NHTC 10-K & 10-Q changes, risk factors and insider trading
Natural Health Trends Corp. · Nasdaq · Wholesale-Miscellaneous Nondurable Goods · CIK 912061 · All filings on SEC.gov
At a glance
What changed in the latest 10-K
Risk Factors
New heading “Changes in government trade and economic policies, including the imposition of tariffs and other restrictive trade policies, and ongoing political and economic disputes between the United States and other jurisdictions, particularly China, may have a negative effect on global economic conditions and our business, financial results and financial condition.”
Removed heading “Changes in government trade and economic policies, including the imposition and threatened imposition of tariffs and other restrictive trade policies, and ongoing political and economic disputes between the United States and other jurisdictions, particularly China, may have a negative effect on global economic conditions and our business, financial results and financial condition.”
Largest changes
“Changes in government trade and economic policies, including the imposition and threatened imposition of tariffs and other restrictive trade policies, and ongoing political and economic disputes between the United States and other jurisdictions, particularly China, may have a negative effect on global economic conditions and our business, financial results and financial condition.”see in full comparison
“Changes in government trade and economic policies, including the imposition of tariffs and other restrictive trade policies, and ongoing political and economic disputes between the United States and other jurisdictions, particularly China, may have a negative effect on global economic conditions and our business, financial results and financial condition.”see in full comparison
We are required by federal securities laws to document and test our internal control procedures in order to satisfy the requirements of the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”), which requires annual management assessmentssee in full comparisonofof, and reports on, the effectiveness of internal control over financial reporting. Effective internal controls are necessary for us to provide reliable financial reports and to effectively prevent fraud.The SEC’s Sarbanes-Oxley rules require us to include a report by management on the effectiveness of our internal control over financial reporting in our Annual Reports on Form 10-K.Although we review internal control over financial reporting in order to ensure compliance with the SEC’s Sarbanes-Oxley rules, if we fail to maintain effective internal control over financial reporting, we could be required to take costly and time-consuming corrective measures to remedy any number of deficiencies, significant deficiencies or material weaknesses, be required to restate the affected historical financial statements, be subjected to investigations and/or sanctions by federal and state securities regulators, and be subjected to civil lawsuits by stockholders. For instance,aswedescribedincurred substantial costs in“Item20199A.to-remediateControls and Procedures” in our Annual Report on Form 10-K filed with the SEC for the year ended December 31, 2018, wean identifiedamaterial weakness in our internal control over financialreporting as of December 31, 2018. Management, with oversight from the Audit Committee, implemented a plan to remediate this material weakness and completed remediation during 2019. While the existence of this material weakness did not result in a restatement of previously issued interim or annual consolidated financial statements, we incurred substantial costs and utilized meaningful resources to remediate the material weakness during 2019.reporting. Any future failure to maintain effective internal control over financial reporting could result in the foregoing identified consequences and could cause investors to lose confidence in our reported financial information and in our company and could cause a decline in the market price of our common stock.
“In addition, on June 10, 2021, the Standing Committee of the National People's Congress of China promulgated the Data Security Law, which took effect in September 2021. …”see in full comparison
We are subject to anti-bribery laws, including the U.S. Foreign Corrupt Practices Act (“FCPA”), which generally prohibit companies and their intermediaries from making improper payments for the purpose of obtaining or retaining business as well as requiring companies and their intermediaries to maintain accurate books and records. Insee in full comparisonrecenttheyearspast decade there has been a substantial increase in anti-bribery law enforcement activity by the U.S. Department of Justice (the “DOJ”) and the SEC relating to certain countries in which we have business, including China. For example, in2017,August 2020, aU.S. basedU.S.-based direct selling companyannouncedenteredthatintoitawasdeferredtheprosecutiontargetagreementofinanconnectioninvestigationwithbeingcriminalconductedcharges brought by theSECDOJ relating todetermineallegedwhetherpaymentscertainandactivitiesbenefits paid to Chinese officials, and settled relatedtoSEC charges at thedirectsamesellingtime,company'sincurringoperationsover $120 million inChinafinesviolatedandthe FCPA. Also, in 2017, another U.S. based direct selling company announced that it had initiated a voluntary probedisgorgement ofits operations in China to determine if violations of the FCPA had occurred.profits.
“Since President Trump's re-election in 2024, tariffs on imports to the United States have become an increasingly significant component of U.S. trade policy. Beginning in the first quarter of 2025, the U.S. has announced and/or implemented significant new tariffs on imports from a wide range of countries, particularly China, which has prompted retaliatory tariffs by a number of countries and a cycle of further tariffs by both the U.S. and other countries. On April 2, 2025, the U.S. imposed by executive order a 34% reciprocal tariff on Chinese-origin goods. …”see in full comparison
Full comparison: every changed paragraph (20)
In 20242025 and 2023,2024, approximately 82% and 79% of our revenue was generated in Hong Kong,Kong. respectively, and substantiallySubstantially all of our Hong Kong revenues are derived from the sale of products that are delivered to members in China. This geographic concentration in our business means that events or conditions that could negatively impact this geographic region or our operations in this region, including the current economic challenges facing China and Hong Kong, are having and could in the future have a greater adverse impact upon our overall business and financial results than would be the case with a company having greater geographic diversification.
We experienced negative operating cash flows during each of the four years ended December 31, 2024,2022 2023through and 2022,2025, and only modest positive operating cash flows during the years ended December 31, 2021 and 2020. Unless our operating cash flows improve, this negative financial performance could have a material adverse effect on our business and our stock price.
We experienced negative operating cash flows during each of the four years ended December 31, 2024,2022 2023through and 2022,2025, and only modest positive operating cash flows during the years ended December 31, 2021 and 2020. This cash flow performance was primarily due to declines in our revenues being greater than the decreases in expenditures that we could manage. If we again experience negative operating cash flows or our cash balance is substantially diminished, we may not be able to continue paying cash dividends to our stockholders, our ability to support our operations could be impaired and we may be required to seek debt or equity financing. However, we may not be able to obtain additional debt or equity financing on satisfactory terms, or at all, and any new financing could have a dilutive effect to our existing stockholders. Negative operating cash flows could have a material adverse effect on our business, results of operations and financial condition, as well as our stock price, and could eventually threaten our solvency. Negative operating cash flows and any related adverse market perception may also negatively affect our ability to attract new members and/or sell our products. There can be no assurance that we will be successful in maintaining an adequate level of cash resources.
Changes in government trade and economic policies, including the imposition of tariffs and other restrictive trade policies, and ongoing political and economic disputes between the United States and other jurisdictions, particularly China, may have a negative effect on global economic conditions and our business, financial results and financial condition.
Since President Trump's re-election in 2024, tariffs on imports to the United States have become an increasingly significant component of U.S. trade policy. Beginning in the first quarter of 2025, the U.S. has announced and/or implemented significant new tariffs on imports from a wide range of countries, particularly China, which has prompted retaliatory tariffs by a number of countries and a cycle of further tariffs by both the U.S. and other countries. On April 2, 2025, the U.S. imposed by executive order a 34% reciprocal tariff on Chinese-origin goods. This was followed by an amended executive order April 8, 2025, raising tariffs to 84% and an April 9, 2025 executive order raising tariffs to 125%. In response, China raised its duties on imported U.S. goods to a similar level. Following negotiations, the U.S. announced a temporary 90-day reduction in its reciprocal tariff rates from 125% to 10% beginning in May 2025, and China agreed to suspend its retaliatory tariffs during the same period. The pre-existing 20% U.S. tariff imposed on all Chinese goods remained in place, along with certain other sector-specific tariffs. In October 2025, the U.S. administration announced an additional 100% tariff on all products imported from China in response to certain restrictions imposed by China on rare earth minerals, before announcing an agreement that would, among other things, reduce the general tariff rate on Chinese goods to 47%. U.S. trade policies can change quickly, and the extent and duration of tariffs and other trade barriers are difficult to predict. These developments, together with the threat of additional tariffs and other restrictive trade policies and the uncertainties they create, may have a material adverse effect on global economic conditions and the stability of global financial markets, and they may significantly reduce global trade and, in particular, adversely affect trade and economic relations between China and the United States. Specifically, we may incur additional costs in the future in connection with shipments of products into China, particularly from the U.S. We may not be able to recover these additional costs through a surcharge. To the extent we are able to contract for products that are currently made in the U.S. to be manufactured elsewhere in order to mitigate the effect of these tariffs, we may incur additional transition costs including the cost of product reregistration. Assuming substantial tariffs remain in place, their effect on our future operating results remains uncertain. Apart from the direct cost of tariffs, the ongoing trade dispute may also have an impact on Chinese discretionary spending and consumer sentiment toward products made or perceived to be made in the U.S., which has had and may continue to have an impact on demand for our products.
