SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ______________ to ______________
Commission File Number 0-25238
NATURAL HEALTH TRENDS CORP.
(Name of small business issuer in its charter)
Florida 59-2705336
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
2001 West Sample Road, Pompano Beach, Florida 33064
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (954) 969-9771
Securities registered pursuant to Section 12(b) of the
Exchange Act:
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, $.001 par value
(Title of Class)
Class A Warrants
(Title of Class)
Class B Warrants
(Title of Class)
Units
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act 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
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Check if disclosure of delinquent filers pursuant to Item 405 of Regulation S-B
is not contained in this form, and no disclosure will be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
Issuer's revenues for its most recent fiscal year. $ 7,218,841
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The number of shares of Common Stock held by nonaffiliates of the registrant (as
determined for the purpose of this Form 10-KSB only) as of February 28, 1997
date was 6,648,471, with an approximate aggregate market value of $6,856,236
(based upon the average of the bid and asked prices of such shares as of such
date). The number of shares of the Common Stock of the issuer outstanding as of
February 28, 1997 was 11,900,471.
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TABLE OF CONTENTS
Page
Item Number and Caption Number
PART I
Item 1. Description of Business....................................4
Item 2. Description of Properties.................................19
Item 3. Legal Proceedings.........................................22
Item 4. Submission of Matters to a Vote of Security Holders...... 22
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters.......................23
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operation....................24
Item 7. Financial Statements......................................26
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure...................26
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a)
of the Exchange Act...................................27
Item 10. Executive Compensation ...................................29
Item 11. Security Ownership of Certain Beneficial
Owners and Management.................................30
Item 12. Certain Relationships and Related Transactions............31
Item 13. Exhibits and Reports on Form 8-K..........................33
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PART I
Item 1. Description of Business.
Natural Health Trends Corp. (the "Company") is a corporation
which develops and operates businesses to promote human wellness. Doing business
as the Florida Institute, the Company owns and operates three vocational schools
as a junior college in Oviedo, Pompano Beach and Miami, Florida (individually,
the "Oviedo School," the "Pompano Beach School" and the "Miami School" and
collectively the "Schools") that offer training and preparation for licensing in
therapeutic massage and for registration in holistic skin care. Through its
wholly owned subsidiary, Health Wellness Nationwide Corp. ("HWNC"), the Company
owns two natural health care centers, one in Boca Raton, Florida and the other
in Pompano Beach, Florida (the "Natural Health Care Centers"), both of which
provide multi-disciplinary complementary health care in the areas of alternative
and nutritional medicine.
The Schools seek to fulfill the educational needs of adults
seeking augmented career skills or whose educational needs have not been met in
traditional educational environments. These individuals are primarily high
school graduates and underemployed adults seeking specific career skills and
training. As of December 31, 1996, 650 students were enrolled in the Schools.
The Schools are licensed under Florida law and approved by the United States
Department of Education (the "USDOE") to provide financial aid to qualified
applicants. For the year ended December 31, 1996, the Schools derived
approximately 61% of its revenues from financial aid provided under Federal or
state assistance programs.
The Company plans to expand its business operations by increasing
the enrollment of the Schools, opening additional Natural Health Care Centers,
as well as acquiring, developing and marketing proprietary lines of health care
products. However, there can be no assurance that the Company will be able to
successfully expand its operations.
In November 1996, the Company signed a letter of intent to acquire
all of the capital stock of Global Health Alternatives, Inc. ("GHA"), which is a
company which acquires, develops and markets health care products. However, the
Company has not entered into a definitive agreement and there can be no
assurance that the Company will consummate such acquisition.
The Company was incorporated under the name Florida Institute of
Massage Therapy, Inc. in Florida in December 1988 and changed its name to
Natural Health Trends Corp. in June 1993. The Company's principal offices are
located at 2001 West Sample Road, Pompano Beach, Florida 33064 and its telephone
number is (954) 969-9771.
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Expansion Strategy
General
The Company plans to expand its business operations by seeking to
increase the enrollment of the Schools and developing programs to offer massage
therapy and other alternative health care services to the public. In order to
increase its ability to recruit students, the Company obtained licensing by the
State of Florida to operate as a degree-granting junior college in January 1997.
In addition, in May 1995 the Company acquired the property located at 2001 West
Sample Road, Pompano Beach, Florida (the "Pompano Property"), and in 1996 the
Company completed the relocation of the Pompano Beach School and corporate
headquarters from Lauderhill, Florida to the Pompano Property. In 1996 the
Company acquired two Natural Health Care Centers and the Company plans to open
additional Natural Health Care Centers. However, there can be no assurance that
it will do so. In addition, the Company intends to acquire, develop and market
proprietary lines of health care products through its intended acquisition of
GHA and other health care product companies. However, there can be no assurance
that the Company will consummate such acquisitions or enter into the health care
product field.
Degree-Granting Junior College
In January, 1997, the Schools obtained approval to operate as a
degree-granting junior college from the State of Florida. Graduates of the
Schools' programs will receive an associates degree in holistic studies while
majoring in the areas of massage therapy, paramedical esthetics, acupuncture,
nutrition or homeopathy. The Company believes that the approval of its
application to operate as a degree-granting junior college will enhance the
Schools' ability to recruit students, although the Company has not obtained any
studies to confirm such belief. There can be no assurance that the Company will
be able to maintain or increase the Schools' enrollment or that the Company's
marketing and expansion of the Schools will be successful or profitable.
Corporate Massage Service
In September, 1995 the Company commenced the operation of the
Corporate Massage Service to offer on-site massages to businesses with massage
therapists who are independent contractors. The Company's initial marketing
efforts have concentrated on Florida. The Corporate Massage Service has had
minimal revenues while incurring significant expenses. The Company has
reorganized management of the Corporate Massage Service and presently intends to
place less emphasis on this aspect of the Company's business.
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Natural Health Care Centers
In January 1996, the Company through HWNC purchased the assets of
Sam Lilly, Inc. which owned and operated a Natural Health Care Center doing
business as Medicine and Lifestyles in Boca Raton, Florida (the "Boca Center").
The purchase price for the assets was 380,000 shares of Common Stock. In
addition, the Company, entered into employment agreements with Samantha Haimes
and Leonard Haimes, M.D. Each of the employment agreements initially provided
for a three-year term. Mrs. Haimes and Dr. Haimes received salaries of $295,625
and $159,183, respectively, for 1996. Mrs. Haimes and Dr. Haimes were also
entitled to a percentage of the gross revenues of HWNC. As of January 1997 the
employment agreements were amended and each provide that for a two year term,
Dr. Haimes will work at the Boca Center two days each week and Mrs. Haimes will
be a part-time consultant. Dr. Haimes will receive a salary of $90,000 per annum
and Ms. Haimes will receive consulting fees of $310,000 per annum. The payments
to the Haimeses will be reduced to one-third of the gross income of the Boca
Center if the gross income is less than $1,000,000 per annum.
In June 1996 the Company acquired the capital stock of Medical
Service Consultants, Inc., Diagnostic Services, Inc., Managenet Inc. and KBM
Consultants which companies operated a Natural Health Care Center doing business
as the Institute of Natural Medicine (the "Pompano Center") in Pompano Beach,
Florida. The purchase price was 110,000 shares of Common Stock. The Company also
entered into an employment agreement with Kaye Lenzi, who directs the Pompano
Center. The employment agreement provides for a salary of $100,000 per annum
subject to adjustment based upon the gross income of the Pompano Center.
The Natural Health Care Centers specialize in alternative and
traditional medicine therapies to promote human wellness, including homeopathy,
environmental and internal medicine, allergy and Candida treatment, clinical
nutrition, pain management, massage therapy, stress reduction, colon
hydrotherapy and chelation therapy. The Natural Health Care Centers promote
wellness as opposed to treating health crises. As such the Natural Health Care
Centers concentrate on treating illnesses which do not strike as a sudden
crisis, but develop gradually and refuse to go away. Such illnesses includes
most of the diseases related to aging and lifestyle - arthritis, osteoporosis,
lower back pain, high blood pressure, coronary artery disease and ulcers.
The Natural Health Care Centers were established in light of a
perceived growing national interest in alternative medicine fueled by a
dissatisfaction with traditional medicine. A 1994 survey indicated that thirty
percent of people questioned had tried some form of unconventional therapy. The
alternative medicine industry has been estimated to be a $27 billion a year
industry and is expected to grow as the "baby boomer" population ages.
The Company plans to open additional Natural Health Care Centers.
However, there can be no assurance that the Company will do so. The Company
believes that holistic health care has been marketed to only a small segment of
the population. The Company anticipates that it
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will direct its advertising and educational materials toward individuals who
have not previously considered homeopathic health care remedies or maintenance
techniques. The Company may need to seek additional financing to open additional
Natural Health Care Centers.
Operation of the Schools
Curricula
The primary focus of the Schools has been on massage therapy,
which the Company believes has achieved increased public awareness and
acceptance. Currently, 19 states, including Florida and New York, require
individuals who practice massage therapy to be licensed. The Schools prepare
students to take the examination offered by the National Certification Board for
Therapeutic Massage and Bodywork (the "NCBTMB") for certification as a massage
therapist. The NCBTMB's certification of massage therapists satisfies the
requirements for licensing in 11 of the states requiring licenses, including
Florida. The Schools also offer training in holistic skin care. The State of
Florida requires registration of skin care professionals. Upon completing the
holistic skin care program and passing an exam administered by the School, the
School's students satisfy the requirements for registration as a skin care
professional by the State of Florida.
The Schools also offer a combined massage therapy and holistic
skin care program, requiring approximately 900 hours of study. The Schools
require that the massage therapy portion of the curriculum be completed first,
followed by 300 hours of holistic skin care.
The Company may, in the future, seek to expand its course
offerings to include programs of study in paramedical esthetics, acupuncture,
nutrition and homeopathy. There is no assurance that such additional programs
will ever be offered or that, if offered that they will result in an increase in
enrollment or revenues.
Student Recruitment
The Company believes that enrollment at the Company's Schools is
influenced by a number of factors, including (i) a growing need for individuals
to have technical and occupational training in order to obtain employment, (ii)
the number of high school graduates and other demographic trends, and (iii) the
availability of competing alternatives, including other educational
opportunities, other vocational training alternatives, employment and service in
the U.S. military. The Company believes that successful student recruitment
depends upon a number of factors, including a school's educational reputation
and accreditation, job placement record, frequency and schedule of classes and
location, as well as the availability of Federal student financial aid. In order
to attract potential students and increase recognition of its name and programs
of study, the Company utilizes a variety of marketing methods including radio,
newspapers, mailings, surveys, presentations, telemarketing and public
relations.
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The Company employs an admissions director, who is directly
responsible for all areas concerning the marketing and advertising for the
Schools, recruitment of prospective students and training admissions personnel.
School Faculty and Administration
As of December 31, 1996 the Company had 28 full-time employees in
the administration of the Schools and 7 part-time administrators, as well as 11
part-time faculty members and 18 full-time faculty members. Generally, the
Company tries to provide one teacher for every 10 students in the clinical
classroom and one teacher for every 35 students in the lecture classroom.
Faculty members are required to meet certain state licensing requirements. The
Company prefers teachers who have had some practical experience in the fields in
which they are instructing students. The Company has experienced no difficulty
in obtaining qualified faculty members and believes that qualified teachers can
be readily employed. Each of the Schools is managed by a school director who has
responsibility for all aspects of the School. The school director is assisted by
an executive staff, which monitors teacher performance, and by administrative
coordinators.
Graduate Job Placement
The Company believes that the placement of its graduates is
essential to its ability to attract students. The Company's Office of Graduate
Job Placement works with students and graduates by advising them about
employment opportunities and offering other placement assistance. Based on the
placement calculation mandated by the Accrediting Commission of the Career
Schools and Colleges of Technology, approximately 84% of the School's 1996
graduates have found positions, including those who are self-employed and have
entered private practice.
F.I.M.T.E. Supply, Inc.
F.I.M.T.E. Supply Inc., ("F.I.M.T.E.") the Company's wholly-owned
subsidiary, operates a bookstore at each of the Schools' campuses and publishes
a catalog that is available to the public. Inventory consists of such items as
massage tables, headrests, other equipment related to the practice of and
utilized to provide massage therapy services, educational materials, skin care
products, and clothing, including uniforms and shirts. Customers include
students, instructors, graduates of the Schools, practicing therapists and the
public. F.I.M.T.E. intends to continue to offer these products and expand its
inventory to include updated and related products.
Acquisition of Oviedo School
In November 1995, the Company acquired all of the assets of Reese
Institute, Inc. ("Reese") which included the Oviedo School, for a purchase price
of $250,000. Of the $250,000 purchase price, $125,000 was paid at the closing
and the balance is payable over four years pursuant to a secured promissory
note. In addition, the Company entered into a five-year
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lease agreement with Jean Reese, the sole stockholder of Reese, to lease the
7,590 square foot property which is occupied by the Oviedo School.
Regulation
General
Participation in Federal student financial aid programs subjects
the Company to extensive regulation and to audit and compliance review by the
USDOE and other administering agencies. Failure to comply with these regulations
may have serious consequences and may result in suspension, limitation, or
termination hearings to determine if an institution's participation in these
programs should be reduced or terminated. No such suspension, limitation or
termination proceeding has been instituted against the Company. The Company
would be materially affected adversely if one of these proceedings were
instituted against the Company and it resulted in a curtailment of the Company's
participation in government student financial aid programs.
The Schools must hold a state license or be registered with the
appropriate state authorities to operate as a school. The Schools are licensed
by the State Board of Independent Postsecondary, Vocational, Technical, Trade
and Business Schools of the Florida Department of Education (the "Florida State
Board"). In addition, the Schools must generally comply with standards
established by Florida state laws governing proprietary schools. Typically,
these laws and the related regulations concern such matters as standards and
methods of instruction, qualifications of teachers and management personnel,
adequacy of school facilities and equipment, advertising, form and content of
contracts between schools and their students and tuition collection methods. The
Company holds all required Florida licenses and registrations, and believes that
it is in substantial compliance with such laws and related regulations. As a
result of these laws and regulations, the Company must obtain the approval of
the appropriate state education departments before offering new programs or
courses and before implementing any changes in existing programs or courses.
The Company and its Schools must comply with a variety of Federal
and state regulations to qualify as institutions where eligible students can
obtain government financial aid for tuition and related expenses. These
regulations include rules which set minimum tuition refund levels for students
who leave school before completing their programs of study. In addition, the
Federal regulations require the accreditation of the school by private
commissions recognized by the USDOE. The accreditation commissions establish
additional standards with respect to such matters as curriculum and teacher
qualifications.
