Annual report pursuant to Section 13 and 15(d)


12 Months Ended
Dec. 31, 2019
Commitments and Contingencies Disclosure [Abstract]  

On January 8, 2019, the Company and its two executive officers were named in a putative securities class action filed in the United States District Court for the Central District of California, captioned Kauffman v. Natural Health Trends Corp., Case No. 2:19-cv-00163. The complaint purports to assert claims on behalf of all persons who purchased or otherwise acquired our common stock between April 27, 2016 and January 5, 2019, inclusive, under (i) Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 promulgated thereunder against the Company and Chris T. Sharng and Timothy S. Davidson (together, the “Individual Defendants”), and (ii) Section 20(a) of the Exchange Act against the Individual Defendants. The complaint alleges, in part, that the Company made materially false and misleading statements regarding the legality of its business operations in China, including running an allegedly illegal multilevel marketing business. The complaint seeks an indeterminate amount of damages, plus interest and costs. On May 3, 2019, the court issued an order appointing Xia Yang as lead plaintiff and appointing The Rosen Law Firm, P. A. as lead counsel. On June 3, 2019, lead plaintiff filed an amended complaint. On June 27, 2019, the parties filed a joint stipulation seeking to postpone briefing on defendants’ motion to dismiss to allow the parties to continue ongoing discussions, which stipulation was entered by the court on July 1, 2019. On September 6, 2019, Defendants filed a motion to dismiss the amended complaint. After full briefing and oral argument, the court issued an order on December 20, 2019, dismissing the complaint for failure to adequately plead any false or misleading statement and ordering that any amended complaint be filed on or before January 13, 2020. On January 13, 2020, plaintiff filed a notice of intent not to file an amended complaint. On January 17, 2020, the court issued an order dismissing the action with prejudice and ordering that judgment be entered for Defendants. On February 14, 2020, Plaintiff filed a notice of appeal to the Ninth Circuit Court of Appeals.  Plaintiff’s opening brief is currently due on June 1, 2020, and Defendants’ responding brief is currently due on July 1, 2020.  Defendants believe that these claims are without merit and intend to vigorously defend against them.

The SEC is conducting a non-public investigation to determine whether there have been violations of the federal securities laws relating to the trading of the Company’s securities and/or its public disclosures. The Company has fully cooperated with the SEC and continues to do so. The amount of time needed to resolve this matter is uncertain, and the Company cannot predict the outcome or whether it will face additional governmental inquiries or other actions.
The Company has employment agreements with certain members of its management team that can be terminated by either the employee or the Company upon four weeks’ notice.  The employment agreements entered into with the management team contain provisions that guarantee the payments of specified amounts in the event of a change in control, as defined, or if the employee is terminated without cause, as defined, or terminates employment for good reason, as defined.