UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C.   20549










FORM
10-Q





(Mark
One)


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




For
the quarterly period ended September 30, 2009




OR




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




For
the transition period from _________to_________




Commission
File Number


000-19932


RELIV’
INTERNATIONAL, INC.


(Exact
name of Registrant as specified in its charter)





Delaware
                  
                  371172197(State
      or other jurisdiction of
                  
                  (I.R.S.
      Employer Identification Number)incorporation
      or organization)136
      Chesterfield Industrial BoulevardChesterfield, Missouri
                  
                  63005(Address
      of principal executive offices)
                  
                  (Zip
      Code)





(636)
537-9715


(Registrant’s
telephone number, including area code)




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





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 o     No o





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





Large
accelerated filer o     Accelerated
filer o      Non-accelerated
filer o Smaller reporting company  þ




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





The number of shares outstanding of the
Registrant’s common stock as of October 31, 2009 was 12,233,612 (excluding
treasury shares).











INDEX





PART
      I – FINANCIAL INFORMATIONItem
      No. 1
                    Financial
      Statements (Unaudited)
                    1Item
      No. 2
                    Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                    10Item
      No. 4
                    Controls
      and Procedures
                    16PART
      II – OTHER INFORMATIONItem
      No. 1A
                    Risk
      Factors
                    16Item
      No. 2
                    Unregistered
      Sales of Equity Securities and Use of Proceeds
                    16Item
      No. 6
                    Exhibits
                    17








PART
I — FINANCIAL INFORMATION
 
 Item No. 1 - Financial
Statements
 
 Reliv
International, Inc. and Subsidiaries
 
 Consolidated
Balance Sheets
 
 September 30
                  
                  
                  December 312009
                  
                  
                  2008(unaudited)AssetsCurrent
      assets:Cash
      and cash equivalents
                  
                  $
                  6,422,451
                  
                  
                  $
                  4,460,637Accounts
      and notes receivable, less allowances of $16,000 in 2009 and $10,200 in
      2008
                  
                  
                  339,230
                  
                  
                  
                  494,689Accounts
      due from employees and distributors
                  
                  
                  107,327
                  
                  
                  
                  241,532InventoriesFinished
      goods
                  
                  
                  2,983,119
                  
                  
                  
                  3,533,371Raw
      materials
                  
                  
                  1,360,259
                  
                  
                  
                  1,710,319Sales
      aids and promotional materials
                  
                  
                  706,561
                  
                  
                  
                  978,264Total
      inventories
                  
                  
                  5,049,939
                  
                  
                  
                  6,221,954Refundable
      income taxes
                  
                  
                  1,641
                  
                  
                  
                  129,137Prepaid
      expenses and other current assets
                  
                  
                  842,190
                  
                  
                  
                  1,525,665Deferred
      income taxes
                  
                  
                  432,000
                  
                  
                  
                  522,000Total
      current assets
                  
                  
                  13,194,778
                  
                  
                  
                  13,595,614Other
      assets
                  
                  
                  1,531,571
                  
                  
                  
                  1,220,546Accounts
      due from employees and distributors
                  
                  
                  -
                  
                  
                  
                  164,462Intangible
      assets, net
                  
                  
                  2,052,030
                  
                  
                  
                  -Property,
      plant and equipment:Land
      and land improvements
                  
                  
                  852,147
                  
                  
                  
                  852,147Building
                  
                  
                  9,843,418
                  
                  
                  
                  9,786,037Machinery
      & equipment
                  
                  
                  3,395,737
                  
                  
                  
                  3,293,526Office
      equipment
                  
                  
                  1,509,143
                  
                  
                  
                  1,452,015Computer
      equipment & software
                  
                  
                  2,972,823
                  
                  
                  
                  2,904,84618,573,268
                  
                  
                  
                  18,288,571Less:
      Accumulated depreciation
                  
                  
                  10,000,941
                  
                  
                  
                  9,376,414Net
      property, plant and equipment
                  
                  
                  8,572,327
                  
                  
                  
                  8,912,157Total
      assets
                  
                  $
                  25,350,706
                  
                  
                  $
                  23,892,779
 
 See notes
to financial statements.
  1
 
 Reliv
International, Inc. and Subsidiaries
 
 Consolidated
Balance Sheets
 
 September 30
                  
                  
                  December 312009
                  
                  
                  2008(unaudited)Liabilities
      and stockholders' equityCurrent
      liabilities:Accounts
      payable and accrued expenses:Trade
      accounts payable and other accrued expenses
                  
                  $
                  3,549,162
                  
                  
                  $
                  2,948,467Distributors
      commissions payable
                  
                  
                  2,874,733
                  
                  
                  
                  2,809,164Sales
      taxes payable
                  
                  
                  393,450
                  
                  
                  
                  374,643Payroll
      and payroll taxes payable
                  
                  
                  479,245
                  
                  
                  
                  648,550Total
      accounts payable and accrued expenses
                  
                  
                  7,296,590
                  
                  
                  
                  6,780,824Revolving
      line of credit
                  
                  
                  1,000,000
                  
                  
                  
                  -Current
      maturities of long-term debt
                  
                  
                  514,186
                  
                  
                  
                  569,375Total
      current liabilities
                  
                  
                  8,810,776
                  
                  
                  
                  7,350,199Noncurrent
      liabilities:Long-term
      debt, less current maturities
                  
                  
                  4,851,088
                  
                  
                  
                  -Deferred
      income taxes
                  
                  
                  -
                  
                  
                  
                  70,000Other
      noncurrent liabilities
                  
                  
                  411,808
                  
                  
                  
                  364,990Total
      noncurrent liabilities
                  
                  
                  5,262,896
                  
                  
                  
                  434,990Stockholders'
      equity:Preferred
      stock, par value $.001 per share; 3,000,000 shares authorized; -0- shares
      issued and outstanding in 2009 and 2008
                  
                  
                  -
                  
                  
                  
                  -Common
      stock, par value $.001 per share; 30,000,000 authorized; 14,425,185 shares
      issued and 12,230,187 shares outstanding as of 9/30/2009; 14,425,185
      shares issued and 14,302,160 shares outstanding as of
      12/31/2008
                  
                  
                  14,425
                  
                  
                  
                  14,425Additional
      paid-in capital
                  
                  
                  30,463,558
                  
                  
                  
                  30,321,066Accumulated
      deficit
                  
                  
                  (11,804,192
                  )
                  
                  
                  (12,938,430
                  )Accumulated
      other comprehensive loss:Foreign
      currency translation adjustment
                  
                  
                  (649,730
                  )
                  
                  
                  (663,478
                  )Treasury
      stock
                  
                  
                  (6,747,027
                  )
                  
                  
                  (625,993
                  )Total
      stockholders' equity
                  
                  
                  11,277,034
                  
                  
                  
                  16,107,590Total
      liabilities and stockholders' equity
                  
                  $
                  25,350,706
                  
                  
                  $
                  23,892,779
 
 See notes
to financial statements.
  2
  Reliv
International, Inc. and Subsidiaries
 
 Consolidated
Statements of Income
 (unaudited)
  Three months ended September 30
                  
                  
                  Nine months ended September 302009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008Product
      sales
                  
                  $
                  18,578,895
                  
                  
                  $
                  21,226,975
                  
                  
                  $
                  57,517,213
                  
                  
                  $
                  67,719,727Handling
      & freight income
                  
                  
                  2,306,633
                  
                  
                  
                  2,633,832
                  
                  
                  
                  7,212,434
                  
                  
                  
                  8,372,176Net
      sales
                  
                  
                  20,885,528
                  
                  
                  
