Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Business Overview

We are an international direct-selling and e-commerce company. Subsidiaries controlled by us sell personal care, wellness, and "quality of life" products under the "NHT Global" brand. Our wholly-owned subsidiaries have an active physical presence in the following markets: the Americas, which consists of the United States, Canada, Cayman Islands, Mexico, Peru and Colombia; Greater China, which consists of Hong Kong, Taiwan and China; Southeast Asia, which consists of Malaysia and Singapore; South Korea; Japan; India; and Europe. We also operate in Russia and Kazakhstan through our engagement with a local service provider.

As of September 30, 2025, we were conducting business through 28,030 active members, compared to 30,870 at December 31, 2024 and 30,880 at September 30, 2024. We consider a member "active" if they have placed at least one product order with us during the preceding year. Our priority is to focus our resources in our most promising markets, which we consider to be Greater China and countries where our existing members have the connections to recruit prospects and sell our products, such as Southeast Asia, India, South America and Europe.

We generate approximately 93% of our net sales from subsidiaries located outside the Americas. Because of the size of our foreign operations, operating results can be impacted negatively or positively by factors such as foreign currency fluctuations, trade policy, inflation rates, and economic, political and business conditions around the world. In addition, our business is subject to various laws and regulations, in particular, regulations related to direct selling activities that create uncertain risks for our business, including improper claims or activities by our members and our potential inability to obtain necessary product registrations. We continually evaluate our business for compliance with applicable laws and regulations, and this process can and has resulted in the identification of certain matters of potential noncompliance, which we work to satisfactorily address. For further information regarding some of the risks associated with the conduct of our business in China and Hong Kong, see "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2024, and more specifically under the captions "Because our Hong Kong operations account for a substantial portion of our overall business...", "Hong Kong's political and economic landscape has in recent years undergone significant change...", and "Our business in China is subject to compliance with a myriad of applicable laws and regulations...".

China has been and continues to be our most important business development project. We operate an e-commerce direct selling platform in Hong Kong that in the first nine months of 2025 generated approximately 83% of our revenue, substantially all of which was derived from the sale of products that are delivered to members in China. Through a separate Chinese entity, we also operate an e-commerce retail platform in China. We believe that neither of these activities require a direct selling license in China, which we do not currently hold. We previously submitted a preliminary application for a direct selling license in China, but withdrew our application in 2019 upon the recommendation of a Chinese governmental authority. We expect to reapply for a direct selling license in China when we believe that circumstances are again ripe for doing so. If we are ultimately able to obtain a direct selling license in China, we believe that the incentives inherent in the direct selling model in China would incrementally benefit our existing business. We do not expect that any increased sales in China derived from obtaining a direct selling license would initially be material and, in any event may be partially offset by the higher fixed costs associated with the establishment and maintenance of required service centers, branch offices, manufacturing facilities, certification programs and other legal requirements. We are unable to predict whether and when we will be successful in obtaining a direct selling license to operate in China, and if we are successful, when we will be permitted to conduct direct selling operations and whether such operations would be profitable.

The Chinese government conducted a campaign in 2019 focusing on companies involved in the sale of food, equipment, daily necessities, small home electrical appliances and services that are claimed to promote health. The Chinese government ministries in charge of this campaign indicated that they were targeting illegal practices in the industry, particularly the manufacture and sale of counterfeit and substandard products, and false advertising and misleading claims as to the health benefits of products and services. It is understood that the campaign was specifically focused on the business practices of direct selling companies. Although it was initially announced as a 100-day campaign, we are not aware of any information indicating that the campaign has ever been formally concluded. In any case, the business environment in China for health product companies can be challenging, which has from time to time been exacerbated by negative social media sentiment expressed for these types of companies.

