UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________
FORM 10-Q
(Mark One)
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2015
March 31, 2016OR
¨ | 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 | incorporation or organization) | (I.R.S. Employer Identification Number) |
136 Chesterfield Industrial Boulevard | ||
Chesterfield, Missouri | 63005 | |
(Address of principal executive offices) | (Zip Code) |
(636) 537-9715
(Registrant’s telephone number, including area code)
Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þx No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company þx
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o¨ No þx
The number of shares outstanding of the Registrant’s common stock as of NovemberMay 2, 20152016 was 12,919,110 (excluding treasury shares).
INDEX
Part I – Financial Information | ||
Item No. 1 | Financial Statements (Unaudited) | 1 |
Item No. 2 | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 9 |
Item No. 4 | Controls and Procedures | |
Part II – Other Information | ||
Item No. 6 | Exhibits |
PART I -- FINANCIAL INFORMATION
Item No. 1 - Financial Statements
Reliv International, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
September 30 | December 31 | |||||||
2015 | 2014 | |||||||
(unaudited) | ||||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 3,158,965 | $ | 4,989,392 | ||||
Accounts receivable, less allowances of | ||||||||
$30,200 in 2015 and $26,300 in 2014 | 84,536 | 265,530 | ||||||
Accounts and note due from employees and distributors | 132,786 | 121,208 | ||||||
Inventories | ||||||||
Finished goods | 4,042,963 | 3,782,171 | ||||||
Raw materials | 1,438,039 | 1,216,031 | ||||||
Sales aids and promotional materials | 138,485 | 179,263 | ||||||
Total inventories | 5,619,487 | 5,177,465 | ||||||
Refundable income taxes | 472,157 | 257,577 | ||||||
Prepaid expenses and other current assets | 771,657 | 661,038 | ||||||
Deferred income taxes | 72,000 | 61,000 | ||||||
Total current assets | 10,311,588 | 11,533,210 | ||||||
Other assets | 272,682 | 295,929 | ||||||
Cash surrender value of life insurance | 2,823,160 | 2,747,944 | ||||||
Note receivable due from distributor | 1,656,449 | 1,732,982 | ||||||
Deferred income taxes | 714,000 | 686,000 | ||||||
Intangible assets, net | 2,723,179 | 2,925,775 | ||||||
Property, plant and equipment: | ||||||||
Land and land improvements | 893,735 | 883,563 | ||||||
Building | 9,951,393 | 9,966,748 | ||||||
Machinery & equipment | 4,350,849 | 4,355,040 | ||||||
Office equipment | 1,223,983 | 1,235,192 | ||||||
Computer equipment & software | 2,337,873 | 2,505,229 | ||||||
18,757,833 | 18,945,772 | |||||||
Less: Accumulated depreciation | 12,183,081 | 12,019,802 | ||||||
Net property, plant and equipment | 6,574,752 | 6,925,970 | ||||||
Total assets | $ | 25,075,810 | $ | 26,847,810 |
See notes to financial statements.
1 |
Reliv International, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
Reliv International, Inc. and Subsidiaries | ||||||||||||||||
Condensed Consolidated Balance Sheets | ||||||||||||||||
September 30 | December 31 | March 31 | December 31 | |||||||||||||
2015 | 2014 | 2016 | 2015 | |||||||||||||
(unaudited) | (unaudited) | |||||||||||||||
Liabilities and stockholders' equity | ||||||||||||||||
Current liabilities: | ||||||||||||||||
Accounts payable and accrued expenses: | ||||||||||||||||
Trade accounts payable and other accrued expenses | $ | 2,348,308 | $ | 2,026,198 | $ | 2,802,741 | $ | 1,859,716 | ||||||||
Distributors' commissions payable | 1,588,129 | 1,753,908 | 1,489,571 | 1,567,883 | ||||||||||||
Sales taxes payable | 225,884 | 292,188 | 218,958 | 232,996 | ||||||||||||
Payroll, payroll taxes, and incentive compensation payable | 324,539 | 1,114,763 | ||||||||||||||
Payroll and payroll taxes payable | 317,467 | 277,157 | ||||||||||||||
Total accounts payable and accrued expenses | 4,486,860 | 5,187,057 | 4,828,737 | 3,937,752 | ||||||||||||
Current portion of long-term debt | 813,560 | 697,423 | 749,850 | 781,505 | ||||||||||||
Total current liabilities | 5,300,420 | 5,884,480 | 5,578,587 | 4,719,257 | ||||||||||||
Noncurrent liabilities: | ||||||||||||||||
Revolving line of credit | - | 500,000 | ||||||||||||||
Long-term debt, less current portion | 3,279,589 | 3,047,267 | 3,041,230 | 3,159,575 | ||||||||||||
Deferred income taxes | 53,000 | 94,000 | ||||||||||||||
Other noncurrent liabilities | 377,825 | 418,785 | 389,354 | 405,705 | ||||||||||||
Total noncurrent liabilities | 3,657,414 | 3,966,052 | 3,483,584 | 3,659,280 | ||||||||||||
Stockholders' equity: | ||||||||||||||||
Preferred stock, par value $.001 per share; 3,000,000 | ||||||||||||||||
shares authorized; -0- shares issued and outstanding | ||||||||||||||||
in 2015 and 2014 | - | - | ||||||||||||||
Common stock, par value $.001 per share; 30,000,000 | ||||||||||||||||
authorized; 14,773,083 shares issued and 12,919,110 | ||||||||||||||||
shares outstanding as of 9/30/2015; 14,673,083 shares | ||||||||||||||||
issued and 12,819,110 shares outstanding as of 12/31/2014 | 14,773 | 14,673 | ||||||||||||||
Preferred stock, par value $.001 per share; 3,000,000 shares authorized; -0- shares issued and outstanding in 2016 and 2015 | - | - | ||||||||||||||
Common stock, par value $.001 per share; 30,000,000 authorized; 14,773,083 shares issued and 12,919,110 shares outstanding as of 3/31/2016; 14,773,083 shares issued and 12,919,110 shares outstanding as of 12/31/2015 | 14,773 | 14,773 | ||||||||||||||
Additional paid-in capital | 30,484,480 | 30,321,598 | 30,517,959 | 30,499,817 | ||||||||||||
Accumulated deficit | (8,453,145 | ) | (7,434,595 | ) | (8,702,922 | ) | (8,659,262 | ) | ||||||||
Accumulated other comprehensive loss: | ||||||||||||||||
Foreign currency translation adjustment | (589,572 | ) | (565,838 | ) | (708,824 | ) | (634,273 | ) | ||||||||
Treasury stock | (5,338,560 | ) | (5,338,560 | ) | (5,338,560 | ) | (5,338,560 | ) | ||||||||
Total stockholders' equity | 16,117,976 | 16,997,278 | 15,782,426 | 15,882,495 | ||||||||||||
Total liabilities and stockholders' equity | $ | 25,075,810 | $ | 26,847,810 | $ | 24,844,597 | $ | 24,261,032 |
See notes to financial statements.
