2001

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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, 2001

[ ] 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 (I.R.S. Employer
Incorporation or Organization) Identification No.)

600 S. Royal Lane, Suite 200
Coppell, Texas
75019
(Address of Principal Executive Offices, including Zip Code)
Registrant's Telephone Number, including Area Code: (972) 471-7400

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
----- -----

As of August 4, 2001, the number of shares outstanding of the registrant's
sole class of common stock, par value $0.0001 per share was 24,333,758.

TABLE OF CONTENTS

Page
----
Part I - FINANCIAL INFORMATION

Item 1. Financial Statements..................................... 1
Consolidated Balance Sheets.................................... 1
Consolidated Statements of Operations.......................... 2
Consolidated Statements of Cash Flows.......................... 3
Notes to Consolidated Financial Statements..................... 4

Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations......................... 7
Overview....................................................... 7
Results of Operations.......................................... 9
Three months ended June 30, 2001 compared with the three
months ended June 30, 2000.................................... 9
Six months ended June 30, 2001 compared with the six months
ended June 30, 2000........................................... 11
Liquidity and Capital Resources................................ 14
Recent Financial Accounting Standards Board Statements......... 15
Outlook........................................................ 16
Forward-looking Statements..................................... 16

Item 3. Quantitative and Qualitative Disclosures About Market
Risk............................................................. 17

Part II - OTHER INFORMATION

Item 1. Legal Proceedings........................................ 18
Item 2. Changes in Securities and Use of Proceeds................ 18
Item 3. Defaults Upon Senior Securities.......................... 18
Item 4. Submission of Matters to a Vote of Security Holders...... 18
Item 5. Other Information........................................ 18
Item 6. Exhibits and Reports on Form 8-K......................... 19
Signatures........................................................ 21

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

MANNATECH, INCORPORATED
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)

December 31, June 30,
2000 2001
------- -------
(Unaudited)

ASSETS
Cash and cash equivalents................................................................ $ 5,736 $ 3,740
Accounts receivable, less allowance for doubtful accounts of $58 in 2000 and 2001........ 692 384
Income tax receivable .................................................................. 2,300 2,300
Current portion of notes receivable-shareholders ....................................... 187 119
Inventories ............................................................................ 13,326 12,446
Prepaid expenses and other current assets................................................ 745 861
Deferred tax assets...................................................................... 1,201 1,595
------- -------
Total current assets ............................................................ 24,187 21,445
Property and equipment, net ............................................................ 13,324 11,874
Notes receivable-shareholders, excluding current portion ............................... 390 321
Other assets ........................................................................... 1,000 851
Long-term investments .................................................................. 1 --
------- -------
Total assets .................................................................... $38,902 $34,491
======= =======

LIABILITIES AND SHAREHOLDERS' EQUITY
Current portion of capital leases and notes payable .................................... $ 301 $ 210
Accounts payable ....................................................................... 4,309 1,593
Accrued expenses ....................................................................... 11,768 11,363
Accrued compensation to related parties (Note 4) ....................................... 520 1,760
------- -------
Total current liabilities ....................................................... 16,898 14,926
Capital leases and notes payable, excluding current portion ............................ 27 9
Accrued compensation to related parties (Note 4) ....................................... 500 1,100
Deferred tax liabilities ............................................................... 1,752 1,750
------- -------
Total liabilities ............................................................... 19,177 17,785
------- -------
Commitments and contingencies (Note 4) ................................................. -- --
Commitment to repurchase common stock .................................................. 1,000 667

Shareholders' equity:
Preferred stock, $0.01 par value, 1,000,000 shares authorized, no shares issued and
outstanding............................................................................. -- --
Common stock, $0.0001 par value, 99,000,000 shares authorized, 25,051,301 shares issued
and 24,929,173 outstanding in 2000, 25,051,301 issued and 24,506,866 outstanding in.....
2001.................................................................................... 3 3

Additional paid-in capital ............................................................. 17,949 17,949
Note receivable due from a shareholder ................................................. (167) --
Retained earnings ...................................................................... 2,798 414
Accumulated other comprehensive loss--foreign currency translation adjustment .......... (321) (551)
------- -------
20,262 17,815
Less treasury stock, at cost, 122,128 shares in 2000 and 544,435 shares in 2001 and a
commitment to repurchase common stock of $1,000 in 2000 and $667 in 2001 .............. (1,537) (1,776)
------- -------
Total shareholders' equity ...................................................... 18,725 16,039
------- -------
Total liabilities, commitment to repurchase common stock and shareholders'
equity ........................................................................ $38,902 $34,491
======= =======

See accompanying notes to consolidated financial statements.

MANNATECH, INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED JUNE 30, 2000 AND 2001
AND THE SIX MONTHS ENDED JUNE 30, 2000 AND 2001
(in thousands, except per share information)

Three months ended Six months ended
June 30 June 30
----------------------- ---------------------
2000 2001 2000 2001
------- -------- ------- -------

Net Sales........................................................ $39,037 $ 32,515 $78,731 $66,710
------- -------- ------- -------
Cost of Sales.................................................... 6,773 5,814 13,693 11,541
Commissions...................................................... 15,553 12,488 32,051 26,293
------- -------- ------- -------
22,326 18,302 45,744 37,834
------- -------- ------- -------
Gross profit............................................. 16,711 14,213 32,987 28,876
------- -------- ------- -------
Operating Expenses:
Selling and administrative expenses...................... 8,987 7,571 18,934 16,604
Other operating costs.................................... 7,939 5,526 15,373 11,650
Severance expenses related to former executives.......... - 3,420 - 3,420
Write-off of fixed asset................................. 870 - 870 -
------- -------- ------- -------
Total operating expenses......................... 17,796 16,517 35,177 31,674
------- -------- ------- -------

Loss from operations............................................. (1,085) (2,304) (2,190) (2,798)

Interest income.................................................. 179 59 422 156
Interest expense................................................. (20) (7) (43) (16)
Other income (expense), net...................................... (22) 12 (134) (102)
------- -------- ------- -------
Loss before income taxes and cumulative effect of
accounting change........................................ (948) (2,240) (1,945) (2,760)

Income tax benefit.............................................. 271 165 627 376
------- -------- ------- -------

Loss before cumulative effect of accounting change............... (677) (2,075) (1,318) (2,384)
Cumulative effect of accounting change, net of tax of $126....... - - (210) -
------- -------- ------- -------

Net loss......................................................... $ (677) $(2,075) $(1,528) $(2,384)
======= ======== ======= =======
Earnings (loss) per common share - Basic:
Before cumulative effect of accounting change............ $ (0.03) $ (0.08) $( 0.05) $ (0.10)
Cumulative effect of accounting change.................. - - ( 0.01) -
------- -------- ------- -------
Net...................................................... $ (0.03) $ (0.08) $( 0.06) $ (0.10)
======= ======== ======= =======

Earnings (loss) per common share - Diluted:
Before cumulative effect of accounting change............ $ (0.03) $ (0.08) $( 0.05) $ (0.10)
Cumulative effect of accounting change.................. - - ( 0.01) -
------- -------- ------- -------
Net...................................................... $ (0.03) $ (0.08) $( 0.06) $ (0.10)
======= ======== ======= =======

Weighted-average common shares outstanding
Basic.................................................... 24,979 24,619 24,926 24,740
======= ======== ======= =======
Diluted.................................................. 24,979 24,619 24,926 24,740
======= ======== ======= =======

See accompanying notes to consolidated financial statements.

