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<SEC-DOCUMENT>0000950134-05-021687.txt : 20051115
<SEC-HEADER>0000950134-05-021687.hdr.sgml : 20051115
<ACCEPTANCE-DATETIME>20051115172430
ACCESSION NUMBER:		0000950134-05-021687
CONFORMED SUBMISSION TYPE:	8-K
PUBLIC DOCUMENT COUNT:		2
CONFORMED PERIOD OF REPORT:	20051110
ITEM INFORMATION:		Other Events
ITEM INFORMATION:		Financial Statements and Exhibits
FILED AS OF DATE:		20051115
DATE AS OF CHANGE:		20051115

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			NATURAL HEALTH TRENDS CORP
		CENTRAL INDEX KEY:			0000912061
		STANDARD INDUSTRIAL CLASSIFICATION:	WHOLESALE-MISCELLANEOUS NONDURABLE GOODS [5190]
		IRS NUMBER:				592705336
		STATE OF INCORPORATION:			FL
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		8-K
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	000-26272
		FILM NUMBER:		051207585

	BUSINESS ADDRESS:	
		STREET 1:		12901 HUTTON DRIVE
		STREET 2:		--
		CITY:			DALLAS
		STATE:			TX
		ZIP:			75234
		BUSINESS PHONE:		972-241-4080

	MAIL ADDRESS:	
		STREET 1:		12901 HUTTON DRIVE
		STREET 2:		--
		CITY:			DALLAS
		STATE:			TX
		ZIP:			75234
</SEC-HEADER>
<DOCUMENT>
<TYPE>8-K
<SEQUENCE>1
<FILENAME>d30501e8vk.txt
<DESCRIPTION>FORM 8-K
<TEXT>
<PAGE>
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 8-K

                                 CURRENT REPORT
     PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


       Date of Report (Date of earliest event reported) November 10, 2005
                                                        ------------------------

                           NATURAL HEALTH TRENDS CORP.
- --------------------------------------------------------------------------------
               (Exact name of Company as specified in its charter)


         Delaware                         0-26272                59-2705336
- --------------------------------------------------------------------------------
(State or other jurisdiction            (Commission             IRS Employer
    of incorporation)                   File Number)         Identification No.)


2050 Diplomat Drive                  Dallas, TX                    75234
- --------------------------------------------------------------------------------
         (Address of principal executive offices)                (Zip Code)


Company's telephone number, including area code (972) 241-4080
                                                --------------------------------

12901 Hutton Drive       Dallas, TX                                       75234
- --------------------------------------------------------------------------------
         (Former name or former address, if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the Company under any of the
following provisions (see General Instruction A.2. below):


[ ] Written communications pursuant to Rule 425 under the Securities Act
    (17 CFR 230.425)

[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act
    (17 CFR 240.14a-12)

[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange
    Act (17 CFR 240.14d-2(b))

[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange
    Act (17 CFR 240.13e-4(c))



<PAGE>



ITEM 8.01 OTHER EVENTS

         During September 2005, the Company reorganized its senior management
team in connection with an investigation conducted by the Company's Audit
Committee. Effective October 3, 2005, the Board of Directors of the Company
appointed Robert H. Hesse, a member of the Company's Board of Directors since
July 2004, as the Company's Interim Chief Executive Officer. Each of Mark
Woodburn and Terry LaCore resigned as officers and members of the Company's
Board of Directors due to their failure to cooperate with the Audit Committee's
investigation. The investigation was initiated in August 2005 and includes
allegations of misconduct by Messrs. Woodburn and LaCore asserted by an
unrelated third party arising out of a lawsuit involving Mr. LaCore and such
unrelated third party. From October 3, 2005 through November 13, 2005, Messrs.
Woodburn and LaCore were employed as the Company's Global Managing Director --
Operations and Global Managing Director -- Business Development, respectively.

         The Company also created the Office of the Chief Executive, which is
comprised of Mr. Hesse, Chris Sharng, the Company's Executive Vice President and
Chief Financial Officer, and Richard S. Johnson, President of Natural Health
Trends -- Japan. The Office of the Chief Executive is responsible for managing
the day-to-day operations of the Company. Since Mr. Hesse is no longer
considered to be an independent director, he resigned from the Company's Audit
Committee in September 2005. The Company's Nominating Committee is in the
process of identifying, reviewing and evaluating appropriate candidates for
appointment to the Board of Directors as independent directors. The Company
intends to appoint two of the anticipated new independent directors to its Audit
Committee.

