reliv
reliv international
2014
ANNUAL REPORT
1 Letter to Shareholders
5 Reliv Kalogris Foundation
7 Directors and Executive Officers
8 Five-Year Financial Summary,
Stock Price & Dividend Summary
9 10-K
inside back cover:
Shareholder Information
2014 Financial Highlights
(In thousands, except per share amounts)
At December 31
Net sales
Net income
Earnings per share
Basic
Diluted
Total assets
Long-term debt, less current maturities
Stockholders’ equity
Return on net sales
Return on average total assets
Return on equity
Current ratio
2014
$ 57,345
725
0.06
0.06
26,848
3,547
16,997
1.3%
2.7%
4.5%
1.96
% change
(15.9)
(6.7)
2013
$ 68,207
777
—
—
(2.7)
(6.2)
5.4
0.06
0.06
27,599
3,782
16,130
1.1%
3.0%
5.0%
1.98
For people of all backgrounds who want to lead healthy,
self-directed and meaningful lives, Reliv International offers
exceptionally effective nutritional products, a simple and
profitable business opportunity and the chance to change
lives and provide hope to people around the world.
Reliv operates in 15 countries worldwide: United States,
Australia, New Zealand, Canada, Mexico, United Kingdom,
Ireland, the Philippines, Malaysia, Singapore, Germany,
Austria, the Netherlands, Indonesia and France.
2014 Financial Highlights
(In thousands, except per share amounts)
At December 31
Net sales
Net income
Earnings per share
Basic
Diluted
Total assets
Long-term debt, less current maturities
Stockholders’ equity
Return on net sales
Return on average total assets
Return on equity
Current ratio
2014
$ 57,345
725
0.06
0.06
26,848
3,547
16,997
1.3%
2.7%
4.5%
1.96
% change
(15.9)
(6.7)
2013
$ 68,207
777
—
—
(2.7)
(6.2)
5.4
0.06
0.06
27,599
3,782
16,130
1.1%
3.0%
5.0%
1.98
Dear Fellow Reliv Shareholder
In 2014 Reliv established a clear direction for the company. We re-focused on what distinguishes Reliv both as a nutri-
tional supplements manufacturer and as a network marketing business opportunity. Reliv developed and adopted
focused product and business strategies with one goal in mind: growth.
On the product side, Reliv solidified its position as the Nutritional Epigenetics Company as our exclusive LunaRich®
line of products continued to carve out an increasing share of total net sales. To accelerate this momentum, in March
we launched the Reliv Super Pack, a packaged-to-move LunaRich product kit. Reliv also installed a new state-of-the-
art encapsulation line to bring production of LunaRich X capsules in house, providing operational efficiencies and
allowing Reliv to control and ensure quality of the LunaRich X capsules from start to finish.
On the business side, we placed a renewed emphasis on distributor training and marketing of the Reliv business
opportunity. Having focused in recent years on product development and consumer education following our
acquisition of the LunaRich technology, we will highlight the business opportunity that our products make possible.
Based on company history, we believe this balance, at this time, will lead to growth in the months and years ahead.
This letter will go into greater detail on the many exciting initiatives now underway at Reliv. First, I’ll report on our
2014 financial results.
2014 Results
In 2014 Reliv completed a series of critical transitions — in our distributor compensation plan, our corporate leadership,
and our product line — to better position the company for future growth. We realized this process would entail an
adjustment period for our field. Yet after recording net losses in each of the first two quarters of 2014, we achieved
profitability in both the third and fourth quarters. We believe the return to profitability in the third and fourth quarters
is evidence that the transitions initiated by Reliv are gaining traction.
Reliv reported net income of $725,000 for 2014, a decrease of 6.7% compared with 2013 net income. Earnings per
diluted share were $0.06 for both 2014 and 2013. We recorded net sales of $57.3 million in 2014, compared with net
sales of $68.2 in 2013, a decrease of 15.9%. Net income for 2014 was favorably impacted by an income tax benefit
related to net operating loss carryforwards in our European subsidiary.
U.S. net sales decreased 19.3% in 2014 compared with U.S. net sales in 2013. Much of that decline can be attributed
to a promotion launched in fall 2013 that lowered the sales volume level needed to qualify as a Master Affiliate in the
United States. This resulted in a shifting of requalification orders to the fourth quarter of 2013 that would normally
have been received in January 2014.
Europe once again led all foreign markets with a 4.4% increase in net sales from 2013 to 2014. This marks five straight
years of sustained growth in Europe.
Our financial condition remains solid. We had $5.0 million in cash and cash equivalents as of December 31, 2014,
compared to $6.7 million a year ago, and our long-term debt remains at a manageable level. At the end of 2014, our
long-term debt was $3.5 million, compared to $3.8 million at the end of the prior year.
1
Launching a Super Strategy
Reliv started 2014 by announcing that reduced profit level qualifications for distributors would remain in place in
Reliv’s compensation plan. First introduced as a promotion in the final months of 2013, the lower qualifications
were embraced by Distributors.
We believe as the strategy to increase focus and promotion of the Reliv business opportunity gains traction,
the ability for Distributors to access the highest profit level at these qualification levels will result in an increase in
new Distributors. Marketing and promotional strategies have been developed consistent with this goal.
One of these strategies is the Reliv Super Pack, launched at the end of the first quarter. The Super Pack leverages
both our new qualification level structure and our exclusive rights to LunaRich technology to create an efficient
new way for distributors to quickly move product. The Super Pack includes a four-month supply of our two
most popular products, Reliv Now® and LunaRich X™, and offers an immediate 25% discount on the retail
price of the Super Pack for those who sign up as distributors. (The Reliv Classic® Super Pack, featuring our origi-
nal nutritional formula, was introduced in December.) Ordering additional Super Packs provides additional
incentives. We integrated the Super Pack into Reliv’s marketing materials and are now training distributors on
how to use them to build business.
The Super Pack is a key element in an overall product strategy aimed at simplifying the business for distributors.
An additional step — announced in February 2015 — includes discontinuing Reliv’s r skincare line and other
non-core products. Reliv is dedicated to continuing to advance our position in the industry by refocusing our
efforts on our core nutritional products. This product strategy begins and ends with a singular goal:
distributor success.
2
opportunity
Back to Business
With the acquisition of the LunaRich technology, Reliv’s marketing efforts in recent years focused on consumer
education and establishing Reliv as the Nutritional Epigenetics Company. With our product and science messaging
in place and our competitive advantage established, we are focused on the Reliv business opportunity. We
believe we have all elements in place — field development, corporate leadership, product focus and business
plan — for this strategy to take hold and be embraced by our field.
Reliv introduced a new online business success training program for distributors on May 31. The training
program walks distributors through every step in the business-building process, from identifying prospects
to getting new distributors started. Short videos featuring Reliv’s top leaders provide instruction and direct
viewers to Reliv’s most popular sales tools. The training program represents a new level of online engagement
for distributors and a new means for Reliv to communicate and install sales initiatives. We believe this will lead
to increased business activity.
Business initiatives started in 2014 reaching the field in the first quarter of 2015 include:
• Master Affiliate Training Schools (MATS) — quarterly two-day business training events for distributors
at Reliv’s top profit level. Active business builders learn specific, practical skills from Reliv’s top distributor
leaders to increase sales and recruitment. The first round of MATS takes place in March in 11 cities across
North America.
• Updated Reliv business opportunity presentation suite, including slides, video and print materials.
The new tools present Reliv as an ideal solution to thrive in today’s financial reality and have been enthu-
siastically embraced by the field.
• New distributor online business portal — password-protected web pages make it easier and quicker
for distributors to access online tools, track their business and build their organizations.
Our strategic initiative to upgrade web-based technology will continue in 2015, with a focus on enhancing
our distributors’ online presence and facilitating new online sales opportunities. We believe these and other
technology upgrades in development will help fuel sales growth in the months and years ahead.
In the network marketing industry product consumers form the foundation, but it is the expansion of distribution
networks that drives growth. Reliv’s product foundation is stronger than ever and, with distributor-focused
business initiatives now taking hold, we are ready to build a thriving network of active entrepreneurs on top of it.
33
Back to Business
Europe continued its four-year run as Reliv’s strongest international region, as net sales increased to $8.3
million in 2014, an increase of 4.4%. Reliv Europe also had more Distributors reach Reliv’s highest Distributor
ranks, Ambassador and Presidential Director, in 2014 than any market — including the United States. In October
in Paris, at the most well-attended event in Reliv Europe history, we launched LunaRich C™ (LunaRich X in the
United States). We expect LunaRich C to enhance the momentum in Europe and sustain growth in 2015.
Reliv held an official launch event for the market of Indonesia on September 7. Although we had engaged in
limited distribution of one product — Innergize!® — previously, at our launch in September, we expanded
our product line in this market to four products, including Reliv Now, our essential nutrition formula and top
seller worldwide. With over $1 billion in direct sales annually, Indonesia is a market we believe offers Reliv an
opportunity for growth in this region.
More international happenings:
• Moved offices from Mexico City to Guadalajara in January to reduce expenses and be closer to our
distributor base.
• Launched LunaRich X and Super Packs in Canada, Mexico, Philippines, Singapore and Indonesia.
(Coming to Australia/New Zealand in March 2015.)
•
Introduced mobile app technology in Reliv Asia Pacific to facilitate business on the go.
4
RKF in 2014: Be the Change
Donations to the Reliv Kalogris Foundation for 2014 totaled $965,000. A portion of this annual revenue —
$50,000 — resulted directly from the Foundation’s “Be the Change” fundraising challenge during the first six
months of the year. The distributor winner of this challenge joined the Foundation’s staff in Haiti for the annual
Papa Noel trip in December.
The Reliv Kalogris Foundation, created in 1995, has provided more than $42 million in free nutritional supple-
ments to malnourished people since its founding. Today, it feeds more than 42,000 people, mostly children,
daily through 270 feeding centers in nine countries. For further information on the Reliv Kalogris Foundation,
please visit relivkalogrisfoundation.org.
Additional Highlights from 2014
•
In February the U.S. Patent and Trademark Office issued an expanded composition of matter patent for
Reliv’s LunaRich technology. The updated patent further protects LunaRich technology as it relates to
enhancing lunasin bioactivity and its superior ability to deliver bioactive lunasin to the body.
• Dr. Alfredo Galvez, Chief Scientific Officer at SL Technology, Inc., a Reliv company, in May presented the
science of LunaRich at the VitaFoods Conference in Geneva, the nutraceuticals industry’s premier nutritional
research event.
•
In July Reliv launched Reliv Your Life, an online personal and professional growth program for distributors.
• Reliv President Ryan Montgomery was featured on the cover of the fall 2014 issue of Smart Business magazine
as part of a feature article on Reliv’s growth strategy.
• Major technology upgrades continued throughout 2014, both within operations at Reliv HQ and online,
including a new reliv.com homepage, new online training program and new distributor business portal.
5
The Power of YOU
Following a transformative 2014, our message to Reliv distributors moving forward is simple: “It’s all about
YOU!” Our principal focus in 2015 is to leverage the Reliv business opportunity and the income potential
available through LunaRich and the Reliv product line to empower our distributor field like never before.
Key elements of Reliv’s strategic plan for growth:
•
•
•
•
•
Strengthening of Reliv’s position as the Nutritional Epigenetics Company;
Focused product strategy with Reliv Now, LunaRich X and the Reliv Super Pack;
Renewed focus on the business opportunity for distributors with a strong emphasis on training;
Sweeping technology upgrades, including new online business tools for distributors;
Increased manufacturing capabilities with a new encapsulation line;
• Continued growth in Reliv’s European markets;
• Company-wide cost containment initiatives; and
•
Investment in clinical studies of Reliv products and additional research.
More than ever we have the tools and talents needed to expand quickly. We have the products, the marketing
plan and the people to make it all work — at Reliv HQ and in the distributor field.
We’ve taken the complex science behind nutritional epigenetics and Reliv’s LunaRich products and made it
simple with the Reliv Super Pack. The Super Pack also simplifies the Reliv business, making it easier to move
product and duplicate success from level to level throughout distributor networks. Business training and tools
focused on taking simple, effective action every day are in place to fuel the product-moving machine.
Reliv today is an agile, focused and innovative company, ready to take the next great leap forward.
We have created the ideal business opportunity for anyone seeking to take control of their lives.
Here’s to a profitable and prosperous 2015,
Robert L. Montgomery
Chairman and Chief Executive Officer
6
Corporate Officers
Robert L. Montgomery
Chairman and
Chief Executive Officer
Carl W. Hastings, Ph.D.
Vice Chairman and
Chief Scientific Officer
Ryan A. Montgomery
President, Reliv International, Inc.
R. Scott Montgomery
President, Reliv Asia-Pacific
Steven G. Hastings
Executive Vice President
Sales & Marketing
Steven D. Albright
Senior Vice President, Finance
and Chief Financial Officer
Brett M. Hastings
Senior Vice President and
Chief Operating Officer
Stephen M. Merrick
Senior Vice President,
General Counsel and Secretary
Donald E. Gibbons, Jr.
Senior Vice President of U.S. Sales
Debra P. Hellweg
Vice President, Operations
Kurt C. Wulff
Vice President, Marketing
Board of Directors
Robert L. Montgomery
Chairman and
Chief Executive Officer
Reliv International, Inc.
Carl W. Hastings, Ph.D.
Vice Chairman and
Chief Scientific Officer
Reliv International, Inc.
Stephen M. Merrick
Senior Vice President,
General Counsel and Secretary
Reliv International, Inc.
Robert M. Henry
Private Investor and Consultant
John B. Akin
Retired Vice President,
A. G. Edwards, Inc.
John M. Klimek
President
HFR Asset Management, LLC
David T. Thibodeau
Managing Director
Wellvest Capital, LLC
7
Five-Year Financial Summary
(In thousands, except per share amounts)
Net sales
Net income
Earnings per common share:
Basic
Diluted
Cash dividends per share of common stock
Total assets
Long-term debt, less current maturities
2014
$ 57,345
725
2013
$ 68,207
777
2012
$ 68,710
1,359
2011
$ 73,880
1,048
2010
$ 78,748
1,683
0.06
0.06
—
26,848
3,547
0.06
0.06
0.03
27,599
3,782
0.11
0.11
0.03
25,259
2,401
0.08
0.08
0.04
24,419
3,566
0.14
0.14
0.04
24,844
4,151
Stock Price & Dividend Summary
2014
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2013
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
High
$ 2.82
2.68
1.93
1.71
High
$ 1.40
1.44
3.98
3.50
Low
$ 1.75
1.51
1.14
1.15
Low
$ 1.15
1.23
1.25
2.11
Close
$ 2.62
1.60
1.20
1.17
Close
$ 1.34
1.26
2.62
2.81
Dividend
$ —
—
—
—
Dividend
$ —
0.02
—
0.01
8
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
For the Fiscal Year Ended December 31, 2014
(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, 2014
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
(State or other jurisdiction of
incorporation or organization)
136 Chesterfield Industrial Boulevard
Chesterfield, Missouri
(Address of principal executive offices)
371172197
(I.R.S. Employer Identification Number)
63005
(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
Name of Each Exchange on Which Registered
Common Stock, par value $0.001
NASDAQ Global Select 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 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 No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405
of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-
accelerated filer. See definition 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
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 $1.60 per share of the registrant’s common stock as reported on the
NASDAQ Global Select Market on June 30, 2014, the aggregate market value of the common stock held by non-
affiliates of the registrant was approximately $12.9 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 6, 2015 was 12,819,110
(excluding treasury shares).
DOCUMENTS INCORPORATED BY REFERENCE
Document
Sections of the registrant’s definitive Proxy Statement for the Annual
Meeting of Stockholders to be held on May 21, 2015, which is expected
to be filed no later than 120 days after December 31, 2014
Part of Form 10-K into Which
Document Is Incorporated
Part III
INDEX
Part I
Item No. 1
Item No. 2
Item No. 3
Item No. 4
Part II
Item No. 5
Item No. 7
Item No. 8
Item No. 9
Item No. 9A
Item No. 9B
Part III
Item No. 10
Item No. 11
Item No. 12
Item No. 13
Item No. 14
Part IV
Business ................................................................................................................................ 1
Properties .............................................................................................................................. 17
Legal Proceedings ................................................................................................................. 18
Mine Safety Disclosures ....................................................................................................... 18
Market for Registrant’s Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities................................................................ 18
Management’s Discussion and Analysis of
Financial Condition and Results of Operations..................................................................... 19
Financial Statements and Supplementary Data ..................................................................... 28
Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure .............................................................................. 28
Controls and Procedures ....................................................................................................... 28
Other Information ................................................................................................................. 29
Directors, Executive Officers and Corporate Governance .................................................... 29
Executive Compensation....................................................................................................... 29
Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters.............................................................. 29
Certain Relationships and Related Transactions, and Director Independence ...................... 29
Principal Accounting Fees and Services ............................................................................... 29
Item No. 15
Exhibits and Financial Statement Schedules......................................................................... 29
FORWARD-LOOKING STATEMENTS
This annual 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 annual report. 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.
PART I
Item No. 1 - Business
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 using independent distributors. We have sold products in the United States
since 1988 and in selected international markets since 1991.
We currently offer 18 nutritional supplements, a line of 5 skin care products and a sweetener. We have
selectively evolved our product offering over our history. Traditionally, our core line of nutritional supplements,
which represented 51.1% of net product sales for the year ended December 31, 2014, included the following four
products:
•
•
•
Reliv Classic and Reliv NOW — two basic nutritional supplements containing a full and balanced
blend of vitamins, minerals, protein and herbs
Innergize! — an isotonic sports supplement in two flavors
FibRestore — a high-fiber and antioxidant supplement
Following the introduction of our LunaRich X capsules in 2013, we experienced a gradual shift in our
product sales mix reflecting an increasing emphasis on Reliv NOW and LunaRich X capsules. Historically, Reliv
Classic had been our best-selling product but for the year ended December 31, 2012, for the first time in our history,
Reliv NOW became our best-selling product as a result of adding LunaRich soy flour to Reliv NOW. For the year
ended December 31, 2014, Reliv NOW constituted 20.7% of net product sales, LunaRich X capsules represented
13.2% and Reliv Classic constituted only 10.4%. The combination of Reliv NOW and LunaRich X capsules have
increasingly become the focus of our product strategy. As a result of this strategy, in March 2014 we launched our
Super Pack product kit that contains four cans of Reliv NOW and two bottles of LunaRich X each containing 120
capsules. The Super Pack was designed as a simple, focused approach that capitalizes on our two most popular
products and provides an entry point at a 25% discount for new distributors who want to build a business. Super
Packs constituted 4.6% of net sales in 2014. Because of the success of the Super Pack, in December 2014 we
launched a second Super Pack containing Reliv Classic and LunaRich X for our distributors and customers that
prefer Reliv Classic.
We periodically refine our products and introduce related new products and product categories. Our
internal research and development team has developed most of our products, and we hold U.S. patents on six of
these products —Arthaffect, ReversAge, Cellebrate, GlucAffect, ProVantage and 24K. In addition, we have applied
for a U.S. patent on our CardioSentials product. We also hold the exclusive license to patents and patent
applications related to lunasin through a Technology License Agreement we entered into in July 2013.
