Huge Costs, Board Shake-Up Harm Natural Health 3Q

Huge Costs, Board Shake-Up Harm Natural Health 3Q

DALLASDue largely to hugegains in its Hong Kong business, Natural Health Trends Corp. (NASDAQ:BHIP) posted a 43-percent revenue growth for its third quarter to $58.1 million, butsuffered significant earnings decline under the weight of sharply-risen operatingexpenses. While an increase in the number of independent distributorshelped drive the sales growth, commissions to these distributors also rose,contributing to the earnings slide. In addition, costs associated withopening new markets in Mexico and Japan combined with increased marketing expenditures in Eastern Europe (KGC subsidiary) and risingpersonnel costs in both North America and Hong Kong to lower the bottomline. As a cautionary note, we should point out that we are notimmune to the uncertainty created by Chinas pending adoption ofthe direct selling laws, as other direct selling companies haveexperienced, said Robert Hesse, interim chief executive officer (CEO). In fact,the company recently attempted to boost its effort to adhere tothe changing Chinese direct selling requirements, investing an additional,mandatory $10 million in its China operations.

Previously an investor and consultant to the company, Hessetook over as interim CEO after the November 2005 termination ofboth Mark Woodburn, president, and Terry LaCore, CEO of the companys Lexxus International subsidiary. Woodburn and LaCore, who were both also on the board of directors, were fired withoutseverance after an independent investigation revealed they improperly accepted payments from one of the companys independent distributors $1.1 million and $1.4 million, respectively. Woodburn also misrepresented a $256,000 loan he secured from Natural Health Trends (www.naturalhealthtrendscorp.com) on behalf of a thirdparty, which turned out to be an entity owned by his parents.