Financial Analysis

7. COMMITMENTS AND CONTINGENCIES 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 payment of specified amounts in the event of a change in control (together with a termination without cause), as defined, or if the employee is otherwise terminated without cause, as defined, or terminates employment for good reason, as defined. …

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8. STOCK-BASED INCENTIVE PLANS Restricted Stock On May 7, 2026, the Companys stockholders approved the Natural Health Trends Corp. 2026 Equity Incentive Plan (the 2026 Plan) to replace its 2016 Equity Incentive Plan, which terminated on April 7, 2026 in accordance with its provisions. The 2026 Plan allows for the grant of various equity awards including incentive stock options, non-statutory options, stock, stock units, stock appreciation rights and other similar equity-based awards to the Companys employees, officers, non-employee directors, contractors, consultants and advisors of the Company. Up to 1,100,000 shares of the Companys common stock (subject to adjustment under certain circumstances) may be issued pursuant to awards granted. At June 30, 2026 , all shares remained available for issuance under the 2026 Plan. No shares of unvested restricted common stock were outstanding during the six months ended June 30, 2026. Share-based compensation expense of $34,000 and $68,000 was recognized during the three and six months ended June 30, 2025, respectively. Phantom Equity In 2021, the Companys Board of Directors approved and adopted a Phantom Equity Plan (the Phantom Plan). Under the terms of the Phantom Plan, the Board of Directors' Compensation Committee may grant to the Companys employees, officers, directors, contractors, consultants, or advisors awards of phantom shares entitling grantees the right to receive a cash payment equal to the fair market value of an equal nu …

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4. FAIR VALUE MEASUREMENTS As of June 30, 2026 , cash and cash equivalents and marketable securities include the Companys investments in money market funds, municipal debt securities and corporate debt securities. Debt securities are required to be accounted for in accordance with the FASB ASC Topic 320, Investments - Debt and Equity Securities . As such, the Company determined its investments in debt securities held at June 30, 2026 should be classified as available-for-sale and are carried at fair value with unrealized gains and losses reported 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 and expense. Realized gains and losses, as well as interest income, are also included in other income and expense. 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 Companys 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 electe …

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6 . INCOME TAXES The effective income tax rate for the three and six months ended June 30, 2026 includes estimates for foreign income inclusions, such as Net CFC Tested Income (NCTI) and Subpart F income, as well as prior year foreign return to provision true-ups and state minimum taxes. As of June 30, 2026 , the Company does not have a valuation allowance against its U.S. deferred tax assets. The Company analyzed all sources of available income and determined that it is more likely than not to realize the tax benefits of their deferred assets. As of June 30, 2026 , the Company has a valuation allowance against deferred tax assets in certain foreign jurisdictions with an overall net operating loss. The valuation allowance will be reduced at such time as management believes it is more likely than not that the deferred tax assets will be realized. Any reductions in the valuation allowance will reduce future income tax provision. As of June 30, 2026 , the Company has $884,000 of U.S. federal net operating loss carryforwards. The Company has post-apportioned U.S. state net operating loss carryforwards of $467,000 that begin expiring in 2038. At June 30, 2026 , the Company has foreign net operating loss carryforwards of approximately $3.2 million in various jurisdictions with various expirations. In April 2025, the Company paid the final installment of $5.1 million for the repatriation tax on the deemed repatriation of deferred foreign income required by the U.S. Tax Cuts and Jobs …

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5 . LEASES The Company leases 4,900 square feet of corporate office space in Rolling Hills Estates, California with a term expiring in September 2030. In January 2026, the Company entered into an agreement to sublease a portion of this space effective February 1, 2026 for the remainder of the lease term. The sublease is classified as an operating lease, and sublease income is recognized on a straight-line basis over the sublease term and is expected to offset a portion of future lease costs associated with the Company's corporate office space. In August 2025, the Company entered into a binding offer to lease 5,300 square feet of office space in Hong Kong to replace its existing corporate office space in Hong Kong. The lease commenced on March 1, 2026 with a term expiring February 28, 2031. Monthly base rent is HKD 141,500 ($18,000) for years one through three and HKD 149,500 ($19,000) for years four and five, with base-rent-free periods from March 1, 2026 through April 30, 2026 and from August 1, 2029 through September 30, 2029. In addition, the Company will pay a monthly management fee of HKD 43,979 ($6,000). The lease provides the Company with an early termination right upon not less than three months prior written notice, exercisable at any time from March 1, 2029 through February 28, 2031. The related right-of-use asset and lease liability was recognized on the Companys consolidated balance sheet at the lease commencement date in accordance with FASB ASC Topic 842, Leases …

