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 June 30, 2010




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  ̈





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files).   Yes  ̈     No  ̈





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





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




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





The number of shares outstanding of the
Registrant’s common stock as of July 30, 2010 was 12,380,187 (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
              7Item
      No. 4
              Controls
      and Procedures
              12PART
      II – OTHER INFORMATIONItem
      No. 2
              Unregistered
      Sales of Equity Securities and Use of Proceeds
              12Item
      No. 6
              Exhibits
              13


PART
I — FINANCIAL INFORMATION





Item No. 1 - Financial
Statements





Reliv International, Inc. and Subsidiaries





Consolidated
Balance Sheets





June 30
                
                
                December 312010
                
                
                2009(unaudited)AssetsCurrent
      assets:Cash
      and cash equivalents
                
                $
                6,539,982
                
                
                $
                5,760,913Accounts
      and notes receivable, less allowances of $61,700 in 2010 and $59,700 in
      2009
                
                
                297,020
                
                
                
                326,022Accounts
      due from employees and distributors
                
                
                67,923
                
                
                
                78,500InventoriesFinished
      goods
                
                
                3,357,376
                
                
                
                3,073,570Raw
      materials
                
                
                1,764,710
                
                
                
                1,388,140Sales
      aids and promotional materials
                
                
                704,686
                
                
                
                622,694Total
      inventories
                
                
                5,826,772
                
                
                
                5,084,404Refundable
      income taxes
                
                
                -
                
                
                
                23,789Prepaid
      expenses and other current assets
                
                
                1,066,920
                
                
                
                652,544Deferred
      income taxes
                
                
                296,000
                
                
                
                303,000Total
      current assets
                
                
                14,094,617
                
                
                
                12,229,172Other
      assets
                
                
                1,887,002
                
                
                
                1,569,079Intangible
      assets, net
                
                
                1,888,742
                
                
                
                1,991,497Property,
      plant and equipment:Land
      and land improvements
                
                
                852,147
                
                
                
                852,147Building
                
                
                9,921,754
                
                
                
                9,851,829Machinery
      & equipment
                
                
                3,477,333
                
                
                
                3,426,720Office
      equipment
                
                
                1,476,778
                
                
                
                1,494,915Computer
      equipment & software
                
                
                2,887,379
                
                
                
                3,003,76618,615,391
                
                
                
                18,629,377Less:
      Accumulated depreciation
                
                
                10,519,980
                
                
                
                10,264,692Net
      property, plant and equipment
                
                
                8,095,411
                
                
                
                8,364,685Total
      assets
                
                $
                25,965,772
                
                
                $
                24,154,433





See notes
to financial statements.




1





Reliv
International, Inc. and Subsidiaries





Consolidated
Balance Sheets





June
      30
                
                
                December
      312010
                
                
                2009(unaudited)Liabilities
      and stockholders' equityCurrent
      liabilities:Accounts
      payable and accrued expenses:Trade
      accounts payable and other accrued expenses
                
                $
                4,300,023
                
                
                $
                2,627,674Distributors
      commissions payable
                
                
                2,416,850
                
                
                
                2,674,247Sales
      taxes payable
                
                
                317,494
                
                
                
                362,612Payroll
      and payroll taxes payable
                
                
                436,500
                
                
                
                577,756Total
      accounts payable and accrued expenses
                
                
                7,470,867
                
                
                
                6,242,289Income
      taxes payable
                
                
                52,674
                
                
                
                -Current
      maturities of long-term debt
                
                
                3,945,717
                
                
                
                519,192Total
      current liabilities
                
                
                11,469,258
                
                
                
                6,761,481Noncurrent
      liabilities:Long-term
      debt, less current maturities
                
                
                1,035,938
                
                
                
                4,719,542Other
      noncurrent liabilities
                
                
                381,524
                
                
                
                406,544Total
      noncurrent liabilities
                
                
                1,417,462
                
                
                
                5,126,086Stockholders'
      equity:Preferred
      stock, par value $.001 per share; 3,000,000 shares authorized; -0- shares
      issued and outstanding in 2010 and 2009
                
                
                -
                
                
                
                -Common
      stock, par value $.001 per share; 30,000,000 authorized; 14,425,185 shares
      issued and 12,380,187 shares outstanding as of 6/30/2010; 14,425,185
      shares issued and 12,380,187 shares outstanding as of
      12/31/2009
                
                
                14,425
                
                
                
                14,425Additional
      paid-in capital
                
                
                30,329,276
                
                
                
                30,228,573Accumulated
      deficit
                
                
                (10,574,702
                )
                
                
                (11,279,526
                )Accumulated
      other comprehensive loss:Foreign
      currency translation adjustment
                
                
                (621,045
                )
                
                
                (627,704
                )Treasury
      stock
                
                
                (6,068,902
                )
                
                
                (6,068,902
                )Total
      stockholders' equity
                
                
                13,079,052
                
                
                
                12,266,866Total
      liabilities and stockholders' equity
                
                $
                25,965,772
                
                
                $
                24,154,433





See notes
to financial statements.




