UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

____________

FORM 10-Q

(Mark One)

☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________to_________

Commission File Number

000-19932

RELIV’ INTERNATIONAL, INC.

(Exact name of Registrant as specified in its charter)

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

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

(636) 537-9715

(Registrant’s telephone number, including area code)

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

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

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

Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☑ Emerging growth company ☐

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

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

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

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

The number of shares outstanding of the Registrant’s common stock as of November 6, 2020 was 1,746,449 (excluding treasury shares).

INDEX

Part I – Financial Information

Item No. 1	Financial Statements (Unaudited)	1
Item No. 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item No. 4	Controls and Procedures	28

Part II – Other Information

Item No. 6	Exhibits	29

PART I -- FINANCIAL INFORMATION

Item No. 1 - Financial Statements

Reliv International, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

	September 30		December 31
	2020		2019
	(unaudited)
Assets

Current assets:
Cash and cash equivalents	$	3,339,675	$	1,630,779
Accounts receivable, less allowances of $5,000 in 2020 and 2019		58,157		107,369
Notes & accounts receivables and deposits - related parties		1,106,221		1,099,228
Inventories
Finished goods		2,515,500		2,275,306
Raw materials		205,740		305,571
Sales aids and promotional materials		107,498		120,811
Total inventories		2,828,738		2,701,688

Refundable income taxes		25,243		22,406
Prepaid expenses and other current assets		465,377		304,048
Total current assets		7,823,411		5,865,518

Notes and accounts receivables - related parties		2,331,844		2,418,921
Operating lease right-to-use assets		285,450		354,440
Intangible assets, net		1,552,788		1,722,277
Equity investment		505,000		505,000

Property, plant and equipment:
Land and land improvements		905,190		905,190
Building		10,153,222		10,145,005
Office & other equipment		1,246,779		1,237,142
Computer equipment & software		2,209,269		2,240,063
		14,514,460		14,527,400
Less: Accumulated depreciation		10,306,452		10,086,560
Net property, plant and equipment		4,208,008		4,440,840

Total assets	$	16,706,501	$	15,306,996

See notes to financial statements.

Reliv International, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

	September 30			December 31
	2020			2019
	(unaudited)
Liabilities and stockholders' equity

Current liabilities:
Accounts payable and accrued expenses:
Trade accounts payable and other accrued expenses	$	1,682,660		$	1,565,198
Distributors' commissions payable		1,024,724			891,492
Sales taxes payable		130,020			139,542
Payroll and payroll taxes payable		321,453			212,716
Total accounts payable and accrued expenses		3,158,857			2,808,948

Income taxes payable		46,013			121,177
Deferred revenue		309,016			322,261
Operating lease liabilities		182,565			236,771
Revolving line of credit		500,000			500,000
Current portion of long-term debt		477,229			-
Total current liabilities		4,673,680			3,989,157

Noncurrent liabilities:
Operating lease liabilities		87,889			103,580
Long-term debt, less current portion		384,771			-
Other noncurrent liabilities		126,320			112,616
Total noncurrent liabilities		598,980			216,196

Stockholders' equity:
Preferred stock, par value $.001 per share; 500,000 shares authorized; -0- shares issued and outstanding		-			-
Common stock, par value $.001 per share; 5,000,000 authorized; 2,110,013 shares issued and 1,746,449 shares outstanding		2,110			2,110
Additional paid-in capital		30,643,771			30,643,771
Accumulated deficit		(12,416,931	)		(12,755,495	)
Accumulated other comprehensive loss:
Foreign currency translation adjustment		(943,686	)		(937,320	)
Treasury stock		(5,851,423	)		(5,851,423	)

Total stockholders' equity		11,433,841			11,101,643

Total liabilities and stockholders' equity	$	16,706,501		$	15,306,996

See notes to financial statements.

Reliv International, Inc. and Subsidiaries

Condensed Consolidated Statements of Net Income (Loss) and Comprehensive Income (Loss)

(unaudited)	Three months ended September 30						Nine months ended September 30
	2020			2019			2020			2019

Product sales	$	7,935,387		$	8,395,941		$	24,855,366		$	24,809,979
Freight income		489,479			521,192			1,494,281			1,521,014
Other revenue		243,478			231,732			617,922			564,389

Net sales		8,668,344			9,148,865			26,967,569			26,895,382

Costs and expenses:
Cost of goods sold		2,290,223			2,497,993			7,147,554			7,200,716
Distributor royalties and commissions		2,801,005			2,939,187			8,719,538			8,721,852
Selling, general and administrative		3,744,220			3,796,276			11,023,006			11,224,748

Total costs and expenses		8,835,448			9,233,456			26,890,098			27,147,316

Income (loss) from operations		(167,104	)		(84,591	)		77,471			(251,934	)

Other income (expense):
Interest income		45,904			41,548			124,614			137,028
Interest expense		(6,717	)		(24,250	)		(20,755	)		(39,737	)
Other income (expense)		56,202			(12,564	)		86,234			(13,224	)
Gain on sale of fixed assets		-			-			-			434,549

Income (loss) before income taxes		(71,715	)		(79,857	)		267,564			266,682
Provision (benefit) for income taxes		53,000			86,000			(71,000	)		197,000

Net income (loss)	$	(124,715	)	$	(165,857	)	$	338,564		$	69,682

Other comprehensive income (loss):
Foreign currency translation adjustment		47,041			(27,307	)		(6,366	)		(15,554	)

Comprehensive income (loss)	$	(77,674	)	$	(193,164	)	$	332,198		$	54,128


Earnings (loss) per common share - Basic & Diluted	$	(0.07	)	$	(0.09	)	$	0.19		$	0.04
Weighted average shares		1,746,000			1,746,000			1,746,000			1,746,000

See notes to financial statements.

Reliv International, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(unaudited)

	Nine months ended September 30
	2020			2019

Operating activities:
Net income	$	338,564		$	69,682
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		429,274			437,816
Stock-based compensation		-			15,918
Non-cash other revenue		-			(259,299	)
Non-cash miscellaneous loss		-			24,618
(Gain) loss on sale of property, plant and equipment		-			(434,549	)
Foreign currency transaction (gain) loss		12,548			18,942
(Increase) decrease in trade, accounts & notes receivable, and deposits from related parties		33,249			(812,477	)
(Increase) decrease in inventories		(140,366	)		1,090,895
(Increase) decrease in refundable income taxes		(2,837	)		(2,251	)
(Increase) decrease in prepaid expenses and other current assets		(159,437	)		(45,501	)
(Increase) decrease in other assets		-			(76,128	)
Increase (decrease) in income taxes payable		(78,136	)		11,323
Increase (decrease) in accounts payable & accrued expenses, deferred revenue, and other noncurrent liabilities		338,665			(12,350	)

Net cash provided by operating activities		771,524			26,639

Investing activities:
Purchase of property, plant and equipment		(26,995	)		(84,457	)
Payments received on notes receivables - related parties		97,235			131,003

Net cash provided by investing activities		70,240			46,546

Financing activities:
Proceeds from line of credit borrowings		-			500,000
Proceeds from long-term borrowings		862,000			-

Net cash provided by financing activities		862,000			500,000

Effect of exchange rate changes on cash and cash equivalents		5,132			(22,380	)

Increase (decrease) in cash and cash equivalents		1,708,896			550,805

Cash and cash equivalents at beginning of period		1,630,779			1,989,974

Cash and cash equivalents at end of period	$	3,339,675		$	2,540,779

Supplementary disclosure of cash flow information:
Noncash investing & financing transactions (Note 3):

See notes to financial statements.

