SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
Amendment No. 3
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) October 06, 1997
-------------------------
NATURAL HEALTH TRENDS CORP.
(Exact name of Registrant as specified in its charter)
Florida 0-25238 59-2705336
(State or other jurisdiction (Commission File (IRS Employer
of incorporation) Number) Identification No.)
2001 West Sample Road, Suite 318, Pompano Beach, FL 33064
(Address of principal executive offices)
(954) 969-9771
Registrant's telephone number, including area code
(Former name or former address, if changed since last report)
<PAGE>
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(a) Financial statements of business acquired.
(b) Pro forma financial information.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereto duly authorized.
NATURAL HEALTH TRENDS CORP.
(Registrant)
Date: January 07, 1998 By: /s/ Neal Heller
----------------- ----------------
Neal Heller, President
<PAGE>
GLOBAL HEALTH ALTERNATIVES, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
PAGE NUMBER
Independent Auditors' Report 2
Balance Sheet 3
Statements of Operations 4
Statements of Cash Flows 5-6
Statement of Stockholders' Equity 7
Notes to Financial Statements 8-17
Unaudited Financial Statements 17-21
Pro Forma Financial Statements 22-26
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Global Health Alternatives, Inc. and Subsidiaries
Portland, Maine
We have audited the accompanying consolidated balance sheet of Global
Health Alternatives, Inc. 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 Global Health Alternatives, Inc. 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
September 24, 1997
2
<PAGE>
<TABLE>
<CAPTION>
GLOBAL HEALTH ALTERNATIVES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996
ASSETS
<S> <C>
CURRENT ASSETS:
Cash $ 242,929
Accounts receivable, net 47,281
Inventories 60,246
-------------------------
TOTAL CURRENT ASSETS 350,456
PROPERTY AND EQUIPMENT, net 39,017
INTANGIBLE AND OTHER ASSETS 2,331,522
------------------------
$ 2,720,995
=======================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 70,599
Accounts payable and accrued expenses 556,480
Other current liabilities 50,908
Notes payable 358,488
-----------------------
TOTAL CURRENT LIABILITIES 1,036,475
-----------------------
LONG-TERM DEBT 242,091
STOCKHOLDERS' EQUITY:
Preferred stock, $.0001 par value, 10,000,000 shares authorized; no shares
issued and outstanding -
Common stock, $.0001 par value; 10,000,000 shares authorized;
4,745,456 shares issued and outstanding 475
Additional paid-in capital 3,248,805
Accumulated deficit (1,806,851)
-----------------------
TOTAL STOCKHOLDERS' EQUITY 1,442,429
-----------------------
$ 2,720,995
=======================
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GLOBAL HEALTH ALTERNATIVES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31,
----------------------- ----------------------
1996 1995
----------------------- ----------------------
<S> <C> <C>
REVENUES $ 285,485 $ 144,699
COST OF SALES 106,314 122,833
----------------------- ----------------------
GROSS PROFIT 179,171 21,866
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 1,431,628 20,071
NON-CASH IMPUTED COMPINSATION EXPENSE 352,699 153,850
----------------------- ----------------------
OPERATING INCOME (LOSS) (1,605,156) (152,055)
INTEREST EXPENSE, net (7,430) -
----------------------- ----------------------
INCOME (LOSS) BEFORE INCOME TAXES (1,612,586) (152,055)
PROVISION FOR INCOME TAXES - -
----------------------- ----------------------
NET INCOME (LOSS) $ (1,612,586) $ (152,055)
======================= ======================
INCOME (LOSS) PER COMMON SHARE $ (0.44) $ (0.09)
======================= ======================
WEIGHTED AVERAGE COMMON SHARES USED 3,705,888 1,734,817
======================= ======================
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GLOBAL HEALTH ALTERNATIVES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
--------------------- ---------------------
CASH FLOWS FROM OPERATING ACTIVITIES: 1996 1995
--------------------- ---------------------
<S> <C> <C>
Net income (loss) $ (1,612,586) $ (152,055)
--------------------- ---------------------
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 51,582 -
Non-cash imputed compensation expense 352,699 153,850
Changes in assets and liabilities (net of effects of acquisition):
Decrease (increase) in accounts receivable (38,851) 48,411
Decrease (increase) in inventories (86,394) 39,616
Decrease (increase) in prepaid expenses and other current assets (5,258) -
Decrease (increase) in other assets (123,006) -
Increase (decrease) in accounts payable 535,251 (3,489)
Increase (decrease) in accrued expenses 19,159 (8,404)
Increase (decrease) in accrued liabilities 40,967 -
--------------------- ---------------------
TOTAL ADJUSTMENTS 746,148 229,984
--------------------- ---------------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (866,438) 77,929
--------------------- ---------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for acquisition, net of cash acquired (496,336) -
Capital expenditures (42,453) -
Proceeds from sales of fixed assets - 19,346
--------------------- ---------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (538,789) 19,346
--------------------- ---------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease (increase) in loans receivable 19,587 (19,587)
Proceeds from bridge financing 325,000 -
Proceeds from notes payable and long-term debt 136,281 -
Payments of notes payable and long-term debt (224,293) (85,059)
Proceeds from issuance of common stock, net of expenses 1,384,551 -
--------------------- ---------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 1,641,126 (104,646)
--------------------- ---------------------
NET INCREASE (DECREASE) IN CASH 235,899 (7,371)
CASH, BEGINNING OF YEAR 7,030 14,401
--------------------- ---------------------
CASH, END OF YEAR $ 242,929 $ 7,030
===================== =====================
See notes to financial statements.
