Financial Report

Down and Up Like a Yo-Yo
Fourth Quarter Results
March Stock Watch

Down and Up Like a Yo-Yo
by Sherree DeCovny

The first nine weeks of 2007 looked pretty good for the U.S. equity markets as key benchmark indexes continued to rise as they did in 2006. But as market participants know all too well, what goes up must come down, and a correction had to come sooner or later. And did it ever. On February 26 the DJIA fell more than 500 points in heavy trading, only to recover slightly during the day to close down 416 points, or 3.29 percent. The S&P 500 and the Nasdaq posted similar declines.

Over the next few days, shell-shocked analysts, traders and investors tried to figure out exactly what happened and where the market would go next. Speaking at the TradeTech USA conference in New York on March 7, Morgan Stanley U.S. Chief Investment Strategist Henry McVey was cautiously bullish overall, but he warned of some dangerous undercurrents. "The volatile markets look healthy on the macro level. When you look underneath, there are a lot of things that are not working," he said.

McVey noted three key trends. For the first time since 1997, the global markets are trading as a market of one. While markets are highly correlated across the globe, sectors are at their lowest correlation in 20 years. Moreover, within sectors there is no arbitrage between expensive and cheap stocks or between shorting bad companies and buying good ones.

At press time, the benchmark indexes have returned to about the same levels they were before February's precipitous slide. But considering the volatility in the market, some direct selling companies experienced significant swings in their share price-in some cases, quite favorable ones.

For example, XELR8 Holdings Inc. (PRH-AMEX), a Denver-based provider of functional foods, beverages and nutritional supplements, announced it had a record month in February, enrolling 494 new distributors and customers to its national direct selling network. It raised $2 million through a private placement transaction. It also said it is appealing the American Stock Exchange's (Amex) decision to de-list the company from the exchange, and its hearing before the Amex review committee has been postponed. Of the direct sellers, XELR8 posted the largest gain in its stock price, soaring 150 percent.

Shares in RBC Life Sciences Inc. (RBCL-NASDAQ OTCBB) of Irving, Texas, a manufacturer of nutritional supplements, skincare products and nanoscale compounds, posted a 110 percent gain. It reported a 12 percent increase in net sales and net earnings in 2006 of 2 cents per share. RBC Life Sciences CEO Clinton Howard said the growth in earnings before income taxes was driven by improved operating margins and strong sales increases in both nutritional products and MPM medical products. Growth in sales of nutritional products was generated by a 34 percent increase in sales to the company's international licensees.

ForeverGreen Worldwide Corporation's (FVRG-NASDAQ OTCBB) shares rose 49 percent. The Orem, Utah-based manufacturer and distributor of natural whole foods set new monthly sales records in the third and fourth quarters of 2006. It has launched an aggressive marketing campaign in Germany, the Netherlands and Spanish-speaking markets, both domestically and internationally. The company is also launching operations in Australia and Japan later this year.

In addition, a prominent university, which ForeverGreen cannot name at this time, is conducting a double-blind placebo study on the benefits of marine phytoplankton. "We are expecting this to have a very positive impact on the company," said ForeverGreen Vice President of Business Development Rick Redford.

Fundamentals drove shares in AMS Health Sciences (AMM-AMEX), a direct selling company based in Oklahoma City, up about 24 percent. AMS's 2006 earnings results show vast improvements in the company's performance. "We're not going to be profitable, but we've made a large double-digit decrease in our loss," said AMS CEO Jerry Grizzle. "Every single line item on our financial statement will show double- and in some cases triple-digit improvement over the prior year."

AMS has launched a new product division called saba along with a new Web site to support the marketing of saba weight-loss formulas. The saba product features pomegranate juice, which carries greater antioxidant power than red wine, green tea and orange and cranberry juices. The saba weight-loss formula features borojo, a fruit that offers essential amino acids.

Grizzle believes saba will yield real financial benefits for the company. The product has been well received in the market. In addition, new lighter weight, more durable packaging has led to a significant reduction in the cost of goods sold.

