Natural Health Trends Corp. (BHIP) filed Quarterly Report for the period ended 2009-09-30.
Natural Health Trends Corp. provides financial opportunities that focus on integrity, personal balance, and timeless values, while providing outstanding products, services and coaching for the journey through life. The Company helps people find and develop the greatness within themselves. This is why they're a leader in our industry. As a leader in the direct selling industry, they continue to implement our business model around the world by providing an exceptional business opportunity in multiple international markets as we set the pace in the direct selling industry. Natural Health Trends Corp. has a market cap of $3.75 million; its shares were traded at around $0.35 with and P/S ratio of 0.08.
Highlight of Business Operations:
Net Sales. Net sales were $5.7 million for the three months ended September 30, 2009 compared to $11.0 million for the three months ended September 30, 2008, a decrease of $5.3 million, or 48%. Hong Kong net sales decreased $4.2 million, or 59%, over the comparable period a year ago. The decline in Hong Kong was partially due to an increase of $1.5 million in unshipped orders as compared to the quarter ended June 30, 2009, caused by certain customs issues that delayed orders placed between mid-August through the end of the quarter. Had these orders shipped timely, Hong Kong net sales would have decreased $2.7 million, or 38%, over the comparable period a year ago. The import issue arose from issues between our importer and the Chinese Custom authority. The issues were mostly resolved and shipment resumed in October and most of the back orders were fulfilled by early November. Net sales for South Korea, Taiwan, and Europe were down $637,000, $806,000 and $205,000, respectively. European sales were impacted by the opening of our Russian business in July 2009. Prior to the opening, sales into the Russian market were reflected in our European subsidiary. Russian sales during the third quarter of 2009 totaled $684,000.
Net sales were $24.0 million for the nine months ended September 30, 2009 compared to $34.7 million for the nine months ended September 30, 2008, a decrease of $10.7 million, or 31%. Hong Kong net sales decreased $6.4 million, or 28%, over the comparable period a year ago. Net sales for North America, South Korea, and Taiwan were down $1.5 million, $2.4 million, and $1.9 million, respectively. North American sales were impacted by the launch of retail product selling in Italy during June 2008. Prior to the launch, sales into the European market were fulfilled by our North American subsidiaries. European sales during the first nine months of 2009 totaled $1.7 million. Additionally, net sales in China from our e-commerce retail platform increased $380,000 over the comparable period a year ago.
Gross Profit. Gross profit was $3.8 million, or 67.1% of net sales, for the three months ended September 30, 2009 compared with $8.0 million, or 72.3% of net sales, for the three months ended September 30, 2008. Gross profit was $16.9 million, or 70.1% of net sales, for the nine months ended September 30, 2009 compared with $25.1 million, or 72.4% of net sales, for the nine months ended September 30, 2008. The gross profit decreases of $4.1 million and $8.3 million for the three and nine months ended September 30, 2009, respectively, over the comparable period in the prior year, was mainly due to, as stated above, decreased product sales, non-variable Chinese importation costs, and the decline in enrollment package revenue.
Depreciation and Amortization. Depreciation and amortization was $324,000, or 5.7% of net sales, for the three months ended September 30, 2009 compared with $338,000, or 3.1% of net sales, for the three months ended September 30, 2008. Depreciation and amortization was $992,000, or 4.1% of net sales, for the nine months ended September 30, 2009 compared with $1.1 million, or 3.1% of net sales, for the nine months ended September 30, 2008. Depreciation and amortization decreased by $14,000 and $98,000 for the three and nine months ended September 30, 2009 compared to the comparable periods in the prior year, respectively, as a result of the Company’s reduction in the pace of capital expenditures.
Other Income (Expense), Net. Other expense was $1.1 million for the three months ended September 30, 2009 compared with $974,000 for the three months ended September 30, 2008. Other expense was $3.0 million for the nine months ended September 30, 2009 compared with $1.6 million for the nine months ended September 30, 2008. The increase in other expense for each period was primarily due to an increase in the interest expense recorded on convertible debentures issued in October 2007, including amortization of debt issuance cost and accretion of debt discount, and the loss on redemption of the convertible debentures that was recorded upon redemption in August 2009. Offsetting this expense in each of the three and nine month periods ended September 30, 2009, the Company de-recognized $221,000 of commission liabilities in its Hong Kong market for previous years as it determined that it is probable that these commission payments will not be claimed.
On October 19, 2007, the Company raised gross proceeds of $3.7 million in a private placement of variable rate convertible debentures (the “Debentures”) having an aggregate face amount of $4,250,000, seven-year warrants to purchase 1,495,952 shares of the Company’s common stock, and one-year warrants to purchase 1,495,952 shares of the Company’s common stock. The Debentures were convertible by their holders into shares of our common stock at a conversion price of $2.50, subject to adjustment in certain circumstances. The Debentures bore interest at the greater of LIBOR plus 4%, or 10% per annum. Interest was payable quarterly beginning on January 1, 2008. One-half of the original principal amount of the Debentures was payable in 12 equal monthly installments beginning on November 1, 2008, and the balance was payable on October 19, 2009, unless extended by the holders to October 19, 2012. The warrants have an exercise price of $3.52 per share. The placement agent and its assigns also received five-year warrants to purchase 149,595 shares of the Company’s common stock at an exercise price of $3.52 per share. The one-year warrants expired on April 21, 2009. As more fully described below, the Debentures were redeemed on August 10, 2009.
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