sv3za
As
filed with the Securities and Exchange Commission on March 14,
2008
Registration No. 333-147480
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Pre-Effective
Amendment No. 3 to
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
NATURAL HEALTH TRENDS CORP.
(Exact name of registrant as specified in its charter)
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| Delaware
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59-2705336 |
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(I.R.S. Employer |
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Identification Number) |
2050 Diplomat Drive
Dallas, Texas 75234
(972) 241-4080
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive
offices)
Gary C. Wallace
General Counsel
Natural Health Trends Corp.
2050 Diplomat Drive
Dallas, Texas 75234
(972) 241-4080
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copy to:
John B. McKnight
Locke Lord Bissell & Liddell LLP
2200 Ross Avenue, Suite 2200
Dallas, Texas 75201
(214) 740-8000
Approximate date of commencement of proposed sale to the public: From time to time after the
effectiveness of the registration statement.
If the only securities being registered on this form are being offered pursuant to dividend or
interest reinvestment plans, please check the following box. o
If any of the securities being registered on this Form are to be offered on a delayed or continuous
basis pursuant to Rule 415 under the Securities Act of 1933, as amended (the “Securities Act”),
other than securities offered only in connection with dividend or interest reinvestment plans,
check the following box. þ
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b)
under the Securities Act, please check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same offering. o
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act,
check the following box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. o
If this Form is a registration statement pursuant to General Instruction I.D. or a post effective
amendment thereto that shall become effective upon filing with the Commission pursuant to Rule
462(e) under the Securities Act, check the following box. o
If this Form is a post-effective amendment filed pursuant to General Instruction I.D. filed to
register additional securities or additional classes of securities pursuant to Rule 413(b) under
the Securities Act, check the following box. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large
accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
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Accelerated filer o |
Non-accelerated filer o (Do not check if a smaller reporting company)
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Smaller reporting company þ |
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The Registrant hereby amends this Registration Statement on such date or dates as may be
necessary to delay its effective date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall thereafter become effective in
accordance with Section 8(a) of the Securities Act or until this Registration Statement shall
become effective on such date as the Commission, acting pursuant to said Section 8(a), may
determine. |
PROSPECTUS (Subject to Completion)
Dated
March 14, 2008
The information in this prospectus is not complete and may be changed. The selling stockholders may
not sell these securities until the registration statement filed with the Securities and Exchange
Commission is effective. This prospectus is not an offer to sell these securities and it is not
soliciting any offer to buy these securities in any jurisdiction where the offer or sale is not
permitted.
NATURAL HEALTH TRENDS CORP.
1,700,000 shares of common stock issuable in connection with $4,250,000
face amount variable rate convertible debentures
1,495,952 shares of common stock issuable upon exercise of warrants
This prospectus relates
to the disposition of up to a total of 3,195,952 shares of our common
stock, par value $0.001, that may be offered from time to time by the selling stockholders listed
on page 27 or their transferees. The shares being
offered by this prospectus consist of:
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up to 1,700,000 shares issuable upon conversion of variable rate convertible debentures in the aggregate face
amount of $4,250,000; and |
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up to 1,495,952 shares issuable upon the exercise of warrants held by the selling
stockholders; |
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This prospectus also
covers any additional shares of common stock that may become issuable
upon any anti-dilution adjustment pursuant to the terms of the above-described debentures and
warrants by reason of stock splits, stock dividends, or similar events. The foregoing debentures
and warrants were acquired by the selling stockholders in a private placement financing completed
in October 2007.
We will receive no proceeds from the disposition of shares of our common stock by the selling
stockholders. We will receive proceeds of $3.52 per share from the exercise of any of the
warrants, except to the extent that any such warrants are exercised on a cashless basis.
For a description of the
plan of distribution of the shares, please see page 35 of this
prospectus.
Our common stock is quoted on The NASDAQ Global Market under the symbol “BHIP.” The closing
price of our common stock on March 13, 2008 was $0.80 per share.
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. PLEASE READ THE “RISK FACTORS”
BEGINNING ON PAGE 6.
Neither the Securities and Exchange Commission nor any state securities commission has
approved or disapproved of these securities or passed upon the adequacy or accuracy of this
prospectus. Any representation to the contrary is a criminal offense.
The date of the prospectus
is , 2008.
TABLE OF CONTENTS
You should rely only on the information contained in or incorporated by reference into this
document or to which we have referred you. We have not, and the selling stockholders have not,
authorized anyone to provide you with information that is different. This document may only be used
where it is legal to sell these securities. The information in this document may only be accurate
on the date of this document.
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this prospectus constitute “forward-looking statements” within
the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. All statements included in this prospectus, other than
statements of historical facts, regarding our strategy, future operations, financial position,
estimated revenues, projected costs, prospects, plans and objectives are forward-looking
statements. When used in this prospectus, the words “believe,” “anticipate,” “intend,” “estimate,”
“expect,” “project,” “could,” “would,” “may,” “plan,” “predict,” “pursue,” “continue,” “feel” and
similar expressions are intended to identify forward-looking statements, although not all
forward-looking statements contain these identifying words.
We cannot guarantee future results, levels of activity, performance or achievements, and you
should not place reliance on our forward-looking statements. Our actual results could differ
materially from those anticipated in these forward-looking statements as a result of various
factors, including the risks described in “Risk Factors,” and elsewhere in this prospectus. Our
forward-looking statements do not reflect the potential impact of any future acquisitions, mergers,
dispositions, joint ventures or strategic investments. In addition, any forward-looking statements
represent our expectation only as of the date of this prospectus and should not be relied on as
representing our expectations as of any subsequent date. While we may elect to update
forward-looking statements at some point in the future, we specifically disclaim any obligation to
do so, even if our expectations change.
Although we believe that the expectations reflected in any of our forward-looking statements
are reasonable, actual results could differ materially from those projected or assumed in any of
our forward-looking statements. Our future financial condition and results of operations, as well
as any forward-looking statements, are subject to change and to inherent risks and uncertainties,
such as those disclosed in this prospectus under “Risk Factors.”
Additional factors that could cause actual results to differ materially from our
forward-looking statements are set forth in each of our most recent Annual Report on Form 10-K and
our Quarterly Reports on Form 10-Q, each of which is incorporated by reference into this
prospectus, including under the heading “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and in our financial statements and the related notes included
therein.
Forward-looking statements in this prospectus speak only as of the date hereof. The Company
does not undertake any obligation to update or release any revisions to any forward-looking
statement or to prospectus any events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events, except as required by law. Unless otherwise noted, the terms
“we,” “our,” “us,” “Company,” refer to Natural Health Trends Corp. and its subsidiaries.
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PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus. This summary does
not contain all of the information you should consider before investing in our common stock. You
should read the entire prospectus carefully, including the section describing the risks of
investing in our common stock under the caption “Risk Factors,” and the documents incorporated by
reference in the section entitled “Incorporation of Certain Documents by Reference” before making
an investment decision. Some of the statements in this summary constitute forward-looking
statements. For more information, please see “Cautionary Note Regarding Forward-Looking
Statements.”
We are an international direct-selling and e-commerce organization headquartered in Dallas,
Texas. Subsidiaries controlled by us sell personal care, wellness, and “quality of life” products
under the “NHT Global” brand to an independent distributor network that either uses the products
themselves or resells them to consumers. Prior to June 1, 2006, we marketed our “NHT Global”
branded products under the name “Lexxus International.”
Our majority-owned subsidiaries have an active physical presence in the following markets:
North America; Greater China, which consists of Hong Kong, Macau, Taiwan and China; Southeast Asia;
South Korea; Japan; Latin America; and Europe.
We seek to be a leader in the direct selling industry serving the health and wellness
marketplace by selling our products into multiple venues and markets through our direct selling
marketing operations. Our objectives are to enrich the lives of the users of our products and
enable our distributors to benefit financially from the sale of our products.
We were originally incorporated as a Florida corporation in 1988. We merged into one of our
subsidiaries and re-incorporated in the State of Delaware effective June 29, 2005. We maintain
executive offices at 2050 Diplomat Drive, Dallas, Texas 75234 and our telephone number is (972)
241-4080. Our website is located at www.naturalhealthtrendscorp.com. The information
provided on our website should not be considered part of this prospectus.
Private Placement Financing
On October 19, 2007, we entered into definitive agreements that resulted in the consummation
of a private placement financing generating gross proceeds of approximately $3,740,000. The
financing consisted of the sale of variable rate convertible debentures having an aggregate face
amount of $4,250,000, seven-year warrants representing the right to purchase 1,495,952 shares of
our common stock, and one-year warrants representing the right to purchase 1,495,952 shares of our
common stock. The selling stockholders identified in this prospectus are the original investors and
the placement agent (and certain of its assigns) that participated in the private placement
financing.
The debentures are convertible by their holders into shares of our common stock at a
conversion price of $2.50, subject to adjustment in certain specified circumstances. One-half of
the original principal amount of the debentures is payable in 12 equal monthly installments
beginning on November 1, 2008, with the balance payable on October 19, 2009, unless extended by the
holders to October 19, 2012. The debentures bear interest at the greater of (i) LIBOR plus 4% and
(ii) 10% per annum. Interest is payable quarterly beginning on January 1, 2008. Payments of
principal and interest may be made in cash or, at our option if certain conditions are met, in
shares of registered common stock. Under certain conditions, we also have the right to force
conversion or to effect a redemption of the debentures. The debentures include a number of
obligations and negative covenants binding on us, including the requirement that we seek
stockholder approval of the issuance of all of the shares of common stock underlying both the
debentures and the warrants sold in the private placement financing no later than the date of our
2008 annual stockholder meeting.
The seven-year warrants have a seven-year term and the one-year warrants have a one-year term,
each beginning six months and one day after their respective issuance. All such warrants have an
exercise price
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of $3.52 per share and otherwise have identical terms. The exercise price and the number of
shares underlying the warrants are subject to adjustment in certain specified circumstances;
provided that the exercise price cannot be adjusted lower than $3.52 prior to stockholder approval.
If, at any time after the earlier of October 19, 2008 and the completion of the then applicable
holding period under Rule 144, there is no effective registration statement for the underlying
shares of common stock, the warrants may be exercised on a cashless basis. For further information
regarding the foregoing October 2007 private placement financing, please see below under the
caption “Selling Stockholders — Private Placement Financing.”
Dawson James Securities, Inc. (“Dawson James”) acted as placement agent in connection with the
private placement described above. In addition to a cash transaction fee of approximately $280,500,
Dawson James received five-year warrants to purchase an aggregate of 149,595 shares of our common
stock at an exercise price of $3.52 per share. Other than its five-year term, the terms of the
warrant issued to Dawson James are identical to the terms in the warrants purchased by the investors
in the private placement.
THE OFFERING
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Shares of common stock underlying
variable rate convertible debentures
due October 19, 2009
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1,700,000 |
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Shares of common stock being registered
for issuance upon the exercise of
one-year warrants
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1,495,952 |
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Total shares of common stock
outstanding as of March 7, 2008
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10,290,276 |
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Total proceeds raised by us from the
disposition of the common stock by the
selling stockholders or their
transferees
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We will receive no proceeds
from: (i) the conversion of the
debentures, (ii) the sale of
common stock issuable upon such
conversion, or (iii) the sale of
the common stock issuable upon
exercise of any warrants. |
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We could receive gross proceeds
of up to $5,265,751 (based on
an exercise price of $3.52 per
share) from the exercise of the
1,495,952 warrants covered by
the registration statement of
which this prospectus forms a
part. |
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NASDAQ Global Market symbol
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BHIP |
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Risk factors
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See “Risk Factors” beginning on
page 6 of this prospectus for
a discussion of factors you
should carefully consider before
deciding to invest in our common
shares. |
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RISK FACTORS
An investment in our common stock involves a high degree of risk. You should carefully
consider the following risk factors in addition to the other information contained in this
prospectus, or incorporated by reference herein, before deciding whether to invest in our shares of
common stock. If any of the following risks actually occurs, our business, financial condition and
results of operations would suffer. In such case, you may lose all or part of your original
investment.
Risk Factors Related To Our Business and Industry
We May Continue To Experience Substantial Negative Cash Flows, Which May Have A Significant
Adverse Effect On Our Business And Could Threaten Our Solvency.
We have experienced substantial negative cash flows during the years ended December 31, 2005
and 2006, and the first three quarters of 2007, primarily due to increase in investment in 2005 as
well as declines in our revenues without as much proportional decreases in expenditures in 2006 and
2007. If this trend continued, the decreasing cash balance could impair our ability to support our
operations and, eventually, threaten our solvency, which would have a material adverse effect on
our business, results of operations and financial condition as well as our stock price. Negative
cash flows and the related adverse market perception associated therewith may have negatively
affected, and may in the future negatively affect, our ability to attract new distributors and/or
sell our products. There can be no assurance that we will be successful in maintaining an adequate
level of cash resources and we could be forced to act more aggressively in the area of expense
reduction in order to conserve cash resources as we look for alternative solutions.
If We Continue To Experience Negative Cash Flows, We May Need To Seek Debt Or Equity Financing,
Which May Not Be Available On Acceptable Terms Or At All. If Available, It Could Have A Dilutive
Effect On The Holdings Of Existing Stockholders.
Unless we are able to stabilize or grow revenues, control expenses and achieve positive cash
flows, our ability to support our obligations could be impaired and our liquidity could be
adversely affected and our solvency and our ability to repay our debts when they come due could be
threatened. We may need to seek additional debt or equity financing on acceptable terms in order to
improve our liquidity. However, our ability to obtain additional debt or equity financing is
restricted by the terms of some agreements with our investors. In any case, we may not be able to
obtain additional debt or equity financing on satisfactory terms, or at all, and any new financing
could have a dilutive effect to our existing stockholders.
We Face Risks Related To An SEC Investigation, Securities Litigation and Other Litigation That
Could Have A Material Adverse Effect On Our Relationships With Our Distributors, Business,
Financial Condition And Results Of Operations. We May Face Additional Litigation In The Future That
Could Also Harm Our Business.
In October 2006, the SEC issued a formal order of investigation to determine whether there
have been violations of the federal securities laws by us and/or others involved with us. Although
we have fully cooperated with the SEC in this matter and intend to continue to fully cooperate, we
cannot predict when this investigation will be completed or its outcome. We could face sanctions in
connection with any resolution of the SEC investigation, including but not limited to, significant
monetary penalties and injunctive relief.
In addition, we and certain of our directors and former officers have been named as defendants
in a securities class action lawsuit. Due to the volatility of the stock market and particularly
the stock prices of network marketing companies, it is possible that we will face additional class
action lawsuits in the future. The findings and outcome of the SEC investigation may affect the
class action and other lawsuits that are pending and any future litigation that we may face.
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In
addition, we continue to defend a lawsuit with the bankruptcy
estate of John Loghry, a former master distributor for our NHT Global
business. The order setting this case for trial in February 2008 has
been vacated, and no new trial date has been set.
Any settlement of the class action and other litigation or any resolution of the SEC
investigation may involve significant cash payments that could create or increase negative cash
flows. If we are unable to achieve a settlement of the class action and other litigation, we could
be liable for large damage awards. There can be no assurance that damage awards, if any, and the
costs of litigation will be covered by insurance. If not, this could have a material adverse effect
on our business, results of operations and financial condition.
Defending against existing and potential litigation and other governmental proceedings may
continue to require significant expense and attention of our management. There can be no assurance
that the significant money, time and effort spent will not adversely affect our business, financial
condition and results of operations.
We Could Be Adversely Affected By Additional Audit Committee Investigations.
From time to time, the Audit Committee of our Board of Directors may investigate, or employ an
independent investigator to investigate, reported or suspected violations of laws, ethics, or
policies by our officers, directors, employees or consultants. Any discovery of wrongdoing
resulting from any such investigation, or any disclosure of any such investigation or its results,
could have material adverse consequences for us.
Continued Adverse News About Us Could Have A Material Adverse Effect On Our Ability To Attract And
Maintain Distributors.
