UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: ~~June 30, 2021~~March 31, 2022

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to ___________.

Commission File No. 000-24657

MANNATECH, INCORPORATED

(Exact Name of Registrant as Specified in its Charter)


Texas		75-2508900
(State or other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)
1410 Lakeside Parkway, Suite 200,
Flower Mound,	Texas	75028
(Address of Principal Executive Offices)		(Zip Code)

Registrant’s Telephone Number, including Area Code: (972) 471-7400

Securities registered pursuant to Section 12(b) of the Act:


Title of each class		Trading Symbol(s)	Name of each exchange on which registered
Common Stock,	par value $0.0001 per share	MTEX	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “accelerated filer”, “large accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging Growth Company

If an emerging growth company, indicated by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No x

As of ~~July~~April 30, ~~2021,~~2022, the number of shares outstanding of the registrant’s sole class of common stock, par value $0.0001 per share, was ~~1,892,646.~~1,949,716.

MANNATECH, INCORPORATED

TABLE OF CONTENTS


Special Note Regarding Forward-Looking Statements			1
Part I – FINANCIAL INFORMATION
Item 1. Financial Statements			2
Consolidated Balance Sheets as of ~~June 30, 2021~~March 31, 2022 (unaudited) and December 31, ~~2020~~20 21			2
Consolidated Statements of Operations for the Three ~~and Six~~ Months Ended ~~June 30,~~March 31, 2022 and 2021 ~~and 2020~~ (unaudited)			3
Consolidated Statements of Comprehensive Income for the Three ~~and Six~~ Months Ended ~~June 30,~~March 31, 2022 and 2021 ~~and 2020~~ (unaudited)			3
Consolidated Statement of Shareholders’ Equity for the Three ~~and Six~~ Months ~~Ended June 30, 2021~~ended March 31, 2022 (unaudited)			4
Consolidated Statements of Cash Flows for the ~~Six~~Three Months Ended ~~June 30,~~March 31, 2022 and 2021 ~~and 2020~~ (unaudited)			5
Notes to Unaudited Consolidated Financial Statements			7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			2221
Company Overview			2221
Results of Operations			22
Liquidity and Capital Resources			3129
Significant Accounting Policies and Critical Estimates			3431
~~Recent Accounting Pronouncements~~			38

Item 3. Quantitative and Qualitative Disclosures About Market Risk			3935

Item 4. Controls and Procedures			3936

Part II – OTHER INFORMATION
Item 1. Legal Proceedings			4137

Item 1A. Risk Factors			4137

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			4238

Item 3. Defaults Upon Senior Securities			4238

Item 4. Mine Safety Disclosures			4238

Item 5. Other Information			4238

Item 6. Exhibits			4238

Signatures			4440

Table of Contents

Special Note Regarding Forward-Looking Statements

Certain disclosures and analyses in this Form 10-Q, including information incorporated by reference, may include forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Private Securities Litigation Reform Act of 1995 that are subject to various risks and uncertainties. Opinions, forecasts, projections, guidance, or other statements other than statements of historical fact are considered forward-looking statements and reflect only current views about future events and financial performance. Some of these forward-looking statements include statements regarding:

•management’s plans and objectives for future operations;

•existing cash flows being adequate to fund future operational needs;

•future plans related to budgets, future capital requirements, market share growth, and anticipated capital projects and obligations;

•the realization of net deferred tax assets;

•the ability to curtail operating expenditures;

•global statutory tax rates remaining unchanged;

•the impact of future market changes due to exposure to foreign currency translations;

•the possibility of certain policies, procedures, and internal processes minimizing exposure to market risk;

•the impact of new accounting pronouncements on financial condition, results of operations, or cash flows;

•the outcome of new or existing litigation matters;

•the outcome of new or existing regulatory inquiries or investigations; and

•other assumptions described in this report underlying such forward-looking statements.

Although we believe that the expectations included in these forward-looking statements are reasonable, these forward-looking statements are subject to certain events, risks, assumptions, and uncertainties, including those discussed below, the “Risk Factors” section in Part I, Item 1A of our Form 10-K for the year ended December 31, ~~2020,~~2021, and elsewhere in this Form 10-Q and the documents incorporated by reference herein. If one or more of these risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results and developments could materially differ from those expressed in or implied by such forward-looking statements. For example, any of the following factors could cause actual results to vary materially from our projections:

•the impact of the outbreak of the novel coronavirus ("COVID-19") pandemic, the availability and effectiveness of vaccines on a widespread basis and the impact of any mutations of the virus;

•the current conflict between Russia and Ukraine, which could adversely affect our business in certain regions;

•the impact of inflation;

•disruptions in the supply chain;

•overall growth or lack of growth in the nutritional supplements industry;

•plans for expected future product development;

•changes in manufacturing costs;

•shifts in the mix of packs and products;

•the future impact of any changes to global associate career and compensation plans or incentives or the regulations governing such plans and incentives;

•the ability to attract and retain independent associates and preferred customers;

•new regulatory changes that may affect operations, products or compensation plans or incentives;

•the competitive nature of our business with respect to products and pricing;

•publicity related to our products or network-marketing;

•comprehensive regulation of our business model and uncertainties relating to the interpretation and enforcement of applicable laws and regulations governing direct selling and multi-level-marketing in the United States; and

•the political, social, and economic climate of the countries in which we operate.

Forward-looking statements generally can be identified by use of phrases or terminology such as “may,” “will,” “should,” “could,” “would,” “expects,” “plans,” “intends,” “anticipates,” “believes,” “estimates,” “approximates,” “predicts,” “projects,” "hopes," “potential,” and “continues” or other similar words or the negative of such terms and other comparable terminology. Similarly, descriptions of Mannatech’s objectives, strategies, plans, goals, or targets contained herein are also considered forward-looking statements. Readers are cautioned when considering these forward-looking statements to keep in mind these risks, assumptions, and uncertainties and any other cautionary statements in this report, as all of the forward-looking statements contained herein speak only as of the date of this report.

Unless stated otherwise, all financial information throughout this report and in the Consolidated Financial Statements and related Notes include Mannatech, Incorporated and all of its subsidiaries on a consolidated basis and may be referred to herein as “Mannatech,” “the Company,” “its,” “we,” “us,” “our,” or “their.”

Our products are not intended to diagnose, cure, treat, or prevent any disease, and any statements about our products contained in this report have not been evaluated by the Food and Drug Administration, also referred to herein as the “FDA”.

Table of Contents

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

MANNATECH, INCORPORATED AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)


ASSETS	ASSETS	June 30, 2021 (unaudited)		December 31, 2020		ASSETS	March 31, 2022 (unaudited)		December 31, 2021
Cash and cash equivalents	Cash and cash equivalents	$	25,967	$	22,207	Cash and cash equivalents	$	23,359	$	24,185
Restricted cash	Restricted cash	944		944		Restricted cash	944		944
Accounts receivable, net of allowance of $980 and $817 in 2021 and 2020, respectively		231		186
Accounts receivable, net of allowance of $991 and $987 in 2022 and 2021, respectively						Accounts receivable, net of allowance of $991 and $987 in 2022 and 2021, respectively	91		90
Income tax receivable	Income tax receivable	302		1,008		Income tax receivable	385		342
Inventories, net	Inventories, net	13,492		12,827		Inventories, net	12,591		12,020
Prepaid expenses and other current assets	Prepaid expenses and other current assets	3,288		2,962		Prepaid expenses and other current assets	3,798		2,888
Deferred commissions	Deferred commissions	2,338		2,343		Deferred commissions	3,103		2,369

Total current assets	Total current assets	46,562		42,477		Total current assets	44,271		42,838
Property and equipment, net	Property and equipment, net	3,512		4,494		Property and equipment, net	2,591		2,882
Construction in progress	Construction in progress	1,117		864		Construction in progress	1,507		1,357
Long-term restricted cash	Long-term restricted cash	1,179		4,346		Long-term restricted cash	503		503
Other assets	Other assets	10,393		11,977		Other assets	9,528		9,220
Long-term deferred tax assets, net		1,091		1,178
Deferred tax assets, net						Deferred tax assets, net	2,740		2,825
Total assets	Total assets	$	63,854	$	65,336	Total assets	$	61,140	$	59,625
LIABILITIES AND SHAREHOLDERS’ EQUITY	LIABILITIES AND SHAREHOLDERS’ EQUITY					LIABILITIES AND SHAREHOLDERS’ EQUITY
Current portion of finance leases	Current portion of finance leases	$	77	$	76	Current portion of finance leases	$	60	$	68
Accounts payable	Accounts payable	5,108		4,797		Accounts payable	5,122		3,969
Accrued expenses	Accrued expenses	8,651		8,691		Accrued expenses	8,407		9,224
Commissions and incentives payable	Commissions and incentives payable	11,657		10,998		Commissions and incentives payable	9,629		9,611
Taxes payable	Taxes payable	1,906		1,400		Taxes payable	1,756		2,154

Current notes payable	Current notes payable	455		553		Current notes payable	608		205
Deferred revenue	Deferred revenue	6,080		5,472		Deferred revenue	6,617		4,867
Total current liabilities	Total current liabilities	33,934		31,987		Total current liabilities	32,199		30,098
Finance leases, excluding current portion	Finance leases, excluding current portion	95		129		Finance leases, excluding current portion	69		66
Deferred tax liabilities		3		3
Long-term notes payable		0		0

Other long-term liabilities	Other long-term liabilities	6,090		7,245		Other long-term liabilities	5,142		5,049
Total liabilities	Total liabilities	40,122		39,364		Total liabilities	37,410		35,213

Commitments and contingencies	Commitments and contingencies	0		0		Commitments and contingencies	0		0

Shareholders’ equity:	Shareholders’ equity:					Shareholders’ equity:
Preferred stock, $0.01 par value, 1,000,000 shares authorized, no shares issued or outstanding	Preferred stock, $0.01 par value, 1,000,000 shares authorized, no shares issued or outstanding	0		0		Preferred stock, $0.01 par value, 1,000,000 shares authorized, no shares issued or outstanding	—		—
Common stock, $0.0001 par value, 99,000,000 shares authorized, 2,742,857 shares issued and 1,892,646 shares outstanding as of June 30, 2021 and 2,742,857 shares issued and 2,071,081 shares outstanding as of December 31, 2020		0		0
Common stock, $0.0001 par value, 99,000,000 shares authorized, 2,742,857 shares issued and 1,949,716 shares outstanding as of March 31, 2022 and 2,742,857 shares issued and 1,940,687 shares outstanding as of December 31, 2021						Common stock, $0.0001 par value, 99,000,000 shares authorized, 2,742,857 shares issued and 1,949,716 shares outstanding as of March 31, 2022 and 2,742,857 shares issued and 1,940,687 shares outstanding as of December 31, 2021	—		—
Additional paid-in capital	Additional paid-in capital	33,758		33,795		Additional paid-in capital	33,359		33,277
Retained earnings	Retained earnings	5,873		2,213		Retained earnings	7,452		7,708
Accumulated other comprehensive income	Accumulated other comprehensive income	3,866		5,150		Accumulated other comprehensive income	1,669		2,342
Treasury stock, at average cost, 850,211 shares as of June 30, 2021 and 671,776 shares as of December 31, 2020		(19,765)		(15,186)
Treasury stock, at average cost, 793,141 shares as of March 31, 2022 and 802,170 shares as of December 31, 2021						Treasury stock, at average cost, 793,141 shares as of March 31, 2022 and 802,170 shares as of December 31, 2021	(18,750)		(18,915)
Total shareholders’ equity	Total shareholders’ equity	23,732		25,972		Total shareholders’ equity	23,730		24,412
Total liabilities and shareholders’ equity	Total liabilities and shareholders’ equity	$	63,854	$	65,336	Total liabilities and shareholders’ equity	$	61,140	$	59,625

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

MANNATECH, INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS – (UNAUDITED)

(in thousands, except per share information)


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended March 31,
		2021		2020		2021		2020			2022		2021
Net sales	Net sales	$	42,504	$	37,647	$	80,823	$	74,252	Net sales	$	32,384	$	38,319
Cost of sales	Cost of sales	10,126		8,708		17,348		15,716		Cost of sales	7,091		7,222
Gross profit	Gross profit	32,378		28,939		63,475		58,536		Gross profit	25,293		31,097

Operating expenses:	Operating expenses:									Operating expenses:
Commissions and incentives	Commissions and incentives	16,898		15,330		32,496		30,219		Commissions and incentives	13,108		15,598
Selling and administrative expenses	Selling and administrative expenses	7,571		7,165		14,682		14,020		Selling and administrative expenses	6,909		7,111
Depreciation and amortization expense	Depreciation and amortization expense	442		537		952		1,057		Depreciation and amortization expense	332		510
Other operating costs	Other operating costs	5,449		4,797		10,538		10,118		Other operating costs	4,909		5,089
Total operating expenses	Total operating expenses	30,360		27,829		58,668		55,414		Total operating expenses	25,258		28,308

Income from operations	Income from operations	2,018		1,110		4,807		3,122		Income from operations	35		2,789
Interest income, net	Interest income, net	7		13		29		63		Interest income, net	15		22
Other income (expense), net	Other income (expense), net	152		166		(130)		(42)		Other income (expense), net	85		(282)
Income before income taxes	Income before income taxes	2,177		1,289		4,706		3,143		Income before income taxes	135		2,529

Income tax (provision) benefit		(48)		(159)		(383)		775
Income tax provision										Income tax provision	(1)		(335)
Net income	Net income	$	2,129	$	1,130	$	4,323	$	3,918	Net income	$	134	$	2,194

Earnings per common share:	Earnings per common share:									Earnings per common share:
Basic	Basic	$	1.03	$	0.48	$	2.09	$	1.65	Basic	$	0.07	$	1.06
Diluted	Diluted	$	0.99	$	0.47	$	2.03	$	1.62	Diluted	$	0.06	$	1.04

Weighted-average common shares outstanding:	Weighted-average common shares outstanding:									Weighted-average common shares outstanding:
Basic	Basic	2,060		2,370		2,065		2,380		Basic	1,947		2,071
Diluted	Diluted	2,139		2,388		2,128		2,402		Diluted	2,074		2,116

MANNATECH, INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME – (UNAUDITED)

(in thousands)


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended March 31,
		2021		2020		2021		2020			2022		2021
Net income	Net income	$	2,129	$	1,130	$	4,323	$	3,918	Net income	$	134	$	2,194
Foreign currency translations	Foreign currency translations	72		548		(1,284)		(1,086)		Foreign currency translations	(673)		(1,356)
Comprehensive income		$	2,201	$	1,678	$	3,039	$	2,832
Comprehensive (loss) income										Comprehensive (loss) income	$	(539)	$	838

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

MANNATECH, INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

– (UNAUDITED)

(in thousands)

Common stock
Par value Additional
paid-in
capital Retained
earnings (accumulated deficit) Accumulated
other
comprehensive
income Treasury
stock Total
shareholders’
equity
Balance at January 1, 2021 $ 0 $ 33,795 $ 2,213 $ 5,150 $ (15,186) $ 25,972
Net income — — 2,194 — — 2,194
Payment of cash dividends — — (333) — — (333)
Charge related to stock-based compensation — 6 — — — 6
Issuance of unrestricted shares — (44) — — 254 210
Repurchase of common stock — — — — (350) (350)
Foreign currency translations — — — (1,356) — (1,356)
Balance at March 31, 2021 $ 0 $ 33,757 $ 4,074 $ 3,794 $ (15,282) $ 26,343


															Common stock Par value		Additional paid-in capital		Retained earnings		Accumulated other comprehensive income		Treasury stock		Total shareholders’ equity
Balance at January 1, 2022														Balance at January 1, 2022	$	—	$	33,277	$	7,708	$	2,342	$	(18,915)	$	24,412
Net income	Net income	—		—		2,129		—		—		2,129		Net income	—		—		134		—		—		134
Payment of cash dividends	Payment of cash dividends	—		—		(330)		—		—		(330)		Payment of cash dividends	—		—		(390)		—		—		(390)
Charge related to stock-based compensation	Charge related to stock-based compensation	—		29		—		—		—		29		Charge related to stock-based compensation	—		7		—		—		—		7
Issuance of unrestricted shares														Issuance of unrestricted shares	—		97		—		—		143		240

Stock option exercises	Stock option exercises	—		(28)		—		—		28		0		Stock option exercises	—		(22)		—				22		—
Repurchase of common stock		—		—		—		—		(4,511)		(4,511)

Foreign currency translations	Foreign currency translations	—		—		—		72		—		72		Foreign currency translations	—		—		—		(673)		—		(673)
Balance at June 30, 2021		$	0	$	33,758	$	5,873	$	3,866	$	(19,765)	$	23,732
Balance at March 31, 2022														Balance at March 31, 2022	$	—	$	33,359	$	7,452	$	1,669	$	(18,750)	$	23,730

Common stock
Par value Additional
paid-in
capital Accumulated deficit Accumulated
other
comprehensive
income Treasury
stock Total
shareholders’
equity
Balance at January 1, 2020 $ 0 $ 34,143 $ (690) $ 3,757 $ (9,935) $ 27,275
Net income — — 2,787 — — 2,787
Payment of cash dividends — — (300) — — (300)
Charge related to stock-based compensation — 83 — — — 83
Issuance of unrestricted shares — (163) — — 373 210
Repurchase of common stock — — — — (86) (86)
Foreign currency translations — — — (1,634) — (1,634)
Balance at March 31, 2020 $ 0 $ 34,063 $ 1,797 $ 2,123 $ (9,648) $ 28,335

Net income — — 1,130 — — 1,130
Payment of cash dividends — — (299) — — (299)
Charge related to stock-based compensation — 34 — — — 34
Stock option exercises — (333) — — 333 0
Repurchase of common stock — — — — (5,109) (5,109)
Foreign currency translations — — — 548 — 548
Balance at June 30, 2020 $ 0 $ 33,764 $ 2,628 $ 2,671 $ (14,424) $ 24,639



Balance at January 1, 2021	$	—	$	33,795	$	2,213	$	5,150	$	(15,186)	$	25,972
Net income	—		—		2,194		—		—		2,194
Payment of cash dividends	—		—		(333)		—		—		(333)
Charge related to stock-based compensation	—		6		—		—		—		6
Issuance of unrestricted shares	—		(44)		—		—		254		210


Repurchase of common stock	—		—		—		—		(350)		(350)

Foreign currency translations	—		—		—		(1,356)		—		(1,356)
Balance at March 31, 2021	$	—	$	33,757	$	4,074	$	3,794	$	(15,282)	$	26,343

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

MANNATECH, INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS – (UNAUDITED)

(in thousands)


		Six Months Ended June 30,					Three Months Ended March 31,
		2021		2020			2022		2021
CASH FLOWS FROM OPERATING ACTIVITIES:	CASH FLOWS FROM OPERATING ACTIVITIES:					CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	Net income	$	4,323	$	3,918	Net income	$	134	$	2,194
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Adjustments to reconcile net income to net cash provided by operating activities:						Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	Depreciation and amortization	952		1,057		Depreciation and amortization	332		510
Non-cash operating lease expense	Non-cash operating lease expense	853		1,136		Non-cash operating lease expense	473		483
Provision for inventory losses	Provision for inventory losses	316		194		Provision for inventory losses	126		162
Provision for doubtful accounts	Provision for doubtful accounts	256		(35)		Provision for doubtful accounts	(13)		74
Loss on disposal of assets	Loss on disposal of assets	37		(8)		Loss on disposal of assets	—		37
Charge related to stock-based compensation	Charge related to stock-based compensation	245		327		Charge related to stock-based compensation	247		216

Deferred income taxes	Deferred income taxes	104		(110)		Deferred income taxes	85		142
Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Accounts receivable	Accounts receivable	(301)		739		Accounts receivable	12		(113)
Income tax receivable	Income tax receivable	581		(1,113)		Income tax receivable	(43)		471
Inventories	Inventories	(981)		(3,361)		Inventories	(697)		(960)
Prepaid expenses and other current assets	Prepaid expenses and other current assets	263		(1,008)		Prepaid expenses and other current assets	(382)		(171)
Deferred commissions	Deferred commissions	5		108		Deferred commissions	(734)		123

Other assets	Other assets	658		(897)		Other assets	(100)		660
Accounts payable	Accounts payable	312		2,445		Accounts payable	1,153		39
Accrued expenses	Accrued expenses	(40)		(986)		Accrued expenses	(1,476)		(1,316)
Other liabilities	Other liabilities	(1,156)		14		Other liabilities	93		(858)
Taxes payable	Taxes payable	631		(578)		Taxes payable	(398)		(149)
Commissions and incentives payable	Commissions and incentives payable	659		253		Commissions and incentives payable	18		806
Deferred revenue	Deferred revenue	608		385		Deferred revenue	1,750		316

Net cash provided by operating activities	Net cash provided by operating activities	8,325		2,480		Net cash provided by operating activities	580		2,666
CASH FLOWS FROM INVESTING ACTIVITIES:	CASH FLOWS FROM INVESTING ACTIVITIES:					CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment	Acquisition of property and equipment	(268)		(478)		Acquisition of property and equipment	(191)		(124)

Net cash used in investing activities		(268)		(478)

CASH FLOWS FROM FINANCING ACTIVITIES:	CASH FLOWS FROM FINANCING ACTIVITIES:					CASH FLOWS FROM FINANCING ACTIVITIES:

Repurchase of common stock	Repurchase of common stock	(4,861)		(5,195)		Repurchase of common stock	—		(350)
Payment of cash dividends	Payment of cash dividends	(663)		(600)		Payment of cash dividends	(390)		(333)

Repayment of notes payable and finance lease obligations		(669)		(242)
Repayment of notes payable and finance lease liabilities						Repayment of notes payable and finance lease liabilities	(152)		(362)
Net cash used in financing activities	Net cash used in financing activities	(6,193)		(6,037)		Net cash used in financing activities	(542)		(1,045)
Effect of currency exchange rate changes on cash and cash equivalents	Effect of currency exchange rate changes on cash and cash equivalents	(1,271)		(1,068)		Effect of currency exchange rate changes on cash and cash equivalents	(673)		(1,348)
Net increase (decrease) in cash, cash equivalents, and restricted cash		593		(5,103)
Net (decrease) increase in cash, cash equivalents, and restricted cash						Net (decrease) increase in cash, cash equivalents, and restricted cash	(826)		149
Cash, cash equivalents, and restricted cash at the beginning of the period	Cash, cash equivalents, and restricted cash at the beginning of the period	27,497		31,000		Cash, cash equivalents, and restricted cash at the beginning of the period	25,632		27,497
Cash, cash equivalents, and restricted cash at the end of the period	Cash, cash equivalents, and restricted cash at the end of the period	$	28,090	$	25,897	Cash, cash equivalents, and restricted cash at the end of the period	$	24,806	$	27,646

See accompanying notes to unaudited consolidated financial statements.

