Our wholly-owned subsidiaries have an active physical presence in the following markets: North America; Greater China, which consists of Hong Kong, Taiwan and China; Russia; South Korea; Singapore; Malaysia; Japan; and Europe, which consists of ItalyEurope. We also operate in Russia and Slovenia. In June and December 2013, we opened marketing centers in Almaty, Kazakhstan and Odessa, Ukraine, respectively, through our engagement with our Russiana local service provider. See Note 10 of the Notes to Consolidated Financial Statements in “Item 8. Financial Statements and Supplementary Data” of this report for further information about our net sales by geographic area.
We seekexception is our Chinese entity, where we sell directly to sell our products into many markets, primarilyconsumers through our direct selling marketing operations.an e-commerce retail platform. Our objectives are to enrich the lives of the users of our products and enable our distributorsmembers to benefit financially from the sale of our products.
“NHTC.”
NHT Global Essentials, the wellness and nutritional supplementation
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| Products formulated and designed to meet specific wellness goals of our customers. Includes targeted nutrition such as joint health, antioxidant support, digestive health, heart health, vision health, immune support and cellular health. | Liquid, encapsulated, tableted and powder dietary and nutritional supplements, vitamins, minerals | Premium Noni | ||
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| Products formulated incorporating ingredients commonly found in | Herbal supplements | LivaPro®, Cordyceps Mycelia CS-4, Purus | ||
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NHT Global Beauty, the skincare product line, includes:
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NHT Global Lifestyle, the lifestyle enhancing product line, includes:
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| Products designed to create a | Home and | PurAir Air Purifier, AquaPur Water Purifier | ||
In addition, some of our subsidiaries offer products specific to their local markets.
NHT Global
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Our field leaders are experienced and culturally coherent. They work effectively with our management, implementing our strategies and providing continuous feedback to improve our services.
rights. December 31, 2012 2013 North America Hong Kong Taiwan South Korea Japan Russia and Kazakhstan Europe Total We sponsor promotional meetings and motivational training events for current and potential members.Because our current main products all came to us originally as proposals from our vendors, we have incurred minimal “out-of-pocket” research and development costs through December 31, 2013. In addition, some of our local markets introduce their own products from time to time and these products are sometimes adopted by our other markets. or certain of our subsidiaries generally purchase finished goods from manufacturers and sell them to our distributorsmembers for their resale or personal consumption. Two Harbors Trading Company (forPremium Noni Juice™) and 40Js LLC (forAlura™) are our most significant vendors, accounting for a majority of our product purchases. We believe that in the event we are unable to source products from our current or alternate suppliers, our revenue, income and cash flow could be adversely and materially impacted. We have a contract with Two Harbors Trading Company that has annualone of our suppliers through February 2019 with automatic renewal rights and a contract with 40Js LLC through July 2016.distributors purchasemembers primarily refer our products to prospective consumers or they may buy at wholesale prices for personal consumption or for resale to consumers and for personal consumption.consumers. The concept of network marketing is based on the strength of personal recommendations that frequently come from friends, neighbors, relatives, and close acquaintances. We believe that network marketing is an effective way to distribute our products because it allows person-to-person product education and testimonials as well as higher levels of customer service, all of which are not as readily available through other distribution channels. In some markets, like China, we distribute our products directly to consumers using an e-commerce platform. In those markets, we refer to these consumers as “members” rather than distributors. In this document, we generically use the term “distributor”“member” to refer to distributorsmembers who purchase for their own consumption or for resale, or both, as well as to members who only sign up to consume our products.distributorsmembers are independent full-time or part-time contractors who purchase products directly from our subsidiaries via the internet for their own personal consumption or for resale to retail consumers (other than in China and certain other markets) or for their own personal consumption.consumers. Purchasers of our products in China and certain other markets may purchase only for their own personal consumption and not for resale.distributorsmembers by market foras of the time periodsdates indicated. We consider a distributormember “active” if they have placed at least one product order with us during the preceding year. 1,310 1,720 14,130 20,190 1,350 1,710 270 510 150 150 3,100 2,970 370 270 20,680 27,520 NHT Global distributors Members may not necessarily reside in the market for which they sign up as a member. December 31, 2016 2015 North America 3,720 2,870 108,570 100,820 Taiwan 4,030 3,280 South Korea 290 420 Japan 100 100 Singapore 80 — 940 1,460 Europe 1,230 410 Total 118,960 109,360 distributormember agreement posted on our website and generally pay an annual enrollment fee. The distributormember agreement sets forth our policies and procedures, and we may elect to terminate a distributormember for non-compliance.NHT Global distributorsmembers based on product purchases by such distributors’members’ down-line distributorsmembers during a given commission period. To be eligible to receive commissions, distributorsmembers in some countries may be required to make nominal monthly or other periodic purchases of products. See “Working with DistributorsMembers.”Distributorsminimal.NHT Global distributors.members. These events are designed to inform prospective and existing distributorsmembers about both existing and new product lines, selling techniquesour latest marketing and promotional plans, and new services improvements. These events also serve as a venue for recognition of distributormember accomplishments. DistributorsMembers typically share their direct selling experiences in using our products and developing their individual selling styles and their recruiting methodsbusiness at these promotional or training events. Prospective distributors are educated about the structure, dynamics and benefits of the direct selling industry. We are continually developing or updating our marketing strategies and programs to motivate our distributors. These programs are designed to increase distributors' monthly product sales and the recruiting of new distributors in their down-lines.
The NHT Global
Suite, and have integrated other critical business processes such as inventory management in our most significant markets.
Members
Sponsoring
While we provide product samples, brochures and other sales materials, distributorsmembers are primarily responsible for recruitingenrolling and educating their new distributorsmembers with respect to products, the compensation plan and how to build a successful distributorshipmembership network.
Distributors
NHT Global employs
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Members examinations. are successful, when we will be permitted to conduct direct selling operations and whether such operations would be profitable. members. We could be adversely affected by management changes or an inability to attract and retain key management, directors and consultants. two complainants. Even though the Beijing City governmental officials advised our staff and the complainants at that meeting that there was insufficient evidence to warrant an investigation of us, gross mischaracterizations of the meeting immediately appeared in several “news reports.” Similarly, a subsequent meeting between several Guangzhou City government officials and members of our Guangzhou office staff that resulted in our providing routine information about our operations to the government officials was also grossly mischaracterized in an online posting made immediately following the meeting. Although we members. materially adversely affected. They also seek to ensure that claims regarding the ability of participants to earn money are truthful and substantiated. us. Regulations governing the production and marketing of our personal care products could harm our business. In addition, our Our future success will also depend on our ability to reduce our dependence on these few products by developing and introducing new products and product or feature enhancements in a timely manner. Even if we are able to develop and commercially introduce new products and enhancements, they may not achieve market acceptance and the revenue generated from these new products and enhancements may not offset the costs, which could substantially impair our business, financial condition and results of operations. We may be held responsible for certain taxes or assessments relating to the activities of our We may be unable to protect or use our intellectual property rights. Although we believe that the members of our software development team have the qualifications, know-how and experience to perform the necessary software development and other information technology services, there can be no assurance that there will not be delays or interruptions in these services. An interruption or delay in availability of these services could, if it lasted long enough, prevent us from accepting orders, cause 2012 2013 High Low High Low First quarter Second quarter Third quarter Fourth quarter Plan Category Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) Weighted-average exercise price of outstanding options, warrants and rights (b) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) Equity compensation plans approved by security holders Equity compensation plans not approved by security holders – – – Total – – Period Total Number of Shares Purchased(a) Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(b) Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs(c) October 1–31, 2013 November 1—30, 2013 December 1—31, 2013 geographic area. sell our products, such as Southeast Asia. We have also begun investing some resources in Central and South America. For further information regarding some of the risks associated with the conduct of our business in China, see “Item 1A. Risk Factors,” and more specifically under the captions “Risk Factors - Because our Hong Kong operations account for a substantial portion of our overall business...” and “Risk Factors - Our operations in China are subject to compliance with a myriad of applicable laws and regulations...”. We bill members for shipping charges and recognize the freight revenue in net sales. Event and training revenue is deferred and recognized as the event or training occurs. members. dollar, see “Item 7A. Quantitative and Qualitative Disclosures About Market Risk” and more specifically under the caption “Foreign Currency Exchange Risk” for further information. Year Ended December 31, 2012 2013 Net sales Cost of sales Gross profit Operating expenses: Distributor commissions Selling, general and administrative expenses Depreciation and amortization Total operating expenses Income from operations Other expense, net – Income before income taxes Income tax provision (benefit) – Net income indicated: Year Ended December 31, 2012 2013 North America Hong Kong China Taiwan South Korea Japan Russia and Kazakhstan Europe Total the currency of our Chinese members. As of December 31, revenue, respectively. year ended December 31, 2015. 2016 compared with $552,000 for the year ended December 31, 2015. The increase is due to greater profitability of our international operations, as well as the repatriation of foreign earnings back to the U.S. during the year. As a result of capital return activities approved by the Board of Directors during the first quarter of 2016 and anticipated future capital return activities, we then determined that a portion of our undistributed foreign earnings were no longer deemed reinvested indefinitely by our non-U.S. subsidiaries. We repatriated $19.8 million to the U.S. during the three months ended March 31, 2016, part of which was offset by U.S. net operating losses. Accordingly, the deferred tax liability previously established for undistributed foreign earnings up to existing U.S. net operating losses was reduced. The excess amount repatriated during the year ended December 31, 2016 was generated from current foreign earnings. In addition, during the three months ended December 31, 2016, we released our remaining valuation allowance against U.S. deferred tax assets as it was determined that it is more likely than not that we will realize the tax benefits of our deferred assets in future periods. We will continue to periodically reassess the needs of our foreign subsidiaries and update our indefinite reinvestment assertion as necessary. To the extent that additional foreign earnings are not deemed permanently reinvested, we expect to recognize additional income tax provision at the applicable U.S. corporate tax rate. We consider all highly liquid investments with original maturities of three months or less, when purchased, to be cash equivalents. As of December 31, 2016, we had $73.5 million in available-for-sale investments classified as cash equivalents. In addition, cash and cash equivalents included $120.0 million held in bank accounts overseas, which included $6.8 million held in banks located in China subject to foreign currency controls. income during 2016. Monterey Park, California. sell our products, such as Southeast Asia. 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 China direct selling license application. We have also begun to invest some resources in Central and South America. September 2025 totaling $3.9 million. Event and training revenue is deferred and recognized as the event or training occurs. provision. opinions. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on criteria established in December 31, 2012 2013 ASSETS Current assets: Cash and cash equivalents Accounts receivable Inventories, net Other current assets Total current assets Property and equipment, net Goodwill Restricted cash Other assets Total assets LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable Income taxes payable Accrued distributor commissions Other accrued expenses Deferred revenue Deferred tax liability Other current liabilities Total current liabilities Commitments and contingencies Stockholders’ equity: Preferred stock, $0.001 par value; 5,000,000 shares authorized; 1,761,900 shares designated Series A convertible preferred stock, 138,400 and 123,693 shares issued and outstanding at December 31, 2012 and 2013, respectively; aggregate liquidation value of $308 Common stock, $0.001 par value; 50,000,000 shares authorized; 11,324,048 and 11,332,771 shares issued and outstanding at December 31, 2012 and 2013, respectively Additional paid-in capital Accumulated deficit Accumulated other comprehensive loss: Foreign currency translation adjustments Total stockholders’ equity Total liabilities and stockholders’ equity Year Ended December 31, 2012 2013 Net sales Cost of sales Gross profit Operating expenses: Distributor commissions Selling, general and administrative expenses (including stock-based compensation expense of $94 and $110 during 2012 and 2013, respectively) Depreciation and amortization Total operating expenses Income from operations Other expense, net Income before income taxes Income tax provision (benefit) Net income Preferred stock dividends Net income available to common stockholders Income per share of Natural Health Trends – basic Income per share of Natural Health Trends – diluted Weighted-average number of shares outstanding – basic Weighted-average number of shares outstanding – diluted Year Ended December 31, 2012 2013 Net income Other comprehensive income (loss), net of tax: Foreign currency translation adjustments Comprehensive income Additional Paid-In Accumulated Other Comprehensive Shares Amount Shares Amount BALANCE, December 31, 2011 Net income – – – – – – Repurchase of common stock – – – – – Foreign currency translation adjustments – – – – – – Stock-based compensation – – – – – – BALANCE, December 31, 2012 Net income – – – – – – Conversion of Series A preferred stock – – – – Repurchase of common stock – – – – – Issuance of common stock – – – – – – – Foreign currency translation adjustments – – – – – – Stock-based compensation – – – – – – BALANCE, December 31, 2013 Year Ended December 31, 2012 2013 CASH FLOWS FROM OPERATING ACTIVITIES: Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization Stock-based compensation Deferred income taxes Changes in assets and liabilities: Accounts receivable Inventories, net Other current assets Other assets Accounts payable Income taxes payable Accrued distributor commissions Other accrued expenses Deferred revenue Other current liabilities Net cash provided by operating activities CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment Decrease (increase) in restricted cash Net cash provided by (used in) investing activities CASH FLOWS FROM FINANCING ACTIVITIES: Repurchase of common stock Net cash used in financing activities Effect of exchange rates on cash and cash equivalents Net increase in cash and cash equivalents CASH AND CASH EQUIVALENTS, beginning of period CASH AND CASH EQUIVALENTS, end of period 2015, the Company relocated its corporate headquarters from Dallas, Texas to Rolling Hills Estates, California. follows (in thousands): $82,000, and $29,000, respectively. Foreign Currency Event and training revenue is deferred and recognized as the event or training occurs. Costs of events and member training are included within selling, general and administrative expenses. members. Stock-based compensation expense is determined based on the grant date fair value of each award, net of estimated forfeitures which are derived from historical experience, and is recognized on a straight-line basis over the requisite service period for the award. Year Ended December 31, 2012 2013 Income (Numerator) Shares (Denominator) Per Share Amount Income (Numerator) Shares (Denominator) Per Share Amount Basic EPS: Net income available to common stockholders Less: undistributed earnings to participating securities Net income allocated to common stockholders Effect of dilutive securities: Non-vested restricted stock – – Diluted EPS: Net income allocated to common stockholders plus assumed conversions Year Ended December 31, 2012 2013 Warrants to purchase common stock Non-vested restricted stock – anti-dilutive. Accounting standards permit companies, at their option, to choose to measure many financial instruments and certain other items at fair value. The Company has elected to not fair value existing eligible items. statements. that this standard will have on its consolidated financial statements. No. 2015-11, December 31, 2012 2013 Property and equipment: Office equipment Office software Furniture and fixtures Leasehold improvements Property and equipment, at cost Accumulated depreciation and amortization Other accrued expenses: Sales returns Employee-related expense Warehousing and inventory-related expense Other Deferred revenue: Unshipped product Enrollment package revenue Other current liabilities: Unclaimed checks Other 2014 2015 2016 2017 2018 Total minimum lease obligations Commitments require the Company to acquire a specific number of shares, and may be suspended from time to time or discontinued. Shares Wtd. Avg. Price at Date of Issuance Nonvested at December 31, 2011 Vested Nonvested at December 31, 2012 Vested Nonvested at December 31, 2013 On August 13, 2012, the Shares Wtd. Avg. Grant-Date Fair Value Nonvested at December 31, 2012 Vested Forfeited Nonvested at December 31, 2013 Year Ended December 31, 2012 2013 Domestic Foreign Income before income taxes Year Ended December 31, 2012 2013 Current: Federal Foreign Total current taxes Deferred foreign taxes Income tax provision (benefit) Year Ended December 31, 2012 2013 Income tax at federal statutory rate Effect of permanent differences Increase in valuation allowance Foreign rate differential True up of foreign tax balances Other reconciling items Income tax provision (benefit) December 31, 2012 2013 Deferred tax assets: Net operating losses Stock-based compensation – Accrued expenses Tax credits Impairment of long-lived assets Other Total deferred tax assets Valuation allowance Deferred tax liabilities: Intangible assets Accrued expenses Prepaids – Other Total deferred tax liabilities Net deferred tax liability Company or its subsidiaries. Year Ended December 31, 2012 2013 (In Thousands) Cash paid during the year for: Income taxes, net of refunds Interest – – Otherwise, the agreement terminates March 31, 2020. resulted in an aggregate purchase price of The Company’s for disclosure purposes. Year Ended December 31, 2012 2013 Net sales from external customers: United States Hong Kong China Taiwan South Korea Russia and Kazakhstan Other foreign countries Total net sales December 31, 2012 2013 Net sales by product and service: Product sales Enrollment package revenue, freight and other Less: sales returns Total net sales December 31, 2012 2013 Long-lived assets: United States Other foreign countries Total long-lived assets Report on Form 10-K. Summary Compensation Table Name and Principal Position Year Salary ($) Bonus ($) All Other Compensation ($) Total ($) Chris T. Sharng, President 2012 2013 Timothy S. Davidson, Senior Vice President and 2012 Chief Financial Officer 2013 Gary C. Wallace, former General Counsel(5) 2012 2013 Outstanding Equity Awards at December 31, 2013 Number of Shares or Units of Stock That Have Not Vested (#) Market Value of Shares or Units of Stock That Have Not Vested ($)(1) Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested Chris T. Sharng Timothy S. Davidson – – Gary C. Wallace(3) – – 2013 Non-Employee Director Compensation Name Fees Earned or Paid in Cash ($) Stock Awards ($)(1) All Other Compensation ($) Total ($) Randall A. Mason George K. Broady – Name and Address of Beneficial Owner(1) Amount and Nature of Beneficial Ownership(2) Percent of Class(2) Executive Officers and Directors: Chris T. Sharng 413,311 (3) 3.6% Timothy S. Davidson 204,150 (4) 1.8% Gary C. Wallace(5) 163,542 (6) 1.4% Randall A. Mason 262,400 (7) 2.3% George K. Broady 4,023,967 (8) 34.7% All executive officers and directors as a group (5 persons) 5,067,370 (9) 43.7% 5% or More Stockholders: Robert L. Frome 672,311 (10) 5.9% Park Avenue Tower 65 East 55th Street New York, NY 10022 2016. Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized. Title Date /s/ Chris T. Sharng President and Director Chris T. Sharng (Principal Executive Officer) /s/ Timothy S. Davidson Senior Vice President and Chief Financial Officer Timothy S. Davidson (Principal Financial and Accounting Officer) Randall A. Mason /s/ George K. Broady George K. Broady By-Laws of Natural Health Trends Corp. (incorporated by reference to Exhibit 3.02 to Current Report on Form 8-K filed on July 12, 2005). 4.1 Specimen Certificate for shares of common stock, $.001 par value per share, of Natural Health Trends Corp. (incorporated by reference to Exhibit 4.01 to Annual Report on Form 10-K filed on May 8, 2006). +10.1 Natural Health Trends Corp. 2016 Equity Incentive Plan (incorporated by reference to Appendix C to Definitive Proxy Statement filed on March 4, 2016). + + + + Employment Agreement (including form of Non-Competition and Proprietary Rights Assignment Agreement) for Chris T. Sharng, dated April 23, 2007 (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on April 26, 2007). + Employment Agreement (including form of Non-Competition and Proprietary Rights Assignment Agreement) for Timothy S. Davidson dated April 23, 2007 (incorporated by reference to Exhibit 10.2 to Current Report on Form 8-K filed on April 26, 2007). + + Form of Indemnification Agreement dated Stock Repurchase Agreement dated January 22, 2015 by and between Natural Health Trends Corp. and George K. Broady (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed January 26, 2015). 23.1 Consent of Lane Gorman Trubitt, 24.1 Power of Attorney (see signature page). 31.1 Certification of Principal Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith). 31.2 Certification of Principal Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith). 32.1 Certifications of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).distributorsmembers to take advantage of the internet. Substantially all of our sales take place via the internet. NHT Global offersWe offer a global web page that allows a distributormember to have a personalized replicating website through which he or she can sell products in all of the countries in which we do business. Links to these websites can be found at our main website for distributorsmembers atwww.nhtglobal.com. www.nhtglobal.com. The information provided on these websites should not be considered part of this report.Distributorsdistributormember policies and procedures establish the rules that distributorsmembers must follow in each market. We also monitor distributormember activity in an attempt to provide our distributorsmembers with a “level playing field” so that one distributormember may not be disadvantaged by the activities of another. We require our distributorsmembers to present products and business opportunities in an ethical and professional manner. DistributorsMembers further agree that their presentations to customers must be consistent with, and limited to, the product claims and representations made in our literature.We requiredistributorsmembers such as presentations videotapes, audiotapes, brochures and promotional clothing. Further, distributorsmembers may not use any form of media advertising to promote products unless it is pre-approved by us. Products may be promoted only by personal contact or by literature produced or approved by us. DistributorsMembers are not entitled to use our trademarks or other intellectual property without our prior consent.distributormember misbehavior. If we determine that a distributormember has violated our distributormember policies or procedures, we may terminate the distributor’smember’s rights completely. Alternatively, we may impose sanctions, such as warnings, probation, withdrawal or denial of an award, suspension of privileges of the distributorship,membership, fines, withholding commissions, until specified conditions are satisfied or other appropriate injunctive relief. Our distributorsmembers are independent contractors, not employees, and may act independently of us. Further, our distributorsmembers may resign or terminate their distributorshipmembership at any time without notice. See “Item 1A. Risk Factors.”schemes, often referred to as “pyramid” schemes, which compensate participants for recruiting additional participants irrespective of product sales, use high-pressure recruiting methods and/or do not involve legitimate products.schemes. The laws and regulations in our current markets often:●impose cancellation/product return, inventory buy-backs and cooling-off rights for consumers and distributors;●require us or our distributors to register with governmental agencies;●impose reporting requirements; and●impose upon us requirements, such as requiring distributors to maintain levels of retail sales to qualify to receive commissions, to ensure that distributors are being compensated for sales of products and not for recruiting new distributors.
