0000912061 Natural Health Trends Corp. false --12-31 Q2 2023 0.001 0.001 5,000,000 5,000,000 0 0 0 0 0.001 0.001 50,000,000 50,000,000 12,979,414 12,979,414 1,458,975 1,556,875 0.20 0.20 0.20 0.20 14 1 1 12 0 0 0 0 0 0 7 0 3 10 3 9,074 3 0.20 4.6 70.0 1 90 Substantially all of our Hong Kong revenues are derived from the sale of products that are delivered to members in China. See “Item 1A. Risk Factors” in this report and in our most recent Annual Report on Form 10-K. FASB Topic 820, Fair Value Measurements, establishes a fair value hierarchy that requires the use of observable market data, when available, and prioritizes the inputs to valuation techniques used to measure fair value in the following categories: Level 1: Quoted market prices in active markets for identical assets or liabilities. Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data. 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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

(Mark One)

☑

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2023

or

 

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ______ to _______

 

Commission File Number: 001-36849

 

NATURAL HEALTH TRENDS CORP.

(Exact name of registrant as specified in its charter)

Delaware

59-2705336

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)

 

Units 1205-07, 12F

Mira Place Tower A

132 Nathan Road, Tsimshatsui

Kowloon, Hong Kong

(Address of principal executive offices, including zip code)

 

Registrant’s telephone number, including area code: +852-3107-0800

 

Securities registered pursuant to Section 12(b) of the Exchange Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.001 per share

NHTC

The NASDAQ Stock Market LLC

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for shorter period that the registrant was required to submit such files). Yes ☑ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

☐

 

Accelerated filer

☐

Non-accelerated filer

☑

 

Smaller reporting company

☑

   

Emerging growth company

☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☑

 

At July 28, 2023, the number of shares outstanding of the registrant’s common stock was 11,516,773 shares.

 

 
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FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q, in particular “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” includes “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). When used in this report, the words or phrases “will likely result,” “expect,” “intend,” “will continue,” “anticipate,” “estimate,” “project,” “believe” and similar expressions are intended to identify “forward-looking statements” within the meaning of the Exchange Act. These statements represent our expectations or beliefs concerning, among other things, future revenue, earnings, growth strategies, new products and initiatives, future operations and operating results, and future business and market opportunities.

 

Forward-looking statements in this report speak only as of the date hereof, and forward-looking statements in documents incorporated by reference speak only as of the date of those documents. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by law. We caution and advise readers that these statements are based on certain assumptions that may not be realized and involve risks and uncertainties that could cause actual results to differ materially from the expectations and beliefs contained herein.

 

For a summary of certain risks related to our business, see “Part I, Item 1A. Risk Factors” in our most recent Annual Report on Form 10-K, which includes the following:

 

 

•

Because our Hong Kong operations account for a substantial portion of our overall business, and substantially all of our Hong Kong business is derived from the sale of products to members in China, any material adverse change in our business relating to either Hong Kong or China would likely have a material adverse impact on our overall business;
 

•

Epidemics, such as the COVID-19 pandemic, or natural disasters, terrorist attacks or acts of war or hostility may seriously harm our business;
 

•

Our Hong Kong operations are being adversely affected by recent political and social developments in Hong Kong, and the negative impact on our operations and financial performance could continue or intensify;
  • We experienced negative operating cash flows during the year ended December 31, 2022, 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;
  • Adverse publicity associated with our products, ingredients or network marketing program, or those of similar companies, could harm our financial condition and operating results;
  • Our business and financial performance may be adversely affected by unfavorable economic and market conditions and the uncertain geopolitical environment;
 

•

 We are subject to risks relating to product concentration and lack of revenue diversification;
 

•

 The high level of competition in our industry could adversely affect our business;
 

•

 Failure of new products to gain member and market acceptance could harm our business;
 

•

We rely on a limited number of independent third parties to manufacture and supply our products on a timely basis;
 

•

 Growth may be impeded by the political and economic risks of entering and operating in foreign markets;
  • Failure to maintain effective internal controls in accordance with the Sarbanes-Oxley Act of 2002 could negatively impact our business and the market price of our common stock;
  • We could be adversely affected by management changes or an inability to attract and retain key management, directors and consultants;
  • Our recent loss of a significant number of members is adversely affecting our business, and if we cannot stabilize or increase the number of members our business could be further negatively impacted;
  • Although virtually all of our members are independent contractors, improper member actions that violate laws or regulations could harm our business;
  • An increase in the amount of compensation paid to members would reduce profitability;
 

•

 We may be held responsible for certain taxes or assessments relating to the activities of our members and service providers, which could harm our financial condition and operating results;
  • 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;
  • Changes in government trade and economic policies, including the imposition or 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;
 

•

Direct-selling laws and regulations may prohibit or severely restrict our direct sales efforts and cause our revenue and profitability to decline, and regulators could adopt new regulations that harm our business;
  • Our business is subject to a variety of laws, regulations and other obligations regarding privacy, data protection and information security. Any actual or perceived failure by us or our third-party vendors to comply with such laws, regulations or other obligations could materially adversely affect our business;
 

•

Challenges by third parties to the legality of our business operations could harm our business;
 

•

 We have in the past been involved in, and may in the future face, lawsuits, claims, and governmental proceedings and inquiries that could harm our business;
 

•

Currency exchange rate fluctuations could lower our revenue and net income;
 

•

Changes in tax or duty laws, and unanticipated tax or duty liabilities, could adversely affect our net income;
 

•

Transfer pricing regulations affect our business and results of operations;
 

•

Our products and related activities are subject to extensive government regulation, which could delay, limit or prevent the sale of some of our products in some markets;
 

•

 New regulations governing the marketing and sale of nutritional supplements could harm our business;
 

•

 Regulations governing the production and marketing of our personal care products could harm our business;
 

•

 If we are found not to be in compliance with good manufacturing practices our operations could be harmed;
 

•

 Failure to comply with domestic and foreign laws and regulations governing product claims and advertising could harm our business;
 

•

 We are subject to anti-bribery laws, including the U.S. Foreign Corrupt Practices Act;
 

•

 We do not have a comprehensive product liability insurance program and product liability claims could hurt our business;

 

 
Table of Contents

 

 

•

 We may be unable to protect or use our intellectual property rights;
 

•

 We rely on and are subject to risks associated with our reliance upon information technology systems;
 

•

 System disruptions or failures, cybersecurity risks, and compromises of data, or the failure to comply with related laws and regulations, could harm our business;
 

•

 Our systems, software and data reside on third-party servers, exposing us to risks that disruption or intrusion of those servers could temporarily or permanently interrupt our access and damage our business;
 

•

 Our common stock is particularly subject to volatility because of the industry and markets in which we operate; and
 

•

 Our common stock continues to experience wide fluctuations in trading volumes and prices. This may make it more difficult for holders of our common stock to sell shares when they want and at prices they find attractive.

 

Additional factors that could cause actual results to differ materially from our forward-looking statements are set forth in this report, including under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and in our financial statements and the related notes.

 

 
Table of Contents
 
 

 

PART I - FINANCIAL INFORMATION

 

Item 1. FINANCIAL STATEMENTS

  

NATURAL HEALTH TRENDS CORP.

CONSOLIDATED BALANCE SHEETS

(In Thousands, Except Share Data) 

 

  

June 30, 2023

  

December 31, 2022

 
  

(Unaudited)

     

ASSETS

        

Current assets:

        

Cash and cash equivalents

 $61,567  $69,667 

Inventories

  4,715   4,525 

Other current assets

  3,665   3,359 

Total current assets

  69,947   77,551 

Property and equipment, net

  311   394 

Operating lease right-of-use assets

  3,601   3,992 

Restricted cash

  38   79 

Deferred tax asset

  273   195 

Other assets

  646   606 

Total assets

 $74,816  $82,817 

LIABILITIES AND STOCKHOLDERS’ EQUITY

        

Current liabilities:

        

Accounts payable

 $725  $810 

Income taxes payable

  3,939   2,972 

Accrued commissions

  2,562   2,943 

Other accrued expenses

  1,235   1,181 

Deferred revenue

  6,851   5,597 

Amounts held in eWallets

  4,335   4,895 

Operating lease liabilities

  1,054   1,135 

Other current liabilities

  837   905 

Total current liabilities

  21,538   20,438 

Income taxes payable

  5,054   9,098 

Deferred tax liability

  140   141 

Operating lease liabilities

  2,659   2,989 

Total liabilities

  29,391   32,666 

Commitments and contingencies (Note 7)

          

Stockholders’ equity:

        

Preferred stock, $0.001 par value; 5,000,000 shares authorized; no shares issued and outstanding

  —   — 

Common stock, $0.001 par value; 50,000,000 shares authorized; 12,979,414 shares issued at June 30, 2023 and December 31, 2022

  13   13 

Additional paid-in capital

  84,558   86,102 

Accumulated deficit

  (13,626)  (9,056)

Accumulated other comprehensive loss

  (1,245)  (1,004)

Treasury stock, at cost; 1,458,975 and 1,556,875 shares at June 30, 2023 and December 31, 2022, respectively

  (24,275)  (25,904)

Total stockholders’ equity

  45,425   50,151 

Total liabilities and stockholders’ equity

 $74,816  $82,817 

 

See accompanying notes to consolidated financial statements.

 

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NATURAL HEALTH TRENDS CORP. 

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(In Thousands, Except Per Share Data)

 

   

Three Months Ended June 30,

    

Six Months Ended June 30,

  
   

2023

    

2022

    

2023

    

2022

  

Net sales

   $ 10,511     $ 13,360     $ 22,372     $ 24,906  

Cost of sales

     2,666       3,392       5,697       6,300  

Gross profit

     7,845       9,968       16,675       18,606  

Operating expenses:

                                

Commissions expense

     4,508       5,767       9,500       10,507  

Selling, general and administrative expenses

     4,080       3,986       8,312       8,267  

Total operating expenses

     8,588       9,753       17,812       18,774  

Income (loss) from operations

     (743 )     215       (1,137 )     (168 )

Other income, net

     442       175       1,123       285  

Income (loss) before income taxes

     (301 )     390       (14 )     117  

Income tax provision (benefit)

     (82 )     207       (52 )     39  

Net income (loss)

   $ (219 )   $ 183     $ 38     $ 78  

Net income (loss) per common share:

                                

Basic

   $ (0.02 )   $ 0.02     $ 0.00     $ 0.01  

Diluted

   $ (0.02 )   $ 0.02     $ 0.00     $ 0.01  

Weighted average common shares outstanding:

                                

Basic

     11,432       11,346       11,428       11,300  

Diluted

     11,432       11,424       11,439       11,424  

 

See accompanying notes to consolidated financial statements.

 

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NATURAL HEALTH TRENDS CORP.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (UNAUDITED)

(In Thousands)

 

   

Three Months Ended June 30,

    

Six Months Ended June 30,

  
   

2023

    

2022

    

2023

    

2022

  

Net income (loss)

   $ (219 )   $ 183     $ 38     $ 78  

Other comprehensive income (loss), net of tax:

                                

Foreign currency translation adjustment

     (152 )     (256 )     (249 )     (461 )

Unrealized gains on available-for-sale securities

     11       36       8       13  

Comprehensive loss

   $ (360 )   $ (37 )   $ (203 )   $ (370 )

 

See accompanying notes to consolidated financial statements.

 

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NATURAL HEALTH TRENDS CORP.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

(In Thousands, Except Share Data)

 

Six months ended June 30, 2023

 

                          

Accumulated

             
                  

Additional

      

Other

             
  

Preferred Stock

  

Common Stock

  

Paid-In

  

Accumulated

  

Comprehensive

  

Treasury Stock

     
  

Shares

  

Amount

  

Shares

  

Amount

  

Capital

  

Deficit

  

Loss

  

Shares

  

Amount

  

Total

 
                                         

BALANCE, December 31, 2022

  —  $—   12,979,414  $13  $86,102  $(9,056) $(1,004)  (1,556,875) $(25,904) $50,151 

Net income

  —   —   —   —   —   257   —   —   —   257 

Reissuance of treasury shares

  —   —   —   —   (1,629)  —   —   97,900   1,629   — 

Share-based compensation

  —   —   —   —   46   —   —   —   —   46 

Dividends declared, $0.20/share

  —   —   —   —   —   (2,304)  —   —   —   (2,304)

Foreign currency translation adjustments

  —   —   —   —   —   —   (97)  —   —   (97)

Unrealized losses on available-for-sale securities

  —   —   —   —   —   —   (3)  —   —   (3)

BALANCE, March 31, 2023

  —   —   12,979,414   13   84,519   (11,103)  (1,104)  (1,458,975)  (24,275)  48,050 

Net loss

  —   —   —   —   —   (219)  —   —   —   (219)

Share-based compensation

  —   —   —   —   39   —   —   —   —   39 

Dividends declared, $0.20/share

  —   —   —   —   —   (2,304)  —   —   —   (2,304)

Foreign currency translation adjustments

  —   —   —   —   —   —   (152)  —   —   (152)

Unrealized gains on available-for-sale securities

  —   —   —   —   —   —   11   —   —   11 

BALANCE, June 30, 2023

  —  $—   12,979,414  $13  $84,558  $(13,626) $(1,245)  (1,458,975) $(24,275) $45,425 

 

 

Six months ended June 30, 2022

 

                          

Accumulated

             
                  

Additional

      

Other

             
  

Preferred Stock

  

Common Stock

  

Paid-In

  

Accumulated

  

Comprehensive

  

Treasury Stock

     
  

Shares

  

Amount

  

Shares

  

Amount

  

Capital

  

Deficit

  

Loss

  

Shares

  

Amount

  

Total

 

BALANCE, December 31, 2021

  —  $—   12,979,414  $13  $86,102  $(231) $(492)  (1,556,875) $(25,904) $59,488 

Net loss

  —   —   —   —   —   (105)  —   —   —   (105)

Dividends declared, $0.20/share

  —   —   —   —   —   (2,285)  —   —   —   (2,285)

Foreign currency translation adjustments

  —   —   —   —   —   —   (205)  —   —   (205)

Unrealized losses on available-for-sale securities

  —   —   —   —   —   —   (23)  —   —   (23)

BALANCE, March 31, 2022

  —   —   12,979,414   13   86,102   (2,621)  (720)  (1,556,875)  (25,904)  56,870 

Net income

  —   —   —   —   —   183   —   —   —   183 

Dividends declared, $0.20/share

  —   —   —   —   —   (2,285)  —          (2,285)

Foreign currency translation adjustments

  —   —   —   —   —   —   (256)  —   —   (256)

Unrealized gains on available-for-sale securities

  —   —   —   —   —   —   36   —   —   36 

BALANCE, June 30, 2022

  —  $—   12,979,414  $13  $86,102  $(4,723) $(940)  (1,556,875) $(25,904) $54,548 

 

See accompanying notes to consolidated financial statements.

 

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NATURAL HEALTH TRENDS CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(In Thousands)

 

   

Six Months Ended June 30,

  
   

2023

    

2022

  

CASH FLOWS FROM OPERATING ACTIVITIES:

                

Net income

   $ 38     $ 78  

Adjustments to reconcile net income to net cash used in operating activities:

                

Depreciation and amortization

     91       106  

Share-based compensation

     85       —  

Noncash lease expense

     564       599  

Deferred income taxes

     (82 )     12  

Changes in assets and liabilities:

                

Inventories

     (228 )     7  

Other current assets

     (362 )     1,002  

Other assets

     (52 )     1  

Accounts payable

     (82 )     2  

Income taxes payable

     (3,076 )     (1,390 )

Accrued commissions

     (374 )     (531 )

Other accrued expenses

     68       (132 )

Deferred revenue

     1,270       (1,788 )

Amounts held in eWallets

     (541 )     (862 )

Operating lease liabilities

     (595 )     (600 )

Other current liabilities

     (64 )     (4 )

Net cash used in operating activities

     (3,340 )     (3,500 )

CASH FLOWS FROM INVESTING ACTIVITIES:

                

Purchases of property and equipment

     (14 )     (78 )

Net cash used in investing activities

     (14 )     (78 )

CASH FLOWS FROM FINANCING ACTIVITIES:

                

Dividends paid

     (4,608 )     (4,570 )

Net cash used in financing activities

     (4,608 )     (4,570 )

Effect of exchange rates on cash, cash equivalents and restricted cash

     (179 )     (506 )

Net decrease in cash, cash equivalents and restricted cash

     (8,141 )     (8,654 )

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, beginning of period

     69,746       84,365  

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of period

   $ 61,605     $ 75,711  

SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:

                

Right-of-use assets obtained in exchange for operating lease liabilities

   $ (125 )   $ 77  

 

See accompanying notes to consolidated financial statements.

 

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NATURAL HEALTH TRENDS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

 

1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Nature of Operations 

 

Natural Health Trends Corp., a Delaware corporation (whether or not including its subsidiaries, the “Company”), is an international direct-selling and e-commerce company. Subsidiaries controlled by the Company sell personal care, wellness, and “quality of life” products under the “NHT Global” brand.

 

The Company’s wholly-owned subsidiaries have an active physical presence in the following markets: the Americas, which consists of the United States, Canada, Cayman Islands, Mexico and Peru; Greater China, which consists of Hong Kong, Taiwan and China; Southeast Asia, which consists of Malaysia, Singapore and Thailand; South Korea; Japan; India; and Europe. The Company also operates in Russia and Kazakhstan through an engagement with a local service provider.

 

Basis of Presentation 

 

The unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. As a result, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. In the opinion of management, the accompanying unaudited interim consolidated financial statements contain all adjustments, consisting of normal recurring adjustments, considered necessary for a fair statement of the Company’s financial information for the interim periods presented. The results of operations of any interim period are not necessarily indicative of the results of operations to be expected for the fiscal year. These consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company’s 2022 Annual Report on Form 10-K filed with the United States Securities and Exchange Commission (SEC) on March 3, 2023.

 

Principles of Consolidation

 

The consolidated financial statements include the accounts of the Company and all of its wholly-owned subsidiaries. All significant inter-company balances and transactions have been eliminated in consolidation.

 

Cash and Cash Equivalents

 

The Company maintains substantially all of its cash balances at several institutions located in the United States, Hong Kong and China which at times may exceed insured limits. As of June 30, 2023, there was $33,000 and $2.2 million in bank accounts located in the United States and Hong Kong, respectively, in excess of insured limits. As of June 30, 2023, cash and cash equivalents included $3.8 million held in bank accounts located in China subject to foreign currency controls. The Company has not experienced any losses on such accounts. See Note 4 for additional information regarding the Company's investments in cash equivalents held in brokerage accounts. The Company believes that it is not exposed to significant credit risk due to the financial strength of the depository institutions in which its cash and cash equivalents are held.