2





Reliv International, Inc. and Subsidiaries





Consolidated
Statements of Income


(unaudited)





Three months ended June 30
                  
                  
                  Six months ended June 302010
                  
                  
                  2009
                  
                  
                  2010
                  
                  
                  2009Product
      sales
                  
                  $
                  16,689,178
                  
                  
                  $
                  17,772,137
                  
                  
                  $
                  36,946,859
                  
                  
                  $
                  38,938,318Handling
      & freight income
                  
                  
                  2,131,453
                  
                  
                  
                  2,280,992
                  
                  
                  
                  4,601,024
                  
                  
                  
                  4,905,801Net
      sales
                  
                  
                  18,820,631
                  
                  
                  
                  20,053,129
                  
                  
                  
                  41,547,883
                  
                  
                  
                  43,844,119Costs
      and expenses:Cost
      of products sold
                  
                  
                  3,716,495
                  
                  
                  
                  3,773,902
                  
                  
                  
                  8,272,877
                  
                  
                  
                  8,349,653Distributor
      royalties and commissions
                  
                  
                  7,069,332
                  
                  
                  
                  7,634,899
                  
                  
                  
                  15,549,408
                  
                  
                  
                  16,572,566Selling,
      general and administrative
                  
                  
                  7,540,728
                  
                  
                  
                  8,050,852
                  
                  
                  
                  16,084,179
                  
                  
                  
                  16,668,725Total
      costs and expenses
                  
                  
                  18,326,555
                  
                  
                  
                  19,459,653
                  
                  
                  
                  39,906,464
                  
                  
                  
                  41,590,944Income
      from operations
                  
                  
                  494,076
                  
                  
                  
                  593,476
                  
                  
                  
                  1,641,419
                  
                  
                  
                  2,253,175Other
      income (expense):Interest
      income
                  
                  
                  12,847
                  
                  
                  
                  14,704
                  
                  
                  
                  22,373
                  
                  
                  
                  35,419Interest
      expense
                  
                  
                  (54,775
                  )
                  
                  
                  (41,384
                  )
                  
                  
                  (106,451
                  )
                  
                  
                  (50,934
                  )Other
      income
                  
                  
                  (36,128
                  )
                  
                  
                  114,035
                  
                  
                  
                  21,155
                  
                  
                  
                  126,090Income
      before income taxes
                  
                  
                  416,020
                  
                  
                  
                  680,831
                  
                  
                  
                  1,578,496
                  
                  
                  
                  2,363,750Provision
      for income taxes
                  
                  
                  210,000
                  
                  
                  
                  271,000
                  
                  
                  
                  626,000
                  
                  
                  
                  942,000Net
      income
                  
                  $
                  206,020
                  
                  
                  $
                  409,831
                  
                  
                  $
                  952,496
                  
                  
                  $
                  1,421,750Earnings
      per common share - Basic
                  
                  $
                  0.02
                  
                  
                  $
                  0.03
                  
                  
                  $
                  0.08
                  
                  
                  $
                  0.10Weighted
      average shares
                  
                  
                  12,380,000
                  
                  
                  
                  12,821,000
                  
                  
                  
                  12,380,000
                  
                  
                  
                  13,556,000Earnings
      per common share - Diluted
                  
                  $
                  0.02
                  
                  
                  $
                  0.03
                  
                  
                  $
                  0.08
                  
                  
                  $
                  0.10Weighted
      average shares
                  
                  
                  12,380,000
                  
                  
                  
                  12,821,000
                  
                  
                  
                  12,380,000
                  
                  
                  
                  13,556,000Cash
      dividends declared per common share
                  
                  $
                  0.02
                  
                  
                  $
                  0.05
                  
                  
                  $
                  0.02
                  
                  
                  $
                  0.05





See notes
to financial statements.




3





Reliv
International, Inc. and Subsidiaries





Consolidated
Statements of Cash Flows


(unaudited)





Six months ended June 302010
                
                
                2009Operating
      activities:Net
      income
                
                $
                952,496
                
                
                $
                1,421,750Adjustments
      to reconcile net income to net cash provided by operating
      activities:Depreciation
      and amortization
                
                
                610,572
                
                
                
                560,867Stock-based
      compensation
                
                
                100,702
                
                
                
                92,162Deferred
      income taxes
                
                
                (79,000
                )
                
                
                (4,000
                )Foreign
      currency transaction (gain)/loss
                
                
                11,830
                
                
                
                (62,622
                )(Increase)
      decrease in accounts and notes receivable
                
                
                39,117
                
                
                
                256,542(Increase)
      decrease in inventories
                
                
                (759,757
                )
                
                
                (17,532
                )(Increase)
      decrease in refundable income taxes
                
                
                23,789
                
                
                
