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 June 30, 2016
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 August 2, 2016 was 12,919,110 (excluding treasury shares).
INDEX
| Part I – Financial Information | ||
| Item No. 1 | Financial Statements (Unaudited) | 3 |
| Item No. 2 | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 11 |
| Item No. 4 | Controls and Procedures | 19 |
| Part II – Other Information | ||
| Item No. 6 | Exhibits | 19 |
| 2 |
PART I — FINANCIAL INFORMATION
Item No. 1 - Financial Statements
Reliv International, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
| June 30 | December 31 | |||||||
| 2016 | 2015 | |||||||
| (unaudited) | ||||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 3,465,726 | $ | 3,262,263 | ||||
| Accounts receivable, less allowances of $30,000 in 2016 and $30,200 in 2015 | 14,428 | 89,376 | ||||||
| Accounts and note due from employees and distributors | 140,402 | 134,668 | ||||||
| Inventories | ||||||||
| Finished goods | 2,730,075 | 3,657,612 | ||||||
| Raw materials | 1,621,039 | 1,382,635 | ||||||
| Sales aids and promotional materials | 173,556 | 132,475 | ||||||
| Total inventories | 4,524,670 | 5,172,722 | ||||||
| Refundable income taxes | 468,582 | 522,035 | ||||||
| Prepaid expenses and other current assets | 888,381 | 552,645 | ||||||
| Deferred income taxes | - | 66,000 | ||||||
| Total current assets | 9,502,189 | 9,799,709 | ||||||
| Other assets | 273,554 | 285,153 | ||||||
| Cash surrender value of life insurance | 2,906,719 | 2,848,232 | ||||||
| Note receivable due from distributor | 1,576,402 | 1,630,164 | ||||||
| Deferred income taxes | 533,000 | 623,000 | ||||||
| Intangible assets, net | 2,520,583 | 2,655,647 | ||||||
| Property, plant and equipment: | ||||||||
| Land and land improvements | 905,190 | 905,190 | ||||||
| Building | 9,950,254 | 9,951,555 | ||||||
| Machinery & equipment | 4,347,111 | 4,344,403 | ||||||
| Office equipment | 1,218,694 | 1,223,921 | ||||||
| Computer equipment & software | 2,343,869 | 2,341,149 | ||||||
| 18,765,118 | 18,766,218 | |||||||
| Less: Accumulated depreciation | 12,698,780 | 12,347,091 | ||||||
| Net property, plant and equipment | 6,066,338 | 6,419,127 | ||||||
| Total assets | $ | 23,378,785 | $ | 24,261,032 | ||||
See notes to financial statements.
| 3 |
Reliv International, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
| June 30 | December 31 | |||||||
| 2016 | 2015 | |||||||
| (unaudited) | ||||||||
| Liabilities and stockholders' equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued expenses: | ||||||||
| Trade accounts payable and other accrued expenses | $ | 2,759,588 | $ | 1,859,716 | ||||
| Distributors' commissions payable | 1,377,383 | 1,567,883 | ||||||
| Sales taxes payable | 236,484 | 232,996 | ||||||
| Payroll and payroll taxes payable | 307,739 | 277,157 | ||||||
| Total accounts payable and accrued expenses | 4,681,194 | 3,937,752 | ||||||
| Current portion of long-term debt | 714,112 | 781,505 | ||||||
| Total current liabilities | 5,395,306 | 4,719,257 | ||||||
| Noncurrent liabilities: | ||||||||
| Long-term debt, less current portion | 2,925,160 | 3,159,575 | ||||||
| Deferred income taxes | - | 94,000 | ||||||
| Other noncurrent liabilities | 394,148 | 405,705 | ||||||
| Total noncurrent liabilities | 3,319,308 | 3,659,280 | ||||||
| Stockholders' equity: | ||||||||
| Preferred stock, par value $.001 per share; 3,000,000 shares authorized; -0- shares issued and outstanding in 2016 and 2015 | - | - | ||||||
| Common stock, par value $.001 per share; 30,000,000 authorized; 14,773,083 shares issued and 12,919,110 shares outstanding as of 6/30/2016; 14,773,083 shares issued and 12,919,110 shares outstanding as of 12/31/2015 | 14,773 | 14,773 | ||||||
| Additional paid-in capital | 30,534,929 | 30,499,817 | ||||||
| Accumulated deficit | (9,691,085 | ) | (8,659,262 | ) | ||||
| Accumulated other comprehensive loss: | ||||||||
| Foreign currency translation adjustment | (855,886 | ) | (634,273 | ) | ||||
| Treasury stock | (5,338,560 | ) | (5,338,560 | ) | ||||
| Total stockholders' equity | 14,664,171 | 15,882,495 | ||||||
| Total liabilities and stockholders' equity | $ | 23,378,785 | $ | 24,261,032 | ||||
See notes to financial statements.
| 4 |
Reliv International, Inc. and Subsidiaries
Condensed Consolidated Statements of Net
Loss and Comprehensive Loss
| (unaudited) | Three months ended June 30 | Six months ended June 30 | ||||||||||||||
| 2016 | 2015 | 2016 | 2015 | |||||||||||||
| Product sales | $ | 10,166,478 | $ | 11,442,990 | $ | 22,209,039 | $ | 25,151,113 | ||||||||
| Handling & freight income | 886,844 | 1,002,361 | 1,880,733 | 2,128,601 | ||||||||||||
| Net sales | 11,053,322 | 12,445,351 | 24,089,772 | 27,279,714 | ||||||||||||
| Costs and expenses: | ||||||||||||||||
| Cost of products sold | 2,530,771 | 2,647,755 | 5,514,875 | 5,642,704 | ||||||||||||
| Distributor royalties and commissions | 3,921,005 | 4,459,577 | 8,545,380 | 9,740,324 | ||||||||||||
| Selling, general and administrative | 5,541,328 | 6,454,992 | 11,150,596 | 12,584,941 | ||||||||||||
| Total costs and expenses | 11,993,104 | 13,562,324 | 25,210,851 | 27,967,969 | ||||||||||||
| Loss from operations | (939,782 | ) | (1,116,973 | ) | (1,121,079 | ) | (688,255 | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Interest income | 27,133 | 30,073 | 54,490 | 60,455 | ||||||||||||
| Interest expense | (26,778 | ) | (26,749 | ) | (53,179 | ) | (50,688 | ) | ||||||||
| Other income / (expense) | 71,263 | 15,653 | 184,944 | (155,061 | ) | |||||||||||
| Loss before income taxes | (868,164 | ) | (1,097,996 | ) | (934,824 | ) | (833,549 | ) | ||||||||
| Provision (benefit) for income taxes | 120,000 | (252,000 | ) | 97,000 | (104,000 | ) | ||||||||||
| Net loss | $ | (988,164 | ) | $ | (845,996 | ) | $ | (1,031,824 | ) | $ | (729,549 | ) | ||||
| Other comprehensive income (loss): | ||||||||||||||||
| Foreign currency translation adjustment | (147,062 | ) | 72,326 | (221,613 | ) | (48,939 | ||||||||||
| Comprehensive loss | $ | (1,135,226 | ) | $ | (773,670 | ) | $ | (1,253,437 | ) | $ | (680,610 | ) | ||||
| Loss per common share - Basic | $ | (0.08 | ) | $ | (0.07 | ) | $ | (0.08 | ) | $ | (0.06 | ) | ||||
| Weighted average shares | 12,919,000 | 12,819,000 | 12,919,000 | 12,819,000 | ||||||||||||
| Loss per common share - Diluted | $ | (0.08 | ) | $ | (0.07 | ) | $ | (0.08 | ) | $ | (0.06 | ) | ||||
| Weighted average shares | 12,919,000 | 12,819,000 | 12,919,000 | 12,819,000 | ||||||||||||
See notes to financial statements.
