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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 September 30, 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
incorporation or organization) Identification Number)
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 11,257,176 outstanding Shares as of September 30, 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 September 30, 2002 and Balance
Sheet as of December 31, 2001.
2. Interim Statements of Operations for the three and nine month
periods ending September 30, 2002 and September 30, 2001.
3. Interim Statements of Cash Flows for the nine month periods
ending September 30, 2002 and September 30, 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 nine months of
2002, to $8,253,000 from $6,514,000 as of December 31, 2001. Cash and cash
equivalents increased by $1,778,000 to $3,037,000 as of September 30, 2002, as
compared to $1,259,000 as of December 31, 2001. Accounts and notes receivable
increased to $632,000 as of September 30, 2002, as compared to $548,000 as of
December 31, 2001. Inventory decreased by $386,000 to $3,756,000 as of September
30, 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 and efforts to maintain
higher inventory turns. Prepaid expenses and other current assets increased by
$379,000 to $741,000 at September 30, 2002 as the result of payments made for
upcoming conventions and promotional trips, along with policy payments for
various types of business insurance to be expensed over the lives of the
policies.
The Company purchased $482,000 of property, plant and equipment during the
first nine months of 2002.
Current liabilities increased by $360,000 from $6,047,000 as of December
31, 2001 to $6,407,000 as of September 30, 2002. Repayment of the amount drawn
on the line of credit was offset by increases in distributor commissions
payable, income taxes payable, and an increase in the current maturities of
long-term debt. The amount drawn on the line of credit reduced from $986,000 as
of December 31, 2001 to $0 as of September 30, 2002. Trade accounts payable
decreased by $391,000 from $2,882,000 as of December 31, 2001 to $2,492,000 as
of September 30, 2002. Distributor commissions payable increased from $1,244,000
as of December 31, 2001 to $2,249,000 as of September
2
30, 2002. This is the result of higher network marketing sales in September
2002, as compared to December 2001. Income taxes payable increased by $275,000
as of September 30, 2002, as compared to December 31, 2001, as the result of the
improved profitability of the Company. Current maturities of long-term debt
increased by $139,000 as the result of the refinancing of the Company's debt of
approximately $4,000,000 on its building. The effect of the refinancing was to
reduce the interest rate to a floating interest rate, set at the prime rate
(4.75% as of September 30, 2002), yet maintain the same amount of monthly
payments of principal and interest. This increases the amount of principal paid
in each monthly payment and increases the amount characterized as current.
Long-term debt and capital lease obligations decreased by $494,000 from
$4,650,000 as of December 31, 2001 to $4,157,000 as of September 30, 2002. A
portion of the decrease is due to the refinancing of primary building debt, as
described above. The Company incurred no additional long-term debt during the
first nine months of 2002.
Stockholders' equity increased from $5,827,000 as of December 31, 2001 to
$7,336,000 as of September 30, 2002, as the result of the net income of the
first nine months of 2002. Equity decreased by $97,000 as the result of the
foreign currency translation adjustment at September 30, 2002 as compared to
December 31, 2001. Also, equity was reduced by $280,000 for treasury stock
purchases made since the end of 2001.
On September 19, 2002, the Company declared a 19% stock dividend on the
Company's common stock which was distributed on October 25, 2002 to shareholders
of record on October 11, 2002. The dividend was transferred from retained
earnings to capital stock and additional paid-in capital in the amount of
$7,905,000, which was based on the closed price of $4.39 per share on the
declaration date. Average shares outstanding and all per share amounts included
throughout this Form 10-Q and accompanying financial statements and notes are
based on the increased number of shares giving retroactive recognition to the
stock dividend.
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 $1,847,000 as
of September 30, 2002. Accordingly, the current ratio has improved from 1.08 as
of December 31, 2001 to 1.29 as of September 30, 2002. In addition to the
refinancing of the Company's primary building debt, the Company renewed its
operating line of credit in May 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 September 30,
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
Note: All per share data has been restated to reflect the effect of the
Company's 19% stock dividend declared on September 19, 2002 and distributed on
October 25, 2002.