Reliv International, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders' Equity

(unaudited)

Accumulated

Additional

Other

Common Stock

Paid-In

Accumulated

Comprehensive

Treasury Stock

Shares

Amount

Capital

Deficit

Loss

Shares

Amount

Total

Balance at December 31, 2019

2,110,013

2,110

30,643,771

(12,755,495

)

(937,320

)

363,564

(5,851,423

)

11,101,643

Net income

662,336

Other comprehensive income (loss):

Foreign currency translation adjustment

(39,611

)

(39,611

)

Total comprehensive income

622,725

Balance at March 31, 2020

2,110,013

2,110

30,643,771

(12,093,159

)

(976,931

)

363,564

(5,851,423

)

11,724,368

Net loss

(199,057

)

(199,057

)

Other comprehensive income (loss):

Foreign currency translation adjustment

(13,796

)

(13,796

)

Total comprehensive loss

(212,853

)

Balance at June 30, 2020

2,110,013

2,110

30,643,771

(12,292,216

)

(990,727

)

363,564

(5,851,423

)

11,511,515

Net loss

(124,715

)

(124,715

)

Other comprehensive income (loss):

Foreign currency translation adjustment

47,041

Total comprehensive loss

(77,674

)

Balance at September 30, 2020

2,110,013

2,110

30,643,771

(12,416,931

)

(943,686

)

363,564

(5,851,423

)

11,433,841

Accumulated

Additional

Other

Common Stock

Paid-In

Accumulated

Comprehensive

Treasury Stock

Shares

Amount

Capital

Deficit

Loss

Shares

Amount

Total

Balance at December 31, 2018

2,110,013

2,110

30,622,547

(12,311,138

)

(982,095

)

264,853

(5,338,560

)

11,992,864

Net income

623,644

Other comprehensive income (loss):

Foreign currency translation adjustment

22,211

Total comprehensive income

645,855

Treasury stock acquired (Note 2)

99,200

(540,144

)

(540,144

)

Other

(489

)

27,281

Stock-based compensation

5,306

Balance at March 31, 2019

2,110,013

2,110

30,627,853

(11,687,494

)

(959,884

)

363,564

(5,851,423

)

12,131,162

Net loss

(388,105

)

(388,105

)

Other comprehensive income (loss):

Foreign currency translation adjustment

(10,458

)

(10,458

)

Total comprehensive loss

(398,563

)

Stock-based compensation

5,306

Balance at June 30, 2019

2,110,013

2,110

30,633,159

(12,075,599

)

(970,342

)

363,564

(5,851,423

)

11,737,905

Net loss

(165,857

)

(165,857

)

Other comprehensive income (loss):

Foreign currency translation adjustment

(27,307

)

(27,307

)

Total comprehensive loss

(193,164

)

Stock-based compensation

5,306

Balance at September 30, 2019

2,110,013

2,110

30,638,465

(12,241,456

)

(997,649

)

363,564

(5,851,423

)

11,550,047

See notes to financial statements.

Reliv’ International, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

September 30, 2020

1. Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements and notes thereto have been prepared in accordance with the instructions to Form 10-Q and reflect all adjustments (which primarily include normal recurring accruals) which we believe are necessary to present fairly the financial position, results of operations and cash flows. All significant intercompany accounts and transactions have been eliminated. These statements, however, do not include all information and footnotes necessary for a complete presentation of financial position, results of operations, and cash flows in conformity with accounting principles generally accepted in the United States. Interim results may not necessarily be indicative of results that may be expected for any other interim period or for the year as a whole. These financial statements should be read in conjunction with the audited consolidated financial statements and footnotes included in the annual report on Form 10-K for the year ended December 31, 2019, filed March 27, 2020 with the Securities and Exchange Commission.

Impact of COVID-19 Pandemic

In March 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic, which continues to spread throughout the U.S. and the world and has resulted in government authorities implementing numerous measures to contain the virus, including travel bans and restrictions, quarantines, shelter-in-place orders, and business limitations and shutdowns. While we are unable to accurately predict the full impact that COVID-19 will have on our results from operations, financial condition, liquidity and cash flows due to numerous uncertainties, including the duration and severity of the pandemic and containment measures, our compliance with these measures has impacted our day-to-day operations and could disrupt our business and operations, as well as that of our distributors, customers, suppliers (including contract manufacturers) and other counterparties, for an indefinite period of time. To support the health and well-being of our employees, customers, partners and communities, a vast majority of our employees have been working remotely since March 2020.

The ultimate impact of the COVID-19 pandemic on our worldwide operations is unknown and will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the COVID-19 outbreak, new information which may emerge concerning the severity of the COVID-19 pandemic, and any additional preventative and protective actions that governments may direct resulting in an extended period of continued business disruption and reduced operations. Any resulting financial impact cannot be reasonably estimated at this time but may have a material adverse impact on our business, financial condition and results of operations.

Reliv’ International, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

1. Accounting Policies (continued)

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.

Due to the COVID-19 pandemic, there has been uncertainty and disruption in the global economy and financial markets. We are not aware of any specific event or circumstance that would require updates to our estimates or judgments or require us to revise the carrying value of our assets or liabilities as of the date of issuance of this Quarterly Report on Form 10-Q. These estimates may change as new events occur and additional information is obtained. Actual results could differ materially from these estimates under unanticipated conditions or assumptions.

Concentrations of Risk

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

Variable Interest Entities (VIE) - Unconsolidated

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

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

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

Reliv’ International, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

1. Accounting Policies (continued)

Going Concern

We have incurred operating losses, declining net sales, and negative net cash flows over our most recent five years. Our management estimates that these unfavorable trends are more likely than not to continue for the foreseeable future, and as a result, we will require additional financial support to fund our operations and execute our business plan. As of September 30, 2020, we had $3.3 million in cash and cash equivalents which may not be sufficient to fund our planned operations through one year subsequent to the date of the issuance of these condensed financial statements, and accordingly, there is substantial doubt about our ability to continue as a going concern.

We have taken steps during 2020 which we believe will result in improvement in our financial position, operating results, and cash flows. These steps include:

	●	Obtaining a loan under the Payroll Protection Program in April 2020 for $862,000. See Note 5—PPP SBA Note for further details.
	●	Obtaining a new term loan on November 5, 2020 for $4.0 million from our primary lender. See Note 5—Term Loan for further details. Proceeds from the term loan agreement were used to pay off our $500,000 outstanding revolving line of credit balance, fund our stock split transactions and loan guarantor payments as described in Note 9, as well as provide funds for general working capital purposes.