Apart from trade policy, tensions between the United States and China have increased in recent years as a result of disputes in other areas including intellectual property, cybersecurity and data privacy. Tensions became particularly acute following the China legislature’s passage of a national security law in 2020 that changed the way Hong Kong has been governed since the territory was handed over by the United Kingdom to China in 1997. This law criminalizes secessionist activities, subversion, terrorism, and collusion with a foreign country or with external elements to endanger national security in Hong Kong. The U.S. State Department has indicated that the United States no longer considers Hong Kong to have significant autonomy from China, and the United States has enacted sanctions against certain persons related to China's governance of Hong Kong. China has responded in kind. These and other recent actions reflect an escalation in political and economic tensions involving the United States, China and Hong Kong, which could harm our business. A continued deterioration in these political or economic relations or other future unforeseen problems could disrupt our China and Hong Kong business (including our Hong Kong office and employees), adversely affect the distribution of our products, reduce our net sales, increase the cost of conducting our operations, or result in retaliatory actions against U.S. interests, any of which could have a material adverse effect on our business, results of operations and financial condition.
Although we have in recent years expanded our line of products, we derive at least 10% of our total revenue from each of our Premium Noni Juice and Triotein™ products, as well as our line of probiotic products comprised of Enhanced Essential Probiotics and Enhanced Biotic Trio. Further, we currently source each of these products from a single supplier. If demand decreases significantly, government regulation restricts their sale, we are unable to adequately source or deliver the products, or we are unable to offer the products for any reason without suitable replacements, our business, results of operations and financial condition could be materially and adversely affected. Our future success will also depend on our ability to reduce our dependence on these few products by developing and introducing new products and product or feature enhancements in a timely manner. Even if we are able to develop and commercially introduce new products and enhancements, they may not achieve market acceptance and the revenue generated from these new products and enhancements may not offset the costs, which could substantially impair our business, results of operations and financial condition.
We are required by federal securities laws to document and test our internal control procedures in order to satisfy the requirements of the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”), which requires annual management assessments ofof, and reports on, the effectiveness of internal control over financial reporting. Effective internal controls are necessary for us to provide reliable financial reports and to effectively prevent fraud. The SEC’s Sarbanes-Oxley rules require us to include a report by management on the effectiveness of our internal control over financial reporting in our Annual Reports on Form 10-K. Although we review internal control over financial reporting in order to ensure compliance with the SEC’s Sarbanes-Oxley rules, if we fail to maintain effective internal control over financial reporting, we could be required to take costly and time-consuming corrective measures to remedy any number of deficiencies, significant deficiencies or material weaknesses, be required to restate the affected historical financial statements, be subjected to investigations and/or sanctions by federal and state securities regulators, and be subjected to civil lawsuits by stockholders. For instance, aswe describedincurred substantial costs in “Item2019 9A.to -remediate Controls and Procedures” in our Annual Report on Form 10-K filed with the SEC for the year ended December 31, 2018, wean identified a material weakness in our internal control over financial reporting as of December 31, 2018. Management, with oversight from the Audit Committee, implemented a plan to remediate this material weakness and completed remediation during 2019. While the existence of this material weakness did not result in a restatement of previously issued interim or annual consolidated financial statements, we incurred substantial costs and utilized meaningful resources to remediate the material weakness during 2019.reporting. Any future failure to maintain effective internal control over financial reporting could result in the foregoing identified consequences and could cause investors to lose confidence in our reported financial information and in our company and could cause a decline in the market price of our common stock.
We distribute our products through independent members, and we depend upon them directly for all of our sales in most of our markets. Accordingly, our success depends in significant part upon our ability to attract, retain and motivate a large base of members, as well as a relatively small number of key members. Our members may terminate their services with us at any time and, like most direct selling organizations, we have a high rate of attrition. We had 5%14% fewer active members at December 31, 2025 as compared to the end of 2024, and 5% fewer active members at the end of 2024 as compared to the end of 2023, and 16% fewer active members at the end of each of 2023 and 2022 as compared to the end of the previous year.2023. These losses in the number of active members were a significant factor contributing to the decrease in our recent year-over-year sales. If we cannot stabilize or increase the number of our members, or if we lose one or more key member leaders, sales of our products could be further materially and adversely affected. The replacement of members could be difficult because, in our efforts to attract and retain members, we compete with other direct selling organizations, including but not limited to those in the personal care, cosmetic product and nutritional supplement industries.
We incur significant expense in the payment of compensation to our members, which represented approximately 41% and 42% of net sales during each of 20242025 and 2023, respectively.2024. We compensate our members by paying commissions, bonuses, and certain awards and prizes. Factors impacting the overall commission payout include the growth and depth of the member network, the member retention rate, the type and scope of promotions and incentives, local promotional programs and business development agreements. Long-term promotions and incentives (lasting up to one year) can, in particular, result in uncertain ultimate cost. Any increase in compensation payments to members as a percentage of net sales will reduce our profitability.
Legal, Regulatory, Tax,Tax and Currency and Trade Policy Risks
We previously submitted a preliminary application for a direct selling license in China, but withdrew our application in 2019 upon the recommendation of a Chinese governmental authority recommended that we withdraw our application.authority. We expect to reapply for a direct selling license in China when we believe that circumstances are again ripe for doing so. We are unable to predict whether and when we will be successful in obtaining a direct selling license to operate in China, and if we are successful, when we will be permitted to conduct direct selling operations and whether such operations would be profitable.
Changes in government trade and economic policies, including the imposition and threatened imposition of tariffs and other restrictive trade policies, and ongoing political and economic disputes between the United States and other jurisdictions, particularly China, may have a negative effect on global economic conditions and our business, financial results and financial condition.
The United States has in recent years enacted tariffs on certain items. Further, with President Trump's re-election in 2024, significant increases in tariffs on foreign imports into the United States have been proposed or, the case of imports from China imposed. In response, a number of our markets, particularly China, have implemented tariffs on U.S. imports or otherwise imposed non-tariff barriers such as slow-walking custom clearance of American-made products. U.S. trade policies can change quickly, and the extent and duration of tariffs and other trade barriers are difficult to predict. These developments, together with the threat of new tariffs and other restrictive trade policies and the uncertainties they create, may have a material adverse effect on global economic conditions and the stability of global financial markets, and they may significantly reduce global trade and, in particular, adversely affect trade and economic relations between China and the United States.
Tensions between the United States and China have increased in recent years as a result of disputes in areas including trade policy, intellectual property, cybersecurity and data privacy. Tensions became particularly acute following the China legislature’s passage of a national security law in 2020 that changed the way Hong Kong has been governed since the territory was handed over by the United Kingdom to China in 1997. This law criminalizes secessionist activities, subversion, terrorism, and collusion with a foreign country or with external elements to endanger national security in Hong Kong. The U.S. State Department has indicated that the United States no longer considers Hong Kong to have significant autonomy from China, and the United States has enacted sanctions against certain persons related to China's governance of Hong Kong. China has responded in kind. These and other recent actions reflect an escalation in political and economic tensions involving the United States, China and Hong Kong, which could harm our business. A continued deterioration in these political or economic relations or other future unforeseen problems could disrupt our China and Hong Kong business (including our Hong Kong office and employees), adversely affect the distribution of our products, reduce our net sales, increase the cost of conducting our operations, or result in retaliatory actions against U.S. interests, any of which could have a material adverse effect on our business, results of operations and financial condition.
