Wednesday, August 14, 2013

Why I Believe Reliv' International Is Going Back To $1.35

Disclosure: I am short RELV. Here are some the reasons why.

I believe we are going back to somewhere around $1.35 -- not just because that is where the stock had previously been trading, and not just because that is near book value. But because the hype that exploded the stock price does not compensate for the poor fundamentals. And by the way, was the recent press release timed to divert attention from the California litigation?

RELV at 1.35
See, Reliv International (RELV) is in the middle of an accusation of "failure to warn consumers that they have been exposed to lead from several of the company's nutritional health products. Lead is a chemical known to the State of California to cause cancer, birth defects and other reproductive harm." ~ Case: CIV1300429 Superior Court of the State of California

That complaint was initiated in January of 2013 by Environment Research Center, ("ERC")a non-profit corporation. A proposed stipulated consent judgment was later signed by Reliv's CFO and attorney. As usual, the defendant does not have to admit guilt. Nonetheless, according to the proposed consent judgment, as signed by Reliv's representatives,
  • Civil penalties must be paid "pursuant to Health & Safety Code Section 25249.7(b)(1)"
  • A portion of the above penalty is to be paid to the office of Environmental Hazard Assessment.
And most telling of all,
  • "Since receiving ERC's Notices of Violation, Reliv has revised the formula for all of the covered Products to bring the lead levels in the Covered products that are manufactured going forward to below 0.5 micrograms per day, the level at which a warning would be required pursuant to Proposition 65." (Source: Proposed Stipulated Consent Judgment)
How can one bring levels below a required limit without implying that one had been above it?
Reliv brings lead levels down

proposed consent judgment signed by Reliv
And what was the big deal with the press release announcing "exclusive rights" to Lunasin? Reliv's price exploded. Ryan Montgomery, Reliv president claimed, "For the first time we own an ingredient in its entirety, from the extraction process to the patented mechanisms of action within the body. And lunasin isn't just any ingredient; it's the world's first epigenetic superfood." ~ Press Release: "Reliv Acquires Exclusive Rights to 'Superfood' Lunasin"

It is hard to know exactly what Mr. Montgomery meant. Certainly he is not claiming to own the natural ingredient, lunasin. He may however be referring to the trademark Lunasin, which according to its registration is for synthetic peptides. (USPTO Trademark Registration) (See my last article below, or on Seeking Alpha: Reliv' the Hype.)

Add to all of this Reliv's disclosure that some of its products contain genetically modified organisms and one wonders what kind of reaction the distributors will have when the news gets out.
some of Reliv

RELV SEC filed 10-k

So why do I believe that Reliv's price will go down in the long run? Not "just because" of the points mentioned above. I don't think that any of the above matters as much as the simple fact that Reliv appears to be losing its distributor base -- one year at a time. And with that decrease, its sales are also decreasing -- one year at a time. The numbers say it all ....


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