Coupled with cash generated from operations, we believe these steps will provide us with sufficient liquidity. However, depending on future operating results, we may have to engage in any or all of the following activities to provide adequate working capital: (i) monetizing the note receivable from a distributor; (ii) modify our distributor promotions, incentives, and other activities; (iii) cease operations in certain geographic regions, and (iv) reduce employee compensation and benefits.

These condensed consolidated financial statements have been prepared on a going concern basis and do not include any adjustments to the amounts and classification of assets and liabilities that may be necessary in the event we can no longer continue as a going concern.

New Accounting Pronouncements – Not Yet Adopted

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

Reliv’ International, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

1. Accounting Policies (continued)

New Accounting Pronouncements – Not Yet Adopted (continued)

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

2. Sale of Manufacturing Operations’ Assets

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

	●	Inventories (sold at cost of $1.56 million) and,
	●	Machinery and other equipment with a net book value of $565,000 (sold for $1 million; gain on disposal of approximately $435,000).

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

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

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

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

	●	$1 million secured promissory note, seven year term, fixed interest rate of 5.5%, principal and interest payable monthly. (See June 1, 2019 note modification within this Note 2).
	●	$764,344 unsecured promissory note, seven year term, fixed interest rate of 7.0%, interest only payable for the first two years with monthly payment of principal and interest thereafter under a ten-year amortization schedule. The face value of the unsecured note includes the first year’s rent due under the facility lease agreement. (See October 1, 2019 note modification within this Note 2).
	●	Nutracom management transferred to us its ownership of 99,200 shares of our common stock valued at $540,144.

Reliv’ International, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

2. Sale of Manufacturing Operations’ Assets (continued)

	●	Nutracom issued to us a non-voting Class B 15% equity membership interest in Nutracom, LLC. The Class B interest does not share in any profits or losses from operations of Nutracom. As defined within the Nutracom Operating Agreement, upon any merger, consolidation, disposition, or liquidation of Nutracom, the Class B equity membership interest converts to a Class A equity membership interest. (In June 2020, Nutracom increased its total equity membership interests; reducing our Nutracom equity membership interest from 15% to 5%).
	●	Commencing January 1, 2020, our Class B interest is entitled to receive a percentage, (ranging from 1.0% to 1.25%) of Nutracom’s annual revenues (excluding Nutracom’s revenues from sales to us).

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

We accounted for the aforementioned Nutracom transactions in our first quarter 2019 financial results.

Promissory Note Modification – June 1, 2019

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

	●	Effective June 1, 2019, the outstanding balance of the Secured Promissory Note was reduced by $500,000 to $460,583 with a corresponding reduction of $500,000 to our outstanding vendor obligation due Nutracom under our ongoing product supply agreement.
	●	The $460,583 remaining Secured Promissory Note was exchanged with Nutracom for a newly issued June 1, 2019 Nutracom unsecured promissory note for the same amount under the following terms: fixed interest rate of 6.0% with interest only payable monthly through December 2020. Beginning January 1, 2021, principal and interest of $8,904 will be payable monthly for 60 months.

Promissory Note Modification – October 1, 2019

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

●

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

●

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

Reliv’ International, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

3. Related Parties

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

	September 30		December 31
	2020		2019
Assets and liabilities - related parties

Notes & accounts receivables and deposits - current
Deposits with Nutracom for inventory	$	808,515	$	941,154
Note receivable - distributor		136,627		130,629
Note receivable - Nutracom unsecured DTD 6/1/2019		60,615		-
Note receivable - Nutracom unsecured DTD 10/1/2019		37,853		-
Other miscellaneous receivables		62,611		27,445
	$	1,106,221	$	1,099,228


Notes & accounts receivables - non-current
Note receivable - distributor	$	1,048,210	$	1,151,443
Note receivable - Nutracom unsecured DTD 6/1/2019		399,968		460,583
Note receivable - Nutracom unsecured DTD 10/1/2019		673,310		711,163
Unbilled receivables: Straight line rent revenue greater than rental billings		210,356		95,732
	$	2,331,844	$	2,418,921


Equity investment in Nutracom	$	505,000	$	505,000

Liability captions with Nutracom balances included therein
Trade accounts payable and other accrued expenses	$	207,786	$	430,907

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

Remainder of 2020	$	33,394
2021		271,037
2022		288,294
2023		306,655
2024		326,190
Thereafter		1,131,013
	$	2,356,583

Reliv’ International, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

3. Related Parties (continued)

	Nine months ended September 30
	2020		2019
Revenue and expense - related parties

Other revenue	$	617,922	$	564,389

Selling, general and administrative expense:
Fullfillment & professional fees		466,148		458,826

Interest income on promissory notes		113,584		132,750
Royalty income (other income/expense)		48,682		-
Gain on sale of fixed assets		-		434,549

Finished goods inventory purchased from Nutracom	$	5,023,000	$	4,042,000

At September 30, 2020, we had $1.0 million in commitments (net of deposits) to purchase finished goods inventory from Nutracom.

Supplementary Disclosure of Cash Flows Information:

We incurred the following noncash investing and financing transactions on January 1, 2019 relating to our transactions with Nutracom:

	2019

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

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

Reliv’ International, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

4. Fair Value of Financial Instruments

Fair value can be measured using valuation techniques such as the market approach (comparable market prices), the income approach (present value of future income or cash flow), and the cost approach (cost to replace the service capacity of an asset or replacement cost). Accounting standards utilize a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those levels:

Level 1:

Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2:

Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets or similar assets or liabilities in markets that are not active.

Level 3:

Unobservable inputs that reflect the reporting entity’s own assumptions.

The carrying amount and fair value of financial instruments were approximately as follows:

	Carrying		Fair
Description	Amount		Value		Level 1		Level 2		Level 3

September 30, 2020
Revolving line of credit	$	500,000	$	500,000		-	$	500,000		-
PPP SBA note		862,000		862,000	$	862,000		-		-
Note receivable - distributor		1,184,837		1,317,000		-		1,317,000		-
Notes receivable - Nutracom		1,171,746		1,229,000		-		-	$	1,229,000


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

Revolving line of credit: The fair value of our revolver loan approximates carrying value as this loan was amended within the past year and has a variable market-based interest rate that resets every thirty days. (Fair value is only disclosed).

PPP SBA note: The fair value of our PPP SBA note approximates carrying value as the lending terms of this promissory note payable were under the 2020 CARES Act. (Fair value is only disclosed).

Note receivable - distributor: The note receivable - distributor 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. (Fair value is only disclosed).

Reliv’ International, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

4. Fair Value of Financial Instruments (continued)

Notes receivable - Nutracom: The notes receivable - Nutracom represent two fixed rate promissory notes issued by a privately-held entity (PHE). We developed an estimated market discount rate based upon the PHE’s third party incremental variable borrowing rate plus a risk-adjustment factor to estimate the fair value of these notes receivable under a discounted cash flow model. (Fair value is only disclosed).

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.

5. Debt

	September 30		December 31
	2020		2019

Revolving line of credit	$	500,000	$	500,000
PPP SBA note		862,000		-
		1,362,000		500,000
Less current portion		977,229		500,000
Total long-term debt	$	384,771	$	-

Term Loan

On November 5, 2020, we entered into a new $4,000,000 term loan agreement with our primary lender. The new term loan is for a period of five years, with a fixed interest rate of 4.25%, and requires monthly payments of principal and interest under a twenty-year amortization, with a balloon payment for the outstanding balance due and payable at the end of the term.

