Natural Health Trends Corp (NASDAQ:NHTC) Q1 2022 Earnings Conference Call May 4, 2022 11:30 AM ET Company Participants Michelle Glidewell - Senior Manager at NHT Global Corp Chris Sharng - President & Director Scott Davidson - Senior VP, CFO, Chief Compliance Officer & Secretary Operator Greetings, and welcome to the Natural Health Trends Corp First Quarter 2022 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, ...

```markdown [Part I - Financial Information](index=7&type=section&id=PART%20I%20-%20FINANCIAL%20INFORMATION) This section provides a comprehensive overview of the company's financial performance, condition, and internal controls [Financial Statements](index=7&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited consolidated financial statements for Q1 2022, reporting a net loss of **$105 thousand** primarily due to lower net sales Consolidated Balance Sheet Highlights | Account | March 31, 2022 (Millions) | December 31, 2021 (Millions) | | :--- | :--- | :--- | | **Total Assets** | **$93.042** | **$98.355** | | Cash and cash equivalents | $79.382 | $83.843 | | **Total Liabilities** | **$36.172** | **$38.867** | | Deferred revenue | $8.049 | $8.536 | | **Total Stockholders' Equity** | **$56.870** | **$59.488** | Consolidated Statement of Operations Highlights | Account | Three Months Ended March 31, 2022 (Millions) | Three Months Ended March 31, 2021 (Millions) | | :--- | :--- | :--- | | Net sales | $11.546 | $13.469 | | Gross profit | $8.638 | $10.214 | | Income (loss) from operations | $(0.383) | $0.220 | | **Net income (loss)** | **$(0.105)** | **$0.153** | | **Diluted EPS** | **$(0.01)** | **$0.01** | Consolidated Statement of Cash Flows Highlights | Cash Flow Activity | Three Months Ended March 31, 2022 (Millions) | Three Months Ended March 31, 2021 (Millions) | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $(2.348) | $0.414 | | Net cash used in investing activities | $(0.040) | $(0.063) | | Net cash used in financing activities | $(2.285) | $(2.285) | | **Net decrease in cash** | **$(4.901)** | **$(2.156)** | [Notes to Consolidated Financial Statements](index=12&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) These notes detail accounting policies, revenue recognition, lease obligations, income taxes, stock-based compensation, segment information, and a declared dividend - The company is an international direct-selling and e-commerce company selling personal care, wellness, and 'quality of life' products under the **NHT Global** brand. It has a physical presence in the Americas, Greater China, Southeast Asia, South Korea, Japan, India, and Europe[28](index=28&type=chunk) Net Sales by Product and Service | Category | Three Months Ended March 31, 2022 (Millions) | Three Months Ended March 31, 2021 (Millions) | | :--- | :--- | :--- | | Product sales | $10.322 | $12.031 | | Administrative fees, freight and other | $1.257 | $1.554 | | Less: sales returns | $(0.033) | $(0.116) | | **Total net sales** | **$11.546** | **$13.469** | - **Hong Kong** is the only market with net sales greater than **10%** of the total. While no single customer accounts for **10%** or more of net sales, the business model can result in a concentration of sales to several key members and their networks[42](index=42&type=chunk) Net Sales by Geographic Area | Geographic Area | Q1 2022 (Millions) | Q1 2021 (Millions) | | :--- | :--- | :--- | | Hong Kong | $8.776 | $10.322 | | Peru | $0.482 | $0.516 | | China | $0.481 | $0.508 | | Taiwan | $0.569 | $0.691 | | Europe | $0.201 | $0.350 | | United States | $0.256 | $0.311 | | **Total Net Sales** | **$11.546** | **$13.469** | - Substantially all of the company's **Hong Kong** revenues are derived from the sale of products delivered to members in **China**[79](index=79&type=chunk) - On May 2, 2022, the Board of Directors declared a quarterly cash dividend of **$0.20 per share**, payable on May 27, 2022[80](index=80&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=25&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Q1 2022 financial performance, noting a **14% decrease in net sales** due to Hong Kong and China market challenges, resulting in a net loss and negative operating cash flow [Business Overview](index=25&type=section&id=Business%20Overview) The company operates as an international direct-selling business, with **76% of net sales** concentrated in Hong Kong and China, facing regulatory and pandemic risks, leading to declining active members - The number of active members decreased from **49,420** at March 31, 2021, to **45,760** at December 31, 2021, and further to **44,490** at March 31, 2022[83](index=83&type=chunk) - Sales from the **Hong Kong** subsidiary