false--12-31Q3201900009120610.020.131.900.400.240.0010.0015000000050000000129794141297941445000000.0010.00150000005000000000016033221459090 0000912061 2019-01-01 2019-09-30 0000912061 2019-11-01 0000912061 2019-09-30 0000912061 2018-12-31 0000912061 2018-07-01 2018-09-30 0000912061 2019-07-01 2019-09-30 0000912061 2018-01-01 2018-09-30 0000912061 us-gaap:AdditionalPaidInCapitalMember 2018-09-30 0000912061 us-gaap:CommonStockMember 2018-09-30 0000912061 us-gaap:PreferredStockMember 2018-03-31 0000912061 us-gaap:TreasuryStockMember 2017-12-31 0000912061 us-gaap:CommonStockMember 2018-06-30 0000912061 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-01-01 2018-03-31 0000912061 us-gaap:TreasuryStockMember 2018-09-30 0000912061 us-gaap:AdditionalPaidInCapitalMember 2017-12-31 0000912061 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-07-01 2018-09-30 0000912061 us-gaap:TreasuryStockMember 2018-06-30 0000912061 2018-04-01 2018-06-30 0000912061 us-gaap:PreferredStockMember 2018-06-30 0000912061 us-gaap:AdditionalPaidInCapitalMember 2018-03-31 0000912061 us-gaap:RetainedEarningsMember 2018-01-01 2018-03-31 0000912061 us-gaap:RetainedEarningsMember 2018-03-31 0000912061 2018-01-01 2018-03-31 0000912061 us-gaap:PreferredStockMember 2017-12-31 0000912061 us-gaap:RetainedEarningsMember 2018-07-01 2018-09-30 0000912061 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-03-31 0000912061 us-gaap:RetainedEarningsMember 2018-09-30 0000912061 2017-12-31 0000912061 us-gaap:TreasuryStockMember 2018-03-31 0000912061 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-04-01 2018-06-30 0000912061 us-gaap:RetainedEarningsMember 2017-12-31 0000912061 us-gaap:CommonStockMember 2017-12-31 0000912061 2018-09-30 0000912061 us-gaap:PreferredStockMember 2018-09-30 0000912061 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-06-30 0000912061 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-09-30 0000912061 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2017-12-31 0000912061 us-gaap:TreasuryStockMember 2018-01-01 2018-03-31 0000912061 us-gaap:RetainedEarningsMember 2018-04-01 2018-06-30 0000912061 us-gaap:AdditionalPaidInCapitalMember 2018-01-01 2018-03-31 0000912061 2018-03-31 0000912061 2018-06-30 0000912061 us-gaap:RetainedEarningsMember 2018-06-30 0000912061 us-gaap:CommonStockMember 2018-03-31 0000912061 us-gaap:AdditionalPaidInCapitalMember 2018-06-30 0000912061 us-gaap:CommonStockMember 2018-12-31 0000912061 us-gaap:RetainedEarningsMember 2019-06-30 0000912061 us-gaap:PreferredStockMember 2019-09-30 0000912061 us-gaap:RetainedEarningsMember 2019-03-31 0000912061 us-gaap:TreasuryStockMember 2019-07-01 2019-09-30 0000912061 2019-04-01 2019-06-30 0000912061 us-gaap:CommonStockMember 2019-09-30 0000912061 us-gaap:RetainedEarningsMember 2019-07-01 2019-09-30 0000912061 us-gaap:CommonStockMember 2019-06-30 0000912061 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-06-30 0000912061 us-gaap:RetainedEarningsMember 2019-04-01 2019-06-30 0000912061 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-09-30 0000912061 2019-01-01 2019-03-31 0000912061 us-gaap:PreferredStockMember 2019-06-30 0000912061 us-gaap:TreasuryStockMember 2019-09-30 0000912061 us-gaap:CommonStockMember 2019-03-31 0000912061 us-gaap:PreferredStockMember 2018-12-31 0000912061 us-gaap:AdditionalPaidInCapitalMember 2019-03-31 0000912061 2019-03-31 0000912061 2019-06-30 0000912061 us-gaap:AdditionalPaidInCapitalMember 2019-07-01 2019-09-30 0000912061 us-gaap:TreasuryStockMember 2019-03-31 0000912061 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-01-01 2019-03-31 0000912061 us-gaap:RetainedEarningsMember 2019-01-01 2019-03-31 0000912061 us-gaap:TreasuryStockMember 2019-01-01 2019-03-31 0000912061 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-03-31 0000912061 us-gaap:TreasuryStockMember 2019-06-30 0000912061 us-gaap:RetainedEarningsMember 2019-09-30 0000912061 us-gaap:AdditionalPaidInCapitalMember 2018-12-31 0000912061 us-gaap:RetainedEarningsMember 2018-12-31 0000912061 us-gaap:TreasuryStockMember 2019-04-01 2019-06-30 0000912061 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-04-01 2019-06-30 0000912061 us-gaap:TreasuryStockMember 2018-12-31 0000912061 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-12-31 0000912061 us-gaap:PreferredStockMember 2019-03-31 0000912061 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-07-01 2019-09-30 0000912061 us-gaap:AdditionalPaidInCapitalMember 2019-09-30 0000912061 us-gaap:AdditionalPaidInCapitalMember 2019-06-30 0000912061 us-gaap:AdditionalPaidInCapitalMember 2019-01-01 2019-03-31 0000912061 us-gaap:AccountingStandardsUpdate201602Member 2019-01-01 0000912061 us-gaap:ShippingAndHandlingMember 2019-07-01 2019-09-30 0000912061 us-gaap:ProductMember 2018-01-01 2018-09-30 0000912061 us-gaap:ProductMember 2018-07-01 2018-09-30 0000912061 us-gaap:ProductMember 2019-01-01 2019-09-30 0000912061 us-gaap:ShippingAndHandlingMember 2018-07-01 2018-09-30 0000912061 us-gaap:ShippingAndHandlingMember 2019-01-01 2019-09-30 0000912061 us-gaap:ProductMember 2019-07-01 2019-09-30 0000912061 us-gaap:ShippingAndHandlingMember 2018-01-01 2018-09-30 0000912061 srt:MaximumMember 2019-01-01 2019-09-30 0000912061 srt:MinimumMember 2019-01-01 2019-09-30 0000912061 country:JP 2019-01-01 2019-09-30 0000912061 srt:AmericasMember 2019-07-01 2019-09-30 0000912061 nhtc:RussiaandKazakhstanDomain 2019-07-01 2019-09-30 0000912061 us-gaap:SalesRevenueNetMember us-gaap:GeographicConcentrationRiskMember 2018-01-01 2018-09-30 0000912061 country:SG 2018-01-01 2018-09-30 0000912061 country:SG us-gaap:SalesRevenueNetMember us-gaap:GeographicConcentrationRiskMember 2019-01-01 2019-09-30 0000912061 country:KR 2018-01-01 2018-09-30 0000912061 country:HK 2019-07-01 2019-09-30 0000912061 srt:AmericasMember 2019-01-01 2019-09-30 0000912061 srt:AmericasMember 2018-01-01 2018-09-30 0000912061 country:TW us-gaap:SalesRevenueNetMember us-gaap:GeographicConcentrationRiskMember 2018-01-01 2018-09-30 0000912061 country:IN us-gaap:SalesRevenueNetMember us-gaap:GeographicConcentrationRiskMember 2018-07-01 2018-09-30 0000912061 country:KR us-gaap:SalesRevenueNetMember us-gaap:GeographicConcentrationRiskMember 