Borrowings under the new term loan agreement are secured by all of our tangible and intangible assets and by a mortgage on the real estate of our headquarters facility. In addition, the term loan is secured by a personal guarantee(s) by three of our significant shareholders (“Guarantors”). In consideration for the personal guarantee(s), we will pay a one-time aggregate payment of $200,000 to be shared among the Guarantors.

Proceeds from the term loan agreement were used to pay off our $500,000 outstanding revolving line of credit balance and to fund our loan guarantor payments. The remaining term loan proceeds are anticipated to fund our stock split transactions as described in Note 9, as well as provide funds for general working capital purposes.

Reliv’ International, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

5. Debt (continued)

Revolving Line of Credit

On September 30, 2015, we entered into a series of lending agreements with our primary lender which included agreements for a term loan and a revolving credit facility. The term loan was repaid in 2018 and the revolver has been periodically amended and extended.

Effective with a September 11, 2018 amendment, the revolving line of credit’s maximum borrowing amount was $750,000. The revolver’s maturity date was April 29, 2019 and the revolver’s interest rate was based on the 30-day LIBOR plus 2.25%. In January 2019, we borrowed $500,000 under the revolving line of credit.

Effective with a March 25, 2019 amendment, the revolving line of credit’s maturity date was extended to April 28, 2020 and the interest rate was revised to the 30-day LIBOR plus 3.00%. As amended, the revolver’s maximum borrowing amount remained $750,000.

On April 28, 2020, our revolving line of credit agreement was extended six months to October 28, 2020 under the same terms and conditions as the expiring agreement. At September 30, 2020, outstanding borrowings under the revolving line of credit were $500,000 at an interest rate of 3.16%. On November 5, 2020, the $500,000 balance under the line of credit was paid off from the proceeds of the new term loan.

PPP SBA Note

On May 4, 2020, we executed a promissory note (“SBA Note”) dated April 20, 2020 in the amount of $862,000 with our primary lender under the March 2020 U.S enacted Coronavirus Aid, Relief, and Economic Security (CARES) Act Payroll Protection Program (“PPP”). In accordance with the PPP, we used the loan proceeds of $862,000 primarily for payroll costs. The PPP SBA Note is scheduled to mature April 20, 2022 and has an interest rate of 1.0%. The PPP SBA Note is subject to the terms and conditions applicable to loans administered by the U.S. Small Business Administration under the CARES Act which include:

	●	A deferral of principal repayment and interest for six months from loan origination, and
	●	The opportunity to apply for possible loan forgiveness for some or all of the loan amount.

Our PPP SBA loan forgiveness accounting policy is to recognize, if applicable, any loan forgiveness amounts only when we have applied for loan forgiveness, forgiveness realization is probable, and the forgiveness amount is reasonably determinable. At September 30, 2020, we have not applied for PPP SBA loan forgiveness.

6. Income Taxes

During the fiscal years of 2016 through 2019, we determined that it was more likely than not losses generated in the U.S. and certain foreign jurisdictions will not be realized based on projections of future taxable income, estimated reversals of existing taxable timing differences, and other considerations. In prior years, we recorded a valuation allowance on all of our domestic and foreign deferred tax assets.

Reliv’ International, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

6. Income Taxes (continued)

Under the March 2020 U.S. CARES Act, U.S. Net Operating Losses (NOLs) arising in our calendar tax years 2018, 2019, and 2020 may be carried back to each of the five tax years preceding the tax year of such loss. Based on this new legislation, in the first quarter ended March 31, 2020, we have recorded a $225,000 income tax benefit for NOL carryback. In July 2020, we have received our requested NOL carryback refund from the Internal Revenue Service.

The effective income tax rate was (26.5)% and 73.9% for the year to date periods ended September 30, 2020 and 2019, respectively. In addition to the CARES Act tax benefit previously described, for each year to date period, the income tax provision amounts include estimated income taxes for one of the Company’s foreign subsidiaries and certain U.S. states. The 2019 income tax provision also includes approximately $25,000 for a 2017 tax year settlement by one of our foreign subsidiaries.

Tax Audits

One of our foreign subsidiaries had been under local country audit for greater than ten years for alleged deficiencies in various tax types for the years 2004 through 2006. We settled the 2005 and 2006 tax year audits in November 2019. In December 2019, we had an agreement in principle with the local tax authority to settle the tax year 2004 audit. At December 31, 2019, we had an estimated full reserve of approximately $84,000 for resolution of this matter; with such amount remitted to the tax authority in February 2020.

During the third quarter of 2019, the U.S. Internal Revenue Service (IRS) commenced an examination of our 2017 U.S. federal income tax return. In October 2020, one of our foreign subsidiaries received notification from its local agency of the agency’s intent to commence an examination of its 2019 local country income tax return.

7. Revenue Recognition

We recognize revenue from product sales under a five step process with our independent distributors (including customers) when there is a legally enforceable contract, the rights of the parties are identified, the contract has commercial substance, and collectability of the contract consideration is probable. Product sales revenue (principally nutritional and dietary supplements) and commission expenses are recorded when control is transferred to the independent distributors, which occurs at the time of shipment. Generally, net sales reflect product sales less the distributor discount of 20 percent to 40 percent of the suggested retail price. We present distributor royalty and commission expense as an operating expense, rather than a reduction to net sales, as these payments are not made to the purchasing distributor. At point of sale, we receive payment by credit card, personal check, or guaranteed funds for contracts from independent distributors and make related commission payments in the following month.

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

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

Reliv’ International, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

7. Revenue Recognition (continued)

Other revenue is defined in Note 8 – Lease Revenue.

Actual and estimated sales returns are classified as a reduction of net sales. We estimate and accrue a reserve for product returns based on our return policy and historical experience. Our product returns policy allows for distributors to return product only upon termination of his or her distributorship. Allowable returns are limited to saleable product which was purchased within twelve months of the termination for a refund of 100% of the original purchase price less any distributor royalties and commissions received relating to the original purchase of the returned products. For the year to date periods ending September 30, 2020 and 2019, total returns as a percent of net sales were 0.07% and 0.10%, respectively.