                  23,860,807
                  
                  
                  
                  64,729,647
                  
                  
                  
                  76,091,903Costs
      and expenses:Cost
      of products sold
                  
                  
                  4,451,156
                  
                  
                  
                  4,464,874
                  
                  
                  
                  12,800,809
                  
                  
                  
                  13,410,310Distributor
      royalties and commissions
                  
                  
                  7,907,856
                  
                  
                  
                  9,320,880
                  
                  
                  
                  24,480,422
                  
                  
                  
                  29,865,734Selling,
      general and administrative
                  
                  
                  8,056,928
                  
                  
                  
                  8,950,900
                  
                  
                  
                  24,725,653
                  
                  
                  
                  28,472,176Total
      costs and expenses
                  
                  
                  20,415,940
                  
                  
                  
                  22,736,654
                  
                  
                  
                  62,006,884
                  
                  
                  
                  71,748,220Income
      from operations
                  
                  
                  469,588
                  
                  
                  
                  1,124,153
                  
                  
                  
                  2,722,763
                  
                  
                  
                  4,343,683Other
      income (expense):Interest
      income
                  
                  
                  10,119
                  
                  
                  
                  64,329
                  
                  
                  
                  45,538
                  
                  
                  
                  299,893Interest
      expense
                  
                  
                  (62,195
                  )
                  
                  
                  (21,011
                  )
                  
                  
                  (113,129
                  )
                  
                  
                  (31,405
                  )Other
      income (expense)
                  
                  
                  76,657
                  
                  
                  
                  (211,550
                  )
                  
                  
                  202,747
                  
                  
                  
                  (229,139
                  )Income
      before income taxes
                  
                  
                  494,169
                  
                  
                  
                  955,921
                  
                  
                  
                  2,857,919
                  
                  
                  
                  4,383,032Provision
      for income taxes
                  
                  
                  170,000
                  
                  
                  
                  420,000
                  
                  
                  
                  1,112,000
                  
                  
                  
                  1,752,000Net
      income
                  
                  $
                  324,169
                  
                  
                  $
                  535,921
                  
                  
                  $
                  1,745,919
                  
                  
                  $
                  2,631,032Earnings
      per common share – Basic
                  
                  $
                  0.03
                  
                  
                  $
                  0.04
                  
                  
                  $
                  0.13
                  
                  
                  $
                  0.17Weighted
      average shares
                  
                  
                  12,230,000
                  
                  
                  
                  14,806,000
                  
                  
                  
                  13,109,000
                  
                  
                  
                  15,498,000Earnings
      per common share – Diluted
                  
                  $
                  0.03
                  
                  
                  $
                  0.04
                  
                  
                  $
                  0.13
                  
                  
                  $
                  0.17Weighted
      average shares
                  
                  
                  12,230,000
                  
                  
                  
                  14,810,000
                  
                  
                  
                  13,109,000
                  
                  
                  
                  15,502,000Cash
      dividends declared per common share
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  0.05
                  
                  
                  $
                  0.05
 
 See notes
to financial statements.
  3
 
 Reliv
International, Inc. and Subsidiaries
 
 Consolidated
Statements of Cash Flows
 (unaudited)
  Nine months ended September 302009
                  
                  
                  2008Operating
      activities:Net
      income
                  
                  $
                  1,745,919
                  
                  
                  $
                  2,631,032Adjustments
      to reconcile net income to net cash provided by operating
      activities:Depreciation
      and amortization
                  
                  
                  855,365
                  
                  
                  
                  830,870Stock-based
      compensation
                  
                  
                  142,492
                  
                  
                  
                  177,497Deferred
      income taxes
                  
                  
                  (31,000
                  )
                  
                  
                  (107,000
                  )Foreign
      currency transaction (gain)/loss
                  
                  
                  (120,114
                  )
                  
                  
                  310,408(Increase)
      decrease in accounts and notes receivable
                  
                  
                  454,382
                  
                  
                  
                  386,886(Increase)
      decrease in inventories
                  
                  
                  1,255,790
                  
                  
                  
                  (677,754
                  )(Increase)
      decrease in refundable income taxes
                  
                  
                  128,782
                  
                  
                  
                  137,274(Increase)
      decrease in prepaid expenses and other current assets
                  
                  
                  158,501
                  
                  
                  
                  (223,023
                  )(Increase)
      decrease in other assets
                  
                  
                  (290,471
                  )
                  
                  
                  31,707Increase
      (decrease) in accounts payable & accrued expenses and other noncurrent
      liabilities
                  
                  
                  480,532
                  
                  
                  
                  170,442Increase
      (decrease) in income taxes payable
                  
                  
                  -
                  
                  
                  
                  (100,000
                  )Net
      cash provided by operating activities
                  
                  
                  4,780,178
                  
                  
                  
                  3,568,339Investing
      activities:Proceeds
      from the sale of property, plant and equipment
                  
                  
                  -
                  
                  
                  
                  27,790Purchase
      of property, plant and equipment
                  
                  
                  (472,544
                  )
                  
                  
                  (756,960
                  )Purchase
      of distributorship
                  
                  
                  (716,119
                  )
                  
                  
                  -Purchase
      of investments
                  
                  
                  -
                  
                  
                  
                  (1,521,111
                  )Proceeds
      from final withdrawal from limited partnership investment
                  
                  
                  488,633
                  
                  
                  
                  -Proceeds
      from sales or maturities of investments, at cost
                  
                  
                  -
                  
                  
                  
                  1,919,703Net
      cash used in investing activities
                  
                  
                  (700,030
                  )
                  
                  
                  (330,578
                  )Financing
      activities:Proceeds
      from line of credit borrowings
                  
                  
                  6,000,000
                  
                  
                  
                  4,000,000Repayment
      of line of credit borrowings
                  
                  
                  (5,000,000
                  )
                  
                  
                  (4,000,000
                  )Proceeds
      from term loan borrowings
                  
                  
                  4,120,000
                  
                  
                  
                  -Principal
      payments on short and long-term borrowings
                  
                  
                  (1,774,901
                  )
                  
                  
                  -Common
      stock dividends paid
                  
                  
                  (611,681
                  )
                  
                  
                  (793,313
                  )Purchase
      of stock for treasury
                  
                  
                  (5,014,115
                  )
                  
                  
                  (8,008,261
                  )Other
                  
                  
                  -
                  
                  
                  
                  2,272Net
      cash used in financing activities
                  
                  
                  (2,280,697
                  )
                  
                  
                  (8,799,302
                  )Effect
      of exchange rate changes on cash and cash equivalents
                  
                  
                  162,363
                  
                  
                  
                  (371,864
                  )Increase
      (decrease) in cash and cash equivalents
                  
                  
                  1,961,814
                  
                  
                  
                  (5,933,405
                  )Cash
      and cash equivalents at beginning of period
                  
                  
                  4,460,637
                  
                  
                  
                  11,694,699Cash
      and cash equivalents at end of period
                  
                  $
                  6,422,451
                  
                  
                  $
                  5,761,294Supplementary
      disclosure of cash flow information:Noncash
      investing and financing transactions:Issuance
      of promissory note for purchase of stock for treasury
                  
                  $
                  1,106,919
                  
                  
                  $
                  -Obligation
      for purchase of distributorship
                  
                  $
                  1,343,881
                  
                  
                  $
                  -
 
 See notes
to financial statements.
  4
  Reliv
International, Inc. and Subsidiaries
 Notes to
Consolidated Financial Statements
 (Unaudited)
 
 September
30, 2009
 
 Note
      1—
              Accounting
      Policies
 
 Basis of
Presentation
 
 The
accompanying unaudited consolidated financial statements and notes thereto have
been prepared in accordance with the instructions to Form 10-Q and reflect all
adjustments which management believes necessary (which primarily include normal
recurring accruals) to present fairly the financial position, results of
operations and cash flows.  These statements, however, do not include
all information and footnotes necessary for a complete presentation of financial
position, results of operations and cash flows in conformity with accounting
principles generally accepted in the United States.  Interim results
may not necessarily be indicative of results that may be expected for any other
interim period or for the year as a whole.  These financial statements
should be read in conjunction with the audited consolidated financial statements
and footnotes included in the annual report on Form 10-K for the year ended
December 31, 2008, filed March 13, 2009 with the Securities and Exchange
Commission.
 