         The Company has formed a search committee to identify and consider
appropriate candidates to serve as the Company's Chief Executive Officer. While
serving as the Company's Interim Chief Executive Officer, the Company pays Mr.
Hesse $2,000 per day plus reimbursement of out-of-pocket expenses.

         On November 10, 2005, an independent investigator retained by the
Company's Audit Committee learned that an entity controlled by Messrs. Woodburn
and LaCore received payments from an independent distributor of the Company's
products during 2001 through August 2005. The Company believes that Messrs.
Woodburn and LaCore received from such independent distributor a total of
approximately $1.4 million and $1.1 million, respectively. The Company believes
that the fees paid by the Company to such independent distributor were not in
excess of the amounts due under the Company's regular distributor compensation
plan.

         Approximately $2.4 million of the funds paid by the independent
distributor to Messrs. Woodburn and LaCore were paid at the direction of Messrs.
Woodburn and LaCore to an entity that is partially owned by Mr. Woodburn's
father and Randall A. Mason, a member of the Company's Board of Directors and
Chairman of the Company's Audit Committee. The funds were subsequently paid to
an entity controlled by Messrs. Woodburn and LaCore at their direction. The
Company believes that Mr. Mason was unaware that these payments were directed by
Messrs. Woodburn and LaCore to an entity partially owned by him until uncovered
by the Audit's Committee's independent investigator on November 10, 2005.
Further, the Company believes that Mr. Mason received no pecuniary benefit from
the payments made by the independent distributor. Since payments were directed
into an entity that is partially owned by Mr. Mason, he no longer can be
considered "independent" in accordance with the rules of The Nasdaq Stock Market
and under the federal securities laws. Therefore, effective November 11, 2005,
Mr. Mason resigned as Chairman and a member of the Company's Audit Committee.
Mr. Mason remains as a director.



                                       2
<PAGE>



         On November 14, 2005, in light of the information learned by the
Company's Audit Committee on November 10, 2005, the Company has terminated the
employment of each of Messrs. Woodburn and LaCore. No severance has been paid by
the Company to Messrs. Woodburn and LaCore and the Company is investigating
bringing claims or actions against them.

         In addition, a loan made by the Company under the direction of Mr.
Woodburn in the aggregate principal amount of $256,000 in February 2004 was
previously recorded as a loan to a third party. On November 10, 2005, the Audit
Committee investigator learned that the Company actually loaned the funds to an
entity owned and controlled by the parents of Mr. Woodburn. The loan was repaid
in full, partially by an entity controlled by a third party and partially by an
entity controlled by Mr. Woodburn in December 2004.

         The Audit Committee's investigation is ongoing and the Company is
seeking additional independent directors for its Board of Directors and the
committees thereof. The Company intends to amend certain disclosures in previous
filings with the Securities and Exchange Commission related to payments made by
the independent distributor to Messrs. Woodburn and LaCore and to
re-characterize the loan made by the Company to the entity controlled by Mr.
Woodburn's parents.

         Although we are currently unable to predict the effect of the outcome
of the termination of Messrs. Woodburn and LaCore as well as the Audit
Committee's investigation on our business, we anticipate that, among other
things, the number of active independent distributors and sales revenue could be
materially and adversely effected.


ITEM 9.01(c) FINANCIAL STATEMENTS AND EXHIBITS.

         99.1 Press Release dated November 15, 2005



                                   SIGNATURES

         Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.



                                             NATURAL HEALTH TRENDS CORP.


         Date: November 15, 2005
                                             By: /s/ Robert H. Hesse
                                                 -------------------------------
                                                 Name:  Robert H. Hesse
                                                 Title: Interim Chief Executive
                                                        Officer



                                       3
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.1
<SEQUENCE>2
<FILENAME>d30501exv99w1.txt
<DESCRIPTION>PRESS RELEASE
<TEXT>
<PAGE>
                           NATURAL HEALTH TRENDS CORP.

              ANNOUNCES THIRD QUARTER AND NINE MONTHS 2005 RESULTS

                       QUARTERLY SALES REACHED $58 MILLION
                     CONFERENCE CALL TODAY AT 4:15 P.M. EST

DALLAS, TX, NOVEMBER 15, 2005 -- Natural Health Trends Corp. (NASDAQ NMS: BHIP),
an international direct-selling company, today announced its financial results
for the third quarter ended September 30, 2005 and preliminary results from its
Audit Committee investigation.

Financial Results

Net sales in the third quarter of 2005 were approximately $58.1 million, up 43%
from the $40.5 million for the comparable period a year ago. For the nine months
ended September 30, 2005, net sales rose 56% to approximately $150.8 million
compared to $96.9 million for the same period during 2004.

