NHT Global(NHTC) - 2025 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION This section presents the company's unaudited interim consolidated financial statements and management's analysis Item 1. Financial Statements This section presents the unaudited consolidated financial statements, including balance sheets, income statements, cash flows, and comprehensive notes, for the periods ended June 30, 2025 Consolidated Balance Sheets This table presents the company's consolidated balance sheets as of June 30, 2025, and December 31, 2024 Consolidated Balance Sheets (in Thousands) | ASSETS (in Thousands) | June 30, 2025 (Unaudited) | December 31, 2024 | | :-------------------- | :------------------------ | :------------------ | | Cash and cash equivalents | $10,534 | $13,533 | | Marketable securities | $23,711 | $30,407 | | Inventories | $2,769 | $3,272 | | Other current assets | $3,845 | $3,771 | | Total current assets | $40,859 | $50,983 | | Property and equipment, net | $154 | $190 | | Operating lease right-of-use assets | $2,108 | $2,498 | | Restricted cash | $37 | $34 | | Deferred tax asset | $387 | $382 | | Other assets | $1,617 | $1,272 | | Total assets | $45,162 | $55,359 | | | | | | LIABILITIES AND STOCKHOLDERS' EQUITY (in Thousands) | June 30, 2025 (Unaudited) | December 31, 2024 | | :-------------------------------- | :------------------------ | :------------------ | | Accounts payable | $962 | $895 | | Income taxes payable | $7 | $4,908 | | Accrued commissions | $1,866 | $2,021 | | Other accrued expenses | $1,337 | $1,425 | | Deferred revenue | $6,078 | $6,428 | | Amounts held in eWallets | $3,089 | $3,286 | | Operating lease liabilities | $1,060 | $1,127 | | Other current liabilities | $549 | $709 | | Total current liabilities | $14,948 | $20,799 | | Deferred tax liability | $172 | $174 | | Operating lease liabilities | $1,186 | $1,514 | | Total liabilities | $16,306 | $22,487 | | | | | | Stockholders' equity: | | | | Common stock | $13 | $13 | | Additional paid-in capital | $84,969 | $84,901 | | Accumulated deficit | $(30,813) | $(26,344) | | Accumulated other comprehensive loss | $(916) | $(1,301) | | Treasury stock | $(24,397) | $(24,397) | | Total stockholders' equity | $28,856 | $32,872 | | Total liabilities and stockholders' equity | $45,162 | $55,359 | Consolidated Statements of Operations This table details the company's consolidated statements of operations for the three and six months ended June 30, 2025 and 2024 Consolidated Statements of Operations (in Thousands, Except Per Share Data) | (In Thousands, Except Per Share Data) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net sales | $9,813 | $10,475 | $20,550 | $21,426 | | Cost of sales | $2,558 | $2,699 | $5,390 | $5,611 | | Gross profit | $7,255 | $7,776 | $15,160 | $15,815 | | Operating expenses: | | | | | | Commissions expense | $4,012 | $4,203 | $8,500 | $8,689 | | Selling, general and administrative expenses | $3,576 | $3,811 | $7,338 | $7,729 | | Total operating expenses | $7,588 | $8,014 | $15,838 | $16,418 | | Loss from operations | $(333) | $(238) | $(678) | $(603) | | Other income, net | $348 | $519 | $813 | $1,082 | | Income before income taxes | $15 | $281 | $135 | $479 | | Income tax provision (benefit) | $0 | $108 | $(2) | $118 | | Net income | $15 | $173 | $137 | $361 | | Net income per common share: | | | | | | Basic | $0.00 | $0.02 | $0.01 | $0.03 | | Diluted | $0.00 | $0.02 | $0.01 | $0.03 | Consolidated Statements of Comprehensive Income This table presents the company's consolidated statements of comprehensive income for the three and six months ended June 30, 2025 and 2024 Consolidated Statements of Comprehensive Income (in Thousands) | (In Thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income | $15 | $173 | $137 | $361 | | Other comprehensive income (loss), net of tax: | | | | | | Foreign currency translation adjustment | $229 | $(36) | $377 | $(150) | | Unrealized gains (losses) on available-for-sale securities | $(1) | $8 | $8 | $(30) | | Comprehensive income | $243 | $145 | $522 | $181 | Consolidated Statements of Stockholders' Equity This table outlines changes in the company's consolidated stockholders' equity for the six months ended June 30, 2025 Consolidated Statements of Stockholders' Equity (in Thousands, Except Share Data) | (In Thousands, Except Share Data) | Common Stock Shares | Common Stock Amount | Additional Paid-In Capital | Accumulated Deficit | Accumulated Other Comprehensive Loss | Treasury Stock Shares | Treasury Stock Amount | Total Stockholders' Equity | | :-------------------------------- | :------------------ | :------------------ | :------------------------- | :------------------ | :----------------------------------- | :-------------------- | :-------------------- | :------------------------- | | BALANCE, December 31, 2024 | 12,979,414 | $13 | $84,901 | $(26,344) | $(1,301) | (1,466,339) | $(24,397) | $32,872 | | Net income | — | — | — | $122 | — | — | — | $122 | | Share-based compensation | — | — | $34 | — | — | — | — | $34 | | Dividends declared, $0.20/share | — | — | — | $(2,303) | — | — | — | $(2,303) | | Foreign currency translation adjustments | — | — | — | — | $148 | — | — | $148 | | Unrealized gains on available-for-sale securities | — | — | — | — | $9 | — | — | $9 | | BALANCE, March 31, 2025 | 12,979,414 | $13 | $84,935 | $(28,525) | $(1,144) | (1,466,339) | $(24,397) | $30,882 | | Net income | — | — | — | $15 | — | — | — | $15 | | Share-based compensation | — | — | $34 | — | — | — | — | $34 | | Dividends declared, $0.20/share | — | — | — | $(2,303) | — | — | — | $(2,303) | | Foreign currency translation adjustments | — | — | — | — | $229 | — | — | $229 | | Unrealized losses on available-for-sale securities | — | — | — | — | $(1) | — | — | $(1) | | BALANCE, June 30, 2025 | 12,979,414 | $13 | $84,969 | $(30,813) | $(916) | (1,466,339) | $(24,397) | $28,856 | Consolidated Statements of Cash Flows This table presents the company's consolidated statements of cash flows for the six months ended June 30, 2025 and 2024 Consolidated Statements of Cash Flows (in Thousands) | (In Thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------- | :----------------------------- | :----------------------------- | | CASH FLOWS FROM OPERATING ACTIVITIES: | | | | Net income | $137 | $361 | | Adjustments to reconcile net income to net cash used in operating activities: | | | | Depreciation and amortization | $59 | $69 | | Net accretion of marketable securities | $(214) | $(215) | | Share-based compensation | $68 | $75 | | Noncash lease expense | $573 | $545 | | Deferred income taxes | $(3) | $16 | | Changes in assets and liabilities: | | | | Inventories | $525 | $6 | | Other current assets | $402 | $(294) | | Other assets | $(334) | $(101) | | Accounts payable | $65 | $(335) | | Income taxes payable | $(4,901) | $(3,817) | | Accrued commissions | $(194) | $106 | | Other accrued expenses | $(110) | $136 | | Deferred revenue | $(311) | $1,432 | | Amounts held in eWallets | $(170) | $(339) | | Operating lease liabilities | $(561) | $(560) | | Other current liabilities | $(182) | $(104) | | Net cash used in operating activities | $(5,151) | $(3,019) | | CASH FLOWS FROM INVESTING ACTIVITIES: | | | | Purchases of property and equipment | $(20) | $(30) | | Purchases of marketable securities | $(27,552) | $(36,164) | | Proceeds from maturities of marketable securities | $34,215 | $3,307 | | Net cash provided by (used in) investing activities | $6,643 | $(32,887) | | CASH FLOWS FROM FINANCING ACTIVITIES: | | | | Dividends paid | $(4,606) | $(4,606) | | Net cash used in financing activities | $(4,606) | $(4,606) | | Effect of exchange rates on cash, cash equivalents and restricted cash | $118 | $(92) | | Net decrease in cash, cash equivalents and restricted cash | $(2,996) | $(40,604) | | CASH, CASH EQUIVALENTS AND RESTRICTED CASH, beginning of period | $13,567 | $56,217 | | CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of period | $10,571 | $15,613 | Notes to Consolidated Financial Statements This section provides detailed explanations and disclosures for the consolidated financial statements, covering accounting policies, revenue, balance sheet components, and other financial details 1. Nature of Operations and Summary of Significant Accounting Policies This section describes the company's business as an international direct-selling and e-commerce entity and outlines its significant accounting policies - Natural Health Trends Corp. is an international direct-selling and e-commerce company, selling personal care, wellness, and "quality of life" products under the "NHT Global" brand[24] - The Company has an active physical presence in the Americas, Greater China, Southeast Asia, South Korea, Japan, India, and Europe, and operates in Russia and Kazakhstan through a local service provider[25] - The unaudited interim consolidated financial statements are prepared in accordance with GAAP for interim financial information, with certain disclosures condensed or omitted[26] - Cash and cash equivalents include $3.1 million held in bank accounts in China, subject to foreign currency controls[28] - The Company is evaluating the impact of new