NATURAL HEALTH TRENDS CORP

Previous 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.

Current wording

As of September 30, 2025, we were conducting business through 28,030 active members, compared to 30,870 at December 31, 2024 and 30,880 at September 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

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.

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 nine 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

Beginning in the first quarter of 2025, the U.S. engaged in a series of escalating tariff actions with a wide range of countries, particularly China. On April 2, 2025, the U.S. imposed by executive order a 34% reciprocal tariff on Chinese-origin goods. This was followed by an amended executive order April 8, 2025, raising tariffs to 84% and an April 9, 2025 executive order raising tariffs to 125%. In response, China raised its duties on imported U.S. goods to a similar level. Following negotiations, the U.S. announced a temporary 90-day reduction in its reciprocal tariff rates from 125% to 10% beginning May 14, 2025, and China agreed to suspend its retaliatory tariffs during the same period. The pre-existing 20% U.S. tariff imposed on all Chinese goods also remains in place, along with certain other sector-specific tariffs. The state of trade discussions between the U.S. and China (and between the U.S. and other nations) remains dynamic and unpredictable.

Current wording

Beginning in the first quarter of 2025, the U.S. engaged in a series of escalating tariff actions with a wide range of countries, particularly China. On April 2, 2025, for example, the U.S. imposed by executive order a 34% reciprocal tariff on Chinese-origin goods. This was followed by an amended executive order April 8, 2025, raising tariffs to 84% and an April 9, 2025 executive order raising tariffs to 125%. In response, China raised its duties on imported U.S. goods to a similar level. Following negotiations, the U.S. announced a temporary 90-day reduction in its reciprocal tariff rates from 125% to 10% beginning in May 2025, and China agreed to suspend its retaliatory tariffs during the same period. The pre-existing 20% U.S. tariff imposed on all Chinese goods remained in place, along with certain other sector-specific tariffs. In October 2025, the U.S. administration announced an additional 100% tariff on all products imported from China in response to certain restrictions imposed by China on rare earth minerals, before announcing an agreement that would, among other things, reduce the general tariff rate on Chinese goods to 47%. The state of trade discussions between the U.S. and China (and between the U.S. and other nations) remains dynamic and unpredictable.

Previous 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.

Current wording

While the Company does not believe that its first quarter 2025 financial results were materially affected by these developments, its second and third quarter sales were negatively affected by negative consumer sentiment and economic uncertainty in the Company’s largest market. If substantial tariffs remain in place, or new tariffs are implemented, the Company may see the effect of higher duties on restocking 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 and third quarters. 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 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.

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 nine 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 $9.8 million for the three months ended June 30, 2025 compared with $10.5 million for the comparable period a year ago, a decrease of $662,000, or 6%. Hong Kong net sales, substantially all of which were derived from the sale of products shipped to members residing in China, decreased $464,000, or 5%, over the comparable period a year ago primarily due to the negative consumer sentiment as a result of the heightened economic uncertainty caused by the threat of reciprocal and retaliatory tariffs. Outside of our Hong Kong business, net sales decreased $198,000, or 10%, 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.

Current wording

Net sales were $9.5 million for the three months ended September 30, 2025 compared with $10.7 million for the comparable period a year ago, a decrease of $1.2 million, or 11%. Hong Kong net sales, substantially all ofwhich were derived from the sale of products shipped to members residing in China, decreased $641,000, or 8%, over the comparable period a year ago in part due to the timing of a product promotion and the presale of our new skincare line at the end of September 2025. Disregarding these items, the decrease for the three months ended September 30, 2025 compared with the comparable period a year ago was $350,000, or 4%, which can be attributed to the continued 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 $573,000, or 25%, 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.

Previous 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.

Current wording

Net sales were $30.0 million for the nine months ended September 30, 2025 compared with $32.1 million for the comparable period a year ago, a decrease of $2.1 million, or 7%. Hong Kong net sales, substantially all of which were derived from the sale of products shipped to members residing in China, decreased $1.2 million, or 4%, over the comparable period a year agoprimarily due to the negative consumer sentiment as a result of the heightened economic uncertainty caused by the threat of reciprocal and retaliatory tariffs. Outside of our Hong Kong business, net sales decreased $934,000, or 15%, over the comparable nine-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 September 30, 2025, deferred revenue was $6.0 million, which consisted of $4.5 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 73.9% 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.

Current wording

Gross profit was 73.7% of net sales for the three months ended September 30, 2025 compared with 74.1% of net sales forthe three months ended September 30, 2024. Gross profit was 73.8% of net sales for the nine months ended September 30, 2025 compared with 73.9% of net sales for the nine months ended September 30, 2024. The decline in gross profit margin for the three months ended September 30, 2025 was due to the write off of components inventory related to discontinued products.

Previous 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.

Current wording

Commissions were 40.9% of net sales for the three months ended September 30, 2025 compared with 40.5% of net sales for the three months ended September 30, 2024. Commissions were 41.2% of net sales for the nine months ended September 30, 2025 compared with 40.5% of net sales for the nine months ended September 30, 2024. The increase in commissions as a percentage of net sales during the three- and nine-month periods ended September 30, 2025 was primarily due to higher weekly commissions earned by our members during the first nine months of 2025 as compared to the comparable period last year.

