FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 0-25238
NATURAL HEALTH TRENDS CORP.
(Exact Name of Small Business Issuer as Specified in its Charter)
Florida 59-2705336
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
2161 Hutton Drive, #126
Carrollton, Texas 75006
(Address of Principal Executive Office) (Zip Code)
(972) 241-8479
(Issuer's telephone number including area code)
Indicate by check mark whether the issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
The number of shares of issuer's Common Stock, $.001 par value, outstanding as
of October 31, 2000 were 12,309,047 shares.
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NATURAL HEALTH TRENDS CORP.
QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
INDEX
Page
Number
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheet 1
Condensed Consolidated Statements of Operations 2
Condensed Consolidated Statements of Cash Flows 3
Notes to Condensed Consolidated Financial Statements 4-5
Item 2. Management's Discussion and Analysis of Plan
of Operations 6-12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
Signature 14
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NATURAL HEALTH TRENDS CORP.
CONSOLIDATED BALANCE SHEET
September 30, December 31,
2000 1999
------------ -----------
ASSETS (Unaudited)
Current Assets
Cash $ 496,027 $ 434,063
Restricted cash 75,640 152,505
Account receivables 304,432 407,490
Inventory 821,213 847,212
Prepaid expenses and other current assets 37,381 120,481
------------ -----------
Total Current Assets 1,734,693 1,961,751
Property and Equipment, net 459,366 567,065
Long Term Prepaids 164,464 54,228
Patents and Customer Lists 7,883,809 7,912,594
Goodwill 690,610 682,654
Deposits and Other Assets 159,806 75,607
------------ -----------
Total Assets $11,092,748 $ 11,253,899
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Checks written in excess of deposits $ 350,923 $ 556,884
Accounts payable 5,206,113 4,511,772
Accrued expenses 693,227 404,458
Accrued bonus payable 376,135 472,503
Accrued payroll payable 735,802 668,390
Notes payable 1,215,609 854,684
Notes payable related parties 334,525 112,363
Current portion of long term debt 75,995 75,995
Deferred Revenue 27,589 527,831
Other current liabilities 223,625 231,926
------------ ----------
Total Current Liabilities 9,239,543 8,416,806
Capital Lease Obligations,
net of current portion 42,607 53,158
Long term notes payable 2,791 -
------------ ----------
Total Liabilities 9,284,941 8,469,964
------------ ----------
Stockholders' Equity:
Preferred stock 5,774,542 5,163,695
Common stock 9,345 7,990
Additional paid in capital 21,419,166 21,443,914
Cumulative adjustments on foreign exchange 6,113 -
Deferred Compensation (631,982) (666,000)
Accumulated deficit (24,769,377) (23,165,664)
------------ ----------
Total Stockholders' Equity 1,807,807 2,783,935
------------ ----------
Total Liabilities and Stockholders' Equity $11,092,748 $ 11,253,899
============ ==========
See Notes to Consolidated Financial Statements.
1
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NATURAL HEALTH TRENDS CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
--------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
Revenues $ 1,544,067 $ 4,060,979 $ 6,498,739 $ 11,426,468
Cost of Sales 527,814 947,889 1,673,865 2,445,624
--------------- --------------- -------------- ---------------
Gross Profit 1,016,253 3,113,090 4,824,874 8,980,844
Distributor commissions 682,511 2,007,293 2,801,729 5,538,660
Write-down of patents and goodwill - - - -
Selling, general and administrative expenses 1,076,072 1,785,513 3,635,712 5,288,876
--------------- --------------- -------------- ---------------
Operating loss (742,330) (679,717) (1,612,567) (1,846,692)
Minority interest in loss of subsidiaries 16,199 38,955 80,736 49,570
Gain on foreign exchange - - - -
Gain (loss) on foreign exchange 23,872 7,760 7,427 10,343
Interest (net) (41,287) (12,107) (59,487) (50,166)
--------------- --------------- -------------- ---------------
Net loss from continuing operations (743,546) (645,108) (1,583,891) (1,836,945)
--------------- --------------- -------------- ---------------
Discontinued Operations:
Income (loss) from discontinued operations - (106,613) (4,822) (129,557)
Gain (loss) on disposal (15,000) - (15,000)
--------------- --------------- -------------- ---------------
Loss before extraordinary gain (758,546) (751,721) (1,603,713) (1,966,502)
--------------- --------------- -------------- ---------------
Extraordinary gain - forgiveness of debt - - - 1,471
Net loss (758,545) (751,721) (1,603,713) (1,965,031)
--------------- --------------- -------------- ---------------
Preferred stock dividends 296,364 114,534 296,568 1,157,573
Net loss to common shareholders $ (1,054,910) $ (866,255) $ (1,900,281) (3,122,604)
=============== =============== ============== ===============
Basic and diluted loss per common share:
Continuing Operations $ (0.09) $ (0.09) $ (0.19) (0.29)
