##### 



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-K/A
 (Amendment No. 1)
  þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2005
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to  .
 Commission file number: 0-26272
 NATURAL HEALTH TRENDS CORP.
  Delaware
(State or other jurisdiction of
incorporation or organization)
    
    59-2705336
(I.R.S. Employer
Identification No.)2050 Diplomat Drive
Dallas, Texas
(Address of principal executive offices)
    
    75234
(Zip code)
   None
  Common Stock, $0.001 par value
 o þ
 o þ
 o þ
 o
  Large accelerated filer  ̈
    
    Accelerated filer  ̈
    
    Non-Accelerated filer þ
 o þ




---



##### 



DOCUMENTS INCORPORATED BY REFERENCE
  EXPLANATORY NOTE




---



##### 



PagePART IIItem 6.
Selected Financial Data
    
    
    1Item 7.
Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    2Item 8. Financial Statements and Supplemental Data
    
    
    13Item 9B. Other Information
    
    
    39PART IIIItem 10. Directors and Executive Officers of the Registrant
    
    
    40Item 11. Executive Compensation
    
    
    43Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    50Item 13. Certain Relationships and Related Transactions
    
    
    53Item 14. Principal Accountant Fees and Services
    
    
    55Signatures
    
    
    56




---



##### 



Item 6. SELECTED FINANCIAL DATA
  Year Ended December 31,2001
    
    
    2002
    
    
    2003
    
    
    2004
    
    
    2005(In Thousands, Except Per Share Data)
    
    
    As RestatedConsolidated Statement of Operations Data:Net sales
    
    $
    22,989
    
    
    $
    36,968
    
    
    $
    62,576
    
    
    $
    133,225
    
    
    $
    194,472Gross profit
    
    
    17,691
    
    
    
    29,216
    
    
    
    48,900
    
    
    
    103,904
    
    
    
    150,359Distributor commissions
    
    
    12,449
    
    
    
    16,834
    
    
    
    27,555
    
    
    
    68,579
    
    
    
    101,021Selling, general and administrative expenses
    
    
    5,187
    
    
    
    10,710
    
    
    
    15,770
    
    
    
    33,102
    
    
    
    49,000Provision for KGC receivable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,759Income (loss) from operations
    
    
    (65
    )
    
    
    238
    
    
    
    5,575
    
    
    
    2,223
    
    
    
    (2,421
    )Net income (loss)
    
    
    466
    
    
    
    2,139
    
    
    
    4,728
    
    
    
    1,241
    
    
    
    (4,869
    )Diluted income (loss) from continuing operations per
share1:
    
    $
    (0.98
    )
    
    $
    (0.11
    )
    
    $
    0.83
    
    
    $
    0.18
    
    
    $
    (0.70
    )Diluted weighted-average number of shares
outstanding1:
    
    
    1,342
    
    
    
    3,118
    
    
    
    5,688
    
    
    
    6,822
    
    
    
    6,934Consolidated Balance Sheet Data (at end of period)2:Cash and cash equivalents
    
    $
    324
    
    
    $
    3,864
    
    
    $
    11,133
    
    
    $
    22,324
    
    
    $
    18,470Working capital
    
    
    (4,858
    )
    
    
    (1,187
    )
    
    
    2,889
    
    
    
    17,519
    
    
    
    11,929Total assets
    
    
    3,075
    
    
    
    10,319
    
    
    
    20,340
    
    
    
    62,105
    
    
    
    63,948Total debt
    
    
    1,021
    
    
    
    684
    
    
    
    199
    
    
    
    818
    
    
    
    109Total stockholders equity (deficit)
    
    
    (4,370
    )
    
    
    (398
    )
    
    
    4,824
    
    
    
    37,029
    
    
    
    37,169
 
 1
    
    All share and earnings per share data gives
effect to a 1-for-100 reverse stock split, which took effect in March 2003.2
    
    The Company sold its 51% equity interest in
KGC effective December 31, 2005. As a result, its balance sheet was not
included in the Companys consolidated financial statements at December
31, 2005. 1




---



##### 



Item 7.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Restatement
of Previously Issued Financial Statements
   AsPreviously
    
    
    
    AsReported
    
    Adjustments
    
    RestatedNet sales
    
    $
    194,472
    
    
    $
    
    
    
    $
    194,472Cost of sales
    
    
    44,746
    
    
    
    (633
    )
    
    
    44,113Gross profit
    
    
    149,726
    
    
    
    633
    
    
    
    150,359Loss from operations
    
    
    (3,054
    )
    
    
    633
    
    
    
    (2,421
    )Net loss
    
    
    (5,502
    )
    
    
    633
    
    
    
    (4,869
    )Diluted loss per share
    
    $
    (0.79
    )
    
    
    
    
    
    $
    (0.70
    )Diluted weighted-average number of shares
    outstanding:
    
    
    6,934
    
    
    
    
    
    
    
    6,934  Business Overview
         Actual
    
    
    As AdjustedAs RestatedNet sales
    
    $
    194,472
    
    
    $
    160,214Gross profit
    
    
    150,359
    
    
    
    123,804Distributor commissions
    
    
    101,021
    
    
    
    85,388Loss from operations
    
    
    (2,421
    )
    
    
    (1,668
    )
    
    
    The Company set up a school in Macau to train members about the applicable Chinese
legal requirements and the need for distributors to accurately and fairly describe
business opportunities available to potential members. The schools were operated from May
2004 to November 2005.
    
    The Company suspended shipment of product to certain members until they had completed
the required training.
    
    The Company extended its existing 14-day return policy in Hong Kong to 180 days to
allow distributors and customers who purchased products during the two-week period prior
to, and the two-week period after, the airing of the television program to return
purchased merchandise for a full refund.
    
    The Company began posting announcements on its Hong Kong website to the effect that the
resale of its products in China without the appropriate license would result in
termination of membership. Since then, the Company has terminated at least four members in
China for engaging in activities in violation of Chinese law.
    
    In June 2004 the Company completed formation of its Chinese subsidiary (Lexxus
China}, and by the end of 2005 had invested $12.0 million as capital in that entity.
    
    Lexxus China is working to file an application for a direct selling license under
proposed legislation.
    
    Lexxus China has leased space in Zhuhai, purchased equipment and finished out a
manufacturing plant. Although Lexxus China now has a license to manufacture and employee
personnel at the plant, it does not yet have a license to sell any product manufactured
there and will not begin manufacturing operations until it has obtained that license.
    
    On November 1, 2005, Lexxus China obtained its general cosmetic manufacturing permit
and has begun trial production testing.
     2




---



##### 



Income Statement Presentation
  Year Ended December 31,2003
    
    
    2004
    
    
    2005As RestatedNorth America
    
    $
    8,779
    
    
    
    14.0
    %
    
    $
    15,631
    
    
    
    11.7
    %
    
    $
    15,297
    
    
    
    7.9
    %Hong Kong
    
    
    30,763
    
    
    
    49.2
    
    
    
    74,293
    
    
    
    55.8
    
    
    
    120,968
    
    
    
    62.2Taiwan
    
    
    3,097
    
    
    
    4.9
    
    
    
    3,261
    
    
    
    2.5
    
    
    
    3,722
    
    
    
    1.9Southeast Asia
    
    
    1,570
    
    
    
    2.5
    
    
    
    1,786
    
    
    
    1.3
    
    
    
    6,438
    
    
    
    3.3Russia and Eastern Europe1
    
    
    13,157
    
    
    
    21.0
    
    
    
    30,248
    
    
    
    22.7
    
    
    
    34,258
    
    
    
    17.6South Korea
    
    
    2,492
    
    
    
    4.0
    
    
    
    5,524
    
    
    
    4.1
    
    
    
    8,495
    
    
    
    4.4Australia/New Zealand
    
    
    226
    
    
    
    0.4
    
    
    
    623
    
    
    
    0.5
    
    
    
    1,455
    
    
    
    0.7Japan
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,659
    
    
    
    0.9Latin America
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    518
    
    
    
    0.3Other
    
    
    175
    
    
    
    0.3
    
    
    
    41
    
    
    
    
    
    
    
    
    
    
    
    Total Lexxus1
    
    
    60,259
    
    
    
    96.3
    
    
    
    131,407
    
    
    
    98.6
    
    
    
    192,810
    
    
    
    99.2North America
    
    
    1,889
    
    
    
    3.0
    
    
    
    1,283
    
    
    
    1.0
    
    
    
    1,231
    
    
    
    0.6Australia/New Zealand
    
    
    428
    
    
    
    0.7
    
    
    
    535
    
    
    
    0.4
    
    
    
    431
    
    
    
    0.2Total eKaire
    
    
    2,317
    
    
    
    3.7
    
    
    
    1,818
    
    
    
    1.4
    
    
    
    1,662
    
    
    
    0.8$
    62,576
    
    
    
    100
    %
    
    $
    133,225
    
    
    
    100
    %
    
    $
    194,472
    
    
    
    100
    %
   
    
    Through retail markups on sales of products purchased by distributors at wholesale prices; and
    
    Through a series of commissions paid on product purchases made by their down-line distributors.
  
