FORM 10-Q/A
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO 1 TO
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
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
incorporation or organization) Identification Number)
136 Chesterfield Industrial Boulevard,
P.O. Box 405,
Chesterfield, Missouri 63006
(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 9,551,102 outstanding Shares as of March 31, 2000
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, 2000 and Balance
Sheet as of December 31, 1999.
2. Interim Statements of Operations for the three month
periods ending March 31, 2000 and March 31, 1999.
3. Interim Statements of Cash Flows for the three month
periods ending March 31, 2000 and March 31, 1999.
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
2000, to $7,949,000 from $8,497,000 as of December 31, 1999. Cash and cash
equivalents decreased by $352,000 to $1,180,000 as of March 31, 2000 as the
result of the increase in accounts receivable and the reduction of trade
accounts payable. Inventory decreased by $788,000 to $3,918,000 as of March 31,
2000. The Company's inventory decrease is due to the reduction in the sales and
production for the Company's manufacturing and packaging business. However,
accounts receivable increased by $629,000, as the Company's remaining packaging
customer had a strong month of sales in March 2000.
The Company purchased only $55,000 of property, plant and equipment
during the first quarter of 2000, further emphasizing its decision to reduce the
manufacturing and packaging business. The majority of capital purchases in
recent years were dedicated to this line of business.
Current liabilities decreased by $456,000 from $8,307,000 as of
December 31, 1999 to $7,851,000 as of March 31, 2000. The primary component of
the decrease was in trade accounts payable. Trade accounts payable decreased by
$603,000 from $3,994,000 as of December 31, 1999 to $3,391,000 as of March 31,
2000. This decrease is related to the decrease in inventory, as discussed
previously.
Long-term debt decreased by $123,000 from $4,991,000 as of December 31,
1999 to $4,868,000 as of March 31, 2000. The Company incurred no additional debt
during the first quarter of 2000.
Stockholders' equity decreased from $6,819,000 as of December 31, 1999
to $6,801,000 as of March 31, 2000, as the net income of the first quarter of
2000 was offset by $105,000 as the result of the foreign currency translation
adjustment at March 31, 2000 as compared to December 31, 1999. The Australian,
New Zealand and Canadian dollars all weakened against the US dollar over the
course of the first quarter of 2000.
The Company's working capital balance has declined slightly since
December 31, 1999 with a working capital balance of $98,000 as of March 31,
2000. The current ratio has also declined slightly to 1.01 as of March 31, 2000.
The Company's line of credit is formula-based and provides a borrowing
arrangement based on a percentage of accounts receivable and inventory up to a
maximum borrowing limit. As of December 31, 1999, the Company had borrowed more
than the amount allowed under the collateral calculation, but has obtained a
waiver to allow it to borrow the maximum amount under the line through September
30, 2000. Management believes that the Company's internally generated funds
together with the loan agreement will be sufficient to meet working capital
requirements in 2000.
2. Results of Operations
The Company had net income of $86,000, or $.01 per share ($.01 per
share diluted), for the quarter ended March 31, 2000, compared to net income of
$67,000, or $.01 per share ($.01 per share diluted), for the same period in
1999. The Company expected net sales to decline as the result of the reduction
in the manufacturing and packaging business, but gross margins improved slightly
in the network marketing business and consolidated selling, general and
administrative expenses decreased by $238,000 in the first quarter of 2000, as
compared to the first quarter of 1999.
Net sales decreased to $15,088,000 in the first quarter of 2000 as
compared to $17,695,000 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 $4,517,000 in the first
quarter of 2000, as compared to $6,208,000 in the prior year. Net sales in the
network marketing segment declined to $10,571,000 in the first quarter of 2000,
as compared to $11,487,000 in the first quarter of 1999. Network marketing sales
in the United States declined by 11% from $10,438,000 in the first quarter of
1999 to $9,333,000 in the first quarter of 2000. However, sales in the Company's
international subsidiaries improved overall. Sales in the foreign subsidiaries
of Australia, New Zealand, Canada, Mexico and the United Kingdom overall
increased by 18% from $1,049,000 in the first quarter of 1999 to $1,238,000 in
the first quarter of 2000, led by sales increases in Mexico of 253% and in the
UK operation of 25%. The Company's UK operation recently installed a new sales
manager.
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 $4,517,000 in
the first quarter of 2000 from $6,208,000 in the prior year. This
decrease follows 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 2000, cost
of goods sold for these sales were 99% 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 is taking steps to improve margins with its remaining customer.
Cost of products sold for the network marketing segment as a percentage
of net sales increased slightly from 16.7% in the first quarter of 1999 to
17.0%.
Distributor royalties and commissions as percentage of network
marketing sales decreased from 39% in the first quarter of 1999 to 36% in the
first quarter of 2000. 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. A portion of
this decreased percentage is due to the Company allowing distributors in the
United States to purchase individual cans of the products at their specified
discount level. This change went into effect in February 2000. Previously,
distributors had to pay full retail price through the Direct Select program to
buy individual cans of product.