                50,313(Increase)
      decrease in prepaid expenses and other current assets
                
                
                (415,618
                )
                
                
                (118,455
                )(Increase)
      decrease in other assets
                
                
                (250,151
                )
                
                
                (276,401
                )Increase
      (decrease) in accounts payable & accrued expenses and other noncurrent
      liabilities
                
                
                1,217,003
                
                
                
                652,816Increase
      (decrease) in income taxes payable
                
                
                52,674
                
                
                
                -Net
      cash provided by operating activities
                
                
                1,503,657
                
                
                
                2,555,440Investing
      activities:Proceeds
      from the sale of property, plant and equipment
                
                
                2,953
                
                
                
                -Purchase
      of property, plant and equipment
                
                
                (223,401
                )
                
                
                (288,304
                )Proceeds
      from final withdrawal from limited partnership investment
                
                
                -
                
                
                
                488,633Net
      cash provided by (used in) investing activities
                
                
                (220,448
                )
                
                
                200,329Financing
      activities:Proceeds
      from line of credit borrowings
                
                
                -
                
                
                
                5,000,000Repayment
      of line of credit borrowings
                
                
                -
                
                
                
                (4,120,000
                )Proceeds
      from term loan borrowings
                
                
                -
                
                
                
                4,120,000Principal
      payments on short and long-term borrowings
                
                
                (257,079
                )
                
                
                (569,375
                )Common
      stock dividends paid
                
                
                (247,672
                )
                
                
                (611,681
                )Purchase
      of stock for treasury
                
                
                -
                
                
                
                (5,014,115
                )Net
      cash used in financing activities
                
                
                (504,751
                )
                
                
                (1,195,171
                )Effect
      of exchange rate changes on cash and cash equivalents
                
                
                611
                
                
                
                99,145Increase
      (decrease) in cash and cash equivalents
                
                
                779,069
                
                
                
                1,659,743Cash
      and cash equivalents at beginning of period
                
                
                5,760,913
                
                
                
                4,460,637Cash
      and cash equivalents at end of period
                
                $
                6,539,982
                
                
                $
                6,120,380Supplementary
      disclosure of cash flow information:Noncash
      investing and financing transactions:Issuance
      of promissory note for purchase of stock for treasury
                
                $
                -
                
                
                $
                1,106,919





See notes
to financial statements.




4





Reliv
International, Inc. and Subsidiaries


Notes to
Consolidated Financial Statements


(Unaudited)





June 30,
2010




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 primarily include normal recurring accruals) which management
believes are necessary to present fairly the financial position, results of
operations and cash flows.  These statements, however, do not include
all information and footnotes necessary for a complete presentation of financial
position, results of operations and cash flows in conformity with accounting
principles generally accepted in the United States.  Interim results
may not necessarily be indicative of results that may be expected for any other
interim period or for the year as a whole.  These financial statements
should be read in conjunction with the audited consolidated financial statements
and footnotes included in the annual report on Form 10-K for the year ended
December 31, 2009, filed March 12, 2010 with the Securities and Exchange
Commission.





Adoption of New Accounting
Standards





Effective
January 1, 2010, the Company adopted the amendments to ASC 820, "Fair Value
Measurements and Disclosures" ("ASC 820").  The amendments require new
disclosures for transfers in and out of fair value hierarchy Levels 1 and 2 and
activity within fair value hierarchy Level 3.  The amendments also
clarify existing disclosures regarding the disaggregation for each class of
assets and liabilities, and the disclosures about inputs and valuation
techniques.  The amendments to ASC 820 did not have a material impact
on the Company's consolidated financial statements.





Note
      2—
            Comprehensive
      Income





Comprehensive
income was $167,636 and $959,155 for the three and six months ended June 30,
2010, respectively.  For the three and six months ended June 30, 2009,
comprehensive income was $525,185 and $1,428,997, respectively.  The
Company's only component of other comprehensive income is the foreign currency
translation adjustment.





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 June 30
                        
                        
                        Six months ended June 302010
                        
                        
                        2009
                        
                        
                        2010
                        
                        
                        2009Numerator:Net
      income
                        
                        $
                        206,020
                        
                        
                        $
                        409,831
                        
                        
                        $
                        952,496
                        
                        
                        $
                        1,421,750Denominator:Denominator
      for basic earnings per  share—weighted average
      shares
                        
                        
                        12,380,000
                        
                        
                        
                        12,821,000
                        
                        
                        
                        12,380,000
                        
                        
                        
                        13,556,000Dilutive
      effect of employee stock options and other warrants
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -Denominator
      for diluted earnings per  share—adjusted weighted average
      shares
                        
                        
                        12,380,000
                        
                        
                        
                        12,821,000
                        
                        
                        
                        12,380,000
                        
                        
                        
                        13,556,000Basic
      earnings per share
                        
                        $
                        0.02
                        
                        
                        $
                        0.03
                        
                        
                        $
                        0.08
                        
                        
                        $
                        0.10Diluted
      earnings per share
                        
                        $
                        0.02
                        
                        
                        $
                        0.03
                        
                        
                        $
                        0.08
                        
                        
                        $
                        0.10





Options
and warrants to purchase 806,689 shares of common stock for the three months and
six months ended June 30, 2010, respectively, were not included in the
denominator for diluted earnings per share because their effect would be
antidilutive. Options and warrants to purchase 835,040 shares of common stock
for the three months and six months ended June 30, 2009, respectively, were not
included in the denominator for diluted earnings per share because their effect
would be antidilutive.