2 |
Reliv International, Inc. and Subsidiaries | ||||||||
Condensed Consolidated Statements of Net | ||||||||
Income (Loss) and Comprehensive Income (Loss) | ||||||||
(unaudited) | Three months ended March 31 | |||||||
2016 | 2015 | |||||||
Product sales | $ | 12,042,561 | $ | 13,708,123 | ||||
Handling & freight income | 993,889 | 1,126,240 | ||||||
Net sales | 13,036,450 | 14,834,363 | ||||||
Costs and expenses: | ||||||||
Cost of products sold | 2,984,104 | 2,994,949 | ||||||
Distributor royalties and commissions | 4,624,375 | 5,280,747 | ||||||
Selling, general and administrative | 5,609,268 | 6,129,949 | ||||||
Total costs and expenses | 13,217,747 | 14,405,645 | ||||||
Income (loss) from operations | (181,297 | ) | 428,718 | |||||
Other income (expense): | ||||||||
Interest income | 27,357 | 30,382 | ||||||
Interest expense | (26,401 | ) | (23,939 | ) | ||||
Other income / (expense) | 113,681 | (170,714 | ) | |||||
Income (loss) before income taxes | (66,660 | ) | 264,447 | |||||
Provision (benefit) for income taxes | (23,000 | ) | 148,000 | |||||
Net income (loss) | $ | (43,660 | ) | $ | 116,447 | |||
Other comprehensive income (loss): | ||||||||
Foreign currency translation adjustment | (74,551 | ) | (23,387 | ) | ||||
Comprehensive income (loss) | $ | (118,211 | ) | $ | 93,060 | |||
Earnings (loss) per common share - Basic | $ | (0.00 | ) | $ | 0.01 | |||
Weighted average shares | 12,919,000 | 12,819,000 | ||||||
Earnings (loss) per common share - Diluted | $ | (0.00 | ) | $ | 0.01 | |||
Weighted average shares | 12,919,000 | 12,822,000 | ||||||
Cash dividends declared per common share | $ | - | $ | - |
Reliv International, Inc. and Subsidiaries
Condensed Consolidated Statements of Net
Income (Loss) and Comprehensive Income (Loss)
(unaudited) | Three months ended September 30 | Nine months ended September 30 | ||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
Product sales | $ | 11,250,271 | $ | 13,206,275 | $ | 36,401,384 | $ | 39,867,425 | ||||||||
Handling & freight income | 944,182 | 1,108,006 | 3,072,783 | 3,387,322 | ||||||||||||
Net sales | 12,194,453 | 14,314,281 | 39,474,167 | 43,254,747 | ||||||||||||
Costs and expenses: | ||||||||||||||||
Cost of products sold | 2,603,167 | 2,968,139 | 8,245,871 | 8,855,401 | ||||||||||||
Distributor royalties and commissions | 4,308,647 | 4,985,450 | 14,048,971 | 15,425,704 | ||||||||||||
Selling, general and administrative | 5,659,989 | 6,133,040 | 18,244,930 | 19,390,732 | ||||||||||||
Total costs and expenses | 12,571,803 | 14,086,629 | 40,539,772 | 43,671,837 | ||||||||||||
Income (loss) from operations | (377,350 | ) | 227,652 | (1,065,605 | ) | (417,090 | ) | |||||||||
Other income (expense): | ||||||||||||||||
Interest income | 28,536 | 31,736 | 88,991 | 100,008 | ||||||||||||
Interest expense | (36,814 | ) | (26,054 | ) | (87,502 | ) | (75,689 | ) | ||||||||
Other income / (expense) | (72,373 | ) | (60,372 | ) | (227,434 | ) | (53,983 | ) | ||||||||
Income (loss) before income taxes | (458,001 | ) | 172,962 | (1,291,550 | ) | (446,754 | ) | |||||||||
Provision (benefit) for income taxes | (169,000 | ) | 7,000 | (273,000 | ) | (173,000 | ) | |||||||||
Net income (loss) | $ | (289,001 | ) | $ | 165,962 | $ | (1,018,550 | ) | $ | (273,754 | ) | |||||
Other comprehensive income (loss): | ||||||||||||||||
Foreign currency translation adjustment | (72,673 | ) | (57,101 | ) | (23,734 | ) | (17,194 | ) | ||||||||
Comprehensive income (loss) | $ | (361,674 | ) | $ | 108,861 | $ | (1,042,284 | ) | $ | (290,948 | ) | |||||
Earnings (loss) per common share - Basic | $ | (0.02 | ) | $ | 0.01 | $ | (0.08 | ) | $ | (0.02 | ) | |||||
Weighted average shares | 12,919,000 | 12,666,000 | 12,853,000 | 12,666,000 | ||||||||||||
Earnings (loss) per common share - Diluted | $ | (0.02 | ) | $ | 0.01 | $ | (0.08 | ) | $ | (0.02 | ) | |||||
Weighted average shares | 12,919,000 | 12,750,000 | 12,853,000 | 12,666,000 | ||||||||||||
Cash dividends declared per common share | $ | - | $ | - | $ | - | $ | - |
See notes to financial statements.
3 |
Reliv International, Inc. and Subsidiaries
Reliv International, Inc. and Subsidiaries | ||||||||
Condensed Consolidated Statements of Cash Flows | ||||||||
(unaudited) | ||||||||
Three months ended March 31 | ||||||||
2016 | 2015 | |||||||
Operating activities: | ||||||||
Net income (loss) | $ | (43,660 | ) | $ | 116,447 | |||
Adjustments to reconcile net income (loss) to net cash provided by in operating activities: | ||||||||
Depreciation and amortization | 249,892 | 255,382 | ||||||
Stock-based compensation | 18,142 | 9,583 | ||||||
Non-cash life insurance policy accretion | (29,244 | ) | (25,072 | ) | ||||
Deferred income taxes | (20,000 | ) | 18,000 | |||||
Foreign currency transaction (gain)/loss | (100,053 | ) | 145,311 | |||||
(Increase) decrease in accounts receivable and accounts due from employees and distributors | 67,571 | 92,150 | ||||||
(Increase) decrease in inventories | 316,870 | (127,096 | ) | |||||
(Increase) decrease in refundable income taxes | (4,933 | ) | 130,978 | |||||
(Increase) decrease in prepaid expenses and other current assets | (605,781 | ) | (308,882 | ) | ||||
(Increase) decrease in other assets | 18,697 | (10,633 | ) | |||||
Increase (decrease) in accounts payable & accrued expenses and other noncurrent liabilities | 856,514 | 849,385 | ||||||
Net cash provided by operating activities | 724,015 | 1,145,553 | ||||||
Investing activities: | ||||||||
Proceeds from the sale of property, plant and equipment | - | 5,657 | ||||||
Purchase of property, plant and equipment | (9,905 | ) | (127,561 | ) | ||||
Payments received on distributor note receivable | 25,131 | 23,671 | ||||||
Net cash provided by (used in) investing activities | 15,226 | (98,233 | ) | |||||
Financing activities: | ||||||||
Principal payments on long-term borrowings | (143,618 | ) | (124,356 | ) | ||||
Net cash used in financing activities | (143,618 | ) | (124,356 | ) | ||||
Effect of exchange rate changes on cash and cash equivalents | 35,610 | (66,533 | ) | |||||
Increase (decrease) in cash and cash equivalents | 631,233 | 856,431 | ||||||
Cash and cash equivalents at beginning of period | 3,262,263 | 4,989,392 | ||||||
Cash and cash equivalents at end of period | $ | 3,893,496 | $ | 5,845,823 |
Condensed Consolidated Statements of Cash Flows
(unaudited)
Nine months ended September 30 | ||||||||
2015 | 2014 | |||||||
Operating activities: | ||||||||
Net loss | $ | (1,018,550 | ) | $ | (273,754 | ) | ||
Adjustments to reconcile net loss to | ||||||||
net cash used in operating activities: | ||||||||
Depreciation and amortization | 758,564 | 725,584 | ||||||
Stock-based compensation | 45,981 | 36,178 | ||||||
Non-cash life insurance policy accretion | (75,216 | ) | (66,248 | ) | ||||
Deferred income taxes | (89,000 | ) | (142,000 | ) | ||||
Foreign currency transaction (gain)/loss | 98,172 | 56,195 | ||||||
(Increase) decrease in accounts receivable and accounts due | ||||||||
from employees and distributors | 163,256 | (96,078 | ) | |||||
(Increase) decrease in inventories | (585,634 | ) | 79,760 | |||||
(Increase) decrease in refundable income taxes | (214,378 | ) | (234,219 | ) | ||||
(Increase) decrease in prepaid expenses | ||||||||
and other current assets | (123,423 | ) | (190,337 | ) | ||||
(Increase) decrease in other assets | 23,247 | (11,501 | ) | |||||
Increase (decrease) in income taxes payable | - | (199,558 | ) | |||||
Increase (decrease) in accounts payable & accrued expenses | ||||||||
and other noncurrent liabilities | (86,860 | ) | (403,554 | ) | ||||
Net cash used in operating activities | (1,103,841 | ) | (719,532 | ) | ||||
Investing activities: | ||||||||
Proceeds from the sale of property, plant and equipment | 7,181 | 1,200 | ||||||
Purchase of property, plant and equipment | (224,719 | ) | (511,227 | ) | ||||
Payments received on distributor note receivable | 72,088 | 67,900 | ||||||
Payment of life insurance premiums | - | (252,250 | ) | |||||
Net cash used in investing activities | (145,450 | ) | (694,377 | ) | ||||
Financing activities: | ||||||||
Proceeds from line of credit borrowings | - | 500,000 | ||||||
Repayment of line of credit borrowings | (500,000 | ) | - | |||||
Proceeds from term loan borrowings | 3,249,501 | - | ||||||
Principal payments on long-term borrowings | (3,334,552 | ) | (508,899 | ) | ||||
Net cash used in financing activities | (585,051 | ) | (8,899 | ) | ||||
Effect of exchange rate changes on cash and cash equivalents | 3,915 | (55,391 | ) | |||||
Increase (decrease) in cash and cash equivalents | (1,830,427 | ) | (1,478,199 | ) | ||||
Cash and cash equivalents at beginning of period | 4,989,392 | 6,656,798 | ||||||
Cash and cash equivalents at end of period | $ | 3,158,965 | $ | 5,178,599 | ||||
Supplementary disclosure of cash flow information: | ||||||||
Noncash financing transactions (Note 5): | ||||||||
Issuance of promissory notes | $ | 424,000 | $ | - | ||||
Issuance of company common stock | $ | 117,000 | $ | - |
See notes to financial statements.
