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<SEC-DOCUMENT>0000950134-06-015880.txt : 20060811
<SEC-HEADER>0000950134-06-015880.hdr.sgml : 20060811
<ACCEPTANCE-DATETIME>20060811162531
ACCESSION NUMBER:		0000950134-06-015880
CONFORMED SUBMISSION TYPE:	10-Q
PUBLIC DOCUMENT COUNT:		5
CONFORMED PERIOD OF REPORT:	20060630
FILED AS OF DATE:		20060811
DATE AS OF CHANGE:		20060811

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			NATURAL HEALTH TRENDS CORP
		CENTRAL INDEX KEY:			0000912061
		STANDARD INDUSTRIAL CLASSIFICATION:	WHOLESALE-MISCELLANEOUS NONDURABLE GOODS [5190]
		IRS NUMBER:				592705336
		STATE OF INCORPORATION:			DE
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		10-Q
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	000-26272
		FILM NUMBER:		061025406

	BUSINESS ADDRESS:	
		STREET 1:		12901 HUTTON DRIVE
		STREET 2:		--
		CITY:			DALLAS
		STATE:			TX
		ZIP:			75234
		BUSINESS PHONE:		972-241-4080

	MAIL ADDRESS:	
		STREET 1:		12901 HUTTON DRIVE
		STREET 2:		--
		CITY:			DALLAS
		STATE:			TX
		ZIP:			75234
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>d38792e10vq.htm
<DESCRIPTION>FORM 10-Q
<TEXT>
<HTML>
<HEAD>
<TITLE>e10vq</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV style="width: 100%; border-bottom: 2pt solid black; font-size: 1pt">&nbsp;</DIV>
<DIV style="width: 100%; border-bottom: 1pt solid black; font-size: 1pt">&nbsp;</DIV>




<DIV align="center" style="font-size: 14pt; margin-top: 12pt"><B>UNITED STATES SECURITIES AND EXCHANGE COMMISSION</B>
</DIV>

<DIV align="center" style="font-size: 12pt"><B>WASHINGTON, D.C. 20549</B>
</DIV>

<DIV align="center" style="font-size: 18pt; margin-top: 12pt"><B>FORM 10-Q</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">(Mark One)
</DIV>

<DIV align="center">
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%" style="font-size: 12pt">
<TR style="font-size: 6pt">
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="88%">&nbsp;</TD>
</TR>
<TR valign="top">
    <TD align="center"><FONT face="Wingdings">&#254;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><B>QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934</B></TD>
</TR>
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 12%"><B><B>For the quarterly period ended June&nbsp;30, 2006</B>
</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>OR</B></DIV>

<DIV align="center">
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%" style="font-size: 12pt">
<TR style="font-size: 6pt">
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="88%">&nbsp;</TD>
</TR>
<TR valign="top">
    <TD align="center"><FONT face="Wingdings">&#111;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><B>TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934</B></TD>
</TR>
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 12%"><B><B>For the transition period from <U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U> to </B><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U>
</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>Commission File Number: 0-26272</B></DIV>

<DIV align="center" style="font-size: 24pt; margin-top: 12pt"><B>NATURAL HEALTH TRENDS CORP.</B>
</DIV>

<DIV align="center" style="font-size: 10pt">(Exact name of registrant as specified in its charter)</DIV>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="47%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="47%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD align="center" valign="top">Delaware
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">59-2705336</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top">(State or other jurisdiction of
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">(I.R.S. Employer</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top">incorporation or organization)
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Identification No.)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top">2050 Diplomat Drive</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top">Dallas, Texas
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">75234</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top">(Address of principal executive offices)
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">(Zip Code)</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt">Registrant&#146;s telephone number, including area code: (972)&nbsp;241-4080</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Indicate by check mark whether the registrant: (1)&nbsp;has filed all reports required to be filed by
Section&nbsp;13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12&nbsp;months (or for
such shorter period that the registrant was required to file such reports), and (2)&nbsp;has been
subject to such filing requirements for the past 90&nbsp;days. Yes <FONT style="font-family: Wingdings">&#254;</FONT> No <FONT style="font-family: Wingdings">&#168;</FONT>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or
a non-accelerated filer. See definition of &#147;accelerated filer and large accelerated filer&#148; in Rule
12b-2 of the Exchange Act. (Check one):
</DIV>

<DIV align="center" style="font-size: 10pt">Large accelerated filer <FONT face="Wingdings">&#111;</FONT> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Accelerated filer <FONT face="Wingdings">&#111;</FONT> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Non-Accelerated filer <FONT face="Wingdings">&#254;</FONT></DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Indicate by check mark whether the registrant is a shell company (as defined in Rule&nbsp;12b-2 of the
Act). Yes <FONT face="Wingdings">&#111;</FONT> No <FONT face="Wingdings">&#254;</FONT>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">At August&nbsp;7, 2006, the number of shares outstanding of the registrant&#146;s common stock was 8,199,933
shares.
</DIV>


<DIV style="width: 100%; border-bottom: 1pt solid black; margin-top: 10pt; font-size: 1pt">&nbsp;</DIV>
<DIV style="width: 100%; border-bottom: 2pt solid black; font-size: 1pt">&nbsp;</DIV>





<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">









<DIV align="left">
<!-- TOC -->
</DIV>
<DIV align="left">
<A name="tocpage"></A>
</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt">NATURAL HEALTH TRENDS CORP. AND SUBSIDIARIES<BR>
Quarterly Report on Form&nbsp;10-Q<BR>
June&nbsp;30, 2006

</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt">INDEX

</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000">Page</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD align="center"><DIV style="margin-left:15px; text-indent:-15px"><A href="#101">PART I &#151; FINANCIAL INFORMATION</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#102">Item&nbsp;1. Financial Statements:</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#103">Consolidated Balance Sheets</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">1</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#104">Consolidated Statements of Operations</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">2</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#105">Consolidated Statements of Cash Flows</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">3</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#106">Notes to the Consolidated Financial Statements</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">4</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#107">Item&nbsp;2. Management&#146;s Discussion and Analysis of Financial Condition and Results of Operations</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">14</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#108">Item&nbsp;3. Quantitative and Qualitative Disclosures About Market Risk</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">22</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#109">Item&nbsp;4. Controls and Procedures</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">23</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center"><DIV style="margin-left:15px; text-indent:-15px"><A href="#110">PART II &#151; OTHER INFORMATION</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#111">Item&nbsp;1. Legal Proceedings</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">26</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#112">Item&nbsp;1A. Risk Factors</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">26</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#113">Item&nbsp;6. Exhibits</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">26</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#114">Signatures</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">27</TD>
</TR>
<!-- End Table Body -->
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="d38792exv31w1.htm">Certification of the Principal Executive Officer Pursuant to Section 302</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="d38792exv31w2.htm">Certification of the Chief Financial Officer Pursuant to Section 302</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="d38792exv32w1.htm">Certification of the Principal Executive Officer Pursuant to Section 906</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="d38792exv32w2.htm">Certification of the Chief Financial Officer Pursuant to Section 906</A></FONT></TD></TR>
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left">
<!-- /TOC -->
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>FORWARD-LOOKING STATEMENTS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Certain statements contained in this report constitute &#147;forward-looking statements&#148; within the
meaning of Section&nbsp;27A of the Securities Act of 1933, as amended, and Section&nbsp;21E of the Securities
Exchange Act of 1934, as amended. All statements included in this report, other than statements of
historical facts, regarding our strategy, future operations, financial position, estimated
revenues, projected costs, prospects, plans and objectives are forward-looking statements. When
used in this report, the words &#147;believe,&#148; &#147;anticipate,&#148; &#147;intend,&#148; &#147;estimate,&#148; &#147;expect,&#148; &#147;project,&#148;
&#147;could,&#148; &#147;would,&#148; &#147;may,&#148; &#147;plan,&#148; &#147;predict,&#148; &#147;pursue,&#148; &#147;continue,&#148; &#147;feel&#148; and similar expressions
are intended to identify forward-looking statements, although not all forward-looking statements
contain these identifying words.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We cannot guarantee future results, levels of activity, performance or achievements, and you
should not place undue reliance on our forward-looking statements. Our actual results could differ
materially from those anticipated in these forward-looking statements as a result of various
factors, including the risk described in Risk Factors, and elsewhere in this report. Our
forward-looking statements do not reflect the potential impact of any future acquisitions, mergers,
dispositions, joint ventures or strategic investments. In addition, any forward-looking statements
represent our expectation only as of the date of this report and should not be relied on as
representing our expectations as of any subsequent date. While we may elect to update
forward-looking statements at some point in the future, we specifically disclaim any obligation to
do so, even if our expectations change.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Although we believe that the expectations reflected in any of our forward-looking statements
are reasonable, actual results could differ materially from those projected or assumed in any of
our forward-looking statements. Our future financial condition and results of operations, as well
as any forward-looking statements, are subject to change and to inherent risks and uncertainties,
such as those disclosed in this report. Important factors that could cause our actual results,
performance and achievements, or industry results to differ materially from estimates or
projections contained in forward-looking statements include, among others, the following:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><FONT style="font-family: Wingdings">&#167;</FONT></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>our relationship with our distributors;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><FONT style="font-family: Wingdings">&#167;</FONT></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>our need to continually recruit new distributors;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><FONT style="font-family: Wingdings">&#167;</FONT></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>our internal controls and accounting methods may require further modification;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><FONT style="font-family: Wingdings">&#167;</FONT></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>adverse consequences from audit committee investigations or management changes;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><FONT style="font-family: Wingdings">&#167;</FONT></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>regulatory matters governing our products and network marketing system;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><FONT style="font-family: Wingdings">&#167;</FONT></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>regulatory matters pertaining to direct-selling laws, specifically in China;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><FONT style="font-family: Wingdings">&#167;</FONT></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>our ability to recruit and maintain key management,</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><FONT style="font-family: Wingdings">&#167;</FONT></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>adverse publicity associated with our products or direct selling organizations;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><FONT style="font-family: Wingdings">&#167;</FONT></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>product liability claims;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><FONT style="font-family: Wingdings">&#167;</FONT></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>our reliance on outside manufacturers;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><FONT style="font-family: Wingdings">&#167;</FONT></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>risks associated with operating internationally, including foreign exchange risks;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><FONT style="font-family: Wingdings">&#167;</FONT></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>product concentration;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><FONT style="font-family: Wingdings">&#167;</FONT></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>dependence on increased penetration of existing markets;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><FONT style="font-family: Wingdings">&#167;</FONT></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the competitive nature of our business; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><FONT style="font-family: Wingdings">&#167;</FONT></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>our ability to generate sufficient cash to operate and expand our business.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Market data and other statistical information used throughout this report is based on
independent industry publications, government publications, reports by market research firms or
other published independent sources and on our good faith estimates, which are derived from our
review of internal surveys and independent sources. Although we believe that these sources are
reliable, we have not independently verified the information and cannot guarantee its accuracy or
completeness.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Additional factors that could cause actual results to differ materially from our
forward-looking statements are set forth in this Quarterly Report on Form 10-Q, including under the
heading &#147;Risk Factors,&#148; &#147;Management&#146;s Discussion and Analysis of Financial Condition and Results of
Operations&#148; and in our financial statements and the related notes.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Forward-looking statements in this Quarterly Report on Form 10-Q speak only as of the
date hereof, and forward looking statements in documents attached are incorporated by reference
speak only as of the date of those documents. The Company does not undertake any obligation to
update or release any revisions to any forward-looking statement or to report any events or
circumstances after the date hereof or to reflect the occurrence of unanticipated events, except as
required by law. Unless otherwise noted, the terms &#147;we,&#148; &#147;our,&#148; &#147;us,&#148; &#147;Company,&#148; refer to Natural
Health Trends Corp. and its subsidiaries.
</DIV>

<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="101"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>PART I &#151; FINANCIAL INFORMATION</B>
</DIV>

<DIV align="left">
<A name="102"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;1. FINANCIAL STATEMENTS</B>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 6pt">NATURAL HEALTH TRENDS CORP. AND SUBSIDIARIES

</DIV>
<DIV align="left">
<A name="103"></A>
</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt">CONSOLIDATED BALANCE SHEETS

</DIV>
<DIV align="center" style="font-size: 10pt">(In Thousands, Except Share Data)</DIV>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">December</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">June</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">31, 2005</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">30, 2006</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" colspan="2">(Unaudited)</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD align="center"><DIV style="margin-left:75px; text-indent:-15px">ASSETS</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Current assets:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Cash and cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">18,470</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">14,680</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Restricted cash</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">903</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">746</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accounts receivable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">300</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">250</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Inventories, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,993</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,228</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,632</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,312</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37,298</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">32,216</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Property and equipment, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,143</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,019</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Goodwill</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,145</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,145</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Intangible assets, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,529</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,050</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,833</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,031</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">63,948</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">59,461</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center"><DIV style="margin-left:60px; text-indent:-15px">LIABILITIES AND STOCKHOLDERS&#146; EQUITY</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Current liabilities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accounts payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,023</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,730</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Income taxes payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,308</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,278</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accrued distributor commissions</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,001</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,824</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other accrued expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,827</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,862</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Deferred revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,897</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,028</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Debt</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">109</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">86</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other current liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,537</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,802</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total current liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26,702</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,610</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Commitments and contingencies</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Minority interest</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">77</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">85</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Stockholders&#146; equity:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Preferred stock, $0.001 par value; 5,000,000 shares authorized; none issued and outstanding</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Common stock, $0.001 par value; 50,000,000 shares authorized, 7,108,867 and 8,199,933
shares issued and outstanding at December&nbsp;31, 2005 and June&nbsp;30, 2006, respectively</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Additional paid-in capital</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">69,417</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">69,735</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accumulated deficit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(32,668</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(36,617</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accumulated other comprehensive income:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Foreign currency translation adjustment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">413</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">640</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total stockholders&#146; equity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37,169</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33,766</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total liabilities and stockholders&#146; equity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">63,948</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">59,461</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">The accompanying notes are an integral part of these consolidated financial statements.
</DIV>


<P align="center" style="font-size: 10pt">1
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="center" style="font-size: 10pt; margin-top: 18pt">NATURAL HEALTH TRENDS CORP. AND SUBSIDIARIES
</DIV>

<DIV align="left">
<A name="104"></A>
</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt">CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

</DIV>
<DIV align="center" style="font-size: 10pt">(In Thousands, Except Per Share Data)</DIV>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">Three Months Ended June 30,</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">Six Months Ended June 30,</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2005</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2006</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2005</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2006</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">49,959</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">36,321</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">92,718</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">75,795</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cost of sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,440</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,501</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,606</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,574</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Gross profit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37,519</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27,820</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">72,112</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">59,221</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Operating expenses:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Distributor commissions</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27,599</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,761</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">48,872</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">39,446</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Selling, general and administrative expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,308</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,213</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21,554</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,937</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Recovery of KGC receivable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(314</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(314</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total operating expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">39,907</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30,660</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">70,426</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">63,069</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income (loss)&nbsp;from operations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,388</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,840</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,686</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,848</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other income (expense), net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(399</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">228</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(673</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">387</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income (loss)&nbsp;before income taxes and minority interest</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,787</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,612</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,013</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,461</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income tax benefit (provision)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">674</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(189</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(314</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(444</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Minority interest</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(46</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(14</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(63</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(44</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(2,159</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(2,815</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">636</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(3,949</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income (loss)&nbsp;per share:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Basic</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(0.32</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(0.34</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.09</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(0.50</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Diluted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(0.32</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(0.34</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.08</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(0.50</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Weighted-average number of shares outstanding:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Basic</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,853</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,200</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,836</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,957</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Diluted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,853</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,200</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,184</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,957</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">The accompanying notes are an integral part of these consolidated financial statements.
</DIV>


