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]

Natural Health Trends Corp (NASDAQ:NHTC) Q4 2020 Earnings Conference Call February 10, 2021 11:30 AM ET Company Participants Kimberly Orlando - ADDO Investor Relations Chris Sharng - President, CEO & Director Timothy Davidson - SVP, CFO, Chief Compliance Officer & Secretary Conference Call Participants Operator Greetings, and welcome to the Natural Health Trends Corp. Fourth Quarter and Full Year 2020 Earnings Call. [Operator Instructions]. As a reminder, this conference is being recorded. I would now like ...

Financial Data and Key Metrics Changes - Total revenue for Q3 2020 was $14.1 million, a decrease of 17% compared to $17 million in Q3 2019, primarily due to the ongoing challenges from the COVID-19 pandemic [9] - The active member base decreased by 2% to 43,300 as of September 30, down 22% from 68,150 a year ago [9] - Net income was $635,000 or $0.06 per diluted share, compared to a net loss of $1.2 million or $0.12 per diluted share in the same quarter last year [10] Business Line Data and Key Metrics Changes - Revenue outside of Hong Kong increased by 10% over the prior quarter, with notable strength in Peru, Taiwan, Malaysia, and India [5] - The company achieved double-digit revenue growth in emerging markets despite the pandemic's adverse impact [8] Market Data and Key Metrics Changes - Order volume in Hong Kong and China remained under pressure, but there were signs of improving business conditions as the economy began to reopen [5] - The company saw a rebound in Peru, which was one of the most affected markets by the pandemic, exceeding first-quarter levels [7] Company Strategy and Development Direction - The company has adapted its marketing programs to overcome physical restrictions, including virtual training opportunities and smaller in-person events [6] - A preferred customer program has been launched in several markets, with plans for further expansion by the end of the year [7] - The company remains committed to supporting its members and prioritizing health and safety while aiming for profitable, sustainable growth [12] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the ongoing adverse impact of the pandemic but expressed optimism about members adapting to technology and the positive economic trends in many markets [9] - The company is hopeful about holding larger in-person member events in the summer of the following year [6] Other Important Information - Gross profit margin was 74.3%, consistent with the previous year, while selling, general, and administrative expenses decreased by 34% to $4.2 million [10] - The board declared a quarterly cash dividend of $0.20 per share, payable on November 27 [11] Q&A Session Summary - No specific questions or answers were provided in the transcript, as the call concluded without a Q&A segment [12]

Securities registered pursuant to Section 12(b) of the Exchange Act: Title of each class Trading Symbol(s) Name of each exchange on which registered Common Stock, par value $0.001 per share NHTC The NASDAQ Stock Market LLC Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) ☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2020 OR ☐ TRANSITION REPORT PURSUANT TO SEC ...

Financial Data and Key Metrics Changes - Total revenue for Q2 2020 was $16.4 million, a decrease of 30% compared to $23.4 million in Q2 2019, primarily due to the COVID-19 pandemic's impact on operations [15] - Operating income was $183,000 compared to an operating loss of $4,000 in Q2 2019, indicating a return to profitability [18] - Net income totaled $34,000 or breakeven per diluted share, down from net income of $397,000 or $0.04 per diluted share in Q2 2019 [18] - Gross profit margin decreased to 70.6% from 76.9% in the prior year due to increased logistics costs and product promotions [16] - Selling, general and administrative expenses decreased by 35% to $4.3 million from $6.6 million a year ago [17] Business Line Data and Key Metrics Changes - The active member base decreased by 4% to 54,400 at June 30 from 56,500 at March 31, and down 31% from 78,300 at June 30 of the previous year [15] - Commission expenses as a percentage of total revenue declined to 43.4% from 48.7% in the prior year quarter due to proactive cost reduction efforts [16] Market Data and Key Metrics Changes - Economic activity in key markets, particularly Greater China, has begun to resume, with some restrictions on travel and gatherings being lifted [15] - Operations in Peru continued to be adversely impacted by COVID-19, although shipping into larger cities resumed in late Q1 [12] Company Strategy and Development Direction - The company is focused on diversifying operations into new and emerging markets, although progress has been delayed due to COVID-19 [11] - New product launches occurred in China, Peru, and India, indicating ongoing efforts to expand product offerings despite challenges [12] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism regarding the improvement of the macroeconomic situation in the second half of 2020 [13] - The company has successfully transitioned to a digital operation, allowing continued engagement with customers through online activities [9] - Management emphasized the importance of health and safety for members, employees, and customers as foundational to success [13] Other Important Information - The company maintained a strong liquidity position with total cash and cash equivalents at $93.2 million and zero debt [18] - A quarterly cash dividend of $0.20 per share was declared, reflecting confidence in the company's financial stability [19] Q&A Session Summary - No specific questions or answers were documented in the provided content, thus this section is not applicable.

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) ☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2020 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______ to _______ Commission File Number: 001-36849 NATURAL HEALTH TRENDS CORP. (Exact name of registrant as specified in its charter) Delawa ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Securities registered pursuant to Section 12(b) of the Exchange Act: FORM 10-Q (Mark One) ☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2020 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______ to _______ Commission File Number: 001-36849 NATURAL HEALTH TRENDS CORP. (Exact na ...

