<PAGE>
FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 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.)
380 Lashley Street
Longmont, Colorado 80501
(Address of Principal Executive Office) (Zip Code)
(303) 682-0110
(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 March 31, 2000 was 8,424,511 shares.
<PAGE>
NATURAL HEALTH TRENDS CORP.
INDEX
Page
Number
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet as of March 31, 2000
(unaudited) and December 31, 1999 (audited) 1
Consolidated Statements of Operations (unaudited)
for the Three months ended March 31, 2000 and 1999 2
Consolidated Statements of Cash Flows (unaudited)
for the Three months ended March 31, 2000 and 1999 3
Notes to the financial statements 4
Item 2. Management's discussion and analysis or plan of
operations 5-9
PART II - OTHER INFORMATION
Item 1 Legal Proceedings 9
Item 2 Changes in Securities and Use of Proceeds 9
Item 3 Defaults Upon Senior Securities 9
Item 4 Submission of Matters to a Vote of Security Holders 9
Item 5 Other Information 9
PART III - OTHER
Item 6. Exhibits and Reports on Form 8-K 9
Signature 10
<PAGE>
NATURAL HEALTH TRENDS CORP.
CONSOLIDATED BALANCE SHEET
March 31, December 31,
2000 1999
------------ ------------
(unaudited)
ASSETS
Current Assets
Cash $ 275,494 $ 434,063
Restricted cash 119,667 152,505
Account receivables 836,097 407,490
Inventories 1,117,127 847,212
Prepaid expenses and
other current assets 69,647 120,481
------------ ------------
Total Current Assets 2,418,032 1,961,751
Property and Equipment, net 456,491 567,065
Long Term Prepaids 139,692 54,228
Patents and Customer Lists 7,873,170 7,912,594
Goodwill 682,654 682,654
Deposits and Other Assets 151,556 75,607
------------ ------------
Total Assets $ 11,721,595 $ 11,253,899
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Checks written in excess
of deposits $ 407,475 556,884
Accounts payable 4,708,620 4,511,772
Accrued expenses 642,167 404,458
Accrued bonus payable 421,383 472,503
Accrued payroll payable 729,984 668,390
Notes payable 515,163 854,684
Notes payable related parties 148,929 112,363
Current portion of long term debt 75,995 75,995
Deferred revenue -- 527,831
Other current liabilities 291,774 231,926
------------ ------------
Total Current Liabilites 7,941,490 8,416,806
------------ ------------
Long Term Notes Payable 21,568 --
Capital Lease Obligations,
net of current portion 43,203 53,158
------------ ------------
Total Liabilities 8,006,261 8,469,964
------------ ------------
Stockholders' Equity:
Preferred stock 5,804,542 5,163,695
Common stock 8,425 7,990
Additional paid in capital 22,365,236 21,443,914
Accumulated deficit (23,822,850) (23,165,664)
Deferred compensation (638,250) (666,000)
Cummulative currency
translation adjustment (1,769) --
------------ ------------
Total Stockholders' Equity 3,715,334 2,783,935
------------ ------------
Total Liabilities and Stockholders' Equity $ 11,721,595 $ 11,253,899
============ ============
See Notes to Consolidated Financial Statements.
1
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NATURAL HEALTH TRENDS CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
March 31,
2000 1999
------------ ------------
Revenues $ 3,186,218 $ 2,804,920
Cost of sales 682,197 667,759
------------ ------------
Gross profit 2,504,021 2,137,161
Distributor commissions 1,295,905 1,261,502
Selling, general and
administrative expenses 1,234,110 1,431,434
------------ ------------
Operating loss (25,994) (555,775)
Minority interest in loss
of subsidiaries 25,099 (849)
Gain (loss) on foreign exchange 2,641 (8,476)
Other expense 1,050 -
Interest (net) (6,914) (10,343)
------------ ------------
Net loss (4,118) (575,443)
Preferred stock dividends 625,103 758,136
------------ ------------
Net loss to common shareholders $ (629,221) $ (1,333,579)
============ ============
Basic and diluted loss
per common share:
Continuing operations $ (0.00) $ (0.09)
Preferred stock dividend (0.08) (0.12)
------------ ------------
Net loss to common shareholders $ (0.08) $ (0.21)
============ ============
Basic and diluted weighted common shares used 8,220,350 6,220,331
============ ============
See Notes to Consolidated Financial Statements.