We collect certain personal information, including payment data, from members and consumers, as well as our employees. We also develop and maintain sensitive and proprietary business information. We are therefore subject to numerous laws, regulations and other obligations that address privacy, data protection and information security in the various markets in which we conduct business. We are particularly focused on the evolving state of laws and regulations in China and Hong Kong applicable to privacy, data protection and information security. Of particular note is China's Cyber Security Law, which requires companies to take certain measures to ensure that the security of their networks and data stored on their networks. Specifically, the Cyber Security Law provides that companies adopt a multi-level protection scheme under which network operators are required to perform obligations of security protection to ensure that the network is free from interference, disruption or unauthorized access, and prevent network data from being disclosed, stolen or tampered with. InAmendments addition, on June 10, 2021,to the Standing Committee of the National People's Congress of China promulgated the Data Security Law, which took effect in September 2021. The DataCyber Security Law imposes data security and privacy obligations on entities and individuals carrying out data activities, and introduces a data classification and hierarchical protection system based on the importance of data in economic and social development, as well as the degree of harm it will cause to national security, public interests, or legitimate rights and interests of individuals or organizations when such data is tampered with, destroyed, leaked, or illegally acquired or used. The Data Security Law also provides for a national security review procedure for data activities that may affect national security and imposes export restrictions on certain data and information. Finally, the Standing Committee of the National People's Congress of the China also promulgated the Personal Information Protection Law (“PIPL”), which took effect on NovemberJanuary 1, 2021.2026 Theincrease PIPLpenalties expandsand dataenforcement protectionmeasures for certain violations and may heighten our potential exposure and compliance obligations to cover the processing of personal information of persons by organizations and individuals in China, and the processing of personal information of persons in China, outside of China if such processing is for purposes of providing products and services to, or analyzing and evaluating the behavior of, persons in China. The PIPL also provides that critical information infrastructure operators and personal information processing entities that process personal information meeting a volume threshold are also required to store in China personal information generated or collected in China, and to pass a security assessment for any export of such personal information.costs.
In addition, on June 10, 2021, the Standing Committee of the National People's Congress of China promulgated the Data Security Law, which took effect in September 2021. The Data Security Law imposes data security and privacy obligations on entities and individuals carrying out data activities, and introduces a data classification and hierarchical protection system based on the importance of data in economic and social development, as well as the degree of harm it will cause to national security, public interests, or legitimate rights and interests of individuals or organizations when such data is tampered with, destroyed, leaked, or illegally acquired or used. The Data Security Law also provides for a national security review procedure for data activities that may affect national security and imposes export restrictions on certain data and information. Finally, the Standing Committee of the National People's Congress of the China also promulgated the Personal Information Protection Law (“PIPL”), which took effect on November 1, 2021. The PIPL expands data protection compliance obligations to cover the processing of personal information of persons by organizations and individuals in China, and the processing of personal information of persons in China, outside of China if such processing is for purposes of providing products and services to, or analyzing and evaluating the behavior of, persons in China. The PIPL also provides that critical information infrastructure operators and personal information processing entities that process personal information meeting a volume threshold are also required to store in China personal information generated or collected in China, and to pass a security assessment or meet other regulatory requirements (such as standard contacts or certification mechanisms) for any export of such personal information. In addition, China has recently adopted implementing regulations and measures, including regulations on network data security management and cross-border data transfers, as well as sector-specific and regional rules and catalogues relating to “important data,” which further refine and in some cases expand data security, classification and cross-border transfer requirements and increase the complexity of the regulatory regime.
Currency exchange rate fluctuations could lower our revenue and net income.profitability.
There has been an increasinga movement in therecent Unitedyears Statesin and othersome markets to increase the regulation of dietary supplements,supplements or to revisit the interpretation of existing regulations, either of which could impose additional restrictions or requirements in the future. InWhile the regulatory framework for dietary supplements in the United States,States forremains example,largely someunchanged, legislatorsthe industry is subject to ongoing policy discussions regarding oversight, enforcement priorities, and industryconsumer criticsprotection. continue to push for increasedFuture regulatory authorityinterpretations byor theenforcement FDAapproaches overcould nutritionalaffect supplements.how dietary supplements are marketed or distributed. Our business could be harmed if more restrictive legislation is successfully introduced and adopted in the future. In particular, the adoption of legislation requiring FDA approval of supplements or ingredients could delay or inhibit our ability to introduce new supplements. We face similar pressures in our other markets, particularly in China where certain government ministries announced in 2019 a comprehensive 100-day campaign focusing on companies involved in the sale of certain products, including nutritional supplements and health products. This campaign or other actions could result in new legislation or regulation in China. In the United States, the FTC's Guides Concerning the Use of Endorsements and Testimonials in Advertising (the “Guides”) require disclosure of material connections between an endorser and the company they are endorsing and require the disclosure of typical results when these are different from those reported by the endorser. The requirements and restrictions of the Guides may diminish the impact of our marketing efforts and negatively impact our sales results. If we or our members fail to comply with these Guides, the FTC could bring an enforcement action against us and we could be fined and/or forced to alter our operations. Our operations also could be harmed if new laws or regulations are enacted that restrict our ability to market or distribute nutritional supplements or impose additional burdens or requirements on nutritional supplement companies or require us to reformulate our products.
We are subject to anti-bribery laws, including the U.S. Foreign Corrupt Practices Act (“FCPA”), which generally prohibit companies and their intermediaries from making improper payments for the purpose of obtaining or retaining business as well as requiring companies and their intermediaries to maintain accurate books and records. In recentthe yearspast decade there has been a substantial increase in anti-bribery law enforcement activity by the U.S. Department of Justice (the “DOJ”) and the SEC relating to certain countries in which we have business, including China. For example, in 2017,August 2020, a U.S. basedU.S.-based direct selling company announcedentered thatinto ita wasdeferred theprosecution targetagreement ofin anconnection investigationwith beingcriminal conductedcharges brought by the SECDOJ relating to determinealleged whetherpayments certainand activitiesbenefits paid to Chinese officials, and settled related toSEC charges at the directsame sellingtime, company'sincurring operationsover $120 million in Chinafines violatedand the FCPA. Also, in 2017, another U.S. based direct selling company announced that it had initiated a voluntary probedisgorgement of its operations in China to determine if violations of the FCPA had occurred.profits.
Management's Discussion & Analysis (MD&A)
New heading “Recent Developments”
Largest changes
“The Company's fiscal 2025 financial results, particularly beginning in the second quarter, were negatively affected by negative consumer sentiment and economic uncertainty in the Company’s largest market. If substantial tariffs remain in place, or new tariffs are implemented, the Company may see the effect of higher duties on restocking in 2026. The likely short-term impact of the tariffs is difficult to predict with any certainty, however. …”see in full comparison
“Beginning in the first quarter of 2025, the U.S. engaged in a series of escalating tariff actions with a wide range of countries, particularly China. On April 2, 2025, for example, the U.S. imposed by executive order a 34% reciprocal tariff on Chinese-origin goods. This was followed by an amended executive order April 8, 2025, raising tariffs to 84% and an April 9, 2025 executive order raising tariffs to 125%. In response, China raised its duties on imported U.S. goods to a similar level. Following negotiations, the U.S. …”see in full comparison
Net sales weresee in full comparison$43.0$39.8 million for the year ended December 31,20242025 compared with$43.9$43.0 million a year ago, a decrease of$961,000,$3.2 million, or2%.7%. Hong Kong net sales, substantially all of which were derived from the sale of products shipped to members residing in China,weredecreasedalmost$2.4the same as the prior year, increasing $208,000,million, or1%,7%, over the prioryear.year primarily due to the negative consumer sentiment as a result of the heightened economic uncertainty caused by the threat of reciprocal and retaliatory tariffs. Outside of our Hong Kong business, net sales decreased$1.2 million,$752,000, or13%,10%, over the prior year primarily due to decreased year-over-year net sales in ourbusiness in the Americas and Taiwan which were somewhat offset by an increase in year-over-year net sales in ourChinese e-commerce retail business. As of December 31,2024,2025, deferred revenue was$6.4$5.6 million, which primarily consisted of$4.9$4.1 million pertaining to unshipped product orders and unredeemed product vouchers, as well as $1.5 million in auto ship advances.
“In late 2019 or early 2020 an outbreak of COVID-19 was first identified in China and subsequently spread quickly around the world, resulting in a global pandemic. The pandemic caused the Chinese government to implement powerful measures to control the virus, such as requiring businesses to close throughout various areas of China and restricting public gatherings and certain travel within the country. …”see in full comparison
“During 2025, in response to continued challenging near-term economic conditions in our largest market and continued pressure on consumer sentiment, management implemented a restructuring plan designed to better align our operating cost structure with current business conditions. The restructuring plan included actions to optimize our workforce, relocate certain product manufacturing activities to Asia, and downsize several offices. We recognized $283,000 of restructuring-related charges during the fourth quarter of 2025. …”see in full comparison
Selling, general and administrative expenses decreased $754,000 to $14.8 million for the year ended December 31, 2025 as compared with $15.5 million for the year ended December 31,see in full comparison2024, as compared to $16.0 million for the year ended December 31, 2023.2024. The decrease was primarily due to lowerinsuranceemployee-related expenses, professional fees andothereventgeneralcostsbusinessasexpenses.compared to the prior year. Selling, general and administrative expenses as a percentage of net saleswere modestly lowerincreased in the current year as comparedtowith the prioryear.year due to the decrease in net sales in the current year and the one-time restructuring charges recognized in the fourth quarter of 2025.
