Nature's Sunshine risks stock suspension
Saturday, July 14, 2007
http://www.heraldex
GRACE LEONG - Daily Herald
A Provo nutritional supplements maker is coming under increasing scrutiny of the U.S. Securities and Exchange Commission and the Internal Revenue Service.
Nature's Sunshine Products Inc., which lost its stock listing on Nasdaq in April 2006 and is now trading on over-the-counter "pink sheets," faces the possibility of having its stock registration suspended for up to a year, according to SEC documents released late Thursday.
If the company's stock registration is suspended or revoked, trading of its shares will be stopped. On Friday, shares of Nature's Sunshine closed at $12.70, up 95 cents or 8 percent from Thursday.
The SEC's Division of Enforcement began administrative proceedings against the Provo company after a federal investigation found it failed to file its Form 10-K annual earnings reports since March 16, 2005, and its audited quarterly reports since June 30, 2005.
A statement from Nature's Sunshine indicated the company hasn't been able to meet the SEC's reporting requirements since KPMG LLC resigned as its auditor in March 2006, and will not until its new auditor, Deloitte & Touche, completes an audit of its financial statements from 2004 through 2006. The company plans to defend against a possible suspension of the trading of its stock.
A hearing on the matter will be held before an administrative law judge, who will issue a decision in about four months.
Nature's Sunshine, in a preliminary financial statement issued Thursday, also revealed that it is being audited by the Internal Revenue Service. The IRS, in early 2006, began an audit of the company's income tax returns for the years 2002 through 2005.
"Why are people learning about the IRS audit now? The IRS audit is significant especially since it covers such a long period of time -- four years," said Phillip Kim, lead counsel for several Nature's Sunshine shareholders in an ongoing class-action lawsuit against the company over alleged insider trading and securities law violations.
The suit alleged Nature's Sunshine and three executives filed misleading Sarbanes-Oxley Act certifications between March 16, 2005, and Nov. 22, 2005, and false Form 10-Q earnings with the SEC to elicit "clean" audit reports from its former auditor, KPMG LLC. The case is now in discovery.
Nature's Sunshine also disclosed in Thursday's statement that the SEC has subpoenaed, and the U.S. Department of Justice has requested, documents related to an internal investigation of its foreign operations by the company's audit committee.
"The company also didn't say when the SEC subpoenaed the information, or when the DOJ requested the information from them," Kim said.
The suit said KPMG's investigation found electronic evidence showing Nature's Sunshine president and CEO Douglas Faggioli knew of an alleged fraud in his company's international operations, and yet signed two letters to KPMG in March and August 2005 stating the contrary. He also was accused of approving a payment in violation of the Foreign Corrupt Practices Act.
KPMG resigned after it found Nature's Sunshine failed to take adequate remedial action, even after its investigation uncovered "control weaknesses" in its top management.
Companies that trade on the Pink Sheet Exchange do not have to report to the SEC or other regulatory agencies. But Nature's Sunshine said it will continue to periodically provide to its shareholders preliminary unaudited financial information, which the company said may be restated after the audit is completed.
According to a statement issued by Nature's Sunshine, for the first quarter ended March 31, increased domestic and international sales lifted its revenues to $94.4 million, up 4 percent from $90.8 million a year ago. The company also indicated its first quarter operating income returned to the black at $3.7 million, compared with an operating loss of $1.3 million a year ago.
For the fiscal year ended Dec. 31, the company's revenues gained 2.9 percent to $363.8 million, from $353.6 million a year ago. Its operating income, however, fell to $12.5 million from $15.5 million a year ago because of higher expenses from distributor incentives and professional fees related to the company's internal investigation.
The company said its working capital totaled $52.8 million and its cash holdings totaled $49.6 million for its first fiscal quarter. It now has 730,000 distributors worldwide, up from 658,000 a year ago.
This story appeared in The Daily Herald on page A1.
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