Our recent operating performance, changes in management, volatility in stock price, SEC
investigation of us and lawsuits filed against us may have negatively affected, and may continue to
negatively affect, our ability to attract and retain distributors, without whom we would be unable
to sell our products and generate revenues.
We Could Be Adversely Affected By Additional Management Changes Or An Inability To Attract And
Retain Key Management And Consultants.
Our future success depends to a significant degree on the skills, experience and efforts of
our top management and key consultants, particularly our management personnel responsible for our
Hong Kong and MarketVision subsidiaries. In November 2005, we terminated two top employees, Mark
Woodburn, former President and director of the Company, and Terry LaCore, former Chief Executive
Officer of NHT Global and former director of the Company, due to misconduct. Although we settled
our disputes with these individuals in 2006, continued changes in senior management may have had,
and may in the future have, a material adverse effect on our business, results of operations and
financial condition. We also depend on the ability of our executive officers and other members of
senior management to work effectively as a team. The loss of one or more of our executive officers,
members of our senior management, or key consultants could have a material adverse effect on our
business, results of operations and financial condition. Moreover, as our business evolves, we may
require additional or different management members or consultants, and there can be no assurance
that we will be able to locate, attract and retain them if and when they are needed.
As A Network Marketing Company, We Rely On An Independent Sales Force And We Do Not Have Direct
Control Over The Marketing Of Our Products.
We rely on non-employee, independent distributors to market and sell our products. We have a
large number of distributors and a relatively small corporate staff to implement our marketing
programs and to provide motivational support and training to our distributors. Distributors may
voluntarily terminate their agreements with us at any time, and there is typically significant
turnover in our distributor ranks.
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Since We Cannot Exert The Same Level Of Influence Or Control Over Our Independent Distributors As
We Could Were They Our Own Employees, Our Distributors Could Fail To Comply With Our Distributor
Policies And Procedures, Which Could Result in Claims Against Us That Could Harm Our Financial
Condition And Operating Results.
Our distributors are independent contractors and, accordingly, we are not in a position to
directly provide the same direction, motivation and oversight as we would if distributors were our
own employees. As a result, there can be no assurance that our distributors will participate in our
marketing strategies or plans, accept our introduction of new products, or comply with our
distributor policies and procedures. Extensive federal, state and local laws regulate our business,
our products and our network marketing program. Because we have expanded into foreign countries,
our policies and procedures for our independent distributors differ due to the different legal
requirements of each country in which we do business. While we have implemented distributor
policies and procedures designed to govern distributor conduct and to protect the goodwill
associated with our trademarks and trade names, it can be difficult to enforce these policies and
procedures because of the large number of distributors and their independent status. Given the size
and diversity of our distributor force, we experience problems with distributors from time to time,
especially with respect to our distributors in foreign markets. Distributors often desire to enter
a market, before we have received approval to do business, to gain an advantage in the marketplace.
Improper distributor activity in new geographic markets could result in adverse publicity and can
be particularly harmful to our ability to ultimately enter these markets. Violations by our
distributors of applicable law or of our policies and procedures in dealing with customers could
reflect negatively on our products and operations, and harm our business reputation. In addition,
it is possible that a court could hold us civilly or criminally accountable based on vicarious
liability because of the actions of our independent distributors. If any of these events occur, the
value of an investment in our common shares could be impaired.
We May Be Unable To Protect Or Use Our Intellectual Property Rights.
We rely on trade secret, copyright and trademark laws and confidentiality agreements with
employees and third parties, all of which offer only limited protection. Moreover, the laws of some
countries in which we market our products may afford little or no effective protection of our
intellectual property rights. The unauthorized copying or other misappropriation of our
intellectual property could enable third parties to benefit from such property without paying us
for it. For example, limited protection of intellectual property is available under Chinese law,
and the local manufacturing of our products may subject us to an increased risk that unauthorized
parties may attempt to copy or otherwise obtain or use our product formulations. This could have a
material adverse effect on our business, operating results and financial condition. If we resort to
legal proceedings to enforce our intellectual property rights, the proceedings could be burdensome
and expensive and could involve a high degree of risk. It is also possible that our use of our
intellectual property rights could be found to infringe on prior rights of others and, in that
event, we could be compelled to stop or modify the infringing use, which could be burdensome and
expensive.
Claims May Arise Against Us From Unknown Oral Agreements And Misconduct of Former Officers and
Directors.
We have investigated oral agreements entered into and misconduct by Mark Woodburn, former
President and director of the Company, and Terry LaCore, former Chief Executive Officer of NHT
Global and former director of the Company. There can be no assurance that all such oral agreements
and misconduct have been discovered. Additional discoveries could lead to claims and proceedings
against us, our subsidiaries and their officers and directors. If it is determined that any conduct
by Messrs. Woodburn and LaCore violated any law, there can be no assurance that we or one or more
of our subsidiaries would not be subjected to prosecution or adverse proceedings. Any such claims,
prosecutions or other proceedings and the cost of their defense could have a material adverse
impact on our reputation, business and financial condition.
Adverse Publicity Associated With Our Products, Ingredients Or Network Marketing Program, Or Those
Of Similar Companies, Could Harm Our Financial Condition And Operating Results.
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Adverse publicity concerning any actual or claimed failure by us or our distributors to comply
with applicable laws and regulations regarding product claims and advertising, good manufacturing
practices, the regulation of our network marketing program, the licensing of our products for sale
in our target markets or other aspects of our business, whether or not resulting in enforcement
actions or the imposition of penalties, could have an adverse effect on our goodwill and could
negatively affect our ability to attract, motivate and retain distributors, which would negatively
impact our ability to generate revenue. We cannot ensure that all distributors will comply with
applicable legal requirements relating to the advertising, labeling, licensing or distribution of
our products.
In addition, our distributors’ and consumers’ perception of the safety and quality of our
products and ingredients as well as similar products and ingredients distributed by other companies
can be significantly influenced by national media attention, publicized scientific research or
findings, widespread product liability claims and other publicity concerning our products or
ingredients or similar products and ingredients distributed by other companies. Adverse publicity,
whether or not accurate or resulting from consumers’ use or misuse of our products, that associates
consumption of our products or ingredients or any similar products or ingredients with illness or
other adverse effects, questions the benefits of our or similar products or claims that any such
products are ineffective, inappropriately labeled or have inaccurate instructions as to their use,
could negatively impact our reputation or the market demand for our products.
Network marketing systems such as ours are frequently subject to laws and regulations directed
at ensuring that product sales are made to consumers of the products and that compensation,
recognition, and advancement within the marketing organization are based on the sale of products
rather than investment in the sponsoring company. We are subject to the risk that, in one or more
of our present or future markets, our marketing system could be found not to comply with these laws
and regulations or may be prohibited. Failure to comply with these laws and regulations or such a
prohibition could have a material adverse effect on our business, financial condition, and results
of operations. Further we may simply be prohibited from distributing products through a
network-marketing channel in some foreign countries, or be forced to alter our compensation plan.
Our Failure To Maintain And Expand Our Distributor Relationships Could Adversely Affect Our
Business.
We distribute our products through independent distributors, and we depend upon them directly
for all of our sales. Accordingly, our success depends in significant part upon our ability to
attract, retain and motivate a large base of distributors. Our direct selling organization is
headed by a relatively small number of key distributors. The loss of a significant number of
distributors, including any key distributors, could materially and adversely affect sales of our
products and could impair our ability to attract new distributors. Moreover, the replacement of
distributors could be difficult because, in our efforts to attract and retain distributors, we
compete with other direct selling organizations, including but not limited to those in the personal
care, cosmetic product and nutritional supplement industries. Our distributors may terminate their
services with us at any time and, in fact, like most direct selling organizations, we have a high
rate of attrition.
Following a 97% and 33% increase in active distributors in 2004 and 2005, we experienced a 19%
decrease in active distributors during 2006 (excluding KGC and the Kaire Entities which were sold
during 2005 and 2006, respectively) and a 35% decrease in active distributors during the nine-month
period ended September 30, 2007. The number of active distributors or their productivity may not
increase and could further decline in the future. Distributors may terminate their services at any
time, and, like most direct selling companies, we experience a high turnover in our distributor
ranks. We cannot accurately predict any fluctuation in the number and productivity of distributors
because we primarily rely upon existing distributors to sponsor and train new distributors and to
motivate new and existing distributors. Operating results could be adversely affected if our
existing and new business opportunities and products do not generate sufficient economic incentive
or interest to retain existing distributors and to attract new distributors.
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Changes to Our Distributor Compensation Plan May Not Gain Acceptance
We completed implementation of a change in our compensation plan for distributors during the
second quarter of 2007. Among other things, this change introduced a new bonus value builder
feature allowing independent distributors to customize their product packages, as opposed to having
to select assortments pre-determined by us, and reduced certain thresholds for earning commissions
so that they can be earned earlier and quicker. This change also eliminated a direct bonus feature
of the plan. If distributors fail to understand the compensation plan or are unhappy with it, we
could lose distributors and fail to attract new distributors.
Because Our Hong Kong Operations Account For A Majority Of Our Business, Any Adverse Changes In Our
Business Operations In Hong Kong Would Materially Harm Our Business.
In 2004, 2005 and 2006 and for the nine-month period ended September 30, 2007, approximately
56%, 62%, 67% and 63% of our revenue, respectively, was generated in Hong Kong. Various factors
could harm our business in Hong Kong, such as worsening economic conditions or other events that
are out of our control. For example, on April 12, 2004, a television program was aired in the
People’s Republic of China with respect to the operations of our Hong Kong subsidiary and our
representative office located in Beijing. The television program alleged that our Hong Kong
operations engaged in fraudulent activities and sold products without proper permits. Due to the
adverse publicity caused by the airing of the television program, revenues from Hong Kong declined
significantly. There have been other isolated cases of alleged misconduct by our members in China.
If the alleged misconduct of our members in China is finally determined to be illegal and
attributable to us or our subsidiaries, then this could have a material adverse effect on our
financial condition and results of operations.
Our Business In Hong Kong, Which Represented 67% Of Our Revenue In 2006, May Be Harmed By The
Results Of Increased Government Scrutiny Of Our Current And Proposed Operations In China.
From
1998 to 2005, direct selling was restricted in China to ten companies
that had an approval
that we do not currently have. In November 2005, the Chinese government adopted an anti-multilevel
marketing legislation ahead of its December 2005 adoption of legislation to legalize direct
selling. Since December 2005, additional companies have been granted
a direct selling license. Meanwhile, the government has rigorously monitored multi-level marketing activities and enforced
these laws. In the past, the government has taken significant actions against companies that the
government found in violation of applicable laws. Governmental actions included shutting down their
businesses and arresting alleged perpetrators. Consequently, a few of our direct selling peer
companies have modified their business models and started selling to Chinese consumers through
owned, leased or franchised retail outlets. We have not implemented a direct sales model in China
although we have applied for a direct selling license. Instead, we have begun the initial launch of
a Preferred Customer retail-only e-commerce model in China. This retail-only model would not have a
compensation plan until such time as a direct selling license may be issued. Further, the Chinese
entity will operate completely separate and apart from the Hong Kong entity, though a Chinese
consumer may elect to participate separately in both. While it is not certain if the Chinese
government will embrace this model, we believe that the China entity will be compliant as it will
not be operating a direct selling model in China until it receives a direct selling license.
We Could Be Required To Modify Our Compensation Plan In China In A Way That Could Make It Less
Attractive To Members, And This Could Have A Significant Adverse Effect On Our Revenue.
We could be required to modify our compensation plan in China in a way that could make it less
attractive to members. Any such modification to our compensation plan could, therefore, have a
material adverse effect on revenue. Moreover, the business model that we are implementing in China
will likely involve costs and expenses that we do not generally incur in the e-commerce business
that we have historically operated in other markets, including Hong Kong. As a result, the business
that we ultimately are able to conduct in China could be materially less profitable than the
e-commerce business that we have historically operated in Hong Kong.
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Our E-Commerce Business In Hong Kong, Which Represents A Significant Portion Of Our Total Revenue,
Could Be Adversely Affected By The Activities Of The Members in China, If Members In China Engage
In Activities That Are Deemed To Violate China’s Anti-Multilevel Marketing Laws.
While we have strictly forbidden any of our members in China to engage in activities that
violate China’s anti-multilevel marketing laws, some of our members in China have engaged in such
activities. In Dongguan, four of our members were detained for questioning in October 2005 with
regard to possible violation of Chinese law regarding the maximum number of people who can attend a
meeting as well as possible improper network marketing business activity. Charges were never filed
and all individuals were released. In April, 2006, a media report indicated that someone was
detained by Public Security in Changsha for investigation of similar allegations. We have not been
able to determine if the individual in question is, in fact, a member and whether or not any laws
were actually broken. Initial inquiries made by retained Chinese counsel indicate that no one is
still being detained or has been charged. Reviews and investigations of such activities by
government regulators, if any are commenced, could restrict our ability to conduct business.
Most of our Hong Kong revenues are derived from the sale of products that are delivered to
members in China. We operate an e-commerce direct selling model in Hong Kong and recognize this
revenue as being generated in Hong Kong. Orders are taken in Hong Kong. Commissions are earned by
members in China based on the same binary model used by us throughout the world and are recorded
and paid in Hong Kong and denominated in Hong Kong Dollars. Commission incomes are declared to the
tax authorities in Hong Kong. Members who order the products register themselves with a Hong Kong
address and tax identification number. None of the servers on which our Hong Kong e-commerce
activities are conducted are located in China. Products purchased by members in China are delivered
by us to a third party that acts as the importer of record under an agreement to pay applicable
duties. From April 2005 through December 2005, the importer of record was a related party.
We believe that the laws and regulations in China regarding direct selling and multi-level
marketing are not specifically applicable to our Hong Kong based e-commerce activity. Nor are we
aware of any specific laws or regulations in China, or any official interpretation thereof, that
govern this Hong Kong centered e-commerce activity. However, there can be no assurance that such
laws, regulations or interpretations will not be adopted in the future. Should such laws, rules or
interpretations be adopted or should the government determine that our e-commerce activity violates
China’s anti-multilevel marketing legislation, there could be a material adverse effect on our
business, cash flow and financial statements. There is no way we can estimate the effect of such an
adverse effect.
Although we would attempt to work closely with both national and local governmental agencies
in implementing our plans, our efforts to comply with national and local laws may be harmed by a
rapidly evolving regulatory climate, concerns about activities resembling violations of
anti-multi-level marketing legislation and any subjective interpretation of laws. Any determination
that our operations or activities, or the activities of our employee sales representatives,
distributors living outside of China or importers of record are not in compliance with applicable
regulations could result in the imposition of substantial fines, extended interruptions of
business, restrictions on our future ability to obtain business license or expand into new
locations, substantially diminishing our ability to retain existing sales representatives and
attract new sales representatives, changes to our business model, the termination of required
licenses to conduct business, or other actions, all of which would harm our business.
If We Fail To Obtain A Direct Selling License In China, Our Future Business Could Be Harmed.
The Chinese government has adopted new direct selling legislation as of December 1, 2005. We
submitted an application for a direct selling license in December 2005 and, after rules changes,
re-submitted an application package in June 2006. In November
2007, we filed a new, revised direct
selling application incorporating a name change, our new e-commerce model and other developments.
We think we meet all of the legal requirements, including capitalizing our Chinese entity with a
$12.0 million cash infusion, but there can be no assurance that a license will be granted. We
currently operate a Preferred Customer retail-only e-commerce model in China that is linked to a
member’s position in Hong Kong. If
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we are able to obtain a direct selling license in China, the license would provide us with
more options to do business. If we do not, there would be some impact to us but it is not believed
that it would materially adversely affect us under our current model.
Failure To Properly Pay Business Taxes, Including Those In China, Could Have A Material Adverse
Effect.