$
Discontinued Operations - (0.02) (0.00) (0.02)
Extraordinary gain - - -
Preferred stock dividend (0.03) (0.02) (0.04) (0.19)
--------------- --------------- -------------- ---------------
Net loss to common shareholders $ (0.12) $ (0.13) $ (0.23) $ (0.50)
=============== =============== ============== ===============
Basic and diluted weighted common shares used 8,596,587 6,794,341 8,193,654 6,220,331
=============== =============== ============== ===============
</TABLE>
2
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NATURAL HEALTH TRENDS CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
2000 1999
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,603,713) $(1,965,031)
------------ ------------
Adjustments to reconcile net (loss)to net
cash provided by (used in)operating activities:
Depreciation and amortization 375,505 478,524
Loss on disposal of fixed asset 114,868 -
Gain on forgiveness of debt - (1,471)
Increase in income from allocation of
minority interest - (11,153)
Issuance of common stock in settlement of interest (485) (59,087)
Changes in assets and liabilities
(Increase) decrease in accounts receivable 103,058 (260,785)
Increase in inventories 244,699 66,151
Increase in prepaid expenses (27,136) (181,743)
(Increase) decrease in deposits and other assets (84,199) 252,351
Increase (decrease) in accounts payable and cash
overdraft 488,380 (107,353)
Increase in accrued expenses 243,914 433,050
Increase in accrued consulting contract 34,019 -
Decrease in deferred revenue (500,242) -
Increase (decrease) in other current liabilities (2,189) 342,885
Decrease in accrued expenses for discontinued
operations - (10,000)
------------ ------------
Total Adjustments 990,192 941,369
------------ ------------
NET USED IN OPERATING ACTIVITIES (613,521) (1,023,662)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (548) (23,345)
Proceeds from the sale of fixed assets 10 -
Business acquisitions, net of cash acquired (253,326) (880,939)
(Increase) decrease in Restricted Cash 93,152 (200,497)
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (160,712) (1,104,781)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in due to affiliate - 250,000
Proceeds from preferred stock 1,000,000 1,201,015
Proceeds from notes payable and long-term debt 389,701 948,929
Payments of notes payable and long-term debt (194,351) (363,581)
Redemption of preferred stock (359,153) -
------------ -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 836,197 2,036,363
------------ -----------
NET INCREASE (DECREASE) IN CASH 61,964 (92,080)
CASH, BEGINNING OF PERIOD 434,063 294,220
------------ -----------
CASH, END OF PERIOD $496,027 $202,140
============ ===========
3
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NATURAL HEALTH TRENDS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements of Natural Health Trends
Corp. (the "Company") have been prepared in accordance with generally accepted
accounting principles for interim financial information and with instructions to
Form 10-QSB and Article 10 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments considered necessary for a fair presentation (consisting of normal
recurring accruals) of financial position and results of operations for the
interim periods have been presented. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Operating results for the nine month period ended September 30, 2000 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2000. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's Annual report on Form
10-KSB for the year ended December 31, 1999.
Reclassifications
Certain prior period amounts have been reclassified to conform to the
current period presentation.
The Company had a working capital deficiency of approximately $7,505,000
for the nine months ended September 30, 2000 and $6,597,000 for the year ended
December 31, 1999, and they recorded net losses of approximately $1,055,000 and
$575,000 respectively, that raise substantial doubt about the Company's ability
to continue as a going concern. The Company's continued existence is dependent
on its ability to obtain additional debt or equity financing and to generate
profits from operations.
2. In March 2000, the Company sold 1,000 shares of Series J Preferred
Stock, par value $1,000 per share. The preferred stock pays a dividend at the
rate of 10% per annum. The preferred stock and the accrued dividends thereon are
convertible into shares of the Company's common stock at a conversion price
equal to the lower of the closing bid price on the date of issuance or 70% of
the average closing bid price of the common stock for the lowest three trading
days during the twenty day period immediately preceding the date on which the
Company received notice of conversion from a holder. In connection with the
offering of the Series J preferred Stock, the Company issued warrants to
purchase 141,907 shares of it's common stock at an exercise price of $1.41 per
share.
