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, 2017
(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, 2017
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, a non-
accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large
accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2
of the Exchange Act. (Check one):
Large accelerated filer Accelerated filer Non-accelerated filer (Do not check if a smaller reporting company)
Smaller reporting company Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended
transition period for complying with any new or revised financial accounting standards provided pursuant to Section
13(a) of the Exchange Act.
Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes No
Based upon the closing price of $8.78 per share of the registrant’s common stock as reported on the
NASDAQ Global Select Market on June 30, 2017, the aggregate market value of the common stock held by non-
affiliates of the registrant was approximately $9.9 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 19, 2018 was 1,845,160
(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 24, 2018, which is expected
to be filed no later than 120 days after December 31, 2017
Part of Form 10-K into Which
Document Is Incorporated
Part III
INDEX
Part I
Item No. 1
Item No. 2
Item No. 3
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 ................................................................................................................. 17
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 ................................................................................................................. 28
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, and our product offering has selectively evolved over our
history. Our core line of nutritional supplements which represented 59.3% of net sales for the year ended December
31, 2017, included the following five 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
LunaRich X — a soy concentrate with elevated levels of lunasin, in capsule form
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. For the year ended
December 31, 2017, Reliv NOW constituted 21.1% of net product sales, and LunaRich X capsules represented
15.9%. The combination of Reliv NOW and LunaRich X capsules have increasingly become the focus of our
product strategy. As a result of this strategy, we offer a Super Pack product kit that contains four cans of Reliv
NOW and four bottles of LunaRich X each containing 60 capsules. We also offer a Super Pack kit with Reliv
Classic instead of Reliv NOW. The Super Pack was designed as a simple, focused approach that capitalizes on our
most popular products and provides an entry point at a 25% discount for new distributors who want to build a
business.
In February 2017, we launched our Fit3 fitness and weight loss program in the United States to broaden and
bolster our weight management offering, and to appeal to a broader demographic than our essential nutrition. The
Fit3 program consists of three principal components: (1) nutrition coaching, (2) exercise coaching and videos, and
(3) three fitness products: Active, Burn and Purify. The Fit3 program involves our most interactive offering for
distributors and customers, including a separate website with independent content and a focused social media
outreach and support initiative. We offer a Fit Kit that includes a 90-day supply of the Fit3 products and access to
the information, tools and videos we offer through the program. We believe the Fit3 program provides an attractive
alternate entry point for new distributors or customers who are more interested in weight loss and fitness than our
essential nutrition or targeted solutions.
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 five of
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these products —ReversAge, GlucAffect, ProVantage, 24K and CardioSentials. We also own several U.S. and
international patents and patent applications related to lunasin through our acquisition of the lunasin technology in
September 2016.
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
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
business and compensation model that maintains consistent marketing, sales, fulfillment, and compliance
procedures. As of December 31, 2017, our network consisted of approximately 33,620 distributors and preferred
customers —23,050 in the United States and 10,570 across our international markets.
We manufacture nearly all of our powdered nutritional supplements and all of our encapsulated products at
our facility in Chesterfield, Missouri. We believe our ability to formulate and manufacture 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 $41.1 billion U.S. nutritional supplement market which is up 5.9% from the
prior year. This 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 170 million Americans, or 76% of all U.S. adults, take dietary supplements annually
according to the Council for Responsible Nutrition, an increase of 5 percentage points from 2016.
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 47.8 million in 2015
according to latest information from the Department of Health and Human Services. This population
segment grew 1.6 million from 2014 and they represented 14.9% of the U.S. population, or about one
in every seven Americans. By 2060, there will be approximately 98.2 million older persons, nearly one
in four U.S. residents. Recent data from the Council for Responsible Nutrition shows that 80% of
adults aged 55 and over take dietary supplements. This is up from 74% in 2016. 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 is
projected to have grown 4.6% in 2017, up slightly from 4.3% growth in 2016, according to the Centers
for Medicare and Medicaid Services (CMS). In 2015, U.S. healthcare spending reached $3.3 trillion or
$10,348 per person. 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 recent survey conducted by Harris Poll,
taking vitamins was one of the top five responses from participants wanting to improve health and
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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 State of Obesity in
September 2016, nearly 38%, or more than one-third of U.S. men and women were obese, 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 currently account for almost 21% of U.S. health care costs
according to a report by Cornell University and are expected to grow to as much as $956.9 billion by
2030. Being overweight is linked to more than 90 chronic diseases and can lead to more serious health
concerns such as diabetes, heart disease and other chronic illnesses. According to a May 2016 report
from Technavio, the global weight loss supplement market via direct selling was valued at $624.9
million in 2015 and North America accounted for more than one-third of those sales. 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 Global Holdings, Inc. (Amway Corp.) and
Tupperware Brands Corporation. According to the World Federation of Direct Selling Associations, or WFDSA, the
2016 global direct selling market (for all product categories) was estimated to be $182.6 billion, an increase from
$179.1 billion in 2015. The WFDSA estimates that the number of individuals engaged in direct selling has nearly
tripled between 1999 and 2016, from 35.9 million sellers to 107.3 million in 2016. The United States had 20.5
million direct sellers in 2016, the most of any country. Globally, wellness products came in as the top selling
category, the second year in a row that it has come in ahead of cosmetics and personal care.
While the United States is currently the largest direct selling market with $35.5 billion in annual sales in
2016, international markets account for 81% of the entire industry, according to the WFDSA. Twenty-four
countries (including the United States) have annual direct sales revenue of at least $1 billion and another twenty-
nine 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 the keys to our growth and
profitability in the future.
Leading Marketer of Bioavailable Lunasin-Containing Products. We own 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 310 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 seven other nutritional supplements with LunaRich X so that a serving of those products
yields an amount of bioactive 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, Slimplicity and Fit3
Active.
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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 of
essential nutrition 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. 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, enhance the ability of our distributors to build their businesses by providing a
comprehensive, simple product offering.
In-House Development and Production. We utilize 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. Since 1993, we have manufactured substantially all of our nutritional products at our
facility in Chesterfield, Missouri. In 2015, we installed an encapsulator and bottling line to produce our
encapsulated products, and in 2017, we installed a canister line to produce our Active product and potentially other
products as we transition our product packaging from cardboard cans to plastic canisters. We outsource production
of our ready-to-drink product, 24K. We believe our ability to formulate and manufacture nearly all of our
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.
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 22 years and are experienced in their areas of focus,
which include manufacturing, sales, finance, marketing and operations. As of March 19, 2018, our directors and
executive officers beneficially own approximately 39.1% of our common stock.
Our Business Strategy
Our basic objective is to increase our net sales by adding customers and distributors, increasing the
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
customers and 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 the launch in early 2017 of our Fit3 product line and fitness program, 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. In February 2017, we launched our Fit3 product line and
fitness program aimed at individuals seeking to improve their fitness levels and incorporate healthier options into
their daily routines. We believe the nutritional and fitness aspects of Fit3 will attract health conscious on-the-go
individuals, many of whom fall within the under-40 demographic. Further, we maintain an active presence on
4
popular social media sites including Facebook, Twitter, YouTube and several other social networks that are popular
with younger generations. Our 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 programs 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 encourages our distributors to pursue their business in multiple markets. We believe this business
model supports expansion of our distributor network 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 2017, we
introduced our Fit3 line of products and in January 2013 we launched LunaRich X to support heart health and
overall wellness. 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 and our encapsulated products 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 mid-2017, we installed a canister line in our facilities
to produce Active and allow us the option to transition the packaging of our other products to a plastic canister. In
the second half of 2014, we purchased and installed an encapsulation production line. 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 four 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, Burn and Purify are
available in capsule form.
We currently offer 18 nutritional supplements. 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 to be our primary or “core” products.
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The following table summarizes our product categories as of December 31, 2017. The net sales figures are
for the year ended December 31, 2017:
Product Category
Basic Nutrition
Specific Wellness
Weight Management
Sports Nutrition
______________________
Product Name
Reliv NOW
Reliv Classic
NOW for Kids
FibRestore
Arthaffect
ReversAge
SoySentials
CardioSentials
GlucAffect
24K
LunaRich X capsules
Fit3 product line
Meal Replacements(2)
Cellebrate
Innergize!
ProVantage
% of 2017
Net Sales(1)
18.8
9.9
5.3
9.2
6.7
3.6
1.4
1.6
1.0
1.6
14.2
4.7
0.3
0.4
7.3
3.3
Year
Introduced
1988
1988
2000
1993
1996
2000
1998
2005
2008
2011
2013
2017
Various
1995
1991
1997
(1) This table does not include net sales for the year ended December 31, 2017 related to freight and handling and
sales of marketing materials, which represented approximately 10.7% of net sales for the year ended December
31, 2017.
(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. With the launch of our Fit3 program and products in February 2017, we
discontinued Slimplicity.
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. In Australia, the product is
marketed as Nourish.
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. In Australia, the product is marketed as Nourish for Kids.
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Specific Wellness Supplements
Our line of eight specific wellness supplements contains specific compounds that target certain nutritional
needs. Each product is intended to work in conjunction with our basic nutritional supplement formulas to provide an
effective and balanced 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 patented berry-flavored nutritional supplement 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. CardioSentials is available only in the United States.
Arthaffect is a 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 designed to support healthy
blood sugar levels. 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. GlucAffect is available in the United States.
24K is a patented ready-to-drink healthy energy product. 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 is a nutritional supplement available in capsule form and comes in a bottle of 60 or 120
capsules. LunaRich X is a soy concentrate with elevated levels of bioactive 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, Singapore and New Zealand. 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 five weight management supplements combine advanced weight loss promoting complexes with
scientifically balanced nutrition and protein for muscle development and toning. Our ingredients are designed to
work together, along with proper diet and exercise, to turn unwanted fat into energy without sacrificing muscle
mass.