FASB ASUs 2023-09 (Income Taxes) and 2024-03 (Expense Disaggregation Disclosures) on its financial statements[32][33] 2. Revenue This section details the company's revenue recognition policies and provides a breakdown of net sales by category - Revenue is recognized when performance obligations are satisfied, typically upon product shipment and title transfer to independent members (F.O.B. Shipping Point)[35] - Sales returns were 1% of sales for both the six months ended June 30, 2025 and 2024[36] - Deferred revenue from unshipped product orders and unredeemed product vouchers decreased from $4.9 million at December 31, 2024, to $4.6 million at June 30, 2025[39] Net Sales by Category (in Thousands) | Category | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Product sales | $9,596 | $10,218 | $20,128 | $20,849 | | Administrative fees, freight and other | $262 | $318 | $539 | $719 | | Less: sales returns | $(45) | $(61) | $(117) | $(142) | | Total net sales | $9,813 | $10,475 | $20,550 | $21,426 | - No single market other than Hong Kong had net sales greater than 10% of total net sales, and no single customer accounted for 10% or more of net sales[42] 3. Balance Sheet Components This section provides a detailed breakdown of key balance sheet components, including cash, inventories, and deferred revenue Cash, Cash Equivalents and Restricted Cash (in Thousands) | Category | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Cash | $7,187 | $7,925 | | Cash equivalents | $3,347 | $5,608 | | Restricted cash | $37 | $34 | | Total Cash, cash equivalents and restricted cash | $10,571 | $13,567 | Inventories (in Thousands) | Category | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Finished goods | $2,300 | $2,770 | | Raw materials | $469 | $502 | | Total Inventories | $2,769 | $3,272 | Deferred Revenue (in Thousands) | Category | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Unshipped product and unredeemed product vouchers | $4,603 | $4,940 | | Auto ship advances | $1,475 | $1,488 | | Total Deferred revenue | $6,078 | $6,428 | 4. Fair Value Measurements This section outlines the company's fair value measurements for marketable securities, categorized by valuation levels - The Company's investments in money market funds, municipal debt securities, and corporate debt securities are classified as available-for-sale and carried at fair value[46] Fair Value Measurements (in Thousands) | Category | Fair Value Level | June 30, 2025 Fair Value (in Thousands) | December 31, 2024 Fair Value (in Thousands) | | :--- | :--- | :--- | :--- | | Money market funds | Level 1 | $1,951 | $2,092 | | Municipal debt securities | Level 2 | $6,796 | $3,458 | | Corporate debt securities | Level 2 | $18,311 | $30,465 | | Total investments | | $27,058 | $36,015 | 5. Leases This section details the company's lease obligations for office and retail spaces, including lease costs and terms - The Company leases corporate office space in California and Hong Kong, and retail space in Rowland Heights, CA, Richmond, BC, and Metuchen, NJ[51] - Additional leased office space includes seven branch offices in China, and locations in Peru, Japan, Taiwan, South Korea, Malaysia, India, Colombia, and the Cayman Islands[52] Lease Cost (in Thousands) | (In Thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Operating leases | $312 | $319 | $620 | $644 | | Short-term leases | $35 | $36 | $68 | $72 | | Total lease cost | $347 | $355 | $688 | $716 | - As of June 30, 2025, the weighted-average remaining lease term for operating leases was 3.4 years, with a weighted-average discount rate of 4.3%[54] 6. Income Taxes This section discusses the company's effective income tax rate, net operating loss carryforwards, and significant tax payments - The effective income tax rate for the three and six months ended June 30, 2025, includes estimates for foreign income inclusions like GILTI and Subpart F income, and prior year true-ups[56] - As of June 30, 2025, the Company has $390,000 of U.S. federal net operating loss carryforwards and $457,000 of U.S. state net operating loss carryforwards[57] - The final installment of $5.1 million for the repatriation tax on deemed deferred foreign income was paid in April 2025[58] 7. Commitments and Contingencies This section outlines the company's commitments and potential contingencies, including employment agreement provisions - The Company has employment agreements with management that include provisions for specified payments in the event of a change in control or termination without cause[61] 8. Stock-Based Incentive Plans This section details