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, 2002
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 9,524,791 outstanding Shares as of March 31, 2002
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, 2002 and Balance Sheet as of
December 31, 2001.
2. Interim Statements of Operations for the three month periods ending
March 31, 2002 and March 31, 2001.
3. Interim Statements of Cash Flows for the three month periods ending
March 31, 2002 and March 31, 2001.
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 increased during the first quarter of 2002,
to $6,687,000 from $6,514,000 as of December 31, 2001. Cash and cash equivalents
increased by $423,000 to $1,682,000 as of March 31, 2002, as compared to
$1,259,000 as of December 31, 2001. Accounts and notes receivable increased
slightly to $600,000 as of March 31, 2002, as compared to $548,000 as of
December 31, 2001. Inventory decreased by $702,000 to $3,439,000 as of March 31,
2002. The Company's increase in cash is the result of the improved sales and
profitability of the Company, especially in its operations in the United States.
Inventories decreased as the result of the strong sales that exceeded the
production levels for the quarter. Prepaid expenses and other current assets
increased by $535,000 to $897,000 at March 31, 2002 as the result of prepaid
business insurance and payments made for upcoming conventions and promotional
trips.
The Company purchased $41,000 of property, plant and equipment during the
first quarter of 2002.
Current liabilities decreased by $378,000 from $6,047,000 as of December
31, 2001 to $5,669,000 as of March 31, 2002. Decreases in the borrowings on the
line of credit and in trade accounts payable were offset by an increase in
distributor commissions payable. The amount drawn on the line of credit reduced
from $986,000 as of December 31, 2001 to $0 as of March 31, 2002. Trade accounts
payable decreased by $478,000 from $2,882,000 as of December 31, 2001 to
$2,404,000 as of March 31, 2002. This decrease is related to the decrease in
inventory, as discussed previously. Distributor commissions payable increased
from $1,244,000 as of
2
December 31, 2001 to $1,903,000 as of March 31, 2002. This is the result of
higher network marketing sales in March 2002, as compared to December 2001.
Long-term debt and capital lease obligations decreased by $117,000 from
$4,650,000 as of December 31, 2001 to $4,533,000 as of March 31, 2002. The
Company incurred no additional long-term debt during the first quarter of 2002.
Stockholders' equity increased from $5,827,000 as of December 31, 2001 to
$6,299,000 as of March 31, 2002, as the result of the net income of the first
quarter of 2002. Equity increased by $69,000 as the result of the foreign
currency translation adjustment at March 31, 2002 as compared to December 31,
2001. Since the end of 2001, the US dollar has weakened in comparison to most
currencies in the world. Also, equity was reduced by $62,000 for treasury stock
purchases made since the end of 2001.
The Company's working capital balance has improved since the end of 2001,
from a balance of $467,000 as of December 31, 2001 to a balance of $1,018,000 as
of March 31, 2002. As a result, the current ratio has also improved from 1.08 as
of December 31, 2001 to 1.18 as of March 31, 2002. The Company has an operating
line of credit, with a limit based on a collateral-based formula of accounts
receivable and inventory, with a maximum borrowing limit of $1,000,000. At March
31, 2002, the Company had no borrowings on the line of credit. Management
believes that the Company's internally generated funds together with the loan
agreement will be sufficient to meet working capital requirements in 2002.
2. Results of Operations
The Company had net income of $459,000, or $.05 per share basic and
diluted, for the quarter ended March 31, 2002, compared to a net loss of
$146,000, or $.02 per share basic and diluted, for the same period in 2001.
Overall, net sales increased as the increase in network marketing sales more
than offset the decrease in the sales of the manufacturing and packaging segment
as compared to the first quarter of the prior year. Furthermore, this increase
in network marketing sales led to the improved gross margins and profitability
of the first quarter of 2002.