<P align="center" style="font-size: 10pt">2
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="center" style="font-size: 10pt; margin-top: 18pt">NATURAL HEALTH TRENDS CORP. AND SUBSIDIARIES
</DIV>

<DIV align="left">
<A name="105"></A>
</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt">CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

</DIV>
<DIV align="center" style="font-size: 10pt">(In Thousands)</DIV>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">Six Months Ended June 30,</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2005</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2006</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">CASH FLOWS FROM OPERATING ACTIVITIES:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">636</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(3,949</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Adjustments to reconcile net income (loss)&nbsp;to net cash
provided by (used in) operating activities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Depreciation and amortization of property and equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">162</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">519</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Amortization of intangibles</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">466</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">479</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Minority interest</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">63</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">44</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock-based compensation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">301</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Imputed interest on KGC installment payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(358</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Recovery of KGC receivable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(314</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Imputed compensation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Changes in assets and liabilities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accounts receivable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(116</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">62</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Inventories</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">186</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,767</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,500</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,062</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(712</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(77</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accounts payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">412</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(293</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Income taxes payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(40</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accrued distributor commissions</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,675</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(170</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other accrued expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,987</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Deferred revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,466</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(878</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other current liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">802</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">245</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net cash provided by (used in) operating activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,571</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,722</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">CASH FLOWS FROM INVESTING ACTIVITIES:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Purchases of property and equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,151</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,403</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Decrease in restricted cash</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">389</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">135</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Decrease in certificate of deposit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">104</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Proceeds from KGC receivable (see Note 4)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,014</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net cash used in investing activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(762</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(150</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">CASH FLOWS FROM FINANCING ACTIVITIES:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Payments on debt</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(407</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(23</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Proceeds from issuance of common stock</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">643</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Offering costs</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(97</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net cash provided by (used in) financing activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">139</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(5</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Effect of exchange rates on cash and cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">67</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">87</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net increase (decrease)&nbsp;in cash and cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,015</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,790</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">CASH AND CASH EQUIVALENTS, beginning of period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22,324</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,470</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">CASH AND CASH EQUIVALENTS, end of period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">29,339</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">14,680</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">The accompanying notes are an integral part of these consolidated financial statements.
</DIV>


<P align="center" style="font-size: 10pt">3
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="center" style="font-size: 10pt; margin-top: 18pt">NATURAL HEALTH TRENDS CORP. AND SUBSIDIARIES
</DIV>

<DIV align="left">
<A name="106"></A>
</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt">NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Nature of Operations</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Natural Health Trends Corp. (the &#147;Company&#148;) is an international direct-selling organization
headquartered in Dallas, Texas. The Company was originally incorporated as a Florida corporation in
1988. The Company merged into one of its subsidiaries and re-incorporated in the State of Delaware
effective June&nbsp;29, 2005. Subsidiaries controlled by the Company sell personal care, wellness, and
&#147;quality of life&#148; products under the &#147;NHT Global&#148; brand to an independent distributor network that
either uses the products themselves or resells them to consumers. Prior to June&nbsp;1, 2006, the
Company marketed its &#147;NHT Global&#148; branded products under the name &#147;Lexxus International&#148;. As part
of this worldwide name change, the Company&#146;s U.S. subsidiary changed its name from Lexxus
International, Inc. to NHT Global, Inc (&#147;NHT Global U.S.&#148;). Effective July&nbsp;1, 2006, the Company
sold its equity interests in eKaire.com, Inc. and other subsidiaries that distribute nutritional
supplements aimed at general health and wellness (see Note 8).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company&#146;s majority-owned subsidiaries have an active physical presence in the following
markets: North America, which consists of the United States and Canada; Greater China, which
consists of Hong Kong, Macau, Taiwan and China; Southeast Asia, which consists of Singapore, the
Philippines and Indonesia; Australia and New Zealand; South Korea; Japan; Latin America, which
primarily consists of Mexico; and Slovenia.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Basis of Presentation</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The unaudited interim consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America for interim financial
information and with the instructions to Form 10-Q and Rule&nbsp;10-01 of Regulation&nbsp;S-X. As a result,
certain information and footnote disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United States have been condensed
or omitted. In the opinion of management, the accompanying unaudited interim consolidated
financial statements contain all adjustments, consisting of normal recurring adjustments,
considered necessary for a fair statement of the Company&#146;s financial information for the interim
periods presented. The results of operations of any interim period are not necessarily indicative
of the results of operations to be expected for the fiscal year. These consolidated financial
statements should be read in conjunction with the consolidated financial statements and related
notes included in our 2005 amended Annual Report on Form 10-K/A filed with the United States
Securities and Exchange Commission (SEC)&nbsp;on May&nbsp;31, 2006.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Principles of Consolidation</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The consolidated financial statements include the accounts of the Company and all of its
majority-owned subsidiaries. All significant intercompany balances and transactions have been
eliminated in consolidation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Effective December&nbsp;31, 2005, the Company sold its 51% equity interest in its Eastern European
business, KGC Networks Pte Ltd. (&#147;KGC&#148;). As a result, the results of operations of KGC are not
included in the Company&#146;s consolidated statement of operations for the three and six months ended
June&nbsp;30, 2006.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Use of Estimates</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The preparation 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. Actual results may differ from these estimates.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The most significant accounting estimates inherent in the preparation of the Company&#146;s
financial statements include estimates associated with obsolete inventory and the fair value of
acquired intangible assets and goodwill, as well as those used in the
</DIV>

<P align="center" style="font-size: 10pt">4
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">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. Historically, actual
results have not significantly deviated from those determined using the estimates described above.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Reclassification</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Certain restricted cash balances have been reclassified in the prior year consolidated balance
sheet to conform to current year presentation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Revenue Recognition</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Product sales are recorded when the products are shipped and title passes to independent
distributors. Product sales to distributors are made pursuant to a distributor agreement that
provides for transfer of both title and risk of loss upon our delivery to the carrier that
completes delivery to the distributors, which is commonly referred to as &#147;F.O.B. Shipping Point.&#148;
The Company primarily receives payment by credit card at the time distributors place orders.
Amounts received for unshipped product are recorded as deferred revenue. The Company&#146;s sales
arrangements do not contain right of inspection or customer acceptance provisions other than
general rights of return.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Actual product returns are recorded as a reduction to net sales. The Company estimates and
accrues a reserve for product returns based on its return policies and historical experience.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During April&nbsp;2005, the Company launched a new product line, Gourmet Coffee Caf&#233;, which
consists of coffee machines and the related coffee and tea pods, in the North American market. As
the Gourmet Coffee Caf&#233; is a very different product than the Company&#146;s other products and since
there is no basis to reasonably estimate the Company&#146;s sales returns or warranty obligation, the
Company has deferred all revenue generated from the sale of coffee machines and the related coffee
and tea pods until sufficient return and warranty experience on the product can be established.
The deferral totaled approximately $1.7&nbsp;million and $1.2&nbsp;million in revenue and related costs,
respectively, for product shipped through June&nbsp;30, 2006. The deferred costs are recorded in other
current assets as the sales return period for distributors is only valid for one year from date of
shipment. Since the launch, the Company has experienced a high rate of defects and product
returns. As a result, the Company has delayed continued sales of our existing inventory of this
product and approached the manufacturer for resolution. The manufacturer has agreed to repair all
of the machines in our existing inventory and provide discounts on future purchases. The Company
is currently planning to re-start the sale of the coffee machines in the first half of 2007.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Enrollment package revenue, including any nonrefundable set-up fees, is deferred and
recognized over the term of the arrangement, generally twelve months. Enrollment packages provide
distributors access to both a personalized marketing website and a business management system. No
upfront costs are deferred as the amount is nominal.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Shipping charges billed to distributors are included in net sales. Costs associated with
shipments are included in cost of sales.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Income Per Share</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Basic income per share is computed by dividing net income applicable to common stockholders by
the weighted-average number of common shares outstanding during the period. Diluted income per
share is determined using the weighted-average number of common shares outstanding during the
period, adjusted for the dilutive effect of common stock equivalents, consisting of shares that
might be issued upon the exercise of outstanding stock options and warrants. In periods where
losses are reported, the weighted-average number of common shares outstanding excludes common stock
equivalents because their inclusion would be anti-dilutive.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The dilutive effect of stock options and warrants is reflected by application of the treasury
stock method. Under the treasury stock method, the amount the employee must pay for exercising
stock options, the amount of compensation cost for future service that the Company has not yet
recognized, and the amount of tax benefit that would be recorded in additional paid-in capital when
the award becomes deductible are assumed to be used to repurchase shares. The potential tax
benefit derived from exercise of non-qualified stock options has been excluded from the treasury
stock calculation as the Company is uncertain that the benefit will be realized.
</DIV>

<P align="center" style="font-size: 10pt">5
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000">Three Months Ended June 30,</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000">Six Months Ended June 30,</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">2005</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">2006</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">2005</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">2006</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="15">(In Thousands, Except Per Share Data)</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(2,159</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(2,815</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">636</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(3,949</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Basic weighted-average number of shares outstanding</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,853</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,200</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,836</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,957</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Effect of dilutive stock options and warrants</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,348</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Diluted weighted-average number of shares outstanding</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,853</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,200</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,184</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,957</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income (loss)&nbsp;per share:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Basic</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.32</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.34</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.09</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.50</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Diluted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.32</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.34</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.08</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.50</TD>
    <TD nowrap>)</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Options and warrants to purchase 2,992,228 shares of common stock were outstanding during the
three months ended June&nbsp;30, 2005, but were not included in the computation of diluted income per
share because of the net loss reported for the three months ended June&nbsp;30, 2005. Options to
purchase 310,000 shares of common stock were outstanding during the six months ended June&nbsp;30, 2005,
but were not included in the computation of diluted income per share because the exercise prices
were greater than the average market price of the common shares.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Options and warrants to purchase 1,782,628 and 3,022,628 shares of common stock were
outstanding during the three and six months ended June&nbsp;30, 2006, respectively, but were not
included in the computation of diluted income per share because of the net loss reported for the
three and six months ended June&nbsp;30, 2006. Options and warrants for 702,124 and 1,080,504 shares of
common stock, respectively, were still outstanding at June&nbsp;30, 2006. Such warrants expire on
October&nbsp;6, 2009. The options have expirations through June&nbsp;23, 2014.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Recent Accounting Pronouncement</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In July&nbsp;2006, the Financial Accounting Standards Board (FASB)&nbsp;issued FASB Interpretation No.
48, &#147;Accounting for Uncertainty in Income Taxes &#151; an Interpretation of FASB Statement No.&nbsp;109&#148;
(FIN 48), which clarifies the accounting for uncertainty in tax positions. This Interpretation
requires the Company to recognize in its financial statements the impact of a tax position if that
position is more likely than not of being sustained on audit, based on the technical merits of the
position. The provisions of FIN 48 are effective January&nbsp;1, 2007, with the cumulative effect, if
any, of the change in accounting principle recorded as an adjustment to opening retained earnings.
The Company is currently evaluating the impact of adopting FIN 48 on the consolidated financial
statements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">3. STOCK-BASED COMPENSATION
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company maintains the 2002 Stock Option Plan (the &#147;Plan&#148;) which provides for the granting
of incentive and nonqualified stock options to employees, officers of the Company, members of the
board of directors, or consultants. The terms of any particular grant are determined by the board
of directors or a committee appointed by the board of directors. Historically, the terms have
ranged from five to ten years. Stock options granted to employees and officers of the Company
generally vest over three years, and stock options granted to members of the board of directors
generally vest immediately. In 2005, the Company amended the Plan to increase the maximum number
of shares available to be issued to 1,550,000 shares of common stock. As of June&nbsp;30, 2006, 967,876
shares remained available to be granted under the Plan.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;From January&nbsp;2001 through April&nbsp;2003, the Company granted 1,331,500 stock options outside of
Plan. The grant included 570,000 options granted to the LaCore and Woodburn Partnership, an entity
controlled by Mark Woodburn, former President and director of the Company, and Terry LaCore, former
Chief Executive Officer of NHT Global U.S. and former director of the Company; 600,000 options
granted to Mr.&nbsp;LaCore; 30,000 options granted to Benchmark Consulting Group (which was subsequently
assigned to the LaCore and Woodburn Partnership); 120,000 options granted to members of the
Company&#146;s board of directors; 1,500 granted to an employee; and 10,000 options granted to then
unrelated parties.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On February&nbsp;10, 2006, the Company entered into an Escrow Agreement (the &#147;Agreement&#148;) with
Messrs.&nbsp;Woodburn and LaCore, the LaCore and Woodburn Partnership, and Krage and Janvey LLP, as
escrow agent (the &#147;Agent&#148;). Pursuant to the Agreement, (i)&nbsp;the Company issued and deposited with
the Agent stock certificates in the name of the Agent representing an aggregate of 1,081,066 shares
of the Company&#146;s common stock (the &#147;Escrowed Shares&#148;) and (ii)&nbsp;Woodburn and LaCore deposited with
the Agent $1,206,000
</DIV>

