2013 ANNUAL REPORT
The Pioneer of Ambrotose® Technology — The Original Glyconutrient Product To the Shareholders,
We are pleased to announce we achieved two major goals in 2013, which were increasing both sales and profitability. By focusing
our energies on implementing a new compensation plan for our independent associates, expanding our growth base in Hong
Kong and the Asia/Pacific region, launching a global loyalty program for our customers, and introducing our newest product, ŪthTM
Advanced Skin Matrix Rejuvenation Crème in the United States and Canada, we were able to achieve these goals. As a result, we
produced revenue of $177 million in 2013; our first annual increase since 2007. We reported net income of $3.2 million for 2013
compared to a net loss of $1.4 million for the previous year. This marks our first profitable year since 2007.
During 2013, we also expanded Mannatech’s social entrepreneurship mission to link five million consumers with five million children
in need. We call this our Mission 5 MillionSM, or M5MSM, movement. Our nutrient-dense PhytoBlendTM powder was specifically
designed to fight against global malnutrition. We are pleased to have donated over 16,000,000 servings of PhytoBlend powder
during 2013; which were distributed in 15 different countries.
Goals for 2014 include continuing with year-over-year revenue growth and operating profitably, launching Ūth Advanced Skin
Matrix Rejuvenation Crème globally, and driving organic growth in our mature and new international markets.
2014 marks our 20th year in business and we thank our associates, employees and shareholders for your support and for making
this great milestone possible.
J. Stanley Fredrick
Chairman of the Board
Dr. Rob Sinnott
CEO and Chief Science Officer
For the year ended December 31
(in millions, except per share information and ratios)
RESULTS OF OPERATIONS
Net sales
Gross profit
Income (Loss) before income taxes
Income/(Loss)
LOSS PER SHARE:
Basic
Diluted
Weighted-average common shares outstanding (in thousands):
Basic
Diluted
FINANCIAL CONDITION:
Total cash
Total working capital
Total assets
Total shareholders’ equity
Cash flows from operations
STATISTICS:
Current ratio
Inventory turnover ratio
Debt-to-equity ratio
Dividends paid per share
2013
$177
$141
$2.8
$3.2
$1.20
$1.18
2,650
2,683
$20
$13
$56
$23
$8
1.5
2.5
0.11
—
2012
$173
$139
$(0.3)
$(1)
$(0.52)
$(0.52)
2,648
2,648
$14
$11
$48
$20
$(1)
1.4
2.1
0.15
—
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
[ ]
For the fiscal year ended December 31, 2013
or
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
(State or other Jurisdiction of Incorporation or Organization)
75-2508900
(I.R.S. Employer Identification No.)
600 S. Royal Lane, Suite 200, Coppell, Texas
(Address of Principal Executive Offices)
75019
(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
Name of each exchange on which registered
Common Stock, par value $0.0001 per share
The Nasdaq Stock Market LLC
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X]
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes [ ] No [X]
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Sections 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 [(cid:3)]
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was
required to submit and post such files). Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this Chapter) is not contained herein, and will not be
contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of
“large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ]
Accelerated filer [ ]
Non-accelerated filer [ ]
Smaller reporting company [X]
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [ ] No [X]
At June 30, 2013, the aggregate market value of the common stock held by non-affiliates of the Registrant was $18,768,721 based on the closing sale
price of $11.09, as reported on the NASDAQ Global Select Market.
The number of shares of the Registrant’s common stock outstanding as of March 10, 2014 was 2,653,913 shares.
Documents Incorporated by Reference
Mannatech, Incorporated incorporates information required by Part III (Items 10, 11, 12, 13, and 14) of this report by reference to its
definitive proxy statement for its 2014 annual shareholders’ meeting to be filed pursuant to Regulation 14A no later than 120 days after the end of its
fiscal year.
TABLE OF CONTENTS
Special Note Regarding Forward-Looking Statements
Item 1
Item 1A
Item 1B
Item 2
Item 3
Item 4
Item 5
Item 6
Item 7
Item 7A
Item 8
Item 9
Item 9A
Item 9B
Item 10
Item 11
Item 12
Item 13
Item 14
Item 15
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Part I
Part II
Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of
Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Part III
Directors, Executive Officers, and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
Exhibits and Financial Statement Schedule
Signatures
Part IV
Page
1
2
21
32
32
32
32
33
33
34
48
49
49
49
51
51
51
51
51
51
51
52
Special Note Regarding Forward-Looking Statements
Certain disclosures and analysis in this Form 10-K, 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:
(cid:120) management’s plans and objectives for future operations;
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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.
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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 and in the
“Risk Factors” section in Item 1A of this Form 10-K, and elsewhere in this Form 10-K 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:
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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;
the ability to attract and retain independent associates and members;
new regulatory changes that may affect operations or products;
the competitive nature of our business with respect to products and pricing;
publicity related to our products or network marketing; and
the political, social, and economic climate.
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,”
“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,” “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”.
1
Item 1. Business
Overview
PART I
Mannatech 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 products, and weight-
management products that target optimal health and wellness. We currently sell our products in three regions: (i) North
America (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,
Sweden, the United Kingdom, and Ukraine); (iii) Asia/Pacific (Australia, Japan, New Zealand, the Republic of Korea,
Singapore, Taiwan and Hong Kong). We conduct our business as a single operating segment and primarily sell our products
and packs through a network of independent associates and members. As of December 31, 2013, we had approximately
245,000 active independent associates and members who had purchased our products and packs within the last 12 months.
We sell our products through network marketing, which we believe is the most cost-effective way to quickly and
effectively introduce our products and communicate information about our business to the global marketplace. Network
marketing minimizes upfront costs, as compared to conventional marketing methods, and allows us to be more responsive to
the ever-changing overall market conditions, as well as continue to research and develop high quality products and focus on
controlled successful international expansion. We believe the network marketing channel also allows us to effectively
communicate the potential benefits and unique properties of our proprietary products to our consumers. In addition, network
marketing provides our business-building independent associates with an avenue to supplement their income and develop
financial freedom by building their own business centered on our business philosophies and unique products.
Our common stock is currently traded on the NASDAQ Global Select Market (“Nasdaq”) under the symbol
“MTEX”. Information for each of our two most recent fiscal years, with respect to our net sales, results of operations, and
identifiable assets is set forth in the Consolidated Financial Statements of this report.
Available Information
We make available free of charge on our Internet website (https://www.mannatech.com) our annual reports on
Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and certain other information filed or furnished
with the Securities and Exchange Commission (the “SEC”) as soon as reasonably practicable after electronically filing or
furnishing such material. The SEC maintains a website that contains reports, proxy and information statements, and other
information regarding issuers, including Mannatech, that electronically file with the SEC at http://www.sec.gov.
Additionally, such materials are available in print upon the written request of any shareholder to our principle executive
office located at 600 S. Royal Lane, Suite 200, Coppell, Texas 75019, Attention: Investor Relations, or by contacting our
investor relations department at (972) 471-6512 or IR@mannatech.com.
Business Segment, Products and Product Development
Business Segment. We conduct our business as a single operating segment – primarily through sales of nutritional
supplements, topical and skin care products, and weight management products through network marketing distribution
channels in twenty-four countries. For more information with respect to the financial results and conditions of our business
segment, including financial information about geographic areas, see Note 16 to our Consolidated Financial Statements,
Segment Information.
Products. Scientists have discovered that a healthy body consists of many sophisticated components working in
harmony to achieve optimal health and wellness and requires cellular communication to function at an optimal level. In its
most basic form, a body’s internal communication occurs at the cellular level, and is referred to as cell-to-cell
communication. Scientists also discovered that there are more than 200 monosaccharides, also called sugar molecules, which
form naturally. Specific monosaccharides are considered vital components for cellular communication in the human body.
Furthermore, scientists discovered that these monosaccharides attach themselves to certain proteins, which then form a
molecule called glycoprotein. Harper’s Biochemistry, a leading and nationally recognized biochemistry reference, has
recognized that these molecules are found in human glycoproteins, and are believed to be essential in helping to promote and
provide effective cell-to-cell communication in the human body.
2
The history of our proprietary ingredients and products is as follows:
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In 1994, we developed and began selling our first products containing Manapol® powder, an ingredient
formulated to support cell-to-cell communication.
In 1996, we enhanced our products based on the study of glycoproteins and our scientists developed our own
proprietary compound, Ambrotose® complex, which we patented. Our Ambrotose® complex is a blend of
polysaccharides (composed of monosaccharides) that helps provide support for the immune system.
In 2001, we broadened our proprietary ingredients by developing the Ambroglycin® blend, a balanced food-
mineral matrix which helps deliver nutrients to the body and which is used in our proprietary Catalyst™ and
Glycentials® vitamin/mineral supplements.
In 2004, we introduced our proprietary blend of antioxidant nutrients, MTech AO Blend® ingredient, which is
used in our proprietary antioxidant Ambrotose AO® product.
In 2006, we introduced a unique blend of plant-based minerals, natural vitamins, and standardized
phytochemicals for use in our proprietary PhytoMatrix® product. We also introduced a compound used in
reformulated Advanced Ambrotose® complex. This compound allows a more potent concentration of the full
range of mannose-containing polysaccharides occurring naturally in aloe to be produced in a stable powdered
form.
In 2007, we introduced into the United States market our skin care line of products that supports skin’s natural
texture, beauty, and elasticity. We also launched our PhytoMatrix® caplets, Advanced Ambrotose® capsules and
Manna•Bears™ supplement into international markets.
In 2008, we introduced a proprietary proteolytic enzyme and phytosterol dietary supplement that supports the
body’s natural recovery processes associated with physical activity in our BounceBack™ capsules. We also
introduced a proprietary version of whey protein peptide technology that assists targeted fat loss when
combined with exercise and a healthy diet in our OsoLean™ powder.
In 2009, we introduced our Omega-3, which features EPA/DHA essential acids, PhytoBurst™ Nutritional
Chews formulated with vitamins, minerals, and phytonutrients from food-sourced ingredients, and GI-
ProBalance™ Slimstick in Korea, which is a synbiotic digestive product containing probiotics, prebiotics, and
digestive enzymes. In addition, we improved our Ambrotose® products to include beta-Carotene.
In 2010, we launched our Mannatech LIFT™ Skin Care System, which is paraben-free and formulated to give
skin a more natural youthful appearance.
In 2011, we introduced our reformulated version of our Omega-3 supplement, which now includes Vitamin D3
and features EPA/DHA essential acids. We also introduced GI-ProBalance™ Slimstick in North America and
expanded several previously launched products from our domestic line to our international markets.
In 2012, we launched our NutriVerus™ powder, a single product that features all of our core scientific
technologies at a very affordable price. This unique, ground-breaking product combines our core glyconutrient
technologies with vitamins, minerals, antioxidants and stabilized rice bran, all based on Real Food Technology
solutions.
In 2013, we launched Ūth™ skin cream, a breakthrough in anti-aging that incorporates Mannatech’s
glyconutrient technology along with a microsphere delivery system that supports more thorough delivery of the
active ingredients to all levels of the skin.
Mannatech offers products based on Real Food Technology solutions, an approach that offers standardized amounts
of nutrients sourced from real foods and plants. We focus on producing products that are from all-natural sources, with no
synthetic or chemically derived additives. There are three major categories of our products:
Health, which offers a variety of nutritional supplements that aid in optimizing overall health and wellness. This
category includes a variety of daily nutritional supplements, health solutions for children, and additional
nutrients designed to help keep specific body systems at optimal levels.
Weight and Fitness, which offers products designed to curb appetite and burn fat, build lean muscle tissue, and
support recovery from overexertion.
3
Skin Care, which offers several products that are formulated with more than 30 botanical ingredients, contain our
Jeunesse 7™ proprietary blend – a unique combination of montmorillonite and glyconutrients, and are designed
to give the skin a more natural youthful appearance by moisturizing, hydrating and reducing the appearance of
fine lines and wrinkles. In addition, we added our Ūth skin rejuvenation crème to our skin care line.
The following table summarizes our products by category:
Product Category
Representative Products
Health
Weight and Fitness
Skin Care
Manna-C™,
Ambrotose®
complex, Ambrotose AO®, Advanced
Ambrotose®, PhytoMatrix®, MannaBears™, Catalyst™,
CardioBALANCE®,
PLUS™,
ImmunoSTART®, BounceBack®, MannaCLEANSE™,
PhytAloe®, GI-Zyme®, Omega-3 with Vitamin D3,
PhytoBurst™ Nutritional Chews, NutriVerus™, Optimal
Support Packets, and GI Pro Balance™ Slimstick.
OsoLean™, GlycoSlim®, AmbroStart®, SPORT™, and
EM·PACT®.
Emprizone®, FIRM with Ambrotose®, LIFT™ Exfoliating
Facial Cleanser, LIFT™ Multiphase Serum, LIFT™ Day
Moisturizer, LIFT™ Night Repair Crème, Ūth Skin
Rejuvenation Crème, and LIFT™ Body Lotion.
A significant portion of our revenue is derived from our core Ambrotose® complex products which include the
Ambrotose® products and Advanced Ambrotose® products. Product revenue from the core Ambrotose® products were as
follows for the years ended December 31, 2013 and 2012 (in thousands, except percentages):
Advanced Ambrotose®
Ambrotose®
Total
2013
2012
Sales by
product
59,894
10,939
70,833
$
$
% of total
net sales
33.8 % $
6.2 %
Sales by
product
66,280
12,143
40.0 % $
78,423
% of total
net sales
38.2 %
7.0 %
45.2 %
Product Development. Our product committee continues to focus on potential new products and compounds that
help target or promote overall health and wellness. When considering new products and compounds, our product committee
considers the following criteria:
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demand for the product;
competitors’ products;
regulatory considerations;
availability of ingredients; and
data supporting claims of efficacy and safety.
To maintain a flexible operating strategy and the ability to increase production capacity, we contract with third-
parties to manufacture all of our products, which allows us to effectively respond to fluctuations in demand with minimal
investment and helps control our operating costs. We believe our suppliers and manufacturers are capable of meeting our
current and projected inventory requirements over the next several years. However, as a safety measure, we continue to
identify and approve alternative suppliers and manufacturers to ensure that our global demands are met in a timely manner
and to help minimize any risk of business interruption.
4
Industry Overview
Nutrition Industry
We operate in the nutritional supplement industry and distribute and sell our products through our own global
network marketing channel. The nutritional supplement industry is fast-paced, highly fragmented, and intensely competitive.
It includes companies that manufacture and distribute products that are intended to enhance the body’s performance and
well-being. Nutritional supplements include vitamins, minerals, dietary supplements, herbs, botanicals, and compounds
derived therefrom. Prior to 1990, all dietary supplements in the United States were tightly regulated by the FDA and only
included essential nutrients such as vitamins, minerals, and proteins. In 1990, the Nutrition Labeling and Education Act
expanded the category to include “herbs or similar nutritional substances”, but the FDA maintained control over pre-market
approval. However, in 1994, the Dietary Supplement Health and Education Act of 1994 (“DSHEA”) was passed in the
United States, drastically changing the dietary supplement marketplace. The DSHEA was instrumental in expanding the
category of dietary supplements to further include herbal and botanical supplements and ingredients such as ginseng, fish
oils, enzymes, and various mixtures of these ingredients. Under DSHEA, vendors of dietary supplements are now able to
educate consumers regarding the effects of certain component ingredients.
Nutritional supplements are available through mass-market retailers, drug stores, supermarkets, discount stores,
health food stores, mail order companies, and direct sales organizations. Direct selling, of which network marketing is a
significant segment, has grown significantly and has been enhanced in the past decade as a distribution channel due to
advancements in technology and communications resulting in improved product distribution and faster dissemination of
information.
Direct Selling/Network Marketing Channel
Since the 1990s, the direct selling and network marketing sales channel has grown in popularity and general
acceptance, including acceptance by prominent investors and capital investment groups who have invested in direct selling
companies. This has provided direct selling companies with additional recognition and credibility in the growing global
marketplace. In addition, many large corporations have diversified their marketing strategy by entering the direct selling
arena. Several consumer-product companies have launched their own direct selling businesses with international operations
often accounting for the majority of their revenues. Consumers and investors are beginning to realize that direct selling
provides unique opportunities and a competitive advantage in today’s markets. Businesses are able to quickly communicate
and develop strong relationships with their customers, bypass expensive ad campaigns, and introduce products and services
that would otherwise be difficult to promote through traditional distribution channels such as retail stores. Direct selling is a
channel of distribution with healthy cash flow, high return on invested capital, and long-term prospects for global expansion.
According to the worldwide direct sales data published by the World Federation of Direct Selling Association, in 2012
approximately 87 million global direct sellers collectively generated annual retail sales of $166.9 billion.
Operating Strengths
1. High-Quality, Innovative, Proprietary Products. We base our product concept on the scientific belief that certain
glyconutrients, also known as monosaccharides or sugar molecules, are essential for maintaining a healthy immune
system. We believe the addition of effective nutritional supplements to a well-balanced diet, coupled with an
effective exercise program, will enhance and help maintain optimal health and wellness. We focus on producing
products that are from all-natural sources with no synthetic or chemically derived additives. We formulate our
products with predominately naturally-occurring, plant-derived, carbohydrate-based, safe ingredients that are
designed to use nutrients working through normal physiology to help achieve and maintain optimal health and
wellness, rather than developing common synthetic, carbohydrate-based products.
We believe that our patented proprietary blend, Ambrotose® complex, included in many of our products
distinguishes us as a leader in the global nutritional supplements industry and that no other combination of vitamins,
minerals, amino acids, or herbals can provide the benefits found in Ambrotose® complex. We also believe the use of
unique compounds found in our products allows us to effectively differentiate and distinguish our products from
those of our competitors.
2. Research and Development Efforts. We are steadfast in our commitment to quality-driven research and
development. We use systematic processes for the research and development of our unique proprietary product
formulas, as well as the identification of quality suppliers and manufacturers. Our research and quality assurance
programs are outlined on our corporate websites www.mannatechscience.org, www.mannatech.com, and
www.allaboutmannatech.com.
5
Dr. Robert Sinnott, our CEO and Chief Science Officer, leads our team of experienced researchers and
scientists. This team continually reviews the latest published research data, attends scientific conferences, and draws
upon its vast knowledge and expertise to develop new products and support existing ones. In addition, this team
works in collaboration with other research firms, universities, institutes, and scientists. Our products have been the
focus of numerous pre-clinical and clinical studies.
To support our research and development efforts, we have strategic alliances with our suppliers,
consultants, and manufacturers that allow us to effectively identify and develop high-quality, innovative, proprietary
products that increase our competitive advantage in the marketplace.
These efforts include developing and maintaining quality standards, supporting development efforts for
new ingredients and compounds, and improving or enhancing existing products or ingredients. In addition, our
research and development team identifies other quality-driven suppliers and manufacturers for both our global and
regional needs.
Research and development costs related to new product development, enhancement of existing products,
clinical studies and trials, FDA compliance studies, general supplies, internal salaries, third-party contractors, and
consulting fees were approximately $1.6 million and $1.9 million for the years ended December 31, 2013 and 2012,
respectively.
3. Quality Assurance Program. Mannatech uses only qualified manufacturing contractors to produce, test, and
package our finished products. These contractors must be compliant and current with required certifications and
they must strictly adhere to our own quality standards for all markets. Certifications and guidelines that our contract
manufacturers are required to carry and/or follow include:
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the FDA’s current Good Manufacturing Practices for manufacturing, packaging, labeling, and holding
of dietary supplements;
the FDA’s Good Manufacturing Practices for human food;
the requirements of the Natural Health Products Directorate of Canada;
the Korean Food and Drug Administration;
certification by the Therapeutic Goods Administration of Australia, when necessary;
the European Union’s Food Supplement Directive and Nutrition and Health Claims Regulations, as
well as individual member state legislation;
the Taiwan Food and Drug Administration;
the Japan Ministry of Health Labor and Welfare;
the Singapore Health Sciences Authority; and
the South African Department of Health and Medicines Control Council.
We have an established quality assurance program designed to ensure our manufacturers’ compliance with
these certifications and guidelines, and to ensure that proper controls are maintained during the manufacturing,
evaluation, packaging, storage, and distribution of our products. These controls include a comprehensive supplier
audit and surveillance program, third-party certifications, and continuous product monitoring.
A team of professionals, many of whom have extensive experience in the pharmaceutical industry, leads
our in-house quality assurance program and continually monitors the quality of our products, including the
production process. In addition, they work with suppliers and manufacturers to develop quality standards for raw
material components and products, and perform tests and inspections to ensure that finished products are safe and of
high quality prior to release.
We require our dietary supplements to be packaged with seals to help minimize the risk of tampering. We
also perform stability studies under both controlled ambient and accelerated temperature storage conditions to
ensure label claims throughout the shelf life of our products.
6
To further ensure product quality, we seek qualified independent organizations to conduct further product
testing. To date, numerous products have been tested, and:
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ten products are certified according to the NSF/ANSI 173 Dietary Supplement Standard—the only
American National Standard for dietary supplements. This certification ensures that this product
contains only the ingredients indicated on the label and is free of impurities, and that Good
Manufacturing Practices were used in the manufacturing facility; and
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twenty-six products have been tested and confirmed to be gluten-free by Covance Laboratories.
4. High-Caliber, Industry-Leading Independent Associates. Our global team of independent associates is comprised
of dedicated, hard-working, high-caliber individuals, many of whom have been associated with the network
marketing industry for decades and have been loyal to us since our beginning in 1993. To capitalize on their wealth
of knowledge and experience, we sponsor a panel of independent associates, called the “North American Associate
Advisory Council” (the “Advisory Council”), which help identify and effectively relay the needs of our independent
business-building associates to us. The members of the Advisory Council are elected by their peers and serve a
three-year term. The Advisory Council meets periodically with our team of senior management to recommend
changes, discuss issues, and provide new ideas or concepts, including a full spectrum of innovative ideas for
additional quality-driven nutritional supplements aimed at maintaining optimal health and wellness.
5. Support Philosophy for Our Independent Associates and Members. We are fully committed to providing the
highest level of support services to our independent associates and members and believe that we meet expectations
and build customer loyalty through the following:
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providing efficient order processing centers to support operations;
offering highly-personalized and responsive customer service;
offering a satisfaction guarantee product return policy;
providing comprehensive corporate websites (www.mannatech.com, www.allaboutmannatech.com,
www.mannatechscience.org and www.mannathink.com), that provide instant access to Internet
ordering, marketing, technical and educational information, and unique and innovative marketing
tools;
(cid:120) maintaining an extensive web-based downline management system called Success Tracker™ that
provides access to web conferencing and downline organization reporting for our independent
associates at minimal costs;
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offering, in the United States and Canada, an effective compilation of online marketing and training
tools, including MannaPages webnotes and our Navig8 Global Business System;
offering updated training/orientation and compliance programs for our independent associates;
providing strategically based distribution fulfillment centers to ensure products are shipped on time
and at minimal cost;
inviting customer input on innovative product ideas, which is gathered and tabulated on
www.mannathink.com; and
sponsoring several marketing events, designed to provide information, education, and motivation for
our dedicated business-building associates and to help stimulate business development. These events
provide an interactive venue for introducing new products and services and allow interaction between
our management teams, outside researchers, and independent associates.
6. Flexible Operating Strategy. We believe efficiency, focus, and flexibility are paramount to our operations. For over
a decade, we have contracted with third parties to supply and manufacture our proprietary raw materials and
products, which we believe allows us to minimize capital expenditures, capitalize on such parties’ expertise, and
build additional resources for strategic alliances in the areas of distribution and logistics, product registration, and
export requirements. By contracting with various suppliers and manufacturers and by outsourcing distribution for all
of our operations, we believe we can quickly adapt operations to current demands in a timely, efficient, and cost-
effective manner. We monitor the performance of our third party contractors to ensure they maintain a high quality
of service. In addition, we identify alternative sources for our raw materials suppliers and finished goods
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manufacturers to help prevent any risk of interruption in production should any existing contractors become unable
to perform satisfactorily.
7. Experience and Depth of Our Management Team and Board of Directors. We believe that our team of executives
has extensive experience in every aspect of business operations and is highly focused on our success. Our Board of
Directors is composed of six directors, including four independent directors. We believe our board members have a
wealth of knowledge and experience in most aspects of our business operations and are especially well versed in
network marketing, finance, nutritional products, regulatory matters, and corporate governance. Our entire
management team is committed to delivering high-quality products and superior service.
Business Strategy
Our long-term goal is to be one of the world’s leading network marketing companies founded on the best science-
based proprietary products by incorporating a powerful global independent network distribution model into our social
entrepreneur consumption program. To achieve our goal, we believe we must focus on the following business priorities:
(cid:120) Strengthening our Financial Results and Adding Value to Our Shareholders and Independent Associates.
We focus on improving financial results by striving to increase our revenues in both our domestic and foreign
operations and to control our operating costs.
(cid:120) Attracting New Independent Associates and Retaining Existing Independent Associates. We continually
examine our global associate career and compensation plan and periodically offer incentives in order to attract,
motivate, and retain independent associates. We believe our global associate career and compensation plan
encourages greater associate retention, motivation, and productivity.
(cid:120) Carefully Planning and Executing New Market Entries. In order to expand efficiently around the globe, we
must continue to present maximum opportunity to our current independent associates as well as those who will
join us in the future.
(cid:120) Developing New Products and Enhancing Existing Products. We continue to focus on new areas for future
product development. We continue our research efforts and strive to ensure that all of our products are made
from high quality, effective ingredients that contain one or more of our proprietary compounds, which we
believe supports our goal to be a cutting-edge industry leader. We expect that any future products we develop
will further complement and enhance our existing products.
Intellectual Property
Trademarks. We pursue registrations for various trademarks associated with our key products and branding
initiatives. As of December 31, 2013, we had 37 registered trademarks in the United States and four trademark applications
pending with the United States Patent and Trademark Office. As of December 31, 2013, we had 535 registered trademarks in
36 countries and 25 trademark applications pending in nine foreign jurisdictions. Globally, the protection available in foreign
jurisdictions may not be as extensive as the protection available to us in the United States. Where available, we rely on
common law trademark rights to protect our unregistered trademarks, even though such rights do not provide us with the
same level of protection as afforded by a United States federal trademark registration. Common law trademark rights are
limited to the geographic area in which the trademark is actually used. A United States federal trademark registration enables
us to stop infringing use of the trademark by a third party anywhere in the United States provided the unauthorized third
party user does not have superior common law rights in the trademark within a specific geographical area of a particular state
or region prior to the date our mark federally registers. In the United States (and in many foreign jurisdictions) a registered
trademark is valid for ten years and may be renewed subject to the trademark owner demonstrating continued use of the mark
in commerce.