 Adoption of New Accounting
Standards
 
 In April
2009, the Financial Accounting Standards Board (FASB) issued guidance now
codifed as FASB Accounting Standards Codification (ASC) Topic 825, "Financial
Instruments," which amends previous Topic 825 guidance to require disclosures
about fair value of financial instruments in interim as well as annual financial
statements.  This pronouncement was effective for periods ending after
June 15, 2009.  The Company's adoption of this new pronouncement in
the second quarter of 2009 did not have a material impact on the Company's
financial statements.
 
 In May
2009, the FASB issued guidance now codified as FASB ASC Topic 855, "Subsequent
Events," which establishes general standards of accounting for disclosing events
that occur after the balance sheet date but before financial statements are
issued or are available to be issued.  It requires the disclosure of
the date through which an entity has evaluated subsequent events and the basis
for selecting that date, that is, whether that date represents the date the
financial statements were issued or were available to be issued.  FASB
ASC Topic 855 was effective for interim or annual financial periods ending after
June 15, 2009.  The Company adopted the provisions of FASB ASC Topic
855 during its second quarter of 2009.  The adoption of FASB ASC Topic
855 did not have a material impact on the Company's financial
statements.  The Company has evaluated  subsequent events
through November 9, 2009, the date the financial statements were
issued.
 
 In June
2009, the FASB issued guidance now codified as FASB ASC Topic 105, "Generally
Accepted Accounting Principles," as the single source of authoritative
nongovernmental U.S. GAAP.  FASB ASC Topic 105 does not change current
U.S. GAAP, but is intended to simplify user access to all authoritative U.S.
GAAP by providing all authoritative literature related to a particular topic in
one place.  All existing accounting standard documents will be
superceded and all other accounting literature not included in the FASB
Codification will be considered non-authoritative.  These provisions
of FASB ASC Topic 105 are effective for interim and annual periods ending after
September 15, 2009 and, accordingly, are effective for the Company for its third
quarter of 2009.  The Codification does not change or alter existing
U.S. GAAP and there was no impact on the Company's consolidated financial
position or results of operations.
 
 Note
      2 —
              Comprehensive
      Income
 
 Comprehensive
income was $330,670 and $1,759,667 for the three and nine months ended September
30, 2009, respectively.  For the three and nine months ended September
30, 2008, comprehensive income was $451,174 and $2,557,474,
respectively.  The Company's only component of other comprehensive
income is the foreign currency translation adjustment.
  5
  Reliv
International, Inc. and Subsidiaries
 Notes to
Consolidated Financial Statements
 (Unaudited)
 
 September
30, 2009
  Note
      3—
              Basic
      and Diluted Earnings per Share
 
 Basic
earnings per common share are computed using the weighted average number of
common shares outstanding during the period.  Diluted earnings per
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.
 
 The
following table sets forth the computation of basic and diluted earnings per
share:
 
 Three
      months ended September 30
                            
                            
                            Nine
      months ended September 302009
                            
                            
                            2008
                            
                            
                            2009
                            
                            
                            2008Numerator:Net
      income
                            
                            $
                            324,169
                            
                            
                            $
                            535,921
                            
                            
                            $
                            1,745,919
                            
                            
                            $
                            2,631,032Denominator:Denominator
      for basic earnings per share—weighted average shares
                            
                            
                            12,230,000
                            
                            
                            
                            14,806,000
                            
                            
                            
                            13,109,000
                            
                            
                            
                            15,498,000Dilutive
      effect of employee stock options and other warrants
                            
                            
                            -
                            
                            
                            
                            4,000
                            
                            
                            
                            -
                            
                            
                            
                            4,000Denominator
      for diluted earnings per share—adjusted weighted average
      shares
                            
                            
                            12,230,000
                            
                            
                            
                            14,810,000
                            
                            
                            
                            13,109,000
                            
                            
                            
                            15,502,000Basic
      earnings per share
                            
                            $
                            0.03
                            
                            
                            $
                            0.04
                            
                            
                            $
                            0.13
                            
                            
                            $
                            0.17Diluted
      earnings per share
                            
                            $
                            0.03
                            
                            
                            $
                            0.04
                            
                            
                            $
                            0.13
                            
                            
                            $
                            0.17
 
 Options
and warrants to purchase 835,040 shares of common stock for the three months and
nine months ended September 30, 2009, respectively, were not included in the
denominator for diluted earnings per share because their effect would be
antidilutive.  For the three months and nine months ended September
30, 2008, options and warrants to purchase 826,224 shares of common stock and
801,224 shares of common stock, respectively, were not included in the
denominator for diluted earnings per share because their effect would be
antidilutive.
 
 Not
      e 4—
              Restructuring
      of European Operations
 
 In June
2008, the Company began closing the operations of its Reliv Germany
subsidiary.  Under this restructuring plan, the Company now manages
its sales, marketing, and overall general management for its entire European
operations from its existing Reliv United Kingdom office.  While this
plan resulted in the closing of the Reliv Germany office, the Company's Germany
distribution center remains open to support that region's
customers.  In the second quarter of 2008, the Company incurred a
charge of $215,000 ($110,000 net of tax) for employee severance and lease exit
costs.
 
 In the
second quarter of 2009, the Company entered into a sublease rental agreement for
a significant portion of the Reliv Germany office.  The term of this
sublease agreement is from May 2009 through June 2010 and encompasses the
remaining term of the facility's master lease.  Under this sublease
agreement, the Company will receive sublease rental income of approximately
$3,700 per month.  In May 2009, the Company reduced its estimated
lease exit reserve by a minor amount to reflect the new sublease
agreement.  The Company expects that the September 30, 2009 reserve
balance will be substantially settled over the remainder of 2009.
 
 The
following is a summary of the costs incurred and payments made by
category.  (These costs have been recorded in Selling, General and
Administrative within the Consolidated Statements of Income).
  6
  Reliv
International, Inc. and Subsidiaries
 Notes to
Consolidated Financial Statements
 (Unaudited)
 
 September
30, 2009
 Note
      4—
              Restructuring
      of European Operations (continued)
 
 Employee
                          
                          
                          LeaseSeverance
                          
                          
                          Exit
                          
                          
                          TotalOriginal
      charges and reserve balance
                          
                          $
                          107,000
                          
                          
                          $
                          108,000
                          
                          
                          $
                          215,000Additional
      charges in 2008
                          
                          
                          17,500
                          
                          
                          
                          -
                          
                          
                          
                          17,500Amounts
      settled in 2008
                          
                          
                          (124,500
                          )
                          
                          
                          (42,000
                          )
                          
                          
                          (166,500
                          )Reserve
      balance at December 31, 2008
                          
                          
                          -
                          
                          
                          
                          66,000
                          
                          
                          
                          66,000Amounts
      settled in first quarter 2009
                          
                          
                          -
                          
                          
                          
                          (13,000
                          )
                          