Full comparison: every changed paragraph (25)
General
We generate approximately 94%93% of our net sales from subsidiaries located outside the Americas, with sales of our Hong Kong subsidiary representing 82% of net sales in the latest fiscal year.Americas. Because of the size of our foreign operations, operating results can be impacted negatively or positively by factors such as foreign currency fluctuations, trade policy, inflation rates, and economic, political and business conditions around the world. In addition, our business is subject to various laws and regulations, in particular, regulations related to direct selling activities that create uncertain risks for our business, including improper claims or activities by our members and our potential inability to obtain necessary product registrations. We continually evaluate our business for compliance with applicable laws and regulations, and this process can and has resulted in the identification of certain matters of potential noncompliance, which we work to satisfactorily address. For further information regarding some of the risks associated with the conduct of our business in China and Hong Kong, see “Item 1A. Risk Factors,” and more specifically under the captions “Risk Factors - Because our Hong Kong operations account for a substantial portion of our overall business...”, “Risk Factors - Hong Kong's political and economic landscape has in recent years undergone significant change...”, and “Risk Factors - Our business in China is subject to compliance with a myriad of applicable laws and regulations...”.
China has been and continues to be our most important business development project. We operate an e-commerce direct selling platform in Hong Kong that in 20242025 generated approximately 82% of our revenue, substantially all of which was derived from the sale of products that are delivered to members in China. Through a separate Chinese entity, we also operate an e-commerce retail platform in China. We believe that neither of these activities require a direct selling license in China, which we do not currently hold. We previously submitted a preliminary application for a direct selling license in China, but withdrew our application in 2019 upon the recommendation of a Chinese governmental authority recommended that we withdraw our application.authority. We expect to reapply for a direct selling license in China when we believe that circumstances are again ripe for doing so. If we are ultimately able to obtain a direct selling license in China, we believe that the incentives inherent in the direct selling model in China would incrementally benefit our existing business. We do not expect that any increased sales in China derived from obtaining a direct selling license would initially be material and, in any event may be partially offset by the higher fixed costs associated with the establishment and maintenance of required service centers, branch offices, manufacturing facilities, certification programs and other legal requirements. We are unable to predict whether and when we will be successful in obtaining a direct selling license to operate in China, and if we are successful, when we will be permitted to conduct direct selling operations and whether such operations would be profitable.
The Chinese government conducted a campaign in 2019 focusing on companies involved in the sale of food, equipment, daily necessities, small home electrical appliances and services that are claimed to promote health. The Chinese government ministries in charge of this campaign indicated that they were targeting illegal practices in the industry, particularly the manufacture and sale of counterfeit and substandard products, and false advertising and misleading claims as to the health benefits of products and services. It is understood that the campaign was specifically focused on the business practices of direct selling companies. Although it was initially announced as a 100-day campaign, we are not aware of any information indicating that the campaign has ever been formally concluded. In any case, the business environment in China for health product companies can be challenging,challenging and can change quickly, which has from time to time been exacerbated by negative social media sentiment expressed for these types of companies.
In late 2019 or early 2020 an outbreak of COVID-19 was first identified in China and subsequently spread quickly around the world, resulting in a global pandemic. The pandemic caused the Chinese government to implement powerful measures to control the virus, such as requiring businesses to close throughout various areas of China and restricting public gatherings and certain travel within the country. Over the course of the pandemic, we took steps to adapt some of our marketing programs, such as relying on certain product promotions and webcast training, to overcome the physical restrictions imposed in response to the pandemic. In late 2022, the Chinese and Hong Kong governments took comprehensive steps to relax many of their COVID-19 control measures, although the cumulative effect of these disruptions materially negatively impacted our financial results from 2020 through 2022. This less restrictive business environment in China and Hong Kong continued throughout 2023 and 2024, and we have been able to sponsor in-person member events in China, Hong Kong and/or Macau during each quarter since the first quarter of 2023. We are continuing to plan and sponsor more such events consistent with normal operations. See “Item 1A. Risk Factors - Epidemics, natural disasters, terrorist attacks or acts of war…”.
Beginning in the first quarter of 2025, the U.S. engaged in a series of escalating tariff actions with a wide range of countries, particularly China. On April 2, 2025, for example, the U.S. imposed by executive order a 34% reciprocal tariff on Chinese-origin goods. This was followed by an amended executive order April 8, 2025, raising tariffs to 84% and an April 9, 2025 executive order raising tariffs to 125%. In response, China raised its duties on imported U.S. goods to a similar level. Following negotiations, the U.S. announced a temporary 90-day reduction in its reciprocal tariff rates from 125% to 10% beginning in May 2025, and China agreed to suspend its retaliatory tariffs during the same period. The pre-existing 20% U.S. tariff imposed on all Chinese goods remained in place, along with certain other sector-specific tariffs. In October 2025, the U.S. administration announced an additional 100% tariff on all products imported from China in response to certain restrictions imposed by China on rare earth minerals, before announcing an agreement that would, among other things, reduce the general tariff rate on Chinese goods to 47%. The state of trade discussions between the U.S. and China (and between the U.S. and other nations) remains dynamic and unpredictable.
The Company's fiscal 2025 financial results, particularly beginning in the second quarter, were negatively affected by negative consumer sentiment and economic uncertainty in the Company’s largest market. If substantial tariffs remain in place, or new tariffs are implemented, the Company may see the effect of higher duties on restocking in 2026. The likely short-term impact of the tariffs is difficult to predict with any certainty, however. We may need to impose a surcharge on products sold into China, and the imposition of such a surcharge may have a further negative effect on sales volumes into China. In the longer term, the Company has taken steps to transition production of certain of its products currently manufactured in the United States to other jurisdictions, including in Asia, in order to mitigate the effect of U.S. and reciprocal tariffs. If successfully implemented, this transition may result in savings in logistics, freight and manufacturing cost, but may also carry certain short-term expenses, including the cost of reregistration of products in certain jurisdictions. The Company is actively evaluating its options and the impact of trade policy changes on future quarters remains uncertain. In addition, it is difficult to predict the further effect of general consumer sentiment in China toward the Company’s products as a result of the trade policies adopted by the United States and China, which has already impacted the Company’s second and third quarters. See “Item 1A. Risk Factors - Changes in government trade and economic policies...”.
Recent Developments
During 2025, in response to continued challenging near-term economic conditions in our largest market and continued pressure on consumer sentiment, management implemented a restructuring plan designed to better align our operating cost structure with current business conditions. The restructuring plan included actions to optimize our workforce, relocate certain product manufacturing activities to Asia, and downsize several offices. We recognized $283,000 of restructuring-related charges during the fourth quarter of 2025. As of December 31, 2025, we were substantially complete with the major restructuring initiatives.
We expect these actions to generate approximately $1.5 million in annualized cost savings, though not all of these savings are expected to be realized during 2026 due to the timing of certain facility-related actions. The amount and timing of savings may differ from our current expectations.
Under our current compensation plan, certain of our commission payouts may be limited to a hard cap dollar amount per week or a specific percentage of total product sales. In some markets, commissions may be further limited. In some markets, we also pay certain bonuses on purchases by up to three generations of personally sponsored members, as well as bonuses on commissions earned by up to seven generations of personally sponsored members. Members can also earn additional income, trips and other prizes in specific time-limited promotions and contests we hold from time to time. Member commissions are dependent on the sales mix and, for each of fiscal 20242025 and 2023,2024, represented 41% and 42% of net sales, respectively.sales. Occasionally, we make modifications and enhancements to our compensation plan to help motivate members, which can have an impact on member commissions. We may also enter into performance-based agreements for business or market development, which can result in additional compensation to specific members.
Net sales were $43.0$39.8 million for the year ended December 31, 20242025 compared with $43.9$43.0 million a year ago, a decrease of $961,000,$3.2 million, or 2%.7%. Hong Kong net sales, substantially all of which were derived from the sale of products shipped to members residing in China, weredecreased almost$2.4 the same as the prior year, increasing $208,000,million, or 1%,7%, over the prior year.year primarily due to the negative consumer sentiment as a result of the heightened economic uncertainty caused by the threat of reciprocal and retaliatory tariffs. Outside of our Hong Kong business, net sales decreased $1.2 million,$752,000, or 13%,10%, over the prior year primarily due to decreased year-over-year net sales in our business in the Americas and Taiwan which were somewhat offset by an increase in year-over-year net sales in our Chinese e-commerce retail business. As of December 31, 2024,2025, deferred revenue was $6.4$5.6 million, which primarily consisted of $4.9$4.1 million pertaining to unshipped product orders and unredeemed product vouchers, as well as $1.5 million in auto ship advances.