the company's stock-based incentive plans, including available shares, restricted stock activity, and phantom share grants - As of June 30, 2025, 1,129,047 shares remained available for issuance under the 2016 Equity Incentive Plan[63] Restricted Stock Activity | Restricted Stock Activity | Shares | Wtd. Avg. Price at Date of Issuance | | :------------------------ | :--- | :--- | | Nonvested at December 31, 2024 | 28,676 | $4.84 | | Vested | (14,356) | $4.84 | | Nonvested at June 30, 2025 | 14,320 | $4.84 | - Share-based compensation expense for restricted stock was $34,000 for the three months and $68,000 for the six months ended June 30, 2025[64] - On April 1, 2025, 223,307 phantom shares were granted, vesting over two years with both time-based and performance-based conditions, including positive operating profit and stock appreciation[67][68][69] - No compensation expense was recognized related to the cash settlement of phantom shares during the six months ended June 30, 2025, compared to $181,000 in the prior year period[70] 9. Stockholders' Equity This section provides information on changes in stockholders' equity, including dividends, stock repurchase programs, and comprehensive income components - The Company declared and paid cash dividends of $0.20 per common share during each of the first two quarters of 2025 and 2024, totaling $4.6 million in each six-month period[72] - As of June 30, 2025, $21.9 million of the $70.0 million stock repurchase program remained available for future purchases[73] Accumulated Other Comprehensive Loss (in Thousands) | (In Thousands) | Foreign Currency Translation Adjustments | Unrealized Gains (Losses) on Available-For-Sale Investments | Total | | :--- | :--- | :--- | :--- | | Balance, December 31, 2024 | $(1,275) | $(26) | $(1,301) | | Other comprehensive income (Q1 2025) | $148 | $9 | $157 | | Balance, March 31, 2025 | $(1,127) | $(17) | $(1,144) | | Other comprehensive income (loss) (Q2 2025) | $229 | $(1) | $228 | | Balance, June 30, 2025 | $(898) | $(18) | $(916) | 10. Related Party Transactions This section discloses transactions with related parties, specifically royalty payments for a product to an entity indirectly owned by a former director - The Company pays royalties to Broady Health Sciences, L.L.C. (BHS) for the product ReStor™, with George K. Broady (former director and >5% owner) being an indirect owner of BHS[75] - Royalties recognized were $9,000 for the three months and $18,000 for the six months ended June 30, 2025[75] 11. Segment Information This section presents financial information by operating segment and geographic area, highlighting net sales and operating income - The Company aggregates most operating segments (including Hong Kong) into a "Primary Reporting Unit," with China and Russia/Kazakhstan as separate segments due to different operating models[77] - The President (CODM) reviews financial information geographically, using net sales, gross profit, and operating profit to assess segment performance and allocate resources[78] Net Sales by Segment (in Thousands) | Segment (in Thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Primary Reporting Unit Net Sales | $9,493 | $10,023 | $19,899 | $20,489 | | China Net Sales | $219 | $336 | $453 | $720 | | Russia and Kazakhstan Net Sales | $101 | $116 | $198 | $217 | | Total Net Sales | $9,813 | $10,475 | $20,550 | $21,426 | Segment Income (Loss) from Operations (in Thousands) | Segment (in Thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Primary Reporting Unit Segment Income (Loss) from Operations | $1,560 | $1,710 | $3,233 | $3,336 | | China Segment Income (Loss) from Operations | $(169) | $(76) | $(315) | $(170) | | Russia and Kazakhstan Segment Income (Loss) from Operations | $(24) | $(17) | $(64) | $(57) | Net Sales by Geographic Area (in Thousands) | Geographic Area (in Thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | United States | $299 | $263 | $585 | $525 | | Canada | $130 | $142 | $231 | $253 | | Peru and Colombia | $320 | $284 | $569 | $504 | | Hong Kong | $8,004 | $8,468 | $17,127 | $17,642 | | China | $219 | $336 | $453 | $720 | | Taiwan | $396 | $486 | $718 | $823 | | Japan | $82 | $55 | $146 | $121 | | Malaysia and Singapore | $82 | $66 | $132 | $119 | | Russia and Kazakhstan | $101 | $116 | $198 | $217 | | Europe | $120 | $157 | $270 | $309 | | Other foreign countries | $60 | $102 | $121 | $193 | | Total net sales | $9,813 | $10,475 | $20,550 | $21,426 | - Substantially all of the Company's Hong Kong revenues are derived from the sale of products delivered to members in China[85] 