 

Net Income (Loss) Per Common Share

 

Diluted net income per common share is determined using the weighted-average number of common shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents. The dilutive effect of non-vested restricted stock is reflected by application of the treasury stock method. Under the treasury stock method, the amount of compensation cost for future service that the Company has not yet recognized, if any, is assumed to be used to repurchase shares.

 

The following table illustrates the computation of basic and diluted net income per common share for the periods indicated (in thousands, except per share data):

 

  

Three Months Ended June 30,

 
  

2023

  

2022

 
  

Loss (Numerator)

  

Shares (Denominator)

  

Per Share Amount

  

Income (Numerator)

  

Shares (Denominator)

  

Per Share Amount

 

Basic net income (loss) per common share:

                        

Net income (loss) available to common stockholders

 $(219)  11,432  $(0.02) $183   11,346  $0.02 

Effect of dilutive securities:

                        

Non-vested restricted stock

  —   —       —   78     

Diluted net income per common share:

                        

Net income (loss) available to common stockholders plus assumed dilution

 $(219)  11,432  $(0.02) $183   11,424  $0.02 

 

  

Six Months Ended June 30,

 
  

2023

  

2022

 
  

Income (Numerator)

  

Shares (Denominator)

  

Per Share Amount

  

Income (Numerator)

  

Shares (Denominator)

  

Per Share Amount

 

Basic net income per common share:

                        

Net income available to common stockholders

 $38   11,428  $0.00  $78   11,300  $0.01 

Effect of dilutive securities:

                        

Non-vested restricted stock

  —   11       —   124     

Diluted net income per common share:

                        

Net income available to common stockholders plus assumed dilution

 $38   11,439  $0.00  $78   11,424  $0.01 

 

In periods when losses are reported, the weighted-average number of common shares outstanding excludes common stock equivalents because their inclusion would be anti-dilutive. As such, non-vested restricted stock totaling 15,133 shares were not included for the three months ended June 30, 2023.

 

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Table of Contents
 

Recent Accounting Pronouncements

 

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which introduced an expected credit loss model for the impairment of financial assets measured at amortized cost basis and added Topic 326 to the FASB Accounting Standards Codification (“ASC”). In November 2019, the FASB issued ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments - Credit Losses. The amendments to ASU 2019-11 clarify, correct and make improvements to Topic 326. ASU 2016-13 as well as the updates in ASU 2019-11 are effective for interim and annual periods beginning after December 15, 2022. The adoption of this standard did not have a material impact on the Company's financial statements.

 

Other recently issued accounting pronouncements did not or are not believed by management to have a material impact on the Company’s present or future financial statements.
 

2. REVENUE

 

Revenue Recognition

 

All revenue is recognized when the performance obligations under a contract, including any product vouchers sold on a stand-alone basis in Hong Kong, are satisfied. Product sales are recognized when the products are shipped and title passes to independent members. Product sales to members are made pursuant to a member agreement that provides for transfer of both title and risk of loss upon the Company’s delivery to the carrier that completes delivery to the members, which is commonly referred to as “F.O.B. Shipping Point.” The Company’s sales arrangements do not contain right of inspection or customer acceptance provisions other than general rights of return. These contracts are generally short-term in nature.

 

Actual product returns are recorded as a reduction to net sales. The Company estimates and accrues a reserve for product returns based on its return policies and historical experience. The reserve is based upon the return policy of each country, which varies from 14 days to one year, and their historical return rates, which range from 1% to 4% of sales.  Sales returns were 1% of sales for each of the six months ended June 30, 2023 and 2022.  No material changes in estimates have been recognized during the periods presented. See Note 3 for additional information.

 

The Company has elected to account for shipping and handling activities performed after title has passed to members as a fulfillment cost, and accrues for the costs of shipping and handling if revenue is recognized before the contractually obligated shipping and handling activities occurs. Shipping charges billed to members are included in net sales. Costs associated with shipments are included in cost of sales. Event and training revenue is deferred and recognized as the event or training occurs. Costs of events and member training are included within selling, general and administrative expenses.

 

Various taxes on the sale of products to members are collected by the Company as an agent and remitted to the respective taxing authority. These taxes are presented on a net basis and recorded as a liability until remitted to the respective taxing authority.

 

Deferred Revenue

 

The Company primarily receives payment by credit card at the time members place orders. Amounts received for unshipped product orders and unredeemed product vouchers are considered a contract liability and are recorded as deferred revenue. As of June 30, 2023 and December 31, 2022, the Company had $5.1 million and $3.8 million, respectively, of contract liabilities where performance obligations have not yet been satisfied. The Company expects to satisfy its remaining performance obligations and recognize the revenue within the next twelve months.

 

Disaggregation of Revenue

 

The Company sells products to a member network that operates in a seamless manner from market to market, except for the Chinese market where it sells to consumers through an e-commerce retail platform and the Russia and Kazakhstan market where the Company operates through an engagement of a third-party service provider. See Note 11 for revenue by market information.

 

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The Company’s net sales by product and service are as follows (in thousands):

 

  

Three Months Ended June 30,

  

Six Months Ended June 30,

 
  

2023

  

2022

  

2023

  

2022

 

Product sales

 $10,154  $12,033  $21,202  $22,355 

Administrative fees, freight and other

  410   1,373   1,255   2,630 

Less: sales returns

  (53)  (46)  (85)  (79)

Total net sales

 $10,511  $13,360  $22,372  $24,906 

 

Concentration

 

No single market other than Hong Kong had net sales greater than 10% of total net sales. Sales are made to the Company’s members and no single customer accounted for 10% or more of net sales for the three and six months ended June 30, 2023 and 2022. However, the Company’s business model can result in a concentration of sales to several different members and their network of members. Although no single member accounted for 10% or more of net sales, the loss of a key member or that member’s network could have an adverse effect on the Company’s net sales and financial results.

 

Arrangements with Multiple Performance Obligations

 

The Company’s contracts with customers may include multiple performance obligations. For such arrangements, the Company allocates revenues to each performance obligation based on its relative standalone selling price. The Company generally determines standalone selling prices based on the prices charged for individual products to similar customers.

 

Practical Expedients

 

The Company generally expenses sales commissions when incurred because the amortization period would have been one year or less. These costs are recorded in commissions expense.

 

The Company does not provide certain disclosures about unsatisfied performance obligations for contracts with an original expected length of one year or less.

 

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3. BALANCE SHEET COMPONENTS

 

The components of certain balance sheet amounts are as follows (in thousands):

 

   

June 30, 2023

    

December 31, 2022

  

Cash, cash equivalents and restricted cash:

                

Cash

   $ 11,065     $ 12,834  

Cash equivalents

     50,502       56,833  
      61,567       69,667  

Restricted cash

     38       79  
    $ 61,605     $ 69,746  

Inventories:

                

Finished goods

   $ 3,804     $ 3,653  

Raw materials

     929       890  

Reserve for obsolescence

     (18 )     (18 )
    $ 4,715     $ 4,525  

Other accrued expenses:

                

Sales returns

   $ 53     $ 70  

Employee-related expense

     595       737  

Warehousing, inventory-related and other

     587       374  
    $ 1,235     $ 1,181  

Deferred revenue:

                

Unshipped product and unredeemed product vouchers

   $ 5,097     $ 3,822  

Auto ship advances

     1,754       1,775  
    $ 6,851     $ 5,597  

 
 

4. FAIR VALUE MEASUREMENTS

 

As of June 30, 2023, cash and cash equivalents include the Company’s investments in money market funds, government and municipal debt securities, and corporate debt securities. The Company considers all highly liquid investments with original maturities of three months or less when purchased and have insignificant interest rate risk to be cash equivalents.  Debt securities classified as cash equivalents are required to be accounted for in accordance with the FASB ASC 320, Investments - Debt and Equity Securities. As such, the Company determined its investments in debt securities held at June 30, 2023 should be classified as available-for-sale and are carried at fair value with unrealized gains and losses reported in stockholders’ equity. The cost of debt securities is adjusted for amortization of premiums and discounts to maturity. This amortization is included in other income (expense). Realized gains and losses, as well as interest income, are also included in other income (expense). The fair values of securities are based on quoted market prices to the extent available or alternative pricing sources and models utilizing market observable inputs.

 

The carrying amounts of the Company’s financial instruments, including cash and accounts payable, approximate fair value because of their short maturities. The carrying amount of the noncurrent restricted cash approximates fair value since, absent the restrictions, the underlying assets would be included in cash and cash equivalents.

 

Accounting standards permit companies, at their option, to choose to measure many financial instruments and certain other items at fair value.  The Company has elected to not fair value existing eligible items.

 

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Investments by significant category included in cash equivalents at the end of each period were as follows (in thousands):

 

     

June 30, 2023

    

December 31, 2022

  
 

Fair Value Level1

  

Adjusted Cost

    

Gross Unrealized Gains (Losses)

    

Fair Value

    

Adjusted Cost

    

Gross Unrealized Losses

    

Fair Value

  

Money market funds

Level 1

   $ 994     $ —     $ 994     $ 2,143     $ —     $ 2,143  

Government and municipal debt securities

Level 2

     28,343       2       28,345       6,759       —       6,759  

Corporate debt securities

Level 2

     21,173       (10 )     21,163       47,947       (16 )     47,931  

Total investments

   $ 50,510     $ (8 )   $ 50,502     $ 56,849     $ (16 )   $ 56,833  

 

 

1 FASB Topic 820, Fair Value Measurements, establishes a fair value hierarchy that requires the use of observable market data, when available, and prioritizes the inputs to valuation techniques used to measure fair value in the following categories:

Level 1: Quoted market prices in active markets for identical assets or liabilities.

Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.

Level 3: Unobservable inputs that are not corroborated by market data.

 

As of June 30, 2023, the Company's unrealized losses result from investments in an unrealized loss position for less than 12 months. The gross unrealized losses related to these investments were primarily driven by factors other than credit risk, including market risk. The Company anticipates that it will recover the entire amortized cost basis of such available-for-sale debt securities and has determined that no allowance was required to be recognized during the three and six months ended June 30, 2023 and 2022.
 

5. LEASES

 

The Company leases 7,300 square feet of office space in Hong Kong with a term expiring in June 2026, and 4,900 square feet of office space in Rolling Hills Estates, California for its corporate staff with a term expiring in September 2030. To help further develop the market for its products in North America, the Company leases 1,600 square feet of retail space in each of Rowland Heights, California and Richmond, British Columbia and 2,000 square feet of retail space in Metuchen, New Jersey. The Rowland Heights, Richmond and Metuchen locations have terms expiring in November 2025, February 2024 and December 2028, respectively.

 

The Company leases seven branch offices throughout China, and additional office space in Peru, Japan, Taiwan, South Korea, Malaysia, Singapore, Thailand, India and the Cayman Islands. The Company contracts with third parties for fulfillment and distribution operations in all of its international markets. None of the Company’s third party logistics contracts contain a lease as the Company does not have the right to access the warehouses or move its inventories at will.

 

The components of lease cost were as follows (in thousands):

 

  

Three Months Ended June 30,

  

Six Months Ended June 30,

 
  

2023

  

2022

  

2023

  

2022

 

Operating leases

 $321  $328  $651  $662 

Short-term leases

  39   42   76   88 

Total lease cost

 $360  $370  $727  $750 

 

Cash paid for amounts included in the measurement of operating leases liabilities was $331,000 and $315,000 for the three months ended  June 30, 2023 and 2022, respectively, and $676,000 and $637,000 for the six months ended June 30, 2023 and 2022, respectively.

 

The weighted-average remaining lease term and discount rate related to operating leases as of June 30, 2023 were as follows:

 

Weighted-average remaining lease term (in years)

  4.7 

Weighted-average discount rate

  4.2%

 

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As most of our leases do not provide an implicit rate, the Company used its incremental borrowing rate, or the rate of each of its subsidiaries if available, based on the information available at the lease commencement date to determine the present value of lease payments.

 

The annual scheduled lease payments of our operating lease liabilities as of June 30, 2023 were as follows (in thousands):

 

Remainder of 2023

 $562 

2024

  1,012 

2025

  962 

2026

  579 

2027

  299 

Thereafter

  679 

Total lease payments

  4,093 

Less: imputed interest

  (380)

Present value of lease liabilities

 $3,713 

 

For all asset classes, the Company elected not to recognize assets or liabilities at the acquisition date for leases that, at the acquisition date, have a remaining lease term of 12 months or less. Additionally, for all asset classes, the Company choose not to separate nonlease components from lease components and instead account for the combined lease and nonlease components associated with that lease component as a single lease component.
 

6. INCOME TAXES

 

The effective income tax rate for the three and six months ended June 30, 2023 includes estimates for foreign income inclusions such as global intangible low-taxed income (“GILTI”) and Subpart F income. As of June 30, 2023, the Company does not have a valuation allowance against its U.S. deferred tax assets. The Company analyzed all sources of available income and determined that they are more likely than not to realize the tax benefits of their deferred assets. As of June 30, 2023, the Company has a valuation allowance against deferred tax assets in certain foreign jurisdictions with an overall net operating loss. The valuation allowance will be reduced at such time as management believes it is more likely than not that the deferred tax assets will be realized. Any reductions in the valuation allowance will reduce future income tax provision.

 

As a result of return to provision adjustments, the Company does not expect to have any U.S. federal net operating loss available for carryover beyond the year ending December 31, 2023. The Company has post-apportioned U.S. state net operating loss carryforwards of $438,000 that begin expiring in 2038. At June 30, 2023, the Company has foreign net operating loss carryforwards of approximately $1.4 million in various jurisdictions with various expirations.

 

As of June 30, 2023, income taxes payable for the repatriation tax on the deemed repatriation of deferred foreign income required by the U.S. Tax Cuts and Jobs Act (the “Tax Act”), enacted on December 22, 2017 by the U.S. government, totaled $9.1 million, of which $5.1 million is reflected as a noncurrent liability.

 

As a result of capital return activities, the Company determined that a portion of its current undistributed foreign earnings not deemed reinvested indefinitely by its non-U.S. subsidiaries. For state income tax purposes, the Company will continue to periodically reassess the needs of its foreign subsidiaries and update its indefinite reinvestment assertion as necessary. To the extent that additional foreign earnings are not deemed permanently reinvested, the Company expects to recognize additional income tax provision at the applicable state corporate income tax rate(s). As of June 30, 2023, the Company has not recorded a state deferred tax liability for earnings that the Company plans to repatriate out of accumulated earnings in future periods because all earnings as of June 30, 2023 have already been repatriated. Due to the Tax Act, repatriation from foreign subsidiaries will be offset with a dividends received deduction, resulting in little to no impact on federal tax expense. All undistributed earnings in excess of 50% of current earnings on an annual basis are intended to be reinvested indefinitely as of June 30, 2023.

 

The Company and its subsidiaries file tax returns in the United States, California, New Jersey, Texas and various foreign jurisdictions. The Company is no longer subject to state income tax examinations for years prior to 2018. The Company is not aware of any jurisdiction that is currently examining any of its income tax returns.
 

7. COMMITMENTS AND CONTINGENCIES

 

The Company has employment agreements with certain members of its management team that can be terminated by either the employee or the Company upon four weeks’ notice.  The employment agreements entered into with the management team contain provisions that guarantee the payment of specified amounts in the event of a change in control (together with a termination without cause), as defined, or if the employee is otherwise terminated without cause, as defined, or terminates employment for good reason, as defined.

 

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8. STOCK-BASED INCENTIVE PLANS

 

Restricted Stock

 

At the Company’s annual meeting of stockholders held on April 7, 2016, the Company’s stockholders approved the Natural Health Trends Corp. 2016 Equity Incentive Plan (the “2016 Plan”) to replace its 2007 Equity Incentive Plan. The 2016 Plan allows for the grant of various equity awards including incentive stock options, non-statutory options, stock, stock units, stock appreciation rights and other similar equity-based awards to the Company’s employees, officers, non-employee directors, contractors, consultants and advisors of the Company. Up to 2,500,000 shares of the Company’s common stock (subject to adjustment under certain circumstances) may be issued pursuant to awards granted. At June 30, 2023, 1,121,683 shares remained available for issuance under the 2016 Plan.

 

On February 6, 2023, the Company granted 97,900 shares of restricted common stock to certain of its employees. The shares vest in equal parts on a quarterly basis over the next three years and are subject to forfeiture in the event of an employee's termination of service to the Company under specified circumstances.

 

The following table summarizes the Company’s restricted stock activity under the 2016 Plan:
 
  

Shares

  

Wtd. Avg. Price at Date of Issuance

 

Nonvested at December 31, 2022

  —  $— 

Granted

  97,900  $4.84 

Vested

  (16,324) $4.84 

Nonvested at June 30, 2023

  81,576  $4.84 

 

Share-based compensation expense of $39,000 and $85,000 was recognized during the three and six months ended June 30, 2023, respectively. As of June 30, 2023, total unrecognized share-based compensation expense related to non-vested restricted stock was $388,000, which is expected to be recognized over a weighted-average period of 1.4 years.

 

Phantom Equity

 

On  March 15, 2021, the Company’s Board of Directors approved and adopted a Phantom Equity Plan (the “Phantom Plan”). Under the terms of the Phantom Plan, the Board of Directors' Compensation Committee  may grant to the Company’s employees, officers, directors, contractors, consultants, or advisors awards of phantom shares entitling grantees the right to receive a cash payment equal to the fair market value of an equal number of shares of the Company’s common stock upon the close of a vesting period, subject to any maximum payment value that the Compensation Committee  may set. The vesting of phantom shares is subject to such vesting conditions as the Compensation Committee  may specify in a grantee’s award agreement. Grantees of phantom shares shall not by virtue of their receipt of phantom shares have any ownership rights in shares of the Company’s common stock. The Phantom Plan shall continue for a period of ten years, after which no further phantom shares  may be awarded (although any phantom shares awarded prior to the expiration of such 10-year period shall be unaffected by the termination of the Phantom Plan).