 1
    
    The Company will no longer consolidate the
operating results of KGC for periods beginning after December 31, 2005 as it
sold its 51% interest in KGC to Bannks Foundation effective December 31, 2005. 3




---



##### 



Critical Accounting Policies
   Inventory Valuation.
 Valuation of Goodwill and Impairment Analysis.
 4




---



##### 



Allowance for Sales Returns.
 Revenue Recognition.
   Tax Valuation Allowance.
 5




---



##### 



Results of Operations
  Year Ended December 31,2003
    
    
    2004
    
    
    2005As RestatedNet sales
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %Cost of sales
    
    
    21.9
    
    
    
    22.0
    
    
    
    22.7Gross profit
    
    
    78.1
    
    
    
    78.0
    
    
    
    77.3Operating expenses:Distributor commissions
    
    
    44.0
    
    
    
    51.5
    
    
    
    51.9Selling, general and administrative expenses
    
    
    25.2
    
    
    
    24.8
    
    
    
    25.2Provision for KGC receivable
    
    
    
    
    
    
    
    
    
    
    1.4Total operating expenses
    
    
    69.2
    
    
    
    76.3
    
    
    
    78.5Income (loss) from operations
    
    
    8.9
    
    
    
    1.7
    
    
    
    (1.2
    )Other income (expense)
    
    
    
    
    
    
    0.1
    
    
    
    (0.5
    )Income (loss) before income taxes and minority interest
    
    
    8.9
    
    
    
    1.8
    
    
    
    (1.7
    )Income tax provision
    
    
    (1.4
    )
    
    
    (0.5
    )
    
    
    (0.8
    )Minority interest
    
    
    
    
    
    
    (0.4
    )
    
    
    Net income (loss)
    
    
    7.5
    %
    
    
    0.9
    %
    
    
    (2.5
    )%
 2005 Compared to 2004
 Net Sales.
   Cost
of Sales.
 6




---



##### 



Gross
Profit.
 Distributor Commissions.
 Selling, General and Administrative Expenses.
 
    
    costs of opening new markets in Mexico ($1.6 million) and Japan ($3.9 million);
    
    costs of expansion into China ($1.4 million);
    
    increased personnel costs and credit card charges and assessments in Hong Kong ($2.5 million);
    
    increased marketing and professional fees in Russia and Eastern Europe by KGC ($2.7 million); and
    
    higher professional fees and personnel cost in North America ($3.2 million).
 Other Income (Expense).
 Income Taxes.
 Minority Interest.
 Net
Income(Loss).
 2004 Compared to 2003
 Net Sales.
 Cost of Sales.
 7




---



##### 



Gross Profit.
 Distributor Commissions.
 Selling, General and Administrative Expenses.
 
    
    Marketing and promotional activities world-wide of $7.8 million (The Company resorted to
the increase in marketing activities in most of the Companys markets around the world to
drive the increase in the number of active distributors);
    
    Credit card charges and assessments totaling $2.7 million;
    
    Professional fees of $2.3 million;
    
    Personnel costs mainly in the U.S. and Hong Kong of $2.2 million;
    
    Costs for building the Chinese market totaling $600,000; and
    
    Amortization of intangibles of $600,000 related to the MarketVision acquisition.
 Other Income (Expense).
 Income Taxes.
 Minority Interest.
 Net Income.
 Liquidity and Capital Resources
   8




---



##### 



Year Ended December 31,Total
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    ThereafterDebt
    
    $
    109
    
    
    $
    109
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Operating leases
    
    
    6,740
    
    
    
    1,891
    
    
    
    1,527
    
    
    
    875
    
    
    
    707
    
    
    
    505
    
    
    
    1,235Purchase commitments1
    
    
    7,028
    
    
    
    1,489
    
    
    
    1,489
    
    
    
    1,350
    
    
    
    1,350
    
    
    
    1,350
    
    
    
    Construction commitment
    
    
    580
    
    
    
    580
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Totals
    
    $
    14,457
    
    
    $
    4,069
    
    
    $
    3,016
    
    
    $
    2,225
    
    
    $
    2,057
    
    
    $
    1,855
    
    
    $
    1,235
  Concentrate
   
 1
    
    Purchase commitments include the
Companys agreement with the supplier of its Alura® product to
purchase a minimum volume of 15 barrels of product per quarter to maintain
exclusivity and volume discounts. The total product cost is $1.4 million
before any volume discounts. The Company intends to maintain this contract.
The contract does not terminate unless the Company fails to purchase at least
$350,000 a quarter. 9




---



##### 



Related Party Transactions
    10




---



##### 



Skindulgence ® LaVie
 11




---



##### 



Recent Accounting Pronouncements
   
    
    A modified prospective method in which compensation cost is recognized beginning with
the effective date based on the requirements of SFAS 123(R) for all share-based payments
granted after the effective date and based on the requirements of SFAS 123 for all awards
granted to employees prior to the adoption date of SFAS 123(R) that remain unvested on the
adoption date.
    
    A modified retrospective method which includes the requirements of the modified
prospective method described above, but also permits entities to restate either all prior
periods presented or prior interim periods of the year of adoption based on the amounts
previously recognized under SFAS 123 for purposes of pro forma disclosures.
   OffBalance Sheet Arrangements
  12




---



##### 



Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
   PageReport of Independent Registered Public Accounting Firm
    
    
    14Consolidated Balance Sheets
    
    
    15Consolidated Statements of Operations
    
    
    16Consolidated Statements of Stockholders Equity
    
    
    17Consolidated Statements of Cash Flows
    
    
    18Notes to Consolidated Financial Statements
    
    
    19
 13




---



##### 



14




---



##### 



December 31,2004
    
    
    2005As
RestatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    22,324
    
    
    $
    18,470Restricted cash
    
    
    2,395
    
    
    
    2,236Accounts receivable
    
    
    209
    
    
    
    300Inventories, net
    
    
    13,991
    
    
    
    12,993Other current assets
    
    
    2,096
    
    
    
    4,632Total current assets
    
    
    41,015
    
    
    
    38,631Property and equipment, net
    
    
    579
    
    
    
    3,143Goodwill
    
    
    14,145
    
    
    
    14,145Intangible assets, net
    
    
    5,474
    
    
    
    4,529Deferred tax assets
    
    
    434
    
    
    
    Other assets
    
    
    458
    
    
    
    3,500Total assets
    
    $
    62,105
    
    
    $
    63,948LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    1,344
    
    
    $
    2,023Income taxes payable
    
    
    1,797
    
    
    
    1,308Accrued distributor commissions
    
    
    4,259
    
    
    
    4,001Other accrued expenses
    
    
    4,154
    
    
    
    6,827Deferred revenue
    
    
    9,551
    
    
    
    9,897Current portion of debt
    
    
    796
    
    
    
    109Other current liabilities
    
    
    1,595
    
    
    
    2,537Total current liabilities
    
    
    23,496
    
    
    
    26,702Debt
    
    
    22
    
    
    
    Total liabilities
    
    
    23,518
    
    
    
    26,702Commitments and contingenciesMinority interest
    
    
    598
    
    
    
    77Mezzanine common stock
    
    
    960
    
    
    
    Stockholders equity:Preferred stock, $0.001 par value; 1,500,000
and 5,000,000 shares authorized at December
31, 2004 and 2005, respectively; none issued
and outstanding
    
    
    
    
    
    
    Common stock, $0.001 par value; 500,000,000
and 50,000,000 shares authorized, 6,819,667
and 7,108,867 shares issued and outstanding
at December 31, 2004 and December 31, 2005,
respectively
    
    
    7
    
    
    
    7Additional paid-in capital
    
    
    64,933
    
    
    
    69,417Accumulated deficit
    
    
    (27,799
    )
    
    
    (32,668
    )Accumulated other comprehensive income (loss):Foreign currency translation adjustment
    
    
    (112
    )
    
    
    413Total stockholders equity
    
    
    37,029
    
    
    
    37,169Total liabilities and stockholders equity
    
    $
    62,105
    
    
    $
    63,948
  15




---



##### 



Year Ended December 31,2003
    
    
    2004
    
    
    2005As RestatedNet sales
    
    $
    62,576
    
    
    $
    133,225
    
    
    $
    194,472Cost of sales
    
    
    13,676
    
    
    
    29,321
    
    
    
    44,113Gross profit
    
    
    48,900
    
    
    
    103,904
    
    
    
    150,359Operating expenses:Distributor commissions
    
    
    27,555
    
    
    
    68,579
    
    
    
    101,021Selling, general and administrative expenses
    
    
    15,770
    
    
    
    33,102
    
    
    
    49,000Provision for KGC receivable
    
    
    
    
    
    
    
    
    
    
    2,759Total operating expenses
    
    
    43,325
    
    
    
    101,681
    
    
    
    152,780Income (loss) from operations
    
    
    5,575
    
    
    
    2,223
    
    
    