In the course of doing business we may be subject to various taxes, such as sales and use,
value-added, franchise, income, and import duty. The failure to properly calculate, report and pay
such taxes when we are subject to them could have a material adverse effect on our financial
condition and results of operations. Moreover, any change in the law or regulations regarding such
taxes, or any interpretation thereof, could result in an increase in the cost of doing business.
Between April and December 2005, our Hong Kong subsidiary engaged a service provider to
facilitate product importation into China and act, or engage another party to act, as the importer
of record. The individual that owns that service provider was one of the directors of our
wholly-owned Chinese subsidiary. We believe that the amount of duty paid to Chinese Customs on the
imported goods by the importer of record was paid at the negotiated rate. However, there can be no
assurance that Chinese Customs will not elect, in the future, to examine the duty paid, and if they
conduct such examination, they may conclude that the valuation established was insufficient,
resulting in an underpayment of duties. As a consequence, the importer of record could be required
to pay additional duties and possible penalties to Chinese Customs. Additional duties could range
between zero and $46.0 million, plus penalties. The extreme worst case was calculated using the
highest possible assessment to the highest possible declared value and assuming that negotiated
valuation practices do not apply. We believe that any such future assessment of additional duties
or penalties would be made against and become the responsibility of the importer of record. There
can be no assurance that we or our subsidiaries would not be assessed with such liability in the
event that the importer of record is unable to pay all or part of such amount.
As We Continue To Expand Into Foreign Markets Our Business Becomes Increasingly Subject To
Political And Economic Risks. Changes In These Markets Could Adversely Affect Our Business.
We believe that our ability to achieve future growth is dependent in part on our ability to
continue our international expansion efforts. However, there can be no assurance that we would be
able to grow in our existing international markets, enter new international markets on a timely
basis, or that new markets would be profitable. We must overcome significant regulatory and legal
barriers before we can begin marketing in any foreign market.
Also, it is difficult to assess the extent to which our products and sales techniques would be
accepted or successful in any given country. In addition to significant regulatory barriers, we may
also encounter problems conducting operations in new markets with different cultures and legal
systems from those encountered elsewhere. We may be required to reformulate certain of our products
before commencing sales in a given country. Once we have entered a market, we must adhere to the
regulatory and legal requirements of that market. No assurance can be given that we would be able
to successfully reformulate our products in any of our current or potential international markets
to meet local regulatory requirements or attract local customers. The failure to do so could have a
material adverse effect on our business, financial condition, and results of operations. There can
be no assurance that we would be able to obtain and retain necessary permits and approvals.
In many markets, other direct selling companies already have significant market penetration,
the effect of which could be to desensitize the local distributor population to a new opportunity,
or to make it more difficult for us to recruit qualified distributors. There can be no assurance
that, even if we are able to commence operations in foreign countries, there would be a
sufficiently large population of potential distributors inclined to participate in a direct selling
system offered by us. We believe our future success could depend in part on our ability to
seamlessly integrate our business methods, including distributor compensation plan, across all
markets in which our products are sold. There can be no assurance that we would be able to further
develop and maintain a seamless compensation program.
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An Increase In The Amount Of Compensation Paid To Distributors Would Reduce Profitability.
A significant expense is the payment of compensation to our distributors, which represented
approximately 51% and 48% of net sales during 2006 and the nine-month period ended September 30,
2007, respectively. Factors impacting the overall commission payout include the growth and depth
of the distributor network, the distributor retention rate, the level of promotions, local
promotional programs and business development agreements. We compensate our distributors by paying
commissions, bonuses, and certain awards and prizes. We closely monitor the amount of compensation
to distributors paid as a percentage of net sales and have recently implemented adjustments to our
compensation plan to provide, in our view, a more viable and sustainable business model for both us
and our distributors. There can be no assurance that these changes or future changes to our
compensation plan or product pricing would be successful in maintaining the level of distributor
compensation expense as a percentage of net sales. Furthermore, these changes may make it difficult
to recruit and retain qualified and motivated distributors. An increase in compensation payments to
distributors as a percentage of net sales will reduce our profitability.
We Do Not Have Product Liability Insurance And Product Liability Claims Could Hurt Our Business.
Currently, we do not have product liability insurance, although the insurance carried by our
suppliers may cover certain product liability claims against us. Nevertheless, we do not conduct or
sponsor clinical studies of our products. As a marketer of nutraceuticals, cosmetics and other
products that are ingested by consumers or applied to their bodies, we may become subjected to
various product liability claims, including that:
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our products contain contaminants; |
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our products include inadequate instructions as to their uses; or |
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our products include inadequate warnings concerning side effects and interactions
with other substances. |
If our suppliers’ product liability insurance fails to cover product liability claims or other
product liability claims, or any product liability claims exceeds the amount of coverage provided
by such policies or if we are unsuccessful in any third party claim against the manufacturer or if
we are unsuccessful in collecting any judgment that may be recovered by us against the
manufacturer, we could be required to pay substantial monetary damages which could materially harm
our business, financial condition and results of operations. As a result, we may become required to
pay higher premiums and accept higher deductibles in order to secure adequate insurance coverage in
the future. Especially since we do not have direct product liability insurance, it is possible that
product liability claims and the resulting adverse publicity could negatively affect our business.
Our Internal Controls And Accounting Methods Require Further Modification.
We modified certain of our accounting policies and made other adjustments to our accounting
for past transactions, which resulted in the restatement of our financial statements for each
quarter in 2001, 2002, and 2003, for the years ended December 31, 2001, 2002, 2003, and 2005, as
well as the first quarter in 2004. In connection with the restatement of our financial statements,
many of the restatement items are the result of material weaknesses in our internal controls and
procedures. Also, in November 2005, our top two officers at the time, Mark Woodburn and Terry
LaCore, our President and the Chief Executive Officer of NHT Global U.S., respectively, were
terminated due to management misconduct.
We continue to develop controls and procedures and plans to implement additional controls and
procedures sufficient to accurately report our financial performance on a timely basis in the
foreseeable future. Nevertheless, we continue to have material weaknesses. If we are unable to
develop and implement
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effective controls and procedures, we may not be able to report our financial performance on a
timely basis and our business and stock price would be adversely affected.
Non-Compliance With Section 404 Of The Sarbanes-Oxley Act Of 2002 Could Materially Adversely Affect
Us.
The Securities and Exchange Commission (the “Commission”), as directed by Section 404 of the
Sarbanes-Oxley Act of 2002, adopted rules which could require us to include in our annual reports
on Form 10-K, beginning in fiscal 2007, an assessment by management of the effectiveness of our
internal controls over financial reporting. In addition, our independent auditors must attest to
and report on management’s assessment of the effectiveness of such internal controls over financial
reporting beginning in fiscal 2008. While we intend to diligently and thoroughly document, review,
test and improve our internal controls over financial reporting to comply with Section 404 of the
Sarbanes-Oxley Act of 2002, if our independent auditors are not satisfied with the adequacy of our
internal controls over financial reporting, or if the independent auditors interpret the
requirements, rules and/or regulations differently than we do, then they may decline to attest to
management’s assessment or may issue a report that is qualified. This could result in an adverse
reaction in the financial marketplace due to a loss of investor confidence in the reliability of
our financial statements, which could negatively impact the price of our common stock.
We Rely On And Are Subject To Risks Associated With Our Reliance Upon Information Technology
Systems.
Our success is dependent on the accuracy, reliability, and proper use of information
processing systems and management information technology. Our information technology systems are
designed and selected to facilitate order entry and customer billing, maintain distributor records,
accurately track purchases and distributor compensation payments, manage accounting operations,
generate reports, and provide customer service and technical support. Although we acquired
MarketVision—our distributor software service provider—during the first half of 2004, in part, to
gain greater control over its operations, any interruption in these systems could have a material
adverse effect on our business, financial condition, and results of operations.
In connection with its acquisition of MarketVision Communications Corporation in 2004, we and
MarketVision entered into a Software License Agreement (the “Software License Agreement”) dated as
of March 31, 2004, with MarketVision Consulting Group, LLC (the “Licensee”), a limited liability
company owned by John Cavanaugh, the President of MarketVision, and Jason Landry, a Vice President
of MarketVision. The Software License Agreement was filed on April 15, 2004, as an Exhibit to our
Current Report on Form 8-K filed on that date.
Upon an Event of Default (as defined), the Software License Agreement grants, among other
things, the Licensee with an irrevocable, exclusive, perpetual, royalty free, fully-paid,
worldwide, transferable, sublicensable right and license to use, copy, modify, distribute, rent,
lease, enhance, transfer, market, and create derivative works to the MarketVision software. An
“Event of Default” under the Software License Agreement includes a “Share Default,” which is
defined as our market value per share failing to equal or exceed $10.00 per share for any one
rolling period of six months for a certain period following the acquisition of MarketVision. The
last time that our stock closed at or above $10.00 per share was February 16, 2006, and a Share
Default would otherwise have occurred on August 17, 2006. The parties to the Software License
Agreement amended that agreement to provide that no Share Default would occur prior to December 31,
2006. No further amendments have been entered into, and as a result, we are currently in default.
Although an Event of Default has occurred, we believe that we continue to have the right to
continue using the MarketVision software for internal use only and not as an application service
provider or service bureau, but may not rent, lease, license, transfer or distribute the software
without the Licensee’s prior written consent. Moreover, we believe that we have the right to
receive certain application service provider services from Licensee, if it chooses to do so. We do
not believe that the occurrence of the Event of Default has had or will have a material adverse
effect on us.
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Regulatory Matters Governing Our Industry Could Have A Significant Negative Effect On Our Business.
In both our United States and foreign markets, we are affected by extensive laws, governmental
regulations, administrative determinations, court decisions and similar constraints. Such laws,
regulations and other constraints may exist at the federal, state or local levels in the United
States and at all levels of government in foreign jurisdictions. There can be no assurance that we
or our distributors are in compliance with all of these regulations. Our failure or our
distributors’ failure to comply with these regulations or new regulations could lead to the
imposition of significant penalties or claims and could negatively impact our business. In
addition, the adoption of new regulations or changes in the interpretations of existing regulations
may result in significant compliance costs or discontinuation of product sales and may negatively
impact the marketing of our products, resulting in significant loss of sales revenues.
Direct Selling System
Our direct selling system is subject to a number of federal and state regulations administered
by the Federal Trade Commission (the “FTC”) and various state agencies as well as regulations in
foreign markets administered by foreign agencies. Regulations applicable to direct selling
organizations generally are directed at ensuring that product sales ultimately are made to
consumers and that advancement within the organizations is based on sales of the organizations’
products rather than investments in the organizations or other non-retail sales related criteria.
We are subject to the risk that, in one or more markets, our marketing system could be found not to
be in compliance with applicable regulations. The failure of our direct selling system to comply
with such regulations could have a material adverse effect on our business in a particular market
or in general.
We are also subject to the risk of private party challenges to the legality of our direct
selling system. The regulatory requirements concerning direct selling systems do not include
“bright line” rules and are inherently fact-based. An adverse judicial determination with respect
to our direct selling system, or in proceedings not involving us directly but which challenge the
legality of other direct selling marketing systems, could have a material adverse effect on our
business.
On April 12, 2006 the FTC issued a notice of proposed rulemaking which, if implemented, will
regulate all sellers of “business opportunities” in the United States. The proposed rule would,
among other things, require all sellers of business opportunities, which would likely include us,
to (i) implement a seven day waiting period before entering into an agreement with a prospective
business opportunity purchaser, and (ii) provide all prospective business opportunity purchasers
with substantial information in writing at the beginning of the waiting period regarding the
business opportunity, including information relating to: representations made as to the earnings
experience of other business opportunity purchasers, the names and telephone numbers of recent
purchasers in their geographic area, cancellation or refund policies and requests within the prior
two years, certain legal actions against the company, its affiliated companies and company
officers, directors, sales managers and certain others. The Direct Selling Association (the “DSA”)
and other interested parties have filed over 17,000 comments with the FTC that are publicly
available regarding the proposed rule through the FTC’s website at
http://www.ftc.gov/os/comments/businessopprule/index.htm. The DSA and other interested parties also
filed “rebuttal” comments with the FTC in September 2006. Based on information currently available,
we anticipate that the final rule may require several years to become final and effective, and may
differ substantially from the rule as originally proposed. Nevertheless the proposed rule, if
implemented in its original form, would negatively impact our business in the United States.
Product Regulations
The formulation, manufacturing, packaging, labeling, distribution, importation, sale and
storage of certain of our products are subject to extensive regulation by various federal agencies,
including the U.S. Food and Drug Administration (“FDA”), FTC, the Consumer Product Safety
Commission and the United States Department of Agriculture and by various agencies of the states,
localities and foreign countries in
15
which our products are manufactured, distributed and sold. Failure by our distributors or us
to comply with those regulations could lead to the imposition of significant penalties or claims
and could materially and adversely affect our business. In addition, the adoption of new
regulations or changes in the interpretation of existing regulations may result in significant
compliance costs or discontinuation of product sales and may adversely affect the marketing of our
products, resulting in significant loss of sales revenues.
On March 7, 2003, the FDA proposed a new regulation to require current Good Manufacturing
Practices (“cGMPs”), affecting the manufacture, packing, and holding of dietary supplements. The
proposed regulation would establish standards to ensure that dietary supplements and dietary
ingredients are not adulterated with contaminants or impurities, and are labeled to accurately
reflect the active ingredients and other ingredients in the products. It also includes proposed
requirements for designing and constructing physical plants, establishing quality control
procedures, and testing manufactured dietary ingredients and dietary supplements, as well as
proposed requirements for maintaining records and for handling consumer complaints related to
cGMPs. We are evaluating this proposal with respect to its potential impact upon the various
contract manufacturers that we use to manufacture our products, some of whom might not meet the new
standards.
Product Claims, Advertising and Distributor Activities
Our failure to comply with FTC or state regulations, or with regulations in foreign markets
that cover our product claims and advertising, including direct claims and advertising by us, as
well as claims and advertising by distributors for which we may be held responsible, may result in
enforcement actions and imposition of penalties or otherwise materially and adversely affect the
distribution and sale of our products. Distributor activities in our existing markets that violate
applicable governmental laws or regulations could result in governmental or private actions against
us in markets where we operate. Given the size of our distributor force, we cannot assure that our
distributors would comply with applicable legal requirements.
Transfer Pricing and Similar Regulations
In many countries, including the United States, we are subject to transfer pricing and other
tax regulations designed to ensure that appropriate levels of income are reported as earned by our
United States or local entities and are taxed accordingly. In addition, our operations are subject
to regulations designed to ensure that appropriate levels of customs duties are assessed on the
importation of our products.
Our principal domicile is the United States. Under tax treaties, we are eligible to receive
foreign tax credits in the United States for taxes paid abroad. As our operations expand outside
the United States, taxes paid to foreign taxing authorities may exceed the credits available to us,
resulting in the payment of a higher overall effective tax rate on our worldwide operations.
We have adopted transfer pricing agreements with our subsidiaries to regulate inter-company
transfers, which agreements are subject to transfer pricing laws that regulate the flow of funds
between the subsidiaries and the parent corporation for product purchases, management services, and
contractual obligations, such as the payment of distributor compensation. In 2005, we implemented a
foreign holding and operating company structure for our non-United States businesses, although we
have since discontinued our operational use of this structure to reduce costs and because we
determined that our United States operating losses will lower our overall effective tax rate.
We believe that we operate in compliance with all applicable transfer pricing laws and we
intend to continue to operate in compliance with such laws. However, there can be no assurance that
we will continue to be found to be operating in compliance with transfer pricing laws, or that
those laws would not be modified, which, as a result, may require changes in our operating
procedures.
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Taxation Relating To Distributors
Our distributors are subject to taxation, and in some instances legislation or governmental
agencies impose an obligation on us to collect the taxes, such as value added taxes, and to
maintain appropriate records. In addition, we are subject to the risk in some jurisdictions of
being responsible for social security and similar taxes with respect to our distributors.
Other Regulations
We are also subject to a variety of other regulations in various foreign markets, including
regulations pertaining to employment and severance pay requirements, import/export regulations and
antitrust issues. Our failure to comply or assertions that we fail to comply with these regulations
could have a material adverse effect on our business in a particular market or in general.