Patents. The Company applies for patent protection in various countries for the technology related to our product
formulations. As of December 31, 2013, we had 51 patents for technology related to our Ambrotose® formulation, five of
which are in the United States and the remainder of which are in 31 foreign jurisdictions. Overall, as of December 31, 2013,
93 patents have been issued to Mannatech worldwide for the technology relating to our Ambrotose®, Ambrotose AO®, GI-
ProBalance™, and PhytoMatrix® product formulations, as well as in the field of biomarker assays. Currently, we have 58
patent applications pending in various jurisdictions relating to the technology supporting the above listed products. Patent
protection means that the patented invention cannot be commercially made, used, distributed or sold without the patent
owner's consent. These patent rights are usually enforced in a court, which, in most jurisdictions, holds the authority to stop
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patent infringement. The protection is granted for a limited period, generally 20 years. In most jurisdictions, renewal
annuities or maintenance fees must be paid regularly during the term of the patent to keep the patent in force.
Associate Distribution System
Overview. Our sales philosophy is to distribute our products through network marketing channels where consumers
purchase products for personal consumption or resale. Members purchase our products for personal use at a discounted retail
value, but do not participate in our global associate career and compensation plan. Independent associates purchase our
products at a discounted wholesale value and are eligible to participate in our global associate career and compensation plan.
All of our associates are independent contractors. We provide each new independent associate with our policies and
procedures that require the independent associates to comply with regulatory guidelines and act in a consistent and
professional manner.
Our revenues are heavily dependent upon the retention and productivity of independent associates who help us
achieve long-term growth. We believe the introduction of new innovative incentives, such as travel incentives, will continue
to motivate our independent associates and help expand our global purchasing base. We remain actively committed to
expanding the number of our independent associates through recruitment, support, motivation, and incentives. We had
approximately 245,000 active independent associates and members purchasing our products and packs during the 12 months
ended December 31, 2013, and we had approximately 229,000 active independent associates and members purchasing our
products and packs during the 12 months ended December 31, 2012. We have a loyalty program through which consumers
earn loyalty points from qualified automatic orders, which can be applied to future purchases.
Independent Associate Development. Network marketing consists of enrolling individuals who build a network of
independent associates, members, and retail customers who purchase products. We support our independent associates by
providing an array of support services that can be tailored to meet individual needs, including:
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offering educational meetings and corporate-sponsored events that emphasize business-building and
compliance related information;
sponsoring various informative and science-based conference calls, web casts, and seminars;
providing automated services through the Internet and telephone that offer a full spectrum of information and
business-building tools;
(cid:120) maintaining an efficient decentralized ordering and distribution system;
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providing highly personalized and responsive order processing and customer service support accessible by
multiple communication channels including telephone, Internet, or e-mail;
offering 24-hour, seven days a week access to information and ordering through the Internet;
offering Success TrackerTM, a customized business-building genealogy system, which contains graphs, maps,
alerts, reports, and web video conferencing for our independent associates;
offering, in the United States and Canada, a compilation of online marketing and training tools, including
MannaPages webnotes and our Navig8 Global Business System; and
providing a wide assortment of business-building and educational materials to help stimulate product sales and
simplify enrollment.
We provide product and network marketing training and education for new independent associates. This includes a
unique global training/orientation program that uses audio, video and web components to familiarize new associates with the
Company, and includes short, segmented trainings on how to succeed as part of the sales force. We also regularly provide
training on using online tools such social media and our own suite of web marketing tools specifically designed for
associates to use. We also offer a variety of brochures, monthly newsletters, and other promotional materials to associates to
assist in their sales efforts, training, and continuing education. We continually update our training and promotional materials
to provide our associates with the most current information and motivational tools.
Our global associate career and compensation plan consists of eight independent associate achievement levels; from
lowest to highest, these include regional, national, executive, presidential, bronze, silver, gold, and platinum. These
achievement levels are determined by the growth and volume of the independent associates’ direct and indirect
commissionable net sales, as well as expanding their networks, which are all assigned a point volume. Promotional materials
and training aids are not assigned a point volume. This point volume system, referred to as our global seamless downline
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structure, allows independent associates to build their network by expanding their existing downlines into all international
markets. Our global associate career and compensation plan is intended to comply with all applicable governmental
regulations that govern the various aspects of payments to independent associates in each country.
Based upon our knowledge of industry-related network marketing compensation plans, we believe our global
associate career and compensation plan remains strong in the industry and is currently among the most financially rewarding
plans offered. Together, our commissions and incentives range approximately from 41% to 43% of our consolidated net
sales.
Our global associate career and compensation plan pays various types of commissions and incentives based upon a
point system that calculates a percentage of the independent associate’s commissionable direct and indirect net sales and the
attainment of certain associate achievement levels. All payments to our independent associates are made after they have
earned their commissions. We believe our global associate career and compensation plan fairly compensates our independent
associates at every stage of building their business by quickly rewarding an independent associate for both the breadth and
depth of their global seamless downline structure.
Our global associate career and compensation plan identifies and pays 17 types of commissions to our qualified
independent associates, which are based on the following:
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generating product sales from an independent associate’s global downline to earn certain achievement levels;
enrolling new independent associates or members who place a product order;
obtaining certain achievement levels and enrolling other independent associates who place monthly automatic
orders in a downline;
obtaining and developing certain achievement levels within their downline organizations to qualify for
additional bonuses; and
various other incentive programs.
Management of Independent Associates. We actively monitor our independent associates’ sales of our products
and the promotion of certain business opportunities by requiring our independent associates to abide by our policies and
procedures. However, we have limited control over the actions of our independent associates. To aid in our monitoring
efforts, we provide each independent associate with a copy of our policies and procedures prior to or upon signing up as an
independent associate. We also use various media formats to distribute changes to our mandatory policies and procedures,
including our corporate website, conference calls, educational meetings, corporate events, seminars, and webcasts.
Our legal/compliance department, in cooperation with other departments and associates, periodically evaluates the
conduct of our independent associates and the need for new or revised policies and procedures. Our monitoring efforts
include reviewing associates’ websites, promotional materials, and meetings. Our legal/compliance program assists in
maintaining high ethical standards among our independent associates, which helps our independent associates in their sales
efforts.
To help manage our associates, our legal/compliance department periodically monitors independent associates’
websites for content. In addition, associates may use our anonymous compliance reporting system to report non-compliant
websites to the compliance department, which then further investigates such websites. In an effort to decrease the number of
independent websites owned by our independent associates and to preserve and protect our trademarks, we offer standardized
personal web pages to our associates that help them with their sales efforts and provides consistent, standardized information,
and education. We also offer our independent associates and members a free standardized website through our Navig8
Global Business System service.
Our legal/compliance program also provides our independent associates with a standardized and anonymous
complaint process. When a complaint is filed against an independent associate, our legal/compliance department conducts a
mandatory investigation of the allegations, if warranted. Depending on the nature of the violation, we may suspend or
terminate the non-compliant associate’s agreement or we may impose various sanctions, including written warnings,
probation, withholding commissions, and termination of associate status. We will terminate any associate’s agreement for
making claims that our products can treat, cure, mitigate or prevent any disease, unless such claim is de minimus and
isolated.
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
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used in the sale. Each country in which we operate has specific product return guidelines. However, we allow our
independent associates and members to exchange products as long as the products are unopened and in good condition. Our
return policies for our retail customers and our independent associates and members are as follows:
(cid:120) Retail Customer Product Return Policy. This policy allows a retail customer to return any of our products to
the original independent associate who sold the product and receive a full cash refund by the independent
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 the remaining countries. The independent associate
may then return or exchange the product based on the independent associate product return policy.
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Independent Associate and Member Product Return Policy. This policy allows the independent associate or
member to return an order within one year of the purchase date upon terminating his/her account. If an
independent associate or member returns a product unopened and in good condition, he/she may receive a full
refund minus a 10% fee. We may also allow the independent associate or member 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 the remaining countries for the first 90 days following the
product’s purchase; however, any commissions earned by an independent associate will be deducted from the
refund. If we discover abuse of the refund policy, we may terminate the independent associates’ or member’s
account.
Information Technology Systems
Our information technology and e-commerce systems include a transaction-processing database, financial systems,
an associate management system, and comprehensive management tools that are designed to:
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provide customized ordering information;
quickly respond to information requests, including providing detailed and accurate information to independent
associates about qualification and downline activity;
provide detailed reports about paid commissions and incentives;
support order processing and customer service departments; and
help monitor, analyze, and report operating and financial results.
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To complement our transaction database, we developed a comprehensive management tool called Success Tracker™
that is used both internally and by our independent associates to manage and optimize their business organizations. With this
tool, independent associates have constant access to graphs, maps, alerts, and reports on the status of their individual
organizations, which helps to optimize their earnings.
We also maintain a written service continuity disaster recovery plan, which was developed using the guidelines
published by the National Institute of Standards of Technology to minimize the risk of loss due to any interruption in
business. Our disaster recovery plan encompasses all critical aspects of our business and identifies contacts and resources.
Additionally, we perform daily backup procedures and proactively monitor various software, hardware, and network
infrastructure systems. We also perform routine maintenance procedures and periodically upgrade our software and hardware
to help ensure that our systems work efficiently and effectively and to minimize the risk of business interruption. Although
we maintain an extensive disaster recovery plan, a long-term failure or impairment of any of our information technology
systems could adversely affect our ability to conduct day-to-day business. Please see “Risk Factors – If our information
technology system fails, our operations could suffer.”
We continue to enhance our information technology, websites, and e-commerce platforms to remain competitive
and efficient.
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Government Regulations
Domestic Regulations. In the United States, governmental regulations, laws, administrative determinations, court
decisions, and similar legal requirements at the federal, state, and local levels regulate companies such as ours and network
marketing activities. Such regulations address, among other things:
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direct selling and network marketing systems;
transfer pricing and similar regulations affecting the amount of foreign taxes and customs duties paid;
taxation of independent associates and requirements to collect taxes and maintain appropriate records;
how a company manufactures, packages, labels, distributes, imports, sells, and stores products;
product ingredients;
product claims;
advertising; and
the extent to which companies may be responsible for claims made by independent associates.
The following governmental agencies regulate various aspects of our business and our products in the United States:
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the FDA;
the Federal Trade Commission (the “FTC”);
the Consumer Product Safety Commission;
the Department of Agriculture;
the Environmental Protection Agency;
the United States Postal Service;
state attorney general offices; and
various agencies of the states and localities in which our products are sold.
The FDA regulates the formulation, manufacturing, packaging, storage, labeling, promotion, distribution, and sale
of foods, dietary supplements, over-the-counter drugs, medical devices, and pharmaceuticals. In January 2000, the FDA
issued a final rule called “Statements Made for Dietary Supplements Concerning the Effect of the Product on the Structure or
Function of the Body”. In the rule and its preamble, the FDA distinguished between permitted claims under the Federal
Food, Drug and Cosmetic Act (the “Act”) relating to the effect of dietary supplements on the structure or functions of the
body, and impermissible direct or implied claims of the effect of dietary supplements on any disease. In June 2007, the FDA
issued a rule, as authorized under the Act that defined current Good Manufacturing Practices in the manufacture and holding
of dietary supplements. Effective January 1, 2006, legislation required specific disclosures in labeling where a food,
including a dietary supplement, contains an ingredient derived from any of eight named allergens. Legislation passed at the
end of 2006 now requires us to report to the FDA any reports of “serious adverse events” associated with the use of a dietary
supplement or an over-the-counter drug that is not covered by new drug approval reporting.
The Dietary Supplement Health and Education Act of 1994, referred to as DSHEA, revised the provisions of the Act
concerning the composition and labeling of dietary supplements and statutorily created a new class entitled “dietary
supplements.” Dietary supplements include vitamins, minerals, herbs, amino acids, and other dietary substances used to
supplement diets. A majority of our products are considered dietary supplements as outlined in the Act, which requires us to
maintain evidence that a dietary supplement is reasonably safe. A manufacturer of dietary supplements may make statements
concerning the effect of a supplement or a dietary ingredient on the structure or any function of the body, in accordance with
the regulations described above. As a result, we make such statements with respect to our products. In some cases, such
statements must be accompanied by a statutory statement that the claim has not been evaluated by the FDA and that the
product is not intended to treat, cure, mitigate, or prevent any disease, and the FDA must be notified of such claim within 30
days of first use.
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The FDA oversees product safety, manufacturing, and product information, such as claims on a product’s label,
package inserts, and accompanying literature. The FDA has promulgated regulations governing the labeling and marketing of
dietary and nutritional supplement products. The regulations include:
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the identification of dietary or nutritional supplements and their nutrition and ingredient labeling;
requirements related to the wording used for claims about nutrients, health claims, and statements of nutritional
support;
labeling requirements for dietary or nutritional supplements for which “high potency,” “antioxidant,” and
“trans-fatty acids” claims are made;
notification procedures for statements on dietary and nutritional supplements; and
pre-market notification procedures for new dietary ingredients in nutritional supplements.
We develop and maintain product substantiation dossiers, which contain the scientific literature pertinent to each
product and its ingredients. An independent scientist reviews these dossiers, which provide the scientific basis for product
claims. We periodically update our substantiation program for evidence for each of our product claims and notify the FDA of
certain types of performance claims made in connection with our products.
In certain markets, including the United States, specific claims made with respect to a product may change the
regulatory status of a product. For example, a product sold as a dietary supplement but marketed as a treatment, prevention,
or cure for a specific disease or condition would likely be considered by the FDA or other regulatory bodies as unapproved
and thus an illegal drug. To maintain the product’s status as a dietary supplement, its labeling and marketing must comply
with the provisions in DSHEA and the FDA’s extensive regulations. As a result, we have procedures in place to promote and
assure compliance by our employees and independent associates related to the requirements of DSHEA, the Food, Drug and
Cosmetic Act, and various other regulations.
Dietary supplements are also subject to the Nutrition, Labeling and Education Act and various other acts that
regulate health claims, ingredient labeling, and nutrient content claims that characterize the level of nutrients in a product.
These acts prohibit the use of any specific health claim for dietary supplements unless the health claim is supported by
significant scientific research and is pre-approved by the FDA.
The FTC and other regulators regulate marketing practices and advertising of a company and its products. In the
past several years, regulators have instituted various enforcement actions against numerous dietary supplement companies
for false and/or misleading marketing practices, as well as misleading advertising of products. These enforcement actions
have resulted in consent decrees and significant monetary judgments against the companies and/or individuals involved.
Regulators require a company to convey product claims clearly and accurately and further require marketers to maintain
adequate substantiation for their claims. More specifically, the FTC requires such substantiation to be competent and reliable
scientific evidence and requires a company to have a reasonable basis for the expressed and implied product claim before it
disseminates an advertisement. A reasonable basis is determined based on the claims made, how the claims are presented in
the context of the entire advertisement, and how the claims are qualified. The FTC’s standard for evaluating substantiation is
designed to ensure that consumers are protected from false and/or misleading claims by requiring scientific substantiation of
product claims at the time such claims are first made. The failure to have this substantiation violates the Federal Trade
Commission Act.
Due to the diverse scope of regulations applicable to our products and the various regulators enforcing these
requirements, determining how to conform to all requirements is often open to interpretation and debate. However, our
policy is to fully cooperate with any regulatory agency in connection with any inquiries or other investigations. We can make
no assurances that regulators will not question our actions in the future, even though we continue to make efforts to comply
with all applicable regulations, inquiries, and investigations.
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International Regulations. We are also subject to extensive regulations in each country in which we operate.
Currently we sell our products in three regions: (i) North America (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, Sweden, the United Kingdom, and Ukraine); (iii) Asia/Pacific (Australia, Japan, New Zealand, the
Republic of Korea, Singapore, Taiwan and Hong Kong). Some of the country-specific regulations include the following:
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the National Provincial Laws, Natural Health Product Regulations of Canada, and the Federal Competition Act
in Canada;
the Therapeutic Goods Administration and the Trade Practices Act in Australia;
federal and state regulations in Australia;
national regulations including the Local Trading Standards Offices in the United Kingdom;
regulations from the Ministry of International Trade and Industry in Japan;
regulations from the Commerce Commission and the Fair Trade Act of 1993 in New Zealand;
the Fair Trade Commission, which oversees the Door to Door Sales Act and the Health and Functional Food
Act enforced by the Korea Food and Drug Administration in the Republic of Korea;
the Fair Trade Law, which is enforced by the Taiwan Fair Trade Commission and the Administration of Food
Hygiene, Health Food Products Administration Act enforced by the Taiwan Department of Health;
the Danish Health Board, the Danish Marketing Practice Act, the Danish Consumer Ombudsman, the Danish
Executive Order on Dietary Supplements, the Guidelines for food supplements, and the Danish Act on
Foodstuffs in Denmark;
the German Unfair Competition Act, German Regulation on food supplements, and German Law on food and
feed;
regulations governing business practices in South Africa;
the Consumer Protection Act, the Sale of Food Act, and various regulations that are governed by the Ministry
of Trade and Industry in Singapore;
the Austrian Trade Law (1994), the Food Safety and Consumer Protection Law (2006), and the Food Code in
Austria;
the Food and Consumer Products and the Unfair Trade Practices Act, Door to Door Selling Act and Provisions
of the General Dutch Civil Code relating to terms and conditions and misleading advertising in the Netherlands;
the Consumer Sales Act, Marketing Practices Act, Distance and Doorstep Sales Act, the Product Liability Act,
Product Safety Act, the Companies Act and the Food Act in Sweden;
the Law on Marketing and Contract Conditions, the Law on Repentance Right, the Statutory Order on Self
Inspection of Food Provisions, the Law on Food products and Food Safety, and various guidelines from the
Norwegian Consumers Agency on telephone selling and internet marketing, in Norway;
the Health Law and various Official Mexican Standards, the consumer protection law, the Mexican Corporate
law, the Foreign Investment Law, the Federal Labor law in Mexico, as well as various municipal and state
regulations and codes;
various Business, Civil, and Labor Codes in the Czech Republic as well as the Consumer Protection Act, and
regulations and edicts of various government agencies such as The Ministry of Health, National Institute of
Public Health, State Institute of Drug Control and the Czech Agriculture and Food Inspection Authority;
the Consumer Protection Act in Estonia, and in the area of food supplements the Veterinary and Food Board
also enforces local legislation including Estonia Food Act and Medicine Act;
the Finnish Food Act, the Finnish Food Packaging and Consumer Protection Acts, Act on Unfair Business
Practice Act, Decrees and other regulations in Finland;
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the Consumer Protection Act of 2007, the Distance Selling Regulations Act of 2001 in Ireland;
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various European Union (“EU”) regulations and pronouncements address both our selling activities and the sale
of food supplements in EU member nations, however, at the current time the local statutes and regulations
stated above are ascendant to the EU pronouncements if in conflict. The primary EU regulations pertaining to
Food Supplements include: the EU Food Supplement Directive (2002/46/EC) and Nutrition and Health Claims
Regulations (2006/1924/EC);
the Civil Code of Ukraine, the Law of Ukraine on Protections of Consumer Rights, and the Law of Ukraine on
Safety and Quality of Food Products No. 771/97-BP; and
the Food and Drugs (Composition and Labeling) Regulations, the Pyramid Schemes Prohibition Ordinance, the
Personal Data (Privacy) Ordinance, and the Import and Export Ordinance in Hong Kong.
Regulations Regarding Network Marketing System and Our Products. Our network marketing system and our
global associate career and compensation plan are also subject to a number of governmental regulations including various
federal and state statutes administered by the FTC, various state authorities, and foreign government agencies. The legal
requirements governing network marketing organizations are directed, in part, to ensure that product sales are ultimately
made to consumers. In addition, earnings within a network marketing company must be based on the sale of products rather
than compensation for (i) the recruitment of distributors or associates, (ii) investments in the organization, or (iii) other non-
retail sales-related criteria. For instance, some countries limit the amount associates may earn from commissions on sales by
other distributors or independent associates that are not directly sponsored by that distributor or independent associate. Prior
to expanding our operations into any foreign jurisdiction, we must first obtain regulatory approval for our network marketing
system in jurisdictions requiring such approval. To help ensure regulatory compliance, we rely on the advice of our outside
legal counsel and regulatory consultants in each specific country.
As a network marketing company, we are also subject to regulatory oversight, including routine inquiries and
enforcement actions, from various United States state attorneys general offices. Each state has specific acts referred to as
Little FTC Acts. Each state act is similar to the federal laws. As a result, each state may perform its own inquiries about our
organization and business practices, including allegations related to distributors or independent associates. To combat such
industry-specific risk, we provide a copy of our published associate policies and procedures to each independent associate,
publish these policies on our corporate website, and provide educational seminars and publications. In addition, we maintain
a legal/compliance department to cooperate with all regulatory agencies and investigate allegations of improper conduct by
our independent associates.
In Canada, our network marketing system is regulated by both national and provincial laws. Under Canada’s
Federal Competition Act, we must make sure that any representations relating to compensation to our independent associates
or made to prospective new independent associates constitute fair, reasonable, and timely disclosure and that such
representations meet other legal requirements of the Federal Competition Act. All Canadian provinces and territories, other
than Ontario, have legislation requiring that we register or become licensed as a direct seller within that province to maintain
the standards of the direct selling industry and to protect consumers. Some other Canadian provinces require that both we and
our independent associates be licensed as direct sellers.
In Australia, our network marketing system is subject to Australia’s federal and local regulations. Our global
associate career and compensation plan is designed to comply with Australian law and the requirements of Australia’s Trade
Practices Act. The Australian Trade Practices Administration and various other governmental entities regulate our business
and trade practices, as well as those of our independent associates. Australia’s Therapeutic Goods Act, together with the
Trade Practices Act, regulates any claims or representations relating to our products and our global associate career and
compensation plan. An agreement to establish a joint scheme for the regulation of therapeutic products was signed by both
the New Zealand and Australian governments in December 2003. The agency was initially expected to begin operating in
July 2005, but on July 16, 2007, the New Zealand government announced that it would not proceed with legislation for the
establishment of the joint agency because it did not have sufficient support of the New Zealand parliament. However, both
the Australian and New Zealand governments remain committed to the vision of the joint agency and are expected to revisit
it again in the future. The proposed harmonization of laws and regulatory bodies is anticipated to provide a more consistent
approach to dietary supplement laws between the two countries.
In New Zealand, our network marketing system and our operations are subject to regulations of the Commerce
Commission and the Ministry of Health, New Zealand Medical Devices Safety Authority, the Unsolicited Goods Act of
1975, the Privacy Act of 1993, and the Fair Trading Act of 1993. These regulations enforce specific kinds of business or
trade practices and regulate the general conduct of network marketing companies. The Commerce Commission also enforces
the Consumer Guarantees Act, which establishes specific rights and remedies with respect to transactions involving the
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provisions of goods and services to consumers. Finally, the New Zealand Commerce Commission and the Ministry of Health
both enforce the Door-to-Door Sales Act of 1967 and the NZ Medicines Act, which govern the conduct of our independent
associates.
In the United Kingdom, our network marketing system is subject to national regulations of the United Kingdom.
Our global associate career and compensation plan is designed to comply with the United Kingdom’s national requirements,
the requirements of the Fair Trading Act of 1973, the Data Protection Act of 1998, the Trading Schemes Regulations of
1997, and other similar regulations. The U.K. Code of Advertising and Sales Promotion regulates our business and trade
practices and the activities of our independent associates, while the Trading Standards Office regulates any claims or
representations relating to our operations. Our products are regulated by the Medicines and Healthcare Products Regulatory
Agency.
In Japan, our network marketing system, overall business operations, trade practices, global associate career and
compensation plan, and our independent associates are governed by Japan’s Door-to-Door Sales Law as enacted in 1976 by
the Ministry of International Trade and Industry. Our global associate career and compensation plan is designed to meet
Japan’s governmental requirements. Our product claims are subject to the Pharmaceutical Affairs Law, which prohibits the
making and publication of “drug effectiveness” claims regarding products that have not received approval from Japan’s
Ministry of Health, Welfare and Labor.
In the Republic of Korea, the primary body of law applicable to our operations is the Door-to-Door Sales Act,
which governs the behavior of network marketing companies and affiliated distributors. The Door-to-Door Sales Act is
enforced by the Fair Trade Commission. In the Republic of Korea, our products are categorized as health and functional
foods and are regulated by the Health and Functional Food Act of 2004, with which the Company complies.
In Taiwan, our network marketing system, overall operations and trade practices are governed by the Fair Trade
Law and the Consumer Protection Law. Such laws contain a wide range of provisions covering trade practices. Our products
are governed by the Taiwan Department of Health and various legislation in Taiwan including the Health Food Control Act
of 1999. This Act was enacted to enhance the management and supervision of matters relating to health, food, protecting the
health of people and safeguarding the rights and interests of consumers.
In Denmark, the notion of door-to-door selling is prohibited. As a result, under Danish law, the trader is not allowed
to contact the consumer at his home, place of work, or other non-public place in order to conclude a contract on certain
subjects. However, the prohibition has an exemption when the consumer asks the trader for a contact in writing or upon
written prior consent. In addition, the Danish Marketing Practices Act, the Guidelines from the Danish Consumerombudsman
and the rules contained in the Danish Consumer Contracts Act govern our network marketing system. There is no
requirement for pre-approval of our products in Denmark; however, our products are subject to a yearly inspection carried
out by the Food authorities. Further, all our activities are subject to Self Inspection, the results of which are also controlled
once a year by the Food authorities. The rules for marketing and sale of dietary supplements are covered by the Danish
Executive Order on Food Supplements, as well as by the Danish Act on Foodstuffs and various EU-regulations. Denmark
also subjects the marketing of a company’s food supplements to a notification procedure (with a pre-market approval process
for certain substances), before a product may be lawfully marketed in Denmark. Full product compliance with all Danish
provisions is reviewed by the Food authorities once a year.
In Germany, there is no specific legal regulation covering network marketing company practices. However, under
certain circumstances network marketing systems may have to follow the German Unfair Competition Act. Our independent
associates’ conduct is subject to the German statute that governs the conduct of a commercial agent. In addition, direct
selling operations are governed by the Industrial Code, which requires direct sellers to hold itinerant trader’s cards. The
German Regulation on food supplements and the German Law on food and feed govern vitamin and mineral substances and
herbs and other substances, respectively.
In South Africa, there are no specific regulations for the network marketing industry. In general, the Consumer
Affairs Act 1988, the Competition Act 1998, and the Advertising Standards Authority Code of Advertising Practice (a
voluntary code enforced by the media) govern business practices. The products are classified as complementary medicines
for which there are no specific regulations. The Foodstuffs, Cosmetics and Disinfectants Act 1972, and the Medicines and
Related Substances Act 1965 currently apply.
In Singapore, the network marketing industry is governed by the Multi-Level Marketing and Pyramid Selling
(Prohibition) (Amendment) Act and the accompanying Pyramid Selling (Excluded Schemes and Arrangements) Order 2000
and Order 2001. General business practices and advertising are regulated under the Consumer Protection (Fair Trading) Act
2003, as amended, and its accompanying regulations. The products are classified as food and supplements of a food nature,
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which are governed by the Sale of Food Act and the Singapore Food Regulations. Cosmetics and products that rise to the
level of medicinal and other health-related products are regulated under various regulations such as the Medicines Act, the
Poisons Act, the Sale of Drugs Act, the Medicines (Advertisement and Sale) Act and the Misuse of Drug Regulations.
