UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________
FORM 10-Q
(Mark One)
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2014
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _________to_________
Commission File Number
000-19932
RELIV’ INTERNATIONAL, INC.
(Exact name of Registrant as specified in its charter)
| Delaware | 371172197 | |
| (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)
Indicate by check mark whether the Registrant: (1) 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 (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company þ
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ
The number of shares outstanding of the Registrant’s common stock as of May 1, 2014 was 12,665,632 (excluding treasury shares).
INDEX
| Part I – Financial Information | 1 | |
| Item No. 1 | Financial Statements (Unaudited) | 1 |
| Item No. 2 | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 9 |
| Item No. 4 | Controls and Procedures | 15 |
| Part II – Other Information | 16 | |
| Item No. 6 | Exhibits | 16 |
| 1 |
| Reliv International, Inc. and Subsidiaries | ||||||||
| Condensed Consolidated Balance Sheets | ||||||||
| March 31 | December 31 | |||||||
| 2014 | 2013 | |||||||
| (unaudited) | ||||||||
| Liabilities and stockholders' equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued expenses: | ||||||||
| Trade accounts payable and other accrued expenses | $ | 3,122,131 | $ | 2,968,814 | ||||
| Distributors' commissions payable | 2,025,180 | 2,033,727 | ||||||
| Sales taxes payable | 211,375 | 311,049 | ||||||
| Payroll and payroll taxes payable | 313,785 | 555,193 | ||||||
| Total accounts payable and accrued expenses | 5,672,471 | 5,868,783 | ||||||
| Income taxes payable | - | 199,558 | ||||||
| Current maturities of long-term debt | 647,423 | 581,004 | ||||||
| Total current liabilities | 6,319,894 | 6,649,345 | ||||||
| Noncurrent liabilities: | ||||||||
| Revolving line of credit | - | 1,150,000 | ||||||
| Long-term debt, less current maturities | 3,608,944 | 2,631,607 | ||||||
| Deferred income taxes | - | 127,000 | ||||||
| Other noncurrent liabilities | 935,282 | 910,327 | ||||||
| Total noncurrent liabilities | 4,544,226 | 4,818,934 | ||||||
| Stockholders' equity: | ||||||||
| Preferred stock, par value $.001 per share; 3,000,000 | ||||||||
| shares authorized; -0- shares issued and outstanding | ||||||||
| in 2014 and 2013 | - | - | ||||||
| Common stock, par value $.001 per share; 30,000,000 | ||||||||
| authorized; 14,519,605 shares issued and 12,665,632 | ||||||||
| shares outstanding as of 3/31/2014; 14,519,605 shares | ||||||||
| issued and 12,665,632 shares outstanding as of 12/31/2013 | 14,520 | 14,520 | ||||||
| Additional paid-in capital | 30,113,128 | 30,101,069 | ||||||
| Accumulated deficit | (8,310,114 | ) | (8,159,164 | ) | ||||
| Accumulated other comprehensive loss: | ||||||||
| Foreign currency translation adjustment | (454,650 | ) | (487,393 | ) | ||||
| Treasury stock | (5,338,560 | ) | (5,338,560 | ) | ||||
| Total stockholders' equity | 16,024,324 | 16,130,472 | ||||||
| Total liabilities and stockholders' equity | $ | 26,888,444 | $ | 27,598,751 | ||||
| See notes to financial statements. |
| 2 |
| Reliv International, Inc. and Subsidiaries | ||||||||
| Condensed Consolidated Statements of Net | ||||||||
| Income (Loss) and Comprehensive Income (Loss) | ||||||||
| (unaudited) | Three months ended March 31 | |||||||
| 2014 | 2013 | |||||||
| Product sales | $ | 13,305,781 | $ | 16,889,458 | ||||
| Handling & freight income | 1,159,108 | 1,967,806 | ||||||
| Net sales | 14,464,889 | 18,857,264 | ||||||
| Costs and expenses: | ||||||||
| Cost of products sold | 2,886,851 | 3,903,858 | ||||||
| Distributor royalties and commissions | 5,207,287 | 7,003,204 | ||||||
| Selling, general and administrative | 6,540,867 | 7,515,488 | ||||||
| Total costs and expenses | 14,635,005 | 18,422,550 | ||||||
| Income (loss) from operations | (170,116 | ) | 434,714 | |||||
| Other income (expense): | ||||||||
| Interest income | 36,124 | 37,164 | ||||||
| Interest expense | (24,268 | ) | (17,502 | ) | ||||
| Other income / (expense) | (24,690 | ) | (26,575 | ) | ||||
| Income (loss) before income taxes | (182,950 | ) | 427,801 | |||||
| Provision (benefit) for income taxes | (32,000 | ) | 233,000 | |||||
| Net income (loss) | $ | (150,950 | ) | $ | 194,801 | |||
| Other comprehensive income (loss): | ||||||||
| Foreign currency translation adjustment | 32,743 | (16,773 | ) | |||||
| Comprehensive income (loss) | $ | (118,207 | ) | $ | 178,028 | |||
| Earnings (loss) per common share - Basic | $ | (0.01 | ) | $ | 0.02 | |||
| Weighted average shares | 12,666,000 | 12,620,000 | ||||||