| 5 |
Reliv International, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(unaudited)
| Six months ended June 30 | ||||||||
| 2016 | 2015 | |||||||
| Operating activities: | ||||||||
| Net loss | $ | (1,031,824 | ) | $ | (729,549 | ) | ||
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||||||||
| Depreciation and amortization | 498,415 | 514,309 | ||||||
| Stock-based compensation | 35,112 | 28,898 | ||||||
| Non-cash life insurance policy accretion | (58,488 | ) | (50,144 | ) | ||||
| Deferred income taxes | 14,000 | (62,000 | ) | |||||
| Foreign currency transaction (gain)/loss | (162,293 | ) | 104,778 | |||||
| (Increase) decrease in accounts receivable and accounts due from employees and distributors | 72,102 | 186,972 | ||||||
| (Increase) decrease in inventories | 590,841 | (324,809 | ) | |||||
| (Increase) decrease in refundable income taxes | 53,474 | (82,146 | ) | |||||
| (Increase) decrease in prepaid expenses and other current assets | (341,478 | ) | (260,788 | ) | ||||
| (Increase) decrease in other assets | 11,840 | (26,460 | ) | |||||
| Increase (decrease) in accounts payable & accrued expenses and other noncurrent liabilities | 769,312 | 593,005 | ||||||
| Net cash provided by (used in) operating activities | 451,013 | (107,934 | ) | |||||
| Investing activities: | ||||||||
| Proceeds from the sale of property, plant and equipment | - | 5,782 | ||||||
| Purchase of property, plant and equipment | (14,849 | ) | (188,024 | ) | ||||
| Payments received on distributor note receivable | 50,639 | 47,698 | ||||||
| Net cash provided by (used in) investing activities | 35,790 | (134,544 | ) | |||||
| Financing activities: | ||||||||
| Principal payments on long-term borrowings | (288,851 | ) | (248,712 | ) | ||||
| Net cash used in financing activities | (288,851 | ) | (248,712 | ) | ||||
| Effect of exchange rate changes on cash and cash equivalents | 5,511 | (903 | ) | |||||
| Increase (decrease) in cash and cash equivalents | 203,463 | (492,093 | ) | |||||
| Cash and cash equivalents at beginning of period | 3,262,263 | 4,989,392 | ||||||
| Cash and cash equivalents at end of period | $ | 3,465,726 | $ | 4,497,299 | ||||
| Supplementary disclosure of cash flow information: | ||||||||
| Noncash financing transactions (Note 5): | ||||||||
| Issuance of promissory notes | $ | - | $ | 424,000 | ||||
See notes to financial statements.
| 6 |
Reliv International, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
June 30, 2016
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, 2015, filed March 24, 2016 with the Securities and Exchange Commission.
Note 2 — Basic and Diluted Loss per Share
Basic loss per common share is computed using the weighted average number of common shares outstanding during the period. Diluted loss per share is 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 loss per share:
| Three months ended June 30 | Six months ended June 30 | |||||||||||||||
| 2016 | 2015 | 2016 | 2015 | |||||||||||||
| Numerator: | ||||||||||||||||
| Net loss | $ | (988,164 | ) | $ | (845,996 | ) | $ | (1,031,824 | ) | $ | (729,549 | ) | ||||
| Denominator: | ||||||||||||||||
| Denominator for basic loss per share—weighted average shares | 12,919,000 | 12,819,000 | 12,919,000 | 12,819,000 | ||||||||||||
| Dilutive effect of employee stock options and other warrants | - | - | - | - | ||||||||||||
| Denominator for diluted loss per share—adjusted weighted average shares | 12,919,000 | 12,819,000 | 12,919,000 | 12,819,000 | ||||||||||||
| Basic loss per share | $ | (0.08 | ) | $ | (0.07 | ) | $ | (0.08 | ) | $ | (0.06 | ) | ||||
| Diluted loss per share | $ | (0.08 | ) | $ | (0.07 | ) | $ | (0.08 | ) | $ | (0.06 | ) | ||||
Options and warrants to purchase 1,870,585 shares of common stock for the three months and six months ended June 30, 2016, respectively, were not included in the denominator for diluted net loss per share because their effect would be antidilutive or because the shares were deemed contingently issuable. Options and warrants to purchase 1,897,025 shares of common stock for the three months and six months ended June 30, 2015, respectively, were not included in the denominator for diluted net loss per share because their effect would be antidilutive or because the shares were deemed contingently issuable.
| 7 |
Reliv International, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
June 30, 2016
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 | |||||||||||||||
| June 30, 2016 | ||||||||||||||||||||
| Long-term debt | $ | 3,639,272 | $ | 3,639,272 | - | $ | 3,639,272 | - | ||||||||||||
| Note receivable | 1,682,343 | 1,932,000 | - | 1,932,000 | - | |||||||||||||||
| Marketable securities | 264,000 | 264,000 | $ | 264,000 | - | - | ||||||||||||||
| December 31, 2015 | ||||||||||||||||||||
| Long-term debt | $ | 3,941,080 | $ | 3,941,080 | - | $ | 3,941,080 | - | ||||||||||||
| Note receivable | 1,732,982 | 1,942,000 | - | 1,942,000 | - | |||||||||||||||
| Marketable securities | 275,000 | 275,000 | $ | 275,000 | - | - | ||||||||||||||
Long-term debt: The fair value of the Company's term and revolver loans approximate carrying value as these loans were incurred within the past twelve months and have variable market-based interest rates which reset every thirty days. The fair value of the Company's obligation for the acquisition of its lunasin technology license approximates carrying value as this obligation is a zero-interest based obligation discounted utilizing an interest rate factor comparable to the Company's market-based interest rate for its term and revolver loans. The fair value of the Company's notes payable obligations approximates carrying value as these obligations were incurred within the past twelve months and have variable market-based interest rates which reset every ninety days.
Note receivable: The Company's note receivable is a variable rate residential mortgage-based financial instrument. An average of published interest rate quotes for a fifteen-year residential jumbo mortgage, a comparable financial instrument, was used to estimate fair value of this note receivable under a discounted cash flow model.
Marketable securities: The assets (trading securities) of the Company's Supplemental Executive Retirement Plan are recorded at fair value on a recurring basis, and are presented within Other Assets in the consolidated balance sheets.