• Active is a nutritional supplement designed as the protein, energy and recovery product for use in our
Fit3 program introduced in February 2017. Active combines a three-protein blend of whey, casein and
non-GMO soy with active ingredients to support weight loss, physical performance and energy when
combined with healthy eating and exercise. Active is currently available in the United States.
•
•
•
•
Burn is a nutritional supplement in our Fit 3 program that promotes weight loss when combined with
healthy eating and exercise through a targeted fat-burning formula. Burn is available in the United
States.
Purify is a nutritional supplement in our Fit3 program that contains probiotics and liver and metabolic
supporting ingredients intended to cleanse the digestive system and allow maximum absorption and
metabolic efficiency. Purify is available in the United States.
Reliv ReShape is designed as a meal replacement or a nutritious snack delivering 12 grams of
protein. Reliv ReShape is only sold in Australia and New Zealand.
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 sold only in Mexico.
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. The
product also benefits those seeking to increase their soy intake. ProVantage is available in the United
States and Canada.
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 2011, we have introduced five nutritional supplement products, including 24K, LunaRich X, Active,
Burn and Purify. From time to time, we reformulate and enhance our products. 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, 2017 and 2016, our research and development expenses were $488,000
and $694,000, respectively.
8
SL Technology, Inc.
In mid-2013, we formed a wholly-owned subsidiary, SL Technology, Inc. (“SLTI”) for the purpose of
entering into a Technology License Agreement (the “License Agreement”) with Soy Labs, LLC (“Soy Labs”).
Pursuant to this License Agreement, 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 covered
an issued patent and several patent applications related to lunasin and soy-related peptides, proprietary information
and manufacturing processes of Soy Labs.
In September 2016, we entered into a letter agreement with Soy Labs to acquire sole ownership of
intellectual property subject to the License Agreement. In consideration for acceleration of the final payment under
the License Agreement, Soy Labs transferred all rights, title and interest in the technology to us and terminated any
of our future royalty obligations under the License Agreement.
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 that do not wish to become distributors, but want to purchase products directly from the
company may enroll as retail or preferred customers, so long as they are sponsored by an existing distributor. We
created a Preferred Customer program in the United States and Canada, effective February 1, 2016. Those wishing
to join as a preferred customer may enroll for an annual fee of $10, for which they receive a 10% discount from the
retail prices of our products.
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 $40 plus sales tax in
the United States, as of February 1, 2016) 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 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 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:
9
Designation
Retail Distributor(1).................................................
Affiliate ..................................................................
Key Affiliate ..........................................................
Senior Affiliate.......................................................
Master Affiliate ......................................................
Director ..................................................................
Key Director...........................................................
Senior Director .......................................................
Master Director/Ambassador .................................
Presidential Director/Ambassador..........................
Discount
10%
25%
30%
35%
40% (2)
40% (2)
40% (2)
40% (2)
40% (2)
40% (2)
______________________
(1) Effective February 1, 2016, we made adjustments to our distributor compensation plan. Among the changes
made, we reduced the purchasing discount of a Retail Distributor to 10%; however, the distributor is able to
reach the Affiliate level through cumulative purchases totaling $750 at suggested retail.
In addition to discounts, these levels also receive commissions based on sales in their downline organization.
(2)
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 10% discount Retail Distributor. If Distributor C purchases directly from us, a 10%
wholesale profit check will be sent to Distributor A and a 20% wholesale profit check will be sent to Distributor 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.
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 Inner Circle,” which may entitle them to receive additional compensation, paid participation
in our sponsored events, health insurance and car allowances.
10
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 2017, we sponsored numerous special events in cities across all of our markets led by corporate
executives and/or experienced Ambassadors;
For the key markets in which we operate, we sponsor our annual conference for distributors; and
In the United States during 2017, we sponsored an annual International Conference in the summer for
U.S. distributors.
During 2017, we invested approximately $1.25 million in training, conferences and promotional events for
our distributors worldwide compared with $1.59 million in 2016.
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
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.
11
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 2017, approximately 22.3% 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 42.8% of our
domestic net sales in 2017 in California, Pennsylvania, Illinois, Michigan, Texas, Ohio, and Florida, 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, 2017, 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 substantially consistent 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, when appropriate.
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.
12
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, we utilize local counsel and/or consultants to
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 and encapsulated products for distribution both domestically and internationally. Currently, our 24K
product is manufactured by a third party. In 2017, we installed a canister production line to produce Active and any
other products we determine to produce in a plastic canister versus our traditional cardboard can.
Our ability to manufacture nearly all of our 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 packaging 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 Active products. By monitoring and testing products at all
stages of the manufacturing process, we precisely control product composition. In addition, we believe we can more
efficiently control costs by manufacturing nearly all of our nutritional supplements.
Fulfillment
Distributors and their customers order product in either case lots or individual units of each product and pay
for the goods prior to shipment. We also have a preferred customer plan that allows these customers to purchase
product at a 10% discount for an annual enrollment fee of $10. We also offer a monthly or quarterly autoship
13
program for distributors and customers. Product is shipped directly to the distributor or customer and upline
distributors earn wholesale profits or, if applicable, a commission on all sales.
In the United States, our products are warehoused at our Chesterfield facility and shipped by common
carrier to distributors and customers 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 100% 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 0.20% of net sales in 2017 and 2016, respectively.
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 five products as set forth below:
Product
Patent Expiration Date
ReversAge
ProVantage
GlucAffect
24K
CardioSentials
May 2021
December 2030
November 2029
February 2032
January 2029
In addition to our patented formulas, we own three U.S. patents, 13 international patents and two patent applications
related to our soy concentrate ingredient with elevated levels of bioactive lunasin, the key ingredient in our
LunaRich X product. Further, we utilize a proprietary production process to produce our soy concentrate that we
protect as a trade secret, along with the bioassay to determine the bioavailability of lunasin in our products.
Currently, we have 14 trademarks registered with the U.S. Patent and Trademark Office, or USPTO,
including Reliv and the names of 12 of our 18 nutritional products. Reliv NOW for Kids, LunaRich X, ReShape,
Active, Burn and Purify are not registered with the USPTO. Cellebrate and Slimplicity trademarks have been
abandoned due to their discontinuance. 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 products and also with respect to the formulation of those products. FDA
14
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
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 are periodically audited by the FDA and 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
15
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.
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 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 Global Holdings, 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. Our
fitness and weight management 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, and LunaRich X, we are in the specific wellness needs, food and anti-aging markets,
which are extremely competitive and led by the major food companies.
Employees
As of December 31, 2017, we and all of our subsidiaries had approximately 160 full-time employees
compared with 161 such employees at the end of 2016.
16
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.
The following table summarizes information related to our worldwide facilities as of March 19, 2018:
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/call center
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
1,000
2,100
2,300
4,000
Leased
Leased
Leased
Leased
11,500
Leased
900
Leased
1,100
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.
17
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, 2017 and 2016. We executed a one-for-seven
(1:7) reverse stock split on our common stock, effective when the market opened on October 4, 2016. All stock
prices prior to that date have been adjusted for the effect of the reverse split for purposes of this table.
Year Ending December 31, 2017
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
Year Ending December 31, 2016
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
High
Low
Dividend
$
8.44
13.77
9.00
8.87
$
12.53
7.91
6.02
7.14
$ 3.72
6.22
5.18
4.13
$ 3.84
3.85
3.57
3.43
$
$
-
-
-
-
-
-
-
-
As of March 19, 2018, there were approximately 856 holders of record of our common stock and an
additional 2,215 beneficial owners, including shares of common stock held in street name.
We have not declared any cash dividends over the past two years. The declaration of future dividends is
subject to the discretion of our Board of Directors and will depend upon various factors, including our earnings,
financial condition, restrictions imposed by any indebtedness that may be outstanding, cash requirements, and other
factors deemed relevant by our Board of Directors. Our current lending agreements contain covenants which may
limit our ability to declare cash dividends.
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 sell our products through an
international network marketing system utilizing independent distributors. Sales in the United States represented
approximately 77.7% of worldwide net sales for the year ended December 31, 2017 compared to approximately
78.2% for the year ended December 31, 2016. Our international operations currently generate sales through
distributor networks with facilities in Australia, Canada, Indonesia, Malaysia, Mexico, the Philippines, and the
United Kingdom. We also operate in Ireland, France, Germany, Austria and the Netherlands from our United
Kingdom distribution center, in New Zealand from our Australia office, and in Singapore from our Malaysia office.
We derive our revenues principally through product sales made by our global independent distributor base,
which, as of December 31, 2017, consisted of approximately 33,620 distributors and preferred customers. Our sales
can be affected by several factors, including our ability to attract new distributors and retain our existing distributor
base, our ability to properly train and motivate our distributor base and our ability to develop new products and
successfully maintain our current product line.
All of our sales to distributors outside the United States are made in the respective local currency;
therefore, our earnings and cash flows are subject to fluctuations due to changes in foreign currency rates as
compared to the U.S. dollar. As a result, exchange rate fluctuations may have an effect on sales and gross margins.
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 10% 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, and 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. Distributor royalties and commissions are paid on an amount referred to as the business
value (“BV”), which typically ranges between 80% and 90% of the suggested retail price of each product. Also, we
include other sales leadership bonuses, such as Ambassador bonuses, within this caption. Overall, distributor
royalties and commissions remain directly related to the level of our sales and should continue at comparable levels
as a percentage of net sales going forward. We have implemented or are in the process of implementing similar
pricing structures in all of our international markets.