Part I [Business Overview](index=5&type=section&id=Item%201.%20Business) The company is an international direct selling e-commerce firm whose 2019 operations were significantly impacted by events in China and Hong Kong [Overview of Business](index=5&type=section&id=Overview%20of%20Business) Natural Health Trends Corp is an international direct selling and e-commerce company marketing products under the "NHT Global" brand - The company is an international direct selling and e-commerce company that sells personal care, wellness, and "quality of life" products under the "NHT Global" brand[10](index=10&type=chunk) - The company is headquartered in Hong Kong, and its common stock is traded on the Nasdaq Capital Market under the symbol "NHTC"[11](index=11&type=chunk) [Our Principal Products](index=5&type=section&id=Our%20Principal%20Products) The company offers eight categories of products under the "NHT Global" brand and collaborates with manufacturers to ensure quality - The company offers eight categories of "NHT Global" branded products: wellness, herbal, beauty, lifestyle, home, baby, sports, and daily[12](index=12&type=chunk) - The company works closely with raw material and contract manufacturers, primarily in the U.S., to develop and market high-quality products[16](index=16&type=chunk) [Operations of the Business](index=7&type=section&id=Operations%20of%20the%20Business) The company's operational strategy is supported by six core competencies to help members achieve their personal and financial goals - The company's core operational strategy is to help members achieve their life goals, supported by six core competencies including leadership, products, training, promotions, commissions, and customer service[17](index=17&type=chunk)[18](index=18&type=chunk)[19](index=19&type=chunk)[20](index=20&type=chunk) [Sourcing of Products](index=7&type=section&id=Sourcing%20of%20Products) The company sources finished private-label products from manufacturers and notes that supply disruptions could adversely affect results - The company collaborates with product developers to create concepts and enters into supply agreements to acquire rights for its private-label products[21](index=21&type=chunk) - The company primarily purchases finished goods from manufacturers for sale to members, and an inability to source products could materially impact revenue, profit, and cash flow[22](index=22&type=chunk) [Marketing and Distribution](index=8&type=section&id=Marketing%20and%20Distribution) The company utilizes a network marketing system for international distribution, experiencing a significant decline in active members in 2019 - The company primarily uses a network marketing system for international product distribution, with members purchasing products directly via the internet[24](index=24&type=chunk)[26](index=26&type=chunk) - Commissions are calculated based on Bonus Volume, which is a percentage of the product's wholesale price[25](index=25&type=chunk) Active Members by Market | Market | 2019 Active Members | 2018 Active Members | | :--- | :--- | :--- | | The Americas | 7,150 | 6,880 | | Hong Kong (including China) | 43,930 | 84,690 | | Taiwan | 2,550 | 2,970 | | South Korea | 120 | 180 | | Japan | 130 | 170 | | Singapore | 60 | 70 | | Malaysia | 170 | 150 | | Russia and Kazakhstan | 950 | 790 | | Europe | 1,670 | 1,940 | | India | 680 | — | | **Total** | **57,410** | **97,840** | [Recent Disruptions to our Operations](index=9&type=section&id=Recent%20Disruptions%20to%20our%20Operations) Recent operations were disrupted by China's "100-Day Campaign," political developments in Hong Kong, and the COVID-19 outbreak - The company's normal business operations were disrupted by the Chinese government's "100-Day Campaign," political and social developments in Hong Kong, and the COVID-19 outbreak[31](index=31&type=chunk) [Management Information Systems](index=9&type=section&id=Management%20Information%20Systems) The company uses a proprietary web-based system and Oracle E-Business Suite to manage orders, commissions, and financial reporting - The company uses a proprietary web-based system to process orders and communicate bonus volume activity and commissions[32](index=32&type=chunk) - The implementation of Oracle E-Business Suite has automated most financial reporting processes and integrated key business functions[32](index=32&type=chunk) [Employees](index=9&type=section&id=Employees) As of December 31, 2019, the company had 152 full-time employees globally, with a majority located in Greater China - As of December 31, 2019, the company had **152 full-time employees** worldwide, with 97 located in Greater China[33](index=33&type=chunk) [Seasonality](index=9&type=section&id=Seasonality) Quarterly results are affected by seasonal factors such as holidays in Asian markets and the timing of major promotional events - Seasonal factors such as New Year holidays in Q1, member vacations in Q3, and national holidays in October in Asian markets negatively impact net sales[34](index=34&type=chunk) - Major promotional events can cause a significant increase in expenses in one quarter while related revenue may not be generated in the same period[35](index=35&type=chunk) [Intellectual Property](index=9&type=section&id=Intellectual%20Property) The company utilizes "private label" packaging and protects its intellectual property through trademarks and its corporate structure - Most of the company's products feature "private label" packaging, with trademarks registered or pending in numerous countries[36](index=36&type=chunk) - The company's foreign holding company structure retains economic ownership of intangible assets outside the U.S., including trademarks and trade secrets[38](index=38&type=chunk) [Working with Members](index=10&type=section&id=Working%20with%20Members) The company employs a binary compensation plan where members earn commissions from product purchases within their downline network - The company uses a binary compensation plan with unilevel features, allowing members to earn weekly commissions on product purchases across all geographic markets[42](index=42&type=chunk) - The China subsidiary operates via an e-commerce retail platform and does not pay commissions, though Chinese members can participate through other subsidiaries[42](index=42&type=chunk) - Member