NATURAL HEALTH TRENDS CORP

Previous 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.

Current wording

As of March 31, 2026, we were conducting business through 26,400 active members, compared to 26,650 at December 31, 2025 and 30,180 at March 31, 2025. We consider a member “active” if they have placed at least one product order with us during the preceding year. Our priority is to focus our resources in our most promising markets, which we consider to be Greater China and countries where our existing members have the connections to recruit prospects and sell our products, such as Southeast Asia, India, South America and Europe.

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 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.

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 quarter of 2026 generated approximately 83% of our revenue, substantially all of which was derived from the sale of products that are delivered to members in China. Through a separate Chinese entity, we also operate an e-commerce retail platform in China. We believe that neither of these activities require a direct selling license in China, which we do not currently hold. We previously submitted a preliminary application for a direct selling license in China, but withdrew our application in 2019 upon the recommendation of a Chinese governmental authority. We expect to reapply for a direct selling license in China when we believe that circumstances are again ripe for doing so. If we are ultimately able to obtain a direct selling license in China, we believe that the incentives inherent in the direct selling model in China would incrementally benefit our existing business. We do not expect that any increased sales in China derived from obtaining a direct selling license would initially be material and, in any event may be partially offset by the higher fixed costs associated with the establishment and maintenance of required service centers, branch offices, manufacturing facilities, certification programs and other legal requirements. We are unable to predict whether and when we will be successful in obtaining a direct selling license to operate in China, and if we are successful, when we will be permitted to conduct direct selling operations and whether such operations would be profitable.

Previous wording

The Chinese government conducted a campaign in 2019 focusing on companies involved in the sale of food, equipment, daily necessities, small home electrical appliances and services that are claimed to promote health. The Chinese government ministries in charge of this campaign indicated that they were targeting illegal practices in the industry, particularly the manufacture and sale of counterfeit and substandard products, and false advertising and misleading claims as to the health benefits of products and services. It is understood that the campaign was specifically focused on the business practices of direct selling companies. Although it was initially announced as a 100-day campaign, we are not aware of any information indicating that the campaign has ever been formally concluded. In any case, the business environment in China for health product companies can be challenging, which has from time to time been exacerbated by negative social media sentiment expressed for these types of companies.

Current wording

The Chinese government conducted a campaign in 2019 focusing on companies involved in the sale of food, equipment, daily necessities, small home electrical appliances and services that are claimed to promote health. The Chinese government ministries in charge of this campaign indicated that they were targeting illegal practices in the industry, particularly the manufacture and sale of counterfeit and substandard products, and false advertising and misleading claims as to the health benefits of products and services. It is understood that the campaign was specifically focused on the business practices of direct selling companies. Although it was initially announced as a 100-day campaign, we are not aware of any information indicating that the campaign has ever been formally concluded. In any case, the business environment in China for health product companies can be challenging and can change quickly, which has from time to time been exacerbated by negative social media sentiment expressed for these types of companies.

Previous 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.

Current wording

The Company’s recent financial results, particularly beginning in the second quarter of fiscal 2025, have been negatively affected by negative consumer sentiment and economic uncertainty in the Company’s largest market. If substantial tariffs remain in place, or new tariffs are implemented, the Company may see the effect of higher duties on restocking in 2026. The likely short-term impact of the tariffs is difficult to predict with any certainty, however. We may need to impose a surcharge on products sold into China, and the imposition of such a surcharge may have a further negative effect on sales volumes into China. In the longer term, the Company has taken steps to transition production of certain of its products currently manufactured in the United States to other jurisdictions, including in Asia, in order to mitigate the effect of U.S. and reciprocal tariffs. If successfully implemented, this transition may result in savings in logistics, freight and manufacturing cost, but may also carry certain short-term expenses, including the cost of reregistration of products in certain jurisdictions. The Company is actively evaluating its options and the impact of trade policy changes on future quarters remains uncertain. In addition, it is difficult to predict the further effect of general consumer sentiment in China toward the Company’s products as a result of the trade policies adopted by the United States and China, which has already impacted the Company’s financial results. 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 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.

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 three months of each of 2026 and 2025, represented 42% 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 $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.

Current wording

Net sales were $9.2 million for the three months ended March 31, 2026 compared with $10.7 million for the comparable period a year ago, a decrease of $1.5 million, or 14%. Hong Kong net sales, substantially all ofwhich were derived from the sale of products shipped to members residing in China, decreased $1.5 million, or 17%, over the comparable period a year ago primarily due to the continued negative consumer sentiment as a result of the heightened economic uncertainty caused by the threat of reciprocal and retaliatory tariffs. Outside of our Hong Kong business, net sales of $1.6 million were the same asthe comparable three-month period a year ago. As of March 31, 2026, deferred revenue was $5.0 million, which primarily consisted of $3.5 million pertaining to unshipped product orders and unredeemed product vouchers, as well as $1.5 million in auto ship advances.

Previous 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.

Current wording

Commissions were 41.8% of net sales for each of the three months ended March 31, 2026 and 2025. Despite lower weekly commissions earned by our members during the first three months of 2026 as compared to the comparable period last year, commissions as a percentage of net sales were on par with last year due to higher supplemental incentive costs during the first quarter this year.

Previous 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.