represented **76% of net sales** in the first quarter of 2022, with substantially all of these revenues derived from products delivered to members in **China**[84](index=84&type=chunk)[85](index=85&type=chunk) - The spread of the Omicron variant in **Hong Kong** and **China**, along with strict government lockdowns and border controls, significantly disrupted operations in Q1 2022. These restrictions impacted the ability to import and distribute products and prevented in-person member events[89](index=89&type=chunk) [Results of Operations](index=29&type=section&id=Results%20of%20Operations) Q1 2022 net sales decreased **14% to $11.5 million**, primarily due to a **15% drop in Hong Kong sales**, resulting in an operating loss of **$383 thousand** Net Sales Change (Q1 2022 vs Q1 2021) | Metric | Q1 2022 | Q1 2021 | Change (%) | | :--- | :--- | :--- | :--- | | Total Net Sales | $11.5M | $13.5M | -14% | | Hong Kong Net Sales | $8.8M | $10.3M | -15% | - The decrease in **Hong Kong** net sales was primarily attributed to the COVID-19 Omicron variant and strong government control measures, which created significant supply chain and distribution challenges[105](index=105&type=chunk) - Gross profit as a percentage of net sales decreased from **75.8% to 74.8%**, partly due to the impact of relatively fixed costs on a lower sales base[107](index=107&type=chunk) - Selling, general and administrative (SG&A) expenses decreased to **$4.3 million** from **$4.5 million**, primarily due to lower professional and credit card fees[109](index=109&type=chunk) [Liquidity and Capital Resources](index=31&type=section&id=Liquidity%20and%20Capital%20Resources) The company's cash and equivalents decreased by **$4.5 million** to **$79.4 million** due to operating cash outflow and dividend payments, maintaining strong liquidity with a **4.0:1.0 current ratio** - Cash and cash equivalents totaled **$79.4 million** at March 31, 2022. The company had working capital of **$66.7 million** and a current ratio of **4.0 to 1.0**[111](index=111&type=chunk) - Cash used in operations was **$2.3 million** for Q1 2022, a significant shift from **$414 thousand** of cash provided by operations in Q1 2021. This was primarily due to the payout of commissions and other expenses accrued in 2021[112](index=112&type=chunk) - The company paid a quarterly dividend of **$0.20 per share**, totaling **$2.3 million**, during the first quarter of 2022[113](index=113&type=chunk) - As of March 31, 2022, **$21.9 million** remained available for future purchases under the company's **$70.0 million** stock repurchase program[114](index=114&type=chunk) [Critical Accounting Policies and Estimates](index=32&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) Critical accounting policies include revenue recognition, member commissions, and income taxes, requiring significant judgment in estimating tax provisions and geographic income mix - Critical accounting policies and estimates are those related to revenue recognition, liabilities for member commissions, and income taxes[118](index=118&type=chunk) - Deferred revenue, which includes unshipped product orders and unredeemed vouchers, totaled **$6.1 million** at March 31, 2022[119](index=119&type=chunk) - Accrued commissions, including estimates for incentive programs, totaled **$2.5 million** at March 31, 2022, down from **$3.6 million** at December 31, 2021[121](index=121&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=33&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section is not applicable as the company qualifies as a smaller reporting company and is exempt from this disclosure - Not applicable under smaller reporting company disclosure rules[128](index=128&type=chunk) [Controls and Procedures](index=33&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of March 31, 2022, with no material changes in internal control over financial reporting - Based on an evaluation as of March 31, 2022, the company's principal executive officer and principal financial officer concluded that disclosure controls and procedures were effective[129](index=129&type=chunk) - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting[130](index=130&type=chunk) [Part II - Other Information](index=35&type=section&id=PART%20II%20-%20OTHER%20INFORMATION) This section covers legal proceedings, risk factors, equity sales, and a list of exhibits filed with the report [Legal Proceedings](index=35&type=section&id=Item%201.%20Legal%20Proceedings) The company reports no legal proceedings occurred during the period - None[132](index=132&type=chunk) [Risk Factors](index=35&type=section&id=Item%201A.