<P align="center" style="font-size: 10pt">6
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">in immediately available funds (the &#147;Cash Deposit&#148;). The Escrowed Shares are the shares of
common stock issued upon the cashless exercise of options issued in 2001 and 2002 to LaCore and the
LaCore and Woodburn Partnership for 1,200,000 shares of common stock exercisable at $1.00 and $1.10
per share. The number of Escrow Shares is based upon the closing price of the Company&#146;s common
stock on February&nbsp;9, 2006 of $10.14 and the surrender of 118,934 option shares as payment of the
aggregate exercise price of $1,206,000.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Escrowed Shares were issued pursuant to Section&nbsp;4(2) of the Securities Act of 1933, as
amended, to the Agent upon receipt from the Agent of an irrevocable proxy to the Company to vote
the Escrowed Shares on all matters presented at meetings of stockholders or any written consent
executed in lieu thereof. The parties have agreed that the Agent will hold the Escrowed Shares and
the Cash Deposit until it receives (i)&nbsp;joint written instructions from the Company, Woodburn and
LaCore, or (ii)&nbsp;a final non-appealable order from a court of competent jurisdiction. Each of the
Company and Woodburn and LaCore has further agreed that all current and future rights, claims,
defenses and causes of actions they have or may have against each other are preserved.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of June&nbsp;30, 2006, 120,000 options granted outside of the Plan remain outstanding.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Adoption of SFAS 123(R) and Transition</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prior to January&nbsp;1, 2006, the Company accounted for its stock-based compensation plans under
the recognition and measurement provisions of Accounting Principles Board (APB)&nbsp;Opinion No.&nbsp;25,
&#147;Accounting for Stock Issued to Employees,&#148; and related Interpretations, as permitted by SFAS No.
123, &#147;Accounting for Stock-Based Compensation.&#148; The Company did not recognize compensation cost
related to stock options granted to its employees and non-employee directors that had an exercise
price equal to or above the market value of the underlying common stock on the date of grant.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Effective January&nbsp;1, 2006, the Company adopted the fair value recognition provisions of SFAS
No.&nbsp;123(R), &#147;Share-Based Payment,&#148; and related interpretations using the modified-prospective
transition method. The modified-prospective transition method does not allow for restatement of
prior periods and accordingly, the results of operations for the three and six months ended June
30, 2006 and future periods will not be comparable to our historical results of operations. Under
the modified-prospective transition method, compensation cost recognized in the first quarter of
2006 includes (1)&nbsp;compensation cost for all stock-based awards granted prior to, but not yet vested
as of, January&nbsp;1, 2006 based on the grant date fair value estimated in accordance with the original
provisions of SFAS No.&nbsp;123, and (2)&nbsp;compensation cost for all stock-based awards granted on or
subsequent to January&nbsp;1, 2006, based on the grant-date fair value estimated in accordance with the
provisions of SFAS No.&nbsp;123(R). Compensation cost is presented in the same lines as cash
compensation paid to the same individuals.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As a result of adopting SFAS No.&nbsp;123(R) on January&nbsp;1, 2006, the Company recognized stock-based
compensation of approximately $124,000 and $301,000 for the three and six months ended June&nbsp;30,
2006, respectively, which approximates $0.01 and $0.04 per share, respectively. Because the
Company maintained a full valuation allowance on its deferred tax assets, the Company did not
recognize any tax benefit related to stock-based compensation for the three and six months ended
June&nbsp;30, 2006.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of June&nbsp;30, 2006, there was $1.2&nbsp;million of total unrecognized stock-based compensation on
a pre-tax basis related to non-vested stock options. These costs are expected to be recognized
over a weighted-average period of 2.3&nbsp;years.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Pro Forma Information Under SFAS No.&nbsp;123(R) for Periods Prior to January&nbsp;1, 2006</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table illustrates the effect on net income and income per share if the Company
had applied the fair value recognition provisions of SFAS No.&nbsp;123, &#147;Accounting for Stock-Based
Compensation,&#148; to stock-based employee compensation for the three and six months ended June&nbsp;30,
2005 (in thousands, except per share data):
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Three Months Ended</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Six Months Ended</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">June 30, 2005</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">June 30, 2005</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income (loss), as reported</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(2,159</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">636</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Add: Stock-based employee
compensation expense included
in reported net income, net of
related tax effects</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Deduct: Stock-based employee
compensation expense determined
under fair value based method
for all awards, net of related
tax effects</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(20</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(40</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Pro forma net income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(2,179</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">596</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Basic income (loss)&nbsp;per share:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">As reported</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(0.32</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.09</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Pro forma</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(0.32</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.09</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Diluted income (loss)&nbsp;per share:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">As reported</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(0.32</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.08</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Pro forma</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(0.32</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.07</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">No options were granted during the six months ended June&nbsp;30, 2005.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">7
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Valuation and Expense Information under SFAS No.&nbsp;123(R)</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company continues to use the Black-Scholes option pricing model to estimate fair value of
equity awards, which requires the input of highly subjective assumptions. Due to the &#147;plain
vanilla&#148; characteristics of the Company&#146;s stock options, the simplified method, as permitted by the
guidance provided in Staff Accounting Bulletin No.&nbsp;107, is used to determine expected life.
Expected volatility is based on the historical volatility of the Company&#146;s common stock computed
over a period generally commensurate with the expected life of the stock options. The risk-free
interest rate is based on the U.S. Treasury yield at the time of grant. Forfeitures are estimated
based on comparable data because we have limited relevant historical information. Compensation
cost is recognized on a straight-line basis over the awards&#146; vesting periods.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No stock options were granted by the Company during the three months ended June&nbsp;30, 2006.
During the six months ended June&nbsp;30, 2006, the Company granted 20,000 stock options with a
weighted-average fair value of $5.67 per share. The fair value of each option grant was estimated
on the date of grant with the following weighted-average assumptions: expected life of 3.1&nbsp;years,
risk-free interest rate of 4.6%, expected volatility of 92%, and dividend yield of zero.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A summary of the status and activity of the Company&#146;s stock option awards is as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Wtd. Avg.</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Wtd. Avg.</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Remaining</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Aggregate</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Exercise</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Contractual</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Intrinsic</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Shares</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Price</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Life</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Value<SUP style="font-size: 85%; vertical-align: text-top">1</SUP></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Outstanding at December&nbsp;31, 2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,922,124</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">5.17</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">11,431</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Granted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9.31</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Exercised</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,091,066</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.01</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Forfeited or expired</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(148,934</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.82</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Outstanding at March&nbsp;31, 2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">702,124</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12.25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">630</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Granted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Exercised</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Forfeited or expired</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Outstanding at June&nbsp;30, 2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">702,124</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12.25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">266</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Vested and expected to vest at June&nbsp;30, 2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">691,168</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12.28</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">266</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Exercisable at June&nbsp;30, 2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">517,136</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12.94</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">266</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left"><SUP style="font-size: 85%; vertical-align: text-top">1</SUP></TD>
    <TD>&nbsp;</TD>
    <TD>Aggregate intrinsic value is defined as the
positive difference between the current market value and the exercise price and
is estimated using the closing price of the Company&#146;s common stock on the
last trading day of the periods ended as of the dates indicated (in thousands).</TD>
</TR>

</TABLE>


<P align="center" style="font-size: 10pt">8
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">






<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No stock options were exercised during the three months ended June&nbsp;30, 2006. The total
intrinsic value of stock options exercised during the six months ended June&nbsp;30, 2006 was
$9,701,000. No options were exercised during the six months ended June&nbsp;30, 2005. The total fair
value of stock options vested during each of the three months ended June&nbsp;30, 2005 and 2006 was
$20,000, and the total fair value of stock options vested during the six months ended June&nbsp;30, 2005
and 2006 was $72,000 and $178,000, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A summary of the Company&#146;s non-vested stock activity is as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Wtd. Avg.</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Fair Value</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">at Grant</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Shares</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Date</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Non-vested at December&nbsp;31, 2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">222,980</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">6.74</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Granted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6.03</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Vested</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(17,496</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6.69</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Forfeited or expired</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(30,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6.49</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Non-vested at March&nbsp;31, 2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">187,484</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6.74</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Granted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Vested</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,496</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7.87</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Forfeited or expired</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Non-vested at June&nbsp;30, 2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">184,988</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6.72</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">4. SALE OF KGC NETWORKS
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Effective December&nbsp;31, 2005, the Company entered into a Stock Purchase Agreement with Bannks
Foundation (&#147;Bannks&#148;), a Lichtenstein foundation and owner of 49% of the common shares of KGC
Networks Pte Ltd. (&#147;KGC&#148;), a Singapore corporation, pursuant to which the Company sold to Bannks
51,000 common shares representing the Company&#146;s 51% of the outstanding shares of capital stock of
KGC for a total cash purchase price of $350,000.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At the same time and as a condition of the sale, the Company entered into a separate agreement
pursuant to which KGC is obligated to pay to the Company 24&nbsp;monthly payments of approximately
$169,000 each, including interest at 2.5%, to settle an outstanding inter-company payable in the
amount of approximately $2.1&nbsp;million and to pay for inventories ordered and partially delivered
totaling approximately $884,000, as well as the Company&#146;s undertaking to continue to supply KGC
with certain products for a period of at least 48&nbsp;months. The Company discounted the 24&nbsp;monthly
payments based on its cost of capital and recorded the receivable at $3.1&nbsp;million, of which $1.7
million is considered non-current. Given its interest in the retained profits and cumulative
translation adjustment of KGC of approximately $434,000, the Company recognized a nominal gain on
sale. Since the receivable from KGC is unsecured, the Company recorded a reserve totaling
approximately $2.8&nbsp;million, which will be reduced as payments are received. As of June&nbsp;30, 2006,
KGC is current on all monthly payments due, and as such, the Company reversed $314,000 of the
reserve.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;KGC sells the Company&#146;s products into a separate network of independent distributors located
primarily in Russia and other Eastern European countries. Upon the effective date of the
transactions above, the Company no longer consolidates the financial statements of KGC. The
Company does not believe these transactions result in a discontinued operation as the Company will
continue to supply KGC with a significant amount of product for the foreseeable future. Therefore,
the results of KGC for the first six months of 2005 have been reported in results from operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Had KGC not been reflected in results from operations, the Company&#146;s statement of operations
for the first three and six months of 2005 would have reflected the following (in thousands):
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7">Three Months Ended</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7">Six Months Ended</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000">June 30, 2005</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000">June 30, 2005</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">As</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">As</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Actual</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Adjusted</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Actual</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Adjusted</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">49,959</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">41,729</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">92,718</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">76,084</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Gross profit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37,519</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30,924</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">72,112</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">58,824</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Distributor commissions</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27,599</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,645</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">48,872</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">40,908</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income (loss)&nbsp;from operations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,388</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,628</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,686</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,688</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">9
</DIV>


<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 12pt">5. COMPREHENSIVE INCOME (LOSS) (In Thousands)
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">Three Months Ended June 30,</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">Six Months Ended June 30,</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2005</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2006</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2005</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2006</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(2,159</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(2,815</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">636</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(3,949</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other comprehensive income (loss), net of tax:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Foreign currency translation adjustment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(42</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">89</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">84</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">227</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Comprehensive income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(2,201</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(2,726</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">720</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(3,722</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">6. CONTINGENCIES
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Legal Matters</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During the fall of 2003, the customs agency of the government of South Korea brought a charge
against LXK, Ltd. (&#147;LXK&#148;), the Company&#146;s wholly-owned subsidiary operating in South Korea, with
respect to the importation of the Company&#146;s Alura product. The customs agency alleges that Alura
is not a cosmetic product, but rather should be categorized and imported as a pharmaceutical
product. On February&nbsp;18, 2005, the Seoul Central District Court ruled against LXK and fined it a
total of 206.7&nbsp;million Korean won (approximately $213,000 at June&nbsp;30, 2006). LXK also incurred
related costs of 40.0&nbsp;million Korean won (approximately $41,000 at June&nbsp;30, 2006) as a result of
the judgment. The Company recorded a reserve for the entire 246.7&nbsp;million Korean won at December
31, 2004 and has appealed the ruling. On May&nbsp;10, 2006, an intermediate court of appeals issued a
ruling that the Company believes reversed that part of the judgment that had imposed 186.7&nbsp;million
Korean won of the fine, but upheld the fine of 20.0&nbsp;million Korean won (which has already been
paid) and the ruling that Alura cannot be imported as a cosmetic product. LXK has filed an appeal
of this ruling with the Korean Supreme Court. The Company has been unable to determine with
certainty that it will not be subject to the fine of 186.7&nbsp;million Korean won if the appeal is
unsuccessful, and will therefore continue to reserve 226.7&nbsp;million Korean won (approximately
$234,000 at June&nbsp;30, 2006). The inability to sell Alura in South Korea if the appeal is
unsuccessful is not anticipated to have a material adverse effect on the financial condition,
results of operations, cash flow or business prospects of LXK.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On or around March&nbsp;31, 2004, NHT Global U.S. received a letter from John Loghry, a former NHT
Global distributor, alleging that NHT Global U.S. had wrongfully terminated an alleged oral
distributorship agreement with Mr.&nbsp;Loghry and that the Company had breached an alleged oral
agreement to issue shares of the Company&#146;s common stock to Mr.&nbsp;Loghry. On May&nbsp;13, 2004, NHT
Global U.S. and the Company filed an action against Mr.&nbsp;Loghry in the United States District Court
for the Northern District of Texas (the &#147;Loghry Case&#148;) seeking, inter alia, unspecified damages
from Mr.&nbsp;Loghry for disparagement and a declaration that Mr.&nbsp;Loghry was not wrongfully terminated
and is not entitled to recover anything from NHT Global U.S. or the Company. Mr.&nbsp;Loghry filed
counterclaims against the Company and NHT Global U.S. asserting his previously threatened claims.
In September&nbsp;2004, Mr.&nbsp;Loghry filed third party claims against certain officers of the Company and
NHT Global U.S., including against Terry LaCore, former Chief Executive Officer of NHT Global U.S.
and former director of the Company, and Mark Woodburn, former President and director of the
Company, for fraud, Messrs.&nbsp;LaCore, Woodburn, and a certain NHT Global distributor for conspiracy
to commit fraud and tortuous interference with contract. In February&nbsp;2005, the court dismissed all
of Mr.&nbsp;Loghry&#146;s claims against the individual defendants, except the claims for fraud and
conspiracy to commit fraud. Mr.Loghry then filed amended counterclaims and, on June&nbsp;2, 2005, the
Company and the other counterclaim defendants moved to dismiss the counterclaims on the grounds
that the claims were barred by Mr.&nbsp;Loghry&#146;s failure to disclose their existence when he filed for
personal bankruptcy in September&nbsp;2002. On June&nbsp;30, 2005, the U.S. Bankruptcy Court for the District
of Nebraska granted Mr.&nbsp;Loghry&#146;s request to reopen his bankruptcy case. On September&nbsp;6, 2005, the
United States Trustee filed an action in the U.S. District Court for the District of Nebraska (the
&#147;Trustee&#146;s Case&#148;) against the Company; NHT Global U.S.; Messrs.&nbsp;LaCore and Woodburn; Curtis Broome,
President of Greater China and Southeast Asia; and a certain independent distributor of NHT Global
U.S., essentially alleging the same claims asserted by Loghry in the Northern District of Texas. On
February&nbsp;21, 2006, the Trustee&#146;s Case was transferred to the United States District Court for the
Northern District of Texas. The Loghry Case is set for trial on the Court&#146;s October&nbsp;2006 docket.
The Trustee&#146;s Case has not yet been set for trial. The Company has filed, and the Trustee has
opposed, a motion to consolidate the Loghry Case and the Trustee&#146;s Case. The Court has not yet
ruled on that motion. In addition, the Company has filed a motion for summary judgment, which is
still pending. The Company continues to deny the allegations by Loghry and the United States
Trustee and intends to vigorously contest their claims. An unfavorable judgment could have a
material adverse effect on the financial condition of the Company.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On November&nbsp;1, 2004, Toyota Jidosha Kabushiki Kaisha (d/b/a Toyota Motor Corporation) and
Toyota Motor Sales, U.S.A. (the &#147;Toyota Entities&#148;) filed a complaint against the Company and NHT
Global U.S. in United States District Court for the Central District of California (CV04-9028). The
complaint alleges trademark and service mark dilution, unfair competition, trademark and service
mark infringement, and trade name infringement, each with respect to Toyota&#146;s Lexus trademark. The
Company reached a settlement agreement, dated August&nbsp;31, 2005, under which the Toyota Entities
agreed to terminate their claims against the Company, and the
</DIV>