 

Also on  March 15, 2021, awards for 223,307 phantom shares were granted to the Company’s employees and its non-employee directors.  The phantom shares vested in eight equal three-month vesting increments, subject to the satisfaction of both a time-based vesting condition and a performance vesting condition. Both of these vesting conditions were deemed satisfied on the grant date for the initial vesting increment, and were satisfied for each of the following three vesting periods in 2021 and the first vesting period in 2022. The time-based vesting condition was also satisfied for the final three vesting periods in 2022. In order for the time-based vesting condition to be satisfied for each vesting period, the grantee must have remained continuously employed by, or be otherwise continuously providing services to, the Company through the end of the vesting period, and in order for the performance vesting condition to be satisfied for each performance period, the performance criteria designated by the Compensation Committee must have been satisfied. The initial performance vesting condition to be applied to measure performance for the period between  March 15, 2021 and  June 15, 2021 was designated by the Compensation Committee on or before  April 14, 2021, and applied to all future performance periods unless the Compensation Committee elected to change the performance vesting condition on a prospective basis. Future changes to the performance vesting condition must have been made on or before the fifteenth day of any future performance period. If either vesting condition was not satisfied for a vesting date, then the phantom shares scheduled to vest on such date would be forfeited. These phantom shares were subject to a maximum payment value of $12.00 per phantom share. An additional award with similar vesting conditions for 9,074 phantom shares was granted on  May 14, 2021 to the Company's new non-employee director, while unvested 9,074 phantom shares granted to the Company's departing non-employee director were forfeited on or about the same date. On each of May 23, 2022, August 31, 2022, and November 25, 2022 the Compensation Committee determined to amend the outstanding awards to provide that the performance criteria shall be deemed satisfied for the three-month performance periods relating to the  June 15, 2022, September 15, 2022 and December 15, 2022 vesting dates, respectively. In making its determination, the Compensation Committee noted that the fact that the performance criteria were not achieved for the relevant performance periods was due to extraordinary business circumstances in China that were clearly beyond the Company’s control. The phantom shares awarded in 2021 are now fully vested.

 

On February 7, 2023, the Company granted 212,937 phantom shares to certain of the Company’s employees and its non-employee directors. The phantom shares vest in eight equal three-month vesting increments, subject to the satisfaction of both a time-based vesting condition and a performance vesting condition. Both of these vesting conditions were deemed satisfied on the grant date for the initial vesting increment. In order for the time-based vesting condition to be satisfied for each vesting period, the grantee must remain continuously employed by, or be otherwise continuously providing services to, the Company through the end of the vesting period, and in order for the performance vesting condition to be satisfied for each performance period, the performance criteria designated by the Compensation Committee must be satisfied. The initial performance vesting condition will be designated by the Compensation Committee and will apply to all future performance periods, unless the Compensation Committee elects to change the performance vesting condition on a prospective basis. Future changes to the performance vesting condition must be made on or before the fifteenth day of any future performance period. If either vesting condition is not satisfied for a vesting date, then the phantom shares scheduled to vest on such date will be forfeited. These phantom shares are subject to a maximum payment value of $12.00 per phantom share.

 

The phantom share awards are accounted for as liabilities in accordance with FASB ASC Topic 718,  Compensation –  Stock Compensation since they require cash settlement. The grant date of each vesting increment will be established when the Company and the grantees reach a mutual understanding of the key terms and conditions of an award, which is the date upon which each performance vesting condition is communicated to the grantees. Compensation expense is recognized over the requisite service period if it is probable that the performance vesting condition will be achieved. The fair value of the liability incurred is remeasured at the end of each reporting period with any changes in fair value recognized as compensation expense over the requisite service period.

 

Awards totaling 26,617 and 27,913 phantom shares vested during the three months ended June 30, 2023 and 2022, respectively, resulting in compensation expense of $133,000 and $153,000 during the three months ended June 30, 2023 and 2022, respectively, related to their cash settlement. Awards totaling 53,234 and 55,826 phantom shares vested during the six months ended June 30, 2023 and 2022, respectively, resulting in compensation expense of $260,000 and $349,000 during the six months ended June 30, 2023 and 2022, respectively, related to their cash settlement.

 

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9. STOCKHOLDERS’ EQUITY

 

Dividends

 

The Company declared and paid cash dividends of $0.20 per common share during each of the first two quarters of 2023 and 2022, totaling $4.6 million in each six month period. Declaration and payment of any future dividends on shares of common stock will be at the sole discretion of the Company’s Board of Directors.

 

Stock Repurchases

 

On January 12, 2016, the Board of Directors authorized an increase to the Company’s stock repurchase program first approved on July 28, 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. As of June 30, 2023, $21.9 million of the $70.0 million stock repurchase program remained available for future purchases, inclusive of related estimated income tax.

 

Accumulated Other Comprehensive Loss

 

The changes in accumulated other comprehensive loss by component for the first six months of 2023 were as follows (in thousands):

 

  Foreign Currency Translation Adjustments  Unrealized Gains (Losses) on Available-For-Sale Investments  

Total

 

Balance, December 31, 2022

 $(988) $(16) $(1,004)

Other comprehensive loss

  (97)  (3)  (100)

Balance, March 31, 2023

  (1,085)  (19)  (1,104)

Other comprehensive income (loss)

  (152)  11   (141)

Balance, June 30, 2023

 $(1,237) $(8) $(1,245)

 
 

10. RELATED PARTY TRANSACTIONS

 

The Company is a party to a Royalty Agreement and License with Broady Health Sciences, L.L.C., a Texas limited liability company, (“BHS”) regarding the manufacture and sale of a product called ReStor™. George K. Broady, a former director of the Company and beneficial owner of more than 5% of its outstanding common stock, is an indirect owner of BHS. Brunde E. Broady, also a former director of the Company and daughter of Mr. Broady, is the President and Chief Executive Officer of BHS. Under this agreement (as amended), the Company agreed to pay BHS a royalty based on a price per unit in return for the right to manufacture (or have manufactured), market, import, export and sell this product worldwide by or through multi-level marketing or network marketing. The Company recognized royalties of $11,000 and $13,000 during the three months ended June 30, 2023 and 2022, respectively, and $22,000 and $26,000 during the six months ended June 30, 2023 and 2022, respectively, under this agreement. The Company is not required to purchase any product under the agreement, and the agreement may be terminated under certain circumstances with no notice. The agreement terminates March 31, 2025, after which it shall be automatically renewed for successive one-year terms unless notice is given by either party at least 90 days in advance of the expiration of the then-current term.

 

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11. SEGMENT INFORMATION

 

The Company sells products to a member network that operates in a seamless manner from market to market, except for the China market where it sells to some consumers through an e-commerce platform, and the Russia and Kazakhstan market where the Company’s engagement of a third-party service provider results in a different economic structure than its other markets. Otherwise, the Company believes that all of its other operating segments have similar economic characteristics and are similar in the nature of the products sold, the product acquisition process, the types of customers products are sold to, the methods used to distribute the products, and the nature of the regulatory environment. Therefore, the Company aggregates its other operating segments (including its Hong Kong operating segment) into a single reporting segment (the “Primary Reporting Segment”).

 

The Company reviews its net sales and operating income (loss) by operating segment, and reviews its assets and capital expenditures on a consolidated basis and not by operating segment. As such, net sales and operating income (loss) are presented by reportable segment and assets and capital expenditures by operating segment are not presented. Segment operating income is adjusted for certain direct costs and commission allocation.

 

The Company’s operating information by geographic area are as follows (in thousands):

 

   

Three Months Ended June 30,

    

Six Months Ended June 30,

  
   

2023

    

2022

    

2023

    

2022

  

Net sales:

                                

Primary Reporting Segment

   $ 10,139     $ 12,770     $ 21,470     $ 23,647  

China

     247       486       663       967  

Russia and Kazakhstan

     125       104       239       292  

Total net sales

   $ 10,511     $ 13,360     $ 22,372     $ 24,906  
                                 

Income (loss) from operations:

                                

Primary Reporting Segment

   $ 1,501     $ 2,242     $ 3,328     $ 4,157  

China

     (243 )     (23 )     (263 )     (15 )

Russia and Kazakhstan

     (26 )     (49 )     (84 )     (96 )

Income from operations for reportable segments, net

     1,232       2,170       2,981       4,046  

Unallocated corporate expenses

     (1,975 )     (1,955 )     (4,118 )     (4,214 )

Other income, net

     442       175       1,123       285  

Income (loss) before income taxes

   $ (301 )   $ 390     $ (14 )   $ 117  

 

The Company’s net sales by geographic area are as follows (in thousands):

 

   

Three Months Ended June 30,

    

Six Months Ended June 30,

  
   

2023

    

2022

    

2023

    

2022

  

Net sales from external customers:

                                

United States

   $ 272     $ 272     $ 551     $ 528  

Canada

     157       164       327       301  

Peru

     483       327       810       809  

Hong Kong1

     8,306       10,716       17,979       19,492  

China

     247       486       663       967  

Taiwan

     454       624       908       1,193  

Japan

     107       136       189       371  

Malaysia and Singapore

     68       95       153       220  

Russia and Kazakhstan

     125       104       239       292  

Europe

     199       304       385       505  

Other foreign countries

     93       132       168       228  

Total net sales

   $ 10,511     $ 13,360     $ 22,372     $ 24,906  

 

1 Substantially all of our Hong Kong revenues are derived from the sale of products that are delivered to members in China. See “Item 1A. Risk Factors” in our most recent Annual Report on Form 10-K.

 

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12. SUBSEQUENT EVENT

 

On July 31, 2023, the Board of Directors declared a quarterly cash dividend of $0.20 on each share of common stock outstanding. The dividend will be payable on August 25, 2023 to stockholders of record on August 15, 2023. The declaration and payment of any future dividends on shares of common stock will be at the sole discretion of the Company’s Board of Directors.

 

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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Business Overview

 

We are an international direct-selling and e-commerce company. Subsidiaries controlled by us sell personal care, wellness, and “quality of life” products under the “NHT Global” brand. Our wholly-owned subsidiaries have an active physical presence in the following markets: the Americas, which consists of the United States, Canada, Cayman Islands, Mexico and Peru; Greater China, which consists of Hong Kong, Taiwan and China; Southeast Asia, which consists of Malaysia, Singapore and Thailand; South Korea; Japan; India; and Europe. We also operate in Russia and Kazakhstan through our engagement with a local service provider.

 

As of June 30, 2023, we were conducting business through 36,730 active members, compared to 38,660 at December 31, 2022 and 43,020 at June 30, 2022. 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 91% of our net sales from subsidiaries located outside the Americas, with sales of our Hong Kong subsidiary representing 79% of net sales in the latest fiscal quarter. Because of the size of our foreign operations, operating results can be impacted negatively or positively by factors such as foreign currency fluctuations, 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” in our Annual Report on Form 10-K for the year ended December 31, 2022, and more specifically under the captions “Epidemics, such as the COVID-19 pandemic, or natural disasters, terrorist attacks or acts of war...”, “Because our Hong Kong operations account for a substantial portion of our overall business...”, “Our Hong Kong operations are being adversely affected by recent political and social developments in Hong Kong...”, 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 generates revenue derived from the sale of products to members in Hong Kong and elsewhere, including China. Substantially all of our Hong Kong revenues are 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 in 2019 a Chinese governmental authority recommended that we withdraw our application. 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.

 

 

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In January 2019 the Chinese government announced a 100-day campaign focused 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 are 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 is specifically focused on the business practices of direct selling companies. During the campaign, we understand that the government is not issuing any additional direct selling licenses, is not issuing certifications of quality or other approvals of various healthcare products, and is reviewing its regulatory oversight of the industry. Since it was implemented, the campaign and associated negative media coverage have had a significant adverse impact on our business, as consumers have widely curtailed their purchases within the affected industries. We, like some of our peers, voluntarily decided in January 2019 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 100-day 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 government enforcement actions as the provincial and local governments formulate and implement their interpretive guidance and rule-making. Although we have been able to relax some restrictions on member activities in certain markets, it may again in the future be necessary or advisable to suspend member activities or take similar actions from time to time, and such periods of reduced activity may have a material adverse effect on our business.

 

Although the 100-day campaign was due to expire on or about April 18, 2019, we are not aware of any information indicating that the campaign has formally concluded. However, on August 27, 2019, the Chinese government announced that it would conduct a “look-back review” to evaluate the 100-day campaign. As part of this review, we understand that various Chinese governmental agencies formed a working group to assess the 100-day campaign, particularly focusing on the health market and its supervision in certain provinces. We understand that during September 2019 the working group evaluated the performance and results of a number of organizations and governmental departments in these provinces and made recommendations for various improvements. It was noted that each province had opened a number of investigative cases, had successfully closed numerous cases, and had imposed various fines and penalties. We understand that the look-back review continued after September 2019, and we are not aware that this review has been completed. As a result, the business environment in China for health product companies continues to be challenging, which has been exacerbated by negative social media sentiment expressed for these types of companies. We believe that the campaign, as well as its extension and aftermath (including the look-back review), will continue to negatively impact our business in China in the near-term, but will ultimately benefit us and Chinese consumers in the long-term as purveyors of substandard products are driven from the market.

 

In late 2019 or early 2020 an outbreak of COVID-19 was first identified in China and subsequently spread around the world. On March 11, 2020 the World Health Organization declared the COVID-19 outbreak a global pandemic. The outbreak 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. We have significant business in China and in 2022 generated approximately 78% of our revenue in Hong Kong, substantially all of which was derived from the sale of products to members in China. The Chinese and Hong Kong governments, like the governments of the other countries in which we operate, continue to adjust the restrictive measures that they impose to control COVID-19 based on then-current local circumstances; however, it should be noted that the Chinese and Hong Kong governments imposed some of the most restrictive COVID-19 control measures of any country in the world. The scope and impact of the pandemic and related control measures are uncertain, but 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. We also canceled or rescheduled a number of in-person member events over the course of the pandemic. While the Chinese and Hong Kong governments took comprehensive steps to relax many of the COVID-19 control measures in late 2022, the severity of the impact on us of the COVID-19 pandemic will depend on future developments, including the duration and spread of the virus, and related control measures, which we are unable to accurately predict.

 

Of particular note, the spread of the Omicron variant in Hong Kong and China, along with the imposition of strong government control measures, significantly disrupted our operations and negatively affected our results of operations in 2022. During the first half of 2022, our third-party logistics providers experienced substantial difficulties importing and distributing our products in China. However, by early June 2022 the Chinese government began relaxing some of its more stringent policies and we found that the difficulties encountered by our third-party logistics providers were largely resolved by the end of the month. Further, after four consecutive quarters during which we were unable to sponsor any in-person member events in China, Macau or Hong Kong, we sponsored an in-personevent in China at the end of the third quarter of 2022, sponsored a large in-person event and a number of small in-person events in China during the first half of 2023, sponsored a large in-person event in Macau during the second quarter of 2023, and are now planning more such events. Nevertheless, through late 2022 the Chinese and Hong Kong governments continued to impose strong control measures that were negatively impacting our ability to interact with our members and the ability of our members to interact with each other and their customers. In late 2022, the Chinese and Hong Kong governments took comprehensive steps to relax many of their COVID-19 control measures. This less restrictive business environment continued through the second quarter of 2023. We are hopeful that this improved state of affairs will enable us to continue the resumption of more normal operations in China and Hong Kong, but it is still too early to accurately predict the impact on us of this relaxation of control measures and whether it will prove enduring. We will continue to assess the financial and operational impact of the COVID-19 pandemic, including its impact on the operations of our third-party providers. See “Item 1A. Risk Factors - Epidemics, such as the COVID-19 pandemic, or natural disasters, terrorist attacks or acts of war…” in our most recent Annual Report on Form 10-K.

 

Recent political and social developments in Hong Kong, along with the impact of the COVID-19 pandemic and related government control measures, are also adversely affecting our Hong Kong operations and led us in 2020 to cease sponsoring member meetings and events in Hong Kong. Inasmuch as member meetings and events located in Hong Kong have in the past served as an important component of our product marketing and distribution efforts, we believe that this action has negatively affected our operations and financial performance. The cumulative effect of these developments has adversely affected our Hong Kong operations and may continue to adversely affect our overall business, results of operations and financial condition. See “Item 1A. Risk Factors - Our Hong Kong operations are being adversely affected by recent political and social developments in Hong Kong...” in our most recent Annual Report on Form 10-K.

 

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Our Hong Kong net sales (substantially all of which were derived from products shipped to members residing in China) for the first six months of 2023 were lower than the comparable period in 2022  primarily due to the changes in deferred revenue in the two respective quarters. Deferred revenue increased $1.2 million during the second quarter of 2023, but decreased $1.4 million during the second quarter last year. The decrease in net sales during the first six months of 2023 resulted in a loss from operations for the period, as well as negative cash flows from operations. We anticipate that our financial performance for the near-term will continue to be adversely impacted.

 

Statement of Operations Presentation

 

We mainly derive revenue from sales of products. Substantially all of our product sales are to independent members at published wholesale prices. Product sales are recognized when the products are shipped and title passes to independent members, which generally is upon our delivery to the carrier that completes delivery to the members. We estimate and accrue a reserve for product returns based on our return policies and historical experience. We bill members for shipping charges and recognize the freight revenue in net sales. We have elected to account for shipping and handling activities performed after title has passed to members as a fulfillment cost, and accrue for the costs of shipping and handling if revenue is recognized before the contractually obligated shipping and handling activities occurs. Event and training revenue is deferred and recognized as the event or training occurs.

 

Cost of sales consists primarily of products purchased from third-party manufacturers, freight cost for transporting products to our foreign subsidiaries and shipping products to members, import duties, packing materials, product royalties, costs of promotional materials sold to our members at or near cost, and provisions for slow moving or obsolete inventories. Cost of sales also includes purchasing costs, receiving costs, inspection costs and warehousing costs.

 

Member commissions are our most significant expense and are classified as an operating expense. Under our compensation plan, members are paid weekly commissions by our subsidiary in which they are enrolled, generally in their home country currency, for product purchases by their down-line member network across all geographic markets. Our China subsidiary maintains an e-commerce retail platform and does not pay commissions, although our Chinese members may participate in our compensation plan through our other subsidiaries. This “seamless” compensation plan enables a member located in one country to enroll other members located in other countries where we are authorized to conduct our business. Currently, there are basically two ways in which our members can earn income:

 

 

•

through commissions paid on the accumulated bonus volume from product purchases made by their down-line members and customers; and

 

 

•

through retail profits on sales of products purchased by members at wholesale prices and resold at retail prices (for purchasers in some of our smaller markets and purchasers from our China subsidiary, sales are for personal consumption only and income may not be earned through retail profits).

 

Each of our products is designated a specified number of bonus volume points. Commissions are based on total personal and group bonus volume points per weekly sales period. Bonus volume points are essentially a percentage of a product’s wholesale price. As the member’s business expands from successfully enrolling other members who in turn expand their own businesses by selling product to other members, the member receives higher commissions from purchases made by an expanding down-line network. In some of our markets, to be eligible to receive commissions, a member may be required to make nominal monthly or other periodic purchases of our products. Certain of our subsidiaries do not require these nominal purchases for a member to be eligible to receive commissions. In determining commissions, the number of levels of down-line members included within the member’s commissionable group increases as the number of memberships directly below the member increases.

 

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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 six months of 2023 and 2022, represented 43% and 42% of net sales, respectively. 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.

 

Selling, general and administrative expenses consist of administrative compensation and benefits, travel, credit card fees and assessments, professional fees, certain occupancy costs, and other corporate administrative expenses (including stock-based compensation). In addition, this category includes selling, marketing, and promotion expenses (including the costs of member training events and conventions that are designed to increase both product awareness and member recruitment). Because our various member conventions are not always held at the same time each year, interim period comparisons will be impacted accordingly.