12. Subsequent Event This section reports a significant event occurring after the reporting period, specifically a declared quarterly cash dividend - On July 28, 2025, the Board of Directors declared a quarterly cash dividend of $0.20 per common share, payable on August 22, 2025, to stockholders of record on August 12, 2025[86] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial condition, operational results, liquidity, and critical accounting estimates, emphasizing foreign operations and geopolitical risks Business Overview This section provides an overview of the company's international direct-selling and e-commerce business, active member trends, and exposure to foreign market risks - Natural Health Trends Corp. is an international direct-selling and e-commerce company, selling personal care, wellness, and "quality of life" products under the "NHT Global" brand[87] - Active members decreased to 29,260 at June 30, 2025, from 30,870 at December 31, 2024, and 31,110 at June 30, 2024[88] - Approximately 93% of net sales are from subsidiaries outside the Americas, making operating results susceptible to foreign currency fluctuations, trade policy, inflation, and geopolitical conditions[89] - Hong Kong's e-commerce platform generated approximately 83% of revenue in the first six months of 2025, substantially all from sales to members in China[90] - The company withdrew its direct selling license application in China in 2019 and plans to reapply when circumstances are favorable, expecting potential benefits but also higher fixed costs[90] - U.S. tariffs on Chinese goods escalated in Q1 2025, with reciprocal tariffs from China, leading to negative consumer sentiment and economic uncertainty in the company's largest market, impacting Q2 sales[93][94] - The company is exploring transitioning product production from the U.S. to other jurisdictions, including Asia, to mitigate tariff effects, which may involve short-term expenses like product reregistration[94] Statement of Operations Presentation This section explains the components of the consolidated statements of operations, including revenue recognition, cost of sales, and operating expenses - Revenue is primarily from product sales to independent members at wholesale prices, recognized upon shipment and title transfer[96] - Cost of sales includes product purchases, freight, import duties, packing materials, product royalties, promotional materials, and provisions for slow-moving or obsolete inventories[97] - Member commissions are the most significant expense, paid weekly based on bonus volume points from down-line network purchases[98] - Selling, general and administrative expenses include administrative compensation and benefits, travel, credit card fees, professional fees, occupancy costs, and marketing/promotion expenses[101] - Sales and net earnings are affected by changes in currency exchange rates; a weakening U.S. dollar generally increases sales and earnings, while a strengthening U.S. dollar decreases them[103] Results of Operations This section analyzes the company's financial performance, detailing changes in net sales, gross profit, operating expenses, and net income Statement of Operations as Percentage of Net Sales | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Net sales | 100.0% | 100.0% | 100.0% | 100.0% | | Cost of sales | 26.1% | 25.8% | 26.2% | 26.2% | | Gross profit | 73.9% | 74.2% | 73.8% | 73.8% | | Commissions expense | 40.9% | 40.1% | 41.4% | 40.5% | | Selling, general and administrative expenses | 36.4% | 36.4% | 35.7% | 36.1% | | Total operating expenses | 77.3% | 76.5% | 77.1% | 76.6% | | Loss from operations | (3.4)% | (2.3)% | (3.3)% | (2.8)% | | Other income, net | 3.5% | 5.0% | 4.0% | 5.0% | | Income before income taxes | 0.1% | 2.7% | 0.7% | 2.2% | | Income tax provision (benefit) | 0.0% | 1.0% | (0.0)% | 0.5% | | Net income | 0.1% | 1.7% | 0.7% | 1.7% | Net Sales This section analyzes the changes in net sales for the three and six months ended June 30, 2025, highlighting regional performance Net Sales (in Thousands) | Period | 2025 Net Sales (in Thousands) | 2024 Net Sales (in Thousands) | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Three Months Ended June 30 | $9,813 | $10,475 | $(662) | -6% | | Six Months Ended June 30 | $20,550 | $21,426 | $(876) | -4% | - Hong Kong net sales (primarily to China) decreased by $464,000 (5%) for Q2 2025 and $515,000 (3%) for YTD 2025, mainly due to negative consumer sentiment from tariff threats[108][109] - Net sales outside Hong Kong decreased by $198,000 (10%) for Q2 2025 and $361,000 (10%) for YTD 