In Austria, the Austrian Trade Law of 1994 (Novelle 2002) prohibits the offer of direct sale to an individual
consumer of food supplement and cosmetic products. The provision, however, has generally not been enforced in recent
years and sales made via the Internet or mail order or made to a non-consumer distributor do not fall under this prohibition.
The Austrian Trade Law is predominantly administered through the National Ministry of Economy and Labor. Our business
operations within Austria are conducted from beyond the borders of Austria, which is the common practice in our industry.
Our distributors qualify as “traders” for purposes of Austrian state and municipal laws. Traders are regulated by the local
chambers of commerce and must obtain licenses from the respective chambers of commerce. Regulation of food supplements
and cosmetics is generally harmonized throughout the EU and must conform to EU standards. Austrian-specific food
regulations include the Food Safety and Consumer Protection Law (2006), supporting ordinances to this law, the Food
Supplement Law, and the Austrian Food Codex, which is primarily administered by the National Ministry of Health, Office
for Health and Food Security, and the Local Health Authority.
In Sweden various provisions of the Consumer Sales Act (1990), the Marketing Practices Act (2008), the Distance
and Doorstep Sales Act (2005), the Product Liability Act (1992), the Product Safety Act (2004), and the Companies Act
(2005) all serve to govern our multi-level marketing and business activities. The Food Act (2006) provides regulations and
guidelines for the sale of food and food supplements. We are subject to the authority of the Swedish Consumer Office, the
Swedish Companies Registration Office, the Swedish Tax Office, Swedish Customs, Medical Products Agency, and the
National Food Administration. As in all EU countries various EU regulations and guidelines apply.
In the Netherlands, the Food and Consumer Product and the Unfair Trade Practices Act are the most relevant
legislations relating to our business practices. The first is enforced by the Food and Consumer Product Safety Authority and
the latter is enforced by the Consumer Authority. Furthermore, various EU regulations apply as well as the Dutch Door to
Door Selling Act, and all provisions of the Dutch Civil Code with particular emphasis to those regulations dealing with
general terms and conditions, and those regarding misleading advertising.
Norway exercises a border control of products and their composition upon importation. Import products must be
registered in an Import Reporting Registry, and the regulations are enforced by the customs authorities. Our products must be
compliant with Norwegian regulations in order to be admitted for admission through customs into Norway. In Norway Door-
to-Door Selling is allowed, provided the Guidelines from the Norwegian Consumer Agency are followed. Likewise,
telephone-selling is allowed provided the agency’s guidelines are followed. Home-selling in Norway is also allowed. All of
our sales in Norway are subject to a 14-day right to cancel by the consumers.
In Mexico, as in many other markets, there are no specific regulations directly related to the direct selling or
network marketing industry. However, all product sales and business offerings must comply with the Consumer Protection
Law, which is enforced by the Consumer Protection Agency. Food supplements and medicines are subject to the Health Law
and various Official Mexican Standards, which are enforced by the Health Ministry and The Federal Commission for
Protection Against Sanitary Risk. Mexican Customs Law and its regulations govern the general importation of our products
into Mexico. We are subject to the Mexican Corporate Law, which is enforced by the Mexican courts and to the Federal
Labor Law enforced by the Labor Courts. In Mexico, we are also subject to the Foreign Investment Law and its regulations
administered by the Ministry of Economy. We are required to register before the Mexican System for Business Information
at the appropriate Business Chamber under the Organizations Law.
In the Czech Republic, there are no specific regulations or special legislation that limit the network marketing
industry. Network marketing is considered to be a specific form of general sale and is generally subject to various provisions
of the Business Code (Act. Nr. 513/1992 Coll.), Civil Code (Act. Nr. 40/1964 Coll.), Labor Code (Act. No. 262/2006 Coll.),
Trade License Act (Act. Nr. 455/1991 Coll.), Consumer Protection Act (Act. Nr. 634/1992 Coll.) and related legislation. The
status of independent contractor/sales distributor is primarily regulated by the Trade License Act (Act. Nr. 455/1991 Coll),
which requires sales distributors to maintain a trade license. Additionally, the regulation of food supplements is harmonized
throughout the EU and, therefore, the supplements must conform to the EU standards. Enforcement of Czech-specific
regulations is undertaken by the Ministry of Health, National Institute of Public Health, State Institute of Drug Control and
the Czech Agriculture and Food Inspection Authority.
In Estonia, there are no specific regulations governing the network marketing business, but the business is generally
regulated under the Consumer Protection Act. Also, independent distributors are required to register as sole proprietors with
the Tax and Customs Board before entry into associate agreements. Mannatech must also comply with various EU
regulations. The Veterinary and Food Board also enforces local legislation including Estonia Food Act and Medicine Act.
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In Finland, the Finnish Food Act, the Finnish Food Packaging and Consumer Protection Acts, Act on Unfair
Business Practice Act, Decrees and other regulations, as well as applicable EU regulations, regulate Mannatech products,
product information, and the way Mannatech promotes its products. Additionally, certain principals applicable to multi-level
marketing under the Money Collection Act (255/2006) apply to Mannatech’s activities. Lastly, persons engaged in the
manufacture, commission of manufacture or import of food supplements, must submit a written notification to the Finnish
Food Safety Authority when marketing and selling in Finland. A notification is also required when the composition of
preparation changes in terms of characteristics of substances or the preparation is withdrawn from the market.
In the Republic of Ireland, the primarily relevant legislation is the Consumer Protection Act of 2007, the Distance
Selling Regulations Act of 2001, and the codes of practice of the Direct Selling Association of Ireland and the Advertising
Standards Authority for Ireland. There is no equivalent in Irish law to the UK Trading Schemes Regulations, but the Direct
Selling Association of Ireland codes, while not as prescriptive, contain many similar requirements. Lastly, the regulation of
food and food supplements are generally harmonized throughout the EU and must conform to EU standards.
In Ukraine, there is no special law or regulation that governs our network marketing business model. However, such
business is governed by various laws, primarily by general provisions of the Civil Code of Ukraine and the Commercial
Code of Ukraine. Furthermore, we are subject to the Law of Ukraine On Protections of Consumer Rights No. 1023-XII. Our
products are governed by the Law of Ukraine On Safety and Quality of Food Products No. 771/97-BP, which provides
general requirements for production, marketing and import of products including dietary supplements.
In Hong Kong, our network marketing system, overall operations and trade practices are governed by a number of
Ordinances including the Sale of Goods Ordinance, the Control of Exemption Clauses Ordinance, the Pyramid Schemes
Prohibition Ordinance and the Personal Data (Privacy) Ordinance. Such Ordinances include a number of consumer
protections (including data privacy) and regulate trading practices. Importation and registration of our products permitting
their sale in Hong Kong are controlled by the Import and Export Ordinance and its subsidiary legislation, the Import and
Export (Registration) Regulations.
Other Regulations. Our operations are also subject to a variety of other regulations, including:
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social security taxes;
value-added taxes;
goods and services taxes;
sales taxes;
consumption taxes;
income taxes;
customs duties;
employee/independent contractor regulations;
employment, service pay, retirement pay, and profit sharing requirements;
import/export regulations;
federal securities laws; and
antitrust laws.
In many markets, we are limited by the types of rules we can impose on our independent associates, including rules
in connection with cooling off periods and termination criteria. If we do not comply with these requirements, we may be
required to pay social security, unemployment benefits, workers’ compensation, or other tax or tax-type assessments on
behalf of our independent associates and may incur severance obligations if we terminate one of our independent associates.
In some countries, including the United States, we are also governed by regulations concerning the activities of our
independent associates. Regulators may find that we are ultimately responsible for the conduct of our independent associates
and may request or require that we take additional steps to ensure that our independent associates comply with these
regulations. The types of conduct governed by these types of regulations may include:
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claims made about our products;
promises or claims of income or other promises or claims by our independent associates; and
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sales of products in markets where the products have not been approved or licensed.
In some markets, including the United States, improper product claims by independent associates could result in our
products being overly scrutinized by regulatory authorities. This review could result in our products being re-classified as
drugs or classified into another product category that requires stricter regulations or labeling changes.
We continuously research and monitor the laws governing the conduct of our independent associates, our
operations, our global associate career and compensation plan, and our products and sales aids within each of the countries in
which we sell our products. We provide education for our independent associates regarding acceptable business conduct in
each market through our policies and procedures, seminars, and other training materials and programs. However, we cannot
guarantee that our independent associates will always abide by our policies and procedures and/or act in a professional and
consistent manner.
Competition
Other Nutritional Supplement Companies. The nutritional supplement industry is steadily gaining momentum and
is intensely competitive. Our current direct competitors selling similar nutritional products include:
(cid:120) AdvoCare International
(cid:120) GNC Holdings, Inc.;
(cid:120) Herbalife Ltd.;
(cid:120) Nature’s Sunshine Products, Inc.;
(cid:120) Nerium International
(cid:120) NOW Foods;
(cid:120) Nu Skin Enterprises, Inc.;
(cid:120) Reliv’ International, Inc;
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Solgar Vitamin and Herb Company, Inc.;
Swanson Health Products;
(cid:120) Usana Health Sciences, Inc.; and
(cid:120) Vitamin Shoppe Industries, Inc.
Network Marketing. Nutritional supplements are offered for sale in a variety of ways. Network marketing has a
limited number of individuals interested in participating in the industry, and we must compete for those types of individuals.
We believe network marketing is the best sales approach to sell our products for the following reasons:
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our products can be introduced into the global marketplace at a much lower up-front cost than through
conventional methods;
our key ingredients and differential components found in our proprietary products can be better explained
through network marketing;
the network marketing approach can quickly and easily adapt to changing market conditions;
consumers appreciate the convenience of ordering from home, through a sales person, by telephone, or on the
Internet; and
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network marketing enables independent associates to earn financial rewards.
We compete with other direct selling and network marketing companies for new independent associates and for
retention of continuing independent associates. Some of our competitors have longer operating histories, are better known, or
have greater financial resources. These companies include:
(cid:120) Amway Corporation;
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Forever Living Products, Inc.;
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(cid:120) Herbalife International, Inc.;
(cid:120) Mary Kay, Inc.;
(cid:120) Nature’s Sunshine Products, Inc.;
(cid:120) Nu Skin Enterprises, Inc.;
(cid:120) Reliv’ International, Inc.;
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Shaklee Worldwide; and
(cid:120) Usana Health Sciences, Inc.
The availability of independent associates decreases when other network marketing companies successfully recruit
and retain independent associates for their operations. We believe we can successfully compete for independent associates by
emphasizing the following:
our unique patented, proprietary blend of high-quality products;
our 20-year track record in the business of selling nutritional products;
our model which does not require our independent associates to carry inventory or accounts receivable;
our unique and financially rewarding global associate career and compensation plan;
our innovative marketing and educational tools; and
our easy and convenient delivery system.
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Employees
At December 31, 2013 and 2012, we employed 296 and 310 people, respectively, as set forth below:
North America
Asia/Pacific
EMEA
Total
Full-time employees
Part-time employees
Total
2013
2012
182
80
34
296
290
6
296
2013
182
92
36
310
303
7
310
2012
These numbers do not include our independent associates, who are independent contractors and are not employees.
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Item 1A. Risk Factors
In addition to the other risks described in this report, the following risk factors should be considered in evaluating
our business and future prospects:
1. If we are unable to attract and retain independent associates, our business may suffer.
Our future success depends largely upon our ability to attract and retain a large active base of independent
associates and members who purchase our packs and products. We cannot give any assurances that the number of our
independent associates will continue at their current levels or increase in the future. Several factors affect our ability to attract
and retain independent associates and members, including:
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on-going motivation of our independent associates;
general economic conditions;
significant changes in the amount of commissions paid;
public perception and acceptance of the wellness industry;
public perception and acceptance of network marketing;
public perception and acceptance of our business and our products, including any negative publicity;
the limited number of people interested in pursuing network marketing as a business;
our ability to provide proprietary quality-driven products that the market demands; and
competition in recruiting and retaining independent associates.
2. The loss of key high-level independent associate leaders could negatively impact our associate growth and
our revenue.
As of December 31, 2013, we had approximately 245,000 active independent associates and members who
purchased our products within the last 12 months, of which 135 occupied the highest associate levels under our global
compensation plan. These independent associate leaders are important in maintaining and growing our revenue. As a result,
the loss of a high-level independent associate or a group of leading associates in the independent associates’ networks of
downlines, whether by their own choice or through disciplinary actions by us for violations of our policies and procedures,
could negatively impact our associate growth and our revenue.
3. Changes to our associate compensation arrangements could be viewed negatively by some independent
associates, could cause failure to achieve desired long-term results and have a negative impact on revenue.
Our associate compensation plan includes components that differ from market to market. We modify components of
our compensation plan from time to time in an attempt to remain competitive and attractive to existing and potential
independent associates including such modifications:
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to address changing market dynamics;
to provide incentives to independent associates that are intended to help grow our business;
to conform to local regulations; and
to address other business needs.
Because of the size of our associate force and the complexity of our compensation plans, it is difficult to predict how
independent associates will view such changes and whether such changes will achieve their desired results.
4. An increase in the amount of commissions and incentives paid to independent associates and members
reduces our profitability.
The payment of commissions and incentives, including bonuses and prizes, is our most significant expense.
Together, our commissions and incentives range approximately from 41% to 43% of our consolidated net sales. We closely
monitor the amount of commissions and incentives as a percentage of net sales, and may periodically adjust our
compensation plan to better manage these costs. There can be no assurance that changes to the compensation plan will be
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successful in achieving target levels of commissions and incentives as a percentage of net sales and preventing these costs
from having a significant adverse effect on our earnings. Furthermore, such changes may make it difficult to attract and
retain independent associates or cause us to lose some of our existing independent associates.
5. The loss of key management personnel could adversely affect our business.
We depend on the continued services of our executive officers and senior management team as they work closely
with independent associate leaders and are responsible for our day-to-day operations. Our success depends in part on our
ability to retain our executive officers, to compensate our executive officers at attractive levels, and to continue to attract
additional qualified individuals to our management team. Although we have entered into employment agreements with
certain members of our senior management team, and do not believe that any of them are planning to leave or retire in the
near term, we cannot assure you that our senior managers will remain with us. The loss or limitation of the services of any of
our executive officers or members of our senior management team, including our regional and country managers, or the
inability to attract additional qualified management personnel could have a material adverse effect on our business, financial
condition, results of operations, or independent associate relations.
The Company entered into a renewable consulting agreement, which expired February 28, 2014, with
WonderEnterprises, LLC (f/k/a Salinda Enterprises, LLC; hereinafter “Wonder”) for the consulting services of Mr. Samuel L.
Caster, the Company’s founder and former Chairman of the Board, who is also an owner and an employee of Wonder.
However, the parties did not renew the Agreement (see Note 9 to our Consolidated Financial Statements, Transactions with
Related Parties and Affiliates). The loss or limitation of these consulting services could have a material adverse effect on our
business, financial condition, results of operations, or independent associate relations.
6. If government regulations regarding network marketing change or are interpreted or enforced in a manner
adverse to our business, we may be subject to new enforcement actions and material limitations regarding
our overall business model.
Network marketing is always subject to extensive governmental regulations, including foreign, federal, and state
regulations. Any change in legislation and regulations could affect our business. Furthermore, significant penalties could be
imposed on us for failure to comply with various statutes or regulations. Violations may result from:
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ambiguity in statutes;
regulations and related court decisions;
the discretion afforded to regulatory authorities and courts interpreting and enforcing laws; and
new regulations or interpretations of regulations affecting our business.
7. Independent associates could fail to comply with our associate policies and procedures or make improper
product, compensation, marketing or advertising claims that violate laws or regulations, which could result
in claims against us that could harm our financial condition and operating results.
We sell our products worldwide to a sales force of independent associates. The independent associates are
independent contractors and, accordingly, we are not in a position to provide the same direction, motivation, and oversight as
we would if associates were our own employees. As a result, there can be no assurance that our associates will participate in
our marketing strategies or plans, accept our introduction of new products, or comply with our associate policies and
procedures. All independent associates sign a written contract and agree to adhere to our policies and procedures, which
prohibit associates from making false, misleading or other improper claims regarding products or income potential from the
distribution of the products. However, independent associates may from time to time, without our knowledge and in violation
of our policies, create promotional materials or otherwise provide information that does not accurately describe our
marketing program. There is a possibility that some jurisdictions could seek to hold us responsible for independent associate
activities that violate applicable laws or regulations, which could result in government or third party actions or fines against
us, which could harm our financial condition and operating results.
8. We may be held responsible for certain taxes or assessments relating to the activities of our independent
associates, which could harm our financial condition and operating results.
Our independent associates are subject to taxation and, in some instances, legislation or governmental agencies
impose an obligation on us to collect taxes, such as value added taxes, and to maintain appropriate tax records. In addition,
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we are subject to the risk in some jurisdictions of being responsible for social security and similar taxes with respect to our
distributors. In the event that local laws and regulations require us to treat our independent distributors as employees, or if
our distributors are deemed by local regulatory authorities to be our employees, rather than independent contractors, we may
be held responsible for social security and related taxes in those jurisdictions, plus any related assessments and penalties,
which could harm our financial condition and operating results.
9. Challenges by private parties to the form of our network marketing system could harm our business.
We may be subject to challenges by private parties, including our independent associates and members, to the form
of our network marketing system or elements of our business. In the United States, the network marketing industry and
regulatory authorities have relied on the implementation of distributor rules and policies designed to promote retail sales to
protect consumers, prevent inappropriate activities, and distinguish between legitimate network marketing distribution plans
and unlawful pyramid schemes. We have adopted rules and policies based on case law, rulings of the FTC, discussions with
regulatory authorities in several states, and domestic and global industry standards. Legal and regulatory requirements
concerning network marketing systems, however, involve a high level of subjectivity, are inherently fact-based, and are
subject to judicial interpretation. Because of this, we can provide no assurance that we would not be harmed by the
application or interpretation of statutes or regulations governing network marketing, particularly in any civil challenge by a
current or former independent associate or member.
10. If our network marketing activities do not comply with government regulations, our business could suffer.
Many governmental agencies regulate our network marketing activities. A government agency’s determination that
our business or our independent associates have significantly violated a law or regulation could adversely affect our business.
The laws and regulations for network marketing intend to prevent fraudulent or deceptive schemes. Our business faces
constant regulatory scrutiny due to the interpretive and enforcement discretion given to regulators, periodic misconduct by
our independent associates, adoption of new laws or regulations, and changes in the interpretation of new or existing laws or
regulations. For example, in July 2007, the Texas Attorney General filed suit against us, MannaRelief Ministries, Samuel
L.Caster, the Fisher Institute, and H. Reginald McDaniel alleging violations of the Texas Deceptive Trade Practices Act and
the Texas Food, Drug and Cosmetic Act. We subsequently reached an agreement with the Texas Attorney General’s office
settling the enforcement action. Without admitting any wrongdoing, we agreed to refund up to $4 million to certain members
and paid $2 million to cover fees and expenses of Texas regulators. We also made certain corporate governance changes
required by the Texas Attorney General’s office and have taken a number of actions to address concerns raised by the Texas
Attorney General. If we are unable to comply fully with the provisions of the settlement, Texas regulators could pursue
further remedies that may impact our business.
In addition, in the past, and because of the industry in which we operate, we have experienced inquiries regarding
specific independent associates. (cid:3)
11. If we violate governmental regulations or fail to obtain necessary regulatory approvals, our operations
could be adversely affected.
Our operation is subject to extensive laws, governmental regulations, administrative determinations, court decisions,
and similar constraints at the federal, state, and local levels in our domestic and foreign markets. These regulations primarily
involve the following:
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the formulation, manufacturing, packaging, labeling, distribution, importation, sale, and storage of our
products;
the health and safety of dietary supplements, cosmetics and foods;
trade practice laws and network marketing laws;
our product claims and advertising by our independent associates;
our network marketing system;
pricing restrictions regarding transactions with our foreign subsidiaries or other related parties and similar
regulations that affect our level of foreign taxable income;
the assessment of customs duties;
further taxation of our independent associates, which may obligate us to collect additional taxes and maintain
additional records; and
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export and import restrictions.
Any unexpected new regulations or changes in existing regulations could significantly restrict our ability to
continue operations, which could adversely affect our business. For example, changes regarding health and safety and food
and drug regulations for our nutritional products could require us to reformulate our products to comply with such
regulations.
In some foreign countries, nutritional products are considered foods, while other countries consider them drugs.
Future health and safety or food and drug regulations could delay or prevent our introduction of new products or suspend or
prohibit the sale of existing products in a given country or marketplace. In addition, if we expand into other foreign markets,
our operations or products could also be affected by the general stability of such foreign governments and the regulatory
environment relating to network marketing and our products. If our products are subject to high customs duties, our sales and
competitive position could suffer as compared to locally produced goods. Furthermore, import restrictions in certain
countries and jurisdictions could limit our ability to import products from the United States.
12. Increased regulatory scrutiny of nutritional supplements as well as new regulations that are being adopted
in some of our markets with respect to nutritional supplements could result in more restrictive regulations
and harm our results if our supplements or advertising activities are found to violate existing or new
regulations or if we are not able to effect necessary changes to our products in a timely and efficient
manner to respond to new regulations.
There has been an increasing movement in the United States and other markets to increase the regulation of dietary
supplements, which could impose additional restrictions or requirements on us and increase the cost of doing business. In
several of our markets, new regulations have been adopted, or are likely to be adopted, in the near-term that will impose new
requirements, make changes in some classifications of supplements under the regulations, or limit the claims we can make.
In addition, there has been increased regulatory scrutiny of nutritional supplements and marketing claims under existing and
new regulations. In Europe, for example, we are unable to market supplements that contain ingredients that have not been
previously marketed in Europe without going through an extensive registration and approval process. Europe is also expected
to adopt additional regulations in the near future to set new limits on acceptable levels of nutrients. The FDA has
implemented Good Manufacturing Practices for the U.S. nutritional supplement industry. Our operations could be harmed if
new regulations require us to reformulate products or effect new registrations, if regulatory authorities make determinations
that any of our products do not comply with applicable regulatory requirements, if the cost of complying with regulatory
requirements increases materially, or if we are not able to effect necessary changes to our products in a timely and efficient
manner to respond to new regulations. In addition, our operations could be harmed if governmental laws or regulations are
enacted that restrict the ability of companies to market or distribute nutritional supplements or impose additional burdens or
requirements on nutritional supplement companies.
13. If we are unable to protect the proprietary rights of our products, our business could suffer.
Our success and competitive position largely depends on our ability to protect the following proprietary rights:
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(cid:120)
(cid:120)
our Ambrotose® complex, a glyconutritional dietary supplement ingredient consisting of a blend of
monosaccharides, or sugar molecules, used in the majority of our products;
the MTech AO Blend® formulation, our proprietary antioxidant technology used in the Ambrotose AO®
complex; and
a compound used in our reformulated Advanced Ambrotose® complex that allows for a more potent
concentration of the full range of mannose-containing polysaccharides occurring naturally in aloe.
We have filed patent applications for the technology relating to our Ambrotose®, Ambrotose AO®, Phytomatrix®
and GI-ProBalance®™ products in the United States and certain foreign countries. As of December 31, 2013, we had
received 51 patents for the technology relating to Ambrotose® complex, five of which were issued in the United States and
the remainder of which were issued in 31 foreign jurisdictions. In addition, we have entered into confidentiality agreements
with our independent associates, suppliers, manufacturers, directors, officers, and consultants to help protect our proprietary
rights. Nevertheless, we continue to face the risk that our pending patent applications for our products may not issue or that
the patent protection granted is more limited than originally requested. As a precaution, we consult with outside legal
counsel and consultants to help ensure that we protect our proprietary rights. However, our business, profitability, and
growth prospects could be adversely affected if we fail to receive adequate protection of our proprietary rights.
24
14. Our inability to develop and introduce new products that gain independent associate, member, and market
acceptance could harm our business.
A critical component of our business is our ability to develop new products that create enthusiasm among our
independent associates and members. If we are unable to introduce new products, our independent associate productivity
could be harmed. In addition, if any new products fail to gain market acceptance, are restricted by regulatory requirements or
have quality problems, this would harm our results of operations. Factors that could affect our ability to continue to introduce
new products include, among others, government regulations, the inability to attract and retain qualified research and
development staff, the termination of third-party research and collaborative arrangements, proprietary protections of
competitors that may limit our ability to offer comparable products, and the difficulties in anticipating changes in consumer
tastes and buying preferences.
15. Our failure to appropriately respond to changing consumer preferences and demand for new products or
product enhancements could significantly harm our relationship with independent associates and
members, our product sales, as well as our financial condition and operating results.
Our business is subject to changing consumer trends and preferences, including rapid and frequent changes in
demand for products, new product introductions, and enhancements. Our failure to accurately predict these trends could
negatively impact consumer opinion of our products, which in turn could harm our independent associate and member
relationships and cause the loss of sales. The success of our new product offerings and enhancements depends upon a number
of factors, including our ability to:
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accurately anticipate consumer needs;
innovate and develop new products or product enhancements that meet these needs;
successfully commercialize new products or product enhancements in a timely manner;
price our products competitively;
(cid:120) manufacture and deliver our products in sufficient volumes and in a timely manner; and
(cid:120)
differentiate our product offerings from those of our competitors.
If we do not introduce new products or make enhancements to meet the changing needs of our independent
associates, members and customers in a timely manner, some of our products could be rendered obsolete, which could
negatively impact our revenues, financial condition, and operating results.
16. If our outside suppliers and manufacturers fail to supply products in sufficient quantities and in a timely
fashion, our business could suffer.
Outside manufacturers make all of our products. Our profit margins and timely product delivery are dependent upon
the ability of our outside suppliers and manufacturers to supply us with products in a timely and cost-efficient manner. Our
ability to enter new markets and sustain satisfactory levels of sales in each market depends on the ability of our outside
suppliers and manufacturers to provide required levels of ingredients and products and to comply with all applicable
regulations. As a precaution, we have approved alternate suppliers and manufacturers for our products. However, the failure
of our primary suppliers or manufacturers to supply ingredients or produce our products could adversely affect our business
operations.
We believe we have dependable suppliers for all of our ingredients and we have identified alternative sources for all
of our ingredients, except Arabinogalactan. Due to the unique nature of Arabinogalactan, an important component used in the
formulation of our Ambrotose® complex, we are unable to identify an alternative supplier at this time. If our suppliers are
unable to perform, any delay in replacing or substituting such ingredients could affect our business.
17. The loss of suppliers or shortages of raw materials could have an adverse effect on our business, financial
condition, or results of operations.