 

The functional currency of our international subsidiaries is generally their local currency. Local currency assets and liabilities are translated at the rates of exchange on the balance sheet date, and local currency revenues and expenses are translated at average rates of exchange during the period. Equity accounts are translated at historical rates. The resulting translation adjustments are recorded directly into stockholders’ equity.

 

Sales by our foreign subsidiaries are generally transacted in the respective local currencies and are translated into U.S. dollars using average rates of exchange for each monthly accounting period to which they relate. Most of our product purchases from third-party manufacturers are transacted in U.S. dollars. Consequently, our sales and net earnings are affected by changes in currency exchange rates, with sales and earnings generally increasing with a weakening U.S. dollar and decreasing with a strengthening U.S. dollar.

 

Results of Operations 

 

The following table sets forth our operating results as a percentage of net sales for the periods indicated.

 

   

Three Months Ended June 30,

    

Six Months Ended June 30,

  
   

2023

    

2022

    

2023

    

2022

  

Net sales

     100.0 %     100.0 %     100.0 %     100.0 %

Cost of sales

     25.4       25.4       25.5       25.3  

Gross profit

     74.6       74.6       74.5       74.7  

Operating expenses:

                                

Commissions expense

     42.9       43.2       42.5       42.2  

Selling, general and administrative expenses

     38.8       29.8       37.1       33.2  

Total operating expenses

     81.7       73.0       79.6       75.4  

Income (loss) from operations

     (7.1 )     1.6       (5.1 )     (0.7 )

Other income, net

     4.2       1.3       5.0       1.2  

Income (loss) before income taxes

     (2.9 )     2.9       (0.1 )     0.5  

Income tax provision (benefit)

     (0.8 )     1.5       (0.3 )     0.2  

Net income (loss)

     (2.1 )%     1.4 %     0.2 %     0.3 %

 

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Net Sales

 

The following table sets forth revenue by market for the periods indicated (in thousands):

 

   

Three Months Ended June 30,

    

Six Months Ended June 30,

  
   

2023

    

2022

    

2023

    

2022

  

Americas1

   $ 912       8.7 %   $ 763       5.7 %   $ 1,688       7.5 %   $ 1,638       6.5 %

Hong Kong2

     8,306       79.0       10,716       80.2       17,979       80.4       19,492       78.3  

China

     247       2.4       486       3.6       663       3.0       967       3.9  

Taiwan

     454       4.3       624       4.7       908       4.1       1,193       4.8  

South Korea

     38       0.4       46       0.4       90       0.4       92       0.4  

Japan

     107       1.0       136       1.0       189       0.8       371       1.5  

Malaysia and Singapore

     68       0.6       95       0.7       153       0.7       220       0.9  

Russia and Kazakhstan

     125       1.2       104       0.8       239       1.1       292       1.2  

Europe

     199       1.9       304       2.3       385       1.7       505       2.0  

India

     55       0.5       86       0.6       78       0.3       136       0.5  

Total

   $ 10,511       100.0 %   $ 13,360       100.0 %   $ 22,372       100.0 %   $ 24,906       100.0 %

 

1 United States, Canada, Mexico and Peru

2 Substantially all of our Hong Kong revenues are derived from the sale of products that are delivered to members in China. See “Item 1A. Risk Factors” in our most recent Annual Report on Form 10-K.

 

Net sales were $10.5 million for the three months ended June 30, 2023 compared with $13.4 million for the comparable period a year ago, a decrease of $2.8 million, or 21%. Hong Kong net sales, substantially all of which were derived from the sale of products shipped to members residing in China, decreased $2.4 million, or 22%, over the comparable period a year ago. The decrease in Hong Kong net sales was primarily due to the changes in deferred revenue in the two respective quarters. Deferred revenue increased $1.2 million during the second quarter of 2023, but decreased $1.4 million during the second quarter last year. We experienced a late surge in orders following our first large in-person member event in more than three years that occurred in Macau in early June 2023, which was immediately followed by an incentive to help bring in more order volume. This incentive was well received and resulted in a substantial increase in deferred revenue at June 30, 2023. Despite tepid consumer sentiment in China during the current-year quarter, our order volume was comparable with the second quarter last year. The decrease in Hong Kong net sales was also due to the recognition of lower administrative fees in the current-year quarter, as compared to the prior year quarter, as increased activity within member electronic wallet (eWallet) accounts resulted in less fees assessed during the quarter. Outside of our Hong Kong business, net sales decreased $439,000, or 17%, over the comparable three-month period a year ago. This decrease can be attributed to a slowdown in China and Taiwan partly offset by improved results in the Americas.

 

Net sales were $22.4 million for the six months ended June 30, 2023 compared with $24.9 million for the comparable period a year ago, a decrease of $2.5 million, or 10%, due to substantially the same factors that adversely affected Hong Kong net sales for the three months ended June 30, 2023. Outside of our Hong Kong business, net sales decreased $1.0 million, or 19%, over the comparable six-month period a year ago. As of June 30, 2023, deferred revenue was $6.9 million, which primarily consisted of $5.1 million pertaining to unshipped product orders and unredeemed product vouchers, as well as $1.8 million in auto ship advances.

 

Gross Profit

 

Gross profit was 74.6% of net sales for the three months ended June 30, 2023, as well as the three months ended June 30, 2022. Gross profit was 74.5% of net sales for the six months ended June 30, 2023 compared with 74.7% of net sales for the six months ended June 30, 2022. Excluding the impact of decreased administrative fee revenue referred to above, gross profit margin was consistent with the comparable three and six month periods in the prior year.

 

Commissions Expense

 

Commissions were 42.9% of net sales for the three months ended June 30, 2023 compared with 43.2% of net sales for the three months ended June 30, 2022, and 42.5% of net sales for the six months ended June 30, 2023 compared with 42.2% of net sales for the six months ended June 30, 2022. Excluding the impact of decreased administrative fee revenue referred to above, commissions as a percentage of net sales decreased slightly as compared to the comparable periods in the prior year primarily due to lower commission payouts partially offset by higher supplemental incentive costs.

 

Selling, General and Administrative Expenses

 

Selling, general and administrative expenses increased to $4.1 million for the three months ended June 30, 2023, as compared with $4.0 million in the same period a year ago. For the six months ended June 30, 2023, selling, general and administrative expenses were $8.3 million, consistent with the six months ended June 30, 2022. 

 

Other Income, Net

 

Other income increased to $442,000 for the three months ended June 30, 2023 compared with $175,000 in the same period a year ago. For the six months ended June 30, 2023, other income increased to $1.1 million compared with $285,000 in the comparable period a year ago. The increase in other income is primarily due to greater interest earned on our cash equivalents as compared to the comparable periods in the prior year.

 

 

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Income Taxes

 

An income tax benefit of $82,000 and an income tax provision of $207,000 was recognized during the three months ended June 30, 2023 and 2022, respectively. An income tax benefit of $52,000 and an income tax provision of $39,000 was recognized during the six months ended June 30, 2023 and 2022, respectively. The tax benefit during the six months ended June 30, 2023 primarily resulted from foreign income inclusions, such as global intangible low-taxed income (“GILTI”) and Subpart F income, tax benefits in foreign jurisdictions and year-to-date consolidated loss through June 30, 2023. The tax provision during the six months ended June 30, 2022 primarily resulted from foreign income inclusions, such as GILTI, and the year-to-date consolidated income through June 30, 2022.

 

Liquidity and Capital Resources

 

At June 30, 2023, our cash and cash equivalents totaled $61.6 million. Total cash and cash equivalents decreased by $8.1 million from December 31, 2022 to June 30, 2023, primarily due to cash used in operating activities and the dividends paid during the first six months of 2023. We consider all highly liquid investments with original maturities of three months or less, when purchased, to be cash equivalents. As of June 30, 2023, we had $50.5 million in available-for-sale investments classified as cash equivalents. In addition, cash and cash equivalents included $3.8 million held in banks located within China subject to foreign currency controls.

 

As of June 30, 2023, the ratio of current assets to current liabilities was 3.2 to 1.0 and we had $48.4 million of working capital. Working capital as of June 30, 2023 decreased $8.7 million compared to our working capital as of December 31, 2022.

 

Cash used in operations was $3.3 million and $3.5 million for the first six months of 2023 and 2022, respectively. Income tax paid during April 2023 and 2022 for the repatriation tax on the deemed repatriation of deferred foreign income was $3.0 million and $1.6 million, respectively. Disregarding these payments, cash used in operations improved $1.6 million primarily due to more orders received during the first six months of 2023 compared to the prior year, as well as less employee-related payouts in the first six months of 2023 compared to the prior year.

 

Cash flows used in investing activities totaled $14,000 and $78,000 during the first six months of 2023 and 2022, respectively.

 

Cash flows used in financing activities during the first six months of 2023 and 2022 consisted solely of quarterly dividend payments of $0.20 per common share, totaling $4.6 million in each period. Subsequent to June 30, 2023, on July 31, 2023, the Board of Directors declared another quarterly cash dividend of $0.20 on each share of common stock outstanding. The dividend will be payable on August 25, 2023 to stockholders of record on August 15, 2023. We expect to continue paying a quarterly cash dividend of $0.20 on each share of common stock outstanding for the foreseeable future. However, 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.

 

On January 12, 2016, the Board of Directors authorized an increase to the Company’s stock repurchase program first approved on July 28, 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. As of June 30, 2023, $21.9 million of the $70.0 million stock repurchase program remained available for future purchases, inclusive of related estimated income tax.

 

We believe that our existing internal liquidity, supported by cash on hand and cash flows from operations, should be adequate to fund normal business operations and address our financial commitments for the foreseeable future.

 

We do not have any significant unused sources of liquid assets. If necessary, we may attempt to generate more funding from the capital markets, but currently we do not believe that will be necessary.

 

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Our priority is to focus our resources on investing in our most important markets, which we consider to be Greater China and countries where our existing members may have the connections to recruit prospects and sell our products, such as Southeast Asia, India, South America and Europe. We will continue to invest in our Mainland China entity for such purposes as establishing China-based manufacturing capabilities, increasing public awareness of our brand and our products, sourcing more Chinese-made products, building a chain of service stations, opening additional Healthy Lifestyle Centers or branch offices, adding local staffing and other requirements for a prospective China direct selling license application.

 

Critical Accounting Policies and Estimates 

 

A summary of our significant accounting policies is provided in Note 1 of the Notes to Consolidated Financial Statements in “Item 8. Financial Statements and Supplementary Data” of our Annual Report on Form 10-K filed with the United States Securities and Exchange Commission (SEC) on March 3, 2023. The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reported period. The process of determining significant estimates is fact specific and takes into account historical experience and current and expected economic conditions. To the extent that there are material differences between the estimates and actual results, future results of operations will be affected.

 

Critical accounting policies and estimates are defined as both those that are material to the portrayal of our financial condition and results of operations and as those that require management’s most subjective judgments.  Management believes our critical accounting policies and estimates are those related to revenue recognition, as well as those used in the determination of liabilities related to member commissions and income taxes.

 

Revenue Recognition. All revenue is recognized when the performance obligations under a contract, including product vouchers sold on a stand-alone basis in Hong Kong, are satisfied. Product sales are recorded when the products are shipped and title passes to independent members. Product sales to members are made pursuant to a member agreement that provides for transfer of both title and risk of loss upon our delivery to the carrier that completes delivery to the members, which is commonly referred to as “F.O.B. Shipping Point.” We primarily receive payment by credit card at the time members place orders. Our sales arrangements do not contain right of inspection or customer acceptance provisions other than general rights of return. Amounts received for unshipped product orders and unredeemed product vouchers are recorded as deferred revenue. Such amounts totaled $5.1 million and $3.8 million at June 30, 2023 and December 31, 2022, respectively. Shipping charges billed to members are included in net sales. Costs associated with shipments are included in cost of sales. Event and training revenue is deferred and recognized as the event or training occurs.

 

Additionally, deferred revenue includes advances for auto ship orders. In certain markets, when a member’s cumulative commission income reaches a certain threshold, a percentage of the member’s weekly commission is held back as an advance and applied to an auto ship order once the accumulated amount of the advances is sufficient to pay for the pre-selected auto ship package of the member.  Such advances were $1.8 million at both June 30, 2023 and December 31, 2022.

 

Commissions Expense. Independent members earn commissions based on total personal and group bonus volume points per weekly sales period.  Each of our products are designated a specified number of bonus volume points, which is essentially a percentage of the product’s wholesale price.  We accrue commissions when earned and as the related revenue is recognized and pay commissions on product sales generally two weeks following the end of the weekly sales period.

 

Independent members may also earn incentives based on meeting certain qualifications during a designated incentive period, which may range from several weeks to up to a year.  For each individual incentive, we estimate the total number of qualifiers as well as the expected per qualifier cost and accrue all costs associated with incentives throughout the qualification period. We regularly review and update, if necessary, the estimates of both qualifiers and cost as more information is obtained during the qualification period. Any resulting change in total cost is recognized over the remaining qualification period. Long-term promotions and incentives (lasting up to one year) can, in particular, result in uncertain ultimate cost. Accrued commissions, including the estimated cost of our international recognition incentive program and other supplemental programs, totaled $2.6 million and $2.9 million at June 30, 2023 and December 31, 2022, respectively.

 

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Income Taxes. Deferred income taxes are recognized for differences between the financial reporting and tax bases of assets and liabilities at enacted statutory rates for the years in which the temporary differences are expected to be recovered or settled. We evaluate the probability of realizing the future benefits of any of our deferred tax assets and record a valuation allowance when we believe a portion or all of our deferred tax assets may not be realized. Deferred tax expense or benefit is a result of changes in deferred tax assets and liabilities. Based on the technical merits of our tax position, tax benefits may be recognized if we determine it is more likely than not that our position will be sustained on examination by tax authorities. The complex nature of these estimates requires us to anticipate the likely application of tax law and make judgments on the largest benefit that has a greater than fifty percent likelihood of being realized prior to the completion and filing of tax returns for such periods. As of June 30, 2023, we do not have a valuation allowance against our U.S. deferred tax assets. We maintain a valuation allowance in certain foreign jurisdictions with an overall tax loss. The valuation allowance will be reduced at such time as management believes it is more likely than not that the deferred tax assets will be realized. Any reductions in the valuation allowance will reduce future income tax provision.

 

Provision for income taxes depends on the statutory tax rates in each of the jurisdictions in which we operate. As a result of capital return activities, we determined that a portion of our current undistributed foreign earnings are not deemed reinvested indefinitely by our non-U.S. subsidiaries. The U.S. Tax Cuts and Jobs Act (the “Tax Act”), enacted on December 22, 2017 by the U.S. government, required a one-time repatriation tax on certain un-repatriated earnings of foreign subsidiaries at a rate of 15.5% tax on post-1986 foreign earnings held in cash and an 8% rate on all other post-1986 earnings. Due to the adoption of a territorial tax regime, any foreign source portion of a qualified dividend received by a 10% U.S. corporate shareholder is exempt from U.S. federal tax, therefore resulting in any future repatriation having a minimal effect on our effective tax rate. For state income tax purposes, we will continue to periodically reassess the needs of our foreign subsidiaries and update our indefinite reinvestment assertion as necessary. To the extent that additional foreign earnings are not deemed permanently reinvested, we expect to recognize additional income tax provision at the applicable U.S. state corporate tax rate(s). As of June 30, 2023, we have not recorded a state deferred tax liability for earnings to be repatriated in the future because the portion of all earnings which are no longer deemed reinvested indefinitely as of June 30, 2023 have already been repatriated. All undistributed earnings in excess of 50% of current earnings on an annual basis are intended to be reinvested indefinitely as of June 30, 2023.

 

The Company has analyzed the finalized U.S. tax regulations published by the U.S. Treasury and Internal Revenue Service on January 4, 2022. These regulations overhaul various components of the foreign tax credit regime including the determination of creditable foreign taxes and limit the amount of foreign taxes that are creditable against U.S. income taxes. These regulations are generally effective on March 7, 2022 and may limit the Company’s ability to claim credits on certain foreign taxes. Although the Company is still analyzing the full impact of the regulations, the Company does not expect a material impact to the Company’s financial statements as a result of these final regulations.

 

We estimate what our effective tax rate will be for the full fiscal year at each interim reporting period and record a quarterly tax provision based on that estimated effective tax rate. Throughout the year that estimated rate may change based on variations in our business, changes in our corporate structure, changes in the geographic mix and amount of income, applicable tax laws and regulations, communications with tax authorities, as well as our estimated and actual level of annual pre-tax income. We adjust our income tax provision in the reporting period in which the change in our estimated rate occurs so that the year-to-date provision is consistent with the anticipated annual tax rate. The Company’s effective tax rate projected for the year ending December 31, 2023 differs from its actual tax rate for the year ended December 31, 2022 primarily as a result of an anticipated increase in income in our foreign operations during the year ended December 31, 2023.

 

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable under smaller reporting company disclosure rules.

 

Item 4. CONTROLS AND PROCEDURES

 

Disclosure Controls and Procedures

 

Management, with the participation of the Company’s principal executive officer and principal financial officer, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of June 30, 2023. The Company’s disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to management, including the Company’s principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. Based on this evaluation, the principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of June 30, 2023.

 

Changes in Internal Control over Financial Reporting

 

There were no changes in internal control over financial reporting that occurred during the fiscal quarter ended June 30, 2023 that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting.

 

23
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PART II — OTHER INFORMATION

 

 

Item 1. LEGAL PROCEEDINGS

 

None.

 

Item 1A. RISK FACTORS

 

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, 2022, 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, 2022.

 

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

None.

 

Item 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

Item 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

Item 5. OTHER INFORMATION

 

None.

 

Item 6. EXHIBITS

 

Exhibit

Number

 

 

Exhibit Description

 

 

 

31.1

 

Certification of Principal Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2

 

Certification of Principal Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1

 

Certifications of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     

101.INS

 

Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

101.SCH

 

Inline XBRL Taxonomy Extension Schema

101.CAL

 

Inline XBRL Taxonomy Extension Calculation

101.DEF

 

Inline XBRL Taxonomy Extension Definition

101.LAB

 

Inline XBRL Taxonomy Extension Labels

101.PRE

 

Inline XBRL Taxonomy Extension Presentation
104   Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

NATURAL HEALTH TRENDS CORP.