impose cancellation/product return, inventory buy-backs and cooling-off rights for consumers and members;aremay be subject from time to time to government reviews, examinations or investigations in our various markets related to our direct selling activities. This can require us to make changes to our business model and aspects of our global compensation plan in the markets impacted by such changes and investigations.As a result of restrictions in China on direct selling activities, we are not conducting direct selling in China. Consumers and members purchase the Company’s products via our Hong Kong-based web site or our e-commerce platform in China. The regulatory environment in China is complex. Because we operate a direct selling model outside of China, our operations in China have attracted constant and significant regulatory and media scrutiny. distributors. Regulationsmembers. We are subject to discretionary interpretation by municipal and provincial level regulators. Interpretations of what constitutes permissible activities by regulators can vary from province to province and can change from time to time because of the lack of clearly defined rules regardingnot conducting direct selling activities.Because of thein China. Rather, consumers and members purchase our products via our Hong Kong-based website or our e-commerce retail platform in China. The regulatory environment in China is complex, and our operations in China can receive regulatory and media attention.government’s significant concerns about direct selling activities and its adoption of direct selling and anti-pyramiding regulations, itgovernment scrutinizes very closely activities of direct selling companies. Our business continues to be subject to reviewsregulations and investigationsexaminations by municipal and provincial level regulators. At times, investigations and related actions by government regulators have caused an obstruction toimpacted our members’ activities in certain locations, and have resulted in a few cases of enforcement actions. In each of these cases, we helped our members with their defense in the legality of their conduct. So far, no material changes to our business model have been required. We expect to receive continued guidance and direction as we work with regulators to address our business model and any changes that need to be made to comply with the direct selling regulations.To augmentbusinessHong Kong-based website nor our e-commerce platform in China our Chinese subsidiary appliedrequire a direct selling license in China, which we currently do not hold. We have previously sought to obtain a direct selling license, and in August 2015 initiated the process for submitting a new preliminary application for a direct selling license first in 2005, providedChina. If we are able to obtain a revised versiondirect selling license in June 2006, and then updated againChina, we believe that the incentives inherent in the direct selling model in China would incrementally benefit our applicationexisting business. Increased sales in November 2007. AfterChina that could be derived from obtaining a direct selling license may be partially offset by the approval from the municipal and the provincial authorities, the application did not progress furtherhigher fixed costs associated with the central government. Eventually, the information containedestablishment and maintenance of required service centers and branch offices. We are unable to predict whether and when we will be successful in our most recent application became staleobtaining a direct selling license to operate in China, and if we withdrew the license application in February 2009 with the intention of filing an updated application in the future.theU.S.the U.S. Food and Drug Administration (the “FDA”), the Federal Trade Commission (the “FTC”), the Consumer Product Safety Commission, the United States Department of Agriculture, State Attorneys General and other state regulatory agencies. In our foreign markets, the products are generally regulated by similar government agencies.oftenregularly modify the ingredients and/or the levels of ingredients in our products for certain markets. In some circumstances, the regulations in foreign markets may require us to obtain regulatory approval prior to introduction of a new product or limit our uses of certain ingredients altogether. Because of negative publicity associated with some supplements, thereThere has been an increased movement in the United States and other markets to expand the regulation of dietary supplements, whichsupplements. This could impose additional restrictions or requirements in the future. In general, theBecause of this increased regulatory environment is becoming more complexfocus, our internal review efforts have been enhanced in order to comply with increasingly strictour understanding of current regulations. each year.Effective June 2008, the FDA established regulations to require current good manufacturing practices (cGMP) for dietary supplements. The regulations ensure that dietary supplements are produced in a quality manner, do not contain contaminants or impurities, and are accurately labeled. The regulations include requirements for establishing quality control procedures for us and our vendors and suppliers, designing and constructing manufacturing plants, and testing ingredients and finished products. The regulations also include requirements for record keeping and handling consumer product complaints. If dietary supplements contain contaminants or do not contain the type or quantity of dietary ingredient they are represented to contain, the FDA would consider those products to be adulterated or misbranded. effective December 2007,, which requires us to document and track adverse events and report serious adverse events, which are events involving hospitalization or death, associated with consumers’ use of our products. distributormember commissions. As is the case with most companies that operate in our product categories, we might receive inquiries from time to time from government regulatory authorities regarding the nature of our business and other issues, such as compliance with local direct selling, transfer pricing, customs, taxation, foreign exchange control, securities and other laws.NHT Globaldistributorsmembers who timely return unopened product that is in resalable condition may receive a refund. The amount of the refund may be dependent on the country in which the sale occurred, the timeliness of the return, and any applicable re-stocking fee. NHT Global must be notified of the return in writing and such written requests would be considered a termination notice of the distributorship. From time to time, wemembership. We may alter our return policy in response to special circumstances.enhancement products, cosmetics, personal care and dietary supplements.home products. More specifically, we are engaged in what is called network marketing or multi-level marketing. This type of organizational structure and approach to marketing and sales include companies selling lifestyle enhancement products, cosmetics and dietary supplements, or selling other types of consumer products. Generally, direct selling is based upon an organizational structure in which independent distributors ofmembers purchasing a company’s products are compensated for sales made directly to consumers.NHT Global distributorsdistributorsmembers they have recruitedenrolled and all subsequent distributors recruitedmembers enrolled by their "down-line"“down-line” network of distributors.members. The experience of the direct selling industry has been that once a sizeable network of distributorsmembers is established, new and alternative products and services can be offered to those distributorsmembers for sale to consumers and additional distributors.We competea significant number of other retailers that are engaged in similar lines of business, including sellers of health-related products and othergiant multinational corporations as well as smaller, local operators. Big network marketing companies such asinclude Nu Skin Enterprises, Inc., USANA Health Sciences, Inc., Mannatech, Inc., Reliv’ International, Inc, and Herbalife, Ltd. Many of our competitorsLtd, which have much greater name recognition and financial resources than we do and also have many more distributors. Amembers. They are publicly traded and therefore serve as informational benchmarks, but we don’t overlap with them in terms of marketplace or product range. On the other hand, many medium- and small-sized privately held Chinese, Taiwanese and Hong Kong companies are fierce competitors and are much closer to directly competing with us. Also, a number of our former employees and distributorsmembers now work for competitors, and sometimes try to use relationships and knowledge obtained with us to compete with us.distributors.members. There can be no assurance that our programs for attracting and retaining distributorsmembers will be successful. The pool of individuals interested in network marketing is limited in each market and is reduced to the extent other network marketing companies successfully attract these individuals into their businesses. Although we believe that we offer an attractive opportunity for our distributors,members, there can be no assurance that other network marketing companies will not be able to recruit our existing distributorsmembers or deplete the pool of potential distributorsmembers in a given market.We may experience substantial negative cash flows, which may have a significant adverse effect on our business and could threaten our solvency.We experienced substantial negative cash flows during the years ended December 31, 2008 and 2009, primarily due to declines in our revenues greater than the decreases in expenditures we could manage. If we again experience negative cash flows, any resulting decreasing cash balance could impair our ability to support our operations and, eventually, threaten our solvency, which would have a material adverse effect on our business, results of operations and financial condition, as well as our stock price. Negative cash flows and the related adverse market perception associated therewith may have negatively affected, and may in the future negatively affect, our ability to attract new distributors and/or sell our products. There can be no assurance that we will be successful in maintaining an adequate level of cash resources and we could be forced to act more aggressively in the area of expense reduction in order to conserve cash resources as we look for alternative solutions.If we experience negative cash flows, we may need to seek additional debt or equity financing, which may not be available on acceptable terms or at all. If available, it could have a highly dilutive effect on the holdings of existing stockholders.Unless we are able to at least maintain revenues, control expenses and achieve positive cash flows, our ability to support our obligations could be impaired and our liquidity could be adversely affected and our solvency and our ability to repay our debts when they come due could be threatened. We may need to seek additional debt or equity financing on acceptable terms in order to improve our liquidity. However, we may not be able to obtain additional debt or equity financing on satisfactory terms, or at all, and any new financing could have a dilutive effect to our existing stockholders.The anti-dilution provisions of warrants to purchase 1,375,952 shares of our common stock would, if triggered, cause substantial dilution and may, therefore, make it particularly difficult to obtain new equity financing. The warrants were originally issued under a Securities Purchase Agreement dated October 19, 2007. The warrants have an exercise price of $3.52 per share, subject to certain anti-dilution provisions that reduce the exercise price and increase the number of shares underlying the warrants if we issue common stock or equivalent securities below the exercise price for the warrants (with certain transactions exempted). These warrants expire on April 21, 2015.majoritysubstantial portion of our overall business, and mostsubstantially all of our Hong Kong business is derived from the sale of products to members in China, any material adverse change in our business relating to either Hong Kong or China would likely have a material adverse impact on our overall business.20122016, 2015 and 2013,2014, approximately 70%92%, 93% and 77%89% of our revenue, respectively, was generated in Hong Kong. MostSubstantially all of our Hong Kong revenues are derived from the sale of products that are delivered to members in China. This geographic concentration in our business means that events or conditions that could negatively impact this geographic region or our operations in this region would have a greater adverse impact upon our overall business and financial results than would be the case with a company having greater geographic diversification.thatwhich we do not have,are in the process of applying for, and has also adopted anti-multilevel marketing legislation. We operate an e-commerce direct selling model in Hong Kong and recognize the revenue derived from sales to both Hong Kong and Chinese members as being generated in Hong Kong. Products purchased by members in China are delivered by us to one or more third parties that act as the importers of record under agreements to pay applicable duties. In addition, through a Chinese entity, we sell products in China using an e-commerce retail model. The Chinese entity operates separately from the Hong Kong entity, althoughand a Chinese member may elect to participate separately or in both.Wetheour e-commerce direct selling model in Hong Kong does not violate any applicable laws and regulations in China, regarding direct selling and multi-level marketing are not specifically applicable toeven though it is used for the internet purchase of our Hong Kong based e-commerce activity, andproducts by members in China. We also believe that our Chinese entity, including its e-commerce retail platform, is operating in compliance with applicable Chinese laws. However, there can be no assurance that the Chinese authorities will agree with our interpretations of applicable laws and regulations or that China will not adopt new laws or regulations. Should the Chinese government determine that our e-commerce activity violatesactivities violate China’s direct selling or anti-multilevel marketing legislation, or should new laws or regulations be adopted, there could be a material adverse effect on our business, financial condition and results of operations.Because of Chinese government’s significant concerns about direct selling activities, it scrutinizes very closely activities of direct selling companies. Our business continues to be subject to regulations and examinations by municipal and provincial level regulators. At times, investigations and related actions by government regulators have impacted our members’ activities in certain locations and have resulted in a few cases where we have paid substantial fines.of enforcement actions. In each of these cases, we have been allowed to recommence operations afterhelped our members with their defense of the government’s investigation,legality of their conduct, and no material changes to our business model were requiredrequired.connection with these finesinvestigations of our operations. For example, one or more parties encouraged the Beijing City governmental authorities to conduct an investigation of our business, which resulted in a meeting in January 2016 involving members of our Beijing office staff, Beijing City governmental officials, and impediments.attemptremain in regular contact with Chinese government officials and take other steps to work closely with both national and local Chinese governmental agencies in conductingaddress the risks posed by these events, our business and the value of our effortscompany remain vulnerable to comply with national and local laws may be harmed by a rapidly evolving regulatory climate, concerns about activities resembling violationsChinese government scrutiny of direct selling or anti-multi-level marketing legislation, subjective interpretations of laws and regulations, and activities by individual distributors that may violate laws notwithstanding our strict policies prohibiting such activities. Any determination that our operations, whether or activities, or the activities of our individual distributors or employee sales representatives, or importers of record are not in compliance with applicable laws and regulations could result in the imposition of substantial fines, extended interruptions of business, restrictions on our future ability to obtain business licenses or expand into new locations, changes to our business model, the termination of required licenses to conduct business, or other actions, any of which could materially harm our business, financial condition and results of operations.distributormember relationships could adversely affect our business.distributors,members, and we depend upon them directly for all of our sales in most of our markets. Accordingly, our success depends in significant part upon our ability to attract, retain and motivate a large base of distributors.members. Our direct selling organization is headed by a relatively small number of key distributors.members. The loss of a significant number of distributors, especiallymembers, or the loss of one or more key distributors,members, could materially and adversely affect sales of our products and could impair our ability to attract new distributors.members. Moreover, the replacement of distributorsmembers could be difficult because, in our efforts to attract and retain distributors,members, we compete with other direct selling organizations, including but not limited to those in the personal care, cosmetic product and nutritional supplement industries. Our distributorsmembers may terminate their services with us at any time and, in fact, like most direct selling organizations, we have a high rate of attrition.distributorsmembers or their productivity may not increase and could decline in the future. We cannot accurately predict any fluctuation in the number and productivity of distributorsmembers because we primarily rely upon existing distributorsmembers to sponsorenroll and train new distributorsmembers and to motivate new and existing distributors.members. Operating results could be adversely affected if our existing and new business opportunities and products do not generate sufficient economic incentive or interest to retain existing distributorsmembers and to attract new distributors.distributorsmembers could be harmed by several factors, including:●adverse publicity or negative perceptions regarding us, our products, our method of distribution or our competitors;● in, or the technical failure of, existing or new products;●lack of interest in our existing compensation plan for distributors or in enhancements or other changes to that compensation plan;●our actions to enforce our policies and procedures;●regulatory actions or charges or private actions against us or others in our industry;●general economic and business conditions;●changes in management or the loss of one or more key distributor leaders;●entry of new competitors, or new products or compensation plan enhancements by existing competitors, in our markets; and●potential saturation or maturity levels in a given country or market which could negatively impact our ability to attract and retain distributors in such market.The high level of competition in our industryexisting compensation plan for members or in enhancements or other changes to that compensation plan;business.Theoperating results and financial condition. Moreover, the negative publicity stemming from these complaints and the allegations they make could harm our business of marketing personal care, cosmetic, nutritional supplements, and lifestyle enhancement products is highly competitive. This market segment includes numerous manufacturers, distributors, marketers, and retailers that actively compete foroperations. Accordingly, any adverse determination against us in these suits, or even the business of consumers bothallegations contained in the United Statessuits regardless of whether they are ultimately found to be without merit, could harm our business, operations and abroad. The market is highly sensitivefinancial condition.introduction of new products, which may rapidly capture a significant share of the market. Sales of similar products by competitors may materiallymoney, time and effort spent in defending these matters will not adversely affect our business, financial condition and results of operations.Wesubject to significant competition for the recruitment of distributors from other direct selling organizations, including thoseindependent contractors, improper member actions that market similar products. Many ofviolate laws or regulations could harm our competitorsbusiness.substantially larger thanindependent contractors and, accordingly, we are offernot in a wider array of products, have far greater financial resourcesposition to directly provide the same direction, motivation and many more active distributors thanoversight as we have. Our ability to remain competitive depends, in significant part, onwould if members were our success in recruiting and retaining distributors with our products, attractive compensation plan and other incentives. We believe that we have an attractive product line and that our compensation and incentive programs provide our distributors with significant earning potential. However, we cannot be sure that our programs for recruitment and retention of distributors would be successful.Some of our competitors have employed or otherwise contracted for the services of our former officers, employees, consultants, and distributors, who may try to use information and contacts obtained while under contract with us for competitive advantage. While we seek to protect our information through contractual and other means,own employees. As a result, there can be no assurance that weour members will timely learn of such activity, have the resources to attempt to stop it,participate in our marketing strategies or have adequate remedies available to us.An increase in the amount of compensation paid to distributors would reduce profitability.A significant expense is the payment of compensation toplans, accept our distributors, which represented approximately 42% and 46% of net sales during 2012 and 2013, respectively. We compensate our distributors by paying commissions, bonuses, and certain awards and prizes. Factors impacting the overall commission payout include the growth and depth of the distributor network, the distributor retention rate, the level of promotions, local promotional programs and business development agreements. Any increase in compensation payments to distributors as a percentage of net sales will reduce our profitability.Our compensation plan includes a cap that may be enforced on distributor compensation paid out as a percentage of product sales. There can be no assurance that enforcement of this cap will ensure profitability (which depends on many other factors). Moreover, enforcement of this cap could cause key distributors affected by the cap to leave and join other companies.Failureintroduction of new products, or comply with our member policies and procedures. Extensive federal, state, local and foreign laws regulate our business, our products and our network marketing program. Because we have expanded into foreign countries, our policies and procedures for our members differ due to the different legal requirements of each country in which we do business. While we have implemented member policies and procedures designed to govern member conduct and to protect the goodwill associated with our trademarks and trade names, it can be difficult to enforce these policies and procedures because of the large number of members and their independent status. distributoran advantage in the marketplace. Improper member activity in new geographic markets could result in adverse publicity and market acceptance could harm our business.An important component of our business iscan be particularly harmful to our ability to develop newultimately enter these markets. Violations by our members of applicable law or of our policies and procedures in dealing with customers could reflect negatively on our products and operations, and harm our business reputation. In addition, it is possible that create enthusiasm amonga judicial or administrative body could hold us civilly or criminally accountable based on vicarious liability because of the actions of our distributor force.members. If we fail to introduce new products on a timely basis,any of the above or related events involving our distributor productivitymembers occur, our business, financial condition, or results of operations could be harmed. In addition, if any new products fail to gain market acceptance, are restricted by regulatory requirements, or have quality problems, this would harm our results of operations. Factors that could affect our ability to continue to introduce new products include, among others, limited capital and human resources, government regulations, proprietary protections of competitors that may limit our ability to offer comparable products and any failure to anticipate changes in consumer tastes and buying preferences.distributorsmembers are in compliance with all of these regulations. Our failure or our distributors’members’ failure to comply with these regulations or new regulations could lead to the imposition of significant penalties or claims and could negatively impact our business. If we are unable to continue business in existing markets or commence operations in new markets because of these laws, our revenue and profitability may decline. For example,Federal Trade Commission (the “FTC”) released a proposed New Business Opportunity Rulebusiness of consumers both in April 2006. As initially drafted, the proposed rule would have required pre-sale disclosures for all business opportunities,United States and abroad. The market is highly sensitive to the introduction of new products, which may rapidly capture a significant share of the market. Sales of similar products by competitors may materially and adversely affect our business, financial condition and results of operations.included network marketing compensation plans such as ours. However, in November 2011, the FTC issued a final rule that does not apply to multi-level marketingfar greater financial resources and many more active members than we have. Even more numerous are those medium- and small-sized, all privately held Chinese, Taiwanese and Hong Kong companies that do not representare fierce competitors and are much closer to directly competing with us. Our ability to remain competitive depends, in significant part, on our success in recruiting and retaining members with our products, attractive compensation plan and other incentives. We believe that theywe have an attractive product line and that our compensation and incentive programs provide our members with significant earning potential. However, we cannot be sure that our programs for recruitment and retention of members will be successful.another designated person will do any of the following: (a) provide locationsotherwise contracted for the operationservices of equipment, displays, vending machinesour former officers, employees, consultants, and members, who may try to use information and contacts obtained while under contract with us for competitive advantage. While we seek to protect our information through contractual and other means, there can be no assurance that we will timely learn of such activity, have the resources to attempt to stop it, or similar devices owned, leased, controlled or paid for by the purchaser of the opportunity; (b) provide outlets, accounts, or customers (including but not limitedhave adequate remedies available to internet outlets, accounts, or customers) for