NATURAL HEALTH TRENDS CORP

Previous 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.

Current wording

As of June 30, 2026, we were conducting business through 26,000 active members, compared to 26,650 at December 31, 2025 and 29,260 at June 30, 2025. We consider a member “active” if they have placed at least one product order with us during the preceding year. Our priority is to focus our resources in our most promising markets, which we consider to be Greater China and countries where our existing members have the connections to recruit prospects and sell our products, such as Southeast Asia, India, South America and Europe.

Previous 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, 2025, 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 “Part I, Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2025, as supplemented by “Part II, Item 1A, Risk Factors” in this Quarterly Report on Form 10-Q, and more specifically under the captions “Because our Hong Kong operations account for a substantial portion of our overall business...”, “Hong Kong’s political and economic landscape has in recent years undergone significant change...”, and “Our business in China is subject to compliance with a myriad of applicable laws and regulations...”.

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 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.

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 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

During 2025, in response to continued challenging near-term economic conditions in our largest market and continued pressure on consumer sentiment, management implemented a restructuring plan designed to better align our operating cost structure with current business conditions. The restructuring plan included actions to optimize our workforce, relocate certain product manufacturing activities to Asia, and downsize several offices. We recognized $283,000 of restructuring-related charges during the fourth quarter of 2025. As of December 31, 2025, the major restructuring initiatives were substantially complete. We expect these actions to generate approximately $1.5 million in annualized cost savings, though not all of these savings are expected to be realized during 2026 due to the timing of certain facility-related actions. The amount and timing of savings may differ from our current expectations.

Current wording

Reorganization Initiative. During 2025, in response to continued challenging near-term economic conditions in our largest market and continued pressure on consumer sentiment, management implemented a restructuring plan designed to better align our operating cost structure with current business conditions. The restructuring plan included actions to optimize our workforce, relocate certain product manufacturing activities to Asia, and downsize several offices. We recognized $283,000 of restructuring-related charges during the fourth quarter of 2025. As of December 31, 2025, the major restructuring initiatives were substantially complete. We expect these actions to generate approximately $1.5 million in annualized cost savings, though not all of these savings are expected to be realized during 2026 due to the timing of certain facility-related actions. The amount and timing of savings may differ from our current expectations.

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 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.

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 2026 and 2025, 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 $9.2 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.

Current wording

Net sales were $16.8 million for thesix months ended June 30, 2026 compared with $20.6 million for the comparable period a year ago, a decrease of $3.7 million, or 18%. Hong Kong net sales, substantially all of which were derived from the sale of products shipped to members residing in China, decreased $3.2 million, or 19%, over the comparable period a year ago primarily due to the continued negative consumer sentiment as a result of the heightened economic uncertainty caused by the threat of reciprocal and retaliatory tariffs, as well as increased regulatory uncertainty and the disruptions that resulted from certain independent member activities that arose in China during the second quarter of 2026 (see“Business Overview—Recent Developments”). Outside of our Hong Kong business, net sales decreased $514,000, or 15%, over the comparable six-month period a year ago, primarily due to reduction in the United States and Canada, as well as our Chinese e-commerce retail business during the second quarter of 2026. As of June 30, 2026, deferred revenue was $4.2 million, which primarily consisted of $2.7 million pertaining to unshipped product orders and unredeemed product vouchers, as well as $1.5 million in auto ship advances.

Previous wording

Gross profit was 75.0% of net sales for the three months ended March 31, 2026 compared with 73.6% of net sales forthe three months ended March 31, 2025. The improvement in gross profit margin for the three months ended March 31, 2026 was primarily due to the transition of our product manufacturing from the United States to East Asia, closer to our main markets, in an effort to reduce tariff uncertainty and streamline logistics.

Current wording

Gross profit was 75.2% of net sales for the three months ended June 30, 2026 compared with 73.9% of net sales forthe three months ended June 30, 2025. Gross profit was 75.1% of net sales for the six months ended June 30, 2026 compared with 73.8% of net sales forthesix months ended June 30, 2025. The improvement in gross profit margin for both the three- and six-month periods ended June 30, 2026 was primarily due to the transition of our product manufacturing from the United States to East Asia, closer to our main markets, in an effort to reduce tariff uncertainty and streamline logistics.

Previous 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.

Current wording

Commissions were 40.9% of net sales for each of the three months ended June 30, 2026 and 2025. Commissions were 41.4% of net sales for each of the six months ended June 30, 2026 and 2025. Despite lower weekly commissions earned by our members during the first six 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 two quarters this year.

Previous 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.

Current wording

Selling, general and administrative expenses declined by $323,000 to $3.3 million for the three months ended June 30, 2026 as compared with $3.6 million for the three months ended June 30, 2025. The decrease was primarily due to lower employee-related expenses, professional fees, and credit card fees and assessments during the current year period. Selling, general and administrative expenses as a percentage of net sales increased from 36.4% to 42.7% for the three month period ended June 30, 2026 compared with the same quarter last year due to the net sales decline in Hong Kong.

Previous 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.

Current wording

Other income was $190,000 for the three months ended June 30, 2026 compared with $348,000 in the same period a year ago. Other income was $485,000 for thesix months ended June 30, 2026 compared with $813,000 in the same period a year ago. The decrease was primarily due to less interest income earned during the current year periods.

Previous 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.

Current wording

An income tax benefit of $2,000 was recognized during the three months ended June 30, 2026. No tax provision or benefit was recognized during the three months ended June 30, 2025. An income tax benefit of $27,000 and $2,000 was recognized during the six months ended June 30, 2026 and 2025, respectively. The tax benefit during the three- and six-month periods ended June 30, 2026 and 2025 primarily resulted from estimates for foreign income inclusions, such as Net CFC Tested Income (“NCTI”) and Subpart F income, and our year-to-date consolidated income (loss) through June 30, 2026 and 2025, respectively, as well as prior year foreign return to provision true-ups.

Previous 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.

Current wording

At June 30, 2026, our cash, cash equivalents and marketable securities totaled $18.6 million. Total cash, cash equivalents and marketable securities decreased by $10.3 million from December 31, 2025 to June 30, 2026 primarily due to the repurchase of shares of our common stock and dividends paid during the first six 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 June 30, 2026, we had $14.4 million in available-for-sale investments classified as either cash equivalents or marketable securities. In addition, cash and cash equivalents included $2.7 million held in banks located within China subject to foreign currency controls.

Previous 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.

Current wording

As of June 30, 2026, the ratio of current assets to current liabilities was 2.0 to 1.0 and we had $11.8 million of working capital. Working capital as of June 30, 2026 decreased $8.7 million compared to our working capital as of December 31, 2025.

Previous 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.

Current wording

Cash flows provided by investing activities totaled $12.4 million during thefirst six months of 2026 compared with $6.6 million during the first six months a year ago. During the first six months of 2026, we purchased $8.7 million in marketable securities with original maturities greater than three months, and as such, reflect these purchases as an investing activity. These purchases of marketable securities were offset by $21.6 million of proceeds received from maturities of marketable securities.

Previous 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.

Current wording

Cash flows used in financing activities totaled $7.6 million during the firstsix months of 2026 compared with $4.6 million during the first six 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 $1.7 million, in 2026 and $0.20 per common share, or $4.6 million, in 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.