<P align="center" style="font-size: 10pt">10
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Company agreed to discontinue use of the Lexxus name and mark and change the name of its
Lexxus operations and domain names by June&nbsp;1, 2006, and sell or otherwise dispose of all product
inventory marked with the name Lexxus by December&nbsp;1, 2006. In compliance with this settlement
agreement, the Company has since June&nbsp;1, 2006, used the name NHT Global in place of Lexxus and
Lexxus International and has changed the domain name for its NHT Global business. Continued
compliance with this settlement could, however, have a material adverse effect on the financial
condition, results of operations, cash flow or business prospects of the Company.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On November&nbsp;12, 2004, Dorothy Porter filed a complaint against the Company in the United
States District Court for the Southern District of Illinois alleging that she sustained a brain
hemorrhage after taking Formula One, an ephedra-containing product marketed by Kaire
Nutraceuticals, Inc., a former subsidiary of the Company, and, thereafter, eKaire.com, Inc., a
wholly-owned subsidiary of the Company. Ms.&nbsp;Porter has sued the Company for strict liability,
breach of warranty and negligence. The Company intends to defend this case vigorously and on
December&nbsp;27, 2004 filed an answer denying the allegations contained in the complaint. On March&nbsp;7,
2005, a Notice of Tag-Along Action was filed by Ms.&nbsp;Porter with the Judicial Panel on Multidistrict
Litigation. The case was subsequently transferred for pre-trial purposes to the consolidated
Ephedra Products Liability proceedings in the United States District Court for the Southern
District of New York. If the case proceeds to a jury trial, the matter will be transferred back to
the Southern District of Illinois and tried in that District. Full discovery between the parties in
this action began in Spring 2006. The Company does not believe that the plaintiff can demonstrate
that its products caused the alleged injury and intends to vigorously defend this action.&#148;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On January&nbsp;13, 2005, Nature&#146;s Sunshine Products, Inc. and Nature&#146;s Sunshine Products de Mexico
S.A. de C.V. (collectively &#147;Nature&#146;s Sunshine&#148;) filed suit against the Company in the Fourth
Judicial District Court, Utah County, State of Utah seeking injunctive relief and unspecified
damages against the Company, NHT Global U.S., the Company&#146;s Mexican subsidiary, and the Company&#146;s
Mexico management team, Oscar de la Mora Romo and Jose Villarreal Patino, alleging among other
things that the Company&#146;s employment of De la Mora and Villarreal violated or could lead to the
violation of certain non-compete, non-solicitation, and confidentiality agreements allegedly in
effect between De la Mora and Villarreal and Nature&#146;s Sunshine. After the Company removed the case
to federal court, Nature&#146;s Sunshine voluntarily dismissed its lawsuit and filed a new lawsuit in
the Fourth Judicial District Court in Utah County, Utah. After a hearing on August&nbsp;22, 2005, the
district court preliminarily enjoined Messrs.&nbsp;De la Mora and Villarreal from disclosing any
confidential information of Nature&#146;s Sunshine or soliciting any employee or distributor of Nature&#146;s
Sunshine or inducing them to terminate their relationship with Nature&#146;s Sunshine. The court
refused, however, to enjoin Messrs.&nbsp;De la Mora or Villarreal from competing with Nature&#146;s Sunshine.
Nature&#146;s Sunshine subsequently filed a petition for interlocutory review with the Utah Supreme
Court. The Supreme Court delegated the petition to the Utah Court of Appeals, which denied the
petition. On April&nbsp;6, 2006, a mutual agreement was entered into with Messrs.&nbsp;De la Mora and
Villarreal terminating their employment between them and affiliates of the Company. Nevertheless,
Nature&#146;s Sunshine continues to seek damages from the Company and Messrs.&nbsp;De la Mora and Villarreal
for alleged solicitation of Nature Sunshine&#146;s employees and distributors. If the Company or
Messrs.&nbsp;De la Mora and Villarreal are unsuccessful in defending this action, the Company may be
required to pay any damages and attorneys&#146; fees that may be assessed against it.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On or about March&nbsp;1, 2006, the Company hired Peter Dale, a former executive with the Nature&#146;s
Sunshine subsidiary doing business in Japan, Nature&#146;s Sunshine Japan Co., Ltd. (&#147;NSJ&#148;), to serve as
an executive vice president with responsibilities in Asia. NSJ alleges that Mr.&nbsp;Dale has signed an
agreement containing covenants of non-competition, non-solicitation, and confidentiality, and that
it believes Mr.&nbsp;Dale&#146;s employment with the Company would violate the non-competition covenant. As
of June&nbsp;30, 2006, no lawsuit has been filed. If Nature&#146;s Sunshine files suit, the Company and Mr.
Dale intend to vigorously defend against the enforcement of the non-competition covenant. However,
if Nature&#146;s Sunshine were to prevail in such a lawsuit, Mr.&nbsp;Dale could be enjoined from working for
the Company until February&nbsp;15, 2007 which could have a material adverse effect on the Company&#146;s
business in Japan.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Currently, there is no other significant litigation pending against the Company other than as
disclosed in the paragraphs above. From time to time, the Company may become a party to litigation
and subject to claims incident to the ordinary course of the Company&#146;s business. Although the
results of such litigation and claims in the ordinary course of business cannot be predicted with
certainty, the Company believes that the final outcome of such matters will not have a material
adverse effect on the Company&#146;s business, results of operations or financial condition. Regardless
of outcome, litigation can have an adverse impact on the Company because of defense costs,
diversion of management resources and other factors.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Other Matters</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Effective October&nbsp;3, 2005, the Board of Directors of the Company appointed Robert H. Hesse, a
member of the Company&#146;s Board of Directors since July&nbsp;2004, as the Company&#146;s Interim Chief
Executive Officer. On March&nbsp;10, 2006, the Company and Mr.&nbsp;Hesse entered into a letter agreement
dated March&nbsp;1, 2006, pursuant to which Mr.&nbsp;Hesse agreed to continue acting as the interim chief
executive officer of the Company. In addition to continuing his base pay of $2,000 per day, the
Company agreed to pay Mr.&nbsp;Hesse a retention bonus equal to $300,000, of which $150,000 was due and
payable upon executing the letter agreement and $150,000 was due
</DIV>

<P align="center" style="font-size: 10pt">11
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">within five days after satisfactory completion of Mr.&nbsp;Hesse&#146;s term as Interim Chief Executive
Officer, which was scheduled to conclude when the new chief executive officer commenced his or her
employment with the Company. On March&nbsp;28, 2006, the Board of Directors and Mr.&nbsp;Hesse mutually
agreed that Mr.&nbsp;Hesse had completed his assignment as the Interim Chief Executive Officer of the
Company, effective immediately. On May&nbsp;5, 2006, the Company paid $150,000 to Mr.&nbsp;Hesse as provided
in the March&nbsp;10, 2006 letter agreement. Mr.&nbsp;Hesse has released the Company from all other
obligations under that letter agreement and, effective May&nbsp;5, 2006, resigned from the Company&#146;s
Board of Directors.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On April&nbsp;18, 2006, the Company received a letter from The Nasdaq Stock Market (&#147;Nasdaq&#148;)
stating that the Company was not in compliance with Marketplace Rule&nbsp;4310(c)(14), which obligates
listed issuers to timely file those reports and other documents required to be filed with the
Securities and Exchange Commission. On May&nbsp;8, 2006, the Company filed its Annual Report on Form
10-K with respect to Parts 1 and 2, and on May&nbsp;31, 2006 the Company filed an amendment to its
Annual Report on Form 10-K/A with respect to Parts 2 and 3. On May&nbsp;23, 2006, the Company received
a letter from Nasdaq stating that it had not received the Company&#146;s Form 10-Q for the quarter ended
March&nbsp;31, 2006, and that these delinquencies would be considered at a hearing on June&nbsp;1, 2006, to
determine the Company&#146;s continued listing. On June&nbsp;1, 2006, a Hearing Panel appointed by Nasdaq
conducted a hearing to determine if the Company&#146;s common stock should be delisted from the Nasdaq
National Market. Since the Company filed a completed Annual Report on form 10-K/A and its
Quarterly Report on Form 10-Q, on June&nbsp;23, 2006, the Company was informed by Nasdaq that it is
eligible for continued listing. The Company has become current with its filings with the
Securities and Exchange Commission and is now in full compliance with Nasdaq Marketplace Rules.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">7. RELATED PARTY TRANSACTIONS
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In August&nbsp;2001, the Company entered into a written lease agreement and an oral management
agreement with S&#038;B Business Services, an affiliate of Brad LaCore, the brother of Terry LaCore,
former Chief Executive Officer of NHT Global U.S. and a director of the Company, and Sherry LaCore,
Brad LaCore&#146;s spouse. Under the terms of the two agreements, S&#038;B Business Services provided
warehouse facilities and certain equipment, managed and shipped inventory, provided independent
distributor support services and disbursed payments to independent distributors. In exchange for
these services, the Company paid $18,000 annually for leasing the warehouse, $3,600 annually for
the lease of warehouse equipment and $120,000 annually for the management services provided, plus
an annual average of approximately $12,000 for business related services. The Company paid S&#038;B
Business Services approximately $39,000 and $3,000 during the three month periods ended June&nbsp;30,
2005 and 2006, respectively, and approximately $78,000 and $18,000 during the six month periods
ended June&nbsp;30, 2005 and 2006, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The payment disbursement function was transferred to the Company&#146;s Dallas head office during
the third quarter of 2005. In January&nbsp;2006, the Company hired Sherry LaCore as an employee and
simultaneously terminated the oral management agreement with S&#038;B Business Services. Additionally,
the Company closed the warehouse facility by the end of March&nbsp;2006 and terminated the related lease
agreement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A director of the Company&#146;s China subsidiary is the sole director of Access Int&#146;l (Zhuhai Ftz)
Warehousing &#038; Trading Co. Ltd. and its group (collectively, &#147;Access&#148;), a transportation and
logistics company, and the owner of Info Development Ltd. (&#147;Info&#148;), an import services company,
both of which provided services to the Company&#146;s Hong Kong subsidiary. Payments totaling
approximately $1,926,000 were paid to Access and Info during the three and six month periods ended
June&nbsp;30, 2005. Payments totaling approximately $133,000 and $382,000 were paid to Access and Info
during the three and six month periods ended June&nbsp;30, 2006, respectively. At June&nbsp;30, 2006,
approximately $18,000 was due to Info.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On November&nbsp;10, 2005, an independent investigator retained by the Company&#146;s Audit Committee
learned that an entity controlled by Messrs.&nbsp;Woodburn and LaCore received payments from an
independent distributor of the Company&#146;s products during 2001 through August&nbsp;2005. The Company
believes that Messrs.&nbsp;Woodburn and LaCore received from such independent distributor a total of
approximately $1.4&nbsp;million and $1.1&nbsp;million, respectively. The Company believes that the fees paid
by the Company to such independent distributor were not in excess of the amounts due under the
Company&#146;s regular distributor compensation plan.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Approximately $2.4&nbsp;million of the funds paid by the independent distributor to Messrs.
Woodburn and LaCore were paid at the direction of Messrs.&nbsp;Woodburn and LaCore to an entity that is
partially owned by Mr.&nbsp;Woodburn&#146;s father and Randall A. Mason, the Chairman of the Company&#146;s Board
of Directors and former Chairman of the Company&#146;s Audit Committee. The funds were subsequently
paid to an entity controlled by Messrs.&nbsp;Woodburn and LaCore at their direction. After
investigation by the Audit Committee, the Board of Directors of the Company concluded that Mr.
Mason was unaware that these payments were directed by Messrs.&nbsp;Woodburn and LaCore to an entity
partially owned by him until uncovered by the Audit&#146;s Committee&#146;s independent investigator on
November&nbsp;10, 2005, and that Mr.&nbsp;Mason was not involved in any misconduct and received no pecuniary
benefit from the payments made by the independent distributor. However, since payments were
directed into an entity that is partially owned by
</DIV>

<P align="center" style="font-size: 10pt">12
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Mr.&nbsp;Mason, he could no longer be considered &#147;independent&#148; in accordance with the rules of
Nasdaq and under the federal securities laws. Therefore, effective November&nbsp;11, 2005, Mr.&nbsp;Mason
resigned as Chairman and a member of the Company&#146;s Audit Committee.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On November&nbsp;14, 2005, in light of the information learned by the Company&#146;s Audit Committee on
November&nbsp;10, 2005, the Company terminated the employment of each of Messrs.&nbsp;Woodburn and LaCore.
No severance has been paid by the Company to Messrs.&nbsp;Woodburn and LaCore and the Audit Committee
has investigated and is now considering claims or actions that the Company may bring against them.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, a loan made by the Company under the direction of Mr.&nbsp;Woodburn in the aggregate
principal amount of $256,000 in February&nbsp;2004 was previously recorded as a loan to a third party.
On November&nbsp;10, 2005, the Audit Committee investigator learned that the Company actually loaned the
funds to an entity owned and controlled by the parents of Mr.&nbsp;Woodburn. The loan was repaid in
full, partially by an entity controlled by a third party and partially by an entity controlled by
Mr.&nbsp;Woodburn in December&nbsp;2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On March&nbsp;23, 2006, an independent investigator retained by the Audit Committee of the Board of
Directors confirmed that affiliates of immediate family members of Mr.&nbsp;Woodburn have owned since
1998, and continue to own on March&nbsp;23, 2006, equity interests in Aloe Commodities (&#147;Aloe&#148;), the
largest manufacturer of the Company and the supplier of the <I>Skindulgence</I><SUP style="font-size: 85%; vertical-align: text-top">&#174;</SUP> Line and <I>LaVie</I>&#153; products,
representing approximately 5% of the outstanding shares of Aloe. The Company paid Aloe and certain
of its affiliates approximately $2,348,000 and $4,135,000 during the three and six month periods
ended June&nbsp;30, 2005, respectively. The Company paid Aloe and certain of its affiliates
approximately $1,557,000 during the three and six month periods ended June&nbsp;30, 2006. At June&nbsp;30,
2006, approximately $816,000 was due to Aloe and certain of its affiliates.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">8. SUBSEQUENT EVENTS
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Effective July&nbsp;1, 2006, the Company entered into a Stock Purchase Agreement with Kaire
International (Canada) Ltd. (&#147;Kaire International&#148;) pursuant to which the Company sold to Kaire
International 1,000 common shares of eKaire.com (&#147;eKaire&#148;), a Delaware corporation, representing
100% of the total number of common shares of eKaire outstanding; 510 common shares of Kaire
Nutraceuticals Australia Pty. Limited (&#147;Kaire Australia&#148;), an Australian company, representing the
Company&#146;s 51% of the total number of common shares of Kaire Australia outstanding; and 510 common
shares of Kaire Nutraceuticals New Zealand Limited (&#147;Kaire New Zealand&#148;), a New Zealand company,
representing the Company&#146;s 51% of the total number of common shares of Kaire New Zealand
outstanding (collectively, the &#147;Kaire Entities&#148;) for book value, which approximates $150,000.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On July&nbsp;31, 2006, the Company entered into a letter agreement (the &#147;Agreement&#148;) with Stephanie
Hayano pursuant to which Ms.&nbsp;Hayano has agreed to serve as the President and Chief Executive
Officer of the Company and to serve on the Company&#146;s Board of Directors. Under the Agreement, the
Company has agreed to pay Ms.&nbsp;Hayano an annual base salary of $300,000 plus an annual bonus equal
to 50% of her base salary if certain annual performance goals for the Company are achieved. For
fiscal 2006, the Company has agreed to pay Ms.&nbsp;Hayano an annual bonus equal to $62,500. In
addition, the Company has agreed to pay a temporary living allowance equal to $5,000 per month
through January&nbsp;31, 2007, or until she relocates to the Dallas metropolitan area, whichever is
sooner. Ms.&nbsp;Hayano has also been granted options to purchase 150,000 shares of the Company&#146;s
common stock at an exercise price of $2.79 per share (the closing price on The Nasdaq Stock Market
on July&nbsp;31, 2006, the date of grant). The options vest in equal annual installments over three
years and expire on July&nbsp;31, 2011.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Following Ms.&nbsp;Hayano&#146;s relocation to the Dallas metropolitan area, she will be entitled to
severance in the event that her employment is terminated by the Company without Cause (as defined
in the Agreement) or in connection with a Change of Control (as defined in the Agreement). She is
also entitled severance in the event that she terminates her employment for Good Reason (as defined
in the agreement). Ms.&nbsp;Hayano shall receive as severance the continuation of her base salary for
up to two years for a termination without Cause or for Good Reason, or up to three years for a
termination in connection with a Change of Control.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, the Company and Ms.&nbsp;Hayano entered into a Non-Competition and Proprietary Rights
Assignment Agreement dated July&nbsp;31, 2006 pursuant to which Ms.&nbsp;Hayano has agreed (i)&nbsp;to keep
certain Company information confidential, (ii)&nbsp;to assign the rights to certain work product to the
Company, (iii)&nbsp;not to compete with the Company during the term of her employment and for six months
thereafter, and (iv)&nbsp;not to solicit Company customers or distributors during the term of her
employment and for twelve months thereafter.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In August&nbsp;2006, the Company was advised by the Staff of the SEC that it is conducting an
informal inquiry into matters that are the subject of previously disclosed investigations by the
Company&#146;s Audit Committee, including the payments received by two former officers and directors of
the Company from an independent distributor. In connection with the inquiry, the SEC staff has
requested that the Company voluntarily provide it with certain information and documents, including
information gathered by the independent investigator engaged by the Company&#146;s Audit Committee. The
Company intends to cooperate with the SEC inquiry.
</DIV>

