NHT Global(NHTC) - 2022 Q1 - Quarterly Report

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