| Earnings (loss) per common share - Diluted | $ | (0.01 | ) | $ | 0.02 | |||
| Weighted average shares | 12,666,000 | 12,708,000 | ||||||
| Cash dividends declared per common share | $ | - | $ | - | ||||
| See notes to financial statements. | ||||||||
| 3 |
| Reliv International, Inc. and Subsidiaries | ||||||||
| Condensed Consolidated Statements of Cash Flows | ||||||||
| (unaudited) | ||||||||
| Three months ended March 31 | ||||||||
| 2014 | 2013 | |||||||
| Operating activities: | ||||||||
| Net income (loss) | $ | (150,950 | ) | $ | 194,801 | |||
| Adjustments to reconcile net income (loss) to | ||||||||
| net cash provided by (used in) operating activities: | ||||||||
| Depreciation and amortization | 242,067 | 217,555 | ||||||
| Stock-based compensation | 12,059 | 11,661 | ||||||
| Deferred income taxes | (32,000 | ) | (43,000 | ) | ||||
| Foreign currency transaction (gain)/loss | 28,597 | 20,262 | ||||||
| (Increase) decrease in accounts receivable | 3,062 | 83,621 | ||||||
| (Increase) decrease in inventories | (563,699 | ) | (138,307 | ) | ||||
| (Increase) decrease in refundable income taxes | (35,857 | ) | 10,632 | |||||
| (Increase) decrease in prepaid expenses | ||||||||
| and other current assets | (481,735 | ) | (739,779 | ) | ||||
| (Increase) decrease in other assets | (7,236 | ) | (17,684 | ) | ||||
| Increase (decrease) in income taxes payable | (199,558 | ) | 155,809 | |||||
| Increase (decrease) in accounts payable & accrued expenses | ||||||||
| and other noncurrent liabilities | (178,684 | ) | 853,337 | |||||
| Net cash provided by (used in) operating activities | (1,363,934 | ) | 608,908 | |||||
| Investing activities: | ||||||||
| Proceeds from the sale of property, plant and equipment | 87 | - | ||||||
| Purchase of property, plant and equipment | (53,831 | ) | (61,457 | ) | ||||
| Payments received on distributor note receivable | 22,295 | 14,035 | ||||||
| Payment of life insurance premiums | (274,333 | ) | (259,726 | ) | ||||
| Net cash used in investing activities | (305,782 | ) | (307,148 | ) | ||||
| Financing activities: | ||||||||
| Principal payments on long-term borrowings | (110,190 | ) | (212,457 | ) | ||||
| Net cash used in financing activities | (110,190 | ) | (212,457 | ) | ||||
| Effect of exchange rate changes on cash and cash equivalents | 5,636 | (25,060 | ) | |||||
| Increase (decrease) in cash and cash equivalents | (1,774,270 | ) | 64,243 | |||||
| Cash and cash equivalents at beginning of period | 6,656,798 | 5,801,042 | ||||||
| Cash and cash equivalents at end of period | $ | 4,882,528 | $ | 5,865,285 | ||||
| See notes to financial statements. | ||||||||
| 4 |
Reliv International, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
March 31, 2014
| Note 1-- | Accounting Policies |
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements and notes thereto have been prepared in accordance with the instructions to Form 10-Q and reflect all adjustments (which primarily include normal recurring accruals) which management believes are necessary 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, 2013, filed March 25, 2014 with the Securities and Exchange Commission.
| Note 2-- | Basic and Diluted Earnings (Loss) per Share |
Basic earnings (loss) per common share are computed using the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per share are computed using the weighted average number of common shares and potential dilutive common shares that were outstanding during the period. Potential dilutive common shares consist of outstanding stock options, outstanding stock warrants, and convertible preferred stock.
The following table sets forth the computation of basic and diluted earnings (loss) per share:
| Three months ended March 31 | ||||||||
| 2014 | 2013 | |||||||
| Numerator: | ||||||||
| Net income (loss) | $ | (150,950 | ) | $ | 194,801 | |||
| Denominator: | ||||||||
| Denominator for basic earnings (loss) per | ||||||||
| share--weighted average shares | 12,666,000 | 12,620,000 | ||||||
| Dilutive effect of employee stock options | ||||||||
| and other warrants | - | 88,000 | ||||||
| Denominator for diluted earnings (loss) per | ||||||||
| share--adjusted weighted average shares | 12,666,000 | 12,708,000 | ||||||
| Basic earnings (loss) per share | $ | (0.01 | ) | $ | 0.02 | |||
| Diluted earnings (loss) per share | $ | (0.01 | ) | $ | 0.02 | |||
Options and warrants to purchase 1,502,987 and 1,287,125 shares of common stock for the three months ended March 31, 2014 and 2013, respectively, were not included in the denominator for diluted earnings (loss) per share because their effect would be antidilutive or because the shares were deemed contingently issuable.