 

 

 

 

Date: August 2, 2023

/s/ Timothy S. Davidson

 

 

Timothy S. Davidson

 

 

Senior Vice President and Chief Financial Officer

 

 

(Principal Financial Officer)

 

 

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EXHIBIT INDEX

 

Exhibit

Number

 

Exhibit Description

 

 

 

31.1

 

Certification of Principal Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2

 

Certification of Principal Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1

 

Certifications of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     

101.INS

 

Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

101.SCH

 

Inline XBRL Taxonomy Extension Schema

101.CAL

 

Inline XBRL Taxonomy Extension Calculation

101.DEF

 

Inline XBRL Taxonomy Extension Definition

101.LAB

 

Inline XBRL Taxonomy Extension Labels

101.PRE

 

Inline XBRL Taxonomy Extension Presentation
104   Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

 

26

EXHIBIT 31.1

 

CERTIFICATION

 

I, Chris T. Sharng, certify that:

 

1. I have reviewed this Quarterly Report on Form 10-Q of Natural Health Trends Corp.;

 

2.  Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.  Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.  The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

a)     Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b)     Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c)     Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d)     Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

 

5.  The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

 

a)     All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

 

b)     Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: August 2, 2023

/s/ Chris T. Sharng

 

 

Chris T. Sharng

 

 

President

 

 

(Principal Executive Officer)

 

 

 

EXHIBIT 31.2

 

CERTIFICATION

 

I, Timothy S. Davidson, certify that:

 

1. I have reviewed this Quarterly Report on Form 10-Q of Natural Health Trends Corp.;

 

2.  Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.  Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.  The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

a)     Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b)     Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c)     Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d)     Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

 

5.  The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

 

a)     All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

 

b)     Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: August 2, 2023

/s/ Timothy S. Davidson

 

 

Timothy S. Davidson

 

 

Senior Vice President and Chief Financial Officer

 

 

(Principal Financial Officer)

 

 

 

EXHIBIT 32.1

 

 

CERTIFICATIONS PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Quarterly Report of Natural Health Trends Corp. (the “Company”) on Form 10-Q for the period ended June 30, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, Chris T. Sharng, the Principal Executive Officer, and Timothy S. Davidson, the Principal Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of our knowledge:

 

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date: August 2, 2023

/s/ Chris T. Sharng

 
 

Chris T. Sharng

 

 

President

 

 

(Principal Executive Officer)

 

 

 

 

 

 

 

Date: August 2, 2023

/s/ Timothy S. Davidson

 

 

Timothy S. Davidson

 

 

Senior Vice President and Chief Financial Officer

 

 

(Principal Financial Officer)

 

 

 

The foregoing certifications are not deemed filed with the Securities and Exchange Commission for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (Exchange Act), and are not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Exchange Act, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

 

 
v3.23.2
Document And Entity Information - shares
 6 Months Ended
Jun. 30, 2023
Jul. 28, 2023
Document Information [Line Items]    
Entity Central Index Key 0000912061  
Entity Registrant Name Natural Health Trends Corp.  
Amendment Flag false  
Current Fiscal Year End Date --12-31  
Document Fiscal Period Focus Q2  
Document Fiscal Year Focus 2023  
Document Type 10-Q  
Document Quarterly Report true  
Document Period End Date Jun. 30, 2023  
Document Transition Report false  
Entity File Number 001-36849  
Entity Incorporation, State or Country Code DE  
Entity Tax Identification Number 59-2705336  
Entity Address, Address Line One 132 Nathan Road  
Entity Address, City or Town Tsimshatsui  
Entity Address, Country HK  
City Area Code 852  
Local Phone Number 3107-0800  
Title of 12(b) Security Common Stock, par value $0.001 per share  
Trading Symbol NHTC  
Security Exchange Name NASDAQ  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Non-accelerated Filer  
Entity Small Business true  
Entity Emerging Growth Company false  
Entity Shell Company false  
Entity Common Stock, Shares Outstanding   11,516,773
v3.23.2
Consolidated Balance Sheets (Current Period Unaudited) - USD ($)
$ in Thousands
Jun. 30, 2023
Dec. 31, 2022
Current assets:    
Cash and cash equivalents $ 61,567 $ 69,667
Inventories 4,715 4,525
Other current assets 3,665 3,359
Total current assets 69,947 77,551
Property and equipment, net 311 394
Operating lease right-of-use assets 3,601 3,992
Restricted cash 38 79
Deferred tax asset 273 195
Other assets 646 606
Total assets 74,816 82,817
Current liabilities:    
Accounts payable 725 810
Income taxes payable 3,939 2,972
Accrued commissions 2,562 2,943
Other accrued expenses 1,235 1,181
Deferred revenue 6,851 5,597
Amounts held in eWallets 4,335 4,895
Operating lease liabilities 1,054 1,135
Other current liabilities 837 905
Total current liabilities 21,538 20,438
Income taxes payable 5,054 9,098
Deferred tax liability 140 141
Operating lease liabilities 2,659 2,989
Total liabilities 29,391 32,666
Commitments and contingencies (Note 7)
Preferred stock, $0.001 par value; 5,000,000 shares authorized; no shares issued and outstanding 0 0
Common stock, $0.001 par value; 50,000,000 shares authorized; 12,979,414 shares issued at June 30, 2023 and December 31, 2022 13 13
Additional paid-in capital 84,558 86,102
Accumulated deficit (13,626) (9,056)
Accumulated other comprehensive loss (1,245) (1,004)
Treasury stock, at cost; 1,458,975 and 1,556,875 shares at June 30, 2023 and December 31, 2022, respectively (24,275) (25,904)
Total stockholders’ equity 45,425 50,151
Total liabilities and stockholders’ equity $ 74,816 $ 82,817
v3.23.2
Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - $ / shares
Jun. 30, 2023
Dec. 31, 2022
Preferred stock, par value (in dollars per share) $ 0.001 $ 0.001
Preferred stock, authorized (in shares) 5,000,000 5,000,000
Preferred stock, issued (in shares) 0 0
Preferred stock, outstanding (in shares) 0 0
Common stock, par value (in dollars per share) $ 0.001 $ 0.001
Common stock, authorized (in shares) 50,000,000 50,000,000
Common stock, issued (in shares) 12,979,414 12,979,414
Treasury stock, shares (in shares) 1,458,975 1,556,875
v3.23.2
Consolidated Statements of Operations (Unaudited) - USD ($)
shares in Thousands, $ in Thousands
 3 Months Ended 6 Months Ended
Jun. 30, 2023
Jun. 30, 2022
Jun. 30, 2023
Jun. 30, 2022
Net sales $ 10,511 $ 13,360 $ 22,372 $ 24,906
Cost of sales 2,666 3,392 5,697 6,300
Gross profit 7,845 9,968 16,675 18,606
Operating expenses:        
Commissions expense 4,508 5,767 9,500 10,507
Selling, general and administrative expenses 4,080 3,986 8,312 8,267
Total operating expenses 8,588 9,753 17,812 18,774
Income (loss) from operations (743) 215 (1,137) (168)
Other income, net 442 175 1,123 285
Income (loss) before income taxes (301) 390 (14) 117
Income tax provision (benefit) (82) 207 (52) 39
Net income (loss) $ (219) $ 183 $ 38 $ 78
Net income (loss) per common share:        
Basic (in dollars per share) $ (0.02) $ 0.02 $ 0.00 $ 0.01
Diluted (in dollars per share) $ (0.02) $ 0.02 $ 0.00 $ 0.01
Weighted average common shares outstanding:        
Basic (in shares) 11,432 11,346 11,428 11,300
Diluted (in shares) 11,432 11,424 11,439 11,424
v3.23.2
Consolidated Statements of Comprehensive Loss (Unaudited) - USD ($)
$ in Thousands
 3 Months Ended 6 Months Ended
Jun. 30, 2023
Jun. 30, 2022
Jun. 30, 2023
Jun. 30, 2022
Net income (loss) $ (219) $ 183 $ 38 $ 78
Other comprehensive income (loss), net of tax:        
Foreign currency translation adjustment (152) (256) (249) (461)
Unrealized gains on available-for-sale securities 11 36 8 13
Comprehensive loss $ (360) $ (37) $ (203) $ (370)
v3.23.2
Consolidated Statements of Stockholders' Equity (Unaudited) - USD ($)
$ in Thousands
Preferred Stock [Member]
Common Stock [Member]
Additional Paid-in Capital [Member]
Retained Earnings [Member]
AOCI Attributable to Parent [Member]
Treasury Stock, Common [Member]
Total
BALANCE (in shares) at Dec. 31, 2021 0 12,979,414       (1,556,875)  
Balance at Dec. 31, 2021 $ 0 $ 13 $ 86,102 $ (231) $ (492) $ (25,904) $ 59,488
Net income 0 0 0 (105) 0 0 (105)
Dividends declared 0 0 0 (2,285) 0 0 (2,285)
Foreign currency translation adjustments 0 0 0 0 (205) 0 (205)
Unrealized gains on available-for-sale securities $ 0 $ 0 0 0 (23) $ 0 (23)
BALANCE (in shares) at Mar. 31, 2022 0 12,979,414       (1,556,875)  
Balance at Mar. 31, 2022 $ 0 $ 13 86,102 (2,621) (720) $ (25,904) 56,870
BALANCE (in shares) at Dec. 31, 2021 0 12,979,414       (1,556,875)  
Balance at Dec. 31, 2021 $ 0 $ 13 86,102 (231) (492) $ (25,904) 59,488
Net income             78
Foreign currency translation adjustments             (461)
Unrealized gains on available-for-sale securities             13
BALANCE (in shares) at Jun. 30, 2022 0 12,979,414       (1,556,875)  
Balance at Jun. 30, 2022 $ 0 $ 13 86,102 (4,723) (940) $ (25,904) 54,548
BALANCE (in shares) at Mar. 31, 2022 0 12,979,414       (1,556,875)  
Balance at Mar. 31, 2022 $ 0 $ 13 86,102 (2,621) (720) $ (25,904) 56,870
Net income 0 0 0 183 0 0 183
Dividends declared 0 0 0 (2,285) 0 (2,285)
Foreign currency translation adjustments 0 0 0 0 (256) 0 (256)
Unrealized gains on available-for-sale securities $ 0 $ 0 0 0 36 $ 0 36
BALANCE (in shares) at Jun. 30, 2022 0 12,979,414       (1,556,875)  
Balance at Jun. 30, 2022 $ 0 $ 13 86,102 (4,723) (940) $ (25,904) 54,548
BALANCE (in shares) at Dec. 31, 2022 0 12,979,414       (1,556,875)  
Balance at Dec. 31, 2022 $ 0 $ 13 86,102 (9,056) (1,004) $ (25,904) 50,151
Net income $ 0 $ 0 0 257 0 $ 0 257
Reissuance of treasury shares (in shares) 0 0       97,900  
Reissuance of treasury shares $ 0 $ 0 (1,629) 0 0 $ 1,629 0
Share-based compensation 0 0 46 0 0 0 46
Dividends declared 0 0 0 (2,304) 0 0 (2,304)
Foreign currency translation adjustments 0 0 0 0 (97) 0 (97)
Unrealized gains on available-for-sale securities $ 0 $ 0 0 0 (3) $ 0 (3)
BALANCE (in shares) at Mar. 31, 2023 0 12,979,414       (1,458,975)  
Balance at Mar. 31, 2023 $ 0 $ 13 84,519 (11,103) (1,104) $ (24,275) 48,050
BALANCE (in shares) at Dec. 31, 2022 0 12,979,414       (1,556,875)  
Balance at Dec. 31, 2022 $ 0 $ 13 86,102 (9,056) (1,004) $ (25,904) 50,151
Net income             38
Foreign currency translation adjustments             (249)
Unrealized gains on available-for-sale securities             8
BALANCE (in shares) at Jun. 30, 2023 0 12,979,414       (1,458,975)  
Balance at Jun. 30, 2023 $ 0 $ 13 84,558 (13,626) (1,245) $ (24,275) 45,425
BALANCE (in shares) at Mar. 31, 2023 0 12,979,414       (1,458,975)  
Balance at Mar. 31, 2023 $ 0 $ 13 84,519 (11,103) (1,104) $ (24,275) 48,050
Net income 0 0 0 (219) 0 0 (219)
Share-based compensation 0 0 39 0 0 0 39
Dividends declared 0 0 0 (2,304) 0 0 (2,304)
Foreign currency translation adjustments 0 0 0 0 (152) 0 (152)
Unrealized gains on available-for-sale securities $ 0 $ 0 0 0 11 $ 0 11
BALANCE (in shares) at Jun. 30, 2023 0 12,979,414       (1,458,975)  
Balance at Jun. 30, 2023 $ 0 $ 13 $ 84,558 $ (13,626) $ (1,245) $ (24,275) $ 45,425
v3.23.2
Consolidated Statements of Stockholders' Equity (Unaudited) (Parentheticals) - $ / shares
 3 Months Ended 6 Months Ended
Jun. 30, 2023
Mar. 31, 2023
Jun. 30, 2022
Mar. 31, 2022
Jun. 30, 2023
Jun. 30, 2022
Dividends declared, per share (in dollars per share) $ 0.20 $ 0.20 $ 0.20 $ 0.20 $ 0.20 $ 0.20
v3.23.2
Consolidated Statements of Cash Flows (Unaudited) - USD ($)
$ in Thousands
 6 Months Ended
Jun. 30, 2023
Jun. 30, 2022
CASH FLOWS FROM OPERATING ACTIVITIES:    
Net income $ 38 $ 78
Adjustments to reconcile net income to net cash used in operating activities:    
Depreciation and amortization 91 106
Share-based compensation 85 0
Noncash lease expense 564 599
Deferred income taxes (82) 12
Changes in assets and liabilities:    
Inventories (228) 7
Other current assets (362) 1,002
Other assets (52) 1
Accounts payable (82) 2
Income taxes payable (3,076) (1,390)
Accrued commissions (374) (531)
Other accrued expenses 68 (132)
Deferred revenue 1,270 (1,788)
Amounts held in eWallets (541) (862)
Operating lease liabilities (595) (600)
Other current liabilities (64) (4)
Net cash used in operating activities (3,340) (3,500)
CASH FLOWS FROM INVESTING ACTIVITIES:    
Purchases of property and equipment (14) (78)
Net cash used in investing activities (14) (78)
CASH FLOWS FROM FINANCING ACTIVITIES:    
Dividends paid (4,608) (4,570)
Net cash used in financing activities (4,608) (4,570)
Effect of exchange rates on cash, cash equivalents and restricted cash (179) (506)
Net decrease in cash, cash equivalents and restricted cash (8,141) (8,654)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, beginning of period 69,746 84,365
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of period 61,605 75,711
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:    
Right-of-use assets obtained in exchange for operating lease liabilities $ (125) $ 77
v3.23.2
Note 1 - Nature of Operations and Summary of Significant Accounting Policies
 6 Months Ended
Jun. 30, 2023
Notes to Financial Statements  
Business Description and Basis of Presentation [Text Block]

1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Nature of Operations 

 

Natural Health Trends Corp., a Delaware corporation (whether or not including its subsidiaries, the “Company”), is an international direct-selling and e-commerce company. Subsidiaries controlled by the Company sell personal care, wellness, and “quality of life” products under the “NHT Global” brand.

 

The Company’s wholly-owned subsidiaries have an active physical presence in the following markets: the Americas, which consists of the United States, Canada, Cayman Islands, Mexico and Peru; Greater China, which consists of Hong Kong, Taiwan and China; Southeast Asia, which consists of Malaysia, Singapore and Thailand; South Korea; Japan; India; and Europe. The Company also operates in Russia and Kazakhstan through an engagement with a local service provider.

 

Basis of Presentation 

 

The unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. As a result, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. In the opinion of management, the accompanying unaudited interim consolidated financial statements contain all adjustments, consisting of normal recurring adjustments, considered necessary for a fair statement of the Company’s financial information for the interim periods presented. The results of operations of any interim period are not necessarily indicative of the results of operations to be expected for the fiscal year. These consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company’s 2022 Annual Report on Form 10-K filed with the United States Securities and Exchange Commission (SEC) on March 3, 2023.

 

Principles of Consolidation

 

The consolidated financial statements include the accounts of the Company and all of its wholly-owned subsidiaries. All significant inter-company balances and transactions have been eliminated in consolidation.

 

Cash and Cash Equivalents

 

The Company maintains substantially all of its cash balances at several institutions located in the United States, Hong Kong and China which at times may exceed insured limits. As of June 30, 2023, there was $33,000 and $2.2 million in bank accounts located in the United States and Hong Kong, respectively, in excess of insured limits. As of June 30, 2023, cash and cash equivalents included $3.8 million held in bank accounts located in China subject to foreign currency controls. The Company has not experienced any losses on such accounts. See Note 4 for additional information regarding the Company's investments in cash equivalents held in brokerage accounts. The Company believes that it is not exposed to significant credit risk due to the financial strength of the depository institutions in which its cash and cash equivalents are held.

 

Net Income (Loss) Per Common Share

 

Diluted net income per common share is determined using the weighted-average number of common shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents. The dilutive effect of non-vested restricted stock is reflected by application of the treasury stock method. Under the treasury stock method, the amount of compensation cost for future service that the Company has not yet recognized, if any, is assumed to be used to repurchase shares.

 

The following table illustrates the computation of basic and diluted net income per common share for the periods indicated (in thousands, except per share data):

 

  

Three Months Ended June 30,

 
  

2023

  

2022

 
  

Loss (Numerator)

  

Shares (Denominator)

  

Per Share Amount

  

Income (Numerator)

  

Shares (Denominator)

  

Per Share Amount

 

Basic net income (loss) per common share:

                        

Net income (loss) available to common stockholders

 $(219)  11,432  $(0.02) $183   11,346  $0.02 

Effect of dilutive securities:

                        

Non-vested restricted stock

  —   —       —   78     

Diluted net income per common share:

                        

Net income (loss) available to common stockholders plus assumed dilution

 $(219)  11,432  $(0.02) $183   11,424  $0.02 

 

  

Six Months Ended June 30,

 
  

2023

  

2022

 
  

Income (Numerator)

  

Shares (Denominator)

  

Per Share Amount

  

Income (Numerator)

  

Shares (Denominator)

  

Per Share Amount

 

Basic net income per common share:

                        

Net income available to common stockholders

 $38   11,428  $0.00  $78   11,300  $0.01 

Effect of dilutive securities:

                        

Non-vested restricted stock

  —   11       —   124     

Diluted net income per common share:

                        

Net income available to common stockholders plus assumed dilution

 $38   11,439  $0.00  $78   11,424  $0.01 

 

In periods when losses are reported, the weighted-average number of common shares outstanding excludes common stock equivalents because their inclusion would be anti-dilutive. As such, non-vested restricted stock totaling 15,133 shares were not included for the three months ended June 30, 2023.