In addition to the fact that our Hong Kong subsidiary generates a substantial portion of our overall business, a significant number of our employees are based in Hong Kong. The political and economic landscape in Hong Kong has in recent years undergone significant change, largely due to the increasing influence of the Chinese government. This development, along with the impact of the COVID-19 pandemic, led us to cease conducting member meetings and events in Hong Kong for a period of time. We have since been able to substantially resume normal operations in Hong Kong, but Hong Kong's economy is now increasingly integrated with that of China. We relocated our corporate headquarters from Hong Kong to California in February 2025. It is unclear how changed circumstances in Hong Kong will in the future affect our business, but it is possible that the upheaval in Hong Kong's political and economic affairs or related consequences could adversely affect our future business, results of operations and financial condition. See "Item 1A. Risk Factors - Hong Kong's political and economic landscape has in recent years undergone significant change..." in our most recent Annual Report on Form 10-K.

Beginning in the first quarter of 2025, the U.S. engaged in a series of escalating tariff actions with a wide range of countries, particularly China. On April 2, 2025, for example, the U.S. imposed by executive order a 34% reciprocal tariff on Chinese-origin goods. This was followed by an amended executive order April 8, 2025, raising tariffs to 84% and an April 9, 2025 executive order raising tariffs to 125%. In response, China raised its duties on imported U.S. goods to a similar level. Following negotiations, the U.S. announced a temporary 90-day reduction in its reciprocal tariff rates from 125% to 10% beginning in May 2025, and China agreed to suspend its retaliatory tariffs during the same period. The pre-existing 20% U.S. tariff imposed on all Chinese goods remained in place, along with certain other sector-specific tariffs. In October 2025, the U.S. administration announced an additional 100% tariff on all products imported from China in response to certain restrictions imposed by China on rare earth minerals, before announcing an agreement that would, among other things, reduce the general tariff rate on Chinese goods to 47%. The state of trade discussions between the U.S. and China (and between the U.S. and other nations) remains dynamic and unpredictable.

While the Company does not believe that its first quarter 2025 financial results were materially affected by these developments, its second and third quarter sales were negatively affected by negative consumer sentiment and economic uncertainty in the Company's largest market. If substantial tariffs remain in place, or new tariffs are implemented, the Company may see the effect of higher duties on restocking later this year. The likely short-term impact of the tariffs is difficult to predict with any certainty, however. We may need to impose a surcharge on products sold into China, and the imposition of such a surcharge may have a further negative effect on sales volumes into China. In the longer term, the Company has taken initial steps to transition production of certain of its products currently manufactured in the United States to other jurisdictions, including in Asia, in order to mitigate the effect of U.S. and reciprocal tariffs. If successfully implemented, this transition may result in savings in logistics, freight and manufacturing cost, but may also carry certain short-term expenses, including the cost of reregistration of products in certain jurisdictions. The Company is actively evaluating its options and the impact of trade policy changes on future quarters remains uncertain. In addition, it is difficult to predict the further effect of general consumer sentiment in China toward the Company's products as a result of the trade policies adopted by the United States and China, which has already impacted the Company's second and third quarters. See Part II, "Item 1A. Risk Factors" in Part II of this Quarterly Report on Form 10-Q.

Statement of Operations Presentation

We mainly derive revenue from sales of products. Substantially all of our product sales are to independent members at published wholesale prices. Product sales are recognized when the products are shipped and title passes to independent members, which generally is upon our delivery to the carrier that completes delivery to the members. We estimate and accrue a reserve for product returns based on our return policies and historical experience. We bill members for shipping charges and recognize the freight revenue in net sales. We have elected to account for shipping and handling activities performed after title has passed to members as a fulfillment cost, and accrue for the costs of shipping and handling if revenue is recognized before the contractually obligated shipping and handling activities occurs. Event and training revenue is deferred and recognized as the event or training occurs.

Cost of sales consists primarily of products purchased from third-party manufacturers, freight cost for transporting products to our foreign subsidiaries and shipping products to members, import duties, packing materials, product royalties, costs of promotional materials sold to our members at or near cost, and provisions for slow moving or obsolete inventories. Cost of sales also includes purchasing costs, receiving costs, inspection costs and warehousing costs.