2019-01-01 2019-09-30 0000912061 srt:EuropeMember 2018-01-01 2018-09-30 0000912061 nhtc:RussiaandKazakhstanDomain us-gaap:SalesRevenueNetMember us-gaap:GeographicConcentrationRiskMember 2018-01-01 2018-09-30 0000912061 nhtc:RussiaandKazakhstanDomain 2018-07-01 2018-09-30 0000912061 country:SG us-gaap:SalesRevenueNetMember us-gaap:GeographicConcentrationRiskMember 2018-07-01 2018-09-30 0000912061 country:TW 2019-01-01 2019-09-30 0000912061 country:MY us-gaap:SalesRevenueNetMember us-gaap:GeographicConcentrationRiskMember 2019-01-01 2019-09-30 0000912061 country:MY us-gaap:SalesRevenueNetMember us-gaap:GeographicConcentrationRiskMember 2019-07-01 2019-09-30 0000912061 country:IN 2019-01-01 2019-09-30 0000912061 country:CN 2019-07-01 2019-09-30 0000912061 country:SG us-gaap:SalesRevenueNetMember us-gaap:GeographicConcentrationRiskMember 2018-01-01 2018-09-30 0000912061 country:TW 2019-07-01 2019-09-30 0000912061 country:CN us-gaap:SalesRevenueNetMember us-gaap:GeographicConcentrationRiskMember 2019-07-01 2019-09-30 0000912061 country:HK us-gaap:SalesRevenueNetMember us-gaap:GeographicConcentrationRiskMember 2018-01-01 2018-09-30 0000912061 country:SG 2019-07-01 2019-09-30 0000912061 country:KR 2019-07-01 2019-09-30 0000912061 country:TW 2018-07-01 2018-09-30 0000912061 country:CN us-gaap:SalesRevenueNetMember us-gaap:GeographicConcentrationRiskMember 2019-01-01 2019-09-30 0000912061 country:HK us-gaap:SalesRevenueNetMember us-gaap:GeographicConcentrationRiskMember 2019-01-01 2019-09-30 0000912061 country:TW us-gaap:SalesRevenueNetMember us-gaap:GeographicConcentrationRiskMember 2019-07-01 2019-09-30 0000912061 srt:EuropeMember us-gaap:SalesRevenueNetMember us-gaap:GeographicConcentrationRiskMember 2018-07-01 2018-09-30 0000912061 nhtc:RussiaandKazakhstanDomain 2019-01-01 2019-09-30 0000912061 us-gaap:SalesRevenueNetMember us-gaap:GeographicConcentrationRiskMember 2019-01-01 2019-09-30 0000912061 country:MY us-gaap:SalesRevenueNetMember us-gaap:GeographicConcentrationRiskMember 2018-07-01 2018-09-30 0000912061 country:KR us-gaap:SalesRevenueNetMember us-gaap:GeographicConcentrationRiskMember 2018-07-01 2018-09-30 0000912061 nhtc:RussiaandKazakhstanDomain us-gaap:SalesRevenueNetMember us-gaap:GeographicConcentrationRiskMember 2019-07-01 2019-09-30 0000912061 srt:AmericasMember us-gaap:SalesRevenueNetMember us-gaap:GeographicConcentrationRiskMember 2018-07-01 2018-09-30 0000912061 srt:EuropeMember 2018-07-01 2018-09-30 0000912061 country:MY 2018-07-01 2018-09-30 0000912061 country:TW 2018-01-01 2018-09-30 0000912061 country:CN 2018-01-01 2018-09-30 0000912061 country:SG 2018-07-01 2018-09-30 0000912061 country:HK us-gaap:SalesRevenueNetMember us-gaap:GeographicConcentrationRiskMember 2019-07-01 2019-09-30 0000912061 srt:AmericasMember us-gaap:SalesRevenueNetMember us-gaap:GeographicConcentrationRiskMember 2019-07-01 2019-09-30 0000912061 srt:EuropeMember 2019-01-01 2019-09-30 0000912061 nhtc:RussiaandKazakhstanDomain us-gaap:SalesRevenueNetMember us-gaap:GeographicConcentrationRiskMember 2018-07-01 2018-09-30 0000912061 srt:EuropeMember us-gaap:SalesRevenueNetMember us-gaap:GeographicConcentrationRiskMember 2018-01-01 2018-09-30 0000912061 srt:EuropeMember us-gaap:SalesRevenueNetMember us-gaap:GeographicConcentrationRiskMember 2019-01-01 2019-09-30 0000912061 srt:EuropeMember us-gaap:SalesRevenueNetMember us-gaap:GeographicConcentrationRiskMember 2019-07-01 2019-09-30 0000912061 country:KR us-gaap:SalesRevenueNetMember us-gaap:GeographicConcentrationRiskMember 2018-01-01 2018-09-30 0000912061 us-gaap:SalesRevenueNetMember us-gaap:GeographicConcentrationRiskMember 2019-07-01 2019-09-30 0000912061 country:HK 2018-07-01 2018-09-30 0000912061 country:SG us-gaap:SalesRevenueNetMember us-gaap:GeographicConcentrationRiskMember 2019-07-01 2019-09-30 0000912061 srt:AmericasMember us-gaap:SalesRevenueNetMember us-gaap:GeographicConcentrationRiskMember 2018-01-01 2018-09-30 0000912061 country:IN us-gaap:SalesRevenueNetMember us-gaap:GeographicConcentrationRiskMember 2019-07-01 2019-09-30 0000912061 country:TW us-gaap:SalesRevenueNetMember us-gaap:GeographicConcentrationRiskMember 2019-01-01 2019-09-30 0000912061 country:MY 2019-07-01 2019-09-30 0000912061 country:MY us-gaap:SalesRevenueNetMember us-gaap:GeographicConcentrationRiskMember 2018-01-01 2018-09-30 0000912061 country:HK us-gaap:SalesRevenueNetMember us-gaap:GeographicConcentrationRiskMember 2018-07-01 2018-09-30 0000912061 country:IN 2018-01-01 2018-09-30 0000912061 country:IN 2019-07-01 2019-09-30 0000912061 country:CN 2019-01-01 2019-09-30 0000912061 us-gaap:SalesRevenueNetMember us-gaap:GeographicConcentrationRiskMember 2018-07-01 2018-09-30 0000912061 country:JP 2018-07-01 2018-09-30 0000912061 nhtc:RussiaandKazakhstanDomain us-gaap:SalesRevenueNetMember us-gaap:GeographicConcentrationRiskMember 2019-01-01 2019-09-30 0000912061 country:IN us-gaap:SalesRevenueNetMember us-gaap:GeographicConcentrationRiskMember 2019-01-01 2019-09-30 0000912061 country:KR 2019-01-01 2019-09-30 0000912061 country:JP us-gaap:SalesRevenueNetMember us-gaap:GeographicConcentrationRiskMember 2019-07-01 2019-09-30 0000912061 country:JP 2019-07-01 2019-09-30 0000912061 country:JP us-gaap:SalesRevenueNetMember us-gaap:GeographicConcentrationRiskMember 2018-01-01 2018-09-30 0000912061 srt:AmericasMember us-gaap:SalesRevenueNetMember us-gaap:GeographicConcentrationRiskMember 2019-01-01 2019-09-30 0000912061 country:MY 2019-01-01 2019-09-30 0000912061 srt:EuropeMember 2019-07-01 2019-09-30 0000912061 country:CN us-gaap:SalesRevenueNetMember us-gaap:GeographicConcentrationRiskMember 2018-01-01 2018-09-30 0000912061 country:JP us-gaap:SalesRevenueNetMember us-gaap:GeographicConcentrationRiskMember 2019-01-01 2019-09-30 0000912061 country:CN 2018-07-01 2018-09-30 0000912061 country:HK 2019-01-01 2019-09-30 0000912061 country:IN us-gaap:SalesRevenueNetMember us-gaap:GeographicConcentrationRiskMember 2018-01-01 2018-09-30 0000912061 country:IN 2018-07-01 2018-09-30 0000912061 country:MY 2018-01-01 2018-09-30 0000912061 srt:AmericasMember 2018-07-01 2018-09-30 0000912061 country:SG 2019-01-01 2019-09-30 0000912061 country:JP 2018-01-01 