    (2,421
    )Other income (expense), net
    
    
    (1
    )
    
    
    137
    
    
    
    (910
    )Income (loss) before income taxes and minority interest
    
    
    5,574
    
    
    
    2,360
    
    
    
    (3,331
    )Income tax provision
    
    
    (860
    )
    
    
    (663
    )
    
    
    (1,587
    )Minority interest
    
    
    14
    
    
    
    (456
    )
    
    
    49Net income (loss)
    
    
    4,728
    
    
    
    1,241
    
    
    
    (4,869
    )Preferred stock dividends
    
    
    1
    
    
    
    
    
    
    
    Net income (loss) available to common stockholders
    
    $
    4,727
    
    
    $
    1,241
    
    
    $
    (4,869
    )Income (loss) per share:Basic
    
    $
    1.03
    
    
    $
    0.22
    
    
    $
    (0.70
    )Diluted
    
    $
    0.83
    
    
    $
    0.18
    
    
    $
    (0.70
    )Weighted-average number of shares outstanding:Basic
    
    
    4,609
    
    
    
    5,580
    
    
    
    6,934Diluted
    
    
    5,688
    
    
    
    6,822
    
    
    
    6,934
  16




---



##### 



AccumulatedAdditional
    
    
    
    
    
    
    
    
    
    
    OtherPreferred Stock
    
    
    Common Stock
    
    
    Paid-In
    
    
    Accumulated
    
    
    Deferred
    
    
    ComprehensiveShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    Compensation
    
    
    Income (Loss)
    
    
    TotalBALANCE, December 31, 2002
    
    
    16
    
    
    $
    16
    
    
    
    4,239,495
    
    
    $
    4
    
    
    $
    33,504
    
    
    $
    (33,767
    )
    
    $
    (146
    )
    
    $
    (9
    )
    
    $
    (398
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,728
    
    
    
    
    
    
    
    
    
    
    
    4,728Foreign currency translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (138
    )
    
    
    (138
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,590Conversion of Series J preferred stock
    
    
    (16
    )
    
    
    (16
    )
    
    
    28,468
    
    
    
    
    
    
    
    16
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Shares issued in acquisition
    
    
    
    
    
    
    
    
    
    
    360,000
    
    
    
    
    
    
    
    433
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    433Shares issued for services
    
    
    
    
    
    
    
    
    
    
    28,500
    
    
    
    
    
    
    
    53
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    53Preferred stock dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    Deferred compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    146
    
    
    
    
    
    
    
    146BALANCE, December 31, 2003
    
    
    
    
    
    
    
    
    
    
    4,656,463
    
    
    
    4
    
    
    
    34,007
    
    
    
    (29,040
    )
    
    
    
    
    
    
    (147
    )
    
    
    4,824Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,241
    
    
    
    
    
    
    
    
    
    
    
    1,241Foreign currency translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    35
    
    
    
    35Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,276Shares issued in acquisitions
    
    
    
    
    
    
    
    
    
    
    790,000
    
    
    
    1
    
    
    
    14,704
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,705Exercise of stock options and warrants
    
    
    
    
    
    
    
    
    
    
    3,500
    
    
    
    
    
    
    
    25
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25Issuance of common stock and common
stock purchase warrants in private
placement
    
    
    
    
    
    
    
    
    
    
    1,369,704
    
    
    
    2
    
    
    
    16,065
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,067Imputed compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    132
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    132BALANCE, December 31, 2004
    
    
    
    
    
    
    
    
    
    
    6,819,667
    
    
    
    7
    
    
    
    64,933
    
    
    
    (27,799
    )
    
    
    
    
    
    
    (112
    )
    
    
    37,029Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,869
    )
    
    
    
    
    
    
    
    
    
    
    (4,869
    )Foreign currency translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    451
    
    
    
    451Less: reclassification adjustment on
sale of KGC
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    74
    
    
    
    74Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,344
    )Exercise of warrants
    
    
    
    
    
    
    
    
    
    
    289,200
    
    
    
    
    
    
    
    3,606
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,606Offering costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (115
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (115
    )Expiration of put right
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    960
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    960Imputed compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    33
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    33BALANCE, December 31, 2005
(As Restated)
    
    
    
    
    
    $
    
    
    
    
    7,108,867
    
    
    $
    7
    
    
    $
    69,417
    
    
    $
    (32,668
    )
    
    $
    
    
    
    $
    413
    
    
    $
    37,169
  17




---



##### 



Year Ended December 31,2003
    
    
    2004
    
    
    2005As RestatedCASH FLOWS FROM OPERATING ACTIVITIES:Net income (loss)
    
    $
    4,728
    
    
    $
    1,241
    
    
    $
    (4,869
    )Adjustments to reconcile net income (loss) to net cash
provided by operating activities, net:Depreciation and amortization of property and equipment
    
    
    418
    
    
    
    495
    
    
    
    529Amortization of intangibles
    
    
    115
    
    
    
    801
    
    
    
    945Minority interest
    
    
    (14
    )
    
    
    456
    
    
    
    (49
    )Deferred income taxes
    
    
    
    
    
    
    (515
    )
    
    
    515Imputed compensation
    
    
    
    
    
    
    132
    
    
    
    33Common stock issued for services and penalties
    
    
    53
    
    
    
    14
    
    
    
    Change in deferred compensation
    
    
    146
    
    
    
    
    
    
    
    Changes in
assets and liabilities, net of acquisitions and dispositions:Accounts receivable
    
    
    301
    
    
    
    50
    
    
    
    (863
    )Inventories, net
    
    
    (364
    )
    
    
    (10,366
    )
    
    
    (4,335
    )Other current assets
    
    
    43
    
    
    
    (1,630
    )
    
    
    (2,077
    )Other assets
    
    
    (375
    )
    
    
    330
    
    
    
    1,164Accounts payable
    
    
    482
    
    
    
    230
    
    
    
    1,040Income taxes payable
    
    
    933
    
    
    
    406
    
    
    
    (293
    )Accrued distributor commissions
    
    
    322
    
    
    
    3,213
    
    
    
    1,362Other accrued expenses
    
    
    (496
    )
    
    
    2,099
    
    
    
    3,221Deferred revenue
    
    
    3,493
    
    
    
    2,560
    
    
    
    3,847Other current liabilities
    
    
    (160
    )
    
    
    912
    
    
    
    1,256Net cash provided by operating activities
    
    
    9,625
    
    
    
    428
    
    
    
    1,426CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of property and equipment
    
    
    (580
    )
    
    
    (150
    )
    
    
    (3,120
    )Increase in restricted cash
    
    
    (1,022
    )
    
    
    (980
    )
    
    
    (2,753
    )Increase in certificate of deposit
    
    
    
    
    
    
    
    
    
    
    (1,267
    )Net cash reduction from sale of subsidiary
    
    
    
    
    
    
    
    
    
    
    (1,307
    )Business acquired
    
    
    
    
    
    
    (1,357
    )
    
    
    Purchase of minority interest
    
    
    
    
    
    
    (141
    )
    
    
    Purchase of database
    
    
    (191
    )
    
    
    
    
    
    
    Net cash used in investing activities
    
    
    (1,793
    )
    
    
    (2,628
    )
    
    
    (8,447
    )CASH FLOWS FROM FINANCING ACTIVITIES:Payments on debt
    
    
    (339
    )
    
    
    (2,600
    )
    
    
    (709
    )Proceeds from issuance of common stock, net
    
    
    
    
    
    
    16,078
    
    
    
    3,491Net cash provided by (used in) financing activities
    
    
    (339
    )
    
    
    13,478
    
    
    
    2,782Effect of exchange rates on cash and cash equivalents
    
    
    (224
    )
    
    
    (87
    )
    
    
    385Net increase (decrease) in cash and cash equivalents
    
    
    7,269
    
    
    
    11,191
    
    
    
    (3,854
    )CASH AND CASH EQUIVALENTS, beginning of period
    
    
    3,864
    
    
    
    11,133
    
    
    
    22,324CASH AND CASH EQUIVALENTS, end of period
    
    $
    11,133
    
    
    $
    22,324
    
    
    $
    18,470
  18




---



##### 



Nature of Operations
   Principles of Consolidation
   Use of Estimates
   Reclassification
  Cash and Cash Equivalents
  19




---



##### 



Restricted Cash
   Inventories
  Property and Equipment
  Office equipment and software
    
    3  5 yearsFurniture and fixtures
    
    5  7 yearsPlant Equipment
    
    5 yearsLeasehold improvements
    
    Shorter of estimated useful life or lease term
 Goodwill and Other Intangible Assets
   Impairment of Long-Lived Assets
  Income Taxes
  Foreign Currency
  20




---



##### 



Revenue Recognition
      Stock-Based Compensation
  Year Ended December 31,2003
    
    
    2004
    
    
    2005As RestatedNet income (loss) available to
common stockholders, as reported
    
    $
    4,727
    
    
    $
    1,241
    
    
    $
    (4,869
    )Add: Stock-based employee
compensation expense included in
reported net income, net of
related tax effects
    