We depend on outside suppliers for raw materials. Our contract manufacturers acquire all of the raw materials for
manufacturing our products from third-party suppliers. In the event we were to lose any significant suppliers and have
trouble in finding or transitioning to alternative suppliers, it could result in product shortages or product back orders, which
could harm our business. There can be no assurance that suppliers will be able to provide our contract manufacturers the raw
25
materials in the quantities and at the appropriate level of quality that we request or at a price that we are willing to pay. We
are also subject to delays caused by any interruption in the production of these materials including weather, crop conditions,
climate change, transportation interruptions and natural disasters or other catastrophic events.
18. If we are exposed to product liability claims, we may be liable for damages and expenses, which could
affect our overall financial condition.
We could face financial liability from product liability claims if the use of our products results in significant loss or
injury. We can make no assurances that we will not be exposed to any substantial future product liability claims. Such claims
may include claims that our products contain contaminants, that we provide our independent associates and consumers with
inadequate instructions regarding product use, or that we provide inadequate warnings concerning side effects or interactions
of our products with other substances. We believe that we, our suppliers, and our manufacturers maintain adequate product
liability insurance coverage. However, a substantial future product liability claim could exceed the amount of insurance
coverage or could be excluded under the terms of an existing insurance policy, which could adversely affect our overall
future financial condition.
In recent years a discovery of Bovine Spongiform Encephalopathy, (“BSE”), which is commonly referred to as
“Mad Cow Disease”, has caused concern among the general public. As a result, some countries have banned the importation
or sale of products that contain bovine materials sourced from locations where BSE has been identified. We have changed
the vast majority of our capsules to a vegetable base. However, if a vegetable base is not available or practical for use,
certifications are required to ensure the capsule material is BSE-free. The higher costs could affect our financial condition,
results of operations, and our cash flows.
19. Concentration Risk
A significant portion of our revenue is derived from our core Ambrotose® complex products, which include the
Ambrotose® products and Advanced Ambrotose® products. A decline in sales value of such legacy products could have a
material adverse effect on our earnings, cash flows, and financial position. Revenue from the core Ambrotose® products were
as follows for the years ended December 31, 2013 and 2012 (in thousands, except percentages):
Advanced Ambrotose®
Ambrotose®
Total
2013
2012
Sales by
product
59,894
10,939
70,833
$
$
% of total
net sales
33.8 % $
6.2 %
40.0 % $
Sales by
product
66,280
12,143
78,423
% of total
net sales
38.2 %
7.0 %
45.2 %
Our business is not currently exposed to customer concentration risk given that no independent associate has ever
accounted for more than 10% of our consolidated net sales.
20. If we incur substantial liability from litigation, complaints, or enforcement actions or incur liabilities or
penalties resulting from misconduct by our independent associates, our financial condition could suffer.
Routine enforcement actions and complaints are common in our industry. Although we believe we fully cooperate
with regulatory agencies and use various means to address misconduct by our independent associates, including maintaining
policies and procedures to govern the conduct of our independent associates and conducting training seminars, it is still
difficult to detect and correct all instances of misconduct. Violations of our policies and procedures by our independent
associates could lead to litigation, formal or informal complaints, enforcement actions, and inquiries by various federal, state,
or foreign regulatory authorities against us and/or our independent associates in each country. Because we have expanded
into foreign countries, our policies and procedures for our independent associates differ depending on the different legal
requirements of each country in which an independent associate does business. Any future litigation, complaints, and
enforcement actions involving us and/or our independent associates could consume considerable amounts of financial and
other corporate resources, which could have a negative impact on our business, profitability, and growth prospects.
26
21. The global nutrition and skin care industries are intensely competitive and the strengthening of any of our
competitors could harm our business.
The global nutrition and skin care industries are intensely fragmented and competitive. We compete for independent
associates with other network marketing companies outside the global nutrition and skin care industries. Many of our
competitors have greater name recognition and financial resources, which may give them a competitive advantage. Our
competitors may also be able to devote greater resources to marketing, promotional, and pricing campaigns that may
influence our continuing and potential independent associates and members to buy products from competitors rather than
from us. Such competition could adversely affect our business and current market share.
22. A downturn in the economy has affected consumer purchases of discretionary items such as the health and
wellness products that we offer, which could continue to have an adverse effect on our business, financial
condition, profitability, and cash flows.
We appeal to a wide demographic consumer profile and offer a broad selection of health and wellness products. A
downturn in the economy has adversely impacted consumer purchases of discretionary items such as health and wellness
products. During the last few years, the United States and global economies slowed dramatically as a result of a variety of
problems, including turmoil in the credit and financial markets, concerns regarding the stability and viability of major
financial institutions, the state of the housing markets, and volatility in worldwide stock markets. Given the significance and
widespread nature of these nearly unprecedented circumstances, the U.S. and global economies could remain significantly
challenged in a recessionary state for an indeterminate period of time. These economic conditions could cause many of our
existing and potential associates to delay or reduce purchases of our products for some time, which in turn could continue to
harm our business by adversely affecting our revenues, results of operations, cash flows and financial condition. We cannot
predict the duration of these economic conditions or the impact they will have on our consumers or business. For additional
information regarding current economic conditions and their impact on our results of operations, refer to Item 7,
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
23. If our international markets are not successful, our business could suffer.
We currently sell our products in the international markets of Canada, Mexico, Austria, the Czech Republic,
Denmark, Estonia, Finland, Germany, the Republic of Ireland, Namibia, Netherlands, Norway, South Africa, Sweden, the
United Kingdom, Ukraine, Australia, Japan, New Zealand, the Republic of Korea, Singapore, Taiwan and Hong Kong. Our
international operations could experience changes in legal and regulatory requirements, as well as difficulties in adapting to
new foreign cultures and business customs. If we do not adequately address such issues, our international markets may not
meet growth expectations. Our international operations and future expansion plans are subject to political, economic, and
social uncertainties, including:
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(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
inflation;
the renegotiation or modification of various agreements;
increases in custom duties and tariffs;
changes and limits in export controls;
government regulations and laws;
trademark availability and registration issues;
changes in exchange rates;
changes in taxation;
(cid:120) wars and other hostilities; and
(cid:120)
changes in the perception of network marketing.
Any negative changes related to these factors could adversely affect our business, profitability, and growth
prospects. Furthermore, any negative changes in our distribution channels may force us to invest significant time and money
related to our distribution and sales to maintain our position in certain international markets.
27
24. Adverse or negative publicity could cause our business to suffer.
Our business depends, in part, on the public’s perception of our integrity and the safety and quality of our products.
Any adverse publicity could negatively affect the public’s perception about our industry, our products, or our reputation and
could result in a significant decline in our operations and/or the number of our independent associates. Specifically, we are
susceptible to adverse or negative publicity regarding:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
the nutritional supplements industry;
skeptical consumers;
competitors;
the safety and quality of our products and/or our ingredients;
regulatory investigations of our products or our competitors’ products;
the actions of our independent associates;
the direct selling/network marketing industry; and
scandals within the industries in which we operate.
25. If our information technology system fails or if the implementation of new information technology systems
is not executed efficiently and effectively, our business, financial position, and our operating results could
be adversely affected.
Like many companies, our business is heavily dependent upon our information technology infrastructure to
effectively manage and operate many of our key business functions, including:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
order processing;
supply chain management;
customer service;
product distribution;
commission processing;
cash receipts and payments; and
financial reporting.
These systems and operations are vulnerable
fires, earthquakes,
telecommunications failures, and other events. They are also subject to break-ins, sabotage, intentional acts of vandalism and
similar misconduct. Although we maintain an extensive security system and disaster recovery program that was developed
under the guidelines published by the National Institute of Standards of Technology, a long-term failure or impairment of
any of our information technology systems could adversely affect our ability to conduct day-to-day business.
to damage and
interruption
from
Occasionally information technology systems must be upgraded or replaced and if this system implementation is not
executed efficiently and effectively, the implementation may cause interruptions in our primary management information
systems, which may make our website or services unavailable thereby preventing us from processing transactions, which
would adversely affect our financial position or operating results.
26. Taxation and transfer pricing affect our operations and we could be subjected to additional taxes, duties,
interest, and penalties in material amounts, which could harm our business.
As a multinational corporation, in many countries, including the United States, we are subject to transfer pricing and
other tax regulations designed to ensure that our intercompany transactions are consummated at prices that have not been
manipulated to produce a desired tax result, that appropriate levels of income are reported as earned by the local entities, and
that we are taxed appropriately on such transactions. Regulators closely monitor our corporate structure, intercompany
transactions, and how we effectuate intercompany fund transfers. If regulators challenge our corporate structure, transfer
pricing methodologies or intercompany transfers, our operations may be harmed and our effective tax rate may increase.
28
A change in applicable tax laws or regulations or their interpretation could result in a higher effective tax rate on our
worldwide earnings and such change could be significant to our financial results. In the event any audit or assessments are
concluded adversely to us, these matters could have a material impact on our financial condition.
27. Currency exchange rate fluctuations could reduce our overall profits.
In 2013 and 2012, we recognized 63.3% and 59.2%, respectively, of net sales in markets outside of the United States. In
preparing our consolidated financial statements, we are required to translate certain financial information from foreign
currencies to the United States dollar using either the spot rate or the weighted-average exchange rate. If the United States
dollar changes relative to applicable local currencies, there is a risk our reported sales, operating expenses, and net income
could significantly fluctuate. For example, in 2013, our net sales declined $ 5 million compared to 2012 due to unfavorable
foreign exchange, but grew 5.2% on a Constant dollar basis (see Item 7, Non-GAAP Financial Measures). There can be no
assurance that foreign currency fluctuations will not have a material adverse effect on our business, assets, financial
condition, liquidity, results of operations or cash flows. We are not able to predict the degree of exchange rate fluctuations,
nor can we estimate the effect any future fluctuations may have upon our future operations. To date, we have not entered into
any hedging contracts or participated in any hedging or derivative activities.
28. Our stock price is volatile and may fluctuate significantly.
The price of our common stock is subject to sudden and material increases and decreases. Decreases could
adversely affect investments in our common stock. The price of our common stock and the price at which we could sell
securities in the future could significantly fluctuate in response to:
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(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
broad market fluctuations and general economic conditions;
fluctuations in our financial results;
future securities offerings;
changes in the market’s perception of our products or our business, including false or negative publicity;
governmental regulatory actions;
the outcome of any lawsuits;
financial and business announcements made by us or our competitors;
the general condition of the industry; and
the sale of large amounts of stock by insiders.
In addition, the stock market has experienced extreme price and volume fluctuations in recent years that have
significantly affected the quoted prices of the securities of many companies. The changes sometimes appear to occur without
regard to specific operating performance. The price of our common stock in the open market could fluctuate based on factors
that have little or nothing to do with us or that are outside of our control.
29. Certain shareholders, directors, and officers own a significant amount of our stock, which could allow
them to influence corporate transactions and other matters.
As of December 31, 2013, our directors, executive officers, and a major shareholder, collectively with their families
and affiliates, beneficially owned approximately 37.3% of our total outstanding common stock. As a result, if two or more of
these shareholders choose to act together based on their current share ownership, they may be able to control a significant
percentage of the total outstanding shares of our common stock, which could affect the outcome of a shareholder vote on the
election of directors, the adoption of stock option plans, the adoption or amendment of provisions in our articles of
incorporation and bylaws, or the approval of mergers and other significant corporate transactions.
30. We have implemented anti-takeover provisions that may help discourage a change of control.
Certain provisions in our articles of incorporation, bylaws, and the Texas Business Organizations Code help
discourage unsolicited proposals to acquire our Company, even if the proposal may benefit our shareholders. Our articles of
incorporation authorize the issuance of preferred stock without shareholder approval. Our Board of Directors has the power
to determine the price and terms of any preferred stock. The ability of our Board of Directors to issue one or more series of
preferred stock without shareholders’ approval could deter or delay unsolicited changes of control by discouraging open
market purchases of our common stock or a non-negotiated tender or exchange offer for our common stock. Discouraging
29
open market purchases may be disadvantageous to our shareholders who may otherwise desire to participate in a transaction
in which they would receive a premium for their shares.
In addition, other provisions may also discourage a change of control by means of a tender offer, open market
purchase, proxy contest or otherwise. Our charter documents provide for three classes of directors on our Board of Directors
with members of each class serving staggered three year terms. In addition, the Texas Business Organization Code restricts,
subject to exceptions, business combinations with any “affiliated shareholder.” Any or all of these provisions could delay,
deter or help prevent a takeover of our Company and could limit the price investors are willing to pay for our common stock.
31. Our failure to comply with the NASDAQ Global Select Market continued listing standards may adversely
affect the price and liquidity of our shares of common stock as well as our ability to raise capital in the
future.
Our common stock is currently listed on the NASDAQ Global Select Market. Continued listing of a security on
Nasdaq is conditioned upon compliance with various continued listing standards. There can be no assurance that we will
continue to satisfy the requirements for maintaining listing on Nasdaq. If we are unsuccessful in maintaining compliance
with the continued listing requirements of Nasdaq, then our common stock could be delisted. If our common stock is delisted
and we cannot obtain listing on another major market or exchange, our common stock’s liquidity would suffer, and we would
likely experience reduced investor interest. Such factors may result in a decrease in our common stock’s trading price.
Delisting may also restrict us from issuing additional securities or securing financing.
To continue to have our common stock eligible for continued listing on Nasdaq, we would need to satisfy criteria
under at least one of the three standards set forth by the Nasdaq Stock Market. Under Equity Standard Listing Rules 5450(a)
and 5450(b)(1), these criteria require that:
(cid:120) we have shareholders’ equity of at least $10 million;
(cid:120)
(cid:120)
(cid:120)
(cid:120)
our common stock has at least $1.00 minimum bid for 30 consecutive business days;
our public float must consist of at least 750,000 shares with a market value of at least $5 million (public
float is defined under Nasdaq’s rules as the shares held by persons other than officers, directors and
beneficial owners of greater than 10% of our total outstanding shares);
there be at least 400 shareholders;
there be at least two market makers for our common stock; and
(cid:120) we comply with certain corporate governance requirements.
As of the date of issuance of this report, we were in compliance with these continued listing requirements. However,
we cannot assure you that we will be successful in continuing to meet all requisite continued listing criteria.
32. We are not required to pay dividends, and our Board of Directors may decide not to declare dividends in
the future.
The declaration of dividends on our common stock is solely within the discretion of our Board of Directors, subject
to limitations under Texas law stipulating that dividends may not be paid if payment therefore would cause the corporation to
be insolvent or if the amount of the dividend would exceed the surplus of the corporation. Our Board of Directors may decide
not to declare dividends or we could be prevented from declaring a dividend because of legal or contractual restrictions. The
failure to pay dividends could reduce our stock price. Our Board of Directors suspended dividends in August 2009. We may
not resume payment of dividends in the future.
33. We rely upon our existing cash balances and cash flow from operations to fund our business. In the event
that we do not generate adequate cash flow from operations, we will need to raise money through a debt or
equity financing, if available, or curtail operations.
The adequacy of our cash resources to continue to meet our future operational needs depends, in large part, on our
ability to increase product sales and/or reduce operating costs. If we are unsuccessful in generating positive cash flow from
operations, we could exhaust our available cash resources and be required to secure additional funding through a debt or
30
equity financing, significantly scale back our operations, and/or discontinue many of our activities, which could negatively
affect our business and prospects. Additional funding may not be available or may only be available on unfavorable terms.
34. The reduced disclosure requirements applicable to us as a "smaller reporting company" may make our
common stock less attractive to investors.
We are a "smaller reporting company" as defined in Rule 12b-2 of the Exchange Act. As a smaller reporting
company we prepare and file SEC forms similar to other SEC reporting companies; however, the information disclosed may
differ and be less comprehensive. If some investors find our common stock less attractive as a result of less comprehensive
information we may disclose pursuant to the exemptions available to us as a smaller reporting company, there may be a less
active trading market for our common stock and our stock price may be more volatile than that of an otherwise comparable
company that does not avail itself of the same or similar exemptions.
Circumstances and conditions may change. Accordingly, additional risks and uncertainties not currently known, or
that we currently deem not material, may also adversely affect our business operations.
31
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
We lease property at several locations for our headquarters and distribution facilities, including:
Location
Coppell, Texas (corporate headquarters)
Coppell, Texas (distribution center)
St. Leonards, Australia (Australian headquarters)
Milton Park, Oxfordshire (U.K. headquarters)
Minato-ku, Tokyo, Japan (Japanese headquarters)
Ganganm-gu, Seoul, Korea (Republic of Korea headquarters)
Seo-gu, Daejun, Korea ( Regional center)
Taipei, Taiwan (Taiwan headquarters)
Kaohsiung, Taiwan (Taiwan training center)
Zug, Switzerland (Switzerland headquarters)
Markham, Ontario (Canada headquarters)
Richmond, BC (Canada training center)
Bedfordview, South Africa (Office)
Cape Province, South Africa (Office)
Guadalajara, Mexico (customer service center)
Mexico City, Mexico (customer service center)
Monterrey, Mexico (customer service center)
Kyiv, Ukraine (Ukraine headquarters)
______________________
Size
110,000 sq. feet
75,000 sq. feet(1)
850 sq. meters(2)
3,240 sq. feet
296 Tsubos(3)
717 Pyong (4)
113 Pyong (5)
254 Pings (6)
101 Pings (7)
680 sq. meters(8)
3,097 sq. feet
1,963 sq. feet
383 sq. meters(9)
36 sq. meters(10)
1550 sq. meters(11)
179 sq. meters(12)
280 sq. meters(13)
158 sq. meters(14)
Expiration
date
March 2018
March 2018
December 2018
August 2017
December 2014
June 2016
June 2014
April 2014
June 2014
November 2015
September 2014
September 2017
March 2015
Monthly
February 2016
November 2015
March 2014
June 2016
(1) The Company subleases a majority of this space to Integrated Distribution and Logistics Direct, LLC, which provides warehousing and distribution
services.
(2) Approximately 9,150 square feet.
(3) Approximately 10,533 square feet.
(4) Approximately 25,514 square feet.
(5) Approximately 4,021 square feet.
(6) Approximately 9,037 square feet.
(7) Approximately 3,594 square feet.
(8) Approximately 7,320 square feet.
(9) Approximately 4,123 square feet.
(10) Approximately 388 square feet.
(11) Approximately 16,685 square feet.
(12) Approximately 1,927 square feet.
(13) Approximately 3,014 square feet.
(14) Approximately 1,701 square feet.
To maximize our operating strategy and minimize costs, we contract with third-party distribution and fulfillment
facilities in our three regions: (i) North America, (ii) EMEA and (iii) Asia/Pacific. By entering into these third-party
distribution facility agreements, our offices maintain flexible operating capacity, minimize shipping costs, and are able to
process an order within 24-hours after order placement and receipt of payment.
Item 3. Legal Proceedings
See Note 13 to our Consolidated Financial Statement, Litigation, which is incorporated herein by reference.
Item 4. Mine Safety Disclosures
Not Applicable.
32
PART II
Item 5.(cid:3)(cid:3) Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer
Purchases of Equity Securities
Market for Our Common Stock. On February 12, 1999, we completed our initial public offering. Our common stock is
currently trading on Nasdaq under the symbol “MTEX.” Effective January 13, 2012, we amended our Amended and
Restated Articles of Incorporation to effect a reverse stock split of our common stock at a ratio of 1-for-10. The primary
purpose of the reverse stock split was to increase the per-share market price of our common stock in order to maintain our
listing on Nasdaq. As of March 10, 2014, we had an aggregate of 2,653,913 shares of our common stock outstanding and the
closing price on such date was $16.00. Below are the high and low closing prices of our common stock as reported on the
Nasdaq for each quarter of the fiscal years ended December 31, 2013 and 2012:
2013:
2012:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Low
5.55
6.15
10.85
16.78
Low
3.55
3.35
5.12
4.80
$
$
$
$
$
$
$
$
High
6.75
12.75
34.80
29.51
High
4.90
7.00
7.68
7.74
$
$
$
$
$
$
$
$
Holders. As of March 10, 2014, there were 1,275 shareholders of record.
Dividends. In the third quarter of 2009, our Board of Directors suspended the quarterly cash dividend payment to
shareholders due to the Company’s financial performance, protracted worldwide economic recession, and the internal
funding needs of new initiatives designed to accelerate sales and associate recruitment. See “Risk Factors—We are not
required to pay dividends, and our Board of Directors may decide not to declare dividends in the future” in Item 1A of this
Form 10-K for further discussion related to future payment of dividends.
Recent Sales of Unregistered Securities.
None.
Uses of Proceeds from Registered Securities.
None.
Issuer Purchases of Equity Securities.
None.
Item 6. Selected Financial Data
Not applicable for a Smaller Reporting Company
33
Item 7. 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 our
results of operations for each of the two years ended December 31, 2013 and 2012. This discussion should be read in
conjunction with “Item 15. – Consolidated Financial Statements and related notes,” beginning on page F-1 of this report and
with other financial information included elsewhere in this 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. Refer to the Non-GAAP Financial Measure section herein for a
description of how Constant dollar (“Constant dollar”) growth rate (a Non-GAAP financial metric) is determined.
COMPANY OVERVIEW
Since November 1993, we have continued to develop innovative, high quality, proprietary nutritional supplements,
topical and skin care products, and weight-management products that are sold through a global network marketing system.
We operate in three regions: (i) North America (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,
Sweden, the United Kingdom and Ukraine); and (iii) Asia/Pacific (Australia, Japan, New Zealand, the Republic of Korea,
Singapore Taiwan and Hong Kong). Our Switzerland office manages certain day-to-day business needs of non-North
American markets.
We conduct our business as a single operating segment and primarily sell our products through a network of
approximately 245,000 active independent associates and members who had purchased our products and/or packs during the
last 12 months, who we refer to as current independent associates and members. New recruits and pack sales are leading
indicators for the long-term success of our business. New recruits include new independent associates and members
purchasing our packs and products for the first time. We operate as a seller of nutritional supplements, topical and skin care
products, and weight-management products through our network marketing distribution channels operating in twenty-one
countries. 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 independent associates and members; entry into new markets
and growth of existing markets; niche market development; new product introduction; and investment in our infrastructure.
Current Economic Conditions and Recent Developments
During 2013, we increased the number of active independent associates and members by 7.0% as compared to 2012.
This increase was due to an increase in the recruitment of both independent associates and members attributed in part to
compensation plan changes targeting independent associates. We implemented enhancements to our sign-up packs globally,
which we believe will lead to increases in the recruitment of business-building independent associates. The number of new
independent associates for 2013 increased 29.9% to approximately 82,200 as compared to approximately 63,300 for the same
period in 2012. These improvements led to an overall increase in revenue of $4.0 million, or 2.3% compared to 2012. By
July 2013, we completed our world-wide implementation of the compensation plan to enhance the compensation received by
independent associates for the sale of finished products. During the third quarter of 2013, we started a loyalty program
through which customers earn loyalty points from qualified automatic orders, which can be applied to future purchases.
During 2013, our operating expenses (excluding depreciation, commissions, and incentives) decreased by $2.4
million as compared to the same period in 2012. The decrease in other operating costs was primarily due to a reduction in
legal and consulting fees, office expenses, payroll and payroll-related costs, offset by an increase in travel. During 2012, we
reduced transactional sales tax expense accruals by $0.9 million relating to the expiration of certain statute of limitations.
Also, in 2012 we reduced our estimate of future royalty payments related to the post-employment royalty payable to Dr.
McAnalley, which favorably impacted other operating expenses by $0.9 million. Improvements in our operational
efficiencies generated $4.8 million of operating income during 2013, as compared to an operating loss of $1.0 million during
the same period in 2012.
34
RESULTS OF OPERATIONS
Year Ended December 31, 2013 compared to Year Ended December 31, 2012
The tables below summarize our consolidated operating results in dollars and as a percentage of net sales for the
years ended December 31, 2013 and 2012 (in thousands, except percentages).
2013
2012
Change
Total
Dollars
$ 177,423
36,097
141,326
% of
net sales
100.0 %
20.3 %
79.7 %
Total
dollars
$ 173,447
34,641
138,806
% of
net sales
100.0 %
20.0 %
80.0 %
$
Dollar
3,976
1,456
2,520
Percentage
2.3 %
4.2 %
1.8 %
75,633
33,758
2,120
25,059
136,570
4,756
22
(1,969 )
2,809
365
3,174
42.6 %
19.0 %
1.2 %
14.1 %
77.0 %
2.7 %
0.0 %
(1.1 )%
1.6 %
(0.2 )%
1.8 %
73,823
37,176
4,755
24,032
139,786
(980 )
50
630
(300 )
(1,088 )
(1,388 )
42.6 %
21.4 %
2.7 %
13.9 %
80.6 %
(0.6 )%
0.0 %
0.4 %
(0.2 )%
(0.6 )%
(0.8 )%
$
$
1,810
(3,418 )
(2,635 )
1,027
(3,216 )
5,736
28
(2,599 )
3,109
1,453
4,562
2.5 %
(9.2 )%
(55.4 )%
4.4 %
(2.3 )%
585.2 %
56.0 %
(412.5 )%
1,036.3 %
133.5 %
328.7 %
Net sales
Cost of sales
Gross profit
Operating expenses:
Commissions and incentives
Selling and administrative expenses
Depreciation and amortization
Other operating costs
Total operating expenses
Income from operations
Interest income
Other income (expense), net
Income before income taxes
Income tax benefit (provision)
Net income (loss)
$
Non-GAAP Financial Measures
To supplement our financial results presented in accordance with generally accepted accounting principles in the
United States ("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, Deferred Revenue, Gross Profit, and
Income/(Loss) 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.
2013
GAAP
Measure:
Total $
$ 177.4
143.5
26.2
7.7
6.4
141.3
4.8
Non-GAAP
Measure:
Constant $
$ 182.4
147.9
26.5
8.0
6.6
145.2
4.9
2012
GAAP
Measure:
Total $
$ 173.4
155.8
11.4
6.2
1.5
138.8
(1.0)
Reconciliation –
Constant $
Dollar
Percent
$ 9.0
(7.9 )
15.1
1.8
5.1
6.4
5.9
5.2 %
(5.1 ) %
132.5 %
29.0 %
340.0 %
4.6 %
590.0 %
Net Sales
Product
Pack
Other
Deferred Revenue
Gross Profit
Income/(Loss) from Operations
35
Consolidated net sales by region for the years ended December 31, 2013 and 2012 were as follows (in millions,
except percentages):
Net Sales in Dollars and as a Percentage of Consolidated Net Sales
North America
Asia/Pacific
EMEA
Total
Net Sales
2013
82.2
80.3
14.9
46.3 %
45.3 %
8.4 %
$
2012
86.5
70.6
16.3
49.9 %
40.7 %
9.4 %
177.4
100.0 %
$
173.4
100.0 %
$
$
For the year ended December 31, 2013, our operations outside of North America accounted for approximately
53.7% of our consolidated net sales, whereas in the same period in 2012, our operations outside of North America accounted
for approximately 50.1% of our consolidated net sales.