| 5 |
| Note 3-- | Fair Value of Financial Instruments |
Fair value can be measured using valuation techniques such as the market approach (comparable market prices), the income approach (present value of future income or cash flow), and the cost approach (cost to replace the service capacity of an asset or replacement cost). Accounting standards utilize a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those levels:
| Level 1: | Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities. |
| Level 2: | Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets or similar assets or liabilities in markets that are not active. |
| Level 3: | Unobservable inputs that reflect the reporting entity's own assumptions. |
The carrying amount and fair value of the Company's financial instruments are approximately as follows:
| Description | Carrying Value | Fair Value | Level 1 | Level 2 | Level 3 | |||||||||||||||
| March 31, 2014 | ||||||||||||||||||||
| Long-term debt | $ | 4,256,367 | $ | 4,256,367 | - | $ | 4,256,367 | - | ||||||||||||
| Note receivable | 1,898,750 | 2,306,000 | - | 2,306,000 | - | |||||||||||||||
| Marketable securities (a) | 285,000 | 285,000 | $ | 285,000 | - | - | ||||||||||||||
| December 31, 2013 | ||||||||||||||||||||
| Long-term debt | $ | 4,362,611 | $ | 4,362,611 | - | $ | 4,362,611 | - | ||||||||||||
| Note receivable | 1,921,046 | 2,365,000 | - | 2,365,000 | - | |||||||||||||||
| Marketable securities (a) | 278,000 | 278,000 | $ | 278,000 | - | - | ||||||||||||||
| (a) | Representing assets of the Company's Supplemental Executive Retirement Plan (trading securities). Presented within Other Assets in the condensed consolidated balance sheets. |
| 6 |
| Note 4-- | Long-Term Incentive Compensation Plan |
In July 2010, the Company’s Reliv Europe subsidiary entered into a long-term performance-based incentive compensation agreement with the subsidiary’s senior managers. The valuation of the compensation agreement is an EBITDA-based formula derived from the subsidiary’s financial performance and vests in 20% annual increments which began in April 2011. The amount of the incentive, if any, varies in accordance with a 24-month look-back of the subsidiary’s financial performance and the vesting provisions. Upon initial vesting, a manager may elect to exercise his/her put option to receive in cash some or all of his/her respective share of the incentive. Beginning April 2015, the Company may exercise a call option on one or more of the manager’s incentive amount; redeeming such amount in cash or a combination of cash and the Company’s common stock, depending upon the amount of the vested incentive. For the three months ended March 31, 2014 and 2013, compensation expense associated with this incentive plan was $(12,000) and $44,400, respectively, and is presented in Selling, General and Administrative in the accompanying condensed consolidated statements of net income (loss) and comprehensive income (loss). At March 31, 2014 and December 31, 2013, accrued compensation was $517,000 and $529,000, respectively, and was included in "Other Non-Current Liabilities" in the accompanying condensed consolidated balance sheets.
| Note 5-- | Debt |
| March 31 | December 31 | |||||||
| 2014 | 2013 | |||||||
| Term loan | $ | 3,440,509 | $ | 2,400,697 | ||||
| Revolving line of credit | - | 1,150,000 | ||||||
| Obligation for acquisition of technology license, net | 815,858 | 811,914 | ||||||
| 4,256,367 | 4,362,611 | |||||||
| Less current maturities | 647,423 | 581,004 | ||||||
| Total long-term debt | $ | 3,608,944 | $ | 3,781,607 | ||||
Principal maturities of debt at March 31, 2014 are as follows:
| Twelve months ending March 31, | ||||
| 2015 | $ | 647,423 | ||
| 2016 | 697,423 | |||
| 2017 | 2,695,663 | |||
| 2018 | 215,858 | |||
| 2019 | - | |||
| Thereafter | - | |||
| $ | 4,256,367 | |||
On February 28, 2014, the Company and its primary lender amended the revolving line of credit agreement and the term loan agreement. As part of the amendment, the $5 million revolving line of credit agreement has been extended to July 1, 2016 and the outstanding revolving loan balance of $1.15 million has been re-financed into the term loan balance. Borrowings, if any, under the new revolver accrue interest at a floating interest rate based on the 30-day LIBOR plus 1.85%.
The 2014 re-financed term loan is for a period of twenty-eight months with interest accruing at a floating interest rate based on the 30-day LIBOR plus 2%. The total borrowing on the re-financed term loan consisted of the outstanding balance of the previous term loan plus the February 28, 2014 revolving line of credit balance of $1.15 million. Monthly term loan payments consist of principal of $41,452 plus interest with a balloon payment for the outstanding balance due and payable on July 1, 2016. At March 31, 2014, the term loan's interest rate was 2.1555%.
The term loan agreement and the revolving line of credit agreement are secured by all tangible and intangible assets of the Company and also by a mortgage on the real estate of the Company's headquarters. These agreements also include loan covenants requiring the Company to maintain net tangible worth of not less than $11 million, and a fixed coverage ratio under which EBITDA adjusted for certain non-cash expenses shall exceed fixed charges by a ratio of at least 1.15 to 1. Fixed charges, as defined, include unfinanced capital expenditures, dividends and other distributions, cash taxes paid, and principal and interest due on all debt obligations. At March 31, 2014, the Company was in compliance with its loan covenants.