Member commissions are our most significant expense and are classified as an operating expense. Under our compensation plan, members are paid weekly commissions by our subsidiary in which they are enrolled, generally in their home country currency, for product purchases by their down-line member network across all geographic markets. Our China subsidiary maintains an e-commerce retail platform and does not pay commissions, although our Chinese members may participate in our compensation plan through our other subsidiaries. This "seamless" compensation plan enables a member located in one country to enroll other members located in other countries where we are authorized to conduct our business. Currently, there are basically two ways in which our members can earn income:

•

through commissions paid on the accumulated bonus volume from product purchases made by their down-line members and customers; and

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through retail profits on sales of products purchased by members at wholesale prices and resold at retail prices (for purchasers in some of our smaller markets and purchasers from our China subsidiary, sales are for personal consumption only and income may not be earned through retail profits).

Each of our products is designated a specified number of bonus volume points. Commissions are based on total personal and group bonus volume points per weekly sales period. Bonus volume points are essentially a percentage of a product's wholesale price. As the member's business expands from successfully enrolling other members who in turn expand their own businesses by selling product to other members, the member receives higher commissions from purchases made by an expanding down-line network. In some of our markets, to be eligible to receive commissions, a member may be required to make nominal monthly or other periodic purchases of our products. Certain of our subsidiaries do not require these nominal purchases for a member to be eligible to receive commissions. In determining commissions, the number of levels of down-line members included within the member's commissionable group increases as the number of memberships directly below the member increases.

Under our current compensation plan, certain of our commission payouts may be limited to a hard cap dollar amount per week or a specific percentage of total product sales. In some markets, commissions may be further limited. In some markets, we also pay certain bonuses on purchases by up to three generations of personally sponsored members, as well as bonuses on commissions earned by up to seven generations of personally sponsored members. Members can also earn additional income, trips and other prizes in specific time-limited promotions and contests we hold from time to time. Member commissions are dependent on the sales mix and, for the first nine months of each of 2025 and 2024, represented 41% of net sales. Occasionally, we make modifications and enhancements to our compensation plan to help motivate members, which can have an impact on member commissions. We may also enter into performance-based agreements for business or market development, which can result in additional compensation to specific members.

Selling, general and administrative expenses consist of administrative compensation and benefits, travel, credit card fees and assessments, professional fees, certain occupancy costs, and other corporate administrative expenses (including stock-based compensation). In addition, this category includes selling, marketing, and promotion expenses (including the costs of member training events and conventions that are designed to increase both product awareness and member recruitment). Because our various member conventions are not always held at the same time each year, interim period comparisons will be impacted accordingly.

The functional currency of our international subsidiaries is generally their local currency. Local currency assets and liabilities are translated at the rates of exchange on the balance sheet date, and local currency revenues and expenses are translated at average rates of exchange during the period. Equity accounts are translated at historical rates. The resulting translation adjustments are recorded directly into stockholders' equity.

Sales by our foreign subsidiaries are generally transacted in the respective local currencies and are translated into U.S. dollars using average rates of exchange for each monthly accounting period to which they relate. Most of our product purchases from third-party manufacturers are transacted in U.S. dollars. Consequently, our sales and net earnings are affected by changes in currency exchange rates, with sales and earnings generally increasing with a weakening U.S. dollar and decreasing with a strengthening U.S. dollar.

Results of Operations

The following table sets forth our operating results as a percentage of net sales for the periods indicated.

		Three Months Ended September 30,								Nine Months Ended September 30,
		2025				2024				2025				2024
Net sales			100.0	%			100.0	%			100.0	%			100.0	%
Cost of sales			26.3				25.9				26.2				26.1
Gross profit			73.7				74.1				73.8				73.9
Operating expenses:
Commissions expense			40.9				40.5				41.2				40.5
Selling, general and administrative expenses			38.0				36.2				36.5				36.1
Total operating expenses			78.9				76.7				77.7				76.6
Loss from operations			(5.2	)			(2.6	)			(3.9	)			(2.7	)
Other income, net			2.2				4.1				3.4				4.7
Income (loss) before income taxes			(3.0	)			1.5				(0.5	)			2.0
Income tax provision			1.5				1.2				0.5				0.8
Net income (loss)			(4.5	)%			0.3	%			(1.0	)%			1.2	%