4 |
Reliv International, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
September 30, 2015March 31, 2016
Note 1-- | Accounting Policies |
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements and notes thereto have been prepared in accordance with the instructions to Form 10-Q and reflect all adjustments (which primarily include normal recurring accruals) which management believes are necessary to present fairly the financial position, results of operations and cash flows. These statements, however, do not include all information and footnotes necessary for a complete presentation of financial position, results of operations and cash flows in conformity with accounting principles generally accepted in the United States. Interim results may not necessarily be indicative of results that may be expected for any other interim period or for the year as a whole. These financial statements should be read in conjunction with the audited consolidated financial statements and footnotes included in the annual report on Form 10-K for the year ended December 31, 2014,2015, filed March 24, 20152016 with the Securities and Exchange Commission.
Certain reclassifications have been made to 2014 amounts within the condensed consolidated statements of cash flows in order to conform to the current year presentation.
Note 2-- | Basic and Diluted Earnings (Loss) per Share |
Basic earnings (loss) per common share is computed using the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per share is computed using the weighted average number of common shares and potential dilutive common shares that were outstanding during the period. Potential dilutive common shares consist of outstanding stock options, outstanding stock warrants, and convertible preferred stock.
The following table sets forth the computation of basic and diluted earnings (loss) per share:
Three months ended September 30 | Nine months ended September 30 | |||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
Numerator: | ||||||||||||||||
Net income (loss) | $ | (289,001 | ) | $ | 165,962 | $ | (1,018,550 | ) | $ | (273,754 | ) | |||||
Denominator: | ||||||||||||||||
Denominator for basic earnings (loss) per | ||||||||||||||||
share--weighted average shares | 12,919,000 | 12,666,000 | 12,853,000 | 12,666,000 | ||||||||||||
Dilutive effect of employee stock options | ||||||||||||||||
and other warrants | - | 84,000 | - | - | ||||||||||||
Denominator for diluted earnings (loss) per | ||||||||||||||||
share--adjusted weighted average shares | 12,919,000 | 12,750,000 | 12,853,000 | 12,666,000 | ||||||||||||
Basic earnings (loss) per share | $ | (0.02 | ) | $ | 0.01 | $ | (0.08 | ) | $ | (0.02 | ) | |||||
Diluted earnings (loss) per share | $ | (0.02 | ) | $ | 0.01 | $ | (0.08 | ) | $ | (0.02 | ) |
Three months ended March 31 | ||||||||
2016 | 2015 | |||||||
Numerator: | ||||||||
Net income (loss) | $ | (43,660 | ) | $ | 116,447 | |||
Denominator: | ||||||||
Denominator for basic earnings (loss) pershare--weighted average shares | 12,919,000 | 12,819,000 | ||||||
Dilutive effect of employee stock options and other warrants | - | 3,000 | ||||||
Denominator for diluted earnings (loss) pershare--adjusted weighted average shares | 12,919,000 | 12,822,000 | ||||||
Basic earnings (loss) per share | $ | (0.00 | ) | $ | 0.01 | |||
Diluted earnings (loss) per share | $ | (0.00 | ) | $ | 0.01 |
OptionsOption and warrants to purchase 1,897,0251,870,585 shares and 1,622,525 shares of common stock for the three months March 31, 2016 and nine months ended September 30, 2015, respectively, were not included in the denominator for diluted earnings (loss) per share because their effect would be antidilutive or because the shares were deemed contingently issuable. Options and warrants to purchase 1,087,333 shares and 1,075,565 shares of common stock for the three months and nine months ended September 30, 2014, respectively, were not included in the denominator for diluted earnings (loss) per share because their effect would be antidilutive or because the shares were deemed contingently issuable.
5 |
Note 3-- | Fair Value of Financial Instruments |
Fair value can be measured using valuation techniques such as the market approach (comparable market prices), the income approach (present value of future income or cash flow), and the cost approach (cost to replace the service capacity of an asset or replacement cost). Accounting standards utilize a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those levels:
Level 1: | Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities. |
Level 2: | Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets or similar assets or liabilities in markets that are not active. |
Level 3: | Unobservable inputs that reflect the reporting entity's own assumptions. |
The carrying amount and fair value of the Company's financial instruments are approximately as follows:
Description | Carrying Value | Fair Value | Level 1 | Level 2 | Level 3 | |||||||||||||||
September 30, 2015 | ||||||||||||||||||||
Long-term debt | $ | 4,093,149 | $ | 4,093,149 | - | $ | 4,093,149 | - | ||||||||||||
Note receivable | 1,757,740 | 2,020,000 | - | 2,020,000 | - | |||||||||||||||
Marketable securities | 263,000 | 263,000 | $ | 263,000 | - | - | ||||||||||||||
December 31, 2014 | ||||||||||||||||||||
Long-term debt | $ | 4,244,690 | $ | 4,244,690 | - | $ | 4,244,690 | - | ||||||||||||
Note receivable | 1,829,827 | 2,098,000 | - | 2,098,000 | - | |||||||||||||||
Marketable securities | 284,000 | 284,000 | $ | 284,000 | - | - |
Description | Carrying Value | Fair Value | Level 1 | Level 2 | Level 3 | |||||||||||||||
March 31, 2016 | ||||||||||||||||||||
Long-term debt | $ | 3,791,080 | $ | 3,791,080 | - | $ | 3,791,080 | - | ||||||||||||
Note receivable | 1,707,852 | 1,959,000 | - | 1,959,000 | - | |||||||||||||||
Marketable securities | 257,000 | 257,000 | $ | 257,000 | - | - | ||||||||||||||
December 31, 2015 | ||||||||||||||||||||
Long-term debt | $ | 3,941,080 | $ | 3,941,080 | - | $ | 3,941,080 | - | ||||||||||||
Note receivable | 1,732,982 | 1,942,000 | - | 1,942,000 | - | |||||||||||||||
Marketable securities | 275,000 | 275,000 | $ | 275,000 | - | - |
Long-term debt: The fair value of the Company's term and revolver loans approximate carrying value as these loans were incurred within the current yearpast twelve months and have variable market-based interest rates which reset every thirty days. The fair value of the Company's obligation for the acquisition of its lunasin technology license approximates carrying value as this obligation is a zero-interest based obligation discounted utilizing an interest rate factor comparable to the Company's market-based interest rate for its term and revolver loans. The fair value of the Company's notes payable obligations approximates carrying value as these obligations were incurred within the current yearpast twelve months and have variable market-based interest rates which reset every ninety days.
Note receivable: The Company's note receivable is a variable rate residential mortgage-based financial instrument. An average of published interest rate quotes for a fifteen-year residential jumbo mortgage, a comparable financial instrument, was used to estimate fair value of this note receivable under a discounted cash flow model.
Marketable securities: The assets (trading securities) of the Company's Supplemental Executive Retirement Plan are recorded at fair value on a recurring basis, and are presented within Other Assets in the consolidated balance sheets.
The carrying value of other financial instruments, including cash, accounts receivable and accounts payable, and accrued liabilities approximate fair value due to their short maturities or variable-rate nature of their respective balances.
