FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003
Commission File No. 1-11768
RELIV' INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 37-1172197
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
|
(636) 537-9715
(Registrant's telephone number, including area code)
Registrant has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes |_| No |X|
APPLICABLE ONLY TO CORPORATE ISSUERS:
COMMON STOCK 11,955,360 outstanding Shares as of March 31, 2003
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
The following consolidated financial statements of the Registrant are attached to this Form 10-Q:
1. Interim Balance Sheet as of March 31, 2003 and Balance Sheet as of December 31, 2002.
2. Interim Statements of Operations for the three month periods ending March 31, 2003 and March 31, 2002.
3. Interim Statements of Cash Flows for the three month periods ending March 31, 2003 and March 31, 2002.
The Financial Statements reflect all adjustments which are, in the opinion of management, necessary for a fair statement of results for the periods presented.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
1. Financial Condition
Current assets of the Company increased during the first three months of 2003, to $12,407,000 from $8,432,000 as of December 31, 2002. Cash and cash equivalents increased by $3,880,000 to $7,318,000 as of March 31, 2003, as compared to $3,438,000 as of December 31, 2002. Accounts and notes receivable decreased to $535,000 as of March 31, 2003, as compared to $689,000 as of December 31, 2002. Inventory decreased by $93,000 to $3,364,000 as of March 31, 2003. The Company's increase in cash is the result of the improved sales and profitability of the Company, especially in its operations in the United States, coupled with the proceeds of sale of preferred stock of $1,500,000. Inventories decreased as the result of the strong sales in the United States and in the key foreign markets. Prepaid expenses and other current assets increased by $361,000 to $926,000 at March 31, 2003 primarily the result of policy payments for various types of business insurance to be expensed over the lives of the policies.
The Company purchased $153,000 of property, plant and equipment during the first three months of 2003.
Current liabilities increased $1,505,000 from $6,040,000 as of December 31, 2002 to $7,545,000 as of March 31, 2003. Trade accounts payable increased $532,000 from $2,462,000 as of December 31, 2002 to $2,994,000 as of March 31, 2003. The increase is primarily the result of increased raw material purchases and increased payables for promotional trips at March 31, 2003, as compared to December 31, 2002. Distributor commissions payable increased from $2,065,000 as of December 31, 2002 to $2,486,000 as of March 31, 2003. This is the result of
higher network marketing sales in March 2003, as compared to December 2002. The increase in sales taxes payable at March 31, 2003, compared to December 31, 2002, is due to the increase in sales. Income taxes payable increased by $412,000 as of March 31, 2003, as compared to December 31, 2002, as the result of the improved profitability of the Company.
Long-term debt decreased $50,000 from $4,057,000 as of December 31, 2002 to $4,007,000 as of March 31, 2003. The decrease is the result of scheduled principal payments, offset by additional long-term debt the Company incurred during the first quarter of 2003 of $64,000.
Stockholders' equity increased from $7,798,000 as of December 31, 2002 to $10,235,000 as of March 31, 2003. The increase is primarily the result of net income of $978,000 during the first three months of 2003, plus the proceeds of a preferred stock offering of $1,500,000 issued on March 31, 2003. Equity also increased $39,000 as compared to December 31, 2002, as a result of the foreign currency translation adjustment at March 31, 2003 and by $131,000 due to proceeds received from the exercise of incentive stock options during the first quarter of 2003. Equity was reduced $213,000 for treasury stock purchases made during the first quarter of 2003.
The Company's working capital balance has improved since the end of 2002, from a balance of $2,393,000 as of December 31, 2002 to a balance of $4,862,000 as of March 31, 2003. Accordingly, the current ratio has improved from 1.40 as of December 31, 2002 to 1.64 as of March 31, 2003. The Company has an operating line of credit, with a limit based on a collateral-based formula of accounts receivable and inventory, with a maximum borrowing limit of $1,000,000. At March 31, 2003, the Company had no borrowings on the line of credit. Management believes the Company's internally generated funds together with the loan agreement and the preferred stock proceeds will be sufficient to meet working capital requirements in 2003.
2. Results of Operations
Note: Per share data for the first quarter of 2002 has been restated to reflect the effect of the Company's 19% stock dividend declared on September 19, 2002 and distributed on October 25, 2002.
The Company had net income of $978,000 ($.08 per share basic and $.07 per share diluted) for the quarter ended March 31, 2003, compared to a net income of $459,000, or $.04 per share basic and diluted, for the same period in 2002. Profitability improved substantially as network marketing sales continued to improve worldwide led by a 27% increase in net sales in the Company's primary market of the United States.
Net sales increased to $18,671,000 in the first quarter of 2003 as compared to $14,484,000 in the first quarter of 2002. The growth in sales was led by a strong increase in the Company's largest market, the United States. Sales in the United States improved by 27% to $15,799,000 in the first quarter of 2003, as compared to $12,426,000 in the first quarter of 2002. New distributor enrollments in the US is a factor in the increased sales in this market. In the first
quarter of 2003, approximately 5,000 new distributors were enrolled, as compared to approximately 3,800 in the same quarter of 2002. The number of distributors reaching Master Affiliate, the highest level of discount a distributor can attain, has also continued to improve in the United States. In the first quarter of 2003, 1,162 distributors achieved Master Affiliate status, as compared to 716 in the same quarter of 2002.