Under current USDOE regulations, a change in control of the
Schools could result in a temporary or a permanent loss of Federal financial aid
funds to the Schools' students. In addition, under the regulations of the
Florida State Board a change of ownership resulting in a change of control may
result in the termination of the Schools' licenses. The Schools will also
require the approval of the Schools' accrediting commission upon a change of
control. Pursuant
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to the USDOE regulations, a determination of a change of control would involve a
review of which persons or entities have the power to direct or cause the
direction of management and policies of the Schools. Under the Florida State
Board's regulations, a change of control constitutes a change in the authority
to establish or modify school policies, standards and procedures or the
authority to make the effective decisions regarding the implementation or
enforcement of school policies, standards and procedures. In such event, the
prior approval of the Florida State Board is required. Under the rules of the
Schools' accrediting commission, a change of control occurs when a person or a
corporation obtains authority to control the actions of the institution,
including a change of control which occurs as a result of a transfer in voting
interest. The Company believes, although there can be no assurance, that as a
result of the Company's completion of its initial public offering and additional
issuances of shares of Common Stock that there has not been or would be a change
of control that would result in a loss of its eligibility for Federal financial
aid funds, a review of its licenses, or the requirement of prior approval by its
accrediting commission. Should the percentage ownership of the Company's Common
Stock by the Company's present shareholders, officers and directors decrease
further through the issuance of additional shares of Common Stock, the issue of
whether there was a change of control, if raised by the USDOE, the Florida State
Board or the accrediting commission, would be determined pursuant to the
standards set forth above, on the basis of the facts then existing, including
the percentage ownership of the present shareholders, officers and directors, as
compared with the holdings of others and other factors relating to the actual
control of the Company. Should there be a determination that a change of control
had occurred by the USDOE, the Florida State Board or the Schools' accrediting
commission and there was a disruption or termination of the availability of
Federal financial aid to the Schools' students or a termination or interruption
of the licenses or accreditation of the Schools, there would be a material
adverse effect on the Company, its business and its prospects.
Accreditation and Licensing
Accreditation is a means of recognizing that learning institutions
have met uniform standards of educational performance, primarily through
impartial, non-governmental peer evaluations by national or regional
professional associations. A school becomes accredited by formal action of the
accrediting body, which bases its decision on information submitted by the
school and the reports of a specially appointed inspection team which has
visited the school and evaluated the programs and operations according to
established standards. Accreditation by at least one accrediting body recognized
by the USDOE is required to permit a school's students to participate in Federal
student financial aid programs. Accreditation is also an important factor in
establishing an institution's reputation with potential students and employers
of its graduates.
Accredited schools are subject to periodic review by accrediting
bodies to ensure that the schools maintain the level of performance, integrity
and quality required by the accrediting body. There can be no assurance that the
existing accreditation of the School will be renewed. In addition, a change in
ownership of the Company would require notification of, and possible
re-evaluation of, the Company's accreditation by the accrediting agencies in
order for the Schools to retain their accreditation.
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Although accreditation is a private, voluntary process designed to
promote educational quality, the Company believes that accreditation is an
important asset. Accreditation of a school provides significant competitive
advantages over non-accredited, for-profit educational institutions. College and
university administrators look to accreditation in deciding whether to accept
transfers of credit. Employers rely on an institution's accredited status when
evaluating a job applicant's credentials. Moreover, accreditation is required
for participation in government financial aid programs.
Each School is licensed by the Florida State Board as an
institution that provides instruction or training that leads to an occupational
objective. Such institutions are subject to annual or, if they have been
licensed and in good standing for five years or more, biennial licensing
renewal. The present state licenses for the Miami School and Oviedo School are
subject to annual review, while the license for the Pompano Beach School is
subject to biennial review, and expire on September 30, 1997, November 30, 1997
and March 31, 1998, respectively. Each institution must meet certain minimum
standards established by the Florida State Board with respect to administrative
organization, educational program and curricula, finances, financial stability,
faculty requirements, library facilities, student personnel services, physical
plant and facilities, and publications. In addition, the institution is required
to disclose to the Florida State Board and its students the status of the
institution with respect to professional certification and licensure. Failure to
maintain compliance with the Florida State Board's minimum standards could
result in revocation or suspension of a School's license, or other penalties
imposed by the Florida State Board. The rules of the Florida State Board require
prior approval of written contracts between the student and the institution,
changes of location in certain events and significant changes to programs and
methods of operation. Each institution is required to be incorporated and have
adequate administrative staff and faculty to provide instruction in its licensed
programs. In addition, each program to be offered by an institution must be
described in detail in the institution's catalog, including a listing of
required equipment and instructional materials. Moreover, institutions must
submit financial statements at the time of application for renewal. If the
institution has a ratio of current assets to current liabilities of less than 1
to 1, the Florida State Board is authorized to deny the renewal of the license
or to require a demonstration to provide further justification for the renewal
of the license. The Florida State Board may also require the institution to post
a bond to assure the Florida State Board that the institution will be able to
fulfill its obligations to its students. The institution must maintain a
placement rate of its graduates of at least 60%, otherwise the institution will
be required to submit reports implementing placement improvement measures. In
addition, each institution must maintain a retention rate of 50% of its
students. Presently, the Florida State Board rules require a minimum of 500
hours of training for massage practice, with a maximum of 625 hours of
instruction. Agents employed by the institution to solicit students outside the
institution are required to be licensed and are subject to annual licensure and
payment of fees. The rules of the Florida State Board provide that the
advertising of the institution must be in compliance with its requirements,
which include limits on the use of superlatives or non-factual statements or
illustrations. Any statement which is intended to mislead the public could
result in revocation of licensure or other sanctions imposed by the Florida
State Board.
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The School's are accredited by the Accrediting Commission of
Career Schools and Colleges of Technology. The Schools' Therapeutic Massage
Training Program is accredited by the Commission on Massage Training
Approval/Accreditation of the American Massage Therapy Association. There can be
no assurance that the Schools will be able to maintain their accreditation.
The Company is also a member of the Career College Association,
the Florida Association of Post Secondary Schools and Colleges and the Florida
Association of Estheticians. The Schools are approved by the Florida State Board
of Massage as a provider of continuing education units and by the Immigration
and Naturalization Service to provide student visas. The Schools are also
approved by the Veteran's Administration to accept veteran's benefits.
Degree-Granting Junior College
As a degree-granting junior college, the success of the Schools
may be dependent, in part, upon the transferability of credits from the Schools
to four year institutions. The transferability of credits from one educational
institution to another, absent an articulation agreement between the two
schools, is generally at the discretion of the receiving institution. The
factors that receiving institutions typically consider include, but are not
limited to, the similarity of accrediting commissions, the licensing status of
the two institutions and the similarity of program content, curriculum and
textbooks. In addition, many institutions enter into articulation agreements
which establish specific guidelines for the transfer of credits from one
institution to another. However, these agreements are not required by law, and
the content may vary dramatically depending on whether the institution is a
public, private, academic or vocational/technical school. In general, if the
institutions are accredited by the same or a similar accreditation commission,
then the transfer of credits between such institutions is more likely. The
accreditation commission requirements may be identical or similar in terms of
faculty to student ratios, equipment requirements, library facilities,
curriculum development and other factors. Students may also attempt to transfer
credits from one institution to another without regard to whether the
institutions are licensed by the Florida State Board of Independent Colleges and
Universities or the Florida Board of Regents (the head of the state university
system). Absent articulation agreements between the two schools, consideration
for the acceptance of transfer of credits is more subjective than the transfer
of credits between otherwise similar public or private institutions. There can
be no assurance that credits from the Schools' courses will be transferable.
Student Financial Aid
Students at the Schools finance their education through a variety
of sources, including individual resources, earnings from part-time employment,
family contributions and tuition payment from their employers. However, the
principal source of tuition financing at the Schools is government-sponsored
financial aid programs. Students at the Schools receive financial aid under the
following primary programs: (i) Federal Pell Grant Program (formerly known as
Basic Educational Opportunity Grants); (ii) Federal Family Educational Loan
Programs, which
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includes the Stafford Loan Program (previously known as the Guaranteed Student
Loan Program), the Parent Loans for Undergraduate Students ("PLUS") program, and
the Supplemental Loans for Students ("SLS") program; (iii) Supplemental
Educational Opportunity Grants; and (iv) the College Work Study program.
Commencing in April 1995, the Schools became participants in the
National Direct Student Loan Program ("NDSL"). NDSL Loans are available to
students studying at least 16 hours per week at an approved educational
institution. NDSL Loans may be obtained in amounts up to $2,625 per year. If a
student's income or family income is below a specified level, a student pays no
interest on an NDSL Loan while in school and for a six-month "grace period"
thereafter, after which time the student is required to pay monthly installments
of at least $50, which includes interest at a rate prescribed by Federal law. If
the student's income or family income is above a specified level, then interest
accrues on the loan at a rate prescribed by Federal law. The interest rate on
NDSL Loans ranges from 8.25% to 8.98% per annum. NDSL Loans are direct loans
from the Federal government.
Under the provisions of the authorization of Higher Education Act
of 1965, as amended (the "Reauthorization Act"), educational institutions with
annual student loan default rates in excess of 25% (30% prior to 1994) for three
consecutive years may lose their eligibility for student loans. The Company's
schools' student loan default rates for 1993 and 1994 were determined to be 10%
and 8.9%, respectively. The default rates for 1995 and 1996 will not be
available from the USDOE until the third quarters of 1997 and 1998,
respectively, since a student is not deemed to be in default until eight months
after a six-month grace period from the time that the student leaves school.
Commencing in April 1995, the Company became a participant in the National
Direct Student Loan Program. Management knows of no written regulations with
respect to the requirements for determining and maintaining student loan default
rates below specified levels for the National Direct Student Loan Program. In
addition, the Certification Office of the USDOE monitors student drop-out rates.
Under Federal regulations, a student drop-out rate in excess of 33% may impair
an institution's ability to administer financial aid programs and is one factor
in determining whether to deny an institution's certification to participate in
Federal student aid programs. A student drop-out rate exceeding 33%, however, is
not alone sufficient to disqualify an institution from such participation, but
must be viewed in conjunction with other factors such as loss of state
licensing, loss of accreditation, poor periodic reviews, or high student loan
default rates. The Schools' dropout rate in 1996 was approximately 12%. There
can be no assurance that the Company will be successful in continuing to
maintain an acceptable student loan default rate, or dropout rate or otherwise
remain eligible for Federal funding.
The Reauthorization Act prohibits an institution from enrolling
more than 50% of its students on the basis of "Ability to Benefit." "Ability to
Benefit" students are those without a high school or general equivalency degree.
As of December 31, 1994, 1995 and 1996, approximately 15%, 12%, and 15%
respectively, of the Company's students at the School's were classified as
"Ability to Benefit" students.
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Under USDOE regulations, the Schools are proprietary schools (a
"for-profit" educational institution that provides job or career-related
training). A proprietary school may be deemed ineligible to participate in
financial aid programs if the USDOE determines that 85% or more of the
institution's operating revenue is derived from Title IV financial aid programs.
The application of the 85-15 Rule depends largely on the USDOE's interpretation
of what constitutes "revenue" for such institutions. According to the Company's
preliminary calculations, the Schools derived approximately 61% of their
revenues for the calendar year ending December 31, 1996 from the Title IV
financial aid programs. The official determination of the Company's compliance
for the year ended December 31, 1996 with the 85-15 Rule will likely be made by
the end of 1998. Accordingly, if it is determined that the Company did or does
not comply with these regulations, some or all of the student financial aid
received by the students at the Schools could be curtailed or eliminated. The
reduction or termination of Federal student financial aid would have a material
adverse effect on the Company.
The USDOE has considered, and the U.S. Congress is presently
considering, changes in the administration of certain student financial aid
programs. There is no assurance that government funding of the financial aid
programs in which the Company's students participate will be maintained at
current levels. A reduction in funding levels could result in lower enrollments.
Extensive and complex regulations govern all of the government grant and loan
programs in which the Company participates. As such, the Company is subject to
periodic reviews and audits by the USDOE and Federal and State Guaranty Agencies
to determine compliance with applicable regulations. Because financial
assistance programs are required to be administered in accordance with the
standard of care and diligence of a fiduciary, any regulatory violation could be
the basis for the initiation of a suspension, limitation or termination
proceeding against the Company. If such a proceeding were initiated against the
Company and resulted in a substantial reduction or termination of the Company's
participation in government grant or loan programs the Company would be
materially and adversely affected.
The Company's Schools also offer a payment plan which enables
students to pay for their tuition in monthly installments. The Company charges
students participating in this payment program a finance charge of $25 and
interest at the annual rate of 12%. Students participating in this program are
required to pay the remaining balance of their tuition accounts prior to
graduation.
Licensing
The health care practitioners and massage therapists employed by
the Company are required to satisfy professional licensing requirements. In
Florida, the Company's massage therapists employed by the Corporate Massage
Service and the Natural Health Care Centers are subject to regulation by the
Division of Professions, Board of Massage of the Department of Business and
Professional Regulation under the Florida Massage Practice Act. All physicians
and other specialists employed at Natural Health Care Centers must be licensed
and are also subject to ongoing professional licensing requirements. The failure
of such persons to practice
-14-
<PAGE>
in accordance with professional licensing requirements could have a material
adverse effect on the Company.
Competition
The Schools
The Schools compete with (i) regional vocational schools and
national vocational schools which offer occupational training programs in
massage therapy, holistic skin care and in related and unrelated fields, (ii)
two and four year universities and colleges, and (iii) on-the-job training
offered by private and government employers. The Company believes that there are
approximately five schools in the Schools geographic area that offer programs of
study in massage therapy and approximately five schools that offer programs of
study in holistic skin care. The Company believes that the massage therapy and
holistic skin care programs of study offered by its Schools offer a broader
range of courses than other schools in its geographic area. In addition, the
ability of the Schools' students to receive financial aid under Federal programs
provides a competitive advantage over those schools which do not have such
ability. Many competitors have greater financial, recruiting and job placement
resources than the Company, have longer operating histories and are more
established than the Company, and have more extensive facilities and more
personnel than the Company has now or will have in the foreseeable future.
Natural Health Care Centers and Corporate Massage Service
The Company's Natural Health Care Centers compete with doctors,
hospitals and medical clinics offering traditional forms of health care and
other practicing therapists offering traditional forms of health care, as well
as with other providers of alternative forms of health care and health
maintenance. The Corporate Massage Service competes against individual massage
therapists, health clubs and other massage providers. Many of these competitors
have established practices and greater financial resources than the Company. In
addition, the services offered by the Company's competitors may be covered by
medical insurance or other third party reimbursement. Medical insurance coverage
and other third party reimbursement is not available for most of the services
offered by the Natural Health Care Centers and to the extent that such services
are covered, coverage is limited. The lack of medical insurance coverage or
other third party reimbursement for all of the services performed at the Natural
Health Care Center may affect their ability to attract and retain patients.
Employees
As of December 31, 1996 the Company had 74 full time employees and
22 part time employees including 34 full time administration employees and one
part-time administration employee. The Schools have 18 full time and 11 part
time faculty members. The Corporate Massage Service has one full time employee,
and the Natural Health Care Centers have 21 full time employees and three
part-time employees.
-15-
<PAGE>
Insurance
The Company presently maintains workers' compensation coverage and
liability insurance relating to hazards on the Company's premises. The Company
carries a general liability policy which provides for coverage of $1,000,000 per
occurrence and $2,000,000 in the aggregate. The Company's professional liability
policy provides for coverage of $1,000,000 per occurrence and $3,000,000 in the
aggregate. The Company is and will be engaged in a business which could expose
it to personal injury and other liability claims. The Company carries $1,000,000
per loss event and $3,000,000 in the aggregate of malpractice insurance in
connection with the Natural Health Care Centers. There can be no assurance,
however, that the Company's insurance will be sufficient to cover potential
claims or that an adequate level of coverage will be available in the future at
a reasonable cost, if at all. A successful claim could have a material adverse
effect on the Company.