| 7 |
| Note 6-- | Taxes |
The interim financial statement provision for income taxes (benefit) is different from the amounts computed by applying the United States federal statutory income tax rate of 34%. In summary, the reasons for these differences are as follows:
| Three Months ended March 31 | ||||||||
| 2014 | 2013 | |||||||
| Income taxes (benefit) at U.S. statutory rate | $ | (62,000 | ) | $ | 145,000 | |||
| State income taxes, net of federal benefit | 18,000 | 33,000 | ||||||
| Higher / (lower) effective taxes on earnings/losses | ||||||||
| in certain foreign countries | 6,000 | 58,000 | ||||||
| Foreign corporate income taxes | (5,000 | ) | 5,000 | |||||
| Other, net | 11,000 | (8,000 | ) | |||||
| $ | (32,000 | ) | $ | 233,000 | ||||
One of the Company's foreign subsidiaries is presently under local country audit for alleged deficiencies (totaling approximately $800,000 plus interest at 20% per annum) in value-added tax (VAT) and withholding tax for the years 2004 through 2006. The Company, in consultation with its legal counsel, believes that there are strong legal grounds that it is not liable to pay the majority of the alleged tax deficiencies. As of December 31, 2010, management estimated and reserved approximately $185,000 in taxes and interest for resolution of this matter and recorded this amount within Selling, General, and Administrative expense in the 2010 Consolidated Statement of Income. In 2011, the Company made good faith deposits to the local tax authority under the tax agency's administrative judicial resolution process. As of March 31, 2014 and December 31, 2013, management's estimated reserve (net of deposits) for this matter is approximately $95,000. There has been no change in this matter during the first three months of 2014.
| 8 |
FORWARD-LOOKING STATEMENTS
This quarterly report includes both historical and “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. We have based these forward-looking statements on our current expectations and projections about future results. Words such as “may,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “continue,” or similar words are intended to identify forward-looking statements, although not all forward-looking statements contain these words. Although we believe that our opinions and expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements, and our actual results may differ substantially from the views and expectations set forth in this quarterly report on Form 10-Q. We disclaim any intent or obligation to update any forward-looking statements after the date of this annual report to conform such statements to actual results or to changes in our opinions or expectations.
Item No. 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q. The following discussion and analysis discusses the financial condition and results of our operations on a consolidated basis, unless otherwise indicated.
Overview
We are a developer, manufacturer and marketer of a proprietary line of nutritional supplements addressing basic nutrition, specific wellness needs, weight management and sports nutrition. We also offer a line of skin care products and an all-natural sweetener. We sell our products through an international network marketing system utilizing independent distributors. Sales in the United States represented approximately 73.9% of worldwide net sales for the three months ended March 31, 2014 and 80.1% of worldwide net sales for the three months ended March 31, 2013. Our international operations currently generate sales through distributor networks with facilities in Australia, Canada, Indonesia, Malaysia, Mexico, the Philippines, and the United Kingdom. We also operate on a limited basis in Ireland, France, Germany, Austria and the Netherlands from our United Kingdom distribution center, in New Zealand from our Australia office, and in Singapore from our Malaysia office.
We derive our revenues principally through product sales made by our global independent distributor base, which, as of March 31, 2014, consisted of approximately 52,620 distributors. Our sales can be affected by several factors, including our ability to attract new distributors and retain our existing distributor base, our ability to properly train and motivate our distributor base and our ability to develop new products and successfully maintain our current product line.
All of our sales to distributors outside the United States are made in the respective local currency; therefore, our earnings and cash flows are subject to fluctuations due to changes in foreign currency rates as compared to the U.S. dollar. As a result, exchange rate fluctuations may have an effect on sales and gross margins. U.S. generally accepted accounting practices require that our results from operations be converted to U.S. dollars for reporting purposes. Consequently, our reported earnings 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 us for sale to our foreign subsidiaries are transacted in U.S. dollars. From time to time, we enter into foreign exchange forward contracts to mitigate our foreign currency exchange risk.
Components of Net Sales and Expense
Product sales represent the actual product purchase price typically paid by our distributors, after giving effect to distributor allowances, which can range from 20% to 40% of suggested retail price, depending on the rank of a particular distributor. Handling and freight income represents the amounts billed to distributors for shipping costs. We record net sales and the related commission expense when the merchandise is shipped.
Our primary expenses include cost of products sold, distributor royalties and commissions and selling, general and administrative expenses.
| 9 |
Cost of products sold primarily consists of expenses related to raw materials, labor, quality control and overhead directly associated with production of our products and sales materials, as well as shipping costs relating to the shipment of products to distributors, and duties and taxes associated with product exports. Cost of products sold is impacted by the cost of the ingredients used in our products, the cost of shipping distributors’ orders, along with our efficiency in managing the production of our products.
Distributor royalties and commissions are monthly payments made to distributors based on products sold in their downline organization. Based on our distributor agreements, these expenses have typically approximated 23% of sales at suggested retail. In the United States effective March 1, 2013, we instituted a retail price increase, offset by a reduced shipping charge. After the price change, wholesale pricing discounts on distributor orders are based on the retail value of the product. Distributor royalties and commissions are paid on an amount referred to as the business value (“BV”), which is generally equal to the retail price of each product prior to the price increase. Also, we include other sales leadership bonuses, such as Ambassador bonuses, within this caption. Overall, distributor royalties and commissions remain directly related to the level of our sales and should continue at comparable levels as a percentage of net sales going forward.
Selling, general and administrative expenses include the compensation and benefits paid to our employees, except for those in manufacturing, all other selling expenses, marketing, promotional expenses, travel and other corporate administrative expenses. These other corporate administrative expenses include professional fees, non-manufacturing depreciation and amortization, occupancy costs, communication costs and other similar operating expenses. Selling, general and administrative expenses can be affected by a number of factors, including staffing levels and the cost of providing competitive salaries and benefits; the amount we decide to invest in distributor training and motivational initiatives; and the cost of regulatory compliance.