the purchaser’s goods or services (advertising and general advice about business development and training is not considered as “providing locations, outlets, accounts, or customers”); or (c) buy back any or all of the goods or services that the purchaser makes or provides. As we understand the final regulation, the Company does not make any of these representations and therefore is not covered by the final rule, which took effect on March 1, 2012.formlegality of our business modeloperations could harm our business.distributorsmembers against us and other direct selling companies. Moreover, challenges to our business system and operations in important markets may come from short sellers, hedge funds, other investors, bloggers and other investors.reporters. Other companies in our industry have recently faced such challenges. Any challenges regarding us or others in our industry could harm our business if such challenges result in the investigation of our business model and operations or the imposition of any fines or damages on our business, create adverse publicity, increase scrutiny or investigations of us or our industry, detrimentally affect our efforts to recruit or motivate distributorsmembers and attract customers, or interpret laws in a manner inconsistent with our current business practices.distributorsmembers or us to comply with those regulations could lead to the imposition of significant penalties or claims and could materially and adversely affect our business. If we are not able to satisfy the various regulations, then we would have to cease sales of that product in that market. In addition, the adoption of new regulations or changes in the interpretation of existing regulations may result in significant compliance costs or discontinuation of product sales and may adversely affect the marketing of our products, resulting in significant loss of revenues.effective December 1, 2009, the FTC approved revisions to its Guides Concerning the Use of Endorsements and Testimonials in Advertising (“Guides”) that require disclosure of material connections between an endorser and the company they are endorsing and do not allow marketing using atypical results.require the disclosure of typical results when these are different from those reported by the endorser. The requirements and restrictions of the revised Guides may diminish the impact of our marketing efforts and negatively impact our sales results. If we or our distributorsmembers fail to comply with these Guides, the FTC could bring an enforcement action against us and we could be fined and/or forced to alter our operations. Our operations also could be harmed if new laws or regulations are enacted that restrict our ability to market or distribute nutritional supplements or impose additional burdens or requirements on nutritional supplement companies or require us to reformulate our products.distributors,members, may lead to a determination that such products require pre-market approval as a drug. Such regulations in any given market can limit our ability to import products and can delay product launches as we go through the registration and approval process for those products. Furthermore, if we fail to comply with these regulations, we could face enforcement action against us and we could be fined, forced to alter or stop selling our products and/or required to adjust our operations. Our operations also could be harmed if new laws or regulations are enacted that restrict our ability to market or distribute our personal care products or impose additional burdens or requirements on the contents of our personal care products or require us to reformulate our products.FDA regulationsnow required to report serious adverse events associated with consumer use of our products. Our operations could be harmed if regulatory authorities make determinations that we or our vendors are not in compliance with the new regulations. A finding of noncompliance may result in administrative warnings, penalties or actions impacting our ability to continue selling certain of our products. In addition, compliance with these regulations has increased and may further increase the cost of manufacturing certain of our products as we work with our vendors to assure they are qualified and in compliance.distributorsmembers for which we may be held responsible, may result in enforcement actions and imposition of penalties or otherwise materially and adversely affect the distribution and sale of our products. DistributorMember activities in our existing markets that violate applicable governmental laws or regulations could result in governmental or private actions against us in markets where we operate. Given the size of our distributormember force, we cannot ensure that our distributors wouldmembers will comply with applicable legal requirements.Although our distributors are independent contractors, improper distributor actions that violate laws or regulations could harm our business.Our distributors are independent contractors and, accordingly, we are not in a position to directly provide the same direction, motivation and oversight as we would if distributors were our own employees. As a result, there can be no assurance that our distributors will participate in our marketing strategies or plans, accept our introduction of new products, or comply with our distributor policies and procedures. Extensive federal, state and local laws regulate our business, our products and our network marketing program. Because we have expanded into foreign countries, our policies and procedures for our distributors differ due to the different legal requirements of each country in which we do business. While we have implemented distributor policies and procedures designed to govern distributor conduct and to protect the goodwill associated with our trademarks and trade names, it can be difficult to enforce these policies and procedures because of the large number of distributors and their independent status. Given the size and diversity of our distributor force, we experience problems with distributors from time to time, especially with respect to our distributors in foreign markets. Distributors often desire to enter a market, before we have received approval to do business, to gain an advantage in the marketplace. Improper distributor activity in new geographic markets could result in adverse publicity and can be particularly harmful to our ability to ultimately enter these markets. Violations by our distributors of applicable law or of our policies and procedures in dealing with customers could reflect negatively on our products and operations, and harm our business reputation. In addition, it is possible that a court could hold us civilly or criminally accountable based on vicarious liability because of the actions of our distributors. If any of these events occur, our business, financial condition, or results of operations could be materially adversely affected.distributorsmembers to comply with applicable laws and regulations regarding product claims and advertising, good manufacturing practices, the regulation of our network marketing program, the licensing of our products for sale in our target markets or other aspects of our business, whether or not resulting in enforcement actions or the imposition of penalties, could have an adverse effect on our goodwill and could negatively affect our ability to attract, motivate and retain distributors,members, which would negatively impact our ability to generate revenue. We cannot ensure that all distributorsmembers will comply with applicable legal requirements relating to the advertising, labeling, licensing or distribution of our products.distributors’members’ and consumers’ perception of the safety and quality of our products and ingredients, as well as similar products and ingredients distributed by other companies, can be significantly influenced by national media attention, publicized scientific research or findings, widespread product liability claims and other publicity concerning our products or ingredients or similar products and ingredients distributed by other companies. Adverse publicity, whether or not accurate or resulting from consumers’ use or misuse of our products, that associates consumption of our products or ingredients or any similar products or ingredients with illness or other adverse effects, questions the benefits of our or similar products or claims that any such products are ineffective, inappropriately labeled or have inaccurate instructions as to their use, could negatively impact our reputation or the market demand for our products.a limited product line.We offer a limited numberin recent years expanded our line of products, under our NHT Global brand. Our Premium Noni Juice™ and Alura™ products each account for a significant portionwe derive more than 10% of our total revenue and, together, account for a majorityfrom each of our total revenue. for these products decreases significantly, government regulation restricts thetheir sale, of these products, we are unable to adequately source (we currently source each from single suppliers) or deliver thesethe products, or we cease offering any of theseare unable to offer the products for any reason without a suitable replacement,replacements, our business, financial condition and results of operations could be materially and adversely affected.operationsoperational or other problems assisting with our products, our results could suffer. In the event any of our third-party manufacturers become unable or unwilling to continue to provide the products in required volumes and quality levels at acceptable prices, we will be required to identify and obtain acceptable replacement manufacturing sources or replacement products. There is no assurance that we will be able to obtain alternative manufacturing sources or products or be able to do so on a timely basis. An extended interruption in the supply of certain of our products may result in a substantial loss of revenue. In addition, any actual or perceived degradation of product quality as a result of our reliance on third party manufacturers may have an adverse effect on revenue or result in increased product returns.distributormember population to a new opportunity or to make it more difficult for us to recruit qualified distributors.members. There can be no assurance that, even if we are able to commence operations in foreign countries, there would be a sufficiently large population of potential distributorsmembers inclined to participate in a direct selling system offered by us. We believe our future success could depend in part on our ability to seamlessly integrate our business methods, including distributormember compensation plan, across all markets in which our products are sold. There can be no assurance that we would be able to further develop and maintain a seamless compensation program.Currency exchange rate fluctuations could lower our revenue and net income.In 2012 and 2013, approximately 95% of our revenue was recorded by subsidiaries located outside of North America. Revenue transactions and related commission payments, as well as other incurred expenses, are typically denominated in the local currency. Accordingly, our international subsidiaries use the local currency as their functional currency. The results of operations of our international subsidiaries are exposed to foreign currency exchange rate fluctuations during consolidation since we translate into U.S. dollars using the average exchanges rates for the period. As exchange rates vary, revenue and other operating results may differ materially from our expectations. Additionally, we may record significant gains or losses related to foreign-denominated cash and cash equivalents and the re-measurement of inter-company balances.We believe that our foreign currency exchange rate exposure is somewhat limited since the Hong Kong dollar is pegged to the U.S. dollar. We also purchase a significant majority of inventories in U.S. dollars. Our foreign currency exchange rate exposure, mainly to South Korean won, Taiwan dollar, Japanese yen, Chinese yuan, Russian ruble and European euro, represented approximately 25% and 18% of our revenue in 2012 and 2013, respectively. Our foreign currency exchange rate exposure may increase in the near future as our Greater China, Russia and European subsidiaries expand operations and we develop new markets. Additionally, our foreign currency exchange rate exposure would significantly increase if the Hong Kong dollar were no longer pegged to the U.S. dollar.Given our inability to predict the degree of exchange rate fluctuations, we cannot estimate the effect these fluctuations may have upon future reported results, product pricing or our overall financial condition. Further, to date we have not attempted to reduce our exposure to short-term exchange rate fluctuations by using foreign currency exchange contracts.Transfer pricing, duties and other tax regulations affect our business.In many countries, including the United States, we are subject to transfer pricing and other tax regulations designed to ensure that appropriate levels of income are reported as earned by our United States or local entities and are taxed accordingly. In addition, our operations are subject to regulations designed to ensure that appropriate levels of customs duties are assessed on the importation of our products.Our principal domicile is the United States. Under tax treaties, we are eligible to receive foreign tax credits in the United States for taxes paid abroad. Taxes paid to foreign taxing authorities may exceed the credits available to us, resulting in the payment of a higher overall effective tax rate on our worldwide operations.We have adopted transfer pricing agreements with our subsidiaries to regulate inter-company transfers, which agreements are subject to transfer pricing laws that regulate the flow of funds between the subsidiaries and the parent corporation for product purchases, management services, and contractual obligations, such as the payment of distributor compensation. We believe that we operate in compliance with all applicable transfer pricing laws, and we intend to continue to operate in compliance with such laws. However, there can be no assurance that we will continue to be found to be operating in compliance with transfer pricing laws, or that those laws would not be modified, which, as a result, may require changes in our operating procedures or otherwise may have a material adverse effect on our financial results or operations.Failure to properly pay business taxes or customs duties, including those in China, could have a material adverse effect.In the course of doing business we may be subject to various taxes, such as sales and use, value-added, franchise, income, and import duties. The failure to properly calculate, report and pay such taxes or duties when we are subject to them could have a material adverse effect on our financial condition and results of operations. Moreover, any change in the law or regulations regarding such taxes or duties, or any interpretation thereof, could result in an increase in the cost of doing business.distributors,members, which could harm our financial condition and operating results.distributorsmembers are subject to taxation, and in some instances, legislation or governmental agencies impose an obligation on us to collect the taxes, such as value added taxes, and to maintain appropriate records. In addition, we are subject to the risk in some jurisdictions of being responsible for social security and similar taxes with respect to our distributors.We may face litigation that could harm our business.We have been a party to lawsuits and other proceedings in the past. Prosecuting and defending potential litigation and other governmental proceedings may require significant expense and attention of our management. There can be no assurance that the significant money, time and effort spent will not adversely affect our business, financial condition and results of operations.●our products contain contaminants or unsafe ingredients;●our products include inadequate instructions as to their uses; or●our products include inadequate warnings concerning side effects and interactions with other substances.this report.our Annual Report on Form 10-K. As disclosed under Item 9A“Item 9A. Controls and Procedures” of this report, our management concludedhas delivered its report concluding that our internal control over financial reporting was effective at December 31, 2013.2016, and our independent registered public accounting firm has also delivered its attestation to the report. In the future, our continued assessment, or the assessment by our independent registered public accounting firm, could reveal significant deficiencies or material weaknesses in our internal controls, which may need to be disclosed in future Annual Reports on Form 10-K. We believe, at the current time, that we are taking appropriate steps to mitigate these risks. However, disclosures of this type can cause investors to lose confidence in our financial reporting and may negatively affect the price of our common stock. Moreover, effective internal controls are necessary to produce reliable financial reports and to prevent fraud. Deficiencies in our internal controls over financial reporting may negatively impact our business and operations.distributormember records, accurately track purchases and distributormember compensation payments, manage accounting operations, generate reports, and provide customer service and technical support. Any interruption in these systems could have a material adverse effect on our business, financial condition, and results of operations.distributorsmembers to leave our business, or otherwise materially adversely affect our business.distributormember compensation plans, our business is highly dependent on the efficient functioning of our information technology systems and operations, which are vulnerable to damage or interruption from fires, earthquakes, telecommunications failures, computer viruses and worms, hacking, denial of service attacks, software defects and other events. They are also subject to break-ins, sabotage, acts of vandalism and similar misconduct, as well as human error. Despite precautions implemented by our information technology staff, problems could result in interruptions in services and materially and adversely affect our business, financial condition and results of operations.distributorsmembers and customers, which could impact our revenues, expenses and financial condition. The potential for future terrorist attacks, the national and international responses to terrorist attacks, and other acts of war or hostility, such as challenges to Chinese sovereignty claims in the South China Sea or Chinese objection to the Taiwan independence movement and itsthe resultant tension in the Taiwan Strait, could materially and adversely affect our business, results of operations, and financial condition in ways that we currently cannot predict. Additionally, natural disasters less severe than the Indian Ocean tsunami that occurred in December 2004 may adversely affect our business, financial condition and results of operations.Tradingmay be volatileto sell shares when they want and sporadic, which could depress the market price of our common stock and make it difficult for our stockholders to resell their shares.There is currently a limitedat prices they find attractive.andhas historically been very volatile. Notwithstanding the volumetransition in trading of our common stock traded on any day may vary significantly from one day to another. Our common stock is currently quoted on the OTCQB tier of the OTC Market. TradingMarket to the NASDAQ Capital Market in February 2015, our stock quoted on the OTC Market’s OTCQB is often thin and characterized bycontinues to experience wide fluctuations in trading prices due to manyvolumes and prices. There are a number of factors that may have littlecontribute to do with our operations or business prospects. The availability of buyers and sellers represented by this volatility, could leadincluding the following:pricewill be developed or maintained for our common stock that is unrelated to operating performance. Moreover, the OTC Market’s OTCQB is not a stock exchange, and trading of securities quoted on the OTC Market’s OTCQB is often more sporadic than the trading of securities listed on a stock exchange like NASDAQ. There is no assurance that there will be a sufficient market in our stock, in which case it could be difficult for our stockholders to resell their shares.The exercise of our warrants may result in substantial dilution and may depress the market price of our common stock.As of February 28, 2014, we had outstanding 11,448,571 shares of common stock and also (i) 123,693 shares of Series A preferred stock convertible into the same number of shares of common stock and (ii) warrants issued in our October 2007 private placement exercisable for 1,375,952 shares of common stock at an exercise price of $3.52 per share. If these convertible securities are exercised or converted, and the shares of common stock issued upon such exercise or conversion are sold, our common stockholders may experience substantial dilution and the market price of our shares of common stock could decline. Further, the perception that such convertible securities might be exercised or converted could adversely affect the market price of our shares of common stock. In addition, holders of our warrants are likely to exercise them when, in all likelihood, we could obtain additional capital on terms more favorable to us than those provided by the warrants. The anti-dilution provisions of warrants to purchase 1,375,952 shares of our common stock would, if triggered, cause substantial dilution and may, therefore, make it particularly difficult to obtain new equity financing.theour common stock.Item 1B.UNRESOLVED STAFF COMMENTSNot applicable.Item 2. PROPERTIESapproximately 3,8004,900 square feet of office space in Dallas, TexasRolling Hills Estates, California for our corporate headquarters. Outside the United States,headquarters with terms expiring in September 2025. In addition, we lease 2,400 and 1,600 square feet of retail space in Monterey Park, California and Vancouver, British Columbia, respectively, to help further develop the market for our products in North America. The Monterey Park and Vancouver locations have terms expiring in August 2020 and February 2021, respectively. We also maintain an office in Dallas, Texas.South Korea.the Cayman Islands. We also lease a multi-purposedmulti-purpose facility and factory in Zhongshan, China intended toand 11 service stations throughout the city of Guangzhou, China that serve or will in the future serve the needs of our Chinese consumers. We contract with third parties for fulfillment and distribution operations in mostall of our international markets. Through our Russiana local service provider, we maintain marketing and distributormember centers in Almaty, Kazakhstan and Odessa, Ukraine.Moscow, Russia. We believe that our existing office space is in good condition, and is suitable and adequate for the conduct of our business.Item 3. LEGAL PROCEEDINGSNone.Item 4.MINE SAFETY DISCLOSURESPart II $ 1.68 $ 0.65 $ 1.44 $ 1.01 1.49 1.15 1.30 0.80 1.49 0.91 2.20 0.93 1.32 0.51 3.40 1.86 2016 2015 High Low High Low First quarter $ 36.19 $ 17.75 $ 18.29 $ 10.49 Second quarter 38.25 26.24 44.18 17.78 Third quarter 34.30 25.89 43.33 21.91 Fourth quarter 29.95 21.44 53.72 32.96 February 28, 2014,March 7, 2017, the last reported closing price of our common stock on the OTCQBas reported by Nasdaq was $4.66$27.95 per share.February 28, 2014,March 7, 2017, there were approximately 170125 record holders of our common stock (although we believe that the number of beneficial owners of our common stock is substantially greater).No dividendsever declared or paid onmade to holders of our common stock prior to the end of fiscal 2013. At December 31, 2013, we had accrued unpaid dividends of $98,000 with respect to the outstanding shares of Series A preferred stock, but such dividends had not been declared and we were under no obligation to pay such accrued dividends except in certain extraordinary circumstances. On March 7, 2014,stock:Declaration Date Per Share Amount Payment Date October 23, 2016 (special) $ 0.35 $ 3,941 November 25, 2016 October 23, 2016 0.08 901 November 25, 2016 July 19, 2016 0.07 787 August 26, 2016 April 21, 2016 0.06 686 May 20, 2016 March 1, 2016 0.05 576 March 24, 2016 Total $ 0.61 $ 6,891 Declaration Date Per Share Amount Payment Date October 21, 2015 $ 0.05 $ 598 November 20, 2015 July 28, 2015 0.04 489 August 28, 2015 May 4, 2015 0.03 372 May 29, 2015 February 27, 2015 0.02 250 March 27, 2015 Total $ 0.14 $ 1,709 dividend on each share of outstanding Series A preferred stock in the amount of $0.81507 per share representing the accrued unpaid dividends from May 4, 2007 through March 7, 2014. Simultaneously, the Board of Directors also declared acash dividend of $0.005$0.09 and a special cash dividend of $0.35 on each share of common stock outstanding. All suchSuch dividends are payable in cashwere paid on April 8, 2014March 3, 2017 to stockholders of record on March 28, 2014.February 21, 2017. Payment of any future dividends on shares of our Series A preferred stock and common stock will be at the discretion of our Board of Directors.Equity Compensation Plan InformationThe followingsets forth information regarding all compensation plans under which Company equity securities are authorized for issuance ascomparing the performance of our common stock to the S&P 500 Index and to a market-weighted index of publicly traded peers from the period from December 31, 2013: – $ – 1,083 1,083 