The Company also attributes the increase in sales and other sales statistics in part to its increased support to the distributor force in the form of increased sales meetings and other distributor training events. The Company is holding more of its quarterly Master Affiliate training seminars in more cities and has lengthened the program to a full day of training on Saturdays, compared to a half-day training session used previously. The Company has also modified the frequency of its national conferences. In the past, the Company invited distributors to attend two major conferences a year. Now, the Company has replaced its winter conference with a series of regional conferences in areas of significant distributor groups in order to present the Reliv product line and business opportunity to more people.
Additionally, sales in the Company's international subsidiaries showed a strong increase. International sales increased 40% to $2,872,000 in the first quarter of 2003, compared to $2,058,000 in the first quarter of 2002. Leading the increase in international sales was the Philippines, with an increase of 105% in sales in the first quarter of 2003 versus the first quarter of 2002. A substantial portion of the sales increase occurred in advance of a price increase that went into effect on March 1, 2003. Mexican sales increased 24% from the prior year quarter, helped by the introduction of Arthaffect in Mexico in October 2002 and continued strong sales of Reversage. Canada also showed a 13% growth in sales in the first quarter of 2003, compared to the prior year quarter. Sales in Canada continue to gradually improve as the Company completed its changes there to make the business model function identical to that in the United States. Effective February 1, 2003, royalties on Canadian sales are being paid out on the full retail value of the products, just as they are in the United States. This enhances the business opportunity associated with selling the Reliv product line and encourages more people to become distributors.
Cost of products sold as a percentage of net sales was 17.7% in the first quarter of 2003, as compared to 19.0% in the first quarter of 2002. The decrease in the percentage of cost of goods sold is the result of greater efficiencies gained in the production facility from increased production levels needed to support the growth in sales. Efficiencies are being gained as production levels have increased with minimal staffing increases and improved coverage of the fixed manufacturing costs.
Distributor royalties and commissions as a percentage of network marketing sales were 38.9% and 38.5% in the first quarter of 2003 and 2002, respectively. These expenses are governed by the distributor agreements and are directly related to the level of sales.
Selling, general and administrative (SGA) expenses increased $1,096,000 in the first quarter of 2003, as compared to the first quarter of 2002. However, SGA expenses as a percentage of net sales decreased to 34.1% in the first quarter of 2003 compared to 36.4% in the
first quarter of 2002. Sales expenses represented approximately $500,000 of the increase. Some of the components of the increase were increased credit card fees due to the higher sales volume, increased sales meeting expenses due to more and larger meetings in support of the distributor force, and increased sales bonuses. Marketing expenses increased by approximately $200,000, primarily the result of increased incentive trip expenses. Increases in general and administrative expenses represented approximately $350,000 of the increase, primarily in salaries, fringe benefit expenses, higher business insurance costs and higher stock market listing fees.
Interest expense decreased from $121,000 in the first quarter of 2002 to $68,000 in the first quarter of 2003. This decrease in 2003 is the result of not utilizing the line of credit, coupled with the interest savings gained from the refinancing of the Company's primary building debt in June 2002.
The Company recorded income tax expense of $685,000 for the first quarter of 2003, an effective rate of 41.2%. In the first quarter of 2002, the Company recorded income tax expense of $314,000, an effective rate of 40.6%.
Critical Accounting Policies
A summary of our critical accounting policies and estimates is presented on pages 35 and 36 of our 2002 Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 28, 2003.
Safe Harbor Provision of the Private Securities Litigation Act of 1995 and Forward Looking Statements.
The statements contained in Item 2 (Management's Discussion and Analysis of Financial Condition and Results of Operation) that are not historical facts may be forward-looking statements (as such term is defined in the rules promulgated pursuant to the Securities Exchange Act of 1934) that are subject to a variety of risks and uncertainties. The forward-looking statements are based on the beliefs of the Company's management, as well as assumptions made by, and information currently available to the Company's management. Accordingly, these statements are subject to significant risks, uncertainties and contingencies which could cause the Company's actual growth, results, performance and business prospects and opportunities in 2002 and beyond to differ materially from those expressed in, or implied by, any such forward-looking statements. Wherever possible, words such as "anticipate," "plan," "expect," "believe," "estimate," and similar expressions have been used to identify these forward-looking statements, but are not the exclusive means of identifying such statements. These risks, uncertainties and contingencies include, but are not limited to, the Company's ability to continue to attract, maintain and motivate its distributors, changes in the regulatory environment affecting network marketing sales and sales of food and dietary supplements and other risks and uncertainties detailed in the Company's other SEC filings.
Item 3. Quantitative and Qualitative Disclosures of Market Risk
There have been no material changes in market risk exposures during the first three months of 2003 that affect the disclosures presented in Item 7A - "Qualitative and Quantitative Disclosures Regarding Market Risk" on pages 37 and 38 of our 2002 Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 28, 2003.
Item 4. Controls and Procedures
(a) Evaluation of disclosure controls and procedures. Our principal executive officer and principal financial officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-14(c) and 15d-14(c)) as of a date within ninety days before the filing date of this report, have concluded that, as of such date our disclosure controls and procedures were adequate and effective to ensure that material information relating to the Company would be made known to them by others within the Company.
