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, 1997 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 9,816,835 outstanding Shares as of March 31, 1997 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, 1997 and Balance Sheet as of December 31, 1996. 2. Interim Statements of Operations for the three-month periods ending March 31, 1997 and March 31, 1996. 3. Interim Statements of Cash Flows for the three month periods ending March 31, 1997 and March 31, 1996. 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 during the first quarter 1997, to $7,680,000 from $6,553,000 as of December 31, 1996. Cash and cash equivalents increased $1,107,000 to $3,216,000 as of March 31, 1997, due to first quarter 1997 income before taxes of $1,350,000. Accounts receivable decreased to $896,000 at March 31, 1997, from $1,056,000 at December 31, 1996 as a result of a decrease in sales of the Company's contract packaging services, which are generally paid on 30-day terms. Contract manufacturing sales declined to $751,000 for the quarter as compared to $1,147,000 in the fourth quarter 1996. Inventories increased to $3,074,000 from $2,762,000 at December 31, 1996, as increased sales volumes in the United States required greater finished goods levels. Net property, plant and equipment remained relatively level during the first quarter 1997 at $4,852,000. Investment in property, plant and equipment will increase during 1997 as the Company plans to expand its facility on land the Company owns adjacent to its existing building in Chesterfield, Missouri. Plans include expanding office, warehousing and manufacturing areas by adding approximately 90,000 square feet of space to its facility. Construction is anticipated to begin during the second quarter 1997. Current liabilities increased to $4,645,000 at March 31, 1997, from $3,866,000 at December 31, 1996. Trade accounts payable decreased slightly to $1,612,000 from $1,689,000 at December 31, 1996. Distributor commissions payable increased $543,000 as a result of increased sales volume in March, 1997, as compared to December, 1996. As a result of increased net income in the first quarter 1997, income taxes payable increased to $323,000 as of March 31, 1997, from $65,000 as of December 31, 1996. 2 The Company's working capital balance has improved by $348,000 since December 31, 1996, with a current ratio of 1.65 due to the net profits generated by the Company in the first quarter. The Company anticipates that its cash, working capital balance and existing credit will be adequate to meet its operating needs in the future, based on current and projected revenue levels. 2. Results of Operations --------------------- The Company had a net profit of $819,000, or $.08 per share, for the quarter ended March 31, 1997, compared to a net profit of $278,000, or $.03 per share, for the same period of 1996. Net sales for the period increased to $12,670,000 from $9,304,000 in 1996. Net sales in 1997 were comprised of $11,919,000 in network marketing sales and $751,000 in contract packaging services, as compared to $8,535,000 in network marketing sales and $769,000 in contract packaging services in 1996. The Company provides contract packaging services, including blending, processing and packaging food products in accordance with specifications provided by its customers. Net sales in the first quarter 1997 were $751,000, with direct costs of contract services of 75.7%, compared to $769,000 and direct costs of 108% in the first quarter 1996. The Company has lowered direct costs as a percentage of net sales through efficiencies in the manufacturing process and anticipates continued improved margins. The increase in net sales from network marketing activities to $11,919,000 in the first quarter of 1997, was primarily due to growth in net sales in the United States to $10,540,000 as compared to $6,980,000 in 1996. The distributor sales force in the United States grew due to an increase of 6% in new sign-ups and a 84% increase in distributor renewals when compared to the quarter ending March 31, 1996. The number of product orders increased by 49% over 1996 levels. Net sales in Canada increased 61% over 1996 to $275,000. Net sales in Australia and New Zealand decreased 29% to $909,000. The Company plans to introduce several new products in these markets in 1997, and has introduced a new marketing effort to develop sales and momentum. Cost of network marketing products sold as a percentage of net sales, improved to 16.5% for the first quarter of 1997, from 20.4% in the same period in 1996. The improvement in gross margins is a result of improved manufacturing controls and increased utilization of the manufacturing facility by providing contract packaging services. Distributor royalties and commissions increased to 37.0% of network marketing sales in the first quarter 1997, compared