<PAGE>
FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 1996
[ ] TRANSITION REPORT PURSUANT TO 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number 0-25238
NATURAL HEALTH TRENDS CORP.
(Exact name of Small Business Issuer as specified in its charter)
Florida 59-2705336
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2001 West Sample Road, Suite 318
Pompano Beach, FL 33064
(Address of Principal Executive Offices)
(305) 969-9771
(Issuer's telephone number)
Check whether the issuer: (1) filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the past 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 X No ____
The number of shares outstanding of the issuer's Common Stock,
$.001 par value, as of March 31, 1996 was 11,085,108 shares.
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NATURAL HEALTH TRENDS CORP.
INDEX
Page
Number
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheet as of March 31, 1996 (unaudited) 1
Consolidated Statements of Operations (unaudited) for the
Three months ended March 31, 1996 and 1995 2
Consolidated Statements of Cash Flows (unaudited) for the
Three months ended March 31, 1996 and 1995 3
Notes to the financial statements 4-5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 6-7
PART II - OTHER INFORMATION 8-9
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURE 10
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NATURAL HEALTH TRENDS CORP.
CONSOLIDATED BALANCE SHEET
MARCH 31, 1996
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash $ 374,538
Marketable securities 250,000
Accounts receivable 849,492
Inventories 124,030
Due from officers 134,608
Due from affiliate 22,524
Prepaid expenses and other current assets 210,533
------------
TOTAL CURRENT ASSETS 1,965,725
PROPERTY, PLANT AND EQUIPMENT 3,020,997
GOODWILL 1,536,236
DEPOSITS AND OTHER ASSETS 91,249
------------
$ 6,614,207
============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 247,899
Accrued expenses 70,479
Revolving credit line 170,000
Current portion of long term debt 44,005
Deferred revenue 529,069
Other current liabilities 61,075
------------
TOTAL CURRENT LIABILITIES 1,122,527
------------
LONG-TERM DEBT 1,936,987
DUE TO BANK 11,303
COMMON STOCK SUBJECT TO PUT 380,000
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value, 1,500,000
shares authorized; no shares issued and
outstanding -
Common stock, $.001 par value; 20,000,000
shares authorized; 11,085,108 shares issued
and outstanding at March 31, 1996 11,085
Additional paid-in capital 5,347,034
Retained earnings (accumulated deficit) (1,814,729)
Common stock subject to put (380,000)
------------
TOTAL STOCKHOLDERS' EQUITY 3,163,390
------------
$ 6,614,207
============
See notes to consolidated financial statements.
1
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NATURAL HEALTH TRENDS CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three months ended
March 31,
-------------------
1996 1995
-------- ---------
REVENUES $1,537,632 $ 776,879
COST OF SALES 910,556 370,129
---------- ---------
GROSS PROFIT 627,076 406,750
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 719,945 333,603
---------- ---------
OPERATING INCOME (LOSS) (92,869) 73,147
OTHER INCOME (EXPENSE):
Interest (net) (47,955) (49,414)
---------- ---------
TOTAL OTHER INCOME (EXPENSE) (47,955) (49,414)
---------- ---------
INCOME (LOSS) BEFORE INCOME TAXES (140,824) 23,733
PROVISION FOR INCOME TAXES - 5,000
---------- ---------
NET INCOME (LOSS) $ (140,824)$ 18,733
========== =========
EARNINGS (LOSS) PER COMMON SHARE $ (0.01)$ 0.00
========== =========
WEIGHTED AVERAGE COMMON SHARES USED 10,965,775 7,952,802
========== =========
See notes to consolidated financial statements.
2
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NATURAL HEALTH TRENDS CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three months ended
March 31,
-------------------
1996 1995
---------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (140,824) $ 18,733
---------- ----------
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities:
Depreciation and amortization 53,346 37,140
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (143,518) (61,446)
(Increase) decrease in inventories 857 -
(Increase) decrease in prepaid expenses 9,429 (11,415)
(Increase) decrease in deferred registration
costs - (80,779)
(Increase) decrease in deposits and other
assets (8,114) (129,757)
Increase (decrease) in accounts payable 28,674 (16,729)
Increase (decrease) in accrued expenses 9,501 8,004
Increase (decrease) in deferred revenue 43,825 (18,236)
Increase (decrease) in deferred taxes - 5,000
Increase (decrease) in other current
liabilities - -
---------- ----------
TOTAL ADJUSTMENTS (6,000) (268,218)
---------- ----------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES (146,824) (249,485)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (266,808) (6,641)
Acquisition expenses (20,000) -
Purchase of marketable securities (250,000) -
---------- ----------
NET CASH USED IN INVESTING ACTIVITIES (536,808) (6,641)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in due from officer - (6,800)
Increase (desrease) in due to bank (16,000) (31,269)
Proceeds from notes payable and long-term debt 170,000 350,000
Payments of notes payable and long-term debt (10,448) (32,000)
---------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 143,552 279,931
---------- ----------
NET INCREASE (DECREASE) IN CASH (540,080) 23,805
CASH, BEGINNING OF PERIOD 914,618 1,763
---------- ----------
CASH, END OF PERIOD $ 374,538 $ 25,568
========== ==========
See notes to consolidated financial statements.