%20Risk%20Factors) No material changes to the company's risk factors have occurred since the Annual Report on Form 10-K for December 31, 2021 - There have been no material changes to the company's risk factors since the Annual Report on Form 10-K for the year ended December 31, 2021[133](index=133&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=35&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company reports no unregistered sales of equity securities or use of proceeds during the period - None[133](index=133&type=chunk) [Exhibits](index=35&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including CEO and CFO certifications and Inline XBRL documents - Exhibits filed include CEO and CFO certifications pursuant to Sarbanes-Oxley Act Sections 302 and 906, and various Inline XBRL documents[134](index=134&type=chunk) ```

Part I [Business](index=5&type=section&id=Item%201.%20Business) Natural Health Trends Corp. is a Hong Kong-based direct-selling and e-commerce company selling personal care and wellness products, primarily in Greater China - The company is an international direct-selling and e-commerce firm selling personal care, wellness, and 'quality of life' products under the '**NHT Global**' brand[10](index=10&type=chunk) - The company's main product lines are categorized into wellness, herbal, beauty, lifestyle, home, and daily care[13](index=13&type=chunk) Active Members by Market (as of Dec 31) | Market | 2021 | 2020 | | :--- | :--- | :--- | | Americas | 5,650 | 4,760 | | Hong Kong (incl. China residents) | 33,510 | 41,130 | | Taiwan | 2,410 | 2,550 | | South Korea | 80 | 90 | | Japan | 700 | 220 | | Malaysia and Singapore | 420 | 290 | | Russia and Kazakhstan | 1,090 | 1,340 | | Europe | 1,210 | 1,300 | | India | 690 | 550 | | **Total** | **45,760** | **52,230** | - The company's business operations have been disrupted by the COVID-19 pandemic, a Chinese government campaign targeting health product sales, and political/social developments in Hong Kong[30](index=30&type=chunk) - The company utilizes a binary compensation plan with unilevel features, where members earn commissions from product purchases by their down-line network across all geographic markets[40](index=40&type=chunk) - The company does not currently hold a direct selling license in China. It withdrew its 2015 application in 2019 upon recommendation from a Chinese governmental authority and received a refund of its consumer protection deposit[53](index=53&type=chunk) [Risk Factors](index=16&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks from its reliance on Hong Kong and China markets, pandemic impacts, evolving regulations, and member retention challenges - A substantial portion of the company's business is concentrated in Hong Kong, generating **78% of revenue in 2021**, with most sales delivered to members in China. This geographic concentration exposes the company to significant regional risks[73](index=73&type=chunk)[74](index=74&type=chunk) - The COVID-19 pandemic and related control measures have materially and negatively impacted financial results throughout 2020 and 2021, and are expected to continue to do so in the near-term[75](index=75&type=chunk) - The company experienced a **12% decrease in active members** from year-end 2020 to 2021, following a **9% decrease** the prior year. This loss of members is a significant factor in declining sales[97](index=97&type=chunk) - The company's business in China is subject to complex laws. Any determination of non-compliance with direct selling, anti-pyramid, or multi-level marketing regulations could result in substantial fines and business interruptions[109](index=109&type=chunk)[111](index=111&type=chunk) - The company relies on a limited number of third-party manufacturers for all its products, and any disruption in supply could lead to an extended interruption and substantial loss of revenue[88](index=88&type=chunk) - The company's common stock is subject to extreme volatility due to the nature of the direct selling industry and its significant operations in China and Hong Kong[170](index=170&type=chunk) [Unresolved Staff Comments](index=36&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) This section is not applicable to the company - Not applicable[172](index=172&type=chunk) [Properties](index=36&type=section&id=Item%202.%20Properties) The company leases its Hong Kong headquarters, a California office, and multiple branch offices and retail spaces in China and other international markets - Corporate headquarters are located in a leased **7,300 sq. ft. office space** in Hong Kong[172](index=172&type=chunk) - The company leases seven branch offices throughout China and additional office space in Peru, Japan, Taiwan, South Korea, Malaysia, Singapore, Thailand, India, and the Cayman Islands[173](index=173&type=chunk) [Legal Proceedings](index=36&type=section&id=Item%203.