<PAGE>
GLOBAL HEALTH ALTERNATIVES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
YEAR ENDED DECEMBER 31,
--------------------- ---------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: 1996 1995
--------------------- ---------------------
Cash paid during the year for:
Interest $ 1,056 $ -
===================== =====================
Income taxes $ - $ -
===================== =====================
DISCLOSURE OF NONCASH FINANCING AND INVESTING ACTIVITIES:
In October 1996, in conjunction with the acquisition of a business, the Company issued 550,250
shares of common stock.
In October 1996, the Company issued 140,000 shares of common stock for the acquisition of
certain assets.
In October 1996, ten individuals converted $76,803 in debt to 66,515 shares of common stock.
In October 1996, the Company incurred a note payable amount of $325,000 to a
seller for the acquisition of assets.
In October 1996, the Company incurred a note payable in the amount of $75,000 to a seller in a
a business acquisition.
In October 1996, the Company incurred a note payable in the amount of $69,000 to a seller in a
a business acquisition.
See Notes to Financial Statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GLOBAL HEALTH ALTERNATIVES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Additional
Common Stock Paid-in Accumulated
---------------------------------------
Shares Amount Capital Deficit Total
------------------ ------------------ ------------------ ------------------ -----------------
<S> <C> <C> <C> <C> <C>
BALANCE - DECEMBER 31, 1994 $ 1,222,000 $ 122 $ 1,079 $ (42,210) $ (41,009)
Net income - - - (152,055) 1,795
Shares issued to employees
and director 1,384,602 138 - - 138
Shares issued to employees
and director 307,699 31 153,850 - 153,881
------------------ ------------------ ------------------ ------------------ -----------------
BALANCE - DECEMBER 31, 1995 2,914,301 291 154,929 (194,265) (39,045)
Net loss - - - (1,612,586) (1,259,887)
Shares issued to employees
and director 307,699 31 307,699 - 307,730
Shares issued in lieu of
compensation 45,000 5 - - 45,005
Shares issued to investors 435,000 44 45,000 - 435,000
Shares issued upon acquisition
of assets 140,000 14 291,886 - 291,900
Shares issued upon acquisition
of business 550,250 55 1,147,224 - 1,147,279
Shares issued upon conversion
of liabilities 66,515 7 76,796 - 76,803
Shares issued upon conversion
of liabilities 4,363 0 5,394 - 5,394
Shares issued to investors 282,328 28 784,921 - 784,949
------------------ ------------------ ------------------ ------------------ -----------------
BALANCE - DECEMBER 31, 1996 4,745,456 $ 475 $ 3,248,805 $ (1,806,851) $ 1,442,429
================== ================== ================== ================== =================
See Notes to Financial Statements.
</TABLE>
<PAGE>
GLOBAL HEALTH ALTERNATIVES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. ORGANIZATION
Global Health Alternatives, Inc. (Formerly known as Interface
Biologics, Inc.) (the "Company") was incorporated under the laws of the
State of Delaware in August 1993. The Company is currently engaged
principally in research and development; establishing sources of
supply; acquiring operating assets and intellectual property; and
market development.
The Company's primary business is the marketing and distribution of
alternative and complementary health products. During 1995, the
Company formed GHA (UK) Ltd., a wholly-owned subsidiary which is an
England and Wales corporation. GHA (UK) Ltd. is principally engaged in
the marketing and distribution of natural, herbal topical medicines
from Asia. Ellon, Inc. is a wholly-owned subsidiary, formed in 1996,
which markets and distributes homeopathic flower remedies. In October
1996, the Company acquired (the "Downeast Acquisition") certain
operating assets and associated liabilities of Downeast Cranberry
Company, Inc. {Downeast") and began operating that business as
FruitSeng, Inc., subsequently re-named Maine Naturals, Inc. Maine
Naturals, Inc. markets and distributes colloidal mineral water dietary
supplements and herbal-supplemented beverages. In May 1997, the Company
entered into a business acquisition with MikeCo., Inc. (doing business
as "Natural Health Laboratories"). Natural Health Laboratories markets
and distributes an all-natural topical pain relief medicine. This
acquisition was accounted for as a pooling of interests. The
accompanying financial statements include the accounts of MikeCo. for
all periods presented.