(b) Changes in internal controls. There were no significant changes in our internal controls or in other factors that could significantly affect the Company's disclosure controls and procedures subsequent to the date of their evaluation, nor were there any significant deficiencies or material weaknesses in the Company's internal controls. As a result, no corrective actions were required or undertaken.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
There has been no material litigation initiated by or against the Company in the reporting period or any material changes to litigation reported by the Company in its prior periodic reports.
Item 2. Changes in Securities
On March 31, 2003, the Company sold shares of a newly designated class of securities to three members of management. The securities, called "Series A Preferred Stock" (the "Preferred Stock"), were designated by the Company's Board of Directors out of the 3,000,000 authorized shares of the Company's $.001 par value preferred stock. A total of 150,000 shares of Preferred Stock were purchased for an aggregate consideration of $1,500,000 ($10.00 per share).
The shares of Preferred Stock have no voting rights, and are convertible into shares of the Company's $.001 par value Common Stock at a rate determined by dividing the market price of the Company's Common Stock on NASDAQ Stock Market on March 31, 2003, the date the shares of Preferred Stock were purchased, by the purchase price of the Preferred Stock (a total of 372,207 shares in the aggregate). Shares of Preferred Stock shall not be eligible for conversion until January 1, 2006.
The sale of the shares of Preferred Stock did not involve a public offering, and was exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits*
Exhibit Exhibit No. ------- ----------- Certificate of Designation to Create a Class of Series A Preferred Stock for Reliv' International, Inc. 3.1 |
(b) The Company has not filed a Current Report during the quarter covered by this report but did file a Form 8-K Current Report on April 2, 2003 (amended April 15, 2003) to report the issuance of shares of the Company's Preferred Stock on March 31, 2003. See Item 2 above.
* Also incorporated by reference the Exhibits filed as part of the S-18 Registration Statement of the Registrant, effective November 5, 1985, and subsequent periodic filings.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Dated: May 6, 2003 RELIV' INTERNATIONAL, INC.
By: /s/ Robert L. Montgomery
------------------------------------
Robert L. Montgomery, President,
Chief Executive Officer
RELIV' INTERNATIONAL, INC.
By: /s/ David G. Kreher
------------------------------------
David G. Kreher,
Chief Financial Officer
|
CERTIFICATIONS
I, Robert L. Montgomery, Chief Executive Officer of Reliv' International, Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Reliv International, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: May 6, 2003
RELIV' INTERNATIONAL, INC.
By: /s/ Robert L. Montgomery
------------------------------------
Robert L. Montgomery Chief Executive
Officer
|
CERTIFICATIONS
I, David G. Kreher, Chief Financial Officer of Reliv' International, Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Reliv International, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: May 6, 2003
RELIV' INTERNATIONAL, INC.
By: /s/ David G. Kreher
------------------------------------
David G. Kreher, Chief Financial
Officer
|
SARBANES-OXLEY ACT
SECTION 906 CERTIFICATION
I certify that the periodic report on Form 10-Q containing the financial statements fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o (d)) and that information contained in the periodic report on Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the issuer.
Dated: May 6, 2003
RELIV' INTERNATIONAL, INC.
By: /s/ Robert L. Montgomery
------------------------------------
Robert L. Montgomery,
Chief Executive Officer
|
SARBANES-OXLEY ACT
SECTION 906 CERTIFICATION
I certify that the periodic report on Form 10-Q containing the financial statements fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o (d)) and that information contained in the periodic report on Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the issuer.
Dated: May 6, 2003
RELIV' INTERNATIONAL, INC.
By: /s/ David G. Kreher
------------------------------------
David G. Kreher, Chief Financial
Officer
|
Reliv International, Inc. and Subsidiaries
Consolidated Balance Sheets
March 31 December 31
2003 2002
----------- -----------
(unaudited) (see notes)
Assets
Current assets:
Cash and cash equivalents $ 7,318,152 $ 3,437,966
Accounts and notes receivable, less allowances of
$5,000 in 2003 and 2002 535,339 688,898
Accounts due from employees and distributors 106,000 104,000
Inventories
Finished goods 2,054,992 2,361,064
Raw materials 888,624 680,516
Sales aids and promotional materials 420,377 415,565
----------- -----------
Total inventories 3,363,993 3,457,145
Refundable income taxes 11,686 8,072
Prepaid expenses and other current assets 925,666 564,486
Deferred income taxes 146,393 171,873
----------- -----------
Total current assets 12,407,229 8,432,440
Other assets 452,428 442,927
Note receivable from officer 41,625 48,250
Accounts due from employees and distributors 64,000 78,000
Property, plant and equipment:
Land 829,222 829,222
Building 8,582,053 8,583,444
Machinery & equipment 4,069,103 4,057,983
Office equipment 823,376 738,976
Computer equipment & software 2,313,657 2,275,019
----------- -----------
16,617,411 16,484,644
Less: Accumulated depreciation 7,252,012 7,040,275
----------- -----------
Net property, plant and equipment 9,365,399 9,444,369
----------- -----------
Total assets $22,330,681 $18,445,986
=========== ===========
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See notes to financial statements.