MANNATECH, INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 2001
(in thousands)

2000 2001
------- -------

Cash flows from operating activities:
Net loss.................................................................................... $(1,528) $(2,384)
Adjustments to reconcile the net loss to net cash provided by operating activities:
Depreciation and amortization ........................................................... 1,754 1,935
Write-off of fixed asset ................................................................ 870 --
Loss on disposal of assets .............................................................. -- 4
Tax benefit from exercise of stock options .............................................. 226 --
Cumulative effect of accounting change, net of tax ...................................... 210 --
Deferred income tax expense (benefit) ................................................... 26 (396)

Changes in operating assets and liabilities:
Accounts receivable .................................................................. 51 271
Income tax receivable ................................................................ (141) --
Inventories .......................................................................... (1,525) 762
Prepaid expenses and other current assets ............................................ (372) 55
Other assets ......................................................................... 109 141
Accounts payable ..................................................................... 1,488 (1,720)
Accrued expenses and accrued compensation to related parties ......................... (496) 1,460
------- -------
Net cash provided by operating activities ......................................... 672 128
------- -------

Cash flows from investing activities:
Acquisition of property and equipment ................................................... (3,358) (493)
Cash proceeds from sale of property and equipment ....................................... -- 2
Repayments by shareholders/related parties .............................................. 141 137
Maturities of investments .............................................................. 1,392 1
------- -------
Net cash used in investing activities ............................................. (1,825) (353)
------- -------

Cash flows from financing activities:
Payments of cash overdrafts ............................................................. -- (961)
Proceeds from stock options exercised ................................................... 294 --
Payment of capital lease obligations .................................................... (266) (229)
Purchase of common stock from shareholder ............................................... -- (406)
Payment of notes payable ................................................................ (93) (66)
------- -------
Net cash used in financing activities ............................................. (65) (1,662)
------- -------

Effect of exchange rate changes on cash and cash equivalents .............................. -- (109)
------- -------

Net decrease in cash and cash equivalents ................................................. (1,218) (1,996)
Cash and cash equivalents:
Beginning of the period ................................................................. 11,576 5,736
------- -------
End of the period ....................................................................... $10,358 $ 3,740
======= =======

Supplemental disclosure of cash flow information:
Interest paid ........................................................................... $ 43 $ 16
======= =======

Summary of non-cash investing and financing activities follows:
Assets acquired through a note payable.................................................... $ -- $ 187
======= =======
Treasury shares received for the payment of a note receivable due from a shareholder...... $ -- $ 167
======= =======

See accompanying notes to consolidated financial statements.

MANNATECH, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1 ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Mannatech, Incorporated (the "Company") was incorporated in the State of
Texas on November 4, 1993, as Emprise International, Inc. Effective October 25,
1995, the Company changed its name to Mannatech, Incorporated. The Company,
located in Coppell, Texas, develops and sells high-quality, proprietary
nutritional supplements, topical products and weight-management products
primarily through a network marketing system operating in the United States,
Canada, Australia, the United Kingdom and Japan. Independent associates
("Associates") purchase products at wholesale, for the primary purpose of
selling to retail consumers or for personal consumption. Associates earn
commissions on their downline growth and sales volume. In June 2001, the
Company introduced its member program specifically designed for consumers to
purchase the Company's high-quality products for personal consumption and not
participate in its various incentive programs.

The Company's nine wholly-owned subsidiaries are as follows:

Wholly-owned subsidiary name Date incorporated Location of subsidiary Date operations began
- ----------------------------------------- --------------------- ------------------------- ---------------------

Mannatech Australia Pty Limited April 22, 1998 St. Leonards, Australia October 1, 1998
Mannatech Limited December 1, 1998 Republic of Ireland No operations
Mannatech Ltd. November 18, 1998 Aldermaston, Berkshire November 15, 1999
U.K.
Mannatech Payment Services Incorporated April 11, 2000 Coppell, Texas June 26, 2000
Mannatech Foreign Sales Corporation May 1, 1999 Barbados May 1, 1999
Internet Health Group, Inc. (ceased May 7, 1999 Coppell, Texas December 20, 1999
operations as of December 29, 2000)
Mannatech Japan, Inc. January 21, 2000 Tokyo, Japan June 26, 2000
Mannatech Limited February 14, 2000 New Zealand No operations
Mannatech Products Company, Inc. April 14, 2001 Coppell, Texas No operations

The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of Company's management, the accompanying
unaudited consolidated financial statements contain all adjustments, consisting
of normal recurring adjustments, considered necessary for a fair statement of
the Company's financial information as of and for the periods presented. The
consolidated results of operations of any interim period are not necessarily
indicative of the consolidated results of operations to be expected for the
fiscal year. For further information, refer to the Company's consolidated
financial statements and accompanying footnotes included in their annual report
on Form 10-K for the year ended December 31, 2000.

Principles of Consolidation

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

Revenue Recognition

The Company's revenues consist of sales from products, sales from starter
and renewal packs and shipping fees. Substantially all product sales are made to
Associates at published wholesale prices. Product sales are also made to members
at published discounted retail prices. Net sales include a reserve for estimated
product returns and any related refunds. The Company records a reserve for
product returns based on its historical experience. The Company adopted Staff
Accounting Bulletin No. 101 "Revenue Recognition in Financial Statements" ("SAB
101") in the fourth quarter

of 2000. As a result of adopting SAB 101, the Company has restated its 2000
quarterly financial information and recorded a one-time charge of $210,000, net
of tax of $126,000 for the cumulative effect of this accounting change at
January 1, 2000. Beginning in 2000, the Company defers all of its revenues until
the consumer receives the products shipped.

The Company also defers a portion of its revenue received from sales of
starter and renewal packs, which are in excess of the average wholesale value of
the individual items included in such packs and amortizes such deferrals over a
twelve-month period. Total deferred revenue was $691,000 and $628,000 at
December 31, 2000 and June 30, 2001, respectively.

Shipping and Handling Cost

In accordance with the Emerging Issue Task Force No. 00-10 "Accounting for
Shipping and Handling Fees and Costs," the Company records freight and shipping
revenues collected from consumers, as revenue. The Company records in-bound
freight and shipping costs as a part of cost of sales and records shipping and
handling costs associated with shipping products to its consumers as selling and
administrative expenses. Total shipping and handling costs included in selling
and administrative expenses was approximately $1.5 million and $2.4 million for
the three months ended June 30, 2001 and 2000, respectively and $3.1 million and
$4.5 million for the six months ended June 30, 2001 and 2000, respectively.

Earnings Per Share

The Company calculates earnings (loss) per share pursuant to Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" ("FAS 128"). FAS
128 requires dual presentation of basic and diluted earnings (loss) per share
("EPS") on the face of the consolidated statement of operations for all entities
with complex capital structures and requires a reconciliation of the numerator
and denominator of the basic EPS computation to the numerator and denominator of
the diluted EPS computation. Basic EPS calculations are based on the weighted-
average number of common shares outstanding during the period, while diluted EPS
calculations are calculated using the weighted-average number of common shares
and dilutive common share equivalents outstanding during each period. At June
30, 2000, all of the 2,028,300 common stock options were excluded from the
diluted EPS calculation and at June 30, 2001, all of the 2,781,259 common stock
options and 213,333 warrants were excluded from the diluted EPS calculation, as
their effect was antidilutive.

The following data shows the amounts used in computing earnings (loss) per
share and their effect on the weighted-average number of shares of dilutive
common share equivalents for the three months ended June 30, 2000 and 2001. The
amounts are rounded to the nearest thousand except for per share amounts.