4
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3. During the first quarter of 2000, the Company received notice of conversion
on 359 shares of Series H Preferred Stock. The Company issued 434,660 shares of
common stock in settlement of the 359 shares of Series H Preferred Stock and the
accrued dividends thereon. The following table sets forth the conversions and
the stock price thereof as of the date of conversion.
Series H
Preferred Stock Common Stock
Conversion Date Face Value Conversion Price
----------------- ---------------- -----------------
01/25/00 $34,000 $1.01
01/27/00 15,154 1.04
02/15/00 125,000 0.95
02/16/00 185,000 1.02
4. During the second quarter of 2000, the Company received notice of
conversion on $350,000 convertible Notes Payable. The Company issued 1,958,505
shares of common stock in settlement of $350,000 of Notes Payable and the
accrued interest thereon. The following table sets forth the conversions and the
stock price thereof as of the date of conversion.
Note Payable Common Stock
Conversion Date Face Value Conversion Price
----------------- ---------------- -----------------
04/28/00 $75,000 $0.19
04/28/00 66,667 0.19
04/28/00 66,667 0.19
04/28/00 33,333 0.19
04/28/00 33,333 0.19
05/11/00 75,000 0.20
In July 2000, the Company rescinded the notice of conversion on the Notes
Payable. The Company was in specific violation of certain clauses of the Notes
Payable agreements with respect to demand registration rights of the converted
common stock.
5. On July 24, 2000, the Company was delisted from the NASDAQ Small Cap
trading board. The common stock is now traded on the NASDAQ OTC Bulletin Board,
due to the Company's non-compliance with NASDAQ maintenance criteria.
5
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Item 2. Management's Discussion and Analysis or Plan of Operations
The following discussions should be read in conjunction with the
condensed consolidated financial statements and notes contained in Item
1 hereof.
Forward Looking Statements
When used in Form 10-QSB and in future filings by the Company
with the Securities and Exchange Commission, the words "will likely
result", "the Company expects", "will continue", "is anticipated",
"estimated", "projected", "outlook" or similar expressions are intended
to identify "forward- looking statements" within the meaning of the
Private Securities Litigation Act of 1995. The Company wishes to caution
readers not to place undue reliance on such forward-looking statements,
each of which speak only as of the date made. Such statements are subject
to certain risks and uncertainties that could cause actual results to
differ materially from historical earnings and those presently
anticipated or projected. The Company has no obligation to publicly
release the results of any revisions, which may be made to any
forward-looking statements to reflect anticipated or unanticipated events
or circumstances occurring after the date of such statements.
Overview
Prior to August 1997, the Company's operations consisted of the
operations of Natural Health Care Centers, and vocational schools. Upon
the acquisition of Global Health Alternatives, Inc. ("GHA") on July 23,
1997, the Company commenced marketing and distributing a line of natural,
over-the-counter homeopathic pharmaceutical products. In February 1999,
the Company formed a subsidiary, Kaire Nutraceuticals, Inc. ("KNI"), and
acquired substantially all of the assets of Kaire International, Inc. and
commenced marketing and distributing a line of natural, herbal based
dietary supplements and personal care products through an established
network marketing system. The Company discontinued the operations of the
natural health care centers during the third quarter of 1997 and sold the
vocational schools in August 1998. During most of the year ended December
1997, the Company's ongoing lines of business were not in operation, not
having been acquired until July 1997 and February 1999, respectively.
Three Months Ended September 30, 2000 Compared To The Three
Months Ended September 30, 1999.
Net Sales. Net sales for the three months ended
September 30, 2000 were approximately $1,544,000 as compared to net
sales for the three months ended September 30, 1999 of approximately
$4,061,000, a decrease of approximately $2,517,000 or 62.0%. Sales
declines were primarily due to the licensing of the GHA product lines
resulting in approximately $191,000 decline for the quarter in sales,
the closure of KNI's United Kingdom subsidiary, a $140,000 decline.