income is primarily derived from commissions on product purchases by their downline and customers, and profits from reselling products[42](index=42&type=chunk) [Member Support](index=11&type=section&id=Member%20Support) The company provides extensive support services to its members to build loyalty and meet their needs - The company offers high-level member support through personalized services, generous return policies, training sessions, conventions, and various digital communication tools[47](index=47&type=chunk)[48](index=48&type=chunk)[49](index=49&type=chunk)[50](index=50&type=chunk) [Technology and Internet Initiatives](index=11&type=section&id=Technology%20and%20Internet%20Initiatives) The company has invested significantly in its e-commerce capabilities, providing members with personalized replicated websites - The company has invested substantial resources in developing its e-commerce capabilities, providing members with personalized websites to sell products globally[51](index=51&type=chunk) [Rules Affecting Members](index=11&type=section&id=Rules%20Affecting%20Members) The company enforces strict policies and procedures for members regarding product claims and marketing, with sanctions for violations - The company requires members to present products and business opportunities ethically and professionally, with pre-approval required for all sales aids[52](index=52&type=chunk)[53](index=53&type=chunk) - A third-party service provider is engaged to monitor the internet and social media for potential misconduct or policy violations[53](index=53&type=chunk) - Sanctions for policy violations may include warnings, suspension of privileges, fines, or termination of membership[55](index=55&type=chunk) [Government Regulations](index=12&type=section&id=Government%20Regulations) Direct selling activities are extensively regulated globally, with particularly restrictive laws in China - Direct selling is broadly regulated by government agencies in the U.S. and other countries to prevent fraudulent schemes and ensure commissions are based on product sales[56](index=56&type=chunk) - China's direct selling and anti-pyramid laws are restrictive, limiting multi-level commission payments and certain recruitment activities[58](index=58&type=chunk) - The company withdrew its direct selling license application in China in November 2019 and expects a refund of its RMB 20 million (approx **$2.9 million**) consumer protection deposit[60](index=60&type=chunk) [Regulation of Our Products](index=12&type=section&id=Regulation%20of%20Our%20Products) The company's products and marketing are subject to extensive regulation by agencies like the FDA and FTC in the U.S. and abroad - The company's products and marketing activities are extensively regulated by numerous government agencies in the U.S. (including the FDA and FTC) and other countries[61](index=61&type=chunk) - Personal care products must be distinguished between "cosmetics" and "drugs" and comply with varying international registration and approval requirements[62](index=62&type=chunk)[63](index=63&type=chunk) - The FDA requires dietary supplements to comply with current Good Manufacturing Practices (cGMP) and the Adverse Event Reporting system (AERs)[65](index=65&type=chunk)[66](index=66&type=chunk) [China's 100-Day Campaign Focusing on Health Products and Services](index=14&type=section&id=China's%20100-Day%20Campaign%20Focusing%20on%20Health%20Products%20and%20Services) China's 2019 "100-Day Campaign" targeting the health products industry negatively impacted the company's business in the region - In January 2019, the Chinese government launched a "100-Day Campaign" to combat illegal activities in the health product sales industry, with a focus on direct selling companies[69](index=69&type=chunk) - The campaign led to a suspension of direct selling licenses, a review of industry regulations, and a ban on large distributor meetings, with follow-up reviews continuing[69](index=69&type=chunk) - The company voluntarily suspended its member activities in China, expecting a short-term negative impact but long-term benefits from a cleaner market[70](index=70&type=chunk) [Other Regulatory Issues](index=14&type=section&id=Other%20Regulatory%20Issues) The company's international operations are subject to foreign exchange controls, transfer pricing, and customs laws - Operating in multiple foreign jurisdictions, the company is subject to foreign exchange controls, transfer pricing, and customs laws[71](index=71&type=chunk) - The company may be subject to government inquiries regarding direct selling, pyramid schemes, transfer pricing, customs, taxes, and securities matters[71](index=71&type=chunk) [Product Warranties and Returns](index=14&type=section&id=Product%20Warranties%20and%20Returns) The company's product return policies vary by country, adhering to local industry and legal standards - The company's refund policies follow country-specific standards, which vary significantly, such as a 12-month recommendation in the U.S. versus a 14-day standard in Hong Kong[72](index=72&type=chunk) - Returns generally require unopened, resalable products, with refund amounts dependent on the country of sale, timeliness, and applicable restocking fees[72](index=72&type=chunk) [Significant Customers](index=15&type=section&id=Significant%20Customers) No single customer accounts for 10% or more of net sales, but sales are concentrated among a few key members and their networks - While no single customer represents 10% or more of net sales, sales are concentrated within a few members and their networks[74](index=74&type=chunk) - The loss of a key member or their network could adversely affect the company's net sales and financial performance[74](index=74&type=chunk) [Our Industry](index=15&type=section&id=Our%20Industry) The company operates in the direct selling industry, specifically network or multi-level marketing of health and lifestyle products - The company operates in the direct selling industry, specifically network or multi-level marketing, selling health, herbal, beauty, and lifestyle products[75](index=75&type=chunk) - The direct selling industry is based on independent members selling products and earning compensation from sales generated by their recruited members and downline