In July 1997, the Company consummated a business combination
under which it was acquired by Natural Health Trends Corp.
("NHTC") in a purchase business combination.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Principles of Consolidation - The accompanying consolidated
financial statements include the accounts of Global Health
Alternatives, Inc. and its subsidiaries. All material
intercompany transactions have been eliminated in consolidation.
B. Accounts Receivable - Accounts receivable consists primarily
of revenues due from customers.
8
<PAGE>
C. Inventories - Inventories consisting primarily of raw materials,
work-in-process and finished goods 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,
or in the case of property and equipment acquired in a business
acquisition, the estimated fair market value. Depreciation is computed
using the straight-line method over the useful lives of the various
assets, which is generally five years for equipment, and furniture
and fixtures.
E. 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.
F. Accounting Estimates - The preparation of financial statements in
accordance with generally accepted accounting principles requires
management to make estimates and assumptions that affect 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.
G. 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.
H. Income Taxes - The Company accounts for income taxes under the asset
and liability method. Deferred taxes are recognized for the future tax
consequences attributable to the differences between the financial
statement and tax basis of assets and liabilities, measured at the tax
rates expected to apply to taxable income when the temporary
differences are expected to be recovered or settled. Deferred tax
assets are reduced by a valuation allowance to the extent that future
realization of such assets is unknown.
I. 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.
The Company assesses the recoverability of goodwill by
determining whether the amortization of goodwill balance over its
remaining life can be recovered through projected, undiscounted, future
cash flows of the related companies.
9
<PAGE>
3. PROPERTY AND EQUIPMENT
Property and Equipment consisted of the following at December 31, 1996:
Equipment, furniture and fixtures $ 42,454
Less: Accumulated depreciation (3,437)
$ 39,017
==================
4. OTHER ASSETS
Other assets consisted of the following at December 31, 1996:
Goodwill, net of accumulated
amortization of $19,705 $ 1,398,964
Customer lists, net of accumulated
amortization of $28,445 927,300
Deposits 5,048
Organization Costs 210
$ 2,331,522
================
The goodwill arises in connection with the Downeast
Acquisition made by the Company in October 1996. The goodwill is being
amortized over its estimated useful life of 15 years.
Customer lists were acquired from Ellon USA, Inc. in October
1996, and are being amortized over a period of 7 years.
5. LONG-TERM DEBT
Long-term debt consisted of the following on December 31, 1996:
$375,000 face amount note payable, noninterest bearing, due October 1, 2000
(less unamortized discount based on imputed interest rate of 12% per annum -
$68,313). Initial payment of $93,750 on October 15, 1996, then monthly payments
of $7,813 beginning on November 1, 1997 and
ending October 1, 2000 $ 212,937
10
<PAGE>
$75,000 face amount note payable, noninterest bearing, due September 15, 1998
(less unamortized discount based on imputed interest rate of 12% per annum -
$5,370). Monthly payments of $4,166 from October 1996 through September 1997,
and $2,084 from October 1997 through
September 1998 57,132
$69,000 face amount note payable, noninterest bearing, due
October 15, 1997 (less unamortized discount based on
imputed interest rate of 12% per annum - $2,379). Initial payment of $19,500 on
October 15, 1996, then monthly payments of $4,500 from December 1996 through
October
1997 42,621
-----------------
312,690
Less: Current portion (70,599)
-----------------
$ 242,091
=================
Long-term debt maturities for the next five years are as follows:
1997 $ 70,599
1998 88,494
1999 79,602
2000 73,995
6. STOCKHOLDERS' EQUITY
A. The Company is authorized to issue 10,000,000 shares of its
common stock, $.0001 par value per share.
B. In September 1995, the Company issued 1,384,602 shares of its
common stock to a founder in exchange for $138.
C. In November 1995, the Company issued 307,699 shares to a
company providing consulting services to the Company through a director
of the Company.
D. In February 1996, the Company issued 307,699 shares to a
company providing consulting services to the Company through a director
of the Company.
11
<PAGE>
E. In February 1996, the Company effected a stock dividend of
.8462 shares of common stock for each share then outstanding, resulting
in an issuance of 916,668 shares of common stock. This is treated
as a recapitalization and is reflected in all share data presented.