    
    
    
    
    
    
    
    
    
    Deduct: Stock-based employee
compensation expense determined
under fair value based method for
all awards, net of related tax
effects
    
    
    (38
    )
    
    
    (3,893
    )
    
    
    (393
    )Pro forma net income (loss)
available to common stockholders
    
    $
    4,689
    
    
    $
    (2,652
    )
    
    $
    (5,262
    )
 21




---



##### 



Year Ended December 31,2003
    
    
    2004
    
    
    2005As RestatedBasic income (loss) per share:As reported
    
    $
    1.03
    
    
    $
    0.22
    
    
    $
    (0.70
    )Pro forma
    
    $
    1.02
    
    
    $
    (0.48
    )
    
    $
    (0.76
    )Diluted income (loss) per share:As reported
    
    $
    0.83
    
    
    $
    0.18
    
    
    $
    (0.70
    )Pro forma
    
    $
    0.82
    
    
    $
    (0.48
    )
    
    $
    (0.76
    )
  Year Ended December 31,2003
    
    2004
    
    2005As RestatedRisk-free interest rate
    
    
    4.25
    %
    
    
    2.50
    %
    
    
    4.38
    %Expected volatility
    
    
    100
    %
    
    
    97
    %
    
    
    94
    %Expected life (in years)
    
    
    3
    
    
    
    4
    
    
    
    3Dividend yield
    
    
    
    
    
    
    
    
    
    
    
 Income Per Share
   Certain Risks and Concentrations
  Premium Noni Juice, Skindulgence ® Alura ® La Vie Skindulgence ® La Vie Premium Noni Juice Alura ®
 22




---



##### 



Fair Value of Financial Instruments
  Recent Accounting Pronouncements
   
    
    A modified prospective method in which compensation cost is recognized beginning with
the effective date based on the requirements of SFAS 123(R) for all share-based payments
granted after the effective date and based on the requirements of SFAS 123 for all awards
granted to employees prior to the adoption date of SFAS 123(R) that remain unvested on the
adoption date.
    
    A modified retrospective method which includes the requirements of the modified
prospective method described above, but also permits entities to restate either all prior
periods presented or prior interim periods of the year of adoption based on the amounts
previously recognized under SFAS 123 for purposes of pro forma disclosures.
 123(R)
  23




---



##### 



AsPreviously
    
    
    
    AsReported
    
    Adjustments
    
    RestatedNet sales
    
    $
    194,472
    
    
    $
    
    
    
    $
    194,472Cost of sales
    
    
    44,746
    
    
    
    (633
    )
    
    
    44,113Gross profit
    
    
    149,726
    
    
    
    633
    
    
    
    150,359Loss from operations
    
    
    (3,054
    )
    
    
    633
    
    
    
    (2,421
    )Net loss
    
    
    (5,502
    )
    
    
    633
    
    
    
    (4,869
    )Diluted loss per share
    
    $
    (0.79
    )
    
    
    
    
    
    $
    (0.70
    )Diluted weighted-average number of shares outstanding:
    
    
    6,934
    
    
    
    
    
    
    
    6,934
    24




---



##### 



Year Ended December 31,2003
    
    
    2004
    
    
    2005As RestatedGain (loss) on foreign exchange
    
    $
    (77
    )
    
    $
    215
    
    
    $
    (1,082
    )Interest income
    
    
    5
    
    
    
    19
    
    
    
    241Interest expense
    
    
    (68
    )
    
    
    (101
    )
    
    
    (31
    )Other
    
    
    139
    
    
    
    4
    
    
    
    (38
    )$
    (1
    )
    
    $
    137
    
    
    $
    (910
    )
 25




---



##### 



December 31,2004
    
    
    2005As RestatedProperty and equipment:Office equipment
    
    $
    615
    
    
    $
    1,236Office software
    
    
    157
    
    
    
    1,029Furniture and fixtures
    
    
    422
    
    
    
    430Plant equipment
    
    
    
    
    
    
    127Leasehold improvements
    
    
    311
    
    
    
    1,628Property and equipment, at cost
    
    
    1,505
    
    
    
    4,450Accumulated depreciation and amortization
    
    
    (926
    )
    
    
    (1,307
    )$
    579
    
    
    $
    3,143Other accrued expenses:Sales returns
    
    $
    1,541
    
    
    $
    1,743Employee-related expense
    
    
    443
    
    
    
    1,222Professional fees
    
    
    202
    
    
    
    1,264Warehousing and inventory-related expense
    
    
    711
    
    
    
    846Other
    
    
    1,257
    
    
    
    1,752$
    4,154
    
    
    $
    6,827Deferred revenue:Unshipped product
    
    $
    4,842
    
    
    $
    1,468Enrollment package revenue
    
    
    4,709
    
    
    
    6,849Unrecognized coffee revenue
    
    
    
    
    
    
    1,580$
    9,551
    
    
    $
    9,897
    December 31, 2004
    
    
    December 31, 2005Gross
    
    
    
    
    
    
    
    
    
    
    GrossCarrying
    
    
    Accumulated
    
    
    
    
    
    
    Carrying
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    Net
    
    
    Amount
    
    
    Amortization
    
    
    NetAs RestatedComputer software and programs
    
    $
    5,600
    
    
    $
    600
    
    
    $
    5,000
    
    
    $
    5,600
    
    
    $
    1,400
    
    
    $
    4,200Distributor database
    
    
    790
    
    
    
    316
    
    
    
    474
    
    
    
    790
    
    
    
    461
    
    
    
    329$
    6,390
    
    
    $
    916
    
    
    $
    5,474
    
    
    $
    6,390
    
    
    $
    1,861
    
    
    $
    4,529
 26




---



##### 



2006
    
    $
    9582007
    
    
    9582008
    
    
    8132009
    
    
    8002010
    
    
    800Thereafter
    
    
    200$
    4,529
  MarketVision Communications Corp.
      27




---



##### 



Property and equipment
    
    $
    25Computer software and programs
    
    
    5,600Goodwill
    
    
    11,958Deferred tax liabilities
    
    
    (1,904
    )Deferred tax assets recognized by the Company resulting from
offset against MarketVisions deferred tax liabilities
    
    
    1,904Total purchase price allocation
    
    $
    17,583
   Year Ended December 31,2003
    
    2004Net sales
    
    $
    62,576
    
    
    $
    133,225Net income
    
    $
    4,533
    
    
    $
    1,342Income per share:Basic
    
    $
    0.86
    
    
    $
    0.21Diluted
    
    $
    0.71
    
    
    $
    0.18
 Acquisitions of Minority Interests
      28




---



##### 



Actual
    
    As AdjustedNet sales
    
    $
    194,472
    
    
    $
    160,214Gross profit
    
    
    150,359
    
    
    
    123,804Distributor commissions
    
    
    101,021
    
    
    
    85,388Loss from operations
    
    
    (2,421
    )
    
    
    (1,668
    )
   December 31,2004
    
    
    2005As RestatedMarketVision promissory note
    
    $
    682
    
    
    $
    Notes payable a distributor, due upon demand, interest at 1% per annum
    
    
    86
    
    
    
    86Note payable to a governmental agency, monthly installments of
$2,200, interest at 7% per annum, maturing May 2006
    
    
    34
    
    
    
    9Notes payable to a vendor, monthly installments of $580, interest at
25.49% per annum, maturing October 2008
    
    
    16
    
    
    
    14818
    
    
    
    109Current maturities
    
    
    (796
    )
    
    
    (109
    )Debt
    
    $
    22
    
    
    $
    
  29




---



##### 



Operating Leases
   2006
    
    $
    1,8912007
    
    
    1,5272008
    
    
    8752009
    
    
    7072010
    
    
    505Thereafter
    
    
    1,235Total minimum lease obligations
    
    $
    6,740
 Purchase Commitments
 Cluster
Concentrate
 Alura ®
 Construction Commitment
  Employment Agreements
  Legal Matters
   30




---



##### 



31




---



##### 



Other Matters
   
    
    The Company set up a school in Macau to train members about the applicable Chinese
legal requirements and the need for distributors to accurately and fairly describe
business opportunities available to potential members. The schools were operated from May
2004 to November 2005.
    
    The Company suspended shipment of product to certain members until they had completed
the required training.
    
    The Company extended its existing 14-day return policy in Hong Kong to 180 days to
allow distributors and customers who purchased products during the two-week period prior
to, and the two-week period after, the airing of the television program to return
purchased merchandise for a full refund.
    
    The Company began posting announcements on its Hong Kong website to the effect that the
resale of its products in China without the appropriate license would result in
termination of membership. Since then, the Company has terminated at least four members in
China for engaging in activities in violation of Chinese law.
    
    In June 2004 the Company completed formation of its Chinese subsidiary (Lexxus
China}, and by the end of 2005 had invested $12.0 million as capital in that entity.
    
    Lexxus China is working to file an application for a direct selling license under
proposed legislation.
    
