FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
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.
APPLICABLE ONLY TO CORPORATE ISSUERS:
COMMON STOCK 9,654,505 outstanding Shares as of March 31, 2001
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
The following consolidated financial statements of the Registrant are
attached to this Form 10-Q:
1. Interim Balance Sheet as of March 31, 2001 and Balance Sheet as of
December 31, 2000.
2. Interim Statements of Operations for the three month periods ending
March 31, 2001 and March 31, 2000.
3. Interim Statements of Cash Flows for the three month periods ending
March 31, 2001 and March 31, 2000.
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 Operation
1. Financial Condition
Current assets of the Company decreased during the first quarter of 2001,
to $8,216,000 from $9,424,000 as of December 31, 2000. Cash and cash equivalents
remained relatively level at $1,217,000 as of March 31, 2001, as compared to
$1,199,000 as of December 31, 2000. Accounts and notes receivable decreased by
$829,000 to $1,738,000 as of March 31, 2001, as compared to $2,567,000 as of
December 31, 2000. Inventory decreased by $362,000 to $4,168,000 as of March 31,
2001. The Company's accounts receivable and inventory decrease is primarily due
to the reduction in the sales and production for the Company's manufacturing and
packaging business. Finished goods inventory also declined for the network
marketing operations, as improved sales in the first quarter of 2001, compared
to the fourth quarter of 2000, helped reduce inventory levels.
The Company purchased $31,000 of property, plant and equipment during the
first quarter of 2001.
Current liabilities decreased by $1,005,000 from $9,291,000 as of December
31, 2000 to $8,286,000 as of March 31, 2001. The primary component of the
decrease was the reduction in balance due on the Company's line of credit. The
amount drawn on the line of credit reduced from $1,918,000 as of December 31,
2000 to $728,000 as of March 31, 2001. Trade accounts payable decreased by
$357,000 from $5,270,000 as of December 31, 2000 to $4,913,000 as of March 31,
2001. This decrease is related to the decrease in inventory, as discussed
previously. Distributor commissions payable increased from $1,200,000 as of
December 31, 2000 to
2
$1,717,000 as of March 31, 2001. This is the result of higher network marketing
sales in March 2001, as compared to December 2000.
Long-term debt and capital lease obligations decreased by $100,000 from
$5,046,000 as of December 31, 2000 to $4,946,000 as of March 31, 2001. The
Company incurred no additional long-term debt during the first quarter of 2001.
Stockholders' equity decreased from $5,646,000 as of December 31, 2000 to
$5,375,000 as of March 31, 2001, as the result of the net loss of the first
quarter of 2001, coupled with the declining value of the currencies of most of
the Company's key foreign subsidiaries. Equity declined by $127,000 as the
result of the foreign currency translation adjustment at March 31, 2001 as
compared to December 31, 2000. The Australian, New Zealand and Canadian dollars
all weakened against the US dollar over the course of the first quarter of 2001.
The Company's working capital balance has declined since December 31, 2000
to a working capital deficit of $70,000 as of March 31, 2001. The current ratio
has also declined to 0.99 as of March 31, 2001. The Company also has an
operating line of credit, with a limit based on a collateral-based formula of
accounts receivable and inventory. The maximum borrowing limit is $3,000,000. At
March 31, 2001, the Company had utilized $728,000 of the line of credit, with an
available balance of $887,000. Additionally, in March 2001, the Company obtained
a modification agreement related to the term loan that financed the construction
of the 1998 building expansion. The modification agreement effectively extended
the maturity of the loan to March 2004, from March 2001. Management believes
that the Company's internally generated funds together with the loan agreement
will be sufficient to meet working capital requirements in 2001.
2. Results of Operations
The Company had a net loss of $146,000, or $.02 per share basic and
diluted, for the quarter ended March 31, 2001, compared to net income of $86,000
on a restated basis, or $.01 per share basic and diluted, for the same period in
2000. Overall net sales declined due to the continued decrease in the
manufacturing and packaging business, but this was partially offset by an
increase in network marketing net sales and improved gross margins. However,
earnings were negatively impacted by an increase in selling, general and
administrative expenses primarily caused by higher sales and marketing expenses.
During 2000, the Emerging Issues Task Force ("EITF") issued EITF 00-10,
Accounting for Shipping and Handling Fees and Costs. Previously, the Company
recognized shipping and handling costs as a reduction to net sales. Effective
with the adoption of Staff Accounting Bulletin No. 101 on October 1, 2000, the
EITF requires shipping and handling costs to be included in cost of sales. The
effect of adopting EITF 00-10 increased net sales and cost of products sold from
previously reported amounts by $360,000 for the first quarter of 2000.