2018-09-30 0000912061 country:KR us-gaap:SalesRevenueNetMember us-gaap:GeographicConcentrationRiskMember 2019-07-01 2019-09-30 0000912061 country:KR 2018-07-01 2018-09-30 0000912061 country:HK 2018-01-01 2018-09-30 0000912061 country:CN us-gaap:SalesRevenueNetMember us-gaap:GeographicConcentrationRiskMember 2018-07-01 2018-09-30 0000912061 nhtc:RussiaandKazakhstanDomain 2018-01-01 2018-09-30 0000912061 country:JP us-gaap:SalesRevenueNetMember us-gaap:GeographicConcentrationRiskMember 2018-07-01 2018-09-30 0000912061 country:TW us-gaap:SalesRevenueNetMember us-gaap:GeographicConcentrationRiskMember 2018-07-01 2018-09-30 0000912061 us-gaap:RestrictedStockMember 2019-07-01 2019-09-30 0000912061 us-gaap:RestrictedStockMember 2019-01-01 2019-09-30 0000912061 nhtc:UnshippedProductMember 2019-09-30 0000912061 nhtc:AutoShipAdvancesMember 2019-09-30 0000912061 nhtc:OtherRevenueMember 2019-09-30 0000912061 us-gaap:CashMember 2019-09-30 0000912061 nhtc:AutoShipAdvancesMember 2018-12-31 0000912061 nhtc:UnshippedProductMember 2018-12-31 0000912061 us-gaap:CashMember 2018-12-31 0000912061 us-gaap:CashEquivalentsMember 2019-09-30 0000912061 nhtc:OtherRevenueMember 2018-12-31 0000912061 us-gaap:CashEquivalentsMember 2018-12-31 0000912061 us-gaap:CashAndCashEquivalentsMember us-gaap:FairValueInputsLevel2Member us-gaap:MunicipalBondsMember 2019-09-30 0000912061 us-gaap:CashAndCashEquivalentsMember us-gaap:FairValueInputsLevel2Member us-gaap:BankTimeDepositsMember 2019-09-30 0000912061 us-gaap:CashAndCashEquivalentsMember 2018-12-31 0000912061 us-gaap:CashAndCashEquivalentsMember us-gaap:FairValueInputsLevel2Member us-gaap:CorporateDebtSecuritiesMember 2019-09-30 0000912061 us-gaap:CashAndCashEquivalentsMember us-gaap:FairValueInputsLevel2Member us-gaap:MunicipalBondsMember 2018-12-31 0000912061 us-gaap:CashAndCashEquivalentsMember us-gaap:FairValueInputsLevel2Member us-gaap:BankTimeDepositsMember 2018-12-31 0000912061 us-gaap:CashAndCashEquivalentsMember us-gaap:FairValueInputsLevel2Member us-gaap:CorporateDebtSecuritiesMember 2018-12-31 0000912061 us-gaap:CashAndCashEquivalentsMember us-gaap:FairValueInputsLevel1Member us-gaap:MoneyMarketFundsMember 2019-09-30 0000912061 us-gaap:CashAndCashEquivalentsMember 2019-09-30 0000912061 us-gaap:CashAndCashEquivalentsMember us-gaap:FairValueInputsLevel1Member us-gaap:MoneyMarketFundsMember 2018-12-31 0000912061 2019-03-15 2019-03-15 0000912061 us-gaap:AccumulatedTranslationAdjustmentMember 2018-12-31 0000912061 us-gaap:AccumulatedTranslationAdjustmentMember 2019-09-30 0000912061 us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember 2019-09-30 0000912061 us-gaap:AccumulatedTranslationAdjustmentMember 2019-01-01 2019-09-30 0000912061 us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember 2019-01-01 2019-09-30 0000912061 us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember 2018-12-31 0000912061 us-gaap:RestrictedStockMember nhtc:EquityIncentive2016PlanMember 2019-09-30 0000912061 us-gaap:RestrictedStockMember nhtc:EquityIncentive2016PlanMember 2019-01-01 2019-09-30 0000912061 us-gaap:RestrictedStockMember nhtc:EquityIncentive2016PlanMember 2018-12-31 0000912061 2019-08-01 2019-09-30 0000912061 us-gaap:RestrictedStockMember nhtc:EquityIncentive2016PlanMember 2019-02-01 2019-02-01 0000912061 srt:DirectorMember 2019-05-16 0000912061 nhtc:EquityIncentive2016PlanMember us-gaap:CommonStockMember 2019-09-30 0000912061 2019-05-16 2019-05-31 0000912061 nhtc:EquityIncentive2016PlanMember us-gaap:CommonStockMember 2016-04-07 0000912061 us-gaap:RestrictedStockMember nhtc:EquityIncentive2016PlanMember 2019-08-09 2019-08-09 0000912061 2016-01-12 0000912061 2015-07-28 0000912061 2019-05-16 0000912061 nhtc:MetuchenNewJerseyMember 2019-09-30 0000912061 country:CN 2019-09-30 0000912061 country:HK 2019-09-30 0000912061 nhtc:RollingHillsEstatesCaliforniaMember 2019-09-30 0000912061 nhtc:MontereyParkCaliforniaMember 2019-09-30 0000912061 nhtc:RichmondBritishColumbiaMember 2019-09-30 0000912061 us-gaap:ForeignCountryMember 2018-12-31 0000912061 srt:ExecutiveOfficerMember nhtc:SecuritiesClassActionMember 2019-01-08 2019-01-08 0000912061 nhtc:TheAberdeenGroupLLCMember nhtc:PresidentandHisWifeMember nhtc:ShipmentofApparelProductsMember srt:AffiliatedEntityMember 2019-09-30 0000912061 nhtc:BroadyHealthSciencesMember nhtc:ReStoreMember nhtc:RoyaltyAgreementandLicenseMember srt:AffiliatedEntityMember 2013-02-01 2013-02-28 0000912061 nhtc:TheAberdeenGroupLLCMember nhtc:ShipmentofApparelProductsMember srt:AffiliatedEntityMember 2019-09-30 0000912061 nhtc:BroadyHealthSciencesMember nhtc:ReStoreMember srt:DirectorMember nhtc:RoyaltyAgreementandLicenseMember srt:AffiliatedEntityMember 2019-09-30 0000912061 nhtc:TheAberdeenGroupLLCMember nhtc:ShipmentofApparelProductsMember srt:AffiliatedEntityMember 2019-03-31 0000912061 nhtc:BroadyHealthSciencesMember nhtc:ReStoreMember nhtc:RoyaltyAgreementandLicenseMember srt:AffiliatedEntityMember 2018-07-01 2018-09-30 0000912061 nhtc:TheAberdeenGroupLLCMember nhtc:ShipmentofApparelProductsMember srt:AffiliatedEntityMember 2019-01-01 2019-03-31 0000912061 nhtc:BroadyHealthSciencesMember nhtc:ReStoreMember nhtc:RoyaltyAgreementandLicenseMember srt:AffiliatedEntityMember 2019-01-01 2019-09-30 0000912061 nhtc:TheAberdeenGroupLLCMember nhtc:ShipmentofApparelProductsMember srt:AffiliatedEntityMember 2019-01-01 2019-09-30 0000912061 nhtc:TheGeorgeK.Broady2012IrrevocableTrustBroadyTrustMember srt:DirectorMember nhtc:StockRepurchaseAgreementMember srt:AffiliatedEntityMember 2019-05-17 2019-05-31 0000912061 nhtc:BroadyHealthSciencesMember nhtc:ReStoreMember nhtc:RoyaltyAgreementandLicenseMember srt:AffiliatedEntityMember 2018-01-01 2018-09-30 0000912061 nhtc:BroadyHealthSciencesMember nhtc:ReStoreMember nhtc:RoyaltyAgreementandLicenseMember srt:AffiliatedEntityMember 2019-07-01 2019-09-30 0000912061 nhtc:TheAberdeenGroupLLCMember nhtc:SharngHoldingsMember nhtc:ShipmentofApparelProductsMember srt:AffiliatedEntityMember 2019-09-30 0000912061 us-gaap:SubsequentEventMember 2019-10-29 2019-10-29 xbrli:pure nhtc:branch nhtc:defendant nhtc:order nhtc:service_station utreg:Rate xbrli:shares iso4217:USD iso4217:USD xbrli:shares utreg:sqft