Item 2. Description of Properties
Leased Properties
The Company leases approximately 11,500 square feet at 5453 North
University Drive, Lauderhill, Florida the previous site of the Pompano Beach
School and the Company's corporate headquarters. The current annual rent is
approximately $116,000 and the lease expires on July 31, 1997 . The Company has
relocated its corporate headquarters and the School located in Lauderhill,
Florida to the Pompano Property. The Company believes that its liability on the
lease is approximately $140,000. The Company leases approximately 12,000 square
feet for the Miami School at 7925 Northwest 12th Street, Miami, Florida. The
current annual rent is $199,000 and the lease expires on October 31, 1998. The
Company leases approximately 7,590 square feet in Oviedo, Florida which is
occupied by the Oviedo School. The lease expires in November, 2000 and the
annual rent payable under the lease is $86,000. The Company also has the option
to purchase the leased property for $550,000. The Company leases approximately
11,000 square feet for the Boca Center. The lease expires in January 2001 and
the annual rent increases from $136,000 in the first year of the lease to
$87,500 in the fifth year. The Company leases approximately 5,600 square feet
for the Pompano Center. The annual rent is $76,000 and the lease expires in June
1998.
Pompano Property
In May 1995, the Company purchased the Pompano Property from
Merrick Venture Capital, Inc. (the "Seller") for $2,350,000 and Justin Real
Estate Corp. ("Justin Corp.") concurrently acquired an adjacent parcel (the
"Adjacent Parcel"), consisting of four acres of undeveloped land from the Seller
for $450,000. All of the outstanding capital stock of Justin Corp. is owned by
Neal R. Heller and Elizabeth S. Heller. The Pompano Property is located on
approximately three acres at 2001 West Sample Road, Pompano Beach, Broward
County, Florida, and includes a four story building consisting of 50,438 square
feet which is known as the Tricom Office Center. The Company financed the
purchase of the Pompano Property with
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<PAGE>
two mortgage loans, secured by both the Pompano Property and the Adjacent
Parcel, in the aggregate principal amount of $1,875,000. The Company obtained a
first mortgage loan from TransFlorida Bank in the original principal amount of
$1,350,000 (the "First Mortgage Loan"), which bears interest at two percent
above the prime rate of Sun Banks, Inc., and provides for repayment of principal
based on a 25 year amortization schedule. The First Mortgage Loan matures in May
2002 and is guaranteed by Neal R. Heller and Elizabeth S. Heller. The Company
obtained a second mortgage loan in the original principal amount of $525,000
from the Seller (the "Second Mortgage Loan"), which bears interest at the same
rate as the First Mortgage Loan, and provides for repayment of principal based
on a 25 year amortization schedule. The Second Mortgage Loan matures in May 2000
and is also guaranteed by Neal R. Heller and Elizabeth S. Heller. The Pompano
Property and the Adjacent Parcel are also encumbered by a $450,000 mortgage loan
from TransFlorida Bank to Justin Corp. (the "Adjacent Parcel Mortgage Loan").
The Company has agreed to make the payments on the Adjacent Parcel Mortgage
Loan. The mortgages on the Pompano Property and the Adjacent Parcel are
summarized below:
<TABLE>
<CAPTION>
Entity
Property Making
Amount Encumbered Mortgage Mortgagor Payments
-------------- -------------------- -------------- -------------- -----------
<S> <C> <C> <C> <C> <C>
First Mortgage $1,350,000 Pompano Property TransFlorida Company Company
Loan (land and building) Bank
Second $525,000 Pompano Property Seller Company Company
Mortgage Loan and Adjacent and Justin
Parcel Corp.
Adjacent Parcel $450,000 Pompano Property TransFlorida Company Company
Mortgage Loan and Adjacent Bank and Justin
Parcel Corp.
</TABLE>
Approximately 42.8% of the building is occupied by the Company's
corporate offices, and the Pompano Beach School and the balance is occupied by
non-affiliated tenants. Approximately 29,000 square feet of the Pompano Property
is presently leased to 11 tenants at an aggregate rental of approximately
$309,000 per annum. The current leases expire at various times between 1997
through 1999 and require annual rentals that range from $5,300 to $55,000 per
annum. The three largest tenants account for approximately 45% of the Pompano
Property's rental income, and none of the other tenants accounts for more than
12% thereof. Three of the largest tenant leases expire in April 1998, May 1998,
and December 1998 and such leases provide for current annual rentals of
approximately $44,000, $55,000 and $39,000 respectively. In the event that
leases representing a significant percentage of rental income expire and the
space is not promptly rented on advantageous terms, there may be a material
adverse effect on the Company's earnings.
Justin Corp. has granted to the Company a perpetual non-exclusive
right-of-way for ingress and egress on the Adjacent Parcel. In addition, Justin
Corp. has granted to the Company the perpetual right to use a portion of the
Adjacent Parcel to park up to 25 vehicles. If the Adjacent Parcel is
subsequently developed, Justin Corp. has agreed to provide a comparable
alternative for the Company's parking rights. The Company believes that there is
sufficient
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<PAGE>
parking to meet the anticipated short-term needs of operating the Pompano
Property. However, the Company believes that the additional parking rights
afforded by the Adjacent Parcel will be useful in the event of increased use as
a result of the Company's anticipated expansion. Moreover, although there is
separate access to the Pompano Property, the Company believes that the
additional access rights provided by the right-of-way over the Adjacent Parcel
will be beneficial to the use of the Pompano Property by the Company and third
parties.
In the event of the sale of the Adjacent Parcel, the Seller has
agreed to release the Adjacent Parcel from the Second Mortgage Loan upon the
payment of $200,000 and the accrued interest thereon. The Company is responsible
for such payment, which will be a reduction of the principal balance of the
Second Mortgage Loan, as part of the Company's obligation to make all of the
payments on the Second Mortgage Loan. If Justin Corp. makes such payment, then
the Company will repay such amount to Justin Corp., based upon the terms of the
Second Mortgage Loan. See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."
Item 3. Legal Proceedings.
Principal Mutual Life Insurance Company, as landlord, commenced an
action in July 1996 in the Circuit Court of the 17th Judicial Circuit in Broward
County, Florida against the Company, Neal R. Heller and Elizabeth S. Heller to
recover rent and possession in connection with the property leased by the
Company in Lauderhill, Florida. The Company believes that the maximum claimed
exposure in such litigation is approximately $195,000.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
-18-
<PAGE>
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
Market Information
The Units, Common Stock, Class A Warrants and Class B Warrants
have been quoted on the NASDAQ SmallCap Market under the symbols "NHTCU,"
"NHTC," "NHTCW," and "NHTCZ," respectively. The Units are no longer quoted. The
following table sets forth the range of high and low bid quotations as reported
by The NASDAQ SmallCap Market for the Common Stock for the quarters indicated.
The quotations reflect inter-dealer prices without retail mark-up, mark-down or
commissions, and may not represent actual transactions. The quotations are the
actual quotations for the periods indicated and do not reflect the Company's two
for one stock split which occurred in October, 1995.
Common Stock
High Low
1995
Third Quarter............................. 41/16 31/16
Fourth Quarter............................ 61/2 35/8
1996
First Quarter............................. 6 41/4
Second Quarter............................ 53/4 47/8
Third Quarter............................. 5 31/2
Fourth Quarter............................ 35/8 1
1997
First Quarter (through February
28, 1997)................................. 21/2 1
Holders
As of December 31, 1996, the Company had approximately 63 record
holders of its Common Stock.
Dividends
The Company has not paid any dividends since its inception. The
Company has no intention of paying any cash dividends on its Common Stock in the
foreseeable future, as it intends to use any earnings to generate increased
growth. The payment by the Company of cash dividends, if any, in the future
rests within the discretion of its Board of Directors and, among
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<PAGE>
other things, will depend upon the Company's earnings, capital requirements and
financial condition, as well as other relevant factors.
Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operation.
Years ended December 31, 1995 and 1996
In June 1996, the Company acquired all of the outstanding Common
Stock of four companies known as the Institute of Natural Medicine, in exchange
for 110,000 shares of the Company's Common Stock. the acquisition has been
accounted for as a pooling of interests. Accordingly, the financial statements
have been restated for all periods prior the acquisition to include the accounts
and operations of the Institute.
Tuition revenues constituted approximately 57% of the Company's
revenues in fiscal 1996 and approximately 88% of the Company's revenues in
fiscal 1995. The Schools derived approximately 61% of their income from
financial aid under federal and state assistance programs. The Company acquired
both Natural Health Care Centers in 1996, which accounted for approximately 33%
of the Company's revenue in fiscal 1996. The revenues from the Company's
bookstores constituted approximately 5% of the Company's revenues for 1996
compared to approximately 6% in fiscal 1995. The Corporate Massage Service
accounted for approximately 1% of the Company's revenues in fiscal 1996 compared
to approximately .3% in 1995. Rental income which commenced in May 1995
accounted for approximately 4% of the Company's revenues for fiscal 1996, while
accounting for approximately 6% in fiscal 1995. Total revenues for fiscal 1996
were $7,218,841, an 83% increase over revenues of $3,941,259 in fiscal 1995.
Management believes that the increase resulted primarily from approximately
$1,573,000 in revenues from the two Natural Health Care Centers acquired in
1996, a $1,357,000 increase in tuition revenues, $104,000 in additional rental
income, and a $158,000 increase from the bookstores. Management believes that
the increase in tuition revenues is due to a general increase in the level of
enrollment, particularly in the Oveido School, which was fully operational for
the entire 1996 fiscal year as opposed to less than two months in fiscal 1995.
Cost of sales was $4,442,499 in fiscal 1996, a 96% increase
compared to cost of sales of $2,268,866 in fiscal 1995. Gross profit as a
percentage of revenues was 38% in fiscal 1996 compared to 42% in fiscal 1995.
Management believes the decrease in gross profit is related to the change in mix
of services provided by the Company, specifically the Natural Health Care
Centers acquired during fiscal 1996, which have higher costs for salaries and
products.
Selling, general and administrative expenses were $3,412,769 in
fiscal 1996 compared to $2,359,600 in fiscal 1995, a 45% increase. Management
believes that the increase in such expenses resulted from the acquisition of the
Natural Health Care Centers as well as from an increased level of support
services required to maintain the higher level of operations.
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<PAGE>
Additionally, increased activity related to exploring and developing new lines
of business contributed to the increase.
During 1996, the Company issued 16,000 shares of Common Stock to
employees as compensation which resulted in $22,000 of expense.
The Company's net loss for fiscal 1996 was $889,539 as compared to
$1,838,548 for fiscal 1995. The net loss in fiscal 1996 is primarily
attributable to a combination of all of the factors discussed above.
The loss in fiscal 1995 reflects $1,061,000 of non-cash expenses.
Such expenses were incurred as a result of expensing the remaining $330,000 of
finance costs attributable to the loans in the aggregate principal amount of
$350,000 (the "Bridge Loans") borrowed during the first half of 1995 and other
loans in the aggregate principal amount of $130,000. Such expenses also included
an expense of $731,000, which is the assumed fair market value of 472,000 shares
of Common Stock issued to the Company's officers and a director of the Company,
10,000 shares issued to an employee and 40,000 shares transferred by a principal
shareholder to three individuals for service.
Interest expense was approximately $231,000 in fiscal 1996 as
compared to $118,000 in fiscal 1995, reflecting increased interest on the
mortgages as well as increased borrowing during the year.
Liquidity and Capital Resources
The Company has funded its working capital and capital
expenditures requirements from cash provided through borrowing from institutions
and from the sale of the Company's securities in private placements and the
initial public offering of its securities. The Company's primary source of cash
receipts is from payments for tuition, fees, and books. These payments were
funded primarily from student and parent educational loans and financial aid
under various Federal and state assistance programs and, to a lesser extent,
from student and parent resources. The Company's secondary source of cash
receipts is from services rendered at the Natural Health Care Centers.
In December 1996, the Company issued $900,000 of 10% convertible
debentures, principal on the debentures is due in December 1998. The principal
and accrued interest on the debentures are convertible into shares of Common
Stock of the Company commencing in February 1997, at a conversion price equal to
80% of the average closing bid price for the five trading days immediately
preceding the notice of conversion.
At December 31, 1996, the Company had working capital of $698,481
as compared to working capital of $1,025,597 at December 31, 1995, a decrease of
$327,116. The decrease was primarily attributed to the loss for the fiscal year.
-21-
<PAGE>
During 1996, net cash used in operations was $802,704. This
compares to net cash used in operations of $873,112 during fiscal 1995. The
primary use of cash during 1996 was the net loss of $889,539, offset by charges
not requiring the use of cash approximating $266,000. The major elements of
operations requiring the use of cash were increases in accounts receivable of
$707,544 and inventory of $130,295. Cash inflows were provided by increases in
deferred revenues of $278,636 and increases in accounts payable and accrued
expenses of $384,422. Cash provided by financing activities during fiscal 1996
was approximately $855,000, mainly from the issuance of the debentures.
The Company's capital expenditures totaled $438,650 in 1996 and
$2,714,402 in 1995. The 1996 expenditures relate to renovation of the Pompano
property to accommodate the Pompano School. The Company anticipates that net
cash flow along with available lines of credit will be sufficient to finance the
Company's operations for at least the next twelve months.
Item 7. Financial Statements.
See Item 13 of this form 10-KSB "Exhibits and Reports on Form 8K"
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
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<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons
The following table sets forth certain information concerning the
directors and executive officers of the Company.
Directors and Executive Officers
Name Age Position
Neal R. Heller 36 Chairman of the Board, President,
Chief Executive Officer, Chief
Financial and Accounting Officer
and Director
Elizabeth S. Heller 35 Secretary, Treasurer and Director
Martin C. Licht 55 Director
Arthur Keiser 42 Director
The following is a brief summary of the background of each executive officer and
director of the Company:
Neal R. Heller has been the Chairman of the Board, President, Chief
Financial and Accounting Officer, Chief Executive Officer and a director of the
Company since its inception in 1988. Mr. Heller is an attorney and has been
admitted to practice in the State of Florida since 1985. Mr. Heller earned a
Bachelor of Arts degree from the University of Miami in 1982 and a Juris Doctor
degree from Nova University in 1985. On December 18, 1990, Mr. Heller filed a
voluntary petition under Chapter 7, Title 11 of the United States Code, in the
United States Bankruptcy Court for the Southern District of Florida. The
Bankruptcy Court entered an Order of Discharge of Debtor on April 5, 1991. Mr.
Heller currently serves as President of the Broward Association of Career
Schools and is the treasurer and a member of the Board of Directors of the
Florida Association of Post-Secondary Schools and Colleges. Mr. Heller is the
husband of Elizabeth S. Heller. Mr. and Mrs. Heller are the sole shareholders of
Justin Corp.
Elizabeth S. Heller has been Secretary, Treasurer, and a director of the
Company since its inception in 1988. Mrs. Heller earned a Bachelor of Arts
degree from the University of Miami in 1983. Mrs. Heller is the wife of Neal R.
Heller. Mr. and Mrs. Heller are the sole shareholders of Justin Corp.
Arthur Keiser has been the President of Keiser College since 1977. Mr.
Keiser became a director of the Company in July 1995. Keiser College is a
regionally accredited independent privately-owned junior college which has
facilities in five Florida locations, namely Ft. Lauderdale, Melbourne,
Tallahassee, Sarasota and Daytona. Mr. Keiser is a member of the board of
directors of the Career College Association and is the Secretary of the Florida
Association of Post-Secondary Schools and Colleges. Mr. Keiser received a B.A.
from Tulane University in 1975.