Table of Contents


		Six Months Ended June 30,					Three Months Ended March 31,
		2021		2020			2022		2021
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:	SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:					SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Income taxes paid	Income taxes paid	$	80	$	821	Income taxes paid	$	303	$	19
Interest paid on finance leases and other financing arrangements	Interest paid on finance leases and other financing arrangements	22		40		Interest paid on finance leases and other financing arrangements	4		9

Assets acquired through other financing arrangements						Assets acquired through other financing arrangements	528		—

Operating lease right-of-use assets acquired in exchange for new operating lease liabilities	Operating lease right-of-use assets acquired in exchange for new operating lease liabilities	73		2,670		Operating lease right-of-use assets acquired in exchange for new operating lease liabilities	659		32
Finance lease right-of-use assets acquired in exchange for new finance lease liabilities	Finance lease right-of-use assets acquired in exchange for new finance lease liabilities	0		47		Finance lease right-of-use assets acquired in exchange for new finance lease liabilities	22		—
Treasury shares exchanged for stock options exercised						Treasury shares exchanged for stock options exercised	22		—

See accompanying notes to unaudited consolidated financial statements.

MANNATECH, INCORPORATED AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Mannatech, Incorporated (together with its subsidiaries, the “Company”), located in Flower Mound, Texas, was incorporated in the state of Texas on November 4, 1993 and is listed on the Nasdaq Global Select Market under the symbol “MTEX”. The Company develops, markets, and sells high-quality, proprietary nutritional supplements, topical and skin care and anti-aging products, and weight-management products. We currently sell our products into 3 regions: (i) the Americas (the United States, Canada and Mexico); (ii) EMEA (Austria, the Czech Republic, Denmark, Estonia, Finland, Germany, the Republic of Ireland, Namibia, the Netherlands, Norway, South Africa, Spain, Sweden and the United Kingdom); and (iii) Asia/Pacific (Australia, Japan, New Zealand, the Republic of Korea, Singapore, Taiwan, Hong Kong, and China).

Active business building associates ("independent associates" or "associates" or "distributors") and preferred customers purchase the Company’s products at published wholesale prices. The Company cannot distinguish products sold for personal use from other sales, when sold to associates, because it is not involved with the products after delivery, other than usual and customary product warranties and returns. Only associates are eligible to earn commissions and incentives. We also ship our products to customers in the following countries: Belgium, France, Greece, Italy, Luxembourg, and Poland. The Company operates a non-direct selling business in mainland China. Our subsidiary in China, Meitai Daily Necessity & Health Products Co., Ltd. (“Meitai”), is operating as a traditional retailer under a cross-border e-commerce model in China. Meitai cannot legally conduct a direct selling business in China unless it acquires a direct selling license in China.

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and with instructions for Form 10-Q and Article 8-03 of Regulation S-X. Accordingly, the Company’s consolidated financial statements and footnotes contained herein do not include all of the information and footnotes required by GAAP to be considered “complete financial statements”. However, in the opinion of the Company’s management, the accompanying unaudited consolidated financial statements and footnotes contain all adjustments, including normal recurring adjustments, considered necessary for a fair presentation of the Company’s consolidated financial information as of, and for, the periods presented. The Company cautions that its consolidated results of operations for an interim period are not necessarily indicative of its consolidated results of operations to be expected for its fiscal year. The December 31, ~~2020~~2021 consolidated balance sheet was included in the audited consolidated financial statements in the Company’s annual report on Form 10-K for the year ended December 31, ~~2020~~2021 and filed with the United States Securities and Exchange Commission (the “SEC”) on March ~~19, 2021~~15, 2022 (the ~~“2020~~“2021 Annual Report”), which includes all disclosures required by GAAP. Therefore, these unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements of the Company included in the ~~2020~~2021 Annual Report.

The Company depends on an independent sales force of distributors to market and sell its products to consumers. Social distancing and shelter-in-place directives in response to the COVID-19 pandemic have impacted and may continue to impact their ability to engage with potential and existing customers. The adverse economic effects of COVID-19 may also materially decrease demand for the Company’s products based on changes in consumer behavior or the restrictions in place by governments trying to curb the outbreak. For example, the Company has rescheduled corporate sponsored events, and in some cases, our associates have canceled sales meetings.

While the conditions described above are expected to be temporary, prolonged workforce disruptions, disruption in our supply chain or potential decreases in consumer demands may negatively impact sales in fiscal year ~~2021~~2022 and the Company’s overall liquidity. The full impact of COVID-19 continues to evolve and we are actively monitoring the global situation with a focus on our financial condition, liquidity, operations, suppliers, industry, and workforce.

Principles of Consolidation

The consolidated financial statements and footnotes include the accounts of Mannatech and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

MANNATECH, INCORPORATED AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Use of Estimates

The preparation of the Company’s consolidated financial statements in accordance with GAAP requires the use of estimates that affect the reported value of assets, liabilities, revenues and expenses. These estimates are based on historical experience and various other factors. The Company continually evaluates the information used to make these estimates as the business and economic environment changes. Historically, actual results have not varied materially from the Company’s estimates and the Company does not currently anticipate a significant change in its assumptions related to these estimates. However, actual results may differ from these estimates under different assumptions or conditions.

The use of estimates is pervasive throughout the consolidated financial statements, but the accounting policies and estimates considered the most significant are described in this note to the consolidated financial statements, Organization and Summary of Significant Accounting Policies.

Cash, Cash Equivalents, and Restricted Cash

The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. The Company includes in its cash and cash equivalents credit card receivables due from its credit card processor, as the cash proceeds from credit card receivables are received within 24 to 72 hours. As of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, credit card receivables were ~~$3.2~~$2.7 million and ~~$2.4~~$1.2 million, respectively. As of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, cash and cash equivalents held in bank accounts in foreign countries totaled ~~$20.1~~$19.6 million and ~~$18.6~~$22.6 million, respectively. The Company invests cash in liquid instruments, such as money market funds and interest-bearing deposits. The Company holds cash in high quality financial institutions and does not believe it has an excessive exposure to credit concentration risk.

A significant portion of our cash and cash equivalent balances were concentrated within the Republic of Korea, with total net assets within this foreign location totaling ~~$20.3~~$21.1 million and ~~$21.0~~$20.1 million at ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively. In addition, for the three ~~and six~~ months ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020,~~ a concentrated portion of our operating cash flows were earned from operations within the Republic of Korea. An adverse change in economic conditions within the Republic of Korea could negatively affect the Company’s results of operations.

The Company is required to restrict cash for: (i) direct selling insurance premiums and credit card sales in the Republic of Korea; (ii) reserve on credit card sales in the United States and Canada; and (iii) the Australia building lease collateral. AsAt each of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, our total restricted cash was ~~$2.1 million and $5.3 million, respectively.~~$1.4 million.

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the Company's consolidated balance sheets to the total amount presented in the consolidated statement of cash flows (in thousands):


		June 30, 2021		December 31, 2020			March 31, 2022		December 31, 2021
Cash and cash equivalents at beginning of period	Cash and cash equivalents at beginning of period	$	22,207	$	24,762	Cash and cash equivalents at beginning of period	$	24,185	$	22,207
Current restricted cash at beginning of period	Current restricted cash at beginning of period	944		943		Current restricted cash at beginning of period	944		944
Long-term restricted cash at beginning of period	Long-term restricted cash at beginning of period	4,346		5,295		Long-term restricted cash at beginning of period	503		4,346
Cash, cash equivalents, and restricted cash at beginning of period	Cash, cash equivalents, and restricted cash at beginning of period	$	27,497	$	31,000	Cash, cash equivalents, and restricted cash at beginning of period	$	25,632	$	27,497

Cash and cash equivalents at end of period	Cash and cash equivalents at end of period	$	25,967	$	22,207	Cash and cash equivalents at end of period	$	23,359	$	24,185
Current restricted cash at end of period	Current restricted cash at end of period	944		944		Current restricted cash at end of period	944		944
Long-term restricted cash at end of period	Long-term restricted cash at end of period	1,179		4,346		Long-term restricted cash at end of period	503		503
Cash, cash equivalents, and restricted cash at end of period	Cash, cash equivalents, and restricted cash at end of period	$	28,090	$	27,497	Cash, cash equivalents, and restricted cash at end of period	$	24,806	$	25,632

MANNATECH, INCORPORATED AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Accounts Receivable

Accounts receivable are carried at their estimated collectible amounts. Receivables are created upon shipment of an order if the credit card payment is rejected or does not match the order total. As of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, receivables consisted primarily of amounts due from preferred customers and associates. At each of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, the Company's accounts receivable balance (net of allowance) ~~was $0.2~~were $0.1 million. The Company periodically evaluates its receivables for collectability based on historical experience, recent account activities, and the length of time receivables are past due and writes-off receivables when they become uncollectible. AsAt each of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, the Company held an allowance for doubtful accounts of $1.0 ~~million and $0.8 million, respectively.~~million.

Inventories

Inventories consist of raw materials, finished goods, and promotional materials that are stated at the lower of cost (using standard costs that approximate average costs) or net realizable value. The Company periodically reviews inventories for obsolescence and any inventories identified as obsolete are reserved or written off.

Other Assets

As of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, other assets were ~~$10.4~~$9.5 million and ~~$12.0~~$9.2 million, respectively. These amounts primarily consisted of right-of-use assets related to operating leases for office space and equipment, net of lease incentives, of ~~$5.7~~$4.8 million and ~~$6.9~~$4.6 million as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively. See Note 8, Leases, for more information on these assets. Also included in Other Assets were deposits for building leases in various locations of ~~$2.0~~$2.1 million and ~~$2.2~~$1.9 million as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively. Additionally, included in each of the ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021 balances ~~were $2.5~~was $2.4 million, ~~and $2.6 million, respectively,~~ representing a deposit with Mutual Aid Cooperative and Consumer in the Republic of Korea, an organization established by the Republic of Korea’s Fair Trade Commission to protect consumers who participate in network marketing activities. Finally, each of the ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021 balances included $0.2 million of indefinite lived intangible assets relating to the Manapol® powder trademark.

Accrued Expenses

~~At each~~As of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, accrued expenses were ~~$8.7 million.~~$8.4 million and $9.2 million, respectively. These amounts primarily consisted of ~~$2.3~~$1.5 million and ~~$1.9~~$2.4 million representing employee benefits, which included accrued wages, bonus and severance as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively. Also included in the ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021 balances were non-inventory accrued liabilities of ~~$2.5~~$3.0 million and ~~$2.2~~$3.4 million, respectively. Additionally, included in each of the ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021 balances ~~were $1.9 million and $2.1~~was $1.5 million for the current portion of operating lease ~~liabilities, respectively.~~liabilities. At ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, also included in the balances were ~~$1.0~~$0.9 million and ~~$1.2~~$1.0 million for accrued auditing and accounting fees, respectively. At ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, other accrued expenses were ~~$0.9~~$1.5 million and ~~$1.3~~$0.9 million, respectively.

Notes Payable

Notes payable were ~~$0.5~~$0.6 million and ~~$0.6~~$0.2 million as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively, as a result of funding from a capital financing agreement related to our investment in leasehold improvements, computer hardware and software and other financing arrangements. As of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, the current portion was ~~$0.5~~$0.6 million and ~~$0.6~~$0.2 million, respectively.

~~MANNATECH, INCORPORATED AND SUBSIDIARIES~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

Other Long-Term Liabilities

Other long-term liabilities were ~~$6.1~~$5.1 million and ~~$7.2~~$5.0 million as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively. As of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, the balance is primarily composed of long-term operating lease obligations of ~~$5.1~~$4.4 million and ~~$6.1~~$4.3 million, respectively. See Note 8, Leases, for more information. ~~Additionally, as of June 30, 2021 and December 31, 2020, the Company recorded~~ ~~$0.2 million~~ ~~in other long-term liabilities related to uncertain income tax positions (see Note 7,~~ ~~Income Taxes,~~ ~~of the Company’s 2020 Annual Report).~~ Certain operating leases for the Company’s regional office facilities contain a restoration clause that requires the Company to restore the premises to its original condition. At each of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, accrued restoration costs related to these leases amounted to $0.3 million. At each of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, the Company also recorded a long-term liability for estimated defined benefit obligation related to a non-U.S. defined benefit plan for its Japan operations of $~~0.3~~0.2 million (see Note 9, Employee Benefit Plans, of the Company’s ~~2020~~2021 Annual Report).

MANNATECH, INCORPORATED AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Revenue Recognition

The Company’s revenue is derived from sales of individual products and associate fees or, in certain geographic markets, starter packs. Substantially all of the Company’s product sales are made at published wholesale prices to associates and preferred customers. The Company records revenue net of any sales taxes and records a reserve for expected sales returns based on its historical experience. The Company recognizes revenue from shipped products when control of the product transfers to the customer, thus the performance obligation is satisfied. Corporate-sponsored event revenue is recognized when the event is held.

Revenues from associate fees relate to providing associates with the right to earn commissions, benefits and incentives for an annual period. Revenue from software tools included in the first contractual year is recognized over three months and revenue from associate fees is recognized over 12 months (see Contracts with Multiple Performance Obligations for recognition guidelines). Almost all orders are paid via credit card. See Note 10, Segment Information, for disaggregation of revenues by geographic segment and type.

The Company collected associate fees within the United States, Canada, South Africa, Japan, Australia, New Zealand, Singapore, Hong Kong, Taiwan, Austria, the Czech Republic, Denmark, Estonia, Finland, Germany, the Republic of Ireland, the Netherlands, Norway, Spain, Sweden and the United Kingdom.

Contracts with Multiple Performance Obligations

Orders placed by associates or preferred customers constitute our contracts. Product sales placed in the form of an automatic order contain two performance obligations: (a) the sale of the product and (b) the loyalty program. For these contracts, the Company accounts for each of these obligations separately as they are each distinct. The transaction price is allocated between the product sale and the loyalty program on a relative standalone selling price basis. Sales placed through a one-time order contain only the first performance obligation noted above - the sale of the product.

The Company provides associates with access to a complimentary three-month package for the Success TrackerTM and Mannatech+ online business tools with the first payment of an associate fee. The first payment of an associate fee contains three performance obligations: (a) the associate fee, whereby the Company provides an associate with the right to earn commissions, bonuses and incentives for a year; (b) three months of complimentary access to utilize the Success Tracker™ online tool; and (c) three months of complimentary access to utilize the Mannatech+ online business tool. The transaction price is allocated between the three performance obligations on a relative standalone selling price basis. Associates do not have complimentary access to online business tools after the first contractual period.

With regards to both of the aforementioned contracts, the Company determines the standalone selling prices based on our overall pricing objectives, taking into consideration market conditions and other factors, including the value of the contracts.

Deferred Commissions

The Company defers commissions on (i) the sales of products shipped but not received by customers by the end of the respective period and (ii) the loyalty program. Deferred commissions are incremental costs and are amortized to expense consistent with how the related revenue is recognized. Deferred commissions were ~~$2.3~~$2.4 million for the year ended December 31, ~~2020.~~2021. Of this balance, ~~$1.0~~$1.8 million was amortized to commissions expense for the ~~six~~three months ended ~~June 30, 2021.~~March 31, 2022. At ~~June 30, 2021,~~March 31, 2022, deferred commissions were ~~$2.3~~$3.1 million.

~~MANNATECH, INCORPORATED AND SUBSIDIARIES~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

Deferred Revenue

The Company defers certain components of its revenue. Deferred revenue consisted of: (i) sales of products shipped but not received by customers by the end of the respective period; (ii) revenue from the loyalty program; (iii) prepaid registration fees from customers planning to attend a future corporate-sponsored event; and (iv) prepaid annual associate fees. At December 31, ~~2020,~~2021, the Company’s deferred revenue was ~~$5.5~~$4.9 million. Of this balance, $~~2.8~~3.5 million was recognized as revenue for the ~~six~~three months ended ~~June 30, 2021.~~March 31, 2022. At ~~June 30, 2021,~~March 31, 2022, the Company’s deferred revenue was ~~$6.1~~$6.6 million.

MANNATECH, INCORPORATED AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The Company’s customer loyalty program conveys a material right to the customer as it provides the promise to redeem loyalty points for the purchase of products, which is based on earning points through placing consecutive qualified orders. The Company factors in breakage rates, which is the percentage of the loyalty points that are expected to be forfeited or expire, for purposes of revenue recognition. Breakage rates are estimated based on historical data and can be reasonably and objectively determined. The deferred revenue associated with the loyalty program at ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021 was $4.2 million and ~~$4.5~~$4.3 million, respectively.


