NATURAL HEALTH TRENDS CORP

Previous wording

As of March 31, 2025, we were conducting business through 30,180 active members, compared to 30,870 at December 31, 2024 and 31,620 at March 31, 2024. 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.

Current wording

As of June 30, 2025, we were conducting business through 29,260 active members, compared to 30,870 at December 31, 2024 and 31,110 at June 30, 2024. 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.

Previous wording

We generate approximately 94% of our net sales from subsidiaries located outside the Americas, with sales of our Hong Kong subsidiary representing 85% of net sales in our 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, trade policy, inflation rates, and economic, political and business conditions around the world. In addition, our business is subject to various laws and regulations, in particular, regulations related to direct selling activities that create uncertain risks for our business, including improper claims or activities by our members and our potential inability to obtain necessary product registrations. We continually evaluate our business for compliance with applicable laws and regulations, and this process can and has resulted in the identification of certain matters of potential noncompliance, which we work to satisfactorily address. For further information regarding some of the risks associated with the conduct of our business in China and Hong Kong, see “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2024, and more specifically under the captions “Because our Hong Kong operations account for a substantial portion of our overall business...”, “Hong Kong’s political and economic landscape has in recent years undergone significant change...”, and “Our business in China is subject to compliance with a myriad of applicable laws and regulations...”.

Current wording

We generate approximately 93% of our net sales from subsidiaries located outside the Americas. Because of the size of our foreign operations, operating results can be impacted negatively or positively by factors such as foreign currency fluctuations, trade policy, inflation rates, and economic, political and business conditions around the world. In addition, our business is subject to various laws and regulations, in particular, regulations related to direct selling activities that create uncertain risks for our business, including improper claims or activities by our members and our potential inability to obtain necessary product registrations. We continually evaluate our business for compliance with applicable laws and regulations, and this process can and has resulted in the identification of certain matters of potential noncompliance, which we work to satisfactorily address. For further information regarding some of the risks associated with the conduct of our business in China and Hong Kong, see “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2024, and more specifically under the captions “Because our Hong Kong operations account for a substantial portion of our overall business...”, “Hong Kong’s political and economic landscape has in recent years undergone significant change...”, and “Our business in China is subject to compliance with a myriad of applicable laws and regulations...”.

Previous wording

China has been and continues to be our most important business development project. We operate an e-commerce direct selling platform in Hong Kong that in the first quarter of 2025 generated approximately 85% of our revenue, substantially all of which was derived from the sale of products that are delivered to members in China. Through a separate Chinese entity, we also operate an e-commerce retail platform in China. We believe that neither of these activities require a direct selling license in China, which we do not currently hold. We previously submitted a preliminary application for a direct selling license in China, but withdrew our application in 2019 upon the recommendation of a Chinese governmental authority. We expect to reapply for a direct selling license in China when we believe that circumstances are again ripe for doing so. If we are ultimately able to obtain a direct selling license in China, we believe that the incentives inherent in the direct selling model in China would incrementally benefit our existing business. We do not expect that any increased sales in China derived from obtaining a direct selling license would initially be material and, in any event may be partially offset by the higher fixed costs associated with the establishment and maintenance of required service centers, branch offices, manufacturing facilities, certification programs and other legal requirements. We are unable to predict whether and when we will be successful in obtaining a direct selling license to operate in China, and if we are successful, when we will be permitted to conduct direct selling operations and whether such operations would be profitable.

Current wording

China has been and continues to be our most important business development project. We operate an e-commerce direct selling platform in Hong Kong that in the first six months of 2025 generated approximately 83% of our revenue, substantially all of which was derived from the sale of products that are delivered to members in China. Through a separate Chinese entity, we also operate an e-commerce retail platform in China. We believe that neither of these activities require a direct selling license in China, which we do not currently hold. We previously submitted a preliminary application for a direct selling license in China, but withdrew our application in 2019 upon the recommendation of a Chinese governmental authority. We expect to reapply for a direct selling license in China when we believe that circumstances are again ripe for doing so. If we are ultimately able to obtain a direct selling license in China, we believe that the incentives inherent in the direct selling model in China would incrementally benefit our existing business. We do not expect that any increased sales in China derived from obtaining a direct selling license would initially be material and, in any event may be partially offset by the higher fixed costs associated with the establishment and maintenance of required service centers, branch offices, manufacturing facilities, certification programs and other legal requirements. We are unable to predict whether and when we will be successful in obtaining a direct selling license to operate in China, and if we are successful, when we will be permitted to conduct direct selling operations and whether such operations would be profitable.

