Summary
- A recent visit to the company’s Beijing office shows it is shut down – could NHTC’s China operation be shutting down for good?
- Sign on the door states the company is “remodeling” as of March 11, 2016 but the building manager tells us that operations have been suspended
Today, we believe we have new information on the case against Natural Health Trends Corporation: we discovered a suspiciously timed shut down of the company’s Beijing office, just weeks after the office was said to have been raided by Chinese officials. Further, the building’s manager has told us that operations have been suspended. According to a note on the door, the company claims it is undergoing a “remodel”. The building’s manager has told us that this is not the case.
Over the last two months, we have pointed out what we believe to be some serious red flags with Natural Health Trends Corporation. We started warning investors about this company back in 2014, where it appeared the company had “all its eggs in one highly unstable basket” by relying solely on China and Hong Kong for a majority of its business.
The Beijing office, recently in the news for being visited by Chinese regulators, now appears to be shut down.
Our Recent Findings
We visited the offices on March 14, 2016 and found that they had been shut down since March 11, 2016. The entire glass door was covered by white paper and we couldn’t make out NHTC’s logo on the front lobby wall like we did during our previous visit earlier this year. As you can see, the “702” denotes that this is the same room we previously visited to investigate NHTC.
On the door is a sign that reads:
“As of today, this company is undergoing an internal redecoration. During this time, we apologize for the inconvenience. March 11, 2016”
There is a large red lock on the outside of the doors.
We compared this to photographs of the same office we visited earlier this year. We didn’t notice anything that clearly needed to be remodeled; the offices looked modern and new.
The company did not disclose how long its internal redecoration was supposed to take.
In addition, on March 15, 2016 we visited the property management office at NHTC’s Beijing office. The management office told us that the company has already suspended its business as of the week prior. There is no remodeling taking place, according to the building manager. Furthermore, management also told us the company’s lease expires in 2 months.
2016’s Other Red Flags
More recently, we have gone into detail about what we believe to be two separate raids on the company's offices by Chinese authorities and we have expressed our extreme caution that the company is operating an illegal multilevel marketing model in China without a direct selling license.
As more than 90% of the company's revenue comes from its business in China/HK, we believe all Natural Health Trends shareholders could be at grave risk. If a Chinese regulatory investigation were to result in the company’s Chinese/HK business being shut down, we believe NHTC could lose nearly all of its value.
Since our latest articles were published earlier in 2016, we have already seen Christopher O’Brien a lawyer by trade and NHTC board member choose to not seek re-election, after only serving on the board for barely over a year. According to a recent Seeking Alpha article by Alpha Apache, Mr. O’Brien is leaving $66,000 on the table in order to step off the board. This same article points out that Mr. O’Brien also failed to sign the 2015 10-K after signing the 2014 10-K. Could it be that this lawyer wants to absolve himself of any potential future liability?
(source: Alpha Apache Seeking Alpha Article)
This article goes on to slap the company with a $6 price target that’s based on the fundamentals, sans the risk of the alleged regulatory investigations.
This same article goes on to question the company with inconsistent language in the 10-K. Alpha Apache states:
NHTC has also made inconsistent statements regarding the recent alleged Chinese investigations. In its January 13th, 2016 press release, the Company said the police officer's "visit" to the Guangzhou office was part of a "routine examination." However, in the 10-K, it does not say it was a routine meeting, but that "routine information" was provided, and that "although we are proactively following up with Chinese government officials and are taking other steps to address the risks posed by these events, our business and the value of our company remain vulnerable to Chinese government scrutiny of our operations, whether or not initiated by third parties". If it was a routine meeting, as was said in the press release, why would it require proactive follow-up and qualify as an event that poses risk?
Conclusion
You can either believe that the company, in the midst of “proactively following up with Chinese government officials” decided to arbitrarily shut down their office and perform an interior design upgrade.
Or you can surmise, as we have, that the company has ended its operations in Beijing.
We find that it is more likely that regulators gave the company a cue to shut down their operation in Beijing and we are going to continue checking this office to see if it opens up again in the future.
Again, if this is indicative of what is to come for the company in China, we believe shareholders would be at grave risk. If NHTC has to halt operations in China and Hong Kong, as it previously did in 2004 before the stock went to pennies, we could see history repeat itself.
We will continue to diligently monitor the situation.