%20Legal%20Proceedings) The company reports no legal proceedings - None[174](index=174&type=chunk) [Mine Safety Disclosures](index=36&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section is not applicable to the company - Not applicable[174](index=174&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=37&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common stock trades on NASDAQ under 'NHTC', with a quarterly cash dividend of **$0.20 per share** expected - Common stock is traded on the NASDAQ Capital Market under the symbol '**NHTC**'[175](index=175&type=chunk) - The company expects to pay a quarterly cash dividend of **$0.20 per share**, though future dividends are at the discretion of the Board of Directors[175](index=175&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=38&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) In 2021, net sales decreased by **3% to $60.0 million** due to Hong Kong sales decline, while operating income rose to **$1.6 million** and gross margin improved to **75.0%** Results of Operations Consolidated Results of Operations (% of Net Sales) | Line Item | 2021 | 2020 | | :--- | :--- | :--- | | Net sales | 100.0% | 100.0% | | Cost of sales | 25.0% | 27.4% | | **Gross profit** | **75.0%** | **72.6%** | | Commissions expense | 42.6% | 42.2% | | Selling, general and administrative expenses | 29.8% | 29.3% | | **Income from operations** | **2.6%** | **1.1%** | | Net income | 1.8% | 1.4% | Net Sales by Market (in thousands) | Market | 2021 | 2020 | | :--- | :--- | :--- | | Hong Kong | $46,699 | $49,169 | | Americas | $4,283 | $3,791 | | Taiwan | $2,706 | $3,034 | | China | $2,237 | $2,940 | | Europe | $1,136 | $1,050 | | Other | $2,944 | $2,117 | | **Total** | **$60,005** | **$62,071** | - Net sales decreased by **$2.1 million (3%)** in 2021 compared to 2020, primarily driven by a **$2.5 million (5%) decrease** in Hong Kong net sales[199](index=199&type=chunk) - Gross profit margin increased to **75.0%** in 2021 from **72.6%** in 2020, mainly due to lower logistics costs and fewer product promotions[201](index=201&type=chunk) - Commissions expense remained relatively stable as a percentage of net sales, at **42.6%** in 2021 versus **42.2%** in 2020[202](index=202&type=chunk) Liquidity and Capital Resources Key Liquidity and Cash Flow Data (in millions) | Metric | Dec 31, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Cash and cash equivalents | $83.8 | $92.4 | | Working capital | $68.8 | $78.2 | | Cash provided by operations (annual) | $1.0 | $1.9 | | Dividends paid (annual) | $9.1 | $9.1 | - The company repatriated **$9.0 million** from China in April 2021 after adjusting the registered capital of its primary Chinese subsidiary[206](index=206&type=chunk) - As of December 31, 2021, **$21.9 million** remained available for future purchases under the company's **$70.0 million** stock repurchase program[210](index=210&type=chunk) Critical Accounting Policies and Estimates - Management identifies revenue recognition, member commissions, and income taxes as its critical accounting policies and estimates[215](index=215&type=chunk) - Revenue is recognized when products are shipped and title passes to members (F.O.B. Shipping Point). Amounts received for unshipped orders and unredeemed product vouchers are recorded as deferred revenue, which totaled **$6.5 million** at year-end 2021[216](index=216&type=chunk) - The company accrues for member commissions and incentives as they are earned. Accrued commissions, including incentive programs, totaled **$3.6 million** at year-end 2021[219](index=219&type=chunk)[220](index=220&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=47&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section is not applicable as the company qualifies under smaller reporting company disclosure rules - Not applicable under smaller reporting company disclosure rules[225](index=225&type=chunk) [Financial Statements and Supplementary Data](index=48&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) Audited consolidated financial statements for 2021 and 2020 are presented, with Marcum LLP providing an unqualified opinion and identifying commissions expense as a critical audit matter Consolidated Balance Sheet Data (in thousands) | Account | Dec 31, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | **Total Current Assets** | **$93,469** | **$99,741** | | Total Assets | $98,355 | $105,942 | | **Total Current Liabilities** | **$24,656** | **$21,506** | | Total Liabilities | $38,867 | $38,245 | | **Total Stockholders' Equity** | **$59,488** | **$67,697** | Consolidated Statement of Operations Data (in thousands) | Account | 2021 | 2020 | | :--- | :--- | :--- | | Net Sales | $60,005 | $62,071 | | Gross Profit | $44,995 | $45,081 | | Income from Operations | $1,571 | $669 | | **Net Income** | **$1,085** | **$843** | | **Diluted EPS** | **$0.09** | **$0.07** | - The independent auditor, Marcum LLP, identified 'Commissions Expense and the Related Accrued Commissions, Including Amounts Held in eWallets' as a critical audit matter due to the specialized skills required to test IT controls and the significant management judgment involved in accruals[233](index=233&type=chunk)[234](index=234&type=chunk) - The Primary Reporting Segment generated operating income of **$10.4 million** in 2021, while the China segment generated **$74,000**. After accounting for unallocated corporate expenses of **$8.7 million**, total income from operations was **$1.6 million**[327](index=327&type=chunk) [Changes In and Disagreements with Accountants on Accounting and Financial Disclosure](index=75&type=section&id=Item%209.%20Changes%20In%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) This section is not applicable to the company - Not applicable[335](index=335&type=chunk) [Controls and Procedures](index=75&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2021, with no material changes - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2021[336](index=336&type=chunk) - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2021, based on the COSO framework[338](index=338&type=chunk) [Other Information](index=75&type=section&id=Item%209B.%20Other%20Information) The company reports no other information - None[339](index=339&type=chunk) Part III [Directors, Executive Officers and Corporate Governance](index=76&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information for this item is incorporated by reference from the company's definitive proxy statement - Information is incorporated by reference from the definitive proxy statement[340](index=340&type=chunk) [Executive Compensation](index=76&type=section&id=Item%2011.%20Executive%20Compensation) Information for this item is incorporated by reference from the company's definitive proxy statement - Information is incorporated by reference from the definitive proxy statement[341](index=341&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=76&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information for this item is incorporated by reference from the company's definitive proxy statement - Information is incorporated by reference from the definitive proxy statement[341](index=341&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=76&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information for this item is incorporated by reference from the company's definitive proxy statement - Information is incorporated by reference from the definitive proxy statement[342](index=342&type=chunk) [Principal Accountant Fees and Services](index=76&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) Information for this item is incorporated by reference from the company's definitive proxy statement - Information is incorporated by reference from the definitive proxy statement[343](index=343&type=chunk) Part IV [Exhibits and Financial Statement Schedules](index=77&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists all documents filed as part of the Form 10-K, including financial statements and various corporate and executive exhibits - This section provides an index of all exhibits filed with the Form 10-K, including financial statements, corporate governance documents, and executive certifications[345](index=345&type=chunk)[346](index=346&type=chunk) [Form 10-K Summary](index=78&type=section&id=Item%2016.%20Form%2010-K%20Summary) The company reports no other information - None[349](index=349&type=chunk)

Financial Data and Key Metrics Changes - Total revenue for Q4 2021 was $16.1 million, a decline of 3% compared to $16.6 million in Q4 2020, but an increase of 13% compared to $14.3 million in Q3 2021 [11] - For the full year 2021, total revenue was $60 million, down from $62.1 million in 2020, primarily due to a $5.5 million increase in deferred revenue [11] - Net income for Q4 2021 totaled $232,000 or $0.02 per diluted share, compared to $747,000 or $0.07 per diluted share in Q4 2020 [13] - Full-year net income was $1.1 million or $0.09 per diluted share, compared to $843,000 or $0.07 per diluted share in 2020 [13] Business Line Data and Key Metrics Changes - Order volume increased by 29% compared to Q3 2021 and 20% over Q4 2020, indicating strong demand