Period NHTC S&P 500 Peer Group December 31, 2011 $ 100 $ 100 $ 100 December 31, 2012 155 116 74 December 31, 2013 492 154 224 December 31, 2014 1,766 175 135 December 31, 2015 5,194 177 167 December 31, 2016 3,944 198 161 Purchases of Equity Securities by the Issuer and Affiliated PurchasersA summary of the Company’s purchases, as Trustee, of shares of its common stock during the quarter ended December 31, 2013 is as follows: 2,800 $ 2.00 75,165 69,265 2,100 3.31 77,265 67,165 2,100 3.46 79,365 65,065 (a) The shares were purchased in open market transactions under the Distributor and Employee Plans described in footnote (b) below.(b) On August 13, 2012, the Company disclosed in its Quarterly Report on Form 10-Q that its Board of Directors had, on that day, authorized the Company, acting as trustee for certain of its distributors, to execute a Rule 10b5-1 plan to purchase up to $60,000 of its common stock (less commissions and other transaction costs) in accordance with guidelines specified under Rule 10b5-1 of the Securities Exchange Act of 1934 and the Company's policies regarding stock transactions (the “Distributor Plan”) and that, on that same date, the Company’s Board of Directors further 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 (the “Employee Plan”). The Company may terminate the plans at any time. The distributors for whom the Company will purchase the stock as trustee under the Distributor Plan will receive the stock as compensation under a special incentive plan offered to certain distributors who are not citizens or residents of the United States. The employees for whom the Company will purchase stock as trustee under the Employee Plan 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 stock that is purchased under the Employee Plan that is forfeited by an employee whose employment terminates will be delivered to the Company and held by it as treasury stock.(c) The Company, as Trustee, completed its purchases under the Distributor Plan in October 2012, and began purchasing under the Employee Plan in December 2012. Under the initial 10b5-1 plan executed by the Company, as Trustee, with the Board’s authorization, the Company, as Trustee, would not purchase more than 2,800 shares per month. That 10b5-1 plan for the Employee Plan shares was replaced by a new 10b5-1 plan effective November 11, 2013. The Company, as Trustee, will not purchase more than 2,100 shares per month under the new 10b5-1 plan. The current 10b5-1 plan for the Employee Plan shares will expire on November 11, 2014, 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 Employee Plan purchases authorized by the Board.Not applicable under smaller reporting company disclosure rules. Year Ended December 31 2016 2015 2014 2013 2012 Consolidated Statements of Operations Data: Net sales $ 287,728 $ 264,860 $ 124,590 $ 52,527 $ 37,514 Cost of sales 54,903 54,098 26,981 12,551 9,685 Gross profit 232,825 210,762 97,609 39,976 27,829 Operating expenses: Commissions expense 125,050 126,598 56,997 24,053 15,724 Selling, general and administrative expenses 43,245 36,024 19,687 11,634 9,415 Depreciation and amortization 394 263 105 66 45 Total operating expenses 168,689 162,885 76,789 35,753 25,184 Income from operations 64,136 47,877 20,820 4,223 2,645 Other expense, net (59 ) (84 ) (184 ) (32 ) (39 ) Income before income taxes 64,077 47,793 20,636 4,191 2,606 Income tax provision (benefit) 8,991 552 266 102 (24 ) Net income 55,086 47,241 20,370 4,089 2,630 Preferred stock dividends — — (10 ) (15 ) (17 ) Net income available to common stockholders $ 55,086 $ 47,241 $ 20,360 $ 4,074 $ 2,613 Income per common share: Basic $ 4.84 $ 3.84 $ 1.67 $ 0.36 $ 0.24 Diluted $ 4.83 $ 3.82 $ 1.61 $ 0.36 $ 0.23 Weighted-average number of common shares outstanding: Basic 11,382 12,302 12,131 11,154 10,944 Diluted 11,407 12,372 12,600 11,331 11,234 Cash dividends declared per common share $ 0.61 $ 0.14 $ 0.03 $ — $ — Consolidated Balance Sheets Data: Cash and cash equivalents $ 125,921 $ 104,914 $ 44,816 $ 14,550 $ 4,207 Inventories, net 11,257 10,455 3,760 1,828 867 Working capital 84,090 56,199 25,253 3,598 (325 ) Long-term incentive 8,190 5,770 1,665 — — Total assets 148,051 124,152 52,540 19,827 8,219 Total stockholders’ equity 82,439 56,809 26,450 6,077 1,909 Consolidated Statements of Cash Flows Data: Net cash provided by (used in): Operating activities $ 53,174 $ 81,326 $ 30,613 $ 10,686 $ 2,214 Investing activities (905 ) (3,738 ) (339 ) (292 ) 397 Financing activities (30,595 ) (17,471 ) (189 ) (52 ) (3 ) Repurchase of common stock (23,704 ) (16,071 ) (4,661 ) (52 ) (3 ) Income taxes paid, net of refunds 8,791 707 60 71 34 In most markets, we sell our products to an independent distributor network that either uses the products themselves or resells them to consumers. Our wholly-owned subsidiaries have an active physical presence in the following markets: North America; Greater China, which consists of Hong Kong, Taiwan and China; Russia; South Korea; Singapore; Malaysia; Japan; and Europe, which consists of ItalyEurope. We also operate in Russia and Slovenia. In June and December 2013, we opened marketing centers in Almaty, Kazakhstan and Odessa, Ukraine, respectively, through our engagement with our Russiana local service provider. The Kazakhstan and Ukraine centers also opened for sales and distribution purposes in September 2013 and February 2014, respectively.Our distributor network operates in a seamless manner from market to market, except for the Chinese market, where we sell to consumers through an e-commerce platform. We believe that each of our operating segments should be aggregated into a single reportable segment as they have similar economic characteristics. Additionally, we believe that eachSee Note 10 of the operating segments are similarNotes to Consolidated Financial Statements in the nature“Item 8. Financial Statements and Supplementary Data” 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. Our e-commerce retail business in China does not require a direct selling license and allowsthis report for discounts on volume purchases. There is no separate segment manager who is held accountablefurther information about our net sales by our chief operating decision-makers, or anyone else, for operations, operating results and planning for the Chinese market on a stand-alone basis. Accordingly, we consider ourselves to be in a single reporting segment and operating unit structure.2013,2016, we were conducting business through 27,520118,960 active distributors.members, compared to 109,360 in 2015 and 54,360 in 2014. We consider a distributormember “active” if they have placed at least one product order with us during the preceding year. Currently we do not intend to devote material resources to opening any additional foreign markets in the near future. Our priority is to focus our resources in our most promising markets, which we consider to be Greater China and certain Commonwealth of Independent States (“CIS”) countries namely Russia, Ukrainewhere our existing members have the connections to recruit prospects and Kazakhstan.about 95%98% of our net sales from subsidiaries located outside North America, with sales inof our Hong Kong subsidiary representing 77%92% of net sales in the latest fiscal year. Because of the size of our foreign operations, operating results can be impacted negatively or positively by factors such as foreign currency fluctuations, 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 certainuncertain risks for our business, including improper claims or activities by our distributorsmembers and potential inability to obtain necessary product registrations.In June 2004, NHT Global obtained a general business licenseWe operate an e-commerce direct selling model in Hong Kong that generates revenue derived from the sale of products to members in Hong Kong and elsewhere, including China. Substantially all of our Hong Kong revenues are derived from the sale of products that are delivered to members in China. Direct selling is prohibitedThrough a separate Chinese entity, we operate an e-commerce retail platform in China withoutChina. We believe that neither of these activities require a direct selling license thatin China, which we do not have. In December 2005, we submittedcurrently hold. We have previously sought to obtain a direct selling license, and in August 2015 initiated the process for submitting a new preliminary application for a direct selling license. In June 2006,license in China. If we submitted a revised application package in accordance with new requirements issued by the Chinese government. In June 2007, we launched a new e-commerce retail platform in China that does not requireare able to obtain a direct selling license and is separate from our current worldwide platform. Wein China, we believe this model, which offers discounts based on volume purchases, will encourage repeat purchases of our products for personal consumptionthat the incentives inherent in the Chinese market. The platform is designed to be in compliance with our understanding of current laws and regulations in China. In November 2007, we filed a new, revised direct selling application incorporatingmodel in China would incrementally benefit our existing business. Increased sales in China that could be derived from obtaining a name change, our new e-commerce model and other developments. These direct selling applications were not approved or rejectedlicense may be partially offset by the pertinent authorities, but did not appear to materially progress. By 2009, the information contained in the most recent application was stale. The Company applied to temporarily withdraw the license application in February 2009 to furnish new information and intends to amend its applicationhigher fixed costs associated with the goal to re-apply in the future.establishment and maintenance of required service centers and branch offices. 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 enhance our e-commerce retail platform withconduct direct selling operations.Most of the Company’s Hong Kong revenue is derived from the sale of products that are delivered to members in China. After consulting with outside professionals, the Company believes that its Hong Kong e-commerce business does not violate any applicable laws in China even though it is used for the internet purchase of our products by buyers in China. But the government in China could, in the future, officially interpret its lawsoperations and regulations – or adopt new laws and regulations – to prohibit some or all of our e-commerce activities with China and, if our members engage in illegal activities in China, those actions couldwhether such operations would be attributed to us. In addition, other Chinese laws regarding how and when members may assemble and the activities that they may conduct, or the conditions under which the activities may be conducted, in China are subject to interpretations and enforcement attitudes that sometimes vary from province to province, among different levels of government, and from time to time. Members sometimes violate one or more of the laws regulating these activities, notwithstanding training that the Company attempts to provide. Enforcement measures regarding these violations, which can include arrests, raise the uncertainty and perceived risk associated with conducting this business, especially among those who are aware of the enforcement actions but not the specific activities leading to the enforcement. The Company believes that this has led some existing members in China – who are signed up as distributors in Hong Kong - to leave the business or curtail their selling activities and has led some potential members to choose not to participate. Among other things, the Company is combating this with more training and public relations efforts that are designed, among other things, to distinguish the Company from businesses that make no attempt to comply with the law. This environment creates uncertainty about the future of doing this type of business in China generally and under our business model, specifically.See “Item 1A. Risk Factors—Because our Hong Kong operations account for a majority of our overall business….”products, enrollment packages, and shipping charges.products. Substantially all of our product sales are to independent distributorsmembers at published wholesale prices. Product sales are recorded when the products are shipped and title passes to independent distributors,members, which generally is upon our delivery to the carrier that completes delivery to the distributors.members. We estimate and accrue a reserve for product returns based on our return policies and historical experience. Enrollment package revenue, including any nonrefundable set-up fees, is deferred and recognized over the term of the arrangement, generally twelve months.distributors,members, import duties, packing materials, product royalties, costs of promotional materials sold to the Company’s distributorsour 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.Distributor typically our most significant expense and are classified as an operating expense. Under our compensation plan, distributorsmembers 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 distributormember network across all geographic markets, exceptmarkets. Our China where we launchedsubsidiary maintains an e-commerce retail platform and dodoes not pay any commissions. This "seamless"“seamless” compensation plan enables a distributormember located in one country to sponsorenroll other distributorsmembers located in other countries where we are authorized to conduct our business. Currently, there are basically two ways in which our distributorsmembers can earn income:●Through retail markups on sales of products purchased by distributors at wholesale prices (in some markets, sales are for personal consumption only and income may not be earned through retail mark-ups on sales in that market); and●Through commissions paid on product purchases made by their down-line distributors.cost.price. As the distributor’smember’s business expands from successfully sponsoringenrolling other distributorsmembers who in turn expand their own businesses by sponsoringselling product to other distributors,members, the distributormember receives higher commissions from purchases made by an expanding down-line network. ToIn some of our markets, to be eligible to receive commissions, a distributormember 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 distributormember to be eligible to receive commissions. In determining commissions, the number of levels of down-line distributorsmembers included within the distributor'smember’s commissionable group increases as the number of distributorshipsmemberships directly below the distributormember increases. Under our current compensation plan, certain of our commission payouts may be limited to a hard cap in terms ofdollar 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 distributors,enrolled members, as well as bonuses on commissions earned by up to three generations of personally sponsored distributors. Distributorsenrolled members. Members can also earn income, trips and other prizes in specific time-limited promotions and contests we hold from time to time. DistributorMember commissions are dependent on the sales mix and, for each of fiscal 20122016, 2015 and 2013,2014 represented 42%44%, 48% and 46%, respectively, of net sales, respectively. From time to timesales. Occasionally, we make modifications and enhancements to our compensation plan to help motivate distributors,members, which can have an impact on distributormember commissions. From time to time weWe may also enter into agreements for business or market development, which maycould result in additional compensation to specific distributors. (including stock-based compensation), travel, credit card fees and assessments, professional fees, certain occupancy costs, and other corporate administrative expenses.expenses (including stock-based compensation). In addition, this category includes selling, marketing, and promotion expenses including(including the costs of distributormember training events and conventions whichthat are designed to increase both product awareness and distributor recruitment.member recruitment). Because our various distributormember conventions are not always held at the same time each year, interim period comparisons will be impacted accordingly.a separate component of stockholders’ equity and represent the only component of accumulated other comprehensive income.dollar. indicated. 100.0 % 100.0 % 25.8 23.9 74.2 76.1 41.9 45.8 25.1 22.2 0.1 0.1 67.1 68.1 7.1 8.0 (0.1 ) 7.0 8.0 0.2 7.0 % 7.8 % Net Sales Year Ended December 31, 2016 2015 2014 Net sales 100.0 % 100.0 % 100.0 % Cost of sales 19.1 20.4 21.7 Gross profit 80.9 79.6 78.3 Operating expenses: Commissions expense 43.5 47.8 45.7 Selling, general and administrative expenses 15.0 13.6 15.8 Depreciation and amortization 0.1 0.1 0.1 Total operating expenses 58.6 61.5 61.6 Income from operations 22.3 18.1 16.7 Other expense, net — — (0.2 ) Income before income taxes 22.3 18.1 16.5 Income tax provision 3.1 0.2 0.2 Net income 19.2 % 17.9 % 16.3 % $ 1,816 4.8 % $ 2,361 4.5 % 26,235 69.9 40,585 77.3 1,081 2.9 791 1.5 2,074 5.5 3,387 6.4 285 0.8 702 1.3 168 0.5 106 0.2 5,540 14.8 4,354 8.3 315 0.8 241 0.5 $ 37,514 100.0 % $ 52,527 100.0 % Year Ended December 31, 2016 2015 2014 North America $ 5,909 2.0 % $ 5,992 2.3 % $ 2,812 2.3 % 263,482 91.6 245,737 92.8 111,028 89.1 China 9,086 3.2 4,425 1.7 1,538 1.2 Taiwan 6,213 2.2 5,965 2.3 4,628 3.7 South Korea 691 0.2 1,128 0.4 1,009 0.8 Japan 86 — 92 — 89 0.1 Singapore 169 0.1 — — — — 858 0.3 1,139 0.4 3,113 2.5 Europe 1,234 0.4 382 0.1 373 0.3 Total $ 287,728 100.0 % $ 264,860 100.0 % $ 124,590 100.0 % $52.5$287.7 million for the year ended December 31, 20132016 compared with $37.5$264.9 million a year ago, an increase of $15.0$22.8 million, or 40%9%. Hong Kong net sales, substantially all of which were shipped to members residing in China, increased $14.4$17.7 million, or 55%7%, over the prior year. TheHong Kong experienced an increase can be attributableof 7,800 active members, or 8%, during 2016, which contributed to the year-long marketing campaignincrease in product sales volume. We also launched new Wellness products during 2016, which contributed approximately $11.2 million to our top-line growth. However, we believe our net sales increase was adversely impacted by the following:in-market activities designed to reward our members with additional cash bonuses, prizesshut down businesses in July, August and advancementearly September 2016.our international recognition program, which we refer to2016 as the Supreme Bonus program. A similar2015 supplemental incentive programtrip promotion to the U.S., which proved to be appealing and contributed to increased sales in 2015.prior year endedproduct pricing in June.elsewhere increased $663,000,$5.1 million, or 6%27%, compared with the prior year, driven by a year ago. A decrease105% increase in the Russian market was substantiallyour China e-commerce business and a 223% increase in Europe, offset by increases in Taiwan andthe performance of South Korea, bothwhich decreased 39% and our Commonwealth of Independent States (“CIS”) market, which benefited from additionaldecreased 25%. The $4.7 million net sales and marketing programs offeredincrease in our China e-commerce business was primarily driven by increased sales in our Home product line, which was introduced during 2013.2013, the operating subsidiaries of the Company had 27,520 active distributors, compared to 20,680 active distributors at December 31, 2012. Hong Kong experienced an increase of 6,060 active distributors, or 43%, from December 31, 2012 to December 31, 2013.As of December 31, 2013, the Company had2016, deferred revenue was $4.9 million, which primarily consisted of $2.6$2.2 million of which $1.9 million pertained toin unshipped product orders, $449,000 pertainedand $2.3 million and $430,000 pertaining to auto ship advances and $182,000 pertained to unamortized enrollment package revenue.76.1%80.9% of net sales for the year ended December 31, 20132016 compared with 74.2% of net sales for the year ended December 30, 2012. The margin increase is attributable to lower fees paid to our third-party service provider in Russia and lower importation costs incurred in the Russian market as a percentage of overall net sales, which occurs when sales from the Russian market comprise a lower percentage of our overall net sales. Additionally, the increase is attributable to the introduction of new higher margin products in Hong Kong in late 2012 and early 2013, as well as a price increase onPremium Noni Juice™ effective mid-June 2012 in Hong Kong.Distributor CommissionsDistributor commissions were 45.8%79.6% of net sales for the year ended December 31, 2013 compared with 41.9%2015. The gross profit margin percentage increase is due to higher event and training revenue, higher product margins and lower logistics costs.2012.2016 compared with 47.8% of net sales for the year ended December 31, 2015. The increase is due to the 12-month incentive program around our international recognition program, called the Supreme Bonus program. A comparable program in the prior year concluded at the end of the second quarter, which similarly resulted in distributor commissionsdecrease as a percentage of net sales around 44% during that particular period. Without suchresulted primarily from the reduction in our on-going cash and other incentive programs during 2013 orwhich cost 3.0% of net sales for the first halfyear ended December 31, 2016 compared with 6.4% of 2012,net sales for the year-over-year commission rate would have been roughly the same.$11.6$43.2 million for the year ended December 31, 20132016 compared with $9.4$36.0 million for the year ended December 31, 2012.2015. Selling, general and administrative expenses increased by $2.2$7.2 million, or 24%20%, mainly due to the following:●An aggregate $749,000 increase in employee compensation-related costs primarily resulting from employee incentive programs and new hires in Hong Kong and Russia during the latter half of 2012;●Employee-related travel increased $156,000an increase in event costs, member training costs, professional fees, and an increase in credit card fees and assessments due to higher net sales, offset by a decrease in our employee-related expenses, as compared to more support on incentive trips and at training events;●Severance cost increased $320,000 primarily due to the accrual of salary and benefit continuation per a terminated employment agreement in December 2013;●Credit card fees and assessments increased $404,000 due to higher net sales over the prior year; and●Higher professional fees of $261,000 resulting from the development of the Kazakhstan and Ukraine markets as well as professional fee adjustments recognized in the prior year.Other Expense, NetLoss on foreign exchange was $125,000 for the year ended December 31, 2012 due to the impact2015.strengthening currencies (against the U.S. dollar) earlier in the year on inter-company balances, namely the European euro and Russian ruble. The Company took certain steps during the second quarter of 2012 to mitigate its exposure to the European euro going forward. A loss on foreign exchange totaling $32,000$9.0 million was recognized for the year ended December 31, 2013.$102,000$552,000 was recognized for the year ended December 31, 2013 primarily related to our operations outside the United States,2015 compared with an income tax benefit of $24,000$266,000 for the year ended December 31, 2012.2014. The Company did not recognizeincrease was due to greater profitability of our international operations, as well as the repatriation of foreign earnings back to the U.S. during the year. As a result of capital return activities approved by the Board of Directors during the three months ended September 30, 2015, and anticipated future capital return activities intended to take full advantage of existing U.S. net operating losses, we determined that a portion of our undistributed foreign earnings were no longer deemed reinvested indefinitely by our non-U.S. subsidiaries beginning in the quarter ended September 30, 2015. As such, an accumulated deferred tax benefitliability of $9.3 million was recorded against these undistributed earnings, which included the impact of utilization of foreign tax credits. However, because it was anticipated that these earnings would be offset by U.S. net operating losses that had previously been fully offset by a valuation allowance, we also released a similar amount of valuation allowance. Accordingly, there was no significant impact on the income tax provision for the year ended December 31, 2015.purposesimpact of undistributed foreign earnings that was planned to be repatriated to the U.S. as of December 31, 2015. All other undistributed foreign earnings were intended to be permanently reinvested in either 2012 or 2013 duenon-U.S. operations to uncertainty thatfund and expand the benefit will be realized.2013, the Company’s2016, our cash and cash equivalents totaled $14.6$125.9 million. Total cash and cash equivalents increased by $2.6$21.0 million and $10.3$60.1 million during 20122016 and 2013,2015, respectively.2013,2016, the ratio of current assets to current liabilities was 1.252.47 to 1.00 and the Companywe had $3.4$84.1 million of working capital. Current liabilities included deferred revenue of $2.6 million that consisted of unshipped product orders, auto ship advances and unamortized enrollment package revenues. The ratio of current assets to current liabilities excluding deferred revenue was 1.54 to 1.00. Working capital as of December 31, 20132016 increased $3.9$27.9 million compared to the Company’sour working capital as of December 31, 2012,2015, primarily due to cash generated from operations.20132016 was $10.7$53.2 million compared to $2.2$81.3 million during 2012.2015. The increasedecrease in operating cash flows resultsresulted primarily from the timing of increased commission-related payments, the increase of our members' utilization of our eWallet functionality and U.S. income tax payments resulting from the repatriation of overseas profits of $7.4 million, offset by a reduction in our inventory purchases and increased net sales increase year over year, as well as an increase in both unshipped orders and outstanding commission checks, and the timing difference of cash outlays associated with the incentive programs surrounding our international recognition program.$292,000$905,000 during 2013,2016. Software development costs of which $210,000$666,800 were purchasesincurred during the year ended December 31, 2016 for our Oracle ERP upgrade and enhancement of propertyour back office software platform. Cash flows used in investing activities totaled $3.7 million during the year ended December 31, 2015 and equipment. During November 2013, we began the build outconsisted primarily of our June 2015 funding of a multi-purposed facilitybank deposit amount in Zhongshan, China intendedthe amount of CNY 20 million (USD $3.3 million at June 30, 2015) for our direct selling license application. Such deposit is required by Chinese laws to serve the needs of Chinese consumers. Accumulated build-out costs for the facility totaled $102,000 during 2013, which was completed in January 2014. Also, asestablish a result of increased sales in South Korea during 2013, additionalconsumer protection fund. In August 2015, cash deposits in the amount of $82,000$218,000 were required to be held by areceived from certain South Korean credit card processing company. Cash provided by investing activitiescompanies. Additionally, buildout costs of $608,000 were incurred during 2012 was $397,000, which resulted from a $493,000 decrease2015 for new offices located in restricted cash. In April 2010,California, Hong Kong and Singapore, at the Company’s primary credit card processing company required thatmulti-purpose facility in Zhongshan, China and at the Company gradually increase to and maintain the reserve balance at $500,000. The Company reached the necessary reserve requirement during the second quarter of 2011. One-half of the reserve balance was returned to the Companynew Healthy Lifestyle Center in January 2012 and the remainder was returned in May 2012.2013 was limited2016 totaled $30.6 million. We used $23.7 million to the repurchase shares of our common stock in accordance with the Rule 10b5-1 plans authorized bystock. On January 12, 2016, the Board of Directors authorized an increase to our stock repurchase program first approved on August 13, 2012July 28, 2015 from $15.0 million to $70.0 million. Repurchases are expected to be executed to the extent that our earnings and cash-on-hand allow, and 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, we 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 us to acquire a specific number of shares, and may be suspended from time to time or discontinued. During February 2016, pursuant to the stock repurchase program, we authorized our broker to proceed with the purchase 100,000of shares of itsour common stock in the open market. During the year ended December 31, 2016, the stock repurchase program resulted in our purchasing a total of 903,031 shares of our common stock for an aggregate purchase price of $23.7 million, plus transaction costs. As of December 31, 2016, $32.0 million of the $70.0 million stock repurchase program approved on behalfJuly 28, 2015 and increased on January 12, 2016 remained available for future purchases, inclusive of its non-officer, overseas employees. Such purchases totaled $52,000. No significantrelated estimated income tax. Cash flows used in financing activities occurred during 2012.On March 7, 2014,2015 totaled $17.5 million, and consisted primarily of $16.1 million used to repurchase a total of 547,042 shares of our common stock and $1.7 million in cash dividends.Declaration Date Per Share Amount Record Date Payment Date October 23, 2016 (special) $ 0.35 $ 3,941 November 15, 2016 November 25, 2016 October 23, 2016 0.08 901 November 15, 2016 November 25, 2016 July 19, 2016 0.07 787 August 16, 2016 August 26, 2016 April 21, 2016 0.06 686 May 10, 2016 May 20, 2016 March 1, 2016 0.05 576 March 16, 2016 March 24, 2016 Total $ 0.61 $ 6,891 dividend on each share of outstanding Series A preferred stock in the amount of $0.81507 per share representing the accrued unpaid dividends from May 4, 2007 through March 7, 2014. Simultaneously, the Board of Directors also declared acash dividend of $0.005$0.09 and a special cash dividend of $0.35 on each share of common stock outstanding. All suchSuch dividends are payable in cashwere paid on April 8, 2014March 3, 2017 to stockholders of record on March 28, 2014.PaymentFebruary 21, 2017. Payment of any future dividends on shares of Series A preferred stock and common stock will be at the discretion of the Company’sour Board of Directors.The Company believesitsour existing internal liquidity, supported by cash on hand and cash flows from operations should be adequate to fund normal business operations and address itsour financial commitments for at least the next 12 months, assuming no significant unforeseen expense or revenue decline. If the Company’s foregoing beliefs or assumptions prove to be incorrect, however, the Company’s business, results of operations and financial condition could be materially adversely affected.See “Item 1A. Risk Factors.”The Company doesforeseeable future.Potentially the Company might receive additional external funding if currently outstanding warrants are exercised. Furthermore, ifIf necessary, the Companywe may attempt to generate more funding from the capital markets, but currently doesdo not believe that will be necessary.On October 19, 2007, the Company issued warrants to purchase 3,141,499 shares of common stock in connection with a convertible debentures financing. The warrants consisted of seven-year warrants to purchase 1,495,952 shares of common stock, one-year warrants to purchase 1,495,952 shares of common stock, and five-year warrants to purchase 149,595 shares of common stock. The term for each of the warrants began six months and one day after their respective issuance and each have an exercise price of $3.52 per share.Such one-year warrants expired unexercised on April 21, 2009 and such five-year warrants expired unexercised on April 21, 2013. Of the seven-year warrants to purchase 1,495,952 shares of common stock, as of February 28, 2014 warrants to purchase 120,0000 shares of common stock were exercised (resulting in gross proceeds of $422,000), leaving warrants to purchase 1,375,952 shares of common stock outstanding. These unexercised warrants expire April 21, 2015 if not previously exercised. Additionally, on May 4, 2013, warrants issued by the Company in a May 2007 private equity placement representing the right to purchase 2,059,307 shares of common stock expired unexercised.We do not intend to devote material resources to opening any additional foreign markets in the near future. promisingimportant markets, which we consider to be Greater China and certain CIS countries namely Russia, Ukrainewhere our existing members may have the connections to recruit prospects and Kazakhstan. Companyfollowing table sets forth unaudited quarterly operating results for each of the last eight fiscal quarters. The information for each of these quarters has been prepared on the same basis as the audited annual financial statements included elsewhere in this annual report and, in the opinion of management, includes all adjustments, which includes only normal recurring adjustments, necessary for the fair statement of the results of operations for these periods. This data should be read in conjunction with our audited consolidated financial statements and related notes included in “Item 8. Financial Statements and Supplementary Data” of this annual report. These quarterly operating results are not necessarily indicative of our operating results for any future period. 2016 2015 4th