We believe that our network marketing model is the best method for the marketing and sale of our products
because it utilizes ongoing personal contact among our distributors and their retail customers. This enables our
distributors to communicate directly regarding the products, the business opportunity we offer and their personal
1
experiences with both. We provide our distributors with a financially rewarding and entrepreneurial business
opportunity, affording them the ability to earn compensation both from the direct sale of products and from sales
volume generated by distributors they sponsor. We actively support our distributors by providing marketing
materials, a dependable product fulfillment system and frequent educational, training and motivational programs.
The majority of our sales traditionally has been, and is expected to continue to be, made through our
distributors in the United States. We also currently generate sales through distributor networks in Australia, Austria,
Canada, France, Germany, Indonesia, Ireland, Malaysia, Mexico, the Netherlands, New Zealand, the Philippines,
Singapore and the United Kingdom. In each country in which we conduct business, our distributors operate under a
uniform business and compensation model that maintains consistent marketing, sales, fulfillment, and compliance
procedures. As of December 31, 2014, our network consisted of approximately 47,970 distributors —34,650 in the
United States and 13,320 across our international markets.
We manufacture all of our powdered nutritional supplements at our facility in Chesterfield, Missouri. We
believe our ability to formulate and manufacture all but two of our own nutritional supplements enables us to
produce our products efficiently while maintaining our high standards of quality assurance and proprietary product
composition.
Industry Overview
Nutritional Supplement Market
We operate primarily in the $34.8 billion U.S. nutritional supplement market, which is part of the broader
$140 billion U.S. nutrition industry according to data published by the Nutrition Business Journal, or NBJ, and an
estimated $320.0 billion global nutrition industry, also according to the NBJ. Additionally, more than 150 million
Americans, or 68% of all U.S. adults, take dietary supplements annually according to the Council for Responsible
Nutrition.
A combination of demographic, healthcare and lifestyle trends are expected to drive continued growth in
the nutritional supplement market. These trends include:
•
•
•
Aging Population: The older population (persons 65 years or older) numbered 41.3 million in 2011
according to latest information from the Department of Health and Human Services. They represented
13.25% of the U.S. population, about one in every eight Americans. By 2050, there will be
approximately 89 million older persons living in the United States, more than twice their number in
2011. Recent data from the Council for Responsible Nutrition shows that 74% of adults aged 55 and
over take dietary supplements. We believe this ever-growing population, living longer lives than in
previous decades, will continue to focus on their nutritional needs as they age.
Rising Healthcare Costs and Commitment to Health: The cost of healthcare in the United States
continues to increase rapidly each year and grew at an annual rate of 5% in 2014 according to the
Alatrum Institute. In 2013, U.S. healthcare spending reached 2.9 trillion or $9,255 per person
according to the Centers for Medicare and Medicaid Services (CMS). As reported from Frost and
Sullivan, approximately 75% of total U.S. health care expenditures are spent on preventable health
issues. Many studies have demonstrated that dietary supplements have a positive effect on reducing the
potential for health issues and consumers are reacting to this by taking charge of their personal health.
In a new survey conducted by Harris Poll, taking vitamins was in the top five commitments to health
and wellness habits. We believe more consumers will seek the use of nutritional supplements to
maintain quality of life as well as reduce medical costs.
Continued Focus on Weight Management: According to a report published by the National Center for
Health Statistics in January 2012, more than 35%, or more than one-third of U.S. men and women
were obese in 2009-2010, as were almost 17% of U.S. children. It is estimated that 86.3% of
Americans will be overweight or obese by 2030. Health care costs related to obesity are expected to
grow, from $860.7 billion to $956.9 billion by 2030 and currently account for almost 21% of U.S.
health care costs according to a report by Cornell University. Being overweight is linked to more than
60 chronic diseases and can lead to more serious health concerns such as diabetes, heart disease and
2
other chronic illnesses. According to the Nutrition Business Journal, weight loss supplement sales
totaled $2 billion in 2013 which is up 11.6% from 2012. Bearing these facts in mind, we believe that
there will be a continual need not only for weight loss products but also for wellness products.
Direct Selling Market
Health and nutrition products are distributed through various market means, including retailers such as
supermarkets, drugstores, mass merchants and specialty retailers; direct marketers such as mail order companies and
Internet retailers; and direct sellers such as network marketers and healthcare practitioners. We distribute our
products through the direct selling channel via our network marketers.
Direct selling involves the marketing of products and services directly to consumers in a person-to-person
manner. Direct selling is a significant global industry largely utilized for the sale of a wide range of consumer
products from companies such as Avon Products Inc., Alticor Inc. (Amway Corp.) and Tupperware Brands
Corporation. According to the World Federation of Direct Selling Associations, or WFDSA, the 2013 global direct
selling market (for all product categories) was estimated to be $178.5 billion, an increase from $169 billion in 2012.
The WFDSA estimates that the number of individuals engaged in direct selling more than doubled between 1999
and 2013, from 35.9 million sellers to 96.2 million in 2013. The United States had 16.8 million direct sellers in
2013, the most of any country. Globally, wellness products came in as the 2nd top selling category, just a mere 10%
behind cosmetics and personal care.
While the United States is currently the largest direct selling market with $32.6 billion in annual sales in
2013, international markets account for 80% of the entire industry, according to the WFDSA. Twenty-three
countries (including the United States) have annual direct sales revenue of at least $1 billion and another thirty
countries have annual direct sales revenue of at least $100 million, according to the WFDSA.
We believe that we are well positioned to capitalize on the world-wide growth trends in direct sales, as both
a developer and manufacturer of proprietary nutritional products, utilizing our network marketing distribution
system.
Our Competitive Strengths
We believe that we possess a number of competitive strengths that are our key to growth and profitability
in the future.
Leading Marketer of Bioavailable Lunasin-Containing Products. As a result of our Technology License
Agreement with Soy Labs LLC, we control certain technology and proprietary testing and manufacturing processes
that allow us to produce LunaRich X, to our knowledge, the only commercial source of soy concentrate with
elevated levels of bioactive lunasin. One 125 mg capsule of LunaRich X contains an amount of lunasin equivalent to
25 grams of high quality soy protein. In addition to our LunaRich X capsules, we fortified six other nutritional
supplements with LunaRich X so that a serving of those products yields an amount of lunasin equivalent to
consuming 25 grams of soy protein. The products fortified with LunaRich X are Reliv NOW, Reliv NOW for Kids,
ProVantage, GlucAffect, SoySentials, and Slimplicity.
Complete, Simple Nutrition. We focus on the completeness, balance and simplicity of our basic nutritional
supplements — Reliv Classic or Reliv NOW — combined with LunaRich X. Our recommended daily regimen for
any new distributor or customer is one shake of either Reliv NOW or Reliv Classic and two capsules of LunaRich X.
Our two basic nutritional supplements each contain a full and balanced blend of vitamins, minerals, proteins and
herbs supporting an individual’s daily nutritional needs and our LunaRich X capsules support an individual’s
wellness at the epigenetic level. The combination of Reliv NOW or Reliv Classic and LunaRich X makes
supplementation simple and effective for the consumer. Consistent with this focus, in 2014 we launched Reliv
Super Packs containing a four-month supply of Reliv NOW or Reliv Classic and LunaRich X based on the one
shake and two capsules per day regimen. For more specific individual needs, we provide 15 additional supplements.
We believe that our two basic nutritional supplements, together with LunaRich X and our additional supplements
and other products, enhance the ability of our distributors to build their businesses by providing a comprehensive,
simple product offering.
3
Nutritional Supplements Consumed in Liquid Form. We believe that our nutritional supplements which are
consumed in liquid form, except for our LunaRich X capsules, provide a competitive advantage over other
supplements such as vitamins, minerals and herbs in pill or tablet form. Our powder-based nutritional products are
consumed with water, milk or juice and 24K is a ready-to-drink product. Our products provide an effective means
of delivering nutrients to the body. We believe nutrients taken orally in liquid form lead to better absorption at the
cellular level, or “bioavailability.” Where serving sizes mandate, as with our LunaRich X capsules, we will use
easily digestible capsules as a convenient and effective way of delivering small serving sizes of our powdered
nutritional supplements.
In-House Development and Production. We have developed substantially all of our nutritional supplement
and food products utilizing nutrition science as the basis for product formulation. We maintain an ongoing research
and development effort led by Carl W. Hastings, Ph.D., our Chief Scientific Officer and Vice Chairman. In
addition, we consult regularly with other industry professionals with respect to developments in nutritional science,
product enhancements and new products. Since 1993, we have manufactured substantially all of our nutritional
products at our facility in Chesterfield, Missouri. We outsource two nutritional supplement products, our 24K and
LunaRich X capsules. We believe our ability to formulate and manufacture all but two of our own nutritional
supplement products enables us to maintain our high standards of quality assurance and proprietary product
composition.
Experienced Ambassador Team. Our Ambassador corps consists of distributors who have achieved the
level of Master Director, have earned royalty payments of at least $4,000 in consecutive months and meet our
leadership and character criteria necessary to garner our invitation to be an Ambassador. Our Ambassadors generally
are our most productive distributors and are essential in recruiting, motivating and training our entire distributor
network. We, and our Ambassadors, lead hundreds of annual events throughout all of our markets to motivate and
train distributors, including regular recruiting meetings, trainings, conference calls, training schools for Master
Affiliates and higher levels and regional, national and international distributor conferences. As of December 31,
2014, we had approximately 372 Ambassadors. The top 10 distributors at the Ambassador level have been with us
for an average of 20 years, which provides consistency in training new distributors and contributes to a stable
salesforce.
Experienced and Incentivized Management Team. Our management team is led by our founder, Robert L.
Montgomery, who has been our Chief Executive Officer since the inception of our company in 1985. Our executive
officers have been employed by our company for an average of 19 years and are experienced in their areas of focus,
which include manufacturing, sales, finance, marketing and operations. As of March 6, 2015, our directors and
executive officers beneficially own approximately 37.1% of our common stock.
Our Business Strategy
Our basic objective is to increase our net sales by increasing the number and productivity of our distributors
and by periodically improving our existing products and introducing new products. We also intend to invest in our
infrastructure to improve our operating efficiencies, provide better service to our distributors and leverage our
current operating facilities to improve our profitability. We seek to accomplish these objectives by employing the
following strategic initiatives:
Leverage and Expand our Existing Distributor Base Throughout the United States. The United States has
been and will continue to be our largest market. Our growth strategy in the United States involves multiple
initiatives, such as continued investment in company-sponsored events and distributor training and better utilization
of our upper-level distributors across different geographical areas to increase our distributor base.
Increase Appeal to Broader Demographic. Traditionally, our customer and distributor demographic has
skewed towards baby boomers and older individuals searching for nutritional solutions to supplement their diet and
support overall wellness. While continuing to maintain our focus on the needs of this important segment, we believe
there is an opportunity to expand our sales and distributor base by increasing our appeal to younger generations
interested in nutrition and an active healthy lifestyle. We believe the nutritional aspects and convenience of 24K,
our healthy energy and mental focus drink, will attract health conscious on-the-go individuals, many of whom fall
within the under-40 demographic. Further, we maintain an active presence on popular social media sites including
Facebook, Twitter, YouTube and several other social networks that are popular with younger generations. Our
4
internal social media team is comprised of Gen X and Gen Y staffers who regularly interact with distributors,
customers and prospects. We plan to continue to develop products and program and expand our technology offerings
in an effort to further appeal to younger generations interested in healthy active lifestyles and a vibrant evolving
business opportunity.
Expand in Existing and New International Markets. We believe there is a significant opportunity to
increase our net sales in international markets. We have a business model that is compatible across all of our
markets and encourage our distributors to pursue their business in multiple markets. We believe this business model
will encourage expansion of our distributors in our existing international markets and will provide a framework that
facilitates our entry into new international markets. To that end, we continue to monitor business conditions in
potential new markets and will selectively expand as timing and conditions are appropriate.
Invest in Improved and New Products. As a developer of nutritional supplements, it is vital to continue to
invest in the research and development of new and innovative products. For example, in January 2013 we launched
LunaRich X to support heart health and overall wellness and in February 2011 we launched 24K, our first ready-to-
drink product, to support energy production and mental focus. Additionally, we will continue to improve and
validate the efficacy of our existing product line. These types of investments should facilitate customer and
distributor retention, as well as the recruitment of new distributors.
Expand and Improve our Manufacturing and Distribution Capabilities. We currently manufacture all of
our powdered nutritional supplements at our facility in Chesterfield, Missouri. This allows us to precisely control
product composition and quality assurance as well as better manage inventory levels. Periodically, we make
appropriate investments that enhance our manufacturing capabilities and capacity to further leverage our existing
facilities and trained production staff. In the second half of 2014, we purchased and installed an encapsulation
production line in our facility in Chesterfield, Missouri. We anticipate that LunaRich X capsule production will
begin in the first quarter of 2015. We expect to continue to make appropriate investments in our manufacturing and
fulfillment facilities.
Our Products
Product Overview
Our product line includes nutritional supplements that address basic nutrition, specific wellness needs,
weight management and sports nutrition. We combine ingredients from science and nature in targeted, well-
balanced, easy-to-use formulas that are specifically designed to enhance wellness and increase performance and
energy in specific applications. All but two of our supplements are in powdered form that the consumer mixes with
water, juice or other liquid. 24K is a ready-to-drink nutritional supplement and LunaRich X is available in capsule
form.
We currently offer 18 nutritional supplements. In addition, we offer 5 skin care products and a sweetener.
Our basic nutritional supplements are formulated to provide a balanced and complete level of supplementation for
the consumer. For more specific needs, we provide other focused product formulations. We have purposely been
selective in the number and types of products that we offer. By providing a line of targeted products, we make it
simple for our distributors and consumers to choose products appropriate for their objectives. We consider four of
our oldest and best selling products — Reliv Classic, Reliv NOW, Innergize!, and FibRestore — along with
LunaRich X capsules, our newest product, to be our primary or “core” products.
5
The following table summarizes our product categories as of December 31, 2014. The net sales figures are
for the year ended December 31, 2014:
Product Category
Basic Nutrition
Specific Wellness
Product Name
% of 2014
Net Sales(1)
Reliv NOW ................................
Reliv Classic ................................
NOW for Kids ................................
20.7
10.4
4.3
Year
Introduced
1988
1988
2000
11.3
FibRestore................................
6.0
Arthaffect................................
3.3
ReversAge ................................
1.6
SoySentials ................................
1.2
CardioSentials................................
1.2
GlucAffect ................................
24K ................................................................
2.0
LunaRich X capsules ................................13.2
1993
1996
2000
1998
2005
2008
2011
2013
Weight Management
Meal Replacements(2)................................1.2
0.6
Cellebrate................................
Various
1995
Sports Nutrition
Other
______________________
Innergize!................................
ProVantage ................................
Skin Care and
Sweetener ................................
Reliv Delight ................................
8.7
2.7
0.7
0.1
1991
1997
2001
2001
(1) This table does not include net sales for the year ended December 31, 2014 related to freight and handling and
sales of marketing materials, which represented approximately 10.8% of net sales for the year ended
December 31, 2014.
(2) Since its introduction in February 2007, our Slimplicity Meal Replacement formula has replaced Reliv Ultrim-
Plus (available since 1988) in all but our Canadian and Mexican markets. Upon introduction of our Slimplicity
products in a particular market, our Reliv Ultrim-Plus line was discontinued in that market. In October 2013,
Reliv ReShape was launched in our Australian and New Zealand markets, at which time Slimsimply was
discontinued in those markets.
Basic Nutrition Supplements
Our three basic nutrition supplements provide consumers with a broad spectrum of essential nutrients.
Every formulation is specifically designed to optimize and enhance the benefits of the nutrients it contains.
•
•
•
Reliv NOW is a nutritional supplement containing a variety of vitamins and minerals, soy and various
herbs. Reliv NOW is available in every country where we operate.
Reliv Classic is a nutritional supplement containing a variety of vitamins and minerals, soy and various
herbs. It is a vegetarian product that contains no animal compounds, artificial preservatives, artificial
flavors or added simple sugars. Reliv Classic is available in the United States, Canada, France,
Germany, Austria, the Netherlands, the United Kingdom and Ireland.
NOW for Kids is a product designed to provide a balanced nutritional supplement for a child’s diet and
contains a variety of vitamins and minerals. NOW for Kids is available in Australia, New Zealand, the
United States, the United Kingdom, France, Germany, Ireland, Austria, the Netherlands, Mexico,
Malaysia and the Philippines.
6
Specific Wellness Supplements
Our line of eight specific wellness supplements contains specific compounds that target certain conditions
and promote health. Each product is intended to work in conjunction with our basic nutritional supplement formulas
to provide an effective, balanced and natural method for sustaining health and well-being.
•
•
•
•
•
•
•
•
ReversAge is a patented youth-promoting nutritional supplement designed to slow down the effects of
the aging process. Three proprietary complexes form the foundation of the supplement: longevity
complex, antioxidant complex and herbal complex. The longevity complex is restorative and designed
to replenish key hormones while creating balance within the body’s major systems; the antioxidant
complex is designed to slow aging at the cellular level and the herbal complex delivers a variety of
herbs, including Ginkgo Biloba and Maca. ReversAge is available in every country where we operate
except Germany, the United Kingdom, France, the Netherlands and Ireland. In Canada, the product is
marketed as Nutriversal.
SoySentials is a nutritional supplement containing soy as well as other vitamins, minerals and herbs
designed for use by women. SoySentials provides a woman with key nutrients targeted to promote
women’s health and ease the symptoms of menopause and PMS. SoySentials is available in the United
States and Mexico.
CardioSentials is a berry-flavored nutritional supplement introduced in February 2005 that promotes
heart health. The product contains 1,500 mg of phytosterols per serving, policosanol and several
powerful antioxidants. In a clinical study of this product, participants experienced meaningful
reductions in cholesterol as well as improvement in their high-density lipoprotein, or HDL, and low-
density lipoprotein, or LDL, ratios. We have applied for a U.S. patent on CardioSentials.
CardioSentials is available only in the United States.
Arthaffect is a patented nutritional supplement containing Arthred, a form of hydrolyzed collagen
protein, which is clinically reported to support healthy joint function. The product is available in the
United States, Australia, New Zealand, Mexico, the Philippines, Malaysia, Singapore, and Canada. The
product is marketed as A-Affect in Australia, New Zealand and Canada due to local product
regulations.
FibRestore is a nutritional supplement containing fiber, vitamins, minerals and herbs. A modified
version of the FibRestore formula is marketed in Canada under the name Herbal Harmony to comply
with Canada’s nutritional regulations. FibRestore is available in all of the countries in which we
operate.
GlucAffect is a patented cinnamon cream flavored nutritional supplement launched in November
2008. GlucAffect contains Pycnogenol® and other clinically supported active ingredients. GlucAffect
has been clinically proven to assist in healthy blood sugar management and support weight loss. We
received a U.S. patent on GlucAffect in February 2012. GlucAffect is available in the United States
and Canada.
24K is a patented ready-to-drink product that was introduced in February 2011. 24K is our first ready-
to-drink nutritional supplement available in a multi-serving 30-ounce bottle and in a two-ounce double
serving bottle. 24K is formulated with a synergistic blend of 24 active ingredients designed to enhance
the body’s natural vitality and provide energy, focus and stress relief. It contains no caffeine and only
5 calories per serving. 24K is available only in the United States.