<P align="center" style="font-size: 10pt">13
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="107"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;2. MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following Management&#146;s Discussion and Analysis should be read in conjunction with
Management&#146;s Discussion and Analysis included in our 2005 amended Annual Report on Form 10-K/A
filed with the United States Securities and Exchange Commission (SEC)&nbsp;on May&nbsp;31, 2006, and our
other filings, including Current Reports on Form 8-K, filed with the SEC through the date of this
report.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Company Overview</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company is an international direct-selling organization. Subsidiaries controlled by the
Company sell personal care, wellness, and &#147;quality of life&#148; products under the &#147;NHT Global&#148; brand
to an independent distributor network that either uses the products themselves or resells them to
consumers. Prior to June&nbsp;1, 2006, the Company marketed its &#147;NHT Global&#148; branded products under the
name, &#147;Lexxus International&#148;. As part of this worldwide name change, the Company&#146;s U.S. subsidiary
changed its name from Lexxus International, Inc. to NHT Global, Inc (&#147;NHT Global U.S.&#148;). Effective
July&nbsp;1, 2006, the Company sold its equity interests in eKaire.com, Inc. and other subsidiaries that
distribute nutritional supplements aimed at general health and wellness (see Note 8 to the
consolidated financial statements).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;NHT Global commenced operations in January&nbsp;2001 and has experienced tremendous growth. As of
June&nbsp;30, 2006, it is conducting business in at least 15 countries through approximately 114,000
active distributors. We consider a distributor &#147;active&#148; if they have placed at least one product
order with us during the preceding year.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Although we have experienced significant revenue growth over the last few years due in part to
our efforts to expand into new markets, we do not intend to devote material resources to opening
any additional foreign markets in 2006. Our priority for the remainder of 2006 is to progress
further on developing the Japanese, Mexican and Chinese markets.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In year 2005 and the first six months of 2006, we generated greater than 90% of our revenue
from outside North America, with sales in Hong Kong representing approximately 62% and 70% of
revenue, respectively. 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
certain risks for our business, including improper claims or activities by our distributors and
potential inability to obtain necessary product registrations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Effective December&nbsp;31, 2005, the Company entered into a Stock Purchase Agreement with Bannks
Foundation (&#147;Bannks&#148;), a Lichtenstein foundation and owner of 49% of the common shares of KGC
Networks Pte Ltd. (&#147;KGC&#148;), a Singapore corporation, pursuant to which the Company sold to Bannks
51,000 common shares representing the Company&#146;s 51% of the outstanding shares of capital stock of
KGC for a total cash purchase price of $350,000.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At the same time and as a condition of the sale, the Company entered into a separate agreement
pursuant to which KGC is obligated to pay to the Company 24&nbsp;monthly payments of approximately
$169,000 each, including interest at 2.5%, to settle an outstanding inter-company payable in the
amount of approximately $2.1&nbsp;million and to pay for inventories ordered and partially delivered
totaling approximately $884,000, as well as the Company&#146;s undertaking to continue to supply KGC
with certain products for a period of at least 48&nbsp;months. The Company discounted the 24&nbsp;monthly
payments based on its cost of capital and recorded the receivable at $3.1&nbsp;million, of which $1.7
million is considered non-current. Given its interest in the retained profits and cumulative
translation adjustment of KGC of approximately $434,000, the Company recognized a nominal gain on
sale. Since the receivable from KGC is unsecured, the Company recorded a reserve totaling
approximately $2.8&nbsp;million, which will be reduced as payments are received. As of June&nbsp;30, 2006,
KGC is current on all monthly payments due, and as such, the Company reversed $314,000 of the
reserve.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;KGC sells the Company&#146;s products into a separate network of independent distributors located
primarily in Russia and other Eastern European countries. Upon the effective date of the
transactions above, the Company no longer consolidates the financial statements of KGC. The
Company does not believe these transactions result in a discontinued operation as the Company will
continue to supply KGC with a significant amount of product for the foreseeable future. Therefore,
the results of KGC for the first six months of 2005 have been reported in results from operations.
</DIV>

<P align="center" style="font-size: 10pt">14
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Had KGC not been reflected in results from operations, the Company&#146;s statement of operations
for the three and six months ended June&nbsp;30, 2005 would have reflected the following (in thousands):
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7">Three Months Ended</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7">Six Months Ended</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000">June 30, 2005</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000">June 30, 2005</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Actual</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">As Adjusted</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Actual</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">As Adjusted</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">49,959</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">41,729</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">92,718</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">76,084</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Gross profit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37,519</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30,924</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">72,112</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">58,824</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Distributor commissions</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27,599</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,645</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">48,872</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">40,908</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income (loss)&nbsp;from operations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,388</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,628</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,686</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,688</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;China is currently the Company&#146;s most important business development project. New direct
selling legislation was adopted in December&nbsp;2005, while multi-level marketing was banned in
November&nbsp;2005 by the government in China. Before the formal adoption of direct selling laws, many
of the international direct selling companies started to operate in China in a retail format. In
June&nbsp;2004, NHT Global obtained a license to engage in retail business in China. The license
stipulates a capital requirement of $12.0&nbsp;million over a three-year period, including a $1.8
million initial payment that the Company made in January&nbsp;2005. In December&nbsp;2005, the Company
submitted a preliminary application for a direct selling license and fully capitalized its Chinese
entity with the $12.0&nbsp;million cash infusion. In June&nbsp;2006, the Company submitted a final
application package.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During 2005 and the first six months of 2006, approximately 62% and 70% of our revenue,
respectively, was generated in Hong Kong. Most of the Company&#146;s Hong Kong revenues are derived
from the sale of products that are delivered to members in China. After consulting with outside
professionals, the Company believes that our Hong Kong e-commerce business does not violate any
applicable laws in China even though it is used for the internet purchases of our products by
buyers in China. But the government in China could, in the future, officially interpret its laws
and regulations &#150; or adopt new laws and regulations &#150; to prohibit some or all of our e-commerce
activities with China and, if our members engage in illegal activities in China, those actions
could be attributable to us.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company is unable to predict whether it will be successful in obtaining a direct selling
license to operate in China, and if it is successful, when it will be permitted to commence direct
selling operations there. Further, even if the Company is successful in obtaining a direct selling
license to do business in China, it is uncertain as to whether the Company will generate profits
from such operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Income Statement Presentation</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company derives its revenue from sales of its products, sales of its enrollment packages,
and from shipping charges. Substantially all of its product sales are to independent distributors
at published wholesale prices. We translate revenue from each market&#146;s local currency into U.S.
dollars using average rates of exchange during the period. The following table sets forth revenue
by market and product line for the time periods indicated (in thousands).
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="12%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="15" style="border-bottom: 1px solid #000000">Three Months Ended June 30,</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="15" style="border-bottom: 1px solid #000000">Six Months Ended June 30,</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000">2005</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000">2006</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000">2005</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000">2006</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">North America</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">4,296</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">8.6</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">3,241</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">8.9</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">8,952</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">6,247</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">8.2</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Hong Kong</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">32,041</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">64.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24,093</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">66.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">57,249</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">61.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">53,213</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">70.2</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Taiwan</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">935</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,148</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,813</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,914</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.5</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Southeast Asia</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,526</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">595</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,806</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">858</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.1</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><FONT style="white-space: nowrap">Russia and Eastern
Europe<SUP style="font-size: 85%; vertical-align: text-top">1</SUP></FONT></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,230</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,634</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">South Korea</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,129</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,541</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,613</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,228</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.2</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Australia/New Zealand</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">402</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">282</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">738</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">591</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.8</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Japan</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,318</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,130</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.5</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Latin America</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">775</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,923</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.6</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total NHT Global</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">49,559</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">99.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">35,993</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">99.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">91,805</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">99.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">75,104</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">99.1</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">North America</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">291</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">242</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">689</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">507</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.7</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Australia/New Zealand</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">109</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">86</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">224</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">184</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.2</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total eKaire</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">400</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">328</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">913</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">691</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.9</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">49,959</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">100</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">36,321</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">100</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">92,718</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">100</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">75,795</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">100</TD>
    <TD nowrap>%</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" nowrap align="left" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" nowrap align="left" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" nowrap align="left" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" nowrap align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left"><SUP style="font-size: 85%; vertical-align: text-top">1</SUP></TD>
    <TD>&nbsp;</TD>
    <TD>The Company no longer consolidates the
operating results of KGC for periods beginning after December&nbsp;31, 2005 as it
sold its 51% interest in KGC to Bannks Foundation effective December&nbsp;31, 2005.</TD>
</TR>

</TABLE>


<P align="center" style="font-size: 10pt">15
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">






<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cost of sales consist primarily of products purchased from third-party manufacturers, freight
cost of shipping products to distributors and import duties for the products, costs of promotional
materials sold to the Company&#146;s distributors 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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Distributor commissions are our most significant expense and are classified as operating
expenses. Under our compensation plan, distributors are paid weekly commissions in the
distributor&#146;s home country, in their local currency, for product sold by that distributor&#146;s
down-line distributor network across all geographic markets. Distributors are not paid commissions
on purchases or sales of our products made directly by them. This &#147;seamless&#148; compensation plan
enables a distributor located in one country to sponsor other distributors located in other
countries where we are authorized to do business. Currently, there are two fundamental ways in
which our distributors can earn income:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Through retail markups on sales of products purchased by distributors at wholesale prices; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Through a series of commissions paid on product purchases made by their down-line distributors.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Each of our products carries a specified number of sales volume points. Commissions are based
on total personal and group sales volume points per sales period. Sales volume points are
essentially based upon a percentage of a product&#146;s wholesale cost. To be eligible to receive
commissions, a distributor may be required to make nominal monthly purchases of our products.
Certain of our subsidiaries do not require these nominal purchases for a distributor to be eligible
to receive commissions. In determining commissions, the number of levels of down-line distributors
included within the distributor&#146;s commissionable group increases as the number of distributorships
directly below the distributor increases. Distributor commissions are dependent on the sales mix
and, for 2005, typically ranged between 45% and 55% of net sales. From time to time we make
modifications and enhancements to our compensation plan to help motivate distributors, which can
have an impact on distributor commissions. From time to time, we also enter into agreements for
business or market development, which may result in additional compensation to specific
distributors.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Selling, general and administrative expenses consist of administrative compensation and
benefits, travel, credit card fees and assessments, professional fees, certain occupancy costs,
depreciation and amortization, and other corporate administrative expenses. In addition, this
category includes selling, marketing, and promotion expenses including costs of distributor
conventions which are designed to increase both product awareness and distributor recruitment.
Because our various distributor conventions are not always held at the same time each year, interim
period comparisons will be impacted accordingly.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Provision for income taxes depends on the statutory tax rates in each of the jurisdictions in
which we operate. We implemented a foreign holding and operating company structure for our
non-United States businesses effective December&nbsp;1, 2005. This new structure re-organizes our
non-United States subsidiaries in the Cayman Islands. Though our goal is to improve the overall
tax rate, there is no assurance that the new tax structure could be successful. 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 require changes in our transfer
pricing practices, we could be required to pay higher taxes, interest and penalties, and our
earnings would be adversely affected.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Critical Accounting Policies and Estimates</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In response to SEC Release No.&nbsp;33-8040, &#147;Cautionary Advice Regarding Disclosure about Critical
Accounting Policies&#148; and SEC Release Number 33-8056, &#147;Commission Statement about Management&#146;s
Discussion and Analysis of Financial Condition and Results of Operations,&#148; the Company has
identified certain policies that are important to the portrayal of its consolidated financial
condition and consolidated results of operations. These policies require the application of
significant judgment by the Company&#146;s management.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The most significant accounting estimates inherent in the preparation of the Company&#146;s
financial statements include estimates associated with obsolete inventory and the fair value of
acquired intangible assets and goodwill, 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. Historically, actual results have not significantly deviated from
those determined using the estimates described above. If circumstances change relating to the
various assumptions or other factors used in such estimates the Company could experience an adverse
effect on its consolidated financial condition, changes in financial condition, and results of
operations. The Company&#146;s critical accounting policies at June&nbsp;30, 2006 include the following:
</DIV>