Consolidated net sales for the year ended December 31, 2013 increased by $4.0 million, or 2.3%, to $177.4 million,
as compared to $173.4 million for the same period in 2012. North America sales decreased by $4.3 million, or 5.0%, to $82.2
million as compared to $86.5 million for the same period in 2012. Asia/Pacific sales increased by $9.8 million, or 13.9%, to
$80.3 million as compared to $70.6 million for the same period in 2012. EMEA sales decreased by $1.5 million, or 9.1%, to
$14.9 million as compared to $16.3 million for the same period in 2012.
During 2013, fluctuations in foreign currency exchange rates had an overall unfavorable impact on our net sales. In
constant dollars, a non-GAAP financial measure that calculates 2013 financial results in the prior year exchange rates, net
sales for the year ending December 31, 2013 grew by $9.0 million, compared to 2012. The net sales impact is calculated
as the difference between (1) the current period’s net sales in USD and (2) the current period’s net sales in local currencies
converted to USD by applying average exchange rates for the year ended December 31, 2012.
Our total sales and sales mix could be influenced by any of the following:
•
•
•
•
•
•
•
•
•
•
•
•
•
changes in our sales prices;
changes in consumer demand;
changes in the number of independent associates and members;
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.
36
Our sales mix for the years ended December 31, was as follows (in millions, except percentages):
Consolidated product sales
Consolidated pack sales
Consolidated other, including freight
Total consolidated net sales
Change
2013
2012
Dollar
Percentage
$
$
143.5
26.2
7.7
177.4
$
$
155.8
11.4
6.2
173.4
$
$
(12.3 )
14.8
1.5
4.0
(7.9 )%
129.8 %
24.2 %
2.3 %
Pack sales correlate to new independent associates who purchase starter packs and to continuing independent
associates who purchase upgrade or renewal packs. However, there is no direct correlation between product sales and the
number of new and continuing independent associates and members because independent associates and members utilize
products at different volumes.
Product Sales
Substantially all of our product sales are to independent associates at published wholesale prices. We also sell our
products to independent members at discounted published retail prices.
Product sales for the year ended December 31, 2013 decreased by $12.3 million, or 7.9% to $143.5 million as
compared to $155.8 million for the same period in 2012. The increase in the number of orders processed during the twelve
months ending December 31, 2013 was offset by decreases in revenue attributed to a reduction in the average order size and
deferred revenue in our loyalty program (see Note 1 to our Consolidated Financial Statements, Organization and Summary of
Significant Accounting Policies). The number of orders processed during the twelve months ended December 31, 2013
increased by 7.4%, as compared to the same period in 2012, resulting in a $10.3 million increase in revenue, which was
offset by a decrease in the average order value for the twelve months ended December 31, 2013. Average order value was
$154, as compared to $172 for the same period in 2012, and this decrease resulted in a $17.1 million reduction in revenue.
The reduction in product sales revenue is also due to $5.5 million deferred revenue.
Pack Sales
Packs may be purchased by our independent associates who wish to build a Mannatech business. These packs are
offered to our independent associates at a discount from published retail prices. There are several pack options available to
our independent associates. In certain markets, pack sales are completed during the final stages of the registration process
and can provide new independent associates with valuable training and promotional materials, as well as products for resale
to retail customers, demonstration purposes, and personal consumption. Business-building independent associates can also
purchase an upgrade pack, which provides the independent associate with additional promotional materials, additional
products, and eligibility for additional commissions and incentives. Many of our business-building independent associates
also choose to purchase renewal packs to satisfy annual renewal requirements to continue to earn various commissions.
The dollar amount of pack sales associated with new and continuing independent associates was as follows, for the
years ended December 31 (in millions, except percentages):
New
Continuing
Total
Change
2013
2012
Dollar
Percentage
$
10.1
$
16.1
$
7.7
3.7
$
26.2
$
11.4
$
2.4
12.4
14.8
31.2 %
335.1 %
129.8 %
Total pack sales for the year ended December 31, 2013 increased by $14.8 million, or 129.8%, to $26.2 million, as
compared to $11.4 million for the same period in 2012 as the number of packs sold increased 58.3% and the average value of
the pack increased. Average pack value for the year ended December 31, 2013 was $228, as compared to $157 for the same
period in 2012.
37
The approximate number of active new and continuing independent associates and members who purchased our
packs or products during the twelve months ended December 31 was as follows:
New
Continuing
Total
2013
116,000
129,000
245,000
47.0 %
53.0 %
100.0 %
2012
97,000
132,000
229,000
42.0 %
58.0 %
100.0 %
During 2013 and 2012, we took the following actions to help increase the number of independent associates and
members:
•
•
•
•
•
•
•
registered our most popular products with the appropriate regulatory agencies in all countries of operations;
explored new international markets;
continued to strengthen compliance initiatives;
concentrated on publishing results of research studies and clinical trials related to our products;
initiated additional incentives;
explored new advertising and educational tools to broaden name recognition; and
implemented changes to our global associate career and compensation plan.
Other Sales
Other sales consisted of: (i) freight revenue charged to our independent associates and members; (ii) sales of
promotional materials; (iii) monthly fees collected for Success Tracker™ and Navig8™ customized electronic business-
building and educational materials, databases and applications; (iv) training and event registration fees; and (v) 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 the year ended December 31, 2013, other sales increased by $1.5 million, or 24.2%, to $7.7 million, as
compared to $6.2 million for the same period in 2012. The increase was primarily due to an increase in freight fees for
product and pack shipments.
Gross Profit
For the year ended December 31, 2013, gross profit increased by $2.5 million, or 1.8%, to $141.3 million, as
compared to $138.8 million for the same period in 2012. For the year ended December 31, 2013, gross profit as a percentage
of net sales decreased slightly to 79.7% as compared to 80.0% for the year ended December 31, 2012.
Commission and Incentives
Commission costs increased for the year ended December 31, 2013, by 1.9%, or $1.4 million, to $72.1 million, as
compared to $70.7 million for the same period in 2012. The increase in commissions was due to the increase in
commissionable net sales. Commissions as a percentage of net sales were 40.6% for the year ending December 31, 2013 and
40.8% for the same period in the prior year.
Incentive costs increased for the year ended December 31, 2013 by 17.2%, or $0.5 million, to $3.6 million, as
compared to $3.1 million for the same period in 2012. The costs of incentives, as a percentage of net sales increased to 2.0%
for the year ended December 31, 2013, as compared to 1.8% for the same period in 2012.
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
monthly magazine development costs and costs related to hosting our corporate-sponsored events.
For the year ended December 31, 2013, overall selling and administrative expenses decreased by $3.4 million, or
9.2%, to $33.8 million, as compared to $37.2 million for the same period in 2012. Selling and administrative expenses, as a
38
percentage of net sales decreased to 19.0%, as compared to 21.4% for the same period of 2012. The decrease in selling and
administrative expenses consisted of a $3.4 million decrease in payroll and payroll-related costs.
Other Operating Costs
Other operating costs include travel, accounting/legal/consulting fees, credit card processing fees, banking fees, off-
site storage fees, utilities, and other miscellaneous operating expenses. Changes in other operating costs are associated with
the changes in our net sales.
For the year ended December 31, 2013, other operating costs increased by $1.1 million, or 4.4%, to $25.1 million,
as compared to $24.0 million for the same period in 2012. For the year ended December 31, 2013, other operating costs, as a
percentage of net sales, were 14.1%, as compared to 13.9% for the same period in 2012. The increase in other operating
costs was primarily due to a $0.7 million increase in travel costs and a $0.9 million increase attributed to transaction tax
adjustments. These cost increases were partially offset by decreases in legal and consulting fees, facilities, repairs and
maintenance cost. During 2012, the Company reduced by $0.9 million the accrued present value of the estimated future
royalty payments related to the post-employment royalty benefit payable to Dr. McAnalley to a $0.13 million liability at
December 31, 2012. The estimated post-employment royalty benefit payable to Dr. McAnalley was a $0.07 million liability
at December 31, 2013.
Depreciation and Amortization Expense
For the year ended December 31, 2013, depreciation and amortization expense was $2.1 million, as compared to
$4.8 million for the same period in 2012. As a percentage of net sales, depreciation and amortization expense decreased to
1.2% from 2.7% for the same period in 2012.
Other income (expense), net
For the year ending December 31, 2013 and 2012, other income (expense), net was ($2.0) million and $0.6 million,
respectively. During 2013, the other expense included ($1.0) million of customs taxes and ($1.0) of foreign exchange loss.
During 2012, other income resulted from foreign exchange gains.
Provision for Income Taxes
Provision 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 years ended December 31:
Country
Australia
Canada
Denmark
Japan
Mexico
Norway
Republic of Korea
Singapore
South Africa
Sweden
Switzerland
Taiwan
United Kingdom
United States
Cyprus
Hong Kong
Ukraine
2013
30.0 %
26.5 %
25.0 %
39.4 %
30.0 %
28.0 %
22.0 %
17.0 %
28.0 %
22.0 %
16.2 %
17.0 %
23.0 %
37.5 %
12.5 %
16.5 %
19.0 %
2012
30.0 %
26.0 %
25.0 %
42.0 %
30.0 %
28.0 %
22.0 %
17.0 %
28.0 %
26.3 %
16.2 %
17.0 %
24.0 %
37.5 %
--
--
--
39
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 utilize our foreign income tax credits in the United States.
We use the recognition and measurement provisions of Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification (“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.
As of December 31, 2013 and 2012, we maintained our valuation allowance for deferred tax assets in the following
table (in millions), as we believe the “more likely than not” criterion for recognition and realization purposes, as defined in
Topic 740, cannot be met.
Country
Mexico
Norway
Sweden
Switzerland
Taiwan
Ukraine
United States
Total
2013
2.7
0.2
0.1
0.2
1.2
0.1
0.8
5.3
$
$
2012
2.3
0.2
0.1
1.0
1.2
--
3.7
8.5
$
$
The dollar amount of the provisions for income taxes is directly related to our profitability and changes in the
taxable income among countries. For the years ended December 31, 2013 and 2012, our effective tax rate was (13.0)% and
(363.1)%(cid:15914)respectively. For 2013, the effective income tax rate was lower than what would be expected if the federal
statutory income tax rate were applied to income before taxes primarily because of the tax benefit recognized from an IRS
tax audit settlement, reversal of valuation allowances against net deferred tax assets and differences from foreign operations
(see Note 14 to our Consolidated Financial Statements, Litigation). For 2012, we had a provision for income tax despite the
pre-tax losses primarily because of differences from foreign operations and increases in uncertain income tax positions.
SEASONALITY
We believe the impact of seasonality on our consolidated results of operations is minimal. We have experienced and
believe we will continue to experience variations on our quarterly results of operations in response to, among other things:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
the timing of the introduction of new products and incentives;
our ability to attract and retain associates and members;
the timing of our incentives and contests;
the general overall economic outlook;
government regulations;
the outcome of certain lawsuits;
the perception and acceptance of network marketing; and
the consumer perception of our products and overall operations.
As a result of these and other factors, our quarterly results may vary significantly in the future. Period-to-period
comparisons should not be relied upon as an indication of future performance since we can give no assurances that revenue
trends in new markets, as well as in existing markets, will follow our historical patterns. The market price of our common
stock may also be adversely affected by the above factors.
40
LIQUIDITY AND CAPITAL RESOURCES
Cash and Cash Equivalents
As of December 31, 2013, our cash and cash equivalents increased by 41.9%, or $6.0 million, to $20.4 million from
$14.4 million as of December 31, 2012. Our restricted cash balance increased during the period ending December 31, 2013
by $0.5 million. Finally, fluctuations in currency rates produced a decline of $0.4 million in cash and cash equivalents in
2013 as compared to a decline of $0.8 million in 2012.
Our principal use of cash is to pay for operating expenses, including commissions and incentives, capital assets,
inventory purchases, and international expansion. In August 2009, the quarterly cash dividend was suspended and remained
suspended as of December 31, 2013. We fund our business objectives, operations, and expansion of our operations 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 December 31, 2013, our working
capital increased by $2.4 million, or 21.6%, to $13.5 million from $11.1 million at December 31, 2012. The increase in
working capital is primarily due to an increase in cash, prepaid expenses and deferred commissions, offset by commissions
payable and deferred revenue. Deferred commissions and deferred revenue increased during 2013 due to the loyalty program
(see Note 1 to our Consolidated Financial Statements, Organization and Summary of Significant Accounting Policies).
Net Cash Flows
Our net consolidated cash flows consisted of the following, for the years ended December 31 (in millions):
Provided by / (used in):
Operating activities
Investing activities
Financing activities
Operating Activities
2013
2012
$
$
$
8.6 $
(0.6 ) $
(1.6 ) $
(1.5)
(0.3)
(1.1)
Due to improvements in profitability and the cash used in working capital, cash provided in operating activities was
$8.6 million for the year ended December 31, 2013 compared to cash used in operating activities of $1.5 million for the same
period in 2012.
Investing Activities
For the year ended December 31, 2013, our net investing activities used cash of $0.6 million compared to cash used
of $0.3 million for the same period of 2012. During the year ended December 31, 2013, we used cash of $0.6 million to
purchase capital assets as compared to purchasing $0.4 million in capital assets for the same period in 2012.
Financing Activities
For the years ended December 31, 2013 and 2012, we used cash of $1.6 million and $1.1 million, respectively,
primarily to repay capital lease obligations.
General Liquidity and Cash Flows
Short Term Liquidity
We believe our existing liquidity and anticipated return to positive cash flows from operations are adequate to fund
our normal expected future business operations and possible international expansion costs 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.
We entered into an Investment Agreement with Dutchess Opportunity Fund, II, LP, a Delaware limited partnership
(the “Investor”) on September 16, 2010. The Investor committed to purchase, subject to certain restrictions and conditions,
41
up to $10 million of our common stock, over a period of 36 months from the first trading following the effectiveness of the
registration statement, which was October 28, 2010. This agreement expired on October 28, 2013. No shares of our common
stock were issued pursuant to the Investment Agreement.
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 8 Income Taxes and Note 13 Litigation to our Consolidated
Financial Statements.
Long Term Liquidity
We believe our return to positive cash flows from operations should be adequate to fund our normal expected future
business operations and possible international expansion costs for the long term. As our primary source of liquidity is from
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 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 December 31, 2013, for the years ending December 31 (in thousands):
2014
2015
2016
2017
2018
2019
Thereafter Total
Capital lease obligations
and other financing
arrangements
$
Purchase obligations(1)(2)
Operating leases
Post-employment
royalty
Employment agreements
Royalty agreement
Tax liability (3)
Other obligations(4)
Total commitments
and obligations
$
__________
776 $
4,522
1,620
337 $
1,200
1,443
130 $
300
1,229
15 $
—
1,158
2 $
—
563
50
940
84
37
90
25
—
66
33
518
—
—
—
144
136
—
—
—
—
67
—
—
—
—
50
— $
—
—
—
—
—
—
77
— $
—
—
—
—
—
—
461
1,260
6,022
6,013
75
940
150
214
1,399
8,119 $
3,622 $
1,939 $
1,240 $
615 $
77 $
461 $ 16,073
(1)
(2)
(3)
(4)
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.”
Excludes approximately $13.2 million of finished product purchase orders that may be cancelled or with delivery dates that have
changed as of December 31, 2013.
Represents the tax liability associated with uncertain tax positions, see Note 8 to our Consolidated Financial Statements, Income
Taxes to our consolidated financial statements.
Other obligations are composed of pension obligations related to the Company’s Japan operations (approximately $0.9 million),
lease restoration obligations (approximately $0.3 million), and long-term license obligations (approximately $0.2 million).
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 agreements do
not require us to purchase any set minimums. We have no present commitments or agreements with respect to acquisitions or
42
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 costs of our raw materials and help ensure quality control
standards.
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any special-purpose entity arrangements, nor do we have any off-balance sheet arrangements.
MARKET RISKS
Please see “Quantitative and Qualitative Disclosure about Market Risk” under Item 7A of this Form 10-K for
additional information about our Market Risks.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in
the United States of America (“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
critical accounting policies and 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 critical accounting policies and estimates as of
December 31, 2013:
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. At December 31,
2013 and 2012, our inventory reserves were $2.0 million and $1.6 million, respectively.
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
43
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.
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 December 31, 2013, the estimated useful lives and net carrying
values of fixed assets are as follows:
Office furniture and equipment
Computer hardware and software
Automobiles
Leasehold improvements
Total net carrying value at December 31, 2013
_____________________________
(1)
Estimated useful life
5 to 7 years
3 to 5 years
3 to 5 years
2 to 10 years(1)
Net carrying value at
December 31, 2013
$
$
0.7 million
0.8 million
0.1 million
1.6 million
3.2 million
We amortize leasehold improvements over the shorter of the useful estimated life of the leased asset or the lease term.
The net carrying costs of fixed assets and construction in progress 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 existed during the
years ended December 31, 2013 and 2012.
Uncertain Income Tax Positions and Tax Valuation Allowances
As of December 31, 2013, we recorded $0.7 million in other long-term liabilities and $0.1 million in taxes payable
on our consolidated balance sheet related to uncertain income tax positions. As required by FASB ASC Topic 740, Income
Taxes, 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. As part of our evaluation
of these tax issues, we establish reserves in our consolidated financial statements based on our estimate of current probable
tax exposures. 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. The majority of our current tax liability related to
uncertain tax positions is associated with an ongoing IRS 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
44
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.
The examination of our 2005-2009 tax years by the IRS for U.S. federal tax purposes was settled during the second
quarter of 2013. In connection with the audit, the IRS and the Company agreed to a net tax deficiency of $0.8 million and
the payment of interest accrued through June 30, 2013 of $0.2 million, without any penalties. In connection with the
settlement of the audit, the Company reclassified amounts owed to the IRS and previously recorded as uncertain tax positions
as taxes payable, resulting in a $1.0 million tax benefit during the year of 2013. There are other ongoing income tax audits in
various international jurisdictions that we believe are not material to our financial statements.
We also review the estimates and assumptions used in evaluating the probability of realizing the future benefits of
our deferred tax assets and record a valuation allowance when we believe that a portion or all of the deferred tax assets may
not be realized. If we are unable to realize the expected future benefits of our deferred tax assets, we are required to provide a
valuation allowance. We use our past history and experience, overall profitability, future management plans, and current
economic information to evaluate the amount of valuation allowance to record. As of December 31, 2013, we maintained a
valuation allowance for deferred tax assets arising from our operations of $5.3 million because they did not meet the “more
likely than not” criteria as defined by the recognition and measurement provisions of FASB ASC Topic 740, Income Taxes.
In addition, as of December 31, 2013, we had deferred tax assets, after valuation allowance, totaling $5.3 million, which may
not be realized if our assumptions and estimates change, which would affect our effective income tax rate and cash flows in
the period of discovery or resolution.
Revenue Recognition and Deferred Commissions
We derive revenue from sales of individual products, sales of starter and renewal packs, and shipping fees.
Substantially all product and pack sales are made to independent associates at published wholesale prices and to members at
discounted published retail 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. We defer certain components of our revenue. At each of December 31, 2013
and December 31, 2012, our deferred revenue was $6.4 million and $1.5 million, respectively. During the third quarter of
2013, we started a loyalty program through which customers earn loyalty points from qualified automatic orders, which can
be applied to future purchases. We defer the dollar equivalent in revenue of these points until the points are applied or
forfeited. The deferred revenue associated with the loyalty program at December 31, 2013 was $5.5 million. Deferred
revenue consisted primarily of: (i) the sales of packs and products shipped but not received by the customers by the end of
the respective period; (ii) the 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
shipped but not received by the customers by the end of the respective period and (ii) the loyalty program. Deferred
commissions were $2.7 million and $0.6 million at December 31, 2013 and December 31, 2012, respectively.
Loyalty program
Loyalty deferred revenue as of January 1, 2013
Loyalty points forfeited
Loyalty points used
Loyalty points vested
Loyalty points unvested
Loyalty deferred revenue as of December 31, 2013
$
$
—
1,136
723
(5,072 )
(2,243 )
(5,456 )
45
Product Return Policy
We stand behind our packs and products and believe we offer a reasonable, 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. We have specific
product return guidelines for each country in which we operate. However, we allow our associates and members 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 members 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 in the United States and Canada, and for the first 90 days following the product’s
purchase in our remaining countries. The associate may then return or exchange the product based on the associate
product return policy.
Associate and Member Product Return Policy. This policy allows the associate or member to return an order
within one year of the purchase date upon terminating his/her account. If an associate or member 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 member to receive a full satisfaction guarantee refund, excluding promotional materials, if they
have tried the product and are not satisfied for any reason. 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 our remaining
countries 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 have the right to terminate the
associate’s or member’s account.
We estimate a sales return reserve for expected sales refunds based on historical experience over a rolling six-month
period. If actual results differ from our estimated sales return reserve due to various factors, the amount of revenue recorded
each period could be materially affected. 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 averaged 1.5% or less of our gross sales. For the year ended December 31, 2013 our sales return reserve was composed
of the following (in thousands):
Sales reserve as of January 1, 2013
Provision related to sales made in current period
Adjustment related to sales made in prior periods
Actual returns or credits related to current period
Actual returns or credits related to prior periods
Sales reserve as of December 31, 2013
Accounting for Stock-Based Compensation
December 31, 2013
156
$
1,367
4
(1,130 )
(159 )
238
$
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 to four years. The fair value of the stock option award is calculated using the
Black-Scholes option-pricing model (the “calculated fair value”). 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. For the year ended December 31, 2013, our assumptions and
estimates used for the calculated fair value of stock options granted in 2013 were as follows:
Estimated fair value per share of options granted:
Assumptions:
Annualized dividend yield
Risk-free rate of return
Common stock price volatility
Expected average life of stock options (in years)
February
2013
March
2013
June
2013
August
2013
$
3.57 $
3.53 $
6.07 $
11.71
0.00 %
0.75 %
82.3 %
4.5
0.00 %
0.66 %
82.0 %
4.5
0.00 %
0.89 %
80.3 %
4.5
0.00%
1.36%
81.2%
4.5
46
Historically, our estimates and underlying assumptions have not materially deviated from our actual reported results
and rates. However, we base assumptions we use on our best estimates, which involves inherent uncertainties based on
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 adjust our consolidated financial statements in future periods. As of December
31, 2013, using our current assumptions and estimates, we anticipate recognizing $0.1 million in gross compensation expense
through 2014 related to unvested stock options outstanding.
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 December 31, 2013,
we had 73,431 shares available for grant in the future.
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. The legal reserve is developed in
consultation with our general and outside counsel and is based upon a combination of litigation and settlement strategies.
Although we believe that our legal reserves 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 that could reduce net income, earnings per share, and cash flows.
RECENT ACCOUNTING PRONOUNCEMENTS
See Note 2 to our Consolidated Financial Statements, Recent Accounting Pronouncements, which is incorporated
herein by reference.
47
Item 7A. 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 the 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) North America (Canada and Mexico); (ii) EMEA (Austria, the Czech
Republic, Denmark, Estonia, Finland, Germany, the Republic of Ireland, the Netherlands, Norway, South Africa, Sweden,
Switzerland, the United Kingdom and Ukraine); (iii) Asia/Pacific (Australia, Japan, New Zealand, the Republic of Korea,
Singapore, Taiwan and Hong Kong). 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 year ended
December 31, 2013 were as follows:
Country (foreign currency name)
Australia (Dollar)
Austria, Germany, the Netherlands, Estonia,
Finland, and the Republic of Ireland
(Euro)
Canada (Dollar)
Czech Republic (Koruna)
Denmark (Kroner)
Hong Kong Dollar
Japan (Yen)
Mexico (Peso)
New Zealand (Dollar)
Norway (Krone)
Republic of Korea (Won)
Singapore (Dollar)
South Africa (Rand)
Sweden (Krona)
Switzerland (Franc)
Taiwan (Dollar)
Ukraine (Hryvnia)
United Kingdom (British Pound)
Year ended December 31, 2013
High
1.05690
1.38050
Low
0.88530
1.27990
Average
0.96826
1.32826
1.01680
0.05377
0.18510
0.12900
0.01161
0.08352
0.86220
0.18340
0.00098
0.81930
0.11810
0.15900
1.12800
0.03477
0.12670
1.64940
0.97143
0.05122
0.17810
0.12893
0.01026
0.07846
0.82042
0.17038
0.00092
0.79962
0.10414
0.15358
1.07951
0.03375
0.12419
1.56483
0.93430
0.04930
0.17170
0.12880
0.00950
0.07478
0.77140
0.16010
0.00086
0.77960
0.09512
0.14680
1.02770
0.03310
0.12130
1.48940
48
As of
December 31, 2013
Spot
0.88740
1.37680
0.93510
0.05024
0.18460
0.12900
0.00950
0.07654
0.81670
0.16340
0.00095
0.78850
0.09535
0.15440
1.12330
0.03334
0.12210
1.64910
Item 8. Financial Statements and Supplementary Data
Our Consolidated Financial Statements and Supplementary Data required by this Item 8 are set forth in Item 15 of
this report.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. 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 December 31, 2013, 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.
49
REPORT OF MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining adequate internal control over financial reporting
(as defined in Rule 13a – 13(f) or Rule 15d-15(f) under the Exchange Act) for the Company. Internal control over financial
reporting is a process designed to provide reasonable assurance regarding the reliability of our financial reporting for external
purposes in accordance with accounting principles generally accepted in the United States of America. Internal control over
financial reporting includes: maintaining records that in reasonable detail accurately and fairly reflect our transactions;
providing reasonable assurance that transactions are recorded as necessary for preparation of our consolidated financial
statements; providing reasonable assurance that receipts and expenditures of company assets are made in accordance with
management authorization; and providing reasonable assurance that unauthorized acquisition, use or disposition of company
assets that could have a material effect on our consolidated financial statements would be prevented or detected on a timely
basis. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute
assurance that a misstatement of our consolidated financial statements would be prevented or detected.
Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on
the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (1992). Based on this evaluation, management concluded that the Company’s internal control over
financial reporting was effective as of December 31, 2013.
50
Item 9B. Other Information
None.
Documents Incorporated by Reference
PART III
The information required by Items 10, 11, 12, 13 and 14 of Part III of Form 10-K is incorporated by reference to the
definitive proxy statement for our annual meeting to be filed with the SEC within 120 days after December 31, 2013.