Reliv International, Inc. and Subsidiaries
Consolidated Balance Sheets
March 31 December 31
2003 2002
------------ ------------
(unaudited) (see notes)
Liabilities and stockholders' equity
Current liabilities:
Accounts payable and accrued expenses:
Trade accounts payable and other accrued expenses $ 2,994,400 $ 2,462,356
Distributors commissions payable 2,486,113 2,065,327
Sales taxes payable 443,877 393,413
Interest expense payable 52,441 55,238
Payroll and payroll taxes payable 508,612 381,748
------------ ------------
Total accounts payable and accrued expenses 6,485,443 5,358,082
Income taxes payable 669,424 257,441
Current maturities of long-term debt 388,696 415,235
Current maturities of capital lease obligations 1,239 8,755
------------ ------------
Total current liabilities 7,544,802 6,039,513
Noncurrent liabilities:
Long-term debt, less current maturities 4,006,529 4,057,042
Deferred income taxes 84,435 84,435
Other non-current liabilities 460,327 467,350
------------ ------------
Total noncurrent liabilities 4,551,291 4,608,827
Stockholders' equity:
Preferred stock, par value $.001 per share; 3,000,000 shares authorized;
150,000 shares issued and outstanding as of 3/31/2003 1,500,000 --
Common stock, par value $.001 per share; 20,000,000
authorized; 12,091,189 shares issued and 11,955,360
shares outstanding as of 3/31/2003; 12,006,761 shares
issued and 11,921,932 shares outstanding as of 12/31/2002 12,091 12,007
Additional paid-in capital 17,994,755 17,863,505
Notes receivable-officers and directors -- (2,449)
Accumulated deficit (7,983,220) (8,960,782)
Accumulated other comprehensive loss:
Foreign currency translation adjustment (736,606) (775,383)
Treasury stock (552,432) (339,252)
------------ ------------
Total stockholders' equity 10,234,588 7,797,646
------------ ------------
Total liabilities and stockholders' equity $ 22,330,681 $ 18,445,986
============ ============
|
See notes to financial statements.
Reliv International, Inc. and Subsidiaries
Consolidated Statements of Operations
Three months ended March 31
2003 2002
------------ ------------
(unaudited) (unaudited)
Sales at suggested retail $ 26,856,164 $ 20,858,510
Less: distributor allowances on product purchases 8,184,714 6,374,226
------------ ------------
Net sales 18,671,450 14,484,284
Costs and expenses:
Cost of products sold 3,307,718 2,756,710
Distributor royalties and commissions 7,255,198 5,572,058
Selling, general and administrative 6,370,984 5,274,759
------------ ------------
Total costs and expenses 16,933,900 13,603,527
------------ ------------
Income from operations 1,737,550 880,757
Other income (expense):
Interest income 15,742 6,489
Interest expense (68,047) (121,458)
Other income/(expense) (22,683) 6,756
------------ ------------
Income before income taxes 1,662,562 772,544
Provision for income taxes 685,000 314,000
------------ ------------
Net income $ 977,562 $ 458,544
============ ============
Earnings per common share $ 0.08 $ 0.04
============ ============
Earnings per common share - assuming dilution $ 0.07 $ 0.04
============ ============
|
2002 earnings per common share have been restated for the stock dividend declared in September 2002.
See notes to financial statements.
Reliv International, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(unaudited)
Three months ended March 31
2003 2002
----------- -----------
Operating activities:
Net income $ 977,562 $ 458,544
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 227,727 211,790
Compensation expense for warrants granted 22,514 4,969
Deferred income taxes 26,642 --
Foreign currency transaction loss 36,704 19,339
(Increase) decrease in accounts and notes receivable 148,360 (38,827)
(Increase) decrease in inventories 102,667 730,239
(Increase) decrease in refundable income taxes (3,617) 136,264
(Increase) decrease in prepaid expenses
and other current assets (365,621) (531,278)
(Increase) decrease in other assets (9,501) 9,209
Increase (decrease) in accounts payable and accrued expenses 1,113,548 413,280
Increase (decrease) in income taxes payable 410,933 212,403
----------- -----------
Net cash provided by operating activities 2,687,918 1,625,932
Investing activities:
Purchase of property, plant and equipment (152,572) (41,441)
----------- -----------
Net cash used in investing activities (152,572) (41,441)
Financing activities:
Proceeds from long-term borrowings 64,150 --
Principal payments on long-term borrowings and line of credit (130,364) (1,083,337)
Principal payments under capital lease obligations (17,687) (42,322)
Proceeds from sale of preferred stock 1,500,000 --
Repayment of loans by officers and directors 9,074 3,910
Proceeds from options exercised 108,820 --
Purchase of stock for treasury (213,180) (62,345)
----------- -----------
Net cash provided by (used in) financing activities 1,320,813 (1,184,094)
Effect of exchange rate changes on cash and cash equivalents 24,027 22,621
----------- -----------
Increase in cash and cash equivalents 3,880,186 423,018
Cash and cash equivalents at beginning of period 3,437,966 1,258,821
----------- -----------
Cash and cash equivalents at end of period $ 7,318,152 $ 1,681,839
=========== ===========
|
See notes to financial statements
Reliv' International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
March 31, 2003
Note 1-- Basis of Presentation
The accompanying unaudited consolidated financial statements and notes thereto have been prepared in accordance with the instructions to Form 10-Q and reflect all adjustments which management believes necessary (which include only normal recurring accruals) to present fairly the financial position, results of operations and cash flows. These statements, however, do not include all information and footnotes necessary for a complete presentation of financial position, results of operations and cash flows in conformity with accounting principles generally accepted in the United States. Interim results may not necessarily be indicative of results that may be expected for any other interim period or for the year as a whole. These financial statements should be read in conjunction with the audited consolidated financial statements and footnotes included in the annual report on Form 10-K for the year ended December 31, 2002, filed March 28, 2003 with the Securities and Exchange Commission.
