FORM 10-QSB/A
Amendment No.2
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended June 30, 1997
[ ] 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 Identification No.)
incorporation or organization)
2001 West Sample Road, Suite 318
Pompano Beach, FL 33064
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(Address of Principal Executive Offices)
(954) 969-9771
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(Issuer's telephone number)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes X No
The number of shares outstanding of the issuer's Common Stock, $.001
par value, as of June 30, 1997 was 12,811,261 shares.
NATURAL HEALTH TRENDS CORP.
INDEX
Page
Number
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet as of June 30, 1997 1
(unaudited)
Consolidated Statements of Operations (unaudited) for the
Six and Three months and ended June 30, 1997 and 1996 2
Consolidated Statements of Cash Flows (unaudited) for the
Six months ended June 30, 1997 and 1996 3
Notes to the financial statements 4-6
Item 2. Management's discussion and analysis of financial
condition and results of operations 7-9
PART II - OTHER INFORMATION 10
Item 1 Legal Proceedings
Item 2 Changes in Securities
Item 3 Defaults Upon Senior Securities
Item 4 Submission of Matters to a Vote of Security Holders
Item 5 Other Information
ITEM 5. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
Signature 11
NATURAL HEALTH TRENDS CORP.
CONSOLIDATED BALANCE SHEET
June 30, 1997
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash $ 172,393
Restricted cash 250,000
Accounts receivable 1,582,486
Inventories 335,003
Due from officers 141,379
Due from affiliate 23,724
Prepaid expenses and other current assets 318,443
--------------------
TOTAL CURRENT ASSETS 2,823,428
--------------------
NOTES RECEIVABLE 1,964,000
PROPERTY, PLANT AND EQUIPMENT 3,206,377
GOODWILL 1,504,798
DEPOSITS AND OTHER ASSETS 370,936
--------------------
$ 9,869,539
====================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 548,114
Accrued expenses 140,911
-
Current portion of long term debt 56,468
Deferred revenue 758,200
Current portion of accrued consulting contract 246,607
Other current liabilities 244,726
--------------------
TOTAL CURRENT LIABILITIES 1,995,026
--------------------
LONG-TERM DEBT 1,876,704
DEBENTURES PAYABLE 1,000,000
ACCRUED CONSULTING CONTRACT 149,294
COMMON STOCK SUBJECT TO PUT 380,000
STOCKHOLDERS' EQUITY:
Convertible preferred stock, $.001 par value, 1,500,000 shares authorized;
2,200 shares issued and outstanding 1,534,035
Common stock, $.001 par value; 40,000,000 shares authorized;
12,811,261 shares issued and outstanding at June 30, 1997 12,811
Additional paid-in capital 7,783,679
Retained earnings (accumulated deficit) (4,427,010)
Common stock subject to put (380,000)
Prepaid stock compensation (55,000)
--------------------
TOTAL STOCKHOLDERS' EQUITY 4,468,515
--------------------
$ 9,869,539
====================
See notes to consolidated financial statements.
1
NATURAL HEALTH TRENDS CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three months ended Six months ended
June 30 June 30
----------------------------------- --------------------------------------
1997 1996 1997 1996
--------------- ---------------- ---------------- ----------------
REVENUES $ 1,987,089 $ 1,889,193 $ 4,060,922 $ 3,670,430
COST OF SALES 1,143,988 1,079,190 2,186,476 2,090,870
--------------- ---------------- ---------------- ----------------
GROSS PROFIT 843,101 810,003 1,874,446 1,579,560
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 1,051,181 1,009,164 2,064,154 1,819,120
COST OF SEVERING EMPLOYMENT AGREEMENT - - 497,246 -
LITIGATION SETTLEMENT 6,689 - 118,206 -
NON-CASH IMPUTED COMPENSATION EXPENSE - - 25,000 -
--------------- ---------------- ---------------- ----------------
OPERATING INCOME (LOSS) (214,769) (199,161) (830,160) (239,560)
OTHER INCOME (EXPENSE):
Interest (net) (573,111) (57,671) (635,061) (105,626)
--------------- ---------------- ---------------- ----------------
INCOME (LOSS) BEFORE INCOME TAXES (787,880) (256,832) (1,465,221) (345,186)
PROVISION FOR INCOME TAXES - - -
--------------- ---------------- ---------------- ----------------
NET INCOME (LOSS) (787,880) (256,832) (1,465,221) (345,186)
PREFERRED STOCK DIVIDENDS (366,666) - (366,666) -
--------------- ---------------- ---------------- ----------------
INCOME (LOSS) TO COMMON SHAREHOLDERS $ (1,154,546) $ (256,832) $ (1,831,887) $ (345,186)
=============== ================ ================ ================
EARNINGS (LOSS) PER COMMON SHARE $ (0.09) $ (0.02) $ (0.15) $ (0.03)
=============== ================ ================ ================
WEIGHTED AVERAGE COMMON SHARES USED 12,811,261 11,189,108 12,611,868 11,132,441
=============== ================ ================ ================
See notes to consolidated financial statements.