Percentages shown below in the discussion on specific line items of the
statement of operations have been recalculated for prior years based on the
reclassification.
3
Net sales decreased to $14,062,000 in the first quarter of 2001 as compared
to $15,448,000 in the prior year. The decrease was primarily due to the decrease
in sales by the Company's manufacturing and packaging services segment. Sales in
this portion of the business decreased to $1,894,000 in the first quarter of
2001, as compared to $4,517,000 in the prior year. Net sales in the network
marketing segment increased to $12,168,000 in the first quarter of 2001, as
compared to $10,931,000 in the first quarter of 2000. Network marketing sales in
the United States improved by 7.7% to $10,437,000 in the first quarter of 2001,
as compared to $9,692,000 in the first quarter of 2000. Additionally, sales in
the Company's international subsidiaries increased overall. Led by the
successful launch of the Company's newest market, the Philippines, international
sales increased by 40% in the first quarter of 2001. International sales
increased from $1,238,000 in the first quarter of 2000 to $1,731,000 in the
first quarter of 2001. Net sales in the Philippines of $489,000 accounted for
nearly all of the increase. A sales increase of 31% in Mexico was offset by
declines in Australia, New Zealand, and the United Kingdom. Canadian operations
showed a 4% increase in net sales.
The Company also provides manufacturing and packaging services, including
blending, processing and packaging food products in accordance with
specifications provided by its customers. Net sales decreased to $1,894,000 in
the first quarter of 2001 from $4,517,000 in the prior year. This decrease
continues the trend of the Company's decision to place less emphasis on this
business. The Company's sales to third party customers primarily consist of the
Company purchasing raw materials, using customer-provided packaging materials
and selling a finished product to the customer. For the first quarter of 2001,
cost of goods sold for these sales were 98% of net sales. Even under optimal
operating efficiencies, the gross margin for unrelated customers is
substantially less than margins obtained in the sales of the network marketing
products. But, the Company has eliminated its unprofitable business in this
segment and has taken steps to improve margins with its remaining customer.
Cost of products sold for the network marketing segment as a percentage of
net sales improved from 19.7% in the first quarter of 2000 to 18.8% in the first
quarter of 2001. Part of this improvement is due to a change in the distributor
compensation plan, effective September 1, 2000. This reduced the maximum
discount allowed to distributors from 45% to 40%.
Distributor royalties and commissions as a percentage of network marketing
sales increased from 35% in the first quarter of 2000 to 38% in the first
quarter of 2001. As part of the change in the distributor compensation plan
discussed above, total royalties paid to Master Affiliates increased from 18% to
23% of retail sales. These expenses are governed by the distributor agreements
and are directly related to the level of sales.
Selling, general and administrative (SGA) expenses increased by $568,000 in
the first quarter of 2001 as compared to the first quarter of 2000.
Approximately $190,000 of the increase represents the SGA expenses of the new
subsidiary in the Philippines, which did not exist in the first quarter of 2000.
Higher conference, promotional trip, and other sales and marketing expenses in
the United States and Mexico account for a majority of the increase.
4
Interest expense decreased from $168,000 in the first quarter of 2000 to
$157,000 in the first quarter of 2001. This decrease is due to less reliance on
the line of credit, along with declining interest rates.
The Company did not recognize an income tax benefit for the loss before
income taxes in the first quarter of 2001. The Company has exhausted all
carryback potential on its net operating losses and, as a result, the benefit
has been offset by a valuation allowance, until such time the Company has
taxable income.
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) 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 2001 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.
Item 3. Quantitative and Qualitative Disclosure of Market Risk
The Company's earnings and cash flow 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 its sales and the Company's 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. As the Company's foreign operations expand, its operating results
will be subject to the risks of exchange rate fluctuations and the Company may
not be able to accurately estimate the impact of such changes on its future
business, product pricing, results of operations or financial condition.
The Company also is exposed to market risk in changes in interest rates on its
long-term debt arrangements and commodity prices in some of the raw materials it
purchases for its
5
manufacturing needs. However, neither presents a risk that would have a material
effect on the Company's results of operations or financial condition.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits*
(b) The Company has not filed a Current Report during the quarter
covered by this report.
* Also incorporated by reference the Exhibits filed as part of the
S-18 Registration Statement of the Registrant, effective
November 5, 1985, and subsequent periodic filings.
6
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: May 15, 2001 RELIV' INTERNATIONAL, INC.