Note 2-- Reclassifications
Certain prior year amounts have been reclassified to conform to the current year presentation.
Note 3-- Earnings per Share
The following table sets forth the computation of basic and diluted earnings per share:
Three months ended March 31
2003 2002
---------------------------
Numerator:
Numerator for basic and diluted
earnings (loss) per share--net income (loss) $ 977,562 $ 458,544
Denominator:
Denominator per basic earnings per
share--weighted average shares 11,958,000 11,367,000
Effect of dilutive securities:
Employee stock options and other warrants 1,358,000 531,000
---------------------------
Denominator for diluted earnings per
share--adjusted weighted average shares 13,316,000 11,898,000
===========================
Basic earnings per share $ 0.08 $ 0.04
===========================
Diluted earnings per share $ 0.07 $ 0.04
===========================
|
2002 earnings per share have been restated for the stock dividend declared in September 2002.
Note 4-- Comprehensive Income
Total comprehensive income was $1,016,339 for the three months ended March 31, 2003 and $527,851 for the three months ended March 31, 2002. The Company's only component of other comprehensive income is the foreign currency translation adjustment.
Reliv' International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
March 31, 2003
Note 5-- Stock-Based Compensation
The Company accounts for its stock-based compensation plans under the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. No stock-based employee compensation cost is reflected in net income, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation, to stock-based employee compensation.
Three months ended March 31
2003 2002
---------------------------
Net income, as reported $977,562 $458,544
Deduct: Total stock-based employee compensation
expense determined under fair value based method
for all awards, net of related tax effects 65,300 50,167
---------------------
Pro forma net income $912,262 $408,377
=====================
Earnings per share:
Basic--as reported $ 0.08 $ 0.04
=====================
Basic--pro forma $ 0.08 $ 0.04
=====================
Diluted--as reported $ 0.07 $ 0.04
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Diluted--pro forma $ 0.07 $ 0.03
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Note 6-- Sale of Preferred Stock
On March 31, 2003, the Company sold an aggregate of 150,000 shares of preferred stock to three officer/directors. The securities, called "Series A Preferred Stock" ("Preferred Stock"), were designated by the Company's Board of Directors out of the 3,000,000 previously authorized shares of $.001 par value preferred stock. Each of the officer/directors (collectively "the Preferred Stockholders") purchased 50,000 shares of Preferred Stock for $500,000 ($10.00 per share).
The Preferred Stockholders are entitled to receive dividends at an annual rate of 6% of the shares' purchase price. These dividends shall accrue on a daily basis and are payable quarterly when declared by the Company's Board of Directors. All dividends on shares of Preferred Stock are cumulative.
Shares of Preferred Stock have no voting rights, and are convertible into 372,207 shares of the Company's $.001 par value common stock at a conversion price based upon the closing price of the Company's common stock on the NASDAQ Stock Market on the date of issuance. Shares of Preferred Stock are not eligible for conversion until January 1, 2006, may be redeemed at any time by the Company, and have a liquidation preference over common stock to the extent of the purchase price of the preferred stock and accrued dividends.
Note 7-- Related Party Tranactions
In February 2003, the Company purchased 25,000 shares of the Company's common stock from an officer/director at a price of $3.895 per share. The total amount paid for the stock was $97,375.
EXHIBIT 3.1
CERTIFICATE OF DESIGNATIONS TO CREATE A
CLASS OF SERIES A PREFERRED
STOCK FOR RELIV INTERNATIONAL, INC.
Pursuant to the authority vested in the Board of Directors of Reliv International, Inc. (the "Corporation") by (i) Section 151 of Delaware General Corporation Law ("DGCL") and (ii) Article IV of the Corporation's Certificate of Incorporation, as amended April 12, 1999, a series of preferred stock of the Corporation is hereby created out of the authorized and unissued shares of the Corporation's capital stock, such series to be designated Series A Preferred Stock (the "Preferred Stock"). The number of shares of Preferred Stock created and designated in this Certificate of Designations is Two Hundred Ten Thousand (210,000) and said shares shall have a par value of $0.001 per share. The powers, designations, preferences and relative and other rights, and the qualifications, limitations and restrictions of said Preferred Stock are contained in a resolution of the Corporation's Board of Directors, which was adopted on March 20, 2003, and which states as follows:
RESOLVED, that the Corporation is authorized to issue up to 210,000 shares of Preferred Stock in a private placement thereof, said offered stock to be classified as Series A Preferred Stock (the "Series A Preferred Stock");
RESOLVED FURTHER, the Corporation is authorized to issue and deliver such shares of Series A Preferred Stock to Robert L. Montgomery, David G. Kreher and Stephen M. Merrick, each officers and directors of this Corporation, at the price of $10.00 per share, in such amounts as each of them shall subscribe for the purchase thereof;
RESOLVED FURTHER, that the authorization of the issuance and sale of shares of Series A Preferred Stock to the foregoing individuals is authorized and approved by a unanimous approval of the members of the Board of Directors of this Corporation, excluding each of such individuals who have abstained from the consideration or vote with respect to such matter, and further has been determined by such members of the Board of Directors to be fair to this Corporation and in the best interests of this Corporation;
RESOLVED FURTHER, that the powers, rights, preferences, restrictions and terms of the Series A Preferred Stock shall be as follow
1. Dividends
1.01 Preferred Stock Dividends. The holders of shares of Series A Preferred Stock shall be entitled to receive dividends per share at the rate per annum of six percent (6%), on the Purchase Price per share, payable out of funds legally available therefore. The "Purchase Price" shall mean the amount per share actually paid by the purchaser thereof for the purchase of shares of the Series A Preferred Stock when issued. Such dividends shall be payable only when, as, and if declared by the Board of Directors.