Results of Operations
The following table sets forth selected results of our operations expressed as a percentage of net sales for the three-month periods ended March 31, 2014 and 2013. Our results of operations for the periods described below are not necessarily indicative of results of operations for future periods.
| Three months ended | ||||||||
| March 31, | ||||||||
| 2014 | 2013 | |||||||
| Net sales | 100.0 | % | 100.0 | % | ||||
| Costs and expenses: | ||||||||
| Cost of products sold | 20.0 | 20.7 | ||||||
| Distributor royalties and commissions | 36.0 | 37.1 | ||||||
| Selling, general and administrative | 45.2 | 39.9 | ||||||
| Income/(loss) from operations | (1.2 | ) | 2.3 | |||||
| Interest expense | (0.2 | ) | (0.1 | ) | ||||
| Interest and other income/(expense) | 0.1 | 0.1 | ||||||
| Income/(loss) before income taxes | (1.3 | ) | 2.3 | |||||
| Provision/(benefit) for income taxes | (0.3 | ) | 1.2 | |||||
| Net income/(loss) | (1.0 | )% | 1.1 | % | ||||
Net Sales. Overall net sales decreased by 23.3% in the three months ended March 31, 2014 compared to the same period in 2013. During the first quarter of 2014, sales in the United States decreased by 29.2%, and international sales increased by 0.7% over the prior-year period.
| 10 |
The following table summarizes net sales by geographic market for the three months ended March 31, 2014 and 2013.
| Three months ended March 31, | ||||||||||||||||||||||||
| 2014 | 2013 | Change from prior year | ||||||||||||||||||||||
| Amount | % of Net Sales | Amount | % of Net Sales | Amount | % | |||||||||||||||||||
| (dollars in thousands) | ||||||||||||||||||||||||
| United States | $ | 10,693 | 73.9 | % | $ | 15,109 | 80.1 | % | $ | (4,416 | ) | (29.2 | )% | |||||||||||
| Australia/New Zealand | 432 | 3.0 | 448 | 2.4 | (16 | ) | (3.6 | ) | ||||||||||||||||
| Canada | 290 | 2.0 | 554 | 2.9 | (264 | ) | (47.7 | ) | ||||||||||||||||
| Mexico | 224 | 1.5 | 278 | 1.5 | (54 | ) | (19.4 | ) | ||||||||||||||||
| Europe | 2,329 | 16.1 | 2,020 | 10.7 | 309 | 15.3 | ||||||||||||||||||
| Asia | 497 | 3.5 | 448 | 2.4 | 49 | 10.9 | ||||||||||||||||||
| Consolidated total | $ | 14,465 | 100.0 | % | $ | 18,857 | 100.0 | % | $ | (4,392 | ) | (23.3 | )% | |||||||||||
The following table sets forth, as of March 31, 2014 and 2013, the number of our active distributors and Master Affiliates and above. The total number of active distributors includes Master Affiliates and above. We define an active distributor as one that enrolls as a distributor or renews his or her distributorship during the prior twelve months. Master Affiliates and above are distributors that have attained the highest level of discount and are eligible for royalties generated by Master Affiliate groups in their downline organization. The active distributor count for Europe includes our preferred customers in France. This program began in mid-2013 and the Europe active distributor count as of March 31, 2014 includes 2,120 preferred customers.
| March 31, 2014 | March 31, 2013 | % Change | ||||||||||||||||||||||
| Active Distributors | Master Affiliates and Above | Active Distributors | Master Affiliates and Above | Active Distributors | Master Affiliates and Above | |||||||||||||||||||
| United States | 38,290 | 4,980 | 40,020 | 3,960 | (4.3 | )% | 25.8 | % | ||||||||||||||||
| Australia/New Zealand | 1,440 | 150 | 1,710 | 180 | (15.8 | ) | (16.7 | ) | ||||||||||||||||
| Canada | 1,280 | 230 | 1,310 | 170 | (2.3 | ) | 35.3 | |||||||||||||||||
| Mexico | 1,170 | 140 | 1,340 | 100 | (12.7 | ) | 40.0 | |||||||||||||||||
| Europe | 7,790 | 820 | 7,090 | 730 | 9.9 | 12.3 | ||||||||||||||||||
| Asia | 2,650 | 310 | 4,570 | 460 | (42.0 | ) | (32.6 | ) | ||||||||||||||||
| Consolidated total | 52,620 | 6,630 | 56,040 | 5,600 | (6.1 | )% | 18.4 | % | ||||||||||||||||
United States
In the United States, net sales were down 29.2% in the first quarter of 2014 compared to the same period in 2013. Sales declined in the first quarter of 2014 as sales volume that would normally occur in the quarter was shifted to the fourth quarter of 2013 as the result of the promotion that lowered the sales volume needed to achieve Master Affiliate status in the United States. Under the Ignition Master Affiliate qualification promotion, new distributors could qualify as a Master Affiliate at 60% of the sales volume previously required. Existing Master Affiliates could also place their annual requalification order at the reduced sales volume level. This promotion was initially scheduled to end during the fourth quarter of 2013. Consequently, distributor activity related to the Ignition promotion resulted in the shifting and reduction in Master Affiliate requalification orders that would normally be received in January 2014 to the fourth quarter of 2013, accounting for much of the decline in sales in the United States during the first quarter of 2014. The reduced sales volume requirement was made a permanent update to our compensation plan beginning in January 2014. The winter weather in the eastern half of the United States also negatively impacted sales in the first quarter. For example, we were forced to cancel a national distributor conference scheduled for February 14th and 15th in Charlotte, NC due to a major winter storm — the first time in our 25-year history we were forced to cancel such an event. As a result of the weather, the excitement and training shared at these and other smaller events did not occur.