<P align="center" style="font-size: 10pt">16
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Inventory Valuation. </I>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&#146;s determination of obsolescence is
based on assumptions about the demand for its products, product expiration dates, estimated future
sales, and management&#146;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. The Company&#146;s inventory value at June&nbsp;30, 2006 was approximately $11.2&nbsp;million, net of
reserve of $0.6&nbsp;million. Inventory write-downs for the three and six months ended June&nbsp;30, 2006
were not significant.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Valuation of Goodwill and Impairment Analysis. </I>The Company has adopted Statement of Financial
Accounting Standards (SFAS)&nbsp;No.&nbsp;142, &#147;Goodwill and Other Intangible Assets.&#148; SFAS No.&nbsp;142 requires
that goodwill and intangible assets with indefinite useful lives no longer be amortized, but
instead be tested for impairment at least annually or sooner whenever events or changes in
circumstances indicate that they may be impaired. At June&nbsp;30, 2006, goodwill of approximately
$14.1&nbsp;million was reflected on the Company&#146;s balance sheet. No impairment of goodwill has been
identified in any of the periods presented. In accordance with SFAS No.&nbsp;144, &#147;Accounting for the
Impairment or Disposal of Long-Lived Assets,&#148; the Company reviews the book value of its property
and equipment and intangible assets whenever an event or change in circumstances indicates that the
net book value of an asset or group of assets may be unrecoverable. The Company&#146;s impairment
review includes a comparison of future projected cash flows (undiscounted and without interest
charges) generated by the asset or group of assets with its associated carrying value. The Company
believes its expected future cash flows approximate or exceed its net book value. However, if
circumstances change and the net book value of the asset or group of assets exceeds expected cash
flows, the Company would have to recognize an impairment loss to the extent the net book value of
the asset exceeds its fair value. At June&nbsp;30, 2006, the net book value of the Company&#146;s property
and equipment and intangible assets were approximately $4.0&nbsp;million and $4.1&nbsp;million, respectively.
No such losses were recognized for the three and six months ended June&nbsp;30, 2006.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Allowance for Sales Returns. </I>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&nbsp;days to one year, and their historical return rates, which range from approximately 1% to
approximately 11% of product sales. Sales returns are approximately 4% of product sales for the
six months ended June&nbsp;30, 2005 and 2006. The allowance for sales returns was approximately $1.7
million and $1.8&nbsp;million at December&nbsp;31, 2005 and June&nbsp;30, 2006, respectively. No material changes
in estimates have been recognized for the three and six months ended June&nbsp;30, 2006.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Revenue Recognition. </I>Product sales are recorded when the products are shipped and title passes
to independent distributors. Product sales to distributors are made pursuant to a distributor
agreement that provides for transfer of both title and risk of loss upon our delivery to the
carrier that completes delivery to the distributors, which is commonly referred to as &#147;F.O.B.
Shipping Point.&#148; The Company primarily receives payment by credit card at the time distributors
place orders. The Company&#146;s 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 approximately $1.5&nbsp;million at December&nbsp;31,
2005 and $1.1&nbsp;million at June&nbsp;30, 2006 respectively. Shipping charges billed to distributors are
included in net sales. Costs associated with shipments are included in cost of sales.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During April&nbsp;2005, the Company launched a new product line, Gourmet Coffee Caf&#233;, which
consists of coffee machines and the related coffee and tea pods, in the North American market. As
the Gourmet Coffee Caf&#233; is a very different product than the Company&#146;s other products and since
there is no basis to reasonably estimate the Company&#146;s sales returns or warranty obligation, the
Company has deferred revenue generated from their sale until sufficient return and warranty
experience on the product can be established. The deferral totaled approximately $1.7&nbsp;million and
$1.2&nbsp;million in revenue and related costs, respectively, for product shipped through June&nbsp;30, 2006.
The deferred costs are recorded in other current assets, as the sales return period for
distributors is only for a year. Since the launch, the Company has experienced a high rate of
defects and product returns. As a result, the Company has delayed continued sales of our existing
inventory of this product and approached the manufacturer for resolution. The manufacturer has
agreed to repair all of the machines in our existing inventory and provide discounts on future
purchases. The Company is currently planning to re-start the sale of the coffee machines in the
first half of 2007.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Enrollment package revenue, including any nonrefundable set-up fees, is deferred and
recognized over the term of the arrangement, generally twelve months. Enrollment packages provide
distributors access to both a personalized marketing website and a business management system. No
upfront costs are deferred as the amount is nominal. Costs associated with shipments are included
in cost of sales. At June&nbsp;30, 2006, enrollment package revenue totaling $6.2&nbsp;million was deferred.
Although the Company has 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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Tax Valuation Allowance. </I>The Company evaluates the probability of realizing the future
benefits of any of its deferred tax assets and records a valuation allowance when it believes a
portion or all of its deferred tax assets may not be realized. At June&nbsp;30, 2006, the
</DIV>

<P align="center" style="font-size: 10pt">17
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">valuation allowance equaled its net deferred tax assets due to the uncertainty of future
operating results. 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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Results of Operations</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth our operating results as a percentage of net sales for the periods
indicated.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000">Three Months Ended June30,</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000">Six Months Ended June 30,</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">2005</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">2006</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">2005</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">2006</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">100.0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">100.0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">100.0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">100.0</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cost of sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21.9</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Gross profit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">75.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">76.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">77.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">78.1</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Operating expenses:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Distributor commissions</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">55.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">51.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">52.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">52.0</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Selling, general and administrative expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">31.6</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Recovery of KGC receivable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(0.9</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(0.4</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total operating expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">79.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">84.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">76.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">83.2</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income (loss)&nbsp;from operations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(4.8</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(7.8</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(5.1</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other income (expense), net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(0.8</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(0.7</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.5</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income (loss)&nbsp;before income taxes and minority interest</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(5.6</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(7.2</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(4.6</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income tax benefit (provision)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(0.5</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(0.3</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(0.6</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Minority interest</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(0.1</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(0.1</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(4.3</TD>
    <TD nowrap>)%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(7.7</TD>
    <TD nowrap>)%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">0.7</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(5.2</TD>
    <TD nowrap>)%</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Net Sales. </I>Net sales were $36.3&nbsp;million for the three months ended June&nbsp;30, 2006 compared to
$50.0&nbsp;million for the three months ended June&nbsp;30, 2005. This decrease of $13.7&nbsp;million, or 27%,
was largely due to the sale of KGC effective December&nbsp;31, 2005. Excluding KGC, the Company&#146;s net
sales decreased $5.4&nbsp;million, or 13%, for the three months ended June&nbsp;30, 2006 over the comparable
period in the prior year. This decrease was primarily due to hesitation among the Hong
Kong-registered members against an uncertain regulatory environment in China. Hong Kong net sales
decreased $7.9&nbsp;million, or 25%, over the comparable period a year ago. Also, net sales for North
America were down $1.1&nbsp;million, or 24%, versus the comparable period a year ago. Partly offsetting
the decrease, South Korea net sales increased $1.4&nbsp;million, or 66%, compared to the same period in
2005, as it experienced a significant increase in its distributor count and introduced new products
to the local market. Japan registered $2.3&nbsp;million in net sales, and Mexico about $0.8&nbsp;million. A
year ago, advanced sales to Japanese distributors from Singapore were approximately $1.4&nbsp;million.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net sales were $75.8&nbsp;million for the six months ended June&nbsp;30, 2006 compared to $92.7&nbsp;million
for the six months ended June&nbsp;30, 2005. This decrease of $16.9&nbsp;million, or 18%, was due to the
sale of KGC effective December&nbsp;31, 2005. Excluding KGC, the Company&#146;s net sales were approximately
flat for the six months ended June&nbsp;30, 2006 over the comparable period in the prior year.
Decreases in Hong Kong net sales (down $4.0&nbsp;million or 7% versus the comparable period a year ago)
and North America (down $2.9&nbsp;million or 30%) were offset by net sales generated in Japan ($4.1
million), Mexico ($1.9&nbsp;million), and an increase in South Korea net sales (up 72% or $2.6&nbsp;million).
A year ago, advanced sales to Japanese distributors from Singapore were approximately $2.4
million.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of June&nbsp;30, 2006, the operating subsidiaries of the Company had approximately 117,000
active distributors, compared to 122,000 and 106,000 active distributors at December&nbsp;31, 2005 and
June&nbsp;30, 2005, respectively, excluding KGC. This decrease is due to the uncertain regulatory
environment in China that is currently impacting the Hong Kong-based business.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of June&nbsp;30, 2006, the Company had deferred revenue of approximately $9.0&nbsp;million, of which
approximately $1.1&nbsp;million pertained to product sales and approximately $6.2&nbsp;million pertained to
unamortized enrollment package revenue. Additionally, deferred revenue included approximately $1.7
million of Gourmet Coffee Caf&#233; product shipped but unrecognized as of June&nbsp;30, 2006 (approximately
$1.2&nbsp;million in Gourmet Coffee Caf&#233; related costs are also deferred and recorded in other current
assets as of June&nbsp;30, 2006).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Cost of Sales. </I>Cost of sales was $8.5&nbsp;million, or 23.4% of net sales, for the three months
ended June&nbsp;30, 2006 compared with $12.4&nbsp;million, or 24.9% of net sales, for the three months ended
June&nbsp;30, 2005. Excluding KGC, cost of sales decreased $2.3&nbsp;million, or 21%, for the three months
ended June&nbsp;30, 2006 over the comparable period in the prior year, due primarily to the decrease in
net sales. Additionally, excluding KGC, cost of sales as a percentage of net sales was 25.9% in
the comparable period in the prior year.
</DIV>

<P align="center" style="font-size: 10pt">18
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The percentage decrease results from greater importation cost incurred in Hong Kong a year ago
as the Company implemented changes in its logistical processes on product delivered into China.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cost of sales was $16.6&nbsp;million, or 21.9% of net sales, for the six months ended June&nbsp;30, 2006
compared with $20.6&nbsp;million, or 22.2% of net sales, for the six months ended June&nbsp;30, 2005.
Excluding KGC, cost of sales decreased $0.7&nbsp;million, or 4%, for the six months ended June&nbsp;30, 2006
over the comparable period in the prior year, due primarily to the decrease in net sales.
Additionally, excluding KGC, cost of sales as a percentage of net sales was 22.7% in the comparable
period in the prior year. The percentage decrease results from greater importation cost incurred
in Hong Kong a year ago as the Company implemented changes in its logistical processes on product
delivered into China.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Gross Profit. </I>Gross profit was $27.8&nbsp;million, or 76.6% of net sales, for the three months
ended June&nbsp;30, 2006 compared with $37.5&nbsp;million, or 75.1% of net sales, for the three months ended
June&nbsp;30, 2005. Excluding KGC, gross profit was 74.1% of net sales in the comparable period in the
prior year, and decreased $3.1&nbsp;million, or 10%, in the three months ended June&nbsp;30, 2006, as a
result of decreased sales.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Gross profit was $59.2&nbsp;million, or 78.1% of net sales, for the six months ended June&nbsp;30, 2006
compared with $72.1&nbsp;million, or 77.8% of net sales, for the six months ended June&nbsp;30, 2005.
Excluding KGC, gross profit was 77.3% of net sales in the comparable period in the prior year, and
increased $0.4&nbsp;million, or 1%, in the six months ended June&nbsp;30, 2006.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Distributor Commissions. </I>Distributor commissions were $18.8&nbsp;million, or 51.7% of net sales,
for the three months ended June&nbsp;30, 2006 compared with $27.6&nbsp;million, or 55.3% of net sales, for
the three months ended June&nbsp;30, 2005. Excluding KGC, distributor commissions decreased by $4.9
million, or 21%, mainly due to the decrease in net sales. Additionally, excluding KGC, distributor
commissions as a percentage of sales decreased five points from 56.7% a year ago primarily as a
result of less supplemental commission programs in the current year, specifically in Hong Kong, and
a reduction in the overall commission rate in South Korea.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Distributor commissions were $39.4&nbsp;million, or 52.0% of net sales, for the six months ended
June&nbsp;30, 2006 compared with $48.9&nbsp;million, or 52.7% of net sales, for the six months ended June&nbsp;30,
2005. Excluding KGC, distributor commissions decreased by $1.5&nbsp;million, or 4%, mainly due to the
decrease in net sales. Additionally, excluding KGC, distributor commissions as a percentage of
sales decreased two points from 53.8% a year ago primarily as a result of fewer commissions earned
in newer markets such as Japan and Mexico, and a reduction in the overall commission rate in South
Korea.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Selling, General and Administrative Expenses. </I>Selling, general and administrative expenses
were $12.2&nbsp;million, or 33.6% of net sales, for the three months ended June&nbsp;30, 2006 compared with
$12.3&nbsp;million, or 24.6% of net sales, for the three months ended June&nbsp;30, 2005. Excluding KGC,
selling, general and administrative expenses were 21.3% of net sales in the comparable period in
the prior year, and increased by $3.3&nbsp;million, or 37%, in the three months ended June&nbsp;30, 2006,
mainly due to increases in the following:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>costs of opening new markets in Mexico ($0.4&nbsp;million) and Japan ($1.2&nbsp;million);</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>costs of expansion into China ($0.4&nbsp;million); and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>higher audit fees, personnel costs (including stock-based compensation), and travel
costs in North America ($1.5&nbsp;million), offset by a decrease in convention cost as the North
American Convention was held in the first quarter of 2006 as compared to the second quarter
a year ago ($0.7&nbsp;million).</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Selling, general and administrative expenses were $23.9&nbsp;million, or 31.6% of net sales, for
the six months ended June&nbsp;30, 2006 compared with $21.6&nbsp;million, or 23.3% of net sales, for the six
months ended June&nbsp;30, 2005. Excluding KGC, selling, general and administrative expenses were 21.3%
of net sales in the comparable period in the prior year, and increased by $7.7&nbsp;million, or 48%, in
the six months ended June&nbsp;30, 2006, mainly due to increases in the following:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>costs of opening new markets in Mexico ($0.9&nbsp;million) and Japan ($2.3&nbsp;million);</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>costs of expansion into China ($0.8&nbsp;million);</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>increased personnel costs and professional fees in Hong Kong ($0.5&nbsp;million); and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>higher audit fees, legal fees, personnel costs (including stock-based compensation), and
travel costs in North America ($2.6&nbsp;million).</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Other Income (Expense). </I>Other income was $0.2&nbsp;million for the three months ended June&nbsp;30, 2006
compared with an expense of $0.4&nbsp;million for the three months ended June&nbsp;30, 2005. For the first
six months of the year, other income was $0.4&nbsp;million compared with an expense of $0.7&nbsp;million a
year ago. This increase in other income for the six month period results primarily from interest
income, including imputed interest of $0.4&nbsp;million on the KGC receivable, and a reduction in
foreign currency losses of $0.6&nbsp;million due to the elimination of the Company&#146;s exposure to the
euro.
</DIV>

