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) September 7, 2006
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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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(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 4.01 Changes in Registrant's Certifying Accountant
(a) Previous Independent Registered Public Accounting Firm.
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Natural Health Trends Corp. (the "Company") changed its independent
registered public accounting firm as of September 7, 2006 from BDO Seidman, LLP
("BDO") to Lane Gorman Trubitt, L.L.P. ("Lane Gorman"). In July 2006, the Audit
Committee of the Company's Board of Directors issued a request for proposals to
four (4) independent registered public accounting firms, including BDO. On
September 7, 2006, the Audit Committee with the approval of the Company's Board
of Directors selected Lane Gorman as its independent registered public
accounting firm.
The reports of BDO on the combined consolidated financial statements of
the Company for the Company's fiscal years ended December 31, 2005 and 2004
contained no adverse opinion or disclaimer of opinion and were not qualified or
modified as to uncertainty, audit scope, or accounting principle. However, the
opinion did contain an emphasis of a matter.
During the Company's fiscal years ended December 31, 2005 and 2004, and
through September 7, 2006, there were no disagreements with BDO on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure, which disagreements, if not resolved to the satisfaction of
BDO, would have caused BDO to make reference thereto in its reports on the
Company's financial statements for such years.
There were no "reportable events" described in Item 304(a)(1)(v) of
Regulation S-K ("Regulation S-K") during the Company's fiscal years ended
December 31, 2005 and 2004, and through September 7, 2006, except for the
existence of certain previously reported material weaknesses in the Company's
internal control over financial reporting which are described below.
A material weakness is a control deficiency or a combination of control
deficiencies that results in more than a remote likelihood that a material
misstatement of the annual or interim consolidated financial statements will not
be prevented or detected. As previously reported and discussed in Item 4,
"Controls and Procedures," in the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 2006, in connection with BDO's audits of the
Company's consolidated financial statements for the fiscal year ended December
31, 2005, the following material weaknesses in our internal control over
financial reporting were reported in our 2005 Annual Report on Form 10-K filed
with the United States Securities and Exchange Commission on May 8, 2006:
o We did not maintain an effective control environment
because (1) we lack an effective anti-fraud program to detect
and prevent fraud, for example, relating to the previous top
two executive officers of the Company, Mark Woodburn and Terry
LaCore, in terms of (i) conflicts of interests related to
executive officers, especially their financial dealings with
independent distributors and other vendors, and (ii) proper
supervision of the executives conduct separating their
executive duties from personal financial interests outside the
Company, (2) we failed to perform background checks
consistently on personnel being placed into positions of
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responsibility, (3) an adequate tone was not set from the top
as control measures in place were ignored by the previous top
two executives and the importance of controls was not properly
emphasized and communicated throughout the Company and (4) we
did not effectively address the control deficiencies noted in
the fiscal year 2004 external audit;
o We did not maintain effective monitoring controls
over financial reporting because (1) our policies regarding
review, supervision and monitoring of our accounting
operations throughout the Company were not fully designed, in
place, or operating effectively and (2) we do not have an
internal audit function;
o We did not maintain effective control over period-end
financial close and reporting because (1) we lacked sufficient
complement of personnel with an appropriate level of
accounting knowledge, experience and training in the
application of GAAP commensurate with our financial reporting
requirements to prepare, review and approve account
reconciliations and supporting schedules, and (2) our legacy
accounting systems do not facilitate the appropriate review
and approval over the recording of journal entries to ensure
the accuracy and completeness of the journal entries recorded;
o We did not maintain effective controls over the
disbursement function since we (1) lacked adequate segregation
of duties and (2) lacked appropriate review, approval, and
supporting documentation;
o We did not maintain effective controls over the
payroll function since we (1) lacked adequate segregation of
duties and (2) lacked appropriate review, approval, and
supporting documentation;
o We did not maintain effective controls over the
inventory function since we (1) did not maintain restricted
access to the inventory detail schedule used to support the
general ledger balances and (2) used the periodic inventory
system and performed monthly inventory counts using physical
inventory count sheets lacking reviewer documentation;
o We lacked documentation with respect to certain
related party transactions, subsidiary operations and expense
reimbursement procedures. In addition, sufficient policies
regarding loans to employees and third parties had not been
adopted or implemented, and policies related to independent
distributor relationships were inadequate;
o We lacked timely resolution of identified accounting
and legal issues, and as a result, did not timely complete
period-end financial statements and reporting; and
o We do not have all material contracts in writing and
approved by all parties.
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The Audit Committee of the Company's Board of Directors discussed the
material weaknesses described above with BDO, and the Company has authorized BDO
to respond fully to the inquiries of its successor independent registered public
accounting firm, Lane Gorman, concerning the subject matter of the material
weaknesses described above.
The Company has requested that BDO furnish it with a letter addressed
to the Securities and Exchange Commission (the "SEC") stating whether or not BDO
agrees with the statements made by the Company set forth above and, if not,
stating the respects in which BDO did not agree. The Company provided BDO with a
copy of the foregoing disclosures. BDO has furnished a letter addressed to the
SEC dated September 12, 2006, a copy of which is attached hereto as Exhibit
16.1.
(b) New Independent Registered Public Accounting Firm.
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On September 7, 2006, the Audit Committee of the Company's Board of
Directors engaged Lane Gorman Trubitt, L.L.P. ("Lane Gorman") as the Company's
new independent registered public accounting firm. The Company has not consulted
with Lane Gorman on any matter described in Item 304(a)(2) of Regulation S-K
during the Company's fiscal years ended December 31, 2005 and 2006, and through
September 7, 2006.
Item 9.01 Financial Statements and Exhibits
(d) Exhibits
16.1 Letter from BDO Seidman, LLP, dated September 12, 2006.
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: September 12, 2006
By: /s/ STEPHANIE S. HAYANO
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Name: Stephanie S. Hayano
Title: President and Chief Executive
Officer
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EXHIBIT INDEX
Exhibit Description
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16.1 Letter from BDO Seidman, LLP, dated September 12, 2006.
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