2
NATURAL HEALTH TRENDS CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six months ended
June 30
-----------------------------------------
1997 1996
------------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,465,221) $ (345,186)
Adjustments to reconcile net loss to net ------------------ ----------------
Depreciation and amortization 162,038 112,842
Non-cash imputed compensation expense 25,000 -
Amortization of note payable discount 433,333
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (100,897) (270,429)
(Increase) decrease in inventories (79,821) (92,776)
(Increase) decrease in prepaid expenses (272,128) (5,027)
(Increase) decrease in deposits and other assets (288,683) (6,352)
Increase (decrease) in accounts payable 100,736 245,408
Increase (decrease) in accrued expenses 10,572 81,554
Increase (decrease) in deferred revenue (5,680) 76,967
Increase (decrease) in other current liabilities (9,955) 11,713
Increase (decrease) in accrued consulting contract 395,900 -
--------------- ---------------
TOTAL ADJUSTMENTS 370,415 153,900
--------------- ---------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (1,094,806) (191,286)
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (161,494) (399,406)
Acquisition expenses - (20,000)
Purchase of marketable securities - (252,584)
Loan to Global Health Alternatives, Inc. (1,964,000) -
--------------- ---------------
NET CASH USED IN INVESTING ACTIVITIES (2,125,494) (671,990)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in due from officer (4,884) -
Increase in due to related parties - (13,958)
Increase in due to bank - 14,343
Decrease in restricted cash 8,932 -
Proceeds from sale of debenture 3,262,528 -
Proceeds from notes payable and long-term debt 577,342 551,732
Payments of debt (968,548) (197,092)
Payments of dividents - (184,173)
Issuance of common stock - -
--------------- ---------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,875,370 170,852
--------------- ---------------
NET INCREASE (DECREASE) IN CASH (344,930) (692,424)
517,323 994,816
--------------- ---------------
CASH, END OF PERIOD $ 172,393 $ 302,392
=============== ===============
See notes to consolidated financial statements.
3
NATURAL HEALTH TRENDS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying financial statements are unaudited, but reflect all
adjustments which, in the opinion of management, are necessary for a
fair presentation of financial position and the results of operations
for the interim periods presented. All such adjustments are of a normal
and recurring nature. The results of operations for any interim period
are not necessarily indicative of the results attainable for a full
fiscal year.
2. EARNINGS (LOSS) PER SHARE
Per share information is computed based on the weighted
average number of shares outstanding during the period.
3. LITIGATION SETTLEMENT
Litigation settlement resulted from the settlement of the litigation
brought about by the landlord in connection with the property leased by
the Company in Lauderhill, Florida (the former location of the
Company's Pompano school), which lease was to expire in July 1997. The
settlement resulted in an additional charge of approximately $112,000
during the quarter ended March 31, 1997 in excess of amounts previously
accrued.
4. ACCRUED CONSULTING CONTRACT
During the quarter ended March 31, 1997, the Company renegotiated with
a former stockholder of Sam Lily, Inc. with whom it was obligated under
an employment agreement to cancel the employment agreement and replace
it with a consulting agreement. The consulting agreement requires the
individual to provide services to the Company for one day per week
through December 1998 at the rate of $5,862 per week. The Company has
determined that the future services, if any, that it will require will
be of little or no value and is accounting for this obligation as a
cost of severing the employment contract. Accordingly, the present
value (applying a discount rate of 10%) of all future
4
payments is accrued in full at June 30, 1997.