Such dividends shall accrue from day to day whether or not earned or declared. If declared, all dividends which shall have accrued shall be payable on the first day of March, June, September and December for so long as any shares of the Preferred Stock shall remain outstanding. If at any time the Corporation shall pay less than the total amount of dividends due on outstanding Series A Preferred Stock at the time of the payment, such payment shall be distributed among the holders of the Series A Preferred Stock so that an equal amount shall be paid with respect to each outstanding share of Series A Preferred Stock.
1.02 Dividends Cumulative. Dividends on each share of the Series A Preferred Stock shall be cumulative from the date of issuance of such share, whether or not at the time such dividend shall accrue or become due or at any other time there shall be profits, surplus or other funds of the Corporation legally available for the payment of dividends. Dividends shall accrue on each share of Series A Preferred Stock from and including the date of issuance of such share to and including the date upon which the holder of such share shall have converted such share to Common stock in accordance with Section 4 hereof or such share shall have been purchased and redeemed by the Corporation.
1.03 Restriction on Common Stock Dividends. So long as any dividends due with respect to the Series A Preferred Stock shall remain unpaid, no dividends whatsoever shall be declared or paid upon, nor shall any distribution be made upon or with respect to, any shares of Common Stock.
2. Liquidation.
2.01 Rights Upon Liquidation. In the event of any voluntary or involuntary liquidation (whether complete or partial), dissolution or winding up of the Corporation, the holders of Series A Preferred Stock shall be entitled to be paid out of the assets of the Corporation available for distribution to its stockholders, whether from capital, surplus or earnings, an amount in cash per share equal to the Liquidating Value. No distribution shall be made on any Common Stock of the Corporation by reason of any voluntary or involuntary liquidation (whether complete or partial), dissolution or winding up of the Corporation unless each holder shall have received the full amount of the Liquidating Value with respect to all shares of Series A Preferred Stock held by such holder. The consolidation or merger of the Corporation into or with any other entity or entities which results in the exchange of outstanding shares of the Corporation for securities or other consideration issued or paid or caused to be issued or paid by any such entity or affiliate thereof, and the sale or transfer by the Corporation of all or substantially all its assets, shall be deemed to be a liquidation, dissolution or winding up of the Corporation within the meaning of the provisions of this Section 2.01.
2.02 Liquidating Value. The Liquidating Value with respect to each share of Series A Preferred Stock outstanding shall be the sum of (i) the Purchase Price and (ii) all unpaid dividends accrued thereon to the date of final distribution.
2.03 Allocation of Liquidation Payments. If upon any dissolution, liquidation (whether complete or partial), or winding up of the Corporation, the assets of the Corporation available for distribution to the stockholders shall be insufficient to pay to the holders of outstanding Series A Preferred Stock the full amount to which they shall be entitled pursuant to Section 2.01 hereof, each holder of Series A Preferred Stock shall be entitled to receive an amount equal to the product derived by multiplying the total amount available for distribution by a fraction the numerator of which shall be the number of shares of Series A Preferred Stock held by such person and the denominator of which the total number of shares of Series A Preferred Stock then outstanding.
3. Voting Rights. The Series A Preferred Stock shall be non-voting
4. Conversion Rights.
4.01 Conversion Rights and Procedure.
(a) Right of Conversion. On and after January 1, 2006, each holder of shares of Series A Preferred Stock shall be entitled to exercise all or a portion of the conversion rights provided herein at any time or from time to time.
(b) Rate of Conversion. Upon exercise of the right of conversion hereunder with respect to shares of Series A Preferred Stock, the holder thereof shall be entitled to receive that number of shares of Common Stock determined by dividing the Conversion Value per share of a share of Series A Preferred Stock multiplied by the number of shares of Series A Preferred Stock converted by the Conversion Price of the Common Stock. The "Conversion Value" per share of each share of Preferred Stock shall be the Purchase Price of such share. Subject to adjustment as provided in Section 4.02, the "Conversion Price" per share of Common Stock shall be the price of the last trade on the NASDAQ Stock Market for the Common Stock of the Company on the date that the shares of Series A Preferred Stock, as to which the right of conversion shall be exercised, were issued. The shares of Common Stock to be issued upon conversion of shares of Series A Preferred Stock as provided herein are referred to herein as "Conversion Shares."