F. From February 1996 through June 1996 the Company sold 435,000
shares of its common stock for $1.00 per share. Since such sales were
made to unrelated third parties at $1.00 per share, such price
represents the fair market value of the Company's stock at that time.
G. In June 1996, the Company issued 45,000 shares to three
individuals in return for services rendered.
H. From September 1996 through March 1997 the Company sold
300,311 shares of its common stock for approximately $2.78 per share,
of which 282,328 shares were sold during calender 1996. Since such
sales were made to unrelated third parties at $2.78 per share,
such price represents the fair market value of the Company's stock at
that time.
I. In October 1996, the Company issued 140,000 shares in exchange
for certain tangible and intangible assets.
J. In October 1996, the Company issued 550,250 shares in a
business acquisition accounted for as a purchase.
K. In October 1996, ten individuals converted $76,803 in
convertible liabilities into 66,516 shares of the Company's common
stock.
L. In October 1996, three individuals converted $5,394 in
accounts payable into 4,363 shares of the Company's common stock.
M. In November and December 1996, and January, February and April
1997, the Company issued warrants to purchase up to 49,272 shares of
common stock as part of a private placement of bridge loan financing
totaling $685,000. Warrants to purchase 7,193 shares per $100,000
loaned (and fewer shares, calculated on a pro rata basis, where
applicable) were issued to each lender. Each warrant entitles the
security holder to purchase a fixed number of shares of common stock
for $.0278 per share. As of December 31, 1996 (and as of April 8, 1997)
no warrant holders have exercised their warrants and purchased
underlying shares of common stock, although the Company anticipates
that all warrant holders will do so.
12
<PAGE>
7. INCOME TAXES
The Company has incurred operating losses since its inception,
and at December 31, 1996 had net operating loss carryforwards and
deferred start-up costs for tax purposes of approximately $1,300,000
available to offset future taxes. The deferred tax asset of
approximately $500,000 related to these amounts has been reduced by a
valuation allowance of an equal amount as it is not presently assured
that the deferred tax asset will be realized. The operating loss
carryforwards expire in the year 2011. Management anticipates that any
potential future tax benefit resulting from this loss, and additional
losses incurred in the year ending December 31, 1997, will be greatly
limited due to the July 1997 acquisition of the Company.
8. COMMITMENTS AND CONTINGENCIES
A. The Company leases its Portland, Maine offices under a cancelable
operating lease. The lease term is five years, with a cancellation
right after 30 months with a six month notice. The Company's London,
England premises are leased on a month-to month basis, with a three
month notice provision prior to departing the premises. Rent expense
for the year ended December 31, 1996 was $53,958. Minimum rental
commitments over the next five years are as follows:
1997 $ 33,000
1998 12,000
1999 5,000
B. The Company has entered into operating lease agreements for the use
of three passenger automobiles, for use by officers of the Company. Two
of the lease terms expire in 1999 (3 year leases), while the third
expires in 1998 (a two year lease). Upon expiration of these leases,
the Company has the right to purchase the subject vehicles at
previously agreed-upon prices.
Lease expense for the year ended December 31, 1996 was $2,571.
Minimum automobile lease commitments over the next five years are as
follows:
1997 $ 18,851
1998 17,890
1999 10,851
C. The Company has entered into employment agreements with four of its
executive officers which currently provide for annual salaries totaling
$395,000. The agreements expire at various times ranging from October
1998 through October 2001. In connection with the acquisitions
occurring 1996, the Company entered into consulting and director
agreements with three individuals for aggregate annual compensation
totaling approximately $71,000, expiring on various dates through
September 1998. The Company has separately entered into consulting
agreements with two other individuals, one for advisory and director
services at the rate of $6,000 per month expiring in May 1997, and
the other for advisory services capped at $15,000 for 1997 and
expiring in April 1997.
<PAGE>
9. PREFERRED STOCK
The Company is authorized by its articles of incorporation to issue a
maximum of 10,000,000 shares of $.0001 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.
10. EMPLOYEE STOCK OPTIONS
The Company has granted options to purchase shares of common
stock to officers of the Company. Approximately 237,000 options to
purchase shares of common stock have been granted, with exercise prices
ranging from $1.00 per share to $1.50 per share of common stock.
Employee stock option vesting is subject to achieving agreed upon
performance criteria or continued employment for a stated period,
usually two to four years from the date of the option grant. All such
options were cancelled upon the Company's acquistion by NHTC.
11. BUSINESS ACQUISITION
In October 1996, the Company acquired certain assets and
assumed certain liabilities of Downeast Cranberry Company, Inc.