LunaRich X, our newest product, was introduced in January 2013. LunaRich X is our only nutritional
supplement available in capsule form and comes in a bottle of 30 or 120 capsules. LunaRich X is a soy
concentrate with elevated levels of lunasin, a soy peptide shown to have heart health and wellness
benefits. LunaRich X is currently available in the United States, Canada, Mexico, the United
Kingdom, France, Germany, Ireland, Austria, the Netherlands, Indonesia, the Philippines and
Singapore. The product is marketed as LunaRich C in Germany, Austria, the United Kingdom, France,
the Netherlands and Ireland due to local regulations.
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Weight Management Supplements
Our four weight management supplements combine advanced weight loss promoting complexes with
scientifically balanced nutrition and health enhancing soy protein. Our ingredients are designed to work together,
along with proper diet and exercise, to turn unwanted fat into energy without sacrificing muscle mass.
•
•
•
•
Slimplicity is a meal replacement intended for use in an overall program that includes proper diet and
exercise and is focused on facilitating weight loss and developing healthier lifestyle choices.
Slimplicity is currently available in the United States, France, Germany, Austria, the Netherlands,
Ireland and the United Kingdom.
Reliv Ultrim-Plus is designed as a meal replacement (for a maximum of two meals per day) for use in
a weight loss program. Reliv Ultrim-Plus is only sold in Canada and Mexico. Reliv Ultrim-Plus is no
longer available in our other markets due to the introduction of our Slimplicity meal replacement
product.
Reliv ReShape is designed as a meal replacement or a nutritious snack delivering 12 grams of
protein. Reliv ReShape was introduced in October 2013 and is only sold in Australia and New
Zealand. Reliv ReShape replaced Slimsimply in Australia and New Zealand upon its introduction.
Cellebrate is a patented weight loss aid designed to suppress appetite, curb the storage of body fat, and
facilitate the body’s fat burning process. Cellebrate is available in the United States and Canada.
Sports Nutrition Supplements
Our two sports nutrition supplements contain a balance of nutrients scientifically designed to improve
athletic performance and endurance, as well as muscle recovery and repair.
•
•
Innergize! is a sports supplement, containing vitamins and minerals designed for performance
enhancement. Innergize! is available in every country where we operate. In Canada, the product is
marketed as Optain due to local product regulations.
ProVantage is a patented nutritional supplement containing soy designed to enhance athletic
performance with a balance of nutrients needed to improve endurance, muscle recovery and repair.
ProVantage is designed to increase muscle recovery, muscle mass and function, reduce fatigue and
burn excess body fat for extra energy. The product also benefits those seeking to increase their soy
intake. We received a U.S. patent on ProVantage in May 2012. ProVantage is available in the United
States and Canada.
Skin Care and other products
We offer for sale a limited line of skin care products and a sweetener. The skin care products, marketed as
the “r” skin care collection, are designed to create healthier, more youthful looking skin. Each product in our r
collection contains the exclusive RA7 complex, an array of antioxidants, anti-inflammatory and anti-aging nutrients.
These nutrients work together to slow the aging process and improve the skin’s appearance. The “r” collection
includes a cleansing facial wash, eye cream, daytime facial moisturizer with SPF 15, a nighttime facial moisturizer,
and a body lotion. The “r” products are available in the United States, Australia and New Zealand.
Our Reliv Sweetener is derived from the stevia plant, has no sugar and contains one gram of fiber. It is to
be used in place of sugar or other artificial sweeteners.
Reliv Delight is a powdered nutritional supplement marketed as a milk replacement. Reliv Delight is
available in Mexico and the United States.
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Research and Development
We maintain an ongoing research and development effort, led by Carl W. Hastings, Ph.D., and consult with
other industry professionals with respect to developments in nutritional science, product enhancements and new
products. Since 2005, we have introduced four nutritional supplement products, including CardioSentials,
Slimplicity meal replacement, 24K, and LunaRich X. From time to time, we have also reformulated and enhanced
our products, including the addition of LunaRich soy powder to Reliv NOW, Reliv NOW for Kids, ProVantage,
SoySentials, GlucAffect and Slimplicity in 2012. Our research and development team consistently evaluates product
advancements in the marketplace and advancements in raw materials and ingredients available for new product ideas
and developments.
For the years ended December 31, 2014 and 2013, our research and development expenses were $618,000
and $565,000, respectively.
SL Technology, Inc.
On July 23, 2013, SL Technology, Inc. (“SLTI”), our new wholly-owned subsidiary, and Soy Labs, LLC
(“Soy Labs”) entered into a Technology License Agreement (the “License Agreement”) pursuant to which Soy Labs
granted SLTI an exclusive license for its intellectual property related to its soy concentrate with elevated levels of
bioactive lunasin and other soy-related ingredients. The license covers an issued patent and several patent
applications related to lunasin and soy-related peptides, proprietary information and manufacturing processes of Soy
Labs. See Note 6 to our Consolidated Financial Statements for more information on the terms of the License
Agreement.
SLTI has agreed to use reasonable commercial efforts to market the products covered by the License
Agreement. In addition, SLTI hired Soy Labs staff and we agreed, subject to certain conditions, to purchase all of
our requirements of soy concentrate from SLTI.
Network Marketing Program
General Overview
We market and sell our products through a network marketing system of independent distributors, who
purchase our products from us, or from other distributors, and who then sell our products directly to consumers. In
addition to selling our products, our distributors also recruit others to distribute our products. Distributors receive
compensation from both the sale of the products they have purchased at wholesale and, in the case of Master
Affiliates and above, commissions on the volume of products sold by their downline organization. We believe
network marketing is an effective way to distribute our products because it allows and relies on personal contact,
education and endorsement of products which are not as readily available through other distribution channels.
We recognize that our sales growth is based on the continued development and growth of our independent
distributor force and we strive to maintain an active and motivated distributor network through a combination of
quality products, and a business opportunity with distributor discounts, commissions and bonus payments, sales
conventions, training, personal recognition and a variety of publications and promotional materials.
Program Structure
Individuals who desire to market and sell our products may become distributors by being sponsored into
the program by an existing distributor, and becoming part of that distributor’s “downline.” We offer a tiered
discount and commission, or royalty, format that consists of four principal levels and several sub-levels, which are
designed to compensate and motivate distributors to increase their networks and sales volumes.
Our distributors consist principally of individuals, although we also permit entities such as corporations,
partnerships, limited liability companies and trusts to become distributors. A new distributor is required to complete
a distributor application and, in most areas, to purchase a package of distributor materials (for $25 plus shipping in
the United States) consisting of a Distributor Guide and CD, business forms and promotional materials. The
Distributor Agreement, when accepted by us, becomes the contract between us and the distributor and obligates the
9
distributor to the terms of the agreement, which includes our Policies and Procedures for conduct of their business.
All distributors are independent contractors and are not our employees.
In each country in which we conduct business, distributors operate under a uniform compensation system
pursuant to which distributors generally are compensated based on their sales volumes. On the basis of sales volume
or commission volume, distributors may achieve the following successive levels of achievement and compensation:
Designation
Retail Distributor....................................................
Affiliate ..................................................................
Key Affiliate ..........................................................
Senior Affiliate.......................................................
Master Affiliate ......................................................
Director ..................................................................
Key Director...........................................................
Senior Director .......................................................
Master Director/Ambassador .................................
Presidential Director/Ambassador..........................
Discount
20%
25%
30%
35%
40% (1)
40% (1)
40% (1)
40% (1)
40% (1)
40% (1)
______________________
(1)
In addition to discounts, these levels also receive commissions based on sales in their downline organization.
Distributors purchase products from us at a discount from the suggested retail price for the products and
then may sell the product at retail to customers, sell the product to other distributors at wholesale or consume the
product. The amount of the discount varies depending on the distributor’s level of achievement, as indicated above.
Distributors generate income equal to the difference between the price at which they sell the product to
customers and the discounted price they pay for the product. Distributors also earn wholesale commissions on
products purchased by downline distributors in the distributor’s sponsored group equal to the difference between the
price at which the distributor is entitled to purchase product and the price at which downline distributors purchase
product. We calculate payments and issue a check directly to the qualified distributor once a month. For example,
assume Distributor A is a 40% discount Master Affiliate who signs up Distributor B, a 30% discount Key Affiliate,
who signs up Distributor C, a 20% discount Retail Distributor. If Distributor C purchases directly from us, a 10%
wholesale profit check will be sent to Distributor A and B.
Upon achieving the level of Master Affiliate, distributors begin to receive additional compensation —
“generation royalty” — payments of 8%, 6%, 4%, 3% and 2% of the retail volume of product purchased from us by
Master Affiliates and above (and their personal groups) whom they have sponsored, and for each of five downline
levels of sponsorship. To qualify for these additional compensation payments, Master Affiliates and above are
required to maintain certain monthly sales volumes.
Master Affiliates who sponsor other distributors that achieve the level of Master Affiliate are entitled to
become part of the Director Program. Advancement at the Director level is based upon achieving increasing levels
of royalties based on sales generated by other distributors in the Director’s downline organization. Distributors
achieving each level receive recognition for their achievements at our company-sponsored events and in our
publications. We also have a Star Director Program under which distributors achieving the level of Director and
above receive additional compensation based on the number of Master Affiliates they have sponsored into the
program. Directors receive an additional 1% to 3% royalty on the retail sales volume of Master Affiliates in their
downline organization for an unlimited number of levels of sponsorship, until reaching a level that includes a Master
Affiliate who also has achieved Star Director status.
Master Directors and Presidential Directors may also be invited to participate in the Ambassador
Program. As of December 31, 2014, we had approximately 372 Ambassadors. Qualifications to be invited by us to
participate in the Ambassador Program include demonstrated competence and leadership qualities. Ambassadors
receive recognition and awards for achieving Ambassador status and can then achieve additional levels of
accomplishment. We utilize our Ambassadors to lead meetings and conferences, and to provide training and
education to our distributors. Ambassadors achieving the level of Silver and higher also participate in the “Reliv
10
Inner Circle,” which may entitle them to receive additional compensation, paid participation in our sponsored
events, health insurance and car allowances.
In addition to the levels of compensation described, we also provide a variety of incentives, bonuses,
awards and trips to distributors who achieve high sales volumes and who advance in the distributor ranks.
Distributor Training, Motivation and Management
Our marketing efforts are focused on the development, training, motivation and support of our independent
distributors. We support an active training program for our distributors in which our representatives and experienced
distributors, usually Ambassadors, lead group training sessions. We provide distributors with manuals, brochures
and other promotional, training and informational publications. We encourage distributors to hold regular weekly
recruiting meetings and training sessions. We sponsor weekly training conference calls in which a significant
number of distributors participate.
Our sponsorship generally includes the following:
•
•
•
During 2014, we sponsored numerous special events in cities across all of our markets led by corporate
executives and/or experienced Ambassadors;
For each market in which we operate, we sponsor an annual conference for distributors; and
In the United States, we sponsor an annual International Conference in the summer for all worldwide
distributors and winter conferences on each coast for U.S. distributors.
During 2014, we invested approximately $1.97 million in training, conferences and promotional events for
our distributors worldwide compared with $2.49 million in 2013.
Distributor Compliance
Our distributor organization and business model are designed and intended to promote the sale of our
products to consumers by distributors. Sales training and promotional efforts emphasize that intention. To that end,
we monitor purchases by distributors to identify potentially excessive individual purchases and keep detailed
information regarding customer purchases through our corporate shopping cart and as part of our autoship program.
Distributors are not required at any time to purchase product, although Master Affiliates and above are required to
maintain certain minimum sales levels in their personal groups to continue receiving generation royalty
compensation payments.
Distributors may create their own advertising provided that it is within our advertising rules. Unless a
distributor is using our designed and approved advertisements, the distributor must submit for approval in writing all
advertising (e.g. brochures, flyers, audio tapes, classified or display ads, radio scripts) to our Compliance
Department before placing it or arranging for placement.
Pursuant to our Policies and Procedures, which are incorporated by reference into our Distributor
Agreement, distributors are permitted to make only those claims about our products that have been approved by us
and/or provided in sales and training materials. Distributors acknowledge that our products are not represented as
drugs and they are not authorized to make any diagnosis of any medical condition, make drug-type claims for, or
prescribe our products to treat or cure, any disease or condition. We do not authorize or permit our distributors to
make any express or implied references with regard to our products that they cure, prevent or relieve disease, replace
or augment medication, provide therapy, promote healing, alleviate illnesses or symptoms of illnesses, or make any
other medical claims for specific ailments.
In order to comply with regulations that apply to both us and our distributors, we conduct considerable
research into the applicable regulatory framework prior to entering any new market to identify all necessary licenses
and approvals and applicable limitations on operations in that market. We devote substantial resources to obtaining
the necessary licenses and approvals and maintaining operations that are in compliance with the applicable
11
limitations. We also research laws applicable to distributor operations and revise or alter distributor materials and
products, as required by applicable regulations in each market.
Regulations in existing and new markets often are ambiguous and subject to considerable interpretive and
enforcement discretion by the responsible regulators. In addition, regulations affecting our business often change
and are subject to varying interpretation and application. We make every effort to monitor and comply with changes
in laws and regulations as they occur.
We have a Compliance Department that receives and reviews allegations of distributor misconduct. If we
determine that a distributor has violated our Policies and Procedures, we may take a number of disciplinary actions.
For example, we may impose sanctions such as warnings or suspensions until specific conditions are satisfied, or
take other appropriate actions at our discretion, including termination of the distributor’s agreement.
Geographic Presence
Markets
We currently sell our products throughout the United States and in 14 other countries around the world. We
have sold products in the United States since 1988 and our first product outside of the United States in 1991 when
we entered Australia. In 2014, approximately 24.5% of our net sales were generated outside of the United States.
The table below shows the countries in which we operate and the year we commenced selling products:
Country
United States
Australia
New Zealand
Canada
Mexico
United Kingdom(1)
Philippines
Malaysia
______________________
Year Entered
1988
1991
1992
1992
1993
1995
2000
2003
Country
Ireland
Singapore
Germany
Austria
Netherlands
Indonesia
France
Year Entered
2003
2004
2005
2006
2006
2009
2013
(1)
Includes Great Britain, Scotland, Wales and Northern Ireland.
Within the United States, we sell our products to distributors in all 50 states. We derived 44.9% of our
domestic net sales in 2014 in California, Pennsylvania, Illinois, Michigan, Texas, Ohio, Florida and Kansas, with
each state contributing at least 4% of net sales. We believe that there is the opportunity to increase the number of our
distributors in all markets where we sell our products.
We organize all of our international operations under our wholly owned subsidiary, Reliv’ World. As of
December 31, 2014, Reliv’ World consisted of the following market-specific entities: Reliv’ Australia, Reliv’ New
Zealand, Reliv’ Canada, Reliv’ Mexico, Reliv’ Europe, Reliv’ Philippines, Reliv’ Malaysia, Reliv’ Singapore, and
PT Reliv’ Indonesia. We have utilized this method of separate corporations in most of our markets, as local business
licensing and product approvals require a local legal entity.
We believe that there is a significant opportunity to increase sales in our current international markets, as a
whole. We have established a uniform business model and compensation plan across all of our markets, and we
continue to support our international markets with additional marketing programs and materials.
In addition to increasing sales in current international markets, our expansion strategy targets selected new
foreign markets. Our presence in the UK, France, Germany, Austria and the Netherlands, as well as market
performance, regional interest and distributor activity, have led to an increased focus on expansion in the European
Union. We opened for business in France in 2013 and are evaluating other expansion opportunities within the
European Union.
12
New Market Entry Process
When conditions warrant, we evaluate new markets for our products. In order to do so, we perform an
analysis of synergies between new and existing countries and distributor presence or interest in new markets, market
conditions, regulatory conditions, product approval procedures and competition before selecting markets to enter.
Once we decide to enter a new market, we first hire local legal counsel and/or a consultant with appropriate
expertise to:
•
•
•
help ensure that our network marketing system and products comply with all applicable regulations;
help establish favorable public relations in the new market by acting as an intermediary between us and
local regulatory authorities, public officials and business people; and
explain our products and product ingredients to appropriate regulators and, when necessary, to arrange
for local technicians to conduct required ingredient analysis tests of the products.
Where regulatory approval in a foreign market is required, local counsel and/or consultants work with
regulatory agencies to confirm that all of the ingredients in our products are permissible within the new market.
Where reformulation of one or more of our products is required, we attempt to obtain substitute or replacement
ingredients. During the regulatory compliance process, we may alter the formulation, packaging, branding or
labeling of our products to conform to applicable regulations as well as local variations in customs and consumer
habits, and we may modify some aspects of our network marketing system as necessary to comply with applicable
regulations.
Following completion of the regulatory compliance phase, we undertake the steps necessary to meet the
operations requirements of the new market. In the majority of our new markets, we establish a sales center in a
major city and provide for product purchases by telephone and/or pick up. Product is shipped to the purchaser from
a warehouse located in the general geographic market or the distributor may walk in to the local office and purchase
products, if a pick up center is available. In addition, we initiate plans to satisfy inventory, personnel and
transportation requirements of the new market, and we modify our distributor materials, recordings, videos and other
training materials as necessary to be suitable for the new market.
In some countries, regulations applicable to the activities of our distributors also may affect our business
because in some countries we are, or regulators may assert that we are, responsible for our distributors’ conduct. In
these countries, regulators may request or require that we take steps to ensure that our distributors comply with local
regulations.
Manufacturing
We established a manufacturing line at our headquarters facility in Chesterfield, Missouri and began to
manufacture all of our nutritional supplements in early 1993. We expanded our Chesterfield facility in 1997 to now
include 126,000 square feet of total space. At this facility, we manufacture all of our powdered nutritional
supplements for distribution both domestically and internationally. Our 24K and LunaRich X capsules are
manufactured by a third party, as well as our skin care line.
Our ability to manufacture our powdered nutritional supplements is a competitive advantage over
competitors not engaged in manufacturing and contributes to our ability to provide high-quality products. Our
product manufacturing includes identifying suppliers of raw materials, acquiring the finest quality raw materials,
blending exact amounts of raw materials into batches, and canning and labeling the finished products. Since we
carefully select our ingredient suppliers, we are able to control the quality of raw materials and our finished
products. We have not experienced any significant difficulty in obtaining supplies of raw materials for our
nutritional supplements or finished product of our 24K or LunaRich X. By monitoring and testing products at all
stages of the manufacturing process, we precisely control product composition. In addition, we can control costs by
manufacturing our own powdered nutritional supplements.
In 1996, we received approval from the Australian Therapeutic Goods Administration, or TGA, to
manufacture products sold in Australia at our Chesterfield plant. The certification of our Chesterfield site by the
13
Australian TGA also satisfied Canadian requirements. In 2013, our Chesterfield plant was audited by the Australian
TGA. Our current certification is valid until April 2017.
Fulfillment
Distributors order product in case lots of individual quantities and pay for the goods prior to shipment. We
offer our Direct Advantage for distributors and their retail customers to order product in less than case lots directly
from us by phone. Direct Advantage, an automatic monthly reorder program available for distributors and
customers, provides a simple and convenient ordering process for consumers as well as distributors wanting to
satisfy maintenance requirements. Product is shipped directly to the distributor or customer and upline distributors
earn wholesale profits or, if applicable, a commission on all Direct Advantage sales.
