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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 March 31, 2003
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.
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes |_| No |X|
APPLICABLE ONLY TO CORPORATE ISSUERS:
COMMON STOCK 11,955,360 outstanding Shares as of March 31, 2003
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, 2003 and Balance Sheet as of
December 31, 2002.
2. Interim Statements of Operations for the three month periods ending
March 31, 2003 and March 31, 2002.
3. Interim Statements of Cash Flows for the three month periods ending
March 31, 2003 and March 31, 2002.
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 Operations
1. Financial Condition
Current assets of the Company increased during the first three months of
2003, to $12,407,000 from $8,432,000 as of December 31, 2002. Cash and cash
equivalents increased by $3,880,000 to $7,318,000 as of March 31, 2003, as
compared to $3,438,000 as of December 31, 2002. Accounts and notes receivable
decreased to $535,000 as of March 31, 2003, as compared to $689,000 as of
December 31, 2002. Inventory decreased by $93,000 to $3,364,000 as of March 31,
2003. 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,
coupled with the proceeds of sale of preferred stock of $1,500,000. Inventories
decreased as the result of the strong sales in the United States and in the key
foreign markets. Prepaid expenses and other current assets increased by $361,000
to $926,000 at March 31, 2003 primarily the result of policy payments for
various types of business insurance to be expensed over the lives of the
policies.
The Company purchased $153,000 of property, plant and equipment during the
first three months of 2003.
Current liabilities increased $1,505,000 from $6,040,000 as of December
31, 2002 to $7,545,000 as of March 31, 2003. Trade accounts payable increased
$532,000 from $2,462,000 as of December 31, 2002 to $2,994,000 as of March 31,
2003. The increase is primarily the result of increased raw material purchases
and increased payables for promotional trips at March 31, 2003, as compared to
December 31, 2002. Distributor commissions payable increased from $2,065,000 as
of December 31, 2002 to $2,486,000 as of March 31, 2003. This is the result of
2
higher network marketing sales in March 2003, as compared to December 2002. The
increase in sales taxes payable at March 31, 2003, compared to December 31,
2002, is due to the increase in sales. Income taxes payable increased by
$412,000 as of March 31, 2003, as compared to December 31, 2002, as the result
of the improved profitability of the Company.
Long-term debt decreased $50,000 from $4,057,000 as of December 31, 2002
to $4,007,000 as of March 31, 2003. The decrease is the result of scheduled
principal payments, offset by additional long-term debt the Company incurred
during the first quarter of 2003 of $64,000.
Stockholders' equity increased from $7,798,000 as of December 31, 2002 to
$10,235,000 as of March 31, 2003. The increase is primarily the result of net
income of $978,000 during the first three months of 2003, plus the proceeds of a
preferred stock offering of $1,500,000 issued on March 31, 2003. Equity also
increased $39,000 as compared to December 31, 2002, as a result of the foreign
currency translation adjustment at March 31, 2003 and by $131,000 due to
proceeds received from the exercise of incentive stock options during the first
quarter of 2003. Equity was reduced $213,000 for treasury stock purchases made
during the first quarter of 2003.
The Company's working capital balance has improved since the end of 2002,
from a balance of $2,393,000 as of December 31, 2002 to a balance of $4,862,000
as of March 31, 2003. Accordingly, the current ratio has improved from 1.40 as
of December 31, 2002 to 1.64 as of March 31, 2003. 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, 2003, the Company had no borrowings on the line of credit. Management
believes the Company's internally generated funds together with the loan
agreement and the preferred stock proceeds will be sufficient to meet working
capital requirements in 2003.
2. Results of Operations
Note: Per share data for the first quarter of 2002 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.
The Company had net income of $978,000 ($.08 per share basic and $.07 per
share diluted) for the quarter ended March 31, 2003, compared to a net income of
$459,000, or $.04 per share basic and diluted, for the same period in 2002.
Profitability improved substantially as network marketing sales continued to
improve worldwide led by a 27% increase in net sales in the Company's primary
market of the United States.
Net sales increased to $18,671,000 in the first quarter of 2003 as
compared to $14,484,000 in the first quarter of 2002. The growth in sales was
led by a strong increase in the Company's largest market, the United States.