2000 2001
------------------------------------------------------------------------
Net loss Shares Per share Net loss Shares Per share
(Numerator) (Denominator) amount (Numerator) (Denominator) amount
---------- ----------- ------ ----------- ------------ -------
Basic EPS:
Net loss available to
to common shareholders $(677) 24,979 $(0.03) $ (2,075) 24,619 ($0.08)

Effect of dilutive securities:
Stock options -- -- -- --
------- ------- ------ -------- ------ ------
Diluted EPS:
Net loss available to
common shareholders plus
assumed conversions $(677) 24,979 $(0.03) $ (2,075) 24,619 ($0.08)
======= ======= ====== ======== ====== ======

The following data shows the amounts used in computing earnings (loss) per
share and their effect on the weighted-average number of shares of dilutive
common share equivalents for the six months ended June 30, 2000 and 2001. The
amounts are rounded to the nearest thousand except for per share amounts.

2000 2001
---------------------------------------- --------------------------------------
Net loss Shares Per share Net loss Shares Per share
(Numerator) (Denominator) amount (Numerator) (Denominator) amount
------------ ---------- ------------ ----------- -------------- ---------

Basic EPS:
Net loss available to
to common shareholders $(1,528) 24,926 $(0.06) $(2,384) 24,740 ($0.10)

Effect of dilutive securities:
Stock options -- -- -- --
------------ ---------- ------------ ----------- -------------- ---------
Diluted EPS:
Net loss available to
common shareholders plus
assumed conversions $(1,528) 24,926 $(0.06) $(2,384) 24,740 ($0.10)
============ ========== ============ =========== ============== =========

NOTE 2 INVENTORIES

At December 31, 2000 and June 30, 2001 inventory, rounded to the nearest
thousands, consists of the following:

2000 2001
------- -------

Raw materials............................................................... $ 6,587 $ 6,395
Finished goods.............................................................. 6,739 6,051
------- -------
$13,326 $12,446
======= =======

NOTE 3 COMPREHENSIVE LOSS

Comprehensive loss for the three months and the six months ended June
30, 2000 and 2001 is as follows (in thousands):

Three months ended June 30 Six months ended June 30
-------------------------- ------------------------
2000 2001 2000 2001
----- ------- ------- -------

Net loss...................................... ($677) ($2,075) ($1,528) ($2,384)
Foreign currency translation adjustment....... - 4 - ( 230)
----- ------- ------- -------
Comprehensive loss........................... ($677) ($2,071) ($1,528) ($2,614)
===== ======= ======= =======

NOTE 4 COMMITMENTS AND CONTINGENCIES

In the fourth quarter of 2000, Mr. Anthony Canale resigned and in the
second quarter of 2001, Ms. Deanne Varner, Mr. Charles Fioretti and Mr. Patrick
Cobb resigned as executive officers of the Company. As a result, the Company
entered into a separation agreement with each of them. Under the terms of their
agreements, the executives are bound by certain non-compete and confidentiality
clauses and the Company agreed to pay them an aggregate amount of $1.9 million
in 2001, $1.6 million in 2002, $850,000 in 2003 and $150,000 in 2004. The
payments consist of various charges including compensation related to their
cancellation of their employment agreements, accrued vacation, health insurance
and automobile expenses. The Company also agreed to grant Mr. Canale 213,333
warrants, Ms. Varner a total of 163,333 stock options and Mr. Patrick Cobb a
total of 60,000 stock options, all at exercise prices ranging from $1.75 to
$4.00. The warrants and stock options vest on the date they were granted and are
exercisable for ten years. The Company recorded a charge for all of these
separation agreements of which $2.9 million and $950,000 remained unpaid as of
June 30, 2001 and December 31, 2000, respectively.

NOTE 5 RECENT ACCOUNTING PRONOUNCEMENTS

In July 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141 ("SFAS 141") "Business Combinations" and
No. 142 ("SFAS 142") "Goodwill and Other Intangibles Assets."

SFAS 141 supercedes Accounting Principles Board Opinion No. 16 "Business
Combinations." The most significant changes made by SFAS 141 are that it
requires the purchase method of accounting be used for all business combinations
initiated after June 30, 2001, establishes specific criteria for recognition of
certain intangibles assets separately from goodwill and requires the immediate
write-off of unallocated negative goodwill.

SFAS 142 supercedes Accounting Principles Board Opinion No. 17 "Intangible
Assets." SFAS 142 is effective for fiscal years beginning after December 15,
2001. SFAS 142 prohibits goodwill and indefinite lived intangible assets from
being amortized and requires them to be annually tested for impairment at each
reporting unit level. In addition, SFAS 142 removes the limitation of forty
years for the useful lives of finite intangible assets.

The Company believes SFAS 141 and SFAS 142 will have no effect on its
consolidated financial positions, results of operations and cash flows.

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
Mannatech's financial position and its results of operations for the three and
six months ended June 30, 2001 compared to the same periods in 2000. The
Consolidated Financial Statements and related Notes should be referred to in
conjunction with this discussion. 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 its
subsidiaries on a consolidated basis.

Overview

Mannatech develops and sells high-quality, proprietary nutritional
supplements, topical products and weight-management products primarily through a
worldwide network marketing system operating in the United States, Canada,
Australia, the United Kingdom and Japan. Currently Mannatech has approximately
217,000 active associates as of June 30, 2001 compared to approximately 267,000
active associates as of June 30, 2000. Mannatech defines an active associate as
having purchased products in the last twelve months. In June 2001, Mannatech
introduced its new member program specifically designed for consumers to
purchase its high-quality proprietary products for personal consumption and not
participate in its various incentive programs.

Mannatech's earnings (loss) per share was ($0.10) for the six months ended
June 30, 2001 compared to ($0.06) per share in 2000. The net loss for 2001
totaling ($2.4 million) primarily related to recording a one-time charge of $3.4
million for the various severance expenses primarily related to the resignation
of three of its former executives who held employment agreements coupled with
the decrease in net sales directly attributed to the 19% decrease in its active
associate base. For the six months ended June 30, 2001, Mannatech would have
reported Income before taxes, exclusive of the one-time severance charge of $3.4
million of $660,000. The net loss for 2000 totaling ($1.5 million) primarily
related to the decrease in net sales, incurring $2.0 million in expenses related
to international expansion into the United Kingdom and Japan and funding
operations for the Internet subsidiary - Internet Health Group, Inc, which
discontinued operations on December 29, 2000.

Beginning in February 2001, Mannatech increased its shipping fees charged
to its consumers and in March increased the sale prices of some of its finished
goods. This price increase was Mannatech's first since its inception. In order
to help stabilize operations and return to a growth position, Mannatech
introduced its member program and announced the hiring of new general managers
for both its Australia and Japan operations. Mannatech also implemented some new
incentive programs specifically designed to reward its entry-level associates
faster, increase its active associate base and boost net sales. Net sales by
country, as a percentage of consolidated net sales, including the Japan
operations, which began operations on June 26, 2000, are as follows:

Six months ended June 30, U.S. Canada Australia U.K. Japan Total
-------------------------- -------- ---------- ----------- ---------- ----------- ------------

2001............... 77.6% 14.2% 3.3% 1.0% 3.9% 100.0%
2000............... 78.3% 13.2% 6.5% 1.4% 0.6% 100.0%

Mannatech intends to continue to provide the highest quality of products to
its consumers that will help them to achieve optimal health and wellness. In
March 2001, Mannatech introduced a new chewable multi-vitamin for children
called Glyco-Bears(TM). Mannatech believes the chewable vitamin will help
supplement children's diets and help them optimize their health and wellness.
Mannatech also intends to introduce other new products during 2001, which will
further complement its current list of high-quality, proprietary products, help
increase net sales and aid in achieving optimal health and wellness.