("Downeast"), located in South Portland, Maine. The acquisition of
Downeast has been accounted for as a purchase and accordingly, the
assets acquired and liabilities assumed have been recorded at their
estimated fair value which approximates book value. The following table
summarizes this acquisition:
Purchase price, excluding acquisition costs $ 1,147,271
Liabilities assumed 303,232
Assets acquired (31,834)
------------------------
Goodwill $ 1,418,669
========================
Goodwill is being amortized over a period of 15 years. The purchase
price was settled through the issuance of stock valued at $1,147,216.
The Company may be required to issue up to 369,350 contingent
shares in the event Downeast's cumulative net income equals $200,000
over the 12 quarters following the acquisition, with the full amount of
such contingent shares being issuable if cumulative net income reaches
$1,000,000 over such measurement period. In connection with the
Company's acquistion by NHTC. NHTC has agreed to satisfy any such
contingent share obligation with NHTC shares.
12. ACQUISITION OF ASSETS
In October 1996, the Company acquired certain assets and
assumed certain liabilities of Ellon USA Inc. ("Old Ellon). Assets
acquired consisted primarily of customer lists, inventory and
receivables and aggregated $1,112,481. Liabilities assumed, which
aggregated $518,089 consisted of accounts and notes payable and certain
accrued expenses.
Customer lists, which were valued at $955,745, are being
amortized over 7 years. The purchase price was settled through a
non-interest bearing note payable to the seller of $375,000 ($302,491
after accounting for an unamortized imputed interest discount,
calculated at a rate of 12% per annum), of which $93,750 was paid at
closing in cash, and the issuance of stock valued at $291,900.
13. BRIDGE LOAN
In November and December of 1996 and January, February and
April of 1997, the Company issued $685,000 of 12% promissory notes. As
of December 31, 1996, the Company had issued a total of $325,000 of
these notes. These notes mature on the earlier to occur of: a)
September 15, 1997, or b) the consummation by the Company (or any
entity that shall have acquired the Company) of a registered public
offering or private placement of shares of its common stock so as to
yield net cash proceeds to the Company (or such other entity) of not
less than US$3,000,000. Interest shall be calculated monthly and shall
accrue and be payable on the maturity date along with all principal
outstanding. Each lender of bridge financing also received a warrant to
purchase shares of the Company's common stock. The warrant provides the
holder with the right to purchase of $.0278 per share. The warrants may
be exercised after February 10, 1997 and before September 15, 1997.
15
<PAGE>
14. MIKECO INC. ACQUISITION
In May 1997, the Company consumated a business combination
accounted for as a pooling of interests. The accompanying financial
statements include the accounts of MikeCo. for all periods presented.
The Company issued 1,222,000 shares of its common stock for
all of the outstanding common stock of MikeCo. In addition, the Company
has agreed to pay minimum royalties to the inventor of MikeCo's core
product line and to his research and development company. These minimum
royalties total $687,000 inthe first twelve months following closing;
$937,000 in the second twelve months following closing; $1,500,000 in
the third twelve months following closing; $2,250,000 in the fourth
twelve months following closing; and $2,250,000 in the fifth twelve
months following closing. Also, the Company has also agreed to lend a
total of $375,000 to the inventor's research and development company
in the first twenty four months following closing, with no more than
$250,000 of this amount to be loaned in the first twelve months
following closing and no more than $125,000 of this amount in the
second twelve months following closing.
The following table presents a breakdown of amounts included in the accompanying
statements of operations attributable to each company:
<TABLE>
<CAPTION>
Year ended
December 31, 1996
1996 1995
<S> <C> <C>
--- -------------------- ---- -------------------
REVENUES:
Global Health Alternatives, Inc. and Subsidiaries $ 162,266 $ 0
MikeCo. 123,219 144,699
-------------------- -------------------
Total $ 285,485 $ 144,699
==================== ===================
NET INCOME (LOSS):
Global Health Alternatives, Inc. and Subsidiaries $ (1,601,760) $ (153,850)
MikeCo. (10,826) 1,795
-------------------- -------------------
Total $ (1,612,586) $ (152,055)
==================== ===================
</TABLE>
16
<PAGE>
15. SUBSEQUENT EVENT
In July 1997, the Company, pursuant to an agreement, ("the
Merger Agreement") was acquired by Natural Health Trends Corp.
("NHTC"), a Florida corporation based in Pompano Beach, Florida. The
Merger Agreement provided for the exchange of all of the Company's
outstanding common stock for 5,800,000 shares of NHTC's common
stock. Additional shares are contingently issuable upon the Company
achieving certain performance goals.