North American sales declined approximately $1,528,000, primarily due
to inconsistencies in product delivery and product shortages. The
Company's number of independent distributors has declined approximately
25%. This trend is partially offset by the acquisition in July of
Network Online, whose sales were approximately $50,000 for the three
months ended September 30, 2000. This subsidiary has been folded into
the Kaire Nutraceutical's operations at the end of the current quarter
and eKaire.com, a subsidiary that began operations on September 18,
2000.
6
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Cost of Goods Sold. Cost of goods sold for the three
months ended September 30, 2000 was approximately $528,000 or 34.2% of
net sales. Cost of goods sold for the three months ended September 30,
1999 was approximately $948,000 or 23.3% of net sales. The total cost
of goods sold decreased by approximately $420,000 or 79.6%. The Company
believes that the decrease in total dollars and increase as a
percentage of net sales was primarily attributable to KNI and higher
fulfillment and shipping costs and its acquisition of Network Online,
whose product line yields a lower gross profit.
Gross Profit. Gross profit decreased from approximately
$3,113,000 in the three months ended September 30, 1999 to
approximately $1,016,000 in the three months ended September 30, 2000.
The decrease was approximately $2,097,000 or 206.3%. The decrease is
attributable to the decline in sales from both GHA and KNI and higher
shipping costs associated with KNI's fulfillment of backordered
products.
Commissions. Associate commissions were approximately
$683,000 or 44.2% of net sales in the three months ended September 30,
2000 compared with $2,007,000 or 49.4% of net sales in the three months
ended September 30, 1999. The decline of approximately $1,324,000 is a
result of lower sales attributable to KNI's direct marketing system.
The decline as a percentage of net sales is primarily due to the change
in KNI's commission structure in late 1999.
Selling, General and Administrative Expenses. Selling,
general and administrative costs decreased from approximately
$1,786,000 or 44.0% of sales in the three months ended September 30,
1999 to approximately $1,076,000 or 69.7% of sales in the three months
ended September 30, 2000, an decrease of approximately $710,000 or
65.9%. The decrease in dollars and corresponding increase as a
percentage of sales is primarily attributable to the acquisition of
Network Online and the start-up costs associated with eKaire.com.
Loss from Operations. Operating losses increased from
approximately $680,000 in the three months ended September 30, 1999 to
approximately $743,000 in the three months ended September 30, 2000
representing a 4.6% increase in the loss or approximately $33,000
between comparable periods.
Minority Interest. The loss offset of approximately
$16,000 in the three months ended September 30, 2000 compared to
approximately $39,000 for the three months ended September 30, 1999,
the minority interest is a reflection of the losses of the Australia
and New Zealand subsidiaries. KNI owns 51% of such subsidiaries.
Gain(loss) on Foreign Exchange. During the three months
ended September 30, 1999, the net gain realized on foreign exchange
adjustments was approximately $8,000 compared to a net gain of
approximately $24,000 for the three months ended September 30, 2000
reflecting a stronger U.S. dollar than KNI's subsidiaries in Australia,
New Zealand and Trinidad and Tobaggo.
Interest Expense (net). Interest expenses of
approximately $12,000 or 0.3% of sales in the three months ended
September 30, 1999 increased to approximately $41,000 or 2.7% of sales
in the three months ended September 30, 2000, a change of approximately
$29,000. This increase is due primarily to a increase in interest
bearing debt.
7
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Income Taxes. Income tax benefits were not reflected in
either period. The anticipated benefits of utilizing net operating
losses against future profits was not recognized in the three months
ended September 30, 2000 or the three months ended September 30, 1999
under the provisions of Financial Standards Board Statement of
Financial Accounting Standards No.109 (Accounting for Income Taxes),
utilizing its loss carryforwards as a component of income tax expense.
A valuation allowance equal to the net deferred tax asset has not been
recorded, as management of the Company has not been able to determine
that it is more likely than not that the deferred tax assets will be
realized.
Net Loss from Continuing Operations. Net loss from
continuing operations was approximately $744,000 in the three months
ended September 30, 2000 or 48.2% of net sales as compared to
approximately $645,000 or 15.9 % of net sales in the three months ended
September 30, 1999. Of the net loss from continuing operations,
approximately $20,000 was attributable to eKaire.com marketing efforts,
and approximately $350,000 was attributable to legal and accounting
fees.
Discontinued Operations. In April 2000, the Company
closed its United Kingdom subsidiary. The Company had anticipated
$20,000 in liquidation proceeds, however, this value has been reduced
to $5,000.