Gross profit was 73.6% of net sales for the year ended December 31, 2025 compared with 74.0% of net sales for the year ended December 31, 2024. The decline in gross profit margin was due to the write off of components inventory related to discontinued products and products whose manufacturing has transitioned outside the United States. Gross profit margin for the year ended December 31, 2025 would be comparable to the prior year without these write offs.
Gross profit was 74.0% of net sales for the year ended December 31, 2024 compared with 74.6% of net sales for the year ended December 31, 2023. The decline in gross profit margin was primarily attributable to higher costs related to our Premium Noni juice product.
Commissions were 41.0% of net sales for the year ended December 31, 2025, relatively consistent compared with 40.9% of net sales for the year ended December 31, 2024.
Commissions were 40.9% of net sales for the year ended December 31, 2024 compared with 41.9% of net sales for the year ended December 31, 2023. The decline in commissions as a percentage of net sales was primarily due to lower weekly commissions earned during 2024.
Selling, general and administrative expenses decreased $754,000 to $14.8 million for the year ended December 31, 2025 as compared with $15.5 million for the year ended December 31, 2024, as compared to $16.0 million for the year ended December 31, 2023.2024. The decrease was primarily due to lower insuranceemployee-related expenses, professional fees and otherevent generalcosts businessas expenses.compared to the prior year. Selling, general and administrative expenses as a percentage of net sales were modestly lowerincreased in the current year as compared towith the prior year.year due to the decrease in net sales in the current year and the one-time restructuring charges recognized in the fourth quarter of 2025.
Other income decreased to $1.9$1.2 million for the year ended December 31, 2024,2025 as compared towith $2.4$1.9 million in the prior year. The decrease in other income was primarily due to less interest income earned during 2024 as compared to the prior year.2025.
An income tax provision of $48,000$315,000 was recognized for the year ended December 31, 20242025 compared with $177,000$48,000 for the year ended December 31, 2023.2024. The tax provision for 20232025 primarily resulted from the impact of Subpart F income inclusion, limitations on executive compensation under Internal Revenue Code Section 162(m), anddeferred income tax expense from various foreign jurisdictions.jurisdictions, Ourparticularly China, resulting in an increase in our effective tax rate for the year ended December 31, 2024 was lower than in the year ended December 31, 2023 primarily because of reduced income in foreign operations during the year ended December 31, 2024.2025.
On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was enacted in the United States. The OBBBA includes significant tax law changes, including the permanent extension of certain provisions from the U.S. Tax Cuts and Jobs Act, modifications to the international tax framework, and the reinstatement of favorable business tax provisions. These include 100% bonus depreciation, immediate expensing of Section 174 domestic research and experimental expenditures, and revised limitations under Section 163(j) on the deductibility of business interest expense. The legislation has multiple effective dates, with certain provisions effective beginning in 2025, and others implemented through 2027. We evaluated the impact of the OBBBA and determined it's provisions do not have a material impact on our overall tax liability both for the current year and in the succeeding years.
At December 31, 2024,2025, our cash, cash equivalents and marketable securities totaled $43.9$28.9 million. Total cash, cash equivalents and marketable securities decreased by $12.2$15.1 million from December 31, 20232024 to December 31, 20242025 due to the dividends paid during 20242025 and the final payment of the repatriation tax on the deemed repatriation of deferred foreign income as required by the U.S. Tax Cuts and Jobs Act. We consider all highly liquid investments with original maturities of three months or less, when purchased, to be cash equivalents. As of December 31, 2024,2025, we had $36.0$23.0 million in available-for-sale investments classified as either cash equivalents or marketable securities. In addition, cash and cash equivalents included $3.6$2.9 million held in banks located in China subject to foreign currency controls.
Cash used in operations was $3.4$6.0 million and $4.3$3.4 million during 20242025 and 2023,2024, respectively. Income tax paid during April 20242025 and 20232024 for the repatriation tax on the deemed repatriation of deferred foreign income was $4.0$5.1 million and $3.0$4.0 million, respectively. Disregarding these payments, cash flows fromused in operations improvedwas $1.8$943,000 millionduring 2025 compared with cash flows provided by operations of $602,000 during 2024. The decline in operating cash flows during 2025 is primarily due to improvedboth managementthe ofreduction inventoriesin andproduct operatingorders costsreceived during 2024 as compared to the prior year, as well as athe timingdecrease differencein relatedinterest toincome weeklyearned commissionon outflows.marketable securities during the year.
Cash provided by investing activities totaled $8.1 million during 2025 compared with cash used in investing activities totaledof $30.1 million and $46,000 during 2024 and 2023, respectively.2024. During 2024,2025, werewe purchased $70.4$50.7 million in marketable securities with original maturities greater than three months, and as such, reflect these purchases as an investing activity. These purchases of marketable securities were offset by $40.4$59.0 million of proceeds received from maturities of marketable securities.
Cash used in financing activities during 20242025 and 20232024 consisted solely of quarterly dividend payments of $0.20 per common share, totaling $9.2 million in each period. Subsequent to December 31, 2024,2025, on February 3,2, 2025,2026, the Board of Directors declared anothera quarterly cash dividend of $0.20$0.10 on each share of common stock outstanding. The dividend will be payable on February 28,27, 20252026 to stockholders of record on February 18,17, 2025.2026. We expect to continue paying a quarterly cash dividend of $0.20 on each share of common stock outstanding for the foreseeable future. However, anyAny future cash dividends will be at the sole discretion of the Board of Directors, and will depend on our financial condition, results of operations, capital requirements and other factors considered relevant by the Board of Directors.
On February 17, 2026, we entered into a share repurchase agreement to repurchase 2,935,227 shares of common stock, representing approximately 25.5% of our outstanding shares, from the George K. Broady 2012 Irrevocable Trust and the Eleanor Jane Broady 2012 Irrevocable Trust at a price of $2.00 per share, for an aggregate purchase price of approximately $5.9 million. The repurchase, funded from the Company’s existing cash on hand, was completed pursuant to our previously authorized $70.0 million share repurchase program. Following completion of the transaction, we have 8,577,848 shares of common stock outstanding and approximately $16.0 million remaining available under the share repurchase program, inclusive of estimated income tax effects.
What changed in the latest 10-Q
Risk Factors
New heading “Our business in China is subject to compliance with a myriad of applicable laws and regulations, and any actual or alleged violations of those laws or government actions otherwise directed at us could have a material adverse impact on our business and the value of our company.”
Largest changes
“Our business in China is subject to compliance with a myriad of applicable laws and regulations, and any actual or alleged violations of those laws or government actions otherwise directed at us could have a material adverse impact on our business and the value of our company.”see in full comparison
“The legal and regulatory environment in China applicable to direct selling, e-commerce and distributor-based business models continues to evolve rapidly and with limited public notice. Enforcement of existing regulations is uneven, and interpretations may also change without formal rulemaking. We may not become aware of regulatory changes or enforcement actions until they have already materially affected our operations. …”see in full comparison
“The Draft Revision does not indicate that China has reopened or accelerated the grant of new direct selling licenses or plans to change the regulatory framework for direct selling. We cannot provide assurance that we will be able to obtain a Chinese direct selling license in the future or that the licensing regime will be modified in a manner beneficial to our business. The Draft Revision may undergo further revision before final rules, if any, are adopted. …”see in full comparison
“On May 29, 2026, China’s State Administration for Market Regulation (SAMR) released for public comment a draft revision to China’s Regulations on the Prohibition of Pyramid Selling (the “Draft Revision”), with the public comment period having closed on June 28, 2026. …”see in full comparison
“Our business and the value of our company can be adversely affected by Chinese government scrutiny, even if that scrutiny does not result in investigations of our business. Although we remain in regular contact with Chinese government officials and take other steps to address regulatory concerns, these government officials have significant discretion in the application and enforcement of laws and regulations. …”see in full comparison
“Although we attempt to work closely with both national and local Chinese governmental agencies in conducting our business, our efforts to comply with national and local laws may be harmed by a rapidly evolving regulatory climate, concerns about activities resembling violations of direct selling, pyramid selling or multi-level marketing legislation, subjective interpretations of laws and regulations, and activities by individual members that may violate laws notwithstanding our policies prohibiting such activities.”see in full comparison
Full comparison: every changed paragraph (13)
Our operations and financial results are subject to various risks and uncertainties, including those described in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2025, which could adversely affect our business, financial condition, results of operations, cash flows, and the trading price of our common stock. There have been no material changes to our risk factors since our Annual Report on Form 10-K for the year ended December 31, 2025.2025, except as set forth below.