    Lexxus China has leased space in Zhuhai, purchased equipment and finished out a
manufacturing plant. Although Lexxus China now has a license to manufacture and employee
personnel at the plant, it does not yet have a license to sell any product manufactured
there and will not begin manufacturing operations until it has obtained that license.
    
    On November 1, 2005, Lexxus China obtained its general cosmetic manufacturing permit
and has begun trial production testing.
         Authorized Shares
  Stock Split
  Private Placement of Units
   32




---



##### 



Stock Options
  2003
    
    
    2004
    
    
    2005Weighted
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    
    Exercise
    
    
    
    
    
    
    ExerciseShares
    
    
    Price
    
    
    Shares
    
    
    Price
    
    
    Shares
    
    
    PriceAs RestatedOutstanding, beginning of year
    
    
    1,321,500
    
    
    $
    1.05
    
    
    
    1,331,500
    
    
    $
    1.06
    
    
    
    1,674,124
    
    
    $
    4.42Granted
    
    
    10,000
    
    
    
    1.80
    
    
    
    344,124
    
    
    
    17.44
    
    
    
    248,000
    
    
    
    10.21Exercised
    
    
    
    
    
    
    
    
    
    
    (1,500
    )
    
    
    1.10
    
    
    
    
    
    
    
    Outstanding, end of year
    
    
    1,331,500
    
    
    
    1.06
    
    
    
    1,674,124
    
    
    
    4.42
    
    
    
    1,922,124
    
    
    
    5.17Exercisable at end of year
    
    
    1,291,504
    
    
    $
    1.03
    
    
    
    1,640,000
    
    
    $
    4.28
    
    
    
    1,698,322
    
    
    $
    4.49
  Options Outstanding
    
    
    Options ExercisableWeightedWeighted
    
    
    Average
    
    
    
    
    
    
    WeightedAverage
    
    
    Remaining
    
    
    
    
    
    
    AverageShares
    
    
    Exercise
    
    
    Contractual
    
    
    Shares
    
    
    ExerciseRange of Exercise Prices
    
    Outstanding
    
    
    Price
    
    
    Life
    
    
    Exercisable
    
    
    Price$1.00 to $1.80
    
    
    1,330,000
    
    
    $
    1.06
    
    
    6.2 years
    
    
    1,330,000
    
    
    $
    1.06$11.40 to $18.11
    
    
    592,124
    
    
    
    14.41
    
    
    5.3 years
    
    
    368,322
    
    
    
    16.90$1.00 to $18.11
    
    
    1,922,124
    
    
    
    5.17
    
    
    5.9 years
    
    
    1,698,322
    
    
    
    4.49
 Common Stock Purchase Warrants
   Private Placement of
Units
 33




---



##### 



Restricted Stock
  Income Per Share
 Year Ended December 31,2003
    
    
    2004
    
    
    2005As Restated(In Thousands, Except Per Share Data)Net income (loss) available to common stockholders
    
    $
    4,727
    
    
    $
    1,241
    
    
    $
    (4,869
    )Basic weighted-average number of shares outstanding
    
    
    4,609
    
    
    
    5,580
    
    
    
    6,934Effect of dilutive stock options and warrants
    
    
    1,079
    
    
    
    1,242
    
    
    
    Diluted weighted-average number of shares outstanding
    
    
    5,688
    
    
    
    6,822
    
    
    
    6,934Income (loss) per share:Basic
    
    $
    1.03
    
    
    $
    0.22
    
    
    $
    (0.70
    )Diluted
    
    $
    0.83
    
    
    $
    0.18
    
    
    $
    (0.70
    )
     Year Ended December 31,2003
    
    
    2004
    
    
    2005As RestatedDomestic
    
    $
    4,482
    
    
    $
    (2,108
    )
    
    $
    (8,637
    )Foreign
    
    
    1,092
    
    
    
    4,468
    
    
    
    5,306Income (loss) before income taxes
    
    $
    5,574
    
    
    $
    2,360
    
    
    $
    (3,331
    )
 34




---



##### 



Year Ended December 31,2003
    
    
    2004
    
    
    2005As RestatedCurrent taxes:Federal
    
    $
    256
    
    
    $
    248
    
    
    $
    103State
    
    
    40
    
    
    
    171
    
    
    
    168Foreign
    
    
    564
    
    
    
    759
    
    
    
    801860
    
    
    
    1,178
    
    
    
    1,072Deferred taxes
    
    
    
    
    
    
    (515
    )
    
    
    515Provision for income taxes
    
    $
    860
    
    
    $
    663
    
    
    $
    1,587
  Year Ended December 31,2003
    
    
    2004
    
    
    2005As RestatedIncome tax at federal statutory rate
    
    $
    1,895
    
    
    $
    802
    
    
    $
    (1,348
    )Effect of permanent differences
    
    
    37
    
    
    
    709
    
    
    
    3,054Increase (decrease) in valuation allowance
    
    
    (1,066
    )
    
    
    (602
    )
    
    
    497Foreign rate differential
    
    
    (32
    )
    
    
    (471
    )
    
    
    (787
    )State income taxes, net of federal benefit
    
    
    26
    
    
    
    113
    
    
    
    111Other reconciling items
    
    
    
    
    
    
    112
    
    
    
    60Income tax provision
    
    $
    860
    
    
    $
    663
    
    
    $
    1,587
  December 31,2004
    
    
    2005As RestatedDeferred tax assets:Net operating losses
    
    $
    3,144
    
    
    $
    2,051Stock-based compensation
    
    
    488
    
    
    
    488Accrued expenses
    
    
    255
    
    
    
    468Tax credits
    
    
    80
    
    
    
    183Deferred revenue
    
    
    
    
    
    
    133Provision for KGC receivable
    
    
    
    
    
    
    938Other
    
    
    12
    
    
    
    12Total deferred tax assets
    
    
    3,979
    
    
    
    4,273Valuation allowance
    
    
    (1,492
    )
    
    
    (2,652
    )2,487
    
    
    
    1,621Deferred tax liabilities:Intangible assets
    
    
    (1,861
    )
    
    
    (1,540
    )Depreciation
    
    
    (34
    )
    
    
    (17
    )Prepaids
    
    
    (50
    )
    
    
    (64
    )Other
    
    
    (27
    )
    
    
    Total deferred tax liabilities
    
    
    (1,972
    )
    
    
    (1,621
    )Deferred tax assets, net
    
    $
    515
    
    
    $
    
  35




---



##### 



Year Ended December 31,2003
    
    
    2004
    
    
    2005As Restated(In Thousands)Cash paid during the year for:Income taxes
    
    $
    42
    
    
    $
    552
    
    
    $
    1,376Interest
    
    
    50
    
    
    
    86
    
    
    
    22Non-cash investing and financing activities:Receivable from KGC
    
    
    
    
    
    
    
    
    
    
    3,100Conversion of preferred stock to common stock
    
    
    16
    
    
    
    
    
    
    
    Preferred stock dividends
    
    
    1
    
    
    
    
    
    
    
    Common stock issued for acquisitions
    
    
    433
    
    
    
    15,665
    
    
    
    Debt issued for acquisitions
    
    
    
    
    
    
    3,203
    
    
    
    Common stock issued for services
    
    
    53
    
    
    
    
    
    
    
    
     36




---



##### 



Skindulgence ® LaVie
 37




---



##### 



Year Ended December 31,2003
    
    
    2004
    
    
    2005As RestatedNet sales to external customers:North America
    
    $
    10,668
    
    
    $
    16,914
    
    
    $
    16,528Hong Kong
    
    
    30,763
    
    
    
    74,293
    
    
    
    120,968Taiwan
    
    
    3,097
    
    
    
    3,261
    
    
    
    3,722Southeast Asia
    
    
    1,570
    
    
    
    1,786
    
    
    
    6,438Russia and Eastern Europe 1
    
    
    13,157
    
    
    
    30,248
    
    
    
    34,258South Korea
    
    
    2,492
    
    
    
    5,524
    
    
    
    8,495Australia/New Zealand
    
    
    654
    
    
    
    1,158
    
    
    
    1,886Japan
    
    
    
    
    
    
    
    
    
    
    1,659Latin America
    
    
    
    
    
    
    
    
    
    
    518Other
    
    
    175
    
    
    
    41
    
    
    
    Total net sales
    
    $
    62,576
    
    
    $
    133,225
    
    
    $
    194,472
 December 31,2003
    
    
    2004
    
    
    2005As RestatedLong-lived assets:North America
    
    $
    1,203
    
    
    $
    20,124
    
    
    $
    19,504Hong Kong
    
    
    217
    
    
    
    247
    
    
    
    554Taiwan
    
    
    271
    
    
    
    117
    
    
    
    179Southeast Asia
    
    
    202
    
    
    
    133
    
    
    
    47China
    
    
    
    
    
    
    
    
    
    
    3,265South Korea
    
    
    389
    
    
    
    398
    
    
    
    323Australia/New Zealand
    
    
    46
    
    
    
    35
    
    
    
    33Japan
    
    
    