to 35.2% for the same period in 1996. These expenses are governed by the distributor agreements and are directly related to the level of sales. The Company pays a percent of sales up to 18% in royalties and as much as 45% in commissions. In addition, the Company paid royalties of $180,000 through the Ambassador Program, an incentive program that rewards distributors who have reached, and personally assisted qualified distributors to reach, a specified level of compensation. The Ambassador Program paid $94,000 in the first quarter 1996. Selling, general and administrative expenses, as a percentage of net sales, decreased slightly to 34.6% for the first quarter of 1997, from 34.9% in the same period in 1996. Expenses in the first quarter 1997 were affected by several expenses that do not reoccur on a quarterly basis. These expenses included the costs of a national conference in the United States and a sales incentive trip 3 which increased selling, general and administrative expenses by 1.7% of net sales as compared to 1996. Forward looking statements made in this filing involve material risks and uncertainties that could cause actual results and events to differ materially from those set forth, or implied, including the Company's ability to continue to attract, maintain and motivate its distributors, changes in the regulatory environment affecting network marketing sales and sales of food and dietary supplements and other risks and uncertainties in the Company's other SEC filings. Part II. OTHER INFORMATION ----------------- Item 1. Legal Proceedings ----------------- Not applicable. Item 2. Changes in Securities --------------------- Not applicable. Item 3. Defaults Upon Senior Securities ------------------------------- Not applicable. Item 4. Submission of Matters to a Vote of Security Holders --------------------------------------------------- Not applicable. Item 5 Other Information ----------------- Not applicable. Item 6. Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibits* Description Exhibit No. ----------- ----------- Statement re: Computation of Per Share Earnings 11 (b) The Company has not filed a Current Report during the quarter covered by this report. * Also incorporated by reference the Exhibits filed as part of the S-18 Registration Statement of the Registrant, effective November 5, 1985, and subsequent periodic filings. 4 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 2, 1997 RELIV' INTERNATIONAL, INC. By: /s/ Robert L. Montgomery --------------------------------- Robert L. Montgomery, President, Chief Executive Officer and Principal Financial Officer 5 Reliv' International, Inc. and Subsidiaries Consolidated Balance Sheets March 31, 1997 December 31, 1996 (Unaudited) (Note) -------------- ----------------- Assets Current Assets: Cash and cash equivalents $ 3,215,655 $ 2,108,770 Accounts and notes receivable, less allowances of $13,000 in 1997 and $13,000 in 1996 896,173 1,056,360 Inventories Finished goods 1,590,890 1,219,295 Raw materials 1,117,125 1,136,897 Sales aids and promotional materials 366,096 405,768 ----------- ----------- Total inventories 3,074,111 2,761,960 Refundable income taxes 48,145 48,949 Prepaid expenses and other current assets 380,772 512,031 Deferred income taxes 64,657 65,000 ----------- ----------- Total current assets 7,679,513 6,553,070 Deferred costs 59,332 79,223 Property, plant and equipment: Land 790,677 790,677 Building 2,863,320 2,863,457 Machinery & equipment 1,751,668 1,693,849 Office equipment 335,774 328,780 Computer equipment & software 1,362,726 1,245,137 Construction in progress 117,814 74,423 ----------- ----------- 7,221,979 6,996,323 Less: Accumulated depreciation (2,370,411) (2,226,951) ----------- ----------- Net Property, plant and equipment 4,851,568 4,769,372 ----------- ----------- Total Assets $12,590,413 $11,401,665 =========== =========== Note: The balance sheet at December 31, 1996 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. Reliv' International, Inc. and Subsidiaries Consolidated Balance Sheets March 31, 1997 December 31, 1996 (Unaudited) (Note) -------------- ----------------- Liabilities and Stockholders' Equity Current Liabilities: Accounts payable and accrued expenses Trade accounts payable $ 1,611,499 $ 1,688,777 Distributors commissions payable 1,607,340 1,064,023 Sales taxes payable 290,828 225,509 Interest expense payable 14,758 13,625 Payroll and payroll taxes payable 371,543 391,905 Other accrued expenses 114,447 112,219 ----------- ----------- Total accounts payable and accrued expenses 4,010,415 3,496,058 Income taxes payable 322,550 65,102 Current maturities of long-term debt and capital lease obligations 306,702 282,502 Unearned income 5,003 22,602 ----------- ----------- Total current liabilities 4,644,670 3,866,264 Capital lease obligations, less current maturities 69,718 13,211 Long-term