Previous wording

In the first quarter of 2025, the U.S. announced and/or implemented significant new tariffs on imports from a wide range of countries, particularly China. While the U.S. has taken steps to delay the implementation of certain of these tariffs against many countries, significant new tariffs on goods imported from China were not included in the delay. Recently, in response to the U.S. tariffs on Chinese imports, China raised its duties on imported U.S. goods to 124%. The Company does not believe that its first quarter 2025 financial results were materially affected by these developments. Assuming the tariffs remain in place, the Company may begin to see the effect of higher duties on restocking later this year. The likely short term impact of the tariffs is difficult to predict with any certainty, however. We may need to impose a surcharge on products sold into China, and the imposition of such a surcharge may have a negative effect on sales volumes into China. In the longer term, the Company is exploring the sourcing of certain of its products currently manufactured in the United States to other jurisdictions, including in Asia, in order to mitigate the effect of U.S. and reciprocal tariffs. If successfully implemented, this transition may result in savings in logistics, freight and manufacturing cost, but may also carry certain short-term expenses, including the cost of reregistration of products in certain jurisdictions. The Company is actively evaluating its options and the impact of trade policy changes on future quarters remains uncertain. In addition, it is difficult to predict the effect of general consumer sentiment in China toward the Company’s products as a result of the trade policies adopted by the United States and China. See Part II, “Item 1A. Risk Factors” in Part II of this Quarterly Report on Form 10-Q.

Current wording

While the Company does not believe that its first quarter 2025 financial results were materially affected by these developments, its second quarter sales were negatively affected by negative consumer sentiment and economic uncertainty in the Company’s largest market. If substantial tariffs remain in place, the Company may begin to see the effect of higher duties on restocking later this year. The likely short-term impact of the tariffs is difficult to predict with any certainty, however. We may need to impose a surcharge on products sold into China, and the imposition of such a surcharge may have a further negative effect on sales volumes into China. In the longer term, the Company has taken initial steps to transition production of certain of its products currently manufactured in the United States to other jurisdictions, including in Asia, in order to mitigate the effect of U.S. and reciprocal tariffs. If successfully implemented, this transition may result in savings in logistics, freight and manufacturing cost, but may also carry certain short-term expenses, including the cost of reregistration of products in certain jurisdictions. The Company is actively evaluating its options and the impact of trade policy changes on future quarters remains uncertain. In addition, it is difficult to predict the further effect of general consumer sentiment in China toward the Company’s products as a result of the trade policies adopted by the United States and China, which has already impacted the Company’s second quarter. See Part II, “Item 1A. Risk Factors” in Part II of this Quarterly Report on Form 10-Q.

Previous wording

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 three months of 2025 and 2024, represented 42% and 41% 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.

Current wording

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 each of 2025 and 2024, represented 41% of net sales. Occasionally, we make modifications and enhancements to our compensation plan to help motivate members, which can have an impact on member commissions. We may also enter into performance-based agreements for business or market development, which can result in additional compensation to specific members.

Previous wording

Net sales were$10.7 million for the three months ended March 31, 2025 compared with $11.0 million for the comparable period a year ago, a decrease of $214,000, or 2%. Hong Kong net sales, substantially all of which were derived from the sale of products shipped to members residing in China, were almost the same for each of the three-month periods, decreasing $51,000, or less than 1%, over the comparable period a year ago. Outside of our Hong Kong business, net sales decreased $163,000, or 9%, over the comparable three-month period a year ago, primarily due to the decreased quarter-over-quarter net sales in our Chinese e-commerce retail business. As of March 31, 2025, deferred revenue was $6.9 million, which consisted of $5.4 million pertaining to unshipped product orders and unredeemed product vouchers, as well as $1.5 million in auto ship advances.