To the extent we decide to commence or expand operations in additional countries, government
regulations in those countries may prevent or delay entry into or expansion of operations in those
markets. In addition, our ability to sustain satisfactory levels of sales in our markets is
dependent in significant part on our ability to introduce additional products into the markets.
However, government regulations in both our domestic and international markets can delay or prevent
the introduction, or require the reformulation or withdrawal, of some of our products.
Currency Exchange Rate Fluctuations Could Lower Our Revenue And Net Income.
In 2006 and for the nine months ended September 30, 2007, approximately 89% and 91%,
respectively, of our revenue was recorded by subsidiaries located outside of North America. Revenue
transactions and related commission payments, as well as other incurred expenses, are typically
denominated in the local currency. Accordingly, our international subsidiaries use the local
currency as their functional currency. The results of operations of our international subsidiaries
are exposed to foreign currency exchange rate fluctuations during consolidation since we translate
into U.S. dollars using the average exchanges rates for the period. As exchange rates vary, revenue
and other operating results may differ materially from our expectations. Additionally, we may
record significant gains or losses related to foreign-denominated cash and cash equivalents and the
re-measurement of inter-company balances.
We believe that our foreign currency exchange rate exposure is somewhat limited since the Hong
Kong dollar is pegged to the U.S. dollar. We also purchase almost all inventories in U.S. dollars.
Our foreign currency exchange rate exposure, mainly to Korean won, Singapore dollar, New Taiwan
dollar, Japanese yen, Mexican peso, Chinese yuan, European euro and Australia dollar, represented
approximately 23% and 26% of our revenue in 2006 and for the nine-month period ended September 30,
2007. Our foreign currency exchange rate exposure would significantly increase if the Hong Kong
dollar were no longer pegged to the U.S. dollar.
Given our inability to predict the degree of exchange rate fluctuations, we cannot estimate
the effect these fluctuations may have upon future reported results, product pricing or our overall
financial condition. Further, to date we have not attempted to reduce our exposure to short-term
exchange rate fluctuations by using foreign currency exchange contracts.
Failure Of New Products To Gain Distributor And Market Acceptance Could Harm Our Business.
An important component of our business is our ability to develop new products that create
enthusiasm among our distributor force. If we fail to introduce new products on a timely basis, our
distributor productivity could be harmed. In addition, if any new products fail to gain market
acceptance, are restricted by regulatory requirements, or have quality problems, this would harm
our results of operations. Factors that could affect our ability to continue to introduce new
products include, among others, limited capital resources, government regulations, proprietary
protections of competitors that may limit our ability to offer comparable products and any failure
to anticipate changes in consumer tastes and buying preferences.
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System Failures Could Harm Our Business.
Because of our diverse geographic operations and our internationally applicable distributor
compensation plans, our business is highly dependent on efficiently functioning information
technology systems provided by MarketVision. The MarketVision systems and operations are vulnerable
to damage or interruption from fires, earthquakes, telecommunications failures, computer viruses
and worms, hacking, disruption of service attacks, software defects and other events. They are also subject to break-ins, sabotage, acts of
vandalism and similar misconduct. Despite precautions implemented by the staff of MarketVision,
problems could result in interruptions in services and materially and adversely affect our
business, financial condition and results of operations.
We Have A Limited Product Line.
We offer a limited number of products under our NHT Global brand. Our Premium Noni Juice™,
Skindulgence®, Alura® and La Vie™ products each account for a significant portion of our total
sales and, together, account for a significant majority of our total sales. If demand for any of
these four products decreases significantly, government regulation restricts the sale of these
products, we are unable to adequately source or deliver these products, or we cease offering any of
these products for any reason without a suitable replacement, our business, financial condition and
results of operations could be materially and adversely affected.
We Do Not Manufacture Our Own Products So We Must Rely On Independent Third Parties For The
Manufacturing And Supply Of Our Products.
All of our products are manufactured by independent third parties. There is no assurance that
our current manufacturers will continue to reliably supply products to us at the level of quality
we require. In the event any of our third-party manufacturers become unable or unwilling to
continue to provide the products in required volumes and quality levels at acceptable prices, we
will be required to identify and obtain acceptable replacement manufacturing sources. There is no
assurance that we will be able to obtain alternative manufacturing sources or be able to do so on a
timely basis. An extended interruption in the supply of our products will result in a substantial
loss of sales. In addition, any actual or perceived degradation of product quality as a result of
our reliance on third party manufacturers may have an adverse effect on sales or result in
increased product returns and buybacks.
The High Level Of Competition In Our Industry Could Adversely Affect Our Business.
The business of marketing personal care, cosmetic, nutraceutical, and lifestyle enhancement
products is highly competitive. This market segment includes numerous manufacturers, distributors,
marketers, and retailers that actively compete for the business of consumers both in the United
States and abroad. The market is highly sensitive to the introduction of new products, which may
rapidly capture a significant share of the market. Sales of similar products by competitors may
materially and adversely affect our business, financial condition and results of operations.
We are subject to significant competition for the recruitment of distributors from other
direct selling organizations, including those that market similar products. Many of our competitors
are substantially larger than we are, offer a wider array of products, have far greater financial
resources and many more active distributors than we have. Our ability to remain competitive
depends, in significant part, on our success in recruiting and retaining distributors through an
attractive compensation plan and other incentives. We believe that our compensation and incentive
programs provide our distributors with significant earning potential. However, we cannot be sure
that our programs for recruitment and retention of distributors would be successful.
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Terrorist
Attacks, Cyber Attacks, Acts Of War, Epidemics Or Other Communicable Diseases Or Any Other Natural
Disasters May Seriously Harm Our Business.
Terrorist
attacks, cyber attacks, or acts of war or natural disasters may cause damage or disruption to us,
our employees, our facilities and our customers, which could impact our revenues, expenses and
financial condition. The potential for future terrorist attacks, the national and international
responses to terrorist attacks, and other acts of war or hostility, such as the Chinese objection
to the Taiwan independence movement and its resultant tension in the Taiwan Strait, could
materially and adversely affect our business, results of operations, and financial condition in
ways that we currently cannot predict. Additionally, natural disasters less severe than the Indian
Ocean tsunami that occurred in December 2004 may adversely affect our business, financial condition
and results of operations.
Risk Factors Related To Our Common Stock
Disappointing Quarterly Revenue Or Operating Results Could Cause The Price Of Our Common Stock To
Fall.
Our quarterly revenue and operating results are difficult to predict and may fluctuate
significantly from quarter to quarter. If our quarterly revenue or operating results fall below the
expectations of investors or securities analysts, the price of our common stock could fall
substantially.
Our Common Stock Is Particularly Subject To Volatility Because Of The Industry In Which We Operate.
The market prices of securities of direct selling companies have been extremely volatile, and
have experienced fluctuations that have often been unrelated or disproportionate to the operating
performance of such companies. These broad market fluctuations could adversely affect the market
price of our common stock.
There Is No Assurance That An Active Public Trading Market Will Continue.
There can be no assurance that an active public trading market for our common stock will be
sustained. If for any reason an active public trading market does not continue, purchasers of the
shares of our common stock may have difficulty in selling their securities should they desire to do
so and the price of our common stock may decline.
If Securities Analysts Do Not Publish Research Or Reports About Our Business Or If They Downgrade
Our Stock, The Price Of Our Stock Could Decline.
The trading market for our shares of common stock could rely in part on the research and
reporting that industry or financial analysts publish about us or our business. We do not control
these analysts. Furthermore, if one or more of the analysts who do cover us downgrades our stock,
the price of our stock could decline. If one or more of these analysts ceases coverage of our
company, we could lose visibility in the market, which in turn could cause our stock price to
decline.
We Have Broad Discretion To Use The Proceeds Of Our Recent Private Placement Financings.
We have broad discretion in spending the net proceeds generated by our May 2007 and October
2007 private placements. We may spend most of the net proceeds from the private placements in ways
that ultimately prove unsuccessful. Our failure to apply these funds effectively could have a
material adverse effect on our business, results of operations and financial condition, and may
also require further funding, which could dilute stockholders’ ownership and cause a decline in the
share price of our common stock.
19
Risk Factors Related To Our October 2007 Private Placement Financing and To This Offering
Leverage And Debt Service Obligations May Adversely Affect Our Cash Flows.
In connection with our sale of variable rate convertible debentures in October 2007, we
incurred new indebtedness of $4,250,000. As a result of this indebtedness, we incurred significant
principal and interest payment obligations. The degree to which we are leveraged could, among other
things:
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• |
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require us to dedicate a substantial portion of our future cash flows from operations
and other capital resources to debt service, especially if the debentures are not
converted into shares of common stock or we are otherwise unable to make payments of
principal and interest in shares of common stock; |
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| |
• |
|
make it difficult for us to obtain necessary financing in the future for working
capital, acquisitions or other purposes on favorable terms, if at all; |
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• |
|
make it more difficult for us to be acquired; |
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• |
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make us more vulnerable to industry downturns and competitive pressures; and |
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• |
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limit our flexibility in planning for, or reacting to changes in, our business. |
Our ability to meet our debt service obligations will depend upon our future performance,
which will be subject to financial, business and other factors affecting our operations, many of
which are beyond our control.
We Could Be Required To Make Substantial Cash Payments Upon An Event Of Default Under Our Variable
Rate Convertible Debentures.
Our variable rate convertible debentures provide for events of default including, among
others, payment defaults not timely cured, failure to perform other covenants not timely cured,
cross-defaults not timely cured having a material adverse effect on us, representations or
warranties are untrue when made, certain bankruptcy-type events involving us or one of our
significant subsidiaries, acceleration of more than $150,000 in indebtedness for borrowed money or
under a long-term leasing or factoring agreement, our common stock is no longer listed on an
eligible market, we are subject to certain changes in control or we sell or dispose of more than
40% of our assets in a single or series of related transactions, the registration statement
covering the shares of common stock underlying the debentures and warrants issued in our October
2007 financing is not declared effective, lapses or otherwise cannot be used beyond specified
periods, failure to timely deliver certificates for converted shares, and a judgment in excess of
$250,000 against us, any subsidiary or our respective assets that is not timely vacated, bonded or
stayed. Upon an event of default, the holders of the debentures may elect to accelerate the
payment of all amounts due under the debentures and require that 115% of the outstanding debenture
principal be paid. If an event of default occurs, our available cash could be seriously depleted
and our ability to fund operations could be materially harmed.
We Are Responsible For Having The Resale Of Shares Of Common Stock Underlying Certain of Our
Convertible Securities Issued In Our 2007 Private Placement Financings Registered With The
Commission Within Specified Time Periods And Will Incur Liquidated Damage Payment Obligations If
The Shares Are Not Registered With The Commission Within Those Specified Time Periods Or Such
Registration Is Not Maintained.
Pursuant to our agreement with the investors in our October 2007 financing, we are obligated
to (i) file a registration statement covering the resale of certain of the shares of common stock underlying
the securities issued in the financing with the Commission on or prior to November 18, 2007, (ii) cause the registration statement to be declared effective within certain specified periods of
time and (iii) maintain the effectiveness of the
20
registration statement and the ability of the investors to use the prospectus forming a part
thereof for a specified period. If we fail to comply with these or certain other provisions, then
we will be required to pay liquidated damages of 2.0% per month of the aggregate purchase price
paid with respect to the unregistered shares of common stock by the investors in the October 2007 financing until the first anniversary of the closing date
of the financing and 1.0% per month thereafter through the second anniversary of the closing date.
Pursuant to our agreement with the investors in our May 2007 financing, we are obligated for a
specified period of time to maintain the effectiveness of the registration statement that we filed
with the Commission covering the resale of the shares of common stock issuable upon the conversion
of Series A preferred stock or the exercise of warrants issued in the financing. If we fail to
maintain the effectiveness of such registration statement due to our intentional and willful act
without immediately causing a subsequent registration statement to be filed with the Commission,
then we will be obligated to pay in cash an amount equal to 2% of the product of $1.70 times the
number of shares of Series A preferred stock sold in the financing to the relevant purchasers.
The Agreements Governing The Variable Rate Convertible Debentures And Related Warrants Issued In
Our October 2007 Financing Contain Various Covenants And Restrictions That May Limit Our Ability To
Operate Our Business.
The agreements governing the variable rate convertible debentures and related warrants issued
in our October 2007 financing contain various covenants and restrictions, including, among others:
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• |
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until the first anniversary of the closing of the October 2007 financing, we are
required to offer to the investors participating therein the opportunity to participate in
subsequent equity securities offerings by us, subject to certain exceptions for, among
other things, strategic investments; |
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• |
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until 60 days after the effective date of the registration statement of which this
prospectus forms a part, we cannot issue shares of common stock or equivalent securities,
subject to certain exceptions for, among other things, strategic investments and the
issuance of shares of common stock covered by the registration statement of which this
prospectus forms a part; |
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• |
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until such time as no investor participating in the financing holds any of the
securities purchased therein, we are prohibited from effecting or entering into an
agreement to effect any financing involving (i) the issuance or sale of common stock or
equivalent securities with an effective price or number of underlying shares that floats
or resets or otherwise varies or is subject to adjustment based on trading prices of or
quotations for shares of common stock, the market for the common stock, or our business or
(iii) any agreement to sell securities at a future-determined price; |
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• |
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until the earlier of the date that we obtain stockholder approval of the issuance of
all of the shares of common stock underlying the debentures and warrants issued in the
October 2007 financing or none of such debentures or warrants are any longer outstanding,
neither we nor any of our subsidiaries may issue common stock or equivalent securities at
an effective price that is less than $3.52 per share; and |
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• |
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for so long as any of the debentures issued in the October 2007 financing remain
outstanding, neither we nor any of our subsidiaries may incur indebtedness for borrowed
money other than permitted indebtedness, create or suffer liens other then some permitted
liens, amend our charter documents in certain circumstances, repurchase shares of common
any of our equity securities other then in certain permitted circumstances, repay certain
indebtedness before its due date, pay cash dividends on stock other then our Series A
preferred stock, or enter into certain transactions with affiliates. |
These restrictions could limit our ability to plan for or react to market conditions or meet
extraordinary capital needs or otherwise restrict corporate activities, any of which could have a
material adverse impact on our business.
21
The Conversion Of Our Variable Rate Convertible Debentures, The Exercise Of Our Warrants Or The
Exercise Or Conversion Of Our Other Convertible Securities May Result In Substantial Dilution And
May Depress The Market Price Of Our Common Stock.
As
of March 7, 2008, we had outstanding 10,290,276 shares of common stock and also (i)
options to purchase an aggregate of 55,167 shares of our common stock, all with an exercise price
of $1.80, (ii) warrants outstanding from our October 2004 private placement exercisable for
1,080,504 shares of our common stock at an exercise price equal to $12.47 per share, (iii) warrants
outstanding from our May 2007 private placement exercisable for 2,059,307 shares of our common
stock at an exercise price ranging from $3.80 to $5.00 per share, depending on the time of
exercise, (iv) 138,400 shares of Series A preferred stock, convertible into the same number of
shares of common stock, (v) variable rate convertible debentures issued in our October 2007 private
placement that are currently convertible into 1,700,000 shares of common stock (plus up to an
additional 314,862 shares of common stock that may be issued in certain circumstances under the
terms of the debentures, which additional number of shares would increase in the event that we
obtain stockholder approval of the issuance of all of the shares of common stock potentially
issuable under the terms of the debentures), and (vi) warrants issued in our October 2007 private
placement exercisable for 3,141,499 shares of common stock at an exercise price of $3.52 per share.
If these convertible securities are exercised or converted, and the shares of common stock issued
upon such exercise or conversion are sold, our common stockholders may experience substantial
dilution and the market price of our shares of common stock could decline. Further, the perception
that such convertible securities might be exercised or converted could adversely affect the market
price of our shares of common stock. In addition, holders of our warrants and options are likely to
exercise them when, in all likelihood, we could obtain additional capital on terms more favorable
to us than those provided by the warrants and options. Further, during the time that the foregoing
convertible securities are outstanding, they may adversely affect the terms on which we could
obtain additional capital.