The carrying value of other financial instruments, including cash, accounts receivable and accounts payable, and accrued liabilities approximate fair value due to their short maturities or variable-rate nature of their respective balances.
| 8 |
Reliv International, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
June 30, 2016
Note 4 — Taxes
The interim financial statement provision (benefit) for income taxes 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:
| Six months ended June 30 | ||||||||
| 2016 | 2015 | |||||||
| Income taxes (benefit) at U.S. statutory rate | $ | (318,000 | ) | $ | (283,000 | ) | ||
| State income taxes, net of federal benefit | 23,000 | 39,000 | ||||||
| Higher / (lower) effective taxes on earnings/losses in certain foreign countries | (46,000 | ) | 84,000 | |||||
| Foreign corporate income taxes | 44,000 | 45,000 | ||||||
| Change in valuation allowance | 383,000 | - | ||||||
| Other, net | 11,000 | 11,000 | ||||||
| $ | 97,000 | $ | (104,000 | ) | ||||
During the second quarter of 2016, the Company determined that it was more likely than not that federal and various state net operating losses it expects to generate in 2016 will not be realized based on projections of future taxable income, estimated reversals of existing taxable timing differences, and other considerations. Accordingly, the income tax provision for the second quarter of 2016 includes the impact of recording a valuation allowance of $383,000 in the second quarter of 2016 against the losses generated from a U.S. tax perspective.
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 June 30, 2016 and December 31, 2015, management's estimated reserve (net of deposits) for this matter is approximately $154,000 and $142,000, respectively. There has been no change in this matter during the first six months of 2016.
Note 5 — Long-Term Incentive Compensation Plan — 2015
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 was an EBITDA-based formula derived from the subsidiary’s financial performance and vested in 20% annual increments which began in April 2011. The amount of the incentive, if any, increased or decreased each quarter in accordance with a 24-month look-back of the subsidiary’s financial performance and the vesting provisions. For the three months and six months ended June 30, 2015, compensation expense associated with this incentive plan was $165,100 and $90,800, respectively. This compensation expense is presented in Selling, General and Administrative in the accompanying condensed consolidated statements of net loss and comprehensive loss.
During the second quarter of 2015, the cumulative incentive amount of $756,800 became 100% vested, and concurrently, each of the subsidiary's senior managers exercised 100% of his/her put option. In the aggregate, the Company and the managers agreed to settle the incentive obligation whereby the Company: issued notes payable of approximately $424,000 in April 2015, issued 100,000 shares of Company common stock (fair value at settlement of $117,000) in July 2015, and made cash payments of approximately $216,000 in July 2015.
| 9 |
Reliv International, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
June 30, 2016
The notes payable issued by the Company to the managers range in length from one to two years with quarterly payments of principal and interest beginning July 2015 and ending April 2017. The notes accrue interest at a floating interest rate based on the three-month pound LIBOR rate plus 3%. At June 30, 2016, the outstanding balance of the notes was approximately $139,000 and the interest rate was 3.59%.
Note 6 — Recent Accounting Standards Pending Adoption
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing U.S. GAAP revenue recognition guidance and becomes effective for the Company on January 1, 2018. The new standard permits the use of either the retrospective or modified retrospective transition method. The Company is currently evaluating the effect that the updated standard will have on its consolidated financial statements and related disclosures, as well as its planned transition method.
In November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes, which requires all deferred income tax assets and liabilities to be classified as non-current on the balance sheet, rather than being separated into current and non-current amounts. The new standard is effective for annual reporting periods beginning after December 31, 2016 with early adoption permitted. The Company is currently evaluating the effect that the new standard will have on its consolidated financial statements and related disclosures.
In August 2014, the FASB issued ASU No. 2014-15, Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern, which requires management to assess, at each annual and interim reporting period, the entity's ability to continue as a going concern within one year from the date the financial statements are issued and provide related disclosures. The new standard will be effective for the Company for the annual reporting period ending December 31, 2016, with early adoption permitted. This standard is not currently expected to have a material effect on the Company's financial statement disclosures upon adoption, though the ultimate impact will be dependent on the Company's financial condition and expected operating outlook at such time.
In February 2016, the FASB issued ASU No. 2016-2, Leases (Topic 842) which supercedes the existing lease guidance. This update requires lessees to recognize a lease liability and a lease asset for all leases, including operating leases, with a term greater than twelve months on its balance sheet. The update also expands the required quantitative and qualitative disclosures surrounding leases. This update is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years, with earlier application permitted. The Company is evaluating its transition method and the effects that the new standard will have on its consolidated financial statements and related disclosures.
In March 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. This amendment is intended to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, forfeitures, and classification on the statement of cash flows. This update is effective for fiscal years beginning after December 15, 2016 and interim periods within those fiscal years, with earlier application permitted. The Company is evaluating the impact of this guidance on its consolidated financial statements and related disclosures.
Note 7 — Restructuring Activities
In May 2016, the Company implemented an employee headcount cost reduction program resulting in the reduction of approximately 9% of the Company's worldwide employees. The total cost of this program, representing severance and benefits, is approximately $275,000, and is included in the company's operating results for the quarter ended June 30, 2016. The aggregate annual salaries of the affected employees was approximately $1,100,000.
At June 30, 2016, the remaining reserve for severance and benefits under this program is approximately $47,000. Management estimates that the reserve for this program will be paid out by the completion of the third quarter of 2016.
| 10 |
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 77.3% of worldwide net sales for the six months ended June 30, 2016 and 77.2% of worldwide net sales for the six months ended June 30, 2015. 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 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 June 30, 2016, consisted of approximately 42,500 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.
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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. 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 approximately 90% of the retail price of each product. 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
Net Sales. Overall net sales decreased by 11.2% in the three months ended June 30, 2016 compared to the same period in 2015. During the second quarter of 2016 (“Q2 2016”), sales in the United States decreased by 12.9%, and international sales decreased by 5.5% over the prior-year period. International sales, when reported in U.S. dollars, were negatively impacted by a stronger U.S. dollar versus all of the currencies of the markets where we do business. Excluding the impact of currency exchange fluctuation, international sales increased by 0.7%.
The following table summarizes net sales by geographic market for the three months ended June 30, 2016 and 2015.
| Three months ended June 30, | ||||||||||||||||||||||||
| 2016 | 2015 | Change from prior year | ||||||||||||||||||||||
| Amount | % of Net Sales | Amount | % of Net Sales | Amount | % | |||||||||||||||||||
| (dollars in thousands) | ||||||||||||||||||||||||
| United States | $ | 8,356 | 75.6 | % | $ | 9,591 | 77.1 | % | $ | (1,235 | ) | (12.9 | )% | |||||||||||
| Australia/New Zealand | 286 | 2.6 | 329 | 2.6 | (43 | ) | (13.1 | ) | ||||||||||||||||
| Canada | 242 | 2.2 | 335 | 2.7 | (93 | ) | (27.8 | ) | ||||||||||||||||
| Mexico | 137 | 1.2 | 234 | 1.9 | (97 | ) | (41.5 | ) | ||||||||||||||||
| Europe | 1,621 | 14.7 | 1,554 | 12.5 | 67 | 4.3 | ||||||||||||||||||
| Asia | 411 | 3.7 | 402 | 3.2 | 9 | 2.2 | ||||||||||||||||||
| Consolidated total | $ | 11,053 | 100.0 | % | $ | 12,445 | 100.0 | % | $ | (1,392 | ) | (11.2 | )% | |||||||||||
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The following table summarizes net sales by geographic market for the six months ended June 30, 2016 and 2015.