Net sales increased to $14,484,000 in the first quarter of 2002 as compared
to $14,062,000 in the prior year. The increase was the result of an increase in
the Company's network marketing sales, partially offset by a decrease in sales
by the Company's manufacturing and packaging services segment. Net sales in the
network marketing segment of the business increased to $14,434,000 in the first
quarter of 2002, as compared to $12,168,000 in the prior year. Net sales to
unrelated customers by the manufacturing and packaging segment represented
$1,894,000 of total net sales in the first quarter of 2001. Those sales were
approximately $50,000 in the first quarter of 2002, as the Company has
terminated all significant sales and production activity to unrelated customers.
The growth in network marketing sales was led by a strong increase in the
Company's largest market, the United States. Network marketing sales in the
United States improved by 18.6% to $12,376,000 in the first quarter of 2002, as
compared to $10,437,000 in the first quarter of 2001. Additionally, sales in the
Company's international subsidiaries increased overall.
3
International sales increased by 18.9% to $2,058,000 in the first quarter of
2002, compared to $1,731,000 in the first quarter of 2001. The increase in
international sales was led by increases in Mexico of 49.7% and in the
Philippines of 29.7%. The remaining international markets reported sales levels
similar to the first quarter of 2001.
The Company has provided manufacturing and packaging services, including
blending, processing and packaging food products in accordance with
specifications provided by its customers, including the production of the Reliv'
brand products. In 2001, the Company decided to phase out all significant
production for unrelated customers, continuing only the Reliv' brand production.
As a result, net sales to unrelated customers decreased to approximately $50,000
in the first quarter of 2002 from $1,894,000 in the prior year.
Cost of products sold for the network marketing segment as a percentage of
net sales held consistent at 18.9% in the first quarter of 2002, as compared to
18.8% in the first quarter of 2001. The decrease in total cost of goods sold was
due to the elimination of the cost of goods associated with the low-margin
manufacturing and packaging services performed for unrelated customers.
Distributor royalties and commissions as a percentage of network marketing
sales remained relatively constant at 38.6% in the first quarter of 2002,
compared to 38.2% in the first quarter of 2001. These expenses are governed by
the distributor agreements and are directly related to the level of sales.
Selling, general and administrative (SGA) expenses were nearly identical in
the first quarter of 2002, as compared to the first quarter of 2001. However,
SGA expenses as a percentage of net sales decreased by a full percentage point,
from 37.4% in the first quarter of 2001 to 36.4% in the first quarter of 2002.
Interest expense decreased from $157,000 in the first quarter of 2001 to
$121,000 in the first quarter of 2002. This decrease is due to less reliance on
the line of credit, along with declining interest rates.
The Company recorded income tax expense of $314,000 for the first quarter
of 2002, an effective rate of 41%. In the first quarter of 2001, the Company did
not recognize an income tax benefit for the loss before income taxes incurred in
that quarter.
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
4
Company's actual growth, results, performance and business prospects and
opportunities in 2002 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 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
There has been no material litigation initiated by or against the Company
in the reporting period or any material changes to litigation reported by the
Company in its prior periodic reports.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
5
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*
Exhibit Exhibit No.
Gibbons Employment Agreement dated April 18, 2002 10.1
Kreher Employment Agreement dated April 18, 2002 10.2
(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 8, 2002 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
2002 2001
------------ ------------
(unaudited) (see notes)
Assets
Current assets:
Cash and cash equivalents $ 1,681,839 $ 1,258,821
Accounts and notes receivable, less allowances of
$5,000 in 2002 and 2001 600,241 548,035
Accounts due from employees and distributors 51,400 50,200
Inventories
Finished goods 2,102,094 2,313,058
Raw materials 958,048 1,391,237
Sales aids and promotional materials 379,297 437,371
------------ ------------
Total inventories 3,439,439 4,141,666
Refundable income taxes -- 136,263
Prepaid expenses and other current assets 896,857 362,287
Deferred income taxes 17,000 17,000
------------ ------------
Total current assets 6,686,776 6,514,272
Other assets 636,817 646,018
Note receivable from officer 57,250 59,250
Accounts due from employees and distributors 34,971 43,741
Property, plant and equipment:
Land 829,222 829,222
Building 8,441,581 8,441,164
Machinery & equipment 4,037,297 4,030,689
Office equipment 572,480 565,085
Computer equipment & software 2,121,261 2,085,817
------------ ------------
16,001,841 15,951,977
Less: Accumulated depreciation (6,494,358) (6,276,781)
------------ ------------
Net property, plant and equipment 9,507,483 9,675,196
------------ ------------
Total assets $ 16,923,297 $ 16,938,477
============ ============
See notes to financial statements.