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Also negatively impacting sales in the United States in the first quarter was a decline in distributor activity evidenced by a decrease in the number of new distributor enrollments and a decrease in the number of distributorships that qualified as new Master Affiliates during the quarter. During the first quarter of 2014, approximately 1,956 new distributors were enrolled, compared to 2,781 new distributor enrollments in the prior-year quarter, a decline of 29.7%. In the first quarter of 2014, approximately 236 distributors qualified as new Master Affiliates, compared to approximately 358 in the prior-year quarter, a decline of 34.1%. As a result, the net number of active distributors in the United States as of March 31, 2014 decreased by 4.3% to 38,290 as compared to the number of active distributors as of March 31, 2013. The net number of distributors at the level of Master Affiliate and above as of March 31, 2014 increased by 25.8% as compared to March 31, 2013. This increase was the result of the number of distributorships that qualified as Master Affiliates during the reduced volume promotion during the fourth quarter of 2013. Distributor retention declined slightly to 67.7% for the first three months of 2014 compared to a rate of 68.2% for all of 2013.
In the first quarter of 2014, we processed approximately 46,444 orders in the United States for products at an average order of $317 at suggested retail. In the same period of 2013, we processed approximately 54,317 product orders at an average order of $376 at suggested retail. The decline in the number of orders processed is attributable to the decline in distributor activity. The decrease in the average order size is attributable to the reduction in Master Affiliate requalification orders in the first quarter of 2014 normally placed during January each year.
We continue to focus our marketing efforts on our LunaRich®-based products. First quarter 2014 net sales in the United States were led by the flagship products in the LunaRich line, Reliv Now® and LunaRich X™, which made up 18.7% and 14.1% of U.S. net sales, respectively.
International Operations
During the three months ended March 31, 2014, net sales in our international operations increased in aggregate by 0.7% to $3.77 million compared to $3.75 million for the three months ended March 31, 2013. When sales are measured excluding the impact of currency fluctuation, sales increased in Europe, Asia, and Australia/New Zealand, but were offset by declines in Canada and Mexico during the first quarter of 2014. When net sales are converted using the 2013 exchange rate for both 2013 and 2014, international net sales increased by 0.6% for the first quarter of 2014 compared to the first quarter of the prior year. Regional sales results excluding the impact of currency fluctuation for the first quarter of 2014 compared to the first quarter of 2013 were as follows: Australia/New Zealand net sales increased 8.7%, Canada net sales decreased 42.7%, Mexico net sales decreased 15.7%, Europe net sales increased 8.2%, and Asian sales increased 21.7%.
In Canada, sales were negatively impacted in the first quarter of 2014 , similar to the United States, as a result of the Ignition Master Affiliate promotion. Accordingly, excluding the impact of currency fluctuation, net sales declined by 42.7% in this quarter compared to the prior-year quarter.
In Europe, distributor activity and growth continued in the first quarter of 2014 and resulted in an 8.2% increase in net sales, excluding the impact of currency fluctuation. Total order count increased to 7,155 in the first quarter of 2014 compared to 5,268 in the same period last year, an increase of 35.8%. Other distributor statistics remained strong, with new distributor and preferred customer enrollments of 1,461 in the first quarter of 2014, compared to 1,344 in the same period in 2013.
In Asia, sales increased by 21.7%, excluding the impact of currency fluctuation, as the results of the changes made in 2013 to our business model in the region begin to have a positive impact. Across the region, we introduced initiatives to increase focus on retail sales by distributors.
In Australia/New Zealand, sales increased by 8.7%, excluding the impact of currency fluctuation, in the first quarter of 2014 compared to the prior-year quarter. In 2013, we implemented pricing and freight charge structure changes similar to the United States along with other initiatives to increase focus on retail sales by distributors, and these changes are beginning to have a positive impact on sales. When net sales are reported in U.S. dollars, sales in the region declined by 3.6% as the Australian dollar declined in value over the first quarter of 2014 compared to the prior-year quarter.
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Cost of Products Sold. Cost of products sold as a percentage of net sales was 20.0% for the three-month period ended March 31, 2014, compared to 20.7% for the same period in 2013. Gross margins improved in the first quarter of 2014 as the result of the price increase implemented in the first quarter of 2013, along with improved LunaRich X product margins resulting from our acquisition of the lunasin technology license in July 2013.
Distributor Royalties and Commissions. Distributor royalties and commissions as a percentage of net sales was 36.0% for the three-month period ended March 31, 2014, compared to 37.1% in the same period in 2013. The decrease as a percentage of net sales is the result of the retail price increase and commission restructuring effective March 1, 2013 in the United States and later in 2013 for other markets. After the price change, wholesale discounts on distributor orders are based on the retail value of the product. Distributor royalties and commissions are paid on an amount referred to as the business value (“BV”), which is generally equal to the retail price of each product prior to the price increase.
