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, 2004
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 15,204,527 outstanding Shares as of March 31, 2004
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, 2004 and Balance Sheet as of
December 31, 2003.
2. Interim Statements of Operations for the three month periods ending
March 31, 2004 and March 31, 2003.
3. Interim Statements of Cash Flows for the three month periods ending
March 31, 2004 and March 31, 2003.
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
Overview
The Company produces a line of food products including nutritional
supplements, diet management products, and sports drink mixes. The Company also
sells a line of skin care products. These products are sold by subsidiaries of
the Company to a sales force of independent distributors of the Company that
sell products directly to consumers. The Company and its subsidiaries sell
products to distributors throughout the United States and in Australia/New
Zealand, Canada, Mexico, the United Kingdom/Ireland, the Philippines, Malaysia,
and Singapore. As of March 31, 2004, the Company had approximately 64,100
distributors worldwide.
The Company receives payment by credit card, personal check, or guaranteed
funds for orders from independent distributors and makes related commission
payments in the following month. The net sales price is the suggested retail
price less the distributor discount of 20 percent to 40 percent of such
suggested retail price. Sales revenue and commission expenses are recorded when
the merchandise is shipped. In the first quarter ended March 31, 2004, sales in
the United States made up approximately 88% of worldwide net sales, with the
remainder from our international operations. This compares to 86% for all of
2003. The sales breakdown by country is given in greater detail in the "Net
Sales by Region" table below.
Cost of products sold primarily consists of expenses related to raw
materials, labor, quality control, and overhead directly associated with the
production and
2
distribution of products and sales materials, as well as shipping costs, duties,
and taxes associated with product exports.
Distributor royalties and commissions are paid to Master Affiliates
monthly, based on the sales of their distributor organization in the prior
month. These expenses are governed by the distributor agreements. Also, included
in this expense item is other sales leadership bonuses that are directly related
to the level of sales.
Selling, general, and administrative expenses include compensation and
benefits, all other selling expenses, marketing, promotional expenses, travel,
and other corporate administrative expenses.
1. Financial Condition
The Company generated $3,465,000 of net cash during the first quarter of
2004 from operating activities and used $975,000 in financing activities. This
compares to $2,688,000 of net cash provided by operating activities and
$1,321,000 provided by financing activities in the first quarter of 2003. Cash
and cash equivalents increased by $1,851,000 to $9,754,000 as of March 31, 2004,
compared to December 31, 2003.
Significant changes in working capital items were an increase in inventory
of $434,000, and an increase in prepaid expenses and other current assets of
$822,000. These were offset by an increase in accounts payable and accrued
expenses of $2,152,000, and an increase in income taxes payable of $996,000 in
the first quarter of 2004. The increase in inventory is needed to support the
increased sales levels of the Company. The increase in prepaid expenses and
other current assets is due to prepayments for future promotional trips and for
policy payments for various types of business insurance to be expensed over the
lives of the policies. The increase in accounts payable and accrued expenses
corresponds with the increase in inventory, coupled with the increase in
distributor commissions payable at March 31, 2004, compared to December 31,
2003. This increase in distributor commissions payable is the result of higher
worldwide sales in March 2004, compared to December 2003. The increase in income
taxes payable is due to the profitability of the Company, coupled with the
timing of estimated income tax payments.
The Company's net investing activities in the first quarter of 2004
consisted of $686,000 for capital expenditures. The majority of these capital
expenditures are part of the previously announced upgrade of the Company's
manufacturing facility to occur later in 2004. Financing activities in the first
quarter of 2004 included a partial redemption of preferred stock issued in 2003
of $450,000, and $607,000 in purchases of treasury stock. Most of this treasury
stock was purchased from related parties and is described in greater detail in
Note 8 of the Consolidated Financial Statements. The Company also received
$113,000 in proceeds from the exercise of options.
Stockholders' equity increased to $13,950,000 at March 31, 2004, compared
with $13,072,000 at December 31, 2003. The increase is primarily due to the net
income in
3
the first quarter of 2004 of the Company, reduced by the preferred stock
redemption and treasury stock purchases described above. Stockholders' equity
was also positively impacted by the slight weakening of the U.S. dollar against
the Australian, New Zealand, and UK pound sterling during the first quarter of
2004. This impact appears in the form of the improvement in the foreign currency
translation adjustment, which is reflected in accumulated other comprehensive
loss. These gains were partially offset by weaker Mexican and Philippine pesos
during the first quarter of 2004, relative to the U.S. dollar. This cumulative
adjustment improved from an accumulated loss of $715,000 as of December 31,
2003, to an accumulated loss of $688,000, as of March 31, 2004.