(c) Method of Conversion. A holder of shares of Series A Preferred Stock shall exercise such holder's conversion rights hereunder by (i) delivering or mailing to the Corporation, by certified or registered mail, return receipt requested, a written notice stating such holder's intention to exercise such rights and specifying the number of shares of Series A Preferred Stock as to which the conversion right is exercised and (ii) accompanying such notice with a certificate or certificates representing such shares duly endorsed in blank or accompanied with a stock power duly endorsed in blank. Subject to the right of the Corporation to redeem the shares of Series A Preferred Stock as to which the holder shall seek conversion, the right of exercise shall be deemed to have been exercised 30 days from the date that such notice shall be delivered to the Corporation or mailed in accordance with this section ("Exercise Time").
(d) Right of Redemption. Notwithstanding the delivery of a notice by a holder to convert shares of Series A Preferred Stock held by such holder, the Corporation shall have the right to redeem all of the shares of such holder as to which the holder shall have given notice of conversion, by giving notice to such holder of the Corporation's intention to redeem such shares within 30 days after the date the holder shall have given notice of the holder's intention to convert such shares to Common Stock. In the event that the Corporation shall give such notice and effect the redemption of such shares of Series A Preferred Stock, such shares shall not be converted to Common Stock, but shall be redeemed. The redemption of such shares of Series A Preferred Stock shall be in accordance with Section 5 hereof; provided that the Corporation shall be entitled to redeem solely those shares of Series A Preferred Stock as to which a notice of conversion has been given and shall not be obligated to allocate the redemption among the holders of Series A Preferred Stock.
(d) Delivery of Certificates. Certificates for Conversion Shares shall be delivered to the holder named therein within 15 days after the Exercise Time. Unless all of the Series A Preferred Stock evidenced by the certificate delivered to the Corporation shall have been converted or redeemed, the Corporation shall within such 15 day period prepare a new certificate, substantially identical to that surrendered, representing the balance of the shares of Series A Preferred Stock formerly represented by the certificate which shall not have been converted or redeemed and shall within the said 15 day period deliver such certificate to the person designated as the holder thereof.
(e) The Corporation covenants and agrees that:
(i) At all times during which any shares of Series A Preferred Stock are issued and outstanding, the Corporation shall reserve and maintain a sufficient number of authorized and unissued shares of Common Stock sufficient to issue shares of Common Stock upon conversion of all of the then issued and outstanding Series A Preferred Stock, including additional shares which may become issuable by reason of an adjustment in the conversion rate pursuant to Section 4.02 hereof. The Corporation shall not issue any shares of Common Stock if, after the issuance thereof, the number of authorized and unissued shares of Common Stock would then be insufficient to issue shares of Common Stock to holders of the then issued and outstanding Series A Preferred Stock if all of such holders were to exercise their rights of conversion hereunder;
(ii) The Conversion Shares issuable upon any conversion of any shares of Series A Preferred Stock shall be deemed to have been issued to the person exercising such conversion privilege at the Exercise Time, and the person exercising such conversion privilege shall be deemed for all purposes to have become the record holder of such Common Stock shares at the Exercise Time.
(iii) All Conversion Shares which may be issued upon any conversion of any shares of Series A Preferred Stock will, upon issuance, be fully paid and non-assessable and free from all taxes, liens and charges with respect to the issue thereof.
4.02 Anti-dilution Provisions.
(a) Anti-dilution; Initial Conversion Price. In order to prevent dilution of the rights granted hereunder, the Conversion Price per share of Common Stock and the number of shares of Common Stock which a holder of Series A Preferred Stock shall be entitled to receive upon exercise of the conversion rights herein shall be subject to adjustment from time to time in accordance with this Section 4.02. For purposes of this section the initial Conversion Price of each share of Common Stock shall be as set forth in Section 4.01(b) hereof. The Conversion Price per share of Common Stock shall be the initial Conversion Price, as adjusted from time to time pursuant to the provisions of this Section 4.02.
(b) Adjustment of Conversion Price; Resulting Adjustment of Number of Shares of Common Stock Upon Conversion. The initial Conversion Price per share of Common Stock shall be subject to adjustment from time to time as hereinafter provided (such price or such price as last adjusted pursuant to the terms hereof, as the case may be, is herein called the "Conversion Price"). Upon each adjustment of the Conversion Price, the holder of shares of Series A Preferred Stock shall be entitled to receive upon exercise of the conversion rights provided herein, at the Conversion Price resulting from such adjustment, the number of shares of Common Stock obtained by multiplying the number of shares of Series A Preferred Stock converted by the Conversion Value per share of Series A Preferred Stock and dividing the product thereof by the Conversion Price resulting from such adjustment.