19
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, 2017 Compared to Year Ended December 31, 2016
Net sales decreased by 8.2% worldwide, as net sales in the United States decreased by 8.8% in the year
ended December 31, 2017 compared with 2016. During 2017, our international net sales decreased by 6.1% over
the prior year with 3.4% of the decline due to the impact of foreign currency fluctuation as the result of a stronger
U.S. dollar in certain markets. Net sales in Europe, our largest foreign market, decreased by 16.6% in 2017
compared to the prior year, with 4.3% of the decline due to the impact of foreign currency fluctuation. Sales in Asia
increased by 39.7% in 2017 compared to the prior year.
The following table summarizes net sales by geographic market for the years ended December 31, 2017
and 2016.
Net Sales by Market
(in thousands)
Year Ended December 31,
2017
Amount
% of Net
Sales
2016
Change from prior year
% of Net
Sales
Amount
(dollars in thousands)
Amount
%
United States
Australia/New Zealand
Canada
Mexico
Europe
Asia
Consolidated total
$
$
32,475
923
915
445
4,578
2,453
41,789
77.7% $
2.2
2.2
1.0
11.0
5.9
100.0% $
35,592
1,079
1,065
530
5,491
1,756
45,513
78.2% $
2.4
2.3
1.2
12.0
3.9
100.0% $
(3,117)
(156)
(150)
(85)
(913)
697
(3,724)
(8.8)%
(14.5)
(14.1)
(16.0)
(16.6)
39.7
(8.2)%
The following table sets forth, as of December 31, 2017 and 2016, the number of our active distributors and
Master Affiliates and above. The total number of active distributors includes Master Affiliates and above. We
define an active distributor as one that enrolls as a distributor or renews his or her distributorship during the prior
twelve months. Master Affiliates and above are distributors that have attained the highest level of discount and are
eligible for royalties generated by Master Affiliate groups in their downline organization. In February 2016, we
introduced a formal Preferred Customer program in the United States and Canada. As a result, we are including
Preferred Customers as part of our Active Distributor count. Preferred Customer programs were previously in place
in Europe and other foreign markets. Preferred Customers represent approximately 4,990 and 5,050 of the Active
Distributor count as of December 31, 2017 and 2016, respectively. The significant majority of these Preferred
Customers are in Europe.
20
Active Distributors/Master
Affiliates by Market
December 31, 2017
December 31, 2016
% Change
Active
Distributors
and Preferred
Customers
Master
Affiliates and
Above
Active
Distributors
and Preferred
Customers
Master
Affiliates and
Above
Active
Distributors
and Preferred
Customers
Master
Affiliates and
Above
United States
Australia/New Zealand
Canada
Mexico
Europe
Asia
Consolidated total
23,050
1,100
660
710
3,800
4,300
33,620
2,820
110
90
60
450
380
3,910
27,220
1,530
840
940
4,860
3,090
38,480
4,080
130
150
90
530
340
5,320
(15.3)%
(28.1)
(21.4)
(24.5)
(21.8)
39.2
(12.6)%
(30.9)%
(15.4)
(40.0)
(33.3)
(15.1)
11.8
(26.5)%
Use of Non-GAAP Financial Information
Net sales expressed in local currency or net sales adjusted for the impact of foreign currency fluctuation are
non-GAAP financial measures. We use these measurements to assess the level of business activity in a foreign
market, absent the impact of foreign currency fluctuation relative to the U.S. dollar, which our local management
has no ability to influence. This is a meaningful measurement to management, and we believe this is a useful
measurement to provide to shareholders.
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 USD (in 000's):
Year ended 12/31/2017
Year ended 12/31/2016
% change in sales-2017 vs. 2016:
Change in GAAP sales in USD
Due to currency fluctuation
Sales in local currency
(non-GAAP)
# of new distributors-2017
(1)
# of new distributors-2016
(1)
% change
# of new Master Affiliates-2017
# of new Master Affiliates-2016
% change
# of Product orders-2017
# of Product orders-2016
% change
$
$
32,475
35,592
$
$
923
1,079
$
$
915
1,065
$
$
445
530
$
$
4,578
5,491
$
$
2,453
1,756
$
$
9,314
9,921
-8.8%
-
-14.5%
-14.1%
-16.0%
2.4%
1.8%
-1.0%
-16.6%
-4.3%
39.7%
-8.2%
-6.1%
-3.4%
-8.8%
-16.9%
-15.9%
-15.0%
-12.3%
47.9%
-2.7%
4,667
5,553
-16.0%
534
747
-28.5%
125,648
145,172
-13.4%
168
370
-54.6%
8
28
-71.4%
5,537
6,846
-19.1%
145
165
-12.1%
15
22
-31.8%
3,060
3,716
-17.7%
271
389
-30.3%
15
20
-25.0%
3,235
3,698
-12.5%
1,646
2,110
-22.0%
108
152
-28.9%
16,246
20,850
-22.1%
2,632
1,720
53.0%
215
129
66.7%
25,926
12,937
100.4%
4,862
4,754
2.3%
361
351
2.8%
54,004
48,047
12.4%
______________________
(1)
The new distributor totals for 2017 and 2016 include 3,587 and 3,510, respectively, new worldwide preferred customers.
21
United States
• Net sales in the United States declined in 2017 compared to the prior-year period as new
•
•
•
distributor/preferred customer enrollments declined. Additionally, new Master Affiliate qualifications and
requalification of existing Master Affiliates declined.
In February 2017, we launched Fit3TM, a new fitness and weight loss program. Net sales of the Fit3
product line represented 6.1% of net U.S. sales in 2017; however, net sales have declined since its
introductory period and only represented 3.4% of net sales in the U.S. in Q4 2017.
Effective November 1, 2017, we increased suggested retail prices in the United States and Canada by an
average of 4.5%, but we offered incentives on the shipping and handling charge on large orders, such as
orders to qualify as a Master Affiliate.
Products in the LunaRich line, including Reliv Now® and LunaRich X™, continued to perform well,
constituting 16.7% and 13.5% of net sales in the United States, respectively, in 2017. Reliv NOW and
LunaRich X represented 18.0% and 15.4%, respectively, of net sales in the United States in the prior year.
• Distributor/preferred customer enrollments decreased by 16.0% in 2017 compared to the prior year and
distributor retention was 71.5% in 2017 compared to 66.9% for 2016. Distributor retention is determined
by the percentage of active distributors from 2016 that renewed their distributorships in 2017.
• New Master Affiliate qualifications decreased by 28.5% in 2017 compared to the prior year, and Master
Affiliate retention dropped to 56.0% in 2017 compared to 70.3% in 2016. Master Affiliate retention is
defined by the percentage of Master Affiliates as of end of 2016 that requalified their distributorships as
Master Affiliates during 2017. Our Master Affiliate count and new Master Affiliate qualifications have
been negatively impacted by the increased business volume requirements in February 2016 to reach the
Master Affiliate level.
• Our average order size in 2017 increased by 4.0% to $355 at suggested retail value compared to the prior
year. However, the number of product orders decreased by 13.4% in 2017 compared to the prior year for
the same reasons as the overall decrease in sales.
International Operations
•
The average foreign exchange rate for the U.S. dollar for 2017 was stronger versus the British pound,
Philippine peso, and Mexican peso when compared with the average exchange rates for 2016. The average
exchange rates for the Australian, New Zealand, and Canadian dollars increased versus the U.S. dollar in
2017.
• We continue to review prices and margins in all of our international markets and have increased prices in
nearly all foreign markets during 2017. We are also reviewing sales by product to phase out products with
lower sales levels and gross margins as strategically appropriate.
• Australia/New Zealand net sales in 2017 decreased by 16.9% in local currency compared to 2016 as the
result of decreased distributor activity in the market.
• Net sales in Canada in 2017 decreased by 15.9% in local currency compared to the prior year as a result of
decreased distributor activity in the market. New distributor/preferred customers enrollments and new
Master Affiliate qualifications decreased by 12.1% and 31.8%, respectively, in 2017, compared to the prior
year. New Master Affiliate qualifications continue to be negatively impacted by the increased business
volume requirements to reach the Master Affiliate level, similar to the United States. As previously
mentioned, we implemented price increases effective November 1, 2017.
• Net sales in Mexico decreased by 15.0% in local currency in 2017 compared to the prior year. Sales
decreased as new distributor enrollments and the number of product orders in 2017 declined by 30.3% and
12.5%, respectively. The Mexican peso strengthened versus the U.S. dollar by the end of 2017 compared
to the 2016 year-end exchange rate, but product margins and local market pricing remain a challenge.
• Net sales in Europe decreased by 12.3% in local currency in 2017 compared to the prior year. Distributor
•
activity declined both in the form of new distributor and preferred customer enrollments and in new Master
Affiliate qualifications in the region.
Sales in Asia increased by 47.9% in local currency in 2017 compared to the prior year led by strong sales
growth in the Philippines. Local currency sales in the Philippines improved 61.2% in 2017 as all measures
of distributor activity showed strong increases in the market. Regional incentive promotions and local sales
campaigns involving our NOW for Kids nutritional product continue to show good success.
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, 2017 and 2016. Our results of operations for the periods described below are not
necessarily indicative of results of operations for future periods.
Statement of Operations data
(amounts in thousands)
2017
2016
Amount
% of net sales
Amount
% of net sales
Net sales
$
41,789
100.0 %
$
45,513
100.0 %
Costs and expenses:
Cost of products sold
Distributor royalties and commissions
Selling, general and adminstrative
9,401
14,686
17,885
Loss from operations
Interest income
Interest expense
Other income
Loss before income taxes
Provision for income taxes
Net loss
Loss p er common share-Basic
Loss p er common share-Diluted
Cost of Products Sold:
(183)
102
(109)
38
(152)
545
(697)
(0.38)
(0.38)
$
$
$
22.5
35.1
42.8
(0.4)
0.2
(0.3)
0.1
(0.4)
1.3
(1.7) %
$
$
$
10,024
16,095
20,206
(812)
107
(107)
196
(616)
9
(625)
(0.34)
(0.34)
22.0
35.4
44.4
(1.8)
0.2
(0.2)
0.4
(1.4)
-
(1.4) %
•
The cost of products sold as a percentage of net sales in 2017 increased by 0.5% compared to the prior-year
period. The cost of products sold as a percentage of net sales in 2017 was negatively impacted by lower
plant utilization and promotions in the United States that reduced our handling and freight income.