We classify our net sales into three categories of sales products, plus freight income, and other revenue:

	Three months ended				Nine months ended
	September 30				September 30
	2020		2019		2020		2019
Net sales by product category
Nutritional and dietary supplements	$	7,367,492	$	7,400,530	$	23,024,645	$	23,042,485
Other supplements		289,982		671,790		973,224		812,083
Sales aids, membership fees, and other		277,913		323,621		857,497		955,411
Freight income		489,479		521,192		1,494,281		1,521,014
Other revenue		243,478		231,732		617,922		564,389
Total net sales	$	8,668,344	$	9,148,865	$	26,967,569	$	26,895,382

We operate 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, as follows:

	Three months ended				Nine months ended
	September 30				September 30
	2020		2019		2020		2019
Net sales by geographic region
United States	$	6,682,473	$	6,842,640	$	20,612,493	$	19,859,018
Australia/New Zealand		148,012		135,123		436,883		444,500
Canada		127,791		139,991		412,448		479,418
Mexico		166,476		155,847		419,651		444,442
Europe ⁽¹⁾		628,810		727,038		2,193,436		2,421,971
Asia ⁽²⁾		914,782		1,148,226		2,892,658		3,246,033
Total net sales	$	8,668,344	$	9,148,865	$	26,967,569	$	26,895,382

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

Reliv’ International, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

8. Lease Revenue

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

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

Also included in other revenue are billings to the tenant for its share of the facility’s common area costs such as real estate taxes, maintenance, and utilities; totaling approximately $358,600 and $305,100 for the nine month periods ending September 30, 2020 and 2019, respectively. These same common area costs plus the tenant’s share of the facilities’ depreciation are recorded as cost of goods sold.

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

	Estimated
	Straight-line		Lease Agreement
	Rent Revenue		Fixed Rent

Remainder of 2020	$	86,433	$	48,225
2021		345,732		385,800
2022		345,732		385,800
2023		345,732		385,800
2024		345,732		409,913
Thereafter		345,733		409,912
Total	$	1,815,094	$	2,025,450

9. Subsequent Events

As described in Note 5, on October 28, 2020, our revolving line of credit agreement with our primary lender was verbally extended to November 5, 2020. On November 5, 2020, we entered into a new term loan agreement with our primary lender.

In October 2020 and November 2020, in a series of filings with the U.S. Securities and Exchange Commission (SEC), we announced our intention to effect a reverse stock split of our common stock and a forward stock split of our common stock (collectively “Stock Split”) during the fourth quarter of 2020, as defined and described within the aforementioned SEC filings. The Stock Split is being undertaken as part of our plan to suspend our obligations to file periodic and current reports and other information with the SEC as our Board of Directors has determined that the costs of being a public reporting company outweigh the benefits thereof.

FORWARD-LOOKING STATEMENTS

This quarterly report includes both historical and “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. We have based these forward-looking statements on our current expectations and projections about future results. Words such as “may,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “continue,” or similar words are intended to identify forward-looking statements, although not all forward-looking statements contain these words. Although we believe that our opinions and expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements, and our actual results may differ substantially from the views and expectations set forth in this quarterly report on Form 10-Q. We disclaim any intent or obligation to update any forward-looking statements after the date of this quarterly report to conform such statements to actual results or to changes in our opinions or expectations.

Item No. 2 - Management’s Discussion and Analysis of 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 Quarterly Report on Form 10-Q. The following discussion and analysis discusses the financial condition and results of our operations on a consolidated basis, unless otherwise indicated.

Overview

We are a developer and marketer of a proprietary line of nutritional supplements addressing basic nutrition, specific wellness needs, weight management and sports nutrition. In 2019, we introduced a line of hemp-extract products under the RLV brand name. We sell our products through an international direct selling system utilizing independent distributors. Sales in the United States represented approximately 76.5% of worldwide net sales for the nine months ended September 30, 2020 compared to approximately 73.8% for the nine months ended September 30, 2019. Our international operations currently generate sales through distributor networks with facilities in Australia, Canada, 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, and in New Zealand from our Australia office.

We derive our revenues principally through product sales made by our global independent distributor base, which, as of September 30, 2020, consisted of approximately 13,200 registered customers and 24,850 active distributors. Our sales can be affected by several factors, including our ability to attract new distributors and retain our existing distributor base, our ability to properly train and motivate our distributor base and our ability to develop new products and successfully maintain our current product line.

All of our sales to distributors outside the United States are made in the respective local currency; therefore, our earnings and cash flows are subject to fluctuations due to changes in foreign currency rates as compared to the U.S. dollar. Our foreign subsidiaries primarily source their nutritional and dietary inventories in U.S. dollars from our U.S. manufacturer. 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. From time to time, we enter into foreign exchange forward contracts to mitigate our foreign currency exchange risk.

Impact of COVID-19 Pandemic

Components of Net Sales and Expense

Product sales represent the actual product purchase price typically paid by our distributors, after giving effect to distributor allowances, which can range from 20% to 40% of suggested retail price, depending on the rank of a particular distributor. 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. Other revenue included in net sales includes the leasing revenue, plus common area expense billings, on the lease of the manufacturing portion of our building to Nutracom, LLC (“Nutracom”) as of January 1, 2019.

Our primary expenses include cost of products sold, distributor royalties and commissions and selling, general and administrative expenses.

Our cost of goods sold consists of the purchase price of the products, along with shipping costs, and duties and taxes where applicable. Cost of goods sold also include the costs related to leasing income.

Distributor royalties and commissions are monthly payments made to distributors based on products sold in their downline organization. Based on our distributor agreements, these expenses have typically approximated 23% of sales at suggested retail. Wholesale pricing discounts on distributor orders are based on the retail value of the product. Distributor royalties and commissions are paid on an amount referred to as the business value (“BV”), which 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.

Selling, general and administrative expenses include the compensation and benefits paid to our employees, all other selling expenses, marketing, promotional expenses, travel and other corporate administrative expenses. These other corporate administrative expenses include professional fees, depreciation and amortization, occupancy costs, communication costs and other similar operating expenses. Selling, general and administrative expenses can be affected by a number of factors, including staffing levels and the cost of providing competitive salaries and benefits; the amount we decide to invest in distributor training and motivational initiatives; and the cost of regulatory compliance.

Results of Operations

Net Sales. Overall net sales decreased by 5.3% in the three months ended September 30, 2020 compared to the same period in 2019. During the third quarter of 2020 (“Q3 2020”), sales in the United States decreased by 2.4%, and international sales decreased by 13.9% over the prior-year period. International sales, when reported in U.S. dollars, were favorably impacted by a weaker U.S. dollar versus most of the currencies of the markets where we do business. Excluding the impact of currency exchange fluctuation, international sales decreased by 17.0%.

The following table summarizes net sales by geographic market for the three months ended September 30, 2020 and 2019.

	Three months ended September 30,
	2020					2019					Change from prior year
	Amount		% of Net Sales			Amount		% of Net Sales			Amount			%
	(dollars in thousands)
United States	$	6,682		77.1	%	$	6,843		74.8	%	$	(161	)		(2.4	)%
Australia/New Zealand		148		1.7			135		1.5			13			9.6
Canada		128		1.5			140		1.5			(12	)		(8.6	)
Mexico		166		1.9			156		1.7			10			6.4
Europe		629		7.3			727		7.9			(98	)		(13.5	)
Asia		915		10.5			1,148		12.6			(233	)		(20.3	)
Consolidated total	$	8,668		100.0	%	$	9,149		100.0	%	$	(481	)		(5.3	)%

The following table summarizes net sales by geographic market for the nine months ended September 30, 2020 and 2019.

