RELIV INTERNATIONAL INC (Form: 10-K, Received: 03/27/2020 12:45:17)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

____________

FORM 10-K

ANNUAL REPORT PURSUANT TO

SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

(Mark One)

☒	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2019
OR
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________to_________

Commission File Number

000-19932

RELIV’ INTERNATIONAL, INC.

(Exact name of Registrant as specified in its charter)

Delaware		371172197
(State or other jurisdiction of		(I.R.S. Employer Identification Number)
incorporation or organization)

136 Chesterfield Industrial Boulevard
Chesterfield, Missouri		63005
(Address of principal executive offices)		(Zip Code)

(636) 537-9715

Registrant’s telephone number, including area code

Securities registered pursuant to Sections 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.001	RELV	NASDAQ Capital Market

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☑

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☑

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☐

Smaller reporting company ☑ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

Based upon the closing price of $4.22 per share of the registrant’s common stock as reported on the NASDAQ Global Select Market on June 28, 2019, the aggregate market value of the common stock held by non-affiliates of the registrant was approximately $4.5 million. (The determination of stock ownership by non-affiliates was made solely for the purpose of responding to the requirements of the Form and the registrant is not bound by this determination for any other purpose.)

The number of shares outstanding of the registrant’s common stock as of March 23, 2020 was 1,746,499 (excluding treasury shares).

Documents Incorporated by Reference

NONE

1. Nature of Business and Significant Accounting Policies

Nature of Business

Reliv’ International, Inc. (the Company) produces a proprietary line of nutritional supplements addressing basic nutrition, specific wellness needs, weight management, and sports nutrition. These products are sold by subsidiaries of the Company to a sales force of independent distributors of the Company that sell products directly to consumers. The Company and its subsidiaries sell products to distributors throughout the United States and in Australia, Austria, Canada, France, Germany, Ireland, Malaysia, Mexico, the Netherlands, New Zealand, the Philippines, and the United Kingdom.

Basis of Presentation

The consolidated financial statements include the accounts of the Company and its foreign and domestic subsidiaries. All significant intercompany accounts and transactions have been eliminated.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Reclassifications

Certain previously reported 2018 amounts have been reclassified to conform to the current year presentation.

Cash Equivalents

Our policy is to consider the following as cash and cash equivalents: demand deposits and short-term investments with a maturity of three months or less when purchased.

Property, Plant, and Equipment

Property, plant, and equipment are stated on the cost basis. Depreciation is computed using the straight-line or an accelerated method over the useful life of the related assets. Generally, computer equipment and software are depreciated over 3 to 5 years, office and other equipment over 7 years, and real property over 39 years.

F-8

Reliv’ International, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

1. Nature of Business and Significant Accounting Policies (continued)

Inventories

Inventories are valued at the lower of cost or market and are accounted for on a first-in, first-out basis. Effective January 1, 2019, finished goods inventories primarily consist of purchased products held for resale. Prior to 2019, finished goods inventories were primarily comprised of internally manufactured products consisting of the costs associated with raw materials, labor, and overhead. On a periodic basis, we review inventory levels, as compared to future demand requirements and the shelf life of the various products. Based on this review, we record inventory write-downs when necessary.

Sales aids and promotional materials inventories represent distributor kits, product brochures, and other sales and business development materials which are held for sale to distributors. Cost of the sales aids and promotional materials held for sale are capitalized as inventories and subsequently recorded to cost of goods sold upon recognition of revenue when sold to distributors. All other advertising and promotional costs are expensed when incurred.

Amortizable Intangible Assets

Intangible assets are recorded based on management’s determination of the fair value of the respective assets at the time of acquisition. Determining the fair value of intangible assets is judgmental and involves the use of significant estimates and assumptions of future company operations. Our fair value estimates and related asset lives are based on assumptions we believe to be reasonable but that are unpredictable and inherently uncertain. Actual future results may differ from these estimates.

Intangible assets estimated to have finite lives are amortized over their estimated economic life under the straight-line method; such method correlates to management’s estimate of the assets’ economic benefit. Based on management’s estimates at origination, these lives range from two to seventeen years. Related amortization expense is presented within Selling, General, and Administrative in the accompanying consolidated statements of net loss and comprehensive loss. As of December 31, 2019, remaining lives of intangible assets range from five to ten years.

Concentrations of Risk

Effective January 1, 2019, we have entered into outsourcing agreements with Nutracom LLC (“Nutracom”) to manufacture our nutritional and dietary supplements and for warehousing and fulfillment services for the U.S. distribution of our products. Nutracom has also issued promissory notes to us for the acquisition of our manufacturing and fulfillment operations. Any inability of Nutracom to deliver these contracted services or to repay the promissory notes could adversely impact our future operating results and valuation of our Nutracom equity investment. See Note 2 and Note 3 for further discussion of our relationship with Nutracom.

F-9

Reliv’ International, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

1. Nature of Business and Significant Accounting Policies (continued)

Variable Interest Entities (VIE) - Unconsolidated

Effective January 1, 2019, we have a financial interest in Nutracom. If we are the primary beneficiary of a VIE, we are required to consolidate the VIE in our consolidated financial statements. To determine if we are the primary beneficiary, we evaluate whether we have the power to direct the activities that most significantly impact the VIE’s economic performance and the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. Our VIE evaluation requires significant assumptions and judgments.

We do not have the power to direct the significant activities of Nutracom, primarily because we do not have governance rights. We also do not participate in the annual profits or losses of Nutracom. Therefore, we do not consolidate the financial results of Nutracom in our consolidated financial statements. We account for our financial interest in Nutracom as an equity investment measured at cost minus impairment, if any. A cost method equity investment is subject to periodic impairment review using the other-than-temporary impairment model, which considers the severity and duration of a decline in fair value below cost and our ability and intent to hold the investment for a sufficient period of time to allow for recovery.

See Note 2 and Note 3 for further information on our financial relationship with Nutracom.

Revenue Recognition

We recognize revenue from product sales under a five step process with our independent distributors (including customers) when there is a legally enforceable contract, the rights of the parties are identified, the contract has commercial substance, and collectability of the contract consideration is probable. Product sales revenue (principally nutritional and dietary supplements) and commission expenses are recorded when control is transferred to the independent distributors, which occurs at the time of shipment. Generally, net sales reflect product sales less the distributor discount of 20 percent to 40 percent of the suggested retail price. We present distributor royalty and commission expense as an operating expense, rather than a reduction to net sales, as these payments are not made to the purchasing distributor. At point of sale, we receive payment by credit card, personal check, or guaranteed funds for contracts from independent distributors and make related commission payments no later than the following month.