Quarter 3rd
Quarter 2nd
Quarter 1st
Quarter (In Thousands, Except Per Share Data) Net sales $ 62,312 $ 70,679 $ 80,391 $ 74,346 $ 73,656 $ 80,779 $ 69,716 $ 40,709 Gross profit 50,375 57,052 65,332 60,066 58,583 64,778 55,622 31,779 Income from operations 20,014 15,208 14,927 13,987 13,893 14,803 12,263 6,918 Net income 19,048 12,557 12,201 11,280 13,699 14,531 12,273 6,738 Income per common share: Basic 1.70 1.12 1.08 0.96 1.13 1.19 0.99 0.54 Diluted 1.70 1.12 1.07 0.95 1.13 1.18 0.98 0.54 Total 2017 2018-2019 2020-2021 Thereafter Operating leases $ 3,923 $ 1,559 $ 1,154 $ 510 $ 700 Purchase obligations 20,745 9,725 11,020 — — Long-term incentive 10,064 1,874 2,390 1,963 3,837 Other commitments 357 107 163 87 — Total $ 35,089 $ 13,265 $ 14,727 $ 2,560 $ 4,537 itsour international subsidiaries, with expirations through March 2018.the Companywe entered into an exclusive distribution agreement with one of itsour suppliers to purchase itstheir product through July 2016.2016 which automatically renews annually unless terminated 90 days prior to the termination date. To maintain exclusivity, the Company iswe are required to purchase a minimum of $40,000 of product per month until the termination date. As of December 31, 2013, the Company was2016, we were in compliance with the exclusivity provision.Company hasterm of the agreement is three years commencing February 2016 and shall automatically renew for successive three year terms unless notice of termination is provided by either party.itsour management team that can be terminated by either the employee or the Companyus 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. In addition, the Company has an employment agreement with another employee that can be terminated at will by either the employee or the Company, provided that the Company must pay a specified amount if it terminates the agreement without cause, as defined, or the employee terminates the agreement with good reason, as defined. Accrued severance obligations totaling $296,000 as of December 31, 2013 are expected to be paid during 2014.Company has identified certain policiespreparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reported period. The process of determining significant estimates is fact specific and takes into account historical experience and current and expected economic conditions. To the extent that there are important tomaterial differences between the portrayal of its financial conditionestimates and actual results, future results of operations. operations will be affected.TheseManagement believes our critical accounting policies and estimates require the application of significant judgment by the Company’s management.The most significant accounting estimates inherent in the preparation of the Company’s financial statements include estimates associated with obsolete inventory and the fair value of acquired intangible assets, including goodwill,are those related to revenue recognition, as well as those used in the determination of liabilities related to sales returns, distributormember commissions and income taxes. Various assumptions and other factors prompt the determination of these significant estimates. The process of determining significant estimates is fact specific and takes into account historical experience and current and expected economic conditions. The actual results may differ materially and adversely from the Company’s estimates. To the extent that there are material differences between the estimates and actual results, future results of operations will be affected. The Company’s critical accounting policies at December 31, 2013 include the following:Inventory Valuation. The Company reviews its inventory carrying value and compares it to the net realizable value of its inventory and any inventory value in excess of net realizable value is written down. In addition, the Company reviews its inventory for obsolescence and any inventory identified as obsolete is reserved or written off. The Company’s determination of obsolescence is based on assumptions about the demand for its products, product expiration dates, estimated future sales, and management’s future plans. Also, if actual sales or management plans are less favorable than those originally projected by management, additional inventory reserves or write-downs may be required. At December 31, 2012 and 2013, the Company’s inventory value was $867,000 and $1.8 million, respectively, net of reserves of $72,000 and zero, respectively. No significant provision was recorded during the periods presented.Valuation of Goodwill.In accordance with accounting principles generally accepted in the United States of America, the Company assesses qualitative factors in order to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, through this qualitative assessment, the conclusion is made that it is more likely than not that a reporting unit’s fair value is less than its carrying amount, a two-step impairment test is performed. The Company’s policy is to test for impairment annually during the fourth quarter. At December 31, 2012 and 2013, goodwill of $1.8 million was reflected on the Company’s balance sheet. No impairment of goodwill was recognized during the periods presented.Allowance for Sales Returns.An allowance for sales returns is provided during the period the product is shipped. The allowance 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 3% of sales. Sales returns were 2% and 1% of sales for the years ended December 31, 2012 and 2013, respectively. The allowance for sales returns was $181,000 and $504,000 at December 31, 2012 and 2013, respectively. No material changes in estimates have been recognized during the periods presented.distributors.members. Product sales to distributorsmembers are made pursuant to a distributormember agreement that provides for transfer of both title and risk of loss upon our delivery to the carrier that completes delivery to the distributors,members, which is commonly referred to as “F.O.B. Shipping Point.” The CompanyWe primarily receivesreceive payment by credit card at the time distributorsmembers place orders. The Company’sOur sales arrangements do not contain right of inspection or customer acceptance provisions other than general rights of return. Amounts received for unshipped product are recorded as deferred revenue. Such amounts totaled $384,000$2.2 million and $1.9$1.8 million at December 31, 20122016 and 2013,2015, respectively. Shipping charges billed to distributorsmembers are included in net sales. Costs associated with shipments are included in cost of sales.distributorsmembers access to both a personalized marketing website and a business management system. No upfront costs are deferred as the amount is nominal. At December 31, 20122016 and 2013,2015, enrollment package revenue totaling $189,000$430,000 and $182,000$331,000 was deferred, respectively. Although the Company haswe have no immediate plans to significantly change the terms or conditions of enrollment packages, any changes in the future could result in additional revenue deferrals or could cause us to recognize the deferred revenue over a longer period of time. Additionally, deferred revenue includes advances for auto ship orders. In certain markets, when a distributor’smember’s cumulative commission income reaches a certain threshold, a percentage of the distributor’smember’s weekly commission is held back as an advance and applied to an auto ship order once the accumulated amount of the advances is sufficient to pay for the pre-selected auto ship package of the distributor.member. Such advances were $263,000$2.3 million and $449,000$1.6 million at December 31, 20122016 and 2013,2015, respectively.Distributor distributorsmembers earn commissions based on total personal and group bonus volume points per weekly sales period. Each of our products are designated a specified number of bonus volume points, which is essentially a percentage of the product’s wholesale price. The Company accruesWe accrue commissions when earned and paysas the related revenue is recognized and pay commissions on product sales generally two weeks following the end of the weekly sales period.In some markets, we also pay certain bonuses on purchases by up to three generations of personally sponsored distributors, as well as bonuses on commissions earned by up to three generations of personally sponsored distributors. distributorsmembers may also earn incentives based on meeting certain qualifications during a designated incentive period, which may range from several weeks to up to a year. These incentives may be both monetary and non-monetary in nature. The Company estimatesFor each individual incentive, we estimate the total number of qualifiers as well as the expected per qualifier cost and accrues theaccrue all costs associated with incentives throughout the qualification period. We regularly review and update, if necessary, the estimates of both qualifiers and cost as more information is obtained during the qualification period. Any resulting change in total cost is recognized over the duration of theremaining qualification period based on distributor achievement of the qualification requirements.period. Accrued commissions, including the estimated cost of our international recognition incentive program and other supplemental programs,totaled $1.3$13.6 million and $4.0$19.6 million at December 31, 20122016 and 2013,2015, respectively.Tax Valuation Allowance.The Company evaluatesitsour deferred tax assets and recordsrecord a valuation allowance when it believeswe believe a portion or all of itsour deferred tax assets may not be realized. The Company increased the valuation allowance to equal its netDeferred tax expense or benefit is a result of changes in deferred tax assets during 2005 dueand liabilities. Based on the technical merits of our tax position, tax benefits may be recognized if we determine it is more likely than not that our position will be sustained on examination by tax authorities. The complex nature of these estimates requires us to anticipate the likely application of tax law and make judgments on the largest benefit that has a greater than fifty percent likelihood of being realized prior to the uncertaintycompletion and filing of future operating results.tax returns for such periods. As of December 31, 2016, we no longer have a valuation allowance against our U.S. deferred tax assets. We maintain a valuation allowance in certain foreign jurisdictions with an overall tax 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. During 2012 and 2013, no such reduction in the valuation allowance occurred. Any reductions in the valuation allowance will reduce future income tax provisions.We believeAs a result of capital return activities, we determined that we operate in compliance with all applicable transfer pricing laws and we intend to continue to operate in compliance with such laws. However, there can bea portion of our current undistributed foreign earnings are no assurance that welonger deemed reinvested indefinitely by our non-U.S. subsidiaries. We will continue to be foundperiodically reassess the needs of our foreign subsidiaries and update our indefinite reinvestment assertion as necessary. To the extent that additional foreign earnings are not deemed permanently reinvested, we expect to recognize additional income tax provision at the applicable U.S. corporate tax rate. As of December 31, 2016, we recorded a deferred tax liability for earnings that we plans to repatriate out of accumulated earnings in future periods. All undistributed earnings in excess of 50% of current earnings on an annual basis are intended to be operatingreinvested indefinitely as of December 31, 2016.compliance with transfer pricing laws, or that those laws would not be modified, which, as a result, may requireour business, changes in our operating procedures. If the United States Internal Revenue Service or the taxing authorities of any other jurisdiction were to successfully challenge these agreements, plans, or arrangements, or requirecorporate structure, changes in the geographic mix and amount of income, applicable tax laws and regulations, communications with tax authorities, as well as our transfer pricing practices, we could be required to pay higher taxes, interestestimated and penalties, andactual level of annual pre-tax income. We adjust our earnings would be adversely affected.income tax provision in the reporting period in which the change in our estimated rate occurs so that the year-to-date provision is consistent with the anticipated annual tax rate. Not applicable under smaller reporting company disclosure rules.PagePage 31323334353637Dallas, Texas20132016 and 2012,2015, and the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for each of the years in the two-yearthree-year period ended December 31, 2013. These consolidated2016. We also have audited the Company’s internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements, are the responsibilityfor maintaining effective internal control over financial reporting, and for its assessment of the Company’s management.effectiveness of internal control over financial reporting, included in the accompanying “Management's Annual Report on Internal Control over Financial Reporting”. Our responsibility is to express an opinion on these financial statements and an opinion on the Company’s internal control over financial reporting based on our audits.misstatement. The Company is not required to have, or were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration ofmisstatement and whether effective internal control over financial reporting as a basis for designing audit procedures that are appropriatewas maintained in the circumstances, but not for the purpose of expressing an opinion on the effectivenessall material respects. Our audits of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includesstatements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well asand evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinion.20132016 and 2012,2015, and the results of its operations and its cash flows for each of the years in the two-yearthree-year period ended December 31, 2013,2016, in conformity with accounting principles generally accepted in the United States of America.PLLCDallas, TexasMarch 7, 2014 $ 4,207 $ 14,550 122 134 867 1,828 641 658 5,837 17,170 121 265 1,764 1,764 239 328 258 300 $ 8,219 $ 19,827 $ 1,385 $ 3,058 10 25 1,308 3,962 1,688 3,146 836 2,569 92 108 991 882 6,310 13,750 124 111 11 11 80,584 80,655 (78,708 ) (74,619 ) (102 ) (81 ) 1,909 6,077 $ 8,219 $ 19,827 December 31, 2016 2015 ASSETS Current assets: Cash and cash equivalents $ 125,921 $ 104,914 Inventories, net 11,257 10,455 Other current assets 4,066 2,343 Total current assets 141,244 117,712 Property and equipment, net 1,388 894 Goodwill 1,764 1,764 Restricted cash 2,963 3,166 Other assets 692 616 Total assets $ 148,051 $ 124,152 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 2,145 $ 2,862 Income taxes payable 663 379 Accrued commissions 13,611 19,634 Other accrued expenses 14,989 16,703 Deferred revenue 4,948 4,011 Amounts held in eWallets 19,165 16,414 Other current liabilities 1,633 1,510 Total current liabilities 57,154 61,513 Deferred tax liability 268 60 Long-term incentive 8,190 5,770 Total liabilities 65,612 67,343 Commitments and contingencies Stockholders’ equity: Preferred stock, $0.001 par value; 5,000,000 shares authorized; no shares issued and outstanding at December 31, 2016 and 2015 — — Common stock, $0.001 par value; 50,000,000 shares authorized; 12,979,414 shares issued at December 31, 2016 and 2015 13 13 Additional paid-in capital 86,574 85,963 Retained earnings (accumulated deficit) 38,548 (9,647 ) Accumulated other comprehensive loss (807 ) (101 ) Treasury stock, at cost; 1,692,218 and 840,202 shares at December 31, 2016 and 2015, respectively (41,889 ) (19,419 ) Total stockholders’ equity 82,439 56,809 Total liabilities and stockholders’ equity $ 148,051 $ 124,152 $ 37,514 $ 52,527 9,685 12,551 27,829 39,976 15,724 24,053 9,415 11,634 45 66 25,184 35,753 2,645 4,223 (39 ) (32 ) 2,606 4,191 (24 ) 102 2,630 4,089 (17 ) (15 ) $ 2,613 $ 4,074 $ 0.24 $ 0.36 $ 0.23 $ 0.36 10,944 11,154 11,234 11,331 Year Ended December 31, 2016 2015 2014 Net sales $ 287,728 $ 264,860 $ 124,590 Cost of sales 54,903 54,098 26,981 Gross profit 232,825 210,762 97,609 Operating expenses: Commissions expense 125,050 126,598 56,997 Selling, general and administrative expenses 43,245 36,024 19,687 Depreciation and amortization 394 263 105 Total operating expenses 168,689 162,885 76,789 Income from operations 64,136 47,877 20,820 Other expense, net (59 ) (84 ) (184 ) Income before income taxes 64,077 47,793 20,636 Income tax provision 8,991 552 266 Net income 55,086 47,241 20,370 Preferred stock dividends — — (10 ) Net income available to common stockholders $ 55,086 $ 47,241 $ 20,360 Income per common share: Basic $ 4.84 $ 3.84 $ 1.67 Diluted $ 4.83 $ 3.82 $ 1.61 Weighted-average number of common shares outstanding: Basic 11,382 12,302 12,131 Diluted 11,407 12,372 12,600 Cash dividends declared per common share $ 0.61 $ 0.14 $ 0.03 $ 2,630 $ 4,089 (3 ) 21 $ 2,627 $ 4,110 Year Ended December 31, 2016 2015 2014 Net income $ 55,086 $ 47,241 $ 20,370 Other comprehensive income (loss), net of tax: Foreign currency translation adjustments (838 ) (79 ) 143 Release of cumulative translation adjustment 132 (82 ) — Net change in foreign currency translation adjustment (706 ) (161 ) 143 Unrealized losses on available-for-sale securities — (2 ) — Comprehensive income $ 54,380 $ 47,078 $ 20,513 Preferred Stock Common Stock Accumulated Capital Deficit Loss Total 138,400 $ 124 11,326,323 $ 11 $ 80,493 $ (81,338 ) $ (99 ) $ (809 ) 2,630 2,630 (2,275 ) (3 ) (3 ) (3 ) (3 ) 94 94 138,400 124 11,324,048 11 80,584 (78,708 ) (102 ) 1,909 4,089 4,089 (14,707 ) (13 ) 14,707 13 (32,660 ) (52 ) (52 ) 26,676 21 21 110 110 123,693 $ 111 11,332,771 $ 11 $ 80,655 $ (74,619 ) $ (81 ) $ 6,077 Preferred Stock Common Stock Treasury Stock Shares Amount Shares Amount Shares Amount Total BALANCE, December 31, 2013 123,693 $ 111 11,359,769 $ 11 $ 80,690 $ (74,619 ) $ (81 ) (26,998 ) $ (35 ) $ 6,077 Net income — — — — — 20,370 — — — 20,370 Conversion of Series A preferred stock (123,693 ) ) 123,693 — 111 — — — — — Exercise of warrants — — 1,407,855 2 4,946 — — — — 4,948 Repurchase of common stock — — — — — — — (382,564 ) (4,661 ) (4,661 ) Common stock issued — — — — (46 ) (74 ) — 25,342 120 — Dividends declared — — — — — (476 ) — — — (476 ) Foreign currency translation adjustments — — — — — — 143 — — 143 Stock-based compensation — — — — 49 — — — — 49 BALANCE, December 31, 2014 — — 12,891,317 13 85,750 (54,799 ) 62 (384,220 ) (4,576 ) 26,450 Net income — — — — — 47,241 — — — 47,241 Exercise of warrants — — 88,097 — 309 — — — — 309 Repurchase of common stock — — — — — — — (547,042 ) (16,071 ) (16,071 ) Common stock issued — — — — (182 ) (380 ) — 91,060 1,228 666 Dividends declared — — — — — (1,709 ) — — — (1,709 ) Elimination of CTA upon dissolution — — — — — — (82 ) — — (82 ) Foreign currency translation adjustments — — — — — — (79 ) — — (79 ) Unrealized loss on available-for-sale securities — — — — — — (2 ) — — (2 ) Stock-based compensation — — — — 86 — — — — 86 BALANCE, December 31, 2015 — — 12,979,414 13 85,963 (9,647 ) (101 ) (840,202 ) (19,419 ) 56,809 Net income — — — — — 55,086 — — — 55,086 Repurchase of common stock — — — — — — — (903,031 ) (23,704 ) (23,704 ) Common stock issued — — — — 507 — — 51,015 1,234 1,741 Dividends declared — — — — — (6,891 ) — — — (6,891 ) Elimination of CTA upon dissolution — — — — — — 132 — — 132 Foreign currency translation adjustments — — — — — — (838 ) — — (838 ) Stock-based compensation — — — — 104 — — — — 104 BALANCE, December 31, 2016 — $ — 12,979,414 $ 13 $ 86,574 $ 38,548 $ (807 ) (1,692,218 ) $ (41,889 ) $ 82,439 $ 2,630 $ 4,089 45 66 94 110 (56 ) 16 (24 ) (17 ) 236 (974 ) (95 ) (35 ) (5 ) (38 ) (826 ) 1,673 (1 ) 16 117 2,679 203 1,467 (140 ) 1,738 36 (104 ) 2,214 10,686 (96 ) (210 ) 493 (82 ) 397 (292 ) (3 ) (52 ) (3 ) (52 ) (18 ) 1 2,590 10,343 1,617 4,207 $ 4,207 $ 14,550 Year Ended December 31, 2016 2015 2014 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 55,086 $ 47,241 $ 20,370 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 394 263 105 Stock-based compensation 104 86 49 Cumulative translation adjustment realized in net income 132 (82 ) — Deferred income taxes 217 (15 ) (43 ) Changes in assets and liabilities: Inventories, net (851 ) (6,762 ) (2,029 ) Other current assets (1,681 ) (1,025 ) (501 ) Other assets (90 ) (267 ) (85 ) Accounts payable (714 ) 637 (822 ) Income taxes payable 303 (115 ) 243 Accrued commissions (6,031 ) 10,840 5,077 Other accrued expenses 51 10,714 3,706 Deferred revenue 947 1,331 147 Amounts held in eWallets 2,752 14,350 2,065 Other current liabilities 135 25 666 Long-term incentive 2,420 4,105 1,665 Net cash provided by operating activities 53,174 81,326 30,613 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (905 ) (710 ) (339 ) Increase in restricted cash — (3,028 ) — Net cash used in investing activities (905 ) (3,738 ) (339 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from exercise of warrants — 309 4,948 Repurchase of common stock (23,704 ) (16,071 ) (4,661 ) Dividends paid (6,891 ) (1,709 ) (476 ) Net cash used in financing activities (30,595 ) (17,471 ) (189 ) Effect of exchange rates on cash and cash equivalents (667 ) (19 ) 181 Net increase in cash and cash equivalents 21,007 60,098 30,266 CASH AND CASH EQUIVALENTS, beginning of period 104,914 44,816 14,550 CASH AND CASH EQUIVALENTS, end of period $ 125,921 $ 104,914 $ 44,816 (the “Company”), a Delaware corporation (whether or not including its subsidiaries, the “Company”), is an international direct-selling and e-commerce company headquartered in Dallas, Texas.company. Subsidiaries controlled by the Company sell personal care, wellness, and “quality of life” products under the “NHT Global” brand. In most markets, we sell our products to an independent member network that either uses the products themselves or resells them to consumers.OurRussia; South Korea; Singapore; Malaysia; Japan; and Europe, which consists of ItalyEurope. The Company also operates in Russia and Slovenia. In June 2013, we opened a marketing center in Almaty, Kazakhstan through ourits engagement with our Russiana local service provider. The center also opened for sales and distribution purposes in2013. A similar fully-operational facility opened in Odessa, Ukraine in February 2014.obsolete inventory and the fair value of acquired intangible assets, including goodwill, revenue recognition, as well as those used in the determination of liabilities related to sales returns, distributor commissions and income taxes. Various assumptions and other factors prompt the determination of these significant estimates. The process of determining significant estimates is fact specific and takes into account historical experience and current and expected economic conditions. The actual results may differ materially and adversely from the Company’s estimates. To the extent that there are material differences between the estimates and actual results, future results of operations will be affected.Company includescost of debt securities is adjusted for amortization of premiums and discounts to maturity. This amortization is included in its cashother income. Realized gains and losses, as well as interest income, are also included in other income. The fair values of securities are based on quoted market prices.credit card receivables due from its major credit card processor, which servesat the Hong Kong, North America, Europe, and Japan markets,end of each period were as the cash proceeds from credit card receivables are received within two to five days. December 31, 2016 2015 Cash $ 52,453 $ 47,431 Cash equivalents 73,468 57,483 Total cash and cash equivalents $ 125,921 $ 104,914