	Nine months ended September 30,
	2020					2019					Change from prior year
	Amount		% of Net Sales			Amount		% of Net Sales			Amount			%
	(dollars in thousands)
United States	$	20,613		76.5	%	$	19,859		73.8	%	$	754			3.8	%
Australia/New Zealand		437		1.6			445		1.6			(8	)		(1.8	)
Canada		412		1.5			479		1.8			(67	)		(14.0	)
Mexico		420		1.6			444		1.7			(24	)		(5.4	)
Europe		2,193		8.1			2,422		9.0			(229	)		(9.5	)
Asia		2,893		10.7			3,246		12.1			(353	)		(10.9	)
Consolidated total	$	26,968		100.0	%	$	26,895		100.0	%	$	73			0.3	%

The following tables set forth, as of September 30, 2020 and 2019, the number of our Retail Customers/ Preferred Customers/Active Distributors and Master Affiliates and above. The total number of active distributors includes Master Affiliates and above. We define an active retail or preferred customer as one that has placed a product order in the prior twelve months, and we define an active distributor as one that enrolls as a distributor or renews his or her distributorship during the prior twelve months. We believe the actual number of customers is much higher as many distributors (approximately 74% in the U.S.) join Reliv to purchase our products at a discount and do not participate in the business opportunity. The following tables also do not include those customers that buy product directly from distributors rather than from us. 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.

Retail and Preferred Customers/Active Distributors/Master Affiliates and Above by Market

	As of 9/30/2020
	Retail Customers		Preferred Customers		Active Distributors		Total Customers and Distributors		Master Affiliates and Above

United States		3,680		2,050		17,000		22,730		2,060
Australia/New Zealand		50		280		660		990		80
Canada		90		30		460		580		70
Mexico		30		140		1,190		1,360		90
Europe		730		560		1,540		2,830		260
Asia		850		4,710		4,000		9,560		750

Consolidated Total		5,430		7,770		24,850		38,050		3,310

	As of 9/30/2019
	Retail Customers		Preferred Customers		Active Distributors		Total Customers and Distributors		Master Affiliates and Above

United States		3,610		1,540		17,810		22,960		2,070
Australia/New Zealand		50		220		670		940		70
Canada		90		30		500		620		70
Mexico		20		110		1,170		1,300		90
Europe		740		750		1,690		3,180		310
Asia		2,390		5,450		4,060		11,900		530

Consolidated Total		6,900		8,100		25,900		40,900		3,140

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

United States		1.9	%		33.1	%		-4.5	%		-1.0	%		-0.5	%
Australia/New Zealand		0.0	%		27.3	%		-1.5	%		5.3	%		14.3	%
Canada		0.0	%		0.0	%		-8.0	%		-6.5	%		0.0	%
Mexico		50.0	%		27.3	%		1.7	%		4.6	%		0.0	%
Europe		-1.4	%		-25.3	%		-8.9	%		-11.0	%		-16.1	%
Asia		-64.4	%		-13.6	%		-1.5	%		-19.7	%		41.5	%

Consolidated Total		-21.3	%		-4.1	%		-4.1	%		-7.0	%		5.4	%

The following table provides key statistics related to customer and 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):
Quarter ended 9/30/2020	$	6,682		$	148		$	128		$	166		$	629		$	915		$	1,986
Quarter ended 9/30/2019	$	6,843		$	135		$	140		$	156		$	727		$	1,148		$	2,306

% change in sales-Q3 2020 vs. Q3 2019:
in USD		-2.4	%		9.6	%		-8.6	%		6.4	%		-13.5	%		-20.3	%		-13.9	%
due to currency fluctuation		-			4.6	%		-0.6	%		-15.1	%		5.1	%		4.5	%		3.1	%
Sales in local currency (non-GAAP)		-2.4	%		5.0	%		-8.0	%		21.5	%		-18.6	%		-24.8	%		-17.0	%

# of new Preferred Customers-Q3 2020		584			68			8			45			43			1,011			1,175
# of new Preferred Customers-Q3 2019		286			13			6			20			80			986			1,105
% change		104.2	%		423.1	%		33.3	%		125.0	%		-46.3	%		2.5	%		6.3	%

# of new distributors-Q3 2020		716			13			22			233			78			499			845
# of new distributors-Q3 2019		913			16			22			178			121			748			1,085
% change		-21.6	%		-18.8	%		0.0	%		30.9	%		-35.5	%		-33.3	%		-22.1	%

# of new Master Affiliates-Q3 2020		151			2			8			9			8			89			116
# of new Master Affiliates-Q3 2019		114			-			4			8			17			86			115
% change		32.5	%	N/M				100.0	%		12.5	%		-52.9	%		3.5	%		0.9	%

# of Product orders-Q3 2020		26,274			951			522			1,353			2,338			8,383			13,547
# of Product orders-Q3 2019		27,034			937			514			1,033			2,484			10,248			15,216
% change		-2.8	%		1.5	%		1.6	%		31.0	%		-5.9	%		-18.2	%		-11.0	%

	United States			AUS/NZ			Canada			Mexico			Europe			Asia			International -- Total
Sales in USD (in 000's):
YTD ended 9/30/2020	$	20,613		$	437		$	412		$	420		$	2,193		$	2,893		$	6,355
YTD ended 9/30/2019	$	19,859		$	445		$	479		$	444		$	2,422		$	3,246		$	7,036

% change in sales-YTD 2020 vs. YTD 2019:
in USD		3.8	%		-1.8	%		-14.0	%		-5.4	%		-9.5	%		-10.9	%		-9.7	%
due to currency fluctuation		-			-3.5	%		-1.6	%		-11.7	%		-0.2	%		3.3	%		0.4	%
Sales in local currency (non-GAAP)		3.8	%		1.7	%		-12.4	%		6.3	%		-9.3	%		-14.2	%		-10.1	%

# of new Preferred Customers-YTD 2020		1,428			138			18			93			220			1,957			2,426
# of new Preferred Customers-YTD 2019		929			55			21			58			363			4,029			4,526
% change		53.7	%		150.9	%		-14.3	%		60.3	%		-39.4	%		-51.4	%		-46.4	%

# of new distributors-YTD 2020		2,214			34			51			567			334			1,547			2,533
# of new distributors-YTD 2019		2,233			37			41			584			361			1,919			2,942
% change		-0.9	%		-8.1	%		24.4	%		-2.9	%		-7.5	%		-19.4	%		-13.9	%

# of new Master Affiliates-YTD 2020		457			16			23			20			43			323			425
# of new Master Affiliates-YTD 2019		378			3			6			30			52			303			394
% change		20.9	%		433.3	%		283.3	%		-33.3	%		-17.3	%		6.6	%		7.9	%

# of Product orders-YTD 2020		79,457			2,781			1,566			3,439			8,013			23,931			39,730
# of Product orders-YTD 2019		77,692			2,828			1,630			3,108			8,230			31,423			47,219
% change		2.3	%		-1.7	%		-3.9	%		10.6	%		-2.6	%		-23.8	%		-15.9	%

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.