Selling, General and Administrative Expenses. For the three months ended March 31, 2014, selling, general and administrative expenses (“SGA”) decreased by $975,000, compared to the same period in 2013. SGA expenses as a percentage of net sales were 45.2% for the three-month period ended March 31, 2014, compared to 39.9% for the same period of 2013.
Sales and marketing expenses decreased by approximately $836,000 in the first quarter of 2014, compared to the prior-year quarter. The decreases consisted of a decrease in distributor bonuses and other expenses directly related to the level of sales of approximately $293,000, a decrease of $288,000 in conference and meeting expenses, a decrease in promotions expense of $137,000, and a decrease in advertising/public relations expenses of $97,000. The decrease in conference and meeting expenses was partially due to the cancellation of the national distributor conference in Charlotte discussed earlier. The decrease in promotions expense was due to an incentive trip in the first quarter of 2013 that was not repeated in 2014, and the decrease in advertising/public relations expense was the result of a first half of 2013 public relations campaign to bring greater awareness to the LunaRich product line in 2013.
Salaries, benefits, and incentive compensation decreased in the aggregate in the first quarter of 2014, compared to the prior-year quarter, as increases in salaries and benefit expenses of approximately $6,000 were offset by a decrease in incentive compensation expense of $84,000. Distribution and warehouse expenses decreased by $51,000 and other general and administrative expenses decreased by approximately $9,000 in the first quarter of 2014, compared to the prior-year quarter.
Interest Income. Interest income decreased to $36,000 during the first quarter of 2014 compared to $37,000 in the first quarter of 2013. The interest income is primarily interest earned on the note receivable due from a distributor that was entered into in March 2012.
Interest Expense. Interest expense increased to $24,000 during the first quarter of 2014 compared to $18,000 in the first quarter of 2013. The increase in interest expense is the result of an increase in the amount of debt compared to the prior year. Further information regarding our bank debt is described in Note 5 of the Condensed Consolidated Financial Statements.
Other Income/Expense. Other income/expense in the first quarter of 2014 was a net expense of $25,000, compared to a net expense of $27,000 in the first quarter of 2013. The net expense in the first quarter in each year is primarily the result of foreign currency exchange losses in certain of our subsidiaries.
Income Taxes. We recorded an income tax benefit of $32,000 for the first three months of 2014, resulting in an effective rate of 17.5%. In the same period in 2013, we recorded income tax expense of $233,000, which represented an effective rate of 54.5%. The effective rate of the benefit in 2014 was negatively impacted by our filing status in certain states. Our effective rate was higher in 2013 due to losses incurred in the Philippines in the quarter for which there is no tax benefit.
Net Income/(Loss). Our net loss for the three months ended March 31, 2014 was approximately $151,000 ($0.01 per share basic and diluted), compared to net income of approximately $195,000 ($0.02 per share basic and diluted) for the same period in 2013. Profitability decreased in the first quarter of 2014 as the result of the decreases in net sales in the United States and Canada as discussed above.
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Financial Condition, Liquidity and Capital Resources
During the first three months of 2014, we used $1.36 million of net cash in operating activities, $306,000 was used in investing activities, and we used $110,000 in financing activities. This compares to $609,000 of net cash provided from operating activities, $307,000 used in investing activities, and $212,000 used in financing activities in the same period of 2013. Cash and cash equivalents decreased by $1.77 million to $4.88 million as of March 31, 2014 compared to December 31, 2013.
Significant changes in working capital items consisted of an increase in inventory of $564,000, an increase in prepaid expenses/other current assets of $482,000, an increase in accounts payable and accrued expenses of $179,000, and a decrease in income taxes payable of $200,000 in the first three months of 2014. The increase in inventory is the result of production in excess of sales demand, and the increase in prepaid expenses/other current assets represents the annual premium payments made in the first quarter on most of the corporate business insurance policies. The increase in accounts payable and accrued expenses is partially related to a financing arrangement for our annual corporate insurance policy renewals, coupled with various annual accruals and the increase in inventory. The decrease in income taxes payable is a function of the timing of estimated tax payments.
Investing activities during the first three months of 2014 consisted of a net investment of $54,000 for capital expenditures, payments received on a distributor note receivable of $22,000, and $274,000 for key-man life insurance. Financing activities during the first three months of 2014 consisted of principal payments of $110,000 on long-term borrowings.
Stockholders’ equity decreased to $16.02 million at March 31, 2014 compared to $16.13 million at December 31, 2013. The decrease is due to our net loss during the first three months of 2014 of $151,000 offset by a favorable adjustment in the cumulative foreign currency translation adjustment of $33,000 due to the general weakening of the U.S. dollar. Our working capital balance was $5.94 million at March 31, 2014 compared to $6.51 million at December 31, 2013. The current ratio at March 31, 2014 was 1.94 compared to 1.98 at December 31, 2013.
In September 2012, we entered into a term loan with our primary lender (“Bank”) in the principal amount of $2.90 million. The loan was renegotiated from a loan that originated with the Bank on November 30, 2010. The term of the loan was for a period of three years and two months with interest accruing on the outstanding principal balance at a floating interest rate based on the 30-day LIBOR plus 2.0%.