The Company's working capital balance was $7,400,000 at March 31, 2004,
compared to $7,256,000 at December 31, 2003. The current ratio at March 31, 2004
was 1.72, compared to 2.01 at previous year-end. In March 2004, the Company
renewed the term loan on its headquarters facility of approximately $3.5 million
and extended the maturity of the loan until March 2007. In addition, the Company
consolidated other loans related to this building totaling approximately
$350,000 into this renewed loan. The Company also has an operating line of
credit, with a limit based on a collateral-based formula of accounts receivable
and inventory. The maximum borrowing limit is $1,000,000, with a variable
interest rate equal to the prime rate. At March 31, 2004, the Company had not
utilized any of the line of credit, with approximately $718,000 available under
the line based on the Company's borrowing base formula. Also, in February 2004,
the Company entered into a standby equity distribution agreement, which will
provide the Company with up to $5 million of funding from the sale of its common
stock. This agreement is described in greater detail in Note 6 of the
Consolidated Financial Statements.
Early in 2004, the Board of Directors approved a capital expenditure plan
of $1 million to upgrade the production equipment in the Company's manufacturing
facility. Also, the Board of Directors recently declared a three cent per common
share cash dividend, in what the Company plans to be a semi-annual cash dividend
payment plan. Management believes that the Company's internally generated funds,
the borrowing capacity under the line of credit agreement, and the standby
equity distribution agreement will be sufficient to meet working capital
requirements and fund the capital expenditure and dividend payment plans for the
remainder of 2004.
2. Results of Operations
The Company had net income available to common shareholders of $1,629,000
($0.11 per share basic and $0.10 per share diluted) for the quarter ended March
31, 2004, compared to a net income of $978,000 ($0.07 per share basic and $0.06
per share diluted) for the same period in 2003. Net income for the quarter ended
March 31, 2004 was $1,641,000, and is reduced by preferred stock dividends of
$12,000 to arrive at net income available to common shareholders. Earnings per
common share for the first quarter of 2003 have been adjusted for the Company's
five-for-four stock split declared in September 2003. Profitability continued to
improve substantially as net sales
4
improved worldwide by 26%, led by a 30% increase in net sales in the United
States, the Company's primary market.
The following table summarizes the net sales by geographic region for the
three- month periods ended March 31, 2004 and 2003.
Net Sales by Region Three months ended March 31
(in thousands) 2004 2003 Change from
$ % of sales $ % of sales prior year Change in %
--------------------- ------------------------------------------------
United States $20,572 87.6% $15,799 84.6% $ 4,773 30.2%
Australia/New Zealand 592 2.5% 425 2.3% 167 39.3%
Canada 397 1.7% 274 1.5% 123 44.9%
Mexico 671 2.9% 776 4.2% (105) -13.5%
United Kingdom/Ireland 145 0.6% 101 0.5% 44 43.6%
Philippines 696 3.0% 1,296 6.9% (600) -46.3%
Malaysia/Singapore 405 1.7% -- 0.0% 405 N/A
-------------------- ----------------------------------------------
Consolidated total $23,478 100.0% $18,671 100.0% $ 4,807 25.7%
==================== ==============================================
The following table illustrates the Company's active distributors and
Master Affiliates as of March 31, 2004 and 2003. The total amount of
distributors also includes the Master Affiliates. The Company defines an active
distributor as one that enrolls as a distributor or renews their distributorship
during the prior twelve months. Growth in the number of active distributors and
Master Affiliates is a key factor in continuing the growth of the business.