PART IV
Item 15. Exhibits and Financial Statement Schedule
(a) Documents filed as a part of the report:
1.(cid:3)(cid:3)Consolidated Financial Statements
The following financial statements and the Reports of Independent Registered Public Accounting Firms are
filed as a part of this report on the pages indicated:
F-1
Index to Consolidated Financial Statements
F-2
Report of Independent Registered Public Accounting Firm
F-3
Consolidated Balance Sheets as of December 31, 2013 and 2012
F-4
Consolidated Statements of Operations for the years ended December 31, 2013 and 2012
Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2013 and 2012 F-4
F-5
Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2013 and 2012
F-6
Consolidated Statements of Cash Flows for the years ended December 31, 2013 and 2012
F-7
Notes to Consolidated Financial Statements
2. Financial Statement Schedule
The financial statement schedule required by this item is included as an Exhibit to this Annual Report on
Form 10-K.
Report of Independent Registered Public Accounting Firm on Financial Statement Schedule.
3. Exhibit List
See Index to Exhibits following our Consolidated Financial Statements contained in this Annual Report on
Form 10-K.
51
Pursuant to the requirements of Section 13 or 15(d) 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.
SIGNATURES
Dated: March 18, 2014
Dated: March 18, 2014
MANNATECH, INCORPORATED
By: /s/ Robert A. Sinnott
Robert A. Sinnott
Chief Executive Officer
By:
/s/ S. Mark Nicholls
S. Mark Nicholls
Chief Financial Officer
52
POWER OF ATTORNEY
The undersigned directors and officers of Mannatech, Incorporated hereby constitute and appoint Larry A. Jobe and
S. Mark Nicholls, and each of them, with the power to act without the other and with full power of substitution and
resubstitution, our true and lawful attorneys-in fact and agents with full power to execute in our name and behalf in the
capacities indicated below any and all amendments to this report and to file the same, with all exhibits and other documents
relating thereto and hereby ratify and confirm all that such attorneys-in-fact, or either of them, or their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following
persons on behalf of the registrant and in the capacities indicated:
Signature
Title
Date
/s/ Robert A. Sinnott
Robert A. Sinnott
/s/ S. Mark Nicholls
S. Mark Nicholls
/s/ J. Stanley Fredrick
J. Stanley Fredrick
/s/ Alan D. Kennedy
Alan D. Kennedy
/s/ Gerald E. Gilbert
Gerald E. Gilbert
/s/ Marlin Ray Robbins
Marlin Ray Robbins
/s/ Larry A. Jobe
Larry A. Jobe
/s/ Robert A. Toth
Robert A. Toth
Chief Executive Officer and Chief Science Officer
(principal executive officer)
Chief Financial Officer
(principal financial and accounting officer)
Chairman of the Board
Director
Director
Director
Director
Director
March 18, 2014
March 18, 2014
March 18, 2014
March 18, 2014
March 18, 2014
March 18, 2014
March 18, 2014
March 18, 2014
53
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2013 and 2012
Consolidated Statements of Operations for the years ended December 31, 2013 and 2012
Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2013 and
2012
Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2013 and 2012
Consolidated Statements of Cash Flows for the years ended December 31, 2013 and 2012
Notes to Consolidated Financial Statements
Page
F-2
F-3
F-4
F-4
F-5
F-6
F-7
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
Mannatech, Incorporated
Coppell, Texas
We have audited the accompanying consolidated balance sheets of Mannatech, Incorporated and Subsidiaries as of
December 31, 2013 and 2012 and the related consolidated statements of operations, comprehensive income (loss),
shareholders’ equity, and cash flows for each of the two years in the period ended December 31, 2013. These financial
statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to
perform, an audit of their internal control over financial reporting. Our audits included consideration of internal control
over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the
purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of Mannatech, Incorporated and Subsidiaries at December 31, 2013 and 2012 and the results of their operations
and their cash flows for each of the two years in the period ended December 31, 2013 in conformity with accounting
principles generally accepted in the United States of America.
/s/ BDO USA, LLP
Dallas, Texas
March 18, 2014
F-2
MANNATECH, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share information)
December 31,
2013
December 31,
2012
ASSETS
Cash and cash equivalents
Restricted cash
Accounts receivable, net of allowance of $142 and $20 in 2013 and
$
$
$
2012, respectively
Income tax receivable
Inventories, net
Prepaid expenses and other current assets
Deferred commissions
Deferred tax assets, net
Total current assets
Property and equipment, net
Long-term restricted cash
Other assets
Long-term deferred tax assets, net
Total assets
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current portion of capital leases
Accounts payable
Accrued expenses
Commissions and incentives payable
Taxes payable
Current deferred tax liability
Deferred revenue
Total current liabilities
Capital leases, excluding current portion
Other long-term liabilities
Total liabilities
Commitments and contingencies
Shareholders’ equity:
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,
2,773,972 shares issued and 2,653,913 shares outstanding as of
December 31, 2013 and 2,768,972 shares issued and 2,647,735 shares
outstanding as of December 31, 2012
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive loss
Less treasury stock, at cost, 120,059 and 121,237 shares in 2013 and
2012, respectively
Total shareholders’ equity
Total liabilities and shareholders’ equity
$
$
$
20,395
1,519
423
4
13,988
3,061
2,706
1,578
43,674
3,239
4,254
3,591
1,303
56,061
704
4,996
5,796
10,210
1,858
114
6,380
30,058
450
2,101
32,609
—
—
42,592
(3,746 )
(743 )
(14,651 )
14,377
1,515
324
884
15,154
2,487
562
561
35,864
4,833
3,736
3,187
502
48,122
780
4,154
6,348
7,935
3,901
179
1,486
24,783
938
2,180
27,901
—
—
42,614
(6,920 )
(677 )
(14,796 )
20,221
48,122
$
23,452
56,061
$
See accompanying notes to consolidated financial statements.
F-3
MANNATECH, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share information)
Net sales
Cost of sales
Gross profit
Operating expenses:
Commissions and incentives
Selling and administrative expenses
Depreciation and amortization
Other operating costs
Total operating expenses
Income from operations
Interest income
Other income (expense), net
Income (loss) before income taxes
Income tax benefit (provision)
Net income (loss)
Income / (Loss) per common share:
Basic
Diluted
Weighted-average common shares outstanding:
Basic
Diluted
$
For the years ended December 31,
2013
177,423
36,097
141,326
$
2012
173,447
34,641
138,806
75,633
33,758
2,120
25,059
136,570
4,756
22
(1,969 )
2,809
365
3,174
1.20
1.18
2,650
2,683
73,823
37,176
4,755
24,032
139,786
(980 )
50
630
(300 )
(1,088 )
(1,388 )
(0.52 )
(0.52 )
2,648
2,648
$
$
$
$
$
$
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
Net income (loss)
Foreign currency translations loss
Pension obligations, net of tax provision of $39 and $231 in 2013 and 2012,
respectively
Comprehensive income (loss)
For the years ended December 31,
2013
3,174
(6 )
(60 )
3,108
$
$
2012
$ (1,388 )
(565 )
315
$ (1,638 )
See accompanying notes to consolidated financial statements.
F-4
MANNATECH, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’EQUITY
(in thousands)
Retained
earnings
(Accumulated
deficit)
Accumulated
other
comprehensive
loss
Total
shareholders’
equity
Common
stock
Par value
Additional
paid in
capital
— $ 42,408 $
—
209
Balance at December 31, 2011
$
Charge related to stock-based compensation
Repurchase of fractional shares from reverse
stock split
Foreign currency translation
Pension obligations, net of tax of $231
Net loss
Balance at December 31, 2012
$
Charge related to stock-based compensation
Stock option exercises
Tax shortfall from expiration of stock options
Tax benefit from exercise of stock options
Foreign currency translation
Pension obligations, net of tax of $39
Net income
Balance at December 31, 2013
$
(5,532 ) $
—
—
—
—
(1,388 )
(6,920 ) $
—
—
—
—
—
—
3,174
(3,746 ) $
(3 )
—
—
—
—
—
—
—
— $ 42,614 $
—
—
—
—
—
—
—
— $ 42,592 $
173
(146 )
(84 )
35
—
—
—
Treasury
stock
(427 ) $ (14,796 ) $
—
—
(565 )
315
—
—
—
—
—
—
(677 ) $ (14,796 ) $
—
—
—
—
(6 )
(60 )
—
—
145
—
—
—
—
—
(743 ) $ (14,651 ) $
21,653
209
(3 )
(565 )
315
(1,388 )
20,221
173
(1 )
(84 )
35
(6 )
(60 )
3,174
23,452
See accompanying notes to consolidated financial statements.
F-5
MANNATECH, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by (used in)
$
3,174
$
(1,388 )
For the years ended December 31,
2013
2012
operating activities:
Depreciation and amortization
Provision for inventory losses
Provision for doubtful accounts
Loss on disposal of assets
Stock-based compensation expense
Deferred income taxes
Tax shortfall from expiration of stock options
Changes in operating assets and liabilities:
Accounts receivable
Income tax receivable
Inventories
Prepaid expenses and other current assets
Other assets
Deferred commissions
Accounts payable
Accrued expenses and other liabilities
Taxes payable
Commissions and incentives payable
Deferred revenue
Change in restricted cash
Net cash provided by (used in) operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment
Proceeds from sales of assets
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from stock options exercised
Repurchase of fractional shares from reverse stock split
Repayment of capital lease obligations
Net cash used in financing activities
Effect of currency exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Income taxes paid, net
Interest paid on capital leases
Summary of non-cash investing and financing activities:
Assets acquired through capital lease
Note receivable, net relating to sale of property and equipment
2,120
1,229
178
52
173
(1,995 )
(84 )
(291 )
880
10
433
(496 )
(2,126 )
883
(373 )
(2,054 )
2,441
4,860
(452 )
8,562
(602 )
1
(601 )
22
—
(1,576 )
(1,554 )
(389 )
6,018
14,377
$
20,395
$
$
$
$
2,234
137
1,044
195
$
$
$
$
$
4,755
1,766
8
102
209
583
—
(40 )
4
1,065
610
(144 )
92
(646 )
(7,314 )
508
(1,278 )
(84 )
(336 )
(1,528 )
(379 )
111
(268 )
—
(3 )
(1,074 )
(1,077 )
(807 )
(3,680 )
18,057
14,377
876
171
57
237
See accompanying notes to consolidated financial statements.
F-6
MANNATECH, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Mannatech, Incorporated (together with its subsidiaries, the “Company”), located in Coppell, 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 products, and weight-management products. We currently sell our products into three regions: (i) North America
(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, Sweden, the United Kingdom and Ukraine); (iii)
Asia/Pacific (Australia, Japan, New Zealand, the Republic of Korea, Singapore, Taiwan and Hong Kong).
Independent associates (“associates”) purchase the Company’s products at published wholesale prices to either sell
to retail customers or for personal use. Members purchase the Company’s products at a discount from published retail prices
primarily for personal use. The Company cannot distinguish products sold for personal use from other sales because it is not
involved with the products after delivery, other than usual and customary product warranties and returns. Only independent
associates are eligible to earn commissions and incentives.
Principles of Consolidation
The consolidated financial statements and footnotes include the accounts of the Company and its wholly-owned
subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Reclassifications
Certain amounts in the prior years’ consolidated financial statements have been reclassified to conform to the
current year presentation.
Use of Estimates
The preparation of the Company’s consolidated financial statements in accordance with generally accepted
accounting principles 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.
Foreign Currency Translation
The United States dollar is the functional currency for the majority of the Company’s foreign subsidiaries. As a
result, nonmonetary assets and liabilities are translated at their approximate historical rates, monetary assets and liabilities
are translated at exchange rates in effect at the end of the year, and revenues and expenses are translated at weighted-
average exchange rates for the year. Transaction gains (losses) totaled approximately ($0.9) million and $0.7 million, for
the years ended December 31, 2013 and 2012, respectively, and are included in other income (expense), net in the
Company’s Consolidated Statements of Operations.
The local currency is the functional currency of our subsidiaries in Japan, Republic of Korea, Taiwan, Norway,
Sweden, Mexico, and Ukraine. These subsidiaries’ assets and liabilities are translated into the United States dollars at
exchange rates existing at the balance sheet dates, revenues and expenses are translated at weighted-average exchange
rates, and shareholders’ equity and intercompany balances are translated at historical exchange rates. The foreign currency
translation adjustment is recorded as a separate component of shareholders’ equity and is included in accumulated other
comprehensive income (loss).
F-7
Cash and Cash Equivalents
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 December 31, 2013
and 2012, credit card receivables were $0.6 million and $1.7 million, respectively, and cash and cash equivalents held in
bank accounts in foreign countries totaled $14.7 million and $10.8 million, respectively. The Company invests cash in
liquid instruments, such as money market funds and interest bearing deposits. The Company also holds cash in high
quality financial institutions and does not believe it has an excessive exposure to credit concentration risk.
Restricted Cash
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) Australia building lease
collateral. As of December 31, 2013 and 2012, our total restricted cash was $5.8 million and $5.3 million, respectively.
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 December 31, 2013 and 2012,
receivables consisted primarily of amounts due from members and associates. 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. At December 31, 2013 and 2012, the Company
held an allowance for doubtful accounts of $0.14 million and $0.02 million, respectively. Included in accounts receivable
at December 31, 2013 is a $0.1 million receivable, net, from an independent associate.
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 market. The Company periodically reviews inventories for
obsolescence and any inventories identified as obsolete are reserved or written off.
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation and amortization computed using the
straight-line method over the estimated useful life of each asset. Leasehold improvements are amortized over the shorter of
the lease term or the estimated useful life of the improvements. Expenditures for maintenance and repairs are charged to
expense as incurred. The cost of property and equipment sold or otherwise retired and the related accumulated
depreciation are removed from the accounts and any resulting gain or loss is included in other operating costs in the
accompanying Consolidated Statements of Operations. The estimated useful lives of fixed assets are as follows:
Office furniture and equipment
Computer hardware and software
Automobiles
Leasehold improvements(1)
___________________
(1) The Company amortizes leasehold improvements over the shorter of the useful estimated life of the leased asset or the lease term.
Estimated useful life
5 to 7 years
3 to 5 years
3 to 5 years
2 to 10 years
Property and equipment are reviewed for impairment whenever an event or change in circumstances indicates
that the carrying amount of an asset or group of assets may not be recoverable. The 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 of the asset exceeds its fair value. We
determined that no impairment indicators existed during the years ended December 31, 2013 and 2012.
F-8
Other Assets
As of December 31, 2013 and 2012, other assets were $3.6 million and $3.2 million, respectively, primarily
consisting of deposits for building leases in various locations of $1.4 million and $1.8 million, respectively. Also included
in the December 31, 2013 and 2012 balances were $1.8 million and $1.0 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’s approval to compensate and protect consumers who participate in network marketing activities
from damages. Other assets at December 31, 2013 and 2012 also include $0.2 million of indefinite lived intangible assets
relating to the Manapol® powder trademark.
Other Long-Term Liabilities
Other long-term liabilities were $2.1 million and $2.2 million for the years ending December 31, 2013 and 2012,
respectively. Included in other long-term liabilities are financing obligations of $0.2 million and $0.5 million, respectively,
for the years ending December 31, 2013 and 2012. As of December 31, 2013 and 2012, we recorded $0.7 million and $0.1
million in other long-term liabilities related to uncertain income tax positions (see Note 8, Income Taxes). 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. As of December 31, 2013 and 2012, accrued restoration costs related to these
leases amounted to $0.2 million and $0.5 million, respectively. At December 31, 2013 and 2012, the Company also
recorded a long-term liability for an estimated defined benefit obligation related to a non-U.S. defined benefit plan for its
Japan operations of $0.6 million and $0.7 million, respectively (See Note 10, Employee Benefit Plans).
Revenue Recognition and Deferred Commissions
The Company’s revenue is derived from sales of individual products, sales of its starter and renewal packs, and
shipping fees. Substantially all of the Company’s product and pack sales are made to associates at published wholesale
prices and to members at discounted published retail prices. 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 packs and products upon receipt by the customer. Corporate-
sponsored event revenue is recognized when the event is held. The Company defers certain components of its revenue. At
December 31, 2013 and December 31, 2012, the Company’s deferred revenue was $6.4 million and $1.5 million,
respectively. During the third quarter of 2013, the Company started a loyalty program through which customers earn
loyalty points from qualified automatic orders, which can be applied to future purchases. The Company defers the dollar
equivalent in revenue of these points until the points are applied or forfeited. The deferred revenue associated with the
loyalty program at December 31, 2013 was $5.5 million. 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, the Company defers commissions on (i) the sales of packs and products shipped but not received by the
customers by the end of the respective period and (ii) the loyalty program. Deferred commissions were $2.7 million and
$0.6 million at December 31, 2013 and December 31, 2012, respectively.
Loyalty program
Loyalty deferred revenue as of January 1, 2013
Loyalty points forfeited
Loyalty points used
Loyalty points vested
Loyalty points unvested
Loyalty deferred revenue as of December 31, 2013
$
$
—
1,136
723
(5,072 )
(2,243 )
(5,456 )
F-9
We estimate a sales return reserve for expected sales refunds based on our historical experience over a rolling six-
month period. If actual results differ from our estimated sales return reserve due to various factors, the amount of revenue
recorded for each period could be materially affected. Historically, our 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 year ended December 31, 2013 our
sales return reserve consisted of the following (in thousands):
Sales reserve as of January 1, 2013
Provision related to sales made in current period
Adjustment related to sales made in prior periods
Actual returns or credits related to current period
Actual returns or credits related to prior periods
Sales reserve as of December 31, 2013
Shipping and Handling Costs
December 31, 2013
156
$
1,367
4
(1,130 )
(159 )
238
$
The Company records freight and shipping fees collected from its customers as revenue. The Company records
inbound freight as a component of inventory and cost of sales. Total revenue from freight and shipping fees were
approximately $7.7 million and $6.2 million for the years ended December 31, 2013 and 2012, respectively. Total freight
costs for shipping products to our customers included in cost of sales were approximately $6.8 million and $7.2 million for
the years ended December 31, 2013 and 2012, respectively.
Commission and Incentive Expenses
Independent associates earn commissions and incentives based on their direct and indirect commissionable net
sales over 13 business periods. Each business period equals 28 days. The Company accrues commissions and incentives
when earned by independent associates and pays commissions on product sales three weeks following the business period
end and pays commissions on its pack sales five weeks following the business period end.
Advertising Expenses
The Company expenses advertising and promotions in selling and administrative expenses when incurred.
Advertising and promotional expenses were approximately $4.3 million and $4.2 million, for the years ended December
31, 2013 and 2012, respectively. Educational and promotional items, called sales aids, are sold to independent associates
to assist in their sales efforts and are included in inventories and charged to cost of sales when sold.
Research and Development Expenses
The Company expenses research and development expenses as incurred. Research and development expenses
related to new product development, enhancement of existing products, clinical studies and trials, Food and Drug
Administration compliance studies, general supplies, internal salaries, third-party contractors, and consulting fees were
approximately $1.6 million and $1.9 million for the years ended December 31, 2013 and 2012, respectively. Salaries and
contract labor are included in selling and administrative expenses and all other research and development costs are
included in other operating costs.
Stock-Based Compensation
The Company currently has one active stock-based compensation plan, which was approved by its shareholders
at its 2008 Annual Shareholder’s meeting held on June 18, 2008. The Company grants stock options to its employees,
consultants, and board members with an exercise price equal to the closing price of its common stock on the date of grant
with a term no greater than 10 years. The majority of stock options vest over two or three years. Incentive stock options
granted to shareholders who own 10% or more of the Company’s outstanding stock are granted at an exercise price that
may not be less than 110% of the closing price of the Company’s common stock on the date of grant and have a term no
greater than five years. At the date of grant, the Company determines the fair value of the stock option award and
recognizes compensation expense over the requisite service period, or the vesting period of the award. The fair value of
the stock option award is calculated using the Black-Scholes option-pricing model. The Company records stock-based
compensation expense in selling and administrative expenses.
F-10
Software Development Costs
The Company capitalizes qualifying internal payroll and external contracting and consulting costs related to the
development of internal use software that are incurred during the application development stage, which includes design of
the software configuration and interfaces, coding, installation, and testing. Costs incurred during the preliminary project
along with post-implementation stages of internal use software are expensed as incurred. The Company amortizes such
costs over the estimated useful life of the software, which is three to five years once the software is placed in service.
Other Operating Costs
Other operating costs include travel, accounting/legal/consulting fees, credit card processing fees, banking fees,
off-site storage fees, utilities, and other miscellaneous operating expenses.
Income Taxes
The Company determines the provision for income taxes using the asset and liability method. Deferred tax assets
and liabilities are recognized for the future tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income
in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized as income in the period that includes the enactment date. The
Company evaluates the probability of realizing the future benefits of its deferred tax assets and provides a valuation
allowance for the portion of any deferred tax assets where the likelihood of realizing an income tax benefit in the future
does not meet the more likely than not criterion for recognition. The Company recognizes the effect of income tax
positions only if those positions are more likely than not of being sustained. Recognized income tax positions are
measured at the largest amount that is greater than 50% likely of being recognized. Changes in recognition or
measurement are reflected in the period in which the change in judgment occurs. The Company recognizes both interest
and penalties related to uncertain tax positions as part of the income tax provision.
Comprehensive Income (Loss) and Accumulated Other Comprehensive Income (Loss)
Comprehensive income (loss) 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
(loss) consists of the Company’s net income (loss), foreign currency translation adjustments from its Japan, Republic of
Korea, Taiwan, Norway, Sweden, and Ukraine operations, and changes in the pension obligation for its Japanese
employees.
Concentration Risk
A significant portion of the Company’s revenue is derived from core Ambrotose® complex products, which
include the Ambrotose® products and Advanced Ambrotose® products. For the years ended December 31, 2013 and 2012,
revenue from the core Ambrotose® products accounted for 40.0% and 45.2% of the Company’s consolidated net sales,
respectively.
Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally
of cash and cash equivalents, investments, receivables, and restricted cash. The Company utilizes financial institutions that
the Company considers to be of high credit quality and periodically evaluates the credit rating of such institutions and the
allocation of their investments to minimize exposure to credit concentration risk.
Fair Value of Financial Instruments
The fair value of the Company’s financial instruments, including cash and cash equivalents, restricted cash, time
deposits, money market investments, receivables, payables, and accrued expenses, approximate their carrying values due
to their relatively short maturities. See Note 3 to our Consolidated Financial Statements, Fair Value, for more information.
F-11
NOTE 2: RECENT ACCOUNTING PRONOUNCEMENTS
In February 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update
(“ASU”) No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. Under this
standard, entities will be required to disclose additional information with respect to changes in accumulated other
comprehensive income (“AOCI”) balances by component and significant items reclassified out of AOCI. Expanded
disclosures for presentation of changes in AOCI involve disaggregating the total change of each component of other
comprehensive income (for example, unrealized gains or losses on available for sale marketable securities) as well as
presenting separately for each such component the portion of the change in AOCI related to (1) amounts reclassified into
income and (2) current-period other comprehensive income. Additionally, for amounts reclassified into income, disclosure
in one location would be required, based upon each specific AOCI component, of the amounts impacting individual
income statement line items. Disclosure of the income statement line item impacts will be required only for components of
AOCI reclassified into income in their entirety. This ASU is effective beginning January 1, 2013. Because this standard
only impacts presentation and disclosure requirements, its adoption did not have a material impact on the Company’s
consolidated results of operations or financial condition.
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.
NOTE 3: 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 (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:
(cid:120) Level 1—Quoted unadjusted prices for identical instruments in active markets.
(cid:120) 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.
(cid:120) 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 tables below present the recorded amount of financial
assets measured at fair value (in thousands) on a recurring basis as of December 31, 2013 and 2012. The Company did not
have any material financial liabilities that were required to be measured at fair value on a recurring basis at December 31,
2013 and 2012.
2013
Assets
Money Market Funds – Fidelity, US
Interest bearing deposits – various banks
Total assets
Amounts included in:
Cash and cash equivalents
Restricted Cash
Long-term restricted cash
Total
Level 1
Level 2
Level 3
Total
192
6,803
6,995
3,044
329
3,622
6,995
$
$
$
$
—
—
—
—
—
—
—
$
$
$
$
—
—
—
—
—
—
—
$
$
$
$
192
6,803
6,995
3,044
329
3,622
6,995
$
$
$
$
F-12
2012
Assets
Money Market Funds – Fidelity, US
Interest bearing deposits – various banks
Total assets
Amounts included in:
Cash and cash equivalents
Restricted Cash
Long-term restricted cash
Total
NOTE 4: INVENTORIES
Level 1
Level 2
Level 3
Total
$
$
$
$
1,141
5,687
6,828
3,372
326
3,130
6,828
$
$
$
$
—
—
—
—
—
—
—
$
$
$
$
—
—
—
—
—
—
—
$
$
$
$
1,141
5,687
6,828
3,372
326
3,130
6,828
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 December 31, 2013 and 2012, consisted of the
following (in thousands):
Raw materials
Finished goods
Inventory reserves for obsolescence
Total
$
$
2013
2012
4,396 $
11,601
(2,009)
13,988 $
6,071
10,702
(1,619)
15,154
NOTE 5: PROPERTY AND EQUIPMENT
As of December 31, 2013 and 2012, property and equipment consisted of the following (in thousands):
Office furniture and equipment
Computer hardware
Computer software
Automobiles
Leasehold improvements
Less accumulated depreciation and amortization
Property and equipment, net
Construction in process
Total
2013
8,797
7,779
46,535
111
11,920
75,142
(71,972 )
3,170
69
3,239
$
$
2012
9,315
10,096
46,541
133
12,380
78,465
(73,640 )
4,825
8
4,833
$
$
F-13
NOTE 6: CAPITAL LEASE OBLIGATIONS
As of December 31, 2013 and 2012, the net book value of leased assets was $0.6 million and $1.0 million,
respectively for leased equipment, purchased licenses, and corporate insurance. The future minimum lease payments (in
thousands) are as follows:
2014
2015
2016
2017
2018
Total future minimum lease payments
Less: Amounts representing interest (effective interest rate 9.13%)
Present value of minimum lease payments
Current portion of capital lease obligations
Long-term portion of capital lease obligations
NOTE 7: ACCRUED EXPENSES
$
$
776
337
130
15
2
1,260
(106 )
1,154
(704 )
450
As of December 31, 2013 and 2012, accrued expenses consisted of the following (in thousands):
Accrued inventory purchases
Accrued compensation
Accrued royalties
Accrued sales and other taxes
Other accrued operating expenses (1)
Customer deposits and sales returns
Accrued travel expenses related to corporate events
Accrued shipping and handling costs
Rent expense
Accrued legal and accounting fees
2013
75
1,964
104
170
962
243
303
812
150
1,013
5,796
$
$
2012
25
$
1,655
252
722
840
168
604
945
144
993
$ 6,348
(1)
Includes $190 for the Korea Busan Custom Office assessment, resulting from an audit covering fiscal years 2008 through
2012, which was paid in January 2014.