debt, less current maturities 1,406,244 1,464,868 Stockholders' Equity: Common stock, no par value; 20,000,000 shares authorized; 9,816,835 shares outstanding as of 3/31/97 and 9,900,529 shares outstanding as of 12/31/96 9,211,826 9,211,826 Notes receivable-officers and directors (4,633) (4,633) Retained earnings (Note 2) (1,796,807) (2,516,181) Foreign currency translation adjustment (6,942) 10,970 Less cost of treasury stock-252,780 shares as of 3/31/97 and 250,580 shares as of 12/31/96 (933,663) (644,660) ----------- ----------- Total Stockholders' Equity 6,469,781 6,057,322 ----------- ----------- Total Liabilities and Stockholders' Equity $12,590,413 $11,401,665 =========== =========== See notes to consolidated financial statements. Reliv' International, Inc. and Subsidiaries Consolidated Statements of Operations Three Months Ended March 31, 1997 1996 (Unaudited) (Unaudited) ------------ ------------ Sales at suggested retail $19,072,350 $14,069,321 Less Distributor allowances on product purchases 6,402,199 4,765,772 ----------- ----------- Net Sales 12,670,151 9,303,549 Costs and expenses: Cost of products sold 2,532,245 2,567,511 Distributor royalties and commissions 4,409,149 3,008,115 Selling, general and administrative 4,380,443 3,251,762 ----------- ----------- Total Costs and Expenses 11,321,837 8,827,388 ----------- ----------- Income from operations 1,348,314 476,161 Other income (expense): Interest income 28,435 28,441 Interest expense (38,016) (71,106) Other income/expense 11,473 4,020 ----------- ----------- Income before income taxes 1,350,206 437,516 Provision for income taxes 531,359 159,916 ----------- ----------- Net Income 818,847 277,600 =========== =========== Earnings per share: Primary 0.08 0.03 =========== =========== Weighted average shares of common stock and common stock equivalents outstanding Primary 10,380,676 10,318,839 =========== =========== See notes to consolidated financial statements. Reliv' International, Inc. and Subsidiaries Consolidated Statements of Cash Flows Three Months Ended March 31, 1997 1996 (Unaudited) (Unaudited) ----------- ------------ Operating activities: Net Income $ 818,847 $ 277,600 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 147,844 146,857 Provision for losses on accounts receivable 0 2,000 Foreign currency translation (gain) loss 7,411 (6,302) (Increase) decrease in accounts and notes receivable 160,145 (240,153) (Increase) decrease in inventories (320,107) (123,518) (Increase) decrease in prepaid expenses and other current assets 130,845 1,064 (Increase) decrease in deferred costs 17,419 17,444 Increase (decrease) in accounts payable and accrued expenses 520,952 82,654 Increase (decrease) in income taxes payable 258,271 175,221 Increase (decrease) in unearned income (17,600) 39,079 ---------- ---------- Net cash provided by (used in) operating actitivies 1,724,027 371,946 Investing Activities: Purchase of property, plant and equipment (136,784) (415,649) ---------- ---------- Net cash provided by (used in) investing activities (136,784) (415,649) Financing activities: Increase in short-term borrowings 0 100,000 Proceeds from long-term debt 0 363,887 Principal payments on long-term borrowings and line of credit (53,608) (18,297) Principal payments under capital lease obligations (16,829) (18,554) Dividends paid (96,471) 0 Purchase of treasury stock (289,003) (183,579) ---------- ---------- Net cash provided by (used in) financing activities (455,911) 243,457 Effect of exchange rate changes on cash and cash equivalents (24,447) 62,465 ---------- ---------- Increase (decrease) in cash and cash equivalents 1,106,885 262,219 Cash and cash equivalents at beginning of period 2,108,770 1,507,176 ---------- ---------- Cash and cash equivalents at end of year $3,215,655 $1,769,395 ========== ========== See notes to consolidated financial statements. Reliv' International, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Unaudited) March 31, 1997 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, 1997 are not necessarily indicative of the results that may be expected for the year ended December 31, 1997. 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, 1996. Note 2 -- Stock Dividend On January 31, 1997, the Company declared a 10 percent stock dividend on the Company's common stock which was distributed on February 28, 1997 to shareholders of record on February 14, 1997. The dividend was transferred from retained earnings to common stock in the amount of $5,848,000, which was based on the closing price of $6.50 per share on the declaration date and was reflected in the balance sheet as of December 31, 1996. Average shares outstanding and all per share amounts included in the accompanying consolidated financial statements and notes are based on the increased number of shares giving retroactive recognition to the stock dividend.