Loyalty program	(in thousands)
Loyalty deferred revenue as of January 1, ~~2020~~2021	$	~~3,127~~4,487
Loyalty points forfeited or expired	~~(3,249)~~(3,987)
Loyalty points used	~~(9,385)~~(9,809)
Loyalty points vested	~~12,771~~11,676
Loyalty points unvested	~~1,223~~1,925
Loyalty deferred revenue as of December 31, ~~2020~~2021	$	~~4,487~~4,292


Loyalty deferred revenue as of January 1, ~~2021~~2022	$	~~4,487~~4,292
Loyalty points forfeited or expired	~~(2,108)~~(941)
Loyalty points used	~~(4,735)~~(2,422)
Loyalty points vested	~~5,333~~2,190
Loyalty points unvested	~~1,194~~1,055
Loyalty deferred revenue as of ~~June 30, 2021~~March 31, 2022	$	~~4,171~~4,174

Sales Refund and Allowances

The Company utilizes the expected value method, as set forth by Accounting Standard Codification ("ASC") Topic 606 Revenue from Contracts with Customers ("ASC 606"), to estimate the sales returns and allowance liability by taking the weighted average of the sales return rates over a rolling six-month period. The Company allocates the total amount recorded within the sales return and allowance liability as a reduction of the overall transaction price for the Company’s product sales. The Company deems the sales refund and allowance liability to be a variable consideration.

~~MANNATECH, INCORPORATED AND SUBSIDIARIES~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

Historically, sales returns have not materially changed through the years, as the majority of our customers who return their merchandise do so within the first 90 days after the original sale. Sales returns have historically averaged 1.5% or less of our gross sales. For the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 our sales return reserve consisted of the following (in thousands):


~~Sales reserve as of January 1, 2020~~	$	68
~~Provision related to sales made in current period~~	~~1,028~~
~~Adjustment related to sales made in prior periods~~	5
~~Actual returns or credits related to current period~~	~~(959)~~
~~Actual returns or credits related to prior periods~~	~~(71)~~
~~Sales reserve as of December 31, 2020~~	$	71

Sales reserve as of January 1, 2021	$	71
Provision related to sales made in current period	~~511~~778
Adjustment related to sales made in prior periods	(11)
Actual returns or credits related to current period	(728)
Actual returns or credits related to prior periods	(55)
Sales reserve as of December 31, 2021	$	55

Sales reserve as of January 1, 2022	$	55
Provision related to sales made in current period	179
Adjustment related to sales made in prior periods	(12)
Actual returns or credits related to current period	~~(434)~~(129)
Actual returns or credits related to prior periods	~~(57)~~(39)
Sales reserve as of ~~June 30, 2021~~March 31, 2022	$	7954

MANNATECH, INCORPORATED AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Shipping and Handling Costs

The Company records inbound freight as a component of inventory and cost of sales. The Company records freight and shipping fees collected from its customers as fulfillment costs. In accordance with ASC 606-10-25-18a, freight and shipping fees are not deemed to be separate performance obligations as these activities occur before the customer receives the product.

At March 31, 2022, certain product sales that were shipped from warehouses were held in-transit at customs in the Asia/Pacific market. Mannatech specifically identified the orders held and deferred $0.9 million revenue, as well as $0.5 million commissions and $0.1 million freight costs related to these orders.

Commissions and Incentives

Associates earn commissions and incentives based on their direct and indirect commissionable net sales over each month of the fiscal year. The Company accrues commissions and incentives when earned by associates and pays commissions on product and pack sales on a monthly cycle.

Comprehensive Income and Accumulated Other Comprehensive Income

Comprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources and includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. The Company’s comprehensive income consists of the Company’s net income, foreign currency translation adjustments from its Japan, Republic of Korea, Taiwan, Denmark, Norway, Sweden, Mexico and China operations, remeasurement of intercompany balances classified as equity in its Korea, and Mexico operations, and changes in the pension obligation for its Japanese employees.

Accounting Pronouncements Issued but Not Yet Effective

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"). This standard adds to U.S. GAAP an impairment model (known as the current expected credit loss ("CECL") model) that is based on expected losses rather than incurred losses. Under the new guidance, an entity recognizes as an allowance its estimate of expected credit losses, which is intended to result in the more timely recognition of losses. Under the CECL model, entities will estimate credit losses over the entire contractual term of the instrument (considering estimated prepayments, but not expected extensions or modifications) from the date of initial recognition of the financial instrument. Measurement of expected credit losses are to be based on relevant forecasts that affect collectability. The scope of financial assets within the CECL methodology is broad and includes trade receivables from certain revenue transactions and certain off-balance sheet credit exposures. Different components of the guidance require modified retrospective or prospective adoption. In November 2019, the FASB issued ASU 2019-10, Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842) ("ASU 2019-10") which defers the effective date for smaller reporting companies by three years to December 15, 2022 for fiscal years, and interim periods within those fiscal years, beginning after that date. Accordingly, this standard will be effective for the Company as of January 1, 2023. While our review is ongoing, we believe ASU 2016-13 will only have applicability to our receivables from revenue

~~MANNATECH, INCORPORATED AND SUBSIDIARIES~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

transactions. Under ASC 606, revenue is recognized when, among other criteria, it is probable that the entity will collect the consideration to which it is entitled for goods or services transferred to a customer. At the point that trade receivables are recorded, they become subject to the CECL model and estimates of expected credit losses on trade receivables over their contractual life will be required to be recorded at inception based on historical information, current conditions, and reasonable and supportable forecasts. The Company is continuing to evaluate whether the new guidance will have an impact on our consolidated financial statements or existing internal controls.

Other recently issued accounting pronouncements did not or are not believed by management to have a material impact on the Company’s present or future financial statements.

MANNATECH, INCORPORATED AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2: INVENTORIES

Inventories consist of raw materials, finished goods, and promotional materials. The Company provides an allowance for any slow-moving or obsolete inventories. Inventories as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, consisted of the following (in thousands):


		June 30, 2021		December 31, 2020			March 31, 2022		December 31, 2021
Raw materials	Raw materials	$	2,692	$	2,713	Raw materials	$	3,253	$	3,271
Finished goods	Finished goods	11,177		10,585		Finished goods	9,739		9,196
Inventory reserves for obsolescence	Inventory reserves for obsolescence	(377)		(471)		Inventory reserves for obsolescence	(401)		(447)
Total	Total	$	13,492	$	12,827	Total	$	12,591	$	12,020

NOTE 3: INCOME TAXES

For the three ~~and six~~ months ended ~~June 30,~~March 31, 2022 and 2021, the Company’s effective tax rate was ~~2.2%~~0.7% and ~~8.1%~~13.3%, respectively. For the three ~~and six~~ months ended ~~June 30, 2020, the Company’s effective tax rate was 12.3%~~March 31, 2022 and ~~(24.7)%, respectively. For the three and six months ended June 30,~~ 2021, ~~and 2020,~~ the Company's effective tax rate was determined based on the estimated annual effective income tax rate.

The effective tax rate for the three ~~and six~~ months ended ~~June 30,~~March 31, 2022 was different from the federal statutory rate due to the effect of changes in valuation allowances recorded in certain jurisdictions and the foreign derived intangible deduction in the US.

The effective tax rate for the three months ended March 31, 2021 was different from the federal statutory rate due primarily to the mix of earnings across jurisdictions and the associated valuation ~~allowance~~allowances recorded on losses in certain jurisdictions.

The effective tax rate for the three months ended June 30, 2020 was different from the federal statutory rate due primarily to the mix of earnings across jurisdictions and the associated valuation allowance recorded on losses in certain jurisdictions. The effective tax rate for the six months ended June 30, 2020 was different from federal statutory rate due primarily to the $1.2 million benefit recorded in connection with the carryback of U.S. net operating losses as allowed by the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"), enacted on March 27, 2020.

NOTE 4: EARNINGS PER SHARE

The Company calculates basic Earnings per Share ("EPS") by dividing net income by the weighted-average number of common shares outstanding for the period. Diluted EPS also reflects the potential dilution that could occur if common stock were issued for awards outstanding under the Mannatech, Incorporated 2017 Stock Incentive Plan (described below).

In determining the potential dilutive effect of outstanding stock options for the three ~~and six~~ months ended ~~June 30,~~March 31, 2022 and 2021, the Company used the quarterly ~~and six month ended~~ average common stock close price of ~~$22.10~~$35.97 and ~~$20.22~~$18.25 per share, respectively.

For the three ~~and six~~ months ended ~~June 30,~~March 31, 2022, there were 1.95 million weighted-average common shares outstanding used for the basic EPS calculation. For the three months ended March 31, 2022, approximately 0.12 million shares subject to options were included in the calculation resulting in 2.07 million dilutive shares used to calculate diluted EPS. For the three months ended March 31, 2022, no shares were excluded from the diluted EPS calculation.

For the three months ended March 31, 2021, there were ~~2.06 million and~~ 2.07 million weighted-average common shares outstanding used for the basic EPS ~~calculation, respectively.~~calculation. For the three ~~and six~~ months ended ~~June 30,~~March 31, 2021, approximately ~~0.08 million and 0.06~~0.05 million shares subject to options were included in the calculation resulting in ~~2.14~~2.12 million ~~and 2.13 million~~ dilutive shares used to calculate diluted EPS. For the three ~~and six~~ months ended ~~June 30,~~March 31, 2021, ~~less than 0.1~~

~~MANNATECH, INCORPORATED AND SUBSIDIARIES~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

~~million and~~ approximately 0.1 ~~million shares, respectively, of the Company's common stock subject to options were excluded from the diluted EPS calculation as the effect would have been antidilutive.~~

In determining the potential dilutive effect of outstanding stock options for the three and six months ended June 30, 2020, the Company used the quarterly average common stock close price of $13.00 and 13.61 per share, respectively.

For the three and six months ended June 30, 2020, there were 2.37 million and 2.38 million weighted-average common shares outstanding used for the basic EPS calculation, respectively. For each of the three and six months ended June 30, 2020, approximately 0.02 million shares subject to options were included in the calculation resulting in 2.39 million and 2.40 million dilutive shares used to calculate diluted EPS, respectively. For the three and six months ended June 30, 2020, approximately 0.3 million and 0.6 million of the Company's common stock subject to options were excluded from the diluted EPS calculation as the effect would have been antidilutive.

1413

MANNATECH, INCORPORATED AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5: STOCK-BASED COMPENSATION

The Company currently has one active stock-based compensation plan, the Mannatech, Incorporated 2017 Stock Incentive Plan, which was adopted by the Company’s Board of Directors (the "Board") on April 17, 2017 and was approved by its shareholders on June 8, 2017, and subsequently amended by the Board at its February 2019 special meeting, which amendment was approved by the Company's shareholders on June 11, 2019 (as amended, the "2017 Plan"). The 2017 Plan supersedes the Mannatech, Incorporated 2008 Stock Incentive Plan (as amended, the "2008 Plan"), which was set to expire on February 20, 2018. The Board has reserved a maximum of 370,000 shares of our common stock that may be issued under the 2017 Plan (subject to adjustments for stock splits, stock dividends or other changes in corporate capitalization). As of ~~June 30, 2021,~~March 31, 2022, the Company had a total of ~~144,155~~138,083 shares available for grant under the 2017 Plan, which expires on April 16, 2027.

The 2017 Plan provides for grants of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, performance stock and performance stock units to our employees, board members, and consultants. However, only employees of the Company and its corporate subsidiaries are eligible to receive incentive stock options. The exercise price per share for all stock options will be no less than the market value of a share of common stock on the date of grant. Any incentive stock option granted to an employee owning more than 10% of our common stock will have an exercise price of no less than 110% of our common stock’s market value on the grant date.

The majority of stock options vest over two or three years, and generally are granted with a term of ten years, or five years in the case of an incentive option granted to an employee who owns more than 10% of our common stock.

The Company records stock-based compensation expense related to granting stock options in selling and administrative expenses. During the ~~six~~three months ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020,~~ the Company granted ~~10,000 and 5,000~~no stock ~~options, respectively. The fair value of stock options granted during the six months ended June 30, 2021 and 2020 was approximately $6.77 and $4.00 per share, respectively.~~options. The Company recognized compensation expense as follows for the three ~~and six~~ months ended ~~June 30~~March 31 (in thousands):


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended March 31,
		2021		2020		2021		2020			2022		2021
Total gross compensation expense	Total gross compensation expense	$	29	$	35	$	35	$	117	Total gross compensation expense	$	7	$	6
Total tax benefit associated with compensation expense	Total tax benefit associated with compensation expense	7		4		8		7		Total tax benefit associated with compensation expense	2		1
Total net compensation expense	Total net compensation expense	$	22	$	31	$	27	$	110	Total net compensation expense	$	5	$	5

As of ~~June 30, 2021,~~March 31, 2022, the Company expects to record compensation expense in the future as follows (in thousands):


		Six months ending December 31, 2021				Year ending December 31,								Nine months ending December 31, 2022			Years ending December 31,
				2022				2023								Nine months ending December 31, 2022			2023				2024
Total gross unrecognized compensation expense	Total gross unrecognized compensation expense			$	15			$	26			$	10				Total gross unrecognized compensation expense					$	10			0
Tax benefit associated with unrecognized compensation expense	Tax benefit associated with unrecognized compensation expense	4				6				2					Tax benefit associated with unrecognized compensation expense			5			2				0
Total net unrecognized compensation expense	Total net unrecognized compensation expense	$	11			$	20			$	8				Total net unrecognized compensation expense		$	14		$	8			$	—

1514

MANNATECH, INCORPORATED AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6: SHAREHOLDERS’ EQUITY

Treasury Stock

~~On May 28, 2021,~~There were no shares repurchased during the Company commenced a cash tender offer to purchase up to 211,538 shares of its outstanding common stock, at a purchase price of $26.00 per share to each seller in cash, less any applicable withholding taxes and without interest (the "tender offer"). The tender offer expired on June 25, 2021. As a result of the tender offer, the Company accepted for purchase a total of 171,433 shares of its common stock, which were properly tendered and not properly withdrawn at the price of $26.00 per share, for an aggregate purchase price of $4.5 million, which was funded from cash on hand. These shares of common stock represented approximately 8.31% of the Company's total outstanding shares as of Aprilthree months ended March 31, ~~2021.~~

2022. During the three months ended ~~June 30,~~March 31, 2021, the Company repurchased ~~171,709~~19,039 additional shares of its common stock outstanding ~~which includes the 171,433 shares~~at an average price of its common stock repurchased pursuant to the tender offer. During the three months ended June 30, 2020, the Company repurchased 306,123 shares of its common stock outstanding, which included 294,117 shares of its common stock repurchased pursuant to a tender offer conducted in 2020 (see Note 13 to the consolidated financial statements in our 2020 Annual Report).$18.38.

As of ~~June 30, 2021~~March 31, 2022, the Company had ~~1,892,646~~1,949,716 shares of common stock outstanding. As of ~~June 30, 2020,~~March 31, 2021, the Company had ~~2,101,240~~2,063,280 shares of common stock outstanding.

Accumulated Other Comprehensive Income

Accumulated other comprehensive income, reflected in the Consolidated Statement of Shareholders’ Equity, represents net income plus the results of certain shareholders’ equity changes not reflected in the Consolidated Statements of Operations, such as foreign currency translation and certain pension and post-retirement benefit obligations. The after-tax components of accumulated other comprehensive income, are as follows (in thousands):

Foreign
Currency
Translation Pension
Postretirement
Benefit
Obligation Accumulated
Other
Comprehensive
Income, Net
Balance as of December 31, 2020 $ 4,793 $ 357 $ 5,150
Current-period change (1)
(1,284) 0 (1,284)
Balance as of June 30, 2021 $ 3,509 $ 357 $ 3,866


	Foreign Currency Translation		Pension Postretirement Benefit Obligation		Accumulated Other Comprehensive Income, Net
Balance as of December 31, 2021	$	1,961	$	381	$	2,342
Current-period change (1)	(673)		—		(673)
Balance as of March 31, 2022	$	1,288	$	381	$	1,669

(1)No material amounts reclassified from accumulated other comprehensive income.

Dividends

On March ~~2, 2021,~~4, 2022, the Board declared a dividend of ~~$0.16~~$0.20 per share that was paid on March 30, ~~2021~~2022 to shareholders of record on March 16, ~~2021,~~2022, for an aggregate amount of ~~$0.3~~$0.4 million.

~~On May 24, 2021, the Board declared a dividend of $0.16 per share that was paid on June 14, 2021 to shareholders of record on June 2, 2021, for an aggregate amount of $0.3 million.~~.

~~NOTE 7: LITIGATION~~

~~Litigation - Product Liability~~

~~Meeja Kim, et al., v. Mannatech Korea and Eunbee Cho, Seoul Southern District Court 2020-Gadan-216374~~

On March 4, 2020, a complaint was filed against Mannatech Korea. Mannatech Korea was served on March 10, 2020. The plaintiffs are the surviving spouse and three children (the “Plaintiffs”) of Kong Seokhwan, a cancer patient who died in October 2017. The Plaintiffs allege that co-defendant and former independent associate, Eunbee Cho, instructed the deceased to take the Company’s products as treatment for cancer. Eunbee Cho was found guilty of fraud and began serving a sentence of one year and six months in November 2019. The Plaintiffs are seeking damages in the amount of KRW ₩110 million (USD $99,220.00) plus interest of 12% per year. Mannatech Korea has engaged local counsel to defend this matter. An evidentiary hearing was held on October 21, 2020. Due to restrictions in place relating to COVID-19, hearings scheduled during the fourth

1615

MANNATECH, INCORPORATED AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

quarter of 2020 for this matter were postponed; an evidentiary hearing was held on March 10, 2021. Another evidentiary hearing was held on April 28, 2021. During the hearing, co-defendant Eunbee Cho’s request to re-examine two witnesses was denied. Additionally, Plaintiff’s actual damages request was reduced from KRW ₩110 million to KRW ₩91,500,540 (USD $82,533.00). The hearing for final judgment in this matter was set for June 16, 2021; however, on May 12, 2021, the Plaintiffs withdrew all of their claims against Mannatech Korea and co-defendant Eunbee Cho. Under Korean law, a plaintiff may refile the same suit against the defendant when the proceeding has been withdrawn prior to the judge issuing a ruling. Therefore, Mannatech Korea will consider this matter closed unless and until the Plaintiffs refile their complaint.

NOTE 7: LITIGATION

Litigation - Product Liability

Hong Wang v. Beili Guan, MTEX Hong Kong Limited, and Mannatech, Incorporated, Case No. 2020-Jin-0116-

Civil-7655, Binhai New District Court, Tianjin, China

On November 16, 2020, MTEX Hong Kong received service of process of the above-captioned matter. Hong Wang (the “Plaintiff”) is alleging that various Mannatech’s products that she purchased violate the China Food Safety Law. In addition, Plaintiff alleges that her son suffered from tooth decay after consuming the MannaBears product and that the product violates the China Consumer Protection Law. The Plaintiff is seeking damages of approximately USD $286,600. MTEX Hong Kong has engaged local counsel to defend this case. On November 22, 2020, MTEX Hong Kong filed a motion objecting to the court’s jurisdiction.

On April 7, 2021, the Company received service of process of the above-captioned matter. The claims that the Plaintiff alleges against the Company are the same as those against MTEX Hong Kong. The Company has engaged the same counsel as above to defend this case. The Company filed a motion objecting to the court’s jurisdiction on April 22, 2021.

MTEX Hong Kong and the Company received the court’s ruling ~~rejecting~~denying the ~~objection~~motion on lack of jurisdiction on June 15, 2021 and June 21, 2021, respectively. Both entities filed a petition to appeal.

~~It is not possible at this time~~ On October 14, 2021, the District Appellate Court issued a decision to ~~predict whether~~uphold the jurisdiction. The final hearing for the case was held on December 17, 2021. On December 29, 2021, the court issued its judgment in favor of the Company and MTEX Hong Kong. On March 9, 2022, the Company and MTEX Hong Kong orreceived notice that the Plaintiff appealed to the Tianjin Intermediate Court. A hearing was held on April 14, 2022. On April 20, 2022, the Tianjin Intermediate Court issued a judgment affirming the lower court’s decision. MTEX Hong Kong and the Company ~~will incur any liability, or to estimate the ranges of damages, if any, which may be incurred in connection with~~consider this ~~matter. However, both entities believe that they have a valid defense and will vigorously defend this claim. This~~ matter ~~remains open.~~

closed.

Litigation in General

The Company has incurred several claims in the normal course of business. The Company believes such claims can be resolved without any material adverse effect on ~~our~~its consolidated financial position, results of operations, or cash flows.