6 |
Note 4-- |
September 30 | December 31 | |||||||
2015 | 2014 | |||||||
Term loan | $ | 3,249,501 | $ | 3,067,442 | ||||
Revolving line of credit | - | 500,000 | ||||||
Notes payable | 356,787 | - | ||||||
Obligation for acquisition of technology license, net | 486,861 | 677,248 | ||||||
4,093,149 | 4,244,690 | |||||||
Less current portion | 813,560 | 697,423 | ||||||
Total long-term debt | $ | 3,279,589 | $ | 3,547,267 |
Estimated maturities of debt at September 30, 2015 are as follows:
Twelve months ending September 30, | ||||
2016 | $ | 813,560 | ||
2017 | 680,008 | |||
2018 | 2,599,581 | |||
$ | 4,093,149 |
On September 30, 2015, the Company entered into a series of lending agreements with a new primary lender which include agreements for a $3.25 million term loan and a $3.5 million revolving credit facility. These lending agreements replace similar borrowings under agreements with the Company’s former primary lender.
The new $3.25 million term loan is for a period of three years and requires monthly term loan payments, under a ten-year amortization, consisting of principal of $27,080 plus interest with a balloon payment for the outstanding balance due and payable on September 30, 2018. The term loan's interest rate is based on the 30-day LIBOR plus 2.25% and was 2.45% at September 30, 2015.
The new $3.5 million revolving line of credit agreement accrues interest at a floating interest rate based on the 30-day LIBOR plus 2.25% and has a maturity date of September 30, 2016. As of September 30, 2015, there were no outstanding borrowings on the revolving line of credit.
The proceeds from the new $3.25 million term loan were used to pay off the outstanding term loan and revolving line of credit balances, plus accrued interest, due under loan agreements with the Company’s former primary lender.
Borrowings under the new lending agreements are secured by all tangible and intangible assets of the Company, a whole life insurance policy on the life of the Company’s Chief Executive Officer, and by a mortgage on the real estate of the Company’s headquarters. The new lending agreements also include a covenant requiring the Company to maintain net tangible worth of not less than $9.5 million.
A description of the notes payable is presented in Note 5 -- Long-Term Incentive Compensation Plan.
In July 2010, the Company’s Reliv Europe subsidiary entered into a long-term performance-based incentive compensation agreement with the subsidiary’s senior managers. The valuation of the compensation agreement is an EBITDA-based formula derived from the subsidiary’s financial performance and vests in 20% annual increments which began in April 2011. The amount of the incentive, if any, can increase or decrease each quarter in accordance with a 24-month look-back of the subsidiary’s financial performance and the vesting provisions. Upon initial vesting, a manager may elect to exercise his/her put option to receive in cash some or all of his/her respective share of the incentive. For the three months and nine months ended September 30, 2015, compensation expense associated with this incentive plan was $-0- and $90,800, respectively. For the three months and nine months ended September 30, 2014, compensation expense associated with this incentive plan was $54,000 and $186,700, respectively. This compensation expense is presented in Selling, General and Administrative in the accompanying condensed consolidated statements of net income (loss) and comprehensive income (loss). At December 31, 2014, accrued compensation for this incentive plan was $666,000 and was presented in "Payroll, Payroll Taxes, and Incentive Compensation Payable" in the accompanying condensed consolidated balance sheets.
During the second quarter of 2015, the cumulative incentive amount of $756,800 became 100% vested, and concurrently, each of the subsidiary's senior managers exercised 100% of his/her put option. In the aggregate, the Company and the managers agreed to settle the incentive obligation whereby the Company will: issue notes payable of approximately $424,000, issue 100,000 shares of Company common stock (fair value at settlement of $117,000), and make cash payments of approximately $216,000.
The notes payable were issued by the Company to the managers in the second quarter of 2015 and range in length from one to two years with payments of principal and interest due quarterly beginning July 29, 2015. Each of the notes accrue interest at a floating interest rate based on the three-month pound LIBOR rate plus 3%. The interest rate at September 30, 2015 was 3.57906%. The aforementioned issuance of 100,000 shares of Company common stock and cash payments of approximately $216,000 occurred in the third quarter of 2015.
Taxes |
The interim financial statement provision for income taxes (benefit) is different from the amounts computed by applying the United States federal statutory income tax rate of 34%. In summary, the reasons for these differences are as follows:
Nine months ended September 30 | ||||||||
2015 | 2014 | |||||||
Income taxes (benefit) at U.S. statutory rate | $ | (439,000 | ) | $ | (152,000 | ) | ||
State income taxes, net of federal benefit | 36,000 | 25,000 | ||||||
Higher / (lower) effective taxes on earnings/losses | ||||||||
in certain foreign countries | 39,000 | (6,000 | ) | |||||
Foreign corporate income taxes | 32,000 | 8,000 | ||||||
Other, net | 59,000 | (48,000 | ) | |||||
$ | (273,000 | ) | $ | (173,000 | ) |
Three months ended March 31 | ||||||||
2016 | 2015 | |||||||
Income taxes (benefit) at U.S. statutory rate | $ | (23,000 | ) | $ | 90,000 | |||
State income taxes, net of federal benefit | 14,000 | 14,000 | ||||||
Higher / (lower) effective taxes on earnings/losses in certain foreign countries | (11,000 | ) | 11,000 | |||||
Foreign corporate income taxes | 17,000 | 27,000 | ||||||
Other, net | (20,000 | ) | 6,000 | |||||
$ | (23,000 | ) | $ | 148,000 |
One of the Company's foreign subsidiaries is presently under local country audit for alleged deficiencies (totaling approximately $800,000 plus interest at 20% per annum) in value-added tax (VAT) and withholding tax for the years 2004 through 2006. The Company, in consultation with its legal counsel, believes that there are strong legal grounds that it is not liable to pay the majority of the alleged tax deficiencies. As of December 31, 2010, management estimated and reserved approximately $185,000 in taxes and interest for resolution of this matter and recorded this amount within Selling, General, and Administrative expense in the 2010 Consolidated Statement of Income. In 2011, the Company made good faith deposits to the local tax authority under the tax agency's administrative judicial resolution process. As of September 30, 2015March 31, 2016 and December 31, 2014,2015, management's estimated reserve (net of deposits) for this matter is approximately $136,000$151,000 and $122,000,$142,000, respectively. There has been no change in this matter during the first ninethree months of 2015.2016.
Note | Recent Accounting |
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09,Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing U.S. GAAP revenue recognition guidance in U.S. GAAP when itand becomes effective. The standard is effective for fiscal years beginning after December 15, 2017.the Company on January 1, 2018. The new standard permits the use of either the retrospective or modified retrospective transition method. The Company is currently evaluating the effect, if any, that the updated standard will have on its consolidated financial statements and related disclosures, as well as its planned transition method.
In November 2015, the FASB issued ASU No. 2015-17,Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes, which requires all deferred income tax assets and liabilities to be classified as non-current on the balance sheet, rather than being separated into current and non-current amounts. The new standard is effective for annual reporting periods beginning after December 31, 2016 with early adoption permitted. The Company is currently evaluating the effect that the new standard will have on its consolidated financial statements and related disclosuress.
7 |
In August 2014, the FASB issued ASU No. 2014-15,Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern, which requires management to assess, at each annual and interim reporting period, the entity's ability to continue as a going concern within one year from the date the financial statements are issued and provide related disclosures. The new standard will be effective for the Company for the annual reporting period ending December 31, 2016, with early adoption permitted. This standard is not currently expected to have a material effect on the Company's financial statement disclosures upon adoption, though the ultimate impact will be dependent on the Company's financial condition and expected operating outlook at such time.
In February 2016, the FASB issued ASU No. 2016-2,Leases (Topic 842) which supercedes the existing lease guidance. This update requires lessees to recognize a lease liability and a lease asset for all leases, including operating leases, with a term greater than twelve months on its balance sheet. The update also expands the required quantitative and qualitative disclosures surrounding leases. This update is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years, with earlier application permitted. The Company is evaluating its transition method and the effects that the new standard will have on its consolidated financial statements and related disclosures.
In March 2016, the FASB issued ASU No. 2016-09,Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. This amendment is intended to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, forfeitures, and classification on the statement of cash flows. This update is effective for fiscal years beginning after December 15, 2016 and interim periods within those fiscal years, with earlier application permitted. The Company is evaluating the impact of this guidance on its consolidated financial statements and related disclosures.
