SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
(Amendment No. 1)
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) March 31, 2004
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NATURAL HEALTH TRENDS CORP.
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(Exact name of registrant as specified in its charter)
Florida 0-25238 59-2705336
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(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
Formation)
12901 Hutton Drive Dallas, TX 75234
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (972) 241-4080
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NA
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(Former name or former address, if changes since last report)
Natural Health Trends Corp. (the "Company" or "NHTC") hereby files this
Amendment No. 1 to its Current Report on Form 8-K, which was filed with the
Commission on April 15, 2004. This Amendment No. 1 provides the unaudited
proforma consolidated financial statements of the Company and the historical
audited financial statements of MarketVision Communications Corporation
("MarketVision"), which was acquired on March 31, 2004.
ITEM 7. Financial Statements and Exhibits
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(a) Financial Statements of Business Acquired
The following financial statements of MarketVision are set forth in
Exhibit 99.1 and are hereby incorporated by reference herein: (i) the audited
balance sheets as of December 31, 2003 and 2002, (ii) the related statements of
income, stockholders' equity and cash flows for the years ended December 31,
2003 and 2002, and (iii) the related notes to the financial statements for such
periods.
(b) Unaudited Proforma Consolidated Financial Information
The following unaudited Proforma Consolidated Statements of Operations
reflects the results of operations for the year ended December 31, 2003 and for
the three months ended March 31, 2004 after giving effect to adjustments
described in the following paragraphs, as if the Company had acquired
MarketVision on January 1, 2003.
The Company has included a post-closing consolidated balance sheet as
of March 31, 2004 in this amendment on page 4, in lieu of a proforma
consolidated balance sheet.
Purchase of MarketVision
On March 31, 2004, the Company entered into a merger agreement with
MarketVision, pursuant to which the Company acquired all of the outstanding
capital stock of MarketVision in exchange for 690,000 shares of NHTC restricted
common stock (the "Issued Shares"), promissory notes in the aggregate principle
amount of approximately $3,203,000, a cash payment of $1,336,875 in April 2004,
less pre-acquisition net payables due MarketVision of approximately $609,000 for
a total purchase price of approximately $17,618,000, including acquisition costs
of approximately $150,000. The shares issued were valued at the average closing
price of NHTC Common Stock of $23.08 discounted by 15% due to certain
restrictions contained in the purchase agreement. The average closing price of
$23.08 was calculated based on the closing price of NHTC Common Stock a few days
before and after the acquisition was announced. MarketVision is the exclusive
developer and service provider of direct selling internet technology used by the
Company since 2001. MarketVision hosts and maintains the internet technology for
the Company and charges an annual fee for this service based upon the number of
enrolled distributors of the Company's products. MarketVision earned revenues
for this service of approximately $1,839,000 and $579,000 for the year ended
December 31, 2003 and three months ended March 31, 2004, respectively.
Management believes that this transaction is in the best interests of
the Company because (i) the success of the Company's business is dependent upon
MarketVision's direct selling software and (ii) the Company projects enrolling a
significant number of new distributors in the future, which would be very
expensive under the former compensation agreement between the Company and
MarketVision. Since the former owners of MarketVision include Terry LaCore, a
member of the Company's Board of Directors and the Chief Executive Officer of
Lexxus International, Inc., a wholly owned subsidiary of NHTC, the Board of
Directors hired the independent appraisal firm of Bernstein, Conklin & Balcombe
to assess the fairness of the transaction with MarketVision from a financial
point of view. In March 2004, Bernstein, Conklin & Balcombe delivered its
opinion to the Company's Board of Directors that the MarketVision transaction is
fair to the Company from a financial point of view.
