Annual report pursuant to Section 13 and 15(d)

Note 5 - Stock-Based Compensation

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Note 5 - Stock-Based Compensation
 12 Months Ended
Dec. 31, 2012
Disclosure of Compensation Related Costs, Share-based Payments [Text Block]
5.  STOCK-BASED COMPENSATION

On August 18, 2006, the Compensation Committee of Company’s Board of Directors approved, subject to stockholder approval, the Natural Health Trends Corp. 2007 Equity Incentive Plan (the “2007 Plan”).  Under the 2007 Plan, the Company may grant (i) incentive stock options, (ii) nonqualified stock options, (iii) restricted stock, (iv) restricted stock units, (v) stock appreciation rights either in tandem with an option or alone and unrelated to an option, or SARs, (vi) performance shares, (vii) award shares, or (viii) stock awards.  The 2007 Plan replaced in its entirety the 2002 Stock Option Plan (the “2002 Plan”) which was deemed terminated on November 17, 2006, the date the Company’s stockholders approved the 2007 Plan.  Awards made under the 2002 Plan, however, continued to be subject to the terms of the 2002 Plan, except to the extent that either there was no conflict between the terms of the 2002 Plan and the terms of the 2007 Plan with respect to such awards or the recipient consents to the applicability of the terms of the 2007 Plan to such awards.

The purpose of the 2007 Plan is to enable the Company to attract and retain employees, officers, directors, consultants and advisors; to provide an incentive for them to assist in achieving long-range performance goals; and to enable them to participate in the long-term growth of the Company.  The terms of any particular grant are determined by the Board of Directors or a committee appointed by the Board of Directors.  Generally, the grants of restricted stock vest quarterly on a pro rata basis over a three-year period.  The maximum number of shares available for issuance under the 2007 Plan of 1,550,000 shares of common stock replaces those 1,550,000 shares available under the 2002 Plan.  At our Annual Meeting of Stockholders held on December 30, 2008, the Company’s stockholders approved an increase in the maximum number of shares available for issuance under the 2007 Plan by 500,000 shares.  As such, the maximum aggregate number of shares available for issuance under the 2007 Plan totals 2,050,000 shares.  As of December 31, 2012, 1,083 shares remain available to be granted under the 2007 Plan.

Valuation and Expense Information under FASB ASC Topic 718

Stock-based compensation expense totaled approximately $79,000 and $94,000 for 2011 and 2012, respectively.  No tax benefits were attributed to the stock-based compensation because a valuation allowance was maintained for substantially all net deferred tax assets.

At December 31, 2010, stock options granted under the 2002 Plan for 22,500 shares of common stock at an exercise price of $1.80 per share remained outstanding.  Such stock options expired during 2011.

A following table summarizes the Company’s restricted stock activity under the 2007 Plan:

   
Shares
   
Wtd. Avg. Price at Date of Issuance
 
             
Outstanding at December 31, 2010
    114,613     $ 0.45  
Granted
    620,000       0.37  
Vested
    (242,177 )     0.38  
Forfeited
    (18,748 )     0.69  
Outstanding at December 31, 2011
    473,688       0.37  
Granted
    –       –  
Vested
    (212,030 )     0.36  
Forfeited
    –       –  
Outstanding at December 31, 2012
    261,658       0.37  

On May 12, 2011, the Company granted 600,000 shares of restricted stock under the 2007 Plan to its executive officers, directors, and certain key employees.  An additional 20,000 shares were granted on October 19, 2011 to another key employee.  The restricted stock vests quarterly on a pro rata basis over a three-year period.

As of December 31, 2012, total unrecognized stock-based compensation expense related to non-vested restricted stock was approximately $97,000, which is expected to be recognized over a weighted-average period of 1.2 years.

On August 13, 2012, the Company’s Board of Directors authorized the Company, acting as trustee for certain of its employees, to execute a Rule 10b5-1 plan to purchase 100,000 shares of its common stock in accordance with guidelines specified under Rule 10b5-1 of the Securities Exchange Act of 1934 and the Company's policies regarding stock transactions.  Pursuant to this authority, the Company, as Trustee, entered into a 10b5-1 plan and began purchasing under this plan in December 2012.  Under this plan, the Company, as Trustee, will not purchase more than 2,800 shares per month.  The current 10b5-1 plan for the Employee Plan shares will expire on November 30, 2013, unless terminated earlier, and the Company, as Trustee, intends at or after that time to enter into a new 10b5-1 plan or plans to complete the purchases authorized.  The Company may terminate the plan at any time.  The employees will receive the stock as incentive compensation in quarterly increments over three years beginning March 15, 2013, provided that they are employees of the Company on the date of the distribution.  Any common stock that is forfeited by an employee whose employment terminates will be delivered to the Company and held as treasury stock.  The grant-date fair value for each award was $1.37 per share.  As of December 31, 2012, total unrecognized stock-based compensation related to these awards is $121,000, which is expected to be recognized quarterly over the three year vesting period.