-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Hmi8O1TrDfwBj4YJiReX5QM3dDqd4NovfCvlloZQ15wgjsDRUOVR7oLre3pzKBGL cHKd0Et7bp2K7lFXCFV/Hw== 0001169232-02-002597.txt : 20021108 0001169232-02-002597.hdr.sgml : 20021108 20021108161753 ACCESSION NUMBER: 0001169232-02-002597 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020930 FILED AS OF DATE: 20021108 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RELIV INTERNATIONAL INC CENTRAL INDEX KEY: 0000768710 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 371172197 STATE OF INCORPORATION: IL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-19932 FILM NUMBER: 02814397 BUSINESS ADDRESS: STREET 1: 136 CHESTERFIELD INDUSTRIAL BLVD STREET 2: P O BOX 405 CITY: CHESTERFIELD STATE: MO ZIP: 63006-0405 BUSINESS PHONE: 3145379715 MAIL ADDRESS: STREET 1: 136 CHESTERFIELD INDUSTRIAL BLVD STREET 2: P O BOX 405 CITY: CHESTERFIELD STATE: MO ZIP: 63006-0405 FORMER COMPANY: FORMER CONFORMED NAME: AMERICAN LIFE INVESTORS INC DATE OF NAME CHANGE: 19920315 10-Q 1 d52391_10q.txt QUARTERLY REPORT FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2002 Commission File No. 1-11768 RELIV' INTERNATIONAL, INC. (Exact name of registrant as specified in its charter) Delaware 37-1172197 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 136 Chesterfield Industrial Boulevard, Chesterfield, Missouri 63005 (Address of principal executive offices) (Zip Code) (636) 537-9715 (Registrant's telephone number, including area code) Registrant has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and has been subject to such filing requirements for the past 90 days. APPLICABLE ONLY TO CORPORATE ISSUERS: COMMON STOCK 11,257,176 outstanding Shares as of September 30, 2002 Part I. FINANCIAL INFORMATION Item 1. Financial Statements The following consolidated financial statements of the Registrant are attached to this Form 10-Q: 1. Interim Balance Sheet as of September 30, 2002 and Balance Sheet as of December 31, 2001. 2. Interim Statements of Operations for the three and nine month periods ending September 30, 2002 and September 30, 2001. 3. Interim Statements of Cash Flows for the nine month periods ending September 30, 2002 and September 30, 2001. The Financial Statements reflect all adjustments which are, in the opinion of management, necessary for a fair statement of results for the periods presented. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operation 1. Financial Condition Current assets of the Company increased during the first nine months of 2002, to $8,253,000 from $6,514,000 as of December 31, 2001. Cash and cash equivalents increased by $1,778,000 to $3,037,000 as of September 30, 2002, as compared to $1,259,000 as of December 31, 2001. Accounts and notes receivable increased to $632,000 as of September 30, 2002, as compared to $548,000 as of December 31, 2001. Inventory decreased by $386,000 to $3,756,000 as of September 30, 2002. The Company's increase in cash is the result of the improved sales and profitability of the Company, especially in its operations in the United States. Inventories decreased as the result of the strong sales and efforts to maintain higher inventory turns. Prepaid expenses and other current assets increased by $379,000 to $741,000 at September 30, 2002 as the result of payments made for upcoming conventions and promotional trips, along with policy payments for various types of business insurance to be expensed over the lives of the policies. The Company purchased $482,000 of property, plant and equipment during the first nine months of 2002. Current liabilities increased by $360,000 from $6,047,000 as of December 31, 2001 to $6,407,000 as of September 30, 2002. Repayment of the amount drawn on the line of credit was offset by increases in distributor commissions payable, income taxes payable, and an increase in the current maturities of long-term debt. The amount drawn on the line of credit reduced from $986,000 as of December 31, 2001 to $0 as of September 30, 2002. Trade accounts payable decreased by $391,000 from $2,882,000 as of December 31, 2001 to $2,492,000 as of September 30, 2002. Distributor commissions payable increased from $1,244,000 as of December 31, 2001 to $2,249,000 as of September 2 30, 2002. This is the result of higher network marketing sales in September 2002, as compared to December 2001. Income taxes payable increased by $275,000 as of September 30, 2002, as compared to December 31, 2001, as the result of the improved profitability of the Company. Current maturities of long-term debt increased by $139,000 as the result of the refinancing of the Company's debt of approximately $4,000,000 on its building. The effect of the refinancing was to reduce the interest rate to a floating interest rate, set at the prime rate (4.75% as of September 30, 2002), yet maintain the same amount of monthly payments of principal and interest. This increases the amount of principal paid in each monthly payment and increases the amount characterized as current. Long-term debt and capital lease obligations decreased by $494,000 from $4,650,000 as of December 31, 2001 to $4,157,000 as of September 