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, 2019
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)
Delaware
59-2705336
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)
Units 1205-07, 12F
Mira Place Tower A
132 Nathan Road, Tsimshatsui
Kowloon, Hong Kong
(Address of principal executive offices, including zip code)
Registrant’s telephone number, including area code: +852-3107-0800

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
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for shorter period that the registrant was required to submit such files). Yes þ No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
o
 
Accelerated filer
þ
Non-accelerated filer
o
 
Smaller reporting company
 
 
 
Emerging growth company
 




If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No þ
 
At November 1, 2019, the number of shares outstanding of the registrant’s common stock was 11,520,324 shares.





NATURAL HEALTH TRENDS CORP.
Quarterly Report on Form 10-Q
September 30, 2019
 
INDEX 
 
 
 
Page
 
 
 
 
 
 
 
 




FORWARD-LOOKING STATEMENTS
 
This Quarterly Report on Form 10-Q, in particular “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” includes “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). When used in this report, the words or phrases “will likely result,” “expect,” “intend,” “will continue,” “anticipate,” “estimate,” “project,” “believe” and similar expressions are intended to identify “forward-looking statements” within the meaning of the Exchange Act. These statements represent our expectations or beliefs concerning, among other things, future revenue, earnings, growth strategies, new products and initiatives, future operations and operating results, and future business and market opportunities.
 
Forward-looking statements in this report speak only as of the date hereof, and forward-looking statements in documents incorporated by reference speak only as of the date of those documents. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by law. We caution and advise readers that these statements are based on certain assumptions that may not be realized and involve risks and uncertainties that could cause actual results to differ materially from the expectations and beliefs contained herein.
 
For a summary of certain risks related to our business, see “Part I, Item 1A. Risk Factors” in our most recent Annual Report on Form 10-K, which includes the following:

We could be adversely affected by management changes or an inability to attract and retain key management, directors and consultants;
Because our Hong Kong operations account for a substantial portion of our overall business, and substantially all of our Hong Kong business is derived from the sale of products to members in China, any material adverse change in our business relating to either Hong Kong or China would likely have a material adverse impact on our overall business;
Our operations in China are subject to compliance with a myriad of applicable laws and regulations, and any actual or alleged violations of those laws or government actions otherwise directed at us could have a material adverse impact on our business and the value of our company;
Our failure to maintain and expand our member relationships could adversely affect our business;
We are currently involved in, and may in the future face, lawsuits, claims, and governmental proceedings and inquiries that could harm our business;
Although virtually all of our members are independent contractors, improper member actions that violate laws or regulations could harm our business;
Direct-selling laws and regulations may prohibit or severely restrict our direct sales efforts and cause our revenue and profitability to decline, and regulators could adopt new regulations that harm our business;
The high level of competition in our industry could adversely affect our business;
Challenges by third parties to the legality of our business operations could harm our business;
An increase in the amount of compensation paid to members would reduce profitability;
Currency exchange rate fluctuations could lower our revenue and net income;
Changes in tax or duty laws, and unanticipated tax or duty liabilities, could adversely affect our net income;
Transfer pricing regulations affect our business and results of operations;
Our products and related activities are subject to extensive government regulation, which could delay, limit or prevent the sale of some of our products in some markets;
Failure of new products to gain member and market acceptance could harm our business;
New regulations governing the marketing and sale of nutritional supplements could harm our business;
Regulations governing the production and marketing of our personal care products could harm our business;
If we are found not to be in compliance with good manufacturing practices our operations could be harmed;
Failure to comply with domestic and foreign laws and regulations governing product claims and advertising could harm our business;
Adverse publicity associated with our products, ingredients or network marketing program, or those of similar companies, could harm our financial condition and operating results;
We are subject to risks relating to product concentration and lack of revenue diversification;
We rely on a limited number of independent third parties to manufacture and supply our products;
Growth may be impeded by the political and economic risks of entering and operating in foreign markets;
We are subject to anti-bribery laws, including the U.S. Foreign Corrupt Practices Act;
Recently enacted tariffs, other potential changes to tariff and import/export regulations, and ongoing trade disputes between the United States and other jurisdictions, particularly China, may have a negative effect on global economic conditions and our business, financial results and financial condition;
We may be held responsible for certain taxes or assessments relating to the activities of our members and service providers, which could harm our financial condition and operating results;




We may be unable to protect or use our intellectual property rights;
We do not have a comprehensive product liability insurance program and product liability claims could hurt our business;
We identified a material weakness in our internal control over financial reporting. If we do not adequately address this material weakness or if other material weaknesses or significant deficiencies in our internal control over financial reporting are discovered, our financial statements could contain material misstatements and our business, operations and stock price may be adversely affected;
We rely on and are subject to risks associated with our reliance upon information technology systems;
System disruptions or failures, cybersecurity risks, and compromises of data could harm our business;
Our systems, software and data reside on third-party servers, exposing us to risks that disruption or intrusion of those servers could temporarily or permanently interrupt our access and damage our business;
Terrorist attacks, acts of war, epidemics or natural disasters may seriously harm our business;
We may experience negative cash flows, which may require that we seek debt or equity financing and could have a significant adverse effect on our business and threaten our solvency;
Disappointing quarterly revenue or operating results could cause the price of our common stock to fall;
Our common stock is particularly subject to volatility because of the industry in which we operate;
Our common stock continues to experience wide fluctuations in trading volumes and prices. This may make it more difficult for holders of our common stock to sell shares when they want and at prices they find attractive; and
Future sales by us or our existing stockholders could depress the market price of our common stock.

Additional factors that could cause actual results to differ materially from our forward-looking statements are set forth in this report, including under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and in our financial statements and the related notes.




PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
  
NATURAL HEALTH TRENDS CORP.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data) 
 
September 30, 2019
 
December 31, 2018
 
(Unaudited)
 
 
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
101,113

 
$
132,653

Inventories
7,999

 
12,165

Other current assets
6,997

 
5,369

Total current assets
116,109

 
150,187

Property and equipment, net
821

 
934

Operating lease right-of-use assets
3,515



Goodwill
1,764

 
1,764

Restricted cash
2,881

 
2,998

Deferred tax asset
1,210

 
1,207

Other assets
807

 
831

Total assets
$
127,107

 
$
157,921

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
627

 
$
1,631

Accrued commissions
3,798

 
12,502

Other accrued expenses
3,392

 
6,121

Deferred revenue
3,302

 
6,795

Amounts held in eWallets
13,090

 
14,611

Operating lease liabilities
1,689



Other current liabilities
1,188

 
1,424

Total current liabilities
27,086

 
43,084

Income taxes payable
15,365

 
16,982

Deferred tax liability
186

 
186

Long-term incentive

 
7,808

Operating lease liabilities
1,903



Total liabilities
44,540

 
68,060

Commitments and contingencies (Note 9)

 

Stockholders’ equity:
 
 
 
Preferred stock, $0.001 par value; 5,000,000 shares authorized; no shares issued and outstanding

 

Common stock, $0.001 par value; 50,000,000 shares authorized; 12,979,414 shares issued at September 30, 2019 and December 31, 2018
13

 
13

Additional paid-in capital
86,102

 
86,415

Retained earnings
23,567

 
44,431

Accumulated other comprehensive loss
(1,764
)
 
(1,250
)
Treasury stock, at cost; 1,459,090 and 1,603,322 shares at September 30, 2019 and December 31, 2018, respectively
(25,351
)
 
(39,748
)
Total stockholders’ equity
82,567

 
89,861

Total liabilities and stockholders’ equity
$
127,107

 
$
157,921


See accompanying notes to consolidated financial statements.

1



NATURAL HEALTH TRENDS CORP. 
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands, except per share data)
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Net sales
$
17,023

 
$
47,043

 
$
59,779

 
$
150,320

Cost of sales
4,371

 
9,926

 
15,002

 
30,546

Gross profit
12,652

 
37,117

 
44,777

 
119,774

Operating expenses:
 
 
 
 
 
 
 
Commissions expense
7,362

 
22,001

 
28,258

 
67,291

Selling, general and administrative expenses
6,354

 
7,269

 
20,296

 
24,484

Total operating expenses
13,716

 
29,270

 
48,554

 
91,775

Income (loss) from operations
(1,064
)
 
7,847

 
(3,777
)
 
27,999

Other income, net
323

 
249

 
1,128

 
465

Income (loss) before income taxes
(741
)
 
8,096

 
(2,649
)
 
28,464

Income tax provision
502

 
467

 
120

 
2,988

Net income (loss)
$
(1,243
)
 
$
7,629

 
$
(2,769
)
 
$
25,476

Net income (loss) per common share:
 
 
 
 
 
 
 
Basic
$
(0.12
)
 
$
0.67

 
$
(0.25
)
 
$
2.25

Diluted
$
(0.12
)
 
$
0.67

 
$
(0.25
)
 
$
2.25

Weighted-average number of common shares outstanding:
 
 
 
 
 
 
 
Basic
10,623

 
11,309

 
11,010

 
11,298

Diluted
10,623

 
11,322

 
11,010

 
11,307

 
See accompanying notes to consolidated financial statements.
 

2



NATURAL HEALTH TRENDS CORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
(In thousands)
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Net income (loss)
$
(1,243
)
 
$
7,629

 
$
(2,769
)
 
$
25,476

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Foreign currency translation adjustment
(584
)
 
(433
)
 
(537
)
 
(798
)
Unrealized gains on available-for-sale securities
12

 
5

 
23

 
9

Comprehensive income (loss)
$
(1,815
)
 
$
7,201

 
$
(3,283
)
 
$
24,687

 
See accompanying notes to consolidated financial statements.
 

