FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
Commission File No. 1-11768
RELIV' INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Illinois 37-1172197
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
136 Chesterfield Industrial Boulevard, P.O. Box 405,
Chesterfield, Missouri 63006
(Address of principal executive offices) (Zip Code)
(314) 537-9715
(Registrant's telephone number, including area code)
Registrant has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and
has been subject to such filing requirements for the past 90 days.
APPLICABLE ONLY TO CORPORATE ISSUERS:
COMMON STOCK 9,029,973 outstanding Shares as of June 30, 1996
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The following consolidated financial statements of the Registrant are attached
to this Form 10-Q:
1. Interim Balance Sheet as of June 30, 1996 and Balance Sheet as of
December 31, 1995.
2. Interim Statements of Operations for the three and six month periods
ending June 30, 1996 and June 30, 1995.
3. Interim Statements of Cash Flows for the six month periods ending June
30, 1996 and June 30, 1995.
The Financial Statements reflect all adjustments which are, in the opinion of
management, necessary to a fair statement of results for the periods
presented.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
1. Financial Condition
The current assets of the Company increased in second quarter 1996, to
$6,234,000 from $5,499,000 as of December 31, 1995. Inventories increased to
$2,816,000 from $2,513,000 at December 31, 1995, as increased sales volume in
the United States required greater finished goods levels. In addition, the
Company increased raw material and packaging inventories as it began
manufacturing products for its international subsidiaries. The Company had
utilized contract manufacturers for much of its international production since
its facility was flooded in July, 1993. Prepaid expenses increased $310,000,
to $839,000 at June 30, 1996, due to prepayments of sales materials and sales
incentives programs.
Property, plan and equipment increased $458,000 in the first six months of
1996, due to acquisition of manufacturing equipment as the Company expanded
its capabilities to meet the needs of its contract packaging customers.
Current liabilities increased to $3,770,000 from $3,352,000 at December 31,
1995. Trade accounts payable decreased $308,000 as a result of the cash
generated through operations and the proceeds of a loan agreement entered into
in January 1996, to pay for the purchase of manufacturing equipment, which was
recorded as a payable at December 31, 1995. Distributor commissions payable
increased $212,000 as a result of increased sales volume in June 1996, as
compared to December 1995. As a result of increased net income through June
1996, income taxes payable increased to $332,000 as of June 30, 1996, from
$138,000 as of December 31, 1995.
2
Short-term debt and current maturities of long-term debt and capital lease
obligations increased to $375,000 at June 30, 1996, from $210,000 at December
31, 1995. Long-term debt increased to $2,016,000 from $1,417,000. The
increase is primarily a result of a $950,000 term loan, the proceeds of which
were used to retire $423,000 outstanding of a $500,000 term loan, $163,000
outstanding on a line of credit and $364,000 to purchase manufacturing
equipment as stated above. The Company also entered into operating lines of
credit totaling $1,500,000 that replaced a $500,000 line of credit. The
Company has utilized $500,000 of these lines at June 30, 1996.
The Company invested $725,000 in the first six months of 1996, toward the
repurchase of its common stock.
The Company's working capital balance has improved by $318,000 since December
31, 1995. The current ratio has remained constant at 1.65 as of June 30,
1996, compared to 1.64 as of year-end. The Company anticipates that its cash,
working capital balance and existing credit will be adequate to meet its
operating needs in the future, based on current and projected revenue levels.
2. Result of Operations
The Company had a net profit of $302,000 for the quarter ended June 30, 1996,
compared to a net loss of $109,000 for the same period in 1995. Net profit
for the first six months of 1996 was $580,000 compared to a net profit of
$401,000 for the same period of 1995. Net sales for the quarter increased to
$9,448,000 from $6,663,000 in 1995. Net sales in second quarter 1996, were
comprised of $8,793,000 in network marketing sales and $655,000 in contract
packaging services. Net sales in 1995 consisted of network marketing sales
only. Net sales for the first six months of 1996, were $18,752,000 as
compared to $15,175,000 for the same period of 1995.