Future Sales By Us Or Our Existing Stockholders Could Depress The Market Price Of Our Common Stock.
If we or our existing stockholders sell a large number of shares of our common stock, the
market price of our common stock could decline significantly. Further, even the perception in the
public market that we or our existing stockholders might sell shares of common stock could depress
the market price of the common stock.
USE OF PROCEEDS
We will not receive any proceeds from the disposition of the shares of common stock by the
selling stockholders or their transferees. We may receive gross proceeds of up to $5,265,751
(based on an exercise price of $3.52 per share), upon the exercise of the 1,495,952 warrants
covered by the registration statement of which this prospectus forms a part. As we cannot predict
when or if we would receive such proceeds, we expect to use these proceeds, if received, for
working capital purposes. The proceeds received from the securities sold in the October 2007
private placement financing are intended to provide us additional working capital.
PRINCIPAL STOCKHOLDERS
The following table shows the amount of the Company’s common stock beneficially owned (unless
otherwise indicated) as of March 7, 2008 by (i) each stockholder we know is the beneficial
owner of more than 5% of the Company’s common stock, (ii) each director or director nominee, (iii)
each of the executive officers named in the Summary Compensation Table set forth under
“Compensation of Named Executive Officers” in our proxy statement for the 2007 Annual Meeting of
Stockholders, and (iv) all executive officers and directors as a group. Beneficial ownership is
determined in accordance with the rules and regulations of the Commission and generally includes
those persons who have voting or investment power with respect to the securities. Except as
otherwise indicated, and subject to applicable community
22
property laws, the persons named in the table have sole voting and investment power with respect to
all of our shares of common stock beneficially owned by them.
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Amount and |
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Nature of |
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Percent |
| Name and Address of |
|
Beneficial |
|
of |
| Beneficial Owner(1) |
|
Ownership(2) |
|
Class(2) |
Officers and Directors (current and former): |
|
|
|
|
|
|
|
|
|
Chris Sharng |
|
|
180,823 |
(3) |
|
|
1.8 |
% |
|
Timothy S. Davidson |
|
|
51,250 |
(4) |
|
|
* |
|
Gary C. Wallace |
|
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48,712 |
(5) |
|
|
* |
|
John Cavanaugh |
|
|
321,651 |
(6) |
|
|
3.1 |
% |
Stephanie S. Hayano (7)
220 Morsehill Road
Millerton, NY 12546 |
|
|
0 |
|
|
|
* |
|
Robert H. Hesse (8)
360 Thornton Road
Englewood, NJ 07631 |
|
|
1,984 |
(9) |
|
|
* |
|
Randall A. Mason |
|
|
172,183 |
(10) |
|
|
1.7 |
% |
Stefan W. Zuckut |
|
|
38,750 |
(11) |
|
|
* |
|
Directors and
Executive Officers As a Group (6 persons) |
|
|
813,369 |
(12) |
|
|
7.9 |
% |
5% Or More Stockholders: |
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Big Rich International Ltd.
4001 Gloucester Tower, The Landmark
11 Pedder Street
Central
Hong Kong |
|
|
941,171 |
(13) |
|
|
8.4 |
% |
|
|
|
| * |
|
Indicates beneficial ownership of less than 1% |
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| (1) |
|
Unless otherwise indicated, the address of each beneficial owner is c/o Natural Health Trends
Corp., 2050 Diplomat Drive, Dallas, Texas 75234. |
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|
| (2) |
|
Any securities not outstanding that are subject to options or conversion privileges
exercisable within 60 days of March 7, 2008 are deemed outstanding for the purpose of
computing the percentage of outstanding securities of the class owned by any person holding
such securities but are not deemed outstanding for the purpose of computing the percentage of
the class owned by any other person in accordance with Item 403 of Regulation S-K of the
Securities Act 1933 and Rule 13(d)-3 of the Securities Exchange
Act, and based upon 10,290,276
shares of common stock outstanding (excluding treasury shares) as of
March 7, 2008. |
|
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| (3) |
|
Includes (i) 1,984 shares of common stock issuable upon the exercise of warrants held by Mr.
Sharng and (ii) 137,033 shares of restricted stock subject to vesting. Mr. Sharng shares
voting and investment power over 11,500 of the shares with his wife. |
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| (4) |
|
Includes (i) 41,563 shares of restricted stock subject to vesting, and (ii) 2,500 shares of
common stock issuable upon exercise of stock options held by Mr. Davidson. |
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| (5) |
|
Includes 43,251 shares of restricted stock subject to vesting. |
23
|
|
|
| (6) |
|
Includes (i) 1,984 shares of common stock issuable upon the exercise of warrants held by Mr.
Cavanaugh and (ii) 152,344 shares of restricted stock subject to vesting. |
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| (7) |
|
Ms. Hayano is a former director of the Company and the former Chief Executive Officer of the
Company. |
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| (8) |
|
Mr. Hesse is a former director of the Company and the former Interim Chief Executive Office
of the Company, and therefore the shares beneficially owned by him are not included in
“Directors and Executive Officers as a Group.” |
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| (9) |
|
Includes 1,984 shares of common stock issuable upon the exercise of warrants held by Mr.
Hesse. |
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| (10) |
|
Includes (i) 5,000 shares of common stock issuable upon the exercise of options held by Mr.
Mason, (ii) 27,399 shares owned by Marden Rehabilitation Associates, Inc., an entity
controlled by Mr. Mason, and (iii) 30,000 shares of
restricted stock subject to vesting. |
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| (11) |
|
Includes 36,563 shares of restricted stock subject to vesting. |
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| (12) |
|
Includes (i) 3,968 shares that may be acquired upon the exercise of outstanding warrants that
currently are exercisable by our executive officers, (ii) 440,754 shares of restricted stock
subject to vesting that are beneficially owned by our directors and executive officers, and
(iii) 7,500 shares of common stock issuable upon the exercise of options held by our directors
and executive officers. Does not include any shares held by Ms. Hayano or Mr. Hesse, since
such individuals are no longer executive officers of the Company. |
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| (13) |
|
Includes 941,171 shares of common stock issuable upon the exercise of warrants held by Big
Rich International Ltd., a limited partnership organized under the laws of the British Virgin
Islands (“Big Rich”). Xiaoli Duan is the general partner of Big Rich and as such may be
deemed to be the beneficial owner of such shares. |
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of substantial amounts of our common stock in the public market, or the
perception that these sales could occur, could adversely affect prevailing market prices for our
common stock and our ability to raise equity capital in the future.
As
of March 7, 2008, we had outstanding 10,290,276 shares of common stock and the
following convertible securities that may be converted into or exercisable for our shares of common
stock:
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55,167 shares issuable upon the exercise of outstanding options, all with an exercise
price of $1.80 per share; |
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• |
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1,080,504 shares issuable upon exercise of the warrants issued as part of our October
2004 private placement at an exercise price equal to $12.47 per share; |
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• |
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138,400 shares issuable upon conversion of all outstanding shares of our Series A
preferred stock; |
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2,059,307 shares issuable upon exercise of the warrants issued as part of our May 2007
private placement financing at exercise prices ranging from $3.80 to $5.00 per share,
depending on the time of exercise; |
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• |
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1,700,000 shares issuable upon conversion of the variable rate convertible debentures
issued in our October 2007 private placement (plus up to an additional 314,862 shares of
common stock that may be issued in certain circumstances under the terms of the
debentures, which additional |
24
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number of shares would increase in the event that we obtain stockholder approval of the
issuance of all of the shares of common stock potentially issuable under the terms of the
debentures); and |
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• |
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3,141,499 shares issuable upon exercise of the warrants issued as part of our October
2007 private placement financing. |
Based
on the foregoing, as of March 7, 2008, we have 18,465,153 shares of common stock
outstanding or subject to outstanding convertible securities that are convertible into or
exercisable for shares of our common stock.
The
3,195,952 shares registered in this offering, the 2,197,707 shares of common stock
issuable upon the conversion of shares of our Series A preferred stock and warrants issued in our
May 2007 private placement and registered under a registration
statement on Form S-3, the 1,107,214
shares issuable upon exercise of outstanding options and outstanding shares of restricted stock
registered under registration statements on Form S-8, and the other outstanding shares of our
common stock that are not “restricted securities” within the meaning of Rule 144 promulgated under
the Securities Act, are or will be freely transferable without restriction under the Securities
Act, unless they are held by our “affiliates” as that term is defined under Rule 144 under the
Securities Act and the rules and regulations promulgated thereunder. The remaining outstanding
shares of our common stock and shares of common stock issuable upon the exercise of our outstanding
options or warrants may be sold in the public market only if registered under the Securities Act or
if they qualify for an exemption from registration under Rule 144 or another rule promulgated under
the Securities Act. The Rule 144 exemption is summarized below.
Rule 144
In general, under Rule 144 as currently in effect, a person who has beneficially owned shares
of our common stock for at least one year, including the holding period of any prior owner other
than one of our affiliates, would be entitled to sell within any three-month period the number of
restricted shares that does not exceed the greater of:
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one percent of the number of shares of our common stock then outstanding, which will
equal approximately 100,563 shares immediately after this offering; or |
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• |
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the average weekly trading volume of our common stock on The NASDAQ Global Market
during the four calendar weeks preceding the filing of a notice on Form 144 with the SEC
with respect to the sale. |
Sales of restricted shares under Rule 144 are also subject to requirements regarding the
manner of sale, notice, and the availability of current public information about us. Rule 144 also
provides that affiliates that sell shares of common stock that are not restricted shares must
nonetheless comply with the same restrictions applicable to restricted shares, other than the
holding period requirement.
The
Commission recently adopted amendments to Rule 144 that will
shorten the required holding period for shares of our common stock
and will effect certain other changes that, in general, will
facilitate the ability of holders of our common stock to resell
their shares in the market.
Registration Rights
In connection with our October 2007 private placement financing, we entered into a
registration rights agreement with the investors in the financing. The registration statement of
which this prospectus forms a part is being filed as part of our obligations under that agreement.
We agreed to file an initial registration statement with the
Commission on or prior to November 18, 2007.
Due to limitations imposed by the Commission on the number of shares of
common stock that can be included in the initial registration statement of which this prospectus
forms a part, and consistent with the terms of the registration rights agreement, we have only included in this initial registration statement
the shares of common stock into which the debentures are convertible and for which the warrants
having a one-year term are exercisable. We also agreed to use our best efforts to have the
initial registration statement declared effective with the Commission within 120 calendar days of the date of the
agreement (or 150 days in the event of a full review by the
Commission). Because all of the shares underlying the
debentures and warrants issued in the October 2007 financing could not be included in the registration statement of which this prospectus forms a part, under
certain circumstance we are required to
timely file subsequent registration statements or otherwise
include such shares in other registration statements on a piggy-back basis. If the registration
statements are not timely filed, declared effective and maintained in effect, we are required to
pay the investors in the October financing a cash fee of 2% per month of the purchase price paid with respect to the
unregistered shares of common stock until the
25
first anniversary of the closing date of the financing and 1% per month thereafter until the
second anniversary of such closing date.
We will pay all expenses relating to the filing of this registration statement, other than
underwriting discounts and commissions and stock transfer taxes.
Pursuant to our agreement with the investors in our May 2007 financing, we are obligated for a
specified period of time to maintain the effectiveness of the registration statement that we filed
with the Commission covering the resale of the shares of common stock issuable upon the conversion
of Series A preferred stock or the exercise of warrants issued in the financing. If we fail to
maintain the effectiveness of such registration statement due to our intentional and willful act
without immediately causing a subsequent registration statement to be filed with the Commission,
then we will be obligated to pay in cash an amount equal to 2% of the product of $1.70 times the
number of shares of Series A preferred stock sold in the financing to the relevant purchasers.
SELLING STOCKHOLDERS
Shares
of Common Stock Offered Hereby
The shares of common stock being offered by the selling stockholders are shares of common
stock issuable upon the conversion of variable rate convertible
debentures and shares of common stock issuable upon the exercise of warrants,
which debentures and warrants were sold or otherwise issued by us in a private placement financing
that was consummated in October 2007. For additional information regarding the shares of common
stock, the debentures and the warrants, see the information set forth below under the caption “ - Private Placement Financing.”
This prospectus relates to the sale of up to 3,195,952 shares of our common stock for the
selling stockholders named in the table below. A total of 1,700,000 shares of common stock are
issuable to the selling stockholders upon the conversion of variable rate convertible debentures
and a total of 1,495,952 shares of the common stock are issuable to the selling stockholders upon the exercise of warrants
having a term of one year to purchase shares of our common stock. We are registering the shares of common stock in order to permit the
selling stockholders to offer the shares for resale from time to
time.
Immediately prior to the sale of the convertible debentures and
warrants on October 19, 2007, we had 9,329,469 shares of common stock
outstanding, and immediately prior to the date of the initial filing of the registration statement of which this prospectus forms
a part (November 16, 2007), we had 9,307,221 shares of common
stock outstanding, in each case exclusive of any shares held by our affiliates,
any selling stockholder or any affiliate of a selling stockholder. Prior to effecting the
registration of the shares of common stock offered hereby, we had not previously registered any
shares of common stock or any other securities on behalf of any of
the selling stockholders or any
of their affiliates. Except for the ownership of the convertible debentures and warrants issued
to the selling stockholders in our October 2007 private placement financing, none of the selling
stockholders has had any material relationship with us within the past three years.
Because the number of shares of common stock issuable under the debentures varies in certain
circumstances, and because the number of shares of common stock into which the debentures are
convertible and for which the warrants are exercisable, and the related conversion or exercise
price per share, as applicable, are subject to adjustment, the number of shares that would actually be issued
under the debentures and the warrants may be more or less than the number of shares indicated to be
offered by this prospectus following their issuance under either the
debentures or the warrants. The circumstances under which the number of shares of common stock into which the debentures are
convertible or for which the warrants are exercisable (the
“Conversion Ratio”) is subject to
adjustment include the following:
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If we pay a stock dividend or effect a stock split or reverse stock split, then the
Conversion Ratio would be adjusted so that the number shares issuable under the debentures and
warrants would after giving effect to such event represent the same proportion of the Company’s
capital stock as prior to such event; |
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| • |
|
If we shall issue rights, options and warrants to all holders of our shares of common
stock entitling them to subscribe for or purchase shares of our common stock at a price below a
specified threshold, then the Conversion Ratio shall be adjusted on an equitable basis; |
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If we effect a distribution to our holders of common stock of our debt or assets or
rights or warrants to subscribe for or purchase any of our securities other than shares of our
common stock, then in each such case the Conversion Ratio shall be adjusted on an equitable basis;
and |
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If we sell or otherwise grant any option to purchase shares of our common stock or
common stock equivalents at a per share price lower than the conversion price of the debentures
($2.50) or the exercise price of the warrants ($3.52), as the case may be, then the applicable
Conversion Ratio shall be adjusted to reflect such lower price (notwithstanding the foregoing,
no adjustment shall be made with respect to the Conversion Ratio applicable to the warrants for a
price of less than $3.52 prior to the date that stockholder approval of the issuance of the
warrants is obtained). |
The
table below lists the selling stockholders and other information
regarding their beneficial
ownership of our shares of common stock. The information provided below with respect to the selling stockholders has been obtained from
the selling stockholders and is current as of January 28, 2008.
26
Because the selling stockholders may sell none, all or some portion of the shares of common
stock owned by them, we cannot estimate the number of shares of common stock that will be
beneficially owned by the selling stockholders after this offering. In addition, the selling
stockholders may sell, transfer or otherwise dispose of, at any time or from time to time since the
date on which the selling stockholders provided the information regarding the shares of common
stock owned by them, all or a portion of the shares of common stock owned by them in transactions
exempt from the registration requirements of the Securities Act of 1933, as amended.