Active Distributors and Master Affiliates by Region
as of 3/31/2004 as of 3/31/2003 Change in %
Master Master Master
Distributors Affiliates Distributors Affiliates Distributors Affiliates
-------------------------------------------------------- ---------------------------
United States 43,420 8,410 37,730 6,030 15.1% 39.5%
Australia/New Zealand 2,640 200 2,560 170 3.1% 17.6%
Canada 1,250 150 1,050 120 19.0% 25.0%
Mexico 7,420 710 6,850 1,170 8.3% -39.3%
United Kingdom/Ireland 430 40 390 80 10.3% -50.0%
Philippines 6,540 520 12,240 900 -46.6% -42.2%
Malaysia/Singapore 2,440 270 N/A N/A N/A N/A
-------------------------------------------------------- ---------------------------
Consolidated total 64,140 10,300 60,820 8,470 5.5% 21.6%
======================================================== ===========================
In the United States, new distributor enrollments, strong retention, and
strong growth in the number of Master Affiliates continue to be factors in the
increased sales in this market. In the first three months of 2004, just over
6,000 new distributors were enrolled, as compared to approximately 5,000 in the
same period of 2003. Distributor
5
retention was approximately 58%, compared to an historical rate of 55%. 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 three months of 2004, over 1,700 distributors achieved Master
Affiliate status, as compared to approximately 1,150 in the same period of 2003.
The increase in sales was entirely the result of greater sales volume, as no
price increases have been imposed in the United States over the past year. The
Company attributes the increase in sales and other sales statistics in part to
the momentum created by the consistency and reinforcement of its training
programs and business opportunity presentations, in the form of regional
distributor conferences and other corporate-sponsored meetings. Beginning in
early 2003, the Company 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. This has resulted in
more distributors reaching the Master Affiliate level, who are more experienced
and productive distributors.
During the first quarter of 2004, sales in the Company's international
subsidiaries showed mixed results. In aggregate, international sales increased
by 1% to $2,906,000 in the first quarter of 2004, compared to $2,872,000 in the
first quarter of 2003. Excluding sales of $405,000 in the new markets of
Malaysia and Singapore in the first quarter of 2004, international sales
declined by 13%.
Sales in the markets of Canada, Australia/New Zealand, and the UK
increased by approximately 40% or better in each of these markets during the
first quarter of 2004, versus the same period in 2003. The weakening of the
United States dollar compared to the Canadian, Australian, and New Zealand
dollars and British pound over the course of 2003 accounts for $202,000 of the
$334,000 increase in sales in these markets. On a constant-dollar basis, sales
in these markets improved by 17% in the first quarter of 2004, compared to the
same period in 2003. Sales in these markets continues to show improvement as the
Company has completed its changes to the distributor compensation plan and
continues to implement its training and distributor development system in these
markets.
Mexican sales decreased 14% in the first quarter of 2004, compared to the
same period in 2003. Although new distributor enrollments increased by 19% in
the first quarter of 2004, new Master Affiliate qualifications declined by 20%.
Sales in the Philippines in the first quarter of 2004 decreased by 46%, compared
to the same period in 2003, as sales declined subsequent to a price increase and
additional shipping charge that went into effect on March 1, 2003. Sales in the
first quarter of 2003 were unusually high due to large distributor purchases in
advance of the price increase. In 2004, sales were $405,000 in the Company's
newest markets, Malaysia and Singapore. Sales began in Malaysia in September
2003, and in Singapore in late March 2004.
The following table summarizes selected items from the consolidated
statement of operations, expressed as a percentage of net sales, for the periods
indicated, and should be read in conjunction with the discussion of the
components of the consolidated statements of operations that follow:
6
Selected data from the Consolidated Three Months Ended
Statements of Operations March 31
2004 2003
--------------------------
Cost of products sold 16.4% 17.7%
Distributor royalties and commissions 39.7% 38.9%
Selling, general, and administrative 32.0% 34.1%
Provision for income taxes 4.7% 3.7%
Net income 7.0% 5.2%
Cost of products sold as a percentage of net sales was 16.4% in the first
quarter of 2004, as compared to 17.7% in the first quarter of 2003. 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 net sales were
39.7% and 38.9% in the first quarter of 2004 and 2003, respectively. These
expenses are governed by the distributor agreements and are directly related to
the level of sales. The increase is primarily the result the changes to the
distributor compensation plan in Canada, the United Kingdom, and Australia/New
Zealand over the course of 2003. These changes resulted in commission payments
being made on the full retail value of the products sold, and the full effect of
these changes impacted the first quarter of 2004. Also, as the Company opened up
new markets in Malaysia, last September, and Singapore, in March 2004, those
markets paid commissions on the full retail value of the products at the time of
opening. As a result, more of the Company's international sales are weighted
towards full retail commission payments.