In the fourth quarter 1995, the Company began providing contract packaging
services, including blending, processing and packaging food products in
accordance with specifications provided by its customers. Net sales from this
business segment in second quarter 1996 were $655,000. Start-up expenses and
inefficiencies caused by the rapid increase in contract packing services has
hindered net profit. Direct cost of contract services sold was 99.1% of
revenue, with related increases in general and administrative expenses. The
Company increased efficiency during the quarter and anticipates improved
margins.
Net sales from network marketing activities of $8,793,000 in second quarter
1996 reflects an increase of 32% from the $6,663,000 in 1995. In second
quarter 1996, net sales in the United States were $7,395,000 compared to
$5,147,000 in 1995 and Canada continued to show improvement with a 121%
increase over 1995. Net sales in Australia and New Zealand decreased 19% to
$1,049,000 for the quarter ending June 30, 1996. Sales in these markets have
been affected by decreased momentum due to delays in new product introductions
caused by regulatory policies and increased competition. The Company expects
to be able to introduce several new products in Australia and New Zealand in
1996, and its has introduced a new marketing effort to develop sales and
momentum.
3
Cost of network marketing products sold as a percentage of net sales, improved
to 20.1% for the second quarter of 1996, from 22.7% in the same period in
1995. The improvement is due to the Company's return to its own manufacturing
facility in mid-1995 and improved manufacturing controls.
Distributor royalties and commissions decreased to 35.0% of network marketing
sales in the second quarter 1996, compared to 37.3% for the same period in
1995. These expenses are governed by the distributor agreements and are
directly related to the level of sales. The Company pays a percent of sales up
to 18% in royalties and as much as 45% in commissions.
Selling, general and administrative expenses, as a percentage of net sales,
decreased to 36.8% for the second quarter of 1996, from 42.8% in the same
period in 1995. The decrease is primarily a result of the increase in net
sales and the Company's ability to operate with limited increases in
operational costs.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
A settlement has been reached in matters brought against the Company by
Avogen, Inc. and Conkle & Oleston. The parties are in the process of
negotiating a formal settlement agreement whereby the Company will maintain
the right to market its skin care line. See Form 10-K Annual Report for
fiscal year December 31, 1995, Part I, Item No. 3 - Legal Proceedings.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's annual meeting of shareholders was held on May 29, 1996. At
such meeting, the Company's then Board of Directors was re-elected.
ITEM 5 OTHER INFORMATION
Not applicable.
4
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.
* Incorporate by reference the Exhibits filed as part of the S-18
Registration Statement of the Registrant, effective November 5, 1985,
and subsequent periodic filings.
5
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: August 11, 1996 RELIV' INTERNATIONAL, INC.
By: /s/ Robert L. Montgomery
-------------------------------
Robert L. Montgomery, President,
Chief Executive Officer and
Principal Financial Officer
6
Reliv' International, Inc. and Subsidiaries
Consolidated Balance Sheets
June 30, 1996 December 31, 1995
(Unaudited) (Note)
------------- -----------------
Assets
Current Assets:
Cash and cash equivalents $ 1,664,376 $ 1,507,176
Accounts and notes receivable, less allowances of
$1,000 in 1996 and $29,000 in 1995 621,590 658,607
Inventories
Finished goods 1,274,186 1,012,987
Raw materials 1,113,670 1,014,385
Sales aids and promotional materials 427,836 485,795
----------- -----------
Total inventories 2,815,692 2,513,167
Refundable income taxes 230,968 229,438
Prepaid expenses and other current assets 839,175 529,364
Deferred income taxes 62,642 61,000
----------- -----------
Total current assets 6,234,443 5,498,752
Deferred costs 119,112 158,734
Property, plant and equipment:
Land 790,677 780,346
Building 2,851,539 2,851,407
Machinery & equipment 1,563,808 1,181,260
Office equipment 309,331 280,978
Computer equipment & software 1,155,916 1,145,944
Construction in progress 62,037 35,500
----------- -----------
6,733,308 6,275,435
Less: Accumulated depreciation (1,907,790) (1,656,687)
----------- -----------
Net Property, plant and equipment 4,825,518 4,618,748
----------- -----------
Total Assets $11,179,073 $10,276,234
=========== ===========
Note: The balance sheet at December 31, 1995 has been derived from the audited
consolidated financial statements at that date, but does not include all of the
information and footnotes required by generally accepted accounting principles
for complete statements.