Mannatech primarily derives its revenues from sales of its products and
starter and renewal packs. Starter and renewal packs include some combination of
Mannatech's proprietary products and promotional materials. An associate who
purchases a starter or renewal pack may purchase Mannatech's high-quality
proprietary products at wholesale prices and earn various incentives. In June
2001, Mannatech introduced its member program, which allows a member to purchase
its high-quality proprietary products at 95% of the suggested retail price or
86% of the suggested retail price for an automatic order. Mannatech offers
comparable starter packs in each country in which it does business; however, due
to different regulatory guidelines in each country not all of Mannatech's packs
are offered in all countries.

Mannatech adopted Staff Accounting Bulletin No. 101 "Revenue Recognition in
Financial Statements" ("SAB 101") in the fourth quarter of 2000. Under SAB 101,
Mannatech is required to defer the recognition of revenues until the consumer
receives the products shipped. The adoption of SAB 101 resulted in a one-time
cumulative effect of accounting change of approximately $210,000, net of tax of
$126,000.

On average, the wholesale value of the nutritional and topical products
contained in each of Mannatech's starter and renewal packs are between 60% and
100% of the total wholesale value of the packs and the remainder of the total
wholesale value, if any, consists of various promotional materials. Mannatech
defers revenue received from the sale of its associate packs to the extent that
the sales price is greater than the wholesale value of the individual items
included in such packs. Deferred revenue is then amortized over a twelve-month
period. Total deferred revenue was approximately $691,000 at December 31, 2000
and $628,000 at June 30, 2001.

Mannatech compensates its associates by paying them commissions and
incentives, which are its most significant expense. The commission structure,
excluding some of the incentive bonus programs, is designed not to materially
exceed 42% of commissionable net sales. In March 2001, Mannatech announced two
new incentive bonus programs for its associates. The Power Plan incentive bonus
pays associates for enrolling six All-Star associates and the Team incentive
bonus pays associates for meeting and maintaining certain purchasing levels in
their organizations. Mannatech believes these incentive programs will
ultimately pay more commissions to the entry-level associate faster. Mannatech
also plans to announce other changes to its worldwide compensation plan for the
2002 fiscal year; however, changes to its compensation plan are not expected to
significantly change the total commission paid as a percentage of commissionable
net sales. Commissions and incentives paid to associates are based on the
following:

. associates' placement and position within the compensation plan;

. volume of their direct commissionable net sales;

. number of new enrolled associates; and

. achievement of certain levels to qualify for various incentive programs.

In 2001, Mannatech believes its United States federal statutory tax rate
will remain at 34%. Mannatech also pays taxes in various state jurisdictions at
an approximate average effective tax rate of 3%. Mannatech expects to pay taxes
in Australia, the United Kingdom and Japan at statutory tax rates ranging from
31% to 42%. The payment of such foreign taxes could result in foreign tax
credits that would reduce the amount of United States taxes owed; however,

Mannatech may not be able to fully-utilize all of such foreign tax credits in
the United States. Mannatech has also incurred net operating losses from its
Japan subsidiary that may not be fully realizable in the future.

Results of Operations

The following table summarizes Mannatech's operating results as a
percentage of net sales for each of the periods indicated.

Three months ended Six months ended
June 30 June 30
------------------------- -------------------------
2000 2001 2000 2001
------ ------- ------ ------

Net sales.............................................. 100.0% 100.0% 100.0% 100.0%
Cost of sales................................... 17.4 17.9 17.4 17.3
Commissions..................................... 39.8 38.4 40.7 39.4
------ ------ ------ ------
Gross profit........................................... 42.8 43.7 41.9 43.3
Operating expenses:
Selling and administrative expenses............... 23.0 23.3 24.1 24.9
Other operating costs............................. 20.4 17.0 19.5 17.5
Severance expenses related to former executives... 0.0 10.5 0.0 5.1
Write-off of fixed asset.......................... 2.2 0.0 1.1 0.0
------ ------ ------ ------
Loss from operations................................... (2.8) (7.1) (2.8) (4.2)

Interest income................................ 0.5 0.2 0.5 0.2
Interest expense............................... 0.0 0.0 0.0 0.0
Other income (expense), net.................... (0.1) 0.0 (0.2) (0.1)
------ ------ ------ ------
Loss before income taxes and cumulative effect of
accounting change..................................... (2.4) (6.9) (2.5) (4.1)
Income tax benefit..................................... 0.7 0.5 0.8 0.6
------ ------ ------ ------
Loss before cumulative effect of accounting change... (1.7) (6.4) (1.7) (3.5)
Cumulative effect of accounting change, net of
tax............................................ 0.0 0.0 (0.2) 0.0
------ ------ ------ ------

Net loss............................................... (1.7)% (6.4)% (1.9)% (3.5)%
====== ====== ====== ======

Number of starter packs sold........................... 31,136 16,599 63,674 33,179
Number of renewal packs sold........................... 14,227 9,424 32,464 24,312
------ ------ ------ ------
Total number of packs sold............................. 45,363 26,023 96,138 57,491
====== ====== ====== ======
Total associates canceling associate status............ 1,225 1,149 3,721 2,366
====== ====== ====== ======

Three months ended June 30, 2001 compared with the three months ended June 30,
2000

Net sales. Net sales decreased (16.7%) to $32.5 million for the three
months ended June 30, 2001 from $39.0 million for the comparable period in 2000.
This decrease was primarily composed of the following:

. A decrease of 19% in the active associate base. An active associate is
defined as having purchased packs or products in the last twelve months.

. The decrease was partially offset by a 7% increase in the sales prices of
finished goods implemented in March 2001, a $2.3 million increase from
opening its Japan operations on June 26, 2000 and the sale of several new
products including ImmunoStart(TM), Optimal Health Pack(TM) and
GlycoBears(TM).

Cost of sales. Cost of sales decreased (14.7%) to $5.8 million for the
three months ended June 30, 2001 from $6.8 million for the comparable period in
2000. As a percentage of net sales, cost of sales increased to 17.9% for the
three months ended June 30, 2001 from 17.4% for the comparable period in 2000.
The increase in cost of sales as a percentage of net sales was primarily due to
a write-off of some outdated promotional materials totaling $381,000 and a
change in the product mix of finished goods sold partially offset by the 7%
price increase for some of its finished goods, implemented in March 2001. The
dollar decrease was primarily due to a decrease in the volume of finished goods
sold partially offset by the write-off of certain outdated promotional materials
totaling $381,000.

Commissions. Commissions consist of payments to associates for their sales
activity and downline growth. Commissions decreased (19.9%) to $12.5 million for
the three months ended June 30, 2001 from $15.6 million for the comparable
period in 2000. As a percentage of net sales, commissions decreased to 38.4% for
the three months ended June 30, 2001 from 39.8% for the comparable period in
2000. The dollar decrease was the direct result of a decrease in commissionable
net sales resulting from a 19% decrease of active associates partially offset by
the payment of commissions for two new incentive programs called the Power Plan
incentive bonus and Team incentive bonus.

Gross profit. Gross profit decreased (15.0%) to $14.2 million for the three
months ended June 30, 2001 from $16.7 million for the comparable period in 2000.
As a percentage of net sales, gross profit increased to 43.7% for the three
months ended June 30, 2001 from 42.8% for the comparable period in 2000. These
changes were primarily attributable to the factors described above.