Note 6-- | Subsequent Event |
In May 2016, the Company implemented an employee headcount cost reduction program resulting in the reduction of approximately 9% of the Company's worldwide employees. The total cost of this program, representing severance and benefits, is estimated to be $275,000 ($165,000 net of tax), and will be included in the company's operating results for the quarter ended June 30, 2016. The aggregate annual salaries of the affected employees was approximately $1,100,000.
8 |
FORWARD-LOOKING STATEMENTS
This quarterly report includes both historical and “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. We have based these forward-looking statements on our current expectations and projections about future results. Words such as “may,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “continue,” or similar words are intended to identify forward-looking statements, although not all forward-looking statements contain these words. Although we believe that our opinions and expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements, and our actual results may differ substantially from the views and expectations set forth in this quarterly report on Form 10-Q. We disclaim any intent or obligation to update any forward-looking statements after the date of this annual report to conform such statements to actual results or to changes in our opinions or expectations.
Item No. 2 - Management’s Discussion and Analysis of FinancialCondition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q. The following discussion and analysis discusses the financial condition and results of our operations on a consolidated basis, unless otherwise indicated.
Overview
We are a developer, manufacturer and marketer of a proprietary line of nutritional supplements addressing basic nutrition, specific wellness needs, weight management and sports nutrition. We sell our products through an international network marketing system utilizing independent distributors. Sales in the United States represented approximately 78.1%78.7% of worldwide net sales for the ninethree months ended September 30, 2015March 31, 2016 and 75.0%77.4% of worldwide net sales for the ninethree months ended September 30, 2014.March 31, 2015. Our international operations currently generate sales through distributor networks with facilities in Australia, Canada, Indonesia, Malaysia, Mexico, the Philippines, and the United Kingdom. We also operate in Ireland, France, Germany, Austria and the Netherlands from our United Kingdom distribution center, in New Zealand from our Australia office, and in Singapore from our Malaysia office.
We derive our revenues principally through product sales made by our global independent distributor base, which, as of September 30, 2015,March 31, 2016, consisted of approximately 45,890 distributors.45,040 distributors and preferred customers. Our sales can be affected by several factors, including our ability to attract new distributors and retain our existing distributor base, our ability to properly train and motivate our distributor base and our ability to develop new products and successfully maintain our current product line.
All of our sales to distributors outside the United States are made in the respective local currency; therefore, our earnings and cash flows are subject to fluctuations due to changes in foreign currency rates as compared to the U.S. dollar. As a result, exchange rate fluctuations may have an effect on sales and gross margins. U.S. generally accepted accounting practices require that our results from operations be converted to U.S. dollars for reporting purposes. Consequently, our reported earnings from foreign operations may be significantly affected by fluctuations in currency exchange rates, generally increasing with a weaker U.S. dollar and decreasing with a strengthening U.S. dollar. Products manufactured by us for sale to our foreign subsidiaries are transacted in U.S. dollars. From time to time, we enter into foreign exchange forward contracts to mitigate our foreign currency exchange risk.
Components of Net Sales and Expense
Product sales represent the actual product purchase price typically paid by our distributors, after giving effect to distributor allowances, which can range from 20% to 40% of suggested retail price, depending on the rank of a particular distributor. Handling and freight income represents the amounts billed to distributors for shipping costs. We record net sales and the related commission expense when the merchandise is shipped.
Our primary expenses include cost of products sold, distributor royalties and commissions and selling, general and administrative expenses.
Cost of products sold primarily consists of expenses related to raw materials, labor, quality control and overhead directly associated with production of our products and sales materials, as well as shipping costs relating to the shipment of products to distributors, and duties and taxes associated with product exports. Cost of products sold is impacted by the cost of the ingredients used in our products, the cost of shipping distributors’ orders, along with our efficiency in managing the production of our products.
9 |
Distributor royalties and commissions are monthly payments made to distributors based on products sold in their downline organization. Based on our distributor agreements, these expenses have typically approximated 23% of sales at suggested retail. Wholesale pricing discounts on distributor orders are based on the retail value of the product. Distributor royalties and commissions are paid on an amount referred to as the business value (“BV”), which is approximately 90% of the retail price of each product. Also, we include other sales leadership bonuses, such as Ambassador bonuses, within this caption. Overall, distributor royalties and commissions remain directly related to the level of our sales and should continue at comparable levels as a percentage of net sales going forward.
Selling, general and administrative expenses include the compensation and benefits paid to our employees, except for those in manufacturing, all other selling expenses, marketing, promotional expenses, travel and other corporate administrative expenses. These other corporate administrative expenses include professional fees, non-manufacturing depreciation and amortization, occupancy costs, communication costs and other similar operating expenses. Selling, general and administrative expenses can be affected by a number of factors, including staffing levels and the cost of providing competitive salaries and benefits; the amount we decide to invest in distributor training and motivational initiatives; and the cost of regulatory compliance.
Results of Operations
Net Sales.Overall net sales decreased by 14.8%12.1% in the three months ended September 30, 2015March 31, 2016 compared to the same period in 2014.2015. During the thirdfirst quarter of 20152016 (“Q3 2015”Q1 2016”), sales in the United States decreased by 10.8%10.7%, and international sales decreased by 27.7%17.1% over the prior-year period. International sales, when reported in U.S. dollars, were negatively impacted by a stronger U.S. dollar versus all of the currencies of the markets where we do business. Excluding the impact of currency exchange fluctuation, international sales decreased by 18.4%10.6%.
The following table summarizes net sales by geographic market for the three months ended September 30, 2015March 31, 2016 and 2014.2015.
Three months ended September 30, | Three months ended March 31, | |||||||||||||||||||||||||||||||||||||||||||||||
2015 | 2014 | Change from prior year | 2016 | 2015 | Change from prior year | |||||||||||||||||||||||||||||||||||||||||||
Amount | % of Net Sales | Amount | % of Net Sales | Amount | % | Amount | % of Net Sales | Amount | % of Net Sales | Amount | % | |||||||||||||||||||||||||||||||||||||
(dollars in thousands) | (dollars in thousands) | |||||||||||||||||||||||||||||||||||||||||||||||
United States | $ | 9,759 | 80.0 | % | $ | 10,946 | 76.5 | % | $ | (1,187 | ) | (10.8 | )% | $ | 10,255 | 78.7 | % | $ | 11,480 | 77.4 | % | $ | (1,225 | ) | (10.7 | )% | ||||||||||||||||||||||
Australia/New Zealand | 283 | 2.3 | 399 | 2.8 | (116 | ) | (29.1 | ) | 298 | 2.3 | 372 | 2.5 | (74 | ) | (19.9 | ) | ||||||||||||||||||||||||||||||||
Canada | 260 | 2.2 | 346 | 2.4 | (86 | ) | (24.9 | ) | 306 | 2.3 | 433 | 2.9 | (127 | ) | (29.3 | ) | ||||||||||||||||||||||||||||||||
Mexico | 136 | 1.1 | 192 | 1.3 | (56 | ) | (29.2 | ) | 163 | 1.3 | 197 | 1.3 | (34 | ) | (17.3 | ) | ||||||||||||||||||||||||||||||||
Europe | 1,304 | 10.7 | 1,956 | 13.7 | (652 | ) | (33.3 | ) | 1,556 | 11.9 | 1,793 | 12.1 | (237 | ) | (13.2 | ) | ||||||||||||||||||||||||||||||||
Asia | 452 | 3.7 | 475 | 3.3 | (23 | ) | (4.8 | ) | 458 | 3.5 | 559 | 3.8 | (101 | ) | (18.1 | ) | ||||||||||||||||||||||||||||||||
Consolidated total | $ | 12,194 | 100.0 | % | $ | 14,314 | 100.0 | % | $ | (2,120 | ) | (14.8 | )% | $ | 13,036 | 100.0 | % | $ | 14,834 | 100.0 | % | $ | (1,798 | ) | (12.1 | )% |
10 |
The following table summarizes net sales by geographic market for the nine months ended September 30, 2015 and 2014.