NOTE 8: INCOME TAXES
The components of the Company’s income (loss) before income taxes are attributable to the following
jurisdictions for the years ended December 31 (in thousands):
United States
Foreign
$
2013
702
2,107
2012
$
(778 )
478
$ 2,809
$
(300 )
F-14
The components of the Company’s income tax provision (benefit) for the years ended December 31 are as
follows (in thousands):
Current provision (benefit):
Federal
State
Foreign
Deferred provision (benefit):
Federal
State
Foreign
$
2013
124
144
1,434
1,702
(1,883 )
—
(184 )
(2,067 )
(365 )
$
2012
(743 )
7
1,437
701
—
—
387
387
1,088
$
$
A reconciliation of the Company’s effective income tax rate and the United States federal statutory income tax
rate is summarized as follows, for the years ended December 31:
Federal statutory income taxes
State income taxes, net of federal benefit
Difference in foreign and United States tax on foreign operations
Effect of changes in valuation allowance for net operating loss carryforwards
Effect of change in uncertain tax positions (net)
Federal Sub-Part F Income from foreign operations
Other
2013
35.0 %
1.3
(11.6 )
(55.9 )
(17.0 )
11.8
23.4
(13.0 )%
2012
35.0 %
2.6
(194.0 )
(106.2 )
315.2
(170.2 )
(245.5 )
(363.1 )%
For the years ended December 31, 2013 and 2012, the Company’s effective tax rate was (13.0)% and (363.1)%
respectively. For 2013, the effective income tax rate was lower than what would be expected if the federal statutory
income tax rate were applied to income before taxes primarily because of the tax benefit recognized based the IRS tax
audit settlement, reversal of valuation allowances against net deferred tax assets and differences from foreign operations.
Excluding the release of uncertain income tax positions in connection with the settlement of the IRS audit, the effective
tax rate for twelve months ended December 31, 2013 would have been 23.5%. For 2012, the Company had a provision for
income tax despite the pre-tax losses primarily because of increases in the valuation allowance for deferred tax assets,
increases in uncertain income tax positions, and differences from foreign operations.
F-15
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of
the Company’s deferred tax assets and liabilities consisted of the following at December 31 (in thousands):
Deferred tax assets:
Current:
Deferred revenue
Inventory capitalization
Inventory reserves
Accrued expenses
Other
Total current deferred tax assets
Noncurrent:
Depreciation and amortization
Net operating loss(1)
Deferred royalty
Non-cash accounting charges related to stock options and warrants
Accrued expenses
Other
Total noncurrent deferred tax assets
Total deferred tax assets
Valuation allowance
Total deferred tax assets, net of valuation allowance
Deferred tax liabilities:
Current:
Prepaid expenses
Other
Total current deferred tax liabilities
Noncurrent:
Internally-developed software
Depreciation and amortization
Sub-Part F Income Deferred
Other
Total noncurrent deferred tax liabilities
Total deferred tax liabilities
__________________________________________
(1) The Company’s net operating loss will expire as follows (dollar amounts in thousands):
2013
2012
$
(26 )
228
644
917
108
1,871
1,834
5,078
39
520
366
843
8,680
10,551
(5,264 )
$ 5,287
$
7
429
457
935
66
1,894
1,508
6,255
119
491
409
1,117
9,899
11,793
(8,519 )
$ 3,274
$
396
5
401
$
576
0
576
15
2
2,163
(52 )
2,128
$ 2,529
37
2
1,830
(53 )
1,816
$ 2,392
Jurisdiction
Canada
Cyprus
Denmark
Mexico
Norway
Singapore
Sweden
Switzerland
Taiwan
Ukraine
United States (states)
$
Gross
NOL
20
25
2
9,003
743
54
576
1,490
7,268
725
21,499
Tax
Effected
NOL
5
3
0
2,701
184
9
127
137
1,236
138
537
Expiration Years
2043
2018
Indefinite
2020-2023
Indefinite
Indefinite
Indefinite
2016-2020
2016-2023
Indefinite
2015-2032
F-16
At December 31, 2013 and 2012, the Company’s valuation allowance was $5.3 million and $8.5 million,
respectively. The provisions of ASC Topic 740 require a company to record a valuation allowance when the “more likely
than not” criterion for realizing a deferred tax asset cannot be met. A company is to use judgment in reviewing both
positive and negative evidence of realizing a deferred tax asset. Furthermore, the weight given to the potential effect of
such evidence is commensurate with the extent the evidence can be objectively verified.
The valuation allowances presented below (in millions) at December 31, 2013 and 2012, represented a reserve
against the Company’s net deferred tax asset the Company believed the “more likely than not” criterion for recognition
purposes could not be met.
Country
Mexico
Norway
Sweden
Switzerland
Taiwan
Ukraine
United States
Total
2013
2012
$
$
2,701
184
127
38
1,237
138
839
5,264
$
$
2,276
208
132
1,043
1,192
—
3,668
8,519
At December 31, 2013 and 2012, the Company did not record a provision for any United States or foreign
withholding taxes on its undistributed earnings related to its foreign subsidiaries because it is the intention of the Company
to reinvest its undistributed earnings indefinitely in its foreign operations. Generally, such earnings become subject to
United States income tax upon the remittance of dividends and under certain other circumstances. At December 31, 2013,
it is not practicable to estimate the amount of deferred tax liability on such undistributed earnings.
Deferred tax assets (liabilities) are classified in the accompanying Consolidated Balance Sheets of December 31
as follows (in thousands):
Current deferred tax assets
Noncurrent deferred tax assets
Current deferred tax liabilities
Other long-term liabilities
Net deferred tax assets
2013
2012
$
$
1,578
1,303
(114 )
(9 )
2,758
$
$
561
502
(179 )
(2 )
882
On January 1, 2007, the Company adopted FIN 48, which was codified into Topic 740, which prescribes a
comprehensive model for how a company should recognize, measure, present, and disclose in its financial statements,
uncertain tax positions that it has taken or expects to take on a tax return. Topic 740 requires that a company recognize in
its financial statements the impact of tax positions that meet a “more likely than not” threshold, based on the technical
merits of the position. The tax benefits recognized in the financial statements from such a position should be measured
based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. As of
December 31, 2013, the Company recorded $0.1 million in current liabilities and $0.7 million in other long-term liabilities
related to uncertain income tax positions and income tax reserves associated with various audits. At December 31, 2013,
the Company had gross tax-affected unrecognized tax benefits of $0.7 million that, if recognized, would impact the
effective tax rate. The Company recognizes penalties and interest charges related to unrecognized tax benefits in current
tax expense. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows, for the years
ended December 31, 2013 and 2012 (in thousands):
Balance as of January 1
Additions for tax positions related to the current year
Additions for tax positions of prior years
Reductions of tax positions of prior years
Balance as of December 31
2013
3,039
436
292
(3,029 )
738
$
$
2012
3,984
81
58
(1,084 )
3,039
$
$
F-17
The examination of our 2005-2009 tax years by the IRS for U.S. federal tax purposes was settled during the
second quarter of 2013. In connection with the audit, the IRS and the Company agreed to a net tax deficiency of $0.8
million and the payment of interest accrued through June 30, 2013 of $0.2 million, without any penalties, which was paid
during the third quarter of 2013. In connection with the settlement of the audit, the Company reclassified amounts owed to
the IRS and previously recorded as uncertain tax positions as taxes payable, resulting in a $1.0 million tax benefit during
the year of 2013.
The Company files income tax returns in the United States federal jurisdiction and various state and foreign
jurisdictions. As of December 31, 2013, the tax years that remained subject to examination by a major tax jurisdiction for
the Company’s most significant subsidiaries were as follows:
Jurisdiction
Australia
Canada
Denmark
Japan
Mexico
Norway
Republic of Korea
Singapore
South Africa
Sweden
Switzerland
Taiwan
United Kingdom
United States
Open Years
2009-2013
2007-2013
2010-2013
2008-2013
2011-2013
2011-2013
2008-2013
2010-2013
2010-2013
2011-2013
2010-2013
2008-2013
2007-2013
2007-2013
NOTE 9: TRANSACTIONS WITH RELATED PARTIES AND AFFILIATES
During 2013, we paid employment compensation of approximately $155,000 in salary, bonus, auto allowance,
and other compensation to Landen Fredrick, son of J. Stanley Fredrick, the Company’s Chairman of the Board and a major
shareholder. In addition, Landen Fredrick participated in the employee health care benefit plans available to all employees
of the Company. Landen Fredrick has served as Vice President, Global Operations since May of 2013. Prior to that, Mr.
Fredrick served as Vice President, North American Sales and Operations since January of 2011, as Vice President, North
American Sales since February of 2010 and as Senior Director of Tools and Training since his hire in May of 2006.
Mr. Caster, the Company’s founder and former Chairman of the Board, founded MannaRelief in 1999 and served
as its Chairman from 1999 through August 2007. MannaRelief employs William A. Mullens, Mr. Caster’s brother-in-law,
as its Executive Director. Mr. Caster’s wife, Linda Caster, serves as MannaRelief’s Chairman of the Board. MannaRelief
is a 501(c)(3) charitable organization that provides charitable services for children. MannaRelief is not owned or operated
by the Company.
Historically, the Company has made cash donations to MannaRelief, sold products to MannaRelief at cost plus
shipping and handling charges, and shipped products purchased by MannaRelief to its chosen recipients. In addition,
certain Company employees and consultants periodically volunteer to work or host various fund raising projects and
events for MannaRelief at no cost to MannaRelief.
The Company has made cash donations and sold products to MannaRelief as follows:
Sold Products
Contributed Cash Donations
Products Donated in Lieu of Cash
2013
$ 0.2 million
$ 0.9 million
$ 0.0 million
2012
$ 0.3 million
$ 0.5 million
$ 0.1 million
On December 1, 2011, the Company entered into a Consulting Agreement with WonderEnterprises, LLC (f/k/a
Salinda Enterprises, LLC; hereinafter “Wonder”) for an initial term of six months with a renewal period of six months
F-18
upon thirty days written notice by the Company. Pursuant to the terms of the Consulting Agreement, the Company paid
Wonder $600,000 for consulting services performed by Mr. Caster plus reimbursable expenses through December 31,
2012, when the Consulting Agreement expired by its terms. Mr. Caster is the owner and an employee of Wonder.
On March 6, 2013, the Company entered into a new consulting agreement with Wonder, effective January 1,
2013, for an initial term of six months or until May 31, 2013 for the consulting services of Mr. Caster. Pursuant to the
terms of the Consulting Agreement, the Company paid Wonder $300,000 plus reimbursable expenses for consulting
services performed by Mr. Caster. The Consulting Agreement expired by its terms on May 31, 2013.
On June 3, 2013, the Company entered into a new consulting agreement with Wonder, effective June 1, 2013, for
an initial term of six months or until November 30, 2013 for the consulting services of Mr. Caster. Pursuant to the terms of
the Consulting Agreement, the Company paid Wonder $300,000 plus reimbursable expenses for consulting services
performed by Mr. Caster. The Consulting Agreement expired by its terms on November 30, 2013.
On December 4, 2013, the Company entered into a new consulting agreement with Wonder, effective December
1, 2013, for an initial term of three months or until February 28, 2014 for the consulting services of Mr. Caster. Pursuant to
the terms of the Consulting Agreement, the Company paid Wonder $150,000 plus reimbursable expenses for consulting
services performed by Mr. Caster. The Consulting Agreement was not renewed and terminated according to its terms on
February 28, 2014. Mr. Caster is no longer serving as a consultant for the Company.
Mr. Ray Robbins is a member of the Company’s Board of Directors and a major shareholder. Mr. Robbins holds
positions in the Company’s associate global downline network marketing system. In addition, several of Mr. Robbins’
family members are independent associates. The Company pays commissions and incentives to its independent associates
and during 2013 and 2012, the Company paid aggregate commissions and incentives to Mr. Robbins and his family of
approximately $2.6 million and $3.0 million, respectively. The aggregate amount of commission and incentives paid to
Mr. Robbins was approximately $2.4 million and $2.6 million in 2013 and 2012, respectively. The aggregate amount of
commission and incentives paid to family members was approximately $0.3 million and $0.4 million in 2013 and 2012,
respectively. The majority of $0.3 million and $0.4 milion paid to family members in 2013 and 2012, respectively, was
paid to his son, Kevin Robbins in the amount of approximately $0.2 million in each year, as well as his daughter, Marla
Finley, and daughter-in-law, Demra Robbins, who both share an account that totaled approximately $0.1 million and $0.2
million in 2013 and 2012, respectively. All commissions and incentives paid to Mr. Robbins and his family members are
in accordance with the Company’s global associate career and compensation plan.
NOTE 10: EMPLOYEE BENEFIT PLANS
Employee Retirement Plan
Effective May 9, 1997, the Company adopted a Defined Contribution 401(k) and Profit Sharing Plan (the “401(k)
Plan”) for its United States and Canada employees. The 401(k) Plan covers all regular full-time and part-time employees
who have completed three months of service and attained the age of twenty-one. United States employees can contribute
up to 100 percent of their annual compensation but are limited to the maximum annual dollar amount allowable under the
Internal Revenue Code. The 401(k) plan permits matching and discretionary employer contributions. The Company’s
matching contributions for its United States and Canada employees vest ratably over a five-year period. During the years
ended December 31, 2013 and 2012, the Company contributed approximately $0.1 million for each year to the 401(k) Plan
for matching contributions.
The Company also sponsors a non-U.S. defined benefit plan covering its employees in its Japan subsidiary (the
“Benefit Plan”). Benefits under the Benefit Plan are based on years of service and annual salary. On July 1, 2012, the
Company amended the Benefit Plan to convert the years of service and annual salary components of the Benefit Plan to a
point system for position grade and years of service. The projected benefit obligation (“BPO”) for the year ended
December 31, 2012 included a prior service cost gain of $0.7 million. The Company utilizes actuarial methods. Inherent in
the application of these actuarial methods are key assumptions, including, but not limited to, discount rates and expected
long-term rates of return on plan assets. Changes in the related Benefit Plan costs may occur in the future due to changes
in the underlying assumptions, changes in the number and composition of plan participants, and changes in the level of
benefits provided. The Company uses a measurement date of December 31 to evaluate and record any post-retirement
benefits related to the Benefit Plan.
F-19
Projected Benefit Obligation and Fair Value of Plan Assets
The Benefit Plan’s projected benefit obligation and valuation of plan assets were as follows for the years ended
December 31 (in thousands):
Projected benefit obligation:
Balance, beginning of year
Service cost
Interest cost
Liability losses
Benefits paid to participants
Special termination benefit
Prior service cost
Foreign currency
Balance, end of year
Plan assets:
Fair value, beginning of year
Company contributions
Benefits paid to participants
Fair value, end of year
2013
714
106
6
59
(121 )
—
—
(135 )
629
2013
—
121
(121 )
—
$
$
$
$
$
2012
1,270
169
15
94
(71 )
7
(678 )
(92 )
714
2012
—
71
(71 )
—
$
$
$
Funded status of the Benefit Plan as of December 31 (in thousands):
2013
2012
Benefit obligation
Fair value of plan assets
Excess of benefit obligation over fair value of plan assets
$
(629 )
$
(714 )
—
—
$
(629 )
$
(714 )
Amounts recognized in the accompanying Consolidated Balance Sheets consist of,
as of December 31 (in thousands):
Accrued benefit liability
Transition obligation and unrealized gain
Net amount recognized in the consolidated balance sheets
Other changes recognized in comprehensive income/loss (in thousands):
Net periodic cost
Current year loss
Amortization of transition obligation
Total recognized in other comprehensive income
Total recognized in comprehensive income (loss)
2013
2012
$
$
(629 )
(458 )
(1,087 )
$
(714 )
(682 )
$
(1,396 )
Years Ended December 31,
2013
2012
$
$
64
59
(4 )
55
119
$
$
158
94
(5 )
89
247
F-20
Amounts not yet reflected in net periodic benefit cost and included in accumulated
other comprehensive gain/loss (in thousands):
Transition obligation
Prior service cost
Net actuarial gain
Total recognized in accumulated other comprehensive loss
As of December 31,
$
2013
66
447
(55 )
$ 458
2012
$ 168
602
(88 )
$ 682
2014 estimated amounts of amortized transition obligation (in thousands):
Transition obligation
2014
$ (4 )
Aggregate Benefit Plan information and accumulated benefit obligation in excess
of plan assets (in thousands):
Projected benefit obligation
Accumulated benefit obligation
Fair value of plan assets
As of December 31,
2013
$ 629
629
—
2012
$ 714
714
—
The weighted-average assumptions to determine the benefit obligation and net cost are as follows:
Discount rate
Rate of increase in compensation levels
Components of Expense
2013
0.50 %
—
2012
1.00 %
— %
Pension expense for the Benefit Plan is included in selling, general and administrative expenses in the
Consolidated Statements of Operations and is comprised of the following for the years ended December 31 (in thousands):
Service cost
Interest cost
Amortization of transition obligation
Gain
Special termination
Prior service cost
Benefit adjustment
Total pension expense
Estimated Benefits and Contributions
2013
2012
106
6
4
(4 )
—
(48 )
—
64
$
$
169
15
5
(9 )
7
(29 )
—
158
$
$
The Company expects to contribute approximately $90,000 to the Benefit Plan in 2014. As of December 31,
2013, benefits expected to be paid by the Benefit Plan for the next ten years is approximately as follows (in thousands):
2014
2015
2016
2017
2018
Next five years
Total expected benefits to be paid
F-21
$
$
90
135
57
54
50
210
596
NOTE 11: STOCK OPTION PLAN
Summary of Stock Plan
The Company currently has one active stock-based compensation plan, which was approved by shareholders. The
Company grants stock options to employees, consultants, and board members at the fair value of its common stock on the
date of grant, with a term no greater than ten years. The majority of stock options vest over two or three years.
Shareholders who own 10% or more of the Company’s outstanding stock are granted incentive stock options at an exercise
price that may not be less than 110% of the fair market value of the Company’s common stock on the date of grant and
have a term no greater than five years.
In February 2008, the Company’s Board of Directors approved the Mannatech, Incorporated 2008 Stock
Incentive Plan (the “2008 Plan”), which reserves up to 1,000,000 shares of common stock for issuance of stock options
and restricted stock to our employees, board members, and consultants, plus any shares reserved under the Company’s
then-existing, unexpired stock plans for which options had not yet been issued, and any shares underlying outstanding
options under the then-existing stock option plans that terminate without having been exercised in full. The 2008 Plan was
approved by the Company’s shareholders at the 2008 Annual Shareholders’ Meeting. The 2008 Plan was approved by the
Company’s shareholders at the 2008 Annual Shareholders’ Meeting and was amended at the 2012 Annual Shareholders’
Meeting held May 30, 2012 to increase the number of shares of common stock subject to the plan by 100,000. As of
December 31, 2013, the 2008 Plan had 73,431 stock options available for grant before the plan expires on February 20,
2018.
A summary of changes in stock options outstanding during the year ended December 31, 2013, is as follows:
Outstanding at beginning of year
Granted
Exercised
Forfeited or expired
Outstanding at end of year
Options exercisable at year end
2013
Weighted
average
exercise
price
$
$
$
$
$
$
19.76
6.35
11.89
19.40
14.29
21.36
Number of
Options
(in thousands)
123
83
(10 )
(8 )
188
99
Weighted
average
remaining
contractual
life
(in years)
Aggregate
intrinsic
value (in
thousands)
7.6
6.3
501
—
In 2013, the Company issued 5,000 new shares upon the exercise of 9,997 options in cashless transactions.
Options exercised during the year ending December 31, 2013 had a total intrinsic value, calculated as the difference
between the exercise date stock price and the exercise price of less than $0.2 million. Non-vested shares at December 31,
2013 and 2012 were 89,000 and 33,000, respectively.
Valuation and Expense Information Under FASB ASC Topic 718 Compensation – Stock Compensation
Under the provisions of FASB ASC Topic 718, the Company is required to measure and recognize compensation
expense related to any outstanding and unvested stock options previously granted, and thereafter recognize, in its
consolidated financial statements, compensation expense related to any new stock options granted after implementation
using a calculated fair-value based option-pricing model.
F-22
The Company uses the Black-Scholes option-pricing model to calculate the fair value of all of its stock options
and its assumptions are based on historical information. The following assumptions were used to calculate the
compensation expense and the calculated fair value of stock options granted each year:
Dividend yield:
Risk-free interest rate:
Expected market price volatility:
Average expected life of stock options:
_________________________
(1) The Company declared no dividends in 2013 or 2012.
2013
—
(1)
0.66 - 1.36 %
80.3 – 82.3 %
4.5 years
2012
—
(1)
0.62 - 0.75 %
78.4 - 81.6 %
4.5 years
The computation of the expected volatility assumption used in the Black-Scholes calculations for new grants is
based on historical volatilities of the Company’s stock. The expected life assumptions are based on the Company’s
historical employee exercise and forfeiture behavior.
The weighted-average grant-date fair value of stock options granted during the years ended December 31, 2013
and 2012 was $3.96 and $3.06 per share, respectively. The total fair value of shares vested during each of the years ended
December 31, 2013 and 2012 was $0.1 million.
The Company recorded the following amounts related to the expense of the fair values of options during the years
ended December 31, 2013 and 2012 (in thousands):
Selling, general and administrative expenses and income (loss) from operations before
income taxes
Benefit for income taxes
Effect on net income / (loss)
2013
2012
$
173 $ 209
(33 )
(44 )
$
140 $ 165
As of December 31, 2013, the Company had approximately $0.2 million of total unrecognized compensation
expense related to stock options currently outstanding, to be recognized in future years, ending December 31,
as follows (in thousands):
2014
2015
2016
Total gross unrecognized
compensation expense
Total tax benefit associated
with unrecognized
compensation expense
Total net
unrecognized
compensation expense
$ 118
99
21
$ 238
$
$
19
15
2
36
$
99
84
19
$ 202
NOTE 12: COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases certain office space, automobiles, computer hardware, and warehouse equipment under
various non-cancelable operating leases. Some of these leases have renewal options. All of the Company’s leases expire at
various times through August 2023. The Company also leases equipment under various month-to-month cancelable
operating leases. For the years ended December 31, 2013 and 2012, total rent expense was approximately $3.5 million and
$3.9 million, respectively.
F-23
Approximate future minimum rental commitments for non-cancelable operating leases (in thousands) are as
follows:
Years ending December 31,
2014
2015
2016
2017
2018
Thereafter
Purchase Commitments
$ 1,620
1,443
1,229
1,158
563
—
$ 6,013
The Company maintains supply agreements with its suppliers and manufacturers. Some of the supply agreements
contain exclusivity clauses and/or minimum annual purchase requirements. In March 2006, the Company entered into a
ten-year supply agreement to purchase plant-derived mineral nutrition products from IHT Health Products, Inc. (f.k.a.
InB:Biotechnologies, Inc.). As of December 31, 2013, the Company is required to purchase an aggregate of $6.0 million
through 2016.
Royalty and Consulting Agreements
The Company utilizes royalty agreements with individuals and entities to provide compensation for items relating
to developed products, websites and email provided to our associates. The Company paid royalties of $0.3 million in each
of 2013 and 2012.
Employment Agreements
The Company has non-cancellable employment agreements with certain executives. If the employment
relationships with these executives were terminated, as of December 31, 2013, the Company would continue to be
indebted to the executives for $1.3 million, payable through 2014.
NOTE 13: LITIGATION
Employment Litigation
Natalie Clark v. Mannatech, Incorporated, Case No. DC-13-05038, 192nd Judicial District Court, Dallas County,
Texas
On May 10, 2013, the Company was served notice of a lawsuit filed by Ms. Natalie Clark, a former executive of
the Company, in the 192nd Judicial District Court, Dallas County, Texas (the “Court”) alleging discrimination and
harassment based on gender. Ms. Clark alleges that she was stripped of her duties and wrongfully discharged as part of an
alleged “purge of females in key positions” within the Company. Ms. Clark is seeking damages in excess of $1,000,000.
The Company has retained counsel and filed its answer denying Ms. Clark’s allegations. This case is set for jury trial on
June 2, 2014. Additionally, the Court issued a standard mediation order; mediation must be conducted no later than May 2,
2014.
The parties are engaged in the discovery process. Ms. Clark’s deposition was taken on January 23, 2014.
Opposing counsel will be scheduling the depositions of Company employees and other fact witnesses. It is not possible at
this time to predict whether the Company will incur any liability, or to estimate the ranges of damages, if any, which may
be incurred in connection with this matter. However, the Company believes it has a valid defense and will vigorously
defend this claim. This matter will remain open until it is resolved.
F-24
Administrative Proceedings
On July 11, 2013, the Company was issued an assessment notice from the Busan Custom Office in Korea
resulting from an audit covering fiscal years 2008 through 2012. Other expense includes $1.0 million for this assessment,
$0.19 million of which was accrued as of December 31, 2013 and paid in January 2014.
The examination of our 2005-2009 tax years by the IRS for U.S. federal tax purposes was settled during the
second quarter of 2013. On May 13, 2013, the IRS and the Company concluded the audit and agreed to a net tax
deficiency of $0.8 million and the payment of interest accrued through June 30, 2013 of $0.2 million, without any
penalties. In connection with the settlement of the audit, the Company reclassified amounts owed to the IRS and
previously recorded as uncertain income tax positions as taxes payable, resulting in a $1.0 million tax benefit during the
three months ended June 30, 2013. There are other ongoing income tax audits in various international jurisdictions that are
not expected to have a material effect on our financial statements.
There are other ongoing audits in various international jurisdictions that the Company does not expect will have a
material effect on our financial statements.
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 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 or as they become determinable.
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.
NOTE 14: SHAREHOLDERS’ EQUITY
Preferred Stock
On May 19, 1998, the Company amended its Amended and Restated Articles of Incorporation to reduce the
number of authorized shares of common stock from 100.0 million to 99.0 million and the Company authorized 1.0 million
shares of preferred stock with a par value of $0.01 per share. No shares of preferred stock have ever been issued or
outstanding.
Treasury Stock
On June 30, 2004, the Company’s Board of Directors authorized the Company to repurchase, in the open market,
the lesser of (i) 131,756 shares of its common stock and (ii) $1.3 million of its shares, (the “June 2004 Plan”). On August
28, 2006, a second program permitting the Company to purchase, in the open market, up to $20 million of its outstanding
shares was approved by our Board of Directors (the “August 2006 Plan”).
On July 14, 2011, the Company’s Board of Directors authorized the Company to reactivate the June 2004 Plan.
As of March 10, 2014, the maximum number of shares available for repurchase under the June 2004 Plan was 19,084, and
the total number of shares purchased in the open market under the June 2004 Plan was 112,672. No shares have ever been
purchased under the August 2006 Plan. The Company does not have any stock repurchase plans or programs other than
the June 2004 Plan and the August 2006 Plan.
F-25
Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss, net, displayed in the Consolidated Statement of Shareholders’ Equity and
Comprehensive Loss, represents net loss 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 postretirement benefit
obligations.