30, 2002. A portion of the decrease is due to the refinancing of primary building debt, as described above. The Company incurred no additional long-term debt during the first nine months of 2002. Stockholders' equity increased from $5,827,000 as of December 31, 2001 to $7,336,000 as of September 30, 2002, as the result of the net income of the first nine months of 2002. Equity decreased by $97,000 as the result of the foreign currency translation adjustment at September 30, 2002 as compared to December 31, 2001. Also, equity was reduced by $280,000 for treasury stock purchases made since the end of 2001. On September 19, 2002, the Company declared a 19% stock dividend on the Company's common stock which was distributed on October 25, 2002 to shareholders of record on October 11, 2002. The dividend was transferred from retained earnings to capital stock and additional paid-in capital in the amount of $7,905,000, which was based on the closed price of $4.39 per share on the declaration date. Average shares outstanding and all per share amounts included throughout this Form 10-Q and accompanying financial statements and notes are based on the increased number of shares giving retroactive recognition to the stock dividend. The Company's working capital balance has improved since the end of 2001, from a balance of $467,000 as of December 31, 2001 to a balance of $1,847,000 as of September 30, 2002. Accordingly, the current ratio has improved from 1.08 as of December 31, 2001 to 1.29 as of September 30, 2002. In addition to the refinancing of the Company's primary building debt, the Company renewed its operating line of credit in May 2002. The Company has an operating line of credit, with a limit based on a collateral-based formula of accounts receivable and inventory, with a maximum borrowing limit of $1,000,000. At September 30, 2002, the Company had no borrowings on the line of credit. Management believes that the Company's internally generated funds together with the loan agreement will be sufficient to meet working capital requirements in 2002. 2. Results of Operations Note: All per share data has been restated to reflect the effect of the Company's 19% stock dividend declared on September 19, 2002 and distributed on October 25, 2002. 3 The Company had net income of $741,000 ($.07 per share basic and $.06 per share diluted) for the quarter ended September 30, 2002, compared to a net income of $407,000, or $.04 per share basic and diluted, for the same period in 2001. For the nine months ended September 30, 2002, the Company had net income of $1,825,000 ($.16 per share basic and $.15 per share diluted), as compared to a net income of $274,000 ($.02 per share basic and diluted) in the first nine months of 2001. Profitability improved substantially as network marketing sales continued to improve in the Company's primary market of the United States. Net sales increased to $16,237,000 in the third quarter of 2002 as compared to $13,418,000 in the prior year quarter. The increase was the result of an increase in the Company's network marketing sales, primarily in the United States. For the nine-month period ended September 30, 2002, net sales were $46,170,000 as compared to $40,905,000 for the same period in 2001. Offsetting the increase in network marketing sales in the United States was the lack of sales to unrelated customers by the manufacturing and packaging segment. Through the nine months ended September 30, 2001, the Company had $3,861,000 in net sales to unrelated customers by this segment, compared to $125,000 through the same period in 2002. The Company made a decision to terminate all significant activity to unrelated customers by this segment in mid-2001. The growth in network marketing sales was led by a strong increase in the Company's largest market, the United States. Network marketing sales in the United States improved by 29% to $13,741,000 in the third quarter of 2002, as compared to $10,654,000 in the third quarter of 2001. For the first nine months of 2002, United States network marketing sales were $38,803,000 as compared to $30,925,000 for the same period in 2001. Increased signups of new distributors in the United States is helping to generate the sales growth in this market. In the third quarter of 2002, over 4,900 new distributors were enrolled, as compared to approximately 3,200 in the same quarter of 2001. For the nine months ended September 30, approximately 13,500 new distributors have been enrolled in 2002, as compared to 9,700 in 2001. The number of distributors reaching Master Affiliate, the highest level of discount that a distributor can attain, has also increased in the United States. In the third quarter of 2002, 1,014 distributors achieved Master Affiliate status, as compared to 631 in the same quarter of 2001. Through nine months of 2002, 2,653 distributors achieved Master Affiliate versus 1,712 in nine months of 2001. Additionally, sales in the Company's international subsidiaries increased slightly overall. International sales increased by 5% to $2,488,000 in the third quarter of 2002, compared to $2,375,000 in the third quarter of 2001. Most