networks[76](index=76&type=chunk) [Competition](index=15&type=section&id=Competition) The network marketing industry is highly competitive, with pressure from large multinational corporations and smaller local companies - The network marketing industry is intensely competitive, featuring large multinational firms like Nu Skin, USANA, and Herbalife, as well as numerous smaller local companies[77](index=77&type=chunk) - The ability to attract and retain members is key to competitiveness, but the member pool is limited and subject to recruitment by competitors[78](index=78&type=chunk) - Higher product prices in the direct selling channel compared to traditional retail pose a competitive risk[79](index=79&type=chunk) [Risk Factors](index=16&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks related to management dependency, business concentration, regulatory scrutiny, and operational challenges - The company is **highly dependent on a few key executives and directors**, and management changes could have an adverse effect[81](index=81&type=chunk)[82](index=82&type=chunk) - Business is **highly concentrated in Hong Kong and China**, with approximately **81% of 2019 revenue from Hong Kong**, exposing the company to political and regulatory risks in the region[83](index=83&type=chunk)[84](index=84&type=chunk][85](index=85&type=chunk][86](index=86&type=chunk][87](index=87&type=chunk][88](index=88&type=chunk) - The number of active members **decreased by 41% in 2019** to 57,410, severely impacting sales, while pandemics like COVID-19 also pose a significant threat[98](index=98&type=chunk)[99](index=99&type=chunk][104](index=104&type=chunk)[105](index=105&type=chunk) - The company experienced **negative operating cash flow of $18.6 million in 2019**, which could affect its ability to pay dividends and support operations if it continues[106](index=106&type=chunk)[107](index=107&type=chunk) - The company faces a **securities class action lawsuit and an SEC investigation**, as well as legal risks from the potential misconduct of its independent members[108](index=108&type=chunk][109](index=109&type=chunk][110](index=110&type=chunk][111](index=111&type=chunk][113](index=113&type=chunk][114](index=114&type=chunk][115](index=115&type=chunk][116](index=116&type=chunk) - The direct selling industry is **highly competitive**, and the company faces risks from its high product concentration and reliance on a few third-party manufacturers[122](index=122&type=chunk)[123](index=123&type=chunk][124](index=124&type=chunk][153](index=153&type=chunk][154](index=154&type=chunk) - Financial results are subject to risks from **currency fluctuations, tax and tariff changes, trade disputes, and anti-bribery laws**[129](index=129&type=chunk)[130](index=130&type=chunk][131](index=131&type=chunk][132](index=132&type=chunk][133](index=133&type=chunk][134](index=134&type=chunk][135](index=135&type=chunk][136](index=136&type=chunk][137](index=137&type=chunk][138](index=138&type=chunk][139](index=139&type=chunk][140](index=140&type=chunk][141](index=141&type=chunk][142](index=142&type=chunk][143](index=143&type=chunk][145](index=145&type=chunk][146](index=146&type=chunk][147](index=147&type=chunk][148](index=148&type=chunk][159](index=159&type=chunk][160](index=160&type=chunk][161](index=161&type=chunk][162](index=162&type=chunk][163](index=163&type=chunk) - The company also faces risks related to **intellectual property protection, product liability claims, IT system disruptions, and cybersecurity**[167](index=167&type=chunk)[168](index=168&type=chunk][169](index=169&type=chunk][171](index=171&type=chunk][172](index=172&type=chunk][173](index=173&type=chunk][174](index=174&type=chunk][175](index=175&type=chunk][176](index=176&type=chunk][177](index=177&type=chunk][178](index=178&type=chunk][179](index=179&type=chunk][180](index=180&type=chunk][181](index=181&type=chunk) [Unresolved Staff Comments](index=26&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) Not applicable [Properties](index=26&type=section&id=Item%202.%20Properties) The company relocated its corporate headquarters to Hong Kong in 2019 and leases office and retail space globally - In January 2019, the company relocated its corporate headquarters to Hong Kong, where it leases 9,600 square feet of office space[188](index=188&type=chunk) - The company leases 4,900 square feet of office space in California and retail spaces in North America[189](index=189&type=chunk) - The company leases nine branch offices, a multi-purpose facility, and service stations in China, as well as offices in several other international markets[190](index=190&type=chunk) [Legal Proceedings](index=27&type=section&id=Item%203.%20Legal%20Proceedings) The company is involved in a securities class action lawsuit and is subject to an SEC investigation regarding its China operations - A securities class action lawsuit was filed against the company and two of its executives on January 8, 2019, alleging false statements about its China operations[192](index=192&type=chunk) - The lawsuit was dismissed in December 2019, but the plaintiffs filed an appeal in February 2020[192](index=192&type=chunk) - The U.S. Securities and Exchange Commission (SEC) is conducting a non-public investigation into potential violations of federal securities laws[338](index=338&type=chunk) [Mine Safety Disclosures](index=27&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) Not applicable Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=28&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common stock trades on Nasdaq, and it executed share repurchases in 2019 while planning future dividends - The company's common stock trades on the Nasdaq Capital Market under the symbol "NHTC," with a closing price of **$3.75 per share** on March 5, 2020[195](index=195&type=chunk) - As of March 5, 2020, there were approximately 100 registered holders of the company's common stock[196](index=196&type=chunk) - As of December 31, 2019, **$21.9 million** remained available for future purchases under the $70.0 million stock repurchase program[199](index=199&type=chunk) - The company anticipates paying a quarterly cash dividend of **$0.20 per share** in 2020 and 2021[200](index=200&type=chunk) Fourth Quarter 2019 Equity Security Purchases | Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs | | :--- | :--- | :--- | :--- | :--- | | October 1-31, 2019 | — | — | — | $26,762 (in thousands) | | November 1-30, 2019 | — | — | — | $26,762 (in thousands) | | December 1-31, 2019 | 97,785 | $5.64 | 97,785 | $26,210 (in thousands) | [Selected Financial Data](index=28&type=section&id=Item%206.