Net Loss. Net loss was approximately $759,000 in the
three months ended September 30, 2000 or 49.1% of net sales as compared
to approximately $752,000 net loss or 18.5% of net sales in the three
months ended September 30, 1999. The increase as a percentage of net
sales is primarily related to the decline in KNI's sales volume.
Nine Months Ended September 30, 2000 Compared To The Nine Months Ended September
30, 1999.
Net Sales. Net sales for nine months ended September
30, 2000 were approximately $6,499,000 as compared to net sales for the
nine months ended September 30, 1999 of approximately $11,426,000, a
decrease of approximately $4,928,000 or 43.1%. Sales declines were
primarily due to the licensing of the GHA product lines resulting in
approximately $722,000 decline in sales, the closure of KNI's United
Kingdom subsidiary, a $400,000. North American sales declined
approximately $4,674,000 due to the outsourcing of KNI's fullfillment
center at the end of 1999 which negatively impacted it's product
distribution. The Company has subsequently reopened it's warehouse
operations. In addition, the Company has been inconsistent in it's
product shipments, resulting in a decrease in sales.
Cost of Goods Sold. Cost of goods sold for the nine
months ended September 30, 2000 was approximately $1,674,000 or 25.8%
of net sales. Cost of goods sold for the nine months ended September
30, 1999 was approximately $2,446,000 or 21.4% of net sales. The total
cost of goods sold decreased by approximately $772,000 or 31.6%. The
Company believes that the decrease in total dollars and increase as a
percentage of net sales was primarily attributable to KNI and higher
fulfillment and shipping costs and its acquisition of Life Dynamics and
Network Online, whose product line yields a lower gross profit.
Gross Profit. Gross profit decreased from approximately
$8,981,000 in the nine months ended September 30, 1999 to approximately
$4,825,000 in the nine months ended September 30, 2000. The decrease
was approximately $4,156,000 or 46.3%. The decrease is attributable to
the decline in sales from both GHA and KNI and higher shipping costs
associated with KNI's fulfillment issues.
8
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Commissions. Associate commissions were approximately
$2,802,000 or 43.1% of net sales in the nine months ended September 30,
2000 compared with $5,539,000 or 48.5% of net sales in the nine months
ended September 30, 1999. The decline of approximately $2,737,000 is a
result of lower sales attributable to KNI's direct marketing system.
The decline as a percentage of net sales is primarily due to the change
in KNI's commission structure in late 1999.
Selling, General and Administrative Expenses. Selling,
general and administrative costs decreased from approximately
$5,289,000 or 46.3% of sales in the nine months ended September 30,
1999 to approximately $3,636,000 or 55.9% of sales in the nine months
ended September 30, 2000, a decrease of approximately $1,653,000 or
31.2%. The decrease in dollars and corresponding increase as a
percentage of sales is primarily attributable to KNI's operations. KNI
reduced staff at the end of April 2000 and closed it's Colorado
facility, which resulted in one time costs of approximately $192,000
related to accrued vacation payouts, disposal of fixed assets, and
moving expenses.
Loss from Operations. Operating losses decreased from
approximately $1,847,000 in the nine months ended September 30, 1999 to
approximately $1,613,000 in the nine months ended September 30, 2000
representing a 12.7% decrease in the loss or approximately $234,000
between comparable periods. This decrease is due to minimal losses
being incurred by GHA as a result of lower overhead.
Minority Interest. The loss offset of approximately
$81,000 in the nine months ended September 30, 2000 compared to
approximately $50,000 for the nine months ended September 30, 1999, the
minority interest is a reflection of the losses of the Australia and
New Zealand subsidiaries. KNI owns 51% of such subsidiaries.
Gain(loss) on Foreign Exchange. During the nine months
ended September 30, 1999, the net gain realized on foreign exchange
adjustments was approximately $10,000 compared to a net gain of
approximately $7,000 for the nine months ended September 30, 2000
reflecting a strong U.S. dollar in KNI's subsidiaries in Australia, New
Zealand and Trinidad and Tobaggo.
Interest Expense (net). Interest expenses of
approximately $50,000 or 0.4% of sales in the nine months ended
September 30, 1999 increased to approximately $59,000 or 0.9% of sales
in the nine months ended September 30, 2000, a change of approximately
$9,000. This increase is due primarily to an increase in interest
bearing debt.