Selling and administrative expenses. Selling and administrative expenses
are a mixture of both fixed and variable expenses and include compensation,
shipping and freight and marketing expenses. Selling and administrative expenses
decreased (15.6%) to $7.6 million for the three months ended June 30, 2001 from
$9.0 million for the comparable period in 2000. As a percentage of net sales,
selling and administrative expenses increased slightly to 23.3% for the three
months ended June 30, 2001 from 23.0% for the comparable period in 2000, which
was the result of the inability to reduce some of its fixed and semi-variable
expenses. The dollar decrease was primarily due to the following:

. a decrease of ($531,000) in compensation and benefits due to the
reduction in the current head count including the resignation of four
executives;

. a decrease of ($651,000) in freight cost resulting from a decrease in
net sales; and

. a decrease of ($231,000) in marketing expense, which was the result of
hosting various preopening events for its new Japan operations in June
2000.

Other operating costs. Other operating costs include utilities,
depreciation, travel, office expenses and printing expenses. Other operating
costs decreased (30.4%) to $5.5 million for the three months ended June 30, 2001
from $7.9 million for the comparable period in 2000. As a percentage of net
sales, other operating costs decreased to 17.0% for the three months ended June
30, 2001 from 20.4% for the comparable period in 2000. The decrease was
primarily due to the following:

. a decrease of ($381,000) related to variable expenses associated with
the decline in net sales and the curtailment of certain operating
expenses;

. a decrease of ($1.2 million) relating to the reduction in long-distance
telephone expenses, postage, consulting and international travel related
to the international expansion which was substantially completed in
2000;

. a decrease of ($505,000) related to the Gryphon lawsuit settlement
recorded in the prior year and the completion of several projects by
outside consultants;

. a decrease of ($107,000) related to receiving a property tax abatement
for our corporate offices; and

. a decrease of ($200,000) from the prior year related to the buyout of
Ray Robbins last remaining incentive agreement in 2000, which was
initially canceled in July 1999.

Severance expenses related to former executives. In the second quarter of
2001, management entered into three separation agreements with former executives
who had employment agreements for a one-time charge of $3.4 million. The $3.4
million consisted of compensation related to the cancellation of their
employment agreements, accrued vacation, health insurance and automobile
expenses that will be paid to the former employees at various times through
2004.

Write-off of fixed asset. In the second quarter of 2000, management
determined its Internet subsidiary Internet Health Group, Inc's fixed asset
having a book value of $870,000 was impaired and should be written off. The
write-off was a result of the continuation of the poor performance of the
subsidiary, which discontinued operations as of December 29, 2000.

Interest income. Interest income decreased (67.0%) to $59,000 for the three
months ended June 30, 2001 from $179,000 for the comparable period in 2000. As a
percentage of net sales, interest income decreased to 0.2% for the three months
ended June 30, 2001 from 0.5% for the comparable period in 2000. The dollar
decrease was primarily due to using investments to fund current year operations.

Interest expense. Interest expense decreased (65.0%) to $7,000 for the
three months ended June 30, 2001 from $20,000 for the comparable period in 2000.
As a percentage of net sales, interest expense remained the same at 0.0% for
both the three months ended June 30, 2001 and the comparable period in 2000. The
dollar decrease was primarily due to the pay off of an existing note and a
capital lease.

Other income (expense),net. Other income (expense), net consists of foreign
currency translation adjustments relating to its United Kingdom and Australia
operations and miscellaneous non-operating items. Other income (expense), net
increased to $12,000 for the three months ended June 30, 2001 from ($22,000) for
the comparable period in 2000. As a percentage of net sales, other income
(expense), net increased to 0.0% for the three months ended June 30, 2001 from
(0.1%) for the comparable period in 2000. For the three months ended June 30,
2001 and 2000, other income (expense), net consisted primarily of currency
translation adjustments.

Income tax benefit. Income tax benefit was $165,000 for the three months
ended June 30, 2001 and $271,000 for the comparable period in 2000. Mannatech's
effective tax rate decreased to 7.4% for the three months ended June 30, 2001
from 28.6% for the comparable period in 2000. Mannatech's effective tax rate
decreased primarily as a result of the establishment of a valuation allowance
for the net operating losses from its Japan subsidiary.

Cumulative effect of accounting change, net of tax. In the fourth quarter
of 2000, Mannatech adopted Staff Accounting Bulletin No. 101 " Revenue
Recognition in Financial Statements" ("SAB 101"), which resulted in a one-time
charge of $210,000, net of tax of $126,000 for the cumulative effect of the
accounting change. SAB 101 required Mannatech to defer the recognition of
revenues until the consumers receive the products shipped.

Net loss. Net loss increased 206.5% to ($2.1) million for the three months
ended June 30, 2001 from ($677,000) for the comparable period in 2000. As a
percentage of net sales, the net loss increased to (6.4%) for the three months
ended June 30, 2001 from (1.7%) for the comparable period in 2000. The dollar
increase was due to recording a one-time charge of $3.4 million related to the
resignation of three executives, a decrease in net sales of (16.7%) due to the
19% decrease in the active associate base, partially offset by the curtailment
of various operating expenses and no longer incurring expenses related to its
Internet subsidiary and international expansion. For the three months ended June
30, 2001, Mannatech would have reported Income before income taxes of $1.2
million exclusive of the one-time charge of $3.4 million.

Six months ended June 30, 2001 compared with the six months ended June 30, 2000

Net sales. Net sales decreased (15.2%) to $66.7 million for the six months
ended June 30, 2001 from $78.7 million for the comparable period in 2000. This
decrease was primarily composed of the following:

. A decrease of 19% in the active associate base. An active associate is
defined as having purchased packs or products in the last twelve months.

. This decrease was partially offset by a 7% sales price increase in some
of its finished goods implemented in March 2001, a $3.7 million increase
from opening Japan on June 26, 2000 and the sale of several new products
including ImmunoStart(TM), Optimal Health Pack(TM) and GlycoBears(TM).

Cost of sales. Cost of sales decreased (16.1%) to $11.5 million for the six
months ended June 30, 2001 from $13.7 million for the comparable period in 2000.
As a percentage of net sales, cost of sales decreased to 17.3% for the six
months ended June 30, 2001 from 17.4% for the comparable period in 2000. The
slight decrease in cost of sales as a percentage of net sales was primarily due
to a change in the product mix of finished goods sold and the 7% price increase
for some of its finished goods, implemented in March 2001. The dollar amount
decrease was primarily due to a decrease in the volume of finished goods sold.

Commissions. Commissions consist of payments to associates for sales
activity and downline growth. Commissions decreased (18.1%) to $26.3 million for
the six months ended June 30, 2001 from $32.1 million for the comparable period
in 2000. As a percentage of net sales, commissions decreased to 39.4% for the
six months ended June 30, 2001 from 40.7% for the comparable period in 2000. The
dollar decrease was the direct result of a decrease in commissionable net sales
and a 19% decrease in active associates partially offset by the payment of two
new incentive programs called the Power Plan incentive bonus and Team incentive
bonus.

Gross profit. Gross profit decreased (12.4%) to $28.9 million for the six
months ended June 30, 2001 from $33.0 million for the comparable period in 2000.
As a percentage of net sales, gross profit increased to 43.3% for the six months
ended June 30, 2001 from 41.9% for the comparable period in 2000. These changes
were primarily attributable to the factors described above.