The Company maintains certain liability insurance; however, certain costs of defending lawsuits are not covered by or only partially covered by its insurance policies, including claims that are below insurance deductibles. Additionally, insurance carriers could refuse to cover certain claims, in whole or in part. The Company accrues costs to defend itself from litigation as they are incurred.

The outcome of litigation is uncertain, and despite management’s views of the merits of any litigation, or the reasonableness of the Company’s estimates and reserves, the Company’s financial statements could nonetheless be materially affected by an adverse judgment. The Company believes it has adequately reserved for the contingencies arising from current legal matters where an outcome was deemed to be probable, and the loss amount could be reasonably estimated. No legal reserve was deemed necessary at ~~June 30, 2021.~~March 31, 2022.

1716

MANNATECH, INCORPORATED AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8: LEASES

The Company has entered into contractual lease arrangements to rent office space and equipment from third-party lessors. See Note 5 to the consolidated financial statements in our ~~2020~~2021 Annual Report.

As of ~~June 30, 2021,~~March 31, 2022, the Company had net operating lease right-of-use (“ROU”) assets of ~~$5.7~~$4.8 million and net finance lease right-of-use assets of $0.2 million. At ~~June 30, 2021,~~March 31, 2022, our operating lease liabilities were ~~$7.0~~$5.9 million and our finance lease liabilities were ~~$0.2~~$0.1 million.

The weighted-average remaining lease term and discount rate related to the Company’s operating lease liabilities as of ~~June 30, 2021~~March 31, 2022 were ~~5.2~~4.5 years and ~~4.4%~~4.1%, respectively. The weighted-average remaining lease term and discount rate related to the Company’s finance lease liabilities as of ~~June 30, 2021~~March 31, 2022 were ~~2.5~~2.6 years and ~~6.6%~~5.1%, respectively. The Company's lease discount rates are generally based on estimates of its incremental borrowing rate, as discount rates implicit in the Company's leases cannot be readily determined.

As of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021 our leased assets and liabilities consisted of the following (in thousands):


Leases	Leases	Classification	June 30, 2021		December 31, 2020		Leases	Classification	March 31, 2022		December 31, 2021
Right-of-use assets	Right-of-use assets						Right-of-use assets
Operating leases	Operating leases	Other assets	$	5,693	$	6,943	Operating leases	Other assets	$	4,836	$	4,625
Finance leases	Finance leases	Property and equipment, net	240		288		Finance leases	Property and equipment, net	174		180
Total right-of-use assets	Total right-of-use assets		$	5,933	$	7,231	Total right-of-use assets		$	5,010	$	4,805

Current portion of lease liabilities	Current portion of lease liabilities						Current portion of lease liabilities
Operating leases	Operating leases	Accrued expenses	$	1,874	$	2,067	Operating leases	Accrued expenses	$	1,527	$	1,493
Finance leases	Finance leases	Current portion of finance leases	77		76		Finance leases	Current portion of finance leases	60		68
Long-term portion of lease liabilities	Long-term portion of lease liabilities						Long-term portion of lease liabilities
Operating leases	Operating leases	Other long-term liabilities	5,105		6,124		Operating leases	Other long-term liabilities	4,386		4,318
Finance leases	Finance leases	Finance leases, excluding current portion	95		129		Finance leases	Finance leases, excluding current portion	70		66
Total lease liabilities	Total lease liabilities		$	7,151	$	8,396	Total lease liabilities		$	6,043	$	5,945

As of ~~June 30, 2021~~March 31, 2022 the Company's minimum future lease payments on operating and financing leases were as follows (in thousands):


		June 30, 2021					March 31, 2022
Maturity of lease liabilities	Maturity of lease liabilities	Operating Leases		Financing Leases		Maturity of lease liabilities		Operating Leases		Financing Leases

Remaining 2021		1,205		43
2022		1,765		75
Remaining 2022						Remaining 2022		1,351		51
2023	2023	1,194		47		2023		1,356		52
2024	2024	1,282		21		2024		1,338		27
2025	2025	881		1		2025		947		6
2026						2026		707		5
Thereafter	Thereafter	1,528		0		Thereafter		919		1
Total minimum lease payments	Total minimum lease payments	$	7,855	$	187	Total minimum lease payments		$	6,618	$	142
Imputed interest	Imputed interest	(876)		(15)		Imputed interest		(704)		(13)
Present value of minimum lease payments	Present value of minimum lease payments	$	6,979	$	172	Present value of minimum lease payments		$	5,914	$	129

1817

MANNATECH, INCORPORATED AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9: FAIR VALUE

The Company utilizes fair value measurements to record fair value adjustments to certain financial assets and to determine fair value disclosures.

Fair Value Measurements and Disclosure (Topic 820) of the FASB establishes a fair value hierarchy that requires the use of observable market data, when available, and prioritizes the inputs to valuation techniques used to measure fair value in the following categories:

•Level 1 – Quoted unadjusted prices for identical instruments in active markets.

•Level 2 – Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-derived valuations in which all observable inputs and significant value drivers are observable in active markets.

•Level 3 – Model-derived valuations in which one or more significant inputs or significant value drivers are unobservable, including assumptions developed by the Company.

The primary objective of the Company’s investment activities is to preserve principal while maximizing yields without significantly increasing risk. The investment instruments held by the Company are money market funds and interest-bearing deposits for which quoted market prices are readily available. The Company considers these highly liquid investments to be cash equivalents. These investments are classified within Level 1 of the fair value hierarchy because they are valued based on quoted market prices in active markets. The Company does not have any material financial liabilities that were required to be measured at fair value on a recurring basis at ~~June 30, 2021.~~March 31, 2022.

The table below presents the recorded amount of financial assets measured at fair value (in thousands) on a recurring basis as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020.~~2021.


June 30, 2021		Level 1		Level 2		Level 3		Total
March 31, 2022										March 31, 2022	Level 1		Level 2		Level 3		Total
Assets	Assets									Assets
Money Market Funds – JPMorgan Chase, US	Money Market Funds – JPMorgan Chase, US	$	1,600	$	0	$	0	$	1,600	Money Market Funds – JPMorgan Chase, US	$	—	$	—	$	—	$	—
Interest bearing deposits – various banks	Interest bearing deposits – various banks	6,165		0		0		6,165		Interest bearing deposits – various banks	7,719		—		—		7,719
Total assets	Total assets	$	7,765	$	0	$	0	$	7,765	Total assets	$	7,719	$	—	$	—	$	7,719
Amounts included in:	Amounts included in:									Amounts included in:
Cash and cash equivalents	Cash and cash equivalents	$	6,252	$	0	$	0	$	6,252	Cash and cash equivalents	$	6,862	$	—	$	—	$	6,862
Restricted cash	Restricted cash	680		0		0		680		Restricted cash	680		—		—		680
Long-term restricted cash	Long-term restricted cash	833		0		0		833		Long-term restricted cash	177		—		—		177
Total	Total	$	7,765	$	0	$	0	$	7,765	Total	$	7,719	$	—	$	—	$	7,719


December 31, 2020		Level 1		Level 2		Level 3		Total
December 31, 2021										December 31, 2021	Level 1		Level 2		Level 3		Total
Assets	Assets									Assets

Interest bearing deposits – various banks	Interest bearing deposits – various banks	6,385		0		0		6,385		Interest bearing deposits – various banks	7,838		—		—		7,838
Total assets	Total assets	$	6,385	$	0	$	0	$	6,385	Total assets	$	7,838	$	—	$	—	$	7,838
Amounts included in:	Amounts included in:									Amounts included in:
Cash and cash equivalents	Cash and cash equivalents	$	2,137	$	0	$	0	$	2,137	Cash and cash equivalents	$	6,986	$	—	$	—	$	6,986
Restricted cash	Restricted cash	680		0		0		680		Restricted cash	680		—		—		680
Long-term restricted cash	Long-term restricted cash	3,568		0		0		3,568		Long-term restricted cash	172		—		—		172
Total	Total	$	6,385	$	0	$	0	$	6,385	Total	$	7,838	$	—	$	—	$	7,838

1918

MANNATECH, INCORPORATED AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10: SEGMENT INFORMATION

The Company's sole reporting segment is one where we sell proprietary nutritional supplements, skin care and anti-aging products, and weight-management and fitness products through network marketing distribution channels operating in NaN countries. Each of the business units receives associate fees or sells similar packs (in the case of Mexico and South Korea, where packs have not been replaced with associate fees, see Note 1, Organization and Summary of Significant Accounting ~~Policies)~~Policies) and possesses similar economic characteristics, such as selling prices and gross margins. In each country, the Company markets its products and pays commissions and incentives in similar market environments. The Company’s management reviews its financial information by country and focuses its internal reporting and analysis of revenues by pack sales and associate fees and product sales. The Company sells its products through its independent associates who occupy positions in our network and distribute products through similar distribution channels in each country. No single independent associate has ever accounted for more than 10% of the Company’s consolidated net sales. The Company also operates a non-direct selling business in mainland China. Our subsidiary in China, Meitai, is operating as a traditional retailer under a cross-border e-commerce model. Meitai cannot legally conduct a direct selling business in China unless it acquires a direct selling license in China.

The Company operates facilities in 11 countries and sells product in NaN countries around the world. These facilities are located in the United States, Canada, Australia, the Netherlands, Japan, the Republic of Korea (South Korea), Taiwan, South Africa, Mexico, Hong Kong and China. Each facility services different geographic areas. We currently sell our products in 3 regions: (i) the Americas (the United States, Canada and Mexico); (ii) EMEA (Austria, the Czech Republic, Denmark, Estonia, Finland, Germany, the Republic of Ireland, Namibia, the Netherlands, Norway, South Africa, Spain, Sweden and the United Kingdom); and (iii) Asia/Pacific (Australia, Japan, New Zealand, the Republic of Korea, Singapore, Taiwan, Hong Kong and China). We also ship our products to customers in the following countries: Belgium, France, Greece, Italy, Luxembourg, and Poland.

Consolidated net sales shipped to customers in these regions, along with pack or associate fee and product information for the three ~~and six~~ months ended ~~June 30,~~March 31, were as follows (in millions, except percentages):


		Three Months Ended June 30,								Six Months Ended June 30,									Three Months Ended March 31,
Region	Region	2021				2020				2021				2020				Region	2022				2021
Americas	Americas	$	12.4	29.2	%	$	10.9	29.0	%	$	23.3	28.8	%	$	22.6	30.4	%	Americas	$	10.3	30.0	%	$	11.0	28.7	%
Asia/Pacific	Asia/Pacific	26.1		61.4	%	23.5		62.5	%	49.7		61.5	%	45.0		60.6	%	Asia/Pacific	19.1		60.0	%	23.5		61.4	%
EMEA	EMEA	4.0		9.4	%	3.2		8.5	%	7.8		9.7	%	6.7		9.0	%	EMEA	3.0		10.0	%	3.8		9.9	%
Totals	Totals	$	42.5	100.0	%	$	37.6	100.0	%	$	80.8	100.0	%	$	74.3	100.0	%	Totals	$	32.4	100.0	%	$	38.3	100.0	%


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended March 31,
		2021		2020		2021		2020			2022		2021
Consolidated product sales	Consolidated product sales	$	40.4	$	37.0	$	76.3	$	73.1	Consolidated product sales	$	30.8	$	35.9
Consolidated pack sales and associate fees	Consolidated pack sales and associate fees	1.9		0.4		4.1		0.8		Consolidated pack sales and associate fees	1.3		2.2
Consolidated other	Consolidated other	0.2		0.2		0.4		0.4		Consolidated other	0.3		0.2
Consolidated total net sales	Consolidated total net sales	$	42.5	$	37.6	$	80.8	$	74.3	Consolidated total net sales	$	32.4	$	38.3

2019

MANNATECH, INCORPORATED AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Long-lived assets, which include property and equipment and construction in process for the Company and its subsidiaries, as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, reside in the following regions, as follows (in millions):


Region	Region	June 30, 2021		December 31, 2020		Region	March 31, 2022		December 31, 2021
Americas	Americas	$	3.9	$	4.4	Americas	$	3.8	$	3.8
Asia/Pacific	Asia/Pacific	0.7		1.0		Asia/Pacific	0.3		0.4
EMEA	EMEA	0		0		EMEA	—		—
Total	Total	$	4.6	$	5.4	Total	$	4.1	$	4.2

Inventory balances, which consist of raw materials, finished goods, and promotional materials, as offset by the allowance for slow moving or obsolete inventories, reside in the following regions (in millions):


Region	Region	June 30, 2021		December 31, 2020		Region	March 31, 2022		December 31, 2021
Americas	Americas	$	5.7	$	5.8	Americas	$	5.5	$	5.7
Asia/Pacific	Asia/Pacific	5.8		5.7		Asia/Pacific	5.3		4.7
EMEA	EMEA	2.0		1.3		EMEA	1.8		1.6
Total	Total	$	13.5	$	12.8	Total	$	12.6	$	12.0

2120

Table of Contents

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion is intended to assist in the understanding of our consolidated financial position and results of operations for the three ~~and six~~ months ended ~~June 30, 2021~~March 31, 2022 as compared to the same period in ~~2020,~~2021, and should be read in conjunction with Item 1 “Financial Statements” in Part I of this quarterly report on Form 10-Q and Item 1A “Risk Factors” in Part I of our ~~2020~~2021 Annual Report. Unless stated otherwise, all financial information presented below, throughout this report, and in the consolidated financial statements and related notes includes Mannatech and all of our subsidiaries on a consolidated basis. To supplement our financial results presented in accordance with GAAP, we disclose certain adjusted financial measures which we refer to as Constant dollar (“Constant dollar”) measures, which are non-GAAP financial measures. Refer to the Non-GAAP Financial Measures section herein for a description of how such Constant dollar measures are determined.

COMPANY OVERVIEW

The Company is a global wellness solution provider, which was incorporated and began operations in November 1993. We develop and sell innovative, high quality, proprietary nutritional supplements, topical and skin care and anti-aging products, and weight-management products that target optimal health and wellness. We currently sell our products in three regions: (i) the Americas (the United States, Canada and Mexico); (ii) Europe/the Middle East/Africa (“EMEA”) (Austria, the Czech Republic, Denmark, Estonia, Finland, Germany, the Republic of Ireland, Namibia, the Netherlands, Norway, South Africa, Spain, Sweden and the United Kingdom); and (iii) Asia/Pacific (Australia, Japan, New Zealand, the Republic of Korea, Singapore, Taiwan, Hong Kong, and China).

We also ship our products to customers in the following countries: Belgium, France, Greece, Italy, Luxembourg, and Poland.

We conduct our business as a single operating segment and primarily sell our products through a network of approximately ~~176,000~~157,000 active associates and preferred customer positions held by individuals that purchased our products and/or packs or paid associate fees during the last 12 months, who we refer to as current associates and preferred customers. New pack sales and the receipt of new associate fees in connection with new positions in our network are leading indicators for the long-term success of our business. New associate or preferred customer positions are created in our network when our associate fees are paid or packs and products are purchased for the first time under a new account. We operate as a seller of nutritional supplements, topical and skin care and anti-aging products, and weight-management products through our network marketing distribution channels operating in 24 countries and direct e-commerce retail in China. We review and analyze net sales by geographical location and by packs and products on a consolidated basis. Each of our subsidiaries sells similar products and exhibits similar economic characteristics, such as selling prices and gross margins.

Because we sell our products through network marketing distribution channels, the opportunities and challenges that affect us most are: recruitment of new and retention of current associates and preferred customers that occupy sales or purchasing positions in our network; entry into new markets and growth of existing markets; niche market development; new product introduction; and investment in our infrastructure. Our subsidiary in China, Meitai, is currently operating as a traditional retailer under a cross-border e-commerce model. Meitai cannot legally conduct a direct selling business in China unless it acquires a direct selling license in China.

The Company maintains a corporate website at www.mannatech.com.

Current Economic Conditions and Recent Developments

Overall net sales ~~increased $4.9~~decreased $5.9 million, or ~~12.9%~~15.5%, to ~~$42.5~~$32.4 million, during the three months ended ~~June 30, 2021,~~March 31, 2022, as compared to the same period in ~~2020. Net sales for the six months ended June 30, 2021 increased by $6.5 million, or 8.8%, to $80.8 million, as compared to the same period in 2020.~~2021. For the three ~~and six~~ months ended ~~June 30, 2021,~~March 31, 2022, our net sales ~~increased 6.4% and 3.5%, respectively,~~decreased 11.5% on a Constant dollar basis (see Non-GAAP Measures, below); ~~favorable~~ foreign exchange during the three ~~and six~~ months ended ~~June 30, 2021 caused a $2.5 million and a $3.9 million increase, respectively, in~~March 31, 2022 decreased GAAP net sales by $1.5 million, as compared to the same period in ~~2020.~~2021. For the three ~~and six~~ months ended ~~June 30,~~March 31, 2022 and 2021, our operations outside of the Americas accounted for approximately ~~70.8%~~68.2% and ~~71.2%~~71.3%, respectively, of our consolidated net sales.

During the three months ended March 31, 2022, supply chain constraints impacted sales. As a result, we had to postpone planned sales promotions as we were sourcing and shipping product. Also, we defer revenue of orders shipped but not received by customers.

~~Excluding the effects due~~The number of product orders decreased by 6.0% to ~~the translation of foreign currencies into U.S. dollars, net sales would have increased $2.4 million and $2.6 million, respectively,~~189,700 for the three ~~and six~~ months ended ~~June 30, 2021~~March 31, 2022, as compared to 201,729 during the same period in ~~2020. These adjusted net sales expressed~~2021. For the three months ended March 31, 2022, the average product order value decreased 4.3%, to $179, as compared to $187 for the same period in ~~Constant dollars are~~2021.

The average value of packs and associate fees decreased to $55 for the first quarter of 2022, as compared to $99 for the same period in 2021, because last year we were able to sell more upgrade packs in the Asia/Pacific region. This year we had to postpone a ~~non-GAAP financial measure discussed~~promotion in ~~further detail below.~~

that region due to supply chain constraints.