Net Sales

The following table sets forth revenue by market for the periods indicated (in thousands):

		Three Months Ended September 30,																Nine Months Ended September 30,
		2025								2024								2025								2024
Americas1		$	731				7.7	%		$	748				7.0	%		$	2,116				7.1	%		$	2,030				6.3	%
Hong Kong2			7,715				81.4				8,356				78.2				24,842				82.7				25,998				80.9
China			237				2.5				601				5.6				690				2.3				1,321				4.1
Taiwan			331				3.5				454				4.2				1,049				3.5				1,277				4.0
South Korea			24				0.2				31				0.3				75				0.2				122				0.4
Japan			111				1.2				81				0.8				257				0.9				202				0.6
Malaysia and Singapore			67				0.7				58				0.5				199				0.7				177				0.6
Russia and Kazakhstan			105				1.1				139				1.3				303				1.0				356				1.1
Europe			130				1.4				164				1.5				400				1.3				473				1.5
India			26				0.3				59				0.6				96				0.3				161				0.5
Total		$	9,477				100.0	%		$	10,691				100.0	%		$	30,027				100.0	%		$	32,117				100.0	%

¹ United States, Canada, Mexico, Peru and Colombia.

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 our most recent Annual Report on Form 10-K.

Net sales were $9.5 million for the three months ended September 30, 2025 compared with $10.7 million for the comparable period a year ago, a decrease of $1.2 million, or 11%. Hong Kong net sales, substantially all of which were derived from the sale of products shipped to members residing in China, decreased $641,000, or 8%, over the comparable period a year ago in part due to the timing of a product promotion and the presale of our new skincare line at the end of September 2025. Disregarding these items, the decrease for the three months ended September 30, 2025 compared with the comparable period a year ago was $350,000, or 4%, which can be attributed to the continued negative consumer sentiment as a result of the heightened economic uncertainty caused by the threat of reciprocal and retaliatory tariffs. Outside of our Hong Kong business, net sales decreased $573,000,or 25%, over the comparable three-month period a year ago, primarily due to the decreased quarter-over-quarter net sales in our Chinese e-commerce retail business.

Net sales were $30.0 million for the nine months ended September 30, 2025 compared with $32.1 million for the comparable period a year ago, a decrease of $2.1 million, or 7%. Hong Kong net sales, substantially all of which were derived from the sale of products shipped to members residing in China, decreased $1.2 million, or 4%, over the comparable period a year ago primarily due to the negative consumer sentiment as a result of the heightened economic uncertainty caused by the threat of reciprocal and retaliatory tariffs. Outside of our Hong Kong business, net sales decreased $934,000, or 15%, over the comparable nine-month period a year ago, also primarily due to the decreased quarter-over-quarter net sales in our Chinese e-commerce retail business. As of September 30, 2025, deferred revenue was $6.0 million, which consisted of $4.5 million pertaining to unshipped product orders and unredeemed product vouchers, as well as $1.5 million in auto ship advances.

Gross Profit

Gross profit was 73.7% of net sales for the three months ended September 30, 2025 compared with 74.1% of net sales for the three months ended September 30, 2024. Gross profit was 73.8% of net sales for the nine months ended September 30, 2025 compared with 73.9% of net sales for the nine months ended September 30, 2024. The decline in gross profit margin for the three months ended September 30, 2025 was due to the write off of components inventory related to discontinued products.

Commissions Expense

Commissions were 40.9% of net sales for the three months ended September 30, 2025 compared with 40.5% of net sales for the three months ended September 30, 2024. Commissions were 41.2% of net sales for the nine months ended September 30, 2025 compared with 40.5% of net sales for the nine months ended September 30, 2024. The increase in commissions as a percentage of net sales during the three- and nine-month periods ended September 30, 2025was primarily due to higher weekly commissions earned by our members during the first nine months of 2025 as compared to the comparable period last year.