3



NATURAL HEALTH TRENDS CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)
(In Thousands, Except Share Data)

Nine months ended September 30, 2019
 
Preferred Stock
 
Common Stock
 
Additional
Paid-In
Capital
 
Retained Earnings
 
Accumulated
Other
Comprehensive
(Loss) Income
 
Treasury Stock
 
 
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
Shares
 
Amount
 
Total
BALANCE, December 31, 2018

 
$

 
12,979,414

 
$
13

 
$
86,415

 
$
44,431

 
$
(1,250
)
 
(1,603,322
)
 
$
(39,748
)
 
$
89,861

Net loss

 

 

 

 

 
(1,923
)
 

 

 

 
(1,923
)
Common stock issued

 

 

 

 
(166
)
 

 

 
22,603

 
543

 
377

Dividends declared, $0.24/share

 

 

 

 

 
(2,736
)
 

 

 

 
(2,736
)
Foreign currency translation adjustments

 

 

 

 

 

 
259

 

 

 
259

Unrealized gains on available-for-sale securities

 

 

 

 

 

 
17

 

 

 
17

BALANCE, March 31, 2019

 

 
12,979,414

 
13

 
86,249

 
39,772

 
(974
)
 
(1,580,719
)
 
(39,205
)
 
85,855

Net income

 

 

 

 

 
397

 

 

 

 
397

Repurchase of common stock

 

 

 

 

 

 

 
(612,729
)
 
(6,682
)
 
(6,682
)
Foreign currency translation adjustments

 

 

 

 

 

 
(212
)
 

 

 
(212
)
Unrealized losses on available-for-sale securities

 

 

 

 

 

 
(6
)
 

 

 
(6
)
BALANCE, June 30, 2019

 

 
12,979,414

 
13

 
86,249

 
40,169

 
(1,192
)
 
(2,193,448
)
 
(45,887
)
 
79,352

Net loss

 

 

 

 

 
(1,243
)
 

 

 

 
(1,243
)
Repurchase of common stock

 

 

 

 

 

 

 
(383,127
)
 
(2,882
)
 
(2,882
)
Common stock issued

 

 

 

 
(147
)
 
(15,359
)
 

 
1,117,485

 
23,418

 
7,912

Foreign currency translation adjustments

 

 

 

 

 

 
(584
)
 

 

 
(584
)
Unrealized gains on available-for-sale securities

 

 

 

 

 

 
12

 

 

 
12

BALANCE, September 30, 2019

 
$

 
12,979,414

 
$
13

 
$
86,102

 
$
23,567

 
$
(1,764
)
 
(1,459,090
)
 
$
(25,351
)
 
$
82,567


4




Nine months ended September 30, 2018
 
Preferred Stock
 
Common Stock
 
Additional
Paid-In
Capital
 
Retained Earnings
 
Accumulated
Other
Comprehensive
(Loss) Income
 
Treasury Stock
 
 
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
Shares
 
Amount
 
Total
BALANCE, December 31, 2017

 
$

 
12,979,414

 
$
13

 
$
86,683

 
$
44,908

 
$
(413
)
 
(1,637,524
)
 
$
(40,570
)
 
$
90,621

Net income

 

 

 

 

 
8,824

 

 

 

 
8,824

Common stock issued

 

 

 

 
(268
)
 

 

 
34,202

 
822

 
554

Dividends declared, $0.13/share

 

 

 

 

 
(1,479
)
 

 

 

 
(1,479
)
Foreign currency translation adjustments

 

 

 

 

 

 
397

 

 

 
397

Unrealized losses on available-for-sale securities

 

 

 

 

 

 
(11
)
 

 

 
(11
)
BALANCE, March 31, 2018

 

 
12,979,414

 
13

 
86,415

 
52,253

 
(27
)
 
(1,603,322
)
 
(39,748
)
 
98,906

Net income

 

 

 

 

 
9,023

 

 

 

 
9,023

Dividends declared, $1.90/share

 

 

 

 

 
(21,614
)
 

 

 

 
(21,614
)
Foreign currency translation adjustments

 

 

 

 

 

 
(762
)
 

 

 
(762
)
Unrealized gains on available-for-sale securities

 

 

 

 

 

 
15

 

 

 
15

BALANCE, June 30, 2018

 

 
12,979,414

 
13

 
86,415

 
39,662

 
(774
)
 
(1,603,322
)
 
(39,748
)
 
85,568

Net income

 

 

 

 

 
7,629

 

 

 

 
7,629

Dividends declared, $0.40/share

 

 

 

 

 
(4,551
)
 

 

 

 
(4,551
)
Foreign currency translation adjustments

 

 

 

 

 

 
(433
)
 

 

 
(433
)
Unrealized gains on available-for-sale securities

 

 

 

 

 

 
5

 

 

 
5

BALANCE, September 30, 2018

 
$

 
12,979,414

 
$
13

 
$
86,415

 
$
42,740

 
$
(1,202
)
 
(1,603,322
)
 
$
(39,748
)
 
$
88,218


See accompanying notes to consolidated financial statements.


5



NATURAL HEALTH TRENDS CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
 
 
Nine Months Ended September 30,
 
2019
 
2018
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net income (loss)
$
(2,769
)
 
$
25,476

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
 
 
 
Depreciation and amortization
290

 
332

Noncash lease expense
1,336



Deferred income taxes
(3
)
 

Changes in assets and liabilities:
 
 
 
Inventories
4,104

 
(2,828
)
Other current assets
(1,674
)
 
2,548

Other assets
2

 
(83
)
Accounts payable
(1,002
)
 
967

Accrued commissions
(8,683
)
 
2,003

Other accrued expenses
(1,779
)
 
314

Deferred revenue
(3,485
)
 
26

Amounts held in eWallets
(1,508
)
 
(930
)
Operating lease liabilities
(1,392
)


Income taxes payable
(1,617
)

(2,201
)
Other current liabilities
(235
)
 
438

Long-term incentive
(333
)
 
(800
)
Net cash provided by (used in) operating activities
(18,748
)
 
25,262

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
Purchases of property and equipment
(181
)
 
(176
)
Net cash used in investing activities
(181
)
 
(176
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
Repurchase of common stock
(9,564
)
 

Dividends paid
(2,736
)
 
(27,644
)
Net cash used in financing activities
(12,300
)
 
(27,644
)
Effect of exchange rates on cash, cash equivalents and restricted cash
(428
)
 
(711
)
Net decrease in cash, cash equivalents and restricted cash
(31,657
)
 
(3,269
)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, beginning of period
135,651

 
138,478

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of period
$
103,994

 
$
135,209

SUPPLEMENTAL DISCLOSURES OF OTHER CASH FLOW INFORMATION:
 
 
 
Issuance of treasury stock for employee awards, net
$
8,289

 
$
554

Right-of-use assets obtained in exchange for operating lease liabilities
$
5,058


$

 
See accompanying notes to consolidated financial statements.

