Quarterly report pursuant to Section 13 or 15(d)


6 Months Ended
Jun. 30, 2018
Commitments and Contingencies Disclosure [Abstract]  

Securities Class Action

In January 2016, two putative securities class action complaints were filed against the Company and its top executives in the United States District Court for the Central District of California. On March 29, 2016, the court consolidated these actions under the caption Ford v. Natural Health Trends Corp., Case No. 2:16-cv-00255-TJH-AFMx, appointed two Lead Plaintiffs, Mahn Dao and Juan Wang, and appointed the Rosen Law Firm and Levi & Korsinsky LLP as co-Lead Counsel for the purported class. On April 2, 2018, the court approved a class-wide settlement of the action in the amount of $1.75 million, which was fully funded by the Company’s insurers. On April 6, 2018, the court entered a Final Judgment and Order of Dismissal With Prejudice.

Shareholder Derivative Claims

In February 2016, a purported shareholder derivative complaint was filed in the Superior Court of the State of California, County of Los Angeles: Zhou v. Sharng. In March 2016, a purported shareholder derivative complaint was filed in the United States District Court for the Central District of California: Kleinfeldt v. Sharng (collectively the “Derivative Complaints”). The Derivative Complaints purport to assert claims for breach of fiduciary duties, unjust enrichment, abuse of control, gross mismanagement and corporate waste against certain of the Company’s officers and directors. The Derivative Complaints also purport to assert fiduciary duty claims based on alleged insider selling and conspiring to enter into several stock repurchase agreements, which allegedly harmed the Company and its assets. The Derivative Complaints allege, among other things, that the Company has been running an allegedly illegal multilevel marketing business in China, and it has made materially false and misleading statements regarding the legality of its business operations in China, and that certain officers and directors sold common stock on the basis of this allegedly material, adverse non-public information. The Derivative Complaints seek an indeterminate amount of damages, plus interest and costs, as well as various equitable remedies.

On February 1, 2017, pursuant to a stipulation among the parties, the Los Angeles Superior Court entered a stay of the Zhou action pending conclusion of the related federal class action in the United States District Court for the Central District of California: Ford v. Natural Health Trends Corp. A nearly identical stipulated stay was entered in the Kleinfeldt case on February 28, 2017. On November 10, 2017, the parties to both the Zhou and Kleinfeldt actions entered into a Memorandum of Understanding (“MOU”) to resolve both actions, subject to the negotiation of a written settlement agreement and approval by the federal court in the Kleinfeldt matter.  On November 15, 2017, the parties filed a joint status report and stipulation in the Zhou matter, alerting the court to the MOU and seeking to maintain the stay pending finalization and court approval of the parties’ tentative settlement.  The Zhou court entered an order continuing the stay on November 17, 2017.  On March 9, 2018, the parties filed a Stipulation of Settlement and supporting papers in the Kleinfeldt action. On March 22, 2018, plaintiffs filed a motion for preliminary approval of the tentative settlement.  On April 4, 2018, the court entered an order preliminarily approving the proposed settlement and setting a final hearing for July 16, 2018. On July 16, 2018, the court granted final approval of the settlement and entered judgment in the Kleinfeldt matter.  In exchange for full releases, the settlement requires the Company to implement certain corporate governance reforms and includes an award of $250,000 in attorneys’ fees to plaintiffs’ counsel, all of which will be fully funded by the Company’s insurers. The settlement and judgment also requires that plaintiff take the necessary steps to voluntarily dismiss the Zhou action with prejudice promptly after the judgment becomes final and non-appealable.

Other Claims

The Company is currently involved in a legal matter with one of its vendors and an outside party. Per the royalty agreement with the vendor, the Company believes that it is fully indemnified in the event of an unfavorable outcome and any potential settlement costs related to the matter would be fully covered by the Company’s vendor.