<P align="center" style="font-size: 10pt">19
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Income Taxes. </I>The Company recorded a provision of $0.2&nbsp;million and $0.4&nbsp;million during the
three and six months ended June&nbsp;30, 2006, respectively, related to its international operations.
The Company did not recognize a tax benefit for U.S. tax purposes due to uncertainty that the
benefit will be realized. The Company recorded an income tax benefit of $0.7&nbsp;million, or 24% of
income before income taxes and minority interest, for the three months ended June&nbsp;30, 2005, and a
provision of $0.3&nbsp;million, or 31% of income before income taxes and minority interest, for the six
months ended June&nbsp;30, 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Minority Interest. </I>Minority interest expense was $14 thousand for the three months ended June
30, 2006 compared to expense of $46 thousand for the three months ended June&nbsp;30, 2005. Minority
interest expense was $44 thousand for the six months ended June&nbsp;30, 2006 compared to expense of $63
thousand for the six months ended June&nbsp;30, 2005. Since the sale of KGC, minority interest expense
has become insignificant.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Net Income (Loss). </I>Net loss was $2.8&nbsp;million, or 7.7% of net sales, for the three months ended
June&nbsp;30, 2006 compared to net loss of $2.2&nbsp;million, or 4.3% of net sales, for the three months
ended June&nbsp;30, 2005. Net loss was $3.9&nbsp;million, or 5.2% of net sales, for the six months ended
June&nbsp;30, 2006 compared to net income of $0.6&nbsp;million, or 0.7% of net sales, for the six months
ended June&nbsp;30, 2005. The increased losses were primarily due to lower sales in Hong Kong, and
higher selling, general and administrative costs, specifically in North America and the new markets
of Mexico, Japan, and China.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Liquidity and Capital Resources</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cash generated from operations has been the main funding source for the Company&#146;s working
capital and capital expenditure. In the past, the Company also borrowed from institutions and
individuals and issued preferred stock. In October&nbsp;2004, the Company raised approximately $16
million, net of transaction fees, through a private equity placement. The Company is constantly
evaluating its financial needs and potential sources of additional funding. At June&nbsp;30, 2006, the
Company&#146;s cash and cash equivalents totaled approximately $14.7&nbsp;million.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At June&nbsp;30, 2006, the ratio of current assets to current liabilities was 1.26 to 1.00 and the
Company had working capital of approximately $6.6&nbsp;million. Working capital as of June&nbsp;30, 2006
decreased $4.0&nbsp;million compared to that as of December&nbsp;31, 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cash used in operations for the six months ended June&nbsp;30, 2006 was approximately $3.7&nbsp;million.
Cash was mainly utilized due to the incurrence of net losses and decreases in current liabilities,
including deferred revenue, partly offset by a reduction in existing inventories.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cash used in by investing activities during the period was approximately $0.2&nbsp;million, which
primarily results from investment in property and equipment, offset by proceeds received on the KGC
receivable. Cash used in financing activities during the period was approximately $5 thousand due
to repayment of debt. Total cash and cash equivalents decreased by approximately $3.8&nbsp;million
during the period.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company believes that its existing liquidity and cash flows from operations, including its
cash and cash equivalents, should be adequate to fund normal business operations expected in the
future.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company intends to continue to open additional operations in new foreign markets after
2006. The Company plans to focus on further developing the Japanese, the Mexican and the Chinese
markets in the next twelve months. The Company does not expect the sale of its equity interests in
eKaire.com and other subsidiaries effective July&nbsp;1, 2006 (see Note 8 to the consolidated financial
statements), to have a significant impact on its financial condition, results of operations, or
cash flows.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Related Party Transactions</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In August&nbsp;2001, the Company entered into a written lease agreement and an oral management
agreement with S&#038;B Business Services, an affiliate of Brad LaCore, the brother of Terry LaCore,
former Chief Executive Officer of NHT Global U.S. and a director of the Company, and Sherry LaCore,
Brad LaCore&#146;s spouse. Under the terms of the two agreements, S&#038;B Business Services provided
warehouse facilities and certain equipment, managed and shipped inventory, provided independent
distributor support services and disbursed payments to independent distributors. In exchange for
these services, the Company paid $18,000 annually for leasing the warehouse, $3,600 annually for
the lease of warehouse equipment and $120,000 annually for the management services provided, plus
an annual average of approximately $12,000 for business related services. The Company paid S&#038;B
Business Services approximately $39,000 and $3,000 during the three month periods ended June&nbsp;30,
2005 and 2006, respectively, and approximately $78,000 and $18,000 during the six month periods
ended June&nbsp;30, 2005 and 2006, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The payment disbursement function was transferred to the Company&#146;s Dallas head office during
the third quarter of 2005. In January&nbsp;2006, the Company hired Sherry LaCore as an employee and
simultaneously terminated the oral management agreement with
</DIV>

<P align="center" style="font-size: 10pt">20
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">S&#038;B Business Services. Additionally, the Company closed the warehouse facility by the end of
March&nbsp;2006 and terminated the related lease agreement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A director of the Company&#146;s China subsidiary is the sole director of Access Int&#146;l (Zhuhai Ftz)
Warehousing &#038; Trading Co. Ltd. and its group (collectively, &#147;Access&#148;), a transportation and
logistics company, and the owner of Info Development Ltd. (&#147;Info&#148;), an import services company,
both of which provided services to the Company&#146;s Hong Kong subsidiary. Payments totaling
approximately $1,926,000 were paid to Access and Info during the three and six month periods ended
June&nbsp;30, 2005. Payments totaling approximately $133,000 and $382,000 were paid to Access and Info
during the three and six month periods ended June&nbsp;30, 2006, respectively. At June&nbsp;30, 2006,
approximately $18,000 was due to Info.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On November&nbsp;10, 2005, an independent investigator retained by the Company&#146;s Audit Committee
learned that an entity controlled by Messrs.&nbsp;Woodburn and LaCore received payments from an
independent distributor of the Company&#146;s products during 2001 through August&nbsp;2005. The Company
believes that Messrs.&nbsp;Woodburn and LaCore received from such independent distributor a total of
approximately $1.4&nbsp;million and $1.1&nbsp;million, respectively. The Company believes that the fees paid
by the Company to such independent distributor were not in excess of the amounts due under the
Company&#146;s regular distributor compensation plan.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Approximately $2.4&nbsp;million of the funds paid by the independent distributor to Messrs.
Woodburn and LaCore were paid at the direction of Messrs.&nbsp;Woodburn and LaCore to an entity that is
partially owned by Mr.&nbsp;Woodburn&#146;s father and Randall A. Mason, the Chairman of the Company&#146;s Board
of Directors and former Chairman of the Company&#146;s Audit Committee. The funds were subsequently
paid to an entity controlled by Messrs.&nbsp;Woodburn and LaCore at their direction. After
investigation by the Audit Committee, the Board of Directors of the Company concluded that Mr.
Mason was unaware that these payments were directed by Messrs.&nbsp;Woodburn and LaCore to an entity
partially owned by him until uncovered by the Audit&#146;s Committee&#146;s independent investigator on
November&nbsp;10, 2005, and that Mr.&nbsp;Mason was not involved in any misconduct and received no pecuniary
benefit from the payments made by the independent distributor. However, since payments were
directed into an entity that is partially owned by Mr.&nbsp;Mason, he could no longer be considered
&#147;independent&#148; in accordance with the rules of Nasdaq and under the federal securities laws.
Therefore, effective November&nbsp;11, 2005, Mr.&nbsp;Mason resigned as Chairman and a member of the
Company&#146;s Audit Committee.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On November&nbsp;14, 2005, in light of the information learned by the Company&#146;s Audit Committee on
November&nbsp;10, 2005, the Company terminated the employment of each of Messrs.&nbsp;Woodburn and LaCore.
No severance has been paid by the Company to Messrs.&nbsp;Woodburn and LaCore and the Audit Committee
has investigated and is now considering claims or actions that the Company may bring against them.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, a loan made by the Company under the direction of Mr.&nbsp;Woodburn in the aggregate
principal amount of $256,000 in February&nbsp;2004 was previously recorded as a loan to a third party.
On November&nbsp;10, 2005, the Audit Committee investigator learned that the Company actually loaned the
funds to an entity owned and controlled by the parents of Mr.&nbsp;Woodburn. The loan was repaid in
full, partially by an entity controlled by a third party and partially by an entity controlled by
Mr.&nbsp;Woodburn in December&nbsp;2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On March&nbsp;23, 2006, an independent investigator retained by the Audit Committee of the Board of
Directors confirmed that affiliates of immediate family members of Mr.&nbsp;Woodburn have owned since
1998, and continue to own on March&nbsp;23, 2006, equity interests in Aloe Commodities (&#147;Aloe&#148;), the
largest manufacturer of the Company and the supplier of the <I>Skindulgence</I><SUP style="font-size: 85%; vertical-align: text-top">&#174;</SUP> Line and <I>LaVie</I>&#153; products,
representing approximately 5% of the outstanding shares of Aloe. The Company paid Aloe and certain
of its affiliates approximately $2,348,000 and $4,135,000 during the three and six month periods
ended June&nbsp;30, 2005, respectively. The Company paid Aloe and certain of its affiliates
approximately $1,557,000 during the three and six month periods ended June&nbsp;30, 2006. At June&nbsp;30,
2006, approximately $816,000 was due to Aloe and certain of its affiliates.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Adoption of SFAS 123(R)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prior to January&nbsp;1, 2006, the Company accounted for its stock-based compensation plans under
the recognition and measurement provisions of Accounting Principles Board (APB)&nbsp;Opinion No.&nbsp;25,
&#147;Accounting for Stock Issued to Employees,&#148; and related Interpretations, as permitted by SFAS No.
123, &#147;Accounting for Stock-Based Compensation.&#148; The Company did not recognize compensation cost
related to stock options granted to its employees and non-employee directors that had an exercise
price equal to or above the market value of the underlying common stock on the date of grant.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Effective January&nbsp;1, 2006, the Company adopted the fair value recognition provisions of SFAS
No.&nbsp;123(R), &#147;Share-Based Payment,&#148; and related interpretations using the modified-prospective
transition method. The modified-prospective transition method does not allow for restatement of
prior periods and accordingly, the results of operations for the three and six months ended June
30, 2006 and future periods will not be comparable to our historical results of operations. Under
the modified-prospective transition method, compensation cost recognized in the first quarter of
2006 includes (1)&nbsp;compensation cost for all stock-based awards granted prior to, but not yet vested
as of, January&nbsp;1, 2006 based on the grant date fair value estimated in accordance with the original
</DIV>

<P align="center" style="font-size: 10pt">21
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">provisions of SFAS No.&nbsp;123, and (2)&nbsp;compensation cost for all stock-based awards granted on or
subsequent to January&nbsp;1, 2006, based on the grant-date fair value estimated in accordance with the
provisions of SFAS No.&nbsp;123(R). Compensation cost is presented in the same lines as cash
compensation paid to the same individuals.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As a result of adopting SFAS No.&nbsp;123(R) on January&nbsp;1, 2006, the Company recognized stock-based
compensation of approximately $124,000 and $301,000 for the three and six months ended June&nbsp;30,
2006, respectively, which approximates $0.01 and $0.04 per share, respectively. Because the
Company maintained a full valuation allowance on its deferred tax assets, the Company did not
recognize any tax benefit related to stock-based compensation for the three and six months ended
June&nbsp;30, 2006.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of June&nbsp;30, 2006, there was $1.2&nbsp;million of total unrecognized stock-based compensation on
a pre-tax basis related to non-vested stock options. These costs are expected to be recognized
over a weighted-average period of 2.3&nbsp;years.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Recent Accounting Pronouncement</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In July&nbsp;2006, the Financial Accounting Standards Board (FASB)&nbsp;issued FASB Interpretation No.
48, &#147;Accounting for Uncertainty in Income Taxes &#151; an Interpretation of FASB Statement No.&nbsp;109&#148; (FIN
48), which clarifies the accounting for uncertainty in tax positions. This Interpretation requires
the Company to recognize in its financial statements the impact of a tax position if that position
is more likely than not of being sustained on audit, based on the technical merits of the position.
The provisions of FIN 48 are effective January&nbsp;1, 2007, with the cumulative effect, if any, of the
change in accounting principle recorded as an adjustment to opening retained earnings. The Company
is currently evaluating the impact of adopting FIN 48 on the consolidated financial statements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Off &#150; Balance Sheet Arrangements</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company does not utilize off-balance sheet financing arrangements other than in the normal
course of business. The Company finances the use of certain facilities, office and computer
equipment, and automobiles under various operating lease agreements.
</DIV>
<DIV align="left">
<A name="108"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Foreign Currency Risk</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the first six months of 2006, approximately 91% of our revenue was recorded in markets
outside the United States. However, that figure does not accurately reflect our foreign currency
exposure mainly because the Hong Kong dollar is pegged to the U.S. dollar. We also purchase all
inventories in U.S. dollars. Therefore, our currency exposure, mainly to the Korean won, Singapore
dollar, New Taiwan dollar, Japanese yen, Mexican peso, and Australian dollar, represents
approximately 21% of our revenue in the first six months of 2006. The Company incurred a foreign
currency loss of $115 thousand and $195 thousand for the three and six months ended June&nbsp;30, 2006,
respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In preparing our consolidated financial statements, we translate revenue and expenses in
foreign countries from their local currencies into U.S. dollars using the average exchange rates
for the period. The local currency of each subsidiary&#146;s primary markets is considered the
functional currency. The effect of the translation of the Company&#146;s foreign operations is included
in accumulated other comprehensive income within stockholders&#146; equity and does not impact the
statement of operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As currency rates change, translation of our foreign currency functional businesses into U.S.
dollars affects year-over-year comparability of equity. We do not plan to hedge translation risks
because cash flows from our international operations are generally reinvested locally. Changes in
the currency exchange rates that would have the largest impact on translating our international net
assets included Korean won, New Taiwan dollar, Australian dollar and Canadian dollar. Japanese yen
and Mexican peso are expected to become more significant.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Hedging</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our exposure to foreign currency fluctuation is expected to increase as the Company further
develops the markets in Japan, Mexico and China. The Company currently has no specific plans, but
expects to evaluate whether it should use forward or option contracts to hedge its foreign currency
exposure.
</DIV>

<P align="center" style="font-size: 10pt">22
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Seasonality</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Generally our revenue has not been impacted by seasonality on any significant basis. From
quarter to quarter, the Company is somewhat impacted by seasonal factors and trends such as major
cultural events and vacation patterns. For example, most Asian markets celebrate their respective
local New Year in the first quarter, which generally has a small negative impact on that quarter.
We believe that direct selling in the United States and Europe is also generally negatively
impacted during the month of August, which is in our third quarter, when many individuals,
including our distributors, traditionally take time off for vacations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company&#146;s spending is materially effected by the major events planned for at different
times of the year. A major promotional event could significantly increase the reported expenses
during the quarter in which the event actually takes place, while the revenue that might be
generated by the event may not occur in the same reporting period.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Interest Rate Risk</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of June&nbsp;30, 2006, we do not think the Company has any exposure to interest rate risk as the
Company has limited borrowings that are interest rate sensitive.
</DIV>
<DIV align="left">
<A name="109"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;4. CONTROLS AND PROCEDURES</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our management is responsible for establishing and maintaining an adequate level of internal
controls over financial reporting. Internal control over financial reporting is a process designed
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 (&#147;GAAP&#148;). Internal control over financial reporting includes policies and
procedures that:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the Company;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with GAAP, and that receipts and
expenditures of the Company are being made only in accordance with authorizations of
management and directors of the Company; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the Company&#146;s assets that could have a material effect
on the consolidated financial statements.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Because of its inherent limitations, internal control over financial reporting may not prevent
or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with existing policies or procedures may deteriorate.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following material weaknesses in our internal control over financial reporting were
reported in our 2005 Annual Report on Form 10-K filed with the United States Securities and
Exchange Commission on May&nbsp;8, 2006:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>We did not maintain an effective control environment because (1)&nbsp;we lack an effective
anti-fraud program to detect and prevent fraud, for example, relating to the previous top
two executive officers of the Company, Mark Woodburn and Terry LaCore, in terms of (i)
conflicts of interests related to executive officers, especially their financial dealings
with independent distributors and other vendors, and (ii)&nbsp;proper supervision of the
executives conduct separating their executive duties from personal financial interests
outside the Company, (2)&nbsp;we failed to perform background checks consistently on personnel
being placed into positions of responsibility, (3)&nbsp;an adequate tone was not set from the
top as control measures in place were ignored by the previous top two executives and the
importance of controls was not properly emphasized and communicated throughout the Company
and (4)&nbsp;we did not effectively address the control deficiencies noted in the fiscal year
2004 external audit;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>We did not maintain effective monitoring controls over financial reporting because (1)
our policies regarding review, supervision and monitoring of our accounting operations
throughout the Company were not fully designed, in place, or operating effectively and (2)
we do not have an internal audit function;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>We did not maintain effective control over period-end financial close and reporting
because (1)&nbsp;we lacked sufficient complement of personnel with an appropriate level of
accounting knowledge, experience and training in the application of GAAP commensurate with
our financial reporting requirements to prepare, review and approve account reconciliations
and
</TD>
</TR>
</TABLE>
</DIV>
<P align="center" style="font-size: 10pt">23
</DIV>