Interest expense increased from $130,000 in the first quarter of 1999
to $168,000 in the first quarter of 2000. This increase is due to the greater
reliance on the line of credit, along with higher interest rates.
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 2000 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
In May 1998, the former sales/general manager of the Company's Canadian
subsidiary filed a lawsuit claiming unlawful termination and breach of contract.
The individual had been terminated by the Company in March, 1998. The Company
believes the claim is without merit and intends to vigorously defend itself. The
Company has engaged Canadian counsel to defend this suit. The probable outcome
of this matter is uncertain, and a range of loss cannot reasonably be 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.
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.
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: January 12, 2001 RELIV' INTERNATIONAL, INC.
By: /s/ Robert L. Montgomery
-----------------------------------
Robert L. Montgomery, President,
Chief Executive Officer
Reliv International, Inc. and Subsidiaries
Consolidated Balance Sheets
March 31 December 31
2000 1999
------------ ------------
(unaudited) (see notes)
Current assets:
Cash and cash equivalents $ 1,179,531 $ 1,531,700
Accounts and notes receivable, less allowances of
$429,000 in 2000 and $430,000 in 1999 1,423,221 794,037
Note receivable from officer 59,250 164,250
Inventories
Finished goods 1,567,138 1,826,748
Raw materials 1,885,699 2,402,006
Sales aids and promotional materials 464,777 476,708
------------ ------------
Total inventories 3,917,614 4,705,462
Refundable income taxes 854,255 855,178
Prepaid expenses and other current assets 374,457 304,734
Deferred income taxes 140,679 141,236
------------ ------------
Total current assets 7,949,007 8,496,597
Other assets:
Goodwill, net of accumulated amortization of
$78,830 in 2000 and $65,692 in 1999 446,707 459,846
Other assets 1,173,046 1,013,130
------------ ------------
Total other assets 1,619,753 1,472,976
Property, plant and equipment:
Land 829,222 829,222
Building 8,384,058 8,384,105
Machinery & equipment 3,876,028 3,870,695
Office equipment 455,581 454,729
Computer equipment & software 1,859,190 1,823,832
------------ ------------
15,404,079 15,362,583
Less: Accumulated depreciation (4,815,571) (4,560,338)
------------ ------------
Net property, plant and equipment 10,588,508 10,802,245
------------ ------------
Total assets $ 20,157,268 $ 20,771,818
============ ============
<FN>
See notes to financial statements.
</FN>
Reliv International, Inc. and Subsidiaries
Consolidated Balance Sheets
March 31 December 31
2000 1999
------------ ------------
(unaudited) (see notes)
Liabilities and stockholders' equity
Current liabilities:
Accounts payable and accrued expenses:
Trade accounts payable $ 3,390,654 $ 3,993,555
Distributors commissions payable 1,436,725 1,421,286
Sales taxes payable 209,024 204,552
Interest expense payable 41,731 31,871
Payroll and payroll taxes payable 179,799 127,800
Other accrued expenses 203,893 103,548
------------ ------------
Total accounts payable and accrued expenses 5,461,826 5,882,612
Income taxes payable 67,097 3,391
Borrowings under line of credit 1,686,430 1,792,986
Current maturities of long-term debt and
capital lease obligations 630,314 622,973
Unearned income 5,003 5,003
------------ ------------
Total current liabilities 7,850,670 8,306,965
Capital lease obligations, less current maturities 265,958 305,081
Long-term debt, less current maturities 4,867,937 4,990,639
Other non-current liabilities 372,050 350,415
Stockholders' equity:
Common stock, no par value; 20,000,000 shares
authorized; 9,551,102 shares issued and outstanding
as of 3/31/2000 and 13/31/1999 9,082,382 9,082,382
Notes receivable-officers and directors (36,522) (38,217)
Accumulated deficit (1,803,742) (1,889,297)
Accumulated other comprehensive loss:
Foreign currency translation adjustment (441,465) (336,150)
------------ ------------
Total stockholders' equity 6,800,653 6,818,718
------------ ------------
Total liabilities and stockholders' equity $ 20,157,268 $ 20,771,818
============ ============
<FN>
See notes to financial statements.
</FN>
Reliv International, Inc. and Subsidiaries
Consolidated Statements of Operations
Three months ended March 31
2000 1999
------------ ------------
(unaudited) (unaudited)
Sales at suggested retail $ 20,867,382 $ 23,774,411
Less: distributor allowances on product purchases 5,779,009 6,079,100
------------ ------------
Net sales 15,088,373 17,695,311
Costs and expenses:
Cost of products sold 6,256,330 8,074,732
Distributor royalties and commissions 3,832,424 4,510,775
Selling, general and administrative 4,685,541 4,923,829
------------ ------------
Total costs and expenses 14,774,295 17,509,336
------------ ------------
Income from operations 314,078 185,975
Other income (expense):
Interest income 13,538 18,800
Interest expense (167,670) (130,398)
Other income/(expense) (17,853) 34,233
------------ ------------
Income before income taxes 142,093 108,610
Provision for income taxes 56,538 41,622
------------ ------------
Net income $ 85,555 $ 66,988
============ ============
Earnings per common share $0.01 $0.01
============ ============
Earnings per common share - assuming dilution $0.01 $0.01
============ ============
<FN>
See notes to financial statements.