Selling, general and administrative (SGA) expenses increased $1,150,000 in
the first quarter of 2004, as compared to the first quarter of 2003. However,
SGA expenses as a percentage of net sales decreased to 32.0% in the first
quarter of 2004 compared to 34.1% in the first quarter of 2003. Sales expenses
represented approximately $472,000 of the increase. Some of the components of
the increase were credit card fees due to the higher sales volume; conference
call expenses, as the Company has implemented its use of this training and
communications tool; and additional promotional bonuses. General and
administrative expenses increased by approximately $580,000, primarily in
salaries and bonuses, fringe benefit expenses, business insurance, international
development expenses, research and development expenses, and increased travel
expenses. Also, included in the general and administrative expenses is
approximately $126,000 in expenses from Malaysia and Singapore. The Company
began sales in Malaysia in September 2003 and in Singapore in late March 2004.
7
The Company recorded income tax expense of $1,110,000 for the first
quarter of 2004, an effective rate of 40.3%. In the first quarter of 2003, the
Company recorded income tax expense of $685,000, an effective rate of 41.2%. The
higher rate in 2003 is primarily due to non-deductible losses in some of the
Company's foreign markets, including Malaysia.
Critical Accounting Policies
A summary of our critical accounting policies and estimates is presented
on page 35 of our 2003 Annual Report on Form 10-K filed with the Securities and
Exchange Commission on March 26, 2004.
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 2004 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 Disclosures of Market Risk
The Company is exposed to various market risks, primarily foreign currency
risks and interest rate risks.
Foreign Currency Risk
The Company's earnings and cash flows 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 sales and gross margins.
Accounting practices require that the Company's
8
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.
The Company enters into foreign exchange forward contracts with a
financial institution to sell Canadian dollars in order to protect against
currency exchange risk associated with expected future cash flows. The Company
has accounted for these contracts as free standing derivatives, such that gains
or losses on the fair market value of these forward exchange contracts are
recorded as other income and expense in the consolidated statements of
operations. The net changes in the fair value of these forward contracts as of
March 31, 2004 was a cumulative expense $34,000. As of March 31, 2004, the
Company had no hedging instruments in place to offset exposure to the Australian
or New Zealand dollars, Mexican or Philippine pesos, or the British pound.
There have been no other material changes in market risk exposures during
the first three months of 2004 that affect the disclosures presented in Item 7A
- - "Qualitative and Quantitative Disclosures Regarding Market Risk" on pages 36
and 37 of our 2003 Annual Report on Form 10-K filed with the Securities and
Exchange Commission on March 26, 2004.
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-15(e) and 15d-15(e)) as of March 31, 2004, 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. During the first quarter of 2004, 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.
9
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, Use of Proceeds and Issuer Purchases of Equity
Securities
In January, 2004, the Company redeemed an aggregate of 116,564 shares of
equity securities from certain of the Company's officers and directors for an
average redemption price of $5.21 per share. These purchases are described in
greater detail in Note 8 of the Consolidated Financial Statements.
The foregoing equity repurchases by the Company during the fiscal quarter
ended March 31, 2004 have been reflected as follows:
ISSUER PURCHASES OF EQUITY SHARES
(d)
(c) Maximum Number (or
Total Number of Approximate Dollar
(a) (b) Shares (or Units) Value) of Shares (or
Total Number of Average Price Purchased as Part of Units) that May Yet Be
Shares (or Units) Paid per Share Publicly Announced Purchased Under the
Period Purchased (or Unit) Plans or Programs Plans or Programs
January 1-31, 2004 116,564 $5.21 0(1) N/A(1)
February 1-29, 2004 0 -- 0(1) N/A(1)
March 1-31, 2004 0 -- 0(1) N/A(1)
- ------------------
(1) There is no publicly announced plan or program for the redemption or
repurchase of the Company's equity securities.
Item 3. Defaults Upon Senior Securities
Not applicable.