17
<PAGE>
GLOBAL HEALTH ALTERNATIVES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 1997
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash $ 615,767
Accounts receivable, net 91,209
Inventories 271,539
Prepaid expenses 60,860
-----------------------
TOTAL CURRENT ASSETS 1,039,375
PROPERTY AND EQUIPMENT, net 65,111
INTANGIBLE AND OTHER ASSETS 2,527,204
-----------------------
$ 3,631,690
=======================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Current portion of long-term debt $ 102,874
Accounts payable and accrued expenses 1,337,013
Other current liabilities 25,560
Notes payable 2,652,559
-----------------------
TOTAL CURRENT LIABILITIES 4,118,006
-----------------------
LONG-TERM DEBT 225,002
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, $.0001 par value,
10,000,000 shares authorized; no shares
issued and outstanding -
Common stock, $.0001 par value;
10,000,000 shares authorized;
4,829,768 shares issued and outstanding 483
Additional paid-in capital 3,314,577
Accumulated deficit (4,026,378)
-----------------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (711,318)
-----------------------
$ 3,631,690
=======================
See notes to financial statements.
<PAGE>
GLOBAL HEALTH ALTERNATIVES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
REVENUES $ 623,150
COST OF SALES 317,615
-----------------------
GROSS PROFIT 305,535
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 2,438,975
-----------------------
OPERATING LOSS (2,133,440)
INTEREST EXPENSE, net (86,087)
-----------------------
LOSS BEFORE INCOME TAXES (2,219,527)
PROVISION FOR INCOME TAXES -
-----------------------
NET LOSS $ (2,219,527)
=======================
LOSS PER COMMON SHARE $ (0.46)
=======================
WEIGHTED AVERAGE COMMON SHARES USED 4,774,923
=======================
See notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
GLOBAL HEALTH ALTERNATIVES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C>
Net income (loss) $ (2,219,527)
----------------
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 89,778
Changes in assets and liabilities
Decrease (increase) in accounts receivable (43,928)
Decrease (increase) in inventories (211,293)
Decrease (increase) in prepaid expenses and other current assets (60,860)
Decrease (increase) in other assets (279,690)
Increase (decrease) in accounts payable 427,651
Increase (decrease) in accrued expenses 274,312
Increase (decrease) in accrued liabilities 85,514
----------------
TOTAL ADJUSTMENTS 281,484
----------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (1,938,043)
----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (31,864)
----------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (31,864)
----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bridge financing 360,000
Proceeds from notes payable and long-term debt 1,982,745
----------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 2,342,745
----------------
NET INCREASE (DECREASE) IN CASH 372,838
CASH, BEGINNING 242,929
----------------
CASH, ENDING $ 615,767
================
See notes to financial statements.
</TABLE>
<PAGE>
GLOBAL HEALTH ALTERNATIVES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED 0CONSOLIDATED FINANCIAL STATEMENT
SIX MONTHS ENDED JUNE 30, 1997
1. BASIS OF PRESENTATION
The accompanying financial statements are unaudited, but
reflect all adjustments which, in the opinion of management, are
necessary for a fair presentation of financial position and the results
of operations for the interim periods presented. All such adjustments
are of a normal and recurring nature. The results of operations for any
interim period are not necessarily indicative of the results attainable
for a full fiscal year.
2. EARNINGS (LOSS) PER SHARE
Per share information is computed based on weighted average
number of shares outstanding during the period.
3. NOTES PAYABLE
During 1997, prior to the Company's acquisition by Natural
Health Trends Corp., NHTC lent the Company $1,964,000, which amount was
eliminated upon the consolidation of the companies.
4. POOLING OF INTERESTS
In May 1997, the Company consumated a business combination
accounted for as a pooling of interest with MikeCo., Inc. The
accompanying financial statements include the accounts of MikeCo. for
all periods presented.
The following table presents a breakdown of amounts included in the
accompanying statement of operations attributable to each company:
Six months ended
June 30,
1996
--------------------
REVENUES:
Global Health Alternatives, Inc. and Subsidiaries $ 488,705
MikeCo. 134,445
--------------------
Total $ 623,150
====================
NET INCOME (LOSS):
Global Health Alternatives, Inc. and Subsidiaries $ (1,742,835)
MikeCo. (476,692)
--------------------
Total $ (2,219,527)
====================
<PAGE>
NATURAL HEALTH TRENDS CORP. AND GLOBAL HEALTH ALTERNATIVES, INC.
UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS
The accompanying pro forma condensed financial statements have been
prepared to show the effects of the July 23, 1997 acquisition of Global Health
Alternatives, Inc. by Natural Health Trends Corp. ("NHTC"). This acquisition is
accounted for as a purchase business combination.