United States

	●	Net sales in the United States decreased by 2.4% in Q3 2020 compared to the prior-year quarter, and net sales increased by 3.8% in YTD 2020 compared to the prior-year period. Measurements of distributor activity were mixed in Q3 2020 compared to the prior-year quarter and improved in all but new distributor enrollments in YTD 2020 compared to the prior-year period. Sales activity declined in Q3 2020 compared to prior-year quarter as Q3 2019 was favorably impacted by the then-recent launch of the RLV line of hemp-extract products and by the announcement of a price increase effective October 1, 2019.
	●	Products in the LunaRich line, including Reliv Now® and LunaRich X™, continued to perform well, constituting 14.4% and 10.7% of net sales in the United States, respectively, in Q3 2020. Reliv NOW and LunaRich X represented 14.0% and 10.8%, respectively, of net sales in the United States in the prior-year quarter.
	●	Sales of our RLV line of hemp-extract products, introduced in June 2019, represented 4.5% of net sales in the United States in Q3 2020. Initially, the RLV line included three liquid tinctures and one balm, and a new sleep-aid tincture with melatonin was introduced in Q1 2020. All of the RLV products are derived from organically-grown, non-GMO hemp. The RLV line represented 4.9% of net sales in United States in 2019.
	●	New distributor enrollments decreased by 21.6% and new Master Affiliate qualifications increased by 32.5% in Q3 2020 compared to the prior-year quarter. New Preferred Customer enrollments increased by 104.2% in Q3 2020 compared to the prior-year quarter, offsetting the new distributor decline.
	●	Distributor retention decreased slightly to 79.6% for the twelve-month period ended September 30, 2020 as compared to 80.3% for all of 2019. Distributor retention is determined by the percentage of active distributors from 2019 that renewed their distributorships in 2020.
	●	Our average order size in Q3 2020 decreased by 0.1% to $338 at suggested retail value compared to the prior-year quarter. Additionally, the number of product orders decreased by 2.8% in Q3 2020 compared to the prior-year quarter.

International Operations

	●	The average foreign exchange rate for the U.S. dollar for Q3 2020 was weaker against most of the currencies in which we conduct business except for the Canadian dollar and Mexican peso. Activity in certain markets continues to be more severely impacted by more restrictive COVID-19 guidelines.
	●	Australia/New Zealand net sales in Q3 2020 increased by 5.0% in local currency compared to the prior-year quarter as the result of a 1.5% increase in product orders and a significant increase in Preferred Customer enrollments.
	●	Net sales in Canada decreased in Q3 2020 by 8.0% in local currency in spite of a slight increase in the number of product orders. Other activity measurements showed mixed results in Q3 2020 compared to the prior-year quarter.
	●	Net sales in Mexico increased by 21.5% in local currency in Q3 2020 compared to the prior-year quarter, with all forms of distributor activity showing improvement.
	●	Net sales in Europe decreased by 18.6% in local currency in Q3 2020 compared to the prior-year quarter, with all distributor activity measurements showing decreases in the current-year quarter. The recovery in sales and distributor activity in Europe has been slowed by the impact of COVID-19 in the region.
	●	Sales in Asia decreased by 24.8% in local currency in Q3 2020 compared to the prior-year quarter. Activity in the region is driven primarily by the Philippines, our largest market in the region. COVID-19 guidelines in the Philippines continue to be restrictive and impairs our sales and distributor activity in the market.

Costs and Expenses

The following table sets forth selected results of our operations expressed as a percentage of net sales for the three- and nine-month periods ended September 30, 2020 and 2019. 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)	Three months ended
	September 30, 2020						September 30, 2019
	Amount			% of net sales			Amount			% of net sales

Net sales	$	8,668			100.0	%	$	9,149			100.0	%
Costs and expenses:
Cost of goods sold		2,290			26.4			2,498			27.3
Distributor royalties and commissions		2,801			32.3			2,939			32.1
Selling, general and administrative		3,744			43.2			3,796			41.5

Loss from operations		(167	)		(1.9	)		(84	)		(0.9	)
Interest income		46			0.5			41			0.4
Interest expense		(7	)		(0.1	)		(24	)		(0.3	)
Other income (expense)		56			0.7			(13	)		(0.1	)

Loss before income taxes		(72	)		(0.8	)		(80	)		(0.9	)
Provision for income taxes		53			0.6			86			0.9

Net loss	$	(125	)		(1.4	%)	$	(166	)		(1.8	%)

Loss per common share-Basic and Diluted	$	(0.07	)				$	(0.09	)

	Nine months ended
	September 30, 2020						September 30, 2019
	Amount			% of net sales			Amount			% of net sales

Net sales	$	26,968			100.0	%	$	26,895			100.0	%
Costs and expenses:
Cost of goods sold		7,148			26.5			7,200			26.8
Distributor royalties and commissions		8,720			32.3			8,722			32.4
Selling, general and administrative		11,023			40.9			11,225			41.7

Income (loss) from operations		77			0.3			(252	)		(0.9	)
Interest income		125			0.5			137			0.4
Interest expense		(20	)		(0.1	)		(40	)		(0.1	)
Other income (expense)		86			0.3			(13	)		-
Gain on sale of fixed assets		-			-			435			1.6

Income before income taxes		268			1.0			267			1.0
Provision (benefit) for income taxes		(71	)		(0.3	)		197			0.7

Net income	$	339			1.3	%	$	70			0.3	%

Earnings per common share-
Basic and Diluted	$	0.19					$	0.04

Cost of Goods Sold:

●

The cost of goods sold as a percentage of net sales in Q3 2020 decreased to 26.4% compared to the prior-year period. The decrease was the result of reduced inventory variances and improved margins on foreign sales due to a weaker U.S. dollar in Q3 2020 compared to the prior-year quarter. On a nine-month YTD basis, the percentage decreased by 0.3% in 2020, as a result of similar factors as in Q3 2020.

Distributor Royalties and Commissions:

●

Distributor royalties and commissions as a percentage of net sales for Q3 2020 increased by 0.2% to 32.3% when compared to the prior-year period. On a nine-month YTD basis, the percentage decreased by 0.1% in 2020. This decrease on a YTD basis is due to price increases in the United States and other markets in the latter half of 2019 in which distributor commissions were not increased.

Selling, General and Administrative Expenses:

●

Selling, general and administrative (“SGA”) expenses decreased by $52,000 in Q3 2020 compared to the prior-year period. On a nine-month YTD basis, SGA expenses decreased by $202,000.

●

SGA salaries, other staffing expenses, benefits, and incentive compensation decreased in the aggregate by $36,000 in YTD 2020, compared to the prior-year period.

●

Sales and marketing expenses, excluding compensation, decreased in the aggregate by $216,000 in YTD 2020 compared to the prior-year period. Sales and marketing expenses decreased overall as travel and in-person distributor events have been halted during the pandemic. Components of the decrease include:

$211,000 decrease in distributor conferences and meeting expenses.

$5,000 decrease in promotion expenses

$19,000 decrease in other sales and marketing expenses, including travel and video production expenses.

Offsetting these decreases is a $20,000 increase in Star Director and other distributor bonuses, credit card fees, and other expenses related to the level of sales.

●

Other general and administrative expenses increased by $51,000 in YTD 2020 versus the prior-year period, with increases in legal, consulting, and director fees partially offset by accounting fees and business insurance expense.