For the third quarter of 2005, the Company recorded net income of approximately
$0.1 million, or $0.01 per fully diluted share.

The growth in sales was largely due to significant increase in the Hong
Kong-based business, which recorded approximately $37.7 million net sales in the
three months ended September 30, 2005, up from $23.8 million during the
comparable period last year. Sales growth in 2005 over 2004 was also
attributable to a 5% product price increase in January 2005 and an increase in
the number of independent distributors. As of September 30, 2005, the operating
subsidiaries of Natural Health Trends Corp. had approximately 169,000 active
distributors, compared to 133,000 at the end of 2004 and 101,000 a year ago.

At the end of the third quarter, the Company had on its balance sheet deferred
revenue of approximately $13.5 million of which $4.9 million pertained to
product orders and $7.1 million to enrollment package revenue. During April
2005, the Company launched a new product line, Gourmet Coffee Cafe, with its
coffee machines, coffee and tea pods, in the North American market. Since the
Gourmet Coffee Cafe is a very different product than the Company's other
products, relevant accounting rules require that none of the revenue generated
from the sale of the coffee machines be recognized until sufficient experience
on the product has been established. As a result, deferred revenue also includes
approximately $1.5 million of Gourmet Coffee Cafe product shipped through
September 30, 2005.

Gross profit margin for the third quarter was 77.6% of revenue, versus 78.1% for
the same period a year ago. The percentage of revenue declined over a year ago,
mainly due to significant revenue being deferred from the second into the third
quarter a year ago related to the Hong Kong market. Gross margin in the third
quarter improved from the 75.1% in the second quarter as the Company is in the
process of reducing certain duplicated logistic processes for our Hong
Kong-based business.

Distributor commissions were 50.1% of net sales for the three months ended
September 30, 2005 compared with 43.0% of net sales for the same period in the
prior year. A year ago, due to special events in Hong Kong that occurred in the
second quarter, approximately $6 million of the revenue recognized in the third
quarter had its associated commissions already recorded in the second



<PAGE>



quarter. Distributor commissions of 50.1% in the third quarter were lower than
the 55.3% in the second quarter, mainly due to scaling back local promotional
programs in Hong Kong.

Selling, general and administrative expenses ("SG&A") were approximately $15.1
million or 26.0% of net sales for the three months ended September 30, 2005
compared with approximately $8.3 million or 20.5% of net sales for the same
period in the prior year. This increase of approximately $6.8 million or 82% was
mainly attributable to additional marketing-related expenses primarily in
Eastern Europe ($1.6 million) and Hong Kong/China ($2.3 million), preparing the
opening of new markets in Mexico and Japan ($1.6 million) and higher
professional fees and personnel costs in North America ($1.3 million). SG&A are
expected to continue to increase in the fourth quarter driven by the opening of
the Japanese operations.

Robert H. Hesse, the Interim Chief Executive Officer of Natural Health Trends
Corp., said "In the third quarter, we are pleased with the progress of improved
profit margin by reducing duplicated logistic process and promotional costs in
Hong Kong as we have promised."

The revenue increase for the first nine months of 2005 over a year ago was due
to growth in Hong Kong, the anticipated opening of the Japanese office, and
additional sales from our KGC subsidiary and Lexxus business in North America.

Gross profit was 77.7% of net sales for the nine months ended September 30, 2005
compared with 77.3% of net sales for the same period in the prior year. This
margin increase in gross profit percentage was primarily driven by the 5% price
increase as well as the elimination of the commissions paid to MarketVision
Communications Corp. after its acquisition by the Company on March 31, 2004.

SG&A were approximately $36.7 million or 24.3% of net sales for the nine months
ended September 30, 2005 compared with approximately $22.5 million or 23.2% of
net sales for the same period in the prior year. The increase of approximately
$14.2 million was due to increased marketing in Eastern Europe by our KGC
subsidiary and in North America, higher professional fees and personnel cost in
North America, preparing the opening of new markets in Mexico and Japan, and
increased personnel costs in Hong Kong.

Mr. Hesse said, "Our strong sales momentum continued in the third quarter. As a
cautionary note, we should point out that we are not immune to the uncertainty
created by China's pending adoption of the direct selling laws, as other direct
selling companies have experienced. The opening of our Japanese operations is
our most important event in the fourth quarter, and we are expecting a
significant impact from the beginning."

Investigation Results

As previously disclosed, the Company's Audit Committee of the Board of Directors
initiated an investigation in August 2005 regarding allegations of misconduct by
Messrs. Mark Woodburn and Terry LaCore asserted by an unrelated third party
arising out of a lawsuit involving Mr. LaCore and such unrelated third party.