Nine months ended September 30, | ||||||||||||||||||||||||
2015 | 2014 | Change from prior year | ||||||||||||||||||||||
Amount | % of Net Sales | Amount | % of Net Sales | Amount | % | |||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||
United States | $ | 30,831 | 78.1 | % | $ | 32,453 | 75.0 | % | $ | (1,622 | ) | (5.0 | )% | |||||||||||
Australia/New Zealand | 984 | 2.5 | 1,261 | 2.9 | (277 | ) | (22.0 | ) | ||||||||||||||||
Canada | 1,028 | 2.6 | 993 | 2.3 | 35 | 3.5 | ||||||||||||||||||
Mexico | 567 | 1.4 | 607 | 1.4 | (40 | ) | (6.6 | ) | ||||||||||||||||
Europe | 4,651 | 11.8 | 6,529 | 15.1 | (1,878 | ) | (28.8 | ) | ||||||||||||||||
Asia | 1,413 | 3.6 | 1,412 | 3.3 | 1 | 0.1 | ||||||||||||||||||
Consolidated total | $ | 39,474 | 100.0 | % | $ | 43,255 | 100.0 | % | $ | (3,781 | ) | (8.7 | )% |
The following table sets forth, as of September 30,March 31, 2016 and 2015, and 2014, the number of our active distributors and Master Affiliates and above. The total number of active distributors includes Master Affiliates and above. We define an active distributor as one that enrolls as a distributor or renews his or her distributorship during the prior twelve months. Master Affiliates and above are distributors that have attained the highest level of discount and are eligible for royalties generated by Master Affiliate groups in their downline organization. The active distributor count forIn February 2016, we introduced a formal Preferred Customer program in the United States and Canada. As a result, we are including Preferred Customers as part of our Active Distributor count. Preferred Customer programs were previously in place in Europe includes our preferred customers in France. This program began in mid-2013 and other foreign markets. Preferred Customers represent approximately 4,400 and 4,600 of the Europe active distributorActive Distributor count as of September 30,March 31, 2016 and 2015, and 2014 includes 3,106 and 2,822 preferred customers, respectively. The significant majority of these Preferred Customers are in Europe.
September 30, 2015 | September 30, 2014 | % Change | March 31, 2016 | March 31, 2015 | % Change | |||||||||||||||||||||||||||||||||||||||||||
Active Distributors | Master Affiliates and Above | Active Distributors | Master Affiliates and Above | Active Distributors | Master Affiliates and Above | Active Distributors and Preferred Customers | Master Affiliates and Above | Active Distributors and Preferred Customers | Master Affiliates and Above | Active Distributors and Preferred Customers | Master Affiliates and Above | |||||||||||||||||||||||||||||||||||||
United States | 33,360 | 4,500 | 35,680 | 5,240 | (6.5 | )% | (14.1 | )% | 31,910 | 4,130 | 34,640 | 4,080 | (7.9 | )% | 1.2 | % | ||||||||||||||||||||||||||||||||
Australia/New Zealand | 1,210 | 130 | 1,290 | 150 | (6.2 | ) | (13.3 | ) | 1,690 | 120 | 1,870 | 120 | (9.6 | ) | --- | |||||||||||||||||||||||||||||||||
Canada | 1,250 | 230 | 1,250 | 260 | — | (11.5 | ) | 1,120 | 170 | 1,250 | 210 | (10.4 | ) | (19.0 | ) | |||||||||||||||||||||||||||||||||
Mexico | 1,240 | 100 | 1,140 | 140 | 8.8 | (28.6 | ) | 1,220 | 90 | 1,150 | 90 | 6.1 | --- | |||||||||||||||||||||||||||||||||||
Europe | 6,390 | 630 | 8,060 | 920 | (20.7 | ) | (31.5 | ) | 6,000 | 480 | 7,490 | 640 | (19.9 | ) | (25.0 | ) | ||||||||||||||||||||||||||||||||
Asia | 2,440 | 300 | 2,000 | 320 | 22.0 | (6.3 | ) | 3,100 | 310 | 3,010 | 230 | 3.0 | 34.8 | |||||||||||||||||||||||||||||||||||
Consolidated total | 45,890 | 5,890 | 49,420 | 7,030 | (7.1 | )% | (16.2 | )% | 45,040 | 5,300 | 49,410 | 5,370 | (8.8 | )% | (1.3 | )% |
The following table provides key statistics related to distributor activity by market and should be read in conjunction with the following discussion.
Distributor Activity by Market
Distributor Activity by Market | International | |||||||||||||||||||||||||||
United States | AUS/NZ | Canada | Mexico | Europe | Asia | -- Total | ||||||||||||||||||||||
Sales in Q1 2016 in USD (in 000's) | $ | 10,255 | $ | 298 | $ | 306 | $ | 163 | $ | 1,556 | $ | 458 | $ | 2,781 | ||||||||||||||
% change in sales-Q1 2016 vs. Q1 2015: | ||||||||||||||||||||||||||||
in USD | -10.7 | % | -19.9 | % | -29.3 | % | -17.3 | % | -13.2 | % | -18.1 | % | -17.1 | % | ||||||||||||||
due to currency fluctuation | - | -7.8 | % | -7.7 | % | -16.9 | % | -5.0 | % | -5.6 | % | -6.5 | % | |||||||||||||||
Sales in local currency | -10.7 | % | -12.1 | % | -21.6 | % | -0.4 | % | -8.2 | % | -12.5 | % | -10.6 | % | ||||||||||||||
# of new distributors-Q1 2016(1) | 1,714 | 112 | 44 | 122 | 675 | 514 | 1,467 | |||||||||||||||||||||
# of new distributors-Q1 2015 | 2,212 | 127 | 139 | 164 | 1,050 | 447 | 1,927 | |||||||||||||||||||||
% change | -22.5 | % | -11.8 | % | -68.3 | % | -25.6 | % | -35.7 | % | 15.0 | % | -23.9 | % | ||||||||||||||
# of new Master Affiliates-Q1 2016 | 361 | 14 | 11 | 9 | 49 | 46 | 129 | |||||||||||||||||||||
# of new Master Affiliates-Q1 2015 | 366 | 11 | 28 | 8 | 70 | 36 | 153 | |||||||||||||||||||||
% change | -1.4 | % | 27.3 | % | -60.7 | % | 12.5 | % | -30.0 | % | 27.8 | % | -15.7 | % | ||||||||||||||
# of Product orders-Q1 2016 | 39,068 | 1,887 | 1,069 | 1,046 | 6,159 | 2,836 | 12,997 | |||||||||||||||||||||
# of Product orders-Q1 2015 | 44,472 | 2,090 | 1,364 | 1,043 | 6,667 | 2,848 | 14,012 | |||||||||||||||||||||
% change | -12.2 | % | -9.7 | % | -21.6 | % | 0.3 | % | -7.6 | % | -0.4 | % | -7.2 | % |
International | ||||||||||||||||||||||||||||
United States | AUS/NZ | Canada | Mexico | Europe | Asia | — Total | ||||||||||||||||||||||
Three Months Ended 9/30/15 | ||||||||||||||||||||||||||||
Sales in Q3 2015 in USD (in 000's) | $ | 9,759 | $ | 283 | $ | 260 | $ | 136 | $ | 1,304 | $ | 452 | $ | 2,435 | ||||||||||||||
% change in sales-Q3 2015 vs. Q3 2014: | ||||||||||||||||||||||||||||
in USD | -10.8 | % | -29.1 | % | -24.9 | % | -29.2 | % | -33.3 | % | -4.8 | % | -27.7 | % | ||||||||||||||
due to currency fluctuation | - | -20.3 | % | -16.8 | % | -20.1 | % | -4.9 | % | -8.3 | % | -9.3 | % | |||||||||||||||
Sales in local currency | -10.8 | % | -8.8 | % | -8.1 | % | -9.1 | % | -28.4 | % | 3.5 | % | -18.4 | % | ||||||||||||||
# of new distributors-Q3 2015(1) | 2,135 | 78 | 79 | 134 | 591 | 336 | 1,218 | |||||||||||||||||||||
# of new distributors-Q3 2014 | 2,253 | 120 | 75 | 132 | 870 | 273 | 1,470 | |||||||||||||||||||||
% change | -5.2 | % | -35.0 | % | 5.3 | % | 1.5 | % | -32.1 | % | 23.1 | % | -17.1 | % | ||||||||||||||
# of new Master Affiliates-Q3 2015 | 249 | 7 | 9 | 4 | 28 | 36 | 84 | |||||||||||||||||||||
# of new Master Affiliates-Q3 2014 | 221 | 8 | 12 | 8 | 72 | 19 | 119 | |||||||||||||||||||||
% change | 12.7 | % | -12.5 | % | -25.0 | % | -50.0 | % | -61.1 | % | 89.5 | % | -29.4 | % | ||||||||||||||
# of Product orders-Q3 2015 | 41,888 | 2,011 | 1,141 | 924 | 5,256 | 2,991 | 12,323 | |||||||||||||||||||||
# of Product orders-Q3 2014 | 46,018 | 2,236 | 1,148 | 931 | 5,697 | 3,303 | 13,315 | |||||||||||||||||||||
% change | -9.0 | % | -10.1 | % | -0.6 | % | -0.8 | % | -7.7 | % | -9.4 | % | -7.5 | % |
International | ||||||||||||||||||||||||||||
United States | AUS/NZ | Canada | Mexico | Europe | Asia | — Total | ||||||||||||||||||||||
Nine Months Ended 9/30/15 | ||||||||||||||||||||||||||||
Sales in YTD 2015 in USD (in 000's) | $ | 30,831 | $ | 984 | $ | 1,028 | $ | 567 | $ | 4,651 | $ | 1,413 | $ | 8,643 | ||||||||||||||