5


Reliv
International, Inc. and Subsidiaries


Notes to
Consolidated Financial Statements


(Unaudited)





June 30,
2010





Note
      4—
            Fair
      Value Measurements





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





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





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





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





The
carrying amount and fair value of financial instruments at June 30, 2010 and
December 31, 2009 were as follows:





Fair ValueUsing Quoted
                        
                        
                        Using SignificantTotal
                        
                        
                        Prices in
                        
                        
                        Other ObservableCarrying
                        
                        
                        Fair
                        
                        
                        Active Markets
                        
                        
                        InputsDescription
                        
                        Amount
                        
                        
                        Value
                        
                        
                        (Level 1)
                        
                        
                        (Level 2)June 30, 2010Long-term
      debt (1)
                        
                        $
                        4,981,655
                        
                        
                        $
                        4,935,000
                        
                        
                        $
                        -
                        
                        
                        $
                        4,935,000Marketable
      securities (2)
                        
                        
                        192,000
                        
                        
                        
                        192,000
                        
                        
                        
                        192,000
                        
                        
                        
                        -December 31, 2009Long-term
      debt (1)
                        
                        $
                        5,238,734
                        
                        
                        $
                        5,184,000
                        
                        
                        $
                        -
                        
                        
                        $
                        5,184,000Marketable
      securities (2)
                        
                        
                        200,000
                        
                        
                        
                        200,000
                        
                        
                        
                        200,000
                        
                        
                        
                        -





(1)
            The
      fair value of the Company's variable interest rate debt approximates
      carrying value due to the short-term duration of the debt and the frequent
      re-setting of its variable interest rate.  The fair value of the
      of the Company's fixed interest rate long-term obligation was estimated by
      management based upon the rate available at the balance sheet date for the
      additional unused credit available to the
  Company.





(2)
            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 other financial instruments, including cash, accounts
receivable and accounts payable, and accrued liabilities approximate fair value
due to their short maturities or variable-rate nature of the respective
balances.




6





FORWARD-LOOKING
STATEMENTS





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





Item No.
2 - Management’s Discussion and Analysis of 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 and food products under our Relivables brand. We
sell our products through an international network marketing system utilizing
independent distributors. Sales in the United States represented approximately
85.2% of worldwide net sales for the six months ended June 30, 2010 and 89.0% of
worldwide net sales for the six months ended June 30, 2009. Our international
operations currently generate sales through distributor networks with facilities
in Australia, Canada, Indonesia, Malaysia, Mexico, the Philippines, and the
United Kingdom.  We also operate on a limited basis in Ireland,
Germany, Austria and the Netherlands from our U.K. distribution center, in New
Zealand from our Australia office, and in Singapore and Brunei from our Malaysia
office.





We derive our revenues principally
through product sales made by our global independent distributor base, which, as
of June 30, 2010, consisted of approximately 63,660 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.





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 a varying effect on sales and gross margins. Accounting
practices require that our results from operations be converted to
U.S. dollars for reporting purposes. Consequently, our reported earnings
may be significantly affected by fluctuations in currency exchange rates,
generally increasing with a weaker U.S. dollar and decreasing with a
strengthening U.S. dollar. Products manufactured by us for sale to our
foreign subsidiaries are transacted in U.S. dollars. From time to time, we
enter into foreign exchange forward contracts to mitigate our foreign currency
exchange risk.





Components
of Net Sales and Expense





Product sales represent the actual
product purchase price typically paid by our distributors, after giving effect
to distributor allowances, which can range from 20% to 40% of suggested retail
price, depending on the rank of a particular distributor.  Handling
and freight income represents the amounts billed to distributors for shipping
costs.  We record net sales and the related commission expense when
the merchandise is shipped.





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


7





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.





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





Results
of Operations





The
following table sets forth selected results of our operations expressed as a
percentage of net sales for the three- and six-month periods ended June 30, 2010
and 2009. Our results of operations for the periods described below are not
necessarily indicative of results of operations for future periods.