We recognize the performance obligation for membership fees-type revenue over the membership term of generally twelve months. We receive payment for membership fees revenue at the beginning of the membership term and recognize membership fees revenue on a straight-line basis in correlation with the completion of our performance obligation under the membership term. Our remaining unearned membership fees obligation is reported as a deferred revenue liability.

F-10

Reliv’ International, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

1. Nature of Business and Significant Accounting Policies (continued)

Revenue Recognition (continued)

We record freight income as a component of net sales and record freight costs as a component of cost of goods sold. Total sales do not include sales tax as we consider ourselves a pass-through conduit for collecting and remitting applicable sales taxes.

Other revenue is defined in the lessor accounting sections within this Note 1 and in Note 9.

Actual and estimated sales returns are classified as a reduction of net sales. We estimate and accrue a reserve for product returns based on our return policy and historical experience. Our product returns policy allows for distributors to return product only upon termination of his or her distributorship. Allowable returns are limited to saleable product which was purchased within twelve months of the termination for a refund of 100% of the original purchase price less any distributor royalties and commissions received relating to the original purchase of the returned products. For the year to date periods ending December 31, 2019 and 2018, total returns as a percent of net sales were approximately 0.08% and 0.17%, respectively.

Basic and Diluted Earnings (Loss) per Share

Basic earnings (loss) per common share are computed using the weighted average number of common shares outstanding during the year. Diluted earnings (loss) per common share are computed using the weighted average number of common shares and potential dilutive common shares that were outstanding during the period. Potential dilutive common shares consist of outstanding stock options, outstanding stock warrants, and convertible preferred stock. See Note 11 for additional information regarding earnings (loss) per share.

Foreign Currency Translation and Transaction Gains or Losses

All balance sheet accounts have been translated using the exchange rates in effect at the balance sheet date. Statements of net income (loss) amounts have been translated using the average exchange rate for the year. The gains and losses resulting from the changes in exchange rates from year to year have been reported in other comprehensive income (loss). The foreign currency translation adjustment is the only component of accumulated other comprehensive loss. If applicable, foreign currency translation adjustments exclude income tax expense (benefit) as certain of our investments in non-U.S. subsidiaries are deemed to be reinvested for an indefinite period of time. Foreign currency transaction gains (losses) were $(11,450) and $32,577 for 2019 and 2018, respectively.

Fair Value Measurements

FASB ASC Topic 820, “Fair Value Measurements and Disclosures,” defines fair value, establishes a framework for measuring fair value, and requires disclosures about fair value measurements required under other accounting pronouncements. See Note 7 for further discussion.

F-11

Reliv’ International, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

1. Nature of Business and Significant Accounting Policies (continued)

Stock-Based Compensation

We have stock-based incentive plans under which we may grant stock option, restricted stock, and unrestricted stock awards. We recognize stock-based compensation expense based on the grant date fair value of the award and the related vesting terms. Depending upon the characteristics of the option, the fair value of stock-based awards is primarily determined using the Black-Scholes model, which incorporates assumptions and management estimates including the risk-free interest rate, expected volatility, expected option life, and dividend yield. We recognize forfeitures when incurred. See Note 10 for additional information.

Income Taxes

The provision for income taxes is computed using the liability method. The primary differences between financial statement and taxable income result from financial statement accruals and reserves and differences between depreciation and amortization for book and tax purposes.

Unrecognized tax benefits are accounted for as required by FASB ASC Topic 740 which prescribes a more likely than not threshold for financial statement presentation and measurement of a tax position taken or expected to be taken in a tax return. See Note 13 for further discussion.

Advertising

Costs of sales aids and promotional materials are capitalized as inventories. All other advertising and promotional costs are expensed when incurred. Advertising expenses were $16,800 and $19,300 in 2019 and 2018, respectively.

Research and Development Expenses

Research and development expenses, which are charged to selling, general, and administrative expenses as incurred, were $185,000 and $473,000 in 2019 and 2018, respectively.

New Accounting Pronouncement – Leases Adopted in 2019

On January 1, 2019, we adopted Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842) (including subsequent issued lease-related ASU’s).

Lessee Accounting

We applied the new lease accounting standard to all lessee operating leases using the prospective transition method. Under this method, prior financial reporting periods are not restated. The adoption of the new lease accounting standard resulted in the recording of assets and obligations of our operating leases of approximately $451,000 and $457,000, respectively, on our consolidated balance sheets. Certain amounts previously recorded for prepaid and accrued rent associated with historical operating leases were reclassified to the newly captioned Operating lease right-to-use assets.

F-12

Reliv’ International, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

1. Nature of Business and Significant Accounting Policies (continued)

New Accounting Pronouncement – Leases Adopted in 2019 (continued)

At adoption, we used the new lease accounting standard’s package of practical expedients permitted under the transition guidance that allowed us to not reassess: (a) whether any expired or existing contracts are or contain leases, (b) lease classification for any expired or existing leases, and (c) initial direct costs for any expired or existing leases. We also used the lease standard’s practical expedient that allows lessees to treat the lease and implicit non-lease components of our leases as a single lease component and we do not record on the balance sheet leases with an initial term of twelve months or less. Fixed lease expense on all of our operating leases is recognized on a straight-line basis over the contractual lease term, including our estimate of any renewal or early termination lease terms. Operating lease expense is presented within Selling, General and Administrative expense in our operating results.

Operating lease liabilities and related operating lease right-to-use assets are recognized at commencement date of the lease based on the present value of lease payments over the lease term. When leases do not provide an implicit discount rate, we use a country specific incremental borrowing rate based upon the lease term.

See Note 9 for additional lease disclosures.

Lessor Accounting – Other Revenue

Other revenue consists of revenue derived from our leasing a portion of our headquarters building to Nutracom. We recognize lessor rent revenue on a straight-line basis over the term of the lease. As part of this straight-line methodology, the cumulative rental billings may be greater or less than the financial period’s recognized revenue; such timing differences are recognized on the balance sheet as an accrued other liability or an unbilled rent revenue receivable.