of the increase in the international group for the third quarter came from Mexico. Mexican sales increased by 24% from the prior year quarter, as the sales of Reversage in Mexico continue to do well. Reversage was introduced in Mexico during the second quarter of 2002. For the first nine months, international sales have increased by 18%, to $7,243,000, from $6,118,000 in the same period of 2001. The Company has provided manufacturing and packaging services, including blending, processing and packaging food products in accordance with specifications provided by its customers, including the production of the Reliv' brand products. In 2001, the Company decided to phase out all significant production for unrelated customers, continuing only the Reliv' brand production. As a result, net sales to unrelated customers decreased to approximately $9,000 4 in the third quarter of 2002 from $389,000 in the prior year quarter. For the nine-month period, these sales were $125,000 in 2002 as compared to $3,861,000 in 2001. Cost of products sold for the network marketing segment as a percentage of net sales was 17.1% in the third quarter of 2002, as compared to 14.9% in the third quarter of 2001. For the nine month period ended September 30, cost of products sold for the network marketing segment were 18.1% in 2002 and 17.5% in 2001. For the nine-month period ended September 30, total cost of goods sold decreased from 10,127,000 in 2001 to 8,447,000 in 2002. The decrease was due to the elimination of the cost of goods associated with the low-margin manufacturing and packaging services performed for unrelated customers. Distributor royalties and commissions as a percentage of network marketing sales were 38.3% and 38.4% in the third quarter of 2002 and 2001, respectively. For the nine-month period, royalties and commissions were 38.5% of network marketing sales in 2002 and 38.4% in 2001. These expenses are governed by the distributor agreements and are directly related to the level of sales. Selling, general and administrative (SGA) expenses increased by $609,000 in the third quarter of 2002, as compared to the third quarter of 2001. However, SGA expenses as a percentage of net sales decreased from 40.5% in the third quarter of 2001 to 37.2% in the third quarter of 2002. Sales expenses accounted for approximately $268,000 of the increase. Some of the components of the increase were increased credit card fees due to the higher sales volume, increased sales meeting expenses due to more and larger distributor meetings worldwide, and increased sales bonuses. Marketing expenses increased by approximately $157,000, primarily due to the timing of an incentive trip in the third quarter of 2002. A similar incentive trip in 2001 occurred in the fourth quarter. Increases in G&A expenses made up the remainder of the difference, primarily in G&A salaries and fringe benefit expenses. Interest expense decreased from $126,000 in the third quarter of 2001 to $63,000 in the third quarter of 2002. This decrease is due to less reliance on the line of credit, coupled with the refinancing of the Company's primary building debt, as described in the "Financial Condition" section. For the nine-month period ended September 30, interest expense decreased from $413,000 in 2001 to $282,000 in 2002. The Company recorded income tax expense of $446,000 for the third quarter of 2002, an effective rate of 37.6%. In the third quarter of 2001, the Company recorded income tax expense of $162,000. For the first nine months of 2002, income tax expense was $1,135,000, an effective rate of 38.3%. Critical Accounting Policies Our financial statements are based on the selection and application of significant accounting policies, which require management to make significant estimates and assumptions. We believe that the following are some of the more critical judgement areas in the application of our accounting policies that currently affect our financial condition and results of operations. 5 Inventories Inventories are valued at the lower of cost or market. Product cost includes raw material, labor and overhead costs and is accounted for using the first-in, first-out basis. On a periodic basis, the Company reviews its inventory levels in each country's product line for estimated obsolescence or unmarketable items, as compared to future demand requirements and the shelf life of the various products. Based on this review, the Company records inventory write-downs when necessary. Legal Proceedings In the ordinary course of business, we are subject to various legal proceedings, including lawsuits and other claims related to labor, product and other matters. We are required to assess the likelihood of adverse judgments and outcomes to these matters as well as the range of potential loss. Such assessments are required to determine whether a loss contingency reserve is required under the provisions of SFAS No. 5, Accounting for Contingencies, and to determine the amount of required reserves, if any. These assessments are subjective in nature. Management makes these assessments for each individual matter based on consultation with outside