The after-tax components of accumulated other comprehensive income (loss), are as follows (in thousands):
Foreign
Currency
Translation
Pension
Postretirement
Benefit
Obligation
Accumulated
Other
Comprehensive
Income, Net
Balance as of December 31, 2012
$
(1,104 ) $
427 $
Current-period change before reclassifications
Amounts reclassified from accumulated other
comprehensive income
Income tax provision
Balance as of December 31, 2013
$
(6 )
—
—
(1,110 ) $
(54 )
(45 )
39
367 $
(677 )
(60 )
(45 )
39
(743 )
NOTE 15: EARNINGS (LOSS) PER SHARE
The Company calculates basic Earnings per Share (EPS) by dividing net income (loss) by the weighted-average
number of common shares outstanding for the period. The diluted EPS also reflects the potential dilution that could occur
if common stock were issued for awards under the 2008 Stock Incentive Plan. In determining potential dilution effect of
outstanding stock options during 2013 and 2012, the Company used average common stock close price of $14.32 and
$5.32, per share, respectively. Approximately 0.1 million of the Company’s stock options were excluded from the diluted
EPS calculation for each of 2013 and 2012 as the effect would have been antidilutive.
NOTE 16: SEGMENT INFORMATION
The Company conducts its business as a single operating segment, consolidating all of its business units into a
single reportable entity, as a seller of proprietary nutritional supplements, topical and skin care products, and weight-
management products through its network marketing distribution channels operating in seventeen countries. Each of the
Company’s business units sells similar packs and products 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 packs and product sales. The Company sells its products through its
independent associates and distributes its 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 operates facilities in ten countries and sells product in twenty-four countries around the world.
These facilities are located in the United States, Canada, Switzerland, Australia, the United Kingdom, Japan, the Republic
of Korea (South Korea), Taiwan, South Africa and Mexico. Each facility services different geographic areas. We currently
sell our products in three regions: (i) North America (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, Sweden, the United Kingdom and Ukraine); (iii) Asia/Pacific (Australia, Japan, New Zealand, the Republic of
Korea, Singapore, Taiwan and Hong Kong).(cid:3)
F-26
Consolidated net sales shipped to customers in these regions, along with pack and product information for the
years ended December 31, are as follows (in millions, except percentages):
Region
North America
Asia/Pacific
EMEA
Total
2013
2012
$
$
82.2
80.3
14.9
177.4
46.3 %
45.3 %
8.4 %
100.0 %
$
$
86.5
70.5
16.4
173.4
49.9 %
40.7 %
9.4 %
100.0 %
Consolidated product sales
Consolidated pack sales
Consolidated other, including freight
Total
2013
2012
$
$
143.5
26.2
7.7
177.4
$
$
155.8
11.4
6.2
173.4
Long-lived assets by region, which include property and equipment and construction in progress for the Company
and its subsidiaries, as of December 31, reside in the following regions, as follows (in millions):
Region
North America
Asia/Pacific
EMEA
Total
2013
2012
$
$
2.4
0.4
0.4
3.2
$
$
3.8
0.7
0.3
4.8
Inventory balances by region, which consist of raw materials, and finished goods, including promotional
materials, and offset by obsolete inventories, for the Company and its subsidiaries, reside in the following regions as of
December 31, as follows (in millions):
Region
North America
Asia/Pacific
EMEA
Total
2013
2012
$
$
6.4
5.3
2.3
14.0
$
$
9.5
4.2
1.5
15.2
NOTE 17: SUBSEQUENT EVENT
On January 28, 2014, Mr. Roy Truett, President of International and the Chief Operating Officer, resigned from
the Company. His last day of employment was January 31, 2014. In exchange for a general release by Mr. Truett of any
and all claims related to his employment agreement and his employment at the Company, Mannatech released Mr. Truett
from his post-employment non-compete obligations. Mr. Truett remains bound by the post-employment non-solicitation
obligations and other post-termination provisions that the parties agreed would survive the termination of his employment
agreement.
F-27
INDEX TO EXHIBITS
Exhibit Description
Form
File No.
Exhibit (s)
Filing Date
Incorporated by Reference
Exhibit
Number
3.1
3.2
3.3
3.4
4.1
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
Amended and Restated Articles of Incorporation of Mannatech, dated May
19, 1998.
Amendment to the Amended and Restated Articles of Incorporation of
Mannatech, dated January 13, 2012.
S-1
8-K
333-63133
000-24657
Fourth Amended and Restated Bylaws of Mannatech, dated August 8, 2001
10-K
000-24657
(Corrected).
First Amendment to the Fourth Amended and Restated Bylaws of
Mannatech, effective November 30, 2007.
Specimen Certificate representing Mannatech’s common stock, par value
8-K
S-1
000-24657
333-63133
$0.0001 per share.
Amended and Restated 1997 Stock Option Plan, dated August 7, 2004.
2008 Stock Incentive Plan.
10-K
DEF 14A
000-24657
000-24657
3.1
3.1
3.2
3.1
4.1
10.1
Appendix
B
99.1
10.1
10.1
October 28, 1998
January 17, 2012
March 16, 2007
December 6, 2007
October 28, 1998
March 15, 2004
April 29, 2008
June 11, 2010
June 1, 2012
September 21, 2010
First Amendment to the Mannatech 2008 Stock Incentive Plan.
Mannatech, Incorporated 2008 Stock Incentive Plan, as amended.
Investment Agreement by and between Mannatech and Dutchess
Opportunity Fund, II, LP dated September 16, 2010.
Amendment to Investment Agreement, dated as of October 4, 2010, by and
between Mannatech and Dutchess Opportunity Fund, II, LP.
Amended and Restated 1998 Incentive Stock Option Plan, dated
August 7, 2004.
000-24657
000-24657
000-24657
8-K
8-K
8-K
8-K
000-24657
10.1
October 5, 2010
10-K
000-24657
10.1
March 15, 2004
Registration Rights Agreement by and between Mannatech and Dutchess
8-K
000-24657
10.2
September 21, 2010
Opportunity Fund, II, LP dated September 16, 2010.
Amended and Restated 2000 Option Plan, dated August 7, 2004.
Form of Indemnification Agreement between Mannatech and each member
of the Board of Directors of Mannatech Korea Ltd., dated March 3, 2004.
10-K
10-Q
000-24657
000-24657
10.1
10.2
March 15, 2004
August 9, 2004
Form of Indemnification Agreement between Mannatech and each of the
10-Q
000-24657
10.4
November 4, 2010
following directors: J. Stanley Fredrick, Patricia Wier, Alan D. Kennedy,
Gerald E. Gilbert, Marlin Ray Robbins, Larry A. Jobe, and Robert A.
Toth.
Commercial Lease Agreement between Mannatech and MEPC Quorum
Properties II Inc., dated November 7, 1996, as amended by the First
Amendment thereto dated May 29, 1997 and the Second Amendment
thereto dated November 13, 1997.
S-1
333-63133
10.13
September 10, 1998
10.13
Second Amendment to the Commercial Lease Agreement between
10-Q
000-24657
10.1
November 9, 2005
Mannatech and Texas Dugan Limited Partnership, dated September 22,
2005.
10.14
Commercial Lease Agreement between Mannatech and MEPC Quorum
S-1
333-63133
10.14
September 10, 1998
Properties II Inc., dated May 29, 1997 as amended by the First
Amendment thereto dated November 6, 1997.
10.15
Third Amendment to the Commercial Lease Agreement between
10-Q
000-24657
10.2
November 9, 2005
Mannatech and Texas Dugan Limited Partnership, dated September 22,
2005.
10.16
Trademark License and Supply Agreement between Mannatech and
8-K
000-24657
10.1
January 31, 2007
Carrington Laboratories, Inc., dated January 25, 2007. (Portions of this
exhibit were omitted pursuant to a confidential treatment request
submitted pursuant to Rule 24b-2 of the Exchange Act.)
10.17
Supply Agreement between Mannatech and Natural Aloe de Costa Rica,
8-K
000-24657
10.1
May 3, 2011
S.A. dated April 1, 2012 (Portions of this exhibit were omitted pursuant
to a confidential treatment request submitted pursuant to Rule 24b-2 of
the Exchange Act.)
10.18
Supply Agreement between Mannatech (International) Limited and
10-Q
000-24657
10.3
May 10, 2007
Marinova Pty. Limited, effective August 9, 2007 and dated May 7, 2007.
(Portions of this exhibit were omitted pursuant to a
confidential treatment request submitted pursuant to Rule 24b-2 of the
Exchange Act.)
Exhibit
Number
10.19
10.20
10.21
10.22
Exhibit Description
Amendment to Purchase Agreement between Mannatech and Marinova
PTY, Limited, dated May 6, 2008. (Portions of this exhibit were
omitted pursuant to a confidential treatment request submitted pursuant
to Rule 24b-2 of the Exchange Act.)
Form
Incorporated by Reference
File No.
Exhibit (s)
Filing Date
10-Q
000-24657
10.4
August 11, 2008
Purchase Agreement between Mannatech and Larex, Inc., dated January
10-K
000-24657
10.18
March 16, 2006
1, 2006. (Portions of this exhibit were omitted pursuant to a
confidential treatment request submitted pursuant to Rule 24b-2 of the
Exchange Act.)
Purchase Agreement between Mannatech and Wellness Enterprises, LLC,
dated February 1, 2006. (Portions of this exhibit were omitted pursuant
to a confidential treatment request submitted pursuant to Rule 24b-2 of
the Exchange Act.)
Supply Agreement between Mannatech and Coradji PTY. Limited, dated
March 29, 2004. (Portions of this exhibit were omitted pursuant to a
confidential treatment request submitted pursuant to Rule 24b-2 of the
Exchange Act.)
10-K
000-24657
10.19
March 16, 2006
10-Q/A
000-24657
10.1
March 29, 2005
10.23
Supply License Agreement between Mannatech and InB:Biotechnologies,
10-Q
000-24657
10.2
May 10, 2006
Inc., dated March 22, 2006. (Portions of this exhibit were omitted
pursuant to a confidential treatment request submitted pursuant to Rule
24b-2 of the Exchange Act.)
10.24
Initial Commercial Supply and Manufacturing Agreement between
10-Q
000-24657
10.3
May 10, 2006
10.25
10.26
10.27
Mannatech and Fine Chemetics, Inc., dated March 29, 2006. (Portions
of this exhibit were omitted pursuant to a confidential treatment request
submitted pursuant to Rule 24b-2 of the Exchange Act.)
Supply Agreement between Mannatech, Incorporated, and Improve
U.S.A., Inc., effective June 1, 2008, and executed May 2, 2008.
(Portions of this exhibit were omitted pursuant to a confidential
treatment request submitted pursuant to Rule 24b-2 of the Exchange
Act.)
Amendment to Supply Agreement between Mannatech and Improve
U.S.A., dated June 1, 2011. (Portions of this exhibit were omitted
pursuant to a confidential treatment request submitted pursuant to Rule
24b-2 of the Exchange Act.)
Services Agreement by and between Integrated Distribution and Logistics
Direct, LLC and Mannatech dated July 2, 2012 (Portions of this exhibit
were omitted pursuant to a confidential treatment request submitted
pursuant to Rule 24b-2 of the Exchange Act.)
8-K
000-24657
10.1
May 8, 2008
8-K
000-24657
10.1
August 22, 2011
8-K
000-24657
10.1
July 9, 2012
10.28
Sublease by and between Integrated Distribution and Logistics Direct,
8-K
000-24657
10.2
July 9, 2012
LLC and Mannatech, dated July 2, 2012. (Portions of this exhibit were
omitted pursuant to a confidential treatment request submitted pursuant
to Rule 24b-2 of the Exchange Act.)
10.29
Amended and Restated Employment Agreement between Terry L.
Persinger and Mannatech, dated June 16, 2008.
10.30
Employment Agreement between Robert A. Sinnott, Ph.D. and
8-K
8-K
000-24657
10.1
June 20, 2008
000-24657
10.3
October 11, 2007
Mannatech, dated October 5, 2007.
10.31
Employment Agreement between Mannatech and Mr. Samuel L. Caster,
10-K
000-24657
10.32
March 16, 2006
dated January 23, 2006.
10.32
Employment Agreement between Stephen D. Fenstermacher and
Mannatech, dated October 5, 2007.
10.33
First Amendment to Employment Agreement between Stephen D.
Fenstermacher and Mannatech, dated December 18, 2008.
10.34
Mutual Severance and Release Agreement by and between Stephen D.
Fenstermacher and Mannatech, dated March 12, 2012
10.35
Employment Agreement between Terence L. O’Day and Mannatech,
dated October 5, 2007.
8-K
10-K
10-Q
8-K
000-24657
10.2
October 11, 2007
000-24657
10.24
March 12, 2009
000-24657
10.1
May 10, 2012
000-24657
10.1
October 11, 2007
Exhibit
Number
10.36
Exhibit Description
Employment Agreement between B. Keith Clark and Mannatech, dated
October 5, 2007.
10.37
Employment Agreement between Wayne L. Badovinus and
Mannatech, dated June 4, 2008.
10.38
Employment Agreement between Terri F. Maxwell
and Mannatech, dated August 28, 2008.
Form
8-K
8-K
8-K
Incorporated by Reference
File No.
Exhibit (s)
Filing Date
000-24657
10.4
October 11, 2007
000-24657
10.1
June 9, 2008
000-24657
10.1
September 2, 2008
10.39
Lock-up Agreement between Mannatech and J. Stanley Fredrick, dated
10-K
000-24657
10.36
March 15, 2004
November 6, 2003.
10.40
Termination of Lock-up Agreement between Mannatech and J. Stanley
8-K
000-24657
10.1
March 10, 2009
Fredrick, dated March 6, 2009.
10.41
Follow-Up Agreement to Letter of Intent Agreement between Mannatech
10-Q
000-24657
10.4
November 14, 2001
and Jett, dated September 10, 2001.
10.42
Letter of Understanding between Mannatech and Dr. John Axford, dated
April 19, 2006.
10.43
Extension of the Letter of Spokesperson Arrangement between
Mannatech and Dr. John Axford, dated February 18, 2007.
10.44
Employment Agreement between Alfredo Bala and Mannatech, effective
October 1, 2007, dated September 18, 2007.
10.45
Amendment to Employment Agreement between Alfredo Bala and
Mannatech, dated October 11, 2007.
10.46
Clinical Research Agreement dated January 3, 2007 by and between St.
George’s Hospital Medical School (trading as St George’s, University
of London), and Mannatech, Inc.
10.47
Employment Agreement, effective March 2, 2009, by and between
Mannatech and Randy S. Bancino.
10.48
First Amendment to Employment Agreement, dated as of December 16,
2009, by and between Mannatech and Randy S. Bancino.
10.49
Consulting Agreement, dated March 17, 2009, between Mannatech and
Salinda Enterprises, LLC and Samuel L. Caster.
8-K
8-K
8-K
8-K
000-24657
99.1
April 21, 2006
000-24657
99.1
February 21, 2007
000-24657
10.1
September 24, 2007
000-24657
10.1
October 17, 2007
10-K
000-24657
10.39
March 17,2008
8-K
8-K
8-K
000-24657
10.1
March 6, 2009
000-24657
10.4
December 18, 2009
000-24657
10.1
March 19, 2009
10.50
Consulting Agreement, dated December 1, 2011, by and between
10-K
000-24657
10.46
March 29, 2012
Mannatech and WonderEnterprises, LLC (f/k/a Salinda Enterprises,
LLC) and Samuel L. Caster.
10.51
Consulting Agreement, effective January 1, 2013, by and between
10-K
000-24657
10.51
March 28, 2013
Mannatech and WonderEnterprises, LLC and Samuel L. Caster, dated
March 6, 2013.
10.52
Consulting Agreement, effective June 1, 2013, by and between
8-K
000-24657
10.1
June 4, 2013
Mannatech and WonderEnterprises, LLC and Samuel L. Caster, dated
June 3, 2013.
10.53
Consulting Agreement, effective as of December 1, 2013, by and between
Mannatech and WonderEnterprises, LLC.
10.54
Separation and Release Agreement, dated July 17, 2009 between
10.55
10.56
10.57
Mannatech and Terri F. Maxwell.
Second Amendment to Employment Agreement, dated as of December
16, 2009, by and between Mannatech and Stephen D. Fenstermacher.
Second Amendment to Employment Agreement, dated as of December
16, 2009, by and between Mannatech and Robert A. Sinnott, Ph.D.
Second Amendment to Employment Agreement, dated as of December
16, 2009, by and between Mannatech and B. Keith Clark.
10.58
Separation Agreement and Release, dated March 20, 2013, by and
between Mannatech and B. Keith Clark.
10.59
Employment Agreement, dated March 4, 2013, by and between
Mannatech and Roy Truett.
10.60
Separation Agreement and General Release, dated January 30, 2014, by
14.1
21*
23.1*
23.2*
and between Mannatech and Roy Truett.
Code of Ethics.
List of Subsidiaries.
Consent of BDO USA, LLP.
Report of Independent Registered Public Accounting Firm on
Financial Statement Schedule.
24*
Power of Attorney, which is included on the signature page of this annual
report on Form 10-K.
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.
8-K
8-K
8-K
8-K
8-K
8-K
8-K
(cid:13)
10-K
(cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
000-24657
10.1
December 1, 2013
000-24657
10.1
July 21, 2009
000-24657
10.1
December 18, 2009
000-24657
10.2
December 18, 2009
000-24657
10.3
December 18, 2009
000-24657
10.1
March 25, 2013
000-24657
10.1
March 6, 2013
(cid:13)
000-24657
(cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
14.1
(cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
March 16, 2007
(cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
Exhibit
Number
32.2*
Exhibit Description
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
of the Chief Financial Officer of Mannatech.
99.1*
Financial Statement Schedule Regarding Valuation and Qualifying
Form
(cid:13)
(cid:13)
Incorporated by Reference
File No.
Exhibit (s)
Filing Date
(cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
**
**
**
**
XBRL Taxonomy Extension Schema Document
XBRL Taxonomy Extension Label Linkbase Document
XBRL Taxonomy Extension Calculation Linkbase Document
Accounts.
101.INS** XBRL Instance Document
101.SCH*
*
101.CAL*
*
101.LAB*
*
101.PRE*
*
101.DEF*
*
_____________
* Filed herewith.
** Furnished herewith. In accordance with Rule 406T of Regulation S-T, the information in these exhibits shall not be deemed to be “filed” for purposes
of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to liability under that section, and shall not be incorporated by reference into
any registration statement or other document filed under the Securities Act of 1933, as amended, except as expressly set forth by specific reference in
such filing.
XBRL Taxonomy Extension Presentation Linkbase Document
XBRL Taxonomy Extension Definition Linkbase Document
**
**
**
**
**
**
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List of Subsidiaries
Exhibit 21
The Company has twenty-six wholly-owned subsidiaries located throughout the world, as follows:
1. Mannatech Australia Pty Limited
2. Mannatech Japan, G.K.
3. Mannatech Korea, Ltd.
4. Mannatech Limited (a New Zealand Company)
5. Mannatech Limited (a UK Company)
6. Mannatech Taiwan Corporation
7. Mannatech Payment Services Incorporated
8. Mannatech Products Company Inc.
9. Internet Health Group, Inc.
10. Mannatech (International) Limited
11. Mannatech, Incorporated Malaysia Sdn. Bhd.
12. Mannatech Singapore Pte. Ltd.
13. Mannatech Canada Corporation
14. Mannatech South Africa (Pty) Ltd
15. Mannatech Bermuda Holdings Limited
16. Mannatech Denmark ApS
17. Mannatech (Gibraltar) Holdings Limited
18. Mannatech Swiss Holdings GmbH
19. Mannatech Swiss International GmbH
20. Mannatech Malaysia Trading Co. Sdn. Bhd.
21. Mannatech Norge A/S
22. Mannatech Sverige AB
23. MTEX Mexico SRL CV
24. MTEX Mexico Services SRL CV
25. Mannatech Cyprus Limited
26. Mannatech Ukraine LLC
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Exhibit 23.1
The Board of Directors and Shareholders
Mannatech, Incorporated
We hereby consent to the incorporation by reference in the registration statements on Forms S-8 (File Nos. 333-
72767, 333-77227, 333-94519, 333-47752, 333-113975, 333-153199 and 333-182676), and Form S-3 (File No. 333-
169774) of Mannatech, Incorporated and Subsidiaries (the Company) of our reports dated March 18, 2014, relating to the
consolidated financial statements and financial statement schedule, which appear in this Form 10-K.
/s/ BDO USA, LLP
Dallas, Texas
March 18, 2014
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON FINANCIAL STATEMENT
SCHEDULE
Exhibit 23.2
Board of Directors and Shareholders
Mannatech, Incorporated
Coppell, Texas
The audits referred to in our report dated March 18, 2014 relating to the consolidated financial statements of
Mannatech, Incorporated and Subsidiaries (the “Company”), which is contained in Item 15(a)(1) of this Form 10-K also
included the audit of the financial statement schedule listed in Item 15(a)(2) of this Form 10-K. The financial statement
schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial
statement schedule based on our audits.
In our opinion such financial statement schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
/s/ BDO USA, LLP
Dallas, Texas
March 18, 2014
Exhibit 31.1
CERTIFICATION
PURSUANT TO 17 CFR 240.13a-14
PROMULGATED UNDER
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Robert A. Sinnott, certify that:
1. I have reviewed this annual report on Form 10-K of Mannatech, Incorporated;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for,
the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to
be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during
the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report
financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in
the registrant’s internal control over financial reporting.
Date: March 18, 2014
/s/ Robert A. Sinnott
Robert A. Sinnott
Chief Executive Officer and
Chief Science Officer
Exhibit 31.2
CERTIFICATION
PURSUANT TO 17 CFR 240.13a-14
PROMULGATED UNDER
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, S. Mark Nicholls, certify that:
1. I have reviewed this annual report on Form 10-K of Mannatech, Incorporated;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for,
the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to
be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during
the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report
financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in
the registrant’s internal control over financial reporting.
Date: March 18, 2014
/s/ S. Mark Nicholls
S. Mark Nicholls
Chief Financial Officer
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with the Annual Report of Mannatech, Incorporated (the “Company”) on Form 10-K for the period
ending December 31, 2013 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I,
Robert A. Sinnott, Chief Executive Officer and Chief Science Officer of the Company, hereby certify, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934;
and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results
of operations of the Company.
Date: March 18, 2014
/s/ Robert A. Sinnott
Robert A. Sinnott
Chief Executive Officer and
Chief Science Officer
A SIGNED ORIGINAL OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906 HAS BEEN PROVIDED
TO MANNATECH, INCORPORATED AND FURNISHED TO THE SECURITIES AND EXCHANGE COMMISSION
OR ITS STAFF UPON REQUEST.
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
In connection with the Annual Report of Mannatech, Incorporated (the “Company”) on Form 10-K for the period
ending December 31, 2013 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, S.
Mark Nicholls, Chief Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934;
and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results
of operations of the Company.
Date: March 18, 2014
/s/ S. Mark Nicholls
S. Mark Nicholls
Chief Financial Officer
A SIGNED ORIGINAL OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906 HAS BEEN PROVIDED
TO MANNATECH, INCORPORATED AND FURNISHED TO THE SECURITIES AND EXCHANGE COMMISSION
OR ITS STAFF UPON REQUEST.
MANNATECH, INCORPORATED AND SUBSIDIARIES
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Exhibit 99.1
Additions
Balance at
Beginning of
Year
Charged to
Costs and
Expenses
Charged to
other
Accounts
Deductions
Balance at
End of Year
Year Ended December 31, 2012
Deducted from asset accounts:
$
Allowance for doubtful accounts
Allowance for obsolete inventories
$
Valuation allowance for deferred tax assets $
22
2,311
9,503
8
1,766
795
Included in accrued expenses:
Reserve for sales returns
Year Ended December 31, 2013
Deducted from asset accounts:
$
528
1,168
Allowance for doubtful accounts
$
$
Allowance for obsolete inventories
Valuation allowance for deferred tax assets $
20
1,619
8,519
178
1,229
612
Included in accrued expenses:
Reserve for sales returns
$
156
1,371
—
—
—
—
—
—
—
—
(10 ) $
(2,458 ) $
(1,779 ) $
20
1,619
8,519
(1,540 ) $
156
(56 ) $
(839 ) $
(3,867 ) $
142
2,009
5,264
(1,289 ) $
238
Board of Directors
J. Stanley Fredrick
Chairman of the Board
Owner, Fredrick Consulting Services
Marlin Ray Robbins
Independent Associate
Mannatech, Incorporated
Independent Board
of Directors
Gerald E. Gilbert
Retired Partner of Hogan and Hartson,
now known as Hogan Lovells, LLP
Larry A. Jobe
Founder and Chairman of the Board, Legal Network, Ltd.
President and Founder, P 1 Resources, LLC
Alan D. Kennedy
Retired President Worldwide, Tupperware Corporation
Robert A. Toth
Retired President, Avon International
Executive Officers
Robert A. Sinnott, MNS, PhD
Chief Executive Officer and Chief Science Officer
Alfredo Bala
President International, Executive Vice President,
Chief Sales and Marketing Officer
S. Mark Nicholls
Chief Financial Officer
Ronald D. Norman
Treasurer
Independent Public Accountant
BDO USA, LLP
Dallas, Texas
Legal Counsel
Akin Gump Strauss Hauer & Feld LLP
Dallas, Texas
Annual Meeting
Wednesday, May 28, 2014, at 9:00 a.m. Central Time
Grapevine Convention Center
1209 S. Main Street
Grapevine, Texas 76051
Record Date
Friday, April 4, 2014
(determination of shareholders entitled to
receive notice of and to vote at the 2014 Annual
Shareholders’ Meeting)
Shareholders
There were 1,285 shareholders of record, as of
April 4, 2014
Transfer Agent and Registrar
Computershare Investor Services
Shareholder Communications Department
2 LaSalle Street, 3rd Floor
Chicago, Illinois 60602
877.498.8861
www.computershare.com
Market Information
Our common stock trades on the NASDAQ Global
Select Market under the symbol “MTEX.” The following
table contains the reported high and low closing
sales prices for our common stock as reported on the
NASDAQ Global Select Market for the periods indicated:
2013
2012
HIGH
LOW
HIGH
LOW
1st Quarter
$6.75
$5.55
$4.90
$3.55
2nd Quarter
$12.75 $6.15
$7.00
$3.35
3rd Quarter
$34.80 $10.85
$7.68
$5.12
4th Quarter
$29.51 $16.78
$7.74
$4.80
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600 S. Royal Lane, Suite 200, Coppell, TX 75019
Mannatech.com
Ambrotose, Manapol, PhytoBlend, Mannatech, Uth,
M5M, Mission 5 Million, and Stylized M Design are
trademarks of Mannatech, Incorporated.
For distribution in the U.S. only.
©2014 Mannatech, Incorporated. All rights reserved.
17175.0414