See notes to consolidated financial statements.
7
Reliv' International, Inc. and Subsidiaries
Consolidated Balance Sheets
June 30, 1996 December 31, 1995
(Unaudited) (Note)
------------- -----------------
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable and accrued expenses
Trade accounts payable $ 1,493,699 $ 1,801,965
Distributors commissions payable 992,133 780,070
Sales taxes payable 133,671 153,893
Interest expense payable 0 8,746
Payroll and payroll taxes payable 180,641 156,347
Other accrued expenses 193,537 87,475
----------- -----------
Total accounts payable and accrued expenses 2,993,681 2,988,496
Income taxes payable 332,306 138,336
Notes payable - short term 100,000 0
Current maturities of long-term debt and
capital lease obligations 274,648 210,256
Unearned income 69,305 14,766
----------- -----------
Total current liabilities 3,769,940 3,351,854
Capital lease obligations, less current maturities 445,253 75,573
Long-term debt, less current maturities 1,570,829 1,341,191
Stockholders' equity:
Common stock, no par value; 20,000,000 shares
authorized; 9,029,973 shares outstanding as of 6/30/96
and 9,311,301 shares outstanding as of 12/31/95 3,356,720 3,412,986
Notes receivable-officers and directors (4,633) (4,633)
Retained earnings 2,588,899 2,714,723
Foreign currency translation adjustment (1,768) (79,634)
Less cost of treasury stock-201,500 shares as of 6/30/96
and 214,366 shares as of 12/31/95 (546,167) (535,826)
----------- -----------
Total Stockholders' Equity 5,393,051 5,507,616
----------- -----------
Total Liabilities and Stockholders' Equity $11,179,073 $10,276,234
=========== ===========
See notes to consolidated financial statements.
8
Reliv' International, Inc. and Subsidiaries
Consolidated Statements of Operations
Quarter Ended June 30, Year to Date June 30,
1996 1995 1996 1995
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
---------------------- ------------ ------------ ------------
Sales at Suggested Retail $14,762,451 $10,811,894 $28,831,772 $24,780,653
Less Distributor allowances on product purchases 5,314,139 4,148,730 10,079,911 9,605,763
----------- ----------- ----------- -----------
Net Sales 9,448,312 6,663,164 18,751,861 15,174,890
Costs and expenses:
Cost of products sold 2,415,506 1,512,966 4,983,017 3,452,249
Distributor royalties and commissions 3,078,274 2,484,221 6,086,389 5,508,241
Selling, general and administrative 3,476,272 2,850,551 6,728,034 5,648,266
----------- ----------- ----------- -----------
Total Costs and Expenses 8,970,052 6,847,738 17,797,440 14,608,756
----------- ----------- ----------- -----------
Income (loss) from operations 478,260 (184,574) 954,421 566,134
Other income (expense):
Interest income 36,987 27,362 65,428 58,555
Interest expense (46,904) (38,594) (118,010) (66,861)
Other income/expense 8,389 65,974 12,409 98,389
----------- ----------- ----------- -----------
Income (loss) before income taxes 476,732 (129,832) 914,248 656,217
Provision for income taxes 174,793 (20,476) 334,709 255,232
----------- ----------- ----------- -----------
Net Income 301,939 (109,356) 579,539 400,985
=========== =========== =========== ===========
Earnings (loss) per common and common equivalent share 0.03 (0.01) 0.06 0.04
=========== =========== =========== ===========
Weighted average shares of common stock 9,395,674 9,421,958 9,395,674 9,421,958
and common stock equivalents outstanding =========== =========== =========== ===========
See notes to consolidated financial statements.