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<PAGE>
Martin C. Licht has been a practicing attorney since 1967 and has been a
partner of the law firm of Lane & Mittendorf LLP since January 1997. Mr. Licht
became a director of the Company in July 1995. Mr. Licht is also a director of
two companies traded on the NASDAQ SmallCap Market - Gaylord Companies, Inc.
which operates retail bookstores and retail stores selling cookware and serving
equipment and Cable & Co. Worldwide, Inc. which imports and markets footwear on
a wholesale basis.
Leonard Haimes, M.D. joined the board of directors in August 1996. He
resigned as a member of the board of directors in March, 1997. He was the
medical director at the Boca Center Florida, from 1992 through 1996, which the
Company purchased in 1996 and prior thereto he was in private practice. Dr.
Haimes received a B.S. degree from Temple University in 1949 and M.D. degree
from Hahnemann Medical College in 1953.
Compliance with Section 16(a) of the Exchange Act
Based solely upon a review of (i) Forms 3 and 4 and amendments thereto
furnished to the Company pursuant to Rule 16a-3(e), promulgated under the
Securities Exchange Act of 1934 (the "Exchange Act"), during the Company's
fiscal year ended December 31, 1996, and (ii) Forms 5 and amendments thereto
and/or written representations furnished to the Company by any director, officer
or ten percent security holder of the Company (collectively "Reporting Persons")
stating that he or she was not required to file a Form 5 during the Company's
fiscal year ended December 31, 1996, it has been determined that no Reporting
Person is delinquent with respect to his or her reporting obligations set forth
in Section 16(a) of the Exchange Act, except that Arthur Keiser, a director of
the Company, has not filed a Form 5 for the fiscal year ended December 31, 1996
and Dr. Haimes has not made any filings under Section 16(a).
-24-
<PAGE>
Item 10. Executive Compensation.
Summary Compensation Table
The following table provides a summary of cash and non-cash
compensation for each of the last three fiscal years ended December 31, 1994,
1995, and 1996 with respect to the following officers of the Company:
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
------------------------------------------- -----------------------------------
Awards Payouts
------------------------- ------
Other Securities
Annual Restricted Underlying LTIP All Other
Name and Compensation Stock Award(s) Options Payouts Compensa-
Principal Position Year Salary($) Bonus($) ($)(1) $ SARs(#) ($) tion($)
------------------ ---- --------- -------- ------------------- ------------- ---------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Neal R. Heller, 1996 $162,500 ---- ---- ---- ---- ---- ----
Chairman of the Board, 1995 150,000 ---- ---- ---- ---- ---- ----
President, Chief Financial and 1994 144,400 ---- ---- ---- ---- ---- ----
Accounting Officer and
Chief Executive Officer
Elizabeth S. Heller 1996 150,000 ---- ---- ---- ---- ---- ----
Secretary and Treasurer 1995 150,000 ---- ---- ---- ---- ---- ----
1994 137,000 ---- ---- ---- ---- ---- ----
</TABLE>
- --------------------------------
(1) Excludes perquisites and other personal benefits that in the aggregate do
not exceed 10% of each of such individual's total annual salary and bonus.
Employment Agreements
The Company has entered into employment agreements with Neal R. Heller
and Elizabeth S. Heller, which will expire in December 2001, under which they
will be full-time employees. Mr. and Mrs. Heller received salaries in 1996 of
$162,500 and $150,000, respectively. Each agreement provides that the executive
will be eligible to receive short-term incentive bonus compensation if the
Company is profitable, the amount of which, if any, will be determined by the
Board of Directors based on the executive's performance, contributions to the
Company's success and on the Company's ability to pay such incentive
compensation. The employment agreements also provide for termination based on
death, disability, voluntary resignation or material failure in performance and
for severance payments upon termination under certain circumstances. The
agreements contain non-competition provisions that will preclude each executive
from competing with the Company for a period of two years from the date of
termination of employment.
Directors' Compensation
Directors of the Company do not receive any fixed compensation for
their services as directors. The Company grants each non-employee director
options to purchase 1,000 shares of Common Stock under the 1994 Stock Option
Plan, at an exercise price equal to the fair
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<PAGE>
market value of the Common Stock on the date of grant, and pays non-employee
directors $500 for each meeting of the Board of Directors they attend. Directors
are reimbursed for their reasonable out-of-pocket expenses incurred in
connection with performance of their duties to the Company. Except for 4,000
options granted to Mr. Licht and 4,000 options granted to Mr. Keiser for the
fiscal year ended December 31, 1996, the Company did not pay its directors any
cash or other form of compensation for acting in such capacity, although
directors who were also executive officers of the Company received cash
compensation for acting in the capacity of executive officers. See "-- Executive
Compensation." No director received any other form of compensation for the
fiscal year ended December 31, 1996.
Stock Options
The Company has adopted the 1994 Stock Option Plan (the "Plan") under
which up to 666,666 options to purchase shares of Common Stock may be granted to
key employees, officers, consultants and members of the Board of Directors of
the Company. As of the date hereof, 18,000 options to purchase shares of Common
Stock were granted and outstanding under the Plan. Options granted under the
Plan may be either (i) options intended to qualify as "incentive stock options"
under Section 422 of the Internal Revenue Code of 1986, as amended (the
"Internal Revenue Code"), or (ii) non-qualified stock options. Incentive stock
options may be granted under the Plan to employees, including officers and
directors who are employees. Non-qualified options may be granted to employees,
officers, directors and consultants of the Company.
The Plan is administered by the Board of Directors. Under the Plan, the
Board of Directors has the authority to determine the persons to whom options
will be granted, the number of shares to be covered by each option, whether the
options granted are intended to be incentive stock options, the manner of
exercise, and the time, manner and form of payment upon exercise of an option.
Incentive stock options granted under the Plan may not be granted at a
price less than the fair market value of the Common Stock on the date of grant
(or less than 110% of fair market value in the case of employees holding 10% or
more of the voting stock of the Company). Non-qualified stock options may be
granted at an exercise price established by the Stock Option Committee selected
by the Board of Directors, but may not be less than 85% of fair market value of
the shares on the date of grant. Incentive stock options granted under the Plan
must expire not more than ten years from the date of grant, and not more than
five years from the date of grant in the case of incentive stock options granted
to an employee holding 10% or more of the voting stock of the Company.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth certain information as to the Common
Stock ownership of each of the Company's directors, executive officers, all
executive officers and directors as a
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<PAGE>
group, and all persons known by the Company to be the beneficial owners of more
than five percent of the Company's Common Stock.
Number of Approximate
Name and Address of Beneficial Owner(1) Shares Percentage of
Common Stock
Neal R. Heller and Elizabeth S. Heller
2397 N.W. 64th Street
Boca Raton, Florida 33496 5,182,000(2) 43.5%
Martin C.Licht
Selden Lane
Greenwich, Connecticut 06831 54,000(3) *
Arthur Keiser
6324 NW 79th Way
Parkland, Florida 33067 34,000(4) *
All Officers and Directors as a Group
(4 persons) 5,270,000 44.1%
(1) Unless otherwise noted, all persons named in the table have sole
voting and dispositive power with respect to all shares of Common Stock
beneficially owned by them.
(2) Mr. Heller owns 2,522,000 shares of Common Stock, and Mrs. Heller
owns 2,660,000 shares of Common Stock and each has sole voting and dispositive
power with respect to such shares. As they are husband and wife, each may be
deemed the beneficial owner of the shares owned by the other.
(3) Includes options to purchase up to 4,000 shares of Common Stock
held by Mr. Licht.
(4) Includes options to purchase up to 14,000 shares of Common Stock
held by Mr. Keiser.
* Represents less than 1% of applicable shares of Common Stock outstanding.
Item 12. Certain Relationships and Related Transactions.
As of December 31, 1996 Mr. and Mrs. Heller owed the Company $136,495,
which is unsecured, non-interest bearing and is payable upon demand. In April
1995, the Company issued 190,000 shares of Common Stock to each of Mr. and Mrs.
Heller as additional compensation to which the Company attributed an aggregate
value of $494,000. In May 1995, Mr. Heller advanced $570,000 to the Company in
connection with the purchase of the Pompano Property which was repaid from the
proceeds of the Company's initial public offering. Mr. and Mrs. Heller have also
guaranteed the financing in the aggregate principal amount of $1,875,000 in
connection with the Company's acquisition of the Pompano Property. Mr. and Mrs.
Heller may be deemed parents of the Company as a result of their executive
positions, service as directors and ownership of approximately 43.5% of the
Common Stock .
-27-
<PAGE>
In May 1995, Justin Corp. purchased the Adjacent Parcel for $450,000 from
the Seller concurrently with the closing of the Pompano Property. All of the
common stock of Justin Corp. is owned by Neal R. Heller and Elizabeth S. Heller.
Upon the acquisition of the Adjacent Parcel, Justin Corp. delivered the Adjacent
Parcel Mortgage Loan in the original principal amount of $450,000 to
TransFlorida Bank, which has been guaranteed by Mr. and Mrs. Heller. The Pompano
Property is also encumbered by the Adjacent Parcel Mortgage Loan, on which the
Company has agreed to make the payments.
The $525,000 Second Mortgage Loan delivered to the Seller in connection
with the purchase of the Pompano Property also encumbers the Adjacent Parcel.
Although Justin Corp. is jointly and severally liable with the Company thereon,
the Company has agreed to make all of the payments on the Second Mortgage Loan,
which will provide a benefit to Mr. and Mrs. Heller, in consideration for Justin
Corp's grant of ingress, egress and parking rights to the Company and Justin
Corp.'s payment for excavating a portion of the Adjacent Parcel which contained
elevated volatile organic compounds in the soil. See "Description of
Properties."
In the event of the sale of the Adjacent Parcel, the Seller has agreed to
release the Adjacent Parcel from the Second Mortgage Loan upon the payment of
$200,000 and the accrued interest thereon. The Company is responsible for such
payment, which will be a reduction of the principal balance of the Second
Mortgage Loan, as part of the Company's obligation to make all of the payments
on the Second Mortgage Loan. If Justin Corp. makes such payment, then the
Company will repay such amount to Justin Corp. based upon the terms of the
Second Mortgage Loan. The Company does not have any options or any rights of
first refusal to purchase the Adjacent Parcel. The Company has also agreed to
make the payments on the $450,000 Adjacent Parcel Mortgage Loan.
In July 1996 the Company borrowed $125,000 from Arthur Keiser, a director
of the Company, and repaid such amount plus interest at the rate of 12% per
annum in December 1996. In July 1996, in connection with such loan the Company
granted Mr. Keiser an option to purchase 10,000 shares of the Company's Common
Stock at an exercise price equal to the fair market value on the date of the
grant for a period of five years.
Martin C. Licht was issued 50,000 shares of Common Stock in April 1995 in
consideration of his agreement to serve as a director of the Company. The
Company paid law firms in which Mr. Licht was a member $268,812 in 1995 and
$49,000 in 1996 and owed such firms an additional $30,000 as of December 31,
1996. In addition, in December, 1995, Neal R. Heller, the Company's President
transferred 20,000 shares of his Common Stock to Arthur Keiser, a director of
the Company.
-28-
<PAGE>
Item 13. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) Index to Financial Statements
1. Financial Statements Page
Independent Auditor's Report F-2
Consolidated Balance Sheet - December 31, 1996 F-3
Consolidated Statements of Operations - Years Ended
December 31, 1996 and 1995 F-4
Consolidated Statement of Changes in Stockholders' Equity
- For the period from December 31, 1994 through December 31, 1996 F-5
Consolidated Statements of Cash Flow - Years Ended December
31, 1996 and 1995 F-6
Notes to Financial Statements F-8
2. Exhibits Included Herein
See Exhibit Index on page 34 hereof for the exhibits filed as part of
this Form 10-KSB.
(b) Reports on Form 8-K
None.
(c) Exhibit Index
Number Description of Exhibit
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.*
-29-
<PAGE>
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.*
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.,s 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 IDCOR 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. Supply, Inc., 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.*
10.13 Agreement among Natural Health Trends Corp. Health Wellness
Nationwide Corp., Samantha Haimes and Leonard Haimes.
-30-
<PAGE>
10.14 Employment Agreement between Health Wellness Nationwide Corp. and
Kaye Lenzi.
21.1 List of Subsidiaries.
27.1 Financial Data Schedule
* Previously filed with Registration Statement No. 33-91184.
-31-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: March 21, 1997 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
By:/s/Elizabeth S. Heller_________________
Elizabeth S. Heller, Secretary and
Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the date indicated.
Name Title Date
/s/Neal R. Heller ____ Chairman of the Board, President, March 21, 1997
Neal R. Heller Chief Financial and Accounting
Officer, Chief Executive Officer and
Director
/s/Elizabeth S. Heller_ Secretary, Treasurer and Director March 21, 1997
Elizabeth S. Heller
/s/Arthur Keiser________ Director March 21, 1997
Arthur Keiser
/s/Martin C. Licht______ Director March 21, 1997
Martin C. Licht
<PAGE>
NATURAL HEALTH TRENDS CORP. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
PAGE NUMBER
Independent Auditors' Report F-2
Consolidated Balance Sheet F-3
Consolidated Statement of Operations F-4
Consolidated Statement of Stockholders' Equity F-5
Consolidated Statement of Cash Flows F-6
Notes to Consolidated Financial Statements F-8
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Natural Health Trends Corp. and Subsidiaries
Pompano Beach, Florida
We have audited the accompanying consolidated balance sheet of Natural
Health Trends Corp. and Subsidiaries as of December 31, 1996, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the years ended December 31, 1996 and 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
the financial position of Natural Health Trends Corp. and Subsidiaries as of
December 31, 1996, and the results of its operations and its cash flows for the
years ended December 31, 1996 and 1995, in conformity with generally accepted
accounting principles.
/s/Feldman Radin & Co., P.C.
----------------------------
Feldman Radin & Co., P.C.
Certified Public Accountants
New York, New York
March 7, 1997
F-2
<PAGE>
NATURAL HEALTH TRENDS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996
ASSETS
CURRENT ASSETS:
Cash $ 517,323
Restricted cash 258,932
Accounts receivable 1,481,589
Inventories 255,182
Due from officers 136,495
Due from affiliate 23,724
Prepaid expenses and other current assets 46,317
----------------
TOTAL CURRENT ASSETS 2,719,562
PROPERTY AND EQUIPMENT 3,126,586
OTHER ASSETS 1,626,135
----------------
$ 7,472,283
================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 447,378
Accrued expenses 347,441
Deposits 37,580
Current portion of long-term debt 424,802
Deferred revenue 763,880
----------------
TOTAL CURRENT LIABILITIES 2,021,081
----------------
LONG-TERM DEBT 1,899,577
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; 40,000,000 shares authorized;
12,346,012 shares issued and outstanding 12,346
Additional paid-in capital 6,230,652
Accumulated deficit (2,595,123)
Common stock subject to put (380,000)
Prepaid stock compensation (96,250)
----------------
TOTAL STOCKHOLDERS' EQUITY 3,171,625
----------------
$ 7,472,283
================
The accompanying notes are an integral part of the
consolidated financial statements.