    
    
    
    
    
    
    
    834Latin America
    
    
    
    
    
    
    
    
    
    
    573Other
    
    
    51
    
    
    
    36
    
    
    
    5Total long-lived assets
    
    $
    2,379
    
    
    $
    21,090
    
    
    $
    25,317
    
 1
    
    The Company will no longer consolidate the
operating results of KGC for periods ending after December 31, 2005 as it sold
its 51% interest in KGC to Bannks Foundation effective December 31, 2005. 38




---



##### 



Quarter EndedMarch 31
    
    
    June 30
    
    
    September 30
    
    
    December 31(In Thousands, Except Per Share Data)Fiscal 2004:Net sales
    
    $
    38,745
    
    
    $
    17,686
    
    
    $
    40,482
    
    
    $
    36,312Gross profit
    
    
    30,491
    
    
    
    12,823
    
    
    
    31,612
    
    
    
    28,978Distributor commissions
    
    
    19,745
    
    
    
    12,578
    
    
    
    17,422
    
    
    
    18,834Selling, general and administrative expenses
    
    
    5,968
    
    
    
    8,194
    
    
    
    8,288
    
    
    
    10,652Income (loss) from operations
    
    
    4,778
    
    
    
    (7,949
    )
    
    
    5,902
    
    
    
    (508
    )Net income (loss)
    
    
    3,761
    
    
    
    (6,746
    )
    
    
    5,028
    
    
    
    (802
    )Income (loss) per share:Basic
    
    $
    0.81
    
    
    $
    (1.24
    )
    
    $
    0.92
    
    
    $
    (0.12
    )Diluted
    
    $
    0.64
    
    
    $
    (1.24
    )
    
    $
    0.75
    
    
    $
    (0.12
    )Weighted-average number of shares outstanding:Basic
    
    
    4,667
    
    
    
    5,447
    
    
    
    5,450
    
    
    
    6,745Diluted
    
    
    5,909
    
    
    
    5,447
    
    
    
    6,692
    
    
    
    6,745
 Quarter EndedMarch 31
    
    
    June 30
    
    
    September 30
    
    
    December 31As Restated(In Thousands, Except Per Share Data)Fiscal 2005:Net sales
    
    $
    42,759
    
    
    $
    49,959
    
    
    $
    58,071
    
    
    $
    43,683Gross profit
    
    
    34,593
    
    
    
    37,519
    
    
    
    45,087
    
    
    
    33,160Distributor commissions
    
    
    21,273
    
    
    
    27,599
    
    
    
    29,087
    
    
    
    23,062Selling, general and administrative expenses
    
    
    9,246
    
    
    
    12,308
    
    
    
    15,108
    
    
    
    12,338Provision for KGC receivable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,759Income (loss) from operations
    
    
    4,074
    
    
    
    (2,388
    )
    
    
    892
    
    
    
    (4,999
    )Net income (loss)
    
    
    2,795
    
    
    
    (2,159
    )
    
    
    119
    
    
    
    (5,624
    )Income (loss) per share:Basic
    
    $
    0.41
    
    
    $
    (0.32
    )
    
    $
    0.02
    
    
    $
    (0.79
    )Diluted
    
    $
    0.34
    
    
    $
    (0.32
    )
    
    $
    0.01
    
    
    $
    (0.79
    )Weighted-average number of shares outstanding:Basic
    
    
    6,820
    
    
    
    6,853
    
    
    
    6,951
    
    
    
    7,109Diluted
    
    
    8,254
    
    
    
    6,853
    
    
    
    8,418
    
    
    
    7,109
  Quarter Ended December 31, 2005AsPreviously
    
    
    
    
    
    
    AsReported
    
    
    Adjustments
    
    
    RestatedNet sales
    
    $
    43,683
    
    
    $
    
    
    
    $
    43,683Gross profit
    
    
    32,527
    
    
    
    633
    
    
    
    33,160Distributor commissions
    
    
    23,062
    
    
    
    
    
    
    
    23,062Selling, general and administrative expenses
    
    
    12,338
    
    
    
    
    
    
    
    12,338Provision
for KGC receivable
    
    
    2,759
    
    
    
    
    
    
    
    2,759Loss from operations
    
    
    (5,632
    )
    
    
    633
    
    
    
    (4,999
    )Net loss
    
    
    (6,257
    )
    
    
    633
    
    
    
    (5,624
    )Loss per
share:Basic
    
    $
    (0.88
    )
    
    
    
    
    
    $
    (0.79
    )Diluted
    
    $
    (0.88
    )
    
    
    
    
    
    $
    (0.79
    )Weighted-average number of shares outstanding:Basic
    
    
    7,109
    
    
    
    
    
    
    
    7,109Diluted
    
    
    7,109
    
    
    
    
    
    
    
    7,109
 
    AsPreviously
    
    
    
    AsReported
    
    Adjustments
    
    RestatedNet sales
    
    $
    194,472
    
    
    $
    
    
    
    $
    194,472Cost of sales
    
    
    44,746
    
    
    
    (633
    )
    
    
    44,113Gross profit
    
    
    149,726
    
    
    
    633
    
    
    
    150,359Loss from operations
    
    
    (3,054
    )
    
    
    633
    
    
    
    (2,421
    )Net loss
    
    
    (5,502
    )
    
    
    633
    
    
    
    (4,869
    )Diluted loss per share
    
    $
    (0.79
    )
    
    
    
    
    
    $
    (0.70
    )Diluted weighted-average number of shares outstanding:
    
    
    6,934
    
    
    
    
    
    
    
    6,934
  39




---



##### 



Part III
 
 Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
 Directors
  Audit
    
    
    
    Compensation
    
    
    
    Nominating
    
    
    
    SearchDirector
    
    
    Age
    
    
    
    Committee
    
    
    
    Committee
    
    
    
    Committee
    
    
    
    CommitteeAnthony B. Martino
    
    
    64
    
    
    
    C
    
    
    
    
    
    
    
    
    
    
    
    MRandall A. Mason
    
    
    47
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    MTerrence M. Morris
    
    
    58
    
    
    
    M
    
    
    
    M
    
    
    
    MColin J. OBrien
    
    
    67
    
    
    
    M
    
    
    
    C
    
    
    
    
    
    
    
    CSir Brian Wolfson
    
    
    70
    
    
    
    
    
    
    
    
    
    
    
    C
 
 M = MemberC = Chair  Anthony B. Martino.
 Randall A. Mason.
 Terrence M. Morris.
 40




---



##### 



Colin J. OBrien.
 Sir Brian Wolfson.
 Audit Committee Member Qualifications
  Executive Officers
  Name
    
    Age
    
    Position(s) with the CompanyChris Sharng
    
    42
    
    Executive Vice President, Chief Financial Officer, interim principal executive officer and Executive Management Committee MemberJohn Cavanaugh
    
    44
    
    President of MarketVision and Executive Management Committee MemberPer Ahlund
    
    56
    
    Vice President of Worldwide Supply Chain ManagementTimothy S. Davidson
    
    35
    
    Chief Accounting Officer
 41




---



##### 



Chris Sharng.
 John Cavanaugh
 Per Ahlund
 Timothy S. Davidson
 Section 16(a) Beneficial Ownership Reporting Compliance
  Code of Business Conduct and Code of Ethics for Senior Financial Officers
  42




---



##### 



Item 11. EXECUTIVE COMPENSATION
 Summary Compensation Table
  LONG-TERMCOMPENSATIONANNUAL COMPENSATION
    
    AWARDSName and
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other Annual
    
    Securities UnderlyingPrincipal Position
    
    Year
    
    Salary($)
    
    Bonus
    
    Compensation
    
    Options(#)Robert H. Hesse (1)
    
    
    2005
    
    
    $
    146,151
    
    
    
    
    
    
    $
    17,417
    
    
    
    30,000Former Interim
Chief Executive
    
    
    2004
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Officer
    
    
    2003
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    John Cavanaugh
    
    
    2005
    
    
    $
    193,000
    
    
    $
    11,662
    (2)
    
    
    
    
    
    
    7,500President of MarketVision
    
    
    2004
    
    
    $
    147,843
    
    
    
    
    
    
    
    
    
    
    
    253,5802003
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Chris Sharng
    
    
    2005
    
    
    $
    238,462
    
    
    $
    50,000
    
    
    
    
    
    
    
    27,500Executive Vice
President and Chief
    
    
    2004
    
    
    $
    92,885
    
    
    $
    50,000
    
    
    
    
    
    
    
    34,124Financial Officer
    
    
    2003
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Richard S. Johnson
    
    
    2005
    
    
    $
    480,000
    
    
    
    
    
    
    $
    294,494
    (3)
    
    
    15,000President of NHT Japan
    
    
    2004
    
    
    $
    73,846
    
    
    
    
    
    
    
    
    
    
    
    2003
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Keith C. Zagar
    
    
    2005
    
    
    $
    180,000
    
    
    
    
    
    
    
    
    
    
    