3
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NATURAL HEALTH TRENDS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1996
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying financial statements are unaudited, but
reflect all adjustments which, in the opinion of management, are
necessary for a fair presentation of financial position and the
results of operations for the interim periods presented. All such
adjustments are of a normal and recurring nature. The results of
operations for any interim period are not necessarily indicative of
the results attainable for a full fiscal year.
2. EARNINGS (LOSS) PER SHARE
Per share information is computed based on the weighted
average number of shares outstanding during the period.
3. REVOLVING CREDIT LINE
The Company entered into a revolving credit line with Merrill
Lynch as of October 4, 1995 in the amount of $300,000. This
revolving credit line was activated by the Company on February 29,
1996. The revolving credit line expires on October 31, 1996, at
which time the Company is required to pay back any and all amounts
borrowed under the revolving credit line. Interest accrues at the
rate of prime plus 1%. As of March 31, 1996, the Company borrowed
$170,000 under this revolving credit line. A $250,000 investment
that the Company has with Merrill Lynch is restricted as security
for any loans under this revolving credit line.
4. ACQUISITION
On January 22, 1996, the Company acquired all of the assets of
Sam Lilly, Inc. in exchange for 380,000 shares of the Company's
common stock. The acquisition was accounted for as a purchase. The
net assets acquired totaled approximately $9,000. As a result of
this acquisition, the Company recorded goodwill of $1,380,000.
4
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The following table presents certain unaudited pro forma
financial information as if the acquisition occurred as of January
1, 1995:
Three months ended March 31,
----------------------------
1996 1995
-------------- ------------
Revenues $1,667,235 $1,070,934
========== ==========
Net Loss $ (146,574) $ (1,483)
========== ==========
Net Loss Per Share $ (0.01) $ -
========== ==========
5. LETTER OF INTENT
In May 1996, the Company entered into a letter of intent to
acquire an alternative health care clinic. The proposed purchase
price is $550,000, payable in common stock of the Company.
5
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ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements and notes contained in Item 1 hereof.
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
Revenues:
Total revenues were $1,537,632 for the three months ended March 31, 1996
compared to $776,879 for the three months ended March 31, 1995. This
represents an increase of $760,753 or 98%.
The increase is primarily attributable to $432,000 in fee revenue
provided by an alternative health care clinic acquired by the Company in
January 1996, $77,000 in rental income which did not commence until the
building was acquired in May 1995 and $165,000 from the Company's Oviedo
school which was acquired in November 1995. Additionally, tuition
revenues from the previously existing Broward and Dade schools increased
by $60,000, due primarily to increased enrollment.
Cost of Sales:
Cost of sales for the three months ended March 31, 1996 were $910,556
compared to $370,129 for the comparable period of the prior year. Gross
profit as a percentage of revenues was 41% for the three months ended
March 31, 1996, compared to 52% for the three months ended March 31,
1995. Management believes that the decrease in gross profit as a
percentage of revenues in 1996 was attributable to there being a
different mix of services offered by the Company, specifically the
medical clinic, with its attendant higher costs for medical salaries and
medical products, and to the inclusion of costs attributable to the
Corporate Massage service, which is still in a start-up stage and has
provided minimal revenues to date.
Selling, General and Administrative Expenses:
Selling, general and administrative expenses were $719,945 for the three
months ended March 31, 1996. This represents an increase of $386,342
from the three months ended March 31, 1995. The increase is primarily
attributable to the higher level of operations. These costs as a
percentage of revenues were 47% in the 1996 period as compared to 43% in
the 1995 period. The increase as a percentage of revenue is attributable
to general and administrative expenses connected with the corporate
massage business, which provided minimal revenues, increased salaries
and increased levels of advertising.
6
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Interest Expense:
These costs for the three months ended March 31, 1996 were $47,955
compared to $49,414 for the three months ended March 31, 1995.
Net Loss:
For the three months ended March 31, 1996, the net loss was $140,824
compared to a net income of $18,733 for the three months ended March 31,
1995. This increase in net loss is attributable to the impact of the
individual elements discussed above.
Liquidity and Capital Resources
At March 31, 1996 the ratio of current assets to current liabilities was
1.75 to 1.0. Working capital was approximately $843,000.
Cash used in operations in the period ended March 31, 1996 was
approximately $147,000, attributable primarily to the net loss of
$141,000.
