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
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NATURAL HEALTH TRENDS CORP.
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(Exact name of Company as specified in its charter)
Delaware 0-26272 59-2705336
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(State or other jurisdiction (Commission IRS Employer
of incorporation) File Number) Identification No.)
2050 Diplomat Drive Dallas, TX 75234
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(Address of principal executive offices) (Zip Code)
Company's telephone number, including area code (972) 241-4080
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12901 Hutton Drive Dallas, TX 75234
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(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))
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.
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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
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Name: Robert H. Hesse
Title: Interim Chief Executive
Officer
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