Our business in China is subject to compliance with a myriad of applicable laws and regulations, and any actual or alleged violations of those laws or government actions otherwise directed at us could have a material adverse impact on our business and the value of our company.
In contrast to our operations in other parts of the world, our China subsidiary has not implemented a direct sales model in China. The Chinese government permits direct selling only by organizations that have a license and has also adopted anti-pyramid selling and multi-level marketing legislation. We operate an e-commerce direct selling platform in Hong Kong and recognize the revenue derived from sales to both Hong Kong and Chinese members as being generated in Hong Kong. Products purchased by members in China are delivered to third parties that act as the importers of record under agreements to pay applicable duties. In addition, through a Chinese entity, we sell products in China using an e-commerce retail platform. Chinese members may elect to participate in either or both of the Chinese entity and the Hong Kong entity.
We previously submitted a preliminary application for a direct selling license in China, but withdrew our application in 2019 upon the recommendation of a Chinese governmental authority. We expect to reapply for a direct selling license in China when we believe that circumstances are again ripe for doing so. We are unable to predict whether and when we will be successful in obtaining a direct selling license to operate in China, and if we are successful, when we will be permitted to conduct direct selling operations and whether such operations would be profitable.
We continually evaluate our business in China and Hong Kong for compliance with applicable laws and regulations, including seeking the input of outside professionals and certain Chinese authorities. This process can and has resulted in the identification of certain matters of potential noncompliance. We work on a continuing basis to satisfactorily address such matters, however there can be no assurance that adequate steps are taken or that applicable laws and regulations are properly interpreted.
Should the government authorities determine that our activities violate applicable laws and regulations, including China’s direct selling, pyramid selling or multi-level marketing laws and regulations, or should new laws or regulations be adopted, there could be a material adverse effect on our business, results of operations and financial condition.
The Chinese government scrutinizes the activities of direct selling companies. Our business continues to be subject to regulations and examinations by municipal and provincial level regulators. At times, actions by government regulators have impacted our members’ activities in certain locations and have resulted in a few cases of enforcement actions. In each of these cases, we helped our members with their defense of the legality of their conduct.
Our business and the value of our company can be adversely affected by Chinese government scrutiny, even if that scrutiny does not result in investigations of our business. Although we remain in regular contact with Chinese government officials and take other steps to address regulatory concerns, these government officials have significant discretion in the application and enforcement of laws and regulations. As a result, our business and the value of our company remain vulnerable to Chinese government scrutiny, whether or not initiated by third parties, which scrutiny could result in changes to our business and/or the Chinese or Hong Kong government taking action against us.
On May 29, 2026, China’s State Administration for Market Regulation (SAMR) released for public comment a draft revision to China’s Regulations on the Prohibition of Pyramid Selling (the “Draft Revision”), with the public comment period having closed on June 28, 2026. The Draft Revision appears designed to significantly strengthen China’s anti-pyramid-selling enforcement framework, with notable provisions addressing: (i) online pyramid-selling activity, including internet-based distribution models subject to heightened scrutiny; (ii) internet platform responsibilities, with online platforms potentially facing affirmative compliance obligations, monitoring duties, or direct liability exposure; (iii) enhanced interagency coordination among SAMR, public security authorities, telecommunications regulators, and other agencies; (iv) fund monitoring of payment flows associated with pyramid-selling activity; and (v) significantly increased monetary penalties and expanded personal liability for individuals determined to be responsible for pyramid-selling violations.
The Draft Revision does not indicate that China has reopened or accelerated the grant of new direct selling licenses or plans to change the regulatory framework for direct selling. We cannot provide assurance that we will be able to obtain a Chinese direct selling license in the future or that the licensing regime will be modified in a manner beneficial to our business. The Draft Revision may undergo further revision before final rules, if any, are adopted. Even in draft form, the Draft Revision signals that Chinese regulators intend to apply increasing scrutiny to online and network-based distribution models, and the proposed changes may be implemented in a manner that is ultimately adverse to businesses that operate without a Chinese direct selling license and rely on distributor or network-based sales models. Any adoption of the Draft Revision, or of regulations similar to it, could result in increased compliance costs, penalties, required cessation of certain activities, or other adverse consequences for our business, results of operations, and financial condition, and could expose our officers, directors or other personnel operating in or in relation to China to personal regulatory risk.
Various other factors could harm our business in Hong Kong and China, such as worsening economic conditions in Hong Kong or China, adverse developments relating to the industry in which we conduct our business, adverse local publicity, negative changes to our business and/or social media coverage, geopolitical or trade tensions between the United States and China or other events that may be out of our control. For example, in 2019 the Chinese government announced a 100-day campaign focusing on companies involved in the sale of food, equipment, daily necessities, small home electrical appliances and services that are claimed to promote health. The Chinese government ministries in charge of this campaign indicated that they were targeting illegal practices in the industry, particularly the manufacture and sale of counterfeit and substandard products, and false advertising and misleading claims as to the health benefits of products and services. It is understood that the campaign was specifically focused on the business practices of direct selling companies. As a result, we and some of our peers voluntarily decided to temporarily suspend our member activities, such as product roadshows, product trainings and larger company-sponsored events, in China. We did this because we learned that the campaign was announced in broad outlines by the central government, and the interpretation and enforcement of the campaign was delegated to the provincial and local governments. We consider it a top priority for our business to develop an understanding of and cooperate with all levels and jurisdictions of the government agencies and did not want to run the risk of being inadvertently entangled in the government enforcement actions as the provincial and local government formulated and implemented their interpretive guidance and rule-making. It may again in the future be necessary or advisable to suspend member activities or take similar actions, and the resulting periods of reduced activity may have a material adverse effect on our business.
Although we attempt to work closely with both national and local Chinese governmental agencies in conducting our business, our efforts to comply with national and local laws may be harmed by a rapidly evolving regulatory climate, concerns about activities resembling violations of direct selling, pyramid selling or multi-level marketing legislation, subjective interpretations of laws and regulations, and activities by individual members that may violate laws notwithstanding our policies prohibiting such activities.
The legal and regulatory environment in China applicable to direct selling, e-commerce and distributor-based business models continues to evolve rapidly and with limited public notice. Enforcement of existing regulations is uneven, and interpretations may also change without formal rulemaking. We may not become aware of regulatory changes or enforcement actions until they have already materially affected our operations. The costs of compliance with additional regulatory requirements, or the consequences of non-compliance, could be significant, and we cannot predict the timing, scope, or ultimate effect of the regulatory changes described above. Any determination that our operations or activities, or the activities of our individual members, employee sales representatives, or importers of record are not in compliance with applicable laws and regulations could result in the imposition of substantial fines, extended interruptions of business, restrictions on our future ability to obtain business licenses or expand into new locations, changes to our business model, the termination of required licenses to conduct business, or other actions, any of which could materially harm our business, results of operations and financial condition.
Management's Discussion & Analysis (MD&A)
Largest changes
“Chinese regulatory uncertainty. On May 29, 2026, China’s State Administration for Market Regulation (SAMR) released for public comment a draft revision to China’s Regulations on Prohibition of Pyramid Selling. The draft appears designed to strengthen China’s anti-pyramid-selling enforcement framework, particularly with respect to online pyramid-selling activity, interagency coordination, fund monitoring, internet platform responsibilities, increased penalties, and personal liability for responsible individuals. …”see in full comparison
“Net sales were $16.8 million for the six months ended June 30, 2026 compared with $20.6 million for the comparable period a year ago, a decrease of $3.7 million, or 18%. …”see in full comparison
Net sales weresee in full comparison$9.2$7.6 million for the three months endedMarchJune31,30, 2026 compared with$10.7$9.8 million for the comparable period a year ago, a decrease of$1.5$2.2 million, or14%.23%. Hong Kong net sales, substantially all of which were derived from the sale of products shipped to members residing in China, decreased$1.5$1.7 million, or17%,21%, over the comparable period a year ago primarily due to the continued negative consumer sentiment as a result of the heightened economic uncertainty caused by the threat of reciprocal and retaliatorytariffs.tariffs, as well as increased regulatory uncertainty and the disruptions that resulted from certain independent member activities that arose in China during the quarter (see “Business Overview—Recent Developments”). Outside of our Hong Kong business, net salesofdecreased$1.6$504,000,millionorwere28%,the same asover the comparable three-month period a yearago. As of March 31, 2026, deferred revenue was $5.0 million, whichago, primarilyconsisted of $3.5 million pertainingdue tounshippedtheproductdecreasedordersquarter-over-quarter net sales in the United States andunredeemed product vouchers,Canada, as well as$1.5ourmillionChineseine-commerceautoretailship advances.business.