Except as indicated, the selling stockholders are neither broker-dealers nor affiliates of
broker-dealers that are NASD members.
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Shares of |
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Shares of |
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Percentage of |
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Common |
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Shares of |
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Common |
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Common |
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Stock Owned |
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Common |
|
Stock Owned |
|
Stock Owned |
| |
|
Before the |
|
Stock |
|
After the |
|
After the |
| Name of Selling Stockholder |
|
Offering (1) |
|
Offered (2) |
|
Offering (3) |
|
Offering (3) |
Rockmore Investment Master Fund Ltd.(4) |
|
|
400,000 |
(5) |
|
|
751,989 |
|
|
|
0 |
|
|
|
* |
|
|
Iroquois Master Fund Ltd.(6) |
|
|
400,000 |
(5) |
|
|
751,989 |
|
|
|
0 |
|
|
|
* |
|
|
Portside Growth and Opportunity Fund (7)(8) |
|
|
200,000 |
(5) |
|
|
375,994 |
|
|
|
0 |
|
|
|
* |
|
|
Hudson Bay Fund LP (8)(9) |
|
|
172,000 |
(5) |
|
|
323,355 |
|
|
|
0 |
|
|
|
* |
|
|
Hudson Bay Overseas Fund LTD (8)(9) |
|
|
228,000 |
(5) |
|
|
428,634 |
|
|
|
0 |
|
|
|
* |
|
|
Gemini Master Fund, Ltd. (10) |
|
|
100,000 |
(5) |
|
|
187,997 |
|
|
|
0 |
|
|
|
* |
|
|
Cranshire Capital, L.P. (11) |
|
|
200,000 |
(5) |
|
|
375,994 |
|
|
|
0 |
|
|
|
* |
|
27
|
|
|
| |
| (1) |
|
The number of shares beneficially owned by the selling stockholders does not include a total
of 3,141,499 shares issuable upon the exercise of warrants, which warrants are not exercisable
within 60 days of the date of the registration statement of which this prospectus forms a
part. Each of the selling stockholders holds warrants exercisable for shares of common stock,
but is not currently deemed to be the beneficial owner of such shares of common stock, because
the warrants cannot be exercised within 60 days. |
| |
| |
| |
| (2) |
|
Includes for each selling stockholder the full number of shares of common stock into which
the debentures and one-year warrants held by such selling stockholder are convertible or exercisable,
as the case may be, without regard to whether such shares are currently deemed beneficially
owned by the selling stockholder. |
| |
| |
| (3) |
|
We have determined the number and percentage of shares of common stock owned after the
offering by assuming that each of the selling stockholders will sell all of its shares being
offered pursuant to this prospectus, but will not sell any other shares that they own. In
fact, the selling stockholders may sell none, all or some portion of their holdings. |
| |
| (4) |
|
Rockmore Capital, LLC (“Rockmore Capital”) and Rockmore Partners, LLC (“Rockmore Partners”),
each a limited liability company formed under the laws of the State of Delaware, serve as the
investment manager and general partner, respectively, to Rockmore Investments (US) LP, a
Delaware limited partnership, which invests all of its assets through Rockmore Investment
Master Fund Ltd., an exempted company formed under the laws of Bermuda (“Rockmore Master
Fund”). By reason of such relationships, Rockmore Capital and Rockmore Partners may be deemed
to share dispositive power over the shares of our common stock owned by Rockmore Master Fund.
Rockmore Capital and Rockmore Partners disclaim beneficial ownership of such shares of our
common stock. Rockmore Partners has delegated authority to Rockmore Capital regarding the
portfolio management decisions with respect to the shares of common stock owned by Rockmore
Master Fund and, as of January 28, 2008, Mr. Bruce T. Bernstein and Mr. Brian Daly, as
officers of Rockmore Capital, are responsible for the portfolio management decisions of the
shares of common stock owned by Rockmore Master Fund. By reason of such authority, Messrs.
Bernstein and Daly may be deemed to share dispositive power over the shares of our common
stock owned by Rockmore Master Fund. Messrs. Bernstein and Daly disclaim beneficial ownership
of such shares of our common stock and neither of such persons has any legal right to maintain
such authority. No other person has sole or shared voting or dispositive power with respect
to the shares of our common stock as those terms are used for purposes under Regulation 13D-G
of the Securities Exchange Act of 1934, as amended. No person or “group” (as that term is
used in Section 13(d) of the Securities Exchange Act of 1934, as amended, or the SEC’s
Regulation 13D-G) controls Rockmore Master Fund. |
| |
| (5) |
|
The number of shares beneficially owned by the indicated selling stockholders is based upon
full, voluntary conversion of the debentures held by such selling stockholder at the current
conversion price of $2.50 per share. |
| |
| |
28
|
|
|
| |
| (6) |
|
Joshua Silverman has voting and investment control over the shares held by Iroquois Master
Fund Ltd. Mr. Silverman disclaims beneficial ownership of these securities. |
| |
| |
| |
| (7) |
|
Ramius Capital Group, L.L.C. (“Ramius Capital”) is the investment adviser of Portside Growth
and Opportunity Fund (“Portside”) and consequently has voting control and investment
discretion over securities held by Portside. Ramius Capital disclaims beneficial ownership of
the securities held by Portside. Peter A. Cohen, Morgan B. Stark, Thomas W. Strauss and
Jeffrey M. Solomon are the sole managing members of C4S & Co., L.L.C., the sole managing
member of Ramius Capital. As a result, Messrs. Cohen, Stark, Strauss and Solomon may be
considered beneficial owners of any securities deemed to be beneficially owned by Ramius
Capital. Messrs. Cohen, Stark, Strauss and Solomon disclaim beneficial ownership of these
securities. |
| |
| |
| |
| (8) |
|
Each of these stockholders (i) is an affiliate of a broker-dealer that is an NASD member,
(ii) acquired the securities in the ordinary course of business, and (iii) at the time of the
acquisition of the securities, did not have any agreements or understandings, directly or
indirectly, with any person to distribute the securities. |
| |
| |
| |
| (9) |
|
Sander Gerber, Yoav Roth and John Doscas share voting control and investment discretion over
securities held by these entities. Messrs. Gerber, Roth and Doscas disclaim beneficial
ownership of these securities. |
| |
| |
| |
| (10) |
|
Gemini Strategies, LLC (“Gemini Strategies”) is the investment adviser of Gemini Master Fund,
Ltd. (“Gemini Master”) and consequently has voting control and investment discretion over
securities held by Gemini Master. Gemini Strategies disclaims beneficial ownership of the
securities held by Gemini Master. Steven Winters is the sole managing member of Gemini
Strategies and as a result may be considered the beneficial owner of any securities deemed to
be beneficially owned by Gemini Strategies. Mr. Winters disclaims any beneficial ownership of
these securities. |
| |
| |
| |
| (11) |
|
Downsview Capital, Inc. (“Downsview”) is the general partner of Cranshire Capital, L.P.
(“Cranshire”). Mitchell P. Kopin is the president of Downsview and consequently has voting
control and investment discretion over securities held by Cranshire. Mr. Kopin disclaims
beneficial ownership of these securities. |
| |
| |
29
Private Placement Financing
On October 19, 2007, we entered into a securities purchase agreement with the selling
stockholders pursuant to which the selling stockholders provided to us an aggregate of
approximately $3,740,000 in financing in a private placement of variable rate convertible
debentures having an aggregate face amount of $4,250,000, seven-year warrants to purchase 1,495,952
shares of our common stock, and one-year warrants to purchase 1,495,952 shares of our common stock.
Securities Purchase Agreement
As noted above, the securities purchase agreement provides for the issuance and sale to the
selling stockholders of the convertible debentures and the warrants for an aggregate purchase price
of approximately $3,740,000. Other significant provisions of the securities purchase agreement
include, among others:
| |
• |
|
until the one year anniversary of the closing of the sale of the debentures, we will
offer to the selling stockholders the opportunity to participate in any subsequent
securities offerings we make (up to 100% of such offerings), subject to certain exceptions
for, among other things, strategic investments; |
| |
| |
• |
|
for 60 days after the effective date of the registration statement of which this
prospectus forms a part, we will not issue common stock or equivalent securities, subject
to certain exceptions for, among other things, strategic investments; |
| |
| |
• |
|
until such time as none of the selling stockholders holds any of the debentures or
warrants, we are prohibited from effecting or entering into an agreement to effect any
financing involving (a) the issuance or sale of common stock or equivalent securities with
an effective price or number of underlying shares that floats or resets or otherwise varies
or is subject to adjustment based upon trading prices of or quotations for shares of common
stock, the market for the common stock, or our business or (b) any agreement to sell
securities at a future determined price; |
| |
| |
• |
|
until the earlier of the date that stockholder approval is obtained or the debentures
and warrants are no longer outstanding, neither we nor any of our subsidiaries may issue
common stock or equivalent securities at an effective price that is less than $3.52; |
| |
| |
• |
|
until one year after the registration statement of which this prospectus forms a part is
declared effective, we shall not undertake a reverse or forward stock split or
reclassification of the common stock without the prior written consent of the selling
stockholders holding a majority in principal amount outstanding of the debentures; and |
| |
| |
• |
|
our agreement to seek stockholder approval of the issuance of all of the shares of
common stock underlying the debentures and warrants no later than the date of our 2008
annual stockholder meeting. |
Debentures
The debentures have an aggregate principal amount of $4,250,000, and they are convertible by
their holders into shares of our common stock at a conversion price of $2.50. This conversion
price is subject to adjustment under certain circumstances, including without limitation, stock
splits, stock dividends, rights offerings, and the issuance of shares of common stock or common
stock equivalents at a price less than the conversion price.
After one year, we can force conversion of the debentures at the conversion price if the daily
volume weighted average price (“VWAP”) of the common stock for each of the 20 trading days prior to
the forced conversion date
30
exceeds $7.50 per share, subject to adjustment, provided that a registration statement covering the
stock is then effective and certain trading volume requirements and other conditions are met.
The debentures bear interest at the greater of (i) LIBOR plus 4% and (ii) 10% per annum.
Interest is payable quarterly beginning on January 1, 2008. 50% of the original principal amount of
the debentures is payable in 12 equal monthly installments beginning on November 1, 2008, and the
balance is payable on October 19, 2009, unless extended by the holders of the debentures to October
19, 2012 (the extended maturity date). Payments of principal and interest may be made in cash or,
at our option if certain conditions are met, in shares of registered common stock.
If interest is paid in shares of common stock, the conversion price per share will be set at
90% of the VWAP for the 20 consecutive trading days immediately prior to the applicable payment
date or, if less, the average of the VWAPs for the 20 consecutive trading days immediately prior to
the date the applicable shares are issued and delivered if such delivery is after the payment date.
If principal is paid in shares of common stock during a specified period immediately prior to
the extended maturity date, the conversion price shall be equal to 90% of the average of the VWAPs
for the 20 consecutive trading days ending on the trading day that is immediately prior to the
applicable payment date.
The debentures contain certain limitations on optional and mandatory conversion and payment in
shares of common stock, including that, absent stockholder approval, (a) we may not issue shares of
common stock in payment of principal or interest on the debentures that, when aggregated with prior
such payments (excluding payments of principal with shares not in excess of the number issuable at
the conversion price) exceed 5% of our outstanding shares on the trading day immediately preceding
the date of the securities purchase agreement and (b) we may not issue shares of common stock upon
conversion of or payment of interest or liquidated damages on the debentures that, in the
aggregate, exceed 19.99% of our outstanding shares on the trading day immediately preceding the
date of securities purchase agreement. Moreover, neither we nor the holders may effect any
conversion of a debenture to the extent that it would result in the holder and its affiliates
owning more than 4.99% of our outstanding common stock, unless this limitation is increased or
decreased by the holder (increased up to a maximum of 9.99%) of our outstanding common stock upon
not less than 61 days prior notice.
We may, under certain circumstances, redeem the debentures for cash equal to 115% of the
aggregate outstanding principal amount plus any accrued and unpaid interest.
The debentures contain certain negative covenants that, among other things, for so long as any
debentures remain outstanding, prohibit us and our subsidiaries from incurring indebtedness for
borrowed money, creating or suffering liens other than certain permitted liens, amending charter
documents to materially adversely harm the debenture holders, repurchasing shares of our common
stock (with certain exceptions), repaying certain indebtedness before its due date, paying cash
dividends on stock other than our Series A Convertible Preferred Stock, and entering into certain
transactions with affiliates.
Events of default under the debentures include, among others, payment defaults not timely
cured, failure to perform other covenants not timely cured, cross-defaults not timely cured having
a material adverse effect on us, representations or warranties are untrue when made, certain
bankruptcy-type events involving us or any significant subsidiary, acceleration of more than
$150,000 in indebtedness for borrowed money or under a long-term leasing or factoring agreement,
our common stock is no longer listed on an eligible market, we are subject to certain changes in
control or sell or dispose of more than 40% of our assets a single or series of related
transactions, a registration statement covering the shares of common stock underlying the
debentures and warrants is not declared effective for more than 270 days after the closing of the
private placement financing, the effectiveness of such registration statement lapses beyond a
specified period, failure to timely deliver certificates for converted shares, and a judgment in
excess of $250,000 against us, any subsidiary or our respective assets that is not timely vacated,
bonded or stayed. Upon an event of default, the holders may elect to require us to repurchase all
or any portion of the outstanding principal amount of the debentures for a purchase price equal to
115% of such outstanding principal amount, plus all accrued but unpaid interest.
31
We intend, and have a reasonable basis to believe, that we will have the financial ability to
make all payments provided for in the convertible debentures as they come due.
Warrants
The warrants to purchase 1,495,952 shares of our common stock have a seven-year term and the
warrants to purchase 1,495,952 shares of our common stock have a one-year term, each beginning six
months and one day after their respective issuance. All of the warrants have an exercise price of
$3.52 per share and otherwise have identical terms.
The exercise price and the number of shares underlying the warrants are subject to adjustment
for stock dividends and splits, combinations, and reclassifications, certain rights offerings and
distributions to common stockholders, and mergers, consolidations, sales of all or substantially
all assets, tender offers, exchange offers, reclassifications or compulsory share exchanges. In
addition, subject to certain exceptions, the exercise price and number of shares underlying both
types of warrants are subject to anti-dilution adjustments from time to time if we issue our common
stock or equivalent securities at below the exercise price for the warrants; provided that the
exercise price cannot be adjusted lower than $3.52 prior to stockholder approval.
If, at any time after the earlier of October 19, 2008 and the completion of the then
applicable holding period under Rule 144, there is no effective registration statement for the
underlying shares of common stock, the warrants may be exercised by means of a cashless exercise.
Registration Rights Agreement
We and the selling stockholders also entered into a registration rights agreement pursuant to
which we agreed to file an initial registration statement with the Commission on or prior to
November 18, 2007 and to use our best efforts to have such Registration Statement declared
effective with the Commission within 120 calendar days of the date of the registration rights
agreement (or 150 days in the event of a full review by the Commission). Because all of the shares
of common stock underlying the debentures and warrants issued in the private placement financing
could not be included in the registration statement of which this prospectus forms a part, under
certain circumstances we are required to timely file subsequent registration statements or
otherwise include such shares in other registration statements on a piggy-back basis. If such
registration statements are not timely filed or declared effective, we are required to pay the
selling stockholders a cash fee of 2% per month of the purchase price paid with respect to the
unregistered shares of common stock until one year after the closing of the private placement
financing, and 1% per month thereafter for the following 12-month period.