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Recent Accounting Pronouncements In November 2024, the FASB issued ASU 2024 - 03, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures . ASU 2024 - 03 is intended to improve disclosures about a public business entity's expenses and provide more detailed information to investors about the types of expenses in commonly presented expense captions. The amendments in this ASU will be applied retrospectively and are effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027, with early adoption permitted. The Company is currently evaluating the impact of implementing this guidance. Other recently issued accounting pronouncements did not or are not believed by management to have a material impact on the Companys present or future financial statements. …

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10. RELATED PARTY TRANSACTIONS The Company is a party to a Royalty Agreement and License with Broady Health Sciences, L.L.C., a Texas limited liability company, (BHS) regarding the manufacture and sale of a product called ReStor. George K. Broady, a former director of the Company and previously a beneficial owner of more than 5% of its outstanding common stock, is an indirect owner of BHS. Lucy Nduati, a director of the Company until May 7, 2026, has since 2013 served a number of companies controlled by George K. Broady and other Broady family members in a variety of roles focused on administration, accounting, finance, tax strategy and office management. Under this agreement (as amended), the Company agreed to pay BHS a royalty based on a price per unit in return for the right to manufacture (or have manufactured), market, import, export and sell this product worldwide by or through multi-level marketing or network marketing. The Company recognized royalties of $8,000 and $9,000 during the three months ended June 30, 2026 and 2025 , respectively, and $17,000 and $18,000 during the six months ended June 30, 2026 and 2025, respectively, under this agreement. The Company is not required to purchase any product under the agreement, and the agreement may be terminated under certain circumstances with no notice. The agreement was originally set to terminate on March 31, 2025, but renews automatically for additional one -year periods unless either party provides 90 -days' advance n …

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2. REVENUE Revenue Recognition All revenue is recognized when the performance obligations under a contract, including any product vouchers sold on a stand-alone basis in Hong Kong, 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 Companys delivery to the carrier that completes delivery to the members, which is commonly referred to as F.O.B. Shipping Point. The Companys 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 10% of sales. Sales returns were 1% of sales for each of the six months ended June 30, 2026 and 2025 . No material changes in estimates have been recognized during the periods presented. See Note 3 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 han …

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11. SEGMENT INFORMATION The Company sells products to a member network that operates in a seamless manner from market to market, except for the China market where it sells to some consumers through an e-commerce retail platform, and the Russia and Kazakhstan market where the Companys engagement of a third -party service provider results in a different economic structure than its other markets. The Company believes that all of its other operating segments have similar economic characteristics and are similar in the nature of the products sold, the product acquisition process, the types of customers products are sold to, the methods used to distribute the products, and the nature of the regulatory environment. Therefore, the Company aggregates its other operating segments (including its Hong Kong operating segment) into a single reporting segment (the Primary Reporting Unit). The Companys CODM is its President, who reviews financial information presented on a geographic basis. The CODM primarily uses net sales, gross profit and operating profit in assessing segment performance and determining the allocation of resources. The CODM also uses gross profit for evaluating pricing strategy. The CODM is the primary individual in control of resource allocation, and the allocation determinations are generally made in consultation with senior management, which the CODM is a member. Segment operating income is adjusted for certain direct costs and commission allocations. The CODM also reg …

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9. STOCKHOLDERS EQUITY Dividends The Company declared and paid cash dividends of $0.10 per common share during each of the first two quarters of 2026, totaling $1.7 million, and $0.20 per common share during each of the first two quarters of 2025, totaling $4.6 million. Declaration and payment of any future dividends on shares of common stock will be at the sole discretion of the Companys Board of Directors. Stock Repurchases In 2016, the Board of Directors authorized an increase to the Companys 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. On February 17, 2026, the Company entered into a share repurchase agreement to repurchase 2,935,227 shares of its common stock, representing approximately 25.5% of the Company's outstanding shares, from the George K. Broady 2012 Irrevocable Trust and the Eleanor Jane Broady 2012 Irrevocable Trust at a purchase price of $2.00 per share, for aggregate consideration of approximately $5.9 million. In addition, …

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