% change in sales-YTD 2015 vs. YTD 2014: | ||||||||||||||||||||||||||||
in USD | -5.0 | % | -22.0 | % | 3.5 | % | -6.6 | % | -28.8 | % | 0.1 | % | -20.0 | % | ||||||||||||||
due to currency fluctuation | - | -15.6 | % | -15.5 | % | -17.4 | % | -6.4 | % | -4.3 | % | -8.6 | % | |||||||||||||||
Sales in local currency | -5.0 | % | -6.4 | % | 19.0 | % | 10.8 | % | -22.4 | % | 4.4 | % | -11.4 | % | ||||||||||||||
# of new distributors-YTD 2015(1) | 6,495 | 204 | 341 | 515 | 2,499 | 888 | 4,447 | |||||||||||||||||||||
# of new distributors-YTD 2014 | 6,450 | 281 | 245 | 398 | 3,863 | 600 | 5,387 | |||||||||||||||||||||
% change | 0.7 | % | -27.4 | % | 39.2 | % | 29.4 | % | -35.3 | % | 48.0 | % | -17.4 | % | ||||||||||||||
# of new Master Affiliates-YTD 2015 | 937 | 25 | 62 | 21 | 156 | 108 | 372 | |||||||||||||||||||||
# of new Master Affiliates-YTD 2014 | 772 | 23 | 50 | 36 | 322 | 54 | 485 | |||||||||||||||||||||
% change | 21.4 | % | 8.7 | % | 24.0 | % | -41.7 | % | -51.6 | % | 100.0 | % | -23.3 | % | ||||||||||||||
# of Product orders-YTD 2015 | 128,602 | 6,117 | 3,892 | 3,162 | 18,195 | 8,496 | 39,862 | |||||||||||||||||||||
# of Product orders-YTD 2014 | 138,634 | 6,624 | 3,454 | 2,900 | 20,017 | 10,175 | 43,170 | |||||||||||||||||||||
% change | -7.2 | % | -7.7 | % | 12.7 | % | 9.0 | % | -9.1 | % | -16.5 | % | -7.7 | % |
(1) | The new distributor totals |
United States
· | Net sales |
· | Effective February 1, 2016, we updated our distributor compensation plan to introduce a Preferred Customer program and to modify the requirements for a Retail Distributor (entry-level) to advance to the Affiliate distributor level. Advancement to Affiliate distributor entitles a distributor to a higher discount on their purchases and the opportunity to earn retail and wholesale profits. The updates to the distributor compensation plan also included adjustments to a distributor’s group business volume required to achieve the Master Affiliate level. We believe these changes enhance the value of the business opportunity to Master Affiliates and distributors at levels below Master Affiliate; however, we continue to train the distributor field to understand the benefit of these changes and to teach these concepts to their local distributor groups. |
· | Flagship products in the LunaRich line, including Reliv Now® and LunaRich X™, constituted |
· | Distributor enrollments |
· | Distributor retention was |
· | Our average order size in |
International Operations
· | The average foreign exchange rate for the U.S. dollar for |
· |
· | Canadian net sales in Q1 2016 decreased by |
· |
· |
· | Sales in Asia |
Costs and Expenses
The following table sets forth selected results of our operations expressed as a percentage of net sales for the three- and nine-monththree-month periods ended September 30, 2015March 31, 2016 and 2014.2015. Our results of operations for the periods described below are not necessarily indicative of results of operations for future periods.
Income statement data
(amounts in thousands)
Income statement data | ||||||||||||||||
(amounts in thousands) | Q1 2016 | Q1 2015 | ||||||||||||||
Amount | % of net sales | Amount | % of net sales | |||||||||||||
Net sales | $ | 13,036 | 100.0 | % | $ | 14,834 | 100.0 | % | ||||||||
Costs and expenses: | ||||||||||||||||
Cost of products sold | 2,984 | 22.9 | 2,995 | 20.2 | ||||||||||||
Distributor royalties and commissions | 4,624 | 35.5 | 5,280 | 35.6 | ||||||||||||
Selling, general and adminstrative | 5,609 | 43.0 | 6,130 | 41.3 | ||||||||||||
Income (loss) from operations | (181 | ) | (1.4 | ) | 429 | 2.9 | ||||||||||
Interest income | 27 | 0.2 | 30 | 0.2 | ||||||||||||
Interest expense | (27 | ) | (0.2 | ) | (24 | ) | (0.2 | ) | ||||||||
Other income/(expense) | 114 | 0.9 | (171 | ) | (1.1 | ) | ||||||||||
Income (loss) before income taxes | (67 | ) | (0.5 | ) | 264 | 1.8 | ||||||||||
Provision (benefit) for income taxes | (23 | ) | (0.2 | ) | 148 | 1.0 | ||||||||||
Net income (loss) | (44 | ) | (0.3 | )% | $ | 116 | 0.8 | % | ||||||||
Earnings (loss) per common share-Basic | $ | (0.00 | ) | $ | 0.01 | |||||||||||
Earnings (loss) per common share-Diluted | $ | (0.00 | ) | $ | 0.01 |
Three months ended | ||||||||||||||||
September 30, 2015 | September 30, 2014 | |||||||||||||||
Amount | % of net sales | Amount | % of net sales | |||||||||||||
Net sales | $ | 12,194 | 100.0 | % | $ | 14,314 | 100.0 | % | ||||||||
Costs and expenses: | ||||||||||||||||
Cost of products sold | 2,603 | 21.4 | 2,968 | 20.7 | ||||||||||||
Distributor royalties and commissions | 4,309 | 35.3 | 4,985 | 34.8 | ||||||||||||
Selling, general and adminstrative | 5,660 | 46.4 | 6,133 | 42.9 | ||||||||||||
Income (loss) from operations | (378 | ) | (3.1 | ) | 228 | 1.6 | ||||||||||
Interest income | 29 | 0.2 | 31 | 0.2 | ||||||||||||
Interest expense | (37 | ) | (0.3 | ) | (26 | ) | (0.2 | ) | ||||||||
Other income/(expense) | (72 | ) | (0.6 | ) | (60 | ) | (0.4 | ) | ||||||||
Income (loss) before income taxes | (458 | ) | (3.8 | ) | 173 | 1.2 | ||||||||||
Provision (benefit) for income taxes | (169 | ) | (1.4 | ) | 7 | - | ||||||||||
Net income (loss) | $ | (289 | ) | (2.4 | )% | $ | 166 | 1.2 | % | |||||||
Earnings (loss) per common share- Basic and Diluted | $ | (0.02 | ) | $ | 0.01 |
Nine months ended | ||||||||||||||||
September 30, 2015 | September 30, 2014 | |||||||||||||||
Amount | % of net sales | Amount | % of net sales | |||||||||||||
Net sales | $ | 39,474 | 100.0 | % | $ | 43,255 | 100.0 | % | ||||||||
Costs and expenses: | ||||||||||||||||
Cost of products sold | 8,246 | 20.9 | 8,855 | 20.5 | ||||||||||||
Distributor royalties and commissions | 14,049 | 35.6 | 15,426 | 35.7 | ||||||||||||
Selling, general and adminstrative | 18,245 | 46.2 | 19,391 | 44.8 | ||||||||||||
Loss from operations | (1,066 | ) | (2.7 | ) | (417 | ) | (1.0 | ) | ||||||||
Interest income | 89 | 0.2 | 100 | 0.2 | ||||||||||||
Interest expense | (88 | ) | (0.2 | ) | (76 | ) | (0.1 | ) | ||||||||
Other income/(expense) | (227 | ) | (0.6 | ) | (54 | ) | (0.1 | ) | ||||||||
Loss before income taxes | (1,292 | ) | (3.3 | ) | (447 | ) | (1.0 | ) | ||||||||
Benefit from income taxes | (273 | ) | (0.7 | ) | (173 | ) | (0.4 | ) | ||||||||
Net loss | $ | (1,019 | ) | (2.6 | )% | $ | (274 | ) | (0.6 | )% | ||||||
Loss per common share-Basic and Diluted | $ | (0.08 | ) | $ | (0.02 | ) |
Cost of Products Sold:
· |
Distributor Royalties and Commissions:
· | Distributor royalties and commissions as a percentage of net sales for |
Selling, General and Administrative Expenses:
· | Selling, general and administrative expenses declined by |
Offsetting increases in other G&A expenses include:
· | Sales and marketing expenses decreased by |
o | $ |
o | $112,000 decrease in Star Director and other distributor bonuses, credit card fees, and other expenses related to the level of sales. |
Offsetting increases include:
o | $ |
· | Salaries, other staffing expenses, benefits, and incentive compensation decreased in the aggregate by $243,000 in Q1 2016, compared to the prior-year |
· | Other general and administrative expenses increased by $143,000 in Q1 2016 versus the prior-year period. |
o | The aggregate compensation expense recognized as part of a long-term incentive agreement with our management team in our European subsidiary resulted in a $74,000 reduction to expense in Q1 2015. This incentive agreement concluded in 2015. |