F-3
<PAGE>
NATURAL HEALTH TRENDS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
Year Ended December 31,
-----------------------------------
1996 1995
---------------- ----------------
REVENUES $ 7,218,841 $ 3,941,259
COST OF SALES 4,442,499 2,268,866
---------------- ----------------
GROSS PROFIT 2,776,342 1,672,393
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 3,412,769 2,359,600
NON-CASH IMPUTED COMPENSATION EXPENSE 22,000 731,000
---------------- ----------------
OPERATING INCOME (LOSS) (658,427) (1,418,207)
WRITE-OFF OF DEFERRED FINANCE COSTS - (329,974)
INTEREST EXPENSE, net (231,112) (117,661)
---------------- ----------------
INCOME (LOSS) BEFORE INCOME TAXES (889,539) (1,865,842)
PROVISION FOR INCOME TAXES - (27,294)
---------------- ----------------
NET INCOME (LOSS) $ (889,539) $ (1,838,548)
================ ================
EARNINGS (LOSS) PER COMMON SHARE $ (0.08) $ (0.20)
================ ================
WEIGHTED AVERAGE COMMON SHARES USED 11,213,980 9,314,816
================ ================
The accompanying notes are an integral part of the
consolidated financial statements.
F-4
<PAGE>
NATURAL HEALTH TRENDS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common
Common Stock Additional Retained Stock Deferred
------------------------ Paid-in Earnings Subject Stock
Shares Amount Capital (Deficit) to Put Compensation Total
----------- ----------- ----------- ------------ ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE - DECEMBER 31, 1994 6,727,744 $ 6,727 $ 159,490 $ 132,964 $ (110,000) $ - $ 189,181
Shares issued in bridge financing 361,672 362 62,931 - - - 63,293
Shares issued to employees and director 472,000 472 598,528 - - - 599,000
Shares issued in bridge financing 720,000 720 125,280 - - - 126,000
Shares issued to various lenders 127,692 128 165,872 - - - 166,000
Shares transferred by principal
shareholder for services - - 132,000 - - - 132,000
Initial public offering 2,300,000 2,300 2,623,188 - - - 2,625,488
Cancellation of put on common stock - - - - 110,000 - 110,000
Net loss - - - (1,838,548) - - (1,838,548)
----------- ----------- ----------- ----------- ----------- ---------- -----------
BALANCE - DECEMBER 31, 1995 10,709,108 10,709 3,867,289 (1,705,584) - - 2,172,414
Shares issued for acquisitions 380,000 380 1,367,620 - - - 1,368,000
Shares issued for consulting agreement 100,000 100 164,900 - - (165,000) -
Amortization of prepaid consulting - - - - - 68,750 68,750
Shares issued to employees 16,000 16 21,984 - - - 22,000
Convertible debenture treated as
converted 1,140,904 1,141 808,859 - - - 810,000
Common stock subject to put - - - - (380,000) - (380,000)
Net loss - - - (889,539) - - (889,539)
------------ ----------- ----------- ----------- ----------- ----------- -----------
BALANCE - DECEMBER 31, 1996 12,346,012 $ 12,346 $ 6,230,652 $(2,595,123) $ (380,000) $ (96,250) $ 3,171,625
============ =========== =========== =========== =========== ============ ===========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-5
<PAGE>
NATURAL HEALTH TRENDS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------
1996 1995
---------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (889,539) $ (1,838,548)
---------------- ----------------
<S> <C> <C>
Adjustments to reconcile net income (loss) to net cash provided by (used
in) operating activities:
Depreciation and amortization 244,571 96,066
Non-cash imputed compensation expense 22,000 731,000
Write-off of deferred finance costs - 329,974
Changes in assets and liabilities (net of effects of acquisition):
Decrease (increase) in accounts receivable (707,544) (13,406)
Decrease (increase) in inventories (130,295) (55,616)
Decrease (increase) in prepaid expenses and other current assets 31,393 (44,891)
Decrease (increase) in due from affiliate (1,200) (22,524)
Decrease (increase) in other assets (11,023) 13,055
Payments for deferred finance costs - (120,681)
Increase (decrease) in accounts payable 97,959 28,421
Increase (decrease) in accrued expenses 286,463 58,087
Increase (decrease) in deposits (23,495) 61,075
Increase (decrease) in deferred revenue 278,636 (67,830)
Increase (decrease) in deferred taxes - (27,294)
---------------- ----------------
TOTAL ADJUSTMENTS 87,465 965,436
---------------- ----------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (802,074) (873,112)
---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for acquisitions, net of cash acquired (11,388) (108,933)
Capital expenditures (438,650) (2,714,402)
---------------- ----------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (450,038) (2,823,335)
---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in due from officer (1,887) (6,800)
Increase in restricted cash (258,932) -
Proceeds from sale of debentures 810,000 -
Proceeds from notes payable and long-term debt 349,851 2,158,077
Payments of notes payable and long-term debt (44,215) (528,275)
Proceeds from issuance of common stock, net of expenses - 2,986,300
---------------- ----------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 854,817 4,609,302
---------------- ----------------
NET INCREASE (DECREASE) IN CASH (397,295) 912,855
CASH, BEGINNING OF YEAR 914,618 1,763
---------------- ----------------
CASH, END OF YEAR $ 517,323 $ 914,618
================ ================
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-6
<PAGE>
NATURAL HEALTH TRENDS CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(CONTINUED)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------
1996 1995
---------------- ----------------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 236,671 $ 131,077
================ ================
Income taxes $ - $ -
================ ================
</TABLE>
DISCLOSURE OF NONCASH FINANCING AND INVESTING ACTIVITIES:
In July 1995, an individual converted $10,000 in debt for 7,692 shares of
common stock.
In November 1995, the Company incurred a note payable in the amount of
$125,000 to the seller in a business acquisition.
The accompanying notes are an integral part of the
consolidated financial statements.
F-7
<PAGE>
NATURAL HEALTH TRENDS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. ORGANIZATION
Natural Health Trends Corp. (formerly known as Florida Institute of Massage
Therapy, Inc.) (the "Company") was incorporated under the laws of the State of
Florida in December 1988.
The Company's primary business is the operation of schools which develop,
market and offer curricula in therapeutic massage training and holistic skin
care therapy. The Company presently has a total of three schools, located in the
Miami, Pompano Beach and Oviedo, Florida areas. F.I.M.T.E. Supply, Inc. is a
wholly owned subsidiary which owns and operates on-site book stores servicing
the school's students, practicing therapists and the public. During 1995, the
Company formed Corporate Body, Inc., a wholly-owned subsidiary which is engaged
in the business of providing on-site corporate massage primarily at business
establishments. Additionally, during 1995, the Company purchased a building in
Pompano Beach, Florida, part of which is used to house the Pompano Beach school,
and the rest of which is rented out to unrelated commercial tenants, providing
incidental rental income to the Company.
In 1996, the Company purchased a natural health care center operated by Sam
Lilly, Inc. doing business as Medicine and Lifestyles in Boca Raton, Florida and
acquired the capital stock of Managenet Inc., KBM Consultants, Medical Service
Consultants, and Diagnostic Services, Inc., doing business as the Institute of
Natural Medicine in Pompano Beach, Florida. The natural health care centers
provide multi-disciplinary complementary health care in the areas of alternative
and nutritional medicine.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Principles of Consolidation - The accompanying consolidated financial
statements include the accounts of Natural Health Trends Corp. and its
subsidiaries. All material intercompany transactions have been eliminated in
consolidation.
B. Accounts Receivable - Accounts receivable consists primarily of tuition
due from students and federal and state governmental agencies.
F-8
<PAGE>
C. Inventories - Inventories consisting primarily of books and supplies are
stated at the lower of cost or market. Cost is determined using the first-in,
first-out method.
D. Property and Equipment - Property and equipment is carried at cost.
Depreciation is computed using the straight-line method and accelerated methods
over the useful lives of the various assets, which is generally five to seven
years for equipment, and furniture and fixtures, and thirty-nine years for the
building.
E. Deferred Revenue -Deferred revenue represents tuition revenues which
will be recognized into income as earned. Tuition revenue is recognized as
earned over the enrollment period.
F. Earnings (Loss) Per Common Share - Earnings (loss) per common share are
computed on the basis of weighted average number of common shares and dilutive
common share equivalents outstanding during the respective periods. In
accordance with Securities and Exchange Commission accounting rules, shares
issued within one year of the Company's initial public offering are included in
all reported periods for purposes of this calculation.
G. Accounting Estimates - The preparation of financial statements in
accordance with generally accepted accounting principles requires management to
make estimates and assumptions that effect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reported period. Actual results could differ
from those estimates.
H. Fair Value of Financial Instruments - The carrying amounts reported in
the balance sheet for cash, receivables, and accrued expenses approximate fair
value based on the short-term maturity of these instruments.
I. Stock Based Compensation - The Company accounts for stock transactions
in accordance with APB Opinion No. 25, "Accounting For Stock Issued To
Employees." In accordance with Statement of Financial Accounting Standards No.
123, "Accounting For Stock-Based Compensation," the Company intends to adopt the
pro forma disclosure requirements of Statement No. 123 in fiscal 1997.
J. Impairment of Long - Lived Assets - The Company has adopted Statement of
Financial Accounting Standards No. 121, "Accounting For The Impairment Of Long-
Lived Assets And For Long-Lived Assets To Be Disposed Of" as of January 1, 1996.
Such adoption had no material effect on the financial position of the Company.
F-9
<PAGE>
3. DUE FROM OFFICERS
As of December 31, 1996, the Company is due $136,495 from
officers representing temporary non-interest bearing advances.
4. PROPERTY AND EQUIPMENT
Property and Equipment consisted of the following at December 31, 1996:
Equipment, furniture and fixtures $ 378,641
Building and improvements 2,637,989
Land 470,000
------------------
3,486,630
Less: Accumulated depreciation (360,044)
------------------
$ 3,126,586
==================
5. OTHER ASSETS
Other assets consisted of the following at December 31, 1996:
Deposits $ 45,799
Covenant not to compete, net of
accumulated amortization of $13,546 36,454
Goodwill, net of accumulated
amortization of $81,123 1,543,882
-----------------
$ 1,626,135
=================
The goodwill and the covenant not to compete arise in connection with the
acquisitions of businesses made by the Company in 1996 and 1995. The goodwill is
being amortized over its estimated useful life of 20 years, and the covenant is
being amortized over its contractual term of four years.
F-10
<PAGE>
6. LONG-TERM DEBT
Long-term debt consisted of the following at December 31, 1996:
Note payable for purchase of school, bearing interest at
8.75%, principal and interest payments due quarterly
commencing February 1996 through November 1999 $ 97,683
First Mortgage Note payable to a bank, bearing interest at
prime +2%. Monthly payments consisting of principal and interest
are approximately $13,232 and are payable through May 1, 2002,
at which time the balance of principal is due in a balloon payment
on May 1, 2002 1,331,425
Second Mortgage Note payable to a bank, bearing interest
at prime +2%. Monthly payments consisting of principal
and interest are approximately $5,145 through May 1,
2002, at which time the balance of principal is due in a
balloon payment on May 1, 2000 518,117
Line of Credit - Merrill Lynch, for a maximum availability of
$300,000, annually renewable in November with interest at prime
+1%, collateralized by money market accounts held with Merrill Lynch 300,000
Line of Credit - Capital Bank, for a maximum amount of $350,000
(with a total availability of $30,000 at December 31, 1996),
maturing April 1997 and carrying interest at 7% 30,000
Other 47,154
--------------
2,324,379
Less: Current portion (424,802)
--------------
$ 1,899,577
==============
F-11
<PAGE>
Long-term debt maturities for the next five years are as follows:
1997 $ 424,802
1998 52,765
1999 57,650
2000 24,806
2001 27,677
7. STOCKHOLDERS' EQUITY
A. The Company is authorized to issue 40,000,000 shares of common stock,
$.001 par value per share.
B. In January 1994, the Company issued 832,500 shares of its common stock
and 500,000 options to purchase common stock for $1.63 per share. Such options
were canceled in February 1996, at which time the individual received options
for 100,000 shares of the Company's common stock at $1.65 per share. This
individual also entered into a two year consulting agreement with the Company
providing for a total fee of $165,000, which was accepted in lieu of the option
exercise price for the 100,000 shares. The prepaid portion of this consulting
fee is shown as a reduction in stockholders' equity.
C. In October 1994, the Company declared a 1.56 to 1 stock split.
Accordingly, the effect of the stock split has been retroactively applied to all
periods presented.
D. In October and November 1994, the Company sold 733,334 shares of common
stock for $.15 per share in a private placement. Such shares were subject to a
put which expired upon completion of the initial public offering. Since such
sales were made to unrelated third parties at $.15 per share, such price
represents the fair market value of the Company's common stock at that time.
E. In October 1994, an individual converted an $80,000 note payable plus
$14,667 of accrued interest into 111,110 shares of the Company's common stock.
F. In April 1995, the Company effected a 1 2/3 to one stock split which has
been retroactively applied to all common share data.
F-12
<PAGE>
G. In January and February, 1995, the Company sold 361,672 shares of its
common stock and warrants to purchase up to 723,344 shares of common stock as
part of a private placement of 14 Units. Each Unit consisted of (i) a $25,000
promissory note payable, bearing interest at 10% per annum, due upon the earlier
of December 31, 1995 or the receipt of $3,000,000 from the sale of the Company's
debt and/or equity securities in a public or private financing, (ii) 25,834
shares of common stock, $.001 par value, (iii) a warrant to purchase up to
25,834 shares of common stock at $3.00 per share (the "Class A Warrant"), and
(iv) a warrant to purchase up to 25,834 shares of common stock at $3.63 per
share (the "Class B Warrant"). The common stock issued in January and February
1995 was valued at $.175 per share which equaled the fair market value per share
as determined by the price per share paid by unrelated third parties in April
1995. The aggregate value of such shares was $63,293. Such amount was recorded
as deferred finance costs. An additional $120,681, which represents direct
expenses associated with the financing was also recorded as deferred finance
costs. The unamortized balance of the deferred finance costs was written off
upon the early repayment of the notes upon completion of the initial public
offering.
H. In April 1995, the Company sold 720,000 shares of common stock for $.175
per share, realizing gross proceeds of $126,000. Since such sales were made to
unrelated third parties at $.175 per share such price represents the fair market
value of the Company's common stock at that time. Also in April 1995, the
Company issued a total of 380,000 shares to Company officers and 50,000 shares
to an individual who agreed to serve as a director, all such shares being issued
as compensation. Such shares of common stock were valued at the assumed fair
market value of $1.30 (based on the initial public offering price of $1.63 per
share less a 20% discount for restrictions on the resale of such shares). This
resulted in an aggregate charge upon the issuance of such shares of common stock
of $559,000.
I. In July 1995, the Company issued 32,000 shares to employees for past
services.
J. In October 1995, the Company issued 10,000 shares to an employee,
recording compensation expense aggregating $40,000 in connection with this
issuance.
K. In October 1995, the Company declared a 2 for 1 stock split. All common
shares data is retroactively restated to reflect this transaction.
L. In December 1995, the Company's president, who is also a principal
shareholder, transferred an aggregate of 40,000 shares to three individuals who
had provided services to the Company. The fair market value of these shares has
been recorded as an expense totaling $132,000.
M. During 1996, the Company issued 16,000 shares to employees as
compensation.
N. In January 1996, the Company issued 380,000 shares in a business
acquisition accounted for as a purchase.