The following unaudited pro forma consolidated balance sheet presents
the pro forma financial position of the NHTC at June 30, 1997 as if the
acquisition of Global Health Alternatives, Inc. Had occurred on such date.
Included are adjustments to record the value of the 5,800,000 shares of NHTC
common stock issued, and the resulting goodwill.
The unaudited pro forma consolidated statements of operations for the
six months ended June 30, 1997 and the year ended December 31, 1996 reflects the
combined results of NHTC and Global Health Alternatives, Inc, and Subsidaries
as if the acquisition had occurred on January 1, 1996, adjusted to reflect
goodwill amortization.
The unaudited pro forma consolidated statement of operations does not
necessarily represent actual results that would have been achieved had the
companies been together as of January 1, 1996, nor may it be indicative of
future operations. These unaudited pro forma consolidated financial statements
should be read in conjunction with the Companies historical financial
statements and notes thereto.
<PAGE>
<TABLE>
<CAPTION>
NATURAL HEALTH TRENDS CORP. AND SUBSIDIARIES/GLOBAL HEALTH ALTERNATIVES, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
ASSETS
Pro Forma
Natural Health Global Health Adjustments
Trends, Corp. Alternatives, Inc. Acquisition of
and Subsidiaries and Subsidiaries Global Health
June 30, June 30, Alternatives, Inc.
----------------------- ----------------------- -----------------------
1997 1997 DR (CR) Total
----------------------- ----------------------- ----------------------- -----------------------
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash $ 172,393 $ 615,767 $ $ 788,160
Restricted cash 250,000 - 250,000
Accounts receivable, net 1,582,486 91,209 1,673,695
Inventories 335,003 271,539 606,542
Due from officers 141,379 - 141,379
Due from affiliate 23,724 - 23,724
Prepaid expenses and other
current assets 318,443 60,860 379,303
----------------------- ----------------------- ---------------------- ------------------------
TOTAL CURRENT ASSETS 2,823,428 1,039,375 3,862,803
PROPERTY AND EQUIPMENT, net 3,206,377 65,111 3,271,488
LOANS RECEIVABLE 1,964,000 - (1,964,000) -
INTANGIBLE AND OTHER ASSETS 1,875,734 2,527,204 3,611,318 8,014,256
----------------------- ----------------------- --------------------- ------------------------
$ 9,869,539 $ 3,631,690 $ 1,647,318 $ 15,148,547
======================= ======================= ===================== ========================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of
long-term debt $ 56,468 $ 102,874 $ $ 159,342
Accounts payable and
accrued expenses 689,025 1,337,013 2,026,038
Deferred revenue 758,200 - 758,200
Current portion of
accrued consulting contract 246,607 - 246,607
Other current liabilities 244,726 25,560 270,286
Notes payable - 2,652,559 1,964,000 688,559
----------------------- ---------------------- ------------------------
TOTAL CURRENT LIABILITIES 1,995,026 4,118,006 4,149,032
----------------------- ---------------------- ------------------------
LONG-TERM DEBT 1,876,704 225,002 2,101,706
DEBENTURES PAYABLE 1,000,000 - 1,000,000
ACCRUED CONSULTING CONTRACT 149,294 - 149,294
COMMON STOCK SUBJECT TO PUT 380,000 - 380,000
STOCKHOLDERS' EQUITY:
Convertible preferred stock,
$.001 par value, 1,500,000
shares authorized; 2,200
shares issued and outstanding 1,534,035 - 1,534,035
Common stock, $.001 par value;
40,000,000 shares authorized;
12,811,261 shares issued and
outstanding actual and
18,611,261, pro forma 12,811 483 (5,317) 18,611
Additional paid-in capital 7,783,679 3,314,577 420,377 10,677,879
Accumulated deficit (4,427,010) (4,026,378) (4,026,378) (4,427,010)
Common stock subject to put (380,000) - (380,000)
Prepaid stock compensation (55,000) - (55,000)
----------------------- ---------------------- --------------------
TOTAL STOCKHOLDERS' EQUITY 4,468,515 (711,318) 7,368,515
----------------------- ---------------------- ------------------------- --------------------
$ 9,869,539 $ 3,631,690 $ (1,647,318) $ 15,148,547
======================= ====================== ========================= ====================
See notes to pro forma financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NATURAL HEALTH TRENDS CORP. AND SUBSIDIARIES/GLOBAL HEALTH ALTERNATIVES, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Natural Health Global Health Pro Forma
Trends, Corp. Alternatives, Inc. Adjustments
and Subsidiaries and Subsidiaries Acquisition of
Year ended Year ended Global Health
December 31, December 31, Alternatives, Inc.