counsel and based on prior experience with similar claims. To the extent additional information becomes available or our strategies or assessments change, our estimates of potential liability for a given matter may change. Changes to estimates of liability would result in a corresponding additional charge or benefit recognized in the statement of operations in the period in which such changes become known. We recognize the costs associated with legal defense in the periods incurred. Accordingly, the future costs of defending claims are not included in our estimated liability. Safe Harbor Provision of the Private Securities Litigation Act of 1995 and Forward Looking Statements. The statements contained in Item 2 (Management's Discussion and Analysis of Financial Condition and Results of Operation) that are not historical facts may be forward-looking statements (as such term is defined in the rules promulgated pursuant to the Securities Exchange Act of 1934) that are subject to a variety of risks and uncertainties. The forward-looking statements are based on the beliefs of the Company's management, as well as assumptions made by, and information currently available to the Company's management. Accordingly, these statements are subject to significant risks, uncertainties and contingencies which could cause the Company's actual growth, results, performance and business prospects and opportunities in 2002 and beyond to differ materially from those expressed in, or implied by, any such forward-looking statements. Wherever possible, words such as "anticipate," "plan," "expect," "believe," "estimate," and similar expressions have been used to identify these forward-looking statements, but are not the exclusive means of identifying such statements. These risks, uncertainties and contingencies include, but are not limited to, the Company's ability to continue to attract, maintain and motivate its distributors, changes in the regulatory environment affecting network marketing sales and sales of food and dietary supplements and other risks and uncertainties detailed in the Company's other SEC filings. 6 Item 3. Quantitative and Qualitative Disclosure of Market Risk The Company's earnings and cash flow are subject to fluctuations due to changes in foreign currency rates as it has several foreign subsidiaries and continues to explore expansion into other foreign countries. As a result, exchange rate fluctuations may have an effect on its sales and the Company's gross margins. Accounting practices require that the Company's results from operations be converted to U.S. dollars for reporting purposes. Consequently, the reported earnings of the Company in future periods may be significantly affected by fluctuations in currency exchange rates, generally increasing with a weaker U.S. dollar and decreasing with a strengthening U.S. dollar. Products manufactured by the Company for sale to the Company's foreign subsidiaries are transacted in U.S. dollars. As the Company's foreign operations expand, its operating results will be subject to the risks of exchange rate fluctuations and the Company may not be able to accurately estimate the impact of such changes on its future business, product pricing, results of operations or financial condition. The Company also is exposed to market risk in changes in interest rates on its long-term debt arrangements and commodity prices in some of the raw materials it purchases for its manufacturing needs. However, neither presents a risk that would have a material effect on the Company's results of operations or financial condition. Item 4. Controls and Procedures (a) Evaluation of disclosure controls and procedures. Our principal executive officer and principal financial officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-14(c) and 15d-14(c)) as of a date within ninety days before the filing date of this report, have concluded that, as of such date our disclosure controls and procedures were adequate and effective to ensure that material information relating to the Company would be made known to them by others within the Company. (b) Changes in internal controls. There were no significant changes in our internal controls or in other factors that could significantly affect the Company's disclosure controls and procedures subsequent to the date of their evaluation, nor were there any significant deficiencies or material weaknesses in the Company's internal controls. As a result, no corrective actions were required or undertaken. Part II. OTHER INFORMATION Item 1. Legal Proceedings There has been no material litigation initiated by or against the Company in the reporting period or any material changes to litigation reported by the Company in its prior periodic reports. Item 2. Changes in Securities Not applicable. 7 Item 3. Defaults Upon Senior Securities Not applicable. Item 4. Submission of Matters to a Vote of Security Holders Not applicable. Item 5. Other Information Not applicable. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits* (b) The Company has not filed a Current Report during the quarter covered by this report. * Also incorporated by reference are the Exhibits filed as part of the S-18 Registration Statement of the Registrant, effective November 5, 1985, and subsequent periodic filings. 