o | Research & development expenses, along with other foreign product compliance requirements increased by $71,000 in Q1 2016 compared to the prior-year period. |
Other Income/Expense:
· | The |
Income Taxes/Benefit:
· | We reported an income tax benefit of |
· |
See Note |
Net Income:Income/(Loss):
· | We |
Financial Condition, Liquidity and Capital Resources
During the first ninethree months of 2015,2016, we used $1.10 milliongenerated $724,000 of net cash infrom operating activities, $145,000$15,000 was used inprovided by investing activities, and we used $585,000$144,000 in financing activities. This compares to $720,000$1.15 million of net cash used inprovided by operating activities, $694,000$98,000 used in investing activities, and $9,000$124,000 used in financing activities in the same period of 2014.2015. Cash and cash equivalents decreasedincreased by $1.83 million$631,000 to $3.16$3.89 million as of September 30, 2015March 31, 2016 compared to $4.99 million as of December 31, 2014.2015.
Significant changes in working capital items consisted of an increasea decrease in inventory of $586,000,$317,000, an increase in prepaid expenses/other current assets of $123,000,$606,000, and an increase in refundable income taxesaccounts payable and accrued expenses of $214,000$857,000 in the first ninethree months of 2015.2016. The increasedecrease in inventory is the result of netplanned decreases in our inventory levels relative to sales, being lower than forecasted in production schedules, and the increase in prepaid expenses/other current assets represents the annual premium payments made in the first quarter on most of the corporate business insurance policies.policies, coupled with a required prepayment as part of a change in our medical insurance carrier as of April 1, 2016. The increase in refundable income taxesaccounts payable and accrued expenses is the result of the income tax benefit generated bypartially related to a financing arrangement for our year-to-date net loss for 2015.annual corporate insurance policy renewals.
Investing activities during the first ninethree months of 20152016 consisted of a netan investment of $218,000$10,000 for capital expenditures, offset by payments received on a distributor note receivable of $72,000.$25,000. Financing activities during the first ninethree months of 20152016 consisted of the payoffprincipal payments of $144,000 on long-term and line of credit borrowings with our prior bank of $3.83 million, offset by proceeds of $3.25 million under borrowings from our new primary lender.borrowings.
Stockholders’ equity decreased to $16.12$15.8 million at September 30, 2015March 31, 2016 compared to $17.00$15.9 million at December 31, 2014.2015. The decrease is primarily due to our net loss during the first ninethree months of 20152016 of $1.02 million.$44,000 coupled with an unfavorable adjustment in foreign currency translation of $75,000. Our working capital balance was $5.01$5.09 million at September 30, 2015March 31, 2016 compared to $5.65$5.08 million at December 31, 2014.2015. The current ratio at March 31, 2016 was 1.95 at September 30, 2015,1.91 compared to 1.962.08 at December 31, 2014. The decline in our working capital balance at September 30, 2015 is primarily the result of the decrease in our cash balance.2015.
14 |
On September 30, 2015, we entered into series of agreements with a new primary lender which include agreements for a $3.25 million term loan and a $3.5 million revolving credit facility. These lending agreements replace similar borrowings under agreements with our former primary lender.
The new $3.25 million term loan is for a period of three years and requires monthly term loan payments, under a ten-year amortization, consisting of principal of $27,080 plus interest with a balloon payment for the outstanding balance due and payable on September 30, 2018. The term loan's interest rate is based on the 30-day LIBOR plus 2.25% and was 2.45%2.677% at September 30, 2015.March 31, 2016.
The new $3.5 million revolving line of credit agreement accrues interest at a floating interest rate based on the 30-day LIBOR plus 2.25% and has a maturity date of September 30, 2016. As of September 30, 2015,March 31, 2016, there were no outstanding borrowings on the revolving line of credit.
The proceeds from the new $3.25 million term loan were used to pay off the outstanding term loan and revolving line of credit balances, plus accrued interest, due under loan agreements with our former primary lender. Borrowings under the new lending agreements are secured by all our tangible and intangible assets, a whole life insurance policy on the life of our Chief Executive Officer, and by a mortgage on the real estate of our headquarters. The new lending agreements also include a quarterly covenant requiring us to maintain net tangible worth of not less than $9.5 million beginningmillion. As of March 31, 2016, we were in December 2015.compliance with our loan covenant requirement, with a net tangible worth of $10.3 million.
Management believes that our cash on hand, internally generated funds, and the new bank loan facilities will be sufficient to meet working capital requirements and our debt service requirements for the next twelve months.
Critical Accounting Policies
A summary of our critical accounting policies and estimates is presented on pages 26-2826-27 of our 20142015 Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 24, 2015.2016. Our critical accounting policies remain unchanged as of September 30, 2015.March 31, 2016.
Item No. 4 - Controls and Procedures
Our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, has reviewed and evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2015.March 31, 2016. Based on such review and evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that the disclosure controls and procedures were effective as of September 30, 2015,March 31, 2016, to ensure that the information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, (a) is recorded, processed, summarized and reported within the time period specified in the SEC’s rules and forms and (b) is accumulated and communicated to our management, including the officers, as appropriate to allow timely decisions regarding required disclosure. There were no material changes in our internal control over financial reporting during the thirdfirst quarter of 20152016 that have materially affected or are reasonably likely to materially affect our internal controls over financial reporting.
Exhibit Number | Document | |
31.1 | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the | |
Securities Exchange Act, as amended (filed herewith). | ||
31.2 | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the | |
Securities Exchange Act, as amended (filed herewith). | ||
32 | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 | |
101 | Interactive Data Files, including the following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
RELIV’ INTERNATIONAL, INC.
RELIV’ INTERNATIONAL, INC. | ||
By: | /s/ Robert L. Montgomery | |
Robert L. Montgomery, Chairman of the Board of Directors and Chief Executive Officer | ||
Date: November 13, 2015
Date: May 13, 2016 | ||
By: | /s/ Steven D. Albright | |
Steven D. Albright, Chief Financial Officer (and accounting officer) | ||
Date: May 13, 2016 |
Date: November 13, 2015