10
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
The Certifications of the Chief Executive Officer and the Chief Financial
Officer of Registrant Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
are attached as Exhibits to this Report on Form 10-Q.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits*
Exhibit No. Description
----------- -----------
3.1 Certificate of Incorporation (incorporate by
reference Appendix B of the Form 14A the
Registrant filed April 22, 1999)
3.2 By-Laws (incorporate by reference Appendix C of
the Form 14A the Registrant filed April 22, 1999)
3.3 Amendment to By-Laws dated March 22, 2001
(incorporate by reference Exhibit 3.3 to the Form
10-K of the Registrant for year ended December
31, 2001)
10.1 Standby Equity Distribution Agreement dated
February 24, 2004, between the Registrant and
Cornell Capital Partners, LP
10.2 Registration Rights Agreement dated February 24,
2004, between the Registrant and Cornell Capital
Partners, LP
10.3 Escrow Agreement between Registrant, Cornell
Capital Partners, LP and Butler Gonzalez LLP
31.1 Sarbanes-Oxley Act Section 302 Certifications for
Robert L. Montgomery
31.2 Sarbanes-Oxley Act Section 302 Certification for
David G. Kreher
32.1 Sarbanes-Oxley Act Section 906 Certification for
Robert L. Montgomery, President, Chief Executive
Officer
32.2 Sarbanes-Oxley Act Section 906 Certification for
David G. Kreher, Chief Financial Officer
11
(b) The Company filed a Current Report on Form 8-K on February 26, 2004,
reporting a new Standby Equity Agreement with Cornell Capital Partners,
LP. In addition, the Company filed a Current Report on Form 8-K on March
24, 2004, reporting its financial results for the fiscal year ended
December 31, 2003, and two Current Reports Form 8-K on May 4, 2004, one
reporting its financial results for the fiscal quarter ended March 31,
2004, and the other reporting a $0.03 per share cash dividend on shares of
the Registrant's common stock. The Company has not filed any other Current
Reports on Form 8-K 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.
12
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 13, 2004 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
13
Reliv International, Inc. and Subsidiaries
Consolidated Balance Sheets
March 31 December 31
2004 2003
----------- -----------
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 9,753,767 $ 7,902,508
Accounts and notes receivable, less allowances of
$5,000 in 2004 and $8,600 in 2003 782,881 751,887
Accounts due from employees and distributors 116,756 72,846
Inventories
Finished goods 3,284,256 3,171,185
Raw materials 1,408,876 1,047,068
Sales aids and promotional materials 415,168 452,066
----------- -----------
Total inventories 5,108,300 4,670,319
Prepaid expenses and other current assets 1,552,501 727,939
Deferred income taxes 296,179 296,164
----------- -----------
Total current assets 17,610,384 14,421,663
Other assets 941,176 793,091
Accounts due from employees and distributors 212,614 52,291
Property, plant and equipment:
Land 829,222 829,222
Building 8,795,747 8,801,913
Machinery & equipment 4,477,339 3,926,613
Office equipment 1,155,955 1,093,106
Computer equipment & software 2,651,208 2,564,055
----------- -----------
17,909,471 17,214,909
Less: Accumulated depreciation 8,026,288 7,801,038
----------- -----------
Net property, plant and equipment 9,883,183 9,413,871
----------- -----------
Total assets $28,647,357 $24,680,916
=========== ===========
See notes to financial statements.
Reliv International, Inc. and Subsidiaries
Consolidated Balance Sheets
March 31 December 31
2004 2003
------------ ------------
(unaudited)
Liabilities and stockholders' equity
Current liabilities:
Accounts payable and accrued expenses:
Trade accounts payable and other accrued expenses $ 3,913,949 $ 2,778,898
Distributors commissions payable 3,541,487 2,701,542
Sales taxes payable 529,108 446,872
Interest expense payable 476 42,808
Payroll and payroll taxes payable 728,266 626,665
------------ ------------
Total accounts payable and accrued expenses 8,713,286 6,596,785
Income taxes payable 1,144,323 147,520
Current maturities of long-term debt 353,269 421,063
------------ ------------
Total current liabilities 10,210,878 7,165,368
Noncurrent liabilities:
Long-term debt, less current maturities 3,701,835 3,700,138
Deferred income taxes 77,000 77,000
Other non-current liabilities 708,125 666,032
------------ ------------
Total noncurrent liabilities 4,486,960 4,443,170
Stockholders' equity:
Preferred stock, par value $.001 per share; 3,000,000
shares authorized; 52,500 shares issued and outstanding
as of 3/31/2004; 97,500 shares issued and outstanding 525,000 975,000
as of 12/31/2003
Common stock, par value $.001 per share; 30,000,000
authorized; 15,207,264 shares issued and 15,204,527
shares outstanding as of 3/31/2004; 15,143,961 shares
issued and 15,141,224 shares outstanding as of 12/31/2003 15,207 15,144
Additional paid-in capital 18,823,647 18,684,338
Accumulated deficit (4,717,829) (5,878,869)
Accumulated other comprehensive loss:
Foreign currency translation adjustment (687,798) (714,527)
Treasury stock (8,708) (8,708)
------------ ------------
Total stockholders' equity 13,949,519 13,072,378
------------ ------------
Total liabilities and stockholders' equity $ 28,647,357 $ 24,680,916
============ ============
See notes to financial statements.