| Six months ended June 30, | ||||||||||||||||||||||||
| 2016 | 2015 | Change from prior year | ||||||||||||||||||||||
| Amount | % of Net Sales | Amount | % of Net Sales | Amount | % | |||||||||||||||||||
| (dollars in thousands) | ||||||||||||||||||||||||
| United States | $ | 18,610 | 77.3 | % | $ | 21,071 | 77.2 | % | $ | (2,461 | ) | (11.7 | )% | |||||||||||
| Australia/New Zealand | 584 | 2.4 | 701 | 2.6 | (117 | ) | (16.7 | ) | ||||||||||||||||
| Canada | 549 | 2.3 | 768 | 2.8 | (219 | ) | (28.5 | ) | ||||||||||||||||
| Mexico | 300 | 1.2 | 431 | 1.6 | (131 | ) | (30.4 | ) | ||||||||||||||||
| Europe | 3,177 | 13.2 | 3,348 | 12.3 | (171 | ) | (5.1 | ) | ||||||||||||||||
| Asia | 870 | 3.6 | 961 | 3.5 | (91 | ) | (9.5 | ) | ||||||||||||||||
| Consolidated total | $ | 24,090 | 100.0 | % | $ | 27,280 | 100.0 | % | $ | (3,190 | ) | (11.7 | )% | |||||||||||
The following table sets forth, as of June 30, 2016 and 2015, 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. In February 2016, we introduced a formal Preferred Customer program in the United States and Canada. As a result, we are including Preferred Customers as part of our Active Distributor count. Preferred Customer programs were previously in place in Europe and other foreign markets. Preferred Customers represent approximately 4,490 and 4,570 of the Active Distributor count as of June 30, 2016 and 2015, respectively. The significant majority of these Preferred Customers are in Europe.
| June 30, 2016 | June 30, 2015 | % Change | ||||||||||||||||||||||
| Active Distributors and Preferred Customers | Master Affiliates and Above | Active Distributors and Preferred Customers | Master Affiliates and Above | Active Distributors and Preferred Customers | Master Affiliates and Above | |||||||||||||||||||
| United States | 30,080 | 4,110 | 33,810 | 4,330 | (11.0 | )% | (5.1 | )% | ||||||||||||||||
| Australia/New Zealand | 1,660 | 130 | 1,840 | 130 | (9.8 | ) | — | |||||||||||||||||
| Canada | 970 | 150 | 1,250 | 220 | (22.4 | ) | (31.8 | ) | ||||||||||||||||
| Mexico | 1,130 | 90 | 1,220 | 100 | (7.4 | ) | (10.0 | ) | ||||||||||||||||
| Europe | 5,630 | 510 | 6,810 | 650 | (17.3 | ) | (21.5 | ) | ||||||||||||||||
| Asia | 3,030 | 320 | 2,990 | 270 | 1.3 | 18.5 | ||||||||||||||||||
| Consolidated total | 42,500 | 5,310 | 47,920 | 5,700 | (11.3 | )% | (6.8 | )% | ||||||||||||||||
Use of Non-GAAP Financial Information
Net sales expressed in local currency or net sales adjusted for the impact of foreign currency fluctuation are non-GAAP financial measures. We use these measurements to assess the level of business activity in a foreign market, absent the impact of foreign currency fluctuation relative to the United States dollar, which our local management has no ability to influence. This is a meaningful measurement to management, and we believe this is a useful measurement to provide to shareholders.
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The following table provides key statistics related to distributor activity by market and should be read in conjunction with the following discussion. Adjusted results should be considered only in conjunction with results reported according to accounting principles generally accepted in the United States.
| Distributor Activity by Market | International | |||||||||||||||||||||||||||
| United States | AUS/NZ | Canada | Mexico | Europe | Asia | — Total | ||||||||||||||||||||||
| Three Months Ended 6/30/16 | ||||||||||||||||||||||||||||
| Sales in Q2 2016 in USD (in 000's) | $ | 8,356 | $ | 286 | $ | 242 | $ | 137 | $ | 1,621 | $ | 411 | $ | 2,697 | ||||||||||||||
| % change in sales-Q2 2016 vs. Q2 2015: | ||||||||||||||||||||||||||||
| change in GAAP sales in USD | -12.9 | % | -13.1 | % | -27.8 | % | -41.5 | % | 4.3 | % | 2.2 | % | -5.5 | % | ||||||||||||||
| due to currency fluctuation | - | -3.9 | % | -2.9 | % | -10.5 | % | -7.1 | % | -4.6 | % | -6.2 | % | |||||||||||||||
| change in sales in local currency (non-GAAP) | -12.9 | % | -9.2 | % | -24.9 | % | -31.0 | % | 11.4 | % | 6.8 | % | 0.7 | % | ||||||||||||||
| # of new distributors-Q2 2016 (1) | 1,291 | 88 | 33 | 105 | 570 | 349 | 1,145 | |||||||||||||||||||||
| # of new distributors-Q2 2015 | 2,148 | 146 | 123 | 217 | 858 | 315 | 1,659 | |||||||||||||||||||||
| % change | -39.9 | % | -39.7 | % | -73.2 | % | -51.6 | % | -33.6 | % | 10.8 | % | -31.0 | % | ||||||||||||||
| # of new Master Affiliates-Q2 2016 | 136 | 7 | 2 | 4 | 47 | 34 | 94 | |||||||||||||||||||||
| # of new Master Affiliates-Q2 2015 | 322 | 7 | 25 | 9 | 58 | 36 | 135 | |||||||||||||||||||||
| % change | -57.8 | % | 0.0 | % | -92.0 | % | -55.6 | % | -19.0 | % | -5.6 | % | -30.4 | % | ||||||||||||||
| # of Product orders-Q2 2016 | 35,979 | 1,809 | 867 | 949 | 5,665 | 2,894 | 12,184 | |||||||||||||||||||||
| # of Product orders-Q2 2015 | 42,242 | 2,016 | 1,387 | 1,195 | 6,272 | 2,657 | 13,527 | |||||||||||||||||||||
| % change | -14.8 | % | -10.3 | % | -37.5 | % | -20.6 | % | -9.7 | % | 8.9 | % | -9.9 | % | ||||||||||||||
| International | ||||||||||||||||||||||||||||
| United States | AUS/NZ | Canada | Mexico | Europe | Asia | — Total | ||||||||||||||||||||||
| Six Months Ended 6/30/16 | ||||||||||||||||||||||||||||
| Sales in YTD 2016 in USD (in 000's) | $ | 18,610 | $ | 584 | $ | 549 | $ | 300 | $ | 3,177 | $ | 870 | $ | 5,480 | ||||||||||||||
| % change in sales-YTD 2016 vs. YTD 2015: | ||||||||||||||||||||||||||||
| change in GAAP sales in USD | -11.7 | % | -16.7 | % | -28.5 | % | -30.4 | % | -5.1 | % | -9.5 | % | -11.7 | % | ||||||||||||||
| due to currency fluctuation | - | -5.9 | % | -5.5 | % | -13.4 | % | -6.0 | % | -5.1 | % | -6.3 | % | |||||||||||||||
| change in sales in local currency (non-GAAP) | -11.7 | % | -10.8 | % | -23.0 | % | -17.0 | % | 0.9 | % | -4.4 | % | -5.4 | % | ||||||||||||||
| # of new distributors-YTD 2016 (2) | 3,005 | 200 | 77 | 227 | 1,245 | 863 | 2,612 | |||||||||||||||||||||