                          
                          (13,000
                          )Reserve
      balance at March 31, 2009
                          
                          
                          -
                          
                          
                          
                          53,000
                          
                          
                          
                          53,000Amounts
      settled and sublease incomeadjustment
      in second quarter 2009
                          
                          
                          -
                          
                          
                          
                          (20,000
                          )
                          
                          
                          (20,000
                          )Reserve
      balance at June 30, 2009
                          
                          
                          -
                          
                          
                          
                          33,000
                          
                          
                          
                          33,000Amounts
      settled in third quarter 2009
                          
                          
                          -
                          
                          
                          
                          (7,000
                          )
                          
                          
                          (7,000
                          )Reserve
      balance at September 30, 2009
                          
                          
                          -
                          
                          
                          $
                          26,000
                          
                          
                          $
                          26,000
 
 Not
      e 5—
              Fair
      Value Measurements
 
 Effective
January 1, 2008, the Company adopted the provisions of FASB ASC Topic 820, "Fair
Value Measurements and Disclosures,” which defines fair value, establishes a
framework for fair value and expands disclosures about fair value
measurements.  FASB ASC Topic 820 clarifies that fair value is an exit
price, representing the amount that would be received to sell an asset or paid
to transfer a liability in an orderly transaction between market
participants.  FASB ASC Topic 820 also requires that a fair value
measurement reflect the assumptions market participants would use in pricing an
asset or liability based on the best information
available.  Assumptions include the risks inherent in a particular
valuation technique (such as a pricing model) and/or the risks inherent in the
inputs to the model.  In February 2008, the FASB issued guidance now
codified under FASB ASC Topic 820, which provides for delayed application of
certain guidance related to non-financial assets and non-financial liabilities,
except for items that are recognized or disclosed at fair value in the financial
statements on a recurring basis (at least annually).
 
 As of
September 30, 2009, the Company held assets that are required to be measured at
fair value on a recurring basis:
 
 Using
      QuotedTotal
                                    
                                    Prices
      inCarrying
                                    
                                    Active
      MarketsDescription
                                    
                                    Value
                                    
                                    (Level
      1)Marketable
      securities (1)
                                    
                                    $
                                    202,252
                                    
                                    $202,252
 
 (1)
              Representing
      assets of the Company's Supplemental Executive Retirement Plan (trading
      securities).  Presented within Other Assets in the consolidated
      balance sheets.
 
 The
carrying value of the Company's short-term and long-term debt approximates fair
value due to the short-term duration of the debt and / or  the
frequent resetting of its variable interest rate(s).
 
 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.
  7
  Reliv
International, Inc. and Subsidiaries
 Notes
to Consolidated Financial Statements
 (Unaudited)
  September
30, 2009
  Note
      6—
              Debt
 
 Short-term
and long-term debt at September 30, 2009 and December 31, 2008 consists of the
following:
 
 September
      30
                      
                      
                      December
      312009
                      
                      
                      2008Notes
      payable  (1)
                      
                      $
                      -
                      
                      
                      $
                      569,375Note
      payable (2)
                      
                      
                      -
                      
                      
                      
                      -Revolving
      line of credit (2) (3) (4)
      (5)
                      
                      
                      1,000,000
                      
                      
                      
                      -Term
      loan (3)
      (4)
                      
                      
                      4,034,788
                      
                      
                      
                      -Obligation
      for purchase of distributorship (6)
                      
                      
                      1,330,486
                      
                      
                      
                      -6,365,274
                      
                      
                      
                      569,375Less:  current
      portion
                      
                      
                      1,514,186
                      
                      
                      
                      569,375Long-term
      debt, less current maturities
                      
                      $
                      4,851,088
                      
                      
                      $
                      -
 
 (1)
              Series
      of five notes issued from October 2008 through December
      2008.  The notes range in amounts from $73,375 to $132,250 with
      the following key provisions:  interest payable at 6%; all
      outstanding principal and unpaid interest due two years from each note's
      issuance date; and no prepayment penalty.  At December 31, 2008,
      the Company classified these notes as a current liability as the Company
      repaid these notes in March 2009.
 
 (2)
              In
      April 2009, the Company entered into a Stock Purchase Agreement with a
      large shareholder (Seller) to purchase 2,068,973 shares of the Company's
      common stock for $6,106,919 (an average price of $2.95 per
      share).  To finance the purchase, the Company borrowed $5
      million under its existing line of credit and issued a promissory note to
      the Seller for $1,106,919.  The promissory note bore interest at
      6% per annum with all principal and unpaid interest due no later than
      ninety days from closing.   The Company repaid this note in
      July 2009 by borrowing $1 million from its revolving line of
      credit.
 
 (3)
              In
      June 2009, the Company entered into a term loan agreement with its primary
      lender for $4.12 million and used the proceeds to reduce its revolving
      line of credit balance from $5 million to $880,000.  The term of
      the loan is for a period of two years with interest accruing at a floating
      interest rate based on the 30-day LIBOR plus 3%, subject to a 3.75%
      floor.  As of September 30, 2009, the interest rate of this loan
      was 3.75%.  Monthly principal and interest are based on a
      ten-year amortization.  The aggregate outstanding balance of
      principal and interest is due and payable on June 29,
  2011.
 
 (4)
              Under
      the terms of the revolving line of credit and term loan, the Company is
      required to maintain the following financial covenants:
                (a)
      maintain
      at all times a tangible net worth of not less than $10 million and (b)
      maintain at all times a ratio of Total Funded Debt to EBITDA of not
      greater than 2.5 to 1.  The revolving line of credit and term
      loan are secured by all tangible and intangible assets of the Company and
      also by a mortgage on the Company headquarters building and real estate.
      At September 30, 2009, the Company was in compliance with its debt
      covenants.
  (5)
              The
      Company's 2008 revolving loan agreement expired on September 30,
      2009.  Effective October 1, 2009, the Company renewed with its
      primary lender its $5 million revolving line of credit for a term of one
      year.  Interest, payable monthly, accrues on the oustanding
      balance at a floating rate based on the 30-day LIBOR plus 3%, subject to a
      4.0% floor.
 
 (6)
              As
      described in Note 7, on August 31, 2009, the Company incurred a long-term
      obligation of $1,343,881 in the purchase of a Reliv
      distributorship.  The Company will pay this obligation in
      monthly payments of principal and interest totaling $18,994 over a seven
      year term with an annual interest rate of
5%.
  8
 Reliv
International, Inc. and Subsidiaries
 Notes
to Consolidated Financial Statements
 (Unaudited)
  September
30, 2009
  Note
      7—
              Purchase
      of Reliv Distributorship
 
 On August
31, 2009, the Company acquired an independent Reliv distributorship from its
owner for an aggregate purchase price of $2,060,000.  The Company paid
$500,000 of the purchase price to the owner at closing, credited the owner's
$216,119 outstanding loan balance due to the Company, and will pay the balance
of the purchase price, $1,343,881, over a period of seven years, plus interest
at an annual rate of 5%, with monthly payments of principal and interest
totaling $18,994.  As a condition to the transaction, the contract
contains a non-compete clause of two years and a non-solicitation clause of
Company distributors for a term of seven years.
 
 The
Company allocated the purchase price to its components based on fair value,
accounting for the acquisition of the distributorship as an intangible asset
with an estimated value of $1,648,000.  For the non-compete provision
and non-solicitation provision, the Company allocated $103,000 and $309,000,
respectively, based upon these assets relative fair value
estimates.  These assets will be amortized to general &
administrative expense over their estimated economic life.
 