Distributor Royalties and Commissions:
• Distributor royalties and commissions as a percentage of net sales for 2017 decreased by 0.3% of net sales
when compared to the prior-year period. Over the course of 2017, we increased the prices of our products
in most of our markets, with prices increased in the U.S. and Canada effective November 1, 2017. As part
of the price increase, we did not increase the BV of the products. The BV represents the amount per
commissionable product that is paid in distributor royalties and commissions. This accounts for the slight
decrease in the percentage paid of net sales.
Selling, General and Administrative Expenses:
•
•
Selling, general and administrative expenses declined by $2.32 million in 2017 compared to the prior-year
period.
Salaries, salary-related expenses, and incentive compensation decreased in the aggregate by $880,000 in
2017, compared to the prior-year period. Total compensation expense decreased as the result of continued
impact of headcount reductions in the United States through attrition and a worldwide workforce reduction
that took place in May 2016.
23
•
Sales and marketing expenses decreased by $706,000 in 2017 compared to 2016. Components of the
decrease include:
o
$422,000 decrease in Star Director and other distributor bonuses, credit card fees, and other
expenses related to the level of sales.
$321,000 decrease in distributor conferences and meeting expenses as we have reduced the
quantity of corporate-sponsored events and the cost of our major distributor conference.
• Other general and administrative expenses decreased by $693,000 in 2017 as compared to 2016.
o
Significant expense reductions include:
o Research & development expenses, along with other foreign product compliance requirements
decreased by $290,000 in 2017 compared to the prior-year period.
o Other significant decreases from 2017 vs. 2016 include:
Consulting, legal, and accounting fees decreased by $107,000.
Utility expenses decreased by $52,000.
Depreciation and amortization expense decreased by $65,000.
Computer software maintenance expenses decreased by $66,000.
Shareholder communication and other SEC-related expenses decreased by $88,000.
Other Income/Expense:
•
The other income in 2017 and 2016 is primarily the result of foreign currency exchange gains on
intercompany debt denominated in U.S. dollars in certain of our subsidiaries.
Income Taxes:
• We reported income tax expense of $545,000 for 2017, compared to income tax expense of $9,000 in 2016.
• During the fourth quarter of 2017, we determined that it was more likely than not that operating results in
our European subsidiary would not be sufficient to realize our net operating loss carryforwards.
Accordingly, we placed a valuation allowance of $509,000 on our deferred tax asset in that subsidiary.
• During 2016, we determined that it was more likely than not that Federal and various state net operating
losses generated in 2016 and beyond will not be realized based on projections of future taxable income and
other considerations. Accordingly, the tax provisions as of December 31, 2017 and 2016 include the
impact of recording a valuation allowance of $198,000 and $292,000, respectively, against the losses
generated from a U.S. tax perspective.
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 period.
•
Net Income/Loss:
•
For 2017, we reported a net loss of $697,000 compared to a net loss of $625,000 in 2016. The impact of
the decline in net sales in the United States and other foreign markets was offset by the reduction in selling,
general and administrative expenses in 2017 vs. 2016; however, the impact of the valuation allowance on
the European subsidiary’s deferred tax asset resulted in a larger loss in 2017 compared to 2016.
Liquidity and Capital Resources
In 2017, we used $157,000 of net cash in operating activities, $377,000 was used in investing activities,
and we generated $136,000 in financing activities. This compares to $1.53 million generated in operating activities,
$70,000 used in investing activities, and $1.02 million used in financing activities in 2016. Cash and cash
equivalents decreased by $334,000 to $3.27 million as of December 31, 2017 compared to $3.61 million as of
December 31, 2016.
Significant changes in working capital items consisted of a decrease in accounts receivable of $105,000, a
decrease in prepaid expenses and other current assets of $107,000, and a decrease in accounts payable and accrued
expenses of $1.03 million in 2017. The decrease in accounts receivable is primarily from the decrease in trade
accounts receivable from external customers as of December 31, 2017 compared to the prior year end. The decrease
in prepaid expenses is result of smaller prepayments made on upcoming incentive trips as of the end of 2017 and the
decrease in accounts payable and accrued expenses is the result of reduced accrued distributor commissions related
to the decline in sales in December 2017 compared to December 2016 and reduced trade payables as of December
31, 2017 compared to December 31, 2016.
24
Investing activities during 2017 consisted of $486,000 for net capital expenditures, offset by payments
received on a distributor note receivable of $109,000. Financing activities during 2017 consisted of principal
payments of $364,000 on long-term borrowings and a borrowing of $500,000 on the revolving line of credit. No
cash dividends were paid in 2017.
Stockholders’ equity decreased to $14.36 million at December 31, 2017 compared to $14.91 million at
December 31, 2016. The decrease is due to our net loss in 2017 of $697,000 partially offset by a favorable
adjustment in foreign currency translation of $173,000. Our working capital balance was $2.14 million at December
31, 2017 compared to $4.31 million at December 31, 2016. The current ratio at December 31, 2017 was 1.34
compared to 1.93 at December 31, 2016. The decrease in our working capital and current ratio is primarily due to
the classification of our long-term debt as a current liability as the maturity of the term loan is within one year.
Our $3.25 million term loan has a term of three years and requires monthly term loan payments, under a
ten-year amortization, consisting of principal of $27,080 plus interest with a balloon payment for the outstanding
balance due and payable on September 30, 2018. The term loan's interest rate is based on the 30-day LIBOR plus
2.25% and was 3.62% at December 31, 2017.
Our $3.5 million revolving line of credit agreement accrues interest at a floating interest rate based on the
30-day LIBOR plus 2.25% and has a maturity date of April 30, 2018. As of December 31, 2017, there was
$500,000 in outstanding borrowings on the revolving line of credit.
Borrowings under the lending agreements are secured by all our tangible and intangible assets, an
assignment of a whole life insurance policy on the life of our Chief Executive Officer to the lender, and by a
mortgage on the real estate of our headquarters.
The lending agreements include quarterly covenants requiring us to maintain net tangible worth of not less
than $9.5 million, and i) a cumulative minimum EBITDA requirement of $800,000 for the fiscal period ending
December 31, 2017, and ii) a minimum EBITDA of $200,000 for the quarter ended March 31, 2018.
As defined, EBITDA means our consolidated net income for such period, before interest expense, income
tax expense, depreciation and amortization, and management fees, and further adjusted to exclude any gain or loss
on the sale of assets, other extraordinary gains or losses, and any one-time adjustment approved by the lender. At
December 31, 2017, we were in compliance with all applicable covenants.
We anticipate that we will be able to refinance our term loan and renew our revolving line of credit with
our current lender prior to the respective maturity dates of each agreement; however, there can be no assurance that
we will be able to do so. Management believes that the cash on hand and our ability, if necessary, to borrow a
significant portion of or liquidate the cash surrender value of our key-man life insurance policy, will be sufficient to
meet our working capital requirements and debt service requirements for the next twelve months.
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 10% 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
25
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 100% 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 0.20% of net sales in 2017 and 2016, 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 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
26
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.
During 2016 and 2017, we determined that it was more likely than not that U.S. federal and various state
net operating losses primarily generated in 2016 and 2017 will not be realized based on projections of future U.S.
taxable income, estimated reversals of existing taxable timing differences, and other considerations. Accordingly,
the 2017 and 2016 income tax provisions include the impact of recording a full deferred tax asset valuation
allowance of approximately $198,000 and $292,000 against the annual losses generated from a U.S. tax perspective.
At December 31, 2017, we had deferred tax assets related to net operating loss carryforwards and other
income tax credits in our foreign operations with a tax value of $3.4 million. These net operating loss carryforwards
principally do not expire, depending on the country and period in which they occurred. As of December 31, 2017,
we assessed the realizability of the European subsidiary’s deferred tax assets and concluded that future realization
failed to meet the threshold of more likely than not based upon the subsidiary’s recent tax operating losses.
Accordingly, we recorded a full valuation allowance to the European subsidiary’s deferred tax assets and recorded a
deferred income tax charge of $509,000 at December 31, 2017. We continue to have a full valuation allowance
applied to all other net operating loss carryforwards in our foreign operations.
The United States Tax Cuts and Jobs Act (TCJA) was enacted in December 2017. Under the TJCA’s
repatriation tax, we estimate our cumulative amount of unremitted foreign earnings is expected to be negative and
any related tax is immaterial.
Current-Year Adoption of Recent Accounting Pronouncements
Discussion regarding our adoption of accounting pronouncements is included in Note 1 to the Consolidated
Financial Statements.
27
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, 2017. 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, 2017, 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, 2017.
Attestation Report of the Registered Public Accounting Firm
This Annual Report on Form 10-K does not include an attestation report of our registered public accounting
firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our
registered public accounting firm pursuant to rules of the SEC that permit us to provide only management’s report in
this Annual Report on Form 10-K.
Changes in Internal Control over Financial Reporting
There were no material changes in our internal control over financial reporting during the fourth quarter of
2017 that have materially affected or are reasonably likely to materially affect our internal controls over financial
reporting.
Item No. 9B - Other Information
None
28
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 2018 Annual Meeting of Shareholders to be held on May 24, 2018, which is expected to be filed with the
Commission within 120 days after December 31, 2017.