Three months ended
                        June 30,
                      
                      
                      Six months ended
                        June 30,2010
                      
                      
                      2009
                      
                      
                      2010
                      
                      
                      2009Net
      sales
                      
                      
                      100.0
                      %
                      
                      
                      100.0
                      %
                      
                      
                      100.0
                      %
                      
                      
                      100.0
                      %Costs
      and expenses:Cost
      of products sold
                      
                      
                      19.7
                      
                      
                      
                      18.8
                      
                      
                      
                      19.9
                      
                      
                      
                      19.1Distributor
      royalties and commissions
                      
                      
                      37.6
                      
                      
                      
                      38.1
                      
                      
                      
                      37.4
                      
                      
                      
                      37.8Selling,
      general and administrative
                      
                      
                      40.1
                      
                      
                      
                      40.1
                      
                      
                      
                      38.7
                      
                      
                      
                      38.0Income
      from operations
                      
                      
                      2.6
                      
                      
                      
                      3.0
                      
                      
                      
                      4.0
                      
                      
                      
                      5.1Interest
      expense
                      
                      
                      (0.3
                      )
                      
                      
                      (0.2
                      )
                      
                      
                      (0.3
                      )
                      
                      
                      (0.1
                      )Interest
      and other income (expense)
                      
                      
                      (0.1
                      )
                      
                      
                      0.6
                      
                      
                      
                      0.1
                      
                      
                      
                      0.4Income
      before income taxes
                      
                      
                      2.2
                      
                      
                      
                      3.4
                      
                      
                      
                      3.8
                      
                      
                      
                      5.4Provision
      for income taxes
                      
                      
                      1.1
                      
                      
                      
                      1.4
                      
                      
                      
                      1.5
                      
                      
                      
                      2.2Net
      income
                      
                      
                      1.1
                      %
                      
                      
                      2.0
                      %
                      
                      
                      2.3
                      %
                      
                      
                      3.2
                      %





Net Sales.Overall
net sales decreased by 6.1% in the three months ended June 30, 2010 compared to
the same period in 2009.  During the second quarter of 2010, sales in
the United States decreased by 9.5%, and international sales increased by 18.7%
over the prior-year period.  For the six months ended June 30, 2010,
consolidated net sales declined 5.2% compared to the same period in
2009.  In the first half of 2010, net sales in the United States
declined by 9.3% and international sales increased by 27.4% over the same period
in 2009.


8





The
following table summarizes net sales by geographic market for the three months
ended June 30, 2010 and 2009.




Three months ended June 30,2010
                      
                      
                      2009
                      
                      
                      Change from prior yearAmount
                      
                      
                      % of Net
                        Sales
                      
                      
                      Amount
                      
                      
                      % of Net
                        Sales
                      
                      
                      Amount
                      
                      
                      %(dollars
      in thousands)United
      States
                      
                      $
                      15,954
                      
                      
                      
                      84.7
                      %
                      
                      $
                      17,638
                      
                      
                      
                      87.9
                      %
                      
                      $
                      (1,684
                      )
                      
                      
                      (9.5
                      )%Australia/New
      Zealand
                      
                      
                      541
                      
                      
                      
                      2.9
                      
                      
                      
                      535
                      
                      
                      
                      2.7
                      
                      
                      
                      6
                      
                      
                      
                      1.1Canada
                      
                      
                      542
                      
                      
                      
                      2.9
                      
                      
                      
                      313
                      
                      
                      
                      1.6
                      
                      
                      
                      229
                      
                      
                      
                      73.2Mexico
                      
                      
                      394
                      
                      
                      
                      2.1
                      
                      
                      
                      345
                      
                      
                      
                      1.7
                      
                      
                      
                      49
                      
                      
                      
                      14.2Europe
                      
                      
                      581
                      
                      
                      
                      3.1
                      
                      
                      
                      305
                      
                      
                      
                      1.5
                      
                      
                      
                      276
                      
                      
                      
                      90.5Asia
                      
                      
                      809
                      
                      
                      
                      4.3
                      
                      
                      
                      917
                      
                      
                      
                      4.6
                      
                      
                      
                      (108
                      )
                      
                      
                      (11.8
                      )Consolidated
      total
                      
                      $
                      18,821
                      
                      
                      
                      100.0
                      %
                      
                      $
                      20,053
                      
                      
                      
                      100.0
                      %
                      
                      $
                      (1,232
                      )
                      
                      
                      (6.1
                      )%





The
following table summarizes net sales by geographic market for the six months
ended June 30, 2010 and 2009.