8 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Dated: November 8, 2002 RELIV' INTERNATIONAL, INC. By: /s/ Robert L. Montgomery ---------------------------------- Robert L. Montgomery, President, Chief Executive Officer By: /s/ David G. Kreher ---------------------------------- David G. Kreher, Chief Financial Officer 9 CERTIFICATIONS I, Robert L. Montgomery, Chief Executive Officer of Reliv' International, Inc., certify that: 1. I have reviewed this quarterly report on Form 10-Q of Reliv International, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that 10 could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 8, 2002 RELIV' INTERNATIONAL, INC. By: /s/ Robert L. Montgomery ------------------------------------ Robert L. Montgomery Chief Executive Officer 11 CERTIFICATIONS I, David G. Kreher, Chief Financial Officer of Reliv' International, Inc., certify that: 1. I have reviewed this quarterly report on Form 10-Q of Reliv International, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that 12 could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 8, 2002 RELIV' INTERNATIONAL, INC. By: /s/ David G. Kreher -------------------------------- David G. Kreher, Chief Financial Officer 13 SARBANES-OXLEY ACT SECTION 906 CERTIFICATION I certify that the periodic report on Form 10-Q containing the financial statements fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o (d)) and that information contained in the periodic report on Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the issuer. RELIV' INTERNATIONAL, INC. By: /s/ Robert L. Montgomery ----------------------------------- Robert L. Montgomery, Chief Executive Officer 14 SARBANES-OXLEY ACT SECTION 906 CERTIFICATION I certify that the periodic report on Form 10-Q containing the financial statements fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o (d)) and that information contained in the periodic report on Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the issuer. RELIV' INTERNATIONAL, INC. By: /s/ David G. Kreher ------------------------------ David G. Kreher, Chief Financial Officer 15 Reliv International, Inc. and Subsidiaries Consolidated Balance Sheets
September 30 December 31 2002 2001 ------------ ------------ (unaudited) (see notes) Assets Current assets: Cash and cash equivalents $3,037,031 $1,258,821 Accounts and notes receivable, less allowances of $5,000 in 2002 and 2001 632,383 548,035 Accounts due from employees and distributors 64,000 50,200 Inventories Finished goods 2,554,800 2,313,058 Raw materials 713,020 1,391,237 Sales aids and promotional materials 487,854 437,371 ------------ ------------ Total inventories 3,755,674 4,141,666 Refundable income taxes 5,919 136,263 Prepaid expenses and other current assets 741,447 362,287 Deferred income taxes 17,000 17,000 ------------ ------------ Total current assets 8,253,454 6,514,272 Other assets 595,236 646,018 Note receivable from officer 51,250 59,250 Accounts due from employees and distributors 3,000 43,741 Property, plant and equipment: Land 829,222 829,222 Building 8,494,555 8,441,164 Machinery & equipment 4,098,176 4,030,689 Office equipment 705,392 565,085 Computer equipment & software 2,233,267 2,085,817 ------------ ------------ 16,360,612 15,951,977 Less: Accumulated depreciation (6,888,905) (6,276,781) ------------ ------------ Net property, plant and equipment 9,471,707 9,675,196 ------------ ------------ Total assets $18,374,647 $16,938,477 ============ ============
See notes to financial statements. 16 Reliv International, Inc. and Subsidiaries Consolidated Balance Sheets
September 30 December 31 2002 2001 ------------ ------------ (unaudited) (see notes) Liabilities and stockholders' equity Current liabilities: Accounts payable and accrued expenses: Trade accounts payable and other accrued expenses $2,491,786 $2,882,361 Distributors commissions payable 2,249,305 1,244,439 Sales taxes payable 445,978 260,643 Interest expense payable 57,358 60,499 Payroll and payroll taxes payable 440,733 192,673 ------------ ------------ Total accounts payable and accrued expenses 5,685,160 4,640,615 Income taxes payable 281,231 6,153 Borrowings under line of credit -- 985,922 Current maturities of long-term debt 419,112 279,733 Current maturities of capital lease obligations 21,379 134,682 ------------ ------------ Total current liabilities 6,406,882 6,047,105 Capital lease obligations, less current maturities -- 8,862 Long-term debt, less current maturities 4,156,525 4,641,384 Other non-current liabilities 475,461 414,276 Stockholders' equity: Preferred stock, par value $.001 per share; 3,000,000 shares authorized; none issued and outstanding -- -- Common stock, par value $.001 per share; 20,000,000 authorized; 11,257,176 shares issued and outstanding as of 9/30/2002; 9,654,884 shares issued and 9,563,267 shares outstanding as of 12/31/2001 11,257 9,655 Additional paid-in capital 16,859,590 9,119,934 Notes receivable-officers and directors (4,999) (19,289) Treasury stock-91,617 shares in 2001 -- (115,558) Accumulated deficit (8,744,870) (2,479,285) Accumulated other comprehensive loss: Foreign currency translation adjustment (785,199) (688,607) ------------ ------------ Total stockholders' equity 7,335,779 5,826,850 ------------ ------------ Total liabilities and stockholders' equity $18,374,647 $16,938,477 ============ ============