for products [6] - The company launched a new product, Biotech Trio, which contributed meaningfully to net sales [7][8] Market Data and Key Metrics Changes - In Japan, sales achieved triple-digit growth over both the prior quarter and year-ago period, contributing more than $0.5 million in revenue for Q4 2021 [9] - The company is optimistic about expanding operations in South America, particularly in Peru, Colombia, and Bolivia [9] Company Strategy and Development Direction - The company aims to support its members and grow its business to capitalize on improvements in the operating environment [16] - There is a focus on innovative product releases throughout 2022 to enhance market presence [8] Management's Comments on Operating Environment and Future Outlook - The management expressed guarded optimism about carrying strong momentum into 2022 despite ongoing challenges from the COVID-19 pandemic [16] - The company remains focused on managing controllable elements to improve operational and financial performance [10] Other Important Information - The company maintained a gross profit margin of 74.2% in Q4 2021, down from 75.8% in Q4 2020, but increased to 75% for the full year from 72.6% in 2020 [11][12] - Total cash and cash equivalents were $83.8 million at December 31, 2021, down from $92.4 million at the end of 2020 [14] Q&A Session Summary - No specific questions or answers were documented in the provided content [17]

Financial Data and Key Metrics Changes - Total revenue for Q3 2021 was $14.3 million, a decrease of 12% compared to $16.2 million in Q2 2021, but an increase of 1% compared to $14.1 million in Q3 2020 [6][14] - Net income for Q3 2021 totaled $471,000 or $0.04 per diluted share, compared to $635,000 or $0.06 per diluted share in Q3 2020 [16] - Gross profit margin was 74.3%, consistent with the same quarter last year [15] Business Line Data and Key Metrics Changes - Order volume increased by 2% year-over-year, but declined 18% sequentially from Q2 2021 [8][9] - Active member base decreased by 2% to 45,950 from 46,860 at the end of Q2 2021, and down 14% from 53,300 at the end of Q3 2020 [15] Market Data and Key Metrics Changes - Revenue increased by 3% year-over-year outside Hong Kong, with emerging markets like Peru, Japan, CIS, and India showing growth [7][10] - The company faced challenges in core markets due to renewed government-mandated restrictions and lockdowns [6][12] Company Strategy and Development Direction - The company is focused on expanding into emerging markets and has launched new products, including the Skindulgence Probiotic Ampoule [10] - Technology updates included the introduction of new payment solutions to streamline the ordering process [11] - The company aims to manage product promotions and expenses prudently to preserve margins [9] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism regarding the macroeconomic environment and anticipated ongoing impacts from the pandemic [14][18] - The company remains committed to supporting members and executing its strategy to emerge well-positioned post-pandemic [18] Other Important Information - The SEC investigation initiated in August 2016 concluded without further action, and the IRS completed its tax audit agreeing with the company's tax returns [12] - A quarterly cash dividend of $0.20 per share was declared, payable on November 26 [17] Summary of Q&A Session - No specific questions or answers were recorded in the provided content, indicating the end of the conference call without a Q&A segment [18]

Financial Performance - Net sales for the year ended December 31, 2020, were $62.071 million, a decrease of 20.1% from $77.614 million in 2019[227] - Gross profit for 2020 was $45.081 million, down from $57.510 million in 2019, reflecting a gross margin decline[227] - The company reported a net income of $843,000 for 2020, compared to a net loss of $5.611 million in 2019, marking a significant turnaround[227] - Comprehensive income for 2020 was $1.771 million, compared to a comprehensive loss of $5.625 million in 2019[229] - Net income for the year ended December 31, 2020, was $843,000, a significant improvement compared to a net loss of $5,611,000 in 2019[234] - Operating activities generated net cash of $1,885,000 in 2020, contrasting with a cash outflow of $18,638,000 in 2019[235] - The primary reporting segment generated net sales of $58.243 million in 2020, down from $73.693 million in 2019, reflecting a decline of approximately 21%[328] - Income from operations for the primary reporting segment was $9.277 million in 2020, slightly down from $9.339 million in 2019[328] - The Company recorded a total income from operations for