Six months ended June 30,2010
                      
                      
                      2009
                      
                      
                      Change from prior yearAmount
                      
                      
                      % of Net
                        Sales
                      
                      
                      Amount
                      
                      
                      % of Net
                        Sales
                      
                      
                      Amount
                      
                      
                      %(dollars
      in thousands)United
      States
                      
                      $
                      35,403
                      
                      
                      
                      85.2
                      %
                      
                      $
                      39,019
                      
                      
                      
                      89.0
                      %
                      
                      $
                      (3,616
                      )
                      
                      
                      (9.3
                      )%Australia/New
      Zealand
                      
                      
                      1,268
                      
                      
                      
                      3.1
                      
                      
                      
                      1,051
                      
                      
                      
                      2.4
                      
                      
                      
                      217
                      
                      
                      
                      20.6Canada
                      
                      
                      1,129
                      
                      
                      
                      2.7
                      
                      
                      
                      648
                      
                      
                      
                      1.5
                      
                      
                      
                      481
                      
                      
                      
                      74.2Mexico
                      
                      
                      787
                      
                      
                      
                      1.9
                      
                      
                      
                      627
                      
                      
                      
                      1.4
                      
                      
                      
                      160
                      
                      
                      
                      25.5Europe
                      
                      
                      1,001
                      
                      
                      
                      2.4
                      
                      
                      
                      613
                      
                      
                      
                      1.4
                      
                      
                      
                      388
                      
                      
                      
                      63.3Asia
                      
                      
                      1,960
                      
                      
                      
                      4.7
                      
                      
                      
                      1,886
                      
                      
                      
                      4.3
                      
                      
                      
                      74
                      
                      
                      
                      3.9Consolidated
      total
                      
                      $
                      41,548
                      
                      
                      
                      100.0
                      %
                      
                      $
                      43,844
                      
                      
                      
                      100.0
                      %
                      
                      $
                      (2,296
                      )
                      
                      
                      (5.2
                      )%





The following table sets forth, as of
June 30, 2010 and 2009, the number of our active distributors and Master
Affiliates and above.  The total number of active distributors
includes Master Affiliates and above. We define an active distributor as one
that enrolls as a distributor or renews his or her distributorship during the
prior twelve months.  Master Affiliates and above are distributors
that have attained the highest level of discount and are eligible for royalties
generated by Master Affiliate groups in their downline
organization.  Growth in the number of active distributors and Master
Affiliates and above is a key factor in the growth of our business.





June 30, 2010
                        
                        
                        June 30, 2009
                        
                        
                        % ChangeTotal
                          Active
                          Distributors
                        
                        
                        Master
                          Affiliates and
                          Above
                        
                        
                        Total
                          Active
                          Distributors
                        
                        
                        Master
                          Affiliates and
                          Above
                        
                        
                        Total
                          Active
                          Distributors
                        
                        
                        Master
                          Affiliates and
                          AboveUnited
      States
                        
                        
                        49,630
                        
                        
                        
                        6,430
                        
                        
                        
                        54,160
                        
                        
                        
                        7,880
                        
                        
                        
                        (8.4
                        )%
                        
                        
                        (18.4
                        )%Australia/New
      Zealand
                        
                        
                        2,520
                        
                        
                        
                        190
                        
                        
                        
                        2,440
                        
                        
                        
                        180
                        
                        
                        
                        3.3
                        
                        
                        
                        5.6Canada
                        
                        
                        1,360
                        
                        
                        
                        160
                        
                        
                        
                        1,230
                        
                        
                        
                        120
                        
                        
                        
                        10.6
                        
                        
                        
                        33.3Mexico
                        
                        
                        2,210
                        
                        
                        
                        310
                        
                        
                        
                        1,820
                        
                        
                        
                        210
                        
                        
                        
                        21.4
                        
                        
                        
                        47.6Europe
                        
                        
                        1,630
                        
                        
                        
                        230
                        
                        
                        
                        1,090
                        
                        
                        
                        160
                        
                        
                        
                        49.5
                        
                        
                        
                        43.8Asia
                        
                        
                        6,310
                        
                        
                        
                        610
                        
                        
                        
                        7,300
                        
                        
                        
                        840
                        
                        
                        
                        (13.6
                        )
                        
                        
                        (27.4
                        )Consolidated
      total
                        
                        
                        63,660
                        
                        
                        
                        7,930
                        
                        
                        
                        68,040
                        
                        
                        
                        9,390
                        
                        
                        
                        (6.4
                        )%
                        
                        
                        (15.5
                        )%




9


In the United States, net sales were
down 9.5% in the second quarter of 2010 compared to the same period in
2009.   Sales in the United States continue to be adversely
impacted by distributor uncertainty in the economic recovery and the reduced
availability of consumer credit.  In addition to the direct impact on
sales, these factors lead to fewer distributors qualifying for the level of
Master Affiliate.  In the second quarter of 2010, approximately 474
distributors qualified as new Master Affiliates, compared to approximately 617
in the prior-year quarter, a decline of 23.2%.  In addition, the
number of Master Affiliates and above as of June 30, 2010 decreased by 18.4% as
compared to the number of Master Affiliates and above as of June 30,
2009.  This is consistent with reduced number of distributors
qualifying for the level of Master Affiliate discussed
earlier.  Another factor in the decline in sales in the United States
was fewer new distributor enrollments.  During the second quarter of
2010, approximately 3,255 new distributors were enrolled, compared to 4,970 new
distributor enrollments in the prior-year quarter, a decline of
34.5%.  A portion of this decline in new enrollments was expected as
we ran an initiative from January through August 2009 to increase new
distributor enrollments by offering an enrollment fee of $20, half of the normal
$39.95 fee.  The number of active distributors in the United States as
of June 30, 2010 decreased by 8.4% to 49,630, compared to the number of active
distributors as of June 30, 2009.  This decline in active distributors
is caused by the decline in new distributor enrollments coupled with slightly
lower distributor retention.  Distributor retention was 61.7% for the
first six months of 2010 compared to a rate of 63.1% for all of
2009.  For the six-month period ended June 30, 2010, the decline in
net sales in the United States compared to the prior-year period were due to
these same factors.