Also included in other revenue are billings to the tenant for its share of the facility’s common area costs such as real estate taxes, maintenance, and utilities. These same common area costs plus the tenant’s share of the facilities’ depreciation are recorded as cost of goods sold.

See Note 2 and Note 3 for further information on our financial relationship with Nutracom. See Note 9 for further information on our leases.

F-13

Reliv’ International, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

1. Nature of Business and Significant Accounting Policies (continued)

New Accounting Pronouncements – Not Yet Adopted

In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-13, Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments which requires entities to use a current lifetime expected credit loss methodology to measure impairments of certain financial assets. Using this methodology may result in earlier recognition of losses than under the current incurred loss approach, which requires waiting to recognize a loss until it is probable of having been incurred. There are other provisions within the standard that affect how impairments of other financial assets may be recorded and presented, and that expand disclosures. This standard will be effective for our interim and annual financial periods beginning January 1, 2023, with early adoption permitted. Adoption of this standard must be applied on a modified retrospective basis. We are evaluating the potential impact of this standard on our consolidated financial statements and related disclosures.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes which adds new guidance for accounting for tax law changes, year-to-date losses in interim periods, and certain franchise-type taxes, as well as other changes to simplify accounting for income taxes. This standard will be effective for our interim and annual financial periods beginning January 1, 2021, with early adoption permitted. The adoption methodologies for this standard vary; subject to the specific provision(s) within the standard being adopted. We are evaluating the potential impact of this standard on our consolidated financial statements and related disclosures.

Going Concern

We have incurred operating losses, declining net sales, and negative net cash flows over our most recent five years. Our management estimates that these unfavorable trends are more likely than not to continue for the foreseeable future, and as a result, we will require additional financial support to fund our operations and execute our business plan. As of December 31, 2019, we had $1,630,779 in cash and cash equivalents which may not be sufficient to fund our planned operations through one year subsequent to the date of the issuance of these financial statements, and accordingly, there is substantial doubt about our ability to continue as a going concern. The analysis used to determine our ability to continue as a going concern does not include cash sources outside of our direct control that our management expects to be available within the next twelve months.

F-14

Reliv’ International, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

1. Nature of Business and Significant Accounting Policies (continued)

Going Concern (continued)

We may not be able to obtain sufficient additional funding through monetizing certain of our existing assets, sourcing additional borrowings, and issuing additional equity, or any other means, and if we are able to do so, these available sources of funds may not be on satisfactory terms. Our ability to raise additional capital in the equity markets, should we choose to do so, is dependent on a number of factors, including, but not limited to, the market demand for our common stock, which itself is subject to a number of business risks and uncertainties, as well as the uncertainty that we would be able to raise such additional capital at a price or on terms that we believe are favorable.

We have taken several steps in 2019 which we believe will result in improvement to our financial position, operating results, and cash flows. We have borrowed $500,000 of our available $750,000 revolving line of credit balance. In addition, our lender has agreed to extend the available $750,000 revolving line of credit agreement to April 28, 2020.

As detailed in Note 2 of these consolidated financial statements, on January 1, 2019, we sold the assets previously used by us in our manufacturing operations to Nutracom. We financed the assets purchased by Nutracom from us under payment terms scheduled to provide incoming funds to us of $100,000 or more per year. We have also entered into an agreement for Nutracom to lease a significant portion of our headquarters building. Our management believes that these transactions with Nutracom will be favorable to our financial position, operating results, and cash flows; however, there are risks and uncertainties which arise from these Nutracom transactions and their impact to our operations.

Should the aforementioned changes to our operations not provide sufficient cash flow improvement or should we be unable to obtain sufficient additional capital or borrowings, we may have to engage in any or all of the following activities: (i) seek to monetize our headquarters building via traditional bank lending or a sale and leaseback-type transaction; (ii) seek to monetize the note receivable from a distributor; (iii) modify our distributor promotions, incentives, and other activities; (iv) cease operations in certain geographic regions, and (v) reduce employee compensation and benefits.

These actions may have a material adverse impact on our ability to achieve certain of our planned objectives. Even if we are able to source additional funding, we may be forced to significantly reduce our operations or shut down our operations if our business operating performance does not improve. These consolidated financial statements have been prepared on a going concern basis and do not include any adjustments to the amounts and classification of assets and liabilities that may be necessary in the event we can no longer continue as a going concern.

F-15

Reliv’ International, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

2. Sale of Manufacturing Operations’ Assets

On January 1, 2019, we entered into a Purchase Agreement with Nutracom pursuant to which Nutracom purchased the following assets used by us in our manufacturing operations:

●

Inventories (sold at cost of $1.56 million) and,

●

Machinery and other equipment with a net book value of $565,000 (sold for $1 million; gain on disposal of $435,000).

Nutracom was formed by our manufacturing operations management which included former officers of the Company. Employees of our manufacturing operations were offered employment by Nutracom.

Prior to its approval of the transaction, our Board of Directors formed a special committee consisting of the Board’s independent directors to review the transaction. To assist in its review, the special committee engaged a qualified third-party expert to opine a fairness opinion on the transaction and related agreements as detailed below.

Concurrently with the execution of the Purchase Agreement, we entered into several agreements with Nutracom including a product supply agreement for a term of seven years, a fulfillment agreement, and a facility lease agreement whereby Nutracom will lease manufacturing, warehouse, and certain office space of our headquarters building from us for a term of seven years, with a Nutracom option for an additional five-year term. Annual lease amounts range from $193,000 to $410,000 per year over the seven-year term.

Nutracom provided the following consideration to us for the manufacturing operations and related identified assets and agreements:

●

$1 million secured promissory note, seven-year term, fixed interest rate of 5.5%, principal and interest payable monthly. (See June 1, 2019 note modification within this Note 2).

●

$764,344 unsecured promissory note, seven-year term, fixed interest rate of 7.0%, interest only payable for the first two years with monthly payment of principal and interest thereafter under a ten-year amortization schedule. The face value of the unsecured note includes the first year’s rent due us under the facility lease agreement. (See October 1, 2019 note modification within this Note 2).

●

Nutracom management transferred to us its ownership of 99,200 shares of our common stock valued at $540,144.

●

Nutracom issued to us a non-voting Class B 15% equity membership interest in Nutracom, LLC. The Class B interest does not share in any profits or losses from operations of Nutracom. As defined within the Nutracom Operating Agreement, upon any merger, consolidation, disposition, or liquidation of Nutracom, the Class B equity membership interest converts to a Class A equity membership interest.