Sales in the United States improved by 27% to $15,799,000 in the first quarter
of 2003, as compared to $12,426,000 in the first quarter of 2002. New
distributor enrollments in the US is a factor in the increased sales in this
market. In the first
3
quarter of 2003, approximately 5,000 new distributors were enrolled, as compared
to approximately 3,800 in the same quarter of 2002. The number of distributors
reaching Master Affiliate, the highest level of discount a distributor can
attain, has also continued to improve in the United States. In the first quarter
of 2003, 1,162 distributors achieved Master Affiliate status, as compared to 716
in the same quarter of 2002.
The Company also attributes the increase in sales and other sales
statistics in part to its increased support to the distributor force in the form
of increased sales meetings and other distributor training events. The Company
is holding more of its quarterly Master Affiliate training seminars in more
cities and has lengthened the program to a full day of training on Saturdays,
compared to a half-day training session used previously. The Company has also
modified the frequency of its national conferences. In the past, the Company
invited distributors to attend two major conferences a year. Now, the Company
has replaced its winter conference with a series of regional conferences in
areas of significant distributor groups in order to present the Reliv product
line and business opportunity to more people.
Additionally, sales in the Company's international subsidiaries showed a
strong increase. International sales increased 40% to $2,872,000 in the first
quarter of 2003, compared to $2,058,000 in the first quarter of 2002. Leading
the increase in international sales was the Philippines, with an increase of
105% in sales in the first quarter of 2003 versus the first quarter of 2002. A
substantial portion of the sales increase occurred in advance of a price
increase that went into effect on March 1, 2003. Mexican sales increased 24%
from the prior year quarter, helped by the introduction of Arthaffect in Mexico
in October 2002 and continued strong sales of Reversage. Canada also showed a
13% growth in sales in the first quarter of 2003, compared to the prior year
quarter. Sales in Canada continue to gradually improve as the Company completed
its changes there to make the business model function identical to that in the
United States. Effective February 1, 2003, royalties on Canadian sales are being
paid out on the full retail value of the products, just as they are in the
United States. This enhances the business opportunity associated with selling
the Reliv product line and encourages more people to become distributors.
Cost of products sold as a percentage of net sales was 17.7% in the first
quarter of 2003, as compared to 19.0% in the first quarter of 2002. The decrease
in the percentage of cost of goods sold is the result of greater efficiencies
gained in the production facility from increased production levels needed to
support the growth in sales. Efficiencies are being gained as production levels
have increased with minimal staffing increases and improved coverage of the
fixed manufacturing costs.
Distributor royalties and commissions as a percentage of network marketing
sales were 38.9% and 38.5% in the first quarter of 2003 and 2002, respectively.
These expenses are governed by the distributor agreements and are directly
related to the level of sales.
Selling, general and administrative (SGA) expenses increased $1,096,000 in
the first quarter of 2003, as compared to the first quarter of 2002. However,
SGA expenses as a percentage of net sales decreased to 34.1% in the first
quarter of 2003 compared to 36.4% in the
4
first quarter of 2002. Sales expenses represented approximately $500,000 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 meetings in support of the distributor force, and increased sales
bonuses. Marketing expenses increased by approximately $200,000, primarily the
result of increased incentive trip expenses. Increases in general and
administrative expenses represented approximately $350,000 of the increase,
primarily in salaries, fringe benefit expenses, higher business insurance costs
and higher stock market listing fees.
Interest expense decreased from $121,000 in the first quarter of 2002 to
$68,000 in the first quarter of 2003. This decrease in 2003 is the result of not
utilizing the line of credit, coupled with the interest savings gained from the
refinancing of the Company's primary building debt in June 2002.
The Company recorded income tax expense of $685,000 for the first quarter
of 2003, an effective rate of 41.2%. In the first quarter of 2002, the Company
recorded income tax expense of $314,000, an effective rate of 40.6%.
Critical Accounting Policies
A summary of our critical accounting policies and estimates is presented
on pages 35 and 36 of our 2002 Annual Report on Form 10-K filed with the
Securities and Exchange Commission on March 28, 2003.
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.
5
Item 3. Quantitative and Qualitative Disclosures of Market Risk
There have been no material changes in market risk exposures during the
first three months of 2003 that affect the disclosures presented in Item 7A -
"Qualitative and Quantitative Disclosures Regarding Market Risk" on pages 37 and
38 of our 2002 Annual Report on Form 10-K filed with the Securities and Exchange
Commission on March 28, 2003.
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
On March 31, 2003, the Company sold shares of a newly designated class of
securities to three members of management. The securities, called "Series A
Preferred Stock" (the "Preferred Stock"), were designated by the Company's Board
of Directors out of the 3,000,000 authorized shares of the Company's $.001 par
value preferred stock. A total of 150,000 shares of Preferred Stock were
purchased for an aggregate consideration of $1,500,000 ($10.00 per share).