In the
second quarter of 2010, we processed approximately 64,800 orders in the United
States for products at an average order of $318 at suggested
retail.  In the same period of 2009, we processed approximately 67,880
product orders at an average order of $333 at suggested retail.  The
average order size for all of 2009 was $353 at suggested
retail.   This decline in the average order size is another
indicator of the reduced credit availability and fewer distributors reaching the
Master Affiliate level.





During the three months ended June 30,
2010, net sales in our international operations increased in aggregate by 18.7%
to $2.87 million compared to $2.41 million for the three months ended
June 30, 2009.  For the six-month period ended June 30, 2010,
international net sales increased by 27.4% to $6.15 million compared to $4.82
million in the same period in 2009.  Sales increased in all of our
foreign regions during the first half of 2010; however, approximately 45% of the
increase was the result of foreign currency fluctuation due to a weaker U.S.
dollar.  When net sales are converted using the 2009 exchange rate for
both 2009 and 2010, international net sales increased by 15.2% for the first
half of 2010 compared to the same period of the prior year.  Regional
sales results on a constant currency basis for the first half of 2010 compared
to the first half of 2009 were as follows:  Australia/New Zealand net
sales down 3.6%, Canada net sales up 49.8%, Mexico net sales up 15.6%, European
sales up 61.2%, and Asian sales down 1.3%.    Sales results
in Australia/New Zealand have declined somewhat in the second quarter of 2010
subsequent to price increases on most products that went into effect on April 1,
2010.  Canada continues to show strong growth in new distributor
enrollments, up 44%, and in new Master Affiliate qualifications, 50 in the first
half of 2010 compared to 17 in the first half of 2009.   Net
sales in Mexico improved slightly as the result of higher Master Affiliate
qualifications in the current year to date compared to the same period in
2009.   European sales have shown improvement as the result of
strong growth in both new distributor enrollments, up 138% in the first half of
2010, and in new Master Affiliate qualifications, up 146% in the current year to
date.  Asian sales have declined, particularly in the second quarter
of 2010, as the result of departures in our local management staff in our
Malaysian office.  We have recently hired a new general manager to
oversee the Southeast Asia region, which includes our Malaysia, Singapore,
Brunei, and Indonesia operations.





Cost of Products Sold.Cost
of products sold as a percentage of net sales was 19.7% for the three-month
period ended June 30, 2010, compared to 18.8% for the same period in
2009.  For the six-month period ended June 30, 2010, cost of products
sold as a percentage of net sales was 19.9 %, compared to 19.1% in the prior
year period.  Gross margins were impacted in the second quarter and
first half of 2010 compared to the same periods in 2009 by changes in the
revenue mix with the introduction of the new Relivables product line in the
third quarter of 2009.  Higher testing costs also contributed to the
higher cost of products sold percentage in the second quarter of
2010.





Distributor Royalties and
Commissions.Distributor royalties and commissions as a
percentage of net sales were 37.6% and 37.4% for the three- and six-month
periods ended June 30, 2010, respectively, compared to 38.1% and 37.8% for the
same periods in 2009.  The minor reduction is due to the introduction
of the Relivables product line in the third quarter of 2009, which has a lower
commission rate.





Selling, General and Administrative
Expenses.For the three months ended June 30, 2010, selling, general and
administrative, or SGA, expenses decreased by $510,000, compared to the same
period in 2009. SGA expenses as a percentage of net sales were 40.1% for each of
the three-month periods ended June 30, 2010 and 2009.   For the
six-month period ended June 30, 2010, SGA expenses decreased by $585,000 when
compared to the same period in 2009.  SGA expenses as a percentage of
net sales were 38.7% and 38.0% for the six-month periods ended June 30, 2010 and
2009, respectively.


10




Sales and marketing expenses decreased
by approximately $100,000 in the first half of 2010, compared to the prior-year
period.  The decrease is the result of lower distributor bonuses and
expenses directly related to the level of sales and a reduction in newsletter
expenses and marketing consulting expenses, offset by an increase in promotional
expenses due to an additional distributor incentive trip in February 2010 that
did not occur in the prior year.