5. CONVERTIBLE DEBENTURES
In April 1997, the Company issued $1,300,000 of 6% convertible
debentures (the "Debentures"). Principal on the Debentures is due in
March 2000. The principal and accrued interest on the Debentures are
convertible into shares of common stock of the Company . The Debentures
are convertible into shares of common stock at a conversion price equal
to the lesser of $1.4375 or 75% of the average closing bid price of the
Common Stock for the five trading days immediately preceding the notice
of conversion. In June 1997, the Company repaid $300,000 of the
Debentures.
In conjunction with the issuance of the Debentures, the Company issued
warrants to purchase an aggregate of 200,000 shares of Common Stock.
The warrants are exercisable until April 3, 2002. Warrants to purchase
100,000 shares of Common Stock are exercisable at $2.4375 per share,
and the balances are exercisable at $3.25 per share.
The Company loaned $600,000 of the net proceeds from the issuance of
the Debentures to Global Health Alternatives, Inc. ("Global") pending
the closing of the acquisition of Global under the Agreement and Plan
of Reorganization (the "Reorganization Agreement") dated July 23, 1997.
6. PREFERRED STOCK
In June 1997, the Company sold 2,200 shares of its convertible series A
preferred stock for $1,000 a share realizing net proceeds of
$1,900,702. The preferred stock pays dividends at the rate of 8% per
annum payable in shares of the Company's common stock valued at 80% of
the closing bid price. The preferred stock has a liquidation preference
of $1,000 per share. The preferred stock is convertible commencing 60
days after issuance, provided that a registration statement covering
the resale of the shares of common stock is effective, at the rate of
80% of the average closing bid price of the common stock over the five
days preceeding the notice of redemption. The Company has the right to
redeem the preferred stock for 240 days after the date of issuance at
the rate of 125% of the stated value.
7. ACQUISITION
On July 23, 1997, the Company closed on the acquisition of the capital
stock of Global Health Alternatives, Inc. ("Global"). The note
receivable in the amount of $1,964,000 at June 30, 1997 which
5
is due from Global will be eliminated upon consolidation of the two
companies. The purchase price for the acquisition of Global was settled
with the issuance of 5,800,000 shares of the Company's common stock.
6
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the consolidated
financial statements and notes contained in Item 1 hereof.
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", and "the
Company expects", "will continue", is anticipated", "estimated", "project", or
"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 release the result 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.
Result of Operations
Revenues:
Total revenues were $4,060,922 for the six months ended June 30, 1997 compared
to $3,670,430 for the six months ended June 30, 1996. This represents an
increase of $390,492 or 10.6%. The Company believes that the increase is
primarily attributable to a $489,049 increase in tuition revenue by the
Company's schools. In addition, revenues from the Company's bookstores increased
by $48,109. Offsetting these increases was a decline in revenues from the
Companies natural health care centers of $178,731 due primarily to a decrease in
revenues from the sale of human growth hormone of approximately $71,000, as well
as decreased revenues as a result of the restructuring of the Boca Raton Clinic.
Cost of sales:
Cost of sales for the six months ended June 30, 1997 were $2,186,476 compared to
$2,090,870 for the comparable period last year. Gross profit as a percentage of
revenues was 46.2% for the six months ended June 30, 1997 as compared to 43% for
the six months ended June 30, 1996. Management believes that the primary reason
for the increase is the increased enrollments at the Company's Oviedo school.
Selling, General and Administrative Expenses:
Selling, general and administrative expenses were $2,064,154 for the six months
ended June 30,
7
1997. This represents an increase of $245,034 over the six months ended June 30,
1996. As a percentage of revenues, these costs were 50.8% for the six months
ended June 30, 1997 as compared to 49.6% in the 1996 period. The Company
believes that the increase is primarily due to increased expenses in the natural
health care center located in Pompano Beach, Florida as well as increased
expenses in the Oviedo School to support the increase in student enrollment. The
increase of expenses is also attributable to increased investor relations
expense as well as retaining an investment banking firm in connection with
possible future acquisitions.