F-13
<PAGE>
O. In June 1996, the Company issued 110,000 shares in a business
acquisition accounted for as a pooling. Such shares are retroactively shown as
outstanding for all periods presented.
P. In December 1996, the Company sold $900,000 in convertible debentures.
In March 1997, such debentures were converted into 1,140,904 shares of common
stock. The Company is accounting for these as an equity sale and such shares are
presented as outstanding from the date of sale.
8. INCOME TAXES
The Company accounts for income taxes under the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" ("SFAS No. 109"). SFAS No. 109 requires the recognition
of deferred tax assets and liabilities for both the expected impact of
differences between the financial statement and tax basis of assets and
liabilities, and for the expected future tax benefit to be derived from
tax loss and tax credit carryforwards. SFAS No. 109 additionally
requires the establishment of a valuation allowance to reflect the
likelihood of realization of deferred tax assets. At December 31, 1996,
the Company had net deferred tax assets of approximately $663,000. The
Company has established a valuation allowance for the full amount of
such deferred tax assets. The following table gives the Company's
deferred tax assets and (liabilities) at December 31, 1996:
Net operating loss deduction $ 515,000
Deferred revenue 305,000
Section 481 adjustment (165,000)
Other 8,000
Valuation allowance (663,000)
--------------------
$ -
====================
F-14
<PAGE>
The provision for income taxes (benefits) differs from the amount computed
by applying the statutory federal income tax rate to income (loss) before income
taxes as follows:
<TABLE>
<CAPTION>
Year Ended
---------------------------------------
December 31,
---------------------------------------
1996 1995
----------------- ----------------
<S> <C> <C>
Income tax (benefit) computed at statutory rate $ (311,000) $ (614,000)
Effect of temporary differences 137,000 -
Effect of permanent differences (18,000) 275,000
Tax benefit not recognized 192,000 311,706
----------------- ----------------
Provision for income taxes (benefit) $ - $ (27,294)
================= ================
</TABLE>
The net operating loss carryforward at December 31, 1996 was
approximately $1,288,000 and expires in the years 2010 to 2011.
9. COMMITMENTS AND CONTINGENCIES
A. The Company leases its school facilities under non-cancelable operating
leases. The lease terms are five years and expire from July 1997 through
November 2000.
Rent expense for the years ended December 31, 1996 and 1995 was $647,907
and $365,068, respectively. Minimum rental commitments over the next five years
are as follows:
1997 $ 573,092
1998 434,966
1999 175,880
2000 164,493
2001 15,458
B. The Company has entered into employment agreements with its two
executive officers which currently provide for annual salaries of $312,500. The
agreements expire in December 1997. In connection with the acquisitions
occurring in 1996, the Company entered into employment/consulting agreements
with three individuals for aggregate annual compensation of $500,000, expiring
on various dates through June 1999.
F-15
<PAGE>
C. Litigation - In 1996 the landlord of premises formerly occupied by the
Company filed suit against the Company for the collection of unpaid rent and
other charges in the amount of approximately $195,000. The Company has accrued
certain amounts that it feels are adequate as a contingency for settlement of
this suit.
10. PURCHASE OF BUILDING
The Company purchased a building located in Pompano Beach, Florida (the
"Pompano Property") to which it relocated from Lauderhill, Florida. The
purchase price for the property was $2,350,000, of which $1,875,000 was
financed through a first and second mortgage. The Pompano Property is
encumbered by mortgages securing repayment of loans made to acquire an
adjacent parcel which is owned by Justin Real Estate Corp. ("Justin
Corp."). All of the common stock of Justin Corp. is owned by principal
shareholders of the Company. In the event that Justin Corp. defaults on
its obligations under such mortgage loans, the mortgagee could
foreclose on the mortgages encumbering the Pompano Property.
11. INITIAL PUBLIC OFFERING
In June 1995, the Company completed an initial public
offering, selling a total of 2,300,000 units for $1.63 per unit. Each
unit consisted of one share of common stock, one Class A Warrant to
acquire one share of common stock at $3.00 and one Class B Warrant to
acquire one share at $3.63. Commencing June 21, 1996, the warrants will
be exercisable for a period of four years. The underwriters received an
option to purchase 200,000 units at 150% of the offering price for a
period of four years commencing June 21, 1996. Additionally, the
Company entered into a consulting agreement with the underwriters for a
term of 24 months at $2,000 per month, which was paid in advance at the
closing of the offering.
12. REVENUES
The schools obtain a large proportion of their revenues from
Federal and State student financial aid programs. For the year ended
December 31, 1996, the schools derived approximately 61% of tuition
collections from students with financial aid and approximately 39% from
students without financial aid. The schools' ability to obtain such
funding is dependent on a number of factors, including meeting various
educational accreditation and licensing standards and also certain
financial standards such as maintaining at least a 15% ratio of
non-financial aid students and not experiencing a
F-16
<PAGE>
student loan default rate in excess of 25% for three consecutive years.
The schools' student loan default rate for 1993 and 1994 was 10% and
9%, respectively. The definitive default rates for 1995 and 1996 will
not be available until the third quarters of 1997 and 1998,
respectively. The Company believes it has complied with all other
factors necessary to obtain funding.
The duties of disbursing Federal aid funds is handled by an
independent service company through separate federal trust accounts.
All requests and payments for Federal funds are done by the outside
service company. Federal aid funds are wired into a separate U.S.
Federal Pell Trust Account and the money can only be transferred to the
Company's operating accounts with check registers issued by the outside
service company. The Company believes that it is in compliance with
Federal requirements with respect to the administration of Federal aid
programs.
13. COMMON STOCK SUBJECT TO PUT
In connection with the January 1996 acquisition of the net
assets of Sam Lilly, Inc. the 380,000 shares issued in connection with
the acquisition are subject to the seller's ability to require the
Company to repurchase such shares for a three year period for $380,000,
in the event that the aggregate market value of the shares falls below
$380,000. Such shares are excluded from permanent equity on the
accompanying balance sheet.
14. PREFERRED STOCK
The Company is authorized by its articles of incorporation to
issue a maximum of 1,500,000 shares of $.001 par preferred stock, in
one or more series and containing such rights, privileges and
limitations, including voting rights, dividend rates, conversion
privileges, redemption rights and terms, redemption prices and
liquidation preferences, as the Company's board of directors may, from
time to time, determine. No shares of preferred stock have been issued
to date.
15. STOCK OPTION PLAN
Under the Company's 1994 Stock Option Plan, up to 666,666
shares of common stock are reserved for issuance. The exercise price of
the options will be determined by the Stock Option Committee selected
by the board of directors, but the exercise price will not be less than
85% of the fair market value on the date of grant. Towards the end of
1995, 2,000 options were issued to each of two directors at an exercise
price equal to the market price at the time. During 1996 the Company
issued 10,000 options to a director at a price equal to the fair market
value on the date of grant. No other options have been issued under
this plan.
The Company has adopted the disclosure-only option under SFAS No. 123,
Accounting for Stock-Based Compensation, as of December 31, 1995. If
the accounting provisions of the new Statement had been adopted as of
the beginning of 1995, the effects on 1995 and 1996 net earnings would
have been immaterial.
F-17
<PAGE>
16. ACQUISITIONS
A. In November 1995, the Company made a business acquisition through the
acquisition of substantially all the operating assets and liabilities of the
Reese Institute ("Reese"), located in Oviedo, Florida. The acquisition of Reese
has been accounted for as a purchase and accordingly, the assets acquired and
liabilities assumed have been recorded at their estimated fair values which
approximates book value. The following table summarizes this acquisition:
Purchase Price, including acquisition costs $ 267,550
Liabilities assumed 130,727
Assets acquired (222,337)
-------------------
Goodwill $ 175,940
===================
Goodwill is being amortized over a period of 20 years. The purchase price
was settled through the payment of $125,000 at closing and a note payable to the
seller of $125,000.
B. In January 1996, the Company's newly-formed wholly-owned subsidiary,
Health Wellness Nationwide Corp., acquired all of the assets and assumed all of
the liabilities of Sam Lilly, Inc. in exchange for 380,000 shares of the
Company's common stock. The acquisition has been accounted for as a purchase and
accordingly, the assets acquired and liabilities assumed have been recorded at
their estimated fair values which approximates book value as follows:
Purchase price, including acquisition costs $ 1,416,000
Liabilities assumed 29,000
Assets acquired (59,667)
------------------------
Goodwill $ 1,385,333
========================
Purchase price includes the following: $1,368,000 for stock issued and
$48,000 for acquisition costs consisting of professional fees.
The following schedule combines the unaudited pro-forma results of the
Company, Sam Lilly, Inc., and Reese Institute, Inc. as if the acquisitions
occurred on January 1, 1995 and includes such adjustments which are directly
attributable to the acquisitions. It should not be considered indicative of the
results that would have been achieved had the acquisitions not occurred or the
results that would have been obtained had the acquisitions actually occurred on
January 1, 1995.
F-18
<PAGE>
Year ended December 31,
-------------------------------------------------
1996 1995
-------------------- --------------------
Net sales $ 7,361,923 $ 5,828,599
==================== ====================
Net loss $ (912,325) $ (1,941,609)
==================== ====================
Net loss per share $ (0.08) $ (0.20)
==================== ====================
Shares used in computation 11,229,813 9,694,816
==================== ====================
C. In June 1996, the Company acquired all of the outstanding common
stock of four companies doing business as the Institute of Natural
Medicine, in exchange for 110,000 shares of the Company's common stock.
The acquisition has been accounted for as a pooling of interests.
Accordingly, the consolidated financial statements have been restated
for all periods prior to the acquisition to include the accounts and
operations of the Institute.
Net sales and net income (loss) for the individual entities
are as follows:
<TABLE>
<CAPTION>
Year ended December 31, 1996 NHT Institute Combined
- ---------------------------- --- --------- --------
<S> <C> <C> <C>
Net sales $ 6,418,273 $ 800,568 $ 7,218,841
==================== ===================== ====================
Net income (loss) $ (971,989) $ 82,450 $ (889,539)
==================== ===================== ====================
Year ended December 31, 1995
Net sales $ 3,138,203 $ 803,056 $ 3,941,259
==================== ===================== ====================
Net income (loss) $ (1,938,869) $ 100,321 $ (1,838,548)
==================== ===================== ====================
</TABLE>
17. CONVERTIBLE DEBENTURES
In December 1996, the Company issued $900,000 of 10%
convertible debentures. In March 1997, all such debentures were
converted into shares of common stock. Shares attributable to
conversions of principal outstanding at December 31, 1996, are
retroactively shown as outstanding at that time. The debentures
contained the provision that any principal outstanding on the third
anniversary converted into shares of common stock. Accordingly, the
Company is accounting for these securities as equity instruments.
Associated costs, consisting of commissions at 10% and professional
fees have been charged to paid in capital. The principal and accrued
interest on the debentures were convertible at the option of the holder
into shares of common stock of the Company commencing in February 1997,
at a conversion price equal to 80% of the average closing bid price for
the five trading days immediately preceding the notice of conversion.
An additional $400,000 of debentures were sold subsequent to year end
through February 3, 1997.
F-19
<PAGE>
18. SEGMENT INFORMATION
Summary information for the Company's two significant industry segments
is as follows:
<TABLE>
<CAPTION>
Medical Other Not Deemed
Year ended December 31, 1996 Schools Clinics Reportable Total
------- ------- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 4,444,074 $ 2,374,469 $ 400,298 $ 7,218,841
=============== =============== ============= ===============
Operating income (loss) $ 1,015,420 $ (176,191) $ (182,237) $ 656,992
=============== =============== =============
General corporate expenses (1,546,531)
---------------
Net income (loss) $ (889,539)
===============
Identifiable assets $ 1,883,951 $ 1,486,728 $ 4,101,604 $ 7,472,283
=============== =============== ============= ================
Other information:
Depreciation and amortization $ 49,227 $ 47,625
=============== ===============
Capital expenditures $ - $ 95,323
=============== ===============
</TABLE>
The Company did not have reportable segments for the year
ended December 31, 1995.
19. RELATED PARTY TRANSACTION
The Company pays rent to an affiliate with respect to a parcel adjacent
to the Pompano property. Rent expense for the years ended December 31, 1996 and
1995 was $62,000 and $37,000 respectively.
F-20
EMPLOYMENT AGREEMENT
AGREEMENT made the 26 day of June, 1996 (effective, however, only on the
Effective Date below set forth) between HEALTH WELLNESS NATIONWIDE CORP. (the
"Company"), a Delaware corporation having an office at 2001 West Sample Road,
Suite 318, Pompano Beach, Florida 33064, and KAYE LENZI (the "Employee"),
residing at 2557 S.W. Cranbrook Drive, Boynton Beach, Florida 33436, and Natural
Health Trends Corp., a Florida Corporation having an office at 2001 West Sample
Road, Suite 318, Pompano Beach, Florida 33064 ("NHTC").
W I T N E S S E T H:
The Employee is president and sole Shareholder of Medical Science
Consultants, Inc., Diagnostic Sciences, Inc., Managenet, Inc., KBM Consultants,
Inc., all Florida corporations (collectively, "Sellers"). The Company and Seller
are entering into an agreement of even date (the "Agreement and Plan of
Reorganization") pursuant to which the Company will acquire the business and
assets of Sellers. The Company desires to employ the Employee following such
acquisition, and the Employee is willing to be so employed, upon the terms and
conditions hereinafter set forth. The Company is a wholly-owned subsidiary of
NHTC and NHTC wishes to guarantee the obligations of the Company hereunder.
NOW, THEREFORE, with the foregoing recitals deemed incorporated hereinafter
by reference and mae a part hereof, the parties agree as follows:
1. Employment.
1.1 Term. The Company employs the Employee, and the Employee accepts
employment with the Company, in the position and with the duties hereinafter set
forth, for a term of three (3) years commencing on the Effective Date (as
defined in paragraph 1.02 below) unless sooner terminated as hereinbelow
provided.
1.2 Effective Date. This Agreement shall be effective only if and when the
Closing under the Agreement and Plan of Reorganization (as the term "Closing is
therein defined) is consummated, and, in such event, the "Effective Date" shall
be deemed to be June, 1996.
2. Duties.
2.1 General. The Employee shall be Regional Director of the Company and in
this connection shall manage a clinic specializing in complementary medicine
located at 3400 Park Central Boulevard, Suite 3450, North Pompano Beach, Florida
("Clinic"). Employee shall also perform administrative, executive services and
advisory medicine services for the Company including managing and developing
additional clinics. Employee shall perform such other services consistent with
her position (including, without limitation, services for parents, subsidiaries,
divisions and affiliates of the Company) as may from time to time be assigned to
her by the Company's Board of Directors or executive officers.
2.2 Performance. During the term of this Agreement, the Employee shall
devote her full time, best efforts and attention to the business, operations and
affairs of the Company and the performance of her duties hereunder and, without
the Company's consent, shall not engage in any other business activities except
as set forth herein.
-1-
<PAGE>
2.3 Personal Liability. During the term of the Agreement, the Employee
shall not have any personal liability for payroll taxes for the Company or any
of its operating divisions the Company shall indemnify and hold her harmless for
same.
2.4 Employee's Representations. Employee represents and warrants to and
agrees with Company that:
(a) Employee is the sole shareholder of four
corporations, referred to as the Seller in the Agreement and Plan of
Reorganization. The Seller through the Employee operates the Clinic.