Income Taxes. Income tax benefits were not reflected in
either period. The anticipated benefits of utilizing net operating
losses against future profits was not recognized in the nine months
ended September 30, 2000 or the nine months ended September 30, 1999
under the provisions of Financial Standards Board Statement of
Financial Accounting Standards No.109 (Accounting for Income Taxes),
utilizing its loss carryforwards as a component of income tax expense.
A valuation allowance equal to the net deferred tax asset has not been
recorded, as management of the Company has not been able to determine
that it is more likely than not that the deferred tax assets will be
realized.
Net Loss from Continuing Operations. Net loss from
continuing operations was approximately $1,584,000 in the nine months
ended September 30, 2000 or 24.4% of net sales as compared to
approximately $1,837,000 or 16.1% of net sales in the nine months ended
September 30, 1999
Discontinued Operations. In April 2000, the Company
closed its United Kingdom subsidiary. During the nine months ended
September 30, 2000, the Company wrote off $15,000 of the anticipated
liquidation proceeds.
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Gain on Forgiveness of Debt. During the nine months
ended September 30, 1999, the Company realized a $1,000 gain on the
workout of various debt and payables of GHA.
Net Loss. Net loss was approximately $1,604,000 in the
nine months ended September 30, 2000 or 24.7% of net sales as compared
to approximately $1,965,000 net loss or 17.2% of net sales in the nine
months ended September 30, 1999. The decrease as a percentage of net
sales is primarily related to KNI's sales volume and a greater gross
margin on KNI related sales.
Liquidity and Capital Resources:
We have funded our working capital and capital expenditure
requirements primarily from cash provided through borrowings from
institutions and individuals, and from the sale of our securities in
private placements. Our other ongoing source of cash receipts has been
from the sale of Kaire Nutraceuticals' products.
In February 1998, we issued $300,000 face amount of Series B
Preferred Stock, net of expenses of $38,500. The Series B Preferred
Stock has been converted into 541,330 shares of common stock.
In April 1998, we issued $4,000,000 face amount of Series C
Preferred Stock, net of expenses of $492,500 from the proceeds raised,
we paid $2,500,000 to retire $1,568,407 face value of Series A
Preferred Stock outstanding. The Series C Preferred Stock has been
converted into 3,608,296 shares of common stock.
In July 1998, we issued $75,000 face amount of Series D Preferred
Stock, which was redeemed in August 1998 for $91,291.
In August 1998, we issued $1,650,000 face amount of Series E
Preferred Stock, net of expenses of $210,500. The Series E Preferred
Stock pays dividends of 10% per annum and is convertible into shares of
common stock at the lower of the closing bid price on the date of issue
or 75% of the market value of the common stock. In September 1999,
$610,000 of face amount of Series E Preferred Stock was converted into
603,130 shares of common stock. During the quarter ended September 30,
2000, an additional $30,000 face amount of Series E Preferred Stock was
converted into 921,138 shares of common stock.
In August 1998, we sold our three vocational schools and certain
related businesses for $1,778,333 and other consideration. From the
proceeds from the sale of the schools, we paid $1,030,309 to retire the
remaining $631,593 face value of Series A Preferred Stock then
outstanding, and $91,291 to redeem all of the Series D Preferred Stock
outstanding. The remaining proceeds were used to pay down payables.
In March and April 1999, we issued $1,400,000 of Series H
Preferred Stock. The Series H Preferred Stock pays dividends of 10% per
annum and is convertible into shares of common stock at the lower of
the closing bid price on the date of issue or 75% of the market value
of the common stock. In the first quarter of 2000, 359.154 shares of
Series H Preferred Stock were converted into 434,660 shares of the
Company's common stock.
In June 1999, we borrowed $100,000 from Domain Investments, Inc.
The loan bears interest at 10% per annum and is payable on demand. The
note is convertible into shares of common stock at a discount equal to
60% of the average closing bid price of the common stock on the three
days preceding notice of conversion.
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In July and August 1999 we borrowed $150,000 from Filin
Corporation, and issued a secured promissory note due on the earlier of
60 days from the date of issuance or upon the sale of its securities
resulting in gross proceeds of at least $5,000,000 and bearing interest
at the rate of 10% per annum, but in no event less than $12,000. In
October 1999 we amended the promissory note to provide that the note is
payable upon demand and is convertible into shares of common stock at a
discount equal to 60% of the average closing bid price of the common
stock on the three days preceding notice of conversion.
In October 1999, we borrowed $100,000 from Domain Investments,
Inc. The loan bears interest at 10% per annum and is payable on demand.