 

Recent Accounting Pronouncements

 

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which introduced an expected credit loss model for the impairment of financial assets measured at amortized cost basis and added Topic 326 to the FASB Accounting Standards Codification (“ASC”). In November 2019, the FASB issued ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments - Credit Losses. The amendments to ASU 2019-11 clarify, correct and make improvements to Topic 326. ASU 2016-13 as well as the updates in ASU 2019-11 are effective for interim and annual periods beginning after December 15, 2022. The adoption of this standard did not have a material impact on the Company's financial statements.

 

Other recently issued accounting pronouncements did not or are not believed by management to have a material impact on the Company’s present or future financial statements.
v3.23.2
Note 2 - Revenue
 6 Months Ended
Jun. 30, 2023
Notes to Financial Statements  
Revenue from Contract with Customer [Text Block]

2. REVENUE

 

Revenue Recognition

 

All revenue is recognized when the performance obligations under a contract, including any product vouchers sold on a stand-alone basis in Hong Kong, are satisfied. Product sales are recognized when the products are shipped and title passes to independent members. Product sales to members are made pursuant to a member agreement that provides for transfer of both title and risk of loss upon the Company’s delivery to the carrier that completes delivery to the members, which is commonly referred to as “F.O.B. Shipping Point.” The Company’s sales arrangements do not contain right of inspection or customer acceptance provisions other than general rights of return. These contracts are generally short-term in nature.

 

Actual product returns are recorded as a reduction to net sales. The Company estimates and accrues a reserve for product returns based on its return policies and historical experience. The reserve is based upon the return policy of each country, which varies from 14 days to one year, and their historical return rates, which range from 1% to 4% of sales.  Sales returns were 1% of sales for each of the six months ended June 30, 2023 and 2022.  No material changes in estimates have been recognized during the periods presented. See Note 3 for additional information.

 

The Company has elected to account for shipping and handling activities performed after title has passed to members as a fulfillment cost, and accrues for the costs of shipping and handling if revenue is recognized before the contractually obligated shipping and handling activities occurs. Shipping charges billed to members are included in net sales. Costs associated with shipments are included in cost of sales. Event and training revenue is deferred and recognized as the event or training occurs. Costs of events and member training are included within selling, general and administrative expenses.

 

Various taxes on the sale of products to members are collected by the Company as an agent and remitted to the respective taxing authority. These taxes are presented on a net basis and recorded as a liability until remitted to the respective taxing authority.

 

Deferred Revenue

 

The Company primarily receives payment by credit card at the time members place orders. Amounts received for unshipped product orders and unredeemed product vouchers are considered a contract liability and are recorded as deferred revenue. As of June 30, 2023 and December 31, 2022, the Company had $5.1 million and $3.8 million, respectively, of contract liabilities where performance obligations have not yet been satisfied. The Company expects to satisfy its remaining performance obligations and recognize the revenue within the next twelve months.

 

Disaggregation of Revenue

 

The Company sells products to a member network that operates in a seamless manner from market to market, except for the Chinese market where it sells to consumers through an e-commerce retail platform and the Russia and Kazakhstan market where the Company operates through an engagement of a third-party service provider. See Note 11 for revenue by market information.

 

The Company’s net sales by product and service are as follows (in thousands):

 

  

Three Months Ended June 30,

  

Six Months Ended June 30,

 
  

2023

  

2022

  

2023

  

2022

 

Product sales

 $10,154  $12,033  $21,202  $22,355 

Administrative fees, freight and other

  410   1,373   1,255   2,630 

Less: sales returns

  (53)  (46)  (85)  (79)

Total net sales

 $10,511  $13,360  $22,372  $24,906 

 

Concentration

 

No single market other than Hong Kong had net sales greater than 10% of total net sales. Sales are made to the Company’s members and no single customer accounted for 10% or more of net sales for the three and six months ended June 30, 2023 and 2022. However, the Company’s business model can result in a concentration of sales to several different members and their network of members. Although no single member accounted for 10% or more of net sales, the loss of a key member or that member’s network could have an adverse effect on the Company’s net sales and financial results.

 

Arrangements with Multiple Performance Obligations

 

The Company’s contracts with customers may include multiple performance obligations. For such arrangements, the Company allocates revenues to each performance obligation based on its relative standalone selling price. The Company generally determines standalone selling prices based on the prices charged for individual products to similar customers.

 

Practical Expedients

 

The Company generally expenses sales commissions when incurred because the amortization period would have been one year or less. These costs are recorded in commissions expense.

 

The Company does not provide certain disclosures about unsatisfied performance obligations for contracts with an original expected length of one year or less.

 
v3.23.2
Note 3 - Balance Sheet Components
 6 Months Ended
Jun. 30, 2023
Notes to Financial Statements  
Supplemental Balance Sheet Disclosures [Text Block]

3. BALANCE SHEET COMPONENTS

 

The components of certain balance sheet amounts are as follows (in thousands):

 

   

June 30, 2023

    

December 31, 2022

  

Cash, cash equivalents and restricted cash:

                

Cash

   $ 11,065     $ 12,834  

Cash equivalents

     50,502       56,833  
      61,567       69,667  

Restricted cash

     38       79  
    $ 61,605     $ 69,746  

Inventories:

                

Finished goods

   $ 3,804     $ 3,653  

Raw materials

     929       890  

Reserve for obsolescence

     (18 )     (18 )
    $ 4,715     $ 4,525  

Other accrued expenses:

                

Sales returns

   $ 53     $ 70  

Employee-related expense

     595       737  

Warehousing, inventory-related and other

     587       374  
    $ 1,235     $ 1,181  

Deferred revenue:

                

Unshipped product and unredeemed product vouchers

   $ 5,097     $ 3,822  

Auto ship advances

     1,754       1,775  
    $ 6,851     $ 5,597  

 
v3.23.2
Note 4 - Fair Value Measurements
 6 Months Ended
Jun. 30, 2023
Notes to Financial Statements  
Fair Value Disclosures [Text Block]

4. FAIR VALUE MEASUREMENTS

 

As of June 30, 2023, cash and cash equivalents include the Company’s investments in money market funds, government and municipal debt securities, and corporate debt securities. The Company considers all highly liquid investments with original maturities of three months or less when purchased and have insignificant interest rate risk to be cash equivalents.  Debt securities classified as cash equivalents are required to be accounted for in accordance with the FASB ASC 320, Investments - Debt and Equity Securities. As such, the Company determined its investments in debt securities held at June 30, 2023 should be classified as available-for-sale and are carried at fair value with unrealized gains and losses reported in stockholders’ equity. The cost of debt securities is adjusted for amortization of premiums and discounts to maturity. This amortization is included in other income (expense). Realized gains and losses, as well as interest income, are also included in other income (expense). The fair values of securities are based on quoted market prices to the extent available or alternative pricing sources and models utilizing market observable inputs.

 

The carrying amounts of the Company’s financial instruments, including cash and accounts payable, approximate fair value because of their short maturities. The carrying amount of the noncurrent restricted cash approximates fair value since, absent the restrictions, the underlying assets would be included in cash and cash equivalents.

 

Accounting standards permit companies, at their option, to choose to measure many financial instruments and certain other items at fair value.  The Company has elected to not fair value existing eligible items.

 

Investments by significant category included in cash equivalents at the end of each period were as follows (in thousands):

 

     

June 30, 2023

    

December 31, 2022

  
 

Fair Value Level1

  

Adjusted Cost

    

Gross Unrealized Gains (Losses)

    

Fair Value

    

Adjusted Cost

    

Gross Unrealized Losses

    

Fair Value

  

Money market funds

Level 1

   $ 994     $ —     $ 994     $ 2,143     $ —     $ 2,143  

Government and municipal debt securities

Level 2

     28,343       2       28,345       6,759       —       6,759  

Corporate debt securities

Level 2

     21,173       (10 )     21,163       47,947       (16 )     47,931  

Total investments

   $ 50,510     $ (8 )   $ 50,502     $ 56,849     $ (16 )   $ 56,833  

 

 

1 FASB Topic 820, Fair Value Measurements, establishes a fair value hierarchy that requires the use of observable market data, when available, and prioritizes the inputs to valuation techniques used to measure fair value in the following categories:

Level 1: Quoted market prices in active markets for identical assets or liabilities.

Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.

Level 3: Unobservable inputs that are not corroborated by market data.

 

As of June 30, 2023, the Company's unrealized losses result from investments in an unrealized loss position for less than 12 months. The gross unrealized losses related to these investments were primarily driven by factors other than credit risk, including market risk. The Company anticipates that it will recover the entire amortized cost basis of such available-for-sale debt securities and has determined that no allowance was required to be recognized during the three and six months ended June 30, 2023 and 2022.
v3.23.2
Note 5 - Leases
 6 Months Ended
Jun. 30, 2023
Notes to Financial Statements  
Lessee, Operating Leases [Text Block]

5. LEASES

 

The Company leases 7,300 square feet of office space in Hong Kong with a term expiring in June 2026, and 4,900 square feet of office space in Rolling Hills Estates, California for its corporate staff with a term expiring in September 2030. To help further develop the market for its products in North America, the Company leases 1,600 square feet of retail space in each of Rowland Heights, California and Richmond, British Columbia and 2,000 square feet of retail space in Metuchen, New Jersey. The Rowland Heights, Richmond and Metuchen locations have terms expiring in November 2025, February 2024 and December 2028, respectively.

 

The Company leases seven branch offices throughout China, and additional office space in Peru, Japan, Taiwan, South Korea, Malaysia, Singapore, Thailand, India and the Cayman Islands. The Company contracts with third parties for fulfillment and distribution operations in all of its international markets. None of the Company’s third party logistics contracts contain a lease as the Company does not have the right to access the warehouses or move its inventories at will.

 

The components of lease cost were as follows (in thousands):

 

  

Three Months Ended June 30,

  

Six Months Ended June 30,

 
  

2023

  

2022

  

2023

  

2022

 

Operating leases

 $321  $328  $651  $662 

Short-term leases

  39   42   76   88 

Total lease cost

 $360  $370  $727  $750 

 

Cash paid for amounts included in the measurement of operating leases liabilities was $331,000 and $315,000 for the three months ended  June 30, 2023 and 2022, respectively, and $676,000 and $637,000 for the six months ended June 30, 2023 and 2022, respectively.

 

The weighted-average remaining lease term and discount rate related to operating leases as of June 30, 2023 were as follows:

 

Weighted-average remaining lease term (in years)

  4.7 

Weighted-average discount rate

  4.2%

 

As most of our leases do not provide an implicit rate, the Company used its incremental borrowing rate, or the rate of each of its subsidiaries if available, based on the information available at the lease commencement date to determine the present value of lease payments.

 

The annual scheduled lease payments of our operating lease liabilities as of June 30, 2023 were as follows (in thousands):

 

Remainder of 2023

 $562 

2024

  1,012 

2025

  962 

2026

  579 

2027

  299 

Thereafter

  679 

Total lease payments

  4,093 

Less: imputed interest

  (380)

Present value of lease liabilities

 $3,713 

 

For all asset classes, the Company elected not to recognize assets or liabilities at the acquisition date for leases that, at the acquisition date, have a remaining lease term of 12 months or less. Additionally, for all asset classes, the Company choose not to separate nonlease components from lease components and instead account for the combined lease and nonlease components associated with that lease component as a single lease component.
v3.23.2
Note 6 - Income Taxes
 6 Months Ended
Jun. 30, 2023
Notes to Financial Statements  
Income Tax Disclosure [Text Block]

6. INCOME TAXES

 

The effective income tax rate for the three and six months ended June 30, 2023 includes estimates for foreign income inclusions such as global intangible low-taxed income (“GILTI”) and Subpart F income. As of June 30, 2023, the Company does not have a valuation allowance against its U.S. deferred tax assets. The Company analyzed all sources of available income and determined that they are more likely than not to realize the tax benefits of their deferred assets. As of June 30, 2023, the Company has a valuation allowance against deferred tax assets in certain foreign jurisdictions with an overall net operating loss. The valuation allowance will be reduced at such time as management believes it is more likely than not that the deferred tax assets will be realized. Any reductions in the valuation allowance will reduce future income tax provision.

 

As a result of return to provision adjustments, the Company does not expect to have any U.S. federal net operating loss available for carryover beyond the year ending December 31, 2023. The Company has post-apportioned U.S. state net operating loss carryforwards of $438,000 that begin expiring in 2038. At June 30, 2023, the Company has foreign net operating loss carryforwards of approximately $1.4 million in various jurisdictions with various expirations.

 

As of June 30, 2023, income taxes payable for the repatriation tax on the deemed repatriation of deferred foreign income required by the U.S. Tax Cuts and Jobs Act (the “Tax Act”), enacted on December 22, 2017 by the U.S. government, totaled $9.1 million, of which $5.1 million is reflected as a noncurrent liability.

 

As a result of capital return activities, the Company determined that a portion of its current undistributed foreign earnings not deemed reinvested indefinitely by its non-U.S. subsidiaries. For state income tax purposes, the Company will continue to periodically reassess the needs of its foreign subsidiaries and update its indefinite reinvestment assertion as necessary. To the extent that additional foreign earnings are not deemed permanently reinvested, the Company expects to recognize additional income tax provision at the applicable state corporate income tax rate(s). As of June 30, 2023, the Company has not recorded a state deferred tax liability for earnings that the Company plans to repatriate out of accumulated earnings in future periods because all earnings as of June 30, 2023 have already been repatriated. Due to the Tax Act, repatriation from foreign subsidiaries will be offset with a dividends received deduction, resulting in little to no impact on federal tax expense. All undistributed earnings in excess of 50% of current earnings on an annual basis are intended to be reinvested indefinitely as of June 30, 2023.

 

The Company and its subsidiaries file tax returns in the United States, California, New Jersey, Texas and various foreign jurisdictions. The Company is no longer subject to state income tax examinations for years prior to 2018. The Company is not aware of any jurisdiction that is currently examining any of its income tax returns.
v3.23.2
Note 7 - Commitments and Contingencies
 6 Months Ended
Jun. 30, 2023
Notes to Financial Statements  
Commitments and Contingencies Disclosure [Text Block]

7. COMMITMENTS AND CONTINGENCIES

 

The Company has employment agreements with certain members of its management team that can be terminated by either the employee or the Company upon four weeks’ notice.  The employment agreements entered into with the management team contain provisions that guarantee the payment of specified amounts in the event of a change in control (together with a termination without cause), as defined, or if the employee is otherwise terminated without cause, as defined, or terminates employment for good reason, as defined.
v3.23.2
Note 8 - Stock-based Incentive Plans
 6 Months Ended
Jun. 30, 2023
Notes to Financial Statements  
Share-Based Payment Arrangement [Text Block]

8. STOCK-BASED INCENTIVE PLANS

 

Restricted Stock

 

At the Company’s annual meeting of stockholders held on April 7, 2016, the Company’s stockholders approved the Natural Health Trends Corp. 2016 Equity Incentive Plan (the “2016 Plan”) to replace its 2007 Equity Incentive Plan. The 2016 Plan allows for the grant of various equity awards including incentive stock options, non-statutory options, stock, stock units, stock appreciation rights and other similar equity-based awards to the Company’s employees, officers, non-employee directors, contractors, consultants and advisors of the Company. Up to 2,500,000 shares of the Company’s common stock (subject to adjustment under certain circumstances) may be issued pursuant to awards granted. At June 30, 2023, 1,121,683 shares remained available for issuance under the 2016 Plan.

 

On February 6, 2023, the Company granted 97,900 shares of restricted common stock to certain of its employees. The shares vest in equal parts on a quarterly basis over the next three years and are subject to forfeiture in the event of an employee's termination of service to the Company under specified circumstances.

 

The following table summarizes the Company’s restricted stock activity under the 2016 Plan:
 
  

Shares

  

Wtd. Avg. Price at Date of Issuance

 

Nonvested at December 31, 2022

  —  $— 

Granted

  97,900  $4.84 

Vested

  (16,324) $4.84 

Nonvested at June 30, 2023

  81,576  $4.84 

 

Share-based compensation expense of $39,000 and $85,000 was recognized during the three and six months ended June 30, 2023, respectively. As of June 30, 2023, total unrecognized share-based compensation expense related to non-vested restricted stock was $388,000, which is expected to be recognized over a weighted-average period of 1.4 years.

 

Phantom Equity

 

On  March 15, 2021, the Company’s Board of Directors approved and adopted a Phantom Equity Plan (the “Phantom Plan”). Under the terms of the Phantom Plan, the Board of Directors' Compensation Committee  may grant to the Company’s employees, officers, directors, contractors, consultants, or advisors awards of phantom shares entitling grantees the right to receive a cash payment equal to the fair market value of an equal number of shares of the Company’s common stock upon the close of a vesting period, subject to any maximum payment value that the Compensation Committee  may set. The vesting of phantom shares is subject to such vesting conditions as the Compensation Committee  may specify in a grantee’s award agreement. Grantees of phantom shares shall not by virtue of their receipt of phantom shares have any ownership rights in shares of the Company’s common stock. The Phantom Plan shall continue for a period of ten years, after which no further phantom shares  may be awarded (although any phantom shares awarded prior to the expiration of such 10-year period shall be unaffected by the termination of the Phantom Plan).

 

Also on  March 15, 2021, awards for 223,307 phantom shares were granted to the Company’s employees and its non-employee directors.  The phantom shares vested in eight equal three-month vesting increments, subject to the satisfaction of both a time-based vesting condition and a performance vesting condition. Both of these vesting conditions were deemed satisfied on the grant date for the initial vesting increment, and were satisfied for each of the following three vesting periods in 2021 and the first vesting period in 2022. The time-based vesting condition was also satisfied for the final three vesting periods in 2022. In order for the time-based vesting condition to be satisfied for each vesting period, the grantee must have remained continuously employed by, or be otherwise continuously providing services to, the Company through the end of the vesting period, and in order for the performance vesting condition to be satisfied for each performance period, the performance criteria designated by the Compensation Committee must have been satisfied. The initial performance vesting condition to be applied to measure performance for the period between  March 15, 2021 and  June 15, 2021 was designated by the Compensation Committee on or before  April 14, 2021, and applied to all future performance periods unless the Compensation Committee elected to change the performance vesting condition on a prospective basis. Future changes to the performance vesting condition must have been made on or before the fifteenth day of any future performance period. If either vesting condition was not satisfied for a vesting date, then the phantom shares scheduled to vest on such date would be forfeited. These phantom shares were subject to a maximum payment value of $12.00 per phantom share. An additional award with similar vesting conditions for 9,074 phantom shares was granted on  May 14, 2021 to the Company's new non-employee director, while unvested 9,074 phantom shares granted to the Company's departing non-employee director were forfeited on or about the same date. On each of May 23, 2022, August 31, 2022, and November 25, 2022 the Compensation Committee determined to amend the outstanding awards to provide that the performance criteria shall be deemed satisfied for the three-month performance periods relating to the  June 15, 2022, September 15, 2022 and December 15, 2022 vesting dates, respectively. In making its determination, the Compensation Committee noted that the fact that the performance criteria were not achieved for the relevant performance periods was due to extraordinary business circumstances in China that were clearly beyond the Company’s control. The phantom shares awarded in 2021 are now fully vested.