%20Selected%20Financial%20Data) This item is not applicable as the company is a smaller reporting company [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=29&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) The company's 2019 financial performance was severely impacted by operational challenges, resulting in a significant sales decline and a net loss [Business Overview](index=33&type=section&id=Business%20Overview) The company's business, heavily reliant on the Chinese market, faced severe negative impacts from regulatory and political events - As of December 31, 2019, the company had **57,410 active members**, a sharp decline from 97,840 in 2018[203](index=203&type=chunk) - Approximately **96% of net sales** were generated outside North America, with the Hong Kong subsidiary accounting for **81% of net sales**, primarily from products sold to members in China[204](index=204&type=chunk) - The company withdrew its direct selling license application in China in 2019 and expects a refund of its RMB 20 million (approx **$2.9 million**) deposit[205](index=205&type=chunk) - The Chinese government's "100-Day Campaign," political developments in Hong Kong, and the COVID-19 pandemic significantly impacted the business, with continued sales declines expected[207](index=207&type=chunk)[208](index=208&type=chunk)[209](index=209&type=chunk)[212](index=212&type=chunk) [Income Statement Presentation](index=35&type=section&id=Income%20Statement%20Presentation) Revenue is recognized upon product shipment, with member commissions representing the largest operating expense - The company's revenue is primarily derived from product sales and is recognized when products are shipped and title transfers to independent members[213](index=213&type=chunk) - **Member commissions are the company's most significant expense**, accounting for 46% of net sales in both 2019 and 2018[218](index=218&type=chunk) - The functional currency for international subsidiaries is typically the local currency, exposing operating results to foreign exchange rate fluctuations[219](index=219&type=chunk)[220](index=220&type=chunk) [Results of Operations](index=36&type=section&id=Results%20of%20Operations) Net sales decreased 60% in 2019, leading to a net loss of $5.6 million compared to a $31.0 million net profit in 2018 - **Net sales in 2019 were $77.6 million**, a decrease of $114.3 million or 60% from $191.9 million in 2018, with Hong Kong net sales declining by $106.7 million or 63%[224](index=224&type=chunk) - **Gross profit margin decreased to 74.1%** in 2019 from 79.5% in 2018, primarily due to increased logistics costs and product promotions[226](index=226&type=chunk) - A **goodwill impairment charge of $1.8 million** was recognized in 2019 due to the early adoption of ASU 2017-04[229](index=229&type=chunk) - Income tax expense was **$14 thousand in 2019**, a significant decrease from $3.5 million in 2018, mainly due to lower global pre-tax income and the impact of the GILTI provisions of the U.S. Tax Cuts and Jobs Act[230](index=230&type=chunk) Results of Operations as a Percentage of Net Sales for 2019 vs 2018 | Metric | 2019 (% of Net Sales) | 2018 (% of Net Sales) | | :--- | :--- | :--- | | Net sales | 100.0% | 100.0% | | Cost of sales | 25.9% | 20.5% | | Gross profit | 74.1% | 79.5% | | Commissions expense | 45.8% | 45.6% | | Selling, general and administrative expenses | 35.1% | 16.3% | | Goodwill impairment | 2.3% | — | | Total operating expenses | 83.2% | 61.9% | | Income (loss) from operations | (9.1)% | 17.6% | | Other income, net | 1.8% | 0.4% | | Income (loss) before income taxes | (7.3)% | 18.0% | | Income tax expense | — | 1.8% | | Net income (loss) | (7.3)% | 16.2% | [Liquidity and Capital Resources](index=38&type=section&id=Liquidity%20and%20Capital%20Resources) Cash and cash equivalents decreased by $36.6 million in 2019 due to a net loss, share repurchases, and dividend payments - As of December 31, 2019, cash and cash equivalents totaled **$96.0 million**, a decrease of $36.6 million from 2018[231](index=231&type=chunk) - **Net cash used in operating activities was $18.6 million** in 2019, compared to net cash provided by operating activities of $29.7 million in 2018[233](index=233&type=chunk) - **Net cash used in financing activities was $17.5 million** in 2019, consisting of $10.1 million for common stock repurchases and $7.3 million for dividend payments[234](index=234&type=chunk)[237](index=237&type=chunk) - As of December 31, 2019, **$21.9 million** remained available for future purchases under the $70.0 million stock repurchase program[236](index=236&type=chunk) - The company believes its existing internal liquidity is sufficient to support normal business operations and plans for continued investment in key markets[240](index=240&type=chunk)[241](index=241&type=chunk) [Quarterly Results of Operations (Unaudited)](index=40&type=section&id=Quarterly%20Results%20of%20Operations%20(Unaudited)) The company's quarterly results show a significant decline in net sales and profitability throughout 2019 compared to 2018 Unaudited Quarterly Results of Operations for the Past Eight Fiscal Quarters | Metric | Q4 2019 | Q3 2019 | Q2 2019 | Q1 2019 | Q4 2018 | Q3 2018 | Q2 2018 | Q1 2018 | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Net sales (USD in thousands) | 17,835 | 17,023 | 23,428 | 19,328 | 41,590 | 47,043 | 50,910 | 52,367 | | Gross profit (USD in thousands) | 12,733 | 12,652 | 18,021 | 14,104 | 32,769 | 37,117 | 40,511 | 42,146 | | Operating income (loss) (USD in thousands) | (3,246) | (1,064) | (4) | (2,709) | 5,733 | 7,847 | 10,108 | 10,044 | | Net income (loss) (USD in thousands) | (2,842) | (1,243) | 397 | (1,923) | 5,559 | 7,629 | 9,023 | 8,824 | | Basic net income (loss) per share | (0.27) | (0.12) | 0.04 | (0.17) | 0.49 | 0.67 | 0.80 | 0.78 | | Diluted net income (loss) per share | (0.27) | (0.12) | 0.04 | (0.17) | 0.49 | 0.67 | 0.80 | 0.78 | [Critical Accounting Policies and Estimates](index=40&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) The