2025, primarily due to decreased sales in the Chinese e-commerce retail business[108][109] Gross Profit This section discusses the company's gross profit and its percentage of net sales for the current and prior periods - Gross profit was 73.9% of net sales for the three months ended June 30, 2025, a slight decrease from 74.2% in the comparable period a year ago[110] - Gross profit remained consistent at 73.8% of net sales for both six-month periods ended June 30, 2025 and 2024[110] Commissions Expense This section examines the commissions expense, noting its increase as a percentage of net sales due to higher member earnings - Commissions expense increased as a percentage of net sales to 40.9% for Q2 2025 (from 40.1% in Q2 2024) and to 41.4% for YTD 2025 (from 40.5% in YTD 2024)[111] - The increase in commissions as a percentage of net sales was primarily due to higher weekly commissions earned by members during the first six months of 2025[111] Selling, General and Administrative Expenses This section analyzes changes in selling, general and administrative expenses, attributing decreases to lower employee and event costs Selling, General and Administrative Expenses (in Thousands) | Period | 2025 Amount (in Thousands) | 2024 Amount (in Thousands) | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Three Months Ended June 30 | $3,576 | $3,811 | $(235) | -6.2% | | Six Months Ended June 30 | $7,338 | $7,729 | $(391) | -5.1% | - The decrease in SG&A expenses was primarily due to lower employee-related expenses and event costs compared to the prior year periods[112] - Selling, general and administrative expenses as a percentage of net sales were relatively consistent for both the three- and six-month periods[112] Other Income, Net This section details the decrease in other income, net, primarily due to lower interest income during the reporting periods Other Income, Net (in Thousands) | Period | 2025 Amount (in Thousands) | 2024 Amount (in Thousands) | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Three Months Ended June 30 | $348 | $519 | $(171) | -33.0% | | Six Months Ended June 30 | $813 | $1,082 | $(269) | -24.9% | - The decrease in other income, net, was primarily due to less interest income earned during the current year periods[113] Income Taxes This section explains the income tax provision, including foreign income inclusions and the evaluation of new tax legislation Income Tax Provision (Benefit) (in Thousands) | Period | 2025 Amount (in Thousands) | 2024 Amount (in Thousands) | | :--- | :--- | :--- | | Three Months Ended June 30 | $0 | $108 | | Six Months Ended June 30 | $(2) | $118 | - The tax provision primarily resulted from foreign income inclusions (GILTI, Subpart F income) and tax benefits in foreign jurisdictions[114] - The "One Big Beautiful Bill Act" (OBBBA) was signed into law on July 4, 2025, making permanent key elements of the U.S. Tax Cuts and Jobs Act[115] Liquidity and Capital Resources This section assesses the company's liquidity and capital resources, including cash, working capital, and cash flow activities - Cash, cash equivalents, and marketable securities totaled $34.2 million at June 30, 2025, a decrease of $9.7 million from December 31, 2024, primarily due to dividends paid and the final repatriation tax payment[116] - Working capital was $25.9 million at June 30, 2025, with a current asset to current liability ratio of 2.7 to 1.0, representing a $4.3 million decrease from December 31, 2024[117] - Net cash used in operating activities was $5.2 million for the first six months of 2025, compared to $3.0 million for the first six months of 2024, largely due to a $5.1 million repatriation tax payment in April 2025[118] - Cash flows provided by investing activities totaled $6.6 million during the first six months of 2025, a significant change from $32.9 million used in the prior year, driven by proceeds from marketable securities maturities offsetting new purchases[119] - Cash flows used in financing activities were $4.6 million for both H1 2025 and H1 2024, consisting solely of quarterly dividend payments of $0.20 per common share[120] - The company expects to continue paying a quarterly cash dividend of $0.20 per share for the foreseeable future, subject to Board discretion[120] - $21.9 million remained available under the $70.0 million stock repurchase program as of June 30, 2025[121] - Management believes existing internal liquidity is adequate to fund normal business operations and financial commitments for the foreseeable future[122] - The company prioritizes investing resources in Greater China