In the United States, our products are warehoused at our Chesterfield facility and shipped by common
carrier to distributors upon order. Our facility in Chesterfield, Missouri serves all parts of the country. Our products
are also warehoused in, and shipped to local distributors from: Sydney, Australia; Auckland, New Zealand;
Oakville, Canada; Guadalajara, Mexico; Redditch (Birmingham), England; Makati (Manila), Philippines; Subang
Jaya (Kuala Lumpur), Malaysia; Singapore; and Jakarta, Indonesia. With the exception of our Canada, New
Zealand, and Singapore subsidiaries, each of our subsidiaries maintains an office and personnel to receive, record,
and fill orders from distributors. Distributors in Ireland, France, Germany, Austria, and the Netherlands order and
receive product from our UK-based subsidiary.
We maintain a policy that unused product may be returned by a customer to the selling distributor for a full
refund or exchange within 30 days after purchase. We also maintain a policy that any distributor who terminates his
or her distributorship may return saleable product which was purchased from us within twelve months of the
termination for a refund of 90% of the purchase price less any compensation received relating to the purchase of the
products. We believe this buyback policy addresses and satisfies a number of regulatory compliance issues
pertaining to network marketing systems.
Historically, product returns and buy backs have not been significant. Product returns and buy backs have
been approximately 0.25% and 0.57% of net sales in 2014 and 2013, respectively.
Information Technology Systems
In order to facilitate growth in the future and support our distributor activities, we continually upgrade our
management information and telecommunication systems, along with increasing our internet-based capabilities.
These systems include: (1) a centralized host computer in our Chesterfield headquarters, which is linked to our
international offices via secure data connections that provide real-time order entry and information to respond to
distributor inquiries, as well as financial and inventory management systems; (2) local area networks of personal
computers within our markets, serving our local administrative staffs; (3) an international e-mail system through
which our employees communicate; and (4) internet capabilities that provide a variety of online services to
distributors, including product ordering, product information, event information and other related announcements,
and tools to assist distributor leaders in managing their downline distributor group. We continue to pursue initiatives
to increase the percentage of distributor orders placed via the internet. To accomplish this goal, we continue to make
improvements to our shopping cart platform, and we have run periodic incentives to encourage distributors to place
their orders via the internet. As a result of these initiatives, approximately 50% of our order volume in the United
States is placed via internet.
These systems are designed to provide financial and operating data for management, timely and accurate
product ordering, generation royalty payment calculation and processing, inventory management, and detailed
distributor records. We intend to continue to invest in our systems in order to help meet our business strategies.
14
Intellectual Property
Our formulas are protected as trade secrets and, to the extent necessary, by confidentiality agreements. In
addition, we have obtained U.S. patents on six products as set forth below:
Product
Patent Expiration Date
Cellebrate
Arthaffect
ReversAge
ProVantage
GlucAffect
24K
June 2015
March 2018
May 2021
April 2025
November 2029
February 2032
Currently, we have 22 trademarks registered with the U.S. Patent and Trademark Office, or USPTO,
including Reliv and the names of 15 of our 18 nutritional products. Reliv NOW for Kids, LunaRich X and ReShape
are not registered with the USPTO. Trademark registrations for selected marks have been issued or applied for in
Australia, New Zealand, Canada, Mexico, the United Kingdom, Ireland, the Philippines, Malaysia, Singapore,
Germany and several other foreign countries that offer network marketing opportunities. We consider our
trademarks to be an important asset of our business.
Regulation
Product Regulation
The formulation, manufacturing, labeling and advertising or promotion of our products are subject to
regulation by the Food and Drug Administration, or FDA, which regulates our products under the federal Food,
Drug and Cosmetic Act, or FDCA, the Federal Trade Commission, or FTC, and various agencies of the states or
countries into which our products are shipped or sold. FDA regulations include requirements and limitations with
respect to the labeling of our food and cosmetic products and also with respect to the formulation of those products.
FDA regulations also limit and control the extent to which health or other claims can be made with respect to the
efficacy of any food or cosmetic. The FDCA has been amended several times with respect to dietary supplements,
most recently by the Nutrition Labeling and Education Act of 1990, or NLEA, and the Dietary Supplement Health
and Education Act of 1994, or DSHEA, and related regulations. Such legislation governs the formulation,
manufacturing, marketing and sale of nutritional supplements, including the content and presentation of health-
related information included on the labels or labeling of nutritional supplements.
The majority of the products we market are classified as dietary supplements under the FDCA. Dietary
supplements such as those we manufacture and sell, for which no “drug” claim is made, are not subject to FDA
approval prior to their sale. However, DSHEA established a pre-market notification process for dietary supplements
that contain a “new dietary ingredient,” or NDI, a term that is defined as “a dietary ingredient that was not marketed
in the United States before October 15, 1994,” the date on which DSHEA was signed into law. Certain NDIs that
have been “present in the food supply” are exempt from the notification requirement. For those NDIs that are not
exempt, DSHEA requires the manufacturer or distributor of a dietary supplement containing an NDI to submit to the
FDA, at least 75 days prior to marketing, a notification containing the basis for concluding that the dietary
supplement containing the NDI will “reasonably be expected to be safe.” Dietary supplement products can be
removed from the market if shown to be unsafe, or if the FDA determines, based on the labeling of products, that the
intended use of the product is for the diagnosis, cure, mitigation, treatment or prevention of disease. The FDA can
regulate those products as “drugs” and require premarket approval of a “new drug application.” Manufacturers of
dietary supplements that make any claims for dietary supplements, including product performance and health benefit
claims, must have substantiation that the statements are truthful and not misleading.
In January 2000, the FDA published a final rule that defines the types of statements that can be made
concerning the effect of a dietary supplement on the structure or function of the body pursuant to DSHEA. Under
DSHEA, dietary supplement labeling may bear “structure/function” claims, which are claims that the products affect
the structure or function of the body, without prior FDA approval. They may not, without prior FDA approval, bear
a claim that they can prevent, treat, cure, mitigate or diagnose disease, otherwise known as a “drug claim.” The final
15
rule describes how the FDA will distinguish drug claims from structure/function claims. Dietary supplements, like
conventional foods, are also permitted to make “health claims,” which are claims that are exempt from regulation as
“drug” claims pursuant to the amendments to the FDCA established by the NLEA in 1990. A “health claim” is a
claim, ordinarily approved by FDA regulation, on a food or dietary supplement product’s labeling that
“characterizes the relationship of any substance to a disease or health-related condition.” To help assure that foods,
dietary supplements and cosmetics comply with the provisions of the FDCA and FDA’s regulations, the FDA has
numerous enforcement tools, including the ability to issue warning letters, initiate product seizures and injunctions
and pursue criminal penalties.
The manufacture of dietary supplements is subject to existing FDA current good manufacturing practice, or
cGMP, regulations for food. In June 2007, the FDA issued regulations relating to more detailed cGMP specifically
for dietary supplements. Under these regulations, we qualify as a small business and became subject to the
regulations in June 2009. We believe our systems and facilities in Chesterfield are in full compliance with cGMP.
Advertisements for our products are subject to regulation by the FTC. The FTC prohibits unfair methods of
competition and unfair or deceptive acts or practices in or affecting commerce and provides that the dissemination of
any false advertisement pertaining to drugs, cosmetics or foods, including dietary supplements, is an unfair or
deceptive practice. Under the FTC’s substantiation doctrine, an advertiser must have a “reasonable basis” for all
claims made about a product. The failure to be able to adequately substantiate claims may be considered either
deceptive or unfair practices. In order to avoid a violation of the FTC standards, we endeavor to assure that we have
adequate substantiation for all advertising claims made for our products. In addition, the FTC has increased its
scrutiny of the use of distributor testimonials. Although it is impossible for us to monitor all the product claims
made by our independent distributors, we make efforts to monitor distributor testimonials and restrict inappropriate
distributor claims. The FTC has been more aggressive in pursuing enforcement against dietary supplement products
since the passage of DSHEA in 1994, and has brought numerous actions against dietary supplement companies,
some resulting in several million dollar civil penalties and/or restitution as well as court-ordered injunctions.
We are aware that there is adverse publicity in many markets, including the United States, concerning
foods that are grown from genetically modified organisms, or GMOs. In some markets, the possibility of health risks
thought to be associated with GMOs has prompted proposed or actual governmental regulation. Nearly all
ingredients in our formulas are non-GMO. We use non-GMO ingredients when required by governmental
regulations and strive to use non-GMO ingredients in every other instance when commercially feasible and
available. We believe compliance with regulatory requirements in this area should not have a material adverse
effect on our business.
Sales Program Regulation
Our distribution and sales program is subject to regulation by the FTC and other federal and state regulation
as well as regulations in several countries in which we conduct business. Various state agencies regulate multi-level
distribution services. We are required to register with, and submit information to, certain of such agencies and we
believe we have complied fully with such requirements. We actively strive to comply with all applicable state and
federal laws and regulations affecting our products and our sales and distribution programs. The Attorneys General
of several states have taken an active role in investigating and prosecuting companies whose compensation plans
they claim violate local anti-pyramid and/or consumer protection statutes. We are unable to predict the effect such
increased activity will have on our business in the future nor are we able to predict the probability of future laws,
regulations or interpretations which may be passed by state or federal regulatory authorities.
Federal and state laws directed at network marketing programs have been adopted throughout the years to
prevent the use of fraudulent practices often characterized as “pyramid schemes.” Illegal pyramid schemes
compensate participants primarily for the introduction or enrollment of additional participants into the program.
Often these schemes are characterized by large up-front entry or sign-up fees, over-priced products of low value,
little or no emphasis on the sale or use of products, high-pressure recruiting tactics and claims of huge and quick
financial rewards with little or no effort. Generally, these laws are directed at ensuring that product sales ultimately
are made to consumers and that advancement within such sales organizations is based on sales of products.
16
We believe that our network marketing system satisfies the standards and case law defining a legal
marketing system. It is an ongoing part of our business to monitor and respond to regulatory and legal
developments, including those that may affect our network marketing system. However, the regulatory and legal
requirements concerning network marketing systems do not include “bright line” rules and are inherently fact-based.
Competition
The business of developing and distributing nutritional and skin care products such as those we offer is
highly competitive. Numerous manufacturers, distributors and retailers compete for consumers and, in the case of
other network marketing companies, for distributors. Our competitors include both network marketing companies
such as Alticor Inc. (Amway Corp.), Avon Products Inc., Herbalife Ltd., Mary Kay Inc., Melaleuca, Inc.,
Mannatech, Inc., Nature’s Sunshine Products Inc., NuSkin Enterprises Inc. and USANA Health Sciences Inc., as
well as specialty and mass retail establishments. Our ability to remain competitive depends on the underlying
science and high quality of our products and our success in recruiting and retaining distributors. The pool of
individuals interested in network marketing tends to be limited in each market and may be reduced to the extent
other network marketing companies successfully recruit these individuals into their businesses. We believe that we
offer a rewarding compensation plan with attractive financial benefits to compete for the time, attention and
commitment of distributors. Our compensation plan is seamless, permitting international expansion.
Reliv NOW and Reliv Classic compete with numerous supplements that offer multi-vitamin benefits. The
Reliv Ultrim-Plus, Slimplicity, ReShape and Cellebrate products compete with other products in the weight loss
market, including nationally advertised products such as SlimFast. Many companies have entered, or have plans to
enter, the sports drink market in which Innergize! and ProVantage compete, a market led by Gatorade. 24K
competes with 5-Hour Energy and numerous other liquid energy shots and drinks. With Arthaffect, FibRestore,
ReversAge, GlucAffect, CardioSentials, SoySentials, LunaRich X and our skin care products, we are in the specific
wellness needs, food and anti-aging markets, which are extremely competitive and led by the major food and skin
care companies.
Employees
As of December 31, 2014, we and all of our subsidiaries had approximately 195 full-time employees
compared with 208 such employees at the end of 2013.
Additional Available Information
We make available, free of charge, copies of our annual reports on Form 10-K, quarterly reports on Form
10-Q, current reports on Form 8-K, and all amendments to these reports as soon as reasonably practicable after such
material is electronically filed with, or furnished to the SEC pursuant to Section 13(a) or 15(d) of the Exchange Act.
This information is available on our corporate web site at www.reliv.com under the “Investor Relations” section.
This information may also be obtained from the SEC’s on-line database located at www.sec.gov.
Item No. 2 – Properties
We own approximately six acres of land and a building containing approximately 126,000 square feet of
office, manufacturing and warehouse space located in Chesterfield, Missouri, where we maintain our corporate
headquarters and sole manufacturing facility. We believe that our worldwide facilities are suitable and adequate in
relation to our present and immediate future needs.
17
The following table summarizes information related to our worldwide facilities as of March 6, 2015:
Location
Nature of Use
Square Feet Owned/Leased
Chesterfield, MO, USA
Seven Hills (Sydney), Australia
Oakville, Ontario, Canada
Guadalajara, Mexico
Makati City (Manila), Philippines
Redditch (Birmingham), England,
UK
Subang Jaya (Kuala Lumpur),
Malaysia
Jakarta, Indonesia
corporate headquarters/call
center/manufacturing/warehouse
central office/
warehouse/distribution
warehouse/distribution
central office/warehouse/call center
central office/
warehouse/distribution
central office/
warehouse/distribution
central office/call center
central office/
warehouse/distribution
126,000
Owned
5,740
2,100
3,120
2,700
Leased
Leased
Leased
Leased
11,500
Leased
1,200
1,600
Leased
Leased
Item No. 3 - Legal Proceedings
From time to time, we are involved in litigation incidental to the conduct of our business. We do not
believe that any current proceedings will have a material adverse effect on our business, financial condition,
results of operations or cash flows.
Item No. 4 – Mine Safety Disclosures
Not applicable.
PART II
Item No. 5 - Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Our common stock is listed on the NASDAQ Global Select Market under the symbol: RELV. The
following table sets forth the high and low sales prices of our common stock and the quarterly dividends per share
paid on our common stock during the years ended December 31, 2014 and 2013.
Year Ending December 31, 2014
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
Year Ending December 31, 2013
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
High
Low
Dividend
$
$
1.71
1.93
2.68
2.82
3.50
3.98
1.44
1.40
$
$
1.15
1.14
1.51
1.75
2.11
1.25
1.23
1.15
$
-
-
-
-
0.01
-
0.02
-
$
As of March 6, 2015, there were approximately 1,569 holders of record of our common stock and an
additional 2,997 beneficial owners, including shares of common stock held in street name.
18
Item No. 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in
conjunction with our financial statements and related notes included elsewhere in this Annual Report on Form 10-
K. The following discussion and analysis discusses the financial condition and results of our operations on a
consolidated basis, unless otherwise indicated.
Overview
We are a developer, manufacturer and marketer of a proprietary line of nutritional supplements addressing
basic nutrition, specific wellness needs, weight management and sports nutrition. We also offer a line of skin care
products and a sweetener. We sell our products through an international network marketing system utilizing
independent distributors. Sales in the United States represented approximately 75.5% of worldwide net sales for the
year ended December 31, 2014 compared to approximately 78.7% for the year ended December 31, 2013. 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 on a limited basis 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 December 31, 2014, consisted of approximately 47,970 distributors. Our sales can be affected by
several factors, including our ability to attract new distributors and retain our existing distributor base, our ability to
properly train and motivate our distributor base and our ability to develop new products and successfully maintain
our current product line.
All of our sales to distributors outside the United States are made in the respective local currency;
therefore, our earnings and cash flows are subject to fluctuations due to changes in foreign currency rates as
compared to the U.S. dollar. As a result, exchange rate fluctuations may have an effect on sales and gross margins.
Accounting practices require that our results from operations be converted to U.S. dollars for reporting purposes.
Consequently, our reported earnings may be significantly affected by fluctuations in currency exchange rates,
generally increasing with a weaker U.S. dollar and decreasing with a strengthening U.S. dollar. Products
manufactured by us for sale to our foreign subsidiaries are transacted in U.S. dollars. From time to time, we enter
into foreign exchange forward contracts to mitigate our foreign currency exchange risk.
Components of Net Sales and Expense
Product sales represent the actual product purchase price typically paid by our distributors, after giving
effect to distributor allowances, which can range from 20% to 40% of suggested retail price, depending on the rank
of a particular distributor. Handling and freight income represents the amounts billed to distributors for shipping
costs. We record net sales and the related commission expense when the merchandise is shipped.
Our primary expenses include cost of products sold, distributor royalties and commissions and selling,
general and administrative expenses.
Cost of products sold primarily consists of expenses related to raw materials, labor, quality control and
overhead directly associated with production of our products and sales materials, as well as shipping costs relating to
the shipment of products to distributors, and duties and taxes associated with product exports. Cost of products sold
is impacted by the cost of the ingredients used in our products, the cost of shipping distributors’ orders, along with
our efficiency in managing the production of our products.
Distributor royalties and commissions are monthly payments made to distributors, based on products sold
in their downline organization. Based on our distributor agreements, these expenses typically approximate 23% of
sales at suggested retail. In the United States, effective March 1, 2013, we implemented a retail price increase,
offset by a reduced shipping charge. After the price change, 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 was generally equal to the retail price of each product prior to the price increase.
Also, we include other sales leadership bonuses, such as Ambassador bonuses, within this caption. Overall,
19
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. We have implemented similar pricing structures in all
of our international markets, except Europe.
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
Year Ended December 31, 2014 Compared to Year Ended December 31, 2013
Net sales decreased by 15.9% worldwide, as sales in the United States decreased by 19.3% in the year
ended December 31, 2014 compared with 2013. During 2014, our international sales decreased by 3.7% over the
prior year. An increase in net sales in Europe was offset by declines in all other international markets.
The following table summarizes net sales by geographic market for the years ended December 31, 2014
and 2013.
Net Sales by Market
(in thousands)
Year Ended December 31,
2014
Amount
% of Net
Sales
2013
Change from prior year
% of Net
Sales
Amount
(dollars in thousands)
Amount
%
United States
Australia/New Zealand
Canada
Mexico
Europe
Asia
Consolidated total
$
$
43,323
1,642
1,367
796
8,301
1,916
57,345
75.5% $
2.9
2.4
1.4
14.5
3.3
100.0% $
53,651
1,859
1,777
977
7,953
1,990
68,207
78.7% $
2.7
2.6
1.4
11.7
2.9
(10,328)
(217)
(410)
(181)
348
(74)
100.0% $
(10,862)
(19.3)%
(11.7)
(23.1)
(18.5)
4.4
(3.7)
(15.9)%
The following table sets forth, as of December 31, 2014 and 2013, 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 its 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 Affiliates and above in their downline organization. For the December 31, 2014
and 2013 data, the active distributor count for Europe includes our preferred customers in France. This program
began in mid-2013 and the Europe active distributor count as of December 31, 2014 and 2013 includes 2,945 and
1,500 preferred customers, respectively.