Selling, General and Administrative Expenses

Selling, general and administrative expenses declined by $262,000 to $3.6 million for the three months ended September 30, 2025 as compared with $3.9 million for the three months ended September 30, 2024. Selling, general and administrative expenses declined by $653,000 to $10.9 million for the nine months ended September 30, 2025 as compared with $11.6 million for the nine months ended September 30, 2024. The decrease for each of the three- and nine-month periods was primarily due to lower employee-related expenses and event costs as compared to the comparable periods in the prior year. Selling, general and administrative expenses as a percentage of net sales increased slightly for the three month period ended September 30, 2025 compared with the same quarter last year, but were relatively consistent for the nine month period ended September 30, 2025 as compared with the same nine month period a year ago.

Other Income, Net

Other income was $206,000 for the three months ended September 30, 2025 compared with $441,000 in the same period a year ago. Other income was $1.0 million for the ninemonths ended September 30, 2025 compared with $1.5 million in the same period a year ago. The decrease was primarily due to less interest income earned during the current year periods.

Income Taxes

An income tax expense of $142,000 and $131,000 was recognized during the three months ended September 30, 2025 and 2024, respectively. An income tax expense of $140,000 and $249,000 was recognized during the nine months ended September 30, 2025 and 2024, respectively. The tax provision during the three- and nine-month periods ended September 30, 2025 and 2024 primarily resulted from foreign income inclusions, such as global intangible low-tax income ("GILTI") and Subpart F income, tax benefits in foreign jurisdictions and year-to-date consolidated income (loss) through September 30, 2025 and 2024, respectively.

The Company uses the Annual Effective Tax Rate ("AETR") approach of FASB ASC 740-270-25-2 (formerly FIN 18) to calculate its quarterly income tax provision, but since the Company is near break-even for pre-tax earnings during each quarter thus far for the year ending December 31, 2025, this has created a significant variance in the customary relationship between pre-tax earnings and income tax expense during these interim periods. The estimated annual effective tax rate increased from (155)% in the second quarter of 2025 to 7% in the third quarter of 2025. This change was primarily driven by a shift in our worldwide pre-tax results from a near break-even position in the second quarter to a small loss in the third quarter. As a result, the quarterly and year-to-date income tax expense amounts noted in the paragraph above are significantly higher than expected in comparison to the Company's pre-tax earnings during these same periods.

On July 4, 2025, President Trump signed into law the One Big Beautiful Bill Act ("OBBBA"). The OBBBA includes significant tax law changes, including the permanent extension of certain provisions from the U.S. Tax Cuts and Jobs Act, modifications to the international tax framework, and the reinstatement of favorable business tax provisions. These include 100% bonus depreciation, immediate expensing of Section 174 domestic research and experimental expenditures, and revised limitations under Section 163(j) on the deductibility of business interest expense. FASB ASC 740, Income Taxes, requires the effects of changes in tax rates and laws on deferred tax balances to be recognized in the period in which legislation is enacted. The legislation has multiple effective dates, with certain provisions effective beginning in 2025, and others implemented through 2027. The OBBBA does not have a material impact on the Company's financial statements for the interim period ending September 30, 2025, and the evaluation of the quantitative impact of the recent tax law changes to the Company's current and deferred tax balances will be reflect on the Company's annual report on Form 10-K for the year ending December 31, 2025

Liquidity and Capital Resources

At September 30, 2025, our cash, cash equivalents and marketable securities totaled $32.0 million. Total cash, cash equivalents and marketable securities decreased by $11.9 million from December 31, 2024 to September 30, 2025 due to the dividends paid during the first nine months of 2025 and the final payment of the repatriation tax on the deemed repatriation of deferred foreign income as required by the U.S. Tax Cuts and Jobs Act. We consider all highly liquid investments with original maturities of three months or less, when purchased, to be cash equivalents. As of September 30, 2025, we had $25.0 million in available-for-sale investments classified as either cash equivalents or marketable securities. In addition, cash and cash equivalents included $3.0 million held in banks located within China subject to foreign currency controls.

As of September 30, 2025, the ratio of current assets to current liabilities was 2.6 to 1.0 and we had $23.1 million of working capital. Working capital as of September 30, 2025 decreased $7.1 million compared to our working capital as of December 31, 2024.