 

On February 7, 2023, the Company granted 212,937 phantom shares to certain of the Company’s employees and its non-employee directors. The phantom shares vest in eight equal three-month vesting increments, subject to the satisfaction of both a time-based vesting condition and a performance vesting condition. Both of these vesting conditions were deemed satisfied on the grant date for the initial vesting increment. In order for the time-based vesting condition to be satisfied for each vesting period, the grantee must remain continuously employed by, or be otherwise continuously providing services to, the Company through the end of the vesting period, and in order for the performance vesting condition to be satisfied for each performance period, the performance criteria designated by the Compensation Committee must be satisfied. The initial performance vesting condition will be designated by the Compensation Committee and will apply to all future performance periods, unless the Compensation Committee elects to change the performance vesting condition on a prospective basis. Future changes to the performance vesting condition must be made on or before the fifteenth day of any future performance period. If either vesting condition is not satisfied for a vesting date, then the phantom shares scheduled to vest on such date will be forfeited. These phantom shares are subject to a maximum payment value of $12.00 per phantom share.

 

The phantom share awards are accounted for as liabilities in accordance with FASB ASC Topic 718,  Compensation –  Stock Compensation since they require cash settlement. The grant date of each vesting increment will be established when the Company and the grantees reach a mutual understanding of the key terms and conditions of an award, which is the date upon which each performance vesting condition is communicated to the grantees. Compensation expense is recognized over the requisite service period if it is probable that the performance vesting condition will be achieved. The fair value of the liability incurred is remeasured at the end of each reporting period with any changes in fair value recognized as compensation expense over the requisite service period.

 

Awards totaling 26,617 and 27,913 phantom shares vested during the three months ended June 30, 2023 and 2022, respectively, resulting in compensation expense of $133,000 and $153,000 during the three months ended June 30, 2023 and 2022, respectively, related to their cash settlement. Awards totaling 53,234 and 55,826 phantom shares vested during the six months ended June 30, 2023 and 2022, respectively, resulting in compensation expense of $260,000 and $349,000 during the six months ended June 30, 2023 and 2022, respectively, related to their cash settlement.

 
v3.23.2
Note 9 - Stockholders' Equity
 6 Months Ended
Jun. 30, 2023
Notes to Financial Statements  
Equity [Text Block]

9. STOCKHOLDERS’ EQUITY

 

Dividends

 

The Company declared and paid cash dividends of $0.20 per common share during each of the first two quarters of 2023 and 2022, totaling $4.6 million in each six month period. Declaration and payment of any future dividends on shares of common stock will be at the sole discretion of the Company’s Board of Directors.

 

Stock Repurchases

 

On January 12, 2016, the Board of Directors authorized an increase to the Company’s stock repurchase program first approved on July 28, 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. As of June 30, 2023, $21.9 million of the $70.0 million stock repurchase program remained available for future purchases, inclusive of related estimated income tax.

 

Accumulated Other Comprehensive Loss

 

The changes in accumulated other comprehensive loss by component for the first six months of 2023 were as follows (in thousands):

 

  Foreign Currency Translation Adjustments  Unrealized Gains (Losses) on Available-For-Sale Investments  

Total

 

Balance, December 31, 2022

 $(988) $(16) $(1,004)

Other comprehensive loss

  (97)  (3)  (100)

Balance, March 31, 2023

  (1,085)  (19)  (1,104)

Other comprehensive income (loss)

  (152)  11   (141)

Balance, June 30, 2023

 $(1,237) $(8) $(1,245)

 
v3.23.2
Note 10 - Related Party Transactions
 6 Months Ended
Jun. 30, 2023
Notes to Financial Statements  
Related Party Transactions Disclosure [Text Block]

10. RELATED PARTY TRANSACTIONS

 

The Company is a party to a Royalty Agreement and License with Broady Health Sciences, L.L.C., a Texas limited liability company, (“BHS”) regarding the manufacture and sale of a product called ReStor™. George K. Broady, a former director of the Company and beneficial owner of more than 5% of its outstanding common stock, is an indirect owner of BHS. Brunde E. Broady, also a former director of the Company and daughter of Mr. Broady, is the President and Chief Executive Officer of BHS. Under this agreement (as amended), the Company agreed to pay BHS a royalty based on a price per unit in return for the right to manufacture (or have manufactured), market, import, export and sell this product worldwide by or through multi-level marketing or network marketing. The Company recognized royalties of $11,000 and $13,000 during the three months ended June 30, 2023 and 2022, respectively, and $22,000 and $26,000 during the six months ended June 30, 2023 and 2022, respectively, under this agreement. The Company is not required to purchase any product under the agreement, and the agreement may be terminated under certain circumstances with no notice. The agreement terminates March 31, 2025, after which it shall be automatically renewed for successive one-year terms unless notice is given by either party at least 90 days in advance of the expiration of the then-current term.

 
v3.23.2
Note 11 - Segment Information
 6 Months Ended
Jun. 30, 2023
Notes to Financial Statements  
Segment Reporting Disclosure [Text Block]

11. SEGMENT INFORMATION

 

The Company sells products to a member network that operates in a seamless manner from market to market, except for the China market where it sells to some consumers through an e-commerce platform, and the Russia and Kazakhstan market where the Company’s engagement of a third-party service provider results in a different economic structure than its other markets. Otherwise, the Company believes that all of its other operating segments have similar economic characteristics and are similar in the nature of the products sold, the product acquisition process, the types of customers products are sold to, the methods used to distribute the products, and the nature of the regulatory environment. Therefore, the Company aggregates its other operating segments (including its Hong Kong operating segment) into a single reporting segment (the “Primary Reporting Segment”).

 

The Company reviews its net sales and operating income (loss) by operating segment, and reviews its assets and capital expenditures on a consolidated basis and not by operating segment. As such, net sales and operating income (loss) are presented by reportable segment and assets and capital expenditures by operating segment are not presented. Segment operating income is adjusted for certain direct costs and commission allocation.

 

The Company’s operating information by geographic area are as follows (in thousands):

 

   

Three Months Ended June 30,

    

Six Months Ended June 30,

  
   

2023

    

2022

    

2023

    

2022

  

Net sales:

                                

Primary Reporting Segment

   $ 10,139     $ 12,770     $ 21,470     $ 23,647  

China

     247       486       663       967  

Russia and Kazakhstan

     125       104       239       292  

Total net sales

   $ 10,511     $ 13,360     $ 22,372     $ 24,906  
                                 

Income (loss) from operations:

                                

Primary Reporting Segment

   $ 1,501     $ 2,242     $ 3,328     $ 4,157  

China

     (243 )     (23 )     (263 )     (15 )

Russia and Kazakhstan

     (26 )     (49 )     (84 )     (96 )

Income from operations for reportable segments, net

     1,232       2,170       2,981       4,046  

Unallocated corporate expenses

     (1,975 )     (1,955 )     (4,118 )     (4,214 )

Other income, net

     442       175       1,123       285  

Income (loss) before income taxes

   $ (301 )   $ 390     $ (14 )   $ 117  

 

The Company’s net sales by geographic area are as follows (in thousands):

 

   

Three Months Ended June 30,

    

Six Months Ended June 30,

  
   

2023

    

2022

    

2023

    

2022

  

Net sales from external customers:

                                

United States

   $ 272     $ 272     $ 551     $ 528  

Canada

     157       164       327       301  

Peru

     483       327       810       809  

Hong Kong1

     8,306       10,716       17,979       19,492  

China

     247       486       663       967  

Taiwan

     454       624       908       1,193  

Japan

     107       136       189       371  

Malaysia and Singapore

     68       95       153       220  

Russia and Kazakhstan

     125       104       239       292  

Europe

     199       304       385       505  

Other foreign countries

     93       132       168       228  

Total net sales

   $ 10,511     $ 13,360     $ 22,372     $ 24,906  

 

1 Substantially all of our Hong Kong revenues are derived from the sale of products that are delivered to members in China. See “Item 1A. Risk Factors” in our most recent Annual Report on Form 10-K.

 
v3.23.2
Note 12 - Subsequent Event
 6 Months Ended
Jun. 30, 2023
Notes to Financial Statements  
Subsequent Events [Text Block]

12. SUBSEQUENT EVENT

 

On July 31, 2023, the Board of Directors declared a quarterly cash dividend of $0.20 on each share of common stock outstanding. The dividend will be payable on August 25, 2023 to stockholders of record on August 15, 2023. The declaration and payment of any future dividends on shares of common stock will be at the sole discretion of the Company’s Board of Directors.

 
v3.23.2
Significant Accounting Policies (Policies)
 6 Months Ended
Jun. 30, 2023
Accounting Policies [Abstract]  
Basis of Accounting, Policy [Policy Text Block]

Basis of Presentation 

 

The unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. As a result, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. In the opinion of management, the accompanying unaudited interim consolidated financial statements contain all adjustments, consisting of normal recurring adjustments, considered necessary for a fair statement of the Company’s financial information for the interim periods presented. The results of operations of any interim period are not necessarily indicative of the results of operations to be expected for the fiscal year. These consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company’s 2022 Annual Report on Form 10-K filed with the United States Securities and Exchange Commission (SEC) on March 3, 2023.

 
Consolidation, Policy [Policy Text Block]

Principles of Consolidation

 

The consolidated financial statements include the accounts of the Company and all of its wholly-owned subsidiaries. All significant inter-company balances and transactions have been eliminated in consolidation.

 
Cash and Cash Equivalents, Policy [Policy Text Block]

Cash and Cash Equivalents

 

The Company maintains substantially all of its cash balances at several institutions located in the United States, Hong Kong and China which at times may exceed insured limits. As of June 30, 2023, there was $33,000 and $2.2 million in bank accounts located in the United States and Hong Kong, respectively, in excess of insured limits. As of June 30, 2023, cash and cash equivalents included $3.8 million held in bank accounts located in China subject to foreign currency controls. The Company has not experienced any losses on such accounts. See Note 4 for additional information regarding the Company's investments in cash equivalents held in brokerage accounts. The Company believes that it is not exposed to significant credit risk due to the financial strength of the depository institutions in which its cash and cash equivalents are held.

 
Earnings Per Share, Policy [Policy Text Block]

Net Income (Loss) Per Common Share

 

Diluted net income per common share is determined using the weighted-average number of common shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents. The dilutive effect of non-vested restricted stock is reflected by application of the treasury stock method. Under the treasury stock method, the amount of compensation cost for future service that the Company has not yet recognized, if any, is assumed to be used to repurchase shares.

 

The following table illustrates the computation of basic and diluted net income per common share for the periods indicated (in thousands, except per share data):

 

  

Three Months Ended June 30,

 
  

2023

  

2022

 
  

Loss (Numerator)

  

Shares (Denominator)

  

Per Share Amount

  

Income (Numerator)

  

Shares (Denominator)

  

Per Share Amount

 

Basic net income (loss) per common share:

                        

Net income (loss) available to common stockholders

 $(219)  11,432  $(0.02) $183   11,346  $0.02 

Effect of dilutive securities:

                        

Non-vested restricted stock

  —   —       —   78     

Diluted net income per common share:

                        

Net income (loss) available to common stockholders plus assumed dilution

 $(219)  11,432  $(0.02) $183   11,424  $0.02 

 

  

Six Months Ended June 30,

 
  

2023

  

2022

 
  

Income (Numerator)

  

Shares (Denominator)

  

Per Share Amount

  

Income (Numerator)

  

Shares (Denominator)

  

Per Share Amount

 

Basic net income per common share:

                        

Net income available to common stockholders

 $38   11,428  $0.00  $78   11,300  $0.01 

Effect of dilutive securities:

                        

Non-vested restricted stock

  —   11       —   124     

Diluted net income per common share:

                        

Net income available to common stockholders plus assumed dilution

 $38   11,439  $0.00  $78   11,424  $0.01 

 

In periods when losses are reported, the weighted-average number of common shares outstanding excludes common stock equivalents because their inclusion would be anti-dilutive. As such, non-vested restricted stock totaling 15,133 shares were not included for the three months ended June 30, 2023.

 
New Accounting Pronouncements, Policy [Policy Text Block]

Recent Accounting Pronouncements

 

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which introduced an expected credit loss model for the impairment of financial assets measured at amortized cost basis and added Topic 326 to the FASB Accounting Standards Codification (“ASC”). In November 2019, the FASB issued ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments - Credit Losses. The amendments to ASU 2019-11 clarify, correct and make improvements to Topic 326. ASU 2016-13 as well as the updates in ASU 2019-11 are effective for interim and annual periods beginning after December 15, 2022. The adoption of this standard did not have a material impact on the Company's financial statements.

 

Other recently issued accounting pronouncements did not or are not believed by management to have a material impact on the Company’s present or future financial statements.
v3.23.2
Note 1 - Nature of Operations and Summary of Significant Accounting Policies (Tables)
 6 Months Ended
Jun. 30, 2023
Notes Tables  
Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]
  

Three Months Ended June 30,

 
  

2023

  

2022

 
  

Loss (Numerator)

  

Shares (Denominator)

  

Per Share Amount

  

Income (Numerator)

  

Shares (Denominator)

  

Per Share Amount

 

Basic net income (loss) per common share:

                        

Net income (loss) available to common stockholders

 $(219)  11,432  $(0.02) $183   11,346  $0.02 

Effect of dilutive securities:

                        

Non-vested restricted stock

  —   —       —   78     

Diluted net income per common share:

                        

Net income (loss) available to common stockholders plus assumed dilution

 $(219)  11,432  $(0.02) $183   11,424  $0.02 
  

Six Months Ended June 30,

 
  

2023

  

2022

 
  

Income (Numerator)

  

Shares (Denominator)

  

Per Share Amount

  

Income (Numerator)

  

Shares (Denominator)

  

Per Share Amount

 

Basic net income per common share:

                        

Net income available to common stockholders

 $38   11,428  $0.00  $78   11,300  $0.01 

Effect of dilutive securities:

                        

Non-vested restricted stock

  —   11       —   124     

Diluted net income per common share:

                        

Net income available to common stockholders plus assumed dilution

 $38   11,439  $0.00  $78   11,424  $0.01 
v3.23.2
Note 2 - Revenue (Tables)
 6 Months Ended
Jun. 30, 2023
Notes Tables  
Revenue from External Customers by Products and Services [Table Text Block]
  

Three Months Ended June 30,

  

Six Months Ended June 30,

 
  

2023

  

2022

  

2023

  

2022

 

Product sales

 $10,154  $12,033  $21,202  $22,355 

Administrative fees, freight and other

  410   1,373   1,255   2,630 

Less: sales returns

  (53)  (46)  (85)  (79)

Total net sales

 $10,511  $13,360  $22,372  $24,906 
v3.23.2
Note 3 - Balance Sheet Components (Tables)
 6 Months Ended
Jun. 30, 2023
Notes Tables  
Schedule of Additional Balance Sheet Components [Table Text Block]
   

June 30, 2023

    

December 31, 2022

  

Cash, cash equivalents and restricted cash:

                

Cash

   $ 11,065     $ 12,834  

Cash equivalents

     50,502       56,833  
      61,567       69,667  

Restricted cash

     38       79  
    $ 61,605     $ 69,746  

Inventories:

                

Finished goods

   $ 3,804     $ 3,653  

Raw materials

     929       890  

Reserve for obsolescence

     (18 )     (18 )
    $ 4,715     $ 4,525  

Other accrued expenses:

                

Sales returns

   $ 53     $ 70  

Employee-related expense

     595       737  

Warehousing, inventory-related and other

     587       374  
    $ 1,235     $ 1,181  

Deferred revenue:

                

Unshipped product and unredeemed product vouchers

   $ 5,097     $ 3,822  

Auto ship advances

     1,754       1,775  
    $ 6,851     $ 5,597  
v3.23.2
Note 4 - Fair Value Measurements (Tables)
 6 Months Ended
Jun. 30, 2023
Notes Tables  
Debt Securities, Available-for-Sale [Table Text Block]
     

June 30, 2023

    

December 31, 2022

  
 

Fair Value Level1

  

Adjusted Cost

    

Gross Unrealized Gains (Losses)

    

Fair Value

    

Adjusted Cost

    

Gross Unrealized Losses

    

Fair Value

  

Money market funds

Level 1

   $ 994     $ —     $ 994     $ 2,143     $ —     $ 2,143  

Government and municipal debt securities

Level 2

     28,343       2       28,345       6,759       —       6,759  

Corporate debt securities

Level 2

     21,173       (10 )     21,163       47,947       (16 )     47,931  

Total investments

   $ 50,510     $ (8 )   $ 50,502     $ 56,849     $ (16 )   $ 56,833  
v3.23.2
Note 5 - Leases (Tables)
 6 Months Ended
Jun. 30, 2023
Notes Tables  
Lease, Cost [Table Text Block]
  

Three Months Ended June 30,

  

Six Months Ended June 30,

 
  

2023

  

2022

  

2023

  

2022

 

Operating leases

 $321  $328  $651  $662 

Short-term leases

  39   42   76   88 

Total lease cost

 $360  $370  $727  $750 

Weighted-average remaining lease term (in years)

  4.7 

Weighted-average discount rate

  4.2%
Lessee, Operating Lease, Liability, to be Paid, Maturity [Table Text Block]

Remainder of 2023

 $562 

2024

  1,012 

2025

  962 

2026

  579 

2027

  299 

Thereafter

  679 

Total lease payments

  4,093 

Less: imputed interest

  (380)

Present value of lease liabilities

 $3,713 
v3.23.2
Note 8 - Stock-based Incentive Plans (Tables)
 6 Months Ended
Jun. 30, 2023
Notes Tables  
Nonvested Restricted Stock Shares Activity [Table Text Block]
  

Shares

  

Wtd. Avg. Price at Date of Issuance

 

Nonvested at December 31, 2022

  —  $— 

Granted

  97,900  $4.84 

Vested

  (16,324) $4.84 

Nonvested at June 30, 2023

  81,576  $4.84 
v3.23.2
Note 9 - Stockholders' Equity (Tables)
 6 Months Ended
Jun. 30, 2023
Notes Tables  
Schedule of Accumulated Other Comprehensive Income (Loss) [Table Text Block]
  Foreign Currency Translation Adjustments  Unrealized Gains (Losses) on Available-For-Sale Investments  

Total

 

Balance, December 31, 2022

 $(988) $(16) $(1,004)

Other comprehensive loss

  (97)  (3)  (100)

Balance, March 31, 2023

  (1,085)  (19)  (1,104)

Other comprehensive income (loss)

  (152)  11   (141)