    Former General Counsel and
    
    
    2004
    
    
    $
    13,846
    
    
    
    
    
    
    
    
    
    
    
    Ethics and Compliance Officer
    
    
    2003
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Mark D. Woodburn
    
    
    2005
    
    
    $
    127,923
    
    
    
    
    
    
    
    
    
    
    
    Former President (4)
    
    
    2004
    
    
    $
    18,000
    
    
    
    
    
    
    $
    4,000
    (5)
    
    
    2003
    
    
    $
    15,979
    
    
    
    
    
    
    
    
    
    
    
    Terry A. LaCore
    
    
    2005
    
    
    $
    138,462
    
    
    
    
    
    
    $
    16,823
    (7)
    
    
    Former Chief
Executive Officer of
    
    
    2004
    
    
    $
    150,207
    
    
    
    
    
    
    $
    24,000
    (8)
    
    
    Lexxus U.S.(6)
    
    
    2003
    
    
    $
    144,231
    
    
    
    
    
    
    $
    24,000
    (7)
    
    
    
 
 (1)
    
    Excludes all compensation awarded to Mr. Hesse in his capacity as a director of the Company,
for which he received cash retainer payments of $36,667 in 2005, the reimbursement of $20,000
in expenses and options to purchase 7,500 shares of the Companys common stock. The Other
Annual Compensation amount pertains to apartment and other expenses paid by the Company. Mr.
Hesse ceased to serve as the Interim Chief Executive Officer of the Company effective March
28, 2006.(2)
    
    Bonus earned by Mr. Cavanaugh, but may be used by Mr. Cavanuagh as an incentive fund for some
MarketVision employees. 43




---



##### 



(3)
    
    Amount pertaining to a Japanese housing allowance ($101,598), automobile use ($14,900),
driver ($39,533), club dues and fees ($13,363) and Japanese / U.S. tax equalization
($125,100).
 (4)
    
    Mr. Woodburn was President of the Company from January 1, 2005, to October 3, 2005, and
Global Managing Director  Operations from October 3, 2005, to November 10, 2005.
 (5)
    
    Approximate amount pertaining to personal travel expenses paid by the Company.
 (6)
    
    Mr. LaCore was Chief Executive Officer of Lexxus U.S. from January 1, 2005, to October 3,
2005, and Global Managing Director  Business Development from October 3, 2005, to November
10, 2005.
 (7)
    
    Pertains to a housing allowance for a house maintained for Mr. LaCores use in Dallas, Texas.
 (8)
    
    Approximate amount pertaining to a housing allowance for a house maintained for Mr. LaCores
use in Dallas, Texas ($14,000) and personal travel expenses paid by the Company ($10,000).
 Option Grants in Last Fiscal Year
  Number of
    
    % of Total
    
    
    
    
    
    
    
    
    
    Potential Realizable ValueSecurities
    
    Options
    
    
    
    
    
    
    
    
    
    At Assumed Annual RatesUnderlying
    
    Granted to
    
    Exercise
    
    
    
    
    
    Of Stock Appreciation forDate of
    
    Options
    
    Employees in
    
    Price
    
    Expiration
    
    Option Term (1)Name
    
    Grant
    
    Granted
    
    Fiscal Year
    
    $/Share
    
    Date
    
    5%
    
    10%Robert H. Hesse
    
    
    10/31/05
    
    
    
    30,000
    (2)
    
    
    12.1
    %
    
    $
    10.01
    
    
    
    10/31/10
    
    
    $
    82,967
    
    
    $
    183,33610/31/05
    
    
    
    7,500
    (3)
    
    
    3.0
    %
    
    $
    10.01
    
    
    
    10/31/10
    
    
    $
    20,742
    
    
    $
    45,834John Cavanaugh
    
    
    11/25/05
    
    
    
    7,500
    (2)
    
    
    3.0
    %
    
    $
    10.50
    
    
    
    11/25/10
    
    
    $
    21,757
    
    
    $
    48,078Chris Sharng
    
    
    10/31/05
    
    
    
    15,000
    (2)
    
    
    6.1
    %
    
    $
    10.01
    
    
    
    10/31/10
    
    
    $
    41,484
    
    
    $
    91,66811/25/05
    
    
    
    12,500
    (2)
    
    
    5.0
    %
    
    $
    10.50
    
    
    
    11/25/10
    
    
    $
    36,262
    
    
    $
    80,129Richard S. Johnson
    
    
    10/31/05
    
    
    
    15,000
    (2)
    
    
    6.1
    %
    
    $
    10.01
    
    
    
    10/31/10
    
    
    $
    41,484
    
    
    $
    91,668Keith C. Zagar
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Mark D. Woodburn
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Terry A. LaCore
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 
 (1)
    
    The amounts under these columns reflect calculations at assumed 5% and 10% appreciation
rates and, therefore, are not intended to forecast future appreciation, if any, of the
respective underlying common stock. The potential realizable value to the optionees was
computed as the difference between the appreciated value, at the expiration dates of the stock
options, of the applicable underlying common stock obtainable upon exercise of such stock
options over the aggregate exercise price of such stock options.(2)
    
    Stock options vest annually over a three year period. In the event of termination of
employment of the option holder, all unvested options are forfeited immediately and all vested
options are forfeited if not exercised within three months of termination of employment. Mr.
Hesse ceased to serve as Interim Chief Executive Officer and as an employee of the Company as
of March 28, 2006, and therefore his stock options for 30,000 shares of common stock were
forfeited on March 28, 2006. 44




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(3)
    
    Stock options vested in full on the date of grant. These options are subject to forfeiture
if not exercised within three months of termination of service as a director. Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values
   Number of Securities
    
    Value of Unexercised in theUnderlying Unexercised
    
    Money Options atOptions at FY-End (#)
    
    FY-End ($) (1)SharesAcquired on
    
    ValueName
    
    Exercise(#)
    
    Realized ($)
    
    Exercisable
    
    Unexercisable
    
    Exercisable
    
    UnexercisableRobert H. Hesse
    
    
    
    
    
    
    
    
    
    
    12,500
    
    
    
    30,000
    (2)
    
    $
    39,250
    
    
    
    John Cavanaugh
    
    
    
    
    
    
    
    
    
    
    253,580
    
    
    
    7,500
    
    
    
    
    
    
    
    Chris Sharng
    
    
    
    
    
    
    
    
    
    
    18,304
    
    
    
    43,320
    
    
    
    
    
    
    
    Richard S. Johnson
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,000
    
    
    
    
    
    
    
    Keith C. Zagar
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Mark D. Woodburn (3)
    
    
    
    
    
    
    
    
    
    
    600,000
    
    
    
    
    
    
    $
    5,187,000
    
    
    
    Terry A. LaCore (3) (4)
    
    
    
    
    
    
    
    
    
    
    1,200,000
    
    
    
    
    
    
    $
    10,374,000
    
    
    
    
 
 (1)
    
    Based upon a closing price on December 30, 2005 of $9.65 per share as reported on the
NASDAQ National Market.(2)
    
    Mr. Hesse ceased to serve as Interim Chief Executive Officer and as an employee of the
Company as of March 28, 2006, and therefore his stock options for 30,000 shares of common
stock were forfeited on March 28, 2006.(3)
    
    Figures include 600,000 options held by the LaCore and Woodburn Partnership, a general
partnership owned by Messrs. Woodburn and LaCore. These options were exercised in February
2006 and placed in escrow with a third party. See Certain Relationships and Related
Transactions.(4)
    
    Figures include 600,000 options held by Mr. LaCore that were exercised in February 2006 and
placed in escrow with a third party. See Certain Relationships and Related Transactions. Employment Agreements
  Robert H. Hesse
 45




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##### 



Chris Sharng
 John Cavanaugh
 Richard Johnson
 46




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##### 



Report of the Compensation Committee on Executive Compensation
 The following Report of the Compensation Committee does not constitute soliciting material and
shall not be deemed filed or incorporated by reference into any other Company filing under the
Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to
the extent the Company specifically incorporates this Report of the Compensation Committee by
reference therein.
  The Compensation Committees Executive Compensation Philosophy
   Compensation of the Chief Executive Officer.
  Colin J. OBrien (Chairman)
Terrence M. Morris
 Compensation Committee Interlocks and Insider Participation
  Director Compensation
  47




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##### 



Comparison of Cumulative Total Return
   48




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##### 



49




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##### 



Item 12.
    