The shares of Preferred Stock have no voting rights, and are convertible
into shares of the Company's $.001 par value Common Stock at a rate determined
by dividing the market price of the Company's Common Stock on NASDAQ Stock
Market on March 31, 2003, the date the shares of Preferred Stock were purchased,
by the purchase price of the Preferred Stock (a total of 372,207 shares in the
aggregate). Shares of Preferred Stock shall not be eligible for conversion until
January 1, 2006.
6
The sale of the shares of Preferred Stock did not involve a public
offering, and was exempt from registration pursuant to Section 4(2) of the
Securities Act of 1933, as amended.
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*
Exhibit Exhibit No.
------- -----------
Certificate of Designation to Create
a Class of Series A Preferred Stock for
Reliv' International, Inc. 3.1
(b) The Company has not filed a Current Report during the quarter
covered by this report but did file a Form 8-K Current Report
on April 2, 2003 (amended April 15, 2003) to report the
issuance of shares of the Company's Preferred Stock on March
31, 2003. See Item 2 above.
* 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.
7
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 6, 2003 RELIV' INTERNATIONAL, INC.
By: /s/ Robert L. Montgomery
------------------------------------
Robert L. Montgomery, President,
Chief Executive Officer
RELIV' INTERNATIONAL, INC.
By: /s/ David G. Kreher
------------------------------------
David G. Kreher,
Chief Financial Officer
8
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 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: May 6, 2003
RELIV' INTERNATIONAL, INC.
By: /s/ Robert L. Montgomery
------------------------------------
Robert L. Montgomery Chief Executive
Officer
9
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 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: May 6, 2003
RELIV' INTERNATIONAL, INC.
By: /s/ David G. Kreher
------------------------------------
David G. Kreher, Chief Financial
Officer
10
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.
Dated: May 6, 2003
RELIV' INTERNATIONAL, INC.
By: /s/ Robert L. Montgomery
------------------------------------
Robert L. Montgomery,
Chief Executive Officer
11
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.
Dated: May 6, 2003
RELIV' INTERNATIONAL, INC.
By: /s/ David G. Kreher
------------------------------------
David G. Kreher, Chief Financial
Officer
12
Reliv International, Inc. and Subsidiaries
Consolidated Balance Sheets
March 31 December 31
2003 2002
----------- -----------
(unaudited) (see notes)
Assets
Current assets:
Cash and cash equivalents $ 7,318,152 $ 3,437,966
Accounts and notes receivable, less allowances of
$5,000 in 2003 and 2002 535,339 688,898
Accounts due from employees and distributors 106,000 104,000
Inventories
Finished goods 2,054,992 2,361,064
Raw materials 888,624 680,516
Sales aids and promotional materials 420,377 415,565
----------- -----------
Total inventories 3,363,993 3,457,145
Refundable income taxes 11,686 8,072
Prepaid expenses and other current assets 925,666 564,486
Deferred income taxes 146,393 171,873
----------- -----------
Total current assets 12,407,229 8,432,440
Other assets 452,428 442,927
Note receivable from officer 41,625 48,250
Accounts due from employees and distributors 64,000 78,000
Property, plant and equipment:
Land 829,222 829,222
Building 8,582,053 8,583,444
Machinery & equipment 4,069,103 4,057,983
Office equipment 823,376 738,976
Computer equipment & software 2,313,657 2,275,019
----------- -----------
16,617,411 16,484,644
Less: Accumulated depreciation 7,252,012 7,040,275
----------- -----------
Net property, plant and equipment 9,365,399 9,444,369
----------- -----------
Total assets $22,330,681 $18,445,986
=========== ===========
See notes to financial statements.