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 2017 Annual Meeting of Shareholders to be held on May 24, 2018, which is expected to be filed with the
Commission within 120 days after December 31, 2017.
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 2018 Annual Meeting of Shareholders to be held on May 24, 2018, which is expected to be filed with the
Commission within 120 days after December 31, 2017.
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 2018 Annual Meeting of Shareholders to be held on May 24, 2018, which is expected to be filed with the
Commission within 120 days after December 31, 2017.
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 2018 Annual Meeting of Shareholders to be held on May 24, 2018, which is expected to be filed with the
Commission within 120 days after December 31, 2017.
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 29, 2018
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 29, 2018
By:
/s/ Steven D. Albright
Steven D. Albright, Chief Financial Officer (and accounting officer)
Date: March 29, 2018
By:
/s/ Carl W. Hastings
Carl W. Hastings, Vice Chairman, Chief Scientific Officer, Director
Date: March 29, 2018
By:
/s/ John B. Akin
John B. Akin, Director
Date: March 29, 2018
By:
/s/ Robert M. Henry
Robert M. Henry, Director
Date: March 29, 2018
By:
/s/ John M. Klimek
John M. Klimek, Director
Date: March 29, 2018
30
Exhibit Index
Exhibit
Number
Document
3.1
3.2
3.3
3.4
3.5
4.1
10.1
10.2*
10.3*
10.4*
10.5*
10.6*
10.7*
10.8*
10.9*
Second Amended and Restated Certificate of Incorporation (incorporated by reference to
Appendix B of Schedule 14A of the Registrant filed on April 17, 2003).
Certificate of Amendment to the Second Amended and Restated Certificate of Incorporation
(incorporated by reference to Exhibit 3.2 to the Form 10-K of the Registrant for the year ended
December 31, 2016)
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 29, 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).
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).
31
10.10*
10.11*
10.12*
10.13*
10.14*
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
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).
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).
Letter agreement between SL Technology, Inc. and Soy Labs, LLC dated September 2, 2016
(incorporated by reference to Exhibit 10.18 to the Form 10-K of the Registrant for the year ended
December 31, 2016)
Promissory Note (term loan) dated September 30, 2015 among Reliv International, Inc., Reliv,
Inc., Reliv World Corporation, and SL Technology, Inc., as Borrowers and Enterprise Bank &
Trust (incorporated by reference to Exhibit 10.1 to the Form 10-Q of the Registrant filed
November 13, 2015).
Promissory Note (revolving credit facility) dated September 30, 2015 among Reliv International,
Inc., Reliv, Inc., Reliv World Corporation, and SL Technology, Inc., as Borrowers and Enterprise
Bank & Trust (incorporated by reference to Exhibit 10.2 to the Form 10-Q of the Registrant filed
November 13, 2015).
Business Loan Agreement dated September 30, 2015 among Reliv International, Inc., Reliv, Inc.,
Reliv World Corporation, and SL Technology, Inc., as Borrowers and Enterprise Bank & Trust
(incorporated by reference to Exhibit 10.3 to the Form 10-Q of the Registrant filed November 13,
2015).
Deed of Trust dated September 30, 2015 between Reliv International, Inc. as Grantor and
Enterprise Bank & Trust (incorporated by reference to Exhibit 10.4 to the Form 10-Q of the
Registrant filed November 13, 2015).
First Amendment to Loan Agreement dated September 30, 2016 among Reliv International, Inc.,
Reliv, Inc., Reliv World Corporation, and SL Technology, Inc., as Borrowers and Enterprise Bank
& Trust (incorporated by reference to Exhibit 10.1 to the Form 10-Q of the Registrant filed
November 14, 2016).
Change in Terms Agreement (revolving credit facility) dated September 30, 2016 among Reliv
International, Inc., Reliv, Inc., Reliv World Corporation, and SL Technology, Inc., as Borrowers
32
11
21
23
31.1
31.2
32
101
and Enterprise Bank & Trust (incorporated by reference to Exhibit 10.2 to the Form 10-Q of the
Registrant filed November 14, 2016).
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).
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, 2017, formatted in XBRL: (i) the Consolidated
Balance Sheets, (ii) the Consolidated Statements of Net Loss and Comprehensive Loss, (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
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Reliv’ International, Inc.
and Subsidiaries
Consolidated Financial Statements
Years ended December 31, 2017 and 2016
Contents
Consolidated Financial Statements:
Report of Independent Registered Public Accounting Firm.....................................F-1
Consolidated Balance Sheets as of December 31, 2017 and 2016 ...........................F-2
Consolidated Statements of Net Loss and Comprehensive
Loss for the years ended December 31, 2017 and 2016 ........................................F-4
Consolidated Statements of Stockholders’ Equity for the years ended
December 31, 2017 and 2016 ................................................................................F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 2017 and 2016 .................................................................................F-6
Notes to Consolidated Financial Statements – December 31, 2017 .........................F-8
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Reliv’ International, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Reliv’ International, Inc. and Subsidiaries (the
loss and
Company) as of December 31, 2017 and 2016, and the related consolidated statements of net
comprehensive loss, stockholders’ equity, and cash flows for each of the two years in the period ended December
31, 2017, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion,
the consolidated financial statements present fairly, in all material respects, the financial position of the Company at
December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the two years in the
period ended December 31, 2017, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with
the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations
of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform,
an audit of its internal control over financial reporting. As part of our audits we are required to obtain an
understanding of internal control over financial reporting 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.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements,
whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits
also included evaluating the accounting principles used and significant estimates made by management, as well as
evaluating the overall presentation of financial statements. We believe that our audits provide a reasonable basis for
our opinion.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 1991.
St. Louis, Missouri
March 29, 2018
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 2017 and $26,700 in 2016
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
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
2017
2016
$
3,272,788
$
3,606,817
29,760
138,497
2,762,249
1,653,466
139,770
4,555,485
26,552
372,602
8,395,684
337,190
3,086,522
1,405,113
-
2,174,248
126,113
139,931
2,629,541
1,728,136
130,153
4,487,830
97,194
474,183
8,932,068
305,137
2,965,981
1,521,005
487,000
2,400,234
19,055,260
13,378,021
5,677,239
18,600,665
12,746,363
5,854,302
Total assets
$
21,075,996
$
22,465,727
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
Revolving line of credit
Current maturities of long-term debt
Total current liabilities
Noncurrent liabilities:
Long-term debt, less current maturities
Other noncurrent liabilities
Total noncurrent liabilities
Stockholders’ equity:
Preferred stock, par value $0.001 per share; 500,000
shares authorized; -0- shares issued and outstanding
in 2017 and 2016
Common stock, par value $0.001 per share;
5,000,000 shares authorized, 2,110,013 shares
issued and 1,845,160 shares outstanding in 2017;
2,110,013 shares issued and 1,845,160 shares
outstanding in 2016
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive loss:
Foreign currency translation adjustment
Treasury stock
Total stockholders’ equity
December 31
2017
2016
$
3,200,018
12,616
500,000
2,545,421
6,258,055
$
4,234,305
-
-
389,096
4,623,401
-
453,354
453,354
2,518,341
409,813
2,928,154
-
-
2,110
30,598,920
(10,040,229)
(857,654)
(5,338,560)
14,364,587
2,110
30,565,144
(9,284,317)
(1,030,205)
(5,338,560)
14,914,172
Total liabilities and stockholders’ equity
$
21,075,996
$
22,465,727
See accompanying notes.
F-3
Reliv’ International, Inc. and Subsidiaries
Consolidated Statements of Net Loss
and Comprehensive Loss
Product sales
Handling & freight income
Net sales
Costs and expenses:
Cost of products sold
Distributor royalties and commissions
Selling, general, and administrative
Loss from operations
Other income (expense):
Interest income
Interest expense
Other income (expense)
Loss before income taxes
Provision for income taxes
Net loss available to common
shareholders
Year ended December 31
2017
2016
$
$
38,751,357
3,037,425
41,788,782
42,004,961
3,507,875
45,512,836
9,401,406
14,685,553
17,885,226
(183,403)
10,024,021
16,095,032
20,205,762
(811,979)
101,901
(109,254)
38,844
(151,912)
545,000
107,006
(106,682)
195,600
(616,055)
9,000
$
(696,912)
$
(625,055)
Other comprehensive income (loss):
Foreign currency translation adjustment
113,551
(395,932)
Comprehensive loss
$
(583,361)
$
(1,020,987)
Loss per common share - Basic
($0.38)
($0.34)
Weighted average shares
1,845,000
1,845,000
Loss per common share - Diluted
($0.38)
($0.34)
Weighted average shares
1,845,000
1,845,000
See accompanying notes.
F-4
Reliv' International, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
Balance at December 31, 2015
Net loss
Other comprehensive income (loss):
Foreign currency translation adjustment
Total comprehensive loss
Stock-based compensation
Expired stock options & warrants; deferred tax effect
Common stock repurchased and retired
Balance at December 31, 2016
Net loss
Other comprehensive income (loss):
Foreign currency translation adjustment
Income tax effects of Tax Cuts & Jobs Act - Note 1
Total comprehensive loss
Stock-based compensation
Balance at December 31, 2017
Common Stock
Shares
Amount
Additional
Paid-In
Capital
Accumulated
Other
Accumulated Comprehensive
Treasury Stock
Deficit
Loss
Shares
Amount
Total
2,110,436
-
$
$
2,110
-
30,512,480
-
$
(8,659,262)
(625,055)
$
(634,273)
-
264,853
-
$
(5,338,560)
-
$
15,882,495
(625,055)
-
-
-
-
(395,932)
-
-
-
-
(423)
2,110,013
-
-
-
-
-
-
2,110
-
-
-
60,342
(5,467)
(2,211)
30,565,144
-
-
-
-
(9,284,317)
(696,912)
-
-
-
(1,030,205)
-
-
-
-
(59,000)
113,551
59,000
-
-
-
264,853
-
-
-
-
-
-
(5,338,560)
-
-
-
-
2,110,013
-
2,110
$
$
33,776
30,598,920
-
(10,040,229)
$
$
-
(857,654)
-
264,853
$
-
(5,338,560)
$
(395,932)
(1,020,987)
60,342
(5,467)
(2,211)
14,914,172
(696,912)
113,551
-
(583,361)
33,776
14,364,587
Applicable 2015 amounts have been restated for the 2016 reverse stock split; see Note 1.