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</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 6%">supporting schedules, and (2)&nbsp;our legacy accounting systems do not facilitate the appropriate
review and approval over the recording of journal entries to ensure the accuracy and
completeness of the journal entries recorded;
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>We did not maintain effective controls over the disbursement function since we (1)
lacked adequate segregation of duties and (2)&nbsp;lacked appropriate review, approval, and
supporting documentation;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>We did not maintain effective controls over the payroll function since we (1)&nbsp;lacked
adequate segregation of duties and (2)&nbsp;lacked appropriate review, approval, and supporting
documentation;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>We did not maintain effective controls over the inventory function since we (1)&nbsp;did not
maintain restricted access to the inventory detail schedule used to support the general
ledger balances and (2)&nbsp;used the periodic inventory system and performed monthly inventory
counts using physical inventory count sheets lacking reviewer documentation;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>We lacked documentation with respect to certain related party transactions, subsidiary
operations and expense reimbursement procedures. In addition, sufficient policies regarding
loans to employees and third parties had not been adopted or implemented, and policies
related to independent distributor relationships were inadequate;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>We lacked timely resolution of identified accounting and legal issues, and as a result,
did not timely complete period-end financial statements and reporting; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>We do not have all material contracts in writing and approved by all parties.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Each of the control deficiencies described above could result in a misstatement of the
aforementioned accounts or disclosures that would result in a material misstatement to the annual
or interim consolidated financial statements that would not be prevented or detected. Management
has determined that each of the control deficiencies constitutes a material weakness.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Based on this evaluation, the Company&#146;s Chief Financial Officer has concluded that our
disclosure controls and procedures at December&nbsp;31, 2005 were not effective to provide reasonable
assurance that information required to be disclosed in the reports we file and submit under the
Exchange Act is recorded, processed, summarized and reported as and when required.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In light of this conclusion and as part of the preparation of this report, we have applied
compensating procedures and processes as necessary to ensure the reliability of our financial
reporting. Accordingly, management believes, based on its knowledge, that (1)&nbsp;this report does not
contain any untrue statement of a material fact or omit to state a material fact necessary to make
the statements made not misleading with respect to the period covered by this report, and (2)&nbsp;the
financial statements, and other financial information included in this report, fairly present in
all material respects our financial condition as of December&nbsp;31, 2005 and June&nbsp;30, 2006, and our
results of operations and cash flows for each of the three and six month periods ended June&nbsp;30,
2005 and 2006.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Changes in Internal Control Over Financial Reporting</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During the six months ended June&nbsp;30, 2006, there were no additional changes in our internal
control over financial reporting that occurred during the period that have materially affected, or
are reasonably likely to materially affect, our internal control over financial reporting.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In light of the noted material weaknesses, we have instituted, and will continue to institute,
control improvements that we believe will reduce the likelihood of similar errors:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>We plan to devote more resources to developing an anti-fraud program to detect and
prevent fraud. The program may include the hiring of outside or in-house counsel to be
dedicated to the development and enforcement of compliance programs. Background checks
will be performed on personnel being placed into positions of material responsibility. The
compliance program also will include a communication project to set the right tone from the
top. Additionally, we also plan to allocate additional resources to following up on
addressing control deficiencies identified in the previous audits;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The Company intends to develop additional policies and procedures to further strengthen
its reporting, including the areas of revenue recognition, sales and expense cut-off and
sales returns. In addition, we plan to evaluate hiring additional resources to perform the
internal audit function;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The Company began implementation of the Oracle E-Business Suite during the fourth
quarter of 2005 and commenced use of certain functionality on January&nbsp;1, 2006 that address
certain of the material weaknesses listed above, including the effective</TD>
</TR>

</TABLE>
</DIV>
<P align="center" style="font-size: 10pt">24
</DIV>

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</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 6%">control over period-end financial close and reporting and the effective control over certain
accounting functions. The Oracle implementation should facilitate the appropriate review and
approval over the recording of journal entries to ensure the accuracy and completeness of the
journal entries recorded. Additionally, the Company has made changes to its corporate
accounting staff, including the hiring or contracting of additional personnel in the U.S. In
December&nbsp;2005, the Company hired a new general counsel to assist in the legal and compliance
effort. The new general counsel commenced work in January&nbsp;2006;
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Additional segregation of duties and appropriate review, approval, and supporting
documentation were installed in 2006 to maintain effective controls over the disbursement
function. We are developing policies for proper documentation, review and approval related
to related party transactions, subsidiary operations, distributor compensation adjustments,
employee loans, expense reimbursements, and distributor relationships;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Additional segregation of duties and appropriate review, approval, and supporting
documentation have been implemented since 2005&nbsp;year end to maintain effective controls over
the payroll function;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>With the implementation of the Oracle e-Business Suite&#146;s financial reporting package, we
should be able to further restrict access to the inventory detail schedule used to support
the general ledger balances. With additional implementation of Oracle applications, we plan
to eventually replace the current periodic inventory system, relying on monthly inventory
counts using physical inventory count sheets, with a perpetual inventory system.
Meanwhile, more procedures will be installed for review of inventory count documentation;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Additional processes will be instituted to timely resolve identified accounting and
legal issues so that period-end financial statements and reporting can be timely completed;
and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Stronger policy enforcement will be pushed down throughout the Company to eliminate
executives making verbal agreements ahead of properly approved written contracts.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Furthermore, certain of these remediation efforts, primarily associated with our information
technology infrastructure and related controls, will require significant ongoing effort and
investment. Our management, with the oversight of our audit committee, will continue to identify
and take steps to remedy known material weaknesses as expeditiously as possible and enhance the
overall design and capability of our control environment. We intend to further expand our staff,
accounting policy and controls capabilities by attracting additional talent and enhancing training
in such matters. We believe that the foregoing actions have improved and will continue to improve
our internal control over financial reporting, as well as our disclosure controls and procedures.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If the remedial policies and procedures we have implemented, and continue to implement, are
insufficient to address the material weakness or if additional significant deficiencies or other
conditions relating to our internal controls are discovered in the future, we may fail to meet our
future reporting obligations, our financial statements may contain material misstatements and our
operating results may be adversely affected. Any such failure could also adversely affect the
results of the periodic management evaluations and annual auditor attestation reports regarding the
effectiveness of our internal controls over financial reporting, which will be required when the
SEC&#146;s rules under Section&nbsp;404 of the Sarbanes-Oxley Act of 2002 become applicable to us beginning
with the filing of our Annual Report on Form 10-K for the year ended December&nbsp;31, 2007. Internal
control deficiencies could also cause investors to lose confidence in our reported financial
information. Although we believe that we have addressed, or will address in the near future, our
material weakness in internal controls, we cannot guarantee that the measures we have taken to date
or any future measures will remediate the material weakness identified or that any additional
material weakness or significant deficiencies will not arise in the future due to a failure to
implement and maintain adequate internal controls over financial reporting.
</DIV>

<P align="center" style="font-size: 10pt">25
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="110"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>PART II &#151; OTHER INFORMATION</B>
</DIV>

<DIV align="left">
<A name="111"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;1. LEGAL PROCEEDINGS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company is subject to certain legal proceedings which could have an adverse effect on its
business, results of operations, or financial condition. For information relating to such legal
proceedings, see Note 6 in the Notes to Consolidated Financial Statements contained in Part&nbsp;I, Item
1 of this Quarterly Report on Form 10-Q.
</DIV>
<DIV align="left">
<A name="112"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;1A. RISK FACTORS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company is exposed to certain risks factors that may affect operations. The significant
risk factors known to the Company are described in Item&nbsp;1A in the Company&#146;s Annual Report on Form
10-K for the year ended December&nbsp;31, 2005, which was filed with the Securities and Exchange
Commission on May&nbsp;8, 2006. There have been no material changes from the risk factors as previously
disclosed in that Form 10-K, except for the following.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>We May Be Required To Raise Additional Capital If Revenue Continues To Decline, But Additional
Capital May Not Be Available On Terms Acceptable To Us, Or At All.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We believe that our existing cash and cash equivalents will be sufficient to meet our working
capital needs, capital expenditure requirements, and commitments for at least the next 12&nbsp;months.
However, it is possible that we may need to raise additional funds to finance these activities if
we experience significant further declines in revenue. As such, we may not be able to obtain
additional funds on favorable terms, or at all.
</DIV>
<DIV align="left">
<A name="113"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;6. EXHIBITS</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="6%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="92%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">31.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Certification of the Principal Executive Officer pursuant to Section&nbsp;302 of the Sarbanes-Oxley Act of 2002.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">31.2
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Certification of the Chief Financial Officer pursuant to Section&nbsp;302 of the Sarbanes-Oxley Act of 2002.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">32.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Certification of the Principal Executive Officer pursuant to 18 U.S.C. Section&nbsp;1350, as adopted pursuant
to Section&nbsp;906 of the Sarbanes-Oxley Act of 2002.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">32.2
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section&nbsp;1350, as adopted pursuant to
Section&nbsp;906 of the Sarbanes-Oxley Act of 2002.</TD>
</TR>
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</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">26
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<DIV align="left">
<A name="114"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>SIGNATURES</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="48%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">NATURAL HEALTH TRENDS CORP.</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Date: August&nbsp;11, 2006
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">/s/ Stephanie S. Hayano
<DIV style="font-size: 1pt; border-top: 1px solid #000000">&nbsp;</DIV>
Stephanie S. Hayano
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Chief Executive Officer</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(Principal Executive Officer)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">27
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</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.1
<SEQUENCE>2
<FILENAME>d38792exv31w1.htm
<DESCRIPTION>CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER PURSUANT TO SECTION 302
<TEXT>
<HTML>
<HEAD>
<TITLE>exv31w1</TITLE>
</HEAD>
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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="right" style="font-size: 10pt; margin-top: 12pt"><B>EXHIBIT 31.1</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CERTIFICATION</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">I, Stephanie S. Hayano, Principal Executive Officer of Natural Health Trends Corp., certify that:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">1. I have reviewed this quarterly report on Form 10-Q of Natural Health Trends Corp.;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">2. Based on my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this report;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">3. Based on my knowledge, the financial statements, and other financial information included
in this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this report;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">4. The registrant&#146;s other certifying officer(s) and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules&nbsp;13a-15(e) and
15d-15(e)) for the registrant and have:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;a) Designed such disclosure controls and procedures, or caused such disclosure controls
and procedures to be designed under our supervision, to ensure that material information relating
to the registrant, including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being prepared;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;b) Evaluated the effectiveness of the registrant&#146;s disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on such evaluation; and
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;c) Disclosed in this report any change in the registrant&#146;s internal control over
financial reporting that occurred during the registrant&#146;s most recent fiscal quarter that has
materially affected, or is reasonably likely to materially affect, the registrant&#146;s internal
control over financial reporting; and
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">5. The registrant&#146;s other certifying officer(s) and I have disclosed, based on our most
recent evaluation of internal control over financial reporting, to the registrant&#146;s auditors and
the audit committee of registrant&#146;s board of directors (or persons performing the equivalent
functions):
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;a) All significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect the
registrant&#146;s ability to record, process, summarize and report financial information; and
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;b) Any fraud, whether or not material, that involves management or other employees who
have a significant role in the registrant&#146;s internal control over financial reporting.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="48%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Date: August&nbsp;11, 2006
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">/s/ Stephanie S. Hayano
<DIV style="font-size: 1pt; border-top: 1px solid #000000">&nbsp;</DIV>
Stephanie S. Hayano
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Principal Executive Officer</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.2
<SEQUENCE>3
<FILENAME>d38792exv31w2.htm
<DESCRIPTION>CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302
<TEXT>
<HTML>
<HEAD>
<TITLE>exv31w2</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="right" style="font-size: 10pt; margin-top: 12pt"><B>EXHIBIT 31.2</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CERTIFICATION</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">I, Chris T. Sharng, Chief Financial Officer of the Natural Health Trends Corp., certify that:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">1. I have reviewed this quarterly report on Form 10-Q of Natural Health Trends Corp.;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">2. Based on my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this report;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">3. Based on my knowledge, the financial statements, and other financial information included
in this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this report;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">4. The registrant&#146;s other certifying officer(s) and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules&nbsp;13a-15(e) and
15d-15(e)) for the registrant and have:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;a) Designed such disclosure controls and procedures, or caused such disclosure controls
and procedures to be designed under our supervision, to ensure that material information relating
to the registrant, including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being prepared;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;b) Evaluated the effectiveness of the registrant&#146;s disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on such evaluation; and
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;c) Disclosed in this report any change in the registrant&#146;s internal control over
financial reporting that occurred during the registrant&#146;s most recent fiscal quarter that has
materially affected, or is reasonably likely to materially affect, the registrant&#146;s internal
control over financial reporting; and
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">5. The registrant&#146;s other certifying officer(s) and I have disclosed, based on our most
recent evaluation of internal control over financial reporting, to the registrant&#146;s auditors and
the audit committee of registrant&#146;s board of directors (or persons performing the equivalent
functions):
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;a) All significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect the
registrant&#146;s ability to record, process, summarize and report financial information; and
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;b) Any fraud, whether or not material, that involves management or other employees who
have a significant role in the registrant&#146;s internal control over financial reporting.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="48%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Date: August&nbsp;11, 2006
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">/s/ Chris T. Sharng
<DIV style="font-size: 1pt; border-top: 1px solid #000000">&nbsp;</DIV>
Chris T. Sharng
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Chief Financial Officer</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32.1
<SEQUENCE>4
<FILENAME>d38792exv32w1.htm
<DESCRIPTION>CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER PURSUANT TO SECTION 906
<TEXT>
<HTML>
<HEAD>
<TITLE>exv32w1</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="right" style="font-size: 10pt; margin-top: 12pt"><B>EXHIBIT 32.1</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In connection with the quarterly report of Natural Health Trends Corp. (the &#147;Company&#148;) on Form
10-Q for the period ended June&nbsp;30, 2006, as filed with the Securities and Exchange Commission on
the date hereof (the &#147;Report&#148;), I, Stephanie S. Hayano, Principal Executive Officer of the Company,
certify, pursuant to 18 U.S.C. &#167; 1350, as adopted pursuant to Section&nbsp;906 of the Sarbanes-Oxley Act
of 2002, that to the best of my knowledge:
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934; and
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">2. The information contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of the Company.
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="48%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Date: August&nbsp;11, 2006
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">/s/ Stephanie S. Hayano
<DIV style="font-size: 1pt; border-top: 1px solid #000000">&nbsp;</DIV>
Stephanie S. Hayano
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Principal Executive Officer</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32.2
<SEQUENCE>5
<FILENAME>d38792exv32w2.htm
<DESCRIPTION>CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 906
<TEXT>
<HTML>
<HEAD>
<TITLE>exv32w2</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="right" style="font-size: 10pt; margin-top: 12pt"><B>EXHIBIT 32.2</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In connection with the quarterly report of Natural Health Trends Corp. (the &#147;Company&#148;) on Form
10-Q for the period ended June&nbsp;30, 2006, as filed with the Securities and Exchange Commission on
the date hereof (the &#147;Report&#148;), I, Chris T. Sharng, Chief Financial Officer of the Company,
certify, pursuant to 18 U.S.C. &#167; 1350, as adopted pursuant to Section&nbsp;906 of the Sarbanes-Oxley Act
of 2002, that to the best of my knowledge:
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934; and
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">2. The information contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of the Company.
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="48%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Date: August&nbsp;11, 2006
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">/s/ Chris T. Sharng
<DIV style="font-size: 1pt; border-top: 1px solid #000000">&nbsp;</DIV>
Chris T. Sharng
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Chief Financial Officer</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">&nbsp;
</DIV>


</BODY>
</HTML>
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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