Reliv International, Inc. and Subsidiaries
Consolidated Balance Sheets
March 31 December 31
2003 2002
------------ ------------
(unaudited) (see notes)
Liabilities and stockholders' equity
Current liabilities:
Accounts payable and accrued expenses:
Trade accounts payable and other accrued expenses $ 2,994,400 $ 2,462,356
Distributors commissions payable 2,486,113 2,065,327
Sales taxes payable 443,877 393,413
Interest expense payable 52,441 55,238
Payroll and payroll taxes payable 508,612 381,748
------------ ------------
Total accounts payable and accrued expenses 6,485,443 5,358,082
Income taxes payable 669,424 257,441
Current maturities of long-term debt 388,696 415,235
Current maturities of capital lease obligations 1,239 8,755
------------ ------------
Total current liabilities 7,544,802 6,039,513
Noncurrent liabilities:
Long-term debt, less current maturities 4,006,529 4,057,042
Deferred income taxes 84,435 84,435
Other non-current liabilities 460,327 467,350
------------ ------------
Total noncurrent liabilities 4,551,291 4,608,827
Stockholders' equity:
Preferred stock, par value $.001 per share; 3,000,000 shares authorized;
150,000 shares issued and outstanding as of 3/31/2003 1,500,000 --
Common stock, par value $.001 per share; 20,000,000
authorized; 12,091,189 shares issued and 11,955,360
shares outstanding as of 3/31/2003; 12,006,761 shares
issued and 11,921,932 shares outstanding as of 12/31/2002 12,091 12,007
Additional paid-in capital 17,994,755 17,863,505
Notes receivable-officers and directors -- (2,449)
Accumulated deficit (7,983,220) (8,960,782)
Accumulated other comprehensive loss:
Foreign currency translation adjustment (736,606) (775,383)
Treasury stock (552,432) (339,252)
------------ ------------
Total stockholders' equity 10,234,588 7,797,646
------------ ------------
Total liabilities and stockholders' equity $ 22,330,681 $ 18,445,986
============ ============
See notes to financial statements.
Reliv International, Inc. and Subsidiaries
Consolidated Statements of Operations
Three months ended March 31
2003 2002
------------ ------------
(unaudited) (unaudited)
Sales at suggested retail $ 26,856,164 $ 20,858,510
Less: distributor allowances on product purchases 8,184,714 6,374,226
------------ ------------
Net sales 18,671,450 14,484,284
Costs and expenses:
Cost of products sold 3,307,718 2,756,710
Distributor royalties and commissions 7,255,198 5,572,058
Selling, general and administrative 6,370,984 5,274,759
------------ ------------
Total costs and expenses 16,933,900 13,603,527
------------ ------------
Income from operations 1,737,550 880,757
Other income (expense):
Interest income 15,742 6,489
Interest expense (68,047) (121,458)
Other income/(expense) (22,683) 6,756
------------ ------------
Income before income taxes 1,662,562 772,544
Provision for income taxes 685,000 314,000
------------ ------------
Net income $ 977,562 $ 458,544
============ ============
Earnings per common share $ 0.08 $ 0.04
============ ============
Earnings per common share - assuming dilution $ 0.07 $ 0.04
============ ============
2002 earnings per common share have been restated for the stock dividend
declared in September 2002.
See notes to financial statements.
Reliv International, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(unaudited)
Three months ended March 31
2003 2002
----------- -----------
Operating activities:
Net income $ 977,562 $ 458,544
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 227,727 211,790
Compensation expense for warrants granted 22,514 4,969
Deferred income taxes 26,642 --
Foreign currency transaction loss 36,704 19,339
(Increase) decrease in accounts and notes receivable 148,360 (38,827)
(Increase) decrease in inventories 102,667 730,239
(Increase) decrease in refundable income taxes (3,617) 136,264
(Increase) decrease in prepaid expenses
and other current assets (365,621) (531,278)
(Increase) decrease in other assets (9,501) 9,209
Increase (decrease) in accounts payable and accrued expenses 1,113,548 413,280
Increase (decrease) in income taxes payable 410,933 212,403
----------- -----------
Net cash provided by operating activities 2,687,918 1,625,932
Investing activities:
Purchase of property, plant and equipment (152,572) (41,441)
----------- -----------
Net cash used in investing activities (152,572) (41,441)
Financing activities:
Proceeds from long-term borrowings 64,150 --
Principal payments on long-term borrowings and line of credit (130,364) (1,083,337)
Principal payments under capital lease obligations (17,687) (42,322)
Proceeds from sale of preferred stock 1,500,000 --
Repayment of loans by officers and directors 9,074 3,910
Proceeds from options exercised 108,820 --
Purchase of stock for treasury (213,180) (62,345)
----------- -----------
Net cash provided by (used in) financing activities 1,320,813 (1,184,094)
Effect of exchange rate changes on cash and cash equivalents 24,027 22,621
----------- -----------
Increase in cash and cash equivalents 3,880,186 423,018
Cash and cash equivalents at beginning of period 3,437,966 1,258,821
----------- -----------
Cash and cash equivalents at end of period $ 7,318,152 $ 1,681,839
=========== ===========
See notes to financial statements
Reliv' International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
March 31, 2003
Note 1-- Basis of Presentation
The accompanying unaudited consolidated financial statements and
notes thereto have been prepared in accordance with the instructions
to Form 10-Q and reflect all adjustments which management believes
necessary (which include only normal recurring accruals) to present
fairly the financial position, results of operations and cash flows.