Reliv International, Inc. and Subsidiaries
Consolidated Balance Sheets
March 31 December 31
2002 2001
------------ ------------
(unaudited) (see notes)
Liabilities and stockholders' equity
Current liabilities:
Accounts payable and accrued expenses:
Trade accounts payable and other accrued expenses $ 2,404,398 $ 2,882,361
Distributors commissions payable 1,903,180 1,244,439
Sales taxes payable 361,525 260,643
Interest expense payable 59,227 60,499
Payroll and payroll taxes payable 329,309 192,673
------------ ------------
Total accounts payable and accrued expenses 5,057,639 4,640,615
Income taxes payable 219,019 6,153
Borrowings under line of credit -- 985,922
Current maturities of long-term debt 292,331 279,733
Current maturities of capital lease obligations 99,890 134,682
------------ ------------
Total current liabilities 5,668,879 6,047,105
Capital lease obligations, less current maturities 1,332 8,862
Long-term debt, less current maturities 4,531,656 4,641,384
Other non-current liabilities 422,195 414,276
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; 9,654,884 shares issued and 9,524,791
shares outstanding as of 3/31/2002; 9,654,884 shares
issued and 9,563,267 shares outstanding as of 12/31/2001 9,655 9,655
Additional paid-in capital 9,124,903 9,119,934
Notes receivable-officers and directors (17,379) (19,289)
Treasury stock-130,093 shares in 2002
and 91,617 shares in 2001 (177,903) (115,558)
Accumulated deficit (2,020,741) (2,479,285)
Accumulated other comprehensive loss:
Foreign currency translation adjustment (619,300) (688,607)
------------ ------------
Total stockholders' equity 6,299,235 5,826,850
------------ ------------
Total liabilities and stockholders' equity $ 16,923,297 $ 16,938,477
============ ============
See notes to financial statements.
International, Inc. and Subsidiaries
Consolidated Statements of Operations
Three months ended March 31
2002 2001
------------ ------------
(unaudited) (unaudited)
Sales at suggested retail $ 20,858,510 $ 19,469,870
Less: distributor allowances on product purchases 6,374,226 5,408,301
------------ ------------
Net sales 14,484,284 14,061,569
Costs and expenses:
Cost of products sold 2,756,710 4,152,821
Distributor royalties and commissions 5,572,058 4,650,632
Selling, general and administrative 5,274,759 5,254,005
------------ ------------
Total costs and expenses 13,603,527 14,057,458
------------ ------------
Income from operations 880,757 4,111
Other income (expense):
Interest income 6,489 10,186
Interest expense (121,458) (157,329)
Other income/(expense) 6,756 (3,149)
------------ ------------
Income (loss) before income taxes 772,544 (146,181)
Provision for income taxes 314,000 0
------------ ------------
Net income (loss) $ 458,544 ($146,181)
============ ============
Earnings (loss) per common share $ 0.05 ($0.02)
============ ============
Earnings (loss) per common share - assuming dilution $ 0.05 ($0.02)
============ ============
See notes to financial statements.