By: /s/ Robert L. Montgomery
-----------------------------------
Robert L. Montgomery, President,
Chief Executive Officer and
Principal Financial Officer
7
Reliv International, Inc. and Subsidiaries
Consolidated Balance Sheets
March 31 December 31
2001 2000
--------------------- ---------------------
(unaudited) (see notes)
Assets
Current assets:
Cash and cash equivalents $ 1,217,270 $ 1,198,682
Accounts and notes receivable, less allowances of
$4,000 in 2001 and $5,000 in 2000 1,737,733 2,566,982
Note receivable from officer 59,250 59,250
Inventories
Finished goods 1,886,145 2,584,895
Raw materials 1,874,966 1,459,960
Sales aids and promotional materials 406,682 484,936
------------ ------------
Total inventories 4,167,793 4,529,791
Refundable income taxes 465,726 663,735
Prepaid expenses and other current assets 484,915 322,131
Deferred income taxes 83,584 83,174
------------ ------------
Total current assets 8,216,271 9,423,745
Other assets 827,627 849,691
Property, plant and equipment:
Land 829,222 829,222
Building 8,402,143 8,399,277
Machinery & equipment 3,997,832 3,984,971
Office equipment 486,926 494,266
Computer equipment & software 1,961,434 1,961,969
------------ ------------
15,677,557 15,669,705
Less: Accumulated depreciation (5,720,760) (5,548,026)
------------ ------------
Net property, plant and equipment 9,956,797 10,121,679
------------ ------------
Total assets $ 19,000,695 $ 20,395,115
============ ============
See notes to financial statements.
Reliv International, Inc. and Subsidiaries
Consolidated Balance Sheets
March 31 December 31
2001 2000
--------------- -------------
(unaudited) (see notes)
Liabilities and stockholders' equity
Current liabilities:
Accounts payable and accrued expenses:
Trade accounts payable $ 4,913,361 $ 5,269,709
Distributors commissions payable 1,717,082 1,199,522
Sales taxes payable 253,105 171,639
Interest expense payable 71,177 65,478
Payroll and payroll taxes payable 147,420 148,573
Other accrued expenses 12,278 9,494
------------ ------------
Total accounts payable and accrued expenses 7,114,423 6,864,415
Borrowings under line of credit 727,525 1,918,080
Current maturities of long-term debt 280,479 332,466
Current maturities of capital lease obligations 164,022 176,094
------------ ------------
Total current liabilities 8,286,449 9,291,055
Capital lease obligations, less current maturities 101,599 143,900
Long-term debt, less current maturities 4,843,988 4,901,788
Other non-current liabilities 393,587 412,610
Stockholders' equity:
Preferred stock, par value $.001 per share; 3,000,000
shares authorized; none issued and outstanding -- --
Common stock, par value $.001 per share; 20,000,000
authorized; 9,654,505 shares issued and outstanding
as of 3/31/2001 and 12/31/2000 9,655 9,655
Additional paid-in capital 9,075,146 9,074,756
Notes receivable-officers and directors (24,851) (26,650)
Accumulated deficit (2,933,906) (2,787,725)
Accumulated other comprehensive loss:
Foreign currency translation adjustment (750,972) (624,274)
------------ ------------
Total stockholders' equity 5,375,072 5,645,762
------------ ------------
Total liabilities and stockholders' equity $ 19,000,695 $ 20,395,115
============ ============
See notes to financial statements.
Reliv International, Inc. and Subsidiaries
Consolidated Statements of Operations
Three months ended March 31
2001 2000
----------------- --------------
(unaudited) (unaudited)
Sales at suggested retail $19,469,870 $21,227,123
Less: distributor allowances on product purchases 5,408,301 5,779,009
------------ ------------
Net sales 14,061,569 15,448,114
Costs and expenses:
Cost of products sold 4,152,821 6,616,072
Distributor royalties and commissions 4,650,632 3,832,424
Selling, general and administrative 5,254,005 4,685,541
------------ ------------
Total costs and expenses 14,057,458 15,134,037
------------ ------------
Income from operations 4,111 314,077
Other income (expense):
Interest income 10,186 13,538
Interest expense (157,329) (167,670)
Other income/(expense) (3,149) (17,853)
------------ ------------
(Loss) income before income taxes (146,181) 142,092
Provision for income taxes 0 56,537
------------ ------------
Net (loss)/ income ($146,181) $85,555
============ ============
(Loss)/earnings per common share ($0.02) $0.01
============ ============
(Loss)/earnings per common share - assuming dilution ($0.02) $0.01
============ ============
See notes to financial statements.