In June 2015, the Company funded a bank deposit account in the amount of CNY 20 million (USD 2.9 million at December 31, 2016) in anticipation of submitting a direct selling license application in China. Such deposit is required by Chinese laws to establish a consumer protection fund.Restricted Cashthose cardsthey require the Company to provide 100% collateral before processing transactions, which must be maintained indefinitely.2012,2016 and 2015, the reserve for obsolescence totaled $72,000. No such reserve existed at December 31, 2013.In accordance with accounting principles generally accepted in the United States of America, theWeThe Company did not recognize any impairment charges for goodwill during the periods presented.reverse.be recovered or settled. Deferred tax expense or benefit is a result of changes in deferred tax assets and liabilities. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be ultimately realized.realized based on the more likely than not recognition criteria. The Company recognizes tax benefits from uncertain tax positions only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The Company has evaluated its tax positions and determined that there are no uncertain tax positions for the current year or years prior. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate resolution. The Company recognizes interest and penalties related to unrecognized tax benefits as a component of income tax expense. Deferred taxes are not provided on the portion of undistributed earnings of subsidiaries outside of the United States when these earnings are considered permanently reinvested.CompanyeWallet functionality allows members to place new product orders utilizing eWallet available funds and/or request commission payout via multiple payment methods. Amounts held in eWallets are reflected on the balance sheet as a current liability.its subsidiaries file income tax returnsthe remaining fifty percent of the payment earned is payable in thirty-five equal consecutive monthly installments commencing in February 2021 and ending in December 2023. As such, certain installments to be paid are reflected on the balance sheet as a non-current liability, and the current portion of the installments is reflected in other accrued expenses.United States, various states, and foreign jurisdictions. The Company is no longer subject to U.S. federal income tax examinations for years prior to 2010, and is no longer subject to state income tax examinations for years prior to 2009. No jurisdictions are currently examining any income tax returnsform of common stock or other common stock rights having an equivalent cash value under the terms of the Company or its subsidiaries.a separate component of stockholders’ equity and represents the only component of accumulated other comprehensive income.$125,000$333,000, $204,000 and $32,000$202,000 was recognized during 20122016, 2015 and 2013,2014, respectively.distributors.members. Product sales to distributorsmembers are made pursuant to a distributormember agreement that provides for transfer of both title and risk of loss upon ourthe Company’s delivery to the carrier that completes delivery to the distributors,members, which is commonly referred to as “F.O.B. Shipping Point.” The Company primarily receives payment by credit card at the time distributorsmembers place orders. Amounts received for unshipped product are recorded as deferred revenue. The Company’s sales arrangements do not contain right of inspection or customer acceptance provisions other than general rights of return.distributorsmembers access to both a personalized marketing website and a business management system. No upfront costs are deferred as theamountthe amount is nominal.distributorsmembers are included in net sales. Costs associated with shipments are included in cost of sales.distributorsmembers are collected by the Company as an agent and remitted to the respective taxing authority. These taxes are presented on a net basis and recorded as a liability until remitted to the respective taxing authority.Distributor distributorsmembers earn commissions based on total personal and group bonus volume points per weekly sales period. Each of ourthe Company’s products are designated a specified number of bonus volume points, which is essentially a percentage of the product’s wholesale price. The Company accrues commissions when earned and pays commissions on product sales generally two weeks following the end of the weekly sales period.wethe Company also paypays certain bonuses on purchases by up to three generations of personally sponsored distributors,enrolled members, as well as bonuses on commissions earned by up to three generations of personally sponsored distributors.enrolled members. Independent distributorsmembers may also earn incentives based on meeting certain qualifications during a designated incentive period, which may range from several weeks to up to a year. These incentives may be both monetary and non-monetary in nature. The Company estimates and accrues all costs associated with the incentives as the distributorsmembers meet the qualification requirements.we makethe Company makes modifications and enhancements to ourthe Company’s compensation plan to help motivate distributors,members, which can have an impact on distributormember commissions. From time to time wethe Company also enterenters into agreements for business or market development, which may result in additional compensation to specific distributors.Stock-Based Compensationisfor 2014 was computed via the “two-class” method by dividing net income allocated to common stockholders by the weighted-average number of common shares outstanding during the period. Net income available to common stockholders is allocated to both common stock and participating securities as if all of the income for the period had been distributed. The Company’s Series A convertible preferred stock iswas a participating security due to its participation rights related to dividends declared by the Company. If dividends arewere distributed to common stockholders, the Company iswas also required to pay dividends to the holders of the preferred stock in an amount equal to the greater of (1) the amount of dividends then accrued and not previously paid on such shares of preferred stock or (2) the amount payable if dividends were distributed to the common stockholders on an as-converted basis.TheFor 2014, the dilutive effect of the Company’s Series A convertible preferred stock iswas calculated using the more dilutive of the “two-class” method and the “if-converted” method, which assumes that the preferred stock was converted into common stock at the beginning of each period presented. $ 2,613 $ 4,074 (16 ) (31 ) $ 2,597 10,944 $ 0.24 $ 4,043 11,154 $ 0.36 290 177 $ 2,597 11,234 $ 0.23 $ 4,043 11,331 $ 0.36 Year Ended December 31, 2016 2015 2014 Income Shares Per Share Income Shares Per Share Income Shares Per Share Basic EPS: Net income available to common stockholders $ 55,086 $ 47,241 $ 20,360 Less: undistributed earnings to participating securities — — (127 ) Net income allocated to common stockholders $ 55,086 11,382 $ 4.84 $ 47,241 12,302 $ 3.84 $ 20,233 12,131 $ 1.67 Effect of dilutive securities: Warrants to purchase common stock — — — 21 — 421 Non-vested restricted stock — 25 — 49 — 48 Plus: reallocation of undistributed earnings to participating securities — — 5 Diluted EPS: Net income allocated to common stockholders plus assumed conversions $ 55,086 11,407 $ 4.83 $ 47,241 12,372 $ 3.82 $ 20,238 12,600 $ 1.61 Other commonFor the year ended December 31, 2016, 345 shares of non-vested restricted stock equivalents are also anti-dilutive since the applicable exercise price exceeds the average market price of the related common stock for the period.The following securities were not included for the time periods indicated as their effect would have been anti-dilutive: 3,704,854 2,234,994 100,000 Warrants to purchase 1,495,952 shares of common stock were still outstanding at December 31, 2013. Such warrants expire April 21, 2015.MostSubstantially all of the Company’s Hong Kong revenues are derived from the sale of products that are delivered to members in China. In contrast to the Company’s operations in other parts of the world, the Company has not implemented a direct sales model in China. The Chinese government permits direct selling only by organizations that have a license, thatwhich the Company does not have,has applied for, and has also adopted anti-multilevel marketing legislation. The Company operates an e-commerce direct selling model in Hong Kong and recognizes the revenue derived from sales to both Hong Kong and Chinese members as being generated in Hong Kong. Products purchased by members in China are delivered by the Company to one or more third parties that act as the importers of record under agreements to pay applicable duties. In addition, through a Chinese entity, the Company sells products in China using an e-commerce retail model. The Chinese entity operates separately from the Hong Kong entity, althoughand a Chinese member may elect to participate separately or in both.theits e-commerce direct selling model in Hong Kong does not violate any applicable laws and regulations in China, regarding direct selling and multi-level marketing are not specifically applicable toeven though it is used for the Company’s Hong Kong basedinternet purchase of the Company's products by members in China. The Company also believes that its Chinese entity, including its e-commerce activity, and that the Company’s Chinese entityretail platform, is operating in compliance with applicable Chinese laws. However, there can be no assurance that the Chinese authorities will agree with the Company’s interpretations of applicable laws and regulations or that China will not adopt new laws or regulations. Should the Chinese government determine that the Company’s e-commerce activity violatesactivities violate China’s direct selling or anti-multilevel marketing legislation, or should new laws or regulations be adopted, there could be a material adverse effect on the Company’s business, financial condition and results of operations.the Company’sits business, the Company’s efforts to comply with national and local laws may be harmed by a rapidly evolving regulatory climate, concerns about activities resembling violations of direct selling or anti-multi-level marketing legislation, subjective interpretations of laws and regulations, Chinese nationals collaborating with short traders to damage the Company's business and activities by individual distributorsmembers that may violate laws notwithstanding the Company’s strict policies prohibiting such activities. Any determination that the Company’s operations or activities, or the activities of the Company’sits individual distributorsmembers or employee sales representatives, or importers of record are not in compliance with applicable laws and regulations could result in the imposition of substantial fines, extended interruptions of business, restrictions on the Company’s future ability to obtain business licenses or expand into new locations, changes to the Company’sits business model, the termination of required licenses to conduct business, or other actions, any of which could materially harm the Company’s business, financial condition and results of operations.Juice™Juice andAlura™Enhanced Essential Probiotics®products each account for a significant portionmore than 10% of the Company’s total revenue and, together, account for a majority of our total revenue. The Company currently sources each such product from a single suppliers.supplier. If demand for these products decreases significantly, government regulation restricts thetheir sale, of these products, the Company is unable to adequately source or deliver thesethe products, or the Company ceases offering any of thesethe products for any reason without a suitable replacement,replacements, the Company’s business, financial condition and results of operations could be materially and adversely affected. accounts receivable, accounts payable and accrued expenses, 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. December 31, 2016 December 31, 2015 Adjusted Cost Gross Unrealized Gains/Losses Fair Value Adjusted Cost Gross Unrealized Gains/Losses Fair Value Municipal bonds and notes $ 43,490 $ — $ 43,490 $ 35,222 $ 2 $ 35,224 Corporate debt securities 1,673 (2 ) 1,671 5,029 (5 ) 5,024 Financial institution instruments 28,307 — 28,307 17,235 — 17,235 Total available-for-sale investments $ 73,470 $ (2 ) $ 73,468 $ 57,486 $ (3 ) $ 57,483 February 2013,November 2016, the FASBFinancial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU"(“ASU”) No. 2013-02, Comprehensive Income (Topic 220) —Reporting2016-18, Statement of Amounts Reclassified Out of Accumulated Other Comprehensive IncomeCash Flows - Restricted Cash, to require an entity to provide information aboutthat requires amounts generally described as restricted cash or restricted cash equivalents be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, eithershown on the facestatement of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items in net income but only if the amount reclassified is required under U.S. generally accepted accounting principles ("GAAP") tocash flows. The new standard will be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under U.S. GAAP that provide additional detail about those amounts. ASU 2013-02 is effective prospectively for reporting periods, including interim periods,fiscal years beginning after December 15, 2012.2017, including interim periods within those fiscal years, and early adoption is permitted. The Company’s adoption of this guidance is not expected to have a material impact on the standard on January 1, 2013 did not result in any additional disclosures in itsCompany’s consolidated financial statements for the year ended December 31, 2013.2013,2016, the FASB issued ASU No. 2013-05, Foreign Currency Matters (Topic 830) —Parent’s2016-09, Compensation - Stock Compensation: Improvements to Employee Share-Based Payment Accounting, that simplifies several aspects of the accounting for share-based payment transactions, including the Cumulative Translation Adjustment upon Derecognitionincome tax consequences, classification of Certain Subsidiariesawards as either equity or Groupsliabilities, and classification on the statement of Assets within a Foreign Entity or of an Investment in a Foreign Entity, to clarify the guidancecash flows. The new standard will be effective for entities that cease to hold a controlling financial interest in a subsidiary or group of assets within a foreign entity when (1) the subsidiary or group of assets is a nonprofit activity or a business (other than a sale of in substance real estate or conveyance of oil and gas mineral rights) and (2) there is a cumulative translation adjustment balance associated with that foreign entity. ASU 2013-05 is effective prospectively for reporting periods, including interim periods,fiscal years beginning after December 15, 2013. Early2016, including interim periods within those annual years, and early adoption is permitted. The Company is currently evaluatingassessing the impact of adopting ASU 2013-05.July 2013,February 2016, the FASB issued ASU No. 2013-11, Income Taxes (Topic 740) — Presentation of an Unrecognized Tax Benefit When A Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists2016-02, Leases, that requires organizations that lease assets, referred to as “lessees”, to provide explicit guidancerecognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases with lease terms of more than 12 months. ASU 2016-02 will also require disclosures to help investors and other financial statement presentationusers better understand the amount, timing, and uncertainty of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists.cash flows arising from leases and will include qualitative and quantitative requirements. The amendments in this update arenew standard will be effective for fiscal years, and interim periods within those years beginning after December 15, 20132018, including interim periods within those annual years, and should be applied prospectively to all tax benefits that exist at the effective date. Retrospectiveearly application is permitted. The Company is currently evaluatingassessing the impact that this standard will have on its consolidated financial statements.adoptingDeferred Taxes. Under this guidance, entities are required to present deferred tax tax assets and deferred tax liabilities as noncurrent in a classified balance sheet. This guidance is effective for annual and interim periods beginning after December 15, 2016, with early adoption permitted. Entities are permitted to adopt this guidance either prospectively or retrospectively. The Company elected to early adopt this guidance prospectively as of the quarter ended December 31, 2016.2013-11. $ 544 $ 354 523 533 49 62 294 256 Construction in progress – 102 1,410 1,307 (1,289 ) (1,042 ) $ 121 $ 265 $ 181 $ 504 1,034 1,860 301 595 172 187 $ 1,688 $ 3,146 $ 384 $ 1,938 Auto ship advances 263 449 189 182 $ 836 $ 2,569 $ 761 $ 674 230 208 $ 991 $ 882 December 31, 2016 2015 Property and equipment: Office equipment $ 517 $ 495 Office software 672 536 Machinery 28 24 Furniture and fixtures 241 222 Leasehold improvements 840 730 Construction in progress (including internal use software development costs) 157 10 Property and equipment, at cost 2,455 2,017 Accumulated depreciation and amortization (1,067 ) (1,123 ) $ 1,388 $ 894 Other accrued expenses: Sales returns $ 1,632 $ 1,552 Employee-related expense 10,541 11,064 Warehousing, inventory-related and other 2,816 4,087 $ 14,989 $ 16,703 Deferred revenue: Unshipped product $ 2,191 $ 1,783 Auto ship advances 2,327 1,597 Enrollment package revenue 430 331 Market development fees — 300 $ 4,948 $ 4,011 March 2018.September 2025. Rent expense in connection with operating leases was $740,000$1.8 million, $1.5 million and $787,000$777,000 during 20122016, 2015 and 2013,2014, respectively.2013,2016 are as follows (in thousands):$ 617 253 40 40 10 $ 960 2017 $ 1,559 2018 752 2019 402 2020 314 2021 196 Thereafter 700 Total minimum lease obligations $ 3,923 Commitment2016.2016 which automatically renews annually unless terminated 90 days prior to the termination date. To maintain exclusivity, the Company is required to purchase a minimum of $40,000 of product per month until the termination date. As of December 31, 2013,2016, the Company was in compliance with the exclusivity provision. In addition, the Company has an employment agreement with another employee that can be terminated at will by either the employee or the Company, provided that the Company must pay a specified amount if it terminates the agreement without cause, as defined, or the employee terminates the agreement with good reason, as defined. Accrued severance obligations totaling $296,000 as of December 31, 2013 are expected to be paid during 2014.distributorsmembers in the event that the Company is unable to provide refunds to distributors.members. Typically, requests for refunds are paid directly by the Company according to the Company’s normal Korean refund policy, which requires that refund requests be submitted within three months. Accordingly, the Company estimates and accrues a reserve for product returns based on this policy and its historical experience. Depending on the sales volume, the Company may be required to increase or decrease the amount of the contract. The maximum potential amount of future payments the Company could be required to make to address actual distributormember claims under the contract is equivalent to three months of rolling sales. At December 31, 2013,2016, non-current other assets include KRW 144223 million (USD $137,000)$185,000) underlying the contract, which can be utilized by the Cooperative to fund any outstanding distributormember claims. The Company believes that the likelihood of utilizing these funds to provide for distributorsmembers claims is remote.Registration Payment ArrangementsPursuanta Registration Rights Agreement withassert claims on behalf of all persons who purchased or otherwise acquired our common stock between March 6, 2015 and March 15, 2016 under (i) Section 10(b) of the investorsSecurities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder against Natural Health Trends Corp., Chris T. Sharng, and Timothy S. Davidson, and (ii) Section 20(a) of the Securities Exchange Act of 1934 against Chris T. Sharng, Timothy S. Davidson, and George K. Broady. The consolidated complaint alleges, inter alia, that the Company made materially false and misleading statements regarding the legality of its business operations in the Company’s October 2007 financing of variable rate convertible debentures havingChina, including running an aggregate faceallegedly illegal multi-level marketing business. The consolidated complaint seeks an indeterminate amount of $4,250,000, seven-year warrants to purchase 1,495,952 shares of the Company’s common stock,damages, plus interest and one-year warrants to purchase 1,495,952 shares of the Company’s common stock, the Company was obligated to (i) file a registration statement covering the resale of the maximum number of Registrable Securities (as defined) that is permitted by SEC Guidance (as defined) prior to November 18, 2007, (ii) cause the registration statement to be declared effective within certain specified periods of time and (iii) maintain the effectiveness of the registration statement until all Registrable Securities have been sold, or may be sold without volume restrictions pursuant to Rule 144(k) under the Securities Act. The Company timely filed that registration statement covering the shares of common stock underlying the debentures, which have been redeemed, and the one-year warrants, which have expired. At the time, the 1,495,952 shares of common stock underlying the seven-year warrants were not deemed Registrable Securities and were not included in the Registration Statement. If they are subsequently deemed Registrable Securities at a time when a registration statement covering them is required to be effective under the Registration Rights Agreement, and such registration statement is not then effective, then the warrants may be exercised by means of a cashless exercise. The maximum number of shares that could be required to be issued upon exercise of the warrants (whether on a cashless basis or otherwise) is limited to the number of shares indicated on the face of the warrants.costs. The Company filed a registration statementmotion to dismiss the consolidated complaint on NovemberJune 15, 2016 and a reply in support of its motion to dismiss on August 22, 2013 covering2016. On December 5, 2016, the maximum number of sharesCourt denied the Company’s motion to dismiss. On February 17, 2017, the Company filed an answer to the consolidated complaint. The Company believes that could be requiredthese claims are without merit and intends to be issued upon exercisevigorously defend against them.warrants,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 such registration statementcorporate 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, inter alia, that the Company made materially false and misleading statements regarding the legality of its business operations in China, including running an allegedly illegal multi-level marketing business, 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. and Li v. Natural Health Trends Corp. A nearly identical stipulated stay was declared effectiveentered in the Kleinfeldt case on December 5, 2013. AsFebruary 8, 2017. The Company believes that these claims are without merit and intend to vigorously defend against them.December 31, 2013, no contingent obligations have been recognized under registration payment arrangements.$0.001$0.001 par value, and 50,000,000 shares of common stock, $0.001$0.001 par value. On May 4, 2007, the Board of Directors designated up to 1,761,900 shares of preferred stock as Series A preferred stock with the following rights and preferences:●• ●• $0.119$0.119 per share shall accrue from the date of issuance of any shares of Series A preferred stock, payable upon declaration by the Board of Directors. Accruing dividends shall be cumulative; provided, however, that except as set forth below for the liquidation preference, the Company shall be under no obligation to pay such dividends. No dividends shall be declared on Junior Securities (other than dividends on shares of common stock payable in shares of common stock) unless the holders of the Series A preferred stock then outstanding shall first receive, or simultaneously receive, a dividend on each outstanding share of Series A preferred stock in an amount at least equal to the greater of (i) the amount of the aggregate accrued dividends on such share of Series A preferred stock and not previously paid and (ii) in the case of a dividend on common stock or any class or series of Junior Securities that is convertible into common stock, that dividend per share of Series A preferred stock as would equal the product of (1) the dividend payable on each share as if all shares of such class or series had been converted into common stock and (2) the number of shares of common stock issuable upon conversion of a share of Series A preferred stock.●• $1.70$1.70 per share, subject to adjustment.●• ●• , at the option of the holder thereof, at any time and from time to time, into such number of fully paid and nonassessable shares of common stock as determined by dividing the Series A Original Issue Price by the Series A Conversion Price (as defined) in effect at the time of conversion. The “Series A Conversion Price” shall initially be equal to $1.70.