“Independent Member Activities. During the second quarter of 2026, certain independent members, including certain sales leaders, engaged in conduct that violated our policies, procedures and professional code of conduct. This conduct disrupted portions of our independent member network and adversely affected net sales and operating performance during the quarter. We have taken disciplinary action and implemented other measures to protect our business and independent member network. We continue to monitor the matter and take appropriate action. …”see in full comparison
“Selling, general and administrative expenses declined by $561,000 to $6.8 million for the six months ended June 30, 2026 as compared with $7.3 million for the six months ended June 30, 2025. The decrease was primarily due to lower employee-related expenses, professional fees, event costs, and credit card fees and assessments during the current year period. Selling, general and administrative expenses as a percentage of net sales increased from 35.7% to 40.3% for the six month period ended June 30, 2026 compared with the same period last year due to the net sales decline in Hong Kong.”see in full comparison
Cash used in operations wassee in full comparison$797,000$2.2 million for the firstthreesix months of 2026 compared withcash$5.2generated in operations of $484,000million for the firstthreesix months of 2025. Income tax paid during April 2025 for the repatriation tax on the deemed repatriation of deferred foreign income was $5.1 million. Disregarding this payment, cash used in operations was $97,000 during the first six months of 2025. The decline in operating cash flows for the first six months of 2026 is primarily due to the net sales decline in Hong Kongandcompareddeposits placed duringwith thefirstsamequarterperiodthislastyear for both our upcoming incentive trip and other upcoming marketing activities.year.
Full comparison: every changed paragraph (21)
As of MarchJune 31,30, 2026, we were conducting business through 26,40026,000 active members, compared to 26,650 at December 31, 2025 and 30,18029,260 at MarchJune 31,30, 2025. We consider a member “active” if they have placed at least one product order with us during the preceding year. Our priority is to focus our resources in our most promising markets, which we consider to be Greater China and countries where our existing members have the connections to recruit prospects and sell our products, such as Southeast Asia, India, South America and Europe.
We generate approximately 93% of our net sales from subsidiaries located outside the Americas. Because of the size of our foreign operations, operating results can be impacted negatively or positively by factors such as foreign currency fluctuations, trade policy, inflation rates, and economic, political and business conditions around the world. In addition, our business is subject to various laws and regulations, in particular, regulations related to direct selling activities that create uncertain risks for our business, including improper claims or activities by our members and our potential inability to obtain necessary product registrations. We continually evaluate our business for compliance with applicable laws and regulations, and this process can and has resulted in the identification of certain matters of potential noncompliance, which we work to satisfactorily address. For further information regarding some of the risks associated with the conduct of our business in China and Hong Kong, see “Part I, Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2025, as supplemented by “Part II, Item 1A, Risk Factors” in this Quarterly Report on Form 10-Q, and more specifically under the captions “Because our Hong Kong operations account for a substantial portion of our overall business...”, “Hong Kong’s political and economic landscape has in recent years undergone significant change...”, and “Our business in China is subject to compliance with a myriad of applicable laws and regulations...”.
China has been and continues to be our most important business development project. We operate an e-commerce direct selling platform in Hong Kong that in the first quartersix months of 2026 generated approximately 83% of our revenue, substantially all of which was derived from the sale of products that are delivered to members in China. Through a separate Chinese entity, we also operate an e-commerce retail platform in China. We believe that neither of these activities require a direct selling license in China, which we do not currently hold. We previously submitted a preliminary application for a direct selling license in China, but withdrew our application in 2019 upon the recommendation of a Chinese governmental authority. We expect to reapply for a direct selling license in China when we believe that circumstances are again ripe for doing so. If we are ultimately able to obtain a direct selling license in China, we believe that the incentives inherent in the direct selling model in China would incrementally benefit our existing business. We do not expect that any increased sales in China derived from obtaining a direct selling license would initially be material and, in any event may be partially offset by the higher fixed costs associated with the establishment and maintenance of required service centers, branch offices, manufacturing facilities, certification programs and other legal requirements. We are unable to predict whether and when we will be successful in obtaining a direct selling license to operate in China, and if we are successful, when we will be permitted to conduct direct selling operations and whether such operations would be profitable.
Reorganization Initiative. During 2025, in response to continued challenging near-term economic conditions in our largest market and continued pressure on consumer sentiment, management implemented a restructuring plan designed to better align our operating cost structure with current business conditions. The restructuring plan included actions to optimize our workforce, relocate certain product manufacturing activities to Asia, and downsize several offices. We recognized $283,000 of restructuring-related charges during the fourth quarter of 2025. As of December 31, 2025, the major restructuring initiatives were substantially complete. We expect these actions to generate approximately $1.5 million in annualized cost savings, though not all of these savings are expected to be realized during 2026 due to the timing of certain facility-related actions. The amount and timing of savings may differ from our current expectations.
Chinese regulatory uncertainty. On May 29, 2026, China’s State Administration for Market Regulation (SAMR) released for public comment a draft revision to China’s Regulations on Prohibition of Pyramid Selling. The draft appears designed to strengthen China’s anti-pyramid-selling enforcement framework, particularly with respect to online pyramid-selling activity, interagency coordination, fund monitoring, internet platform responsibilities, increased penalties, and personal liability for responsible individuals. While relevant to the regulatory environment for direct selling and distributor-related business models in China, the action does not by itself indicate that China has reopened new direct-selling license approvals or materially liberalized direct-selling regulation. However, the draft revision signals a level of increased scrutiny by Chinese regulators that may be applied to our direct selling platform in Hong Kong, through which products are delivered to members in China, or to our e-commerce retail platform in China. The increased uncertainty created by the draft revision has negatively impacted our sales in the second quarter, and may lead to a need to restructure our activities further in the region, to apply for a direct selling license, or to take other steps to address any resulting requirements or regulatory risks.
Independent Member Activities. During the second quarter of 2026, certain independent members, including certain sales leaders, engaged in conduct that violated our policies, procedures and professional code of conduct. This conduct disrupted portions of our independent member network and adversely affected net sales and operating performance during the quarter. We have taken disciplinary action and implemented other measures to protect our business and independent member network. We continue to monitor the matter and take appropriate action. We are currently unable to predict the extent to which this matter may affect our business or results of operations in future periods.
Under our current compensation plan, certain of our commission payouts may be limited to a hard cap dollar amount per week or a specific percentage of total product sales. In some markets, commissions may be further limited. In some markets, we also pay certain bonuses on purchases by up to three generations of personally sponsored members, as well as bonuses on commissions earned by up to seven generations of personally sponsored members. Members can also earn additional income, trips and other prizes in specific time-limited promotions and contests we hold from time to time. Member commissions are dependent on the sales mix and, for the first threesix months of each of 2026 and 2025, represented 42%41% of net sales. Occasionally, we make modifications and enhancements to our compensation plan to help motivate members, which can have an impact on member commissions. We may also enter into performance-based agreements for business or market development, which can result in additional compensation to specific members.
Net sales were $9.2$7.6 million for the three months ended MarchJune 31,30, 2026 compared with $10.7$9.8 million for the comparable period a year ago, a decrease of $1.5$2.2 million, or 14%.23%. Hong Kong net sales, substantially all of which were derived from the sale of products shipped to members residing in China, decreased $1.5$1.7 million, or 17%,21%, over the comparable period a year ago primarily due to the continued negative consumer sentiment as a result of the heightened economic uncertainty caused by the threat of reciprocal and retaliatory tariffs.tariffs, as well as increased regulatory uncertainty and the disruptions that resulted from certain independent member activities that arose in China during the quarter (see “Business Overview—Recent Developments”). Outside of our Hong Kong business, net sales ofdecreased $1.6$504,000, millionor were28%, the same asover the comparable three-month period a year ago. As of March 31, 2026, deferred revenue was $5.0 million, whichago, primarily consisted of $3.5 million pertainingdue to unshippedthe productdecreased ordersquarter-over-quarter net sales in the United States and unredeemed product vouchers,Canada, as well as $1.5our millionChinese ine-commerce autoretail ship advances.business.