reportable segments of $9.511 million in 2020, compared to $7.505 million in 2019, indicating an increase of approximately 27%[328] Assets and Liabilities - Total current assets decreased to $99.741 million in 2020 from $108.375 million in 2019, a decline of 7.5%[222] - Total liabilities decreased to $38.245 million in 2020 from $43.433 million in 2019, a reduction of 12.8%[223] - Stockholders' equity decreased to $67.697 million in 2020 from $75.064 million in 2019, a decline of 9.8%[225] - The company had cash and cash equivalents of $92.367 million as of December 31, 2020, down from $96.035 million in 2019[222] - Total cash, cash equivalents, and restricted cash decreased to $92,892,000 at the end of 2020 from $99,425,000 at the end of 2019[235] - Long-lived assets totaled $539,000 as of December 31, 2020, down from $735,000 in 2019, representing a decrease of approximately 27%[333] Expenses and Costs - Commissions expense decreased to $26.204 million in 2020 from $35.549 million in 2019, a reduction of 26.3%[227] - Depreciation and amortization expenses for 2020 were $410,000, compared to $387,000 in 2019[247] - The total lease cost for the year ended December 31, 2020, was $2,015 thousand, a decrease from $2,308 thousand in 2019[289] - Cash paid for operating lease liabilities was $1.6 million in 2020, down from $2.0 million in 2019[289] Dividends and Shareholder Returns - The company declared dividends of $0.80 per share in 2020, up from $0.64 per share in 2019, resulting in total dividends paid of $9,138,000[234] - The Company declared and paid cash dividends of $0.20 per common share during each quarter of 2020, totaling an aggregate of $9.1 million[308] - The stock repurchase program has $21.9 million remaining available for future purchases as of December 31, 2020[313] - The Company purchased 178,324 shares of common stock from the Broady Trust for an aggregate purchase price of $1.9 million as part of its stock repurchase program[323] Market and Operations - The company operates in multiple international markets, including the Americas, Greater China, Southeast Asia, and Europe, enhancing its market presence[237] - The Company generated approximately 79% of its revenue in Hong Kong in 2020, primarily from sales to members in China[258] - The Company has not implemented a direct sales model in China due to regulatory restrictions, impacting its business strategy[259] - The Company operates an e-commerce direct selling platform in Hong Kong, recognizing revenue from sales to both Hong Kong and Chinese members[259] - The Company continually evaluates its business in China and Hong Kong for compliance with applicable laws and regulations, which may impact its operations[260] Taxation - Cash paid for income taxes in 2020 was $(2,097,000), compared to a refund of $1,985,000 in 2019[235] - The income tax provision for 2020 was $647 thousand, significantly higher than the provision of $14 thousand in 2019[296] - The effective income tax rate for the year ended December 31, 2020 was influenced by the CARES Act, allowing the carryback of net operating losses[300] - The Company has no valuation allowance against its U.S. deferred tax assets as of December 31, 2020, indicating a likelihood of realizing tax benefits[301] Inventory and Returns - Inventories increased to $2,700,000 in 2020 from $5,820,000 in 2019, indicating a change in inventory management[235] - Sales returns were recorded at 1% and 2% of sales for 2020 and 2019, respectively[272] - The Company estimates and accrues a reserve for product returns based on historical return rates, which range from 1% to 10% of sales[272] - The decrease in deferred revenue for the year ended December 31, 2020, was primarily due to a decrease of $1.4 million in unshipped product orders and unredeemed product vouchers[274] Other Financial Metrics - The weighted-average number of common shares outstanding for basic earnings per share was 10.630 million in 2020, compared to 10.871 million in 2019[227] - Basic net income available to common stockholders was $843 million for the year ended December 31, 2020, compared to a loss of $5,611 million in 2019, resulting in a per share income of $0.08 versus a loss of $0.52[279] - The Company recognized royalties of $83,000 and $96,000 during 2020 and 2019, respectively, under a royalty agreement with Broady Health Sciences, L.L.C.[321] - The Company has U.S. state net operating loss carryforwards of $3.5 million, expiring in 2039, and foreign net operating loss carryforwards of approximately $2.8 million[302] - As of December 31, 2020, the Company reported net deferred tax assets of $515 million, a decrease from $1.837 billion in 2019[300]