company's critical accounting policies involve significant estimates for revenue recognition, member commissions, and income taxes - Critical accounting policies and estimates include revenue recognition, member commissions, and income taxes[246](index=246&type=chunk) - Revenue from product sales is recognized upon shipment and transfer of title, with a reserve established for estimated product returns[247](index=247&type=chunk) - Member commissions are accrued when earned and the related revenue is recognized, typically paid two weeks after the close of a weekly sales period[250](index=250&type=chunk) - Income taxes are accounted for using the liability method, with deferred tax assets and liabilities recognized and assessed for realizability[252](index=252&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=41&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This item is not applicable as the company is a smaller reporting company [FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA](index=42&type=section&id=Item%208.%20FINANCIAL%20STATEMENTS%20AND%20SUPPLEMENTARY%20DATA) This section presents the company's audited consolidated financial statements and the independent auditor's unqualified opinion [Report of Independent Registered Public Accounting Firm](index=43&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) Marcum LLP issued unqualified opinions on the company's consolidated financial statements and internal control over financial reporting - Marcum LLP issued an **unqualified opinion** on the company's consolidated financial statements as of and for the years ended December 31, 2019 and 2018[259](index=259&type=chunk) - Marcum LLP issued an **unqualified opinion** on the effectiveness of the company's internal control over financial reporting as of December 31, 2019[260](index=260&type=chunk) - The company changed its method of accounting for leases in 2019 due to the adoption of ASU No 2016-02, Leases (Topic 842)[261](index=261&type=chunk) [Consolidated Balance Sheets](index=44&type=section&id=Consolidated%20Balance%20Sheets) Total assets decreased to $118.5 million as of December 31, 2019, driven by a reduction in cash and inventories Key Consolidated Balance Sheet Data (USD in thousands) | Metric | Dec 31, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | 96,035 | 132,653 | | Inventories | 6,404 | 12,165 | | Other current assets | 5,936 | 5,369 | | **Total current assets** | **108,375** | **150,187** | | Property and equipment, net | 735 | 934 | | Operating lease right-of-use assets | 3,135 | — | | Goodwill | — | 1,764 | | Restricted cash | 3,390 | 2,998 | | Deferred tax assets | 2,039 | 1,207 | | Other assets | 823 | 831 | | **Total assets** | **118,497** | **157,921** | | **Liabilities and Stockholders' Equity** | | | | Accounts payable | 680 | 1,631 | | Accrued commissions | 2,931 | 12,502 | | Other accrued expenses | 2,387 | 6,121 | | Deferred revenue | 4,506 | 6,795 | | Amounts held for eWallet | 12,938 | 14,611 | | Operating lease liabilities, current | 1,655 | — | | Other current liabilities | 1,205 | 1,424 | | **Total current liabilities** | **26,302** | **43,084** | | Income taxes payable | 15,365 | 16,982 | | Deferred tax liabilities | 202 | 186 | | Long-term incentive | — | 7,808 | | Operating lease liabilities, non-current | 1,564 | — | | **Total liabilities** | **43,433** | **68,060** | | **Stockholders' Equity** | | | | Common stock | 13 | 13 | | Additional paid-in capital | 86,102 | 86,415 | | Retained earnings | 16,117 | 44,431 | | Accumulated other comprehensive loss | (1,264) | (1,250) | | Treasury stock | (25,904) | (39,748) | | **Total stockholders' equity** | **75,064** | **89,861** | | **Total liabilities and stockholders' equity** | **118,497** | **157,921** | [Consolidated Statements of Operations](index=45&type=section&id=Consolidated%20Statements%20of%20Operations) The company reported a net loss of $5.6 million in 2019, a sharp reversal from the $31.0 million net income in 2018 Key Consolidated Statements of Operations Data (USD in thousands, except per share data) | Metric | 2019 | 2018 | | :--- | :--- | :--- | | Net sales | 77,614 | 191,910 | | Cost of sales | 20,104 | 39,367 | | Gross profit | 57,510 | 152,543 | | Commissions expense | 35,549 | 87,502 | | Selling, general and administrative expenses | 27,220 | 31,309 | | Goodwill impairment | 1,764 | — | | Total operating expenses | 64,533 | 118,811 | | Income (loss) from operations | (7,023) | 33,732 | | Other income, net | 1,426 | 789 | | Income (loss) before income taxes | (5,597) | 34,521 | | Income tax expense | 14 | 3,486 | | Net income (loss) | (5,611) | 31,035 | | Basic net income (loss) per share | (0.52) | 2.75 | | Diluted net income (loss) per share | (0.52) | 2.74 | [Consolidated Statements of Comprehensive Income (Loss)](index=46&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income%20(Loss)) The company recorded a comprehensive loss of $5.6 million in 2019, compared to a comprehensive income of $30.2 million in 2018 Key Consolidated Statements of Comprehensive Income (Loss) Data (USD in thousands) | Metric | 2019 | 2018 | | :--- | :--- | :--- | | Net income (loss) | (5,611) | 31,035 | | Other comprehensive income (loss), net of tax: | | | | Foreign currency translation adjustments | (28) | (831) | | Unrealized gain (loss) on available-for-sale securities | 14 | (6) | | **Comprehensive income (loss)** | **(5,625)** | **30,198** | [Consolidated Statements of Stockholders' Equity](index=47&type=section&id=Consolidated%20Statements%20of%20Stockholders'%20Equity) Stockholders' equity decreased to $75.1 million in 2019, primarily due to the net loss, share repurchases, and dividend payments - The **net loss of $5.6 million** in 2019 reduced retained earnings[275](index=275&type=chunk) - The company repurchased **$10.1 million** of common stock and paid **$7.3 million** in dividends in 2019[275](index=275&type=chunk) Key Consolidated Statements of Stockholders' Equity Data (USD in thousands, except share data) | Metric | Dec 31, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Common stock (shares) | 12,979,414 | 12,979,414 | | Common stock (amount) | 13 | 13 | | Additional paid-in capital | 86,102 | 86,415 | | Retained earnings | 16,117 | 44,431 | | Accumulated other comprehensive loss | (1,264) | (1,250) | | Treasury stock (shares) | (1,556,875) | (1,603,322) | | Treasury stock (amount) | (25,904) | (39,748) | | **Total stockholders' equity** | **75,064** | **89,861** | [Consolidated Statements of Cash Flows](index=48&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) The company experienced a net cash outflow from operations of $18.6 million in 2019, a reversal from a $29.7 million inflow in 2018 - **Net cash used in operating activities was $18.6 million** in 2019, compared to net cash provided by operating activities of $29.7 million in 2018[277](index=277&type=chunk) - **Net cash used in financing activities was $17.5 million** in 2019, including $10.1 million for common stock repurchases and $7.3 million for dividend payments[277](index=277&type=chunk) Key Consolidated Statements of Cash Flows Data (USD in thousands) | Metric | 2019 | 2018 | | :--- | :--- | :--- | | Net cash from operating activities | (18,638) | 29,710 | | Net cash from investing activities | (189) | (214) | | Net cash from financing activities | (17,461) | (31,512) | | Effect of exchange rate changes | 62 | (811) | | Net decrease in cash, cash equivalents and restricted cash | (36,226) | (2,827) | | Cash, cash equivalents and restricted cash at beginning of period | 135,651 | 138,478 | | Cash, cash equivalents and restricted cash at end of period | 99,425 | 135,651 | [Notes to Consolidated Financial Statements](index=49&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes detail significant accounting policies, including the adoption of a new lease standard and a full goodwill impairment in 2019 - The company adopted the new lease accounting standard (ASU 2016-02) in 2019, recognizing operating lease liabilities and right-of-use assets on the balance sheet[307](index=307&type=chunk) - In 2019, the company early adopted ASU 2017-04, simplifying the goodwill impairment test and recognizing a **$1.8 million goodwill impairment loss**, reducing the carrying value to zero[309](index=309&type=chunk)[334](index=334&type=chunk) - Key risks include high sales concentration in Hong Kong and China, a complex Chinese regulatory environment, and reliance on a few key products[301](index=301&type=chunk)[303](index=303&type=chunk][304](index=304&type=chunk) - In 2019, the company granted **1,117,485 shares of restricted common stock** to employees in lieu of a $7.9 million long-term incentive cash benefit earned as of December 31, 2018[350](index=350&type=chunk) - The company declared a quarterly cash dividend of **$0.20 per share** in February 2020 and anticipates a negative impact on Q1 2020 results from the COVID-19 pandemic[374](index=374&type=chunk)[375](index=375&type=chunk) [Changes In and Disagreements with Accountants on Accounting and Financial Disclosure](index=67&type=section&id=Item%209.%20Changes%20In%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) Not applicable [Controls and Procedures](index=67&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures and internal control over financial reporting were effective - Management evaluated and concluded that the company's disclosure controls and procedures were **effective** as of December 31, 2019[378](index=378&type=chunk) - Management concluded that the company's internal control over financial reporting was **effective** as of December 31, 2019[381](index=381&type=chunk) - The company successfully remediated a material weakness related to the review of shipping documentation from a third-party logistics facility identified as of December 31, 2018[384](index=384&type=chunk)[385](index=385&type=chunk) - The independent registered public accounting firm issued an **unqualified opinion** on the effectiveness of the company's internal control as of December 31, 2019[387](index=387&type=chunk) [Other Information](index=65&type=section&id=Item%209B.%20Other%20Information) None Part III [Directors, Executive Officers and Corporate Governance](index=65&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) The required information is incorporated by reference from the company's definitive proxy statement [Executive Compensation](index=65&type=section&id=Item%2011.%20Executive%20Compensation) The required information is incorporated by reference from the company's definitive proxy statement [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=65&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) The required information is incorporated by reference from the company's definitive proxy statement [Certain Relationships and Related Transactions, and Director Independence](index=65&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) The required information is incorporated by reference from the company's definitive proxy statement [Principal Accountant Fees and Services](index=65&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) The required information is incorporated by reference from the company's definitive proxy statement Part IV [Exhibits and Financial Statement Schedules](index=66&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists the exhibits and financial statement schedules filed as part of the Form 10-K report - This item lists the exhibits and financial statement schedules filed as part of the Form 10-K report[399](index=399&type=chunk) - Financial statement schedules have been omitted as they are not applicable or the required information is included in the financial statements or notes[399](index=399&type=chunk) [Form 10-K Summary](index=66&type=section&id=Item%2016.%20Form%2010-K%20Summary) None