and other promising markets, including establishing China-based manufacturing, increasing brand awareness, and building service infrastructure for a prospective China direct selling license[123] Critical Accounting Estimates This section highlights critical accounting estimates and assumptions that significantly impact the company's financial statements - The preparation of consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, and disclosures[124] - Critical accounting estimates involve assumptions about highly uncertain matters where changes could materially impact financial condition or results of operations[125] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section states that the company is not required to provide quantitative and qualitative disclosures about market risk under smaller reporting company disclosure rules - Not applicable under smaller reporting company disclosure rules[127] Item 4. Controls and Procedures This section details the company's evaluation of its disclosure controls and procedures and reports on any changes in internal control over financial reporting Disclosure Controls and Procedures This section confirms management's evaluation of the effectiveness of disclosure controls and procedures as of June 30, 2025 - Management, with the participation of the CEO and CFO, evaluated the effectiveness of disclosure controls and procedures as of June 30, 2025[128] - Concluded that the disclosure controls and procedures were effective as of June 30, 2025[128] Changes in Internal Control over Financial Reporting This section reports no material changes in internal control over financial reporting during the fiscal quarter ended June 30, 2025 - No changes in internal control over financial reporting occurred during the fiscal quarter ended June 30, 2025, that materially affected, or are reasonably likely to materially affect, internal control over financial reporting[129] PART II - OTHER INFORMATION This section provides additional information not covered in Part I, including legal proceedings, risk factors, and exhibits Item 1. Legal Proceedings This section states that there are no legal proceedings to report - None[132] Item 1A. Risk Factors This section updates previously disclosed risk factors, focusing on government trade policies, tariffs, and geopolitical disputes impacting business - No material changes to risk factors since the 2024 Annual Report on Form 10-K, except as set forth in this section[133] - Changes in government trade and economic policies, including escalating U.S. tariffs on Chinese goods (up to 125%, temporarily reduced to 10% with a pre-existing 20% tariff), and retaliatory tariffs from China, may negatively affect global economic conditions and the company's business[134] - The company may incur additional costs for shipments into China, potentially requiring surcharges, and is exploring transitioning product production outside the U.S. to mitigate tariff effects, which could involve transition costs like product reregistration[134] - Ongoing trade disputes and increased tensions between the U.S. and China (including Hong Kong's governance) could disrupt China/Hong Kong business, affect product distribution, reduce net sales, increase operational costs, or lead to retaliatory actions[135] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section indicates that there were no unregistered sales of equity securities or use of proceeds to report - None[138] Item 3. Defaults Upon Senior Securities This section states that there were no defaults upon senior securities to report - None[139] Item 4. Mine Safety Disclosures This section indicates that mine safety disclosures are not applicable to the company - Not applicable[140] Item 5. Other Information This section states that there is no other information to report - None[141] Item 6. Exhibits This section lists the exhibits filed as part of the Form 10-Q, including certifications, XBRL taxonomy files, and a form of phantom share agreement - Includes certifications of Principal Executive Officer and Principal Financial Officer (31.1, 31.2, 32.1)[143] - Contains Inline XBRL Taxonomy Extension files (101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE) and Cover Page Interactive Data File (104)[143] - References Form of Phantom Share Agreement under the Phantom Equity Plan (10.1)[143] Signatures This section contains the required signatures for the Form 10-Q, confirming its submission by the Chief Financial Officer - Report signed by Timothy S. Davidson, Senior Vice President and Chief Financial Officer, on July 30, 2025[147]