 The
distributorship, non-compete, and non-solicit assets, net of accumulated
amortization, are presented as "Intangible assets, net" in the accompanying
consolidated balance sheets and are subject to review for potential impairment
going forward.
  9





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.  These forward-looking
statements are affected by risks, uncertainties and assumptions that we make,
including, among other things, the factors that are described in “Item No. 1A -
Risk Factors” in our 2008 Annual Report on Form 10-K filed with the Securities
and Exchange Commission on March 13, 2009, as the same may be updated or amended
in our quarterly reports on Form 10-Q.




Item No.
2 - Management’s Discussion and Analysis of FinancialCondition
and Results of Operations





The following discussion and analysis
of our financial condition and results of operations should be read in
conjunction with our financial statements and related notes included elsewhere
in this Quarterly Report on Form 10-Q.  The following discussion and
analysis discusses the financial condition and results of our operations on a
consolidated basis, unless otherwise indicated.





Overview





We are a developer, manufacturer and
marketer of a proprietary line of nutritional supplements addressing basic
nutrition, specific wellness needs, weight management and sports nutrition. We
also offer a line of skin care products. We sell our products through an
international network marketing system using independent distributors. Sales in
the United States represented approximately 88.5% of worldwide net sales for the
nine months ended September 30, 2009 and 86.6% of worldwide net sales for the
nine months ended September 30, 2008. Our international operations currently
generate sales through distributor networks in Australia, Canada, Germany,
Indonesia, Ireland, Malaysia, Mexico, New Zealand, the Philippines,
Singapore and the United Kingdom.  We also operate on a limited
basis in Austria and the Netherlands from our German distribution center and in
Brunei from our Malaysia office.





We derive our revenues principally
through product sales made by our global independent distributor base, which, as
of September 30, 2009, consisted of approximately 68,310 distributors. Our sales
can be affected by several factors, including our ability to attract new
distributors and retain our existing distributor base, our ability to properly
train and motivate our distributor base and our ability to develop new products
and successfully maintain our current product line.





All of our sales to distributors
outside the United States are made in the respective local currency;
therefore, our earnings and cash flows are subject to fluctuations due to
changes in foreign currency rates as compared to the U.S. dollar. As a
result, exchange rate fluctuations may have an affect 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 between 20% to 40% of suggested
retail price, depending on the rank of a particular
distributor.  Handling and freight income represents the amounts
billed to distributors for shipping costs.  We record net sales and
the related commission expense when the merchandise is shipped.





10





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





Cost of products sold primarily
consists of expenses related to raw materials, labor, quality control and
overhead directly associated with production of our products and sales
materials, as well as shipping costs relating to the shipment of products to
distributors, and duties and taxes associated with product
exports.  Cost of products sold is impacted by the cost of the
ingredients used in our products, the cost of shipping distributors’ orders,
along with our efficiency in managing the production of our
products.





Distributor royalties and commissions
are monthly payments made to Master Affiliates and above, based on products sold
in their downline organization. Based on our distributor agreements, these
expenses typically approximate 23% of sales at suggested retail. Also, we
include other sales leadership bonuses, such as Ambassador bonuses, in this line
item. Distributor royalties and commissions are directly related to the level of
our sales and, absent any changes in our distributor compensation plan, should
continue at comparable levels as a percentage of net sales as in recent periods.
However, in late 2008 and the first quarter of 2009, we adjusted the commission
structure on GlucAffect and other higher priced products in our
line.  We reduced the value of the product used to determine
distributor allowances and commission payouts on these products.  This, in
turn, allows us to sell these products at a lower suggested retail price with no
net impact to our earnings.  This adjustment appears as a slight
reduction in the percentage of distributor royalties and commissions as a
percentage of net sales.  This pricing and commission structure adjustment
also applies to the new Relivables product line introduced at our distributor
conference in August 2009.





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; the cost of
regulatory compliance, such as the costs incurred to comply with the various
provisions of the Sarbanes-Oxley Act of 2002; and other administrative
costs.





Results
of Operations





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, 2009 and 2008. Our results of operations for the periods described below are
not necessarily indicative of results of operations for future
periods.





Three months ended
                    September 30,
                  
                  
                  Nine months ended
                    September 30,2009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008Net
      sales
                  
                  
                  100.0
                  %
                  
                  
                  100.0
                  %
                  
                  
                  100.0
                  %
                  
                  
                  100.0
                  %Costs
      and expenses:Cost
      of products sold
                  
                  
                  21.3
                  
                  
                  
                  18.7
                  
                  
                  
                  19.8
                  
                  
                  
                  17.6Distributor
      royalties and commissions
                  
                  
                  37.9
                  
                  
                  
                  39.1
                  
                  
                  
                  37.8
                  
                  
                  
                  39.3Selling,
      general and administrative
                  
                  
                  38.6
                  
                  
                  
                  37.5
                  
                  
                  
                  38.2
                  
                  
                  
                  37.4Income
      from operations
                  
                  
                  2.2
                  
                  
                  
                  4.7
                  
                  
                  
                  4.2
                  
                  
                  
                  5.7Interest
      expense
                  
                  
                  (0.3
                  )
                  
                  
                  (0.1
                  )
                  
                  
                  (0.2
                  )
                  
                  
                  (0.0
                  )Interest
      and other income/(expense)
                  
                  
                  0.5
                  
                  
                  
                  (0.6
                  )
                  
                  
                  0.4
                  
                  
                  
                  0.1Income
      before income taxes
                  
                  
                  2.4
                  
                  
                  
                  4.0
                  
                  
                  
                  4.4
                  
                  
                  
                  5.8Provision
      for income taxes
                  
                  
                  0.8
                  
                  
                  
                  1.8
                  
                  
                  
                  1.7
                  
                  
                  
                  2.3Net
      income
                  
                  
                  1.6
                  %
                  
                  
                  2.2
                  %
                  
                  
                  2.7
                  %
                  
                  
                  3.5
                  %





11





Net Sales.Overall
net sales decreased by 12.5% in the three months ended September 30, 2009
compared to the same period in 2008.  During the third quarter of
2009, sales in the United States decreased by 12.3%, and our international sales
decreased by 13.9% over the prior-year period.





The
following table summarizes net sales by geographic market for the three months
ended September 30, 2009 and 2008. Beginning in 2009, we have condensed the
sales and distributor count data for the various countries where we operate
within Europe and Asia into single line items for each region.





Three months ended September 30,2009
                                                            
                                                            
                                                            2008
                                                            
                                                            
                                                            Change
      from prior yearAmount
                                                            
                                                            
                                                            %
      ofNet
                                                              Sales
                                                            
                                                            
                                                            Amount
                                                            
                                                            
                                                            %
      ofNet
                                                              Sales
                                                            
                                                            
                                                            Amount
                                                            
                                                            
                                                            %(dollars in thousands)United
      States
                                                            
                                                            $
                                                            18,262
                                                            
                                                            
                                                            
                                                            87.4
                                                            %
                                                            
                                                            $
                                                            20,814
                                                            
                                                            
                                                            
                                                            87.2
                                                            %
                                                            
                                                            $
                                                            (2,552
                                                            )
                                                            
                                                            
                                                            (12.3
                                                            )%Australia/New
      Zealand
                                                            
                                                            
                                                            620
                                                            
                                                            
                                                            
                                                            3.0
                                                            
                                                            
                                                            
                                                            667
                                                            
                                                            
                                                            
                                                            2.8
                                                            
                                                            
                                                            
                                                            (47
                                                            )
                                                            
                                                            
                                                            (7.0
                                                            )Canada
                                                            
                                                            
                                                            428
                                                            
                                                            
                                                            