●

Commencing January 1, 2020, our Class B interest will be entitled to receive a percentage, (ranging from 1.0% to 1.25%) of Nutracom’s annual revenues (excluding Nutracom’s revenues from sales to us).

F-16

Reliv’ International, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

2. Sale of Manufacturing Operations’ Assets (continued)

Our non-voting Class B 15% equity membership interest in Nutracom was valued by the aforementioned third-party expert at $505,000. As our non-voting membership interest does not participate in the management of Nutracom, nor do we share in any Nutracom operating profits or losses, we are accounting for our Nutracom equity investment under the cost method.

At December 31, 2018, we presented inventories and machinery and other equipment sold to Nutracom as a current asset under the caption of “Assets held for sale” in the accompanying consolidated balance sheets. We have accounted for the Nutracom aforementioned transactions in our first quarter 2019 financial results.

Promissory Note Modification – June 1, 2019

On June 1, 2019, we entered into an Agreement with Nutracom to modify the Secured Promissory Note originally issued to us by Nutracom on January 1, 2019, as follows:

●

Effective June 1, 2019, the outstanding balance of the Secured Promissory Note was reduced by $500,000 to $460,583 with a corresponding reduction of $500,000 to our outstanding vendor obligation due Nutracom under our ongoing product supply agreement.

●

The $460,583 remaining Secured Promissory Note was exchanged with Nutracom for a newly issued June 1, 2019 Nutracom Unsecured Promissory Note for the same amount under the following terms: fixed interest rate of 6.0% with interest only payable monthly through December 2020. Beginning January 1, 2021, principal and interest of $8,904 will be payable monthly for 60 months.

Promissory Note Modification – October 1, 2019

In December 2019, we entered into an Agreement with Nutracom to modify the Unsecured Promissory Note originally issued to us by Nutracom on January 1, 2019, as follows:

●

Effective October 1, 2019, the outstanding balance of the January 1, 2019 Unsecured Promissory Note of $764,344 was reduced to $711,163. The reduction of $53,181 in the Note’s balance represents Nutracom’s return to us of now-expired inventories originally acquired by Nutracom from us on January 1, 2019.

●

The $711,163 remaining balance of the January 1, 2019 Unsecured Promissory Note was exchanged with Nutracom for a newly issued October 1, 2019 Nutracom Unsecured Promissory Note for the same amount under the following terms: fixed interest rate of 7.0% with interest only payable monthly through December 2020. Beginning January 1, 2021, principal and interest of $8,257, under a ten-year amortization schedule, will be payable monthly for 60 months, with a balloon payment of all remaining principal and interest due January 1, 2026.

F-17

Reliv’ International, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

3. Related Parties

The following summarizes our related party activities with Nutracom and a significant distributor of the Company.

	December 31		December 31
Assets and liabilities - related parties	2019		2018

Notes & accounts receivables and deposits - current
Deposits with Nutracom for inventory	$	941,154	$	-
Note receivable - distributor (Note 12)		130,629		123,040
Other miscellaneous receivables		27,445		28,182
	$	1,099,228	$	151,222


Notes & accounts receivables - non-current
Note receivable - distributor (Note 12)	$	1,151,443	$	1,282,072
Note receivable - Nutracom unsecured DTD 6/1/2019		460,583		-
Note receivable - Nutracom unsecured DTD 10/1/2019		711,163		-
Unbilled receivables: Straight line rent revenue greater than rental billings		95,732		-
	$	2,418,921	$	1,282,072


Equity investment in Nutracom	$	505,000		-

Liability captions with Nutracom balances included therein
Trade accounts payable and other accrued expenses	$	430,907		-

The following table presents scheduled principal payments to be received on the distributor and Nutracom promissory notes receivable:

2020	$	130,629
2021		271,037
2022		288,294
2023		306,655
2024		326,190
Thereafter		1,131,013
	$	2,453,818

F-18

Reliv’ International, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

3. Related Parties (continued)

	Year ended December 31
Revenue and expense - related parties	2019		2018

Other revenue	$	783,462	$	-

Selling, general and administrative expense:
Fullfillment & professional fees		622,169		-

Interest income on promissory notes		171,812		66,519
Gain on sale of fixed assets		434,549		-

Finished goods inventory purchased from Nutracom	$	5,756,000		-

At December 31, 2019, we had $1.41 million in commitments (net of deposits) to purchase finished goods inventory from Nutracom.

Supplementary Disclosure of Cash Flows Information:

We incurred the following 2019 year noncash investing and financing transactions relating to our transactions with Nutracom:

	2019

January 1, 2019
Sale of fixed assets	$	1,000,000
Sale of inventories		1,559,488
First year building rental received in advance		250,000
Acquire company common stock for treasury		540,144
Acquire equity investment in Nutracom		505,000
Secured promissory note received		1,000,000
Unsecured promissory note received		764,344

June 1, 2019
Secured promissory note receivable balance decreased; applied as reduction to outstanding trade accounts payable		500,000
Unsecured promissory note received in exchange for remaining secured promissory note balance and other considerations		460,583

October 1, 2019
Unsecured promissory note receivable balance decreased; applied to return of inventories previously sold under January 1, 2019 Purchase Agreement		53,181
Unsecured promissory note received in exchange for balance remaining on unsecured promissory note issued January 1, 2019		711,163

F-19

Reliv’ International, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

9. Leases

Lessee

We lease certain office facilities, storage, and equipment. These leases have varying terms, are generally one to five years in length, and certain real estate leases have options to extend or early terminate. Several of our operating leases are subject to annual changes in the Consumer Price or similar indexes (CPI). The changes to the lease payment due to CPI changes are treated as variable lease payments and recognized in the period in which the obligation for those payments was incurred.

F-23

Reliv’ International, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

9. Leases (continued)

The following represents the maturity of our operating lease liabilities as of December 31, 2019:

2020	$	248,425
2021		74,550
2022		27,013
2023		5,768
2024		-
Thereafter		-
Total operating lease payments		355,756
Less: imputed interest		(15,405	)
Total operating lease liabilities	$	340,351

Operating lease expense:	Year ended
	December 31
	2019
Fixed	$	264,131
Variable		17,361
Short-term		24,500
Total	$	305,992

Rental expense under operating leases, including short-term operating leases was $305,992 and $326,724 for the years ended December 31, 2019 and 2018, respectively.