3
The Company had net income of $741,000 ($.07 per share basic and $.06 per
share diluted) for the quarter ended September 30, 2002, compared to a net
income of $407,000, or $.04 per share basic and diluted, for the same period in
2001. For the nine months ended September 30, 2002, the Company had net income
of $1,825,000 ($.16 per share basic and $.15 per share diluted), as compared to
a net income of $274,000 ($.02 per share basic and diluted) in the first nine
months of 2001. Profitability improved substantially as network marketing sales
continued to improve in the Company's primary market of the United States.
Net sales increased to $16,237,000 in the third quarter of 2002 as
compared to $13,418,000 in the prior year quarter. The increase was the result
of an increase in the Company's network marketing sales, primarily in the United
States. For the nine-month period ended September 30, 2002, net sales were
$46,170,000 as compared to $40,905,000 for the same period in 2001. Offsetting
the increase in network marketing sales in the United States was the lack of
sales to unrelated customers by the manufacturing and packaging segment. Through
the nine months ended September 30, 2001, the Company had $3,861,000 in net
sales to unrelated customers by this segment, compared to $125,000 through the
same period in 2002. The Company made a decision to terminate all significant
activity to unrelated customers by this segment in mid-2001.
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 29% to $13,741,000 in the third quarter of 2002, as
compared to $10,654,000 in the third quarter of 2001. For the first nine months
of 2002, United States network marketing sales were $38,803,000 as compared to
$30,925,000 for the same period in 2001. Increased signups of new distributors
in the United States is helping to generate the sales growth in this market. In
the third quarter of 2002, over 4,900 new distributors were enrolled, as
compared to approximately 3,200 in the same quarter of 2001. For the nine months
ended September 30, approximately 13,500 new distributors have been enrolled in
2002, as compared to 9,700 in 2001. The number of distributors reaching Master
Affiliate, the highest level of discount that a distributor can attain, has also
increased in the United States. In the third quarter of 2002, 1,014 distributors
achieved Master Affiliate status, as compared to 631 in the same quarter of
2001. Through nine months of 2002, 2,653 distributors achieved Master Affiliate
versus 1,712 in nine months of 2001. Additionally, sales in the Company's
international subsidiaries increased slightly overall. International sales
increased by 5% to $2,488,000 in the third quarter of 2002, compared to
$2,375,000 in the third quarter of 2001. Most of the increase in the
international group for the third quarter came from Mexico. Mexican sales
increased by 24% from the prior year quarter, as the sales of Reversage in
Mexico continue to do well. Reversage was introduced in Mexico during the second
quarter of 2002. For the first nine months, international sales have increased
by 18%, to $7,243,000, from $6,118,000 in the same period 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 $9,000
4
in the third quarter of 2002 from $389,000 in the prior year quarter. For the
nine-month period, these sales were $125,000 in 2002 as compared to $3,861,000
in 2001.
Cost of products sold for the network marketing segment as a percentage of
net sales was 17.1% in the third quarter of 2002, as compared to 14.9% in the
third quarter of 2001. For the nine month period ended September 30, cost of
products sold for the network marketing segment were 18.1% in 2002 and 17.5% in
2001. For the nine-month period ended September 30, total cost of goods sold
decreased from 10,127,000 in 2001 to 8,447,000 in 2002. The decrease 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 were 38.3% and 38.4% in the third quarter of 2002 and 2001, respectively.
For the nine-month period, royalties and commissions were 38.5% of network
marketing sales in 2002 and 38.4% in 2001. 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 $609,000
in the third quarter of 2002, as compared to the third quarter of 2001. However,
SGA expenses as a percentage of net sales decreased from 40.5% in the third
quarter of 2001 to 37.2% in the third quarter of 2002. Sales expenses accounted
for approximately $268,000 of the increase. Some of the components of the
increase were increased credit card fees due to the higher sales volume,
increased sales meeting expenses due to more and larger distributor meetings
worldwide, and increased sales bonuses. Marketing expenses increased by
approximately $157,000, primarily due to the timing of an incentive trip in the
third quarter of 2002. A similar incentive trip in 2001 occurred in the fourth
quarter. Increases in G&A expenses made up the remainder of the difference,
primarily in G&A salaries and fringe benefit expenses.