Active Distributors/Master
Affiliates by Market
December 31, 2014
December 31, 2013
% Change
Active
Distributors
Master
Affiliates and
Above
Active
Distributors
Master
Affiliates and
Above
Active
Distributors
Master
Affiliates and
Above
United States
Australia/New Zealand
Canada
Mexico
Europe
Asia
Consolidated total
34,650
1,300
1,200
1,130
7,640
2,050
47,970
5,360
150
250
140
890
340
7,130
39,270
1,470
1,340
1,100
6,790
3,100
53,070
5,590
200
250
160
940
400
7,540
(11.8)%
(11.6)
(10.4)
2.7
12.5
(33.9)
(9.6)%
(4.1)%
(25.0)
0.0
(12.5)
(5.3)
(15.0)
(5.4)%
20
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
International
United States
AUS/NZ Canada Mexico
Europe
Asia
-- Total
Sales in 2014 in USD (in 000's)
$
43,323
$
1,642
$
1,367
$
796
$
8,301
$
1,916
$
14,022
% change in sales-2014 vs. 2013:
In USD
Due to currency fluctuation
Sales in local currency
# of new distributors-2014
# of new distributors-2013
% change
# of new Master Affiliates-2014
# of new Master Affiliates-2013
% change
# of Product orders-2014
# of Product orders-2013
% change
______________________
-19.3%
-
-19.3%
8,338
11,130
-25.1%
1,085
2,049
-47.0%
182,200
204,000
-10.7%
-11.7%
-4.9%
-6.8%
367
263
39.5%
30
52
-42.3%
8,829
8,236
7.2%
-23.1%
-5.6%
-17.5%
344
466
-26.2%
72
109
-33.9%
4,720
5,074
-7.0%
-18.5%
-3.4%
-15.1%
531
525
1.1%
39
88
-55.7%
3,843
3,821
0.6%
4.4%
5.3%
-0.9%
4,785
4,382
9.2%
373
483
-22.8%
26,221
22,891
14.5%
-3.7%
-4.8%
1.1%
927
1,683
-44.9%
93
112
-17.0%
13,170
12,039
9.4%
-3.7%
0.7%
-4.4%
6,954
7,319
-5.0%
607
844
-28.1%
56,783
52,061
9.1%
(1) The new distributor totals in Europe for 2014 and 2013 include 2,200 and 888, respectively, new preferred customers in
France. The preferred customer program began in mid-2013.
United States
• Net sales declined in the United States in 2014 compared to 2013 as the result of a shift in sales into the
fourth quarter of 2013 from the first quarter of 2014 due to a promotion. In August 2013, we launched a
promotion under which new distributors could qualify as a Master Affiliate at 60% of the sales volume
previously required, the “Ignition Master Affiliate promotion.” This promotion ran through the end of
2013, and the reduced volume requirement became a permanent feature of our compensation plan in
January 2014. This promotion increased sales and the number of distributors that reached the level of
Master Affiliate in the latter portion of 2013; however, this promotion negatively impacted sales in 2014,
with much of this decline occurring in the first quarter of 2014, as the Ignition Master Affiliate promotion
incentivized many Master Affiliates to accelerate their requalification orders to the fourth quarter of 2013.
• Net sales were also negatively affected by the severe winter weather in the eastern half of the United States
•
in the first quarter of 2014.
Flagship products in the LunaRich line, including Reliv Now® and LunaRich X™, made up 16.5% and
13.4% of net sales in the U.S., respectively, as our marketing focuses around these two products.
• We introduced a Super Pack during 2014 that currently consists of four cans of Reliv NOW or Classic and
four 60-count bottles of LunaRich X. This provides a distributor a simple initial selling proposition to
potential new distributors and customers.
Sales were also negatively impacted by the decline in new distributor enrollments. Distributor enrollments
declined as activity and momentum slowed subsequent to the end of the Ignition Master Affiliate
promotion.
•
• Distributor retention was 65.9% in 2014 compared to 68.2% in 2013. Distributor retention is determined
by the percentage of active distributors from 2013 that renewed their distributorships in 2014.
• Decline in new Master Affiliate qualifications was the result of the large number of new Master Affiliates
that qualified during the fourth quarter of 2013 promotion and distorted a meaningful year-over-year
comparison.
In comparison to 2012, we had 1,331 new Master Affiliate qualifications in 2012, so the
21
promotion did not have the long-term impact on new Master Affiliate qualifications as was anticipated.
The Master Affiliate requalification rate in 2014 was 76.5% compared to 68.8% in 2013.
• Our average order size in 2014 decreased by 9.4% to $328 at suggested retail value. This decrease is
consistent with the decline in new Master Affiliate qualifications, as new Master Affiliates have larger
average orders.
International Operations
•
The average foreign exchange rate for the U.S. dollar for all of 2014 was stronger versus the various local
currencies in which we conduct business, except for the British pound and the Euro, when compared with
the average exchange rates for all of 2013.
Canada
•
Mexico
•
Similar to our U.S. operations, results in Canada in both net sales and distributor activity in 2014 were
negatively impacted by the Ignition Master Affiliate promotion. Canada follows the same marketing plan
as the U.S.
The office was moved from Mexico City to Guadalajara in December 2013, with transition work
continuing into early 2014. The process of setting up our new office, along with training an entirely new
staff, had a negative impact on our 2014 performance as transition of administrative tasks used internal
resources normally focused on sales and marketing.
• We have introduced similar products and marketing programs as in the United States, such as the LunaRich
X capsules and Super Packs in an effort to improve sales.
Europe
• Our European region includes sales from operations in the United Kingdom, Ireland, France, Germany,
•
•
Austria, and the Netherlands.
Sales of LunaRich X began in the EU in October 2014.
Sales in the fourth quarter of 2014 compared to the prior-year quarter dropped by 19.9% in local currency
due to the departure of certain key distributors in the UK.
Asia Pacific
•
• Our Asia Pacific region includes Australia/New Zealand, as well as the Asian markets of the Philippines,
Malaysia, Singapore, and Indonesia. These markets share much of the same management team and
marketing strategies.
The growth strategy in Asia Pacific is focused on new customer entry points that were created in late 2013
or early 2014, depending on the country. Not shown in the new distributor statistics were the new customer
signups in 2014 of 364 in Australia/New Zealand and 731 in Asia.
This strategy results in a higher order count in 2014, but a smaller average order.
•
• We formally launched sales in Indonesia in September 2014, as we obtained approvals for five of our
products, including Reliv Now and LunaRich X.
22
Costs and Expenses
The following table sets forth selected results of our operations expressed as a percentage of net sales for
the years ended December 31, 2014 and 2013. 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)
2014
2013
Amount
% of net sales
Amount
% of net sales
Net sales
$
57,345
100.0 %
$
68,207
100.0 %
Costs and expenses:
Cost of products sold
Distributor royalties and commissions
Selling, general and adminstrative
11,658
20,543
25,048
Income from operations
Interest income
Interest expense
Other income/(expense)
Income (loss) before income taxes
Provision (benefit) for income taxes
Net income
Earnings per common share-Basic
Earnings per common share-Diluted
$
$
$
96
132
(100)
(151)
(23)
(748)
725
0.06
0.06
20.3
35.8
43.7
0.2
0.2
(0.2)
(0.2)
0.0
(1.3)
1.3 %
$
$
$
14,023
24,926
27,755
1,503
149
(82)
(138)
1,432
655
777
0.06
0.06
20.6
36.5
40.7
2.2
0.2
(0.1)
(0.2)
2.1
1.0
1.1 %
Cost of Products Sold:
• Gross margins in 2014 improved slightly compared to the prior-year period. Margin improvements from
the sales price increase implemented in the first quarter of 2013, along with improved LunaRich X product
margins resulting from our acquisition of the lunasin technology license in July 2013, more than offset the
negative impact of the reduction in production levels.
Distributor Royalties and Commissions:
•
The decrease in distributor royalties and commissions as a percentage of net sales for 2014 compared to the
prior-year period is the result of the retail price increase and commission restructuring that became
effective March 1, 2013 in the United States and later in 2013 for other markets. After the price change,
wholesale 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, which is
generally equal to the retail price of each product prior to the price increase.
Selling, General and Administrative Expenses:
•
•
•
Selling, general and administrative (“SGA”) expenses declined by $2.71 million in 2014 compared to 2013.
The increase in SGA expenses as a percentage of net sales in 2014 is a function of the decline in
consolidated net sales.
Sales and marketing expenses decreased by $1.58 million in 2014 vs. 2013. Components of the decrease
include:
o
$846,000 decrease in expenses directly related to sales volume, such as star director bonuses, other
sales production bonuses, and credit card fees.
23
o
$422,000 decrease in distributor conferences and meeting expenses. The decrease in conference
and meeting expenses was partially due to the weather-related cancellation of the national
distributor conference in Charlotte in February 2014, coupled with a reduction in the cost of our
International distributor conference held during the third quarter 2014 versus the cost of the prior-
year conference.
o Advertising/public relations expenses decreased by $172,000 in 2014 vs. 2013. The year-over-
year decrease was the result of a first half of 2013 public relations campaign to bring greater
awareness to the LunaRich product line.
•
Salaries, other staffing expenses, benefits, and incentive compensation decreased in the aggregate by
$291,000 in 2014, compared to the prior-year period.
o
Incentive compensation expense decreased by $197,000 in 2014 vs. 2013 commensurate to the
decrease in income from operations.
o Decrease of $125,000 as no contribution was made to our Employee Stock Ownership Plan in
2014.
o Decrease of $46,000 in our 401(k) employer expense as we reduced our matching contribution in
the U.S. effective October 1, 2014.
o These declines were offset by an increase in salaries and other staffing expenses by approximately
$124,000 in 2014 vs. 2013.
• Distribution and warehouse expenses decreased by $98,000 in 2014 vs. 2013 as shipping supply expenses
declined relative to sales and we reduced our facility rental expense in certain foreign locations.
• Other general and administrative expenses decreased by $738,000 in 2014 vs. 2013.
o
Significant changes in our other general and administrative expenses include a reduction in our
property tax expense of $78,000 in 2014 compared to the prior-year period, as the result of
successful appeals of the real estate taxes on our Chesterfield headquarters property for several
prior years.
o Consulting and legal fees were reduced by $192,000.
o Compensation expense recognized as part of a long-term incentive agreement with our
management team in our European subsidiary in 2014 was $303,000 less than the expense
recognized in the prior-year period. This incentive agreement is described in Note 13 of the
Consolidated Financial Statements.
Interest Income/Expense:
•
•
Interest income decreased slightly in 2014 as the result of lower investable cash balances worldwide. Our
interest income is primarily interest earned on the note receivable due from a distributor that was entered
into in March 2012.
Interest expense increased slightly in 2014 as the result of additional average debt levels throughout 2014
vs. 2013.
Other Income/Expense:
•
The net expense in both 2014 and 2013 is primarily the result of foreign currency exchange losses in
certain of our subsidiaries.
Income Taxes/Benefit:
• We reported an income tax benefit of $748,000 for 2014 as the result of a deferred tax benefit of $758,000
recorded in the fourth quarter of 2014. The deferred tax benefit related to the release of valuation
allowance pertains to net operating loss carryforwards in our European subsidiary that were previously
fully reserved.
• We recorded income tax expense of $655,000 for 2013, representing an effective rate of 45.8%.
•
See Note 11 of the Consolidated Financial Statements for additional detail regarding income taxes,
including a reconciliation of the income tax expense/benefit to the U.S. statutory rate for each year.
Net Income:
• Net income for 2014 was primarily the result of the deferred tax benefit recorded on the European net
operating loss carryforwards. Income before income taxes declined as the result of the decrease in net sales
worldwide, but particularly in the United States, partially offset by the reduction in selling, general and
24
administrative expenses. The components of income/loss before income taxes are outlined in Note 11 of
the Consolidated Financial Statements.
Liquidity and Capital Resources
We used $392,000 of net cash during 2014 in operating activities, $1.07 million was used in investing
activities, and $133,000 was used in financing activities. This compares with $2.52 million of net cash provided by
operating activities, $1.70 million used in investing activities, and $149,000 provided by financing activities in
2013. Cash and cash equivalents decreased by $1.67 million to $5.00 million as of December 31, 2014 compared to
December 31, 2013.
Significant changes in working capital items consisted of an increase in accounts receivable of $117,000,
an increase in refundable income taxes of $258,000, a decrease in income taxes payable of $200,000, and a decrease
in accounts payable, accrued expenses and other non-current liabilities of $914,000 in 2014. The increase in
accounts receivable is the result of a refund due from a travel promotion company for an incentive trip in the fourth
quarter of 2014. The increase in refundable income taxes and decrease in income taxes payable is the result of our
reduction in taxable income in the United States. The decrease in accounts payable, accrued expenses, and other
non-current liabilities is primarily the result of a lower balance of trade payables and accrued distributor commission
expense as of December 31, 2014 compared to the prior year-end.
Our net investing activities included $908,000 and $379,000 in net capital expenditures for the years ended
December 31, 2014 and 2013, respectively. Payments for key-man life insurance were $252,000 in both 2014 and
2013. Investing activities in 2013 also included a payment of $1.15 million related to the acquisition of the lunasin
technology licensing agreement.
Financing activities in 2014 consisted of $500,000 in proceeds from the revolving line of credit and
principal payments of $633,000 on long-term borrowings. No common stock dividends were paid in 2014.
Financing activities in 2013 consisted of $1.15 million in proceeds from the revolving line of credit, principal
payments of $630,000 on long-term borrowings, $379,000 in cash dividends paid, $14,000 in proceeds on the
exercise of stock warrants, and $5,000 in treasury stock purchased.
Stockholders’ equity increased to $17.00 million at December 31, 2014 compared with $16.13 million at
December 31, 2013. The increase is primarily the result of our net income of $725,000 for 2014. Other changes to
equity include an unfavorable adjustment in our cumulative foreign currency translation adjustment of $78,000,
$176,000 of common stock issued to a consultant that was previously accrued for, and other transactions related to
equity-based compensation with a net increase in equity of $44,000.
Our working capital balance was $5.65 million at December 31, 2014 compared to $6.51 million at
December 31, 2013. The current ratio at December 31, 2014 was 1.96 compared with 1.98 at the previous year-end.
On February 28, 2014, we re-financed our 2012 term loan agreement (and its revolving line of credit
agreement) with our primary lender. The 2014 re-financed term loan is for a period of twenty-eight months with the
same floating interest rate pricing as the 2012 term loan of 30-day LIBOR plus 2.0%. The total amount of the new
2014 term loan was approximately $3.48 million and consisted of the February 28, 2014 outstanding balances of the
2012 term loan and the revolving line of credit loan balance of $1.15 million. Upon the completion of the re-
financing, the revolving line of credit loan balance was zero. The credit agreement has a maturity date of July 1,
2016.
The new credit agreement includes a revolving credit facility for $3.5 million, as amended. The credit
facility accrues interest on the outstanding principal balance at a floating interest rate based on 30-day LIBOR plus
1.85% and has the same maturity date as the 2014 term loan of July 1, 2016. There are borrowings of $500,000 on
the revolving credit facility as of December 31, 2014.
The new credit agreement is secured by all our tangible and intangible assets and also by a mortgage on the
real estate of our headquarters. These agreements also include loan covenants requiring us to maintain net tangible
worth of not less than $11 million, and a fixed charge coverage ratio under which EBITDA adjusted for certain non-
cash expenses shall exceed the fixed charges, including unfinanced capital expenditures, dividends and other
25
distributions, cash taxes paid, and principal and interest due on all debt obligations, by a ratio of at least 1.15 to 1.
At the quarters ended September 30 and December 31, 2014, our fixed charge coverage ratio was less than the
minimum required ratio.
On October 29, 2014, we entered into an amendment to the Credit Agreement (“First Amendment”)
whereby our primary lender waived our non-compliance with the fixed charge coverage ratio for the September 30,
2014 reporting period. In addition to the aforementioned loan covenant waiver, the First Amendment restricts us
from the declaration and cash payment of common stock dividends and the repurchase of company common stock.
The First Amendment also reduced the maximum borrowing limit from $5 million to $3.5 million under our
revolving line of credit agreement. At December 31, 2014, as adjusted for the First Amendment, $3 million remains
available for additional borrowings under the revolving line of credit.
In a letter agreement dated February 27, 2015, the Bank waived our non-compliance with the fixed charge
ratio covenant as of December 31, 2014, and on March 4, 2015, we entered into a second amendment to the Credit
Agreement (“Second Amendment”). The Second Amendment reduces the ratio required under the fixed charge
ratio covenant to 1.0 for the reporting period ending March 31, 2015, but subsequent quarterly reporting periods
remain at a minimum fixed coverage ratio of 1.15 to 1. In addition, the Second Amendment revises the net tangible
worth covenant minimum to $9.5 million and re-defines net tangible worth as actual stockholders’ equity reduced by
the sum of net intangible assets, accounts due from employees and distributors, and note receivable from distributor.
We have been in compliance with the net tangible worth covenant, and we expect to continue to be in compliance
after the Second Amendment. The terms of this new credit agreement and the related amendments are described in
Note 6 of the Consolidated Financial Statements.
Furthermore, we must remain in compliance with the terms of our credit agreement, including the tangible
net worth and fixed charge coverage ratio. We must also comply with the terms of our indenture. Although our
primary lender has waived our non-compliance with the fixed charge coverage ratio for the December 31, 2014
reporting period, we can make no assurance that we will remain in compliance nor can we make any assurance that
we could obtain waivers in the future, if deemed necessary.
Management believes that our cash on hand, cash generated from operating activities and availability of
credit under the bank loan facilities will be sufficient to meet working capital requirements for the remainder of
2015.
Critical Accounting Policies
Our financial statements are based on the selection and application of significant accounting policies, which
require management to make significant estimates and assumptions. We believe that the following are some of the
more critical judgment areas in the application of our accounting policies that currently affect our financial condition
and results of operations.
Revenue
We receive payment by credit card, personal check, or guaranteed funds for orders from independent
distributors and make related commission payments in the following month. Net sales reflect product sales at
suggested retail price less the distributor discount of 20% to 40%. Sales revenue and commission expenses are
recorded when the merchandise is shipped, as this is the point title and risk of loss pass. In accordance with FASB
ASC, Topic 650-50, “Revenue Recognition-Customer Payments and Incentives,” 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.
Actual and estimated 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 return policy allows for a distributor 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 90% of the original purchase price less
any distributor royalties and commission received relating to the original purchase of the returned products. Total
returns have been approximately 0.25% and 0.57% of net sales in 2014 and 2013, respectively. We record handling
and freight income as a component of net sales and record handling and freight costs as a component of cost of
26
products sold. Total revenues do not include sales tax as we consider ourselves a pass-through conduit for collecting
and remitting applicable sales taxes.
Inventories
Inventories are valued at the lower of cost or market. Product cost includes raw material, labor and
overhead costs and is accounted for using the first-in, first-out basis. On a periodic basis, we review our inventory
levels in each country for estimated obsolescence or unmarketable items, as compared to future demand
requirements and the shelf life of the various products. Based on this review, we record inventory write-downs when
costs exceed expected net realizable value. Historically, our estimates of obsolete or unmarketable items have been
materially accurate.
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. Costs 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.
Legal Proceedings
In the ordinary course of business, we are subject to various legal proceedings, including lawsuits and other
claims related to labor, product and other matters. We are required to assess the likelihood of adverse judgments and
outcomes to these matters as well as the range of potential loss. Such assessments are required to determine whether
a loss contingency reserve is required under the provisions of FASB ASC Topic 450, “Contingencies,” and to
determine the amount of required reserves, if any. These assessments are subjective in nature. Management makes
these assessments for each individual matter based on consultation with outside counsel and based on prior
experience with similar claims. To the extent additional information becomes available or our strategies or
assessments change, our estimates of potential liability for a given matter may change. Changes to estimates of
liability would result in a corresponding additional charge or benefit recognized in the statement of operations in the
period in which such changes become known. We recognize the costs associated with legal defense in the periods
incurred. Accordingly, the future costs of defending claims are not included in our estimated liability.