2221

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RESULTS OF OPERATIONS

Three Months Ended ~~June 30, 2021~~March 31, 2022 Compared to Three Months Ended ~~June 30, 2020~~March 31, 2021

The table below summarizes our consolidated operating results in dollars and as a percentage of net sales for the three months ended ~~June 30,~~March 31, 2022 and 2021 ~~and 2020~~ (in thousands, except percentages):


		2021				2020				Change from 2020 to 2021					2022				2021				Change from 2021 to 2022
		Total dollars		% of net sales		Total dollars		% of net sales		Dollar		Percentage			Total dollars		% of net sales		Total dollars		% of net sales		Dollar		Percentage
Net sales	Net sales	$	42,504	100.0	%	$	37,647	100.0	%	$	4,857	12.9	%	Net sales	$	32,384	100.0	%	$	38,319	100.0	%	$	(5,935)	(15.5)	%
Cost of sales	Cost of sales	10,126		23.8	%	8,708		23.1	%	1,418		16.3	%	Cost of sales	7,091		21.9	%	7,222		18.8	%	(131)		(1.8)	%
Gross profit	Gross profit	32,378		76.2	%	28,939		76.9	%	3,439		11.9	%	Gross profit	25,293		78.1	%	31,097		81.2	%	(5,804)		(18.7)	%

Operating expenses:	Operating expenses:													Operating expenses:
Commissions and incentives	Commissions and incentives	16,898		39.8	%	15,330		40.7	%	1,568		10.2	%	Commissions and incentives	13,108		40.5	%	15,598		40.7	%	(2,490)		(16.0)	%
Selling and administrative expenses	Selling and administrative expenses	7,571		17.8	%	7,165		19.0	%	406		5.7	%	Selling and administrative expenses	6,909		21.3	%	7,111		18.6	%	(202)		(2.8)	%
Depreciation and amortization expense	Depreciation and amortization expense	442		1.0	%	537		1.4	%	(95)		(17.7)	%	Depreciation and amortization expense	332		1.0	%	510		1.3	%	(178)		(34.9)	%
Other operating costs	Other operating costs	5,449		12.8	%	4,797		12.7	%	652		13.6	%	Other operating costs	4,909		15.2	%	5,089		13.3	%	(180)		(3.5)	%
Total operating expenses	Total operating expenses	30,360		71.4	%	27,829		73.9	%	2,531		9.1	%	Total operating expenses	25,258		78.0	%	28,308		73.9	%	(3,050)		(10.8)	%
Income from operations	Income from operations	2,018		4.7	%	1,110		2.9	%	908		81.8	%	Income from operations	35		0.1	%	2,789		7.3	%	(2,754)		(98.7)	%
Interest income	Interest income	7		—	%	13		—	%	(6)		(46.2)	%	Interest income	15		—	%	22		0.1	%	(7)		(31.8)	%
Other income, net		152		0.4	%	166		0.4	%	(14)		(8.4)	%
Other income (expense), net														Other income (expense), net	85		0.3	%	(282)		(0.7)	%	367		(130.1)	%
Income before income taxes	Income before income taxes	2,177		5.1	%	1,289		3.4	%	888		68.9	%	Income before income taxes	135		0.4	%	2,529		6.6	%	(2,394)		(94.7)	%
Income tax (provision)	Income tax (provision)	(48)		(0.1)	%	(159)		(0.4)	%	111		(69.8)	%	Income tax (provision)	(1)		—	%	(335)		(0.9)	%	334		(99.7)	%
Net income	Net income	$	2,129	5.0	%	$	1,130	3.0	%	$	999	88.4	%	Net income	$	134	0.4	%	$	2,194	5.7	%	$	(2,060)	(93.9)	%

~~Six Months Ended June 30, 2021Compared to Six Months Ended June 30, 2020~~

~~The table below summarizes our consolidated operating results in dollars and as a percentage of net sales for the six months ended June 30, 2021 and 2020~~ ~~(in thousands, except percentages):~~

2021 2020 Change from
2020 to 2021
Total
dollars % of
net sales Total
dollars % of
net sales Dollar Percentage
Net sales $ 80,823 100.0 % $ 74,252 100.0 % $ 6,571 8.8 %
Cost of sales 17,348 21.5 % 15,716 21.2 % 1,632 10.4 %
Gross profit 63,475 78.5 % 58,536 78.8 % 4,939 8.4 %
Operating expenses:
Commissions and incentives 32,496 40.2 % 30,219 40.7 % 2,277 7.5 %
Selling and administrative expenses 14,682 18.2 % 14,020 18.9 % 662 4.7 %
Depreciation and amortization expense 952 1.2 % 1,057 1.4 % (105) (9.9) %
Other operating costs 10,538 13.0 % 10,118 13.6 % 420 4.2 %
Total operating expenses 58,668 72.6 % 55,414 74.6 % 3,254 5.9 %
Income from operations 4,807 5.9 % 3,122 4.2 % 1,685 54.0 %
Interest income 29 — % 63 0.1 % (34) (54.0) %
Other expense, net (130) (0.2) % (42) (0.1) % (88) 209.5 %
Income before income taxes 4,706 5.8 % 3,143 4.2 % 1,563 49.7 %
Income tax (provision) benefit (383) (0.5) % 775 1.0 % (1,158) (149.4) %
Net income $ 4,323 5.3 % $ 3,918 5.3 % $ 405 10.3 %

~~Table of Contents~~

Non-GAAP Financial Measures

To supplement our financial results presented in accordance with GAAP, we disclose operating results that have been adjusted to exclude the impact of changes due to the translation of foreign currencies into U.S. dollars, including changes in: Net Sales, Gross Profit, and Income from Operations. We refer to these adjusted financial measures as Constant dollar items, which are non-GAAP financial measures. We believe these measures provide investors an additional perspective on trends. To exclude the impact of changes due to the translation of foreign currencies into U.S. dollars, we calculate current year results and prior year results at a constant exchange rate, which is the prior year’s rate. Currency impact is determined as the difference between actual growth rates and constant currency growth rates.

Three-month period ended (in millions, except percentages)
June 30, 2021 June 30, 2020 Constant $ Change
GAAP
Measure:
Total $ Non-GAAP
Measure:
Constant $ GAAP
Measure:
Total $ Dollar Percent
Net sales $ 42.5 $ 40.0 $ 37.6 $ 2.4 6.4 %
Product 40.4 38.0 37.0 1.0 2.7 %
Pack sales and associate fees 1.9 1.8 0.4 1.4 350.0 %
Other 0.2 0.2 0.2 — — %
Gross profit 32.4 30.5 28.9 1.6 5.5 %
Income from operations 2.0 1.6 1.1 0.5 45.5 %

Six-month period ended (in millions, except percentages)
June 30, 2021 June 30, 2020 Constant $ Change
GAAP
Measure:
Total $ Non-GAAP
Measure:
Constant $ GAAP
Measure:
Total $ Dollar Percent
Net Sales $ 80.8 $ 76.9 $ 74.3 $ 2.6 3.5 %
Product 76.3 72.7 73.1 (0.4) (0.5) %
Pack sales and associate fees 4.1 3.8 0.8 3.0 375.0 %
Other 0.4 0.4 0.4 — — %
Gross Profit 63.5 60.4 58.5 1.9 3.2 %
Income from Operations 4.8 4.0 3.1 0.9 29.0 %


Three-month period ended (in millions, except percentages)	March 31, 2022				March 31, 2021		Constant $ Change
	GAAP Measure: Total $		Non-GAAP Measure: Constant $		GAAP Measure: Total $		Dollar		Percent
Net sales	$	32.4	$	33.9	$	38.3	$	(4.4)	(11.5)	%
Product	30.8		32.2		35.9		(3.7)		(10.3)	%
Pack sales and associate fees	1.3		1.4		2.2		(0.8)		(36.4)	%
Other	0.3		0.3		0.2		0.1		50.0	%
Gross profit	25.3		26.4		31.1		(4.7)		(15.1)	%
Income from operations	—		0.2		2.8		(2.6)		(92.9)	%

Table of Contents

Net Sales

Consolidated net sales for the three months ended ~~June 30, 2021 increased~~March 31, 2022 decreased by ~~$4.9~~$5.9 million, or ~~12.9%~~15.5%, to ~~$42.5~~$32.4 million as compared to ~~$37.6~~$38.3 million for the same period in ~~2020. Consolidated net sales for the six months ended June 30, 2021 increased by $6.5 million, or 8.8%, to $80.8 million as compared to $74.3 million for the same period in 2020.~~

2021.

Net Sales in Dollars and as a Percentage of Consolidated Net Sales

Consolidated net sales by region for the three months ended ~~June 30,~~March 31, 2022 and 2021 ~~and 2020~~ were as follows (in millions, except percentages):

Region Three Months Ended
June 30, 2021 Three Months Ended
June 30, 2020
Americas $ 12.4 29.2 % $ 10.9 29.0 %
Asia/Pacific 26.1 61.4 % 23.5 62.5 %
EMEA 4.0 9.4 % 3.2 8.5 %
Total $ 42.5 100.0 % $ 37.6 100.0 %

~~Table of Contents~~


Region	Three Months Ended March 31, 2022				Three Months Ended March 31, 2021
Americas	$	10.3	30.0	%	$	11.0	28.7	%
Asia/Pacific	19.1		60.0	%	23.5		61.4	%
EMEA	3.0		10.0	%	3.8		9.9	%
Total	$	32.4	100.0	%	$	38.3	100.0	%

~~Consolidated net sales by region for the six months ended June 30, 2021 and 2020 were as follows~~ ~~(in millions, except percentages)~~:

Region Six Months Ended
June 30, 2021 Six Months Ended
June 30, 2020
Americas $ 23.3 28.8 % $ 22.6 30.4 %
Asia/Pacific 49.7 61.5 % 45.0 60.6 %
EMEA 7.8 9.7 % 6.7 9.0 %
Total $ 80.8 100.0 % $ 74.3 100.0 %

For the three months ended ~~June 30, 2021,~~March 31, 2022, net sales in the Americas ~~increased~~decreased by ~~$1.5~~$0.7 million, or ~~13.8%~~6.4%, to ~~$12.4~~$10.3 million, as compared to ~~$10.9~~$11.0 million for the same period in ~~2020.~~2021. This increase was primarily due to an 11.7% increase in revenue per active independent associate and preferred customer and a 1.8% increase in the number of active independent associates and preferred customers. Foreign currency had the effect of increasing revenue by $0.2 million for the three months ended June 30, 2021, as compared to the same period in 2020. The currency impact is due to the strengthening of the Mexican Peso.

decrease

~~For the six months ended June 30, 2021, net sales in the Americas increased by $0.7 million, or 3.1%, to $23.3 million, as compared to $22.6 million for the same period in 2020. This increase~~ was primarily due to a ~~6.9% increase~~9.1% decrease in the number of active independent associates and preferred customers, ~~and~~which was partially offset by a ~~1.7%~~3.0% increase in revenue per active independent associate and preferred customer. Over the three months ended March 31, 2022, we fulfilled 61,369 product orders in the Americas, a decrease of 4,801, or 7.3%, over the same period in 2021.

For the three months ended ~~June 30, 2021,~~March 31, 2022, our operations outside of the Americas accounted for approximately ~~70.8%~~68.2% of our consolidated net sales, whereas in the same period in ~~2020, our operations outside of the Americas accounted for approximately 71.0% of our consolidated net sales.~~

~~For the six months ended June 30,~~ 2021, our operations outside of the Americas accounted for approximately ~~71.2% of our consolidated net sales, whereas in the same period in 2020, our operations outside of the Americas accounted for approximately 69.6%~~71.3% of our consolidated net sales.

For the three months ended ~~June 30, 2021,~~March 31, 2022, Asia/Pacific net sales ~~increased~~decreased by ~~$2.6~~$4.4 million, or ~~11.1%~~18.7%, to ~~$26.1~~$19.1 million, as compared to $23.5 million for the same period in ~~2020. This increase~~2021. During the three months ended March 31, 2022, supply chain constraints impacted sales. We had to postpone planned sales promotions as we were sourcing and shipping product. During the three months ended March 31, 2022 the rate of COVID-19 deaths increased in Hong Kong, and we have deferred $0.9 million revenue for orders shipped but not received by customers. The result was ~~primarily due to~~ a ~~13.6% increase~~6.0% decrease in revenue per active independent associate and preferred customer ~~which was partially offset by~~and a ~~2.2%~~13.6% decrease in the number of active independent associates and preferred customer. Over the three months ended March 31, 2022, we fulfilled 90,656 product orders in the Asia/Pacific region, an increase of 636, or 0.7%, over the same period in 2021. Foreign currency exchange had the effect of ~~increasing~~ decreasing revenue by ~~$1.5~~$1.4 million for the three months ended ~~June 30, 2021,~~March 31, 2022, as compared to the same period in ~~2020.~~2021. The currency impact is primarily due to the ~~strengthening of the Korean Won, Australian Dollar, Chinese Yuan (Renminbi), New Zealand Dollar, Taiwanese Dollar and the Singapore Dollar, which was partially offset by the~~ weakening ~~of the Japanese Yen and the Hong Kong Dollar.~~

For the six months ended June 30, 2021, Asia/Pacific net sales increased by $4.7 million, or 10.4%, to $49.7 million, as compared to $45.0 million for the same period in 2020. This increase was primarily due to a 13.0% increase in revenue per active independent associate and preferred customer and a 3.8% increase in the number of active independent associates and preferred customers. Foreign currency exchange had the effect of increasing revenue by $3.0 million for the six months ended June 30, 2021, as compared to the same period in 2020. The currency impact is primarily due to the strengthening of the Korean Won, Japanese Yen, and Australian ~~Dollar, Chinese Yuan (Renminbi), New Zealand Dollar, Taiwanese Dollar and the Singapore~~ Dollar.

For the three months ended ~~June 30, 2021,~~March 31, 2022, EMEA net sales ~~increased~~decreased by $0.8 million, or ~~25%~~21.1%, to ~~$4.0~~$3.0 million, as compared to ~~$3.2~~$3.8 million for the same period in ~~2020.~~2021. The ~~increase~~decrease was primarily due to a ~~14.5% increase~~27.9% decrease in the number of active independent associates and preferred customers, ~~and~~which was partially offset by a ~~9.2%~~9.5% increase in revenue per active independent associate and preferred customer. Over the three months ended March 31, 2022, we fulfilled 37,675 product orders in the EMEA region, a decrease of 7,864, or 17.3%, over the same period in 2021. We believe the war in the Ukraine and inflation are impacting our business. Foreign currency exchange had the effect of ~~increasing~~ decreasing revenue by ~~$0.8~~$0.1 million for the three-month period ending ~~June 30, 2021~~March 31, 2022 as compared to the same period in ~~2020.~~2021. The currency impact is primarily due to the ~~strengthening~~weakening of the South African Rand, ~~British Pound~~ and the Euro.

2523

Table of Contents

~~For the six months ended June 30, 2021, EMEA net sales increased by $1.1 million, or 16.4%, to $7.8 million, as compared to $6.7 million for the same period in 2020.~~ The increase was primarily due to a 25.6% increase in the number of active independent associates and preferred customers and a 1.7% increase in revenue per active independent associate and preferred customer. Foreign currency exchange had the effect of increasing revenue by $0.9 million for the six month period ending June 30, 2021 as compared to the same period in 2020. The currency impact is primarily due to the strengthening of the South African Rand, British Pound and the Euro.

Our total sales and sales mix could be influenced by any of the following:

•the impact of the COVID-19 pandemic, the availability and effectiveness of vaccines on a widespread basis and the impact of any mutations of the virus;

•the current conflict between Russia and Ukraine, which could adversely affect our business in certain regions;

•the impact of inflation;

•disruptions in the supply chain;

•changes in our sales prices;

•changes in shipping fees;

•changes in consumer demand;

•changes in the number of independent associates and preferred customers;

•changes in competitors’ products;

•changes in economic conditions;

•changes in regulations;

•announcements of new scientific studies and breakthroughs;

•introduction of new products;

•discontinuation of existing products;

•adverse publicity;

•changes in our commissions and incentives programs;

•direct competition; and

•fluctuations in foreign currency exchange rates.

Our sales mix for the three ~~and six~~ months ended ~~June 30,~~March 31, was as follows (in millions, except percentages):


		Three Months Ended June 30,				Change					Three Months Ended March 31,				Change
		2021		2020		Dollar		Percentage			2022		2021		Dollar		Percentage
Consolidated product sales	Consolidated product sales	$	40.4	$	37.0	$	3.4	9.2	%	Consolidated product sales	$	30.8	$	35.9	$	(5.1)	(14.2)	%
Consolidated pack sales and associate fees	Consolidated pack sales and associate fees	1.9		0.4		1.5		375.0	%	Consolidated pack sales and associate fees	1.3		2.2		(0.9)		(40.9)	%
Consolidated other	Consolidated other	0.2		0.2		—		—	%	Consolidated other	0.3		0.2		0.1		50.0	%
Total consolidated net sales	Total consolidated net sales	$	42.5	$	37.6	$	4.9	13.0	%	Total consolidated net sales	$	32.4	$	38.3	$	(5.9)	(15.4)	%

Six Months Ended
June 30, Change
2021 2020 Dollar Percentage
Consolidated product sales $ 76.3 $ 73.1 $ 3.2 4.4 %
Consolidated pack sales and associate fees 4.1 0.8 3.3 412.5 %
Consolidated other 0.4 0.4 — — %
Total consolidated net sales $ 80.8 $ 74.3 $ 6.5 8.7 %

Product Sales

Our product sales are made to our independent associates and preferred customers at published wholesale prices.

Product sales for the three months ended ~~June 30, 2021 increased~~March 31, 2022 decreased by ~~$3.4~~$5.1 million, or ~~9.2%~~14.2%, as compared to the same period in ~~2020.~~2021. The ~~increase~~decrease in product sales was primarily due to the ~~increase~~decrease in the average order ~~value and the number of~~

~~Table of Contents~~

~~orders.~~value. The average order value for the three months ended ~~June 30, 2021~~March 31, 2022 was ~~$198,~~$179, as compared to ~~$191~~$187 for the same period in ~~2020.~~2021. The number of orders processed during the three months ended ~~June 30, 2021 increased~~March 31, 2022 decreased by ~~6.9%~~6.0%, to ~~212,455,~~189,700, as compared to ~~198,770~~201,729 for the same period in ~~2020.~~2021.

Product sales for the six months ended June 30, 2021 increased by $3.2 million, or 4.4%, as compared to the same period in 2020. The increase in product sales was primarily due to the increase in the number

Table of orders and the average order value. The average order value for the six months ended June 30, 2021 was $193, as compared to $187 for the same period in 2020. The number of orders processed during the six months ended June 30, 2021 increased by 1.2%, to 414,184, as compared to 409,337 for the same period in 2020.Contents

Pack Sales and Associate Fees

The Company collects associate fees in lieu of selling packs in certain markets. Associate fees are paid annually by new and continuing associates to the Company, which entitle them to earn commissions, benefits and incentives for that year. The Company collected associate fees in lieu of pack sales within the United States, Canada, South Africa, Japan, Australia, New Zealand, Singapore, Hong Kong, Taiwan, Austria, the Czech Republic, Denmark, Estonia, Finland, Germany, the Republic of Ireland, the Netherlands, Norway, Spain, Sweden and the United Kingdom.

In the Republic of Korea and Mexico, packs may still be purchased by our associates who wish to build a Mannatech business. These packs contain products that are discounted from both the published retail and associate prices. There are several pack options available to our associates. In certain of these markets, pack sales are completed during the final stages of the registration process and can provide new associates with valuable training and promotional materials, as well as products for resale to retail customers, demonstration purposes, and personal consumption. Business-building associates in these markets can also purchase an upgrade pack, which provides the associate with additional promotional materials. We also do not collect associate fees or sell packs in our non-direct selling business in mainland China.

The dollar amount of pack sales and associate fees associated with new and continuing independent associate positions held by individuals in our network was as follows for the three ~~and six~~ months ended ~~June 30,~~March 31, (in millions, except percentages):

Three Months Ended
June 30, Change
2021 2020 Dollar Percentage
New $ 0.1 $ 0.1 $ — — %
Continuing 1.8 0.3 1.5 500.0 %
Total $ 1.9 $ 0.4 $ 1.5 375.0 %


		Six Months Ended June 30,				Change					Three Months Ended March 31,				Change
		2021		2020		Dollar		Percentage			2022		2021		Dollar		Percentage
New	New	$	0.2	$	0.2	$	—	—	%	New	$	0.1	$	0.1	$	—	—	%
Continuing	Continuing	3.9		0.6		3.3		550.0	%	Continuing	1.2		2.1		(0.9)		(42.9)	%
Total	Total	$	4.1	$	0.8	$	3.3	412.5	%	Total	$	1.3	$	2.2	$	(0.9)	(40.9)	%

Total pack sales and associate fees for the three months ended ~~June 30, 2021 increased~~March 31, 2022 decreased by ~~$1.5~~$0.9 million, or ~~375.0%~~40.9%, to ~~$1.9~~$1.3 million, as compared to ~~$0.4~~$2.2 million for the same period in ~~2020. Average pack~~2021. The average value of packs and associate ~~fee value~~fees decreased to $55 for the ~~three months ended June 30, 2021 was $81,~~first quarter of 2022, as compared to ~~$19~~$99 for the same period in ~~2020.~~2021, because last year we were able to sell more upgrade packs in the Asia/Pacific region. This year we had to postpone a promotion in that region due to supply chain constraints. The total number of packs and associate fees sold increased by ~~4,144,~~1,595, or ~~21.0%~~7.2%, to ~~23,848~~23,730 for the three months ended ~~June 30, 2021,~~March 31, 2022, as compared to the same period in ~~2020.~~

Total pack sales and associate fees for the six months ended June 30, 2021 increased by $3.3 million, or 412.5%, to $4.1 million, as compared to $0.8 million for the same period in 2020. Average pack and associate fee value for the six months ended June 30, 2021 was $89, as compared to $20 for the same period in 2020. The total number of packs and associate fees sold increased by 3,925, or 9.3%, to 45,983 for the six months ended June 30, 2021, as compared to the same period in 2020.