Reliv International, Inc. and Subsidiaries
Consolidated Statements of Operations
(unaudited)
Three months ended March 31
2004 2003
------------ ------------
Sales at suggested retail $ 33,859,141 $ 26,856,164
Less: distributor allowances on product purchases 10,381,309 8,184,714
------------ ------------
Net sales 23,477,832 18,671,450
Costs and expenses:
Cost of products sold 3,854,279 3,307,718
Distributor royalties and commissions 9,320,390 7,255,198
Selling, general and administrative 7,520,950 6,370,984
------------ ------------
Total costs and expenses 20,695,619 16,933,900
------------ ------------
Income from operations 2,782,213 1,737,550
Other income (expense):
Interest income 20,470 15,742
Interest expense (65,231) (68,047)
Other income/(expense) 14,195 (22,683)
------------ ------------
Income before income taxes 2,751,647 1,662,562
Provision for income taxes 1,110,000 685,000
------------ ------------
Net income 1,641,647 977,562
Preferred dividends accrued and paid 12,292 --
------------ ------------
Net income available to common shareholders $ 1,629,355 $ 977,562
============ ============
Earnings per common share - Basic $ 0.11 $ 0.07
============ ============
Weighted average shares 15,178,000 14,948,000
============ ============
Earnings per common share - Diluted $ 0.10 $ 0.06
============ ============
Weighted average shares 16,959,000 16,645,000
============ ============
2003 earnings per common share and weighted average shares have been adjusted
for the five-for-four stock split declared in September 2003.
See notes to financial statements.
Reliv International, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(unaudited)
Three months ended March 31
2004 2003
----------- -----------
Operating activities:
Net income $ 1,641,647 $ 977,562
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 221,185 227,727
Compensation expense for warrants granted 19,317 22,514
Deferred income taxes -- 26,642
Foreign currency transaction (gain)/loss (22,713) 36,704
(Increase) decrease in accounts and notes receivable (234,687) 148,360
(Increase) decrease in inventories (434,181) 102,667
(Increase) decrease in refundable income taxes -- (3,617)
(Increase) decrease in prepaid expenses
and other current assets (822,201) (365,621)
(Increase) decrease in other assets (50,736) (9,501)
Increase (decrease) in accounts payable and accrued expenses 2,151,671 1,113,548
Increase (decrease) in income taxes payable 996,039 410,933
----------- -----------
Net cash provided by operating activities 3,465,341 2,687,918
Investing activities:
Purchase of property, plant and equipment (686,179) (152,572)
----------- -----------
Net cash used in investing activities (686,179) (152,572)
Financing activities:
Proceeds from long-term borrowings -- 64,150
Principal payments on long-term borrowings and
capital lease obligations (66,818) (148,051)
Proceeds from sale of common stock 48,601 --
Proceeds from sale of preferred stock -- 1,500,000
Redemption of preferred stock (450,000) --
Preferred stock dividends paid (12,292) --
Repayment of loans by officers and directors -- 9,074
Proceeds from options exercised 112,966 108,820
Purchase of stock for treasury (607,178) (213,180)
----------- -----------
Net cash provided by (used in) financing activities (974,721) 1,320,813
Effect of exchange rate changes on cash and cash equivalents 46,818 24,027
----------- -----------
Increase in cash and cash equivalents 1,851,259 3,880,186
Cash and cash equivalents at beginning of period 7,902,508 3,364,484
----------- -----------
Cash and cash equivalents at end of period $ 9,753,767 $ 7,244,670
=========== ===========
See notes to financial statements
Reliv' International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
March 31, 2004
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,
2003, filed March 26, 2004 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
2004 2003
---------------------------
Numerator:
Numerator for basic and diluted
earnings per share--net income
available to common shareholders $ 1,629,355 $ 977,562
Effect of convertible preferred stock:
Dividends on preferred stock 12,292 --
------------------------
Numerator for diluted earnings per share $ 1,641,647 $ 977,562
Denominator:
Denominator per basic earnings per
share--weighted average shares 15,178,000 14,948,000
Effect of convertible preferred stock and
dilutive securities:
Convertible preferred stock 204,000 --
Employee stock options and other warrants 1,577,000 1,697,000
------------------------
Denominator for diluted earnings per
share--adjusted weighted average shares 16,959,000 16,645,000
========================
Basic earnings per share $ 0.11 $ 0.07
========================
Diluted earnings per share $ 0.10 $ 0.06
========================
2003 earnings per share and weighted average shares have been
adjusted for the 5-for-4 stock split declared in September 2003.