Cash used in operations was $5.0 million for the first nine months of 2025 compared with $3.5 million for the first nine months of 2024. Income tax paid during April 2025 and 2024 for the repatriation tax on the deemed repatriation of deferred foreign income was $5.1 million and $4.0 million, respectively. Disregarding these payments, cash flows from operations were $16,000 for the first nine months of 2025 compared with $514,000 for the first nine months a year ago.

Cash flows provided by investing activities totaled $12.5 million during the first nine months of 2025 compared with cash flows used in investing activities of $23.1 million during the first nine months a year ago. During the first nine months of 2025, we purchased $39.0 million in marketable securities with original maturities greater than three months, and as such, reflect these purchases as an investing activity. These purchases of marketable securities were offset by $51.6 million of proceeds received from maturities of marketable securities.

Cash flows used in financing activities during the first nine months of 2025 and 2024 consisted solely of quarterly dividend payments of $0.20 per common share, totaling $6.9 million in each period. Subsequent to September 30, 2025, on November 3, 2025, the Board of Directors declared another quarterly cash dividend of $0.20on each share of common stock outstanding. The dividend will be payable on November 28, 2025 to stockholders of record on November 18, 2025. Any future cash dividends will be at the sole discretion of the Company's Board of Directors, and will depend on our financial condition, results of operations, capital requirements and other factors considered relevant by the Board of Directors.

In 2016, the Board of Directors authorized an increase to the Company's stock repurchase program first approved in 2015 from $15.0 million to $70.0 million. Any repurchases will be made in accordance with all applicable securities laws and regulations, including Rule 10b-18 of the Exchange Act. For all or a portion of the authorized repurchase amount, the Company may enter into one or more plans that are compliant with Rule 10b5-1 of the Exchange Act that are designed to facilitate these purchases. The stock repurchase program does not require the Company to acquire a specific number of shares, and may be suspended from time to time or discontinued. As of September 30, 2025, $21.9 million of the $70.0 million stock repurchase program remained available for future purchases, inclusive of related estimated income tax.

We believe that our existing internal liquidity, supported by cash on hand and cash flows from operations, should be adequate to fund normal business operations and address our financial commitments for the foreseeable future.

We do not have any significant unused sources of liquid assets. If necessary, we may attempt to generate more funding from the capital markets, but currently we do not believe that will be necessary.

Our priority is to focus our resources on investing in our most important markets, which we consider to be Greater China and countries where our existing members may have the connections to recruit prospects and sell our products, such as Southeast Asia, India, South America and Europe. We will continue to invest in our Mainland China entity for such purposes as establishing China-based manufacturing capabilities, increasing public awareness of our brand and our products, sourcing more Chinese-made products, building a chain of service stations, opening additional Healthy Lifestyle Centers or branch offices, adding local staffing and other requirements for a prospective China direct selling license application.

Critical Accounting Estimates

We prepare our consolidated financial statements in accordance with U.S. generally accepted accounting principles, which require our management to make estimates that affect the reported amounts of assets, liabilities and disclosures of contingent assets and liabilities at the balance sheet dates, as well as the reported amounts of revenues and expenses during the reporting periods. To the extent that there are material differences between these estimates and actual results, our financial condition or results of operations would be affected. We base our estimates on our own historical experience and other assumptions that we believe are reasonable after taking account of our circumstances and expectations for the future based on available information. We evaluate these estimates on an ongoing basis.

We consider an accounting estimate to be critical if: (i) the accounting estimate requires us to make assumptions about matters that were highly uncertain at the time the accounting estimate was made, and (ii) changes in the estimate that are reasonably likely to occur from period to period or use of different estimates that we reasonably could have used in the current period, would have a material impact on our financial condition or results of operations. There are items within our financial statements that require estimation but are not deemed critical, as defined above.

For a detailed discussion of our significant accounting policies and related judgments, see Note 1 of the Notes to Consolidated Financial Statements in "Item 8. Financial Statements and Supplementary Data" in our 2024 Annual Report on Form 10-K filed with the United States Securities and Exchange Commission (SEC) on February 21, 2025.