Dollar Value of Common Stock Underlying Debentures
The total dollar value of the shares of common stock underlying the variable rate convertible
debentures that we have registered for resale (using the number of underlying shares of common
stock that we have registered for resale and the market price per share for those shares of common
stock on the date of sale) is as follows:
| |
|
|
|
|
Shares of common stock underlying debentures registered for resale: |
|
|
1,700,000 |
|
Closing market price per share of common stock on October 19, 2007: |
|
$ |
3.60 |
|
Dollar value of underlying shares of common stock: |
|
$ |
6,120,000 |
|
Payments Made in Connection with Private Placement Financing
The following table discloses the dollar amount of each payment (including the value of any
payments to be made in common stock) relating to the private placement financing that we closed in
October 2007 that we have made or may be required to make to any selling stockholder, any affiliate
of a selling stockholder, or any person with whom any selling stockholder has a contractual
relationship regarding the financing (including any interest payments, liquidated damages, payments
made to “finders” or “placement agents,” and any other payments or potential payments). The net
proceeds to the Company from the sale of the convertible debentures and the total possible payments
to all selling stockholders and any of their affiliates in the first year following the sale of the
convertible debentures are also provided.
32
| |
|
|
|
|
|
|
|
|
| |
|
Type of |
|
|
|
|
| Payee |
|
Payment |
|
|
Amount of Payment |
|
Payments Made to Selling Stockholders’ Contracting Parties |
|
|
|
|
|
|
|
|
Feldman Weinstein & Smith LLP |
|
Cash |
|
$ |
50,000 |
(1) |
Possible Future Payments to Selling Stockholders and their Affiliates |
|
|
|
|
|
|
|
|
Debenture holders (Interest) |
|
Cash |
|
$ |
403,750 |
(2) |
Debenture holders (Liquidated Damages) |
|
Cash |
|
$ |
598,381 |
(3) |
|
|
|
|
|
|
|
|
Total possible payments to selling stockholders and
related parties in first year: |
|
|
|
|
|
$ |
1,052,131 |
|
|
|
|
|
|
|
|
|
|
Minimum net proceeds from private placement financing (4): |
|
|
|
|
|
$ |
2,687,749 |
|
|
|
|
| (1) |
|
Feldman Weinstein & Smith LLP served as counsel to one of the selling stockholders in
connection with the private placement financing. |
| |
| (2) |
|
This represents the total interest payable under the terms of the debentures during the first
year following the sale of the debentures, based upon an assumed annual interest rate of 10%.
The actual annual interest applicable to the debentures is the greater of (i) 10% or (ii)
LIBOR for the applicable period plus 4%. This amount does not include any late fees that we
could be required to pay if payments of interest are not made in a timely manner. |
| |
| (3) |
|
This represents the maximum amount of liquidated damages that we could be required to pay to
the selling stockholders if a registration statement registering substantially the shares
covered by this prospectus is not declared effective on or prior to March 17, 2008 (150 days
after the sale of the debentures). This amount does not include any interest that we could be
required to pay if payments of liquidated damages are not made in a timely manner. |
| |
| (4) |
|
Based on the total gross proceeds from the sale of the convertible debentures, less the total
possible payments to all selling stockholders, their affiliates and their contracting parties
in the first year following the sale of the convertible debentures as set forth in this table. |
Potential Profits from Conversion of Debentures
The following table shows the total possible profit that the selling stockholders could
realize as a result of both the conversion discount for the shares of common stock underlying the
convertible debentures and the purchase price discount to the face
value of such debentures issued in our October 2007 private placement financing.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Market |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Price per |
|
|
|
|
|
|
|
|
|
|
Combined |
|
|
Combined |
|
|
Purchase |
|
|
|
|
| |
|
Share of |
|
|
|
|
|
|
Total |
|
|
Market |
|
|
Conversion |
|
|
Price |
|
|
|
|
| |
|
Common |
|
|
|
|
|
|
Possible |
|
|
Price of |
|
|
Price of |
|
|
Discount |
|
|
|
|
| |
|
Stock on |
|
|
|
|
|
|
Shares |
|
|
Shares |
|
|
Shares |
|
|
to Face |
|
|
Total |
|
| |
|
Date of |
|
|
Conversion |
|
|
Underlying |
|
|
Underlying |
|
|
Underlying |
|
|
Value of |
|
|
Possible |
|
| Selling Stockholder |
|
Sale |
|
|
Price (1) |
|
|
Debentures |
|
|
Debentures |
|
|
Debentures |
|
|
Debentures |
|
|
Discount |
|
Rockmore Investment Master Fund Ltd. |
|
$ |
3.60 |
|
|
$ |
2.50 |
|
|
|
400,000 |
|
|
$ |
1,440,000 |
|
|
$ |
1,000,000 |
|
|
$ |
120,028 |
|
|
$ |
560,028 |
|
Iroquois Master Fund Ltd. |
|
$ |
3.60 |
|
|
$ |
2.50 |
|
|
|
400,000 |
|
|
$ |
1,440,000 |
|
|
$ |
1,000,000 |
|
|
$ |
120,028 |
|
|
$ |
560,028 |
|
Portside Growth and Opportunity Fund |
|
$ |
3.60 |
|
|
$ |
2.50 |
|
|
|
200,000 |
|
|
$ |
720,000 |
|
|
$ |
500,000 |
|
|
$ |
60,014 |
|
|
$ |
280,014 |
|
Hudson Bay Fund LP |
|
$ |
3.60 |
|
|
$ |
2.50 |
|
|
|
172,000 |
|
|
$ |
619,200 |
|
|
$ |
430,000 |
|
|
$ |
51,613 |
|
|
$ |
240,813 |
|
Hudson Bay Overseas Fund LTD |
|
$ |
3.60 |
|
|
$ |
2.50 |
|
|
|
228,000 |
|
|
$ |
820,800 |
|
|
$ |
570,000 |
|
|
$ |
68,416 |
|
|
$ |
319,216 |
|
Gemini Master Fund, Ltd. |
|
$ |
3.60 |
|
|
$ |
2.50 |
|
|
|
100,000 |
|
|
$ |
360,000 |
|
|
$ |
250,000 |
|
|
$ |
30,007 |
|
|
$ |
140,007 |
|
Cranshire Capital, L.P. |
|
$ |
3.60 |
|
|
$ |
2.50 |
|
|
|
200,000 |
|
|
$ |
720,000 |
|
|
$ |
500,000 |
|
|
$ |
60,014 |
|
|
$ |
280,014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
1,700,000 |
|
|
$ |
6,120,000 |
|
|
$ |
4,250,000 |
|
|
$ |
510,120 |
|
|
$ |
2,380,120 |
|
|
|
|
| (1) |
|
The conversion price of the debentures is subject to adjustment under certain circumstances,
including without limitation, stock splits, stock dividends, rights offerings, and the
issuance of shares of common stock or |
33
| |
|
common stock equivalents at a price less than the
conversion price. We have agreed not to issue any shares of our common stock or common stock equivalents at a purchase price below $3.52 per share (subject
to adjustment for stock splits, dividends and the like) without prior stockholder approval. The
conversion price is not subject to adjustment based solely on fluctuations in the market price
of our common stock. |
Potential Profits from Exercise of Warrants
The following table shows the total possible profit that the selling stockholders could
realize as a result of the exercise discounts for shares of common stock underlying both the
one-year warrants representing the right to purchase 1,495,952 shares of our common stock, and the
seven-year warrants representing the right to purchase an additional 1,495,952 shares of our common
stock, which warrants were issued as part of our October 2007 private placement financing.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Market |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Price per |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Share of |
|
|
|
|
|
|
Total |
|
|
Combined |
|
|
Combined |
|
|
Total |
|
| |
|
Common |
|
|
|
|
|
|
Possible |
|
|
Market Price of |
|
|
Exercise Price |
|
|
Possible |
|
| |
|
Stock on |
|
|
|
|
|
|
Shares |
|
|
Shares |
|
|
of Shares |
|
|
Discount to |
|
| |
|
Date of |
|
|
Exercise |
|
|
Underlying |
|
|
Underlying |
|
|
Underlying |
|
|
Market |
|
| Selling Stockholder |
|
Sale |
|
|
Price* |
|
|
Warrants |
|
|
Warrants |
|
|
Warrants |
|
|
Price |
|
Rockmore Investment Master Fund Ltd. |
|
$ |
3.60 |
|
|
$ |
3.52 |
|
|
|
703,978 |
|
|
$ |
2,534,321 |
|
|
$ |
2,478,003 |
|
|
$ |
56,318 |
|
Iroquois Master Fund Ltd. |
|
$ |
3.60 |
|
|
$ |
3.52 |
|
|
|
703,978 |
|
|
$ |
2,534,321 |
|
|
$ |
2,478,003 |
|
|
$ |
56,318 |
|
Portside Growth and Opportunity Fund |
|
$ |
3.60 |
|
|
$ |
3.52 |
|
|
|
351,988 |
|
|
$ |
1,267,157 |
|
|
$ |
1,238,998 |
|
|
$ |
28,159 |
|
Hudson Bay Fund LP |
|
$ |
3.60 |
|
|
$ |
3.52 |
|
|
|
302,710 |
|
|
$ |
1,089,756 |
|
|
$ |
1,065,539 |
|
|
$ |
24,217 |
|
Hudson Bay Overseas Fund LTD |
|
$ |
3.60 |
|
|
$ |
3.52 |
|
|
|
401,268 |
|
|
$ |
1,444,565 |
|
|
$ |
1,412,463 |
|
|
$ |
32,102 |
|
Gemini Master Fund, Ltd. |
|
$ |
3.60 |
|
|
$ |
3.52 |
|
|
|
175,994 |
|
|
$ |
633,578 |
|
|
$ |
619,499 |
|
|
$ |
14,079 |
|
Cranshire Capital, L.P. |
|
$ |
3.60 |
|
|
$ |
3.52 |
|
|
|
351,988 |
|
|
$ |
1,267,157 |
|
|
$ |
1,238,998 |
|
|
$ |
28,159 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
2,991,904 |
|
|
$ |
10,770,855 |
|
|
$ |
10,531,503 |
|
|
$ |
239,352 |
|
|
|
|
| * |
|
The exercise price of the warrants is subject to adjustment under certain circumstances,
including without limitation, stock splits, stock dividends, rights offerings, and the
issuance of shares of common stock or common stock equivalents at a price less than the
exercise price. We have agreed not to issue any shares of our common stock or common stock
equivalents at a purchase price below $3.52 per share (subject to adjustment for stock splits,
dividends and the like) without prior stockholder approval. The exercise price is not subject
to adjustment based solely on fluctuations in the market price of our common stock. |
Comparison of Company Net Proceeds to Potential Investor Profit from Private Placement Financing
| |
|
|
|
|
Proceeds from private placement financing: |
|
|
|
|
Gross Proceeds from private placement financing |
|
$ |
3,739,880 |
|
Less payments made or required to be made to selling stockholders
and related parties (1) |
|
$ |
(1,052,131 |
) |
|
|
|
|
Resulting net proceeds |
|
$ |
2,687,749 |
|
|
|
|
|
|
Combined total possible discount |
|
|
|
|
Debentures (2) |
|
$ |
2,380,120 |
|
Warrants (2) |
|
$ |
239,352 |
|
|
|
|
|
Total |
|
$ |
2,619,472 |
|
|
|
|
|
|
(Payments made or required to be made to selling stockholders +
combined total possible discount)/Net proceeds from
private placement financing: |
|
|
136.6 |
% |
Percentage averaged over term of the convertible debentures (2 years) |
|
|
68.3 |
% |
34
|
|
|
| (1) |
|
Please see the table and related footnote disclosure set forth above under the caption
“—Payments Made in Connection with Private Placement Financing” for further explanation and
certain assumptions made in determining this amount. |
| |
| (2) |
|
Please see the tables and related footnote disclosure set forth above under the captions
“—Potential Profits from Conversion of Debentures” and “—Potential Profits from Exercise of
Warrants” for further explanation and certain assumptions made in determining these amounts. |
PLAN OF DISTRIBUTION
Each selling stockholder of our common stock and any of their pledges, assignees, and
successors-in-interest may, from time to time, sell any or all of their shares of common stock on
the Nasdaq Stock Market or any other stock exchange, market or trading facility on which the shares
are traded or in private transactions. These sales may be at fixed or negotiated prices. A
selling stockholder may use any one or more of the following methods when selling shares:
| |
• |
|
ordinary brokerage transactions and transactions in which the broker-dealer solicits
purchasers; |
| |
| |
• |
|
block trades in which the broker-dealer will attempt to sell the shares as agent but may
position and resell a portion of the block as principal to facilitate the transaction; |
35
| |
• |
|
purchases by a broker-dealer as principal and resale by the broker-dealer for its
account; |
| |
| |
• |
|
an exchange distribution in accordance with the rules of the applicable exchange; |
| |
| |
• |
|
privately negotiated transactions; |
| |
| |
• |
|
settlement of short sales entered into after the effective date of the registration
statement of which this prospectus is a part; |
| |
| |
• |
|
broker-dealers may agree with the selling stockholders to sell a specified number of
such shares at a stipulated price per share; |
| |
| |
• |
|
through the writing or settlement of options or other hedging transactions, whether
through an options exchange or otherwise; |
| |
| |
• |
|
a combination of any such methods of sale; or |
| |
| |
• |
|
any other method permitted pursuant to applicable law. |
The selling stockholders may also sell shares under Rule 144 under the Securities Act of 1933,
as amended (the “Securities Act”), if available, rather than under this prospectus.
Broker-dealers engaged by the selling stockholders may arrange for other broker dealers to
participate in sales. Broker-dealers may receive commissions or discounts from the selling
stockholders (or, if any broker-dealer acts as agent for the purchaser of shares, from the
purchaser) in amounts to be negotiated, but, except as set forth in a supplement to this
prospectus, in the case of an agency transaction not in excess of a customary brokerage commission
in compliance with FINRA NASD Rule 2440; and in the case of a principal transaction a markup or
markdown in compliance with NASD IM-2440.
In connection with the sale of the common stock or interests therein, the selling stockholders
may enter into hedging transactions with broker-dealers or other financial institutions, which may
in turn engage in short sales of the common stock in the course of hedging the positions they
assume. The selling stockholders may also sell shares of the common stock short and deliver these
securities to close out their short positions, or loan or pledge the common stock to broker-dealers
that in turn may sell these securities. The selling stockholders may also enter into option or
other transactions with broker-dealers or other financial institutions or the creation of one or
more derivative securities which require the delivery to such broker-dealer or other financial
institutions of shares offered by this prospectus, which shares such broker-dealer or other
financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect
such transaction).
The selling stockholders and any broker-dealers or agents that are involved in selling the
shares may be deemed to be “underwriters” within the meaning of the Securities Act in connection
with such sales. In such event, any commissions received by such broker-dealers or agents and any
profit on the resale of the shares purchased by them may be deemed to be underwriting commissions
or discounts under the Securities Act. Each selling stockholder has informed us that it does not
have any written or oral agreement or understanding, directly or indirectly, with any person to
distribute our common stock. In no event shall any broker-dealer receive fees, commissions and
markups which, in the aggregate, would exceed eight percent (8%).
We are required to pay certain fees and expenses incurred by us incident to the registration
of the shares. We have agreed to indemnify the selling stockholders against certain losses,
claims, damages and liabilities, including liabilities under the Securities Act.
Because selling stockholders may be deemed to be “underwriters” within the meaning of the
Securities Act, they will be subject to the prospectus delivery requirements of the Securities Act
including
36
Rule 172 thereunder. In addition, any securities covered by this prospectus which qualify for
sale pursuant to Rule 144 under the Securities Act may be sold under Rule 144 rather than under
this prospectus. There is no underwriter or coordinating broker acting in connection with the
proposed sale of the resale shares by the selling stockholders.
We agreed to keep this prospectus effective until the earlier of (i) the date on which the
shares may be resold by the selling stockholders without registration and without regard to any
volume limitations by reason of Rule 144(k) under the Securities Act or any other rule of similar
effect or (ii) all of the shares registered under the registration statement of which this
prospectus forms a part have been sold. The resale shares will be sold only through registered or
licensed brokers or dealers if required under applicable state securities laws. In addition, in
certain states, the resale shares may not be sold unless they have been registered or qualified for
sale in the applicable state or an exemption from the registration or qualification requirement is
available and is complied with.