2
<PAGE>
NATURAL HEALTH TRENDS CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
March 31,
2000 1999
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (4,118) $ (575,443)
----------- -----------
Adjustments to reconcile
net loss to net cash used
in operating activities:
Depreciation and amortization 85,346 192,202
Issuance of common stock in
settlement of interest 46 -
Changes in assets and liabilities
Increase in accounts receivable (428,607) (137,541)
(Increase) decrease in inventories (269,915) 151,265
(Increase) decrease in prepaid expenses 50,834 (75,790)
(Increase) decrease in deposits
and other assets (75,949) 69,670
Increase in accounts payable and
cash overdraft (47,439) (1,618,917)
Increase in accrued expenses 331,833 1,274,630
Decrease in deferred revenue (527,831) -
Increase (decrease) in other current
liabilities 59,848 (38,481)
Increase in accrued expenses
for discontinued operations - 91
----------- -----------
Total Adjustments (821,834) (182,871)
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (825,952) (758,314)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures - (21,701)
Business acquisitions - (106,587)
Decrease in restricted cash 32,838 -
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES 32,838 (128,288)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in due to affiliate - 250,000
Proceeds from preferred stock 937,500 849,015
Increase in revolving credit line - 314,593
Proceeds from notes payable and long-term
debt 36,566 -
Payments of notes payable and long-term
debt (339,521) (192,687)
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 634,545 1,220,921
----------- -----------
NET (DECREASE) INCREASE IN CASH (158,569) 334,319
CASH, BEGINNING OF PERIOD 434,063 294,220
----------- -----------
CASH, END OF PERIOD $ 275,494 $ 628,539
=========== ===========
See notes to consolidated financial statements.
3
<PAGE>
NATURAL HEALTH TRENDS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2000
(UNAUDITED)
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 three month period ended March 31,
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.
The Company had a working capital deficiency of approximately
$5,523,000 for the quarter ended March 31, 2000 and $6,597,000 for the
year ended December 31, 1999, and they recorded net losses of
approximately $4,000 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.
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.
Conversion Date Series H Common stock
Preferred Stock conversion price
Face Value
------------------- -- ----------------- --- -----------------
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
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operations
The following discussions should be read in conjunction with the 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 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 the fourth quarter of 1999, the
Company ceased GHA activity and in February 2000 granted certain licensing
agreements to two parties to distribute the GHA products.
Three Months Ended March 31, 2000 Compared To The Three Months Ended March 31,
1999
Net Sales. Net sales for three months ended March 31, 2000 were
approximately $3,186,000 as compared to net sales for the three months ended
March 31, 1999 of approximately $2,805,000, an increase of approximately
$381,000 or 13.6%. The increase in sales is primarily attributable to KNI's
recognition of previously deferred sales of approximately $528,000.
Cost of Goods Sold. Cost of goods sold for the three months ended
March 31, 2000 was approximately $682,000 or 21.4% of net sales. Cost of goods
sold for the three months ended March 31, 1999 was approximately $668,000 or
23.8% of net sales. The total cost of goods sold increased by approximately
$14,000 or 2.1%.
Gross Profit. Gross profit increased from approximately $2,137,000 in
the three months ended March 31, 1999 to approximately $2,504,000 in the three
months ended March 31, 2000. The increase was approximately $367,000 or 17.2%.
The increase was attributable to higher sales volume in 2000 and lower cost of
goods sold.
5
<PAGE>
Commissions. Associate commissions were approximately $1,296,000 or
40.7% of net sales in the three months ended March 31, 2000 compared to
approximately $1,262,000 or 45.0% of net sales for the three months ended March
31, 1999. This decrease is attributable to a new commission structure, that was
started in December 1999, having full effect.
Selling, General and Administrative Expenses. Selling, general and
administrative costs decreased from approximately $1,431,000 or 51.0% of sales
in the three months ended March 31, 1999 to approximately $1,234,000 or 38.7% of
sales in the three months ended March 31, 2000, a decrease of approximately
$197,000 or 13.8%. The decrease is due primarily to KNI's reduction of expenses.