Reliv' International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
March 31, 2004
Note 4-- Comprehensive Income
Total comprehensive income was $1,668,376 for the three months ended
March 31, 2004 and $1,016,339 for the three months ended March 31,
2003. The Company's only component of other comprehensive income is
the foreign currency translation adjustment.
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
2004 2003
---------------------------
Basic:
Net income available to common
shareholders, as reported $1,629,355 $ 977,562
Deduct: Total stock-based employee compensation
expense determined under fair value based method
for all awards, net of related tax effects 45,959 65,300
-------------------------
Pro forma net income available to
common shareholders $1,583,396 $ 912,262
=========================
Diluted:
Net income available to common
shareholders, as reported $1,641,647 $ 977,562
Deduct: Total stock-based employee compensation
expense determined under fair value based method
for all awards, net of related tax effects 45,959 65,300
-------------------------
Pro forma net income available to
common shareholders $1,595,688 $ 912,262
=========================
Earnings per share:
Basic--as reported $ 0.11 $ 0.07
=========================
Basic--pro forma $ 0.10 $ 0.06
=========================
Diluted--as reported $ 0.10 $ 0.06
=========================
Diluted--pro forma $ 0.09 $ 0.05
=========================
Reliv' International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
March 31, 2004
Note 6-- Standby Equity Distribution Agreement
In February 2004, the Company entered into a Standby Equity
Distribution Agreement ("SEDA") with an investment firm. Under the
SEDA, the investment firm has committed to provide up to $5 million
of funding to be drawn down at the Company's discretion by the
purchase of the Company's common stock. The Company may request up
to $210,000 in any seven-day period in exchange for issuing shares
of its common stock to the investment firm. The facility may be used
in whole or in part entirely at the Company's discretion, subject to
an effective registration of the related shares. As of March 31,
2004, no shares have been issued or funds received by the Company
under this agreement.
Note 7-- Redemption of Preferred Stock
On March 31, 2003, the Company sold an aggregate of 150,000 shares
of preferred stock to three officer/directors. The terms of the sale
of these preferred shares have been previously disclosed in the
Company's annual report on Form 10-K for the year ended December 31,
2003.
In February 2004, the Company redeemed 15,000 shares from each
officer/director for a total redemption of 45,000 shares at a value
of $450,000. In April 2004, the Company redeemed the remaining
17,500 shares from each officer/director for a total redemption of
52,500 shares at a value of $525,000.
Note 8-- Related Party Tranactions
In January 2004, the Company purchased a total of 116,564 shares of
the Company's common stock from three officer/directors and one
director. The total cost of the purchases was $607,178, for a
weighted average purchase price of $5.21 per share. In April 2004,
the Company purchased a total of 75,000 shares of the Company's
common stock from two officer/directors. The total cost of the
purchases was $686,802, for a weighted average purchase price of
$9.16 per share. The price per share of each purchase was based on a
discount from the market price per share at the time of purchase in
order to approximate the dilutive impact of their shares on the open
market.
Note 9-- Cash Dividend Declaration
On May 4, 2004, the Company announced that the Board of Directors
has declared a dividend of three cents ($0.03) per common share to
all shareholders of record as of May 17, 2004, to be paid on or
about May 31, 2004.
The declaration of future dividends will be determined by the Board
of Directors from time to time taking into account the results of
operations, conditions, financial requirements of the Company and
other factors. The Board of Directors may change the amount and
timing of dividend distributions, at their discretion.