In addition, the Company entered into a Shareholder's Agreement with
the former stockholders of MarketVision. Such agreement contained customary
terms and conditions, including restrictions on transfers of the NHTC shares,
rights of first refusal and indemnification. Further, the Shareholder's
Agreement contains a one time put right related to 240,000 NHTC shares for the
benefit of the former stockholders of MarketVision (other than Mr. LaCore) that
requires NHTC, during the six month period commencing eighteen months following
the earlier of (i) the first anniversary of the closing date, or (ii) the date
on which the Issued Shares are registered with the Securities and Exchange
Commission (the "SEC") for resale to the public, to repurchase all or part of
the NHTC shares still owned by the such stockholders for $4.00 per share less
any amount previously received by such stockholders from the sale of their
shares of NHTC stock. The Company has recorded this obligation of $960,000 as
mezzanine common stock in the balance sheet at March 31, 2004. The agreement
also provided the former stockholders of MarketVision with piggyback
registration rights in the event NHTC files a registration statement with the
SEC, other than on Forms S-4 or S-8, stock option grants for the former
stockholders (other than Mr. LaCore) as well as three-year employment agreements
for the former stockholders, other than Mr. LaCore. In the event that the
Company defaults on its payment obligations under the notes or the employment
agreements, an entity owned by the former stockholders of MarketVision (other
than Mr. LaCore) has certain rights to use, develop, modify, market, distribute
and sublicense the MarketVision software to third parties.
Operations of MarketVision subsequent to March 31, 2004 have been
included in the Company's consolidated financial statements. The transaction was
accounted for using the purchase method of accounting and the purchase price was
allocated among the assets acquired based on their estimated fair market values.
The assets of MarketVision included certain computer equipment and developed
software.
The purchase price was calculated as follows:
690,000 shares of NHTC Common Stock valued at
$23.08 per share less 15% discount for restrictions
associated with the stock issued $ 13,536,420
Cash paid in April 2004 1,336,875
Promissory notes issued at closing 3,203,403
Preacquisition net payables due to MarketVision (609,190)
Acquisition costs 150,302
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Total purchase price $ 17,617,810
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The purchase price was allocated among assets acquired based on their
estimated fair market values as follows:
Property and equipment 25,000
Amortizable intangible assets 5,600,000
Goodwill 11,992,810
Deferred taxes (1,904,000)
Deferred tax asset recognized for the
Company's loss carry forward based
upon offset against MarketVision's
deferred tax liabilities 1,904,000
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Total purchase price allocation $ 17,617,810
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2
Amortizable intangibles acquired will be amortized over their estimated
life of seven years. The purchase price allocation is based on preliminary
estimates, including estimates of federal tax contingencies, which are subject
to change once additional information becomes available. Changes to these
estimates could result in changes to the purchase price allocation.
Unaudited Proforma Consolidated Financial Information
The Company's unaudited consolidated balance sheet as of March 31, 2004
gives effect to the acquisition of MarketVision and was previously included in
the Company's consolidated financial statements and the notes thereto in the
Company's Quarterly Report on Form 10-Q as of and for the three months ended
March 31, 2004 which are incorporated herein by reference. The Company's
unaudited consolidated balance sheet as of March 31, 2004, as previously filed,
is presented on the following page.
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NATURAL HEALTH TRENDS CORP. and SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
March 31,
2004
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(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 15,266,262
Restricted cash 2,347,024
Accounts receivable 432,973
Inventories, net 5,766,889
Prepaid expenses and other 3,513,663
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Total current assets 27,326,811
Property and equipment, net 869,637
Software 5,600,000
Goodwill 12,756,037
Database, net 593,058
Deposits and other assets 272,852
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Total assets $ 47,418,395
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,830,414
Accrued expenses 3,624,492
Accrued distributor commissions 4,930,758
Income taxes payable 1,831,887
Notes payable 238,760
Current portion of long-term debt 2,729,803
Deferred revenue 5,379,625
Other current liabilities 551,484
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Total current liabilities 22,117,223
Long term debt 525,031
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Total liabilities 22,642,254
Minority interest 626,681
Mezzanine common stock 960,000
Stockholders' equity:
Preferred stock ($1,000 par value; authorized
1,500,000 shares) --
Common stock ($0.001 par value; authorized
500,000,000 shares; issued and outstanding
5,446,365 and 4,656,409 shares as of
March 31, 2004 and December 31, 2003, respectively) 5,446
Additional paid in capital 48,754,556
Accumulated deficit (25,278,505)
Accumulated other comprehensive loss (292,037)
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Total stockholders' equity 23,189,460
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Total liabilities and stockholders' equity $ 47,418,395
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The following unaudited proforma consolidated statements of operations
have been prepared to give effect to the acquisition of MarketVision using the
purchase method of accounting. The unaudited proforma consolidated statements of
operations of the Company and MarketVision for the year ended December 31, 2003
and for the three months ended March 31, 2004 includes the historical statements
of operations for the respective companies for the periods presented as if the
acquisitions had occurred as of January 1, 2003.