Balance, June 30, 2023

 $(1,237) $(8) $(1,245)
v3.23.2
Note 11 - Segment Information (Tables)
 6 Months Ended
Jun. 30, 2023
Notes Tables  
Reconciliation of Operating Profit (Loss) from Segments to Consolidated [Table Text Block]
   

Three Months Ended June 30,

    

Six Months Ended June 30,

  
   

2023

    

2022

    

2023

    

2022

  

Net sales:

                                

Primary Reporting Segment

   $ 10,139     $ 12,770     $ 21,470     $ 23,647  

China

     247       486       663       967  

Russia and Kazakhstan

     125       104       239       292  

Total net sales

   $ 10,511     $ 13,360     $ 22,372     $ 24,906  
                                 

Income (loss) from operations:

                                

Primary Reporting Segment

   $ 1,501     $ 2,242     $ 3,328     $ 4,157  

China

     (243 )     (23 )     (263 )     (15 )

Russia and Kazakhstan

     (26 )     (49 )     (84 )     (96 )

Income from operations for reportable segments, net

     1,232       2,170       2,981       4,046  

Unallocated corporate expenses

     (1,975 )     (1,955 )     (4,118 )     (4,214 )

Other income, net

     442       175       1,123       285  

Income (loss) before income taxes

   $ (301 )   $ 390     $ (14 )   $ 117  
Schedule of Revenue from External Customers Attributed to Foreign Countries by Geographic Area [Table Text Block]
   

Three Months Ended June 30,

    

Six Months Ended June 30,

  
   

2023

    

2022

    

2023

    

2022

  

Net sales from external customers:

                                

United States

   $ 272     $ 272     $ 551     $ 528  

Canada

     157       164       327       301  

Peru

     483       327       810       809  

Hong Kong1

     8,306       10,716       17,979       19,492  

China

     247       486       663       967  

Taiwan

     454       624       908       1,193  

Japan

     107       136       189       371  

Malaysia and Singapore

     68       95       153       220  

Russia and Kazakhstan

     125       104       239       292  

Europe

     199       304       385       505  

Other foreign countries

     93       132       168       228  

Total net sales

   $ 10,511     $ 13,360     $ 22,372     $ 24,906  
v3.23.2
Note 1 - Nature of Operations and Summary of Significant Accounting Policies (Details Textual)
 3 Months Ended
Jun. 30, 2023
USD ($)
shares
Restricted Stock [Member]  
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount (in shares) | shares 15,133
UNITED STATES  
Cash, Uninsured Amount $ 33,000
HONG KONG  
Cash, Uninsured Amount 2,200,000
CHINA  
Restricted Cash $ 3,800,000
v3.23.2
Note 1 - Nature of Operations and Summary of Significant Accounting Policies - Earnings Per Share (Details) - USD ($)
$ / shares in Units, shares in Thousands, $ in Thousands
 3 Months Ended 6 Months Ended
Jun. 30, 2023
Jun. 30, 2022
Jun. 30, 2023
Jun. 30, 2022
Net income (loss) available to common stockholders $ (219) $ 183 $ 38 $ 78
Basic (in shares) 11,432 11,346 11,428 11,300
Basic (in dollars per share) $ (0.02) $ 0.02 $ 0.00 $ 0.01
Non-vested restricted stock $ 0 $ 0 $ 0 $ 0
Non-vested restricted stock (in shares) 0 78 11 124
Net income (loss) available to common stockholders plus assumed dilution $ (219) $ 183 $ 38 $ 78
Diluted (in shares) 11,432 11,424 11,439 11,424
Net income (loss) available to common stockholders plus assumed dilution (in dollars per share) $ (0.02) $ 0.02 $ 0.00 $ 0.01
v3.23.2
Note 2 - Revenue 1 (Details Textual)
$ in Millions
 3 Months Ended 6 Months Ended
Jun. 30, 2023
USD ($)
Jun. 30, 2022
Jun. 30, 2023
USD ($)
Jun. 30, 2022
Dec. 31, 2022
USD ($)
Revenue from Contract with Customers, Sales Returns, Percent     1.00% 1.00%  
Contract with Customer, Liability $ 5.1   $ 5.1   $ 3.8
Geographic Concentration Risk [Member] | Revenue Benchmark [Member]          
Number of Major Markets 0 0 0 0  
Number of Major Customers 0 0 0 0  
Minimum [Member]          
Revenue from Contract with Customer, Sales Returns Policy Term (Day)     14 days    
Revenue from Contract with Customers, Historical Sales Returns, Percent     1.00%    
Maximum [Member]          
Revenue from Contract with Customer, Sales Returns Policy Term (Day)     1 year    
Revenue from Contract with Customers, Historical Sales Returns, Percent     4.00%    
v3.23.2
Note 2 - Revenue 2 (Details Textual)
Jun. 30, 2023
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2023-07-01  
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Period (Month) 12 months
v3.23.2
Note 2 - Revenue - Net Sales by Product and Service (Details) - USD ($)
$ in Thousands
 3 Months Ended 6 Months Ended
Jun. 30, 2023
Jun. 30, 2022
Jun. 30, 2023
Jun. 30, 2022
Net sales $ 10,511 $ 13,360 $ 22,372 $ 24,906
Less: sales returns (53) (46) (85) (79)
Product [Member]        
Net sales 10,154 12,033 21,202 22,355
Administrative Fees, Freight and Other [Member]        
Net sales $ 410 $ 1,373 $ 1,255 $ 2,630
v3.23.2
Note 3 - Balance Sheet Components - Summary of Balance Sheet Amounts (Details) - USD ($)
$ in Thousands
Jun. 30, 2023
Dec. 31, 2022
Cash $ 11,065 $ 12,834
Cash equivalents 50,502 56,833
Cash and cash equivalents 61,567 69,667
Restricted cash 38 79
Cash, Cash Equivalents, Restricted Cash, and Restricted Cash Equivalents 61,605 69,746
Inventories:    
Finished goods 3,804 3,653
Raw materials 929 890
Reserve for obsolescence (18) (18)
Inventory, Net 4,715 4,525
Other accrued expenses:    
Sales returns 53 70
Employee-related expense 595 737
Warehousing, inventory-related and other 587 374
Accrued Liabilities, Current 1,235 1,181
Deferred revenue:    
Deferred revenue 6,851 5,597
Unshipped Product [Member]    
Deferred revenue:    
Deferred revenue 5,097 3,822
Auto ship advances [Member]    
Deferred revenue:    
Deferred revenue $ 1,754 $ 1,775
v3.23.2
Note 4 - Fair Value Measurements - Investments (Details) - USD ($)
$ in Thousands
Jun. 30, 2023
Dec. 31, 2022
Adjusted cost [1] $ 50,510 $ 56,849
Gross unrealized gain losses [1] (8) (16)
Fair value [1] 50,502 56,833
Fair Value, Inputs, Level 1 [Member] | Money Market Funds [Member]    
Adjusted cost [1] 994 2,143
Gross unrealized gain losses [1] 0 0
Fair value [1] 994 2,143
Fair Value, Inputs, Level 2 [Member] | Municipal Bonds [Member]    
Adjusted cost [1] 28,343 6,759
Gross unrealized gain losses [1] 2 0
Fair value [1] 28,345 6,759
Fair Value, Inputs, Level 2 [Member] | Corporate Debt Securities [Member]    
Adjusted cost [1] 21,173 47,947
Gross unrealized gain losses [1] (10) (16)
Fair value [1] $ 21,163 $ 47,931
[1] FASB Topic 820, Fair Value Measurements, establishes a fair value hierarchy that requires the use of observable market data, when available, and prioritizes the inputs to valuation techniques used to measure fair value in the following categories: Level 1: Quoted market prices in active markets for identical assets or liabilities. Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data. Level 3: Unobservable inputs that are not corroborated by market data.
v3.23.2
Note 5 - Leases (Details Textual)
 3 Months Ended 6 Months Ended
Jun. 30, 2023
USD ($)
ft²
Jun. 30, 2022
USD ($)
Jun. 30, 2023
USD ($)
ft²
Jun. 30, 2022
USD ($)
Operating Lease, Payments | $ $ 331,000 $ 315,000 $ 676,000 $ 637,000
HONG KONG        
Area of Land (Square Foot) 7,300   7,300  
Rolling Hills Estates [Member]        
Area of Land (Square Foot) 4,900   4,900  
Richmond, British Columbia [Member]        
Area of Land (Square Foot) 1,600   1,600  
Metuchen, New Jersey [Member]        
Area of Land (Square Foot) 2,000   2,000  
CHINA        
Lessee, Number of Branches 7   7  
v3.23.2
Note 5 - Leases - Lease Cost (Details) - USD ($)
$ in Thousands
 3 Months Ended 6 Months Ended
Jun. 30, 2023
Jun. 30, 2022
Jun. 30, 2023
Jun. 30, 2022
Operating leases $ 321 $ 328 $ 651 $ 662
Short-term leases 39 42 76 88
Total lease cost $ 360 $ 370 $ 727 $ 750
Weighted-average remaining lease term (in years) (Year) 4 years 8 months 12 days   4 years 8 months 12 days  
Weighted-average discount rate 4.20%   4.20%  
v3.23.2
Note 5 - Leases - Maturity of Lease Liabilities (Details)
$ in Thousands
Jun. 30, 2023
USD ($)
Remainder of 2023 $ 562
2024 1,012
2025 962
2026 579
2027 299
Thereafter 679
Total lease payments 4,093
Less: imputed interest (380)
Present value of lease liabilities $ 3,713
v3.23.2
Note 6 - Income Taxes (Details Textual)
Jun. 30, 2023
USD ($)
Tax Cuts and Jobs Act, Transition Tax for Accumulated Foreign Earnings, Liability $ 9,100,000
Tax Cuts and Jobs Act, Transition Tax for Accumulated Foreign Earnings, Liability, Noncurrent 5,100,000
Domestic Tax Authority [Member]  
Deferred Tax Assets, Valuation Allowance, Total 0
State and Local Jurisdiction [Member]  
Operating Loss Carryforwards 438,000
Foreign Tax Authority [Member]  
Operating Loss Carryforwards $ 1,400,000
v3.23.2
Note 8 - Stock-based Incentive Plans (Details Textual) - USD ($)
 3 Months Ended 6 Months Ended
Feb. 07, 2023
Feb. 06, 2023
May 14, 2021
Mar. 15, 2021
Jun. 30, 2023
Jun. 30, 2022
Jun. 30, 2023
Jun. 30, 2022
Restricted Stock [Member]                
Share-Based Compensation Arrangement by Share-Based Payment Award, Equity Instruments Other than Options, Grants in Period (in shares)   97,900         97,900  
Share-Based Compensation Arrangement by Share-Based Payment Award, Award Vesting Period (Year)   3 years            
Share-Based Payment Arrangement, Expense         $ 39,000   $ 85,000  
Share-Based Payment Arrangement, Nonvested Award, Excluding Option, Cost Not yet Recognized, Amount         $ 388,000   $ 388,000  
Share-Based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Period for Recognition (Year)             1 year 4 months 24 days  
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Vested in Period (in shares)             16,324  
Equity Incentive Plan 2016 [Member]                
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized (in shares)         2,500,000   2,500,000  
Share-Based Compensation Arrangement by Share-Based Payment Award, Number of Shares Available for Grant (in shares)         1,121,683   1,121,683  
The Phantom Plan [Member]                
Share-based Compensation Arrangement by Share-based Payment Award, Expiration Period (Year)       10 years        
The Phantom Plan [Member] | Phantom Shares [Member] | Employees and Non-Employee Directors [Member]                
Share-Based Compensation Arrangement by Share-Based Payment Award, Equity Instruments Other than Options, Grants in Period (in shares) 212,937     223,307        
Share-Based Compensation Arrangement by Share-Based Payment Award, Award Vesting Period (Year)       3 years        
Share-Based Payment Arrangement, Expense         $ 133,000 $ 153,000 $ 260,000 $ 349,000
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Maximum Payment Per Share (in dollars per share) $ 12.00              
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Vested in Period (in shares)         26,617 27,913 53,234 55,826
The Phantom Plan [Member] | Phantom Shares [Member] | Employees and Non-Employee Directors [Member] | Vesting Increments [Member]                
Share-Based Compensation Arrangement by Share-Based Payment Award, Award Vesting Period (Year) 3 years              
The Phantom Plan [Member] | Phantom Shares [Member] | Employees and Non-Employee Directors [Member] | Maximum [Member]                
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Maximum Payment Per Share (in dollars per share)       $ 12.00        
The Phantom Plan [Member] | Phantom Shares [Member] | NewNonEmployeeDirectorsMember                
Share-Based Compensation Arrangement by Share-Based Payment Award, Equity Instruments Other than Options, Grants in Period (in shares)     9,074          
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Vested in Period (in shares)     9,074          
v3.23.2
Note 8 - Stock-based Incentive Plans - Restricted Stock Activity (Details) - Restricted Stock [Member] - $ / shares
 6 Months Ended
Feb. 06, 2023
Jun. 30, 2023
Balance (in shares)   0
Balance, weighted avg. price (in dollars per share)   $ 0
Granted (in shares) 97,900 97,900
Granted, wtd. avg. price (in dollars per share)   $ 4.84
Vested (in shares)   (16,324)
Vested, wtd. avg. price (in dollars per share)   $ 4.84
Balance (in shares)   81,576
Balance, weighted avg. price (in dollars per share)   $ 4.84
v3.23.2
Note 9 - Stockholders' Equity (Details Textual) - USD ($)
$ / shares in Units, $ in Millions
 3 Months Ended 6 Months Ended
Jun. 30, 2023
Mar. 31, 2023
Jun. 30, 2022
Mar. 31, 2022
Jun. 30, 2023
Jun. 30, 2022
Jan. 12, 2016
Jul. 28, 2015
Common Stock, Dividends, Per Share, Declared (in dollars per share) $ 0.20 $ 0.20 $ 0.20 $ 0.20 $ 0.20 $ 0.20    
Dividends, Common Stock         $ 4.6 $ 4.6    
Stock Repurchase Program, Authorized Amount             $ 70.0 $ 15.0
Stock Repurchase Program, Remaining Authorized Repurchase Amount $ 21.9       $ 21.9      
v3.23.2
Note 9 - Stockholders' Equity - Changes in Accumulated Other Comprehensive Loss (Details) - USD ($)
$ in Thousands
 3 Months Ended
Jun. 30, 2023
Mar. 31, 2023
Balance $ 48,050 $ 50,151
Balance 45,425 48,050
Accumulated Foreign Currency Adjustment Attributable to Parent [Member]    
Balance (1,085) (988)
Other comprehensive income (loss) (152) (97)
Balance (1,237) (1,085)
AOCI, Accumulated Gain (Loss), Debt Securities, Available-for-Sale, Parent [Member]    
Balance (19) (16)
Other comprehensive income (loss) 11 (3)
Balance (8) (19)
AOCI Attributable to Parent [Member]    
Balance (1,104) (1,004)
Other comprehensive income (loss) (141) (100)
Balance $ (1,245) $ (1,104)
v3.23.2
Note 10 - Related Party Transactions (Details Textual) - USD ($)
 3 Months Ended 6 Months Ended
Jun. 30, 2023
Jun. 30, 2022
Jun. 30, 2023
Jun. 30, 2022
Director [Member]        
Common Stock, Percentage of Beneficial Stock Outstanding 5.00%   5.00%  
BHS [Member] | Royalty Agreement and License [Member]        
Royalty Expense $ 11,000 $ 13,000 $ 22,000 $ 26,000
Related Party Transaction, Automatic Renewal Period of Agreement (Year)     1 year  
Number of Days Termination Notice (Day)     90 days  
v3.23.2
Note 11 - Segment Information - Operating Information by Geographic Area (Details) - USD ($)
$ in Thousands
 3 Months Ended 6 Months Ended
Jun. 30, 2023
Jun. 30, 2022
Jun. 30, 2023
Jun. 30, 2022
Net sales $ 10,511 $ 13,360 $ 22,372 $ 24,906
Income (loss) from operations (743) 215 (1,137) (168)
Other income, net 442 175 1,123 285
Income (loss) before income taxes (301) 390 (14) 117
Operating Segments [Member]        
Income (loss) from operations 1,232 2,170 2,981 4,046
Intersegment Eliminations [Member]        
Income (loss) from operations (1,975) (1,955) (4,118) (4,214)
CHINA        
Net sales 247 486 663 967
CHINA | Operating Segments [Member]        
Income (loss) from operations (243) (23) (263) (15)
Russia and Kazakhstan [Member]        
Net sales 125 104 239 292
Russia and Kazakhstan [Member] | Operating Segments [Member]        
Income (loss) from operations (26) (49) (84) (96)
Primary Reporting Segment [Member]        
Net sales 10,139 12,770 21,470 23,647
Primary Reporting Segment [Member] | Operating Segments [Member]        
Income (loss) from operations $ 1,501 $ 2,242 $ 3,328 $ 4,157
v3.23.2
Note 11 - Segment Information - Net Sales by Geographic Area (Details) - USD ($)
$ in Thousands
 3 Months Ended 6 Months Ended
Jun. 30, 2023
Jun. 30, 2022
Jun. 30, 2023
Jun. 30, 2022
Net sales $ 10,511 $ 13,360 $ 22,372 $ 24,906
UNITED STATES        
Net sales 272 272 551 528
CANADA        
Net sales 157 164 327 301
PERU        
Net sales 483 327 810 809
HONG KONG        
Net sales [1] 8,306 10,716 17,979 19,492
CHINA        
Net sales 247 486 663 967
TAIWAN        
Net sales 454 624 908 1,193
JAPAN        
Net sales 107 136 189 371
Malaysia and Singapore [Member]        
Net sales 68 95 153 220
Russia and Kazakhstan [Member]        
Net sales 125 104 239 292
Europe [Member]        
Net sales 199 304 385 505
Other Foreign Countries [Member]        
Net sales $ 93 $ 132 $ 168 $ 228
[1] Substantially all of our Hong Kong revenues are derived from the sale of products that are delivered to members in China. See “Item 1A. Risk Factors” in this report and in our most recent Annual Report on Form 10-K.
v3.23.2
Note 12 - Subsequent Event (Details Textual) - $ / shares
 3 Months Ended 6 Months Ended
Jul. 31, 2023
Jun. 30, 2023
Mar. 31, 2023
Jun. 30, 2022
Mar. 31, 2022
Jun. 30, 2023
Jun. 30, 2022
Common Stock, Dividends, Per Share, Declared (in dollars per share)   $ 0.20 $ 0.20 $ 0.20 $ 0.20 $ 0.20 $ 0.20
Subsequent Event [Member]              
Common Stock, Dividends, Per Share, Declared (in dollars per share) $ 0.20            
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