Selling and administrative expenses. Selling and administrative expenses
are a mixture of both fixed and variable expenses and include compensation,
shipping and freight and marketing expenses. Selling and administrative expenses
decreased (12.2%) to $16.6 million for the six months ended June 30, 2001 from
$18.9 million for the comparable period in 2000. As a percentage of net sales,
selling and administrative expenses increased to 24.9% for the six months ended
June 30, 2001 from 24.1% for the comparable period in 2000, which was the result
of the inability to reduce some of the fixed and semi-variable expenses. The
dollar decrease was primarily due to the following:

. a decrease of ($584,000) in compensation and benefits related to a
reduction in the current head count including the resignation of various
executives;

. a decrease of ($828,000) in freight cost resulting from a decrease in
net sales;

. a decrease of ($676,000) in marketing expense, which was the result of
hosting various preopening events for its Japan operations in June 2000;
and

. a decrease of ($252,000) in advertising due to the discontinuance of
certain advertising and no longer incurring advertising expense related
to the Internet subsidiary - Internet Health Group, Inc, which
discontinued operations on December 29, 2000.

Other operating costs. Other operating costs include utilities,
depreciation, travel, office expenses and printing expenses. Other operating
costs decreased (24.0%) to $11.7 million for the six months ended June 30, 2001
from $15.4 million for the comparable period in 2000. As a percentage of net
sales, other operating costs decreased to 17.5% for the six months ended June
30, 2001 from 19.5% for the comparable period in 2000. The percentage decrease
was the result of management making a concerted effort to curtail expenses. The
dollar decrease was primarily due to the following:

. a decrease of ($1.6 million) related to variable expenses associated
with a decrease in net sales and the curtailment of certain operating
expenses;

. a decrease of ($2.0 million) in expenses related to travel, consulting,
postage and telephone expenses incurred in the prior year related to the
expansion into the United Kingdom and Japan;

. a decrease of ($200,000) from the prior year related to the buyout of
Ray Robbins last remaining incentive agreement in 2000, which was
initially canceled in July 1999;

. a decrease of ($105,000) related to license fees paid to a third party
for the Internet subsidiary, which discontinued operations on December
29, 2000;

. partially offset by an increase of $317,000 in depreciation and
professional fees related to our recent expansion into Japan.

Severance expenses related to former executives. In the second quarter of
2001, management entered into three separation agreements with the former
executives for a one-time charge of $3.4 million. The $3.4 million consisted of
compensation related to the cancellation of their employment agreements, accrued
vacation, health insurance and automobile expenses that will be paid to the
former employees at various times through 2004.

Write-off of fixed asset. In the second quarter of 2000, management
determined the Internet subsidiary, Internet Health Group, Inc.'s, fixed asset
with a book value of $870,000 was impaired and should be written off. The
write-off was a result of the continuation of the poor performance of the
subsidiary, which discontinued operations as of December 29, 2000.

Interest income. Interest income decreased (63.0%) to $156,000 for the six
months ended June 30, 2001 from $422,000 for the comparable period in 2000. As a
percentage of net sales, interest income decreased to 0.2% for the six months
ended June 30, 2001 from 0.5% for the comparable period in 2000. The dollar
decrease was primarily due to using investments to fund current year operations.

Interest expense. Interest expense decreased (62.8%) to $16,000 for the six
months ended June 30, 2001 from $43,000 for the comparable period in 2000. As a
percentage of net sales, interest expense remained the same at 0.0% for both the
six months ended June 30, 2001 and the comparable period in 2000. The dollar
decrease was primarily due to the pay off and repayment of an existing note and
various capital leases.

Other income (expense), net. Other income (expense), net consists of
foreign currency translation adjustments related to the United Kingdom and
Australia operations and miscellaneous non-operating items. Other income
(expense), net decreased (23.9%) to ($102,000) for the six months ended June 30,
2001 from ($134,000) for the comparable period in 2000. As a percentage of net
sales, other income (expense), net decreased to 0.1% for the six months ended
June 30, 2001 from 0.2% for the comparable period in 2000. For the six months
ended June 30, 2001, other income (expense), net consisted primarily of currency
exchange losses due to currency translation fluctuations. For the six months
ended June 30, 2000, other income (expense), net consisted of approximately
$36,000 in certain tax penalties and the remainder related to the currency
exchange losses due to currency translation fluctuations.

Income tax benefit. Income tax benefit was $376,000 for the six months
ended June 30, 2001 and $627,000 for the comparable period in 2000. Mannatech's
effective tax rate decreased to 13.6% for the six months ended June 30, 2001
from 32.2% for the comparable period in 2000. Mannatech's effective tax rate
decreased primarily as a result of the establishment of a valuation allowance
for the net operating losses from its Japan subsidiary.

Net loss. Net loss increased 60.0% to ($2.4 million) for the six months
ended June 30, 2001 from ($1.5 million) for the comparable period in 2000. As a
percentage of net sales, net loss increased to (3.5%) for the six months ended
June 30, 2001 from (1.9%) for the comparable period in 2000. The dollar increase
was due to recording a one-time charge of $3.4 million related to the
resignation of various executives who held employment agreements, a

decrease in net sales of (15.2%), which was a direct result of a 19% decrease in
the active associates, partially offset by the curtailment of various operating
expenses and no longer incurring expenses related to its Internet subsidiary and
international expansion. For the six months ended June 30, 2001, Mannatech would
have reported Income before income taxes of $660,000, exclusive of the one-time
charge of $3.4 million.

Liquidity and Capital Resources

Historically, Mannatech has funded its business objectives, working capital
and operations through its cash flows from operations. Mannatech's working
capital decreased to $6.5 million as of June 30, 2001 from $7.3 million at
December 31, 2000. In 2000, Mannatech funded approximately $4.4 million for
expansion into Japan and $4.1 million for operations for its Internet
subsidiary-Internet Health Group, Inc. In 2001, Mannatech funded $1.9 million in
payments for the resignation of various executives holding employment
agreements, which totaled $3.4 million and reported a decrease of 15.2% in net
sales. Mannatech plans to continue to fund its business objectives, working
capital and operations through its current cash flows from operations.

Provided by (used in) June 30, 2001 June 30, 2000
-------------------- ------------- -------------
Operating activities $ 128,000 $ 672,000
Investing activities ($353,000) ($1.8 million)
Financing activities ($1.7 million) ($65,000)

Operating activities. For the six months ended June 30, 2000, operating
activities primarily related to international expansion into the United Kingdom
and Japan, which resulted in a net loss of ($1.5 million) combined with an
increase in inventory of ($1.5 million), prepaids of ($372,000) partially offset
by an increase in payables of $1 million. For the six months ended June 30,
2001, operating activities primarily related to a one-time charge of $3.4
million related to the resignation of three executives, which resulted in a net
loss of ($2.4 million) combined with a decrease in payables and accrued expenses
of ($300,000), partially offset by a decrease in inventories of $762,000 due to
the closing of the Internet subsidiary and completion of its planned
international expansion.

Investing activities. For the six months ended June 30, 2000, investing
activities consisted of purchases of computer hardware and software and the
build out of the Japan facility totaling $3.4 million, partially offset by the
maturing of investments of $1.4 million. The investments were primarily used to
fund the expansion into Japan. For the six months ended June 30, 2001, investing
activities consisted of purchases of property and equipment totaling $493,000
for the data warehouse software project, partially offset by the repayment of
notes receivable due from shareholders of $137,000.