2021.

Pack sales and associate fees correlate to new associate positions held by individuals in our network when a starter pack or associate fee is purchased and to continuing associate positions held by individuals in our network when an upgrade pack or renewal associate fee is purchased. However, there is no direct correlation between product sales and the number of

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new and continuing associate positions and preferred customer positions held by individuals in our network because associates and preferred customers utilize products at different volumes.

During ~~2020~~2021 and continuing into ~~2021,~~2022, we took the following actions to recruit and retain associates and preferred customers:

•registered our most popular products with the appropriate regulatory agencies in all countries of operations;

•rolled out new products;

•continued an aggressive marketing and educational campaign;

•continued to strengthen compliance initiatives;

•concentrated on publishing results of research studies and clinical trials related to our products;

•initiated additional incentives;

•continued to explore new advertising and educational tools to broaden name recognition; and

•implemented changes to our global associate career and compensation plan.

The approximate number of new and continuing active independent associates and preferred customers who purchased our packs or products or paid associate fees during the twelve months ended ~~June 30,~~March 31, 2022 and 2021 ~~and 2020~~ were as follows:


		2021			2020				2022			2021
New	New	86,000	48.9	%	79,000	45.9	%	New	83,000	52.9	%	84,000	44.9	%
Continuing	Continuing	90,000	51.1	%	93,000	54.1	%	Continuing	74,000	47.1	%	103,000	55.1	%
Total	Total	176,000	100.0	%	172,000	100.0	%	Total	157,000	100.0	%	187,000	100.0	%

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Recruitment of new independent associates and preferred customers ~~increased~~decreased by ~~13.0%~~5.1% to ~~21,527~~18,542 in the ~~second~~first quarter of ~~2021~~2022 from ~~19,047~~19,538 in the ~~second~~first quarter of ~~2020.~~2021.

Other Sales

Other sales consisted of: (i) sales of promotional materials; (ii) monthly fees collected for the Success Tracker™ and Mannatech+ customized electronic business-building and educational materials, databases and applications; (iii) training and event registration fees; and (iv) a reserve for estimated sales refunds and returns. Promotional materials, training, database applications and business management tools support our independent associates, which in turn helps stimulate product sales.

For ~~each of~~ the three months ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020,~~ other sales were $0.3 million and $0.2 ~~million.~~million, respectively.

~~For each of the six months ended June 30, 2021 and 2020, other sales were $0.4 million.~~

Gross Profit

For the three months ended ~~June 30, 2021,~~March 31, 2022, gross profit ~~increased~~decreased by ~~$3.4~~$5.8 million, or ~~11.9%~~18.7%, to ~~$32.4~~$25.3 million, as compared to ~~$28.9~~$31.1 million for the same period in ~~2020.~~2021. For the three months ended ~~June 30, 2021,~~March 31, 2022, gross profit as a percentage of net sales decreased to ~~76.2%~~78.1%, as compared to ~~76.9%~~81.2% for the same period in ~~2020 due to increased product promotions.~~

~~For the six months ended June 30,~~ 2021 ~~gross profit increased by $4.9 million, or 8.4%, to $63.5 million,~~ as compared to $58.5 million for the same period in 2020. For the six months ended June 30, 2021, gross profit as a percentage of net sales decreased to 78.5%, as compared to 78.8% for the same period in 2020 due to increased product promotions.costs have risen along our supply chain.

Commissions and Incentives

Commission expenses for the three months ended ~~June 30, 2021 increased~~March 31, 2022 decreased by ~~11.6%~~17.3%, or ~~$1.7~~$2.6 million, to ~~$16.4~~$12.3 million, as compared to ~~$14.7~~$14.9 million for the same period in ~~2020.~~2021. For the three months ended ~~June 30, 2021,~~March 31, 2022, commissions as a percentage of net sales decreased to ~~38.5%~~38.0% from 38.9% for the same period in ~~2020.~~2021.

Commission expenses for the six months ended June 30, 2021 increased by 7.9%, or $2.3 million, to $31.2 million, as compared to $29.0 million for the same period in 2020. For the six months ended June 30, 2021, commissions as a percentage of net sales decreased to 38.7% from 39.0% for the same period in 2020.

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Incentive costs for the three months ended ~~June 30, 2021 decreased~~March 31, 2022 increased to ~~$0.5~~$0.8 million, as compared to $0.7 million for the same period in ~~2020.~~2021. For the three months ended ~~June 30, 2021,~~March 31, 2022, incentives as a percentage of net sales ~~decreased~~increased to ~~1.3%~~2.5% from 1.8% for the same period in ~~2020.~~

Incentive costs for the six months ended June 30, 2021 decreased to $1.2 million, as compared to $1.3 million for the same period in 2020. For the six months ended June 30, 2021, incentives as a percentage of net sales decreased to 1.5% from 1.7% for the same period in 2020.2021.

Selling and Administrative Expenses

Selling and administrative expenses include a combination of both fixed and variable expenses. These expenses consist of compensation and benefits for employees, temporary and contract labor and marketing-related expenses, such as the costs related to hosting our corporate-sponsored events.

For the three months ended ~~June 30, 2021,~~March 31, 2022, selling and administrative expenses ~~increased~~decreased by ~~$0.4~~$0.2 million, or ~~5.7%~~2.8%, to ~~$7.6~~$6.9 million, as compared to ~~$7.2~~$7.1 million for the same period in ~~2020.~~2021. The ~~increase~~decrease in selling and administrative expenses consisted of a ~~$0.3~~$0.1 million ~~increase~~decrease in ~~payroll~~contract labor costs and a ~~$0.1~~$0.1 million ~~increase~~decrease in ~~distribution and warehouse~~marketing costs. Selling and administrative expenses, as a percentage of net sales, for the three months ended ~~June 30, 2021 decreased~~March 31, 2022 increased to ~~17.8%~~21.3% from ~~19.0%~~18.6% for the same period in ~~2020.~~

For the six months ended June 30, 2021, selling and administrative expenses increased by $0.7 million, or 4.7% to $14.7 million, as compared to $14.0 million for the same period in 2020. The increase in selling and administrative expenses consisted of a $0.7 million increase in payroll costs, a $0.1 million increase in marketing costs and a $0.1 million increase in distribution and warehouse costs, which was partially offset by a $0.1 million decrease in stock-based compensation and $0.1 million decrease in contract labor. Selling and administrative expenses, as a percentage of net sales, for the six months e~~nded June 30, 2021 decreased to 18.2% from 18.9% for the same period in 2020.~~2021.

Other Operating Costs

Other operating costs include accounting/legal/consulting fees, travel and entertainment expenses, credit card processing fees, off-site storage fees, utilities, bad debt and other miscellaneous operating expenses.

For the three months ended ~~June 30, 2021,~~March 31, 2022, other operating costs ~~increased~~decreased by ~~$0.6~~$0.2 million, or ~~13.6%~~3.5%, to ~~$5.4~~$4.9 million, as compared to ~~$4.8~~$5.1 million for the same period in ~~2020.~~2021. For the three months ended ~~June 30, 2021,~~March 31, 2022, other operating costs as a percentage of net sales increased to ~~12.8%~~15.2% from ~~12.7%~~13.3% for the same period in ~~2020.~~2021. The ~~increase~~decrease in operating costs was primarily due to a $0.2 million ~~increase~~decrease in legal and consulting ~~fees, a $0.2 million increase in credit card fees, a $0.1 million increase in travel and entertainment costs and a $0.1 million increase in office expenses.~~fees.

For the six months ended June 30, 2021, other operating costs increased by $0.4 million, or 4.2%, to $10.5 million, as compared to $10.1 million for the same period in 2020. For the six months ended June 30, 2021, other operating costs as a percentage of net sales decreased to 13.0% from 13.6% for the same period in 2020. The increase in operating costs was primarily due to a $0.3 million increase in consulting fees, a $0.2 million increase in credit card fees and a $0.1 million increase in miscellaneous operating expenses, which was partially offset by a $0.2 million decrease in travel and entertainment costs.

Depreciation and Amortization Expense

Depreciation and amortization expense was ~~$0.4~~$0.3 million and $0.5 million for ~~each of~~ the three months ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020.~~

~~Depreciation and amortization expense was $1.0 million and $1.1 million for the six months ended June 30, 2021 and 2020,~~ respectively.

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Other Income (Expense), Net

~~Due to foreign exchange gains and losses, other income was $0.2 million for the three months ended June 30, 2021 and 2020.~~

Due to foreign exchange gains and losses, other ~~expense~~income was $0.1 million for the ~~six~~three months ended ~~June 30, 2021.~~March 31, 2022. For the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021, other expense was ~~$42,000.~~$0.3 million.

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Income Tax (Provision) Benefit

(Provision) benefit for income taxes include current and deferred income taxes for both our domestic and foreign operations. Our statutory income tax rates by jurisdiction are as follows, for the three ~~and six~~ months ended ~~June 30:~~March 31:


Country	Country	2021		2020		Country	2022		2021
Australia	Australia	30.0	%	30.0	%	Australia	30.0	%	30.0	%
Canada	Canada	26.5	%	26.5	%	Canada	26.5	%	26.5	%
China(1)	China(1)	5.0	%	5.0	%	China(1)	2.5	%	5.0	%
Colombia(2)	Colombia(2)	31.0	%	33.0	%	Colombia(2)	35.0	%	31.0	%
Cyprus	Cyprus	12.5	%	12.5	%	Cyprus	12.5	%	12.5	%
Denmark	Denmark	22.0	%	22.0	%	Denmark	22.0	%	22.0	%
Gibraltar(3)	Gibraltar(3)	10.0	%	10.0	%	Gibraltar(3)	12.5	%	10.0	%
Hong Kong	Hong Kong	16.5	%	16.5	%	Hong Kong	16.5	%	16.5	%
Japan	Japan	34.6	%	34.6	%	Japan	34.6	%	34.6	%
Mexico	Mexico	30.0	%	30.0	%	Mexico	30.0	%	30.0	%
Netherlands(4)						Netherlands(4)	25.8	%	—	%
Norway	Norway	22.0	%	23.0	%	Norway	22.0	%	22.0	%
Republic of Korea	Republic of Korea	22.0	%	22.0	%	Republic of Korea	22.0	%	22.0	%
Russia(3)		20.0	%	20.0	%
Russia(5)						Russia(5)	20.0	%	20.0	%
Singapore	Singapore	17.0	%	17.0	%	Singapore	17.0	%	17.0	%
South Africa	South Africa	28.0	%	28.0	%	South Africa	28.0	%	28.0	%
Sweden	Sweden	20.6	%	22.0	%	Sweden	20.6	%	20.6	%
Switzerland(4)		9.2	%	9.2	%
Switzerland(6)						Switzerland(6)	9.2	%	9.2	%
Taiwan	Taiwan	20.0	%	20.0	%	Taiwan	20.0	%	20.0	%
Ukraine(5)		18.0	%	18.0	%
Ukraine(7)						Ukraine(7)	18.0	%	18.0	%
United Kingdom	United Kingdom	19.0	%	17.0	%	United Kingdom	19.0	%	19.0	%
United States		23.8	%	23.8	%
United States(8)						United States(8)	22.2	%	23.8	%

(1)For ~~2020~~2021 and ~~2021,~~2022, the Company qualifies for a reduced tax rates of 5% ~~tax rate~~and 2.5%, respectively, in China as a Small Low Profit Enterprise.

(2)On November 1, 2019, the Company suspended operations in Colombia, but maintains the legal entity, Mannatech Colombia SAS.

(3)For 2021, the Company will pay taxes at 10% for Gibraltar earnings until August 1, 2021, and 12.5% from August 1,2021 onward.

(4)On September 13, 2021, the Company established a legal entity in the Netherlands called Mannatech Netherlands B.V.

(5)On August 1, 2016, the Company established a legal entity in Russia called Mannatech RUS Ltd., but currently does not operate in Russia.

~~(4)~~(6)On July 1, 2019, the Company suspended operations in Switzerland, but maintains the legal ~~entity, Mannatech Swiss International GmbH.~~entity.

~~(5)~~(7)On March 21, 2014, the Company suspended operations in the Ukraine, but maintains the legal entity, Mannatech Ukraine LLC.

(8)Includes blended state effective rate of 1.2% for 2022 and 2.8% for 2021 in addition to U.S federal statutory rate of 21%.

Income from our international operations is subject to taxation in the countries in which we operate. Although we may receive foreign income tax credits that would reduce the total amount of income taxes owed in the United States, we may not be able to fully utilize our foreign income tax credits in the United States.

We use the recognition and measurement provisions of the FASB ASC Topic 740, Income Taxes (“Topic 740”), to account for income taxes. The provisions of Topic 740 require a company to record a valuation allowance when the “more likely than not” criterion for realizing net deferred tax assets cannot be met. Furthermore, the weight given to the potential effect of such evidence should be commensurate with the extent to which it can be objectively verified. As a result, we reviewed the operating results, as well as all of the positive and negative evidence related to realization of such deferred tax assets to evaluate the need for a valuation allowance in each tax jurisdiction.

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The provision for income taxes is directly related to our profitability and changes in the taxable income among countries of operation. For the three ~~and six~~ months ended ~~June 30,~~March 31, 2022 and 2021, the Company’s effective tax rate was ~~2.2%~~0.7% and ~~8.1%~~13.3%, respectively. ~~For~~

The effective tax rates for the three ~~and six~~ months ended ~~June 30, 2020,~~March 31, 2022 were different from the ~~Company's effective tax~~federal statutory rate ~~was 12.3%~~due primarily to the effect of changes in valuation allowances recorded in certain jurisdictions and ~~(24.7)%, respectively.~~the foreign derived intangible deduction in the US.

The effective tax rate for the three ~~and six~~ months ended ~~June 30,~~March 31, 2021 was different from the federal statutory rate due primarily to the mix of earnings across jurisdictions and the associated valuation allowance recorded on losses in certain jurisdictions.

The effective tax rates for the three months ended June 30, 2020 were different from the federal statutory rate due primarily to the mix of earnings across jurisdictions and the associated valuation allowance recorded on losses in certain jurisdictions. The effective tax rate for the six months ended June 30, 2020 was different from the federal statutory rate due primarily to the $1.2 million benefit recorded in connection with the carryback of U.S. net operating losses as allowed by the CARES Act, enacted March 27, 2020.

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LIQUIDITY AND CAPITAL RESOURCES

Cash and Cash Equivalents

As of ~~June 30, 2021,~~March 31, 2022, our cash and cash equivalents ~~increased~~decreased by ~~16.9%~~3.4%, or ~~$3.8~~$0.8 million, to ~~$26.0~~$23.4 million from ~~$22.2~~$24.2 million as of December 31, ~~2020.~~2021. The Company is required to restrict cash for: (i) direct selling insurance premiums and credit card sales in the Republic of Korea; (ii) reserve on credit card sales in the United States and Canada; and (iii) the Australia building lease collateral. The current portion of restricted cash balances were $0.9 million at each of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020.~~2021. The long-term portion of restricted cash balances were ~~$1.2~~$0.5 million and ~~$5.0~~$3.1 million at ~~June 30,~~March 31, 2022 and 2021, ~~and 2020,~~ respectively. Finally, fluctuations in currency rates produced a decrease of ~~$1.3~~$0.7 million and ~~a decrease of $1.1~~$1.3 million in cash and cash equivalents for the ~~six~~three months ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020,~~ respectively.

Our principal use of cash is to pay for operating expenses, including commissions and incentives, capital assets, inventory purchases, and periodic cash dividends. Business objectives, operations, and expansion of operations are funded through net cash flows from operations rather than incurring long-term debt.

Working Capital

Working capital represents total current assets less total current liabilities. At ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, our working capital was ~~$12.6~~$12.1 million and $~~10.5~~12.7 million, respectively.

Net Cash Flows

Our net consolidated cash flows consisted of the following, for the ~~six~~three months ended ~~June 30~~March 31 (in millions):


Provided by/(Used in):	Provided by/(Used in):	2021		2020		Provided by/(Used in):	2022		2021
Operating activities	Operating activities	$	8.3	$	2.5	Operating activities	$	0.6	$	2.7
Investing activities	Investing activities	$	(0.3)	$	(0.5)	Investing activities	$	(0.2)	$	(0.1)
Financing activities	Financing activities	$	(6.2)	$	(6.0)	Financing activities	$	(0.5)	$	(1.0)

Operating Activities

~~Our~~For the three months ending March 31, 2022, we operated the business for a small profit. We deferred revenue and commission expense on orders shipped but not received by customers, and on those orders, we have collected the cash and paid the commission, which was a $1.0 million source of cash, primarily from the Asia/Pacific Region, which was partially offset by cash used for working capital. During the same period in 2021, our primary source of cash iswas our profitable operations, which provided ~~$8.3~~$2.7 million cash ~~flow for the six months ended June 30, 2021, compared to cash provided by operating activities of $2.5 million for the same period in 2020.~~flow.

Investing Activities

For the ~~six~~three months ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020,~~ we invested cash of ~~$0.3~~$0.2 million and ~~$0.5~~$0.1 million, respectively. During the ~~six~~three months ended ~~June 30, 2021,~~March 31, 2022, we invested approximately ~~$0.3 million in back-office software projects. During the six months ended June 30, 2020, we invested approximately $0.3~~$0.2 million in back-office software projects reported as construction in progress. During the three months ended March 31, 2021, we invested approximately $0.1 million in ~~office equipment and $0.1 million in leasehold improvements in various international offices and training centers.~~back-office software projects.

Financing Activities

For the ~~six~~three months ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020,~~ our financing activities used cash of ~~$6.2~~$0.5 million and ~~$6.0~~$1.0 million, respectively. For the ~~six~~three months ended ~~June 30, 2021,~~March 31, 2022, we used ~~$4.9 million in the repurchase of our company stock, $0.7~~$0.4 million in payments of dividends to shareholders, and ~~$0.7~~$0.2 million in the repayment of finance lease obligations. For the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021, we used ~~we used $5.2~~$0.4 million in the repurchase of our company stock, ~~$0.2~~$0.4 million in the repayment of finance lease obligations and ~~$0.6~~$0.3 million in payments of dividends to shareholders.

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General Liquidity and Cash Flows

Short Term Liquidity

We believe our existing liquidity and cash flows from operations are adequate to fund our normal expected future business operations for the next 12 months. As our primary source of liquidity is our cash flow from operations, this will be dependent on our ability to maintain and increase revenue and/or continue to reduce operational expenses. However, if our existing capital resources or cash flows become insufficient to meet current business plans, projections, and existing capital requirements, we may be required to raise additional funds, which may not be available on favorable terms, if at all.

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We are engaged in ongoing audits in various tax jurisdictions and other disputes in the normal course of business. It is impossible at this time to predict whether we will incur any liability, or to estimate the ranges of damages, if any, in connection with these matters. Adverse outcomes on these uncertainties may lead to substantial liability or enforcement actions that could adversely affect our cash position. For more information, see Note 3, Income Taxes, and Note 7, Litigation, to our consolidated financial statements.

We have contractual purchase commitments with certain raw materials suppliers to purchase minimum quantities and to ensure exclusivity of our raw materials and the proprietary nature of our products. At March 31, 2022, we have one supply agreement that requires the Company to purchase an aggregate of $3.3 million through 2022, with no purchase commitments thereafter. We also maintain other supply agreements and manufacturing agreements to protect our products, regulate product costs, and help ensure quality control standards. These agreements do not require us to purchase any minimum quantities. We have no present commitments or agreements with respect to acquisitions or purchases of any manufacturing facilities; however, management from time to time explores the possibility of the benefits of purchasing a raw material manufacturing facility to help control the costs of our raw materials and help ensure quality control standards.