Reliv International, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(unaudited)
Three months ended March 31
2002 2001
----------- -----------
Operating activities:
Net income (loss) $ 458,544 ($ 146,181)
Adjustments to reconcile net income to
net cash provided by (used in) operating
activities:
Depreciation 211,790 192,636
Compensation expense for warrants granted 4,969 --
Foreign currency translation (gain) loss 19,339 (7,027)
(Increase) decrease in accounts and notes receivable (38,827) 833,569
(Increase) decrease in inventories 730,239 315,982
(Increase) decrease in refundable income taxes 136,264 197,142
(Increase) decrease in prepaid expenses
and other current assets (531,278) (165,609)
(Increase) decrease in other assets 9,209 20,385
Increase (decrease) in accounts payable and accrued expenses 413,280 255,733
Increase (decrease) in income taxes payable 212,403 --
----------- -----------
Net cash provided by operating activities 1,625,932 1,496,630
Investing activities:
Purchase of property, plant and equipment (41,441) (31,251)
Repayment of loans by officers and directors 3,910 1,799
----------- -----------
Net cash used in investing activities (37,531) (29,452)
Financing activities:
Net repayments under line of credit (985,922) (1,190,555)
Principal payments on long-term borrowings (97,415) (109,787)
Principal payments under capital lease obligations (42,322) (54,372)
Proceeds from warrants exercised -- 390
Purchase of treasury stock (62,345) --
----------- -----------
Net cash used in financing activities (1,188,004) (1,354,324)
Effect of exchange rate changes on cash and cash equivalents 22,621 (94,266)
----------- -----------
Increase in cash and cash equivalents 423,018 18,588
Cash and cash equivalents at beginning of period 1,258,821 1,198,682
----------- -----------
Cash and cash equivalents at end of period $ 1,681,839 $ 1,217,270
=========== ===========
See notes to financial statements
Reliv' International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
March 31, 2002
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, 2002 are not necessarily indicative of the results that may
be expected for the year ended December 31, 2002.
The balance sheet at December 31, 2001 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 priciples 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, 2001.
Note 2-- Earnings per Share
The following table sets forth the computation of basic and diluted
earnings (loss) per share:
Three months ended March 31
2002 2001
---------------------------
Numerator:
Numerator for basic and diluted
earnings (loss) per share--net income (loss) $ 458,544 ($146,181)
Denominator:
Denominator per basic earnings per
share--weighted average shares 9,548,000 9,655,000
Effect of dilutive securities:
Employee stock options and other warrants 446,000 --
--------------------------
Denominator for diluted earnings per
share--adjusted weighted average shares 9,994,000 9,655,000
==========================
Basic earnings (loss) per share $ 0.05 ($0.02)
==========================
Diluted earnings (loss) per share $ 0.05 ($0.02)
==========================
Note 3-- Comprehensive Income
Total comprehensive income (loss) was $527,851 for the three months
ended March 31, 2002 and $(272,879) for the three months ended March
31, 2001. The Company's only component of other comprehensive income
is the foreign currency translation adjustment.
Reliv' International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
March 31, 2002
Note 4-- Segment Information
Three months ended Three months ended
March 31, 2002 March 31, 2001
Network Manufacturing Network Manufacturing
marketing and packaging marketing and packaging
-------------------------- --------------------------
Net sales to external customers 14,433,880 50,404 12,167,597 1,893,972
Intersegment net sales -- 1,691,021 -- 1,690,753
Segment profit/(loss) 1,310,766 (50,676) 686,486 (274,538)
Segment assets 13,102,459 2,138,999 12,694,948 5,088,477
A reconciliation of combined operating profit for the reportable
segments to consolidated income before income taxes is as follows:
Three months ended March 31
2002 2001
---------------------------
Total profit for reportable segments 1,260,090 411,948
Corporate expenses (379,333) (407,837)
Non operating - net 13,245 7,037
Interest expense (121,458) (157,329)
---------------------------
Income (loss) before income taxes 772,544 (146,181)
===========================
Note 5-- Legal Proceedings
In December 2001, five former distributors of the Company filed for
arbitration claiming unlawful termination, breach of the Distributor
Agreement, and interference with business expectancy. The individuals
had been terminated by the Company in October 2000 for violating
certain provisions of the Distributor Agreement. The Company believes
the claim is without merit and intends to vigorously defend itself. At
this time, the outcome of this matter is uncertain and a range of loss
cannot be reasonably estimated; however, management believes that the
final outcome will not have a material adverse effect on the financial
position or results of operations of the Company.