$1.70. Each share of Series A preferred stock shall automatically be converted into shares of common stock at the then effective conversion price immediately upon such date as the average closing price of the common stock over a consecutive, trailing 6-month period equals or exceeds $10.00$10.00 per share.AsDecember 31, 2013, 123,693Elimination of the Series A Convertible Preferred Stock (the “Certificate”) with the Secretary of State of the State of Delaware. The Certificate, which was effective upon filing, canceled the Company’s Series A preferred stock. At the time of filing the Certificate, no shares of Series A preferred stock were outstanding. Cumulative unpaid dividends andremained outstanding as a result of the liquidation preference relatingautomatic conversion of all outstanding shares into the Company’s common stock due to the outstanding Series A preferredfact that the average closing price of the Company’s common stock at December 31, 2013 was $98,000 and $308,000, respectively.On May 4, 2007, the Company issued warrants to purchase 2,059,307 shares of common stock as a component of a private equity placement. The warrants were exercisable at any time during the period beginning November 4, 2007 (six months after their issuance) and ending May 4, 2013 (six years after their issuance).The exercise price of the warrants was $5.00 per share. Such warrants expired unexercised onMay 4, 2013.TheSeven-year warrants to purchase 1,407,855 shares of common stock were exercised during 2014 at exercise prices ranging from $3.5108 to $3.52 per share for total proceeds of $4.9 million. As a result of the cash dividends declared on each share of outstanding common stock and in accordance with the terms of the related warrant agreement, the exercise price per share for each warrant was adjusted from $3.52 per share to $3.5082 per share. In April 2015, the remaining warrants to purchase 1,495,95288,097 shares of common stock expire April 21,were exercised at $3.5043 per share for total proceeds of $309,000.ifand 2014 (in thousands, except per share data):Declaration Date Per Common Share Amount Payment Date October 23, 2016 (special) $ 0.35 $ 3,941 October 23, 2016 0.08 901 July 19, 2016 0.07 787 April 21, 2016 0.06 686 March 1, 2016 0.05 576 Total $ 0.61 $ 6,891 Declaration Date Per Common Share Amount Payment Date October 21, 2015 $ 0.05 $ 598 July 28, 2015 0.04 489 May 4, 2015 0.03 372 February 27, 2015 0.02 250 Total $ 0.14 $ 1,709 Dividends Per Share Declaration Date Preferred Common Amount Payment Date November 4, 2014 $ 0.032 $ 0.010 $ 128 July 29, 2014 0.027 0.010 127 May 6, 2014 0.020 0.005 62 March 7, 2014 0.815 0.005 159 Total $ 0.894 $ 0.030 $ 476 previously exercised.5. STOCK-BASED COMPENSATIONAugust 18, 2006,July 28, 2015, the Compensation Committee of Company’s Board of Directors approved subjecta stock repurchase program of up to stockholder approval,$15.0 million of the Natural Health Trends Corp. 2007 Equity Incentive Plan (the “2007 Plan”). UnderCompany’s outstanding shares of common stock. Repurchases are expected to be executed to the 2007 Plan,extent that the Company’s earnings and cash-on-hand allow, are anticipated to be conducted through December 2016, and 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 grant (i) incentive stock options, (ii) nonqualified stock options, (iii) restricted stock, (iv) restricted stock units, (v) stock appreciation rights either in tandementer into one or more plans that are compliant 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 was approved by the Company’s stockholders on November 17, 2006.The purposeRule 10b5-1 of the 2007 Plan isExchange Act that are designed to enablefacilitate these purchases. The repurchase program does not require the Company to attractacquire a specific number of shares, and retain employees, officers, directors, consultantsmay be suspended from time to time or discontinued. In connection therewith, the Company was advised that George K. Broady, a director of the Company and advisors;owner of more than 5% of its outstanding shares of common stock, would participate in the stock repurchase program on a basis roughly proportional to providehis family’s ownership interest. See Note 8.incentiveaggregate purchase price of $5.0 million, plus transaction costs. During October 2015, the Company authorized its broker to proceed with the purchase of shares of the Company’s common stock in the open market for thema total purchase price of $3.6 million. The open market repurchases were completed on October 30, 2015. The stock repurchase program, which included both open market purchases and the purchase of shares from Mr. Broady, resulted in the Company purchasing a total of 106,264 shares of its common stock for an aggregate purchase price of $5.0 million, plus transaction costs.assist$5.0 million of the Company’s outstanding shares of common stock. In connection therewith, the Company was advised by Mr. Broady that he would participate in achieving long-range performance goals;the stock repurchase program on a basis roughly proportional to his family’s ownership interest (see Note 8). As such, the Company authorized its broker to proceed with the purchase of shares of the Company’s common stock in the open market for a total purchase price of $3.5 million in accordance with Rules 10b5-1 and 10b-18 under the Exchange Act. The stock repurchase program, which included both open market purchases and the purchase of shares from Mr. Broady, was completed on May 13, 2015, and resulted in the Company purchasing a total of 186,519 shares of its common stock for an aggregate purchase price of $5.0 million, plus transaction costs. enable themthe closing price per share of the Company’s common stock on the preceding trading day, as reported on the primary market in which the Company’s common stock is publicly traded. The Company’s purchases concluded on February 19, 2015, and resulted in an aggregate purchase price of $1.1 million.long-term growthRepurchase Plan on a basis roughly proportional to his family’s ownership interest, with an estimate of generating approximately $1.5 million through the sale of a portion of the Company. The termsshares of any particular grant are determinedthe Company’s common stock held by him (see Note 8). After noting Mr. Broady’s participation interest, the Board of Directors or a committee appointed byCompany authorized its broker to proceed with the Board of Directors. Generally, the grants of restricted stock vest quarterly on a pro rata basis over a three-year period. The maximum numberpurchase of shares availableof the Company’s common stock in the open market for issuancea total purchase price of $3.0 million in accordance with Rules 10b5-1 and 10b-18 under the 2007Exchange Act. The Repurchase Plan was 1,550,000 shares. At the Company’s Annual Meeting of Stockholders heldcompleted on December 30, 2008,17, 2014. The Repurchase Plan, which included both open market purchases and the Company’s stockholders approved an increasepurchase of shares from Mr. Broady, resulted in the maximum numberCompany purchasing a total of 359,840 shares availableof its common stock for issuance under the 2007 Plan by 500,000 shares. As such, the maximuman aggregate numberpurchase price of shares available for issuance under the 2007 Plan totals 2,050,000 shares.As of December 31, 2013, 1,083 shares remain available to be granted under the 2007 Plan.Valuation and Expense Information under FASB ASC Topic 718Stock-based compensation expense totaled approximately $94,000 and $110,000 for 2012 and 2013, respectively. No tax benefits were attributed to the stock-based compensation because a valuation allowance was maintained for substantially all net deferred tax assets. A following table summarizes the Company’s restricted stock activity under the 2007 Plan: 473,688 $ 0.37 (212,030 ) 0.36 261,658 0.37 (206,672 ) 0.37 54,986 0.37 The restricted stock vests quarterly on a pro rata basis over a three-year period. As of December 31, 2013, total unrecognized stock-based compensation expense related to non-vested restricted stock was approximately $18,000, which is expected to be recognized over a weighted-average period of 0.3 years. Company’s Board of Directors authorized the Company, acting as trustee for certain of its non-officer, overseas 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'sCompany’s policies regarding stock transactions. Pursuant to this authority, the Company, as Trustee, entered into a 10b5-1 plan and began purchasing shares in December 2012. The latest 10b5-1 plan terminated in November 2014 and the Company, as Trustee, has not entered into a new 10b5-1 plan. See Note 5. Shares Wtd. Avg. Price at Date of Issuance Nonvested at December 31, 2015 — $ — Granted 51,015 34.13 Vested (12,759 ) 34.13 Nonvested at December 31, 2016 38,256 34.13 Shares Wtd. Avg. Price at Date of Issuance Nonvested at December 31, 2014 — $ — Granted 67,076 12.15 Vested (22,364 ) 12.15 Nonvested at December 31, 2015 44,712 12.15 Granted — — Vested (22,364 ) 12.15 Nonvested at December 31, 2016 22,348 12.15 currentlatest 10b5-1 plan for the purchase of up to 2,100 shares per month will expire onterminated in November 11, 2014, unless terminated earlier, and the Company, as Trustee, intends at or after that time todid not enter into a new 10b5-1 plan or plans to complete the purchases authorized. The Company may terminate the plan at any time.plan. The employees will receivereceived the stock as incentive compensation in quarterly increments over three years beginning March 15, 2013, provided that they arewere employees of the Company on the date of the distribution. Any common stock that iswas forfeited by an employee whose employment terminates will beterminated was delivered to the Company and held as treasury stock. Nonvested at December 31, 2011 - $ - Granted 100,000 1.37 100,000 1.37 (26,676 ) 1.37 (20,000 ) 1.37 53,324 1.37 As of December 31, 2013, total unrecognized stock-based compensation expense related to these stock awards was $64,000, which is expected to be recognized over a weighted-average period of 2.0 years. Shares Wtd. Avg. Grant-Date Fair Value Nonvested at December 31, 2013 53,324 $ 1.37 Vested (25,342 ) 1.37 Forfeited (3,998 ) 1.37 Nonvested at December 31, 2014 23,984 1.37 Vested (23,984 ) 1.37 Forfeited — — Nonvested at December 31, 2015 — — $ (2,824 ) $ 194 5,430 3,997 $ 2,606 $ 4,191 Year Ended December 31, 2016 2015 2014 Domestic $ (3,106 ) $ (7,820 ) $ 4,502 Foreign 67,183 55,613 16,134 Income before income taxes $ 64,077 $ 47,793 $ 20,636 (benefit) consist of the following (in thousands): $ – $ 10 32 76 32 86 (56 ) 16 $ (24 ) $ 102 Year Ended December 31, 2016 2015 2014 Current: Federal $ 7,151 $ 12 $ 104 State (81 ) 100 11 Foreign 1,648 456 194 Total current taxes 8,718 568 309 Deferred taxes 273 (16 ) (43 ) Income tax provision $ 8,991 $ 552 $ 266 (benefit) to the provision that would result from applying the domestic federal statutory tax rate to pretax income is as follows (in thousands): $ 886 $ 1,425 8 7 672 430 (1,576 ) (1,218 ) 1 (597 ) (15 ) 55 $ (24 ) $ 102 Year Ended December 31, 2016 2015 2014 Income tax at federal statutory rate $ 22,427 $ 16,250 $ 7,016 Effect of permanent differences 12,496 370 9 Change in valuation allowance (3,877 ) 2,017 (2,070 ) Foreign rate differential (21,713 ) (18,099 ) (5,240 ) Other reconciling items (342 ) 14 551 Income tax provision $ 8,991 $ 552 $ 266 Year Ended December 31, Statutory Tax Rate 2016 2015 2014 Cayman Islands — % $ 58,169 $ 50,993 $ 16,267 Hong Kong 16.5 % 3,992 2,645 1,129 China 25.0 % 3,855 1,493 153 $ 15,081 $ 13,115 352 104 268 501 512 76 88 75 1 16,189 13,984 (16,141 ) (13,927 ) 48 57 (43 ) (43 ) (91 ) (107 ) (11 ) (6 ) (4 ) (140 ) (165 ) $ (92 ) $ (108 ) The December 31, 2016 2015 Deferred tax assets: Net operating losses $ 235 $ 3,197 Stock-based compensation 623 — Accrued expenses 3,174 3,367 Tax credits — 418 Other — 32 Total deferred tax assets 4,032 7,014 Valuation allowance (235 ) (4,112 ) Net deferred tax assets 3,797 2,902 Deferred tax liabilities: Foreign earnings (3,650 ) (2,789 ) Other (415 ) (173 ) Total deferred tax liabilities (4,065 ) (2,962 ) Net deferred tax liability $ (268 ) $ (60 ) recordedreleased its valuation allowance against its U.S. deferred tax assets. In addition to having a net deferred tax liability and no indefinite lived intangibles, the Company analyzed all sources of available income and determined that they are more likely than not to realize the tax benefits of their deferred assets in future periods or carryback years.to equal its netagainst certain foreign deferred tax assets due to the uncertainty of future operating results.assets. The Company is recording a valuation allowance in foreign jurisdictions with an overall deferred tax 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 provisions.Atprovision. As of December 31, 2013,2016, the Company has no U.S. federal net operating loss or credit carryforwards of $33.0 million that beginas any remaining attributes are expected to expirebe fully utilized to offset tax in 2021, if not utilized. Thethe current year. also has foreign net operating loss carryforwards totaling $7.3of approximately $1.3 million in various jurisdictions with various expirations, including $4.2 million in China with expirations from 2014 to 2017.expirations.has not providedrepatriated $19.8 million to the U.S. during the three months ended March 31, 2016, part of which was offset by U.S. net operating losses. Accordingly, the deferred tax liability previously established for undistributed foreign earnings up to its existing U.S. federal andnet operating losses was reduced. The excess amount repatriated during the year ended December 31, 2016 was generated from current foreign withholding taxes onearnings. The Company will continue to periodically reassess the undistributed earningsneeds of its foreign subsidiaries and update its indefinite reinvestment assertion as necessary. To the extent that additional foreign earnings are not deemed permanently reinvested, the Company expects to recognize additional income tax provision at the applicable U.S. corporate tax rate. As of December 31, 2013. Such2016, the Company has recorded a deferred tax liability for earnings that the Company plans to repatriate out of accumulated earnings in future periods. All undistributed earnings in excess of 50% of current earnings on an annual basis are intended to be reinvested indefinitely. Generally, such earnings becomeindefinitely as of December 31, 2016.U.S.state income tax uponexaminations for years prior to 2011. No jurisdictions are currently examining any income tax returns of the remittance of dividends and under certain other circumstances. At December 31, 2013, it is not practicable to estimate the amount of deferred tax liability on such undistributed earnings. $ 34 $ 71 Non-cash financing activity: Conversion of preferred stock – 13 Year Ended December 31, 2016 2015 2014 Cash paid during the year for: (In Thousands) Income taxes, net of refunds $ 8,791 $ 707 $ 60 Interest 9 — 1 Non-cash financing activity: Conversion of preferred stock — — 111 Issuance of treasury stock 1,741 666 — In February 2013,new product called ReStor™Soothe™. The Company began selling this product in the fourth quarter of 2012 with the permission of BHS. Mr. Broady is owner of BHS. Under thisthe agreement, the Company has agreed to pay BHS a royalty of 2.5% of sales revenue in return for the right to manufacture (or have manufactured), market, import, export and sell this product worldwide. Further, the Company agreed to pay BHS $11,700 as royalties for 2011the period it began selling the product in the fourth quarter of 2012 through 2014. The Company recognized royalties of $3,400, $7,000 and subsequent years$6,400 during 2016, 2015 and 2014, respectively. The Company is not required to purchase any product under the agreement, and the agreement may be terminated at any time on 120 days’ notice. Otherwise, the agreement terminates March 31, 2020.George Broady, a director ofOn April 29, 2015, the Company and owner of more than 5% of its outstanding common stock, is owner of BHS. During 2011 and 2012, BHS permitted the Company to manufacture (or have manufactured), market and sell the ReStor™ product. In April 2012, the Company reimbursed BHS $42,000 in expenses incurred in 2011 to promote the ReStor™ product on the Company’s behalf. To permit the Company to continue selling ReStor™and obtain certain exclusive rights outside of the United States, BHS requested that the Company enter intoamended the Royalty and Agreement and License.License to change the royalty to a price per unit instead of 2.5% of sales revenue. This agreementprovision was reviewed, considered, authorizedeffective retroactive to January 1, 2015. The Company recognized royalties of $475,000, $555,000 and approved by the sole disinterested, non-employee member of the Board of Directors under appointment by the full Board of Directors as an ad hoc committee for this purpose. Upon signing this agreement, the Company paid BHS $12,000$144,000 during 2016, 2015 and $25,000 as royalties for 2011 and 2012,2014, respectively. Royalties accrued for 2013 were $48,000. The Company is not required to purchase any product under the agreement, and the agreement may be terminated at any time on 120 days’ notice or, under certain circumstances, with no notice.is considering enteringentered into another royalty agreementa Stock Repurchase Agreement with Mr. Broady that provided for the Company’s purchase of common stock from Mr. Broady in off-the-market, private transactions at a rate equal to 0.4085 times the number of shares purchased by the Company’s broker in conjunction with the stock repurchase program authorized by the Company’s Board of Directors on July 28, 2015. The Company’s purchases from Mr. Broady concluded on August 6, 2015, were completed at a per share purchase price equal to the weighted average price per share paid by the Company’s broker in its open-market purchases, and licenseresulted in an aggregate purchase price of $1.5 million. See Note 4.BHS regardingMr. Broady that provided for the manufactureCompany’s purchase of common stock from Mr. Broady in off-the-market, private transactions at a rate equal to 0.4286 times the number of shares purchased by the Company’s broker in conjunction with the stock repurchase program authorized by the Company’s Board of Directors on May 4, 2015. The Company’s purchases from Mr. Broady concluded on May 13, 2015, were completed at a per share purchase price equal to the weighted average price per share paid by the Company's broker in its open-market purchases, and saleresulted in an aggregate purchase price of $1.5 million. See Note 4.new product called Soothe™,total of 91,817 shares of the Company’s common stock, which would be purchased at the rate of 5,000 shares each trading day following the date of the agreement until all of such shares were purchased. The shares were purchased at a per share price equal to the closing price per share of the Company’s common stock on the preceding trading day, as reported on the primary market in which the Company’s common stock was publicly traded. The Company’s purchases concluded on February 19, 2015, and resulted in an aggregate purchase price of $1.1 million. See Note 4.began sellingentered into a Stock Repurchase Agreement with Mr. Broady that provided for the Company’s purchase from Mr. Broady of one-half of the number of shares of common stock purchased by the Company’s broker in the fourth quarteropen market under the Repurchase Plan approved by the Company’s Board of 2012Directors on November 4, 2014. The Stock Repurchase Agreement with the permission of BHS. To continue selling this product, BHS has requestedMr. Broady required that the Company payreport to Mr. Broady on a royalty of 2.5% of sales revenue for this product for 2012weekly basis information regarding the broker’s open market purchases, and subsequent years. The Company is considering that proposal and discussing the terms of a definitive agreement. At a royalty of 2.5% of net sales, the Company calculates that royalties for 2012purchase from Mr. Broady on a weekly basis at a per share purchase price equal to the weighted average price per share paid by the Company’s broker to purchase shares in the open market. The Company’s purchases concluded on December 17, 2014, totaled 119,947 shares of its common stock and 2013 would total $5,000.20122016, 2015 and 2013,2014, the Company matched employee deferral contributions up to 4.5% of salary, which vested 100% immediately. No profit sharing has been paid under the plan. The Company recorded compensation expense of $61,000$134,000, $115,000 and $62,000$60,000 for 20122016, 2015 and 2013,2014, respectively, related to its matching contributions to the plan. Certain of the Company’s employees located outside the United States participate in employee benefit plans that are statutory in nature.distributormember network that operates in a seamless manner from market to market, except for the Chinese market. Themarket where it sells to consumers through an e-commerce retail platform. Outside of the China e-commerce retail platform, the Company believes that eachall of its other operating segments should be aggregated into a single reportable segment as they have similar economic characteristics.characteristics, except for its operations located within the Commonwealth of Independent States (“CIS”). In making this determination, the Company believes that each of theits operating segments 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.e-commerce retail business launchedengagement of a third-party service provider in China during June 2007 does not requirethe CIS market results in a direct selling license and allows for discounts on volume purchases. Theredifferent economic structure than its other markets.ourthe Company’s chief operating decision-makers, or anyone else, for operations, operating results and planning for the either Chinese marketor the CIS markets on a stand-alone basis. Accordingly, we consider ourselves tobasis, and neither market is material for the two years presented. As such, the Company believes that all operating segments should be inaggregated into a single reportingreportable segment and operating unit structure. $ 1,737 $ 2,289 26,235 40,585 1,081 791 2,074 3,387 285 702 5,540 4,354 562 419 $ 37,514 $ 52,527 Year Ended December 31, 2016 2015 2014 Net sales from external customers: United States $ 4,100 $ 3,246 $ 1,438 Canada 1,809 2,746 1,374 Hong Kong 263,482 245,737 111,028 China 9,086 4,425 1,538 Taiwan 6,213 5,965 4,628 South Korea 691 1,129 1,009 858 1,139 3,113 Europe 1,234 382 373 Other foreign countries 255 91 89 Total net sales $ 287,728 $ 264,860 $ 124,590 $ 36,174 $ 50,385 2,225 2,955 (885 ) (813 ) $ 37,514 $ 52,527 Year Ended December 31, 2016 2015 2014 Net sales by product and service: Product sales $ 269,731 $ 253,041 $ 118,843 Enrollment package revenue, freight and other 25,616 17,623 7,927 Less: sales returns (7,619 ) (5,804 ) (2,180 ) Total net sales $ 287,728 $ 264,860 $ 124,590 $ 38 $ 35 China 63 137 20 93 $ 121 $ 265 December 31, 2016 2015 Long-lived assets: United States $ 763 $ 283 Hong Kong 140 204 China 199 252 Other foreign countries 286 155 Total long-lived assets $ 1,388 $ 894 In February 2014, warrants to purchase 120,000 shares of common stock were exercised at $3.52 per share for total proceeds of $422,000.March 7, 2014,January 24, 2017, the Board of Directors declared a dividend on each share of outstanding Series A preferred stock in the amount of $0.81507 per share representing the accrued and cumulative dividends from May 4, 2007 through March 7, 2014. Simultaneously, the Board of Directors also declared acash dividend of $0.005$0.09 and a special cash dividend of $0.35 on each share of common stock outstanding. All suchSuch dividends are payable in cashwere paid on April 8, 2014March 3, 2017 to stockholders of record on March 28, 2014.February 21, 2017. Payment of any future dividends on shares of common stock will be at the discretion of the Company’s Board of Directors.the Company’sour principal executive officer and principal financial officer, evaluated the effectiveness of the design and operation of the Company’sour disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”))Act) as of December 31, 2013. The Company’s2016. Our disclosure controls and procedures are designed to ensure that information required to be disclosed by the Companyus in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to management, including the Company’sour principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. Based on this evaluation, the principal executive officer and principal financial officer concluded that, as of December 31, 2013, the Company’s2016, our disclosure controls and procedures were effective.the Company’sour principal executive and principal financial officers and effected by the Company’sour Board of Directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:●pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;●provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and●provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.the Company’sour internal control over financial reporting by using the criteria established in Internal Control – Integrated Framework (1992)(2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO ”)COSO”). Based on this criteria, management concluded that the Company’sour internal control over financial reporting as of December 31, 20132016 was effective.This Annual does not include an attestation report of the Company’sCompany's Independent Registered Public Accounting Firmregarding internal control over financial reporting. Management’s report was not subject toas stated in their attestation by the Company’s independent registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in “Item 8. Financial Statements and Supplementary Data” of this Annual Report.20132016 that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting, except that Gary C. Wallace resigned as General Counsel, Chief Compliance Officer and Secretary of the Company effective December 31, 2013. On January 1, 2014, the Board of Directors appointed Timothy S. Davidson as the Company’s Secretary and assigned him the duties of chief compliance officer until a Chief Compliance Officer is appointed.reporting.Directorsbiographical information for each director of the Companyrequired by this Item is set forth below:Randall A. Mason.Mr. Mason, age 55, has been a director of the Company since May 2003 and has served as Chairman of the Board of Directors since March 2006. Mr. Mason founded and has served as President and Chief Executive Officer of Marden Rehabilitation Associates, Inc. since 1989. Marden Rehabilitation Associates, Inc. is a private, Midwest U.S. ancillary provider of rehabilitative therapy services and home healthcare. Mr. Mason has a bachelor degree in chemical engineeringincorporated by reference from the University of Pittsburgh.Mr. Mason is an experienced businessman with valued insight into management, operations, finances and governance issues. As a long-time member of the Company’s Board of Directors, Mr. Mason understands the business of the Company and potential risks and pitfalls. George Broady.Mr. Broady, age 75, has served as a director of the Company since October 2008. He has been active in business for more than 40 years, and he is currently the principal owner and chairman of several privately held companies in the fields of telecommunications, enterprise software applications for time and attendance and security access control. He founded Network Security Corporation, Interactive Technologies Inc. and Ultrak Inc., and brought each of them public on The NASDAQ Stock Market. He was chairman of all three organizations and CEO of both Network Security and Ultrak. All three companies were involved in electronic security, including CCTV and access control. Earlier in his career, Mr. Broady was an investment analyst with both a private investment firm, Campbell Henderson & Co., anddefinitive proxy statement to be filed with the First National Bank in Dallas. Mr. Broady served twice in the U.S. Army and holds a Bachelor of Science degree from Iowa State University.Mr. Broady is an experienced investor and businessman who also brings welcome insight into management, operations, and finances. As a long-time investor in the Company, and incumbent director, Mr. Broady also understands the business of the Company and its industry. He is owner of Broady Health Sciences, a leader in dietary supplements invigorating the production of Ca2+ATPase, an enzyme found in every cell of the body, and Soothe, a formula that helps to restore and repair dry skin.Chris T. Sharng.Mr. Sharng, age 50, has served as a director since March 2012. He has served as President of the Company since February 2007 and as Executive Vice President and Chief Financial Officer of the Company from August 2004 to February 2007. Mr. Sharng also performed the functions of the principal executive officer of the Company from April 2006 to August 2006. From March 2006 to August 2006, Mr. Sharng served as a member of the Company’s Executive Management Committee, which was charged with managing the Company’s day-to-day operations while a search was conducted for a new chief executive officer for the Company. From March 2004 through July 2004, Mr. Sharng was the Chief Financial Officer of NorthPole Limited, a privately held Hong Kong-based manufacturer and distributor of outdoor recreational equipment. From October 2000 through February 2004, Mr. Sharng was the Senior Vice President and Chief Financial Officer of Ultrak Inc., which changed its name to American Building Control Inc. in 2002, a Texas-based, publicly traded company listed on The NASDAQ Stock Market that designed and manufactured security systems and products. From March 1989 through July 2000, Mr. Sharng worked at Mattel, Inc., most recently as the Vice President of International Finance. Mr. Sharng has an MBA from Columbia University and received his bachelor degree from National Taiwan University.As the Company’s President since 2007, and as the Chief Financial Officer prior to that, Mr. Sharng has developed a deep understanding of our business globally. His leadership has been integral to the success of several of our key initiatives in recent years.Executive OfficersThe biographical information for Mr. Sharng is set out above in the biographical information for directors. Biographical information regarding the Company’s current other executive officer is as follows:Timothy S. Davidson. Mr. Davidson, age 43, has served as the Company’s Senior Vice President and Chief Financial Officer since February 2007. He previously served as the Company’s Chief Accounting Officer from September 2004 to February 2007. From March 2001 to September 2004, Mr. Davidson was Corporate Controller for a telecommunications company, Celion Networks, Inc., located in Richardson, Texas. From February 2000 to February 2001, Mr. Davidson was Manager of Financial Reporting for another Dallas-based telecommunications company, IP Communications, Inc. FromSEC within 120 days after December 1994 through January 2000, Mr. Davidson was employed by Arthur Andersen, LLP, most recently as an Audit Manager. Mr. Davidson has a master degree in professional accounting from the University of Texas at Austin and received his bachelor degree from Texas A&M University at Commerce.Section 16(A) Beneficial Ownership Reporting ComplianceSection 16(a) of the Securities Exchange Act of 1934 requires the Company’s directors, executive officers, and persons who own more than 10% of a registered class of the Company’s equity securities, to file with the Securities and Exchange Commission (the “SEC”) initial reports of ownership and reports of changes in ownership of common stock and other equity securities of the Company. Officers, directors and greater than 10% shareholders are required by SEC regulation to furnish the Company with copies of all Section 16(a) forms they file.Based solely on a review of the copies of such reports furnished to the Company, during the fiscal year ended December 31, 2013 and thereafter, all Section 16(a) filing requirements applicable to its officers, directors and greater than 10% beneficial owners were complied with, except that Mr. Broady filed six late Form 4s in 2013 reporting 73 late transactions and failed to file reports with respect to an additional 33 late transactions from 2013.Code of EthicsThe Company has a Code of Business Conduct that applies to our employees, officers (including our principal executive officer, principal financial officer and principal accounting officer or controller) and directors and a Code of Ethics for Senior Financial Officers (collectively, the “Codes”). The Codes are intended to establish standards necessary to deter wrongdoing and to promote compliance with applicable governmental laws, rules and regulations and honest and ethical conduct. The Codes cover all areas of professional conduct, including conflicts of interest, fair dealing, financial reporting and disclosure, protection of Company assets and confidentiality. Employees have an obligation to promptly report any known or suspected violation of the Codes without fear of retaliation. Waiver of any provision of the Codes for executive officers may only be granted by the Board of Directors or one of its committees and any such waiver or modification of the Codes relating to such individuals will be disclosed by the Company on its website. The Codes are available on the Company’s website,www.naturalhealthtrendscorp.com.Audit Committee MattersOn March 30, 2012, the Board of Directors adopted resolutions by unanimous consent dissolving the Audit Committee and no longer has a standing Audit Committee. Instead, the entire Board of Directors acts as the Audit Committee, although Mr. Sharng, as an employee director, does not participate in executive sessions that the Board of Directors has with the Company’s outside auditors. The Board of Directors has determined that Mr. Mason meets the SEC criteria of an “audit committee financial expert.”following table provides information concerningrequired by this Item is incorporated by reference from the compensation fordefinitive proxy statement to be filed with the years endedSEC within 120 days after December 31, 2012 and 2013, for our principal executive officer and two other executive officers (collectively, the “Named Executive Officers”): $ 400,000 $ 138,462 $ 33,278 (1) $ 571,740 403,846 144,231 40,609 (2) 588,686 235,000 46,154 24,734 (3) 305,888 236,346 52,500 29,092 (4) 317,938 250,000 22,154 25,102 (6) 297,256 250,000 28,385 29,706 (7) 308,091 (1)Represents $11,250 in employer matching contributions under the Company’s defined contribution plan and $22,028 in tax gross-up payments.