Financing activities. For the six months ended June 30, 2000, financing
activities consisted of the payoff and repayment of various capital leases and
notes payable totaling $359,000, partially offset by the receipt of $294,000
related to the exercise of 210,700 stock options at prices per share ranging
from $1.35 to $2.00. For the six months ended June 30, 2001, financing
activities consisted of the payment of cash overdrafts of $1.0 million and
repurchasing 369,397 shares of common stock from Mr. Charles Fioretti totaling
$406,000 pursuant to the lock-up and repurchase agreement with him. Under the
terms of his agreement, Mannatech is required through February 3, 2002, to
purchase $83,333.33 worth of Mr. Charles Fioretti's common stock each month
valued at 90% of the current fair market price. In exchange for the repurchase
of his stock, Mr. Charles Fioretti is prohibited from trading his shares of
Mannatech common stock through March 2, 2002, unless prior approval is obtained
from the Board of Directors.

Mannatech believes its existing liquidity, capital resources and bank
borrowings, coupled with the continuation of the suspension of dividend payments
to shareholders should be adequate to fund its business operations and
commitments for at least the next twelve months including the following:

. In March 2001, Mannatech committed to fund up to $1 million to
redevelop its core software database application onto a more easily
maintainable architecture, which will also expand the information
available to its associates using its corporate website. This
project, known as the data warehouse project, is scheduled to be
substantially complete by the winter of 2001.

. Funding the payments related to the recent resignations of
Mr. Anthony Canale, Ms. Deanne Varner, Mr. Charles Fioretti
and Mr. Patrick Cobb. Under the terms of the various separation
agreements, Mannatech is required to pay, in the future, an aggregate
amount of $2.9 million, of which $1.8 million will be paid over the
next twelve-months.

. Funding the payments of its annual insurance premiums, totaling
$900,000, which Mannatech has historically funded over ten monthly
installments payable to various finance companies.

Mannatech has no other present commitments or agreements with respect to
any acquisitions or purchases of manufacturing facilities. Mannatech believes
any future changes in its operations may consume available capital resources
faster than anticipated and its existing capital requirements depends on
numerous factors, including:

. the introduction of new high-quality proprietary products;

. a change in the number of associates and the retention of the current
associate base; and

. research and development efforts.

If existing capital resources and cash flows become insufficient to meet
Mannatech's business plans and existing capital requirements, Mannatech would be
required to raise additional funds, which it cannot assure will be available on
favorable terms, if at all.

Recent Financial Accounting Standards Board Statements

In June 1998, the Financial Accounting Standards Board issued Financial
Accounting Standard No. 133 "Accounting for Derivative, Instruments and Hedging
Activities" ("FAS 133"). This statement establishes accounting and reporting
standards for hedging activities and derivative financial instruments, including
certain derivative financial instruments embedded in other contracts. In June
1999, the Financial Accounting Standards Board issued Financial Accounting
Standard No. 137, which defers the effective date of FAS 133 to fiscal years
beginning after June 15, 2000. In June 2000, the Financial Accounting Standards
Board issued Financial Accounting Standard No. 138 "Accounting for Certain
Derivative Instruments and Certain Hedging Activities," which addressed certain
issues causing implementation difficulties. The adoption of this statement did
not have, nor is it expected to have, any future material impact on Mannatech's
consolidated financial position, results of operations or cash flows.

Mannatech believes SFAS 141 and SFAS 142 will have no effect on its
consolidated financial positions, results of operations or cash flows.

Outlook

Mannatech believes its outlook for the remainder of 2001 and looking
forward into 2002 will be contingent upon the success of retaining its current
associate base, its ability to introduce new high-quality, proprietary products,
expanding its international sales to support the operations of its international
subsidiaries, its ability to minimize any disruption caused by the recent
resignation of former executives and effectively communicate the impact of the
changes in its compensation plans to its associates.

Mannatech believes it has refocused its associate's attentions from the
recent management changes and international expansion back to the core business
of selling. Mannatech also believes it has developed a plan to help stabilize
its associate base and return to a growth position operating in the nutritional
supplements industry, which helps to provide optimal health and wellness.

Forward-Looking Statements

Some of our statements under "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Quantitative and Qualitative
Disclosures about Market Risk" and Notes to Consolidated Financial Statements
and elsewhere in this report may constitute "forward-looking statements" within
the meaning of the Private Litigation Reform Act of 1995. Opinions, forecasts,
projections, guidance or other statements other than statements of historical
fact are considered forward-looking statements and reflects Mannatech's current
views about future events and financial performance. These forward-looking
statements are subject to certain events, risks and uncertainties that may be
outside Mannatech's control. Some of these forward-looking statements include
statements regarding:

. existing cash flows being adequate to fund its current business
operations;

. beliefs that the new incentive plans will pay entry-level associates
faster and increase net sales;

. commissions not exceeding 42% of commissionable sales;

. the value of the United State dollar not materially effecting its
overall financial results;

. establishment of certain policy, procedures and internal processes to
combat any exposure to market risk;

. actual impact of future market changes due to future exposure to
currency rate fluctuations;

. management's plans, objectives and budgets for its future operations and
future economic performance;

. capital budget and future capital requirements relating to the data
warehouse project and payments to executives;

. maintaining the level of future expenditures;

. impact of recent accounting pronouncements;

. the outcome of regulatory and litigation matters; and

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

Actual results and developments may materially differ from those expressed
in or implied by such statements due to a number of factors, including, without
limitation:

. those described in the context of such forward-looking statements;

. future product development and manufacturing costs;

. recent and future changes in Mannatech's global incentive plans;

. retention of its associate base;

. timely development and acceptance of new products;

. the markets for Mannatech's domestic and international operations;

. the impact of competitive products and pricing;

. the political, social and economic climate in which Mannatech conducts
its operations; and

. the risk factors described in other documents and reports filed with the
Securities and Exchange Commission.

In some cases, forward-looking statements are identified by terminology
such as "may," "will," "should," "could," "expects," "plans," "intends,"
"anticipates," "believes," "estimates," "approximates," "predicts," "potential,"
"in the future" or "continue" or the negative of such terms and other comparable
terminology. Readers are cautioned when considering these forward-looking
statements, to keep in mind these risk and uncertainty factors and or 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. Mannatech also
cautions its readers that it believes it has not obligation to update or revise
these forward-looking statements to reflect new events or circumstances.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Mannatech does not engage in trading market risk sensitive instruments and
does not purchase investments and hedges for purposes "other than trading," that
are likely to expose it to certain types of market risk, including interest
rate, commodity price or equity price risk. Mannatech has investments, but there
has been no material change in its exposure to interest rate risk. Mannatech has
not issued any debt instruments, entered into any forward or futures contracts,
purchased any options or entered into any swaps.

Mannatech is exposed to certain other market risks, including changes in
currency exchange rates as measured against the United States dollar. The value
of the United States dollar may affect Mannatech's financial results. Changes in
exchange rates may positively or negatively affect its financial results, as
expressed in United States dollars. When the United States dollar increases
against currencies in which products are sold or when the exchange rate weakens
against currencies in which Mannatech incurs costs, net sales or costs may be
adversely affected.

Mannatech has established certain policies, procedures and internal
processes, which it believes will help monitor any significant market risks.
Currently, Mannatech does not use any financial instruments to manage its
exposure to such risks. The sensitivity of earnings and cash flows to
variability in currency exchange rates is assessed by applying an appropriate
range of potential rate fluctuations to Mannatech's assets, obligations and
projected transactions denominated in foreign currency. Based upon its overall
currency rate exposure at June 30, 2001, Mannatech believes the actual impact of
future market changes could differ materially due to, among other things,
factors discussed in this report. Mannatech believes it cannot predict with any
certainty its future exposure to such currency exchange rate fluctuations or the
impact, if any, it may have on its future business, product pricing,
consolidated financial position, results of operations or cash flows; however,
Mannatech believes it closely monitors current fluctuations for exposure to such
market risk. Currently, the foreign currencies in which Mannatech has exposure
to foreign currency exchange rate risk include Australia, the United Kingdom and
Japan. The high and low currency exchange rates to the United States dollar, for
each of these countries, for the six months ended June 30, 2001 are as follows:

Country/Currency High Low
---------------- -------- --------
Australia/Dollar...................... $0.57220 $0.47730
United Kingdom/British Pound.......... $1.51030 $1.36770
Japan/Yen............................. $0.00880 $0.00788

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

There have been no material changes in, or additions to, the legal
proceedings previously reported in Mannatech's Annual Report on Form 10-K (File
No. 000-24657) for 2000 as filed with the Securities and Exchange Commission on
April 2, 2001.