The note is convertible into shares of common stock at a discount equal
to 60% of the average closing bid price of the common stock on the
three days preceding notice of conversion.
In November 1999, we borrowed $70,000 from Domain Investments,
Inc. The loan bears interest at 10% per annum and is payable on demand.
The note is convertible into shares of common stock at a discount equal
to 60% of the average closing bid price of the common stock on the
three days preceding notice of conversion. This note was repaid with
interest in March 2000.
During 1999, the Company has not made its payroll tax deposits
with the Internal Revenue Service ("IRS") and the various state taxing
authorities on a timely basis. The Company has filed all required
payroll tax returns and current quarter payments and is currently
negotiating a payment plan with the IRS. As of September 30, 2000, the
Company owes approximately $663,000 of delinquent payroll tax
liabilities including interest and penalties. The Company's failure to
pay its delinquent payroll tax liabilities could result in tax liens
being filed by various taxing authorities.
During 1999, the Company did not make its sales tax deposits with
the various sales tax authorities on a timely basis. The Company has
filed all required sales tax returns. As of September 30, 2000, the
Company owed approximately $175,000 in current and delinquent sales
taxes which is included in other current liabilities. The Company's
failure to pay its delinquent sales taxes could result in tax liens
being filed by various taxing authorities.
In March 2000, we sold 1,000 shares of Series J Preferred Stock
with a stated value of $1,000 per share realizing net proceeds of
$1,000,000. The preferred stock pays a dividend at the rate of 10% per
annum. The preferred stock and the accrued dividends thereon are
convertible into shares of the Company's common stock at a conversion
price equal to the lower of the closing bid price on the date of
issuance or 70% of the average closing bid price of the common stock
for the lowest three trading days during the twenty day period
immediately preceding the date on which the Company receives notice of
conversion from a holder. In connection with the offering of the Series
J Preferred Stock, the Company issued warrants to purchase 141,907
shares of common stock at an exercise price of $1.41 per share.
In September 2000 we converted $2,900 face amount of Series G
Preferred stock for 139,926 shares of common stock.
At June 30, 2000, our ratio of current assets to current
liabilities was .81 to 1.0 and we had a working capital deficit of
approximately $7,505,000.
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Cash used in operations for the nine months ended September 30,
2000 was approximately $616,000. Cash used by investing activities
during the period was approximately $161,000, which primarily relates
to the acquisition of Life Dynamics, Inc.and Network OnLine, Inc.offset
by a return of restricted cash in connection with credit card
agreements at Kaire. Cash provided by financing activities during the
period was approximately $836,000, primarily from the issuance of
preferred stock of approximately $1,000,000 and partially offset by the
redemption of Series H preferred stock of approximately $359,000.
Total cash increased by approximately $62,000 during the period.
Our independent auditors' report on our consolidated financial
statements stated as of December 31, 1999 due to net losses and a
working capital deficit, there is substantial doubt about the company's
ability to continue as a going concern. The Company requires additional
financing to continue operations of which there can be no assurance.
Management has revised its business plan of marketing development and
support for Global Health's products, licensing rights to sell its
products. We believe that the Company will require approximately
$1,500,000, primarily to finance operations for the next 12 months
assuming that we do not have to satisfy certain existing obligations.
The Company intends to raise such additional financing through
additional debt and equity financings, of which there can be no
assurance and for which there are no commitments or definitive
agreements. We have not reached satisfactory settlements with Global
Health's creditors and we have ceased the operations of Global Health
and Global Health may file for protection from creditors under the
bankruptcy laws. There can be no assurance that we will be able to
achieve satisfactory settlements with our creditors or secure such
additional financing. The failure of Natural Health Trends to achieve
satisfactory settlements with our creditors and secure additional
financing would have a material adverse effect on our business,
prospects, financial conditions and results of operations and we may
have to curtail or cease operations.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and Use of Proceeds
The Company rescinded its issuance of 1,958,505 shares of the Company's
common stock and re-recorded Notes Payable in the amount of $350,000 that had
been redeemed during the second quarter of 2000. The Company was in violation of
certain clauses of the Notes Payable relating to demand registration rights.
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
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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, thereunto duly authorized.
NATURAL HEALTH TRENDS CORP.
By: /S/ Mark D. Woodburn
-----------------------
Mark D. Woodburn
Chief Financial Officer
Date: November 15, 2000
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