                                                            2.0
                                                            
                                                            
                                                            
                                                            404
                                                            
                                                            
                                                            
                                                            1.7
                                                            
                                                            
                                                            
                                                            24
                                                            
                                                            
                                                            
                                                            5.9Mexico
                                                            
                                                            
                                                            392
                                                            
                                                            
                                                            
                                                            1.9
                                                            
                                                            
                                                            
                                                            389
                                                            
                                                            
                                                            
                                                            1.6
                                                            
                                                            
                                                            
                                                            3
                                                            
                                                            
                                                            
                                                            0.8Europe
                                                            
                                                            
                                                            314
                                                            
                                                            
                                                            
                                                            1.5
                                                            
                                                            
                                                            
                                                            322
                                                            
                                                            
                                                            
                                                            1.4
                                                            
                                                            
                                                            
                                                            (8
                                                            )
                                                            
                                                            
                                                            (2.5
                                                            )Asia
                                                            
                                                            
                                                            870
                                                            
                                                            
                                                            
                                                            4.2
                                                            
                                                            
                                                            
                                                            1,265
                                                            
                                                            
                                                            
                                                            5.3
                                                            
                                                            
                                                            
                                                            (395
                                                            )
                                                            
                                                            
                                                            (31.2
                                                            )Consolidated
      total
                                                            
                                                            $
                                                            20,886
                                                            
                                                            
                                                            
                                                            100.0
                                                            %
                                                            
                                                            $
                                                            23,861
                                                            
                                                            
                                                            
                                                            100.0
                                                            %
                                                            
                                                            $
                                                            (2,975
                                                            )
                                                            
                                                            
                                                            (12.5
                                                            )%





The following table summarizes net
sales by geographic market for the nine months ended September 30, 2009 and
2008.




Nine months ended September 30,2009
                                                        
                                                        
                                                        2008
                                                        
                                                        
                                                        Change from prior yearAmount
                                                        
                                                        
                                                        % of Net
                                                          Sales
                                                        
                                                        
                                                        Amount
                                                        
                                                        
                                                        % of Net
                                                          Sales
                                                        
                                                        
                                                        Amount
                                                        
                                                        
                                                        %(dollars in thousands)United
      States
                                                        
                                                        $
                                                        57,281
                                                        
                                                        
                                                        
                                                        88.5
                                                        %
                                                        
                                                        $
                                                        65,934
                                                        
                                                        
                                                        
                                                        86.6
                                                        %
                                                        
                                                        $
                                                        (8,653
                                                        )
                                                        
                                                        
                                                        (13.1
                                                        )%Australia/New
      Zealand
                                                        
                                                        
                                                        1,672
                                                        
                                                        
                                                        
                                                        2.6
                                                        
                                                        
                                                        
                                                        2,096
                                                        
                                                        
                                                        
                                                        2.8
                                                        
                                                        
                                                        
                                                        (424
                                                        )
                                                        
                                                        
                                                        (20.2
                                                        )Canada
                                                        
                                                        
                                                        1,076
                                                        
                                                        
                                                        
                                                        1.7
                                                        
                                                        
                                                        
                                                        1,301
                                                        
                                                        
                                                        
                                                        1.7
                                                        
                                                        
                                                        
                                                        (225
                                                        )
                                                        
                                                        
                                                        (17.3
                                                        )Mexico
                                                        
                                                        
                                                        1,018
                                                        
                                                        
                                                        
                                                        1.6
                                                        
                                                        
                                                        
                                                        1,269
                                                        
                                                        
                                                        
                                                        1.7
                                                        
                                                        
                                                        
                                                        (251
                                                        )
                                                        
                                                        
                                                        (19.8
                                                        )Europe
                                                        
                                                        
                                                        927
                                                        
                                                        
                                                        
                                                        1.4
                                                        
                                                        
                                                        
                                                        1,226
                                                        
                                                        
                                                        
                                                        1.6
                                                        
                                                        
                                                        
                                                        (299
                                                        )
                                                        
                                                        
                                                        (24.4
                                                        )Asia
                                                        
                                                        
                                                        2,756
                                                        
                                                        
                                                        
                                                        4.2
                                                        
                                                        
                                                        
                                                        4,266
                                                        
                                                        
                                                        
                                                        5.6
                                                        
                                                        
                                                        
                                                        (1,510
                                                        )
                                                        
                                                        
                                                        (35.4
                                                        )Consolidated
      total
                                                        
                                                        $
                                                        64,730
                                                        
                                                        
                                                        
                                                        100.0
                                                        %
                                                        
                                                        $
                                                        76,092
                                                        
                                                        
                                                        
                                                        100.0
                                                        %
                                                        
                                                        $
                                                        (11,362
                                                        )
                                                        
                                                        
                                                        (14.9
                                                        )%





The following table sets forth, as of
September 30, 2009 and 2008, 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 Affiliates and above in their downline
organization.  Growth in the number of active distributors and Master
Affiliates and above is a key factor in the growth of our business.





12





September 30, 2009
                    
                    September 30, 2008
                    
                    % ChangeActive
                      Distributors
                    
                    Master
                      Affiliates and
                      Above
                    
                    Active
                      Distributors
                    
                    Master
                      Affiliates and
                      Above
                    
                    Active
                      Distributors
                    
                    Master
                      Affiliates and
                      AboveUnited
      States
                    54,460
                    
                    
                    8,390
                    
                    
                    
                    54,210
                    
                    
                    
                    10,630
                    
                    
                    
                    0.5
                    %
                    
                    
                    (21.1
                    )%Australia/New
      Zealand
                    2,490
                    
                    
                    190
                    
                    
                    
                    2,480
                    
                    
                    
                    230
                    
                    
                    
                    0.4
                    
                    
                    
                    (17.4
                    )Canada
                    1,190
                    
                    
                    120
                    
                    
                    
                    1,250
                    
                    
                    
                    160
                    
                    
                    
                    (4.8
                    )
                    
                    
                    (25.0
                    )Mexico
                    1,960
                    
                    
                    240
                    
                    
                    
                    1,550
                    
                    
                    
                    240
                    
                    
                    
                    26.5
                    
                    
                    
                    0.0Europe
                    1,110
                    
                    
                    160
                    
                    
                    
                    1,190
                    
                    
                    
                    190
                    
                    
                    
                    (6.7
                    )
                    
                    
                    (15.8
                    )Asia
                    7,100
                    
                    
                    780
                    
                    
                    
                    7,860
                    
                    
                    
                    1,000
                    
                    
                    
                    (9.7
                    )
                    
                    
                    (22.0
                    )Consolidated
      total
                    68,310
                    
                    
                    9,880
                    
                    
                    
                    68,540
                    
                    
                    
                    12,450
                    
                    
                    
                    (0.3
                    )%
                    
                    
                    (20.6
                    )%





In the United States, net sales were
down 12.3% in the third quarter of 2009 compared to the same period in
2008.   For the nine-month period ended September 30, 2009, net
sales in the United States were down 13.1% versus the prior-year
period.  Sales in the United States continue to be adversely impacted
by the downturn in the economy.  First, the broad reduction in
consumer spending in the United States has negatively impacted our
sales.  Second, we believe the credit problems in the U.S. financial
markets, and the reduced availability of consumer credit, continue to play a
role in our sales decline, resulting in the lower number of distributors
qualifying for the level of Master Affiliate.  In the third quarter of
2009, approximately 694 distributors qualified as new Master Affiliates,
compared to approximately 907 in the prior-year quarter, a decline of
23.5%.  For the first nine months of 2009, the number of distributors
qualifying for the level of Master Affiliate is down 35.7%, compared to the
prior-year period.  In addition, the net number of Master Affiliates
and above as of September 30, 2009 decreased by 21.1%, as compared to the net
number of Master Affiliates and above as of September 30, 2008.  This
is consistent with a reduced number of distributors qualifying for the level of
Master Affiliate discussed above.





