Robert L. Montgomery
Chairman, President and
Chief Executive Officer

Dear Fellow Relìv Shareholder:

Of course, there's no better way to mark such a milestone than by setting new performance records. That's exactly what we did in 1997: We reached an all-time high of $46.8 million in net sales - a 15% increase over our 1996 performance. Net income improved compared with prior-year income, as well. In 1997, net income totaled $2.0 million, or $.21 per share, up from $1.5 million, or $0.15 per share, in 1996. On the strength of these results, Relìv's board of directors declared a 10% stock dividend and cash dividends totaling $.03 per share during 1997. An additional cash dividend of $.01 per share was paid early in 1998, to shareholders of record January 19, 1998.

What's behind these exceptional results? Once again, our performance was driven by the two essential components of our business: outstanding products and a growing team of highly motivated, success-oriented people.

On the product side, Relìv's extensive experience in soy protein nutrition proved to be one of our biggest strengths in 1997. During the year, we introduced Relìv ProVantage^TM - a new fitness drink mix featuring soy protein as a primary ingredient. This new product generated significant sales after just a few months on the market - largely because of its broad-based appeal. Relìv ProVantage targets two of the industry's fastest-growing segments: sports nutrition and functional food products. Functional foods is an emerging area of nutritional science made up of food products designed to influence specific functions of the body. This booming category, already estimated at $80 billion in sales, is the number one trend in foods, according to Food Technology magazine.

Our 1997 sales also got a boost from Relìv Healthy Pantry^TM Premium Entrées, the company's first line of hot meal products. These heat-and-eat meals are designed to expand our presence in the functional food category, while giving consumers a great-tasting way to include more soy protein in their diets. We're certainly pleased with the performance of these and all our nutrition products. But as I said, great products are just part of the story. It's Relìv people who really make things happen in the marketplace.

Our independent distributors are the lifeblood of our business. Because we sell our products through direct marketing, we're always working to expand our network of distributors, in order to create new sales opportunities. One way to measure success in this area is to track the number of distributors who reach our Master Affiliate level by recruiting new associates into their organizations.

In 1997, 3,600 Relìv distributors qualified as Master Affiliates in the United States, our largest market. That represented an increase of 45% over our 1996 performance. We also saw a dozen distributors reach the Ambassador designation, the level at which they qualify for Relìv's highest rate of compensation.

Our continued success in distributor retention is noteworthy, as well: In 1997, almost 49% of current distributors renewed their annual agreements with Relìv. This was another record high for our company, and well above the network marketing industry's average retention rate. The value we place on helping our distributors succeed is reflected in the strong sales and marketing programs we provide. Here again, we set a new standard of performance in 1997, by launching successful advertising and public relations efforts to enhance Relìv's name recognition in the marketplace. We also redesigned our Web site, so that it can now serve as a more powerful information and sales resource for distributors. A range of new marketing programs, such as a new presentation brochure and an attention-getting audiotape, were introduced during the year as well. These tools are helping our distributors do a better job of sharing the Relìv story and introducing others to the business opportunity we offer.

As always, one of our top priorities will be to focus significant energy on expanding our distributor network. Our strategy is simple: We want to make sure that when new distributors are recruited, they set to work right away building their downline organizations. With that in mind, in 1998 we will introduce marketing programs designed to reward distributors for the increased business they develop as a result of adding new distributors to the network. We will also mark our 10th anniversary with a special incentive program. We'll be giving top-performing distributors the opportunity to earn a trip to Rome when they meet business development targets.

A second key area for 1998 is the performance of our international operations. For the most part, international sales have not met expectations under our existing management structure. To correct that situation, we are reorganizing this portion of our business into a separate division, with its own management team. This division - Relìv World - will be responsible for developing all Relìv business outside the United States, with a special focus on the developing Asia-Pacific market.

Finally, we will expand our efforts to secure contract manufacturing engagements that do not compete with our network marketing business. We are pur-suing contract work to help absorb overhead costs associated with our 90,000-square-foot building expansion. This state-of-the-art facility was designed to support our internal growth needs for many years to come. In the interim, it makes sense to put our additional capacity to work on behalf of external clients. To that end, we are aggressively pursuing contract manufacturing relationships in the food industry.

As we look back on our first 10 years in business, it's clear we have a lot to show for our efforts: record-setting sales growth; a superior line of proprietary nutrition products; and an ever-expanding family of loyal, highly motivated distributors. Certainly, we're proud of what the Relìv team has accomplished over the past decade. But we're really just getting started. There's no question that we're in the right business: The potential in nutritional products is absolutely huge. We have a sound strategy, too - a strategy built on great products and an outstanding business opportunity for our distributors. In short, we have every reason to believe our next decade will be even better than our first.

Robert L. Montgomery
Chairman, President and Chief Executive Officer