These statements, however, do not include all information and
footnotes necessary for a complete presentation of financial
position, results of operations and cash flows in conformity with
accounting principles generally accepted in the United States.
Interim results may not necessarily be indicative of results that
may be expected for any other interim period or for the year as a
whole. These financial statements should be read in conjunction with
the audited consolidated financial statements and footnotes included
in the annual report on Form 10-K for the year ended December 31,
2002, filed March 28, 2003 with the Securities and Exchange
Commission.
Note 2-- Reclassifications
Certain prior year amounts have been reclassified to conform to the
current year presentation.
Note 3-- Earnings per Share
The following table sets forth the computation of basic and diluted
earnings per share:
Three months ended March 31
2003 2002
---------------------------
Numerator:
Numerator for basic and diluted
earnings (loss) per share--net income (loss) $ 977,562 $ 458,544
Denominator:
Denominator per basic earnings per
share--weighted average shares 11,958,000 11,367,000
Effect of dilutive securities:
Employee stock options and other warrants 1,358,000 531,000
---------------------------
Denominator for diluted earnings per
share--adjusted weighted average shares 13,316,000 11,898,000
===========================
Basic earnings per share $ 0.08 $ 0.04
===========================
Diluted earnings per share $ 0.07 $ 0.04
===========================
2002 earnings per share have been restated for the stock dividend
declared in September 2002.
Note 4-- Comprehensive Income
Total comprehensive income was $1,016,339 for the three months ended
March 31, 2003 and $527,851 for the three months ended March 31,
2002. 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, 2003
Note 5-- Stock-Based Compensation
The Company accounts for its stock-based compensation plans under
the recognition and measurement principles of APB Opinion No. 25,
Accounting for Stock Issued to Employees, and related
Interpretations. No stock-based employee compensation cost is
reflected in net income, as all options granted under those plans
had an exercise price equal to the market value of the underlying
common stock on the date of grant. The following table illustrates
the effect on net income and earnings per share if the Company had
applied the fair value recognition provisions of FASB Statement No.
123, Accounting for Stock-Based Compensation, to stock-based
employee compensation.
Three months ended March 31
2003 2002
---------------------------
Net income, as reported $977,562 $458,544
Deduct: Total stock-based employee compensation
expense determined under fair value based method
for all awards, net of related tax effects 65,300 50,167
---------------------
Pro forma net income $912,262 $408,377
=====================
Earnings per share:
Basic--as reported $ 0.08 $ 0.04
=====================
Basic--pro forma $ 0.08 $ 0.04
=====================
Diluted--as reported $ 0.07 $ 0.04
=====================
Diluted--pro forma $ 0.07 $ 0.03
=====================
Note 6-- Sale of Preferred Stock
On March 31, 2003, the Company sold an aggregate of 150,000 shares
of preferred stock to three officer/directors. The securities,
called "Series A Preferred Stock" ("Preferred Stock"), were
designated by the Company's Board of Directors out of the 3,000,000
previously authorized shares of $.001 par value preferred stock.
Each of the officer/directors (collectively "the Preferred
Stockholders") purchased 50,000 shares of Preferred Stock for
$500,000 ($10.00 per share).
The Preferred Stockholders are entitled to receive dividends at an
annual rate of 6% of the shares' purchase price. These dividends
shall accrue on a daily basis and are payable quarterly when
declared by the Company's Board of Directors. All dividends on
shares of Preferred Stock are cumulative.
Shares of Preferred Stock have no voting rights, and are convertible
into 372,207 shares of the Company's $.001 par value common stock at
a conversion price based upon the closing price of the Company's
common stock on the NASDAQ Stock Market on the date of issuance.
Shares of Preferred Stock are not eligible for conversion until
January 1, 2006, may be redeemed at any time by the Company, and
have a liquidation preference over common stock to the extent of the
purchase price of the preferred stock and accrued dividends.
Note 7-- Related Party Tranactions
In February 2003, the Company purchased 25,000 shares of the
Company's common stock from an officer/director at a price of $3.895
per share. The total amount paid for the stock was $97,375.