Interest expense decreased from $126,000 in the third quarter of 2001 to
$63,000 in the third quarter of 2002. This decrease is due to less reliance on
the line of credit, coupled with the refinancing of the Company's primary
building debt, as described in the "Financial Condition" section. For the
nine-month period ended September 30, interest expense decreased from $413,000
in 2001 to $282,000 in 2002.
The Company recorded income tax expense of $446,000 for the third quarter
of 2002, an effective rate of 37.6%. In the third quarter of 2001, the Company
recorded income tax expense of $162,000. For the first nine months of 2002,
income tax expense was $1,135,000, an effective rate of 38.3%.
Critical Accounting Policies
Our financial statements are based on the selection and application of
significant accounting policies, which require management to make significant
estimates and assumptions. We believe that the following are some of the more
critical judgement areas in the application of our accounting policies that
currently affect our financial condition and results of operations.
5
Inventories
Inventories are valued at the lower of cost or market. Product cost
includes raw material, labor and overhead costs and is accounted for using the
first-in, first-out basis. On a periodic basis, the Company reviews its
inventory levels in each country's product line for estimated obsolescence or
unmarketable items, as compared to future demand requirements and the shelf life
of the various products. Based on this review, the Company records inventory
write-downs when necessary.
Legal Proceedings
In the ordinary course of business, we are subject to various legal
proceedings, including lawsuits and other claims related to labor, product and
other matters. We are required to assess the likelihood of adverse judgments and
outcomes to these matters as well as the range of potential loss. Such
assessments are required to determine whether a loss contingency reserve is
required under the provisions of SFAS No. 5, Accounting for Contingencies, and
to determine the amount of required reserves, if any. These assessments are
subjective in nature. Management makes these assessments for each individual
matter based on consultation with outside counsel and based on prior experience
with similar claims. To the extent additional information becomes available or
our strategies or assessments change, our estimates of potential liability for a
given matter may change. Changes to estimates of liability would result in a
corresponding additional charge or benefit recognized in the statement of
operations in the period in which such changes become known. We recognize the
costs associated with legal defense in the periods incurred. Accordingly, the
future costs of defending claims are not included in our estimated liability.
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 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.
6
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.
Item 4. Controls and Procedures
(a) Evaluation of disclosure controls and procedures. Our principal
executive officer and principal financial officer, after evaluating the
effectiveness of our disclosure controls and procedures (as defined in Exchange
Act Rules 13a-14(c) and 15d-14(c)) as of a date within ninety days before the
filing date of this report, have concluded that, as of such date our disclosure
controls and procedures were adequate and effective to ensure that material
information relating to the Company would be made known to them by others within
the Company.
(b) Changes in internal controls. There were no significant changes in our
internal controls or in other factors that could significantly affect the
Company's disclosure controls and procedures subsequent to the date of their
evaluation, nor were there any significant deficiencies or material weaknesses
in the Company's internal controls. As a result, no corrective actions were
required or undertaken.
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.
7
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 are the Exhibits filed as part of the
S-18 Registration Statement of the Registrant, effective November 5,
1985, and subsequent periodic filings.
8
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: November 8, 2002 RELIV' INTERNATIONAL, INC.
By: /s/ Robert L. Montgomery
----------------------------------
Robert L. Montgomery, President,
Chief Executive Officer
By: /s/ David G. Kreher
----------------------------------
David G. Kreher, Chief
Financial Officer
9
CERTIFICATIONS
I, Robert L. Montgomery, Chief Executive Officer of Reliv' International,
Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Reliv
International, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that
10
could significantly affect internal controls subsequent to the date of our most
recent evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: November 8, 2002
RELIV' INTERNATIONAL, INC.