On November 10, 2005, an independent investigator retained by the Company's
Audit Committee learned that an entity controlled by Messrs. Woodburn and LaCore
received payments from an independent distributor of the Company's products
during 2001 through August 2005. The Company believes that Messrs. Woodburn and
LaCore received from such independent



<PAGE>



distributor a total of approximately $1.4 million and $1.1 million,
respectively. The Company believes that the fees paid by the Company to such
independent distributor were not in excess of the amounts due under the
Company's regular distributor compensation plan.

Approximately $2.4 million of the funds paid by the independent distributor to
Messrs. Woodburn and LaCore were paid at the direction of Messrs. Woodburn and
LaCore to an entity that is partially owned by Mr. Woodburn's father and Randall
A. Mason, a member of the Company's Board of Directors and Chairman of the
Company's Audit Committee. The funds were subsequently paid to an entity
controlled by Messrs. Woodburn and LaCore at their direction. The Company
believes that Mr. Mason was unaware that these payments were directed by Messrs.
Woodburn and LaCore to an entity partially owned by him until uncovered by the
Audit's Committee's independent investigator on November 10, 2005. Further, the
Company believes that Mr. Mason received no pecuniary benefit from the payments
made by the independent distributor. Since payments were directed into an entity
that is partially owned by Mr. Mason, he no longer can be considered
"independent" in accordance with the rules of The Nasdaq Stock Market and under
the federal securities laws. Therefore, effective November 11, 2005, Mr. Mason
resigned as Chairman and a member of the Company's Audit Committee. Mr. Mason
remains as a director.

On November 14, 2005, in light of the information learned by the Company's Audit
Committee on November 10, 2005, the Company has terminated the employment of
each of Messrs. Woodburn and LaCore. No severance has been paid by the Company
to Messrs. Woodburn and LaCore and the Company is investigating claims of action
against them.

In addition, a loan made by the Company under the direction of Mr. Woodburn in
the aggregate principal amount of $256,000 in February 2004 was previously
recorded as a loan to a third party. On November 10, 2005, the Audit Committee
investigator learned that the Company actually loaned the funds to an entity
owned and controlled by the parents of Mr. Woodburn. The loan was repaid in
full, partially by an entity controlled by a third party and partially by an
entity controlled by Mr. Woodburn in December 2004.

The Audit Committee's investigation is ongoing and the Company is seeking
additional independent directors for its Board of Directors and the committees
thereof. The Company intends to amend certain disclosures in previous filings
with the Securities and Exchange Commission related to payments made by the
independent distributor to Messrs. Woodburn and LaCore and to re-characterize
the loan made by the Company to the entity controlled by Mr. Woodburn's parents.

Mr. Hesse said, "As soon as we confirmed the improprieties committed by Mark and
Terry, the Company acted as soon as possible to discipline them to protect the
Company's best interest. We feel strongly that the right ethical tone has to be
set from the top. Meanwhile, we believe that the Company has a strong and deep
bench of management members around the world, who are proactively working with
our distributor leadership and assuring them of the Company's strong financial
position and unwavering support for their continued business development."

The Company will host a conference call today at 4:15 p.m. EST. Those who wish
to participate in the conference call may telephone 888-335-6674 approximately
15 minutes before 4:15 p.m. EST. If you cannot participate in the call, but wish
to hear it, you may login to Natural Health Trends Corp.'s homepage at
www.naturalhealthtrendscorp.com and click on either Windows Media or Real Player
approximately 1 1/2 hours after the completion of the call.



<PAGE>



Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
- -- Forward-looking statements in this release do not constitute guarantees of
future performance. Such forward-looking statements are subject to risks and
uncertainties that could cause our actual results to differ materially from
those anticipated. Such statements may relate, among other things, to our
relationship with our distributors; our need to continually recruit new
distributors; our internal controls and accounting methods that may require
further modification; regulatory matters governing our products and network
marketing system; our relationship with our majority owned subsidiary operating
in Russia and other Eastern European countries; our ability to recruit and
maintain key management; adverse publicity associated with our products or
direct selling organizations; product liability claims; our reliance on outside
manufacturers; risks associated with operating internationally, including
foreign exchange risks; product concentration; dependence on increased
penetration of existing markets; adverse consequences from audit committee
investigation and/or management reorganization; the competitive nature of our
business; and our ability to generate sufficient cash to operate and expand our
business. For a more detailed discussion of the risks and uncertainties of our
business, please refer to our Annual Report on Form 10-K for the fiscal year
ended December 31, 2004 filed with the Securities and Exchange Commission. We
assume no obligation to update any forward-looking information contained in this
press release or with respect to the announcements described herein.