Net sales were $16.8 million for the six months ended June 30, 2026 compared with $20.6 million for the comparable period a year ago, a decrease of $3.7 million, or 18%. Hong Kong net sales, substantially all of which were derived from the sale of products shipped to members residing in China, decreased $3.2 million, or 19%, over the comparable period a year ago primarily due to the continued negative consumer sentiment as a result of the heightened economic uncertainty caused by the threat of reciprocal and retaliatory tariffs, as well as increased regulatory uncertainty and the disruptions that resulted from certain independent member activities that arose in China during the second quarter of 2026 (see “Business Overview—Recent Developments”). Outside of our Hong Kong business, net sales decreased $514,000, or 15%, over the comparable six-month period a year ago, primarily due to reduction in the United States and Canada, as well as our Chinese e-commerce retail business during the second quarter of 2026. As of June 30, 2026, deferred revenue was $4.2 million, which primarily consisted of $2.7 million pertaining to unshipped product orders and unredeemed product vouchers, as well as $1.5 million in auto ship advances.
Gross profit was 75.0%75.2% of net sales for the three months ended MarchJune 31,30, 2026 compared with 73.6%73.9% of net sales for the three months ended MarchJune 31,30, 2025. Gross profit was 75.1% of net sales for the six months ended June 30, 2026 compared with 73.8% of net sales for the six months ended June 30, 2025. The improvement in gross profit margin for both the threethree- monthsand six-month periods ended MarchJune 31,30, 2026 was primarily due to the transition of our product manufacturing from the United States to East Asia, closer to our main markets, in an effort to reduce tariff uncertainty and streamline logistics.
Commissions were 41.8%40.9% of net sales for each of the three months ended MarchJune 31,30, 2026 and 2025. Commissions were 41.4% of net sales for each of the six months ended June 30, 2026 and 2025. Despite lower weekly commissions earned by our members during the first threesix months of 2026 as compared to the comparable period last year, commissions as a percentage of net sales were on par with last year due to higher supplemental incentive costs during the first quartertwo quarters this year.
Selling, general and administrative expenses declined by $238,000$323,000 to $3.5$3.3 million for the three months ended MarchJune 31,30, 2026 as compared with $3.8$3.6 million for the three months ended MarchJune 31,30, 2025. The decrease was primarily due to lower employee-related expensesexpenses, professional fees, and eventcredit costscard fees and assessments during the current year period. Selling, general and administrative expenses as a percentage of net sales increased from 35.0%36.4% to 38.3%42.7% for the three month period ended MarchJune 31,30, 2026 compared with the same quarter last year due to the net sales decline in Hong Kong.
Selling, general and administrative expenses declined by $561,000 to $6.8 million for the six months ended June 30, 2026 as compared with $7.3 million for the six months ended June 30, 2025. The decrease was primarily due to lower employee-related expenses, professional fees, event costs, and credit card fees and assessments during the current year period. Selling, general and administrative expenses as a percentage of net sales increased from 35.7% to 40.3% for the six month period ended June 30, 2026 compared with the same period last year due to the net sales decline in Hong Kong.
Other income was $295,000$190,000 for the three months ended MarchJune 31,30, 2026 compared with $465,000$348,000 in the same period a year ago. Other income was $485,000 for the six months ended June 30, 2026 compared with $813,000 in the same period a year ago. The decrease was primarily due to less interest income earned during the current year period.periods.
An income tax benefit of $25,000 and $2,000 was recognized during the three months ended MarchJune 31,30, 2026. No tax provision or benefit was recognized during the three months ended June 30, 2025. An income tax benefit of $27,000 and $2,000 was recognized during the six months ended June 30, 2026 and 2025, respectively. The tax provisionbenefit during the three-monththree- and six-month periods ended MarchJune 31,30, 2026 and 2025 primarily resulted from estimates for foreign income inclusions, such as Net CFC Tested Income (“NCTI”) and Subpart F income, and our year-to-date consolidated income (loss) through MarchJune 31,30, 2026 and 2025, respectively, as well as prior year foreign return to provision true-ups.
At MarchJune 31,30, 2026, our cash, cash equivalents and marketable securities totaled $21.2$18.6 million. Total cash, cash equivalents and marketable securities decreased by $7.6$10.3 million from December 31, 2025 to MarchJune 31,30, 2026 primarily due to the repurchase of shares of our common stock and dividends paid during the first threesix months of 2026. We consider all highly liquid investments with original maturities of three months or less, when purchased, to be cash equivalents. As of MarchJune 31,30, 2026, we had $16.4$14.4 million in available-for-sale investments classified as either cash equivalents or marketable securities. In addition, cash and cash equivalents included $2.9$2.7 million held in banks located within China subject to foreign currency controls.
As of MarchJune 31,30, 2026, the ratio of current assets to current liabilities was 2.0 to 1.0 and we had $13.3$11.8 million of working capital. Working capital as of MarchJune 31,30, 2026 decreased $7.2$8.7 million compared to our working capital as of December 31, 2025.
Cash used in operations was $797,000$2.2 million for the first threesix months of 2026 compared with cash$5.2 generated in operations of $484,000million for the first threesix months of 2025. Income tax paid during April 2025 for the repatriation tax on the deemed repatriation of deferred foreign income was $5.1 million. Disregarding this payment, cash used in operations was $97,000 during the first six months of 2025. The decline in operating cash flows for the first six months of 2026 is primarily due to the net sales decline in Hong Kong andcompared deposits placed duringwith the firstsame quarterperiod thislast year for both our upcoming incentive trip and other upcoming marketing activities.year.
Cash flows provided by investing activities totaled $9.9$12.4 million during the first threesix months of 2026 compared with $10.0$6.6 million during the first threesix months a year ago. During the first threesix months of 2026, we purchased $1.1$8.7 million in marketable securities with original maturities greater than three months, and as such, reflect these purchases as an investing activity. These purchases of marketable securities were offset by $11.2$21.6 million of proceeds received from maturities of marketable securities.
Cash flows used in financing activities totaled $6.7$7.6 million during the first threesix months of 2026 compared with $2.3$4.6 million during the first threesix months a year ago. On February 17, 2026, we entered into a share repurchase agreement to repurchase 2,935,227 shares of common stock, representing approximately 25.5% of our outstanding shares, from the George K. Broady 2012 Irrevocable Trust and the Eleanor Jane Broady 2012 Irrevocable Trust at a price of $2.00 per share, for aggregate consideration of approximately $5.9 million. Additionally, we declared and paid cash dividends of $0.10 per common share, or $858,000,$1.7 million, in 2026 and $0.20 per common share, or $2.3$4.6 million, in 2025. Subsequent to March 31, 2026, on April 27, 2026, the Board of Directors declared another quarterly cash dividend of $0.10 on each share of common stock outstanding. The dividend will be payable on May 22, 2026 to stockholders of record on May 12, 2026. Any future cash dividends will be at the sole discretion of the Company’s Board of Directors, and will depend on our financial condition, results of operations, capital requirements and other factors considered relevant by the Board of Directors.
In 2016, the Board of Directors authorized an increase to the Company’s stock repurchase program first approved in 2015 from $15.0 million to $70.0 million. Any repurchases will be made in accordance with all applicable securities laws and regulations, including Rule 10b-18 of the Exchange Act. For all or a portion of the authorized repurchase amount, the Company may enter into one or more plans that are compliant with Rule 10b5-1 of the Exchange Act that are designed to facilitate these purchases. The stock repurchase program does not require the Company to acquire a specific number of shares, and may be suspended from time to time or discontinued. The repurchase of our shares on February 17, 2026 was effected pursuant to our previously authorized $70.0 million share repurchase program. As of MarchJune 31,30, 2026, $15.9 million of the $70.0 million stock repurchase program remained available for future purchases, inclusive of estimated tax.
NHTC insider buying and selling (Form 4)
Since 2026-04-11, insiders reported open-market purchases in 0 Form 4 filings and open-market sales in 0 filings. Totals add up every open-market (code P and S) line in those filings, using the prices reported in the filings. Awards, option exercises, tax withholding and gifts are listed below but not counted.
No Form 4 stock transactions in this period.
Well-known investors holding NHTC (13F)
| Investor | Quarter | Shares | Reported value | % of their 13F | Change vs prior quarter |
|---|---|---|---|---|---|
| Renaissance Technologies | 2026-06-30 | 544,077 | $963.0K | 0.0% | Reduced 2% |
| Citadel Advisors (Ken Griffin) | 2026-06-30 | 37,888 | $67.1K | 0.0% | Added 13% |