By: /s/ Robert L. Montgomery
------------------------------------
Robert L. Montgomery Chief Executive
Officer
11
CERTIFICATIONS
I, David G. Kreher, Chief Financial Officer of Reliv' International, Inc.,
certify that:
1. I have reviewed this quarterly report on Form 10-Q of Reliv
International, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that
12
could significantly affect internal controls subsequent to the date of our most
recent evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: November 8, 2002
RELIV' INTERNATIONAL, INC.
By: /s/ David G. Kreher
--------------------------------
David G. Kreher, Chief Financial
Officer
13
SARBANES-OXLEY ACT
SECTION 906 CERTIFICATION
I certify that the periodic report on Form 10-Q containing the financial
statements fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o (d)) and that information
contained in the periodic report on Form 10-Q fairly presents, in all material
respects, the financial condition and results of operations of the issuer.
RELIV' INTERNATIONAL, INC.
By: /s/ Robert L. Montgomery
-----------------------------------
Robert L. Montgomery,
Chief Executive Officer
14
SARBANES-OXLEY ACT
SECTION 906 CERTIFICATION
I certify that the periodic report on Form 10-Q containing the financial
statements fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o (d)) and that information
contained in the periodic report on Form 10-Q fairly presents, in all material
respects, the financial condition and results of operations of the issuer.
RELIV' INTERNATIONAL, INC.
By: /s/ David G. Kreher
------------------------------
David G. Kreher,
Chief Financial Officer
15
Reliv International, Inc. and Subsidiaries
Consolidated Balance Sheets
September 30 December 31
2002 2001
------------ ------------
(unaudited) (see notes)
Assets
Current assets:
Cash and cash equivalents $3,037,031 $1,258,821
Accounts and notes receivable, less allowances of
$5,000 in 2002 and 2001 632,383 548,035
Accounts due from employees and distributors 64,000 50,200
Inventories
Finished goods 2,554,800 2,313,058
Raw materials 713,020 1,391,237
Sales aids and promotional materials 487,854 437,371
------------ ------------
Total inventories 3,755,674 4,141,666
Refundable income taxes 5,919 136,263
Prepaid expenses and other current assets 741,447 362,287
Deferred income taxes 17,000 17,000
------------ ------------
Total current assets 8,253,454 6,514,272
Other assets 595,236 646,018
Note receivable from officer 51,250 59,250
Accounts due from employees and distributors 3,000 43,741
Property, plant and equipment:
Land 829,222 829,222
Building 8,494,555 8,441,164
Machinery & equipment 4,098,176 4,030,689
Office equipment 705,392 565,085
Computer equipment & software 2,233,267 2,085,817
------------ ------------
16,360,612 15,951,977
Less: Accumulated depreciation (6,888,905) (6,276,781)
------------ ------------
Net property, plant and equipment 9,471,707 9,675,196
------------ ------------
Total assets $18,374,647 $16,938,477
============ ============
See notes to financial statements.
16
Reliv International, Inc. and Subsidiaries
Consolidated Balance Sheets
September 30 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 $2,491,786 $2,882,361
Distributors commissions payable 2,249,305 1,244,439
Sales taxes payable 445,978 260,643
Interest expense payable 57,358 60,499
Payroll and payroll taxes payable 440,733 192,673
------------ ------------
Total accounts payable and accrued expenses 5,685,160 4,640,615
Income taxes payable 281,231 6,153
Borrowings under line of credit -- 985,922
Current maturities of long-term debt 419,112 279,733
Current maturities of capital lease obligations 21,379 134,682
------------ ------------
Total current liabilities 6,406,882 6,047,105
Capital lease obligations, less current maturities -- 8,862
Long-term debt, less current maturities 4,156,525 4,641,384
Other non-current liabilities 475,461 414,276
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; 11,257,176 shares issued and outstanding
as of 9/30/2002; 9,654,884 shares issued and
9,563,267 shares outstanding as of 12/31/2001 11,257 9,655
Additional paid-in capital 16,859,590 9,119,934
Notes receivable-officers and directors (4,999) (19,289)
Treasury stock-91,617 shares in 2001 -- (115,558)
Accumulated deficit (8,744,870) (2,479,285)
Accumulated other comprehensive loss:
Foreign currency translation adjustment (785,199) (688,607)
------------ ------------
Total stockholders' equity 7,335,779 5,826,850
------------ ------------
Total liabilities and stockholders' equity $18,374,647 $16,938,477
============ ============
See notes to financial statements.