See accompanying notes.
F-5
Reliv’ International, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Operating activities
Net loss
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization
Stock-based compensation
Non-cash life insurance policy accretion
(Gain) loss on sale of property, plant and equipment
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 provided by (used in) operating activities
Investing activities
Proceeds from sale of property, plant, and equipment
Purchase of property, plant, and equipment
Payments received on distributor note receivable
Net cash used in investing activities
Financing activities
Proceeds from revolving line of credit borrowings
Principal payments on long-term borrowings
Purchase of stock for treasury
Net cash provided by (used in) 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
2017
2016
$
(696,912)
$
(625,055)
900,126
33,776
(120,540)
(8,844)
508,000
(20,659)
104,671
15,472
70,612
107,051
(32,102)
12,616
984,031
60,342
(117,750)
-
(3,000)
(147,623)
(39,282)
537,665
425,099
66,014
(19,936)
-
(1,030,062)
(156,795)
404,767
1,525,272
13,143
(499,409)
109,160
(377,106)
500,000
(363,736)
-
136,264
63,608
(334,029)
3,606,817
3,272,788
$
$
912
(173,903)
102,818
(70,173)
-
(1,017,367)
(2,211)
(1,019,578)
(90,967)
344,554
3,262,263
3,606,817
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 paid (received), net
Year ended December 31
2017
2016
$
$
99,800
$
94,100
(52,500)
$
(398,900)
See accompanying notes.
F-7
Reliv’ International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2017
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.
Basis of Presentation
The consolidated financial statements include the accounts of the Company and its foreign and
domestic subsidiaries. All significant
intercompany accounts and transactions have been
eliminated.
On October 4, 2016, the Company effected a 1-for-7 reverse stock split of the Company’s
common stock. Each stockholder’s percentage ownership and proportional voting power
remained unchanged as a result of the reverse stock split. All applicable share data, per share
amounts, and related information in these consolidated financial statements and notes thereto
have been adjusted retroactively to give effect to the 1-for-7 reverse stock split.
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.
F-8
Reliv’ International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. Nature of Business and Significant Accounting Policies (continued)
Property, Plant, and Equipment
Property, plant, and equipment are stated on the cost basis. Depreciation is computed using the
straight-line or an accelerated method over the useful life of the related assets. Generally,
computer equipment and software are depreciated over 3 to 5 years, office equipment and
machinery over 7 years, and real property over 39 years.
Foreign Currency Translation and Transaction Gains or Losses
All balance sheet accounts have been translated using the exchange rates in effect at the balance
sheet date. Statements of net income (loss) amounts have been translated using the average
exchange rate for the year. The gains and losses resulting from the changes in exchange rates
from year to year have been reported in other comprehensive income (loss). The foreign
currency translation adjustment is the only component of accumulated other comprehensive loss.
If applicable, foreign currency translation adjustments exclude income tax expense (benefit) as
certain of the Company’s investments in non-U.S. subsidiaries are deemed to be reinvested for
an indefinite period of time. Foreign currency transaction gains (losses) were $20,659 and
$147,623 for 2017 and 2016, respectively.
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. Depending
upon the characteristics of the option,
the fair value of stock-based awards is primarily
determined using the Black-Scholes model, which incorporates assumptions and management
estimates including the risk-free interest rate, expected volatility, expected option life, and
dividend yield. 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.”
F-9
Reliv’ International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. Nature of Business and Significant Accounting Policies (continued)
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 100% 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, 2017 and 2016,
total returns as a percent of net sales were approximately 0.25% and 0.20%, 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 net sales 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.
Income Taxes
The provision for income taxes is computed using the liability method. The primary differences
between financial statement and taxable income result from financial statement accruals and
reserves and differences between depreciation and amortization for book and tax purposes.
Unrecognized tax benefits are accounted for as required by FASB ASC Topic 740 which
prescribes a more likely than not threshold for financial statement presentation and measurement
of a tax position taken or expected to be taken in a tax return. See Note 11 for further discussion.
F-10
Reliv’ International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. Nature of Business and Significant Accounting Policies (continued)
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 $22,300 and
$36,900 of advertising expense in 2017 and 2016, respectively.
Research and Development Expenses
Research and development expenses, which are charged to selling, general, and administrative
expenses as incurred, were $488,000 and $694,000 in 2017 and 2016, respectively.
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 lives are amortized over their estimated economic life
under the straight-line method; such method correlates to management’s estimate of the assets’
economic benefit. Based on management’s estimates at origination, these lives range from two
to seventeen years. Related amortization expense is presented within Selling, General, and
Administrative in the accompanying consolidated statements of net loss and comprehensive loss.
As of December 31, 2017, remaining lives of intangible assets range from seven to twelve 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.
F-11
Reliv’ International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. Nature of Business and Significant Accounting Policies (continued)
New Accounting Pronouncements – Adopted in 2017
In July 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards
Update (ASU) No. 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory,
which requires inventory within the scope of this update to be measured at the lower of its cost or
net realizable value, with net realizable value being the estimated selling price in the ordinary
course of business, less reasonably predictable costs of completion, disposal, and transportation.
As required, the Company adopted this new standard effective January 1, 2017. The Company’s
adoption of this standard did not
its consolidated financial statements and related
disclosures.
impact
In March 2016, the FASB issued ASU No. 2016-09, Compensation – Stock Compensation
(Topic 718): Improvements to Employee Share-Based Payment Accounting. This amendment is
intended to simplify several aspects of the accounting for share-based payment transactions,
including the income tax consequences, classification of awards as either equity or liability,
forfeitures, and classification on the statement of cash flows. As required, the Company adopted
this new standard effective January 1, 2017. Concurrently with the adoption of this new
standard, the Company revised its accounting policy to recognize share-based compensation
costs based on actual stock option forfeitures versus previous accounting guidance which
required the Company to recognize share-based compensation costs based on management’s
estimate of future stock option forfeitures. The Company’s adoption of this standard did not
impact its consolidated financial statements and related disclosures.
In February 2018,
the FASB issued ASU No. 2018-02, Income Statement – Reporting
Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated
Other Comprehensive Income. This amendment is intended to allow a reclassification from
accumulated other comprehensive income to retained earnings for stranded tax effects resulting
only from the December 2017 enacted United States Tax Cuts and Jobs Act (TCJA) and is not
intended to impact underlying accounting guidance that requires that the effect of a change in tax
laws or tax rates be included in income from operations. This update is effective for fiscal years
beginning after December 31, 2018 with earlier adoption permitted. The Company has early
adopted this update in its fourth quarter ending December 31, 2017 resulting in a $59,000
reclassification from accumulated other comprehensive income (loss) and a corresponding
$59,000 reduction to retained earnings.
This reclassification from accumulated other
comprehensive income (loss) relates to the deferred income tax stranded tax effects resulting
from the change in the U.S. federal corporate income tax rate under the TCJA. The foreign
is the Company’s only component of accumulated other
currency translation adjustment
comprehensive income (loss).
F-12
Reliv’ International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. Nature of Business and Significant Accounting Policies (continued)
New Accounting Pronouncements – Not Yet Adopted
In May 2014, the FASB issued 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 will be adopted by the Company, when required,
on January 1, 2018. The new standard permits the use of either the retrospective or modified
retrospective transition method. The Company will select the modified retrospective method.
The Company’s primary source of revenue is from the sale of nutritional products to the
Company’s independent distributors whereby revenue is currently recognized when product is
shipped and risk of loss has passed to the customer. Upon adoption of this new standard, the
Company believes that the timing of revenue recognition related to nutritional product sales will
remain materially consistent with its current practice. Based upon its completed evaluation, the
Company has identified membership fee-type revenue as an area that will be affected by the new
standard resulting in, upon adoption on January 1, 2018, a one-time reduction to retained
earnings of approximately $367,500.
In February 2016, the FASB issued ASU No. 2016-2, Leases (Topic 842) which supersedes the
existing lease guidance. This update requires lessees to recognize a lease liability and a lease
asset for all leases, including operating leases, with a lease term greater than twelve months on
its balance sheet. The update also expands the required quantitative and qualitative disclosures
surrounding leases. This update is effective for fiscal years beginning after December 15, 2018
and interim periods within those fiscal years, with earlier application permitted. The Company
expects the adoption of this standard to result in the recognition of right-of-use assets and lease
liabilities not currently recorded in the Company’s consolidated financial statements. The
Company is evaluating its transition method and other effects that the new standard will have on
its consolidated financial statements and related disclosures.
F-13
Reliv’ International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
2. Property, Plant, and Equipment
Property, plant, and equipment at December 31, 2017 and 2016, consist of the following:
Land and land improvements
Building
Machinery and equipment
Office equipment
Computer equipment and software
Less accumulated depreciation
2017
2016
$
$
905,190
9,950,190
4,755,727
1,183,115
2,261,038
19,055,260
13,378,021
5,677,239
$
$
905,190
9,943,512
4,329,329
1,203,868
2,218,766
18,600,665
12,746,363
5,854,302
For the years ended December 31, 2017 and 2016, depreciation expense was $674,141 and
$728,618, respectively.
3. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses at December 31, 2017 and 2016, consist of the
following:
Trade payables
Distributors' commissions
Sales taxes
Payroll and payroll taxes
4. Amortizable Intangible Assets
2017
2016
$
$
1,667,495
1,115,649
154,958
261,916
3,200,018
$
$
2,352,692
1,402,370
234,153
245,090
4,234,305
The Company had amortizable intangible assets as follows as of December 31, 2017 and 2016:
Gross Carrying Amount
Accumulated
Amortization
2017
2016
2017
2016
Distributorship and related agreements
Lunasin technology license
$2,060,000
1,954,661
$2,060,000
1,954,661
$1,327,556
512,857
$1,217,689
396,738
$4,014,661
$4,014,661
$1,840,413
$1,614,427
F-14
Reliv’ International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
4. Amortizable Intangible Assets (continued)
Amortization expense for intangible assets totaled $225,985 and $255,413 in 2017 and 2016,
respectively. Amortization expense for amortizable intangible assets over the next five years is
estimated to be:
2018
2019
2020
2021
2022
Intangible
Amortization
$226,000
226,000
226,000
226,000
226,000
5. Fair Value of Financial Instruments
The carrying amount and fair value of financial instruments at December 31, 2017 and 2016
were approximately as follows:
Description
Carrying
Amount
Fair
Value
Level 1
Level 2
Level 3
December 31, 2017
Long-term debt
Note receivable
Marketable securities
December 31, 2016
Long-term debt
Note receivable
Marketable securities
$3,045,421
$3,045,421
1,521,005
1,684,000
-
-
$3,045,421
1,684,000
330,000
330,000
$330,000
-
$2,907,437
$2,907,437
1,630,164
1,812,000
-
-
$2,907,437
1,812,000
296,000
296,000
$296,000
-
-
-
-
-
-
-
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-15
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.
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, 2017 and 2016 consists of the following:
Term loan
Revolving line of credit
Notes payable
Less current maturities
Long-term portion
2017
2016
$
$
2,545,421
500,000
-
3,045,421
3,045,421
-
$
$
2,843,301
-
64,136
2,907,437
389,096
2,518,341
Term Loan and Revolving Loan Agreements
Effective September 30, 2015, the Company entered into a series of lending agreements with a
new primary lender which include agreements for a $3.25 million term loan and $3.5 million
revolving credit facility. These lending agreements replace similar borrowings under agreements
with the Company’s former primary lender.
F-16
Reliv’ International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
6. Debt (continued)
Term Loan and Revolving Loan Agreements (continued)
The new $3.25 million term loan is for a period of three years and requires monthly term loan
payments, under a ten-year amortization, consisting of principal of $27,080 plus interest with a
balloon payment for the outstanding balance due and payable on September 30, 2018. The term
loan’s interest is based on the 30-day LIBOR plus 2.25% and was 3.62% at December 31, 2017.
The new $3.5 million revolving line of credit agreement, originally dated September 30, 2015,
accrues interest at a floating interest rate based on the 30-day LIBOR plus 2.25% and had an
original term of one year. Effective September 30, 2016, the revolving line of credit agreement
was extended under similar terms to April 30, 2018. As of December 31, 2017, there were
outstanding borrowings of $500,000 under the revolving line of credit.
The proceeds from the new $3.25 million term loan were used to pay off the outstanding term
loan and revolving line of credit balances, plus accrued interest, due under loan agreements with
the Company’s former primary lender.
Borrowings under the current lending agreements are secured by all tangible and intangible
assets of the Company, a whole life insurance policy on the life of the Company’s Chief
Executive Officer, which was assigned to the lender, and by a mortgage on the real estate of the
Company’s headquarters.
The Company anticipates being able to successfully renegotiate and extend the maturity of both
the revolving line of credit and term note prior to becoming due. If the loan extension terms are
not mutually agreeable, the Company would consider utilizing proceeds from its cash surrender
value life insurance policy to repay the lender as such loan obligations become due.
The original September 30, 2015 lending agreements include a quarterly covenant requiring the
Company to maintain net tangible worth of not less than $9.5 million. The September 30, 2016
revolving line of credit agreement extension added a quarterly financial covenant under which
the Company had or will have:
i) a quarterly minimum requirement of earnings before interest
expense, income tax expense, depreciation, and amortization (“EBITDA”) of $200,000 for the
quarter ended December 31, 2016; ii) a cumulative minimum EBITDA requirement of $200,000,
$400,000, $600,000, and $800,000 for the fiscal periods ending March 31, 2017, June 30, 2017,
September 30, 2017, and December 31, 2017, respectively; and iii) a minimum EBITDA of
$200,000 for the quarter ended March 31, 2018.
As defined, EBITDA means the Company’s consolidated net income for such period, before
interest expense, income tax expense, depreciation and amortization, management fees, and
further adjusted to exclude any gain or loss on the sale of assets, other extraordinary gains or
losses, and any one-time adjustments approved by the lender.
At December 31, 2017, the Company was in compliance with its loan covenant requirements.
F-17
Reliv’ International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
7. Stockholders’ Equity
Stock Options – Incentive Stock Plans
The Company sponsors an incentive stock plan (the “2014 Plan”) allowing for a maximum of
142,857 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. This plan has been approved
by the stockholders of the Company. The Compensation Committee of the Board of Directors
administers the plan.
The 2014 Plan provides that options may be issued under the Plan at an option price not less than
fair market value of the stock at the time the option is granted. Under the plan, 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 plan, are set by the committee and will be 10 years or less. The 2014 Plan
expires in 2024.
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
2017
2016
Weighted
Avg.
Exercise
Price
$8.14
8.57
$7.85
Weighted
Avg.
Exercise
Price
$8.11
7.96
$8.14
Options
261,700
-
-
(24,856)
236,844
Options
236,844
-
-
(96,420)
140,424
Exercisable at end of year
13,713
$7.77
55,066
$8.54
The aggregate intrinsic value of stock options outstanding and currently exercisable at December
31, 2017 was $-0-.
In May 2017, the Company’s shareholders voted to approve a 2017 Incentive Stock Plan (2017
Plan) which authorizes the issuance of up to 200,000 shares of the Company’s common stock in
various forms of stock options and/or stock awards. The 2017 Plan will not become effective
until registered with the Securities and Exchange Commission.
F-18
Reliv’ International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
7. Stockholders’ Equity (continued)
Stock Options – Incentive Stock Plans (continued)
Options Outstanding
Options Exercisable
As of December 31, 2017
Range of
Exercise Prices
Number
Outstanding
Weighted Avg.
Remaining Life
Weighted Avg.
Exercise Price
Number
Exercisable
Weighted Avg.
Remaining Life
Weighted Avg.
Exercise Price
$7.77
$8.19
$7.77 - $8.19
114,282
26,142
140,424
2.17
0.17
1.80
$7.77
8.19
$7.85
13,713
-
13,713
2.17
-
2.17
$7.77
-
$7.77
Compensation cost for the stock option plan was approximately $27,000 ($27,000 net of tax) and
$56,000 ($56,000 net of tax) for the years ended December 31, 2017 and 2016, respectively, and
has been recorded in selling, general, and administrative expense. As of December 31, 2017, the
total remaining unrecognized compensation cost related to the non-vested portion of time vesting
stock options totaled $54,000 ($54,000 net of tax), which will be amortized over the weighted
remaining requisite service period of 2.17 years.
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.
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 $6,600 and $4,062 in 2017 and 2016,
respectively.
F-19
Reliv’ International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
7. Stockholders’ Equity (continued)
Distributor Stock Purchase Plan (continued)
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
2017
2016
3.0
1.98%
73.8%
0.0%
3.0
1.47%
75.9%
0.0%
A summary of the Company’s warrant activity and related information for the years ended
December 31 follows:
2017
Weighted
Avg.
Exercise
Price
Warrants
2016
Weighted
Avg.
Exercise
Price
Warrants
Outstanding beginning of the year
Granted
Exercised
Expired
6,291
1,258
-
(1,589)
$5.34
4.77
8.19
5,484
2,519
-
(1,712)
$10.13
4.64
19.67
Outstanding at end of year
5,960
$4.46
6,291
$5.34
Exercisable at end of year
5,960
6,291
Range of
Exercise Prices
$ 4.06
$ 4.64
$ 4.77
$4.06 - $4.77
As of December 31, 2017
Warrants Outstanding and Exercisable
Weighted
Avg. Exercise
Price
$4.06
4.64
4.77
$4.46
Weighted
Avg. Remaining
Life
1.00
2.00
3.00
1.84
Warrants
2,183
2,519
1,258
5,960
The intrinsic value for stock warrants outstanding at December 31, 2017 was $2,000.
F-20
Reliv’ International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
8. Loss per Share
The following table sets forth the computation of basic and diluted loss per share:
Numerator:
Net loss
Denominator:
Denominator for basic loss per share – weighted
average shares
Dilutive effect of employee stock options and
other warrants
Denominator for diluted loss per share – adjusted
weighted average shares
Basic loss per share
Diluted loss per share
Year ended December 31
2017
2016
($696,912)
($625,055)
1,845,000
1,845,000
-
-
1,845,000
1,845,000
($0.38)
($0.38)
($0.34)
($0.34)
For the years ended December 31, 2017 and 2016, options and warrants totaling 146,384 and
238,433, respectively, shares of common stock were not included in the denominator for diluted
loss per share because their effect would be anti-dilutive or because the shares were deemed
contingently issuable.
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, 2017:
2018
2019
2020
2021
2022
Thereafter
$
$
252,901
191,831
150,081
10,243
10,242
-
615,298
Rent expense for operating leases was $338,734 and $370,554 for the years ended December 31,
2017 and 2016, respectively.