Neither Employee nor any of her staff has been disciplined, suspended
or remanded as a health care practitioner, nor barred from medical
practice, nor have had any legal actions brought against any of them
for damages resulting from services provided at the Clinic except for
Fariss D. Kimball, Jr., M.D.
(b) Neither the execution nor performance by the
Employee of this Agreement is prohibited by or constitutes or will
constitute, directly or indirectly, a breach or violation of, or will
be adversely affected by, any written or other agreement to which
Employee is or has been a party.
(c) Except as permitted hereunder or pursuant to the
Agreement and Plan of Reorganization, neither Employee nor any business
or entity in which she has any interest or from which she receives any
payments has, directly or indirectly, any interest of any kind in or is
entitled to receive, and neither the Employee nor any such business or
entity shall accept, from any person, any payments of any kind on
account of any services performed by the Employee therefore subsequent
to the Effective Date. Any revenues derived by Employee from
publications, articles, books and videos not relating to the Company
are excluded. In addition to any of its other rights and remedies,
except as provided in 2.4(c), the Company shall be entitled to receive
(and shall also have the right to withhold from any payments to
Employee under this Agreement) all amounts paid or payable to Employee
or any such other business or entity in breach or violation of this
paragraph.
(d) Employee shall indemnify and hold the Company
free and harmless from and against and shall reimburse it for any and
all liabilities, damages, losses,judgments, costs and expenses
(including reasonable counsel fees and other reasonable out-of-pocket
expenses) arising out of or resulting from any claim or action by any
third party against the Company which constitutes, and the provisions
of this 2.3(c) are limited to, a breach or default by the Employee of
or under 2.4.
-2-
<PAGE>
3. Compensation and Related Matters.
3.1 Base Salary. (a) As compensation for her services hereunder, Employee
shall be paid a salary equal to her present yearly salary of $100,000, provided
that the Clinic's yearly revenues are not less than $710,000.00 per annum. In
the event the Clinic's revenues are less than $355,000.00 in any six-month
period (either January 1 to June 30 or July 1 to December 31), Employee's salary
shall be adjusted for the following six-month period as follows: Employee's
current salary multiplied by a fraction, the numerator of which shall be gross
revenues for the applicable six-month period for the Clinic and the denominator
of which is $355,000.
This calculation shall be determined by the Company's accountant and base
salary will represent a percentage of overall gross revenues. Such calculation
shall be made every six months and Employee's salary will be adjusted for the
following six-month period accordingly. If gross revenues of the Clinic are in
excess of $710,000 per year, Employee shall receive five percent (5%) of such
excess. Such amount shall be determined by the Company's regularly employed
accountant and paid no later than April 1 of the succeeding year.
(b) Except as provided herein, the Company will have no obligation to
retain any other individual after the Closing and nothing contained herein shall
be deemed to create third-party beneficiary rights of any nature whatsoever on
behalf of the Seller's employees other than those employees the Company chooses
in its discretion to retain. However, with respect to employees of the Clinic,
for as long as Employee serves as its Director (or serves in a similar
capacity), Employee shall have authority as to the staffing and personnel needs
of the Clinic, subject to the consent of the Company, which consent shall not be
unreasonably withheld.
(c) The company agrees that Employee shall be entitled to a bonus or other
incentive compensation, as determined by the Board of Directors of the Company,
based upon Employee's contributions to the growth and development of the
business of the Company, including without limitation, the development of new
alternative medical clinics.
-3-
<PAGE>
3.2 Expenses. The Company shall pay or reimburse the Employee for all
pre-approved travel, hotel, entertainment and other business expenses incurred
in the performance of Employee's duties upon submission of appropriate vouchers
and other supporting data.
3.3 Benefits. Employee shall be entitled to (i) participate in all general
pension, profit-sharing, bonus, life, medical and other insurance, disability
and other employee benefit plans and programs at any time in effect for
executive employees of Company, including the Natural Health Trend Corporation's
Executive Level Option Plan under which she will receive a minimum of 2,000
options per year, provided, however, that nothing herein shall obligate the
Company to establish or maintain any employee benefit plan or program, whether
of the type referred to in this clause (i) or otherwise, and (ii) holidays,
vacations, and automobile reimbursement in accordance with the Company's policy
for executive employees, and the Company will pay for a life insurance policy on
the life of Employee in the amount of $250,000 provided Employee is insurable at
commercially acceptable rates (the beneficiary of which shall be designated by
Employee).
4. Termination of Employment; Disability.
4.1 Termination. (a) Employee's employment may only be terminated either by
the Company for any of the reasons or for causes set forth in 4.1(b) below, or
by Employee voluntarily, Employee's compensation under this Agreement shall end
on the effective date of such termination and the Company shall have no
obligation to pay Employee the payment provided for in subparagraph (a) of 3.1
above. In the event of Employee's death, the salary payable hereunder shall be
paid to Employee's estate throughout the term of this Agreement.
(b) The "reasons or causes" for Company's termination of Employee's
employment referred to in 4.1(a) above shall mean and include only the
following, provided the Employee is given written notice thereof:
(i) theft or embezzlement by Employee from,
or common law fraud committed by Employee against,the Company;
(ii) commission by the Employee of any act
which, if successfully prosecuted by the appropriate
authorities, would constitute a felony under state or federal
law;
(iii) material breach by the Employee of
any of her obligations under paragraphs 5.1 through 5.3 below;
(iv) material breach by the Employee of any
other obligation under this Agreement not cured within ten
days after written notice thereof from the Company to the
Employee;
(v) material breach of representation and
warranty under the Agreement and Plan of Reorganization.
If Employee does not notify Company in writing within 30 days after receipt
of the aforesaid written notice of the reason or cause for termination that the
Employee disputes the Company's determination of such reason or cause, the
Company's determination shall be final and binding on the Employee.
-4-
<PAGE>
4.2 Disability. Should the Employee, by reason of illness, mental or
physical incapacity or other disability, be unable to perform her regular duties
under this Agreement for any continuous period of three months or for
non-continuous periods aggregating one year, in either such event, the Company
may terminate the Employee's employment at any time thereafter upon ten days'
prior written notice to the Employee as provided in 4.1(b) above unless prior to
the expiration of such ten-day period the Employee returns to full-time work and
continues same for a period of at least three months. Any payments to Employee
under any disability insurance or plan maintained by the Company shall be
applied against and shall reduce the compensation payable by the Company to
Employee under this Agreement.
5. Confidential Information; Non-Competition; Discoveries. 5.1 Confidential
Information. The Employee shall not, at any time during or following termination
or expiration of the term of this Agreement, directly or indirectly, disclose,
publish or divulge to any person (except in the regular course of the Company's
business), or appropriate, use or cause, permit or induce any person to
appropriate use, any proprietary, secret or confidential information of the
Company including, without limitation, knowledge or information relating to its
discoveries, inventions, copyrights, trade secrets, business methods, the names
or requirements of its customers or the prices, credit or other terms extended
to its customers, all of which the Employee agrees are and will be of great
value to the Company and shall at all times be kept confidential. Upon
termination or expiration of this Agreement, the Employee shall promptly deliver
or return to the Company all materials of a proprietary, secret or confidential
nature relating to the Company together with any other property of the Company
which may have theretofore been delivered to or may then be in possession of the
Employee.
-5-
<PAGE>
5.2 Non-Competition. During the term of her employment and for three-year
period after termination of her employment, the Employee shall not, without the
prior consent of the Company in each instance, directly or indirectly, in any
manner or capacity, whether for herself or any other person and whether as
proprietor, principal, owner, shareholder, partner, investor, director, officer,
employee, representative, distributor, consultant, independent contractor or
otherwise, engage or have any interest in any entity which is engaged in any
business or activity which competes, directly or indirectly, with any business
or activity then or theretofore conducted or engaged in by the Company including
any existing business within a radius of 10 miles from a Clinic or a business
which the Company then operates at the time of Employee's termination.
5.3 Discoveries, Etc. The Employee shall promptly disclose to the Company,
or its nominee, any and all, and all knowledge of, designs, inventions,
discoveries and improvements conceived or made by the Employee during the term
of this Agreement and related to the business or activities of the Company, and
without further compensation, hereby assigns and agrees to execute any and all
instruments of assignment hereafter necessary in order to assign all of his
interests therein to the Company or its nominee. Whenever requested to do so by
the Company, the Employee shall execute any and all applications, assignments
and other instruments and documents which the Company may deem necessary to
apply for and obtain letters patent in the Untied States or any foreign country
or otherwise to protect the Company's interests therein.
5.4 Reasonableness. The Employee agrees that each of the provisions of this
Section 5 is reasonable and necessary for the protection of the Company; that
each such provision is and is tended to be divisible; that if any such provision
(including any sentence, clause or part) shall be held contrary to law or
invalid or unenforceable in any respect in any jurisdiction, or as to any one or
more periods of time, areas or business activities, or any part thereof, the
remaining provisions shall not be affected but shall remain in full force and
effect as to the other and remaining parts; and that any invalid or
unenforceable provision shall be deemed, without further action on the part of
the parties hereto, modified, amended and limited to the extent necessary to
render the same valid and enforceable in such jurisdiction. The Employee further
recognizes and agrees that any violation of any of her agreements in this
Section 5 would cause such damage or injury to the Company as would be
irreparable and the exact amount of which would be impossible to ascertain and
that, for such reason, among others, the Company shall be entitled, as a matter
of course, to injunctive relief from any court of competent jurisdiction
restraining any further violation. Such right to injunctive relief shall be
cumulative and in addition to, and not in limitation of, all other rights and
remedies which the Company may possess.
5.5 Survival. The provisions of this Section 5 shall survive the expiration
or termination of this Agreement for any reason, but not to exceed the time set
forth in paragraph 5.2 herein.
-6-
<PAGE>
6. Miscellaneous.
6.1 Notices. All notices under this Agreement shall be in writing and shall
be deemed to have been duly given if personally delivered against receipt or it
mailed by first class registered or certified mail, return receipt requested,
addressed to the Company, attention: Chairman, President or Secretary, and to
the Employee, at their respective addresses set forth on the first page of this
Agreement, or to such other person or address as may be designated by like
notice hereunder. Any such notice shall be deemed to have been given on the day
delivered, if personally delivered, or on day receipted for, if mailed.
6.2 Parties in Interest. This Agreement shall be binding upon and inure to
the benefit of and be enforceable by the parties hereto and their respective
heirs, legal representatives, successors and assigns, but no other person shall
acquire or have any rights under or by virtue of this Agreement, and the
obligations of the Employee under this Agreement may not be assigned or
delegated.
6.3 Governing Law; Severability. This Agreement shall be governed by and
construed and enforced in accordance with the laws and decisions of the State of
Florida applicable to contracts made and to be performed therein without giving
effect to the principles of conflict of laws. In addition to the provisions of
paragraph 5.4 above, the invalidity or unenforceability of any other provision
of this Agreement, or the application thereof to any person or circumstance, in
any jurisdiction shall in no way impair, affect or prejudice the balance of this
Agreement, which shall remain in full force and effect, or the application
thereof to other persons and circumstances.
6.4 Entire Agreement; Modification; Waiver. This Agreement contains the
entire agreement and understanding between the parties with respect to the
subject matter hereof and supersedes all prior negotiations and oral
understandings, if any. Neither this Agreement nor any of its provisions may be
modified, amended, waived, discharged or terminated, in whole or in part, except
in writing signed by the party to be charged. No wavier of any such provision or
any breach of or default under this Agreement shall be deemed or shall
constitute a waiver of any other provisions, breach or default.
7. Guaranty of NHTC. All of the obligations of the Company hereunder are
guaranteed by NHTC which owns all of the issued and outstanding shares of the
Company.
IN WITNESS WHEREOF, the parties have duly executed this
Agreement as of the date first above written.
HEALTH WELLNESS NATIONWIDE CORP.
By: __________________________
EMPLOYEE
-----------------------------
Kaye Lenzi
NATURAL HEALTH TRENDS CORP.
By: __________________________
-7-
AGREEMENT
AGREEMENT made as of the 2nd day of January, 1997 (the "Effective Date"),
by and among Natural Health Trends Corp. ("NHTC"), Health Wellness Nationwide
Corporation ('Health Welness"), both of which are Florida corporations having
offices at 2001 West Sample Road, suite 318, Pompano Beach, Florida 33064, and
Samantha Haimes ("Mrs. Haimes") and Leonard Haimes, M.D. ("Dr. Haimes"), both
residing at 7356 Mahogany Court, Boca Raton, Florida (Dr. Haimes and Mrs. Haimes
are sometimes collectively referted to as the "Haimeses").
WITNESSETH
WHEREAS, Mrs. Haimes and Dr. Haimes have each previously entered into
separate Employment Agreements, each dated January 18, 1996, f'or a term of
three (3) years (collectively, the "Employment Agreements" and individlally the
"Employment Agreement");
WHEREAS, Health Wellness and Mrs. Haimes have previously entered into an I
Amendment to Mrs. Haimes' Employment Agreement dated June , 1996 (the "June
Amendment"); and
WHEREAS, NHTC and Health WeIlness and Mrs. Haimes and Dr. Haimes have
irreconciliable differences with each other.
NOW THEREFORE, in mutual consideration as hereinafter set forth, the
parties heretofore agree as follows:
1. Termination.
1.1 Each of the Employment Agreements together wth the June Amendment are
hereby terminated and canceled. This Agreement represents the sole Employment
agreement among the parties, and the parties shall have no obligations, rights
or duties to the other parties to this Agreement, except as otherwise provided
herein.
1.2 Upon the execution of this Agreement, Dr. Haimes shall (i) submit his
resignation from the Board of Directors of NHTC to the Board of Directors of
NHTC, and (ii) resign as President of Health Wellness. The Board of Directors
shall ratify and approve this agreement both for Health Wellness and NHTC.
-1-
<PAGE>
2. Leonard Haimes.
2.1 As of the Effective Date Dr. Haimes will be an employee of Health
Wellness and NHTC, as provided herein, for a term of two (2) years, commencing
on the Effective Date through the close of business on December 31, 1998.
2.2 Health Wellness shall pay a salary to Dr. Haimes of $90,000 per annum,
payable weekly for which Dr. Haimes shall render medical consulting services and
patient care to Health Wellness on Tuesday and Wednesday of each week, for a
total of one hundred four (104) days per year with hours from 9:00 a.m. to 5:00
p.m. with one hour for lunch. It is further agreed that If Dr. Haimes is unable
to render services on such designeated days due to his illness or work
referenced below of for any other reason of unavailability, he shall make up
such days as soon as is practicable. In the event that Dr. H'aimes does not
perform services for at least one hundred four (104) days in any calendar year
for Healthh Wellness, Dr. Haimes shall be required to immediatly reimburse
Health Wellness by the 15th day of January succeeding the previous year for
compensation he previously received for such days. Dr. Haimes further agrees to
perform up to an additional twenty (20) days of non-office medical or business
related work for Health Wellness and NHTC, provided that he is compensated at
the rate of $865.39 per day payable weekly. If Dr. Haimes is required to travel
for the purpose of Health Wellness business his reasonable documented
out-of-pocket travel expenses will be reimbursed by Health Wellness or NHTC
within 10 days of presentment of expenses.