17
Reliv International, Inc. and Subsidiaries
Consolidated Statements of Operations
Three months ended September 30 Nine months ended September 30
2002 2001 2002 2001
------------ ------------ ------------ ------------
(unaudited) (unaudited) (unaudited) (unaudited)
Sales at suggested retail $23,169,058 $19,052,463 $66,029,019 $57,051,443
Less: distributor allowances on product purchases 6,931,981 5,634,290 19,858,627 16,146,767
------------ ------------ ------------ ------------
Net sales 16,237,077 13,418,173 46,170,392 40,904,676
Costs and expenses:
Cost of products sold 2,774,485 2,291,278 8,446,994 10,126,701
Distributor royalties and commissions 6,220,776 5,002,213 17,705,137 14,206,330
Selling, general and administrative 6,045,862 5,436,575 16,914,672 15,742,268
------------ ------------ ------------ ------------
Total costs and expenses 15,041,123 12,730,066 43,066,803 40,075,299
------------ ------------ ------------ ------------
Income from operations 1,195,954 688,107 3,103,589 829,377
Other income (expense):
Interest income 11,497 6,955 27,136 25,671
Interest expense (63,159) (126,105) (282,435) (413,490)
Other income/(expense) 42,877 (50) 111,634 (5,439)
------------ ------------ ------------ ------------
Income before income taxes 1,187,169 568,907 2,959,924 436,119
Provision for income taxes 446,000 162,000 1,135,000 162,000
------------ ------------ ------------ ------------
Net income $741,169 $406,907 $1,824,924 $274,119
============ ============ ============ ============
Earnings per common share $0.07 $0.04 $0.16 $0.02
============ ============ ============ ============
Earnings per common share - assuming dilution $0.06 $0.04 $0.15 $0.02
============ ============ ============ ============
See notes to financial statements.
All per share data has been restated to reflect the effect of the Company's 19
percent stock dividend declared on September 19, 2002 and distributed on October
25, 2002.
18
Reliv International, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(unaudited)
Nine months ended September 30
2002 2001
----------- -----------
Operating activities:
Net income (loss) $1,824,924 $274,119
Adjustments to reconcile net income to
net cash provided by (used in) operating
activities:
Depreciation 649,898 558,774
Compensation expense for warrants granted 14,905 --
Foreign currency translation (gain) loss (67,248) (27,003)
(Increase) decrease in accounts and notes receivable (108,557) 1,641,405
(Increase) decrease in inventories 343,141 134,780
(Increase) decrease in refundable income taxes 130,199 196,177
(Increase) decrease in prepaid expenses
and other current assets (390,136) (322,012)
(Increase) decrease in other assets 50,697 170,759
Increase (decrease) in accounts payable and accrued expenses 1,127,326 (974,816)
Increase (decrease) in income taxes payable 274,543 162,494
----------- -----------
Net cash provided by operating activities 3,849,692 1,814,677
Investing activities:
Purchase of property, plant and equipment (481,725) (225,216)
Proceeds from the sale of property, plant and equipment 26,081 --
Repayment of loans by officers and directors 8,000 5,479
----------- -----------
Net cash used in investing activities (447,644) (219,737)
Financing activities:
Net repayments under line of credit (985,922) (1,017,462)
Proceeds from long-term borrowings -- 41,102
Principal payments on long-term borrowings (345,204) (260,189)
Principal payments under capital lease obligations (122,165) (134,961)
Proceeds from options and warrants exercised 45,929 390
Purchase of treasury stock (280,237) --
----------- -----------
Net cash used in financing activities (1,687,599) (1,371,120)
Effect of exchange rate changes on cash and cash equivalents 63,761 (65,273)
----------- -----------
Increase in cash and cash equivalents 1,778,210 158,547
Cash and cash equivalents at beginning of period 1,258,821 1,198,682
----------- -----------
Cash and cash equivalents at end of period $3,037,031 $1,357,229
=========== ===========
See notes to financial statements
19
Reliv' International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
September 30, 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 nine-month period ended September 30, 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 per share:
Three months ended September 30 Nine months ended September 30
2002 2001 2002 2001
------------------------------- ------------------------------
Numerator:
Numerator for basic and diluted
earnings per share--net income $741,169 $406,907 $1,824,924 $274,119
Denominator:
Denominator per basic earnings per
share--weighted average shares 11,252,000 11,494,000 11,295,000 11,494,000
Effect of dilutive securities:
Employee stock options and other warrants 1,229,000 82,000 1,229,000 82,000
------------------------------- ------------------------------
Denominator for diluted earnings per
share--adjusted weighted average shares 12,481,000 11,576,000 12,524,000 11,576,000
=============================== ==============================
Basic earnings per share $0.07 $0.04 $0.16 $0.02
=============================== ==============================
Diluted earnings per share $0.06 $0.04 $0.15 $0.02
=============================== ==============================
All share and per share data has been restated to reflect the effect of
the Company's 19% stock dividend declared on September 19, 2002.
Note 3-- Comprehensive Income
Total comprehensive income was $654,493 and $1,728,332 for the three
months and nine months ended September 30, 2002, respectively. For the
three and nine months ended September 30, 2001, comprehensive income was
$316,004 and $133,517, respectively. The Company's only component of other
comprehensive income is the foreign currency translation adjustment.
20
Reliv' International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
September 30, 2002
Note 4-- Segment Information
Three months ended Three months ended
September 30, 2002 September 30, 2001
------------------ ------------------
Network Manufacturing Network Manufacturing
marketing and packaging marketing and packaging
------------------------------- ------------------------------
Net sales to external customers 16,228,557 8,520 13,029,228 388,945
Intersegment net sales -- 2,339,218 -- 2,224,227
Segment profit 1,383,344 273,740 738,947 490,723
Nine months ended Nine months ended
September 30, 2002 September 30, 2001
------------------ ------------------
Network Manufacturing Network Manufacturing
marketing and packaging marketing and packaging
------------------------------- ------------------------------
Net sales to external customers 46,045,299 125,093 37,043,603 3,861,073
Intersegment net sales -- 6,575,758 -- 5,728,622
Segment profit 3,989,151 433,500 1,948,568 209,632
Segment assets 13,370,937 1,966,679 14,609,000 2,359,340
A reconciliation of combined operating profit for the reportable segments
to consolidated income before income taxes is as follows:
Three months ended September 30 Nine months ended September 30
2002 2001 2002 2001
------------------------------- ------------------------------
Total profit for reportable segments 1,657,084 1,229,670 4,422,651 2,158,200
Corporate expenses (461,130) (541,563) (1,319,062) (1,328,823)
Non operating - net 54,374 6,905 138,770 20,232
Interest expense (63,159) (126,105) (282,435) (413,490)
------------------------------ ------------------------------
Income before income taxes 1,187,169 568,907 2,959,924 436,119
============================== ==============================
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.
Note 6-- Long-Term Debt
In June 2002, the Company entered into a loan modification agreement
related to the term loan on its building. The effect of the agreement was
to reduce the interest rate from a fixed rate of 8.5% to a floating
interest rate at the prime rate (4.75% as of September 30, 2002). The
monthly payments of principal and interest remain the same at $38,802 per
month. As of the date of the new agreement, the loan had a balance of
$4,021,000.
21
Reliv' International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
September 30, 2002
Note 7-- Stock Dividend
On September 19, 2002, the Board of Directors of the Company declared a
19% stock dividend on the Company's common stock which was distributed on
October 25, 2002 to shareholders of record on October 11, 2002. The
dividend was transferred from retained earnings to common stock in the
amount of $7,905,000, which was based on the closing price of $4.39 per
share on the declaration date. 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.
22