Another
impact to our business of the downturn in the economy is the average order
size.  In the third quarter of 2009, we processed approximately 69,970
orders in the U.S. for products at an average order of $338 at suggested retail,
an increase of 1.7% in the number of orders placed compared to the prior-year
quarter.  In the same period of 2008, we processed approximately
68,800 product orders at an average order of $391 at suggested retail, a decline
in average order size of 13.6%.  The average order size for all of
2008 was $388 at suggested retail.   This decline in the average
order size is another indicator of the impact of the current economic conditions
and a contributing factor in the lower numbers of distributors reaching the
Master Affiliate level.





The net
number of active Distributors in the United States as of September 30, 2009
increased by 0.5% to 54,460, compared to the number of active Distributors as of
September 30, 2008.  In January 2009, we launched an initiative to
increase new distributor enrollments by offering an enrollment fee of $20, half
of the normal $39.95 fee.  As a result, new distributor enrollments
increased in the third quarter of 2009 to 4,550 compared to 4,260 in the prior
year quarter, an increase of 6.8%.  For the first nine months of 2009,
new distributor enrollments are up 13.0%, compared to the prior-year
period.  Distributor retention was 61.6% for the first nine months of
2009 compared to a rate of 64.7% for all of 2008.   We have
discontinued the reduced enrollment fee as of the end of August, but we continue
to monitor new enrollments to determine if a similar initiative is
needed.





At our
international distributor conference held in St. Louis, Missouri in August 2009,
we introduced a new line of products called Relivables that include a broader,
improved skincare line with both women’s and men’s products; a sunscreen; a soy
milk product; and an all-natural sweetener.  Net sales of the new
Relivables line were $328,000 in the third quarter of 2009.





During the three months ended September
30, 2009, net sales in our international operations decreased in aggregate by
13.9% to $2.62 million compared to $3.05 million for the three months ended
September 30, 2008.  For the nine-month period ended September 30,
2009, international net sales decreased by 26.7% to $7.45 million compared to
$10.16 million in the same period in 2008.   For the first nine
months of 2009, approximately half of the decline was the result of foreign
currency fluctuation in the form of a stronger U.S. dollar over the first nine
months of 2009, compared to the same period in 2008.  Excluding
currency impact, international net sales decreased by 4.2% and 13.5% for the
third quarter and first nine months of 2009, respectively, compared to the same
periods of the prior year.  Sales in most of our foreign markets are
being impacted by the global recession as has occurred in the United
States.  Our half-price distributor enrollment initiative has been
implemented in nearly all of our foreign markets.  Sales in the
Australia/New Zealand market were impacted less by the global recession, as net
sales on a constant currency basis for the first nine months of 2009 were down
only 2.4%.  We rolled out our current meal replacement/appetite
suppressant product line in February 2009, marketed under the name, Slimsimply,
in this region.  Other regional sales results on a constant currency
basis for the first nine months of 2009 compared to the same period of 2008 were
as follows:  Canada’s net sales are down 4.9%, Mexico’s net sales are
up 4.0%, European net sales are down 6.9%, and Asian net sales are down
28.7%.  Mexico’s increase in net sales is due to an increase in new
distributor enrollments of 50.7% in the first nine months of the current year
compared to the same period in 2008.





13





Cost of Products Sold.Cost
of products sold as a percentage of net sales was 21.3% and 19.8% for the three-
and nine-month periods ended September 30, 2009, respectively, compared to 18.7%
and 17.6% for the same periods in 2008.  Gross margins were impacted
in the third quarter and first nine months of 2009 compared to the same periods
of 2008 by lower plant utilization, coupled with some raw material price
increases and a slight change in the revenue mix with the introduction of the
new Relivables product line in the third quarter of 2009 and the
pricing/commission adjustments related to GlucAffect and certain other products
in the fourth quarter of 2008 and first quarter of 2009.





Distributor Royalties and
Commissions.Distributor royalties and commissions as a
percentage of net sales were 37.9% and 37.8% for the three- and nine-month
periods ended September 30, 2009, respectively, compared to 39.1% and 39.3% for
the same periods in 2008.  The decrease as a percentage of net sales
is the result of changes made to our commission payout structure on GlucAffect
and certain other higher priced products in our line during the fourth quarter
of 2008 and first quarter of 2009, along with the new Relivables product
line.





Selling, General and Administrative
Expenses.For the three and nine months ended September 30, 2009,
selling, general and administrative, or SGA, expenses decreased by $894,000 and
$3.75 million, respectively, compared to the same periods in
2008.  SGA expenses as a percentage of net sales were 38.6% and 38.2%
for the three- and nine-month periods ended September 30, 2009, respectively,
compared to 37.5% and 37.4% for the same periods of 2008.





Sales and marketing expenses decreased
by approximately $2.24 million in the first nine months of 2009, compared to the
prior-year period.  The decrease is comprised of lower distributor
bonuses and other expenses directly related to the level of sales and a
reduction in the amount spent on company-sponsored business opportunity meetings
and other special events, as we restructured our schedule of major distributor
events to include a nationwide distributor conference held in the United States
in February 2009 in Ft. Worth, Texas.  During the second and third
quarters of 2009, we held a series of distributor events referred to as the
“Financial Freedom Tour”.  However, these events are of a smaller
scale and replaced the distributor conferences historically held on a regional
basis; and therefore, we consider them to be more cost effective for both the
company and distributors that attend these events.





Distribution
and warehouse expenses decreased by $264,000 and general and administrative
expenses decreased by approximately $1.24 million in the first nine months of
2009, compared to the prior-year period.  The decrease in general and
administrative expenses consists primarily of reductions in professional fees,
corporate travel expenses, salaries, and incentive compensation.  The
general and administrative expenses in 2008 included a pre-tax charge of
$215,000 for the restructuring of the German office, which included costs for
severance payments and accrued lease termination costs.





Interest Income/Expense.Interest income decreased to $46,000 for the nine months ended September
30, 2009, compared to $300,000 for the same period in 2008.  The
decrease is the result of a lower level of invested funds.  We
incurred $113,000 in interest expense during the first nine months of 2009, on
promissory notes and bank debt related to the purchases of our common stock from
a significant shareholder during the fourth quarter of 2008 and second quarter
of 2009.





Other Income/Expense.We
recognized other income of $203,000 during the first nine months of 2009,
compared to expenses of $229,000 during the same period of
2008.  During the first nine months of 2009, we recognized $120,000 in
foreign currency translation gains due to the weakening of the U.S. dollar since
the beginning of 2009.  In 2008, these expenses consisted of a
reduction in the value of our investment as a limited partner in a private
equity fund of $260,000 and foreign currency translation losses of $69,000 due
to the strengthening of the U.S. dollar during the third quarter
2008.





14





Income Taxes.We recorded
income tax expense of $1.11 million for the first nine months of 2009, an
effective rate of 38.9%. In the same period in 2008, we recorded income tax
expense of $1.75 million, which represented an effective rate of
40.0%.  Our effective rate is higher in 2008 due primarily to the
non-deductible nature of the foreign currency translation losses mentioned
above.