On February 28, 2014, we re-financed the 2012 term loan agreement (and its revolving line of credit agreement) with the Bank. The 2014 re-financed term loan is for a period of twenty-eight months with the same floating interest rate pricing as the 2012 term loan. The total loan amount of the new 2014 term loan is approximately $3.48 million and consists of the February 28, 2014 outstanding balances of the 2012 term loan and the revolving line of credit loan balance of $1.15 million. Upon the completion of the re-financing, the revolving line of credit loan balance was zero. The credit agreement has a maturity date of July 1, 2016. The terms of this new credit agreement are described in Note 5 of the Condensed Consolidated Financial Statements.
The new credit agreement includes a revolving credit facility for $5 million. The credit facility accrues interest on the outstanding principal balance at a floating interest rate based on 30-day LIBOR plus 1.85% and has the same maturity date as the 2014 term loan of July 1, 2016. After the new credit agreement was completed, there were no outstanding borrowings on the revolving credit facility, and there are no outstanding borrowings on the facility as of March 31, 2014.
The new credit agreement is secured by all our tangible and intangible assets and also by a mortgage on the real estate of our headquarters. These agreements also include loan covenants requiring us to maintain net tangible worth of not less than $11 million, and a fixed charge coverage ratio under which EBITDA adjusted for certain non-cash expenses shall exceed the fixed charges, including unfinanced capital expenditures, dividends and other distributions, cash taxes paid, and principal and interest due on all debt obligations, by a ratio of at least 1.15 to 1. As of March 31, 2014, we were in compliance with our loan covenants.
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Management believes that our internally generated funds coupled with cash on hand and the bank loan facilities will be sufficient to meet working capital requirements for the remainder of 2014.
Critical Accounting Policies
A summary of our critical accounting policies and estimates is presented on pages 26-28 of our 2013 Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 25, 2014. Our critical accounting policies remain unchanged as of March 31, 2014.
Item No. 4 - Controls and Procedures
Our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, has reviewed and evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2014. Based on such review and evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that the disclosure controls and procedures were effective as of March 31, 2014, to ensure that the information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, (a) is recorded, processed, summarized and reported within the time period specified in the SEC’s rules and forms and (b) is accumulated and communicated to our management, including the officers, as appropriate to allow timely decisions regarding required disclosure. There were no material changes in our internal control over financial reporting during the first quarter of 2014 that have materially affected or are reasonably likely to materially affect our internal controls over financial reporting.
| 15 |
| Exhibit | ||
| Number | Document | |
| 10.1 | Credit Agreement dated February 28, 2014 among Reliv International, Inc., Reliv, Inc., Reliv World Corporation, and SL Technology, Inc., as Borrowers and BMO Harris Bank N.A. (incorporated by reference to Exhibit 10.1 to the Form 8-K of the Registrant filed March 6, 2014). | |
| 31.1 | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended (filed herewith). | |
| 31.2 | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended (filed herewith). | |
| 32 | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith). | |
| 101 | Interactive Data Files, including the following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2014, formatted in XBRL: (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Net Income (Loss) and Comprehensive Income (Loss), (iii) the Condensed Consolidated Statements of Cash Flows, and (iv) the Notes to Condensed Consolidated Financial Statements. |
| 16 |
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.
RELIV’ INTERNATIONAL, INC.
| By: | /s/ Robert L. Montgomery |
| Robert L. Montgomery, Chairman of the Board of Directors and Chief Executive Officer |
Date: May 14, 2014
| By: | /s/ Steven D. Albright |
| Steven D. Albright, Chief Financial Officer (and accounting officer) |
Date: May 14, 2014
| 17 |
Exhibit 31.1
CERTIFICATION
I, Robert L. Montgomery, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Reliv International, Inc.;
2. Based on my knowledge, this 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 report;
3. Based on my knowledge, the financial statements, and other financial information included in this 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 report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared; |
| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: May 14, 2014
| /s/ Robert L. Montgomery | |
| Robert L. Montgomery | |
| Chief Executive Officer |
Exhibit 31.2
CERTIFICATION
I, Steven D. Albright, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Reliv International, Inc.;
2. Based on my knowledge, this 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 report;
3. Based on my knowledge, the financial statements, and other financial information included in this 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 report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared; |
| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: May 14, 2014
| /s/ Steven D. Albright | |
| Steven D. Albright | |
| Chief Financial Officer |
Exhibit 32
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Reliv’ International, Inc. (the “Company”) for the quarterly period ended March 31, 2014, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Robert L. Montgomery, as Chief Executive Officer of the Company, and Steven D. Albright, as Chief Financial Officer of the Company, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| /s/ Robert L. Montgomery | |
| Robert L. Montgomery | |
| Chief Executive Officer | |
| Date: May 14, 2014 | |
| /s/ Steven D. Albright | |
| Steven D. Albright | |
| Chief Financial Officer |
Date: May 14, 2014
The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and is not being “filed” as part of the Form 10-Q or as a separate disclosure document for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to liability under that section. This certification shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act except to the extent that this Exhibit 32 is expressly and specifically incorporated by reference in any such filing.
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.