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
 Security Ownership of Certain Beneficial Owners and Management
  Amount andNature of
    
    PercentBeneficial
    
    ofName and Address of Beneficial Owner(1)
    
    Ownership(2)
    
    Class(2)Robert H. Hesse(3)
    
    
    83,268
    (4)
    
    
    1.0
    %Anthony B. Martino
    
    
    7,500
    (5)
    
    
    *Randall A. Mason
    
    
    126,262
    (6)
    
    
    1.5
    %Terrence M. Morris
    
    
    7,500
    (7)
    
    
    *Colin J. OBrien
    
    
    7,500
    (8)
    
    
    *Sir Brian Wolfson
    
    
    86,627
    (9)
    
    
    1.0
    %John Cavanaugh
    
    
    453,968
    (10)
    
    
    5.4
    %Chris Sharng
    
    
    22,288
    (11)
    
    
    *Richard S. Johnson
    
    
    23,000
    (12)
    
    
    *Keith C. Zagar
    
    
    
    
    
    
    *Mark D. Woodburn(13)
    
    
    16,921
    (14)
    
    
    *Terry A. LaCore(15)
    
    
    244,998
    (16)
    
    
    3.0
    %Goodwood Inc.
212 King Street West, Ste 201
Toronto, Canada M5H 1K5
    
    
    460,851
    (17)
    
    
    5.6
    %Directors and Executive Officers As a Group (10
persons)
    
    
    711,645
    (18)
    
    
    8.2
    %
 50




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##### 



*
    
    Indicates beneficial ownership of less than 1%(1)
    
    Unless otherwise indicated, the address of each beneficial owner is c/o Natural Health
Trends Corp., 2050 Diplomat Drive, Dallas, Texas 75234(2)
    
    Any securities not outstanding that are subject to options or conversion privileges
exercisable within 60 days of April 28, 2006 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 8,199,933
shares of common stock outstanding (excluding treasury shares) as of April 28, 2006.(3)
    
    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.(4)
    
    Includes (i) 7,500 shares of common stock issuable upon the exercise of options held
by Mr. Hesse and (ii) 1,984 shares of common stock issuable upon the exercise of warrants held
by Mr. Hesse.(5)
    
    Includes 7,500 shares of common stock issuable upon the exercise of options held by
Mr. Martino.(6)
    
    Includes (i) 67,500 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) 31,363 shares of common stock owned by Magco, Inc, an
entity controlled by Mr. Mason.(7)
    
    Includes 7,500 shares of common stock issuable upon the exercise of options held by
Mr. Morris.(8)
    
    Includes 7,500 shares of common stock issuable upon the exercise of options held by
Mr. OBrien.(9)
    
    Includes (i) 60,000 shares issuable upon the exercise of options held by Capital
Development S.A, an entity controlled by Sir Brian Wolfson (Capital Development), (ii) 1,984
shares of common stock issuable upon the exercise of warrants held by Capital Development,
(iii) 4,190 shares of common stock owned by Capital Development, (iv) 12,953 shares of common
stock owned by Schweco Nominee Limited, an entity controlled by Sir Brian Wolfson and (v)
7,500 shares of common stock issuable upon the exercise of options held by Sir Brian Wolfson.(10)
    
    Includes (i) 253,580 shares of common stock issuable upon the exercise of options
held by Mr. Cavanaugh, and (ii) 1,984 shares of common stock issuable upon the exercise of
warrants held by Mr. Cavanaugh.(11)
    
    Includes (i) 1,984 shares of common stock issuable upon the exercise of warrants held
by Mr. Sharng, and (ii) 18,320 shares of common stock issuable upon the exercise of options
held by Mr. Sharng.(12)
    
    Includes 23,000 shares of common stock issuable upon the exercise of options held by
Mr. Johnson. Mr. Johnson is a former executive officer of the Company, and therefore the
shares beneficially owned by him are not included in Directors and Executive Officers as a
Group.(13)
    
    Mr. Woodburn is a former director and the former President and Secretary of the
Company, and therefore the shares beneficially owned by him are not included in Directors and
Executive Officers as a Group.(14)
    
    Some elements of Mr. Woodburns beneficial ownership are based on the Companys good
faith estimates, but no assurance can be given that these estimates are correct. Includes (i)
14,937 shares of common stock held by the LaCore and Woodburn Partnership, a general
partnership with respect to which Mr. Woodburn is a general partner, and (ii) 1,984 shares of
common stock issuable upon the exercise of warrants held by the LaCore and Woodburn
Partnership. Excludes 540,533 shares of common stock that are held in escrow by a third party
for the benefit of the LaCore and Woodburn Partnership. See Certain Relationships and
Related Transactions.(15)
    
    Mr. LaCore is a former director of the Company and the former Chief Executive Office
of Lexxus International, Inc., and therefore the shares beneficially owned by him are not
included in Directors and Executive Officers as a Group. 51




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##### 



(16)
    
    Some elements of Mr. LaCores beneficial ownership are based on the Companys good
faith estimates, but no assurance can be given that these estimates are correct. Includes (i)
14,937 shares of common stock held by the LaCore and Woodburn Partnership, a general
partnership with respect to which Mr. LaCore is a general partner, (ii) 1,984 shares of common
stock issuable upon the exercise of warrants held by the LaCore and Woodburn Partnership, and
(iii) 1,984 shares of common stock issuable upon the exercise of warrants held by Mr. LaCore.
Excludes 540,533 shares of common stock that are held in escrow by a third party for the
benefit of Mr. LaCore and 540,533 additional shares of common stock that are held in escrow by
a third party for the benefit of the LaCore and Woodburn Partnership. See Certain
Relationships and Related Transactions.(17)
    
    According to Amendment No. 2 to Schedule 13G filed by Goodwood Inc., Cameron
MacDonald and Peter Pucetti with the Securities and Exchange Commission on February 14, 2006,
Goodwood Inc. does not directly own any shares of the Companys common stock. Goodwood Inc.
acts as the investment manager of each of Goodwood Fund, Arrow Goodwood Fund, Goodwood Capital
Fund, The Goodwood Fund 2.0 Ltd. and KBSH Goodwood Canadian Long/Short Fund and is deemed to
beneficially own 438,951 shares of the Companys common stock held by them. Mr. MacDonald and
Mr. Puccetti control Goodwood Inc. and are thereby deemed to beneficially own 438,951 shares
of common stock. In addition, Mr. MacDonald, as sole owner of 628088 BC Ltd., beneficially
owns 21,900 shares of the Companys common stock.(18)
    
    Includes 444,820 shares that may be acquired upon the exercise of outstanding options
or warrants that currently are exercisable or will become exercisable within the next 60 days
by the Companys directors and executive officers. Because Messrs. Hesse, Johnson, LaCore and
Woodburn were not executive officers or directors of the Company on April 28, 2006, their
beneficially owned shares are not included in the group number. Equity Compensation Plan Information
  (b)(a)
    
    Weighted-average
    
    (c)Number of securities to
    
    exercise price of
    
    Number of securities remainingbe issued upon exercise of
    
    outstanding
    
    available for future issuance underoutstanding options,
    
    options, warrants
    
    equity compensation plans (excludingPlan category
    
    warrants and rights
    
    and rights
    
    securities reflected in column (a))Equity compensation
plans or
arrangements
approved by
security holders
    
    
    592,124
    
    
    $
    14.41
    
    
    
    957,876
    (1)Equity compensation
plans or
arrangements not
approved by
security holders
    
    
    1,330,000
    (2)
    
    $
    1.06
    
    
    
    Total
    
    
    1,922,124
    
    
    $
    5.17
    
    
    
    957,876
 
 (1)
    
    On June 1, 2005, an amendment was approved by the Companys stockholders that increased the
number of shares of common stock reserved under the Companys 2002 Stock Option Plan to
1,550,000 shares.(2)
    
    Includes (i) options exercisable for 570,000 shares of common stock issued to the LaCore and
Woodburn Partnership, (ii) options exercisable for 570,000 shares of common stock issued to
Mr. LaCore, (iii) options exercisable for 30,000 shares of common stock issued to Benchmark
Consulting Group (which were subsequently assigned to the LaCore and Woodburn Partnership),
(iv) options exercisable for 30,000 shares of common stock issued to Mr. LaCore, (v) options
exercisable for 125,000 shares of common stock issued to certain employees and members of the
Companys board of directors, and (vi) options exercisable for
5,000 shares of common stock issued to an unrelated party. See Certain
Relationships and Related Transactions regarding the exercise in
February 2006 of stock options held by the LaCore and Woodburn
Partnership and Mr. LaCore. 52




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##### 



Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 S&B Business Services
 William Woodburn
 Former Controller Payments
 MarketVision
  2004 Private Placement
 Import Services
 Matters Relating to Messrs. Woodburn and LaCore
 53




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##### 



Skindulgence ® LaVie
 54




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##### 



Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
 Fees Billed by Principal Accountant
  Audit Fees.
 Audit-Related Fees
 Tax Fees .
 All Other Fees.
 Pre-approval Policies and Procedures for Audit and Non-audit Services
  55




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##### 



SIGNATURES
  NATURAL HEALTH TRENDS CORP.Date: May 31, 2006
    /s/ Chris T. SharngChris T. SharngExecutive Vice President and Chief Financial Officer 56




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##### 



EXHIBIT INDEX
 Exhibit No.
    
    Description31.1
    
    Section 302 Certification by Interim Principal Executive Officer31.2
    
    Section 302 Certification by Chief Financial Officer32.1
    
    Section 906 Certification by
Interim Principal Executive Officer32.2
    
    Section 906 Certification by Chief Financial Officer