Litigation settlement:
The litigation settlement resulted from the settlement of the litigation
commenced by the landlord in connection with property leased by the Company in
Lauderhill, Florida. The leased property was the previous site of the Company's
school now located in Pompano Beach, Florida.
Non-cash Imputed Compensation Expense:
In the first quarter of 1997, the Company -expensed $25,000 relating to the
issuance of 20,000 shares of the Company's common stock to an employee which
amount represents the fair market value of the shares issued.
Interest Expense
Interest expense for the six months ended June 30, 1997 was $635,061 as
compared to $105,626 for the comparable period of 1996. The increase is
primarily due to interest cost associated with the issuance of the convertible
debentures in December 1996 and April 1997 offset by less borrowing against
available lines of credit as well as the investment of excess funds in higher
yield accounts.
Net Loss
For the six months ended June 30, 1997, the net loss was $1,831,887 compared to
a net loss of $345,186 for the six months ended June 30, 1996. The increase in
the loss is primarily attributable to the impact of the individual elements
discussed above.
Liquidity and Capital Resources
The Company has funded its working capital and capital expenditure requirements
from cash provided through borrowing from institutions and from the sale of the
Company's securities in private placements and the initial public offering of
its securities. The Company's primary source of cash receipts is from the
payments for tuition, fees, and books. These payments were funded primarily from
students and parent educational loans and financial aid under various federal
and state assistance programs and, to a lesser extent, from student and parent
resources. The
8
Company's secondary source of cash receipts is from services rendered at the
Company's natural health care centers.
In April 1997, the Company issued $1,300,000 of 6% convertible debentures.
Principal on the debentures is due in March 2000. The principal and accrued
interest on the debentures are convertible into shares of common stock of the
Company commencing July 1997 at a conversion price equal to the lesser of
$1.4375 or 75% of the average closing bid price for the five trading days
immediately preceding the notice of conversion. In conjunction with the
debenture issuance, the Company issued warrants to purchase 200,000 shares of
common stock. The warrants are exercisable until April 3, 2002. Half of the
warrants are exercisable at $2.4375 per share, while the remaining half are
exercisable at $3.25 per share.
On July 23, 1997 the Company aquired all of the capital stock of Global Health
Alternatives, Inc. ("Global"). The note receivable in the amount of $1,964,000
at June 30, 1997 which is due from Global will be eliminated upon consolidation
of the two companies. The purchase price for the acquisition of Global was
settled with the issuance of 5,800,000 shares of the Company's common stock.
In June 1997, the Company sold 2,200 shares of its convertible series A
preferred stock for $1,000 a share realizing net proceeds of $1,900,702. The
preferred stock pays dividends at the rate of 8% per annum payable in shares of
the Company's common stock valued at 80% of the market price. The preferred
stock is convertible commencing 60 days after issuance, provided that a
registration statement covering the resale of the shares of common stock is
effective, at the rate of 80% of the common stock's market price. The Company
has the right to redeem the preferred stock for 240 days after the issuance at
the rate of 125% of the stated value.
At June 30, 1997 the ratio of current assets to current liabilities was 1.42 to
1.0. Working capital was approximately $828,000.
Cash used in operations for the period ended June 30, 1997 was approximately
$1,094,806, attributable primarily to the net loss of $1,465,221, adjusted for
non cash expenses and changes in operating assets and liabilities aggregating
$370,415.
Capital expenditures, primarily related to the expansion of the alternative
health care clinic in Boca Raton, Florida to allow for introduction of new
modalities and the transition of the Company's schools to college status used
approximately $161,494 of cash.
The Company anticipates that its net cash flow together with available lines of
credit will be sufficient to finance the Company's operations during the next
twelve months. However, there can be no assurance that this will be the case.
The Company anticipates that additional financing will be required for the
Company's expansion, including the acquisition of Global.
