30, 2008		—		—		—	$	14,440,000
May 1-31, 2008		61,580	$	5.75		61,580	$	14,086,000
June 1-30, 2008		150,122	$	5.81		150,122	$	13,214,000
Total		211,702				211,702

(1) In May 2007, the Company’s Board of Directors approved a share repurchase plan of up to $15 million through April 2010.

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Item No. 4 – Submission of Matters to a Vote of Security Holders

At the Annual Meeting of Shareholders on May 22, 2008, the following actions were submitted and approved by a vote of the shareholders:

1. Election of nine directors; and

2. Ratification of the Board’s selection of Ernst & Young LLP as our independent certified public accountants.

A total of 12,653,446 shares (approximately 80% of our issued and outstanding shares) were represented by proxy or in person at the meeting. These shares were voted on the matters presented at the meeting as follows:

1.For the election of directors:

			Total Votes
Name	Total Votes For		Against or Withheld
Robert L. Montgomery		12,507,403		146,043
Carl W. Hastings		12,509,193		144,253
Donald L. McCain		12,508,699		144,747
Stephen M. Merrick		12,547,610		105,836
John B. Akin		12,541,905		111,541
Denis St. John		12,544,748		108,698
Robert M. Henry		12,545,148		108,398
Michael D. Smith		12,544,148		109,298
Patrick G. Doherty		12,544,548		108,898

2. Ratification of the Board of Directors selection of Ernst & Young LLP as our certified public accountants.

			Total Broker Non-Votes
Total Votes For	Total Votes Against		and Total Votes Abstain
12,593,359		45,611		14,475

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Item No. 6 – Exhibits

Exhibit
Number	Document
10.1	Rule 10b5-1 Stock Repurchase Plan dated June 12, 2008 between the Registrant and Canaccord Adams, Inc. (incorporated by reference to Exhibit 10.1 to the Form 8-K of the Registrant filed June 13, 2008).
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 (filed herewith).
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 (filed herewith).
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 (filed herewith).

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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.

RELIV’ INTERNATIONAL, INC.
By:	/s/ Robert L. Montgomery
	Robert L. Montgomery, Chairman of the Board of Directors, President and Chief Executive Officer
Date: August 8, 2008
By:	/s/ Steven D. Albright
	Steven D. Albright, Chief Financial Officer (and accounting officer)
Date: August 8, 2008

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Exhibit Index

Exhibit
Number	Document
10.1	Rule 10b5-1 Stock Repurchase Plan dated June 12, 2008 between the Registrant and Canaccord Adams, Inc. (incorporated by reference to Exhibit 10.1 to the Form 8-K of the Registrant filed June 13, 2008).
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 (filed herewith).
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 (filed herewith).
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 (filed herewith).