See notes to financial statements. 17 Reliv International, Inc. and Subsidiaries Consolidated Statements of Operations
Three months ended September 30 Nine months ended September 30 2002 2001 2002 2001 ------------ ------------ ------------ ------------ (unaudited) (unaudited) (unaudited) (unaudited) Sales at suggested retail $23,169,058 $19,052,463 $66,029,019 $57,051,443 Less: distributor allowances on product purchases 6,931,981 5,634,290 19,858,627 16,146,767 ------------ ------------ ------------ ------------ Net sales 16,237,077 13,418,173 46,170,392 40,904,676 Costs and expenses: Cost of products sold 2,774,485 2,291,278 8,446,994 10,126,701 Distributor royalties and commissions 6,220,776 5,002,213 17,705,137 14,206,330 Selling, general and administrative 6,045,862 5,436,575 16,914,672 15,742,268 ------------ ------------ ------------ ------------ Total costs and expenses 15,041,123 12,730,066 43,066,803 40,075,299 ------------ ------------ ------------ ------------ Income from operations 1,195,954 688,107 3,103,589 829,377 Other income (expense): Interest income 11,497 6,955 27,136 25,671 Interest expense (63,159) (126,105) (282,435) (413,490) Other income/(expense) 42,877 (50) 111,634 (5,439) ------------ ------------ ------------ ------------ Income before income taxes 1,187,169 568,907 2,959,924 436,119 Provision for income taxes 446,000 162,000 1,135,000 162,000 ------------ ------------ ------------ ------------ Net income $741,169 $406,907 $1,824,924 $274,119 ============ ============ ============ ============ Earnings per common share $0.07 $0.04 $0.16 $0.02 ============ ============ ============ ============ Earnings per common share - assuming dilution $0.06 $0.04 $0.15 $0.02 ============ ============ ============ ============
See notes to financial statements. All per share data has been restated to reflect the effect of the Company's 19 percent stock dividend declared on September 19, 2002 and distributed on October 25, 2002. 18 Reliv International, Inc. and Subsidiaries Consolidated Statements of Cash Flows (unaudited)
Nine months ended September 30 2002 2001 ----------- ----------- Operating activities: Net income (loss) $1,824,924 $274,119 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation 649,898 558,774 Compensation expense for warrants granted 14,905 -- Foreign currency translation (gain) loss (67,248) (27,003) (Increase) decrease in accounts and notes receivable (108,557) 1,641,405 (Increase) decrease in inventories 343,141 134,780 (Increase) decrease in refundable income taxes 130,199 196,177 (Increase) decrease in prepaid expenses and other current assets (390,136) (322,012) (Increase) decrease in other assets 50,697 170,759 Increase (decrease) in accounts payable and accrued expenses 1,127,326 (974,816) Increase (decrease) in income taxes payable 274,543 162,494 ----------- ----------- Net cash provided by operating activities 3,849,692 1,814,677 Investing activities: Purchase of property, plant and equipment (481,725) (225,216) Proceeds from the sale of property, plant and equipment 26,081 -- Repayment of loans by officers and directors 8,000 5,479 ----------- ----------- Net cash used in investing activities (447,644) (219,737) Financing activities: Net repayments under line of credit (985,922) (1,017,462) Proceeds from long-term borrowings -- 41,102 Principal payments on long-term borrowings (345,204) (260,189) Principal payments under capital lease obligations (122,165) (134,961) Proceeds from options and warrants exercised 45,929 390 Purchase of treasury stock (280,237) -- ----------- ----------- Net cash used in financing activities (1,687,599) (1,371,120) Effect of exchange rate changes on cash and cash equivalents 63,761 (65,273) ----------- ----------- Increase in cash and cash equivalents 1,778,210 158,547 Cash and cash equivalents at beginning of period 1,258,821 1,198,682 ----------- ----------- Cash and cash equivalents at end of period $3,037,031 $1,357,229 =========== ===========
See notes to financial statements 19 Reliv' International, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Unaudited) September 30, 2002 Note 1-- Basis of Presentation The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine-month period ended September 30, 2002 are not necessarily indicative of the results that may be expected for the year ended December 31, 2002. The balance sheet at December 31, 2001 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting priciples for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in the Registrant Company and Subsidiaries' annual report on Form 10-K for the year ended December 31, 2001. Note 2-- Earnings per Share The following table sets forth the computation of basic and diluted earnings per share:
Three months ended September 30 Nine months ended September 30 2002 2001 2002 2001 ------------------------------- ------------------------------ Numerator: Numerator for basic and diluted earnings per share--net income $741,169 $406,907 $1,824,924 $274,119 Denominator: Denominator per basic earnings per share--weighted average shares 11,252,000 11,494,000 11,295,000 11,494,000 Effect of dilutive securities: Employee stock options and other warrants 1,229,000 82,000 1,229,000 82,000 ------------------------------- ------------------------------ Denominator for diluted earnings per share--adjusted weighted average shares 12,481,000 11,576,000 12,524,000 11,576,000 =============================== ============================== Basic earnings per share $0.07 $0.04 $0.16 $0.02 =============================== ============================== Diluted earnings per share $0.06 $0.04 $0.15 $0.02 =============================== ==============================
All share and per share data has been restated to reflect the effect of the Company's 19% stock dividend declared on September 19, 2002. Note 3-- Comprehensive Income Total comprehensive income was $654,493 and $1,728,332 for the three months and nine months ended September 30, 2002, respectively. For the three and nine months ended September 30, 2001, comprehensive income was $316,004 and $133,517, respectively. The Company's only component of other comprehensive income is the foreign currency translation adjustment. 20 Reliv' International, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Unaudited) September 30, 2002 Note 4-- Segment Information
Three months ended Three months ended September 30, 2002 September 30, 2001 ------------------ ------------------ Network Manufacturing Network Manufacturing marketing and packaging marketing and packaging ------------------------------- ------------------------------ Net sales to external customers 16,228,557 8,520 13,029,228 388,945 Intersegment net sales -- 2,339,218 -- 2,224,227 Segment profit 1,383,344 273,740 738,947 490,723 Nine months ended Nine months ended September 30, 2002 September 30, 2001 ------------------ ------------------ Network Manufacturing Network Manufacturing marketing and packaging marketing and packaging ------------------------------- ------------------------------ Net sales to external customers 46,045,299 125,093 37,043,603 3,861,073 Intersegment net sales -- 6,575,758 -- 5,728,622 Segment profit 3,989,151 433,500 1,948,568 209,632 Segment assets 13,370,937 1,966,679 14,609,000 2,359,340
A reconciliation of combined operating profit for the reportable segments to consolidated income before income taxes is as follows:
Three months ended September 30 Nine months ended September 30 2002 2001 2002 2001 ------------------------------- ------------------------------ Total profit for reportable segments 1,657,084 1,229,670 4,422,651 2,158,200 Corporate expenses (461,130) (541,563) (1,319,062) (1,328,823) Non operating - net 54,374 6,905 138,770 20,232 Interest expense (63,159) (126,105) (282,435) (413,490) ------------------------------ ------------------------------ Income before income taxes 1,187,169 568,907 2,959,924 436,119 ============================== ==============================
Note 5-- Legal Proceedings In December 2001, five former distributors of the Company filed for arbitration claiming unlawful termination, breach of the Distributor Agreement, and interference with business expectancy. The individuals had been terminated by the Company in October 2000 for violating certain provisions of the Distributor Agreement. The Company believes the claim is without merit and intends to vigorously defend itself. At this time, the outcome of this matter is uncertain and a range of loss cannot be reasonably estimated; however, management believes that the final outcome will not have a material adverse effect on the financial position or results of operations of the Company. Note 6-- Long-Term Debt In June 2002, the Company entered into a loan modification agreement related to the term loan on its building. The effect of the agreement was to reduce the interest rate from a fixed rate of 8.5% to a floating interest rate at the prime rate (4.75% as of September 30, 2002). The monthly payments of principal and interest remain the same at $38,802 per month. As of the date of the new agreement, the loan had a balance of $4,021,000. 21 Reliv' International, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Unaudited) September 30, 2002 Note 7-- Stock Dividend On September 19, 2002, the Board of Directors of the Company declared a 19% stock dividend on the Company's common stock which was distributed on October 25, 2002 to shareholders of record on October 11, 2002. The dividend was transferred from retained earnings to common stock in the amount of $7,905,000, which was based on the closing price of $4.39 per share on the declaration date. Average shares outstanding and all per share amounts included in the accompanying consolidated financial statements and notes are based on the increased number of shares giving retroactive recognition to the stock dividend. 22 -----END PRIVACY-ENHANCED MESSAGE-----