9
PART II- OTHER INFORMATION
Item 1 Legal Proceedings - None
Item 2 Changes in Securities - None
On June 5, 1997 , the Company consummated a private
placement to four investors of an aggregate of 2,200
shares of Series A Preferred Stock (the "Preferred
Stock") at a purchase pricee of $100 per share. The
shares of Preferred Stock are convertible into shares
of Common Stock commencing August 5, 1997 provided
that a registration statement covering the resale of
such shares of Common Stock is effective. The
conversion price of the shares of Preferred Stock is
equal to 80% of the average closing bid price of the
Common Stock as reported by the NASDAQ SmallCap
Market for the five trading days immediately
preceding the date of the notice of conversion.
Domain Investments, Ltd. received consulting fees of
$264,000 in connection with the private placement.
The sale of the shares of Preferred Stock and the
shares of Common Stock issuable upon conversion thereof
are intended to be exempt from the registration
requirements of the Securities Act pursuant to
Section 4(2) thereof and Rule 506 promulgated
thereunder.
Item 3 Defaults Upon Senior Securities - None
Item 4 Submission of Matters to a Vote of Security Holders - None
Item 5 Other Information - None
Item 6 Exhibits and Reports on Form 8-K
The Company filed a current report on Form 8-K on
August 7, 1997 with respect to the Company's
acquisition of all of the shares of capitacl stock of
Global Health Alternatives, Inc.
10
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/ Neal Heller
President and Chief Executive Officer
Date: January 07, 1998
11
Exhibit Index
Number Description of Exhibit
2.1 Agreement and Plan of Reorganization dated as of July 23, 1997 among the Company,
GHA Holdings, Inc. and Global Health Alternatives, Inc.****
3.1 Amended and Restated Certificate of Incorporation of the Company.*
3.2 Amended and Restated By-Laws of the Company.*
4.1 Specimen Certificate of the Company's Common Stock.*
4.2 Form of Class A Warrant.*
4.3 Form of Class B Warrant.*
4.4 Form of Warrant Agreement between the Company and Continental Stock Transfer &
Trust Company.*
4.5 Form of Underwriter's Warrants.*
4.6 1994 Stock Option Plan.*
4.7 Form of Debenture.***
4.8 Articles of Amendment of Articles of Incorporation of the Company
10.1 Form of Employment Agreement between the Company and Neal R. Heller.*
10.2 Form of Employment Agreement between the Company and Elizabeth S. Heller.*
10.3 Lease, dated April 29, 1993, between Florida Institute of Massage Therapy, Inc., as
tenant, and MICC Venture, as landlord, as amended.*
10.4 Lease, dated April 10, 1991, between Florida Institute of Massage
Therapy, Inc., as tenant, and Superior Investment & Development
Corporation, as agent, for SIDCOR 50/50 Associates.*
10.5 Department of Education, Office of Postsecondary Education, Office of Student
Financial Assistance Program Participation Agreement, dated March 28, 1994, between
the Company and the USDOE.*
10.6 Purchase and Sale Agreement between Merrick Venture Capital, Inc., as seller, and the
Company, as buyer.*
10.7 First Mortgage Loan Documents between the Company and TransFlorida Bank
in connection with the purchase of the Pompano Property.*
10.8 Second Mortgage Loan Documents between the Company and Merrick Venture Capital,
Inc.*
10.9 Agreement dated June 7, 1995 between Natural Health Trends Corp. and Justin Real
Estate Corp.*
Number Description of Exhibit
10.10 Property Management Agreement dated June 7, 1995 between Natural Health Trends
Corp. and Justin Real Estate Corp.*
10.11 Agreement among Natural Health Trends Corp. Health Wellness Nationwide Corp.,
Samantha Haimes and Leonard Haimes.**
10.12 Employment Agreement between Health Wellness Nationwide Corp. and Kaye
Lenzi.**
10.13 Loan Agreements between the Company and Global Health Alternatives,
Inc.***
10.14 Employment Agreement dated July 23, 1997 between the Company and
Robert Bruce
27.1 Financial Data Schedule.
* Previously filed with Registration Statement No. 33-91184.
** Previously filed with the Company's Form 10-KSB for the year ended December 31,
1996.
*** Previously filed with the Company's Form 10-QSB for the quarter ended March 31, 1997.
**** Previously filed with the company's Form 8-K dated August 7,1997