6



NATURAL HEALTH TRENDS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. NATURE OF OPERATIONS, BASIS OF PRESENTATION AND CONSOLIDATION

Nature of Operations 
 
Natural Health Trends Corp., a Delaware corporation (whether or not including its subsidiaries, the “Company”), is an international direct-selling and e-commerce company. Subsidiaries controlled by the Company sell personal care, wellness, and “quality of life” products under the “NHT Global” brand.

The Company’s wholly-owned subsidiaries have an active physical presence in the following markets: the Americas, which consists of the United States, Canada, Cayman Islands, Mexico and Peru; Greater China, which consists of Hong Kong, Taiwan and China; Southeast Asia, which consists of Singapore, Malaysia, Thailand and Vietnam; South Korea; Japan; India; and Europe. The Company also operates in Russia and Kazakhstan through an engagement with a local service provider.

Basis of Presentation 
 
The unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. As a result, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. In the opinion of management, the accompanying unaudited interim consolidated financial statements contain all adjustments, consisting of normal recurring adjustments, considered necessary for a fair statement of the Company’s financial information for the interim periods presented. The results of operations of any interim period are not necessarily indicative of the results of operations to be expected for the fiscal year. These consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company’s 2018 Annual Report on Form 10-K filed with the United States Securities and Exchange Commission (SEC) on April 26, 2019.

Principles of Consolidation
 
The consolidated financial statements include the accounts of the Company and all of its wholly-owned subsidiaries. All significant inter-company balances and transactions have been eliminated in consolidation.

Reclassification

Certain prior year amounts in the balance sheet have been reclassified to conform to current year presentation.

Recent Accounting Pronouncements

In February 2016, the FASB established Topic 842, Leases, by issuing ASU No. 2016-02, which requires lessees to recognize the rights and obligations created by leases on the balance sheet and disclose key information about leasing arrangements. Topic 842 was subsequently amended by ASU No. 2018-11, Targeted Improvements, ASU No. 2018-10, Codification Improvements to Topic 842, and ASU No. 2018-01, Land Easement Practical Expedient for Transition to Topic 842. The new standard establishes a right-of-use (ROU) model that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases are classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the statement of operations. Effective January 1, 2019, the Company adopted the new standard using the effective date as its date of initial application. The new standard provided a number of optional practical expedients in transition. The Company elected the “package of practical expedients”, which permits entities not to reassess under the new lease standard prior conclusions about lease identification, lease classification and initial direct costs. Upon adoption, the Company recognized operating lease liabilities on its balance sheet for $4.5 million, with corresponding ROU assets of the same amount based on the present value of the remaining minimum rental payments under current leasing standards for existing operating leases. See Note 7 for additional information.

In August 2018, the SEC issued Release No. 33-10532 that amends and clarifies certain financial reporting requirements. The principal change to the Company’s financial reporting is the requirement to disclose in interim periods on Form 10-Q the changes in stockholder’s equity as prescribed by Rule 3-04 of Regulation S-X.


7



Other recently issued accounting pronouncements did not or are not believed by management to have a material impact on the Company’s present or future financial statements.

2. REVENUE

Revenue Recognition

All revenue is recognized when the performance obligations under a contract are satisfied. Product sales are recognized when the products are shipped and title passes to independent members. Product sales to members are made pursuant to a member agreement that provides for transfer of both title and risk of loss upon the Company’s delivery to the carrier that completes delivery to the members, which is commonly referred to as “F.O.B. Shipping Point.” The Company’s sales arrangements do not contain right of inspection or customer acceptance provisions other than general rights of return. These contracts are generally short-term in nature.
 
Actual product returns are recorded as a reduction to net sales. The Company estimates and accrues a reserve for product returns based on its return policies and historical experience. The reserve is based upon the return policy of each country, which varies from 14 days to one year, and their historical return rates, which range from 1% to 5% of sales.  Sales returns were 2% of sales for each of the nine months ended September 30, 2019 and 2018, respectively.  No material changes in estimates have been recognized during the periods presented. See Note 4 for additional information.
 
The Company has elected to account for shipping and handling activities performed after title has passed to members as a fulfillment cost, and accrues for the costs of shipping and handling if revenue is recognized before the contractually obligated shipping and handling activities occurs. Shipping charges billed to members are included in net sales. Costs associated with shipments are included in cost of sales. Event and training revenue is deferred and recognized as the event or training occurs. Costs of events and member training are included within selling, general and administrative expenses.

Various taxes on the sale of products to members are collected by the Company as an agent and remitted to the respective taxing authority. These taxes are presented on a net basis and recorded as a liability until remitted to the respective taxing authority.

Deferred Revenue

The Company primarily receives payment by credit card at the time members place orders. Amounts received for unshipped product are considered a contract liability and are recorded as deferred revenue. The decrease in deferred revenue for the three months ended September 30, 2019 is primarily due to $1.2 million of revenue recognized during the quarter that was included in deferred revenue as of June 30, 2019 offset by $1.1 million of cash payments received for unshipped product during the third quarter. See Note 4 for additional information.

Disaggregation of Revenue

The Company sells products to a member network that operates in a seamless manner from market to market, except for the Chinese market where it sells to consumers through an e-commerce retail platform and the Russia and Kazakhstan market where the Company operates through an engagement of a third-party service provider.


8



The following table sets forth revenue by market for the periods indicated (in thousands):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Americas1
$
1,445

 
8.5
%
 
$
1,970

 
4.2
%
 
$
4,353

 
7.3
%
 
$
5,361

 
3.6
%
Hong Kong2
13,575

 
79.7

 
41,447

 
88.1

 
48,465

 
81.0

 
133,681

 
88.9

China
525

 
3.1

 
1,698

 
3.6

 
2,138

 
3.6

 
5,510

 
3.7

Taiwan
649

 
3.8

 
935

 
2.0

 
2,340

 
3.9

 
2,933

 
1.9

South Korea
98

 
0.6

 
133

 
0.3

 
288

 
0.5

 
392

 
0.3

Japan
47

 
0.3

 
51

 
0.1

 
141

 
0.2

 
160

 
0.1

Singapore
13

 
0.1

 
52

 
0.1

 
43

 
0.1

 
134

 
0.1

Malaysia
51

 
0.3

 
216

 
0.5

 
170

 
0.3

 
316

 
0.2

Russia and Kazakhstan
244

 
1.4

 
184

 
0.4

 
662

 
1.1

 
626

 
0.4

Europe
343

 
2.0

 
357

 
0.7

 
1,017

 
1.7

 
1,207

 
0.8

India
33

 
0.2

 

 

 
162

 
0.3

 

 

Total
$
17,023

 
100.0
%
 
$
47,043

 
100.0
%
 
$
59,779

 
100.0
%
 
$
150,320

 
100.0
%

1 United States, Canada, Mexico and Peru
2 Substantially all of our Hong Kong revenues are derived from the sale of products that are delivered to members in China. See “Item 1A. Risk Factors” in this report and in our most recent Annual Report on Form 10-K.