As of December 31, 2019, our operating leases have a weighted-average remaining lease term of 1.75 years and a weighted-average discount rate of 5.2%. Cash paid for amounts included in the measurement of operating lease liabilities was approximately $263,700 for the year ended December 31, 2019.

Lessor – Other Revenue

Other revenue consists of revenue derived from our leasing a portion of our headquarters building to Nutracom effective January 1, 2019. The leased space, encompassing manufacturing, warehouse, and certain office space, is for a term of seven years, with a tenant option for an additional five-year term. Annual lease amounts range from $193,000 to $410,000 over the seven-year term.

We recognize lessor rent revenue on a straight-line basis over the term of the lease. As part of this straight-line methodology, the cumulative rental billings may be greater or less than the financial period’s recognized revenue; such timing differences are recognized on the balance sheet as an accrued other liability or an unbilled rent revenue receivable.

F-24

Reliv’ International, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

9. Leases (continued)

Also included in other revenue are billings to the tenant for its share of the facility’s common area costs such as real estate taxes, maintenance, and utilities; totaling approximately $437,700 for the year ended December 31, 2019. These same common area costs plus the tenant’s share of the facilities’ depreciation are recorded as cost of goods sold.

The following table details lessor’s estimated straight-line rent revenue over the remaining six-year lease term as compared with fixed rent amounts under the lease agreement.

	Estimated
	Straight-line		Lease Agreement
	Rent Revenue		Fixed Rent

2020	$	345,732	$	192,900
2021		345,732		385,800
2022		345,732		385,800
2023		345,732		385,800
2024		345,732		409,913
Thereafter		345,733		409,912
Total	$	2,074,393	$	2,170,125

13. Income Taxes

Compenents of income (loss) before income taxes:	Year ended December 31
	2019			2018

United States	$	(332,929	)	$	(1,694,301	)
Foreign		356,572			(111,040	)
	$	23,643		$	(1,805,341	)

Compenents of provision (benefit) for income taxes:	Year ended December 31
	2019			2018
Current:
Federal	$	(2,000	)	$	(3,000	)
State		5,000			4,000
Foreign		465,000			97,000
Total current		468,000			98,000

Deferred:
Federal		-			-
State		-			-
Foreign		-			-
Total deferred		-			-
	$	468,000		$	98,000

During the fiscal years of 2016 through 2019, we determined that it was more likely than not that losses generated in the U.S. and certain foreign jurisdictions will not be realized. As a result, we recorded a valuation allowance on all of our domestic and foreign deferred tax assets. Accordingly, the 2019 and 2018 income tax provisions include the impact of recording a full deferred tax asset valuation allowance, net, of approximately $91,000 and $186,000, respectively, against the annual losses generated from a U.S. tax perspective

The effective income tax rate percentage was not meaningful for the year ended December 31, 2019 and was (5.4)% for the year ended December 31, 2018. The income tax provision amounts primarily represent estimated income taxes for one of our foreign subsidiaries and certain U.S. states, plus the current year settlement of several foreign tax audits.

F-28

Reliv’ International, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

13. Income Taxes (continued)

The provision (benefit) for income taxes is different from the amounts computed by applying the United States federal statutory income tax rate of 21% for the years ended December 31, 2019 and 2018, respectively. The reasons for these differences are as follows:

	Year ended December 31
	2019		2018

Income taxes at U.S. statutory rate	$	5,000	$	(379,000	)
State income taxes, net of federal benefit		8,000		7,000
Higher effective taxes on earnings in foreign countries		77,000		38,000
Foreign corporate income taxes		51,000		97,000
Foreign income tax audit settlements		154,000		-
Life insurance settlement		-		118,000
GILTI		71,000		34,000
Nondeductible meals and entertainment expense		7,000		9,000
Valuation allowance, net		91,000		186,000
Other		4,000		(12,000	)
	$	468,000	$	98,000

The components of the deferred tax assets and liabilities, and the related tax effects of each temporary difference at December 31, 2019 and 2018, are as follows:

	2019			2018
Deferred tax assets:
Inventory obsolescence reserve	$	41,000		$	53,000
Deferred revenue		54,000			91,000
Organization costs		117,000			117,000
Deferred compensation		-			97,000
Depreciation and amortization		33,000			2,000
Operating lease liabilities		76,000			-
Miscellaneous accrued expenses		20,000			23,000
Domestic net operating loss carryforwards		649,000			451,000
Foreign net operating loss carryforwards		3,311,000			3,118,000
Valuation allowance		(4,117,000	)		(3,845,000	)
		184,000			107,000
Deferred tax liabilities:
Operating lease right-to-use assets		77,000			-
Foreign currency exchange		107,000			107,000
		184,000			107,000
Net deferred tax assets (liabilities)	$	-		$	-

F-29

Reliv’ International, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

13. Income Taxes (continued)

We have a deferred tax asset relating to domestic federal net operating loss carryforwards of approximately $649,000 at December 31, 2019 of which approximately $464,000 will expire between 2036 and 2038. We have a deferred tax asset of $3,311,000 at December 31, 2019 relating to foreign net operating loss carryforwards in various jurisdictions which principally do not expire. At December 31, 2019, we have recorded a full valuation allowance against all domestic and foreign net operating loss carryforward balances as it is more likely than not that this asset will not be realized.

The United States Tax Cuts and Jobs Act (TCJA) was enacted in December 2017, which significantly changed U.S. tax law, principally by permanently reducing the U.S. federal statutory rate to 21% effective January 1, 2018, implementing a territorial tax system, and imposing a repatriation tax on deemed repatriated earnings of foreign subsidiaries. Under the TCJA’s repatriation tax, our cumulative amount of unremitted foreign earnings and related tax was immaterial.

The TCJA introduced a new tax on global intangible low-taxed income (“GILTI”) effective as of January 1, 2018. Our policy is to treat GILTI as a period cost when incurred.

At December 31, 2019 and 2018, we had $30,000 and $32,000, respectively, of cumulative unrecognized tax benefits, of which only the net amount of $19,000 would impact the effective income tax rate if recognized.