The unaudited proforma consolidated financial statements are based on
the respective historical financial statements, including the notes thereto, of
the Company and MarketVision and should be read in conjunction with: (i) the
Company's Annual Report on Form 10-KSB for the year ended December 31, 2003 and
the Form 10-Q for the three months ended March 31, 2004 and (ii) MarketVision's
audited financial statements for the years ended December 31, 2003 and 2002,
included in this amended Current Report as Exhibit 99.1.
The unaudited proforma consolidated statements of operations include
adjustments, which are based upon preliminary estimates, to reflect the
allocation of the purchase price to the acquired assets of MarketVision. The
purchase price allocation is preliminary and the final purchase accounting
adjustments may differ from the proforma adjustments presented herein.
The unaudited proforma consolidated statements of operations are
intended for information purposes only and are not necessarily indicative of the
financial position or results of operations that would have actually been
reported had the acquisition occurred on January 1, 2003 for statements of
operations purposes, nor are they indicative of the future financial position or
results of operations. The unaudited proforma consolidated statements of
operations do not include potential cost savings from operating efficiencies or
synergies that may result from the acquisition.
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NATURAL HEALTH TRENDS CORP. and SUBSIDIARIES
UNAUDITED PROFORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended December 31, 2003
Proforma Proforma
NHTC MarketVision Adjustments Combined
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(Note 1) (Note 2) (Note 3) (Note 4)
Net sales $ 62,885,830 1,839,282 (1,839,282) $ 62,885,830
Cost of sales 12,524,826 -- (1,839,282) 10,685,544
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Gross profit 50,361,004 1,839,282 -- 52,200,286
Operating expenses:
Distributor commissions 27,095,921 -- -- 27,095,921
Selling, general and administrative expenses 16,741,213 1,159,934 800,000 18,701,147
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Total operating expenses 43,837,134 1,159,934 800,000 45,797,068
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Income from operations 6,523,870 679,348 (800,000) 6,403,218
Other income (expense):
Loss on foreign exchange (77,280) -- -- (77,280)
Other income 139,156 -- -- 139,156
Interest income (expense), net (62,996) 2,516 (65,000) (125,480)
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Total other income (expense) (1,120) 2,516 (65,000) (63,604)
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Income from continuing operations before
taxes and minority interest 6,522,750 681,864 (865,000) 6,339,614
Income tax provision (860,000) -- (12,000) (872,000)
Minority interest, net of taxes (284,210) -- -- (284,210)
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Net income 5,378,540 681,864 (877,000) 5,183,404
Preferred stock dividends 810 -- -- 810
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Net income to common shareholders $ 5,377,730 681,864 (877,000) $ 5,182,594
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Basic income per common share:
Net income to common shareholders $ 1.17 $ 0.98
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Basic weighted common shares used 4,609,296 690,000 5,299,296
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Diluted income per common share:
Net income to common shareholders $ 0.95 $ 0.81
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Diluted weighted common shares used 5,688,099 690,000 6,378,099
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See Notes to Unaudited Proforma Consolidated Statements of Operations
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NATURAL HEALTH TRENDS CORP. and SUBSIDIARIES
UNAUDITED PROFORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the Three Months Ended March 31, 2004
Proforma Proforma
NHTC MarketVision Adjustments Combined
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(Note 1) (Note 2) (Note 3) (Note 4)
Net sales $ 38,435,209 579,159 (579,159) $ 38,435,209
Cost of sales 7,928,128 -- (579,159) 7,348,969
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Gross profit 30,507,081 579,159 -- 31,086,240
Operating expenses:
Distributor commissions 20,204,655 -- -- 20,204,655