Item 2. Changes in Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Submission of Matters to a Vote of Security Holders

a.) Mannatech held its 2001 Annual Shareholders Meeting on June 5,
2001 and the two proposals were described in detail in our
Definitive Proxy Statement filed with the Securities and
Exchange Commission on April 27, 2001, which is attached herein
as Exhibit 22.

b.) Charles Fioretti, Jules Zimmerman and Samuel Caster were elected
to continue to serve as Class II directors until the 2004 Annual
Shareholders Meeting. Roger Beutner was elected to replace
Anthony Canale, who resigned from the Board on June 4, 2001. Mr.
Beutner will serve as a Class I director until the 2003 Annual
Shareholders Meeting. Mr. Ray Robbins was also elected to serve
as a Class I director until the 2003 Annual Shareholders
Meeting.

c.) The voting for the two proposals were as follows:

Each of the five directors were approved according to the
following tabulated votes:

Director For Against or withheld
-------- --- -------------------
Charles Fioretti 15,837,543 6,487,029
Jules Zimmerman 13,727,319 8,597,253
Samuel Caster 22,231,621 92,951
Roger Beutner 13,615,652 8,708,920
Ray Robbins 20,889,020 1,435,552

The appointment of PricewaterhouseCoopers LLP as independent
auditors for the fiscal year ending December 31, 2001 was
ratified according to the following votes:

For Against or withheld Abstentions
--- ------------------- -----------
20,468,619 302,594 1,553,359

d.) None.

Item 5. Other Information

None.

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits required by Item 601 of Regulation S-K

3.1 Amended and Restated Articles of Incorporation of Mannatech dated May 19, 1998, incorporated herein
by reference to Exhibit 3.1 to Mannatech's Form S-1 (File No. 333-63133) filed with the Commission on
October 28, 1998.

3.2 Amended and Restated Bylaws of Mannatech dated April 27, 1999, incorporated herein by reference to
Exhibit 4.3 to Mannatech's Form S-1 (File No. 333-77227) filed with the Commission on April 28,
1999.

3.3 First Amendment to the Bylaws of Mannatech dated October 20,1999, incorporated herein by reference
to Exhibit 3.4 to Mannatech's Form 10-Q (File No. 000-24657) filed with the Commission on August
14, 2000.

3.4 Second Amendment to the Bylaws of Mannatech dated February 22, 2000, incorporated herein by
reference to Exhibit 10.29 to Mannatech's Form 10-K (File No. 000-24657) filed with the Commission
on April 2, 2001.

3.5 Third Amendment to the Bylaws of Mannatech dated March 6, 2000, incorporated herein by reference to
Exhibit 10.29 to Mannatech's Form 10-K (File No. 000-24657) filed with the Commission on April 2,
2001.

3.6 Fourth Amendment to the Bylaws of Mannatech dated November 17, 2000, incorporated herein by
reference to Exhibit 10.29 to Mannatech's Form 10-K (File No. 000-24657) filed with the Commission
on April 2, 2001.

3.7 Third Amended and Restated Bylaws of Mannatech dated April 27, 2001.*

4.1 Specimen Certificate representing Mannatech's common stock, par value $0.0001 per share,
incorporated herein by reference to Exhibit 4.1 to Mannatech's Amendment No. 1 to Form S-1 (File No.
333-63133) filed with the Commission on October 28, 1998.

10.1 Separation Agreement dated May 2, 2001 between Mannatech and Ms. Deanne Varner, incorporated herein
by reference to Exhibit 10.5 to Mannatech's Form 10-Q (File No. 000-24657) filed with the Commission
on May 15, 2001.

10.2 Separation Agreement and Full and Final Release dated June 4, 2001 between Mannatech and Mr. Charles E. Fioretti,
incorporated herein by reference to Exhibit 99.1 to Mannatech's Form 8-K (File No. 000-24657) filed with the
Commission on June 11, 2001.

10.3 Separation Agreement and General Release dated June 26, 2001 between Mannatech and Mr. Patrick D. Cobb,
incorporated herein by reference to Exhibit 99.1 to Mannatech's Form 8-K (File No. 000-24657) filed with the
Commission on June 26, 2001.

22 Definitive Proxy Statement pursuant to Section 14(a) of the Securities Exchange Act of 1934 (File No. 000-24657)
filed with the Commission on April 27, 2001.

_______________
* Filed herewith.

(b) Reports on Form 8-K.

On June 11, 2001, Mannatech filed a Form 8-K (File No. 000-24657)
with the Securities and Exchange Commission in connection with the
resignation of the Chairman of the Board and employee, Mr. Charles E.
Fioretti. Mr. Fioretti continued to serve as a director on the Board
of Directors. As a result of the resignation, Mannatech entered into a
Separation Agreement and Full and Final Release (the "Separation
Agreement") with Mr. Fioretti. Under the terms of the Separation
Agreement, Mannatech agreed to pay Mr. Fioretti $1.2 million and buy
an additional 50,000 shares of his common stock at a price of $1.45
per share, which was the closing price of the stock on June 4, 2001.
The previous Lock-Up Agreement dated August 8, 2000 with Mr. Fioretti
will continue; however, the due date of the Renewal and Extension
Promissory Note with Mr. Fioretti dated February 17, 1999 was modified
to continue to accrued interest at 6.0%, with the remaining principal
of $127,121.47 plus accrued interest extended to the earlier of (i)
February 17, 2011 or (ii) thirteen days after the date that
Mr. Fioretti no longer owns at least 100,000 shares of Mannatech's
common stock.

On June 26, 2001, Mannatech also filed a Form 8-K (File No.
000-24657) with the Securities and Exchange Commission in connection
with the resignation of the Executive Vice President of International
Finance, Mr. Patrick D. Cobb. As a result of the resignation,
Mannatech entered into a Separation Agreement and General Release (the
"Separation Agreement") with Mr. Cobb. Under the terms of the
Separation Agreement, Mannatech agreed to pay Mr. Cobb $900,000,
transfer title of his leased automobile and grant Mr. Cobb a total of
60,000 non-qualified stock options, which are exercisable through June
30, 2011 at prices ranging from $2.25 per share to $4.00 per share.

SIGNATURES

Pursuant to the requirements of 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

August 13, 2001 /S/ ROBERT M. HENRY
---------------------------------------
Robert M. Henry
Chief Executive Officer and Director
(principal executive officer)

August 13, 2001 /S/ STEPHEN D. FENSTERMACHER
---------------------------------------
Stephen D. Fenstermacher
Senior Vice President and Chief Financial
Officer
(principal financial officer)

INDEX TO EXHIBITS

3.7 Third Amended and Restated Bylaws of Mannatech dated April 27, 2001.*

22 Definitive Proxy Statement pursuant to Section 14(a) of the Securities Exchange Act of 1934 (File No. 000-24657)
filed with the Commission on April 27, 2001 .

_______________
* Filed herewith.