We have operating lease liabilities for the property and equipment we use in our business operations. These operating lease liabilities represent our minimum future payment obligations on operating leases, including imputed interest. At March 31, 2022, our operating lease liabilities were $5.9 million, of which $1.5 million was recorded in Accrued expenses and $4.4 million was recorded in Other long-term liabilities. We also have finance lease liabilities of $0.1 million and lease restoration liabilities of $0.3 million.

We have pension obligations of $0.9 million related to our employee benefit at our Japan subsidiary.

Responding to COVID-19, we have taken steps to protect the health, safety and well-being of our customers, associates, employees, and communities by closing some offices and equipping various staff members to work remotely. The Company depends on an independent salesforce of distributors to market and sell its products to consumers. ~~Social~~Developments such as social distancing and shelter-in-place directives ~~in response to the COVID-19 pandemic~~ have impacted ~~and may continue to impact~~ their ability to engage with potential and existing customers. The adverse economic effects of COVID-19 ~~may also materially decrease~~include government restrictions and changes in consumer demand for the ~~Company’s products based on changes in consumer behavior or the restrictions in place by governments trying to curb the outbreak. For example, the~~Company's products. The Company has rescheduled corporate sponsored events, and in some cases, our associates have canceled sales meetings.

~~While the conditions described above are expected to be temporary, prolonged~~Prolonged workforce disruptions, continued disruption in our supply chain or potential decreases in consumer demands ~~may~~could negatively impact our sales as well as the Company's liquidity in the fiscal year ~~2021 and the Company’s overall liquidity.~~2022; however, such impact is currently unknown.

Long Term Liquidity

We believe our cash flows from operations should be adequate to fund our normal expected future business operations. As our primary source of liquidity is from our cash flows from operations, this will be dependent on our ability to maintain or improve revenue as compared to operational expenses.

However, if our existing capital resources or cash flows become insufficient to meet anticipated business plans and existing capital requirements, we may be required to raise additional funds, which may not be available on favorable terms, if at all.

Our future access to the capital markets may be adversely impacted if we fail to maintain compliance with the Nasdaq Marketplace Rules for the continued listing of our stock. We continuously monitor our compliance with the Nasdaq continued listing rules.

~~CONTRACTUAL OBLIGATIONS~~

~~The following summarizes our future commitments and obligations associated with various agreements and contracts as of June 30, 2021, for the years ending December 31~~ ~~(in thousands)~~:

Commitments and obligations Remaining 2021 2022 2023 2024 2025 Thereafter Total
Finance lease obligations $ 43 $ 75 $ 47 $ 21 $ 1 $ — $ 187
Purchase obligations (1)(2)(3)
2,355 2,617 — — — — 4,972
Operating lease obligations (6) (7)
1,205 1,765 1,194 1,282 881 1,528

7,855
Note payable and other financing arrangements 378 86 — — — — 464
Employment agreements 320 320 — — — — 640
Tax liability (4)
— — — — — 207 207
Other obligations (5)
226 178 23 117 34 572 1,150
Total commitments and obligations $ 4,527 $ 5,041 $ 1,264 $ 1,420 $ 916 $ 2,307 $ 15,475

~~(1)~~For purposes of the table, a purchase obligation is defined as an agreement to purchase goods or services that is non-cancelable, enforceable and legally binding on the Company that specifies all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction.

~~(2)Excludes approximately $19.0 million of finished product purchase orders that may be canceled or with delivery dates that have changed as of June 30, 2021.~~

~~(3)Renewal term of one supply agreement with minimum purchase commitments was modified from a 2 year auto-renew to 1 year and extended until November 2021.~~

~~(4)Represents the tax liability associated with uncertain tax positions, see Note 3,~~ ~~Income Taxes,~~ ~~to our consolidated financial statements.~~

~~(5)Other obligations are composed of pension obligations related to the Company's international operations (approximately $0.8 million) and lease restoration obligations (approximately $0.3 million).~~

~~(6)~~ ~~Calculated using the estimated or stated interest rate for each lease.~~

~~(7)~~ ~~Represents the minimum future payments, including imputed interest, for operating leases within the scope of Topic 842. Of the total present value of lease liabilities,$1.9 millionwas recorded in "Accrued expenses" and $5.1 million was recorded in "Other long-term liabilities".~~

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We have maintained purchase commitments with certain raw material suppliers to purchase minimum quantities and to ensure exclusivity of our raw materials and the proprietary nature of our products. Currently, we have one supply agreement that requires minimum purchase commitments. We also maintain other supply agreements and manufacturing agreements to protect our products, regulate product costs, and help ensure quality control standards. These other agreements do not require us to purchase any set minimums. We have no present commitments or agreements with respect to acquisitions or purchases of any manufacturing facilities; however, management from time to time explores the possible benefits of purchasing a raw material manufacturing facility to help control costs of our raw materials and help ensure quality control standards.

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OFF-BALANCE SHEET ARRANGEMENTS

We do not have any special-purpose entity arrangements, nor do we have any off-balance sheet arrangements.

~~SIGNIFICANT~~CRITICAL ACCOUNTING ~~POLICIES AND CRITICAL~~ ESTIMATES

Our consolidated financial statements are prepared in accordance with GAAP. The application of GAAP requires us to make estimates and assumptions that affect the reported values of assets and liabilities at the date of our financial statements, the reported amounts of revenues and expenses during the reporting period, and the related disclosures of contingent assets and liabilities. We use estimates throughout our financial statements, which are influenced by management’s judgment and uncertainties. Our estimates are based on historical trends, industry standards, and various other assumptions that we believe are applicable and reasonable under the circumstances at the time the consolidated financial statements are prepared. Our Audit Committee reviews our significant accounting policies and critical estimates. We continually evaluate and review our policies related to the portrayal of our consolidated financial position and consolidated results of operations that require the application of significant judgment by our management. We also analyze the need for certain estimates, including the need for such items as allowance for doubtful accounts, inventory reserves, long-lived fixed assets and capitalization of internal-use software development costs, reserve for uncertain income tax positions and tax valuation allowances, revenue recognition, sales returns, and deferred revenues, accounting for stock-based compensation, and contingencies and litigation. Historically, actual results have not materially deviated from our estimates. However, we caution readers that actual results could differ from our estimates and assumptions applied in the preparation of our consolidated financial statements. If circumstances change relating to the various assumptions or conditions used in our estimates, we could experience an adverse effect on our financial position, results of operations, and cash flows. We have identified the following applicable significant accounting policies and critical estimates as of ~~June 30, 2021.~~March 31, 2022.

Inventory Reserves

Inventory consists of raw materials, finished goods, and promotional materials that are stated at the lower of cost (using standard costs that approximate average costs) or market. We record the amounts charged by the vendors as the costs of inventory. Typically, the net realizable value of our inventory is higher than the aggregate cost. Determination of net realizable value can be complex and, therefore, requires a high degree of judgment. In order for management to make the appropriate determination of net realizable value, the following items are considered: inventory turnover statistics, current selling prices, seasonality factors, consumer demand, regulatory changes, competitive pricing, and performance of similar products. If we determine the carrying value of inventory is in excess of estimated net realizable value, we write down the value of inventory to the estimated net realizable value.

We also review inventory for obsolescence in a similar manner and any inventory identified as obsolete is reserved or written off. Our determination of obsolescence is based on assumptions about the demand for our products, product expiration dates, estimated future sales, and general future plans. We monitor actual sales compared to original projections, and if actual sales are less favorable than those originally projected by us, we record an additional inventory reserve or write-down. Historically, our estimates have been close to our actual reported amounts. However, if our estimates regarding inventory obsolescence are inaccurate or consumer demand for our products changes in an unforeseen manner, we may be exposed to additional material losses or gains in excess of our established estimated inventory reserves.

Long Lived Fixed Assets and Capitalization of Software Development Costs

In addition to capitalizing long lived fixed asset costs, we also capitalize costs associated with internally-developed software projects (collectively “fixed assets”) and amortize such costs over the estimated useful lives of such fixed assets. Fixed assets are carried at cost, less accumulated depreciation computed using the straight-line method over the assets’ estimated useful lives. Leasehold improvements are amortized over the shorter of the remaining lease terms or the estimated useful lives of the improvements. Expenditures for maintenance and repairs are charged to operations as incurred. If a fixed asset is sold or otherwise retired or disposed of, the cost of the fixed asset and the related accumulated depreciation or amortization is written off and any resulting gain or loss is recorded in other operating costs in our consolidated statement of operations.

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We review our fixed assets for impairment whenever an event or change in circumstances indicates the carrying amount of an asset or group of assets may not be recoverable, such as plans to dispose of an asset before the end of its previously estimated useful life. Our impairment review includes a comparison of future projected cash flows generated by the asset, or group of assets, with its associated net carrying value. If the net carrying value of the asset or group of assets exceeds expected cash flows (undiscounted and without interest charges), an impairment loss is recognized to the extent the carrying amount exceeds the fair value. The fair value is determined by calculating the discounted expected future cash flows using an estimated risk-free rate of interest. Any identified impairment losses are recorded in the period in which the impairment occurs. The carrying value of the fixed asset is adjusted to the new carrying value, and any subsequent increases in fair value of the fixed asset are not recorded. In addition, if we determine the estimated remaining useful life of the asset should be reduced from our original estimate, the periodic depreciation expense is adjusted prospectively, based on the new remaining useful life of the fixed asset.

The impairment calculation requires us to apply judgment and estimates concerning future cash flows, strategic plans, useful lives, and discount rates. If actual results are not consistent with our estimates and assumptions, we may be exposed to an additional impairment charge, which could be material to our results of operations. In addition, if accounting standards change, or if fixed assets become obsolete, we may be required to write off any unamortized costs of fixed assets, or if estimated useful lives change, we would be required to accelerate depreciation or amortization periods and recognize additional depreciation expense in our consolidated statement of operations.

Historically, our estimates and assumptions related to the carrying value and the estimated useful lives of our fixed assets have not materially deviated from actual results. As of June 30, 2021, the estimated useful lives and net carrying values of fixed assets were as follows:


	~~Estimated useful life~~	~~Net carrying value at June 30, 2021~~
~~Office furniture and equipment~~	~~5 to 7 years~~	~~$0.4 million~~
~~Computer hardware and software~~	~~3 to 5 years~~	~~1.4 million~~
~~Automobiles~~	~~3 to 5 years~~	~~0.1 million~~
~~Leasehold improvements~~ ~~(1)~~	~~2 to 10 years~~	~~1.4 million~~
~~Total~~ ~~(2)~~		~~$3.3 million~~

~~(1)~~ ~~We amortize leasehold improvements over the shorter of the useful estimated life of the leased asset or the lease term.~~

~~(2)~~ Property and Equipment is presented on the Balance Sheet as the sum of $3.3 million of fixed assets, shown in the table above, and $0.2 million of right of use assets related to financing leases, which are not shown in this table. See Note 8, ~~Leases~~ ~~for more information.~~

The net carrying costs of fixed assets are exposed to impairment losses if our assumptions and estimates of their carrying values change, there is a change in estimated future cash flow, or there is a change in the estimated useful life of the fixed asset. Based on management’s analysis, no impairment indicators existed for the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 and the year ended December 31, ~~2020.~~2021.

Uncertain Income Tax Positions and Tax Valuation Allowances

As of ~~June 30, 2021, we~~March 31, 2022, there was nothing recorded ~~$0.2 million~~ in other long-term liabilities on our consolidated balance sheet related to uncertain income tax positions. As required by Topic 740, we use judgments and make estimates and assumptions related to evaluating the probability of uncertain income tax positions. We base our estimates and assumptions on the potential liability related to an assessment of whether the income tax position will “more likely than not” be sustained in an income tax audit. We are also subject to periodic audits from multiple domestic and foreign tax authorities related to income tax and other forms of taxation. These audits examine our tax positions, timing of income and deductions, and allocation procedures across multiple jurisdictions. Depending on the nature of the tax issue, we could be subject to audit over several years. Therefore, our estimated reserve balances and liability related to uncertain income tax positions may exist for multiple years before the applicable statute of limitations expires or before an issue is resolved by the taxing authority. Additionally, we may be requested to extend the statute of limitations for tax years under audit. It is reasonably possible the tax jurisdiction may request that the statute of limitations be extended, which may cause the classification between current and long-term to change. We believe our tax liabilities related to uncertain tax positions are based upon reasonable judgment and estimates; however, if actual results materially differ, our effective income tax rate and cash flows could be affected in the period of discovery or resolution. There are ongoing income tax audits in various international jurisdictions that we believe are not material to our financial statements.

~~Table of Contents~~

Revenue Recognition and Deferred Commissions

Our revenue is derived from sales of individual products, sales of starter and renewal packs, associate fees and shipping fees. Substantially all of our product and pack sales are to associates and preferred customers at published wholesale prices. We record revenue net of any sales taxes and record a reserve for expected sales returns based on historical experience. We recognize revenue from shipped packs and products upon receipt by the customer. Corporate-sponsored event revenue is recognized when the event is held.

Revenues from associate fees relate to providing associates with the rights to earn commissions, benefits and incentives for an annual period. Associate fees are recognized evenly over the course of the annual period of the associate’s contract. We collected associate fees within the United States, Canada, South Africa, Japan, Australia, New Zealand, Singapore, Hong Kong, Taiwan, Austria, the Czech Republic, Denmark, Estonia, Finland, Germany, the Republic of Ireland, the Netherlands, Norway, Spain, and the United Kingdom during the three ~~and six~~ months ended ~~June 30, 2021.~~March 31, 2022.

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The arrangement regarding associate fees has three service elements: (1) providing new associates with the eligibility to earn commissions, benefits and incentives for twelve months, (2) three months of complimentary access to utilize the Success Tracker™ online tool, and (3) three months of complimentary access to utilize the Mannatech+ customized electronic business-building tool. Each of these service elements is provided over time to the customer. For the three ~~and six~~ months ended ~~June 30, 2021,~~March 31, 2022, the associate fees were allocated to these three service elements on a relative standalone selling price basis in accordance with ASC 606.

We defer certain components of revenue. At ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, deferred revenue was ~~$6.1~~$6.6 million and ~~$5.5~~$4.9 million, respectively. When participating in our loyalty program, customers earn loyalty points from qualified automatic orders that can be applied to future purchases. We defer the dollar equivalent in revenue of these points until the points are applied, forfeited or expired, which includes an estimate of the percentage of the unvested loyalty points that are expected to be forfeited or expired. The deferred revenue associated with the loyalty program at ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021 was $4.2 million and ~~$4.5~~$4.3 million, respectively. Deferred revenue consisted primarily of: (i) sales of packs and products shipped but not received by the customers by the end of the respective period; (ii) revenue from the loyalty program; and (iii) prepaid registration fees from customers planning to attend a future corporate-sponsored event. In total current assets, we defer commissions on (i) the sales of packs and products ordered but not received by the customers by the end of the respective period and (ii) the loyalty program. Deferred commissions were ~~$2.3~~$3.1 million and $2.4 million at ~~each of June 30, 2021~~March 31, 2022 and December 31, ~~2020.~~2021.


Loyalty program	(in thousands)
~~Loyalty deferred revenue as of January 1, 2020~~	$	~~3,127~~
~~Loyalty points forfeited or expired~~	~~(3,249)~~
~~Loyalty points used~~	~~(9,385)~~
~~Loyalty points vested~~	~~12,771~~
~~Loyalty points unvested~~	~~1,223~~
~~Loyalty deferred revenue as of December 31, 2020~~	$	~~4,487~~



Loyalty deferred revenue as of January 1, 2021	$	4,487
Loyalty points forfeited or expired	~~(2,108)~~(3,987)
Loyalty points used	~~(4,735)~~(9,809)
Loyalty points vested	~~5,333~~11,676
Loyalty points unvested	~~1,194~~1,925
Loyalty deferred revenue as of ~~June 30,~~December 31, 2021	$	~~4,171~~4,292



Loyalty deferred revenue as of January 1, 2022	$	4,292
Loyalty points forfeited or expired	(941)
Loyalty points used	(2,422)
Loyalty points vested	2,190
Loyalty points unvested	1,055
Loyalty deferred revenue as of March 31, 2022	$	4,174

~~Table of Contents~~

Product Return Policy

We stand behind our packs and products and believe we offer a reasonable and industry-standard product return policy to all of our customers. We do not resell returned products. Refunds are not processed until proper approval is obtained. All refunds must be processed and returned in the same form of payment that was originally used in the sale. Each country in which we operate has specific product return guidelines. However, we allow our associates and preferred customers to exchange products as long as the products are unopened and in good condition. Our return policies for our retail customers and our associates and preferred customers are as follows:

•Retail Customer Product Return Policy. This policy allows a retail customer to return any of our products to the original associate who sold the product and receive a full cash refund from the associate for the first 180 days following the product’s purchase if located in the United States and Canada, and for the first 90 days following the product’s purchase in other countries where we sell our products. The associate may then return or exchange the product based on the associate product return policy.

•Associate and Preferred Customer Product Return Policy. This policy allows the associate or preferred customer to return an order within one year of the purchase date upon terminating his/her account. If an associate or preferred customer returns a product unopened and in good condition, he/she may receive a full refund minus a 10% restocking fee. We may also allow the associate or preferred customer to receive a full satisfaction guarantee refund if they have tried the product and are not satisfied for any reason, excluding promotional materials. This satisfaction guarantee refund applies in the United States and Canada, only for the first 180 days following the product’s purchase, and applies in other countries where we sell our products for the first 90 days following the product’s purchase; however, any commissions earned by an associate will be deducted from the refund. If we discover abuse of the refund policy, we may terminate the associate’s or preferred customer’s account.

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Historically, sales returns estimates have not materially deviated from actual sales returns, as the majority of our customers who return merchandise do so within the first 90 days after the original sale. Based upon our return policies and historical experience, we estimate a sales return reserve for expected sales refunds over a rolling six-month period. If actual results differ from our estimated sales returns reserves due to various factors, the amount of revenue recorded each period could be materially affected. Historically, our sales returns have not materially changed through the years and have averaged 1.5% or less of our gross sales.

Accounting for Stock-Based Compensation

We grant stock options to our employees, board members, and consultants. At the date of grant, we determine the fair value of a stock option award and recognize compensation expense over the requisite service period, or the vesting period of such stock option award, which is two or three years. The fair value of the stock option award is calculated using the Black-Scholes option-pricing model. The Black-Scholes option-pricing model requires us to apply judgment and use highly subjective assumptions, including expected stock option life, expected volatility, expected average risk-free interest rates, and expected forfeiture rates.

~~June 2021 Grant~~

~~Estimated fair value per of options granted:~~

~~6.77~~

~~Assumptions:~~

~~Annualized dividend yield~~

~~2.4~~

~~Risk-free rate of return~~

~~0.7~~

~~Common stock price volatility~~

~~56.7~~

~~Expected average life of stock options (in years)~~

~~4.5~~

The assumptions we use are based on our best estimates and involve inherent uncertainties related to market conditions that are outside of our control. If actual results are not consistent with the assumptions we use, the stock-based compensation expense reported in our consolidated financial statements may not be representative of the actual economic cost of stock-based compensation. For example, if actual employee forfeitures significantly differ from our estimated forfeitures, we may be required to make an adjustment to our consolidated financial statements in future periods.

If we grant additional stock options in the future, we would be required to recognize additional compensation expense over the vesting period of such stock options in our consolidated statement of operations. As of ~~June 30, 2021,~~March 31, 2022, we had ~~144,155~~138,083 shares available for grant in the future. During the three months ended ~~June 30, 2021,~~March 31, 2022, the Company granted ~~10,000~~no stock options.

~~Table of Contents~~

Contingencies and Litigation

Each quarter, we evaluate the need to establish a reserve for any legal claims or assessments. We base our evaluation on our best estimates of the potential liability in such matters. The legal reserve includes an estimated amount for any damages and the probability of losing any threatened legal claims or assessments. We consult with our general and outside counsel to determine the legal reserve, which is based upon a combination of litigation and settlement strategies. Although we believe that our legal reserve and accruals are based on reasonable judgments and estimates, actual results could differ, which may expose us to material gains or losses in future periods. If actual results differ, if circumstances change, or if we experience an unanticipated adverse outcome of any legal action, including any claim or assessment, we would be required to recognize the estimated amount, which could reduce net income, earnings per share, and cash flows.