Current wording

Net sales were $20.6 million for the six months ended June 30, 2025 compared with $21.4 million for the comparable period a year ago, a decrease of $876,000, or 4%. Hong Kong net sales, substantially all of which were derived from the sale of products shipped to members residing in China, decreased $515,000, or 3%, over the comparable period a year ago primarily due to, as mentioned above, the negative consumer sentiment as a result of the heightened economic uncertainty caused by the threat of reciprocal and retaliatory tariffs. Outside of our Hong Kong business, net sales decreased $361,000, or 10%, over the comparable six-month period a year ago, also primarily due to the decreased quarter-over-quarter net sales in our Chinese e-commerce retail business. As of June 30, 2025, deferred revenue was $6.1 million, which consisted of $4.6 million pertaining to unshipped product orders and unredeemed product vouchers, as well as $1.5 million in auto ship advances.

Previous wording

Gross profit was 73.6% of net sales for the three months ended March 31, 2025, a slight improvement compared with 73.4% of net sales forthe three months ended March 31, 2024.

Current wording

Gross profit was 73.9% of net sales for the three months ended June 30, 2025 compared with 74.2% of net sales forthe three months ended June 30, 2024. Gross profit was 73.8% of net sales for each of the six-month periods ended June 30, 2025 and 2024.

Previous wording

Commissions were 41.8% of net sales for the three months ended March 31, 2025 compared with 41.0% of net sales for the three months ended March 31, 2024. The increase in commissions as a percentage of net sales during thethree-month period ended March 31, 2025 was primarily due to higher weekly commissions earned by our members during the first quarter of 2025.

Current wording

Commissions were 40.9% of net sales for the three months ended June 30, 2025 compared with 40.1% of net sales for the three months ended June 30, 2024. Commissions were 41.4% of net sales for the six months ended June 30, 2025 compared with 40.5% of net sales for the six months ended June 30, 2024. The increase in commissions as a percentage of net sales during the three- and six-month periods ended June 30, 2025 was primarily due to higher weekly commissions earned by our members during the first six months of 2025 as compared to the comparable period last year.

Previous wording

Selling, general and administrative expenses declined by $156,000 to $3.8 million for the three months ended March 31, 2025 as compared with $3.9 million for the three months ended March 31, 2024. The decrease was primarily due to lower employee-related expenses. Selling, general and administrative expenses as a percentage of net sales for the three-month period ended March 31, 2025 were modestly lower as compared with the same period a year ago.

Current wording

Selling, general and administrative expenses declined by $235,000 to $3.6 million for the three months ended June 30, 2025 as compared with $3.8 million for the three months ended June 30, 2024. Selling, general and administrative expenses declined by $391,000 to $7.3 million for the six months ended June 30, 2025 as compared with $7.7 million for the six months ended June 30, 2024. The decrease for each of the three- and six-month periods was primarily due to lower employee-related expenses and event costs as compared to the comparable periods in the prior year. Selling, general and administrative expenses as a percentage of net sales for each of the three- and six-month periods ended June 30, 2025 were relatively consistent as compared with the same periods a year ago.

Previous wording

Other income was $465,000 for the three months ended March 31, 2025 compared with $563,000 in the same period a year ago. The decreasewas primarily due to less interest income earned during the current year period.

Current wording

Other income was $348,000 for the three months ended June 30, 2025 compared with $519,000 in the same period a year ago. Other income was $813,000 for thesix months ended June 30, 2025 compared with $1.1 million in the same period a year ago. The decrease was primarily due to less interest income earned during the current year periods.