Current wording

Selling, general and administrative expenses declined by $238,000 to $3.5 million for the three months ended March 31, 2026 as compared with $3.8 million for the three months ended March 31, 2025. The decrease was primarily due to lower employee-related expenses and event costs during the current year period. Selling, general and administrative expenses as a percentage of net sales increased from 35.0% to 38.3% for the three month period ended March 31, 2026 compared with the same quarter last year due to the net sales decline in Hong Kong.

Previous 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.

Current wording

Other income was $295,000 for the three months ended March 31, 2026 compared with $465,000 in the same period a year ago. The decrease was primarily due to less interest income earned during the current year period.

Previous 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.

Current wording

An income tax benefit of $25,000 and $2,000 was recognized during the three months ended March 31, 2026 and 2025, respectively. The tax provision during the three-month periods ended March 31, 2026 and 2025 primarily resulted from foreign income inclusions, such as Net CFC Tested Income (“NCTI”) and Subpart F income, and year-to-date consolidated income (loss) through March 31, 2026 and 2025, respectively, as well as prior year foreign return to provision true-ups.

Previous 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

Current wording

On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was enacted in the United States. The OBBBA includes significant tax law changes, including the permanent extension of certain provisions from the U.S. Tax Cuts and Jobs Act, modifications to the international tax framework, and the reinstatement of favorable business tax provisions. These include 100% bonus depreciation, immediate expensing of Section 174 domestic research and experimental expenditures, and revised limitations under Section 163(j) on the deductibility of business interest expense. The legislation has multiple effective dates, with certain provisions effective beginning in 2025, and others implemented through 2027. We evaluated the impact of the OBBBA and determined it's provisions do not have a material impact on our overall tax liability.

Previous 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.

Current wording

At March 31, 2026, our cash, cash equivalents and marketable securities totaled $21.2 million. Total cash, cash equivalents and marketable securities decreased by $7.6 million from December 31, 2025 to March 31, 2026 due to the repurchase of shares of our common stock and dividends paid during the first three months of 2026. We consider all highly liquid investments with original maturities of three months or less, when purchased, to be cash equivalents. As of March 31, 2026, we had $16.4 million in available-for-sale investments classified as either cash equivalents or marketable securities. In addition, cash and cash equivalents included $2.9 million held in banks located within China subject to foreign currency controls.

Previous 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.

Current wording

As of March 31, 2026, the ratio of current assets to current liabilities was 2.0 to 1.0 and we had $13.3 million of working capital. Working capital as of March 31, 2026 decreased $7.2 million compared to our working capital as of December 31, 2025.

Previous 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.

Current wording

Cash flows provided by investing activities totaled $9.9 million during thefirst three months of 2026 compared with $10.0 million during the first three months a year ago. During the first three months of 2026, we purchased $1.1 million in marketable securities with original maturities greater than three months, and as such, reflect these purchases as an investing activity. These purchases of marketable securities were offset by $11.2 million of proceeds received from maturities of marketable securities.

Previous 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.

Current wording

Cash flows used in financing activities totaled $6.7 million during the first three months of 2026 compared with $2.3 million during the first three months a year ago. On February 17, 2026, we entered into a share repurchase agreement to repurchase 2,935,227 shares of common stock, representing approximately 25.5% of our outstanding shares, from the George K. Broady 2012 Irrevocable Trust and the Eleanor Jane Broady 2012 Irrevocable Trust at a price of $2.00 per share, for aggregate consideration of approximately $5.9 million. Additionally, we declared and paid cash dividends of $0.10 per common share, or $858,000, in 2026 and $0.20 per common share, or $2.3 million, in 2025. Subsequent to March 31, 2026, on April 27, 2026, the Board of Directors declared another quarterly cash dividend of$0.10 on each share of common stock outstanding. The dividend will be payable on May 22, 2026 to stockholders of record on May 12, 2026. Any future cash dividends will be at the sole discretion of the Company’s Board of Directors, and will depend on our financial condition, results of operations, capital requirements and other factors considered relevant by the Board of Directors.

Previous wording

In 2016, the Board of Directors authorized an increase to the Company’s stock repurchase program first approved in 2015 from $15.0 million to $70.0 million. Any repurchases will be made in accordance with all applicable securities laws and regulations, including Rule 10b-18 of the Exchange Act. For all or a portion of the authorized repurchase amount, the Company may enter into one or more plans that are compliant with Rule 10b5-1 of the Exchange Act that are designed to facilitate these purchases. The stock repurchase program does not require the Company to acquire a specific number of shares, and may be suspended from time to time or discontinued. As of September 30, 2025, $21.9 million of the $70.0 million stock repurchase program remained available for future purchases, inclusive of related estimated income tax.

Current wording

In 2016, the Board of Directors authorized an increase to the Company’s stock repurchase program first approved in 2015 from $15.0 million to $70.0 million. Any repurchases will be made in accordance with all applicable securities laws and regulations, including Rule 10b-18 of the Exchange Act. For all or a portion of the authorized repurchase amount, the Company may enter into one or more plans that are compliant with Rule 10b5-1 of the Exchange Act that are designed to facilitate these purchases. The stock repurchase program does not require the Company to acquire a specific number of shares, and may be suspended from time to time or discontinued. The repurchase of our shares on February 17, 2026 was effected pursuant to our previously authorized $70.0 million share repurchase program. As of March 31, 2026, $15.9 million of the $70.0 million stock repurchase program remained available for future purchases, inclusive of estimated tax.