Other Income/Expense:

●

The other income in Q3 2020 and YTD 2020 is the result of the royalty income from Nutracom and pandemic relief payments by the Australian government to our local entity.

●

Q1 2019 includes $435,000 in income on the sale of our manufacturing equipment as part of the asset sale with Nutracom.

Income Taxes:

●

We reported income tax expense of $53,000 for Q3 2020 and an income tax benefit of $71,000 for YTD 2020. The Coronavirus Aid, Relief, and Economic Security (CARES) Act allowed us to carry our net operating loss that arose in 2018 back five years, generating an income tax benefit of $225,000 in Q1 2020. The remaining expense is related to income taxes on our earnings in our Philippine entity and minimum U.S. state income tax expense.

●

See Note 6 of the Condensed Consolidated Financial Statements for additional detail regarding income taxes.

Net Income:

●

We reported a net loss of $125,000 in Q3 2020 compared to a net loss of $166,000 in the prior-year quarter. On a nine-month YTD basis, we reported net income of $339,000 compared to $70,000 in the prior-year period. On a YTD basis, profitability is improved as the result of the slight improvement in sales and lower SGA expenses in the period, coupled with the income tax benefit recognized under the CARES Act.

Financial Condition, Liquidity and Capital Resources

During the first nine months of 2020, operating activities provided $772,000 of net cash, $70,000 of net cash provided by investing activities, and $862,000 was provided by financing activities. This compares to $27,000 of net cash provided by operating activities, $47,000 provided by investing activities, and $500,000 provided by financing activities in the same period of 2019. Cash and cash equivalents increased by $1.71 million to $3.34 million as of September 30, 2020 compared to December 31, 2019.

Significant changes in working capital items consisted of an increase in inventory of $140,000, an increase in prepaid expenses/other current assets of $159,000, and an increase in accounts payable and accrued expenses of $339,000 in the first nine months of 2020. The increase in inventory is the result of an increased safety stock as a precaution to potential pandemic-related supply chain delays, and the increase in prepaid expenses/other current assets primarily represents the annual premium payments made in the first quarter of 2020 on most of the corporate business insurance policies. The increase in accounts payable and accrued expenses is related to higher vendor balances on inventory purchases, financing related to the business insurance renewals, and higher accrued commissions payable as the result of the increase in sales in September 2020 relative to December 2019.

Investing activities during the first nine months of 2020 consisted of an investment of $27,000 for capital expenditures, offset by payments received on notes receivable with related parties of $97,000. Financing activities during the first nine months of 2020 consist of a loan of $862,000 with our primary lender under the CARES Act Payroll Protection Program (“PPP”), the details of which are described later in this section.

Stockholders’ equity increased to $11.43 million at September 30, 2020 compared to $11.10 million at December 31, 2019. The increase is due to our net income during the first nine months of 2020 of $339,000. Our working capital balance was $3.15 million at September 30, 2020 compared to $1.88 million at December 31, 2019. The current ratio at September 30, 2020 was 1.67 compared to 1.47 at December 31, 2019.

Effective with a renewal agreement as of April 28, 2020, our revolving line of credit with our primary lender was extended for six months with a new maturity date of October 28, 2020 and the borrowing limit continued at $750,000. Our lender informally extended the maturity until a new term loan closed on November 5, 2020 (see subsequent discussion). As renewed, the revolver’s interest rate continued to be based on the 30-day LIBOR plus 3.00%. As of September 30, 2020, we have borrowed $500,000 under our revolving line of credit. Borrowings under the lending agreement continue to be secured by all our tangible and intangible assets and by a mortgage on the real estate of our corporate headquarters.

On May 4, 2020, we executed a promissory note (“SBA Note”) dated April 20, 2020 in the amount of $862,000 with our primary lender under the PPP. In accordance with the PPP, we have used the loan proceeds of $862,000 primarily for payroll costs. The PPP SBA Note is scheduled to mature April 20, 2022 and has an interest rate of 1.0%. The PPP SBA Note is subject to the terms and conditions applicable to loans administered by the U.S. Small Business Administration under the CARES Act.

On November 5, 2020, we entered into a new $4.0 million term loan agreement with our primary lender. The new term loan is for a period of five years, with a fixed interest rate of 4.25%, and requires monthly payments of principal and interest under a twenty-year amortization, with a balloon payment for the outstanding balance due and payable at the end of the term.

Proceeds from the term loan agreement were used to pay off our $500,000 outstanding revolving line of credit balance and to fund our loan guarantor payments. The remaining term loan proceeds are anticipated to fund our stock split transactions as described in Note 9 of the Condensed Consolidated Financial Statements as well as provide funds for general working capital purposes.

We have taken steps during 2020 which we believe will result in improvement in our financial position, operating results, and cash flows, including the SBA Note and new term loan, as previously described. Coupled with cash generated from operations, we believe these steps will provide us with sufficient liquidity. However, depending on future operating results, we may have to engage in any or all of the following activities to provide adequate working capital: (i) monetizing the note receivable from a distributor; (ii) modify our distributor promotions, incentives, and other activities; (iii) cease operations in certain geographic regions, and (iv) reduce employee compensation and benefits.

Critical Accounting Policies

A summary of our critical accounting policies and estimates is presented in our 2019 Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 27, 2020. Our critical accounting policies remain unchanged as of September 30, 2020.

Item No. 4 - Controls and Procedures

Our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, has reviewed and evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2020. Based on such review and evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that the disclosure controls and procedures were effective as of September 30, 2020, to ensure that the information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, (a) is recorded, processed, summarized and reported within the time period specified in the SEC’s rules and forms and (b) is accumulated and communicated to our management, including the officers, as appropriate to allow timely decisions regarding required disclosure. There were no material changes in our internal control over financial reporting during the third quarter of 2020 that have materially affected or are reasonably likely to materially affect our internal controls over financial reporting.

PART II – OTHER INFORMATION

Item No. 6 – Exhibits

Exhibit Number	Document

10.1	Loan Agreement between Enterprise Bank and Trust and Reliv International, Inc., Reliv World Corporation, Reliv, Inc., SL Technology, Inc., and Chesterfield Partners LLC dated November 5, 2020 (incorporated by reference to Exhibit 10.1 to the Form 8-K of the Registrant filed November 9, 2020).

10.2	Promissory Note between Enterprise Bank and Trust and Reliv International, Inc., Reliv World Corporation, Reliv, Inc., SL Technology, Inc., and Chesterfield Partners LLC dated November 5, 2020 (incorporated by reference to Exhibit 10.2 to the Form 8-K of the Registrant filed November 9, 2020).

31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended (filed herewith).

31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended (filed herewith).

32	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).

101	Interactive Data Files, including the following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2020, formatted in XBRL: (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Net Income (Loss) and Comprehensive Income (Loss), (iii) the Condensed Consolidated Statements of Cash Flows, (iv) Condensed Consolidated Statements of Stockholders’ Equity, and (v) the Notes to Condensed Consolidated Financial Statements.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

RELIV’ INTERNATIONAL, INC.

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

Date: November 13, 2020

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

Date: November 13, 2020

RELIV INTERNATIONAL INC 10-Q