Shares of Relìv International Inc. (RELV-NASDAQ) were up 24 percent during the first quarter. The suburban St. Louis developer, manufacturer and marketer of nutritional supplements announced its worldwide retail sales topped $15 million for the first time in both January and February 2007. The company recently introduced the Slimplicity Weight Loss System, comprising a meal replacement shake providing essential nutrition, whole soybean powder and the Slimplicity Accelerator, a capsule containing ingredients that burn fat, block fat absorption, boost metabolism and suppress appetite.

Relìv was also given a boost when DeMarche Associates Inc. named Relìv one of America's 100 Best Companies for Shareholder Value. DeMarche, an investment consulting company based in Overland Park, Kan., also named Relìv to its 100 Most Improved Companies in the United States. The operating performance of each of the listed companies places them in the top 3 percent of all major U.S. corporations, according to DeMarche. The lists are categorized by industry.

Cognigen Networks Inc. (CGNW-NASDAQ OTCBB), the Seattle-area-based Internet-enabled marketer of communications services and certificated reseller, reported a net loss of $21,965 for the six months ended Dec. 31, 2006. Still, the market was encouraged by they company's sale of most of its proprietary telecommunication long distance accounts. Now it can concentrate on providing bundled broadband solutions to the Quick Service Restaurant/Retail industry. Cognigen shares ended the quarter about 21 percent higher.

Both Merrill Lynch and Prudential upgraded Avon Products Inc. (AVP-NYSE), which led to an increase of 15 percent in its share price. Fourth-quarter 2006 total revenue of the New York-based direct seller of cosmetics rose 9 percent year over year to $2.6 billion. Fourth-quarter operating profit of $282 million was 5 percent, or $15 million, lower than the 2005 level. Operating margin was 10.8 percent, vs. 12.4 percent in the prior-year quarter.

Tupperware Brands (TUP-NYSE), based in Orlando, Fla., reported its fourth-quarter 2006 sales were up 34 percent (29 percent in local currency) to $486.5 million. The company's full-year sales were up 36 percent (35 percent in local currency) to $1.74 billion. Earnings per share stand at $1.54, up 13 cents from last year. Its shares rose 9 percent.

Salt Lake City-based nutritional, personal care and weight-management products manufacturer USANA Health Sciences Inc. (USNA-NASDAQ) announced record financial results for the fiscal fourth quarter and for the full-year 2006 ended December 30. But its share price fell about 5 percent on news it filed a defamation lawsuit against the Fraud Discovery Institute and Barry Minkow in U.S. District Court in Salt Lake City.

USANA maintains Minkow gave a false impression of USANA and its chairman, Dr. Myron Wentz, in a report in The Wall Street Journal. USANA issued a statement that said, "Mr. Minkow's statements are part of a coordinated public relations program financed by a paying client and from which Mr. Minkow will profit personally..The claim by Mr. Minkow that USANA will 'run out of distributors' is false, misleading, and without any basis."

Los Angeles-based Herbalife Ltd. (HLF-NYSE) reported fourth-quarter net sales of $487.4 million, an increase of 19.2 percent compared with the same period of 2005. In addition, the company announced that China granted it a direct selling license for its weight-loss and nutritional supplements. Also during the quarter, Herbalife announced it is considering a proposal by Whitney V, L.P., to acquire all of its outstanding common stock for $38 per share in cash. This news failed to cheer the market, and Herbalife's shares closed down about 3 percent.

"You have a bit of a conundrum in that while the bid of $38 was much more than where the stock was trading at the time, it is less than where we think the stock could trade in a year on fundamentals alone," said Doug Lane, consumer products analyst at Avondale Partners. "Our 12-month price objective on Herbalife is $45 a share."

Finally, shares in Nu Skin (NUS-NYSE) declined about 8 percent during the quarter. "While business at Nu Skin appears to be improving, the stock continues to languish. We think it's because the timing of the ramp up in China, even though they secured their direct selling license there, continues to fall behind expectations," Lane said.

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