NHT Global(NHTC) - 2019 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION Financial Statements 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 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] - 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][90] - 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] 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 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] Controls and Procedures 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] - 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] - The company expects the remediation of the material weakness to be fully complete during the fourth quarter of 2019[143] PART II - OTHER INFORMATION Legal Proceedings 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] - The company filed a motion to dismiss the amended complaint on September 6, 2019, and believes the claims are without merit[78] Risk Factors 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][147] - 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] Unregistered Sales of Equity Securities and Use of Proceeds 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] - As of September 30, 2019, $22.4 million (after-tax) of the $70.0 million stock repurchase program remained available for future purchases[58][152] Defaults Upon Senior Securities The company reported no defaults upon senior securities during the period - None[153] Mine Safety Disclosures This section is not applicable to the company's operations - Not applicable[153] Other Information The company reported no other information for the period - None[153] Exhibits 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]