----------------------- ----------------------- -----------------------
1996 1996 DR (CR) Total
----------------------- ----------------------- ----------------------- -----------------------
<S> <C> <C> <C> <C>
REVENUES $ 7,218,841 $ 285,485 $ $ 7,504,326
COST OF SALES 4,442,499 106,314 4,548,813
----------------------- ----------------------- -----------------------
GROSS PROFIT 2,776,342 179,171 2,955,513
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 3,412,769 1,431,628 180,566 5,024,963
NON-CASH IMPUTED COMPENSATION
EXPENSE 22,000 352,699 374,699
----------------------- ----------------------- -----------------------
OPERATING LOSS (658,427) (1,605,156) (2,444,149)
INTEREST EXPENSE, net (231,112) (7,430) (238,542)
----------------------- ----------------------- -----------------------
LOSS BEFORE INCOME TAXES (889,539) (1,612,586) (2,682,691)
PROVISION FOR INCOME TAXES - - -
----------------------- ----------------------- ----------------------- -----------------------
NET LOSS $ (889,539) $ (1,612,586) $ 180,566 $ (2,682,691)
======================= ======================= ======================= =======================
LOSS PER COMMON SHARE $ (0.08) $ (0.16)
======================= =======================
WEIGHTED AVERAGE COMMON
SHARES USED 11,213,980 5,800,000 17,013,980
======================= ======================= =======================
See notes to pro forma financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NATURAL HEALTH TRENDS CORP. AND SUBSIDIARIES/GLOBAL HEALTH ALTERNATIVES, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Natural Health Global Health Pro Forma
Trends, Corp. Alternatives, Inc. Adjustments
and Subsidiaries and Subsidiaries Acquisition of
Six Months Six Months Global Health
June 30, June 30, Alternatives, Inc.
----------------------- ----------------------- -----------------------
1997 1997 DR (CR) Total
----------------------- ----------------------- ----------------------- -----------------------
<S> <C> <C> <C> <C>
REVENUES $ 4,060,922 $ 623,150 $ $ 4,684,072
COST OF SALES 2,186,476 317,615 2,504,091
----------------------- ----------------------- -----------------------
GROSS PROFIT 1,874,446 305,535 2,179,981
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 2,064,154 2,438,975 90,283 4,593,412
COST OF SEVERING EMPLOYMENT
AGREEMENT 497,246 - 497,246
LITIGATION SETTLEMENT 118,206 - 118,206
NON-CASH IMPUTED COMPENSATION
EXPENSE 25,000 - 25,000
----------------------- ----------------------- -----------------------
OPERATING LOSS (830,160) (2,133,440) (3,053,883)
INTEREST EXPENSE, net (635,061) (86,087) (721,148)
----------------------- ----------------------- -----------------------
LOSS BEFORE INCOME TAXES (1,465,221) (2,219,527) (3,775,031)
PROVISION FOR INCOME TAXES - - -
----------------------- ----------------------- ----------------------- -----------------------
NET LOSS (1,465,221) (2,219,527) 90,283 (3,775,031)
PREFERRED STOCK DIVIDENDS (366,666) - - (366,666)
------------------------ ------------------------ ----------------------- ------------------------
LOSS TO COMMON SHAREHOLDERS $ (1,831,887) $ (2,219,527) $ 90,283 $ (4,141,697)
======================= ======================== ======================= ========================
LOSS PER COMMON SHARE $ (0.15) $ (0.22)
======================= ========================
WEIGHTED AVERAGE COMMON
SHARES USED 12,611,868 5,800,000 18,411,868
======================= ======================= =======================
See notes to pro forma financial statements.
</TABLE>
<PAGE>
NATURAL HEALTH TRENDS CORP. AND GLOBAL HEALTH ALTERNATIVES, INC.
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS
A. The following unaudited pro-forma adjustments are included in the
accompanying unaudited pro forma consolidated balance sheet at June
30, 1997:
(1) To record the acquisition of the stock of Global Health
Alternatives, Inc. for 5,800,000 shares of NHTC common stock valued
at the market value of $2,900,000. This acquisition is accounted for as
a purchase business combination. The resulting goodwill totals
$3,611,318.
(2) To eliminate intercompany loans.
B. The following pro-forma adjustments are included in the accompanying
unaudited pro forma consolidated statements of operations for the six
months ended June 30, 1997 and the year ended December 31, 1996 which
has been prepared to reflect the July 23, 1997 acquisition as if it had
occurred on January 1, 1996:
(1) To amortize goodwill recorded in the acquisition over a period of
20 years.