Income Tax Matters
We account for income taxes in accordance with FASB ASC Topic 740, “Income Taxes,” (ASC Topic
740) which requires that deferred tax assets and liabilities be recognized using enacted tax rates for the effect of
temporary differences between the book and tax bases of recorded assets and liabilities. ASC Topic 740 also
requires that deferred tax assets be reduced by a valuation allowance if it is “more likely than not” that some portion
or the entire deferred tax asset will not be realized. In our quarterly evaluation of the need for a valuation allowance,
we consider and weigh both positive and negative factors, including the expected level of future taxable income and
available tax planning strategies. If actual results differ from the assumptions made in our previous evaluation of
our valuation allowance, we may record a change in valuation allowance through income tax expense in the period
this determination is made.
The calculations of our tax liabilities involve dealing with uncertainties in the application of complex tax
regulations. We recognize liabilities for uncertain tax positions based on the two-step process prescribed in the
guidance under ASC Topic 740. The first step is to evaluate the tax position for recognition by determining if the
weight of available evidence indicates that it is more likely than not that the position will be sustained on audit,
including resolution of related appeals or litigation processes, if any. The second step requires us to estimate and
measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. It
is inherently difficult and subjective to estimate such amounts, as we have to determine the probability of various
possible outcomes. We reevaluate these uncertain tax positions on a quarterly basis. This evaluation is based on
factors including, but not limited to, changes in facts or circumstances, changes in tax law, effectively settled issues
under audit, or new audit activity. Such a change in recognition or measurement would result in the recognition of a
tax benefit or an additional charge to the tax provision.
27
At December 31, 2014, we had deferred tax assets related to net operating loss carryforwards and other
income tax credits with a tax value of $3.1 million. These net operating loss carryforwards have various expiration
dates, depending on the country and period in which they occurred. A valuation allowance of $2.4 million has been
established for these deferred tax assets based on the weight of positive and negative evidence was considered,
including history of income or loss, projected future taxable income, availability of tax planning strategies and the
expiration dates of these carryforwards. In 2014, the Company recorded a net income tax benefit of $758,000 due to
a reduction of the valuation allowance related to deferred tax assets for net operating losses of approximately $3.6
million in our United Kingdom subsidiary. Based on our assessment, we reduced the United Kingdom’s NOL
valuation allowance because the weight of evidence regarding the future realizability of the deferred tax assets had
become predominantly positive and realization of the deferred tax assets was more likely than not. The positive
evidence considered primarily related to three years of consistent profitability while the only negative evidence was
historical losses prior to 2012 for this subsidiary.
Item No. 8 - Financial Statements and Supplementary Data
Reference is made to the Consolidated Financial Statements contained in Part IV hereof.
Item No. 9 - Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
Item No. 9A - Controls and Procedures
Evaluation of Disclosure 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 December 31, 2014. 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
December 31, 2014, 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.
Management’s Annual Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial
reporting. Our management conducted an evaluation of the effectiveness of our internal control over financial
reporting based on the 2013 framework in Internal Control – Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission. This evaluation included review of the documentation of
controls, evaluation of the design effectiveness of controls, testing of the operating effectiveness of controls and a
conclusion on this evaluation. Although there are inherent limitations in the effectiveness of any system of internal
control over financial reporting, based on our evaluation, management has concluded our internal controls over
financial reporting were effective as of December 31, 2014.
Attestation Report of the Registered Public Accounting Firm
This annual report does not include an attestation report of the company’s registered public accounting firm
regarding internal control over financial reporting. Management’s report was not subject to attestation by the
company’s registered public accounting firm as the company is classified as a “Smaller Reporting Company.”
Changes in Internal Control over Financial Reporting
There were no material changes in our internal control over financial reporting during the fourth quarter of
2014 that have materially affected or are reasonably likely to materially affect our internal controls over financial
reporting.
28
Item No. 9B - Other Information
None
PART III
Item No. 10 - Directors, Executive Officers and Corporate Governance
Information called for by Item 10 of Part III is incorporated by reference to the definitive Proxy Statement
for the 2015 Annual Meeting of Shareholders to be held on May 21, 2015, which is expected to be filed with the
Commission within 120 days after December 31, 2014.
Item No. 11 - Executive Compensation
Information called for by Item 11 of Part III is incorporated by reference to the definitive Proxy Statement
for the 2015 Annual Meeting of Shareholders to be held on May 21, 2014, which is expected to be filed with the
Commission within 120 days after December 31, 2014.
Item No. 12 - Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Information called for by Item 12 of Part III is incorporated by reference to the definitive Proxy Statement
for the 2015 Annual Meeting of Shareholders to be held on May 21, 2015, which is expected to be filed with the
Commission within 120 days after December 31, 2014.
Item No. 13 - Certain Relationships and Related Transactions, and Director Independence
Information called for by Item 13 of Part III is incorporated by reference to the definitive Proxy Statement
for the 2015 Annual Meeting of Shareholders to be held on May 21, 2015, which is expected to be filed with the
Commission within 120 days after December 31, 2014.
Item No. 14 - Principal Accountant Fees and Services
Information called for by Item 14 of Part III is incorporated by reference to the definitive Proxy Statement
for the 2015 Annual Meeting of Shareholders to be held on May 21, 2015, which is expected to be filed with the
Commission within 120 days after December 31, 2014.
PART IV
Item No. 15 - Exhibits and Financial Statement Schedules
(a)
1.
The Consolidated Financial Statements filed as part of this report on Form 10-K are listed on the
accompanying Index to Consolidated Financial Statements and Consolidated Financial Statement
Schedules.
2.
Financial schedules required to be filed by Item 8 of this form, and by Item 15(d) below:
All other financial schedules are not required under the related instructions or are inapplicable and
therefore have been omitted.
3.
Exhibits: See the Exhibit Index immediately following the signature page of this Annual Report
on Form 10-K.
29
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
RELIV’ INTERNATIONAL, INC.
By:
/s/ Robert L. Montgomery
Robert L. Montgomery, Chairman of the Board of Directors and Chief Executive Officer
Date: March 24, 2015
Pursuant to the requirements of the Securities Act of 1934, this report has been signed by the following persons on
behalf of the registrant and in the capacities and on the dates indicated.
By:
/s/ Robert L. Montgomery
Robert L. Montgomery, Chairman of the Board of Directors and Chief Executive Officer
Date: March 24, 2015
By:
/s/ Steven D. Albright
Steven D. Albright, Chief Financial Officer (and accounting officer)
Date: March 24, 2015
By:
/s/ Carl W. Hastings
Carl W. Hastings, Vice Chairman, Chief Scientific Officer, Director
Date: March 24, 2015
By:
/s/ Stephen M. Merrick
Stephen M. Merrick, Senior Vice-President, Secretary, Director
Date: March 24, 2015
By:
/s/ John B. Akin
John B. Akin, Director
Date: March 24, 2015
By:
/s/ Robert M. Henry
Robert M. Henry, Director
Date: March 24, 2015
By:
/s/ John M. Klimek
John M. Klimek, Director
Date: March 24, 2015
By:
/s/ David T. Thibodeau
David T. Thibodeau, Director
Date: March 24, 2015
30
Exhibit Index
Exhibit
Number
Document
3.1
3.2
3.3
3.4
4.1
10.1
10.2*
10.3*
10.4*
10.5*
10.6*
10.7*
10.8*
10.9*
10.10*
10.11*
Second Amended and Restated Certificate of Incorporation (incorporated by reference to
Appendix B of Schedule 14A of the Registrant filed on April 17, 2003).
By-Laws (incorporated by reference to the Registration Statement on Form S-3 of the Registrant
filed on February 21, 2006).
Amendment to By-Laws dated March 22, 2001 (incorporated by reference to the Registration
Statement on Form S-3 of the Registrant filed on February 21, 2006).
Certificate of Designation to Create a Class of Series A Preferred Stock for Reliv’ International,
Inc. (incorporated by reference to Exhibit 3.1 to the Form 10-Q of the Registrant for quarter ended
March 31, 2003).
Form of Reliv International, Inc. common stock certificate (incorporated by reference to the
Registration Statement on Form S-3 of the Registrant filed on February 21, 2006).
Amended Exclusive License Agreement with Theodore P. Kalogris dated December 1, 1991
(incorporated by reference to Exhibit 10.1 to the Form 10-K of the Registrant for the year ended
December 31, 1992).
Robert L. Montgomery Employment Agreement dated June 19, 2007 (incorporated by reference to
Exhibit 10.1 to the Form 8-K of the Registrant filed June 25, 2007).
Carl W. Hastings Employment Agreement dated March 31, 2014 (incorporated by reference to
Exhibit 10.1 to the Form 8-K of the Registrant filed April 3, 2014).
Reliv’ International, Inc. Supplemental Executive Retirement Plan dated June 1, 1998
(incorporated by reference to Exhibit 10.19 to the Form10-K of the Registrant for year ended
December 31, 1998).
Reliv International, Inc. Employee Stock Ownership Plan and Trust dated August 24, 2006
(incorporated by reference to Exhibit 10.1 to the Form 8-K of the Registrant filed August 30,
2006).
2009 Distributor Stock Purchase Plan (incorporated by reference to Appendix 1 of Form S-3
Registration Statement the Registrant filed July 1, 2009).
2003 Stock Option Plan (incorporated by reference to Exhibit 4 to the Form S-8 Registration
Statement the Registrant filed August 13, 2003).
2009 Incentive Stock Plan (incorporated by reference to Exhibit 10.1 to the Form S-8 Registration
Statement the Registrant filed December 2, 2010).
2014 Incentive Stock Plan (incorporated by reference to Exhibit 10.1 to the Form S-8 Registration
Statement the Registrant filed November 19, 2014).
Reliv International, Inc. Incentive Compensation Plan effective January 1, 2007 (incorporated by
reference to Exhibit 10.1 to the Form 8-K of the Registrant filed May 31, 2007).
R. Scott Montgomery Employment Agreement dated January 2, 2008 (incorporated by reference
to Exhibit 10.1 to the Form 8-K of the Registrant filed January 4, 2008).
31
10.12*
10.13*
10.14*
10.15*
10.16
10.17
10.18
10.19
10.20
10.21
10.22
11
21
23
31.1
31.2
Ryan A. Montgomery Employment Agreement dated January 2, 2008 (incorporated by reference
to Exhibit 10.2 to the Form 8-K of the Registrant filed January 4, 2008).
Steven G. Hastings Employment Agreement dated January 2, 2008 (incorporated by reference to
Exhibit 10.3 to the Form 8-K of the Registrant filed January 4, 2008).
Steven D. Albright Employment Agreement dated January 2, 2008 (incorporated by reference to
Exhibit 10.4 to the Form 8-K of the Registrant filed January 4, 2008).
Brett M. Hastings Employment Agreement dated January 2, 2008 (incorporated by reference to
Exhibit 10.5 to the Form 8-K of the Registrant filed January 4, 2008).
Loan Sale Agreement between 2010-1 RADC/CADC Venture, LLC and Reliv International, Inc.
dated March 16, 2012 (incorporated by reference to Exhibit 10.1 to the Form 10-Q of the
Registrant for the quarter ended March 31, 2012).
Technology License Agreement by and between SL Technology, Inc. and Soy Labs, LLC dated
July 23, 2013 (incorporated by reference to Exhibit 10.1 to the Form 8-K of the Registrant filed
July 25, 2013).
Agreement by and among Reliv International, Inc., SL Technology, Inc., Soy Labs, LLC and
1Soy, Inc. dated July 23, 2013 (incorporated by reference to Exhibit 10.2 to the Form 8-K of the
Registrant filed July 25, 2013).
Credit Agreement dated February 28, 2014 among Reliv International, Inc., Reliv, Inc., Reliv
World Corporation, and SL Technology, Inc., as Borrowers and BMO Harris Bank N.A.
(incorporated by reference to Exhibit 10.1 to the Form 8-K of the Registrant filed March 6, 2014).
First Amendment to Credit Agreement dated October 29, 2014 among Reliv International, Inc.,
Reliv, Inc. Reliv World Corporation, and SL Technology, Inc., as Borrowers and BMO Harris
Bank N.A. (incorporated by reference to Exhibit 10.1 to the Form 8-K of the Registrant filed
October 30, 2014)
Second Amendment to Credit Agreement dated March 4, 2015 among Reliv International, Inc.,
Reliv, Inc., Reliv World Corporation, and SL Technology, Inc., as Borrowers and BMO Harris
Bank N.A. (incorporated by reference to Exhibit 10.1 to the Form 8-K of the Registrant filed
March 6, 2015)
Letter Agreement dated February 27, 2015 among Reliv International, Inc., Reliv, Inc., Reliv
World Corporation, and SL Technology, Inc., as Borrowers and BMO Harris Bank N.A.
(incorporated by reference to Exhibit 10.2 to the Form 8-K of the Registrant filed March 6, 2015)
Statement re: computation of per share earnings (incorporated by reference to Note 8 of the
Consolidated Financial Statements contained in Part IV).
Subsidiaries of the Registrant (filed herewith).
Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm (filed herewith).
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).
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
32
101
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C.
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
Interactive Data Files, including the following materials from the Company’s Annual Report on
Form 10-K for the year ended December 31, 2014, formatted in XBRL: (i) the Consolidated
Balance Sheets, (ii) the Consolidated Statements of Net Income and Comprehensive Income,
(iii) the Consolidated Statements of Stockholders’ Equity, (iv) the Consolidated Statements of
Cash Flows, and (v) the Notes to Consolidated Financial Statements.
*Indicates management compensation plan, contract or arrangement.
33
Reliv’ International, Inc.
and Subsidiaries
Consolidated Financial Statements
Years ended December 31, 2014 and 2013
Contents
Consolidated Financial Statements:
Report of Independent Registered Public Accounting Firm.....................................F-1
Consolidated Balance Sheets as of December 31, 2014 and 2013 ...........................F-2
Consolidated Statements of Net Income and Comprehensive Income for the
years ended December 31, 2014 and 2013 ............................................................F-4
Consolidated Statements of Stockholders’ Equity for the years ended
December 31, 2014 and 2013 ................................................................................F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 2014 and 2013 .................................................................................F-6
Notes to Consolidated Financial Statements – December 31, 2014 .........................F-8
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Reliv’ International, Inc.
We have audited the accompanying consolidated balance sheets of Reliv’ International, Inc. and Subsidiaries (the
Company) as of December 31, 2014 and 2013, and the related consolidated statements of net income and
comprehensive income, stockholders’ equity, and cash flows for each of the two years in the period ended December
31, 2014. These financial statements are the responsibility of the Company’s management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the
Company’s internal control over financial reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the
purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated
financial position of Reliv’ International, Inc. and Subsidiaries at December 31, 2014 and 2013, and the consolidated
results of their operations and their cash flows for each of the two years in the period ended December 31, 2014, in
conformity with U.S. generally accepted accounting principles.
St. Louis, Missouri
March 24, 2015
F-1
Reliv’ International, Inc. and Subsidiaries
Consolidated Balance Sheets
Assets
Current assets:
Cash and cash equivalents
Accounts receivable, less allowances of $26,300
in 2014 and $31,800 in 2013
Accounts due from employees and distributors
Inventories:
Finished goods
Raw materials
Sales aids and promotional materials
Total inventories
Refundable income taxes
Prepaid expenses and other current assets
Deferred income taxes
Total current assets
Other assets
Cash surrender value of life insurance
Note receivable due from distributor
Deferred income taxes
Intangible assets, net
Property, plant, and equipment
Less accumulated depreciation
Property, plant, and equipment, net
December 31
2014
2013
$
4,989,392
$
6,656,798
265,530
121,208
3,782,171
1,216,031
179,263
5,177,465
257,577
661,038
61,000
11,533,210
295,929
2,747,944
1,732,982
686,000
2,925,775
18,945,772
12,019,802
6,925,970
148,630
129,852
3,516,079
1,501,522
197,089
5,214,690
-
697,099
309,000
13,156,069
277,770
2,403,763
1,829,827
-
3,195,903
18,541,296
11,805,877
6,735,419
Total assets
$
26,847,810
$
27,598,751
F-2
Reliv’ International, Inc. and Subsidiaries
Consolidated Balance Sheets (continued)
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable and accrued expenses
Income taxes payable
Current maturities of long-term debt
Total current liabilities
Noncurrent liabilities:
Revolving line of credit
Long-term debt, less current maturities
Noncurrent deferred income taxes
Other noncurrent liabilities
Total noncurrent liabilities
Stockholders’ equity:
Preferred stock, par value $0.001 per share;
3,000,000 shares authorized; -0- shares issued and
outstanding in 2014 and 2013
Common stock, par value $0.001 per share;
30,000,000 shares authorized, 14,673,083 shares
issued and 12,819,110 shares outstanding in 2014;
14,519,605 shares issued and 12,665,632 shares
outstanding in 2013
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive loss:
Foreign currency translation adjustment
Treasury stock
Total stockholders’ equity
December 31
2014
2013
$
5,187,057
-
697,423
5,884,480
$
5,868,783
199,558
581,004
6,649,345
500,000
3,047,267
-
418,785
3,966,052
1,150,000
2,631,607
127,000
910,327
4,818,934
-
-
14,673
30,321,598
(7,434,595)
(565,838)
(5,338,560)
16,997,278
14,520
30,101,069
(8,159,164)
(487,393)
(5,338,560)
16,130,472
Total liabilities and stockholders’ equity
$
26,847,810
$
27,598,751
See accompanying notes.
F-3
Reliv’ International, Inc. and Subsidiaries
Consolidated Statements of Net Income and Comprehensive Income
Product sales
Handling & freight income
Net sales
Costs and expenses:
Cost of products sold
Distributor royalties and commissions
Selling, general, and administrative
Income from operations
Other income (expense):
Interest income
Interest expense
Other income (expense)
Income (loss) before income taxes
Provision (benefit) for income taxes
Net income available to common
shareholders
Year ended December 31
2014
2013
$
$
52,902,254
4,442,705
57,344,959
62,379,450
5,827,288
68,206,738
11,657,728
20,542,905
25,048,596
95,730
14,022,996
24,926,014
27,755,483
1,502,245
131,503
(100,142)
(150,522)
(23,431)
(748,000)
149,402
(82,461)
(137,596)
1,431,590
655,000
$
724,569
$
776,590
Other comprehensive income (loss):
Foreign currency translation adjustment
(78,445)
7,157
Comprehensive income
$
646,124
$
783,747
Earnings per common share - Basic
$0.06
$0.06
Weighted average shares
12,666,000
12,619,000
Earnings per common share - Diluted
$0.06
$0.06
Weighted average shares
12,811,000
12,816,000
See accompanying notes.