Previous wording

An income tax benefit of $2,000 and an income tax provision of $10,000 were recognized during the three months ended March 31, 2025 and 2024, respectively. The tax provision during each of the three-month periods ended March 31, 2025 and 2024 primarily resulted from foreign income inclusions, such as global intangible low-taxed income (“GILTI”) and Subpart F income, and year-to-date consolidated income through March 31, 2025 and 2024, respectively, as well as prior year foreign return to provision true-ups.

Current wording

An income tax provision of none and an income tax expense of $108,000 were recognized during the three months ended June 30, 2025 and 2024, respectively. An income tax benefit of $2,000 and an income tax expense of $118,000 were recognized during the six months ended June 30, 2025 and 2024, respectively. The tax provision during the three- and six-month periods ended June 30, 2025 and 2024 primarily resulted from foreign income inclusions, such as global intangible low-tax income ("GILTI") and Subpart F income, tax benefits in foreign jurisdictions and year-to-date consolidated income through June 30, 2025 and 2024, respectively.

Previous wording

At March 31, 2025, our cash, cash equivalents and marketable securities totaled $41.9 million. Total cash, cash equivalents and marketable securities decreased by $2.0 million from December 31, 2024 to March 31, 2025 due to the dividends paid during the first three months of 2025. We consider all highly liquid investments with original maturities of three months or less, when purchased, to be cash equivalents. As of March 31, 2025, we had $34.1 million in available-for-sale investments classified as either cash equivalents or marketable securities. In addition, cash and cash equivalents included $3.2 million held in banks located within China subject to foreign currency controls.

Current wording

At June 30, 2025, our cash, cash equivalents and marketable securities totaled $34.2 million. Total cash, cash equivalents and marketable securities decreased by $9.7 million from December 31, 2024 to June 30, 2025 due to the dividends paid during the first six months of 2025 and the final payment of the repatriation tax on the deemed repatriation of deferred foreign income as required by the U.S. Tax Cuts and Jobs Act. We consider all highly liquid investments with original maturities of three months or less, when purchased, to be cash equivalents. As of June 30, 2025, we had $27.1 million in available-for-sale investments classified as either cash equivalents or marketable securities. In addition, cash and cash equivalents included $3.1 million held in banks located within China subject to foreign currency controls.

Previous wording

As of March 31, 2025, the ratio of current assets to current liabilities was 2.4 to 1.0 and we had $28.1 million of working capital. Working capital as of March 31, 2025 decreased $2.1 million compared to our working capital as of December 31, 2024.

Current wording

As of June 30, 2025, the ratio of current assets to current liabilities was 2.7 to 1.0 and we had $25.9 million of working capital. Working capital as of June 30, 2025 decreased $4.3 million compared to our working capital as of December 31, 2024.

Previous wording

Cash flows provided by investing activities totaled $10.0 million during thefirst three months of 2025 compared with cash flows used in investing activities of $28.5 million during the first three months a year ago. During the first three months of 2025, we purchased $17.4 million in marketable securities with original maturities greater than three months, and as such, reflect these purchases as an investing activity. These purchases of marketable securities were offset by $27.4 million of proceeds received from maturities of marketable securities.

Current wording

Cash flows provided by investing activities totaled $6.6 million during thefirst six months of 2025 compared with cash flows used in investing activities of $32.9 million during the first six months a year ago. During the first six months of 2025, we purchased $27.6 million in marketable securities with original maturities greater than three months, and as such, reflect these purchases as an investing activity. These purchases of marketable securities were offset by $34.2 million of proceeds received from maturities of marketable securities.

Previous wording

Cash flows used in financing activities during the first three months of 2025 and 2024 consisted solely of quarterly dividend payments of $0.20 per common share, totaling $2.3 million in each period. Subsequent to March 31, 2025, on April 28, 2025, 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 May 23, 2025 to stockholders of record on May 13, 2025. 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.

Current wording

Cash flows used in financing activities during the firstsix months of 2025 and 2024 consisted solely of quarterly dividend payments of $0.20 per common share, totaling $4.6 million in each period. Subsequent to June 30, 2025, on July 28, 2025, 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 22, 2025 to stockholders of record on August 12, 2025. 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.