Previous 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.

Current wording

Selling, general and administrative expenses declined by $262,000 to $3.6 million for the three months ended September 30, 2025 as compared with $3.9 million for the three months ended September 30, 2024. Selling, general and administrative expenses declined by $653,000 to $10.9 million for the nine months ended September 30, 2025 as compared with $11.6 million for the nine months ended September 30, 2024. The decrease for each of the three- and nine-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 increased slightly for the three month period ended September 30, 2025 compared with the same quarter last year, but were relatively consistent for the nine month period ended September 30, 2025 as compared with the same nine month period a year ago.

Previous 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.

Current wording

Other income was $206,000 for the three months ended September 30, 2025 compared with $441,000 in the same period a year ago. Other income was $1.0 million for thenine months ended September 30, 2025 compared with $1.5 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 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.

Current wording

An income tax expense of $142,000 and $131,000 was recognized during the three months ended September 30, 2025 and 2024, respectively. An income tax expense of $140,000 and $249,000 was recognized during the nine months ended September 30, 2025 and 2024, respectively. The tax provision during the three- and nine-month periods ended September 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 (loss) through September 30, 2025 and 2024, respectively.

Previous wording

On July 4, 2025, President Trump signed into law the One Big Beautiful Bill Act (“OBBBA”). The OBBBA makes permanent key elements of the U.S. Tax Cuts and Jobs Act, including 100% bonus depreciation, domestic research cost expensing, and the business interest expense limitation. FASB ASC 740,Income Taxes, requires the effects of changes in tax rates and laws on deferred tax balances to be recognized in the period in which legislation is enacted. Consequently, as of the date of enactment, and during the three months ended September 30, 2025, the Company will evaluate all deferred tax balances under the newly enacted taw law and identify any other changes required to its financial statements as a result of the OBBBA. The Company is still evaluating the impact of the OBBBA and the results of such evaluations will be reflected on the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2025.

Current wording

On July 4, 2025, President Trump signed into law the One Big Beautiful Bill Act (“OBBBA”). The OBBBA includes significant tax law changes, including the permanent extension of certain provisions from the U.S. Tax Cuts and Jobs Act, modifications to the international tax framework, and the reinstatement of favorable business tax provisions. These include 100% bonus depreciation, immediate expensing of Section 174 domestic research and experimental expenditures, and revised limitations under Section 163(j) on the deductibility of business interest expense. FASB ASC 740,Income Taxes, requires the effects of changes in tax rates and laws on deferred tax balances to be recognized in the period in which legislation is enacted. The legislation has multiple effective dates, with certain provisions effective beginning in 2025, and others implemented through 2027. The OBBBA does not have a material impact on the Company’s financial statements for the interim period ending September 30, 2025, and the evaluation of the quantitative impact of the recent tax law changes to the Company’s current and deferred tax balances will be reflect on the Company’s annual report on Form 10-K for the year ending December 31, 2025

Previous 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.

Current wording

At September 30, 2025, our cash, cash equivalents and marketable securities totaled $32.0 million. Total cash, cash equivalents and marketable securities decreased by $11.9 million from December 31, 2024 to September 30, 2025 due to the dividends paid during the first nine 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 September 30, 2025, we had $25.0 million in available-for-sale investments classified as either cash equivalents or marketable securities. In addition, cash and cash equivalents included $3.0 million held in banks located within China subject to foreign currency controls.

Previous 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.

Current wording

As of September 30, 2025, the ratio of current assets to current liabilities was 2.6 to 1.0 and we had $23.1 million of working capital. Working capital as of September 30, 2025 decreased $7.1 million compared to our working capital as of December 31, 2024.

Previous wording

Cash used in operations was$5.2 million for the first six months of 2025 compared with $3.0 million for the first six months of 2024. Income tax paid during April 2025 and 2024 for the repatriation tax on the deemed repatriation of deferred foreign income was $5.1 million and $4.0 million, respectively. Disregarding these payments, cash used in operations during the first six months of 2025 was $97,000, a decline in cash flows of $1.0 million compared with the first six months a year ago.

Current wording

Cash used in operations was$5.0 million for the first nine months of 2025 compared with $3.5 million for the first nine months of 2024. Income tax paid during April 2025 and 2024 for the repatriation tax on the deemed repatriation of deferred foreign income was $5.1 million and $4.0 million, respectively. Disregarding these payments, cash flows from operations were $16,000 for the first nine months of 2025 compared with $514,000 for the first nine months a year ago.

Previous 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.

Current wording

Cash flows provided by investing activities totaled $12.5 million during thefirst nine months of 2025 compared with cash flows used in investing activities of $23.1 million during the first nine months a year ago. During the first nine months of 2025, we purchased $39.0 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 $51.6 million of proceeds received from maturities of marketable securities.

Previous 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.

Current wording

Cash flows used in financing activities during the first nine months of 2025 and 2024 consisted solely of quarterly dividend payments of $0.20 per common share, totaling $6.9 million in each period. Subsequent to September 30, 2025, on November 3, 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 November 28, 2025 to stockholders of record on November 18, 2025. 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.