F-4
Reliv' International, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
Common Stock
Shares
Amount
Additional
Paid-In
Capital
Accumulated
Other
Accumulated Comprehensive
Treasury Stock
Deficit
Loss
Shares
Amount
Total
14,511,816
-
$
14,512
-
$
30,074,801
-
$
(8,557,178)
776,590
$
(494,550)
-
1,892,176
-
$
(5,455,715)
-
$
15,581,870
776,590
-
-
-
-
7,157
-
-
-
-
-
-
7,789
-
14,519,605
-
-
-
-
-
8
-
14,520
-
-
41,745
(31,618)
2,481
13,660
-
30,101,069
-
(378,576)
-
-
-
-
-
(8,159,164)
724,569
-
-
-
-
-
-
(487,393)
-
-
-
-
(42,248)
-
4,045
1,853,973
-
-
-
-
122,519
-
(5,364)
(5,338,560)
-
-
-
-
-
(78,445)
-
-
153,478
-
-
14,673,083
153
-
-
14,673
$
$
176,346
46,370
(2,187)
30,321,598
$
-
-
-
(7,434,595)
$
-
-
-
(565,838)
-
-
-
1,853,973
$
-
-
-
(5,338,560)
$
7,157
783,747
(378,576)
41,745
(31,618)
125,000
13,668
(5,364)
16,130,472
724,569
(78,445)
646,124
176,499
46,370
(2,187)
16,997,278
Balance at December 31, 2012
Net income
Other comprehensive income (loss):
Foreign currency translation adjustment
Total comprehensive income
Common stock dividends paid, $0.03 per share
Stock-based compensation
Expired stock options & warrants; deferred tax effect
Contribution of treasury shares to ESOP
Warrants exercised
Common stock purchased for treasury
Balance at December 31, 2013
Net income
Other comprehensive income (loss):
Foreign currency translation adjustment
Total comprehensive income
Common stock issued to consultant
Stock-based compensation
Expired stock options & warrants; deferred tax effect
Balance at December 31, 2014
See accompanying notes.
F-5
Reliv’ International, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Operating activities
Net income
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation and amortization
Stock-based compensation
Non-cash life insurance policy accretion
Contribution of treasury shares to ESOP
Deferred income taxes
Foreign currency transaction (gain)/loss
(Increase) decrease in accounts receivable and
accounts due from employees and distributors
(Increase) decrease in inventories
(Increase) decrease in refundable income taxes
(Increase) decrease in prepaid expenses and other
current assets
(Increase) decrease in other assets
Increase (decrease) in income taxes payable
Increase (decrease) in accounts payable & accrued
expenses and other non-current liabilities
Net cash (used in) provided by operating activities
Investing activities
Proceeds from sale of property, plant, and equipment
Purchase of property, plant, and equipment
Payments received on distributor note receivable
Acquisition of lunasin technology license
Payment of life insurance premiums
Net cash used in investing activities
Financing activities
Proceeds from revolving line of credit borrowings
Principal payments on long-term borrowings
Common stock dividends paid
Proceeds from warrants exercised
Purchase of stock for treasury
Net cash (used in) provided by financing activities
Effect of exchange rate changes on cash and cash
equivalents
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Year ended December 31
2014
2013
$
724,569
$
776,590
961,731
46,370
(91,932)
-
(615,000)
136,999
(117,064)
(76,392)
(257,533)
28,130
(18,159)
(199,558)
(913,885)
(391,724)
1,186
(909,403)
91,219
-
(252,250)
(1,069,248)
500,000
(633,257)
-
-
-
(133,257)
(73,177)
(1,667,406)
6,656,798
4,989,392
$
$
952,660
41,745
(68,093)
125,000
(137,000)
126,188
84,248
(3,500)
11,151
(23,393)
(71,748)
199,558
508,761
2,522,167
3,231
(382,580)
78,954
(1,150,000)
(252,250)
(1,702,645)
1,150,000
(630,246)
(378,576)
13,668
(5,364)
149,482
(113,248)
855,756
5,801,042
6,656,798
F-6
Reliv’ International, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (continued)
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest
Income taxes
Noncash investing and financing transactions:
Obligation for acquisition of lunasin
technology license
See accompanying notes.
Year ended December 31
2014
2013
$
$
$
82,768
320,000
$
$
74,767
579,000
-
$
850,000
F-7
Reliv’ International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2014
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, Indonesia, Ireland, Malaysia, Mexico, the Netherlands, New Zealand,
the Philippines, Singapore, and the United Kingdom.
Principles of Consolidation
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. Certain reclassifications have been made to the 2013 financial statements to conform
to the 2014 presentation.
Cash Equivalents
The Company's 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.
Inventories
Inventories are valued at the lower of cost or market. Product cost includes raw materials, labor,
and overhead costs and is accounted for on a first-in, first-out basis. On a periodic basis, the
Company reviews its inventory levels, as compared to future demand requirements and the shelf
life of the various products. Based on this review, the Company records inventory write-downs
when necessary.
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.
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 5 years, office equipment and machinery
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)
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 income 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 the
Company’s investments in non-U.S. subsidiaries are deemed to be reinvested for an indefinite
period of time. Transaction losses were $136,999 and $126,188 for 2014 and 2013, respectively.
Revenue Recognition
The Company receives payment by credit card, personal check, or guaranteed funds for orders
from independent distributors and makes related commission payments in the following month.
Generally, net sales reflect product sales less the distributor discount of 20 percent to 40 percent
of the suggested retail price. Sales revenue and commission expenses are recorded when the
merchandise is shipped, as this is the point title and risk of loss pass to the distributor.
In
accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards
Codification (“ASC”) Topic 605-50, “Revenue Recognition – Customer Payments and
Incentives,” the Company presents 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.
Actual and estimated sales returns are classified as a reduction of net sales. The Company
estimates and accrues a reserve for product returns based on the Company’s return policy and
historical experience. The Company’s return 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 90% of the original
purchase price less any distributor royalties and commission received relating to the original
purchase of the returned products. For the years ended December 31, 2014 and 2013, total
returns as a percent of net sales were approximately 0.25 % and 0.57%, respectively.
The Company records handling and freight income as a component of net sales and records
handling and freight costs as a component of cost of products sold. Total revenues do not
include sales tax as the Company considers itself a pass-through conduit for collecting and
remitting applicable sales taxes.
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 5 for further
discussion.
F-9
Reliv’ International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. Nature of Business and Significant Accounting Policies (continued)
Basic and Diluted Earnings per Share
Basic earnings per common share are computed using the weighted average number of common
shares outstanding during the year. Diluted earnings 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 8 for additional
information regarding earnings per share.
Stock-Based Compensation
The Company has stock-based incentive plans under which it may grant stock option, restricted
stock, and unrestricted stock awards. The Company recognizes stock-based compensation
expense based on the grant date fair value of the award and the related vesting terms. The fair
value of stock-based awards is primarily determined using the Black-Scholes model, which
incorporates assumptions regarding the risk-free interest rate, expected volatility, expected
option life, and dividend yield. See Note 7 for additional information.
The Company accounts for options granted to non-employees and warrants granted to
distributors under the fair value approach required by FASB ASC Topic 505-50, “Equity Based
Payments to Non-Employees.”
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 stock options 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 11 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. The Company recorded $19,400 and
$191,800 of advertising expense in 2014 and 2013, respectively.
Research and Development Expenses
Research and development expenses, which are charged to selling, general, and administrative
expenses as incurred, were $618,000 and $565,000 in 2014 and 2013, respectively.
F-10
Reliv’ International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. Nature of Business and Significant Accounting Policies (continued)
Amortizable Intangible Assets
The Company records intangible assets 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. The Company bases its fair value estimates and related asset lives on assumptions it
believes to be reasonable but that are unpredictable and inherently uncertain. Actual future
results may differ from these estimates.
Intangible assets estimated to have finite estimable 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 income and
comprehensive income. As of December 31, 2014, remaining lives of intangible assets range
from two to sixteen years.
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.
Recent Accounting Standards Pending Adoption
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards
Update (ASU) No. 2014-09, Revenue from Contracts with Customers, which requires an entity to
recognize the amount of revenue to which it expects to be entitled for the transfer of promised
goods or services to customers. The ASU will replace most existing U.S. GAAP revenue
recognition guidance and becomes effective for the Company on January 1, 2017. Early
application is not permitted. 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 adoption of either the retrospective or modified retrospective transition method.
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.
F-11
Reliv’ International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
2. Property, Plant, and Equipment
Property, plant, and equipment at December 31, 2014 and 2013, consist of the following:
Land and land improvements
Building
Machinery and equipment
Office equipment
Computer equipment and software
Less accumulated depreciation
2014
2013
$
$
883,563
9,966,748
4,355,040
1,235,192
2,505,229
18,945,772
12,019,802
6,925,970
$
$
883,563
9,945,187
3,785,949
1,236,303
2,690,294
18,541,296
11,805,877
6,735,419
For the years ended December 31, 2014 and 2013, depreciation expense was $691,603 and
$750,267, respectively.
3. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses at December 31, 2014 and 2013, consist of the
following:
Trade payables
Distributors' commissions
Sales taxes
Payroll, payroll taxes, and incentive compensation
4. Amortizable Intangible Assets
2014
2013
$
$
2,026,198
1,753,908
292,188
1,114,763
5,187,057
$
$
2,968,814
2,033,727
311,049
555,193
5,868,783
The Company had amortizable intangible assets as follows as of December 31, 2014 and 2013:
Gross Carrying Amount
Accumulated
Amortization
2014
2013
2014
2013
Distributorship and related agreements
Lunasin technology license
$2,060,000
1,954,661
$2,060,000
1,954,661
$924,385
164,501
$770,375
48,383
$4,014,661
$4,014,661
$1,088,886
$818,758
F-12
Reliv’ International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
4. Amortizable Intangible Assets (continued)
Amortization expense for intangible assets totaled $270,128 and $202,393 in 2014 and 2013,
respectively. Amortization expense for amortizable intangible assets over the next five years is
estimated to be:
2015
2016
2017
2018
2019
Intangible
Amortization
$270,000
255,000
226,000
226,000
226,000
5. Fair Value of Financial Instruments
The carrying amount and fair value of financial instruments at December 31, 2014 and 2013
were approximately as follows:
Description
Carrying
Amount
Fair
Value
Level 1
Level 2
Level 3
December 31, 2014
Long-term debt
Note receivable
Marketable securities
December 31, 2013
Long-term debt
Note receivable
Marketable securities
$4,244,690
$4,244,690
1,829,827
2,098,000
-
-
$4,244,690
2,098,000
284,000
284,000
$284,000
-
$4,362,611
$4,362,611
1,921,046
2,365,000
-
-
$4,362,611
2,365,000
278,000
278,000
$278,000
-
-
-
-
-
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.
F-13
Reliv’ International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
5. Fair Value of Financial Instruments (continued)
Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions.
Long-term debt: The fair value of the Company’s term and revolver loans approximate carrying
value as these loans have variable market-based interest rates that 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 of its
term and revolver loans.
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 the respective balances.
6. Debt
Debt at December 31, 2014 and 2013 consists of the following:
Term loan
Revolving line of credit
Obligation for acquisition of technology license, net
Less current maturities
Long-term portion
2014
2013
$
$
3,067,442
500,000
677,248
4,244,690
697,423
3,547,267
$
$
2,400,697
1,150,000
811,914
4,362,611
581,004
3,781,607
F-14
Reliv’ International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
6. Debt (continued)
Principal maturities of debt at December 31, 2014, are as follows:
2015
2016
2017
2018
2019
Thereafter
$
697,423
3,320,019
227,248
-
-
-
$ 4,244,690
Revolving loan agreements
Effective September 30, 2012, the Company entered into a new one-year $5 million revolving
loan agreement (2012) with its primary lender. Similar to the previous agreements, any advances
under the revolver accrue interest at a variable interest rate based on 30-day LIBOR + 1.85%.
Interest, if any, is payable monthly.
In August 2013, in conjunction with its acquisition of a
technology license, the Company borrowed $1.15 million under its revolving line of credit and
this balance remained outstanding at December 31, 2013.
On February 28, 2014, the Company and its primary lender amended the revolving line of credit
agreement and the term loan agreement (collectively, the “Credit Agreement”). As part of the
amendment, the $5 million revolving line of credit agreement was extended to July 1, 2016 and
the outstanding revolving loan balance of $1.15 million was re-financed into the term loan
balance.
In September 2014, the Company borrowed $500,000 under its revolving line of credit to finance
the purchase of machinery and equipment. On October 29, 2014, in conjunction with its
the Company and its primary lender amended the
amendment
maximum borrowing capacity of the revolving line of credit from $5 million to $3.5 million. At
December 31, 2014, the revolver’s interest rate was 2.008% and $3 million remains available for
additional borrowings under the revolving line of credit.
to the Credit Agreement,
Term Loan
On September 30, 2012, the Company re-financed a prior loan agreement with its primary
lender. The 2012 re-financed term loan was for a period of thirty-eight months with interest
accruing at a floating interest rate based on the 30-day LIBOR plus 2%. Monthly principal and
interest payments were based on approximately a seven-year amortization with the aggregate
outstanding balance of principal and interest due and payable on November 30, 2015.
F-15
Reliv’ International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
6. Debt (continued)
Term Loan (continued)
On February 28, 2014, the Company re-financed the 2012 term loan agreement and its revolving
line of credit agreement with its primary lender. The 2014 re-financed term loan is for a period
of twenty-eight months with the same floating interest rate pricing as the 2012 term loan. The
total borrowings on the new 2014 term loan was approximately $3.5 million and consisted of the
summation of the outstanding balance of the 2012 term loan plus the February 28, 2014
revolving line of credit loan balance of $1.15 million. Monthly term loan payments consist of
principal of $41,452 plus interest with a balloon payment for the outstanding balance due and
payable on July 1, 2016. At December 31, 2014, the term loan’s interest rate was 2.158%.
The Credit Agreement is secured by all tangible and intangible assets of the Company and also
by a mortgage on the real estate of the Company’s headquarters. The Credit Agreement also
includes loan covenants requiring the Company to maintain net tangible worth of not less than
$11 million, and a fixed charge coverage ratio under which EBITDA adjusted for certain non-
cash expenses shall exceed fixed charges by a ratio of at least 1.15 to 1. Fixed charges, as
defined, include unfinanced capital expenditures, dividends and other distributions, cash taxes
paid, and principal and interest due on all debt obligations. At September 30, 2014, the
Company’s fixed charge coverage ratio was less than the loan covenant’s minimum ratio of 1.15
to 1. On October 29, 2014, the Company and its primary lender agreed to amend the Credit
Agreement whereby the primary lender waived the Company’s non-compliance with the fixed
charge coverage ratio for the September 30, 2014 reporting period.
In addition to the aforementioned loan covenant waiver and the reduction in the maximum
borrowing capacity of the revolver, the October 29, 2014 amendment restricts the Company from
the declaration and cash payment of common stock dividends and the repurchase of company
common stock.
At December 31, 2014, the Company’s fixed charge coverage ratio was less than the loan
covenant’s minimum ratio of 1.15 to 1. On February 27, 2015, the Company’s primary lender
waived the Company’s non-compliance with the fixed charge coverage ratio for the December
31, 2014 reporting period. On March 3, 2015, the Company and its primary lender entered into
the Second Amendment to the Credit Agreement whereby the parties agreed to adjust the
minimum fixed coverage ratio to 1.0 for the March 31, 2015 reporting period, only. Quarterly
loan covenant reporting periods subsequent to March 31, 2015 remain at a minimum fixed
coverage ratio of 1.15 to 1.0.
In addition, the Second Amendment revises the net tangible worth covenant to a covenant
minimum of $9.5 million and re-defines net tangible worth as actual stockholders’ equity
reduced by the sum of net intangible assets, accounts due from employees and distributors, and
note receivable due from distributor.
F-16
Reliv’ International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
6. Debt (continued)
Obligation for Acquisition of Technology License, net
In July 2013, a newly-formed, wholly-owned subsidiary of the Company entered into a
Technology License Agreement (TLA) with a privately-held company. The TLA provides the
Company the exclusive license for certain intellectual property related to the nutritional
ingredient lunasin and other soy-related peptides and proteins. In consideration for the TLA, the
Company agreed to pay the licensor a purchase price of $2 million; $1.15 million paid at closing,
with the remaining obligation (non-interest bearing) paid over the next four years in a series of
annual payments ranging from $150,000 to $250,000 as stated in the agreement. Subject to
certain minimum and maximum thresholds, the Company may also pay the licensor royalties of
5% of sales during the first five years of the TLA and royalties ranging from 1% to 3% of sales
during the remaining life of the TLA. As of December 31, 2014, management’s estimate of
earned but unpaid royalties is zero. The Company has accounted for the TLA as an asset
purchase acquisition consisting of a long-term finite-lived asset to be amortized over the life of
the associated intellectual property (approximately seventeen years at origination).
7. Stockholders’ Equity
Stock Options
Incentive Stock Plans
The Company sponsors two incentive stock plans (a “2014 Plan” and a “2009 Plan”) each
allowing for a maximum of 1,000,000 shares to be granted in the form of either incentive stock
options, non-qualified stock options, restricted stock awards, or unrestricted stock awards.
Employees, directors, advisors, and consultants of the Company are eligible to receive the grants.
These plans have been approved by the stockholders of the Company. The Compensation
Committee of the Board of Directors administers the plans.
The 2014 Plan and the 2009 Plan provide that options may be issued under the plan(s) at an
option price not less than fair market value of the stock at the time the option is granted. Under
these plans, restricted stock of the Company may be granted at no cost to the grantee. The
grantees are entitled to dividends and voting rights for their respective shares. Restrictions limit
the sale or transfer of these shares during the requisite service period. In addition, the committee
may grant or sell unrestricted stock at a purchase price to be determined by the committee.
Vesting terms and restrictions, if applicable, under the plans, are set by the committee and will
be 10 years or less. The 2014 Plan expires in 2024 and the 2009 Plan expires in 2019. As of
December 31, 2014, there have not been any awards under the 2014 Plan.
F-17
Reliv’ International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
7. Stockholders’ Equity (continued)
Stock Options (continued)
In March 2013, under the 2009 Plan, the Company issued performance-based stock option grants
totaling 230,000 shares. These option grants have an exercise price of $1.17 per share with a
five-year term. The options’ vesting provisions are contingent upon the Company achieving
certain financial performance measurements. The aggregate estimated compensation cost related
to the performance based options is $110,400; however, recognition is contingent upon
performance vesting. The grant-date fair value of the options was $0.48 per share and was
determined using a binomial lattice option pricing model using an average risk-free rate of
0.90%, an average dividend yield of 1.60%, and an average volatility of 52.7%.
Compensation cost for all of the stock option plans was approximately $32,737 ($32,000 net of
tax) and $36,772 ($35,000 net of tax) for the years ended December 31, 2014 and 2013,
respectively, and has been recorded in selling, general, and administrative expense. As of
December 31, 2014, the total remaining unrecognized compensation cost related to the non-
vested portion of time vesting stock options totaled $60,000 ($58,000 net of tax), which will be
amortized over the weighted remaining requisite service period of two years.
A summary of the Company’s stock option activity and related information for the years ended
December 31 follows:
Outstanding beginning of the year
Granted
Exercised
Expired and forfeited
Outstanding at end of year
2014
2013
Weighted
Avg.
Exercise
Price
$3.42
2.40
$3.49
Weighted
Avg.
Exercise
Price
$3.95
1.17
5.57
$3.42
Options
1,313,500
230,000
-
(78,500)
1,465,000
Options
1,465,000
-
-
(83,000)
1,382,000
Exercisable at end of year
608,000
$6.39
555,500
$7.05
Options Outstanding
Options Exercisable
As of December 31, 2014
Range of
Exercise Prices
Number
Outstanding
Weighted Avg.