Capital expenditures, primarily related to construction for preparation
for use of the Pompano Building, used approximately $268,000 of cash. An
additional $250,000 was put in a Merrill Lynch investment account, which
secures a revolving credit agreement. A total of $170,000 was borrowed
under this revolving credit agreement during the period.
The Company anticipates that during the second or third quarter the
Company will call for redemption 2,000,000 redeemable Class A common
stock purchase warrants and 2,000,000 redeemable Class B common stock
purchase warrants. In the event that all of such warrants are
exercised, the Company believes that it would realize net proceeds of
approximately $16,000,000. However, there can be no assurance that the
warrants will be redeemed or exercised.
The Company anticipates that its net cash flow together with available
lines of credit will be sufficient to finance the Company's operations
during the next twelve months.
7
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PART II. OTHER INFORMATION
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Please see Exhibit Index on page 8.
(b) Reports on Form 8-K
On February 6, 1996, the Company filed a report on Form 8-K to
report that the Company and Health Wellness Nationwide, Inc., the
Company's wholly owned subsidiary, entered into an agreement and plan or
reorganization to acquire substantially all of the assets of Sam Lilly,
Inc.
On April 4, 1996, the Company filed Form 8-K/A which included
the audited financial statements of Sam Lilly, Inc. for the years ended
October 31, 1995 and 1994.
Exhibit Index
Number Description of Exhibit
1.1 Form of Underwriting Agreement between the Company and
the Maidstone Financial, Inc. (the "Underwriter").*
3.1 Amended and Restated Certificate of Incorporation of the
Company.*
3.2 Amended and Restated By-Laws of the Company.*
4.1 Specimen Certificate of the Company's Common Stock.*
4.2 Form of Class A Warrant.*
4.3 Form of Class B Warrant.*
4.4 Form of Warrant Agreement between the Company and
Continental Stock Transfer & Trust Company.*
4.5 Form of Underwriter's Warrants.*
4.6 1994 Stock Option Plan.*
<PAGE>
Number Description of Exhibit
10.1 Form of Employment Agreement between the Company and
Neal R. Heller.*
10.2 Form of Employment Agreement between the Company and
Elizabeth S. Heller.*
10.3 Lease, dated April 29, 1993, between Florida Institute
of Massage Therapy, Inc., as tenant, and MICC Venture,
as landlord, as amended.*
10.4 Lease, dated April 10, 1991, between Florida Institute
of Massage Therapy, Inc., as tenant, and Superior
Investment & Development Corporation, as agent, for
SIDCOR 50/50 Associates.*
10.5 Department of Education, Office of Postsecondary
Education, Office of Student Financial Assistance
Program Participation Agreement, dated March 28, 1994,
between the Company and the USDOE.*
10.6 Purchase and Sale Agreement between Merrick Venture
Capital, Inc., as seller, and the Company, as buyer.*
10.7 First Mortgage Loan Documents between the Company and
TransFlorida Bank in connection with the purchase of the
Pompano Property.
10.8 Equity Credit Plan and Note, dated March , 1994, among
the Company, F.I.M.T.E., Neal R. Heller, Elizabeth S.
Heller and American Bank of Hollywood.*
10.9 Form of Financial Consulting Agreement between the
Company and the Underwriter.*
10.10 Second Mortgage Loan Documents between the Company and
Merrick Venture Capital, Inc.*
10.11 Agreement dated June 7, 1995 between Natural Health
Trends Corp. and Justin Real Estate Corp..*
10.12 Property Management Agreement dated June 7, 1995 between
Natural Health Trends Corp. and Justin Real Estate Corp.*
21.1 List of Subsidiaries.*
- - ---------------
* Previously filed with Registration Statement No. 33-91184.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: May 14, 1996
NATURAL HEALTH TRENDS CORP.
By: \s\ Neal R. Heller
Neal R. Heller, Chairman of the Board,
President, Chief Financial and Accounting
Officer and Chief Executive Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM
10-QSB FOR THE QUARTER ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 374,538
<SECURITIES> 250,000
<RECEIVABLES> 849,492
<ALLOWANCES> 0
<INVENTORY> 124,030
<CURRENT-ASSETS> 1,965,725
<PP&E> 3,224,600
<DEPRECIATION> 203,603
<TOTAL-ASSETS> 6,614,207
<CURRENT-LIABILITIES> 1,122,527
<BONDS> 0
380,000
0
<COMMON> 11,085
<OTHER-SE> 3,152,305
<TOTAL-LIABILITY-AND-EQUITY> 6,614,207
<SALES> 0
<TOTAL-REVENUES> 1,537,632
<CGS> 0
<TOTAL-COSTS> 910,556
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 47,955
<INCOME-PRETAX> (140,824)
<INCOME-TAX> 0
<INCOME-CONTINUING> (140,824)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (140,824)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> 0
</TABLE>