2.3 Dr. Haimes shall be employed by Health Wellness as a practicing
physician engaged in the practice of medicine, with a specific obligation to
provide care for patients at the facility of Health Wellness, located at 7300
North Federal Highway, Boca Raton, Florida. Further, Dr. Haimes shall perform
such care of patients and such other duties as are consistent with his medical
career and the direction of the Director of Operations or Health Wellness, the
Board of Directors of NHTC and/or its executive officers. Matters considered by
either party to have consequences shall be in writting.
2.4 Dr. Haimes shall be entitled to participate in NHTC's medical insurarce
plan as currently provided by Principal Health Care of Florida or as otherwise
provided by NHTC to its employees. In addition to payment of Dr. and Mrs.
Haimes' medical insurance and malpractice insurance, NHTC will pay premiums for
the exsisting life insurance policy, during the term of Dr. Haimes' employment,
on the life of Dr. Haimes in the amount of S 1,000,000 provided that he
continues to be insurable at or about the current rate with Mrs. Haimes as
beneficiary and owner of the policy.
2.5 In the event of the death of either Samantha Haimes or Dr. Haimes, the
salary payable hereunder shall be paid to the estate or trust of the deceased
employee for the term of this Agreement. Health Wellness shall have the eight to
procure life insuranc, f or its benefit on the lives of each of the Haimeses and
the Haimeses agree to cooperate with Health Wellness in obtaining such
insurance.
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<PAGE>
3. In the event that Dr. Haimes fails to follow the written direction of the
Director of Operations of Health Weliness, the Board of Directors of NHTC and/or
its executive officers without good cause, or he engages in any illegal activity
pursuant to the laws of the State of Florida or any Federal Laws (medical), or
his license to practice medicine is revoked or suspended, NHTC's obligations
pursuant to this Agreement shall be terminated. Nothing herein contained shall
terminate Dr. Haimes' obligations pursuant to Section 5, 6, and 7 of this
Agreement.
4. Samantha Haimes
4.1 Mrs. Haimes shall be retained as a consultant, independent contractor,
to NHTC and Health Wellness. As such consultant, she will render services to
NHTC and/or Health Wellness at the direction of the Board of Directors of NHTC
and/or its Chief Executive Officer. In no event shall such consulting services
be required of Mrs. Haimes for a period of more than one day per month. However,
notwithstanding the foregoing, there is no obligation on behalf of either Health
Wellness or NHTC to require consulting services to be performed by Mrs. Haimes,
nor is it a condition of payments, hereinafter set forth, to be made to her
during the term of two 2) years from the date thereof.
4.2 As compensation for such consulting services, Mrs.. Haimes shall be
paid $310,000 per annum payable in weekly installments.
4.3 Ms. Haimes shall be an independent contractor, and this Agreement shall
not be construed as creating any partnership, joint venture or any other form of
joint operation or organization wherein the parties hereto are deemed to be
partners, or to cause NHTC or Health Wellness to be responsible in any way for
the debts, liabilities or obligations of Mrs. Haimes or any other party. Mrs.
Haimes shall receive health insurance. As consideration of termination of her
Employment Agreement with Health Wellness and NHTC, Mrs. Haimes shall receive
20,000 shares of stock of NHTC together with 2% of the gross revenues up to
$2,000,000 of the medicine and Lifestyles Clinic located solely at its clinic at
7300 North Federal Highway, (all suites), Boca Raton, Florida for a period of
five years commencing January 1, 1999 through December 1,2003. This provision
shall survive through December 31, 2003. The salaries in paragraphs 2.2, 4.2,
and 4.4 are based upon annual revenues from the operation of the clinic located
at 7300 North Federal Highway, Boca Raton, Florida, excluding revenue from
Rejuvenation Unlimited. If said gross annual revenue is less than $ 1.0 million,
then the payments due pursuant to section 2,2, 4,2, and 4.4 shall be equal to
thirty three and one third (33 1/3'%) percent multiplied by such gross revenues.
Within ten (10) days of the date of the calculation, the Haimeses shall make a
payment to NHTC equal to the difference between the aggregate amounts received
by the Haimeses for such period less the result of the calculation. Thereafter,
the payments due to the Haimeses pursuant to Sections 2.2, 4.2, and 4.4 shall be
based upon the result of the calculation, provided, however, in no event shall
the payments due to the Haimeses be increased to an amount exceeding the amounts
presently set forth in Sections 2.2, 4.2, and 4.4. This calculation shall be
made twice annually. The accounting practices shall remain the same and no
business or patients shall be transferred or referred to other clinics.
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<PAGE>
5. Global Settlement. The parties agree that in calculating and debiting monies
due each other to the other, that both parties agree that numbers do not warrant
an accounting as they (the numbers) are approximately equal. The parties agree
that with the payment of the February lease payment for the 1996 red Mercedes
Benz 320 SL and the payment of approximately $ 6,000.00 for the salary of Mike
Manzel NHTC through February 14, 1997, Dr. and Mrs. Haimes shall not owe monies
to NHTC and NHTC shall not owe monies to Dr. and Mrs. Haimes except the salaries
set forth herein. 5.1 Title VII. The Haimeses hereby release Health Wellness and
NHTC from any claims under the Age Discrimination in Employment Act of 1967 and
Title VII of the Civil Rights Act of 1964, as amended.
5.2 Advice of Counsel. The Haimeses acknowledge and agree that they have
had at least seven (7) days from the date that they first received this
Agreement to obtain the advice and counsel of the legal representatives of their
choice concerning it and its terms and to decide whether to agree to it and each
of its terms. The Haimeses acknowledge that they have taken advantage of this
opportunity to obtain legal advice from their attorney, have carefully read and
fully understand all of the provisions of this Agreement, and that they are
entering into this Agreement knowingly and voluntarily in exchange for good and
variable consideration. In addition, the Haimeses acknowledge that they shall
have an additional twenty one (21) days from the date hereof to further consult
with their attorney and shall have the right to revoke this Agreement through
such as provided in Section 5.3.
5.3 Revocation. Each of the Haimeses understands and agrees that they have
twenty one (21) calendar days after they sign this Agreement to revoke it, and
this Agreement shall not become effective and enforceable until after the
passage of this twenty one (21) day period.
6. Confidential Information; Non-Competition: Discoveries.
6.1 Confidential Information. Each of the Haimeses shall not, at any time
for three (3) years during or following termination or expiration of the term of
this Agreement, directly or indirectly, disclose, publish or disclose to any
person, or appropriate, use or cause, permit or induce any person to appropriate
use, any proprietary, secret or confidential information of NHTC and/or Health
Wellness including, without limitation, knowledge or information relating to its
discoveries, inventions, copyrights, trade secrets, business methods, the names
or requirements of its customers or the prices, credit or other terms extended
to is customers, all of which each of the Haimeses agrees are and will be of
great value to NHTC and/or Health Wellness and shall at all times be kept
confidential. Upon termination or expiration of this Agreement, each of the
Haimeses shall promptly deliver or return to NHTC and/or Health Wellness all
materials of a proprietary, secret or confidential nature relating to NHTC
and/or Health Wellness together with any other property of NHTC and/or Health
Wellness which may have therefore been delivered to or may then be in possession
of each of the Haimeses.have therefore been delivered to or may then be in
possession of each of the Haimeses.
-4-
<PAGE>
6.2 Non-Competition. During the term of Dr. Haimes' employment and for
three-year period thereafter, each of the Haimeses shall not, without the prior
consent of NHTC and/or Health Wellness in each instance, directly or indirectly,
in any manner or capacity whether for himself or any other person and whether as
proprietor, principal, owner, shareholder, partner, investor, director, officer,
employee, representative, distributor, consultant, independent contractor or
otherwise, engage or have any interest in any entity which is engaged in any
business or activity which competes, directly or indirectly, with any business
or activity then or theretofore conducted or engaged in by NHTC and/or Health
Wellness including any business within a radius of 10 miles from the Clinic at
7300 North Federal Highway, Boca Raton, Florida or a business which NHTC and/or
Health Wellness then plans to engage in or conduct. Notwithstanding the
foregoing, the Haimeses may at any time own in the aggregate as a passive (but
not active) investment not more than 5% of the stock or other equity interest of
any, publicly traded entity which so competes with NHTC and/or Health Wellness.
Notwithstanding the foregoing, Dr. and Mrs. Haimes may maintain and work at
their interests in the following: Wellness international (independent marketing
distributor),Fitness for You, all endorsements and books, formula technologies
(Utah projects). So long as the Stark Amendment or other similar law is
applicable, Dr. Haimes shall not refer patients to Fitness For You.
6.3 Discoveries etc. The Haimeses shall promptly disclose to NHTC and/or
Health Wellness, or its nominee, any and all, and all knowledge of, designs
inventions, discoveries and medical protocol conceived or made by the Haimeses
during the term of this Agreement and related to the business or activities of
NHTC and/or Health Wellness, and without further compensation, hereby assigns
and agrees to execute any and all instruments of assignment hereafter necessary
in order to assign all of their interests therein to NHTC and/or Health Wellness
or its nominee. Whenever requested to do so by NHTC and/or Health Wellness, the
Haimeses shall execute any and all applications, assignments and other
instruments and documents which NHTC and Health Wellness may deem necessary to
apply for and obtain letters patent in the United States or any foreign country
or otherwise to protect NHTC and/or Health Wellness' interests therein.
6.4 Reasonableness. Each of the Haimeses agree that each of the provisions
of this Section 6 is reasonable and necessary for the protection of NHTC and/or
Health Wellness; that each such provision is and is intended to be divisible;
that if any such provision (including any sentence, clause or part) shall be
held contrary to law or invalid or unenforceable in any respect in any
jurisdiction, or as to any one or more periods of time, areas or business
activities, or any part thereof, the remaining provision shall not be affected
but shall remain in full force and effect as to the other and remaining parts;
and that any invalid or unenforceable provision shall be deemed, without further
action on the part of the parties hereto, modified, amended and limited to the
extent necessary to render the same valid and enforceable in such jurisdiction.
Each of the parties further recognizes and agrees that any violation of any of
his agreements would cause such damage or injury to the other party as would be
irreparable and the exact amount of which would be impossible to ascertain and
that, for such reason, among others, each party shall be entitled, as a matter
of course, to injunctive relief from any court of competent jurisdiction
restraining any further violation. Such right to injunctive relief shall be
cumulative and in addition to, and not in limitation of, all other rights and
remedies which each party may possess.
-5-
<PAGE>
6.5 Survival. The provisions of this Agreement shall survive the expiration
or termination of this Agreement for any reason.
7. Miscellaneous. 7.1 Samantha Haimes is a lessee of a 1996 Mercedes Benz 320SL.
NHTC has agreed to pay the unexpired portion of the lease on a monthly basis;
which lease expires April 26, 1999. NHTC further agrees that it will endeavor to
have Samantha Haimes removed from the lease thereby having no financial
responsibility to Mercedes Benz Credit Corp. Samantha Haimes will deliver
possession of the vehicle to NHTC upon the execution of this Agreement and NHTC
shall indemnify Samantha Haimes for any loss resulting from its lease including
costs and attorneys fees. I
7.2 Notices. All notices under this Agreement shall be in writing and shall
be deemed to have been duly given in personally delivered against receipt or if
mailed by first class registered or certified mail, return receipt requested,
addressed to NHTC and/or Health Wellness, attention: Chairman, President or
Secretary, and to the Haimeses, at their respective addresses set forth on the
first page of this Agreement, or to such other person or address as may be
designated by like notice hereunder. Any such notice shall, be deemed to have
been given on the day delivered, if personally delivered, or on the second day
after the date of mailing if mailed.
7.3 Parties in Interest. This Agreement shall be binding upon and inure to
the benefit of and be enforceable by the parties hereto and their respective
heirs, legal representatives, successor and assigns, but no other person shall
acquire or have any rights under or by virtue of this Agreement and the
obligations of each of the Haimeses under this Agreement may not be assigned or
delegated.
7.4 Governing Laws Severability. This Agreement shall be governed by and
construed and enforced in accordance with the laws and decisions of the State of
Florida applicable to contracts made and to be performed therein without giving
effect to the principles of conflict of laws. In addition to the provisions of
paragraph 6.4 above, the invalidity or unenforceability of any other provision
of this Agreement, or the application thereof to any person or circumstance, in
any jurisdiction shall in no way impair, affect or prejudice the balance of this
Agreement, which shall remain in full force and effect, or the application
thereof to other persons and circumstance.
-6-
<PAGE>
7.5 Entire Agreement: Modification: Waiver. This Agreement contains the
entire agreement and understanding between the parties with respect to the
subject matter hereof and supersedes all prior negotiations and oral
understandings, if any. Neither this Agreement nor any of its provisions may be
modified, amended, waived, discharged or terminated, in whole or in part, except
in writing signed by the party to be charged. No waiver of any such provision or
any breach of or default under this Agreement shall be deemed or shall
constitute a waiver of any other provisions, breach or default.
7.6 Representations by Counsel. Each party acknowledges that they have been
represented by counsel in connection with the negotiation and preparation of
this Agreement Neal Heller represents that he is authorized to enter into this
Agreement on behalf of NHTC and Health Wellness.
7.7 Should Health Wellness fail to abide by the terms of this agreement in
making the payment hereunder then in that event. NHTC shall pay same.
7.8 Venue shall be in Palm Beach County, Florida.
7.9 Prevailing party shall be entitled to attorneys fees and court costs
arising from any litigation regarding this Agreement.
7.10 Samantha Haimes shall be allowed to remove her personal property,
personal effects, art work under the supervision of an employee of NHTC or
Health Wellness within twelve (12) days from the date of this Agreement.
IN WITNESS WHEREOF, the parties have duly executed this Agreement on January 2,
1997
/s/ Leonard Haimes_________________
LEONARD HAIMES, M.D.
/s/ Samantha Haimes________________
SAMANTHA HAIMES
HEALTH WELLNESS
NATIONWIDE CORP.
By: /s/ Neal Heller________________
Name: Neal Heller
Title: President
NATURAL HEALTH TRENDS CORP.
By:/s/ Neal Heller_________________
Name: Neal Heller
Title: President
-7-
EXHIBIT 21.1
SUBSIDIARIES OF THE COMPANY
Name State of Incorporation
F.I.M.T.E. Supply , Inc. Florida
The Corporate Body, Inc. Florida
Health Wellness Nationwide Corp. Florida
Medical Service Consultants, Inc. Florida
Managenet, Inc. Florida
KBM Consultants, Inc. Florida
Diagnostic Services, Inc. Florida
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000912061
<NAME> NATURAL HEALTH TRENDS CORP
<MULTIPLIER> 1
<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 776,255
<SECURITIES> 0
<RECEIVABLES> 1,481,589
<ALLOWANCES> 0
<INVENTORY> 255,182
<CURRENT-ASSETS> 2,719,562
<PP&E> 3,486,630
<DEPRECIATION> (360,044)
<TOTAL-ASSETS> 7,472,283
<CURRENT-LIABILITIES> 2,021,081
<BONDS> 1,899,577
380,000
0
<COMMON> 12,346
<OTHER-SE> 3,159,279
<TOTAL-LIABILITY-AND-EQUITY> 7,472,283
<SALES> 0
<TOTAL-REVENUES> 7,218,841
<CGS> 0
<TOTAL-COSTS> 4,442,499
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 231,112
<INCOME-PRETAX> (889,539)
<INCOME-TAX> 0
<INCOME-CONTINUING> (889,539)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (889,539)
<EPS-PRIMARY> (.08)
<EPS-DILUTED> (.08)
</TABLE>