The Company’s net sales by product and service are as follows (in thousands):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Product sales
$
15,732

 
$
44,434

 
$
56,355

 
$
142,258

Freight and other
1,468

 
3,365

 
4,713

 
10,550

Less: sales returns
(177
)
 
(756
)
 
(1,289
)
 
(2,488
)
Total net sales
$
17,023

 
$
47,043

 
$
59,779

 
$
150,320



Concentration

No single market other than Hong Kong had net sales greater than 10% of total net sales. Sales are made to the Company’s members and no single customer accounted for 10% or more of net sales for the three and nine months ended September 30, 2019 and 2018. However, the Company’s business model can result in a concentration of sales to several different members and their network of members. Although no single member accounted for 10% or more of net sales, the loss of a key member or that member’s network could have an adverse effect on the Company’s net sales and financial results.

Arrangements with Multiple Performance Obligations

The Company’s contracts with customers may include multiple performance obligations. For such arrangements, the Company allocates revenues to each performance obligation based on its relative standalone selling price. The Company generally determines standalone selling prices based on the prices charged for individual products to similar customers.

Practical Expedients

The Company generally expenses sales commissions when incurred because the amortization period would have been one year or less. These costs are recorded in commissions expense.

The Company does not provide certain disclosures about unsatisfied performance obligations for contracts with an original expected length of one year or less.


9



3. NET INCOME (LOSS) PER COMMON SHARE

Diluted net income per common share is determined using the weighted-average number of common shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents. The dilutive effect of non-vested restricted stock is reflected by application of the treasury stock method. Under the treasury stock method, the amount of compensation cost for future service that the Company has not yet recognized, if any, is assumed to be used to repurchase shares.

The following tables illustrate the computation of basic and diluted net income (loss) per common share for the periods indicated (in thousands, except per share data): 
 
Three Months Ended September 30,
 
2019
 
2018
 
Income (loss)
(Numerator)
 
Shares
(Denominator)
 
Per Share Amount
 
Income (loss)
(Numerator)
 
Shares
(Denominator)
 
Per Share Amount
Basic net income (loss) per common share:
 
 
 
 
 
 
 
 
 
 
 
Net income (loss) available to common stockholders
$
(1,243
)
 
10,623

 
$
(0.12
)
 
$
7,629

 
11,309

 
$
0.67

Effect of dilutive securities:
 
 
 
 
 
 
 
 
 
 
 
Non-vested restricted stock

 

 
 

 

 
13

 
 

Diluted net income per common share:
 
 
 
 
 
 
 
 
 
 
 
Net income available to common stockholders plus assumed conversions
$
(1,243
)
 
10,623

 
$
(0.12
)
 
$
7,629

 
11,322

 
$
0.67

 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30,
 
2019
 
2018
 
Income
(Numerator)
 
Shares
(Denominator)
 
Per Share Amount
 
Income
(Numerator)
 
Shares
(Denominator)
 
Per Share Amount
Basic net income (loss) per common share:
 
 
 
 
 
 
 
 
 
 
 
Net income (loss) available to common stockholders
$
(2,769
)
 
11,010

 
$
(0.25
)
 
$
25,476

 
11,298

 
$
2.25

Effect of dilutive securities:
 
 
 
 
 
 
 
 
 
 
 
Non-vested restricted stock

 

 
 

 

 
9

 
 

Diluted net income per common share:
 
 
 
 
 
 
 
 
 
 
 
Net income (loss) available to common stockholders plus assumed conversions
$
(2,769
)
 
11,010

 
$
(0.25
)
 
$
25,476

 
11,307

 
$
2.25



In periods when losses are reported, the weighted-average number of common shares outstanding excludes common stock equivalents because their inclusion would be anti-dilutive. As such, non-vested restricted stock totaling 672,231 and 263,289 shares were not included for the three and nine months ended September 30, 2019, respectively.


10



4. BALANCE SHEET COMPONENTS

The components of certain balance sheet amounts are as follows (in thousands):
 
September 30, 2019
 
December 31, 2018
Cash, cash equivalents and restricted cash:
 
 
 
Cash
$
17,711

 
$
47,323

Cash equivalents
83,402

 
85,330

 
101,113

 
132,653

Restricted cash
2,881

 
2,998

 
$
103,994

 
$
135,651

Inventories:
 
 
 
Finished goods
$
7,817

 
$
11,171

Raw materials
1,104

 
1,145

Reserve for obsolescence
(922
)
 
(151
)
 
$
7,999

 
$
12,165

Other accrued expenses:
 
 
 
Sales returns
$
290

 
$
801

Employee-related expense
1,998

 
4,051

Warehousing, inventory-related and other
1,104

 
1,269

 
$
3,392

 
$
6,121

Deferred revenue:
 
 
 
Unshipped product
$
1,171

 
$
4,574

Auto ship advances
1,983

 
1,876

Other
148

 
345

 
$
3,302

 
$
6,795



5. FAIR VALUE MEASUREMENTS

As of September 30, 2019, cash and cash equivalents include the Company’s investments in municipal and corporate debt securities, money market funds, and time deposits. The Company considers all highly liquid investments with original maturities of three months or less when purchased and have insignificant interest rate risk to be cash equivalents.  Debt securities classified as cash equivalents are required to be accounted for in accordance with the FASB Accounting Standards Codification (“ASC”) 320, Investments - Debt and Equity Securities. As such, the Company determined its investments in debt securities held at September 30, 2019 should be classified as available-for-sale and are carried at fair value with unrealized gains and losses reported in accumulated other comprehensive income in stockholders’ equity. The cost of debt securities is adjusted for amortization of premiums and discounts to maturity. This amortization is included in other income. Realized gains and losses, as well as interest income, are also included in other income. The fair values of securities are based on quoted market prices to the extent available or alternative pricing sources and models utilizing market observable inputs.

The carrying amounts of the Company’s financial instruments, including cash and accounts payable, approximate fair value because of their short maturities. The carrying amount of the noncurrent restricted cash approximates fair value since, absent the restrictions, the underlying assets would be included in cash and cash equivalents.
 
Accounting standards permit companies, at their option, to choose to measure many financial instruments and certain other items at fair value.  The Company has elected to not fair value existing eligible items.


11



Investments by significant category included in cash equivalents at the end of each period were as follows (in thousands):
 
 
September 30, 2019
 
December 31, 2018
 
Fair Value Level1
Adjusted Cost
 
Gross Unrealized Losses
 
Fair Value
 
Adjusted Cost