| # of new distributors-YTD 2015 | 4,360 | 273 | 262 | 381 | 1,908 | 762 | 3,586 | |||||||||||||||||||||
| % change | -31.1 | % | -26.7 | % | -70.6 | % | -40.4 | % | -34.7 | % | 13.3 | % | -27.2 | % | ||||||||||||||
| # of new Master Affiliates-YTD 2016 | 497 | 21 | 13 | 13 | 96 | 80 | 223 | |||||||||||||||||||||
| # of new Master Affiliates-YTD 2015 | 688 | 18 | 53 | 17 | 128 | 72 | 288 | |||||||||||||||||||||
| % change | -27.8 | % | 16.7 | % | -75.5 | % | -23.5 | % | -25.0 | % | 11.1 | % | -22.6 | % | ||||||||||||||
| # of Product orders-YTD 2016 | 75,047 | 3,696 | 1,936 | 1,995 | 11,824 | 5,730 | 25,181 | |||||||||||||||||||||
| # of Product orders-YTD 2015 | 86,714 | 4,106 | 2,751 | 2,238 | 12,939 | 5,505 | 27,539 | |||||||||||||||||||||
| % change | -13.5 | % | -10.0 | % | -29.6 | % | -10.9 | % | -8.6 | % | 4.1 | % | -8.6 | % | ||||||||||||||
(1) The new distributor totals for Q2 2016 and Q2 2015 include 927 and 729, respectively, of new worldwide preferred customers.
(2) The new distributor totals for YTD 2016 and YTD 2015 include 1,763 and 1,573, respectively, of new worldwide preferred customers.
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United States
| · | Net sales declined in the United States in Q2 2016 compared to the prior-year quarter. We believe this decrease was due in part to a negative response made to changes effective February 1, 2016, to our distributor compensation plan in the United States and Canada. |
| · | Effective February 1, 2016, we updated our distributor compensation plan to introduce a Preferred Customer program and to modify the requirements for a Retail Distributor (entry-level) to advance to the Affiliate distributor level. Advancement to Affiliate distributor entitles a distributor to a higher discount on their purchases and the opportunity to earn retail and wholesale profits. The updates to the distributor compensation plan also included adjustments to a distributor’s group business volume required to achieve the Master Affiliate level. We believe these changes enhance the value of the business opportunity to Master Affiliates and distributors at levels below Master Affiliate; however, we continue to train the distributor field to understand the benefit of these changes and to teach these concepts to their local distributor groups. |
| · | Flagship products in the LunaRich line, including Reliv Now® and LunaRich X™, constituted 17.9% and 15.1% of net sales in the United States, respectively, in Q2 2016 as our marketing continues to focus on these two products. Reliv NOW and LunaRich X represented 19.6% and 15.7%, respectively, of net sales in the United States in the prior-year quarter. For the six months ended June 30, 2016, sales of Reliv Now and LunaRich X represented 18.1% and 15.2%, respectively, of net sales in the United States. |
| · | Distributor/preferred customer enrollments and new Master Affiliate qualifications decreased by 39.9% and 57.8%, respectively, in Q2 2016 compared to the prior year quarter in a short-term response to the changes to the new distributor enrollment process and the increased business volume requirements to reach the Master Affiliate level. |
| · | Distributor retention was 69.0% for the twelve month period ended June 30, 2016 compared to 71.1% for all of 2015. Distributor retention is determined by the percentage of active distributors from 2015 that renewed their distributorships in 2016. |
| · | Our average order size in Q2 2016 increased by 1.5% to $320 at suggested retail value compared to the prior-year quarter. The number of product orders decreased by 14.8% in Q2 2016 compared to the prior year quarter for the same reasons as the overall decrease in sales. |
International Operations
| · | The average foreign exchange rate for the U.S. dollar for the first six months of 2016 was stronger versus the various local currencies in which we conduct business when compared with the average exchange rates for the same period in 2015. |
| · | As a result of the stronger U.S. dollar, we have implemented price increases in all of our international markets. We are also reviewing sales by product to phase out products with lower sales levels and gross margins as strategically appropriate. |
| · | Net sales in Australia/New Zealand decreased by 9.2% in local currency in Q2 2016 compared to the prior-year quarter. We instituted price increases effective May 1, 2016, but new distributor/preferred customer enrollments decreased by 39.7% in Q2 2016. |
| · | Canadian net sales in Q2 2016 decreased by 24.9% in local currency compared to the prior-year quarter as a result of decreased distributor activity in the market. We implemented price increases effective April 1, 2016 in Canada. |
| · | Net sales in Mexico decreased by 31.0% in local currency in Q2 2016 compared to the prior-year quarter. Sales in Q2 2015 were higher due to accelerated purchasing prior to the implementation of a value added tax on July 1, 2015. We also implemented price increases in this market on April 1, 2016. |
| · | Net sales in Europe increased by 11.4% in local currency in Q2 2016 compared to the prior-year quarter. Sales increased due to distributor purchasing prior to a price increase on May 1, 2016; however, distributor activity declined both in the form of new distributor and preferred customer enrollments and in new Master Affiliate qualifications in the region. |
| · | Sales in Asia increased by 6.8% in local currency in Q2 2016 compared to the prior-year quarter. New distributor/preferred customer enrollments increased by 10.8% in Q2 2016 compared to the prior-year quarter. |
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Costs and Expenses
The following table sets forth selected results of our operations expressed as a percentage of net sales for the three- and six-month periods ended June 30, 2016 and 2015. Our results of operations for the periods described below are not necessarily indicative of results of operations for future periods.