Remaining Life
Weighted Avg.
Exercise Price
Number
Exercisable
Weighted Avg.
Remaining Life
Weighted Avg.
Exercise Price
$1.17
$1.20 - $1.32
$7.92
$8.68
$1.17 - $8.68
202,000
715,000
435,000
30,000
1,382,000
3.17
2.00
0.01
0.79
1.52
$1.17
1.22
7.92
8.68
$3.49
-
143,000
435,000
30,000
608,000
-
2.00
0.01
0.79
0.52
$
-
1.23
7.92
8.68
$6.39
F-18
Reliv’ International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
7. Stockholders’ Equity (continued)
Stock Options (continued)
The aggregate intrinsic value of stock options outstanding and currently exercisable at December
31, 2014 was $-0-. Intrinsic value for stock options is calculated based on the exercise price of
the underlying awards as compared to the quoted price of the Company’s common stock as of
the reporting date.
For the years ended December 31, 2014 and 2013, no stock options were exercised.
Distributor Stock Purchase Plan
In July 2009, the Company established a Distributor Stock Purchase Plan (2009 Plan) which
replaced a similar plan which had expired. Since inception, a total of 68,263 warrants have been
issued under the 2009 Plan.
The plan allows distributors who have reached the “Ambassador” status the opportunity to
allocate up to 10% of their monthly compensation into the plan to be used to purchase the
Company’s common stock at the current market value. The plan also states that at the end of
each year, the Company will grant warrants to purchase additional shares of the Company’s
common stock based on the number of shares purchased by the distributors under the plan during
the year. The warrant exercise price will equal the market price for the Company’s common
stock at the date of issuance. The warrants issued shall be in the amount of 25% of the total
shares purchased under the plan during the year and the warrants are fully vested upon grant.
The Company records expense under the fair value method for warrants granted to distributors.
Total expense recorded for these warrants was $13,633 and $4,973 in 2014 and 2013,
respectively.
The fair value of the warrants was estimated at the date of grant using a Black-Scholes option
pricing model with the following assumptions:
Expected warrant life (years)
Risk-free weighted average interest rate
Stock price volatility
Dividend yield
Year ended December 31
2014
2013
3.0
1.10%
64.1%
0.0%
3.0
0.78%
62.8%
0.8%
F-19
Reliv’ International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
7. Stockholders’ Equity (continued)
Distributor Stock Purchase Plan (continued)
A summary of the Company’s warrant activity and related information for the years ended
December 31 follows:
Outstanding beginning of the year
Granted
Exercised
Expired
2014
Weighted
Avg.
Exercise
Price
Warrants
2013
Weighted
Avg.
Exercise
Price
Warrants
37,987
11,192
-
(14,154)
$1.76
1.17
1.23
41,827
12,065
(7,789)
(8,116)
$1.49
2.81
1.76
1.94
Outstanding at end of year
35,025
$1.78
37,987
$1.76
Exercisable at end of year
35,025
37,987
As of December 31, 2014
Warrants Outstanding
Warrants Exercisable
Range of
Exercise Prices
$ 1.17
$ 1.31
$ 2.81
$1.17 - $2.81
Number
Outstanding
11,192
11,768
12,065
35,025
Weighted Avg.
Remaining Life
3.00
1.00
2.00
1.98
Weighted Avg.
Exercise Price
$1.17
1.31
2.81
$1.78
Number
Exercisable
11,192
11,768
12,065
35,025
Weighted Avg.
Exercise Price
$1.17
1.31
2.81
$1.78
The intrinsic value for stock warrants outstanding at December 31, 2014 was $-0-. A summary
of the total intrinsic value, actual tax benefit realized, and cash received for stock warrants
exercised for the years ended December 31 follows:
Stock Warrants Exercised:
Intrinsic value
Actual tax benefit realized
Cash received
Year ended December 31
2014
2013
$
-
-
-
$
9,548
2,045
13,668
F-20
Reliv’ International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
7. Stockholders’ Equity (continued)
Other equity transaction
For the years ended December 31, 2014 and 2013, the Company recorded expense and a
corresponding liability for certain consulting services of $70,499 and $106,000, respectively. In
December 2014, based upon the fair market value of the Company’s common stock on issuance
date, the Company issued 153,478 shares of Company common stock at a fair market value of
$176,499 to this consultant for services rendered.
8. Earnings per Share
The following table sets forth the computation of basic and diluted earnings per share:
Numerator:
Net income
Denominator:
Denominator for basic earnings per share –
weighted average shares
Dilutive effect of employee stock options and
other warrants
Denominator for diluted earnings per share –
adjusted weighted average shares
Basic earnings per share
Diluted earnings per share
Year ended December 31
2014
2013
$724,569
$776,590
12,666,000
12,619,000
145,000
197,000
12,811,000
12,816,000
$0.06
$0.06
$0.06
$0.06
For the years ended December 31, 2014 and 2013, options and warrants totaling 1,036,565 and
1,099,565, respectively, shares of common stock were not included in the denominator for
diluted earnings per share because their effect would be anti-dilutive or because the shares were
deemed contingently issuable.
F-21
Reliv’ International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
9. Leases
The Company leases certain office facilities, storage, and equipment. These leases have varying
terms, and certain leases have renewal and/or purchase options. Future minimum payments under
non-cancelable leases with initial or remaining terms in excess of one year consist of the
following at December 31, 2014:
2015
2016
2017
2018
2019
Thereafter
$
$
378,841
218,665
150,478
34,764
10,272
5,136
798,156
Rent expense for operating leases was $471,066 and $479,862 for the years ended December 31,
2014 and 2013, respectively.
10. Note Receivable Due From Distributor
In March 2012, the Company purchased a note and mortgage (“Note”) from a real estate
In
investment management firm on certain properties in Wyoming and Idaho for $2 million.
May 2012, the Company entered into a Loan Modification Agreement (“LMA”) with the Note’s
original and present borrower (“Borrower”) to restructure the Note’s principal amount due and
related terms. The LMA terms are for a principal balance due of $2 million with interest only
payments made monthly in 2012. The LMA’s interest rate is the greater of 6% or prime and
there is no prepayment penalty for voluntary principal payments. Concurrently, with the
execution of the LMA, the Company and the Borrower also entered into a Security Agreement in
which repayment of the LMA is secured by the Borrower’s Reliv distributorship business.
As originally structured, beginning in 2013, the LMA was to require monthly payment of
principal and interest under a five-year amortization period. In February 2013, while retaining
the Company’s right to require Borrower’s compliance with the LMA’s terms, the Company and
the Borrower agreed to a verbal modification in the payment schedule in which the Company
agreed to accept monthly payments of principal and interest under a fifteen-year amortization
period. The outstanding balance of the note receivable was $1,829,827 and $1,921,046 as of
December 31, 2014 and 2013, respectively.
F-22
Reliv’ International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
11. Income Taxes
Compenents of income (loss) before income taxes:
Year ended December 31
United States
Foreign
2014
2013
$49,757
(73,188)
($23,431)
$2,974,655
(1,543,065)
$1,431,590
Compenents of provision (benefit) for income taxes:
Year ended December 31
Current:
Federal
State
Foreign
Total current
Deferred:
Federal
State
Foreign
Total deferred
2014
2013
($37,000)
(122,000)
26,000
(133,000)
131,000
24,000
(770,000)
(615,000)
($748,000)
$652,000
117,000
23,000
792,000
(126,000)
(23,000)
12,000
(137,000)
$655,000
The provision (benefit) for income taxes is different from the amounts computed by applying the
United States federal statutory income tax rate of 34%. The reasons for these differences are as
follows:
Income taxes at U.S. statutory rate
State income taxes, net of federal benefit
Higher/(lower) effective taxes on earnings in
foreign countries
Foreign corporate income taxes
Nondeductible meals and entertainment expense
Qualified production activities income - AJCA
State tax planning strategy
Release of valuation allowance, net
Other
Year ended December 31
2014
2013
($8,000)
19,000
$487,000
70,000
37,000
14,000
23,000
-
(97,000)
(714,000)
(22,000)
($748,000)
116,000
35,000
27,000
(52,000)
-
-
(28,000)
$655,000
F-23
Reliv’ International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
11. Income Taxes (continued)
The Company has a deferred tax asset of $3,147,000 as of December 31, 2014, and $3,640,000
as of December 31, 2013, relating to foreign net operating loss carryforwards (NOLs) in various
jurisdictions which expire in a range of years from one to unlimited.
In 2014, the Company
recorded a net income tax benefit of $758,000 due to a reduction of the valuation allowance
related to deferred tax assets for net operating losses of approximately $3.6 million in the
Company’s United Kingdom subsidiary. Based on management’s assessment, the Company
reduced the United Kingdom’s NOL valuation allowance because the weight of evidence
regarding the future realizability of the deferred tax assets had become predominantly positive
and realization of the deferred tax assets was more likely than not. The positive evidence
considered primarily related to three years of consistent profitability while the only negative
evidence was historical losses prior to 2012 for this subsidiary. The additional change in the
valuation allowance balance presented below represents the impact from foreign currency
translation.
The components of the deferred tax assets and liabilities, and the related tax effects of each
temporary difference at December 31, 2014 and 2013, are as follows:
Deferred tax assets:
Product refund reserve
Inventory obsolescence reserve
Vacation accrual
Stock-based compensation
Organization costs
Deferred compensation
Miscellaneous accrued expenses
Foreign net operating loss carryforwards
Valuation allowance - NOL carryforwards
Deferred tax liabilities:
Depreciation and amortization
Foreign currency exchange
Net deferred tax assets (liabilities)
Reported as:
Current deferred tax assets
Non-current deferred tax assets
Non-current deferred tax liabilities
Net deferred tax assets
2014
2013
$
$
$
13,000
24,000
17,000
10,000
208,000
98,000
8,000
3,147,000
(2,432,000)
1,093,000
213,000
133,000
346,000
747,000
61,000
686,000
-
26,000
28,000
28,000
6,000
207,000
284,000
16,000
3,640,000
(3,640,000)
595,000
272,000
141,000
413,000
182,000
309,000
-
127,000
747,000
$
182,000
$
$
$
$
F-24
Reliv’ International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
11. Income Taxes (continued)
Through December 31, 2014, the cumulative amount of unremitted earnings on which the
Company has not recognized United States income tax was $57,000 as the Company plans to
indefinitely reinvest these earnings outside the United States.
The Company applied applicable accounting 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 the
Company’s practice to recognize interest and / or penalties related to income tax matters in
income tax expense.
At December 31, 2014 and 2013, the Company had $48,000 and $91,000, respectively, of
cumulative unrecognized tax benefits, of which only the net amount of 48,000 would impact the
effective income tax rate if recognized.
The aggregate changes in the balance of gross unrecognized tax benefits were as follows:
Beginning balance as of January 1, 2013
$
56,000
Settlements and effective settlements with tax authorities
Lapse of statute of limitations
Increases in balances related to tax positions taken during prior periods
Decreases in balances related to tax positions taken during prior periods
Increases in balances related to tax positions taken during current period
-
(7,000)
40,000
(11,000)
13,000
Balance as of December 31, 2013
$
91,000
Settlements and effective settlements with tax authorities
Lapse of statute of limitations
Increases in balances related to tax positions taken during prior periods
Decreases in balances related to tax positions taken during prior periods
Increases in balances related to tax positions taken during current period
-
(6,000)
-
(46,000)
9,000
Balance as of December 31, 2014
$
48,000
The Company’s unrecognized tax benefits balance is included within other noncurrent liabilities
on the consolidated balance sheets.
The Company, including its domestic and foreign subsidiaries, is subject to U.S. federal income
tax as well as income tax of multiple state and foreign jurisdictions. The Company has
concluded all U.S. federal income tax matters for years through 2010 and concluded years
through 2010 with its primary state jurisdiction.
F-25
Reliv’ International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
11. Income Taxes (continued)
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 should not be liable to
pay the majority of the alleged tax deficiencies. As of December 31, 2010, management
estimated and reserved approximately $185,000 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
As of December 31, 2014,
management’s estimated reserve (net of deposits) for this matter is approximately $122,000.
resolution process.
12. Employee Benefit Plans
The Company sponsors a 401(k) employee savings plan which covers substantially all
employees. Employees can contribute up to 15% of their gross income to the plan. The
Company matched a percentage of the employee’s contribution at a rate of 25% for 2013 and the
first nine months of 2014 and at a rate of 10% for the last 3 months of 2014. Company
the 401(k) plan totaled $98,300 and $144,600 in 2014 and 2013,
contributions under
respectively.
On September 1, 2006, the Company established an employee stock ownership plan ("ESOP")
which covers substantially all U.S. employees. Contributions to the ESOP are funded by the
Company on a discretionary basis. In 2014, the Company elected to not make a contribution to
the ESOP. In 2013, the Company’s contribution consisted of shares of common stock from
treasury measured by the fair value of the stock on date of contribution. Company contributions
under the ESOP plan totaled approximately $-0- and $125,000 for each of the years ended
December 31, 2014 and 2013, respectively.
13. Incentive Compensation Plans
In May 2007, the Board of Directors approved the adoption of a new incentive compensation
plan. This new plan was effective for fiscal year 2007 and replaced a previous plan. Under the
plan, bonuses are payable quarterly in an amount not to exceed 18% of the Company’s Income
from Operations for any period, subject to the Company achieving a minimum quarterly Income
from Operations of at least $500,000. For fiscal years 2014 and 2013, the Board determined that
the aggregate amount of incentive compensation available under the Plan shall be equal to 16%
of the Company’s Income from Operations. The bonus pool is allocated to executives according
to a specified formula, with a portion allocated to a middle management group determined by the
Executive Committee of the Board of Directors.
The Company expensed a total of $89,000 and $286,000 to the participants of the bonus pool for
2014 and 2013, respectively.
F-26
Reliv’ International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
13. Incentive Compensation Plans (continued)
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, varies 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. In the fourth quarter of 2012, the subsidiary’s 24-month financial performance
became positive, and remained positive throughout 2013 and 2014, resulting in the recognition
of compensation expense of $137,000 and $440,500 for 2014 and 2013, respectively, as
presented within Selling, General, and Administrative in the accompanying consolidated
income and comprehensive income. At December 31, 2013, accrued
statements of net
compensation was $529,000 and was included in “Other Non-Current Liabilities” in the
accompanying consolidated balance sheets.
Beginning April 2015, the Company may exercise a call option on one or more of the manager’s
incentive amount; redeeming such amount in cash or a combination of cash and the Company’s
common stock, depending upon the amount of the vested incentive. At December 31, 2014, it is
management’s estimate that it will exercise within one year the Company’s call option for all of
the vested incentive balance at time of exercise. Accordingly, the December 31, 2014, accrued
incentive compensation of $666,000 was presented in “Payroll, Payroll Taxes, and Incentive
Compensation Payable”, a component of Accounts Payable and Accrued Expenses, as presented
in the accompanying consolidated balance sheets.
The Company sponsors a Supplemental Executive Retirement Plan (SERP) to allow certain
executives to defer a portion of their annual salary and bonus into a grantor trust. A grantor trust
was established to hold the assets of the SERP. The Company funds the grantor trust by paying
the amount deferred by the participant into the trust at the time of deferral. Investment earnings
and losses accrue to the benefit or detriment of the participants. The SERP also provides for a
discretionary matching contribution by the Company not to exceed 100% of the participant’s
annual contribution. In 2014 and 2013, the Company did not provide a match. The participants
fully vest in the deferred compensation three years from the date they enter the SERP. The
participants are not eligible to receive distribution under the SERP until retirement, death, or
disability of the participant. At December 31, 2014 and 2013, SERP assets were $284,000 and
$278,000, respectively, and are included in “Other Assets” in the accompanying consolidated
balance sheets. At December 31, 2014 and 2013, SERP liabilities were $288,000 and $287,000,
respectively, and are included in “Other Non-Current Liabilities” in the accompanying
consolidated balance sheets. The changes in the balances of SERP assets and SERP liabilities
during 2014 and 2013 were due to net realized and unrealized investment gains/losses incurred
by the plan.
F-27
Reliv’ International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
14. Segment Information
Description of Products and Services by Segment
The Company operates in one reportable segment, a network marketing segment consisting of
six operating units that sell nutritional and dietary products to a sales force of independent
distributors that sell the products directly to customers.
These operating units are based on
geographic regions.
Geographic area data for the years ended December 31, 2014 and 2013 follow:
Net sales to external customers
United States
Australia/New Zealand
Canada
Mexico
Europe (1)
Asia (2)
Total net sales
Assets by area
United States
Australia/New Zealand
Canada
Mexico
Europe (1)
Asia (2)
Total consolidated assets
2014
2013
$43,323,190
1,641,492
1,367,294
796,208
8,300,520
1,916,255
$57,344,959
$22,414,373
609,933
485,544
456,601
2,244,738
636,621
$26,847,810
$53,650,647
1,858,983
1,776,375
977,358
7,953,221
1,990,154
$68,206,738
$22,966,040
807,336
753,035
531,854
1,665,194
875,292
$27,598,751
(1) Europe consists of United Kingdom, Ireland, France, Germany, Austria, and the Netherlands.
(2) Asia consists of Philippines, Malaysia, Singapore, and Indonesia.
F-28
Reliv’ International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
14. Segment Information (continued)
Description of Products and Services by Segment (continued)
The Company classifies its sales into three categories of sales products plus handling & freight
income. Net sales by product category data for the years ended December 31, 2014 and 2013,
follow:
Net sales by product category
Nutritional and dietary supplements
Skin care products
Sales aids and other
Handling & freight income
Total net sales
2014
2013
$51,144,929
344,325
1,413,000
4,442,705
$57,344,959
$60,049,651
417,688
1,912,111
5,827,288
$68,206,738
F-29
Corporate Headquarters
Reliv International, Inc.
136 Chesterfield Industrial Blvd.
Chesterfield, Missouri 63005
Phone: 636.537.9715
Fax: 636.537.9753
Annual Meeting
The annual meeting of shareholders will be
held at 9:00 a.m. on Thursday, May 21, 2015,
at Reliv Corporate Headquarters,
136 Chesterfield Industrial Blvd.
Chesterfield, Missouri 63005
State & Date of Incorporation
Delaware, February 11, 1985
Independent Auditors
Ernst & Young LLP
Fiscal Year-End
December 31
Dividend Reinvestment,
Share Purchase & Sale Program
This Program is available to the general public
and current shareholders of the Company.
If you would like to receive information on this
Program, please call American Stock Transfer &
Trust Co., toll free, at 888.333.0203.
Stock Exchange Listing
Nasdaq Stock Market® under the symbol RELV.
Transfer Agent
American Stock Transfer & Trust Co.
6201 15th Avenue
Brooklyn, NY 11219
800.937.5449
Number of Shareholders
of Record
1,569 as of March 6, 2015
Shareholder Questions
Communications concerning stock transfer
requirements, lost certificates, change of address
or dividends should be addressed to American
Stock Transfer & Trust Co. at 800.937.5449.
Financial Information
Reliv International maintains a
website at www.reliv.com.
Reliv International, Inc.
136 Chesterfield Ind. Blvd.
Chesterfield, MO 63005
reliv.com 636.537.9715