(c) Adjustment of Conversion Price for Stock Dividend, Stock Split,
Consolidation or Recapitalization If the Company increases or decreases
the number of its issued and outstanding shares of Common Stock, or
changes in any way the rights and privileges of such shares, by means of
(i) the payment of a stock dividend or the making of any other
distribution on such shares payable in its Common Stock, (ii) a forward or
reverse stock split or other subdivision of shares, (iii) a consolidation
or combination involving its Common Stock, or (iv) a reclassification or
recapitalization involving its Common Stock, then the Conversion Price in
effect at the time of such action and the number of Conversion Shares to
be received by a holder of the Series A Preferred Stock shall be
proportionately adjusted so that the numbers, rights, and privileges
relating to the Conversion Shares to be received upon conversion shall be
increased, decreased or changed in like manner, for the same aggregate
Conversion Value, as if the Conversion Shares which would have been issued
upon conversion immediately prior to the event at issue had been issued,
outstanding, fully paid and nonassessable at the time of that event. As an
example, if the Company were to declare a two-for-one forward stock split
or a 100 percent stock dividend, then the number of Conversion Shares to
be issued on conversion would be doubled and the Conversion Price would be
reduced by 50 percent.
These adjustments are intended to result in the rights of a holder of Series A Preferred Stock not being diluted by the stock split or stock dividend and the holder paying the same aggregate Conversion Value.
5. Redemption.
5.01 Right to Redeem. The Corporation shall have the right, at any time or from time to time, to redeem all or any part of the then outstanding shares of Series A Preferred Stock expressed by resolution of its Board of Directors, in the manner prescribed in this Section 5, provided that in (i) any single redemption, the Corporation shall redeem not less than 10,000 shares of Series A Preferred Stock and (ii) the Corporation shall not be entitled to redeem shares of Series A Preferred Stock unless at or prior to the Redemption Date the Corporation shall have paid to all holders of Series A Preferred Stock all dividends on the Series A Preferred Stock accrued to the last day of the calendar quarter immediately preceding the Redemption Date.
5.02 Redemption Notice. Before making any redemption of Preferred Stock hereunder, the Corporation shall mail by certified or registered mail, return receipt requested, to each record holder of any Series A Preferred Stock at the address shown on the Corporation's records, a written notice ('Redemption Notice") stating: (i) the number of shares of Series A Preferred Stock held by record by such holder which the Corporation proposes to redeem, (ii) the date (herein called the "Redemption Date") on which the Corporation proposes to pay the Redemption Price for the shares to be redeemed, (iii) the Redemption Price which is to be paid for each share repurchased; and (iv) the place at which the shares to be redeemed may be surrendered in exchange for the Redemption Price for such shares. Upon the mailing of a Redemption Notice, subject to the right of the holder to convert the shares to be redeemed to Common Stock as provided herein, the Corporation shall have the right, and shall become obligated, to redeem the Series A Preferred Stock specified in such notice on the date specified in such notice as the Redemption Date. Each Redemption Notice shall be mailed at least 35 days before the Redemption Date, provided that if the Corporation fails to pay the Redemption Price on such date, the Redemption Date shall be the date on which the Corporation actually pays the Redemption Price.
5.03 Allocation of Redeemed Shares. With respect to any redemption, the Corporation shall designate, by resolution of its Board of Directors, the aggregate number of shares of Series A Preferred Stock to be redeemed. The number of shares of Series A Preferred Stock to be redeemed from each holder thereof in any redemption shall be determined by multiplying the aggregate number of shares of Series A Preferred Stock to be redeemed by a fraction, the numerator of which shall be the total number of shares of Series A Preferred Stock held by such holder and the denominator of which shall be the total number of shares of Series A Preferred Stock then outstanding.
5.04 Redemption Price.
(a) For each share of Series A Preferred Stock which shall be redeemed by the Corporation at any time, the Corporation shall be obligated to pay to the holder of such share an amount (herein called the "Redemption Price") equal to the Purchase Price of such share. The Corporation shall be obligated to pay on any Redemption Date both the Redemption Price for each share redeemed and all dividends which shall have accrued (computed on a daily basis) on each share redeemed to and including the Redemption Date and which shall not previously have been paid. Such payments which the Corporation shall be obligated to make on any Redemption Date shall be deemed to become "due" for all purposes of this Section regardless of whether the Corporation shall be able or legally permitted to make such payments on the Redemption Date.
(b) Each holder of Series A Preferred Stock shall be entitled to receive on or at any time after the Redemption Date the full Redemption Price, plus accrued dividends, for each share of Series A Preferred Stock held by such holder which the Corporation shall be obligated to redeem on such Redemption Date upon surrender by such holder at the Corporation's principal office of the certificate representing such share duly endorsed in blank or accompanied by appropriate form of assignment duly endorsed in blank. After payment by the Corporation of the full Redemption price for any share of Series A Preferred Stock redeemed, plus accrued dividends thereon, all rights of the holder of such share shall (whether or note the certificate representing such share shall have been surrendered for cancellation) cease and terminate with respect to such share.
RESOLVED FURTHER, that the Corporation is not permitted to authorize or issue shares of its capital stock with rights more preferential than those held by holders of Series A Preferred Stock while any shares thereof shall remain outstanding;
RESOLVED FURTHER, that the Corporation shall at all times have a sufficient number of shares of Common Stock authorized for issue in the event that the shares of Series A Preferred Stock are to be converted;
RESOLVED FURTHER, that the shares of Series A Preferred Stock shall have no preemptive or other subscription rights;
RESOLVED FURTHER, that the officers of the Corporation are hereby authorized to take all necessary and required action to effectuate the foregoing.
EXECUTED AND ACKNOWLEDGED
By: /s/ Stephen M. Merrick
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Stephen M. Merrick, Senior Vice President
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