The aggregate changes in the balance of net unrecognized tax benefits were as follows:

	2019			2018

Beginning of year	$	22,000		$	26,000
Settlements and effective settlements with tax authorities		-			-
Lapse of statute of limitations		(5,000	)		(7,000	)
Decrease to tax positions taken during prior periods		(3,000	)		(3,000	)
Increase to tax positions taken during current period		5,000			6,000
End of year	$	19,000		$	22,000

We have applied applicable guidance relating to accounting for uncertainty in income taxes. Reserves for uncertainty in income taxes are adjusted quarterly in light of changing facts and circumstances, such as the progress of tax audits, case law, and emerging legislation. The primary difference between gross unrecognized tax benefits and net unrecognized tax benefits is the U.S. federal tax benefit from state tax deductions. It is our practice to recognize interest and / or penalties related to income tax matters in income tax expense.

At December 31, 2019 and 2018, we had $10,000 accrued for interest and penalties within the balance of unrecognized tax benefits. Our unrecognized tax benefits balance is included within other noncurrent liabilities on the consolidated balance sheets.

F-30

Reliv’ International, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

13. Income Taxes (continued)

Our domestic and foreign subsidiaries are subject to U.S. federal income tax as well as income tax of multiple state and foreign jurisdictions. We have concluded all U.S. federal income tax matters for years through 2015 and concluded years through 2015 with our primary state jurisdiction. During the third quarter of 2019, the U.S. Internal Revenue Service (IRS) commenced an examination of our 2017 U.S. federal income tax return.

Foreign Tax Audit Settlements

For the year ended December 31, 2019, our operating results include $154,000 and $25,000 for income tax expense and various net general administrative and interest expenses, respectively, in settlement of the following foreign tax audits.

Tax Year 2017 Settlement

In mid-2019, one of our foreign subsidiaries received a local country tax year 2017 audit assessment alleging deficiencies of approximately $217,000 plus interest. In the third quarter of 2019, we paid the local taxing authority approximately $96,000 in final settlement of the 2017 tax year audit.

Tax Years 2004 – 2006 Settlements

One of our foreign subsidiaries has been under local country audit for greater than ten years for alleged deficiencies (totaling approximately $800,000 plus interest at 20% per annum) in value-added tax (VAT) and withholding tax for the years 2004 through 2006. In 2011, we made good faith deposits of approximately $173,000 to the local tax authority under the tax agency’s administrative judicial resolution process.

In May 2018, we received a formal notice of denial of one of our appeals under the tax agency’s administrative judicial resolution process; however, we continued to pursue other available legal processes as we continued to maintain our position that we were not liable for the majority of the alleged tax deficiencies. As of December 31, 2018, our estimated reserve (net of deposits) for these matters was approximately $172,500. In November 2019, under a tax amnesty program, we paid the local taxing authority approximately $164,000 in final settlement of tax years 2005 and 2006.

In December 2019, we have an agreement in principle with the local taxing authority to settle the tax year 2004 audit. At December 31, 2019, we have an estimated full reserve of approximately $84,000 for resolution of this matter.

F-31

Reliv’ International, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Part I

Item No. 1	Business	1
Item No. 2	Properties	4
Item No. 3	Legal Proceedings	4

Part II

Item No. 5	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	5
Item No. 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations	6
Item No. 8	Financial Statements and Supplementary Data	17
Item No. 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	17
Item No. 9A	Controls and Procedures	17
Item No. 9B	Other Information	17

Part III

Item No. 10	Directors, Executive Officers and Corporate Governance	18
Item No. 11	Executive Compensation	23
Item No. 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	27
Item No. 13	Certain Relationships and Related Transactions, and Director Independence	28
Item No. 14	Principal Accounting Fees and Services	28

Part IV

Item No. 15	Exhibits and Financial Statement Schedules	29
Item No. 16	Form 10-K Summary	29

Product	Patent Expiration Date

ReversAge	May 2021
ProVantage	December 2030
GlucAffect	November 2029
24K	February 2032
CardioSentials	January 2029

Location	Nature of Use	Square Feet		Owned/Leased

Chesterfield, MO, USA	corporate headquarters/call center/manufacturing/warehouse		126,000	Owned
Seven Hills (Sydney), Australia	central office/call center		1,000	Leased
Oakville, Ontario, Canada	warehouse/distribution		2,100	Leased
Guadalajara, Mexico	central office/warehouse/call center		2,300	Leased
Makati City (Manila), Philippines	central office/ warehouse/distribution		6,300	Leased
Redditch (Birmingham), England, UK	central office/ warehouse/distribution		11,500	Leased
Subang Jaya (Kuala Lumpur), Malaysia	central office/call center		300	Leased

	High		Low		Dividend

Year Ending December 31, 2019
Fourth Quarter	$	4.87	$	3.45	$	-
Third Quarter		4.66		3.95		-
Second Quarter		5.89		3.80		-
First Quarter		4.62		3.85		-

Year Ending December 31, 2018
Fourth Quarter	$	5.06	$	3.83	$	-
Third Quarter		5.26		4.62		-
Second Quarter		5.35		4.15		-
First Quarter		6.24		4.60		-

Net Sales by Market	Year Ended December 31,
(in thousands)	2019					2018					Change from prior year
	Amount		% of Net Sales			Amount		% of Net Sales			Amount			%
	(dollars in thousands)
United States	$	25,747		73.4	%	$	27,673		76.6	%	$	(1,926	)		(7.0	)%
Australia/New Zealand		595		1.7			732		2.0			(137	)		(18.7	)
Canada		617		1.8			719		2.0			(102	)		(14.2	)
Mexico		577		1.6			474		1.3			103			21.7
Europe		3,225		9.2			3,973		11.0			(748	)		(18.8	)
Asia		4,294		12.3			2,545		7.1			1,749			68.7
Consolidated total	$	35,055		100.0	%	$	36,116		100.0	%	$	(1,061	)		(2.9	)%

	As of 12/31/2019
	Retail Customers		Preferred Customers		Active Distributors		Total Customers and Distributors		Master Affiliates and Above

United States		3,500		1,500		17,580		22,580		2,110
Australia/New Zealand		50		210		660		920		80
Canada		90		30		470		590		60
Mexico		20		100		1,160		1,280		100
Europe		740		690		1,650		3,080		330
Asia		1,910		6,790		4,210		12,910		620

Consolidated Total		6,310		9,320		25,730		41,360		3,300

	As of 12/31/2018
	Retail Customers		Preferred Customers		Active Distributors		Total Customers and Distributors		Master Affiliates and Above