| Income statement data | ||||||||||||||||
| (amounts in thousands) | Three months ended | |||||||||||||||
| June 30, 2016 | June 30, 2015 | |||||||||||||||
| Amount | % of net sales | Amount | % of net sales | |||||||||||||
| Net sales | $ | 11,053 | 100.0 | % | $ | 12,445 | 100.0 | % | ||||||||
| Costs and expenses: | ||||||||||||||||
| Cost of products sold | 2,531 | 22.9 | 2,648 | 21.3 | ||||||||||||
| Distributor royalties and commissions | 3,921 | 35.5 | 4,459 | 35.8 | ||||||||||||
| Selling, general and adminstrative | 5,541 | 50.1 | 6,455 | 51.9 | ||||||||||||
| Loss from operations | (940 | ) | (8.5 | ) | (1,117 | ) | (9.0 | ) | ||||||||
| Interest income | 27 | 0.2 | 30 | 0.3 | ||||||||||||
| Interest expense | (26 | ) | (0.2 | ) | (27 | ) | (0.2 | ) | ||||||||
| Other income/(expense) | 71 | 0.6 | 16 | 0.1 | ||||||||||||
| Loss before income taxes | (868 | ) | (7.9 | ) | (1,098 | ) | (8.8 | ) | ||||||||
| Provision (benefit) for income taxes | 120 | 1.0 | (252 | ) | (2.0 | ) | ||||||||||
| Net loss | $ | (988 | ) | (8.9 | )% | $ | (846 | ) | (6.8 | )% | ||||||
| Loss per common share-Basic and Diluted | $ | (0.08 | ) | $ | (0.07 | ) | ||||||||||
| Six months ended | ||||||||||||||||
| June 30, 2016 | June 30, 2015 | |||||||||||||||
| Amount | % of net sales | Amount | % of net sales | |||||||||||||
| Net sales | $ | 24,090 | 100.0 | % | $ | 27,280 | 100.0 | % | ||||||||
| Costs and expenses: | ||||||||||||||||
| Cost of products sold | 5,515 | 22.9 | 5,643 | 20.7 | ||||||||||||
| Distributor royalties and commissions | 8,545 | 35.5 | 9,740 | 35.7 | ||||||||||||
| Selling, general and adminstrative | 11,151 | 46.3 | 12,585 | 46.1 | ||||||||||||
| Loss from operations | (1,121 | ) | (4.7 | ) | (688 | ) | (2.5 | ) | ||||||||
| Interest income | 54 | 0.2 | 60 | 0.2 | ||||||||||||
| Interest expense | (53 | ) | (0.2 | ) | (51 | ) | (0.2 | ) | ||||||||
| Other income/(expense) | 185 | 0.8 | (155 | ) | (0.6 | ) | ||||||||||
| Loss before income taxes | (935 | ) | (3.9 | ) | (834 | ) | (3.1 | ) | ||||||||
| Provision (benefit) for income taxes | 97 | 0.4 | (104 | ) | (0.4 | ) | ||||||||||
| Net loss | $ | (1,032 | ) | (4.3 | )% | $ | (730 | ) | (2.7 | )% | ||||||
| Loss per common share-Basic and Diluted | $ | (0.08 | ) | $ | (0.06 | ) | ||||||||||
| 16 |
Cost of Products Sold:
| · | The cost of products sold as a percentage of net sales in Q2 2016 and the first six months of 2016 (“YTD 2016”) increased compared to the prior-year period. The cost of products sold was negatively impacted by lower plant utilization and higher quality control expenses. |
Distributor Royalties and Commissions:
| · | Distributor royalties and commissions as a percentage of net sales for Q2 2016 and YTD 2016 compared to the prior-year periods remained relatively steady. 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. |
Selling, General and Administrative Expenses:
| · | Selling, general and administrative expenses declined by $914,000 in Q2 2016 compared to the same period in 2015 and declined by $1.43 million in YTD 2016 compared to the prior-year period. |
| · | Salaries, salary-related expenses, and incentive compensation decreased in the aggregate by $453,000 in YTD 2016, compared to the prior-year period. Total compensation expense decreased as the result of continued headcount reductions in the United States through attrition and a worldwide workforce reduction that took place in May 2016. This headcount reduction program eliminated approximately 9 percent of the company's worldwide employees. The total cost of this program, representing severance and benefits, is approximately $275,000, and is included in the company's operating results for the quarter ended June 30, 2016. The aggregate annual salaries of the affected employees were approximately $1,100,000. |
| · | Other general and administrative expenses decreased by $302,000 in YTD 2016 vs. the prior-year period. This reduction was the result of both ongoing expense reductions, coupled with non-recurring expense items. Non-recurring expense items from the first six months of 2015 (“YTD 2015”) include: |
| o | Compensation expense recognized as part of a long-term incentive agreement with our management team in our European subsidiary was $91,000 in YTD 2015. During Q2 2015, this long-term incentive agreement became 100% vested and the participants exercised their put option in the agreement. This incentive agreement is described in Note 5 of the Condensed Consolidated Financial Statements. |
| o | In Mexico, we recognized expense of approximately $130,000 during Q2 2015 related to the write-off of VAT credits and VAT paid on behalf of our distributors as part of an amnesty agreement related to the implementation of a new VAT arrangement in that country. |
Significant ongoing expense reductions include:
| o | Consulting, legal, accounting, and other professional fees decreased by $103,000 in YTD 2016 compared to the prior-year period. |
| o | Business insurance expenses decreased by $29,000. |
Offsetting increases include:
| o | Research & development expenses, along with other foreign product compliance requirements, increased by $162,000 in YTD 2016 compared to the prior-year period. |
| · | Sales and marketing expenses decreased by $632,000 in YTD 2016 versus the same period in 2015. Components of the decrease include: |
| o | $246,000 decrease in Star Director and other distributor bonuses, credit card fees, and other expenses related to the level of sales. |
| o | $148,000 decrease in distributor conferences and meeting expenses. Most of the decrease was the result of not holding regional conferences in the United States during Q1 2016. |
| o | $151,000 decrease in the cost of our promotional trips and other promotional incentives. |
Other Income/Expense:
| · | The other income in YTD 2016 is primarily the result of foreign currency exchange gains on intercompany debt denominated in U.S. dollars in certain of our subsidiaries. In YTD 2015, we recognized foreign currency exchange losses on the same intercompany debt. |
Income Taxes/Benefit:
| · | We reported an income tax expense of $97,000 for YTD 2016. |
| · | During the second quarter of 2016, we determined that it was more likely than not that Federal and various state net operating losses we expect to generate in 2016 will not be realized based on projections of future taxable income and other considerations. Accordingly, as of June 30, 2016, the tax provision for the second quarter of 2016 includes the impact of recording a valuation allowance of $383,000 against the losses generated from a U.S. tax perspective. |
| 17 |
| · | See Note 4 of the Condensed Consolidated Financial Statements for additional detail regarding income taxes, including a reconciliation of the income tax expense/benefit to the U.S. statutory rate for each period. |
Net Loss:
| · | We recognized a larger net loss in the second quarter of 2016 and the six-month period of 2016 when compared to the same periods in 2015 as the result of the decline in net sales in the United States and other foreign markets, coupled with the valuation allowance recorded on the income tax benefit attributable to the YTD 2016 U.S. net loss. |
Liquidity and Capital Resources
During the first six months of 2016, we generated $451,000 of net cash in operating activities, $36,000 was provided by investing activities, and we used $289,000 in financing activities. This compares to $108,000 of net cash used in operating activities, $135,000 used in investing activities, and $249,000 used in financing activities in the same period of 2015. Cash and cash equivalents increased by $203,000 to $3.47 million as of June 30, 2016 compared to $3.26 million as of December 31, 2015 and $4.50 million as of June 30, 2015.