Reliv' International, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Six Months Ended June 30
1996 1995
(Unaudited) (Unaudited)
----------- ------------
Operating activities:
Net Income $ 579,539 $ 400,985
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization $ 303,172 $ 198,416
Provision for losses on accounts receivable 7,000 0
Foreign currency translation (gain) loss (9,069) 14,956
(Increase) decrease in accounts and notes receivable 30,184 (184,123)
(Increase) decrease in inventories (270,717) 181,906
(Increase) decrease in refundable income taxes 0 41,885
(Increase) decrease in prepaid expenses and other
current assets (307,195) (48,890)
(Increase) decrease in deferred costs 34,892 11,371
Increase (decrease) in accounts payable and
accrued expenses (15,958) (347,197)
Increase (decrease) in income taxes payable 191,275 (41,559)
Increase (decrease) in unearned income 54,539 51,739
---------- ----------
Net cash provided by (used in) operating
actitivies 597,662 279,489
Investing Activities:
Purchase of property, plant and equipment (499,412) (792,117)
---------- ----------
Net cash provided by (used in) investing activities (499,412) (792,117)
Financing activities:
Increase in short-term borrowings 100,000 162,297
Proceeds from long-term debt 763,887 500,000
Principal payments on long-term borrowings and notes (68,219) (48,564)
Principal payments under capital lease obligations (31,959) (28,063)
Dividends paid (46,688) (47,060)
Purchase of treasury stock (725,281) (172,069)
---------- ----------
Net cash provided by (used in) financing activities (8,260) 366,541
Effect of exchange rate changes on cash and
cash equivalents 67,210 (109,645)
---------- ----------
Increase (decrease) in cash and cash equivalents 157,200 (255,732)
Cash and cash equivalents at beginning of period 1,507,176 2,168,757
---------- ----------
Cash and cash equivalents at end of period $1,664,376 $1,913,025
========== ==========
See notes to consolidated financial statements.
Reliv' International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 1996
NOTE 1 -- BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the six-month period ended June 30, 1996
are not necessarily indicative of the results that may be expected for the year
ended December 31, 1996. 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,
1995.
NOTE 2 -- SHORT-TERM BORROWINGS
In January 1996, the Company secured a $500,000 line of credit with a bank.
Borrowings under the line of credit are due Janaury 1997 and bear interest,
payable monthly, at the prime rate. A portion of the Company's inventory and
property, plant and equipment are pledged as security under the terms of the
agreement. The agreement includes restrictive covenants, including a
requirement that the Company maintain a current ratio of 1.5 to 1.0 and a
minimum net worth of $5,500,000. The bank has agreed to lower the minimum net
worth requirement to $5,250,000 until December 31, 1996. As of June 30, 1996,
the Company has borrowed $100,000 against this line of credit.
NOTE 3 -- LONG-TERM DEBT
As part of the credit facility discussed in Note 2, the Company entered
into a $950,000 term loan. The credit facility also provides for an additional
$1,000,000 line of credit. The term loan is payable in monthly installments of
$19,547, including interest at 8.5 percent, through April 2001. The proceeds of
the term loan were used to pay a previous term loan and line of credit.
Borrowings under the $1,000,000 line of credit are due February 2001 and bear
interest, payable monthly, at the prime rate. As of June 30, 1996, the Company
has borrowed $400,000 against this line of credit. The term loan and additional
line of credit are part of a credit facility with the bank and is subject to the
same security pledges and restrictive covenants as the $500,000 line of credit
described in Note 2.