Reliv International, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(unaudited)
Three months ended March 31
2001 2000
------------- ------------
Operating activities:
Net (loss) income ($146,181) $85,555
Adjustments to reconcile net (loss) income to
net cash provided by (used in) operating
activities:
Depreciation 192,636 264,437
Amortization of goodwill -- 13,138
Foreign currency translation (gain) loss (7,027) 15,410
(Increase) decrease in accounts and notes receivable 833,569 (548,962)
(Increase) decrease in inventories 315,982 767,132
(Increase) decrease in refundable income taxes 197,142 --
(Increase) decrease in prepaid expenses
and other current assets (165,609) (72,814)
(Increase) decrease in other assets 20,385 (162,135)
Increase (decrease) in accounts payable and accrued expenses 255,733 (390,480)
Increase (decrease) in income taxes payable -- 65,058
----------- -----------
Net cash provided by operating activities 1,496,630 36,339
Investing activities:
Purchase of property, plant and equipment (31,251) (55,212)
Repayment of loans by officers and directors 1,799 31,694
----------- -----------
Net cash used in investing activities (29,452) (23,518)
Financing activities:
Net repayments under line of credit (1,190,555) (106,557)
Principal payments on long-term borrowings (109,787) (112,441)
Principal payments under capital lease obligations (54,372) (42,043)
Proceeds from warrants exercised 390 --
----------- -----------
Net cash used in financing activities (1,354,324) (261,041)
Effect of exchange rate changes on cash and cash equivalents (94,266) (103,949)
----------- -----------
Increase (decrease) in cash and cash equivalents 18,588 (352,169)
Cash and cash equivalents at beginning of period 1,198,682 1,531,700
----------- -----------
Cash and cash equivalents at end of period $1,217,270 $1,179,531
=========== ===========
See notes to financial statements
Reliv' International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
March 31, 2001
Note 1-- Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for
the three-month period ended March 31, 2001 are not necessarily indicative
of the results that may be expected for the year ended December 31, 2001.
The balance sheet at December 31, 2000 has been derived from the audited
financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Registrant Company and Subsidiaries'
annual report on Form 10-K for the year ended December 31, 2000.
Note 2-- Shipping and Handling Costs
During 2000, the Emerging Issues Task Force ("EITF") issued EITF 00-10,
Accounting for Shipping and Handling Fees and Costs. Previously, the
Company recognized shipping and handling costs as a reduction to net sales.
Effective with the adoption of Staff Accounting Bulletin No. 101 on October
1, 2000, the EITF requires shipping and handling costs to be included in
cost of sales. The effect of adopting EITF 00-10 increased net sales and
cost of products sold from previously reported amounts by $360,000 in the
first quarter of 2000.
Note 3-- Earnings per Share
The following table sets forth the computation of basic and diluted
earnings per share:
Three months ended March 31
2001 2000
------------------------------
Numerator:
Numerator for basic and diluted
earnings per share--net (loss) income ($146,181) $85,555
Denominator:
Denominator per basic earnings per
share--weighted average shares 9,655,000 9,551,000
Effect of dilutive securities:
Employee stock options and other warrants -- 385,000
------------------------------
Denominator for diluted earnings per
share--adjusted weighted average shares 9,655,000 9,936,000
==============================
Basic (loss) earnings per share ($0.02) $0.01
==============================
Diluted (loss) earnings per share ($0.02) $0.01
==============================
Reliv' International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
Note 4-- Comprehensive Income
Total comprehensive loss was $272,879 for the three months ended March 31,
2001 and $19,760 for the three months ended March 31, 2000. The Company's
only component of other comprehensive income is the foreign currency
translation adjustment.
Note 5-- Segment Information
Three months ended Three months ended
March 31, 2001 March 31, 2000
-------------- --------------
Network Manufacturing Network Manufacturing
marketing and packaging marketing and packaging
--------------------------------- ----------------------------------
Net sales to external customers 12,167,597 1,893,972 10,930,717 4,517,397
Intersegment net sales -- 1,690,753 -- 1,549,927
Segment profit/(loss) 686,486 (274,538) 832,095 (145,709)
Segment assets 12,694,948 5,088,477 13,968,328 5,009,409
A reconciliation of combined operating profit for the
reportable segments to consolidated (loss) income before income
taxes is as follows:
Three months ended March 31
2001 2000
--------------------------
Total profit for reportable segments 411,948 686,386
Corporate expenses (407,837) (372,309)
Non operating - net 7,037 (4,315)
Interest expense (157,329) (167,670)
--------------------------
(Loss) income before income taxes (146,181) 142,092
==========================