Selling, general and administrative expenses 6,473,164 199,363 200,000 6,872,527
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Total operating expenses 26,677,819 199,363 200,000 27,077,182
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Income from operations 3,829,262 379,796 (200,000) 4,009,058
Other income (expense):
Loss on foreign exchange (8,868) -- -- (8,868)
Other income 168,583 -- -- 168,583
Interest income (expense), net (913) 153 (4,000) (4,760)
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Total other income (expense) 158,802 153 (4,000) 154,955
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Income from continuing operations before
taxes and minority interest 3,988,064 379,949 (204,000) 4,164,013
Income tax provision (797,613) -- (75,000) (872,613)
Minority interest, net of taxes (79,724) -- -- (79,724)
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Net income 3,110,727 379,949 (279,000) 3,211,676
Preferred stock dividends -- -- -- --
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Net income to common shareholders $ 3,110,727 379,949 (279,000) $ 3,211,676
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Basic income per common share:
Net income to common shareholders $ 0.67 $ 0.60
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Basic weighted common shares used 4,667,288 682,418 5,349,706
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Diluted income per common share:
Net income to common shareholders $ 0.53 $ 0.49
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Diluted weighted common shares used 5,909,383 682,418 6,591,801
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See Notes to Unaudited Proforma Consolidated Statements of Operations
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Notes to Unaudited Proforma Consolidated Statements of Operations
Note 1. The Consolidated Statements of Operations for Natural Health Trends
Corp. and Subsidiaries include the results of operations as reflected in the
Company's Annual Report on Form 10-KSB for the year ended December 31, 2003 and
the Company's unaudited Quarterly Report on Form 10-Q for the three months ended
March 31, 2004.
Note 2. The Statements of Operations for MarketVision include the results of
operations as reflected in the audited financial statements for the year ended
December 31, 2003 included in this amended Current Report as Exhibit 99.1 and
the unaudited preliminary financial statements for the three months ended March
31, 2004.
Note 3. Proforma adjustments include estimated adjustments for both periods
presented to (i) eliminate billings from MarketVision to the Company for
services rendered, (ii) reflect amortization expense on the intangible assets
acquired pursuant to the MarketVision acquisition and amortized over 7 years,
(iii) reflect interest expense on the promissory notes issued pursuant to the
MarketVision acquisition with interest rates of 4.00-4.50% per annum, and (iv)
reflect the estimated incremental income tax provision.
Note 4. The unaudited proforma consolidated statements of operations do not
include potential cost savings from operating efficiencies or synergies that may
results from the acquisitions.
(c) Exhibits
10.1. Agreement and Plan of Merger, dated as of March 31, 2004, by
and among the Company, MergerCo and MarketVision. (1)
10.2. Stockholders Agreement, dated as of March 31, 2004, by and
among the Company, John Cavanaugh, Terry LaCore and Jason
Landry. (1)
10.3. Employment Agreement, dated as of March 31, 2004, between
MergerCo and John Cavanaugh. (1)
10.4. Employment Agreement, dated as of March 31, 2004, between
MergerCo and Jason Landry. (1)
10.5 Guaranty of the Employment Agreements dated as of March 31,
2004 executed by Lexxus International, Inc. (1)
10.6 Software License Agreement dated as of March 31, 2004
among the Company, MergerCo and MarketVision Consulting
Group, LLC. (1)
99.1 Audited Financial Statements of MarketVision Communications
Corporation for the years ended December 31, 2003 and 2002 and
the notes thereto (filed herein).
(1) Previously filed with NHTC's Form 8-K dated March 31, 2004.
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SIGNATURE
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
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Mark D. Woodburn
President
Date: July 1, 2004
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