Significant changes in working capital items consisted of a decrease in inventory of $591,000, an increase in prepaid expenses/other current assets of $341,000, and an increase in accounts payable and accrued expenses of $769,000 in the first six months of 2016. The decrease in inventory is the result of planned decreases in our inventory levels relative to sales, 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.
Investing activities during the first six months of 2016 consisted of $15,000 for capital expenditures, offset by payments received on a distributor note receivable of $51,000. Financing activities during the first six months of 2016 consisted of principal payments of $289,000 on long-term borrowings.
Stockholders’ equity decreased to $14.7 million at June 30, 2016 compared to $15.9 million at December 31, 2015. The decrease is due to our net loss during the first six months of 2016 of $1.03 million coupled with an unfavorable adjustment in foreign currency translation of $222,000. Our working capital balance was $4.11 million at June 30, 2016 compared to $5.08 million at December 31, 2015. The current ratio at June 30, 2016 was 1.76 compared to 2.08 at December 31, 2015.
On September 30, 2015, we entered into series of agreements with a new primary lender which include agreements for a $3.25 million term loan and a $3.5 million revolving credit facility. These lending agreements replace similar borrowings under agreements with our former primary lender.
The new $3.25 million term loan is for a period of three years and requires monthly term loan payments, under a ten-year amortization, consisting of principal of $27,080 plus interest with a balloon payment for the outstanding balance due and payable on September 30, 2018. The term loan's interest rate is based on the 30-day LIBOR plus 2.25% and was 2.69% at June 30, 2016.
The new $3.5 million revolving line of credit agreement accrues interest at a floating interest rate based on the 30-day LIBOR plus 2.25% and has a maturity date of September 30, 2016. As of June 30, 2016, there were no outstanding borrowings on the revolving line of credit.
The proceeds from the new $3.25 million term loan were used to pay off the outstanding term loan and revolving line of credit balances, plus accrued interest, due under loan agreements with our former primary lender. Borrowings under the new lending agreements are secured by all our tangible and intangible assets, a whole life insurance policy on the life of our Chief Executive Officer, and by a mortgage on the real estate of our headquarters. The new lending agreements also include a quarterly covenant requiring us to maintain net tangible worth of not less than $9.5 million. As of June 30, 2016, we were in compliance with our loan covenant requirement.
| 18 |
Although a renewal of the revolving line of credit that matures on September 30, 2016 is not assured, management believes that our cash on hand, internally generated funds, and ability to borrow a portion of the cash surrender value of our key-man life insurance policy will be sufficient to meet working capital requirements and our debt service requirements for the next twelve months.
Critical Accounting Policies
A summary of our critical accounting policies and estimates is presented on pages 26-27 of our 2015 Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 24, 2016. Our critical accounting policies remain unchanged as of June 30, 2016.
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 June 30, 2016. 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 June 30, 2016, 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 second quarter of 2016 that have materially affected or are reasonably likely to materially affect our internal controls over financial reporting.
| Exhibit | ||
| Number | Document | |
| 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 June 30, 2016, formatted in XBRL: (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Net Loss and Comprehensive Loss, (iii) the Condensed Consolidated Statements of Cash Flows, and (iv) the Notes to Condensed Consolidated Financial Statements. |
| 19 |
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.
RELIV’ INTERNATIONAL, INC
| By: | /s/ Robert L. Montgomery | |
| Robert L. Montgomery, Chairman of the Board of Directors and Chief Executive Officer | ||
| Date: August 15, 2016 | ||
| By: | /s/ Steven D. Albright | |
| Steven D. Albright, Chief Financial Officer (and accounting officer) | ||
Date: August 15, 2016
| 20 |
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: August 15, 2016
| /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: August 15, 2016
| /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 June 30, 2016, 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: August 15, 2016
| /s/ Steven D. Albright | |
| Steven D. Albright | |
| Chief Financial Officer |
Date: August 15, 2016
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.
Document And Entity Information - shares |
6 Months Ended | |
|---|---|---|
Jun. 30, 2016 |
Aug. 02, 2016 |
|
| Document Information [Line Items] | ||
| Document Type | 10-Q | |
| Amendment Flag | false | |
| Document Period End Date | Jun. 30, 2016 | |
| Document Fiscal Year Focus | 2016 | |
| Document Fiscal Period Focus | Q2 | |
| Entity Registrant Name | RELIV INTERNATIONAL INC | |
| Entity Central Index Key | 0000768710 | |
| Current Fiscal Year End Date | --12-31 | |
| Entity Filer Category | Smaller Reporting Company | |
| Trading Symbol | RELV | |
| Entity Common Stock, Shares Outstanding | 12,919,110 |
Condensed Consolidated Balance Sheets (Parenthetical) - USD ($) |
Jun. 30, 2016 |
Dec. 31, 2015 |
|---|---|---|
| Allowance for accounts receivable | $ 30,000 | $ 30,200 |
| Preferred stock, par value (in dollars per share) | $ 0.001 | $ 0.001 |
| Preferred stock, shares authorized | 3,000,000 | 3,000,000 |
| Preferred stock, shares issued | 0 | 0 |
| Preferred stock, shares outstanding | 0 | 0 |
| Common stock, par value (in dollars per share) | $ 0.001 | $ 0.001 |
| Common stock, shares authorized | 30,000,000 | 30,000,000 |
| Common stock, shares, issued | 14,773,083 | 14,773,083 |
| Common stock, shares, outstanding | 12,919,110 | 12,919,110 |
Condensed Consolidated Statements of Net Loss and Comprehensive Loss - USD ($) |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2016 |
Jun. 30, 2015 |
Jun. 30, 2016 |
Jun. 30, 2015 |
|
| Product sales | $ 10,166,478 | $ 11,442,990 | $ 22,209,039 | $ 25,151,113 |
| Handling & freight income | 886,844 | 1,002,361 | 1,880,733 | 2,128,601 |
| Net sales | 11,053,322 | 12,445,351 | 24,089,772 | 27,279,714 |
| Costs and expenses: | ||||
| Cost of products sold | 2,530,771 | 2,647,755 | 5,514,875 | 5,642,704 |
| Distributor royalties and commissions | 3,921,005 | 4,459,577 | 8,545,380 | 9,740,324 |
| Selling, general and administrative | 5,541,328 | 6,454,992 | 11,150,596 | 12,584,941 |
| Total costs and expenses | 11,993,104 | 13,562,324 | 25,210,851 | 27,967,969 |
| Loss from operations | (939,782) | (1,116,973) | (1,121,079) | (688,255) |
| Other income (expense): | ||||
| Interest income | 27,133 | 30,073 | 54,490 | 60,455 |
| Interest expense | (26,778) | (26,749) | (53,179) | (50,688) |
| Other income / (expense) | 71,263 | 15,653 | 184,944 | (155,061) |
| Loss before income taxes | (868,164) | (1,097,996) | (934,824) | (833,549) |
| Provision (benefit) for income taxes | 120,000 | (252,000) | 97,000 | (104,000) |
| Net loss | (988,164) | (845,996) | (1,031,824) | (729,549) |
| Other comprehensive income (loss): | ||||
| Foreign currency translation adjustment | (147,062) | 72,326 | (221,613) | 48,939 |
| Comprehensive loss | $ (1,135,226) | $ (773,670) | $ (1,253,437) | $ (680,610) |
| Loss per common share - Basic (in dollars per share) | $ (0.08) | $ (0.07) | $ (0.08) | $ (0.06) |
| Weighted average shares (in shares) | 12,919,000 | 12,819,000 | 12,919,000 | 12,819,000 |
| Loss per common share - Diluted (in dollars per share) | $ (0.08) | $ (0.07) | $ (0.08) | $ (0.06) |