<PAGE>



                  NATURAL HEALTH TRENDS CORP. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                        (In Thousands, Except Share Data)

<Table>
<Caption>
                                                                               December        September
                                                                               31, 2004         30, 2005
                                                                              ------------    -------------
                                                                                              (Unaudited)
                                   ASSETS
<S>                                                                           <C>             <C>
Current assets:
     Cash and cash equivalents                                                    $22,324          $28,324
     Restricted cash                                                                2,395            2,127
     Accounts receivable                                                              209              524
     Inventories, net                                                              13,991           16,918
     Other current assets                                                           2,096            6,352
                                                                              ------------    -------------
Total current assets                                                               41,015           54,245
Property and equipment, net                                                           579            2,171
Goodwill                                                                           14,145           14,145
Intangible assets, net                                                              5,474            4,769
Deferred tax assets                                                                   434              430
Other assets                                                                          458            1,050
                                                                              ------------    -------------
Total assets                                                                      $62,105          $76,810
                                                                              ============    =============

                    LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
     Accounts payable                                                              $1,344           $2,418
     Income taxes payable                                                           1,797            2,370
     Accrued distributor commissions                                                4,259            5,794
     Other accrued expenses                                                         4,154            7,080
     Deferred revenue                                                               9,551           13,511
     Current portion of debt                                                          796              278
     Other current liabilities                                                      1,595            2,189
                                                                              ------------    -------------
Total current liabilities                                                          23,496           33,640
Debt                                                                                   22               11
                                                                              ------------    -------------
Total liabilities                                                                  23,518           33,651
Commitments and contingencies
Minority interest                                                                     598              736
Mezzanine common stock                                                                960               --
Stockholders' equity:
     Preferred stock, $0.001 par value; 5,000,000 shares authorized; none
         issued and outstanding                                                        --               --
     Common stock, $0.001 par value; 50,000,000 shares authorized,
         6,819,667 and 7,108,867 shares issued and outstanding at December
         31, 2004 and September 30, 2005, respectively                                  7                7
     Additional paid-in capital                                                    64,933           69,428
     Accumulated deficit                                                          (27,799)         (27,044)
     Accumulated other comprehensive income (loss):
         Foreign currency translation adjustment                                     (112)              32
                                                                              ------------    -------------
Total stockholders' equity                                                         37,029           42,423
                                                                              ------------    -------------
Total liabilities and stockholders' equity                                        $62,105          $76,810
                                                                              ============    =============
</Table>



<PAGE>



                  NATURAL HEALTH TRENDS CORP. AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
                      (In Thousands, Except Per Share Data)

<Table>
<Caption>
                                                             Three Months Ended         Nine Months Ended
                                                               September 30,               September 30,
                                                           -----------------------    -----------------------
                                                             2004          2005         2004         2005
                                                           ----------    ---------    ---------    ----------
                                                                                         As
                                                                                      Restated
<S>                                                        <C>           <C>          <C>          <C>
Net sales                                                    $40,482      $58,071      $96,913      $150,789
Cost of sales                                                  8,870       12,984       21,987        33,590
                                                           ----------    ---------    ---------    ----------
Gross profit                                                  31,612       45,087       74,926       117,199
Operating expenses:
     Distributor commissions                                  17,422       29,087       49,745        77,959
     Selling, general and administrative expenses              8,288       15,108       22,450        36,662
                                                           ----------    ---------    ---------    ----------
Total operating expenses                                      25,710       44,195       72,195       114,621
                                                           ----------    ---------    ---------    ----------
Income from operations                                         5,902          892        2,731         2,578
Other expense, net                                               (91)         (88)        (121)         (761)
                                                           ----------    ---------    ---------    ----------
Income before income taxes and minority interest               5,811          804        2,610         1,817
Income tax provision                                            (857)        (610)        (110)         (924)
Minority interest                                                 74          (75)        (457)         (138)
                                                           ----------    ---------    ---------    ----------
Net income                                                    $5,028         $119       $2,043          $755
                                                           ==========    =========    =========    ==========

Income per share:
     Basic                                                     $0.92        $0.02        $0.39         $0.11
                                                           ==========    =========    =========    ==========
     Diluted                                                   $0.75        $0.01        $0.32         $0.09
                                                           ==========    =========    =========    ==========

Weighted-average number of shares outstanding:
     Basic                                                     5,450        6,951        5,189         6,875
                                                           ==========    =========    =========    ==========
     Diluted                                                   6,692        8,418        6,439         8,267
                                                           ==========    =========    =========    ==========
</Table>
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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