Net Income.Our net income
for the three and nine months ended September 30, 2009 was $324,000
($0.03 per share basic and diluted) and $1.75 million ($0.13 per share
basic and diluted), respectively, compared to $536,000 ($0.04 per share
basic and diluted) and $2.63 million ($0.17 per share basic and diluted) for the
same periods in 2008. Profitability decreased in the third quarter and first
nine months of 2009 as net sales decreased in the United States and across our
international markets as discussed above.





Financial
Condition, Liquidity and Capital Resources





During the first nine months of 2009,
we generated $4.78 million of net cash from operating activities, $700,000
was used in investing activities, and we used $2.28 million in financing
activities. This compares to $3.57 million of net cash provided by
operating activities, $331,000 used in investing activities, and $8.80
million used in financing activities in the same period of 2008. Cash and cash
equivalents increased by $1.96 million to $6.42 million as of September 30,
2009 compared to December 31, 2008.





Significant
changes in working capital items consisted of a decrease in accounts and notes
receivable of $454,000, a decrease in inventory of $1.26 million, an increase in
accounts payable and accrued expenses of $481,000, and an increase in other
assets of $290,000 in the first nine months of 2009.  Accounts and
notes receivable decreased due to collections on VAT refunds due to us in Mexico
and the balance of a loan to a distributor was credited to the purchase price of
their distributorship.  The decrease in inventory is primarily due to
the result of a planned reduction in production levels to better align inventory
with current sales levels.  The increase in accounts payable and
accrued expenses is related to a financing arrangement for our annual corporate
insurance policy renewals, coupled with various annual accruals.  The
change in other assets is due to payments made on various officer life insurance
policies.





Investing
activities during the first nine months of 2009 consisted of $473,000 for
capital expenditures, $716,000 in cash and the loan balance credited to the
purchase of a distributorship, along with proceeds of $489,000 from the final
withdrawal in a limited partnership investment.





Stockholders’ equity decreased to
$11.28 million at September 30, 2009 compared with $16.11 million at
December 31, 2008. The decrease is due to the purchase of treasury stock
from a significant shareholder for $6.11 million and our cash dividend of
$612,000 in the second quarter, offset by our net income of $1.75 million and
stock-based compensation of $142,000 during the first nine months of
2009.  Our working capital balance was $4.38 million at September
30, 2009 compared to $6.25 million at December 31, 2008. The current
ratio at September 30, 2009 was 1.50 compared to 1.85 at December 31,
2008.





In late
June 2009, we entered into a term loan with our primary lender in the principal
amount of $4.12 million.  The term of the loan is for a period of two
years with interest accruing on the outstanding principal balance at a floating
interest rate based on the 30-day LIBOR plus 3.0%, subject to a 3.75%
floor.  As of September 30, 2009, we are subject to the 3.75%
floor.  Monthly principal and interest payments are based on a
ten-year amortization.  The aggregate outstanding balance of principal
and interest is due and payable on June 29, 2011.  The loan includes
revised financial covenants under which we are required to (1) maintain at all
times a tangible net worth of not less than $10 million and (2) maintain at all
times a ratio of total funded debt to EBITDA of not greater than 2.5 to
1.  The proceeds of the term loan were used to reduce the outstanding
balance on the revolving credit facility we have with the lender.





We also
have a $5 million secured revolving credit facility with the same lender.
This facility was renewed in September 2009 for a one year term, and any
advances accrue interest at a variable interest rate based on the 30-day LIBOR
plus 3.0%, subject to a 4.0% floor. The term loan and revolving credit facility
are secured by all our tangible and intangible assets and also by a mortgage on
our building and real estate located in Chesterfield, Missouri. This facility
bears the same financial covenants as the term loan. At September 30, 2009, we
had outstanding borrowings of $1 million on the revolving line of credit
facility and were in compliance with all financial covenants.





15





On August
31, 2009, we acquired an independent Reliv distributorship from its owner for an
aggregate purchase price of $2,060,000.  We paid $500,000 of the
purchase price to the owner at closing, credited the owner's $216,119
outstanding loan balance due to us, and will pay the balance of the purchase
price, $1,343,881, over a period of seven years at an annual rate of 5% with
monthly payments of principal and interest totaling $18,994.





We
believe that our internally generated funds coupled with the restructured bank
loan facilities will be sufficient to meet working capital requirements for the
remainder of 2009.





Critical Accounting
Policies





A summary of our critical accounting
policies and estimates is presented on pages 39-42 of our 2008 Annual Report on
Form 10-K filed with the Securities and Exchange Commission on March 13,
2009.





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, 2009.  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, 2009, 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 2009 that have materially affected or are reasonably likely to
materially affect our internal controls over financial reporting.





PART
II – OTHER INFORMATION





Item No. 1A – Risk
Factors





Risk factors associated with our
business activities have not changed materially from the disclosure in our 2008
Annual Report on Form 10-K filed with the Securities and Exchange Commission on
March 13, 2009.





Item No. 2
– Unregistered Sales of Equity Securities and Use of
Proceeds





During
the third quarter of 2009, we did not repurchase any shares of our common stock
under our share repurchase plan authorized by our Board of Directors in May 2007
that provides for share repurchases of up to $15 million through April
2010.  The amount still available for purchase under this plan is
approximately $12 million as of September 30, 2009.





16





Item No. 6 –
Exhibits





ExhibitNumber
                  
                  Document10.1
                  
                  Purchase
      agreement by and among Michael G. Williams, Julie T. Williams, and Reliv
      International, Inc. dated August 31, 2009 (incorporated by reference to
      Exhibit 10.1 to the Form 8-K of the Registrant filed September 3,
      2009).10.2
                  
                  Stock
      Purchase Agreement among the Paul and Jane Meyer Family Foundation and
      Reliv International, Inc. dated April 23, 2009 (incorporated by reference
      to Exhibit 10.1 to the Form 8-K of the Registrant filed April 28,
      2009).10.3
                  
                  Letter
      Agreement dated June 29, 2009 by and between the Registrant and Southwest
      Bank, an M&I Bank (incorporated by reference to Exhibit 10.1 to the
      Form 8-K of the Registrant filed July 6, 2009).10.4
                  
                  Promissory
      Note dated June 29, 2009 by the Registrant in favor of Southwest Bank, an
      M&I Bank (incorporated by reference to Exhibit 10.2 to the Form 8-K of
      the Registrant filed July 6, 2009).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).





17





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/ Robert L. MontgomeryRobert
      L. Montgomery, Chairman of the Board of Directors, President and Chief
      Executive OfficerDate:  November
      9, 2009By:
                /s/ Steven D. AlbrightSteven
      D. Albright, Chief Financial Officer (and accounting
    officer)Date:  November
      9, 2009





18





Exhibit
Index





ExhibitNumber
                
                Document10.1
                
                Purchase
      agreement by and among Michael G. Williams, Julie T. Williams, and Reliv
      International, Inc. dated August 31, 2009 (incorporated by reference to
      Exhibit 10.1 to the Form 8-K of the Registrant filed September 3,
      2009).10.2
                
                Stock
      Purchase Agreement among the Paul and Jane Meyer Family Foundation and
      Reliv International, Inc. dated April 23, 2009 (incorporated by reference
      to Exhibit 10.1 to the Form 8-K of the Registrant filed April 28,
      2009).10.3
                
                Letter
      Agreement dated June 29, 2009 by and between the Registrant and Southwest
      Bank, an M&I Bank (incorporated by reference to Exhibit 10.1 to the
      Form 8-K of the Registrant filed July 6, 2009).10.4
                
                Promissory
      Note dated June 29, 2009 by the Registrant in favor of Southwest Bank, an
      M&I Bank (incorporated by reference to Exhibit 10.2 to the Form 8-K of
      the Registrant filed July 6, 2009).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).





19