Under applicable rules and regulations under the Exchange Act, any person engaged in the
distribution of the resale shares may not simultaneously engage in market making activities with
respect to the common stock for the applicable restricted period, as defined in Regulation M, prior
to the commencement of the distribution. In addition, the selling stockholders will be subject to
applicable provisions of the Exchange Act and the rules and regulations thereunder, including
Regulation M, which may limit the timing of purchases and sales of shares of the common stock by
the selling stockholders or any other person. We will make copies of this prospectus available to
the selling stockholders and have informed them of the need to deliver a copy of this prospectus to
each purchaser at or prior to the time of the sale (including by compliance with Rule 172 under the
Securities act
DISCLOSURE OF COMMISSION POSITION OF INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Our certificate of incorporation incorporates certain provisions permitted under the Delaware
General Corporation Law relating to the liability of directors. The provisions eliminate a
director’s liability for monetary damages for a breach of fiduciary duty, including gross
negligence, except in circumstances involving certain wrongful acts, such as the breach of a
director’s duty of loyalty or acts or omissions which involve intentional misconduct or a knowing
violation of law. These provisions do not eliminate a director’s duty of care. Moreover, the
provisions do not apply to claims against a director for violations of certain laws, including
federal securities laws.
Our Certificate of Incorporation, as amended, also contains provisions to indemnify the
directors and officers, or other agents to the fullest extent permitted by the Delaware General
Corporation Law. These provisions may have the practical effect in certain cases of eliminating the
ability of stockholders to collect monetary damages from directors. The Company believes that these
provisions will assist the Company in attracting or retaining qualified individuals to serve as
officers or directors.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted
to our directors, officers and controlling persons pursuant to the foregoing provisions, or
otherwise, we have been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore, unenforceable.
LEGAL MATTERS
The validity of the shares of common stock offered hereby and certain other legal matters will
be passed upon for us by Locke Lord Bissell & Liddell LLP, Dallas, Texas.
EXPERTS
The consolidated financial statements as of December 31, 2006 and for the year then ended
incorporated by reference in this prospectus have been so included in reliance on the report of
Lane
37
Gorman Trubitt, L.L.P., an independent registered public accounting firm, given upon the
authority of said firm as experts in auditing and accounting.
The consolidated financial statements as of December 31, 2004 and 2005 and for the years then
ended incorporated by reference in this prospectus have been so included in reliance on the report
of BDO Seidman, LLP, an independent registered public accounting firm, given upon the authority of
said firm as experts in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form S-3 with the Commission under the Securities
Act with respect to the shares of common stock offered by this prospectus. This prospectus, which
constitutes a part of the registration statement, does not contain all of the information included
in the registration statement or the schedules, exhibits and amendments to the registration
statement. You should refer to the registration statement and its exhibits and schedules for
further information. Statements made in this prospectus as to any of our contracts, agreements or
other documents referred to are not necessarily complete. In each instance, if we have filed a copy
of such contract, agreement or other document as an exhibit to the registration statement, you
should read the exhibit for a more complete understanding of the matter involved. Each statement
regarding a contract, agreement or other document is qualified in all respects by reference to the
actual document. Certain information is also incorporated by reference into this prospectus as
described under “Incorporation of Documents by Reference.”
You may read and copy information omitted from this prospectus but contained in the
registration statement at the Public Reference Section of the SEC at 100 F Street, N.E., Room 1580,
Washington, D.C. 20549 at prescribed rates. Please call the Commission at 1-800-SEC-0330 for
further information on the operation of the public reference rooms. In addition, materials filed
electronically with the SEC are available at the SEC’s world wide web site at
http://www.sec.gov.
We are subject to the information and periodic reporting requirements of the Securities
Exchange Act of 1934, and, in accordance therewith, file periodic reports, proxy statements and
other information with the SEC. Such periodic reports, proxy statements and other information are
available for inspection and copying at the Public Reference Room and web site of the SEC referred
to above. We also furnish our stockholders with annual reports containing our financial statements
audited by an independent registered public accounting firm and quarterly reports containing our
unaudited financial information. We maintain a web site at www.naturalhealthtrendscorp.com.
You may access our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K, and amendments to those reports, filed or furnished pursuant to section 13(a) or 15(d) of
the Exchange Act with the Commission free of charge at our web site as soon as reasonably
practicable after this material is electronically filed with, or furnished to, the Commission. The
reference to our web address does not constitute incorporation by reference of the information
contained at that site.
INCORPORATION OF DOCUMENTS BY REFERENCE
The Commission allows us to incorporate by reference the information we file with it. This
means that we can disclose information to you by referring you to those documents. The documents
that have been incorporated by reference are an important part of the prospectus, and you should
review that information in order to understand the nature of any investment by you in our common
stock. We are incorporating by reference the documents listed below:
| |
• |
|
Our Annual Report on Form 10-K for the fiscal year ended December 31, 2006; and |
| |
| |
• |
|
Our Quarterly Reports on Form 10-Q for each of the fiscal quarters ended March 31,
2007, June 30, 2007 and September 30, 2007; and |
| |
| |
• |
|
The description of our shares of common stock contained in our Form 8-A dated June
20, 1995; and |
38
| |
| |
• |
|
Our Forms 8-K filed on January 9, 2007, February 26, 2007, March 6, 2007, March 19,
2007, April 17, 2007, April 26, 2007, May 9, 2007, May 16, 2007, May 30, 2007, August 30,
2007, October 19, 2007, October 22, 2007 and November 19, 2007 (as amended by a Form 8-K/A filed November 20, 2007); and |
| |
| |
| |
• |
|
All documents subsequently filed by us pursuant to Section 13(a), 13(c), 14 or 15(d)
of the Exchange Act, prior to the termination of the offering, shall be deemed to be
incorporated by reference into this prospectus. |
We will provide to each person, including any beneficial owner, to whom this prospectus is
delivered, a copy of any or all of the reports or documents that have been incorporated by
reference into this prospectus. If you would like a copy of any of these documents, at no cost,
please write or call us at:
Natural Health Trends Corp.
2050 Diplomat Drive
Dallas, Texas 75234
(972) 241-4080
Attn: General Counsel
Any statement contained in a document which is incorporated by reference in this prospectus is
automatically updated and superseded if information contained in the prospectus modifies or
replaces this information.
39
PART II — INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table shows the costs and expenses, other than underwriting discounts and
commissions, payable in connection with the sale and distribution of the common shares being
registered. All of these expenses will be paid by us. All amounts except for the SEC registration
fee are estimated.
| |
|
|
|
|
SEC registration fee |
|
$ |
271 |
|
Accounting fees and expenses |
|
$ |
30,000 |
|
Legal fees and expenses |
|
$ |
30,000 |
|
Filing costs and other miscellaneous fees and expenses |
|
$ |
5,000 |
|
|
|
|
|
Total |
|
$ |
65,271 |
|
|
|
|
|
Item 15. Indemnification of Officers and Directors.
The General Corporation Law of the State of Delaware and the Company’s Certificate of
Incorporation and Bylaws provide for indemnification of the Company’s directors and officers for
liabilities and expenses that they may incur in such capacities. In general, directors and officers
are indemnified with respect to actions taken in good faith in a manner reasonably believed to be
in, or not opposed to, the Company’s best interests and, with respect to any criminal action or
proceeding, actions that the indemnitee had no reasonable cause to believe were unlawful.
In addition to the indemnification provided by the Delaware General Corporation Law and the
Company’s Certificate of Incorporation and Bylaws, the Company has entered into an Indemnification
Agreement with each of its directors and one executive officer (each, an “Indemnified Party”)
pursuant to which the Company agrees to indemnify each Indemnified Party (1) in general, for all
reasonable expenses (including attorneys’ fees) (which shall be advanced to the Indemnified Party)
incurred by the Indemnified Party in connection with any action, suit, arbitration, alternate
dispute resolution mechanism, investigation (including any internal corporate investigation),
administrative hearing or any other actual, threatened or completed proceeding, whether civil,
criminal, administrative or investigative, formal or informal and any appeal from any of the
foregoing, other than one initiated by the Indemnified Party (unless initiated by the Indemnified
Party to enforce the Indemnified Party’s rights under such Indemnified Party’s Indemnification
Agreement) (each of the foregoing, a “Proceeding”) to the fullest extent permitted by applicable
law, (2) for all reasonable expenses (including attorneys’ fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by such Indemnified Party or on behalf of such
Indemnified Party in connection with a Proceeding in which the Indemnified Party is, or is
threatened to be made, a party to or is otherwise involved in, other than a Proceeding by or in the
right of the Company, provided that the Indemnified Party acted in good faith and has not been
adjudged during the course of such Proceeding to have derived an improper personal benefit from the
transaction or occurrence forming the basis of such Proceeding, and (3) for all reasonable expenses
(including attorneys’ fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such Indemnified Party or on behalf of such Indemnified Party in connection
with a Proceeding brought by or in the right of the Company to procure a judgment in its favor in
which the Indemnified Party is, or is threatened to be made, a party to or is otherwise involved
in, provided that the Indemnified Party acted in good faith and has not been adjudged during the
course of such Proceeding to have derived an improper personal benefit from the transaction or
occurrence forming the basis of such Proceeding, and provided further that no indemnification will
be provided in respect of any claim, issue or matter as to which such Indemnified Party is adjudged
to be liable to the Company if applicable law prohibits such indemnification, proved that, if
applicable law so permits, indemnification shall nevertheless be made by the Company in such event
if and only to the extent that the court which is considering the matter shall so determine.
II-1
Item 16. Exhibits and Financial Statement Schedules.
| |
|
|
|
|
| Exhibit |
|
|
|
|
| Number |
|
Exhibit Description |
|
Reference |
4.1
|
|
Specimen Certificate for shares of common stock, $.001 par
value per share, of Natural Health Trends Corp.
|
|
(a) |
|
|
|
|
|
5.1
|
|
Legal Opinion of Locke Lord Bissell & Liddell LLP
|
|
† |
|
|
|
|
|
23.1
|
|
Consent of Lane Gorman Trubitt, L.L.P.
|
|
* |
|
|
|
|
|
| |
23.2 |
|
Consent of BDO Seidman, LLP |
|
* |
| |
|
|
|
|
|
23.3 |
|
Consent of Locke Lord Bissell & Liddell LLP (included in Exhibit 5.1) |
|
† |
|
|
|
|
|
| |
24.1
|
|
Power of Attorney
|
|
† |
| |
|
|
|
|
|
99.1
|
|
Securities Purchase Agreement dated October 19, 2007 between
the Company and certain Purchasers named therein
|
|
(b) |
|
|
|
|
|
99.2
|
|
Form of Registration Right Agreement between the Company and
certain Purchasers
|
|
(b) |
|
|
|
|
|
99.3
|
|
Form of Variable Rate Convertible Debenture issued by the
Company to certain Purchasers
|
|
(b) |
|
|
|
|
|
99.3
|
|
Form of Seven-Year and One-Year Warrants to Purchase Shares of
Common Stock of the Company issued to certain Purchasers
|
|
(b) |
|
|
|
| * |
|
Filed herewith |
| |
| |
| † |
|
Previously filed |
| |
| |
| (a) |
|
Previously filed May 8, 2006, as an Exhibit to the Company’s Annual Report on Form 10-K, and
incorporated herein by reference. |
| |
| (b) |
|
Previously filed October 22, 2007, as an Exhibit to the Company’s Form 8-K, and incorporated
herein by reference. |
Item 17. Undertakings
The undersigned registrant hereby undertakes:
1. To file, during any period in which offers or sales are being made, a post-effective
amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the effective date of the
registration statement (or the most recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in the volume of securities
offered (if the total dollar value of the securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated maximum offering range may
be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than a 20 percent change in the
maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the
effective registration statement.
II-2
(iii) To include any material information with respect to any plan of distribution not
previously disclosed in the registration statement or any material change to such information in
the registration statement;
Provided, however, that paragraphs (a)(1)(i), (a)(1)(ii) and (a)(1)(iii) above do not apply if
the information required to be included in a post-effective amendment by those paragraphs is
contained in reports filed with or furnished to the Commission by the registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by
reference in the registration statement, or is contained in a form of prospectus filed pursuant to
Rule 424(b) that is part of the registration statement.
2. That, for the purpose of determining any liability under the Securities Act of 1933, each
such post-effective amendment shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
3. To remove from registration by means of a post-effective amendment any of the securities
being registered which remain unsold at the termination of the offering.
4. That, for the purpose of determining liability under the Securities Act of 1933 to any
purchaser, each prospectus filed pursuant to Rule 424(b) as part of a registration statement
relating to an offering, other than registration statements relying on Rule 430B or other than
prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the
registration statement as of the date it is first used after effectiveness. Provided, however, that
no statement made in a registration statement or prospectus that is part of the registration
statement or made in a document incorporated or deemed incorporated by reference into the
registration statement or prospectus that is part of the registration statement will, as to a
purchaser with a time of contract of sale prior to such first use, supersede or modify any
statement that was made in the registration statement or prospectus that was part of the
registration statement or made in any such document immediately prior to such date of first use.
5. The undersigned registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, each filing of the registrant’s annual report pursuant
to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each
filing of an employee benefit plan’s annual report pursuant to Section 15(d) of the Securities
Exchange Act of 1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona fide offering
thereof.
6. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be
permitted to directors, officers and controlling persons of the registrant pursuant to the
foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the
Commission such indemnification is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or proceeding) is asserted
by such director, officer or controlling person in connection with the securities being registered,
the registrant will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it
has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and
has duly caused this Amendment No. 3 to Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Dallas, State of Texas, on
March 13, 2008.
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NATURAL HEALTH TRENDS CORP.
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| Date: March 13, 2008 |
/s/ Chris T. Sharng
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Chris T. Sharng |
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President
(Principal Executive Officer) |
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Pursuant to the requirements of the Securities Act of 1933, this registration statement has
been signed by the following persons in the capacities and on the dates indicated.
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| Signature |
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Title |
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Date |
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/s/ Chris T. Sharng
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President
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March 13, 2008 |
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Chris T. Sharng
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(Principal Executive Officer) |
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*
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Senior Vice President and Chief Financial
Officer
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March 13, 2008 |
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Timothy S. Davidson
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(Principal Financial and Accounting Officer) |
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*
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Chairman of the Board and Director
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March 13, 2008 |
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Randall A. Mason |
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*
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Director
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March 13, 2008 |
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Stefan W. Zuckut |
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* By: /s/ Chris T. Sharng
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Director
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March 13, 2008 |
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Chris
T. Sharng, Attorney-in-Fact |
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II-4
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| Exhibit |
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| Number |
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Exhibit Description |
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Reference |
4.1
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Specimen Certificate for shares of common stock, $.001 par
value per share, of Natural Health Trends Corp.
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(a) |
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5.1
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Legal Opinion of Locke Lord Bissell & Liddell LLP
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† |
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23.1
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Consent of Lane Gorman Trubitt, L.L.P.
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* |
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23.2
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Consent of BDO Seidman, LLP
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* |
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23.3
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Consent of Locke Lord Bissell & Liddell LLP (included in Exhibit 5.1)
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† |
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24.1
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Power of Attorney |
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† |
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99.1
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Securities Purchase Agreement dated October 19, 2007 between
the Company and certain Purchasers named therein
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(b) |
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99.2
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Form of Registration Right Agreement between the Company and
certain Purchasers
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(b) |
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99.3
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Form of Variable Rate Convertible Debenture issued by the
Company to certain Purchasers
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(b) |
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99.3
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Form of Seven-Year and One-Year Warrants to Purchase Shares of
Common Stock of the Company issued to certain Purchasers
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(b) |
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| * |
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Filed herewith |
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| † |
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Previously filed |
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| (a) |
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Previously filed May 8, 2006, as an Exhibit to the Company’s Annual Report on Form 10-K, and
incorporated herein by reference. |
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| (b) |
|
Previously filed October 22, 2007, as an Exhibit to the Company’s Form 8-K, and incorporated
herein by reference. |
II-5