</FN>
Reliv International, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(unaudited)
Three months ended March 31
2000 1999
----------- -----------
Operating activities:
Net income $ 85,555 $ 66,988
Adjustments to reconcile net income to
net cash provided by (used in) operating
activities:
Depreciation and amortization 277,575 257,741
Foreign currency translation (gain) loss 15,410 (21,843)
(Increase) decrease in accounts and notes receivable (548,962) (302,043)
(Increase) decrease in inventories 767,132 (1,473,972)
(Increase) decrease in refundable income taxes -- (1,933)
(Increase) decrease in prepaid expenses
and other current assets (72,814) 38,166
(Increase) decrease in other assets (162,135) (103,754)
Increase (decrease) in accounts payable and accrued expenses (390,480) 1,717,872
Increase (decrease) in income taxes payable 65,058 25,446
Increase (decrease) in unearned income -- --
----------- -----------
Net cash provided by operating activities 36,339 202,668
Investing activities:
Purchase of property, plant and equipment (55,212) (589,160)
Repayment of loans by officers and directors 31,694 1,596
----------- -----------
Net cash used in investing activities (23,518) (587,564)
Financing activities:
Net repayments under line of credit (106,557) (85,256)
Proceeds from long-term borrowings -- 300,000
Principal payments on long-term borrowings (112,441) (94,188)
Principal payments under capital lease obligations (42,043) (41,084)
Dividends paid -- (96,505)
Purchase of treasury stock -- (7,682)
----------- -----------
Net cash used in financing activities (261,041) (24,715)
Effect of exchange rate changes on cash and cash equivalents (103,949) 66,129
----------- -----------
Decrease in cash and cash equivalents (352,169) (343,482)
Cash and cash equivalents at beginning of period 1,531,700 2,816,804
----------- -----------
Cash and cash equivalents at end of period $ 1,179,531 $ 2,473,322
=========== ===========
<FN>
See notes to financial statements
</FN>
Reliv' International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
March 31, 2000
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, 2000
are not necessarily indicative of the results that may be expected for the year
ended December 31, 2000. The balance sheet at December 31, 1999 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, 1999.
Note 2-- Restatement of Prior Interim Periods
For the three-month periods ended March 31, 2000, June 30, 2000, and September
30, 2000, the Company understated cost of goods sold by (respectively) $125,133,
$184,284 and $227,479 due to inventory costing errors. This resulted in
overstatements of previously reported quarterly net income of $77,583 ($.01 per
share basic and diluted), $114,256 ($.01 per share basic and diluted) and
$141,037 ($.01 per share basic and diluted). Net income as adjusted was $85,555
($.01 per share basic and diluted) for the first quarter of 2000, $62,615 ($.01
per share basic and diluted) for the second quarter, and $234,752 ($.02 per
share basic and diluted) for the third quarter.
Note 3-- Earnings per Share
The following table sets forth the computation of basic and
diluted earnings per share:
Three months ended March 31
2000 1999
---------- ----------
Numerator:
Numerator for basic and diluted
earnings per share--net income $ 85,555 $ 66,988
Denominator:
Denominator per basic earnings per
share--weighted average shares 9,551,000 9,651,000
Effect of dilutive securities:
Employee stock options and other warrants 385,000 200,000
---------- ----------
Denominator for diluted earnings per
share--adjusted weighted average shares 9,936,000 9,851,000
========== ==========
Basic earnings per share $0.01 $0.01
========== ==========
Diluted earnings per share $0.01 $0.01
========== ==========
Note 4-- Comprehensive Income
Total comprehensive income/(loss) was ($19,760) for the three months ended March
31, 2000 and $128,613 for the three months ended March 31, 1999. 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, 2000 March 31, 1999
Network Manufacturing Network Manufacturing
marketing and packaging marketing and packaging
----------------------------------- ----------------------------------
Net sales to external customers 10,570,976 4,517,397 11,487,115 6,208,196
Intersegment net sales -- 1,549,927 -- 1,567,162
Segment profit/(loss) 832,096 (145,709) 649,007 (96,745)
Segment assets 13,968,328 5,009,409 13,213,440 6,424,607
A reconciliation of combined operating profit for the reportable segments to
consolidated income before income taxes is as follows:
Three months ended March 31
2000 1999
-----------------------------------
Total profit for reportable segments 686,387 552,262
Corporate expenses (372,309) (366,287)
Non operating - net (4,315) 53,033
Interest expense (167,670) (130,398)
-----------------------------------
Income before income taxes 142,093 108,610
===================================
Note 6-- Legal Proceedings
In May 1998, the former sales/general manager of the Company's Canadian
subsidiary filed lawsuit claiming unlawful termination and breach of contract.
The individual had been terminated by the Company in March 1998. 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.