United States		4,190		1,470		18,340		24,000		2,340
Australia/New Zealand		50		240		720		1,010		90
Canada		100		30		530		660		80
Mexico		10		110		860		980		90
Europe		550		1,120		1,860		3,530		390
Asia		2,820		2,090		3,000		7,910		380

Consolidated Total		7,720		5,060		25,310		38,090		3,370

	Change in %
	Retail Customers			Preferred Customers			Active Distributors			Total Customers and Distributors			Master Affiliates and Above

United States		-16.5	%		2.0	%		-4.1	%		-5.9	%		-9.8	%
Australia/New Zealand		0.0	%		-12.5	%		-8.3	%		-8.9	%		-11.1	%
Canada		-10.0	%		0.0	%		-11.3	%		-10.6	%		-25.0	%
Mexico		100.0	%		-9.1	%		34.9	%		30.6	%		11.1	%
Europe		34.5	%		-38.4	%		-11.3	%		-12.7	%		-15.4	%
Asia		-32.3	%		224.9	%		40.3	%		63.2	%		63.2	%

Consolidated Total		-18.3	%		84.2	%		1.7	%		8.6	%		-2.1	%

Distributor Activity by Market
	United States			AUS/NZ			Canada			Mexico			Europe			Asia			International-- Total
Sales in USD (in 000's):
Year ended 12/31/2019	$	25,747		$	595		$	617		$	577		$	3,225		$	4,294		$	9,308
Year ended 12/31/2018	$	27,673		$	732		$	719		$	474		$	3,973		$	2,545		$	8,443

% change in sales-2019 vs. 2018:
Change in GAAP sales in USD		-7.0	%		-18.7	%		-14.2	%		21.7	%		-18.8	%		68.7	%		10.3	%
Due to currency fluctuation		-			-5.7	%		-2.1	%		-0.3	%		-3.7	%		2.6	%		-1.6	%
Sales in local currency (non-GAAP)		-7.0	%		-13.0	%		-12.1	%		22.0	%		-15.1	%		66.1	%		11.9	%

# of new Preferred customers-2019		1,239			71			26			83			469			5,815			6,464
# of new Preferred customers-2018		1,352			97			25			112			682			1,459			2,375
% change		-8.4	%		-26.8	%		4.0	%		-25.9	%		-31.2	%		298.6	%		172.2	%

# of new distributors-2019		2,849			52			49			707			455			2,420			3,683
# of new distributors-2018		2,344			49			81			446			576			1,583			2,735
% change		21.5	%		6.1	%		-39.5	%		58.5	%		-21.0	%		52.9	%		34.7	%

# of new Master Affiliates-2019		448			11			7			39			67			428			552
# of new Master Affiliates-2018		330			9			14			50			86			171			330
% change		35.8	%		22.2	%		-50.0	%		-22.0	%		-22.1	%		150.3	%		67.3	%

# of Product orders-2019		101,663			3,774			2,109			4,061			10,856			41,414			62,214
# of Product orders-2018		107,731			4,452			2,418			3,496			13,000			29,791			53,157
% change		-5.6	%		-15.2	%		-12.8	%		16.2	%		-16.5	%		39.0	%		17.0	%

Statement of Operations data
(amounts in thousands)	2019						2018
	Amount			% of net sales			Amount			% of net sales

Net sales	$	35,055			100.0	%	$	36,116			100.0	%

Costs and expenses:
Cost of goods sold		9,557			27.3			9,710			26.9
Distributor royalties and commissions		11,259			32.1			11,749			32.6
Selling, general and administrative		14,798			42.2			16,521			45.7

Loss from operations		(559	)		(1.6	)		(1,864	)		(5.2	)
Interest income		178			0.5			93			0.3
Interest expense		(47	)		(0.1	)		(96	)		(0.3	)
Other income		17			0.1			63			0.2
Gain (loss) of sale of fixed assets		435			1.2			(1	)		-

Income (loss) before income taxes		24			0.1			(1,805	)		(5.0	)
Provision for income taxes		468			1.4			98			0.3

Net loss	$	(444	)		(1.3	)%	$	(1,903	)		(5.3	)%

Loss per common share-Basic	$	(0.25	)				$	(1.03	)
Loss per common share-Diluted	$	(0.25	)				$	(1.03	)

Name	Age	Position
Robert L. Montgomery	77	Director, Chairman of the Board
Ryan A. Montgomery	46	Director, Chief Executive Officer
John M. Klimek	60	Director
Robert M. Henry	72	Director
Paul J. Adams	59	Director

Name and Principal Position	Year	Salary		Bonus		Option Awards (1)		Non-Equity Incentive Plan Compensation (2)		All Other Compensation (3, 4, 5, 6, 7)		Total

Robert L. Montgomery	2019	$	490,000	$	-	$	-	$	-	$	48,268	$	538,268
Chairman and former Chief	2018	$	559,516	$	-	$	-	$	-	$	43,745	$	603,261
Executive Officer

Ryan A. Montgomery	2019	$	211,366	$	-	$	-	$	-	$	7,528	$	218,894
Chief Executive Officer	2018	$	180,690	$	-	$	-	$	-	$	16,600	$	197,290

Thomas W. Pinnock	2019	$	144,000	$	-	$	-	$	-	$	198,380	$	342,380
President of Sales and	2018	$	144,000	$	-	$	-	$	-	$	192,749	$	336,749
Marketing

Name	Fees Earned or Paid in Cash ($)		Option Awards⁽¹⁾		All Other Compensation ($)		Total ($)

John M. Klimek	$	50,500	$	-	$	117,000	$	167,500
Robert M. Henry		43,500		-		6,000		49,500
Paul J. Adams		25,000		-		-		25,000

Name of beneficial owner⁽¹⁾	Amount of shares beneficially owned		Percentage of Shares Beneficially Owned

Directors and Named Executive Officers:

Robert L. Montgomery⁽²⁾		313,559		17.95	%
Ryan A. Montgomery		112,033		6.41	%
John M. Klimek		---		*
Robert M. Henry		143		*
Paul J. Adams		---		*
Thomas W. Pinnock		5,000		*
R. Scott Montgomery		126,450		7. 24	%

All Directors, nominees and officers as a group (7 persons)		557,185		31. 90	%

Other 5% or greater shareholders:

Renaissance Technologies LLC ⁽³⁾		106,880		6.12	%
800 Third Avenue
New York, NY 10022

Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights	Weighted-average exercise price of outstanding options, warrants and rights	Number of securities remaining available for future issuance under equity compensation plans

Equity compensation plans approved by security holders	-	-	200,000⁽¹⁾

Equity compensation plans not approved by security holders	-	-	-

Total	-	-	200,000

	2019		2018

Audit Fees ⁽¹⁾	$	297,000	$	325,000
Audit-Related Fees ⁽²⁾		40,000		---
Tax Fees ⁽³⁾		113,000		108,000
Total Fees	$	450,000	$	433,000

By:	/s/ Ryan A. Montgomery
	Ryan A. Montgomery, Chief Executive Officer

By:	/s/ Robert L. Montgomery
	Robert L. Montgomery, Chairman of the Board of Directors

By:	/s/ Steven D. Albright
	Steven D. Albright, Chief Financial Officer (and accounting officer)

Consolidated Financial Statements:
Report of Independent Registered Public Accounting Firm	F-1
Consolidated Balance Sheets as of December 31, 2019 and 2018	F-2
Consolidated Statements of Net Loss and Comprehensive Loss for the years ended December 31, 2019 and 2018	F-4
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2019 and 2018	F-5
Consolidated Statements of Cash Flows for the years ended December 31, 2019 and 2018	F-6
Notes to Consolidated Financial Statements – December 31, 2019	F-8

										Accumulated
					Additional					Other
	Common Stock				Paid-In		Accumulated			Comprehensive			Treasury Stock
	Shares		Amount		Capital		Deficit			Loss			Shares			Amount			Total
Balance at December 31, 2017		2,110,013	$	2,110	$	30,598,920	$	(10,040,229	)	$	(857,654	)		264,853		$	(5,338,560	)	$	14,364,587
Net loss		-		-		-		(1,903,341	)		-			-			-			(1,903,341	)
Other comprehensive income (loss):
Foreign currency translation adjustment		-		-		-		-			(124,441	)		-			-			(124,441	)
Total comprehensive loss																				(2,027,782	)
Adoption of Accounting Standards Update 2014-09		-		-		-		(367,568	)		-			-			-			(367,568	)
Stock-based compensation		-		-		23,627		-			-			-			-			23,627
Balance at December 31, 2018		2,110,013		2,110		30,622,547		(12,311,138	)		(982,095	)		264,853			(5,338,560	)		11,992,864
Net loss		-		-		-		(444,357	)		-			-			-			(444,357	)
Other comprehensive income (loss):
Foreign currency translation adjustment		-		-		-		-			44,775			-			-			44,775
Total comprehensive loss																				(399,582	)
Treasury stock acquired		-		-		-		-			-			99,200			(540,144	)		(540,144	)
Other		-		-		-		-			-			(489	)		27,281			27,281
Stock-based compensation		-		-		21,224		-			-			-			-			21,224
Balance at December 31, 2019		2,110,013	$	2,110	$	30,643,771	$	(12,755,495	)	$	(937,320	)		363,564		$	(5,851,423	)	$	11,101,643

	2019		2018

Land and land improvements	$	905,190	$	905,190
Building		10,145,005		9,964,523
Office and other equipment		1,237,142		1,337,911
Computer equipment and software		2,240,063		2,212,935
		14,527,400		14,420,559
Less accumulated depreciation		10,086,560		9,722,009
	$	4,440,840	$	4,698,550

	2019		2018

Trade payables	$	1,565,198	$	2,105,814
Distributors' commissions		891,492		1,030,948
Sales taxes		139,542		195,802
Deferred revenue		322,261		337,234
Payroll and payroll taxes		212,716		210,288
	$	3,131,209	$	3,880,086

					Accumulated
	Gross Carrying Amount				Amortization
	2019		2018		2019		2018

Distributorship and related agreements	$	2,060,000	$	2,060,000	$	1,547,290	$	1,437,423
Lunasin technology license		1,954,661		1,954,661		745,094		628,975
	$	4,014,661	$	4,014,661	$	2,292,384	$	2,066,398

	Intangible
	Amortization

2020	$	226,000
2021		226,000
2022		226,000
2023		226,000
2024		189,000

	Carrying		Fair
Description	Amount		Value		Level 1		Level 2		Level 3

December 31, 2019
Revolving line of credit	$	500,000	$	500,000		-	$	500,000		-
Note receivable - distributor		1,282,072		1,400,000		-		1,400,000		-
Notes receivable - Nutracom		1,171,746		1,169,000		-		-	$	1,169,000


December 31, 2018
Note receivable - distributor	$	1,405,112	$	1,529,000		-	$	1,529,000		-
Marketable securities		339,000		339,000	$	339,000		-		-

	2019				2018
	Options		Weighted Avg. Exercise Price		Options			Weighted Avg. Exercise Price
Outstanding beginning of the year		81,426	$	7.77		140,424		$	7.85
Granted		-				-
Exercised		-				-
Expired and forfeited		-				(58,998	)		7.96
Outstanding at end of year		81,426	$	7.77		81,426		$	7.77

Exercisable at end of year		24,426	$	7.77		14,655		$	7.77

	2019		2018

Net sales to external customers
United States	$	25,747,158	$	27,673,352
Australia/New Zealand		595,349		732,227
Canada		616,556		718,560
Mexico		577,488		474,372
Europe ⁽¹⁾		3,224,971		3,972,381
Asia ⁽²⁾		4,293,793		2,544,849
Total net sales	$	35,055,315	$	36,115,741

Assets by area
United States	$	12,340,835	$	13,584,424
Australia/New Zealand		502,812		540,591
Canada		154,825		166,533
Mexico		223,238		179,713
Europe ⁽¹⁾		971,159		867,008
Asia ⁽²⁾		1,114,127		1,015,596
Total consolidated assets	$	15,306,996	$	16,353,865

(1)	Europe consists of United Kingdom, Ireland, France, Germany, Austria, and the Netherlands.
(2)	Asia consists of Philippines and Malaysia.

	2019		2018

Net sales by product category
Nutritional and dietary supplements	$	29,822,879	$	32,670,362
Other supplements		1,223,977		-
Sales aids, membership fees, and other		1,251,677		1,247,807
Freight income		1,973,320		2,197,572
Other revenue		783,462		-
Total net sales	$	35,055,315	$	36,115,741