~~RECENT ACCOUNTING PRONOUNCEMENTS~~On October 28, 2021, the Company received notice that it was among 1,100 companies scheduled to receive a letter from the Federal Trade Commission (“FTC”) regarding “Notices of Penalty Offenses Concerning Money-Making Opportunities and Endorsement and Testimonials.” Mannatech received the letter on October 28, 2021. The letters put companies on notice that they should be aware of what constitutes false or misleading income, earning, or product claims. As the FTC makes clear in the letter, receipt of the letter is not a determination of wrongdoing. From a procedural standpoint, the FTC would still have to file a formal action if they were to determine the Company is in violation of the parameters laid out in the letter and then undergo an administrative hearing process. The letter is the first step in a process for the FTC to impose “civil monetary penalties of up to $43,792 per violation.” Nearly all Direct Selling Association ("DSA") member companies received the notice along with non-members of the DSA in the direct selling channel, gig companies, franchise companies, and other companies offering business opportunities.

~~In June 2016, the FASB issued ASU 2016-13,~~ ~~Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments~~ ~~("ASU 2016-13")~~. This standard adds to GAAP an impairment model (known as the current expected credit loss ("CECL") model) that is based on expected losses rather than incurred losses. Under the new guidance, an entity recognizes as an allowance its estimate of expected credit losses, which is intended to result in the more timely recognition of losses. Under the CECL model, entities will estimate credit losses over the entire contractual term of the instrument (considering estimated prepayments, but not expected extensions or modifications) from the date of initial recognition of the financial instrument. Measurement of expected credit losses are to be based on relevant forecasts that affect collectability. The scope of financial assets within the CECL methodology is broad and includes trade receivables from certain revenue transactions and certain off-balance sheet credit exposures. Different components of the guidance require modified retrospective or prospective adoption. In November 2019, the FASB issued ASU 2019-10, ~~Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842)~~ ("ASU 2019-10") which defers the effective date for smaller reporting companies by three years to December 15, 2022 for fiscal years, and interim periods within those fiscal years, beginning after that date. This standard will be effective for the Company on January 1, 2023. While our review is ongoing, we believe ASU 2016-13 will only have applicability to our receivables from revenue transactions. Under ASC 606, revenue is recognized when, among other criteria, it is probable that the entity will collect the consideration to which it is entitled for goods or services transferred to a customer. At the point that trade receivables are recorded, they become subject to the CECL model and estimates of expected credit losses on trade receivables over their contractual life will be required to be recorded at inception based on historical information, current conditions, and reasonable and supportable forecasts. The Company continues to evaluate whether the new guidance will have an impact on our consolidated financial statements or existing internal controls.

~~See Note 1 to our Consolidated Financial Statements for further information on recent accounting pronouncements.~~

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

We do not engage in trading market risk sensitive instruments and do not purchase investments as hedges or for purposes “other than trading” that are likely to expose us to certain types of market risk, including interest rate, commodity price, or equity price risk. Although we have investments, we believe there has been no material change in our exposure to interest rate risk. We have not issued any debt instruments, entered into any forward or futures contracts, purchased any options, or entered into any swap agreements.

We are exposed, however, to other market risks, including changes in currency exchange rates as measured against the United States dollar. Because the change in value of the United States dollar measured against foreign currency may affect our consolidated financial results, changes in foreign currency exchange rates could positively or negatively affect our results as expressed in United States dollars. For example, when the United States dollar strengthens against foreign currencies in which our products are sold or weakens against foreign currencies in which we may incur costs, our consolidated net sales or related costs and expenses could be adversely affected. We translate our revenues and expenses in foreign markets using an average rate. We believe inflation has not had a material impact on our consolidated operations or profitability.

We maintain policies, procedures, and internal processes in an effort to help monitor any significant market risks and we do not use any financial instruments to manage our exposure to such risks. We assess the anticipated foreign currency working capital requirements of our foreign operations and maintain a portion of our cash and cash equivalents denominated in foreign currencies sufficient to satisfy most of these anticipated requirements.

We caution that we cannot predict with any certainty our future exposure to such currency exchange rate fluctuations or the impact, if any, such fluctuations may have on our future business, product pricing, operating expenses, and on our consolidated financial position, results of operations, or cash flows. However, to combat such market risk, we closely monitor our exposure to currency fluctuations. The regions and countries in which we currently have exposure to foreign currency exchange rate risk include (i) the Americas (Canada, , Colombia and Mexico); (ii) EMEA (Austria, the Czech Republic, Denmark, Estonia, Finland, Germany, the Republic of Ireland, the Netherlands, Norway, South Africa, Spain, Sweden, Switzerland and the United Kingdom); and (iii) Asia/Pacific (Australia, Japan, New Zealand, the Republic of Korea, Singapore, Taiwan, Hong Kong, and China). The current (spot) rate, average currency exchange rates, and the low and high of such currency exchange rates as compared to the United States dollar, for each of these countries as of and for the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 were as follows:


		Six months ended June 30, 2021			As of June 30, 2021		Three months ended March 31, 2022			As of March 31, 2022
Country (foreign currency name)	Country (foreign currency name)	Low	High	Average	Spot	Country (foreign currency name)	Low	High	Average	Spot
Australia (Australian Dollar)	Australia (Australian Dollar)	0.74810	0.79516	0.77145	0.75320	Australia (Australian Dollar)	0.70020	0.75176	0.72401	0.75161
Canada (Canadian Dollar)	Canada (Canadian Dollar)	0.77960	0.83015	0.80196	0.80842	Canada (Canadian Dollar)	0.77872	0.80162	0.78946	0.80132
China (Renminbi)	China (Renminbi)	0.15222	0.15705	0.15457	0.15479	China (Renminbi)	0.15684	0.15849	0.15759	0.15746
Colombia (Peso)	Colombia (Peso)	0.00026	0.00029	0.00028	0.00027	Colombia (Peso)	0.00025	0.00027	0.00026	0.00027
Czech Republic (Koruna)	Czech Republic (Koruna)	0.04490	0.04819	0.04664	0.04675	Czech Republic (Koruna)	0.04224	0.04713	0.04554	0.04555
Denmark (Kroner)	Denmark (Kroner)	0.15770	0.16555	0.16211	0.16011	Denmark (Kroner)	0.14609	0.15398	0.15086	0.14974
Hong Kong (Hong Kong Dollar)	Hong Kong (Hong Kong Dollar)	0.12849	0.12901	0.12885	0.12882	Hong Kong (Hong Kong Dollar)	0.12773	0.12848	0.12814	0.12777
Japan (Yen)	Japan (Yen)	0.00902	0.00972	0.00929	0.00905	Japan (Yen)	0.00810	0.00880	0.00861	0.00820
Mexico (Peso)	Mexico (Peso)	0.04668	0.05100	0.04958	0.05044	Mexico (Peso)	0.04685	0.05024	0.04877	0.05024
New Zealand (New Zealand Dollar)	New Zealand (New Zealand Dollar)	0.69467	0.74244	0.71717	0.70072	New Zealand (New Zealand Dollar)	0.65537	0.69713	0.67661	0.69713
Norway (Krone)	Norway (Krone)	0.11554	0.12215	0.11849	0.11693	Norway (Krone)	0.11090	0.11627	0.11305	0.11607
Republic of Korea (Won)	Republic of Korea (Won)	0.00088	0.00092	0.00090	0.00088	Republic of Korea (Won)	0.00081	0.00084	0.00083	0.00083
Singapore (Singapore Dollar)	Singapore (Singapore Dollar)	0.74201	0.75882	0.75070	0.74387	Singapore (Singapore Dollar)	0.73216	0.74481	0.73962	0.73877
South Africa (Rand)	South Africa (Rand)	0.06467	0.07455	0.06887	0.06987	South Africa (Rand)	0.06271	0.06904	0.06565	0.06904
Sweden (Krona)	Sweden (Krona)	0.11458	0.12242	0.11906	0.11732	Sweden (Krona)	0.10030	0.11198	0.10715	0.10777
Switzerland (Franc)	Switzerland (Franc)	1.05953	1.13849	1.10183	1.08618	Switzerland (Franc)	1.06306	1.09692	1.08301	1.08031
Taiwan (New Taiwan Dollar)	Taiwan (New Taiwan Dollar)	0.03495	0.03631	0.03570	0.03583	Taiwan (New Taiwan Dollar)	0.03474	0.03632	0.03575	0.03501
United Kingdom (British Pound)	United Kingdom (British Pound)	1.35045	1.41980	1.38835	1.38511	United Kingdom (British Pound)	1.30313	1.37226	1.34220	1.31330
Various countries (1) (Euro)	Various countries (1) (Euro)	1.17284	1.23148	1.20544	1.19057	Various countries (1) (Euro)	1.08689	1.14574	1.12241	1.11375

(1)Austria, Germany, the Netherlands, Estonia, Finland, the Republic of Ireland, and Spain

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Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer (principal executive officer) and our Chief Financial Officer (principal financial officer), have concluded, based on their evaluation as of the end of the period covered by this report, that our disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Exchange Act) are effective to ensure that information required to be disclosed by us in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and include controls and procedures designed to ensure that information required to be disclosed by us in such reports is accumulated and communicated to our management, including our principal executive and financial officers, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

During the quarter ended ~~June 30, 2021,~~March 31, 2022, there were no changes in our internal control over our financial reporting that we believe materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We have not experienced any material changes to our internal controls over financial reporting despite the fact that most of our employees are working remotely due to the COVID-19 pandemic. We are continually monitoring and assessing the COVID-19 situation on our internal controls to minimize the impact on their design and operating effectiveness.

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PART II - OTHER INFORMATION

Item 1. Legal Proceedings

See Note 7, Litigation, of our Notes to Unaudited Consolidated Financial Statements, which is incorporated herein by reference.

Item 1A. Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our ~~2020~~2021 Annual Report, which could materially affect our business or our consolidated financial position, results of operations, and cash flows. The risks described in our ~~2020~~2021 Annual Report are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be insignificant also may become materially adverse or may affect our business in the future or our consolidated financial position, results of operations, or cash flows.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

~~Issuer Purchases of Equity Securities~~

On May 28, 2021, we commenced a cash tender offer to purchase up to 211,538 shares of our outstanding common stock at a purchase price of $26.00 per share to each seller. The tender offer expired on June 25, 2021. As a result of the tender offer, we accepted for purchase a total of 171,433 shares of our common stock, which were properly tendered and not properly withdrawn at the price of $26.00 per share, for an aggregate purchase price of $4.5 million, which was funded from cash on hand.

~~During the three months ended June 30, 2021, we repurchased the following shares of our common stock:~~

Period Total number
of shares
purchased Average
price
paid per share
Total number of shares purchased as part of publicly announced programs(a)
Dollar value of
shares that may yet
be purchased (b)
(in thousands)
April 1, 2021 - April 30, 2021 — $ — — $ 12,250
May 1, 2021 - May 31, 2021 276 $ 18.99 276 $ 12,245
June 1, 2021 - June 30, 2021 171,433 $ 26.00 171,433 $ 7,788
Total 171,709 171,709

~~(a)~~We have an ongoing authorization, originally approved by our Board of Directors (the “Board”) on August 28, 2006 to repurchase up to $20.0 million of shares of our common stock, which authorization was subsequently reactivated by our Board in August of 2016 and December of 2017, to repurchase up to $0.5 million (of the original $20.0 million authorization), respectively, in shares of our common stock in the open market. In August of 2018 and November of 2018, our Board reactivated an additional $0.5 million (of the original $20.0 million authorization), respectively, in shares of our common stock to be repurchased in the open market. In December 2019, our Board approved a share repurchase program to acquire up to $1.0 million (of the original $20.0 million authorization) of our common stock through March 1, 2020. In August 2020, our Board approved a share repurchase program to acquire up to $1.0 million (of the original $20.0 million authorization) of our common stock through August 16, 2021. Any repurchases pursuant to an authorized share repurchase program would be made from time to time in the open market, through block trades or in privately negotiated transactions. The timing, volume and nature of any share repurchases would be at the discretion of management and dependent on market conditions, applicable securities laws and other factors, and could be suspended or discontinued at any time. All or part of any such repurchases could be implemented under a Rule 10b5-1 trading plan.

~~(b)Remaining value of the original $20.0 million approved by our Board on August 28, 2006.~~None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not Applicable.

Item 5. Other Information

Not Applicable.

Item 6 Exhibits

See Index to Exhibits immediately following this page.

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INDEX TO EXHIBITS

Incorporated by Reference
Exhibit
Number Exhibit Description Form File No. Exhibit (s) Filing Date
3.1
Amended and Restated Articles of Incorporation of
Mannatech, dated May 19, 1998. S-1 333-63133 3.1 October 28, 1998
3.2
Certificate of Amendment to the Amended and Restated Articles of Incorporation of Mannatech, dated January 13, 2012. 8-K 000-24657 3.1 January 17, 2012
3.3
Fifth Amended and Restated Bylaws of Mannatech, dated August 25, 2014. 8-K 000-24657 3.1 August 27, 2014
4.1
Specimen Certificate representing Mannatech’s common stock, par value $0.0001 per share. S-1 333-63133 4.1 October 28, 1998
31.1*

Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, of the Chief Executive Officer of Mannatech. * * * *
31.2*
Certification pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002, of the Chief Financial Officer of Mannatech. * * * *
32.1**
Certification pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, of the Chief Executive Officer of Mannatech. ** ** ** **
32.2**
Certification pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, of the Chief Financial Officer of Mannatech. ** ** ** **
101.INS* XBRL Instance Document * * * *
101.SCH* XBRL Taxonomy Extension Schema Document * * * *
101.CAL* XBRL Taxonomy Extension Calculation Linkbase Document * * * *
101.LAB* XBRL Taxonomy Extension Label Linkbase Document * * * *
101.PRE* XBRL Taxonomy Extension Presentation Linkbase Document * * * *
101.DEF* XBRL Taxonomy Extension Definition Linkbase Document * * * *

Incorporated by Reference

Exhibit
Number

Exhibit Description

Form

File No.

Exhibit (s)

Filing Date

3.1

Amended and Restated Articles of Incorporation of Mannatech, Incorporated, dated May 19, 1998.

S-1

333-63133

3.1

September 10, 1998

3.2

Certificate of Amendment to the Amended and Restated Articles of Incorporation of Mannatech, dated January 13, 2012.

8-K

000-24657

3.1

January 17, 2012

3.3

Fifth Amended and Restated Bylaws of Mannatech, dated August 25, 2014.

8-K

000-24657

3.1

August 27, 2014

4.1

Specimen Certificate representing Mannatech’s common stock, par value $0.0001 per share.

S-1

333-63133

4.1

October 28, 1998

31.1*

Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, of the Chief Executive Officer of Mannatech.

31.2*

Certification pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002, of the Chief Financial Officer of Mannatech.

32.1**

Certification pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, of the Chief Executive Officer of Mannatech.

32.2**

Certification pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, of the Chief Financial Officer of Mannatech.

101.INS*

XBRL Instance Document

101.SCH*

XBRL Taxonomy Extension Schema Document

101.CAL*

XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB*

XBRL Taxonomy Extension Label Linkbase Document

101.PRE*

XBRL Taxonomy Extension Presentation Linkbase Document

101.DEF*

XBRL Taxonomy Extension Definition Linkbase Document



*			Filed herewith.
**			Furnished herewith.

4339

Table of Contents

SIGNATURES

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.


	MANNATECH, INCORPORATED

Dated: ~~August 12, 2021~~May 13, 2022	By:	/s/ Alfredo Bala
		Alfredo Bala
		Chief Executive Officer
		(principal executive officer)


Dated: ~~August 12, 2021~~May 13, 2022	By:	/s/ David A. Johnson
		David A. Johnson
		Chief Financial Officer
		(principal financial officer)

4440


	Common stock Par value		Additional paid-in capital		Retained earnings (accumulated deficit)		Accumulated other comprehensive income		Treasury stock		Total shareholders’ equity
Balance at January 1, 2021	$	0	$	33,795	$	2,213	$	5,150	$	(15,186)	$	25,972
Net income	—		—		2,194		—		—		2,194
Payment of cash dividends	—		—		(333)		—		—		(333)
Charge related to stock-based compensation	—		6		—		—		—		6
Issuance of unrestricted shares	—		(44)		—		—		254		210


Repurchase of common stock	—		—		—		—		(350)		(350)

Foreign currency translations	—		—		—		(1,356)		—		(1,356)
Balance at March 31, 2021	$	0	$	33,757	$	4,074	$	3,794	$	(15,282)	$	26,343


	Common stock Par value		Additional paid-in capital		Accumulated deficit		Accumulated other comprehensive income		Treasury stock		Total shareholders’ equity
Balance at January 1, 2020	$	0	$	34,143	$	(690)	$	3,757	$	(9,935)	$	27,275
Net income	—		—		2,787		—		—		2,787
Payment of cash dividends	—		—		(300)		—		—		(300)
Charge related to stock-based compensation	—		83		—		—		—		83
Issuance of unrestricted shares	—		(163)		—		—		373		210


Repurchase of common stock	—		—		—		—		(86)		(86)

Foreign currency translations	—		—		—		(1,634)		—		(1,634)
Balance at March 31, 2020	$	0	$	34,063	$	1,797	$	2,123	$	(9,648)	$	28,335


Three-month period ended (in millions, except percentages)	June 30, 2021				June 30, 2020		Constant $ Change
	GAAP Measure: Total $		Non-GAAP Measure: Constant $		GAAP Measure: Total $		Dollar		Percent
Net sales	$	42.5	$	40.0	$	37.6	$	2.4	6.4	%
Product	40.4		38.0		37.0		1.0		2.7	%
Pack sales and associate fees	1.9		1.8		0.4		1.4		350.0	%
Other	0.2		0.2		0.2		—		—	%
Gross profit	32.4		30.5		28.9		1.6		5.5	%
Income from operations	2.0		1.6		1.1		0.5		45.5	%


Region	Three Months Ended June 30, 2021				Three Months Ended June 30, 2020
Americas	$	12.4	29.2	%	$	10.9	29.0	%
Asia/Pacific	26.1		61.4	%	23.5		62.5	%
EMEA	4.0		9.4	%	3.2		8.5	%
Total	$	42.5	100.0	%	$	37.6	100.0	%


Region	Six Months Ended June 30, 2021				Six Months Ended June 30, 2020
Americas	$	23.3	28.8	%	$	22.6	30.4	%
Asia/Pacific	49.7		61.5	%	45.0		60.6	%
EMEA	7.8		9.7	%	6.7		9.0	%
Total	$	80.8	100.0	%	$	74.3	100.0	%


Commitments and obligations	Remaining 2021		2022		2023		2024		2025		Thereafter		Total
Finance lease obligations	$	43	$	75	$	47	$	21	$	1	$	—	$	187
Purchase obligations (1)(2)(3)	2,355		2,617		—		—		—		—		4,972
Operating lease obligations (6) (7)	1,205		1,765		1,194		1,282		881		1,528		7,855
Note payable and other financing arrangements	378		86		—		—		—		—		464
Employment agreements	320		320		—		—		—		—		640

Tax liability (4)	—		—		—		—		—		207		207
Other obligations (5)	226		178		23		117		34		572		1,150
Total commitments and obligations	$	4,527	$	5,041	$	1,264	$	1,420	$	916	$	2,307	$	15,475


Period	Total number of shares purchased	Average price paid per share		Total number of shares purchased as part of publicly announced programs(a)	Dollar value of shares that may yet be purchased (b) (in thousands)
April 1, 2021 - April 30, 2021	—	$	—	—	$	12,250
May 1, 2021 - May 31, 2021	276	$	18.99	276	$	12,245
June 1, 2021 - June 30, 2021	171,433	$	26.00	171,433	$	7,788
Total	171,709			171,709