F-21
Reliv’ International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
10. Note Receivable Due From Distributor
In March 2012, the Company purchased a note and mortgage (“Note”) from a real estate
investment management firm on certain properties in Wyoming and Idaho for $2 million.
In
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 $1,521,005 and $1,630,164 as of
December 31, 2017 and 2016, respectively.
11. Income Taxes
Compenents of loss before income taxes:
United States
Foreign
Year ended December 31
2017
2016
($30,606)
(121,306)
($151,912)
($499,004)
(117,051)
($616,055)
Compenents of provision (benefit) for income taxes:
Year ended December 31
2017
2016
Current:
Federal
State
Foreign
Total current
Deferred:
Federal
State
Foreign
Total deferred
($2,000)
5,000
33,000
36,000
-
-
509,000
509,000
$545,000
($15,000)
(10,000)
29,000
4,000
(27,000)
(4,000)
36,000
5,000
$9,000
F-22
Reliv’ International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
11. Income Taxes (continued)
The provision (benefit) for income taxes is different from the amounts computed by applying the
United States federal statutory income tax rate of 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/losses
in foreign countries
Foreign corporate income taxes
Foreign tax credit carryover
Effect of future tax rate changes to foreign
deferred income taxes
Nondeductible meals and entertainment expense
Net operating loss carryback claims
Valuation allowance, net
Other
Year ended December 31
2017
2016
($52,000)
11,000
($209,000)
11,000
(65,000)
33,000
(66,000)
-
13,000
-
707,000
(36,000)
$545,000
(104,000)
44,000
-
21,000
15,000
(19,000)
292,000
(42,000)
$9,000
During 2016 and 2017, the Company determined that it was more likely than not that U.S.
federal and various state net operating losses primarily generated in 2016 and 2017 will not be
realized based on projections of future U.S. taxable income, estimated reversals of existing
taxable timing differences, and other considerations. Accordingly, the 2017 and 2016 income
tax provisions include the impact of recording a full deferred tax asset valuation allowance of
approximately $198,000 and $292,000, respectively, against the annual losses generated from a
U.S. tax perspective. The Company has domestic federal net operating loss carryforwards of
approximately $186,000 at December 31, 2017 which will expire between 2036 and 2037.
The Company has a deferred tax asset of $3,413,000 and $3,237,000 at December 31, 2017 and
2016, respectively, relating to foreign net operating loss carryforwards (NOLs) in various
jurisdictions which principally do not expire.
As of December 31, 2017, management’s assessment of the realizability of its Europe’s
subsidiary’s deferred tax assets concluded that it no longer meets the threshold of more likely
than not based upon the subsidiary’s recent declining operating results. Accordingly, the
Company has recorded a full valuation allowance against the Europe subsidiary’s deferred tax
assets with a corresponding deferred income tax charge of $509,000 at December 31, 2017.
The Company has recorded a valuation allowance of $2,904,000 against all other foreign net
operating loss carryforward balances as it is more likely than not that this asset will not be
realized.
F-23
Reliv’ International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
11. Income Taxes (continued)
The components of the deferred tax assets and liabilities, and the related tax effects of each
temporary difference at December 31, 2017 and 2016, are as follows:
Deferred tax assets:
Product refund reserve
Inventory obsolescence reserve
Vacation accrual
Stock-based compensation
Organization costs
Deferred compensation
Miscellaneous accrued expenses
Domestic net operating loss carryforwards
Foreign net operating loss carryforwards
Valuation allowance
Deferred tax liabilities:
Depreciation and amortization
Foreign currency exchange
Net deferred tax assets (liabilities)
Reported as:
Non-current deferred tax assets
Non-current deferred tax liabilities
Net deferred tax assets
2017
2016
7,000
62,000
-
-
127,000
94,000
13,000
186,000
3,413,000
(3,767,000)
135,000
28,000
107,000
135,000
-
-
-
-
$
$
$
$
10,000
25,000
6,000
9,000
189,000
108,000
10,000
282,000
3,237,000
(3,042,000)
834,000
182,000
165,000
347,000
487,000
487,000
-
487,000
$
$
$
$
The United States Tax Cuts and Jobs Act (TCJA) was enacted in December 2017, which
significantly changes U.S.
tax law, principally by permanently reducing the U.S. federal
statutory rate to 21% effective January 1, 2018, implementing a territorial tax system, and
imposing a repatriation tax on deemed repatriated earnings of foreign subsidiaries. Under the
TJCA’s repatriation tax, the Company estimates its cumulative amount of unremitted foreign
earnings and related tax is immaterial. The effect of the federal tax rate reduction to 21% is
reflected as a reduction in the U.S. deferred tax assets with a corresponding reduction in the
valuation allowance.
Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin (“SAB”) 118 to
provide guidance to companies on the reporting of the impacts of TCJA in their financial
statements. Under SAB 118, the Company is recording affected items as provisional to allow
additional time for clarifying technical guidance from Treasury and analysis of the effect to the
Company’s current tax positions.
F-24
Reliv’ International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
11. Income Taxes (continued)
At December 31, 2017 and 2016, the Company had $36,000 and $43,000, respectively, of
cumulative unrecognized tax benefits, of which only the net amount of $26,000 would impact the
effective income tax rate if recognized.
The aggregate changes in the balance of gross unrecognized tax benefits were as follows:
Beginning of year
Settlements and effective settlements with tax authorities
Lapse of statute of limitations
Decrease to tax positions taken during prior periods
Increase to tax positions taken during current period
End of year
2017
2016
$32,000
-
(6,000)
(6,000)
6,000
$46,000
-
(13,000)
(7,000)
6,000
$26,000
$32,000
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
It is the
unrecognized tax benefits is the U.S. federal tax benefit from state tax deductions.
Company’s practice to recognize interest and / or penalties related to income tax matters in
income tax expense.
At December 31, 2017 and 2016, the Company had $11,000 and $13,000, respectively, accrued
for interest and penalties within the balance of unrecognized tax benefits. 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 2013 and concluded years
through 2013 with its primary state jurisdiction.
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
As of December 31, 2017,
tax agency’s administrative judicial
management’s estimated reserve (net of deposits) for this matter is approximately $181,000.
resolution process.
F-25
Reliv’ International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
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 10% for the years
ended December 31, 2017, and 2016, respectively. Company contributions under the 401(k)
plan totaled $35,400 and $44,200 in 2017 and 2016, respectively.
The Company sponsors 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 2017 and 2016, the Company did not make any contributions to the ESOP.
13. Incentive Compensation Plans
Under a Board of Directors approved incentive compensation 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 2017 and 2016, the Board determined that the aggregate amount
of incentive compensation available under the Plan shall be equal to 18% 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 $109,500 and $-0- to
the participants of the bonus pool for 2017 and 2016, respectively.
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 2017 and 2016, 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, 2017 and 2016, SERP assets were $330,000 and
$296,000, respectively, and are included in “Other Assets” in the accompanying consolidated
balance sheets. At December 31, 2017 and 2016, SERP liabilities were $332,000 and $299,000,
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 2017 and 2016 were due to net realized and unrealized investment gains/losses incurred
by the plan.
F-26
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, 2017 and 2016
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
2017
2016
$32,474,797
922,594
914,775
445,299
4,578,095
2,453,222
$41,788,782
$18,100,872
572,368
265,629
219,501
1,032,641
884,985
$21,075,996
$35,591,831
1,079,054
1,065,147
529,871
5,490,508
1,756,425
$45,512,836
$18,563,523
568,890
375,264
311,102
1,694,113
952,835
$22,465,727
(1) Europe consists of United Kingdom, Ireland, France, Germany, Austria, and the Netherlands.
(2) Asia consists of Philippines, Malaysia, Singapore, and Indonesia.
The Company classifies its sales into two categories of sales products plus handling & freight
income. Net sales by product category data for the years ended December 31, 2017 and 2016,
follow:
Net sales by product category
Nutritional and dietary supplements
Sales aids and other
Handling & freight income
Total net sales
2017
2016
$37,326,863
1,424,494
3,037,425
$41,788,782
$40,554,312
1,450,649
3,507,875
$45,512,836
F-27
Reliv’ International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
15. Restructuring Activities - 2016
In May 2016, the Company implemented an employee headcount cost reduction program
resulting in the reduction of approximately 9% of the Company’s worldwide employees. The
total cost of the program, representing severance and benefits, was approximately $275,000 in
2016, and was included within Selling, General, and Administrative in the accompanying
consolidated statements of net loss and comprehensive loss. The aggregate annual salaries of the
affected employees was approximately $1,100,000. At December 31, 2016, there was no
remaining reserve for severance and benefits under the program.
F-28
Corporate Information
Corporate Headquarters:
Reliv International, Inc.
136 Chesterfield Industrial Blvd.
Chesterfield, Missouri 63005
Phone: 636.537.9715
www.reliv.com
Independent Auditors:
Ernst & Young LLP
Fiscal Year-End:
December 31
Annual Meeting:
The annual meeting of the stockholders will be
held at 9:00 am Central Daylight Time on
Thursday, May 24, 2018 at
Reliv Corporate Headquarters
136 Chesterfield Industrial Blvd.
Chesterfield, Missouri 63005
Stock Exchange Listing:
NASDAQ Stock Market under the symbol RELV
Financial Information:
Reliv International maintains a website at
www.reliv.com/investor-relations
Shareholder Questions:
Communications concerning stock transfer
requirements, lost certificates, change of
address or questions regarding the Dividend
Reinvestment Program should be directed to
American Stock Transfer & Trust at
800.937.5449
Transfer Agent:
American Stock Transfer & Trust Co.
6201 15th Avenue
Brooklyn, NY 11219
800.937.5449
Email: help@astfinancial.com