| Weighted average shares (in shares) | 12,919,000 | 12,819,000 | 12,919,000 | 12,819,000 |
Accounting Policies |
6 Months Ended | |
|---|---|---|
Jun. 30, 2016 | ||
| Accounting Policies [Abstract] | ||
| Significant Accounting Policies [Text Block] | 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, 2015, filed March 24, 2016 with the Securities and Exchange Commission. |
Basic and Diluted Loss per Share |
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| Earnings Per Share [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Earnings Per Share [Text Block] | Note 2 — Basic and Diluted Loss per Share Basic loss per common share is computed using the weighted average number of common shares outstanding during the period. Diluted loss per share is 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 loss per share:
Options and warrants to purchase 1,870,585 shares of common stock for the three months and six months ended June 30, 2016, respectively, were not included in the denominator for diluted net loss per share because their effect would be antidilutive or because the shares were deemed contingently issuable. Options and warrants to purchase 1,897,025 shares of common stock for the three months and six months ended June 30, 2015, respectively, were not included in the denominator for diluted net loss per share because their effect would be antidilutive or because the shares were deemed contingently issuable. |
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Fair Value of Financial Instruments |
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| Fair Value Disclosures [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fair Value Disclosures [Text Block] | 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:
The carrying amount and fair value of the Company's financial instruments are approximately as follows:
Long-term debt: The fair value of the Company's term and revolver loans approximate carrying value as these loans were incurred within the past twelve months and have variable market-based interest rates which reset every thirty days. The fair value of the Company's obligation for the acquisition of its lunasin technology license approximates carrying value as this obligation is a zero-interest based obligation discounted utilizing an interest rate factor comparable to the Company's market-based interest rate for its term and revolver loans. The fair value of the Company's notes payable obligations approximates carrying value as these obligations were incurred within the past twelve months and have variable market-based interest rates which reset every ninety days. Note receivable: The Company's note receivable is a variable rate residential mortgage-based financial instrument. An average of published interest rate quotes for a fifteen-year residential jumbo mortgage, a comparable financial instrument, was used to estimate fair value of this note receivable under a discounted cash flow model. Marketable securities: The assets (trading securities) of the Company's Supplemental Executive Retirement Plan are recorded at fair value on a recurring basis, and are presented within Other Assets in the consolidated balance sheets. The carrying value of other financial instruments, including cash, accounts receivable and accounts payable, and accrued liabilities approximate fair value due to their short maturities or variable-rate nature of their respective balances. |
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Taxes |
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Long-Term Incentive Compensation Plan -- 2015 |
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Recent Accounting Standards Pending Adoption |
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Restructuring Activities |
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Accounting Policies (Policies) |
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| Accounting Policies [Abstract] | ||
| Basis of Accounting, Policy [Policy Text Block] | 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, 2015, filed March 24, 2016 with the Securities and Exchange Commission. |
Basic and Diluted Loss per Share (Tables) |
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| Schedule of Calculation of Numerator and Denominator in Earnings Per Share [Table Text Block] | The following table sets forth the computation of basic and diluted loss per share:
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Fair Value of Financial Instruments (Tables) |
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| Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fair Value, by Balance Sheet Grouping [Table Text Block] | The carrying amount and fair value of the Company's financial instruments are approximately as follows:
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Taxes (Tables) |
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| Income Tax Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Effective Income Tax Rate Reconciliation [Table Text Block] |
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Basic and Diluted Loss per Share (Details) - USD ($) |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2016 |
Jun. 30, 2015 |
Jun. 30, 2016 |
Jun. 30, 2015 |
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| Numerator: | ||||
| Net loss | $ (988,164) | $ (845,996) | $ (1,031,824) | $ (729,549) |
| Denominator: | ||||
| Denominator for basic loss per share-weighted average shares | 12,919,000 | 12,819,000 | 12,919,000 | 12,819,000 |
| Dilutive effect of employee stock options and other warrants | 0 | 0 | 0 | 0 |
| Denominator for diluted loss per share-adjusted weighted average shares | 12,919,000 | 12,819,000 | 12,919,000 | 12,819,000 |
| Basic loss per share | $ (0.08) | $ (0.07) | $ (0.08) | $ (0.06) |
| Diluted loss per share | $ (0.08) | $ (0.07) | $ (0.08) | $ (0.06) |
Basic and Diluted Loss per Share (Details Textual) - shares |
6 Months Ended | |
|---|---|---|
Jun. 30, 2016 |
Jun. 30, 2015 |
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| Earnings Per Share, Basic, by Common Class, Including Two Class Method [Line Items] | ||
| Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount | 1,870,585 | 1,897,025 |
Taxes (Details) - USD ($) |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2016 |
Jun. 30, 2015 |
Jun. 30, 2016 |
Jun. 30, 2015 |
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| Provision Benefit For Income Taxes [Line Items] | ||||
| Income taxes (benefit) at U.S. statutory rate | $ (318,000) | $ (283,000) | ||
| State income taxes, net of federal benefit | 23,000 | 39,000 | ||
| Higher / (lower) effective taxes on earnings/losses in certain foreign countries | (46,000) | 84,000 | ||
| Foreign corporate income taxes | 44,000 | 45,000 | ||
| Change in valuation allowance | 383,000 | 0 | ||
| Other, net | 11,000 | 11,000 | ||
| Income Tax Expense (Benefit), Total | $ 120,000 | $ (252,000) | $ 97,000 | $ (104,000) |
Taxes (Details Textual) - USD ($) |
1 Months Ended | 6 Months Ended | 36 Months Ended | |
|---|---|---|---|---|
Dec. 31, 2010 |
Jun. 30, 2016 |
Dec. 31, 2006 |
Dec. 31, 2015 |
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| Income Taxes [Line Items] | ||||
| Vat And Withholding Taxes | $ 800,000 | |||
| Interest Penalty Percentage | 20.00% | |||
| Selling, General and Administrative Expense | $ 185,000 | |||
| Management Estimated Reserve For Tax | $ 154,000 | $ 142,000 | ||
| Valuation Allowance Deferred Tax Assets For Net Operating Losses Domestic | $ 383,000 |
Restructuring Activities (Details Textual) - USD ($) |
1 Months Ended | |
|---|---|---|
May 31, 2016 |
Jun. 30, 2016 |
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| Restructuring Cost and Reserve [Line Items] | ||
| Restructuring and Related Cost, Number of Positions Eliminated, Period Percent | 9.00% | |
| Severance Costs | $ 275,000 | |
| Labor and Related Expense | $ 1,100,000 | |
| Restructuring Reserve | $ 47,000 |