[PART I - FINANCIAL INFORMATION](index=6&type=section&id=PART%20I%20-%20FINANCIAL%20INFORMATION) [Financial Statements](index=6&type=section&id=Item%201.%20Financial%20Statements) The company's financial statements for the nine months ended September 30, 2019, show a significant downturn with a net loss of **$2.8 million**, sharp revenue decrease, and declines in cash and equity, reflecting major operational challenges Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $101,113 | $132,653 | | Total current assets | $116,109 | $150,187 | | Total assets | $127,107 | $157,921 | | **Liabilities & Equity** | | | | Total current liabilities | $27,086 | $43,084 | | Total liabilities | $44,540 | $68,060 | | Total stockholders' equity | $82,567 | $89,861 | Consolidated Statement of Operations Highlights (in thousands, except per share data) | Metric | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :--- | :--- | :--- | | Net sales | $59,779 | $150,320 | | Gross profit | $44,777 | $119,774 | | Income (loss) from operations | $(3,777) | $27,999 | | Net income (loss) | $(2,769) | $25,476 | | Diluted EPS | $(0.25) | $2.25 | Consolidated Statement of Cash Flows Highlights (in thousands) | Cash Flow Activity | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $(18,748) | $25,262 | | Net cash used in investing activities | $(181) | $(176) | | Net cash used in financing activities | $(12,300) | $(27,644) | | Net decrease in cash, cash equivalents and restricted cash | $(31,657) | $(3,269) | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=24&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes the **60%** net sales decline to external pressures in Greater China, including government campaigns and Hong Kong unrest, resulting in a net loss and negative operating cash flow - The number of active members decreased to **68,150** as of September 30, 2019, down from **97,160** a year ago, reflecting challenges in member engagement and recruitment[87](index=87&type=chunk) - The Chinese government's "100-day campaign" and negative media significantly impacted business, leading to a voluntary suspension of member activities in China since January 2019[89](index=89&type=chunk)[90](index=90&type=chunk) - Political and social developments in Hong Kong adversely affected operations by forcing the company to curtail member meetings and events, which are key to marketing efforts[91](index=91&type=chunk) Net Sales by Market (in thousands) | Market | Q3 2019 | Q3 2018 | 9 Months 2019 | 9 Months 2018 | | :--- | :--- | :--- | :--- | :--- | | Hong Kong | $13,575 | $41,447 | $48,465 | $133,681 | | Americas | $1,445 | $1,970 | $4,353 | $5,361 | | China | $525 | $1,698 | $2,138 | $5,510 | | Other | $1,478 | $1,928 | $4,723 | $5,768 | | **Total** | **$17,023** | **$47,043** | **$59,779** | **$150,320** | [Quantitative and Qualitative Disclosures About Market Risk](index=32&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section is omitted as the company qualifies as a smaller reporting company - Disclosure under this item is not applicable as the company qualifies as a smaller reporting company[139](index=139&type=chunk) [Controls and Procedures](index=32&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were ineffective due to a material weakness in internal control over financial reporting, with remediation expected by Q4 2019 - Due to a material weakness in internal control over financial reporting identified as of December 31, 2018, the company's disclosure controls and procedures were deemed **not effective** as of September 30, 2019[140](index=140&type=chunk) - Remediation efforts are underway to address the material weakness related to the review of shipment documentation from third-party logistics (3PL) facilities, including enhanced sampling and review of shipment data[142](index=142&type=chunk) - The company expects the remediation of the material weakness to be fully complete during the fourth quarter of 2019[143](index=143&type=chunk) [PART II - OTHER INFORMATION](index=33&type=section&id=PART%20II%20-%20OTHER%20INFORMATION) [Legal Proceedings](index=33&type=section&id=Item%201.%20Legal%20Proceedings) The company and its executive officers are defending a securities class action lawsuit alleging false and misleading statements regarding China business operations, which the company believes are without merit - A securities class action lawsuit was filed against the company and its executive officers, alleging false and misleading statements about its China business operations between April 27, 2016, and January 5, 2019[145](index=145&type=chunk) - The company filed a motion to dismiss the amended complaint on September 6, 2019, and believes the claims are without merit[78](index=78&type=chunk) [Risk Factors](index=33&type=section&id=Item%201A.%20Risk%20Factors) A new material risk factor highlights the adverse effects of recent political and social developments in Hong Kong, which have curtailed company operations and negatively impacted financial performance - A new risk factor was added highlighting that recent political unrest and social strife in Hong Kong are adversely affecting the company's operations[146](index=146&type=chunk)[147](index=147&type=chunk) - The company has curtailed the number and scope of meetings and events in Hong Kong, an important component of its marketing and distribution, which has negatively affected financial performance[147](index=147&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=34&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) During Q3 2019, the company repurchased **383,127** shares for **$2.9 million**, with **$22.4 million** remaining available under the **$70.0 million** stock repurchase program Issuer Purchases of Equity Securities (Q3 2019) | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | July 1-31, 2019 | — | $ — | | August 1-31, 2019 | 232,489 | $7.40 | | September 1-30, 2019 | 150,638 | $7.68 | - On August 6, 2019, the Board of Directors authorized the company to proceed with further purchases under its existing stock repurchase program[152](index=152&type=chunk) - As of September 30, 2019, **$22.4 million** (after-tax) of the **$70.0 million** stock repurchase program remained available for future purchases[58](index=58&type=chunk)[152](index=152&type=chunk) [Defaults Upon Senior Securities](index=34&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reported no defaults upon senior securities during the period - None[153](index=153&type=chunk) [Mine Safety Disclosures](index=34&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section is not applicable to the company's operations - Not applicable[153](index=153&type=chunk) [Other Information](index=34&type=section&id=Item%205.%20Other%20Information) The company reported no other information for the period - None[153](index=153&type=chunk) [Exhibits](index=35&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including certifications by executive officers and XBRL data files - Exhibits filed include certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[155](index=155&type=chunk)