Distribution
and warehouse expenses decreased by $91,000 and general and administrative
expenses decreased by approximately $393,000 in the first half of 2010, compared
to the prior-year period.  The decrease in general and administrative
expenses consists primarily of reductions in the annual accrual to the employee
stock ownership plan, legal and accounting fees, directors’ fees, and business
insurance expense.





Interest Income/Expense.Interest income decreased to $22,000 for the six months ended June 30,
2010, compared to $35,000 for the same period in 2009, due to lower interest
rates in 2010.  Interest expense increased to $106,000 during the
first half of 2010 compared to $56,000 in the same period of 2009, as we entered
into two long-term debt agreements during the second half of 2009.





Income Taxes.We recorded
income tax expense of $626,000 for the first six months of 2010, an
effective rate of 39.7%. In the same period in 2009, we recorded income tax
expense of $942,000, which represented an effective rate of 39.9%.





Net Income.Our net income
for the three and six months ended June 30, 2010 was $206,000 ($0.02 per
share basic and diluted) and $952,000 ($0.08 per share basic and diluted),
respectively, compared to $410,000 ($0.03 per share basic and diluted) and
$1.4 million ($0.10 per share basic and diluted) for the same periods in 2009.
Profitability decreased in the second quarter and first half of 2010 as net
sales decreased in the United States as discussed above.





Financial
Condition, Liquidity and Capital Resources





During the first six months of 2010, we
generated $1.5 million of net cash from operating activities, used $220,000
in investing activities, and used $505,000 in financing activities. This
compares to $2.6 million of net cash provided by operating activities,
$200,000 provided by investing activities, and $1.2 million used in financing
activities in the same period of 2009. Cash and cash equivalents increased by
$779,000 to $6.5 million as of June 30, 2010 compared to $6.1 million as of
December 31, 2009.





Significant
changes in working capital items consisted of an increase in inventory of
$760,000, an increase in prepaid expenses/other current assets of $416,000, an
increase in accounts payable and accrued expenses of $1.2 million, and an
increase in other assets of $250,000 in the first six months of
2010.  Inventory increased as the result of lower than expected sales
levels, compared to scheduled production.  The increase in prepaid
expenses/other current assets is primarily due to the annual premium payments
made in the first quarter on most of the corporate insurance
policies.  The increase in accounts payable and accrued expenses is
partially related to a financing arrangement for our annual corporate insurance
policy renewals, increases in payables due to raw material vendors, coupled with
various annual accruals.  The change in other assets is due to a
payment made on an officer’s life insurance policy in the first half of
2010.





Investing
activities during the first six months of 2010 consisted of a net investment of
$220,000 for capital expenditures.  Financing activities during the
first six months of 2010 consisted of principal payments of $257,000 on
long-term borrowings and $248,000 in cash dividends paid.





Stockholders’ equity increased to $13.1
million at June 30, 2010 compared to $12.3 million at December 31, 2009. The
increase is due to net income during the first six months of 2010 of $952,000,
partially offset by our cash dividend payment of $248,000. Our working capital
balance was $2.6 million at June 30, 2010 compared to $5.5 million at December
31, 2009. The current ratio at June 30, 2010 was 1.23 compared to 1.81 at
December 31, 2009. The change in our current ratio is due to the balance sheet
classification of our term loan as explained below.


11





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 June 30, 2010, 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
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 had with the lender.  As
the due date of the loan is less than one year, the loan’s June 30, 2010 balance
of $3.8 million has been classified as a current liability; however, it is our
intention to refinance this debt with a longer maturity.





The
revolving credit facility is a $5 million secured revolving credit facility
with the same lender that provided our term loan. 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 of 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 June 30, 2010, we had no outstanding borrowings
on the revolving line of credit facility and were in compliance with all
financial covenants of the term loan.





Management believes that our internally
generated funds coupled with the bank loan facilities will be sufficient to meet
working capital requirements for the remainder of 2010.





Critical Accounting
Policies





A summary of our critical accounting
policies and estimates is presented on pages 24-26 of our 2009 Annual Report on
Form 10-K filed with the Securities and Exchange Commission on March 12,
2010.




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 June 30, 2010.  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 June 30, 2010, 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 second quarter of 2010 that
have materially affected or are reasonably likely to materially affect our
internal controls over financial reporting.




PART
II – OTHER INFORMATION





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





During
the first six months of 2010, 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 provided for share repurchases of up to $15 million through April
2010. As of April 30, 2010, the repurchase plan expired and a new plan has not
been authorized as of the date of this filing.




12





Item No. 6 –
Exhibits





ExhibitNumber
                
                Document31.1
                
                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).


13


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:  August
      10, 2010By:
                /s/ Steven D. AlbrightSteven
      D. Albright, Chief Financial Officer (and accounting
    officer)Date:  August
      10, 2010




14


Exhibit
Index





ExhibitNumber
                  
                  Document31.1
                  
                  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).