(2)Represents $11,475 in employer matching contributions under the Company’s defined contribution plan and $29,134 in tax gross-up payments.(3)Represents $10,575 in employer matching contributions under the Company’s defined contribution plan and $14,159 in tax gross-up payments.(4)Represents $10,636 in employer matching contributions under the Company’s defined contribution plan and $18,456 in tax gross-up payments.(5)Mr. Wallace’s employment with the Company terminated effective December 31, 2013.(6)Represents $11,250 in employer matching contributions under the Company’s defined contribution plan and $13,852 in tax gross-up payments.(7)Represents $11,250 in employer matching contributions under the Company’s defined contribution plan and $18,456 in tax gross-up payments.The following tables summarize all outstanding equity awards held by our Named Executive Officers as of December 31, 2013:
(#)
($) 10,413 (2) $ 33,322 – $ – 6,250 (2) 20,000 6,250 (2) 20,000 (1)Market value is computed by multiplying the closing market price of the Company’s stock as of December 31, 2013 of $3.20 per share by the number of shares of stock that have not vested.(2)One-twelfth of the original grant of will vest quarterly on March 15, June 15, September 15, and December 15 through March 15, 2014.(3)Mr. Wallace’s employment with the Company terminated effective December 31, 2013.Named Executive Officer Compensation ArrangementsChris T. Sharng.On April 23, 2007, we entered into an employment agreement with Mr. Sharng that provides for a base annual salary and also entitles Mr. Sharng to participate in our annual incentive plan, equity incentive plan and other standard U.S. employee benefit programs. Additionally, Mr. Sharng is entitled to receive certain gross-up payments on federal taxes due upon vesting of restricted stock grants on or after September 15, 2011.Mr. Sharng’s base annual salary was raised to $400,000 effective August 1, 2011 and to $500,000 effective December 1, 2013. Mr. Sharng was awarded a discretionary bonus in each of 2012 and 2013 of $150,000 (see description below). Mr. Sharng has also served on the Company’s Board of Directors since March 30, 2012, but does not receive any additional compensation for his service in that capacity.Timothy S. Davidson.On April 23, 2007, we entered into an employment agreement with Mr. Davidson that provides for a base annual salary and also entitles Mr. Davidson to participate in our annual incentive plan, equity incentive plan and other standard U.S. employee benefit programs. Additionally, Mr. Davidson is entitled to receive certain gross-up payments on federal taxes due upon vesting of restricted stock grants on or after September 15, 2011.Mr. Davidson’s base annual salary was raised to $235,000 effective August 1, 2011 and to $270,000 effective December 1, 2013. Mr. Davidson was awarded a discretionary bonus in 2012 and 2013 of $50,000 and $55,000, respectively (see description below).Gary C. Wallace.On April 23, 2007, we entered into an employment agreement with Mr. Wallace that provided for a base annual salary of $190,000. Mr. Wallace was also entitled to participate in our annual incentive plan, equity incentive plan and other standard U.S. employee benefit programs. Additionally, Mr. Wallace was entitled to receive certain gross-up payments on federal taxes due upon vesting of restricted stock grants on or after September 15, 2011.Mr. Wallace’s base annual salary was raised to $250,000 effective August 1, 2011. Mr. Wallace was awarded a discretionary bonus in 2012 and 2013 of $24,000 and $30,000, respectively (see description below). On December 31, 2013, the Company and Mr. Wallace agreed to terminate Mr. Wallace’s employment agreement dated April 23, 2007.On and after September 15, 2011, the aggregate amount of all tax gross-up payments to executive officers and directors may not exceed $30,000 per quarter, provided that the unused portion of each quarter’s cap is rolled over to future quarters.The discretionary bonuses to Messrs. Sharng, Davidson and Wallace in 2012 and 2013 were awarded by the Board of Directors (or a committee thereof) in January 2012 and 2013, respectively. These bonuses were payable over 12 months, and each payment was contingent upon the award recipient being employed at the time of payment. The unpaid portion of any bonus at the time that employment is terminated was to be forfeited. As such, unpaid bonus in the amount of $3,231 was forfeited upon Mr. Wallace’s termination effective December 31, 2013. In awarding these bonuses, the Board of Directors (or a committee thereof) awarded discretionary amounts after finding that the estimated financial results for fiscal 2011 and 2012 achieved the revenue and earnings performance goals for that particular year.In January 2014, the Board of Directors awarded bonuses of $320,000 to Mr. Sharng and $75,000 to Mr. Davidson. These bonuses are payable over 12 months beginning in February 2014, and each payment is contingent upon the award recipient being employed at the time of payment. The unpaid portion of any bonus at the time that employment is terminated is forfeited. In awarding these bonuses, the Board of Directors awarded discretionary amounts after finding that the estimated financial results for fiscal 2013 achieved the Board’s revenue and earnings performance goals for 2013.Severance and Post-Termination Payment ArrangementsWe have entered into employment agreements with each of our Named Executive Officers. Under these agreements, we may be required to provide compensation to these officers in the event of the termination of the executive’s employment. Details for each Named Executive Officer are set forth below.Chris T. Sharng.Our current employment agreement with Mr. Sharng, entered into on April 23, 2007, provides that if Mr. Sharng’s employment with us is terminated voluntarily by him for “good reason” as defined in the employment agreement that has not been cured by us within 30 days of such notice, or is terminated by us without cause, other than in connection with a “change of control”, then Mr. Sharng will be entitled to the continuation of the payment of his salary, plus health and medical insurance coverage, for a period of up to one year following the termination date, or until the earlier date upon which he becomes engaged in any “competitive activity” as defined in the Non-Competition Agreement or otherwise breaches the terms and conditions of his Non-Competition Agreement with us.If Mr. Sharng’s employment with us is terminated by us without cause during the period commencing on the date that is 30 days prior to a change of control through and including a date that is 18 months following the change of control, he is entitled to the continuation of the payment of his salary, plus health and medical insurance coverage for a period of up to two years, plus health and medical insurance coverage for the same two year period following the termination date. This payment is due in a lump sum 30 days after the termination date.In order to be entitled to receive the severance amount in either of the above scenarios, Mr. Sharng must execute a full general release of all claims against us and our affiliates within 90 days from the date of termination.A “change of control” is defined as: (i) when any “person” as defined in Section 3(a)(9) of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), and as used in Section 13(d) and 14(d) thereof including a “group” as defined in Section 13(d) of the Exchange Act, but excluding the Company or any subsidiary or any affiliate of the Company or any employee benefit plan sponsored or maintained by the Company or any subsidiary of the Company (including any trustee of such plan acting as trustee), becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act) of securities of the Company representing more than 50% of the combined voting power of the Company’s then outstanding securities; or (ii) when, during any period of 24 consecutive months, the individuals who, at the beginning of such period constituted the Board of Directors (the “Incumbent Directors”) cease for any reason other than death to constitute at least a majority thereof, provided, however, that a director who was not a director at the beginning of such 24-month period shall be deemed to have satisfied such 24-month requirement (and be an Incumbent Director) if such director was elected by, or on the recommendation of or with the approval of, at least two-thirds of the directors who then qualified as Incumbent Directors either actually (because they were directors at the beginning of such 24 month period) or through the operation of this provision; or (iii) the occurrence of a transaction requiring stockholder approval under applicable state law for the acquisition of the Company by an entity other than the Company or a subsidiary or an affiliated company of the Company through purchase of assets, or by merger, or otherwise; provided however, that none of the foregoing shall constitute a change of control if such transaction, event or occurrence is approved by, or consented to, by Mr. Sharng.Mr. Sharng will be subject to a covenant not to compete for one year, and a non-solicitation covenant for two years, following his termination and thereafter as long as his severance payments continue (other than severance in connection with a change of control).Timothy S. Davidson.Our employment agreement with Mr. Davidson entered into on April 23, 2007, contains the same severance and change of control provisions as those set out in our agreement with Mr. Sharng dated April 23, 2007, subject to the terms and conditions of his Non-Competition Agreement with us.Gary C. Wallace.Our employment agreement with Mr. Wallace entered into on April 23, 2007, contained the same severance, change of control, non-competition and non-solicitation provisions as those set out in our agreement with Mr. Sharng dated April 23, 2007. On December 31, 2013, the Company and Mr. Wallace agreed to terminate Mr. Wallace’s employment agreement. As such, Mr. Wallace isentitled to the continuation of the payment of his salary, plus health and medical insurance coverage, for a period of up to one year following the termination date, or until the earlier date upon which he becomes engaged in any “competitive activity” or breaches the terms and conditions of his Non-Competition Agreement with us.Director CompensationDuring 2013, each non-employee member of our Board of Directors earned a cash retainer of $3,333 per month, plus the reimbursement of their respective out-of-pocket expenses incurred in connection with the performance of their duties as directors. In addition, Mr. Mason earned an additional retainer of $4,000 per month as Chairman of the Board of Directors in 2013. Effective December 1, 2013, an annual director compensation pool of $120,000 was established to be allocated evenly between the non-employee directors. As such, additional compensation earned in December 2013 was $5,000 for each of the existing two directors.Starting in 2011, directors are also entitled to receive certain gross-up payments on federal taxes due upon vesting of restricted stock grants to them. In addition, as additional compensation for his services as the Chairman of the Board, Mr. Mason is entitled to receive $54,000 as a gross-up payment for federal taxes incurred with respect to restricted stock granted in 2007, payable in quarterly installments of $4,500 beginning September 15, 2011. On and after September 15, 2011, the aggregate amount of all tax gross-up payments to executive officers and directors may not exceed $30,000 per quarter, provided that the unused portion of each quarter’s cap is rolled over to future quarters.The following table shows the 2013 compensation earned by each non-employee member of the Company’s Board of Directors: $ 93,000 $ – $ 38,463 (2) $ 131,463 45,000 20,463 (3) 65,463 (1)The aggregate number of stock awards outstanding to each of Messrs. Mason and Broady as of December 31, 2013 was 4,163 shares.(2)Represents $18,000 in tax gross-up payments for restricted stock granted in 2007 and $20,463 in tax gross-up payments for 2013.(3)Represents tax gross-up payments for 2013.Item 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERSfollowing table showsinformation required by this Item is incorporated by reference from the amount of the Company’s common stock beneficially owned (unless otherwise indicated) as of February 28, 2014 by (i) each stockholder known to usdefinitive proxy statement to be the beneficial owner of more than 5% of the Company’s common stock, (ii) each director or director nominee, (iii) each of the Named Executive Officers and (iv) all executive officers and directors as a group. Beneficial ownership is determined in accordancefiled with the rules and regulations of the SEC and generally includes those persons who have voting or investment power with respect to the securities. Except as otherwise indicated, and subject to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all shares of the Company’s common stock beneficially owned by them. (1)Unless otherwise indicated, the address of each beneficial owner is c/o Natural Health Trends Corp., 4514 Cole Avenue, Suite 1400, Dallas, Texas 75205.(2)Any securities not outstanding that are subject to conversion privileges exercisable within 60 days of February 28, 2014 are deemed outstanding for the purpose of computing the percentage of outstanding securities of the class owned by any person holding such securities, but are not deemed outstanding for the purpose of computing the percentage of the class owned by any other person in accordance with Item 403 of Regulation S-K of the Exchange Act and Rules 13(d)-3 of the Exchange Act, and based upon 11,448,571 shares of common stock outstanding as of February 28, 2014.(3)Includes 10,413 shares of restricted stock subject to vesting. Mr. Sharng shares voting and investment power over 15,500 of the shares with his wife.(4)Includes 6,250 shares of restricted stock subject to vesting.(5)Mr. Wallace’s employment with the Company terminated effective December 31, 2013.(6)Includes 6,250 shares of restricted stock subject to vesting.(7)Includes (i) 27,399 shares owned by Marden Rehabilitation Associates, Inc., an entity controlled by Mr. Mason, and (ii) 4,163 shares of restricted stock subject to vesting.(8)Includes (i) 61,693 shares of common stock issuable upon the conversion of shares of Series A preferred stock, (ii) 87,997 shares of common stock issuable upon the exercise of warrants held by Mr. Broady, and (iii) 4,163 shares of restricted stock subject to vesting.(9)Includes (i) 61,693 shares of common stock issuable upon the conversion of shares of Series A preferred stock held by Mr. Broady, (ii) 87,997 shares of common stock issuable upon the exercise of warrants held by Mr. Broady, and (ii) 31,239 shares of restricted stock held by our directors and executive officers that are subject to vesting.(10)Includes (i) 100,000 shares owned by Frome & Co., a family partnership, which Mr. Frome is the general partner; (ii) 30,000 shares held by the Jennifer Frome Trust, which Mr. Frome is the trustee; and (iii) 30,000 shares owned by his wife. Information is based in part on the Schedule 13G filed by Mr. Frome with the SEC on February 14, 2014.Certain Relationships and Related TransactionsIn February 2013,Company entered into 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 new product called ReStor™. Under this agreement, the Company has agreeddefinitive proxy statement to pay BHS a royalty of 2.5% of sales revenue for this product for 2011 and subsequent years in return for the right to manufacture (or have manufactured), market, import, export and sell this product worldwide, with certain rights being exclusive outside the United States. George Broady, a director of the Company and owner of more than 5% of its outstanding common stock, is owner of BHS. During 2011 and 2012, BHS permitted the Company to manufacture (or have manufactured), market and sell the ReStor™ product. In April 2012, the Company reimbursed BHS $42,000 in expenses incurred in 2011 to promote the ReStor™ product on the Company’s behalf. To permit the Company to continue selling ReStor™and obtain certain exclusive rights outside of the United States, BHS requested that the Company enter into the Royalty Agreement and License. This agreement was reviewed, considered, authorized and approved by the sole disinterested, non-employee member of the Board of Directors under appointment by the full Board of Directors as an ad hoc committee for this purpose. Upon signing this agreement, the Company paid BHS $12,000 and $25,000 as royalties for 2011 and 2012, respectively. Royalties accrued for 2013 were $48,000. The Company is not required to purchase any product under the agreement, and the agreement may be terminated at any time on 120 days’ notice or, under certain circumstances, with no notice.The Company is considering entering into another royalty agreement and license with BHS regarding the manufacture and sale of a new product called Soothe™, which the Company began selling in the fourth quarter of 2012filed with the permission of BHS. To continue selling this product, BHS has requested that the Company pay a royalty of 2.5% of sales revenue for this product for 2012 and subsequent years. The Company is considering that proposal and discussing the terms of a definitive agreement. At a royalty of 2.5% of net sales, the Company calculates that royalties for 2012 and 2013 would total $5,000.Director IndependenceThe Board of Directors has adopted the requirements in Nasdaq Marketplace Rule 4200(a)(15) as its standard in determining the “independence” of members of its Board of Directors. The Board of Directors has determined that Randall A. Mason, who served as a director of the Company during all of 2012 and 2013, qualifies as an “independent director” under these standards.Messrs. Mason and Broady are the only current non-employee members of the Board of Directors of the Company, and each of them served as a member of the Company’s Audit Committee and Compensation Committee until those committees were dissolved on March 30, 2012. Mr. Mason was the Chairman of both of those committees until they were dissolved, and was the Chairman and only member of the Nominating Committee until that committee was dissolved on March 30, 2012. Mr. Sharng is the only other member of the Board of Directors and also serves as President of the Company.ACCOUNTINGACCOUNTANT FEES AND SERVICESDuring 2012 and 2013, approximate fees billedCompany for services provided by Lane Gorman Trubitt, PLLC (“Lane Gorman”), were as follows:Audit Fees.Fees billed to the Company by Lane Gorman for the audit of our annual financial statements and review of our quarterly financial statements during the years endedSEC within 120 days after December 31, 2012 and 2013 totaled $105,000 and $132,280, respectively.Audit-Related Fees. No audit-related fees were billed to the Company by Lane Gorman for services rendered during the years ended December 31, 2012 or 2013.Tax Fees. There were no fees billed to the Company by Lane Gorman for services rendered in connection with tax compliance, planning and advice during the years ended December 31, 2012 or 2013.All Other Fees. There were no fees billed by Lane Gorman for services other than audit fees, audit-related fees or tax fees during the years ended December 31, 2012 or 2013.Pre-approval Policies and Procedures for Audit and Non-Audit ServicesAll audit and permitted non-audit services required pre-approval by the Audit Committee until its dissolution on March 30, 2012 and, since then, by the entire Board of Directors. All audit and permitted non-audit services performed by Lane Gorman during 2012 and 2013 were pre-approved.1. Item 8“Item 8. Financial Statements and Supplementary Data” of Part II.this report.2. 3. SIGNATURESNATURAL HEALTH TRENDS CORP. Date: March 7, 2014/s/ Chris T. SharngChris T. SharngPresident Date: March 10, 2017 /s/ Chris T. Sharng Chris T. Sharng President (Principal Executive Officer) Signature March 7, 201410, 2017 March 7, 201410, 2017 /s/ Randall A. Mason Chairman of the Board and Director March 7, 201410, 2017 Director March 7, 201410, 2017 /s/ Kin Y. Chung Director March 10, 2017 Kin Y. Chung /s/ Yiu T. Chan Director March 10, 2017 Yiu T. Chan ExhibitNumberExhibit Description3.1 3.1 Certificate of Incorporation of Natural Health Trends Corp. (incorporated by reference to Exhibit 3.01 to Current Report on Form 8-K filed on July 12, 2005). 3.2 Certificate of Designations, Rights and Preferences of the Series A Convertible Preferred Stock of the Company (incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed on May 9, 2007).3.3 +10.2 Form of Seven Year Warrants to Purchase Shares of CommonRestricted Stock ofAward Agreement under the Company issued by the Company to certain purchasers2016 Equity Incentive Plan (incorporated by reference to Exhibit 10.410.2 to CurrentAnnual Report on Form 8-K10-K filed on October 22, 2007)March 4, 2016).10.2 2007Natural Health Trends Corp. Annual Incentive Plan (Restated as of January 1, 2016) (incorporated by reference to Appendix A to Definitive Proxy Statement filed on October 20, 2006)March 4, 2016).10.3 2007 EquityNatural Health Trends Corp. 2014 Long-Term Incentive Plan as amended and restated(Restated as of November 13, 2008January 1, 2016) (incorporated by reference to Appendix AB to Definitive Proxy Statement filed on November 25, 2008)March 4, 2016).10.4 Form of Notice of Restricted Stock Grant and Restricted Stock Agreement underFirst Amendment to the Company’s 2007 EquityNatural Health Trends Corp. 2014 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.5 to Quarterly Report on Form 10-Q filed on May 11, 2007)(Restated as of January 1, 2016) (filed herewith).10.5 10.6 10.7 EmploymentForm of Restricted Stock Notice of Grant and Award Agreement (including formfor shares of Non-Competitionrestricted stock granted on (1) January 20, 2015 to each of Chris T. Sharng, Timothy S. Davidson, Randall A. Mason and Proprietary Rights Assignment Agreement) for Gary C. Wallace dated April 23, 2007George K. Broady, and (2) February 11, 2015 to each of Christopher R. O’Brien and Kin Y. Chung (incorporated by reference to Exhibit 10.310.9 to CurrentAnnual Report on Form 8-K10-K filed on April 26, 2007)March 6, 2015).10.8 December 13, 2005,February 11, 2015, between Natural Health Trends Corp. and each of its directors (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on December 13, 2005)February 12, 2015).14.1 10.11 Stock Repurchase Agreement dated May 7, 2015 by and between Natural Health Trends Corp. and George K. Broady (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed May 7, 2015). 10.12 Stock Repurchase Agreement dated July 31, 2015 by and between Natural Health Trends Corp. and George K. Broady (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed July 31, 2015). 10.13 Stock Repurchase Agreement dated October 28, 2015 by and between Natural Health Trends Corp. and George K. Broady (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed October 28, 2015). 14.1 Worldwide Code of Business Conduct, as revised on November 5, 2015 (incorporated by reference to Exhibit 14.1 to AnnualCurrent Report on Form 10-K8-K filed on March 28, 2007)February 12, 2015).14.2 CodeSubsidiaries of Ethics of Senior Financial Officers (incorporated by reference to Exhibit 14.2 to Annual Report on Form 10-K filed on March 31, 2005)Natural Health Trends Corp. (filed herewith).21.1Subsidiaries of the Company (filed herewith). PLLCLLC (filed herewith). 101.INSXBRL Instance101.SCHXBRL Taxonomy Extension Schema101.CALXBRL Taxonomy Extension Calculation101.DEFXBRL Taxonomy Extension Definition101.LABXBRL Taxonomy Extension Labels101.PREXBRL Taxonomy Extension Presentation 101.INS Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document 101.SCH XBRL Taxonomy Extension Schema 101.CAL XBRL Taxonomy Extension Calculation 101.DEF XBRL Taxonomy Extension Definition 101.LAB XBRL Taxonomy Extension Labels 101.PRE XBRL Taxonomy Extension Presentation + Management contract or compensatory plan