Loss from Operations. Operating losses decreased from approximately
$556,000 in the three months ended March 31, 1999 to approximately $26,000 in
the three months ended March 31, 2000 representing a 95.3% decrease in the loss
of approximately $530,000 between comparable periods. This decrease is due to a
reduction of overhead at GHA and the closure of the New York corporate offices
in December 1999.
Minority Interest. The loss offset of approximately $25,000 in the
three months ended March 31, 2000 for minority interest was a reflection of the
decreased profitability of the Australia and New Zealand subsidiaries. KNI owns
51% of such subsidiaries.
Gain (Loss) on Foreign Exchange. The Company operates KNI's
subsidiaries in Australia, New Zealand, Trinidad and Tobago. During the three
months ended March 31, 2000, the net gain on foreign exchange adjustments was
approximately $3,000 compared to a net loss of approximately $9,000 in the three
months ended March 31, 1999.
Other Expenses. Other expenses of approximately $10,000 or 0.4% of
sales in the three months ended March 31, 1999 declined to approximately $8,000
or 0.2% of sales in the three months ended March 31, 2000, a change of
approximately $2,000. This decrease is due primarily to overall reduction in
interest bearing liabilities.
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 March 31, 2000 or the three
months ended March 31, 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. Net loss from continuing operations was approximately
$4,000 in the three months ended March 31, 2000 or 0.1% of net sales as compared
to approximately $575,000 or 20.5% of net sales in the three months ended March
31, 1999. Of the decrease in net loss from continuing operations, approximately
$15,000 was attributable to GHA's operations and the remaining net income is
primarily attributable to KNI's recognition of previously deferred sales of
approximately $528,000.
6
<PAGE>
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 Global Health's
and 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.
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.
7
<PAGE>
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 is
currently negotiating a payment plan with the IRS. As of March 31, 2000, the
Company owes approximately $730,000 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 March 31, 2000, the Company owed approximately
$289,000 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.
At March 31, 2000, our ratio of current assets to current liabilities was
.30 to 1.0 and we had a working capital deficit of approximately $5,523,000.
Cash used in operations for the three months ended March 31, 2000 was
approximately $529,000. Cash provided by investing activities during the period
was approximately $33,000, which primarily relates to the return of restricted
cash in connection with credit card agreements at Kaire. Cash provided by
financing activities during the period was approximately $338,000, primarily
from the issuance of preferred stock of approximately $1,000,000 and partially
offset by the repayment of certain notes payable of approximately $340,000.
Total cash decreased by approximately $159,000 during the period.
8
<PAGE>
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 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.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and Use of Proceeds
Pursuant to the exemption from the registration requirement under
Section 4(2) of the Securities Act of 1933, as amended, and/or Regulation S
promulgated thereunder, on March 2,2000 the Company sold an aggregate of 1,000
shares of Series J Convertible Preferred Stock at a purchase price of $1,000 per
share to one accredited investor.
The Company received four notices of conversion on its Series H
Preferred Stock during the three months ended March 31, 2000 and redeemed
$359.154, face value in exchange for 434,600 shares of the Company's common
stock.
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to Vote of Security Holders
None
Item 5. Other Information
The Company has received notice from Nasdaq that the Company is not in
compliance with Nasdaq's meeting requirements and proxy solicitation
requirements. The Company has filed a preliminary proxy statement for a
shareholders' meeting in attempt to regain compliance. Th eCompany has been
granted a hearing which is scheduled for June 15, 2000 to contest the Company's
lack of compliance with Nasdaq's maintenance criteria. In the event that the
Company is not in compliance with Nasdaq's maintenance requirement and the
Company's securities are delisted from Nasdaq, there could be a material adverse
effect on the price of the Company's Common Stock.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
The Company filed current reports on Form 8-K on March 17, 2000.
9
<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, thereunto duly authorized.
NATURAL HEALTH TRENDS CORP.
By: /S/ Mark D. Woodburn
-----------------------
Mark D. Woodburn
Chief Financial Officer
Date: May 22, 2000
10
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<PERIOD-START> JAN-01-2000
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