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
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2021
or
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)
1410 Lakeside Parkway, Suite 200,
Flower Mound, Texas
(Address of Principal Executive Offices)
75-2508900
(I.R.S. Employer Identification No.)
75028
(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
Common Stock, par value $0.0001 per share
Trading Symbol(s)
MTEX
Name of each exchange on which registered
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 o 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 o 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 o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). x Yes No
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the
definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o Accelerated filer o
Non-accelerated filer x Smaller reporting company x
Emerging growth company o
If an emerging growth company, indicated by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards
provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section
404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. o
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act).Yes o No x
At June 30, 2021, the last business day of the registrant's most recently completed second quarter, the aggregate market value of the common stock held by non-affiliates of the Registrant was
$29,370,827 based on the closing sale price of $27.71, as reported on The Nasdaq Global Select Market.
The number of shares of the Registrant’s common stock outstanding as of February 28, 2022 was 1,946,759 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 2022 annual shareholders’
meeting to be filed pursuant to Regulation 14A no later than 120 days after the end of its fiscal year.
Auditor Firm Id: 243 Auditor Name: BDO USA, LLP Auditor Location: Dallas, Texas, USA
Table of Contents
Special Note Regarding Forward-Looking Statements
TABLE OF CONTENTS
Business
Item 1
Item 1A Risk Factors
Item 1B
Item 2
Item 3
Item 4
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
[Reserved]
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 5
Item 6
Item 7
Item 7A Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Item 8
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9
Item 9A Controls and Procedures
Item 9B
Other Information
Item 10
Item 11
Item 12
Item 13
Item 14
Item 15
Item 16
Directors, Executive Officers, and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
Part III
Part IV
Exhibits and Financial Statement Schedule
Form 10-K Summary
Signatures
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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:
• 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.
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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the impact of the outbreak of the novel coronavirus (“COVID-19”) pandemic;
overall growth or lack of growth in the nutritional supplements industry;
plans for expected future product development;
changes in manufacturing costs;
shifts in the mix of packs and products;
the future impact of any changes to global associate career and compensation plans or incentives or the regulations governing such plans and
incentives;
the ability to attract and retain independent associates and preferred customers;
new regulatory changes that may affect operations, products or compensation plans and incentives;
the competitive nature of our business with respect to products and pricing;
publicity related to our products or network marketing;
uncertainty related to the scope and duration and overall impact the COVID-19 pandemic has on our business, operations, and financial results
including, for example, additional regulatory measures or voluntary actions that may be put in place to limit the spread of COVID-19 in the
markets where we operate, such as restrictions on business operations, shelter-in-place orders, travel bans, or social distancing requirements;
shortages of raw materials, disruptions in the business of our contract manufacturers and suppliers, significant price increases of key raw
materials, increased shipping expenses, and other disruptions to our supply chain as a result of, or in addition to, the COVID-19 pandemic; and
the political, social, and economic climate of the countries in which we operate, including, the COVID-19 pandemic.
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Forward-looking statements generally can be identified by use of phrases or terminology such as “may,” “will,” “should,” “could,” “would,”
“expects,” “plans,” “intends,” “anticipates,” “believes,” “estimates,” “approximates,” “predicts,” “projects,” “hopes,” “potential,” and “continues” or other
similar words or the negative of such terms and other comparable terminology. Similarly, descriptions of Mannatech’s objectives, strategies, plans, goals, or
targets contained herein are also considered forward-looking statements. Readers are cautioned when considering these forward-looking statements to keep
in mind these risks, assumptions, and uncertainties and any other cautionary statements in this report, as all of the forward-looking statements contained
herein speak only as of the date of this report.
Unless stated otherwise, all financial information throughout this report and in the Consolidated Financial Statements and related Notes include
Mannatech, Incorporated and all of its subsidiaries on a consolidated basis and may be referred to herein as “Mannatech,” “the Company,” “its,” “we,” “our,”
“us,” 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”.
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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 and anti-aging products, and weight-management products that target optimal health
and wellness. We currently sell our products in three regions: (i) the Americas (the United States, Canada and Mexico); (ii) Europe/the Middle East/Africa
(“EMEA”) (Austria, the Czech Republic, Denmark, Estonia, Finland, Germany, the Republic of Ireland, Namibia, the Netherlands, Norway, South Africa,
Spain, Sweden and the United Kingdom); and (iii) Asia/Pacific (Australia, Japan, New Zealand, the Republic of Korea, Singapore, Taiwan, Hong Kong, and
China).
We sell our products through network marketing distribution channels via our active associates ("independent associate" or "associates" or "distributors")
and to our "preferred customers," 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 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. As of
December 31, 2021, we had approximately 163,000 active associate and preferred customer positions held by individuals in our network associated with the
purchase of our products and packs and/or payment of associate fees within the last 12 months.
The Company also operates a non-direct selling business in mainland China. In 2016, we formed our China subsidiary, Meitai Daily Necessities &
Health Products Co., Ltd. (“Meitai”). Unlike Mannatech’s business operations in other markets, Meitai operates under a cross-border e-commerce model,
where consumers in China can buy Mannatech products manufactured overseas via Meitai's website. Meitai is currently not a direct selling company in
China nor can it operate under a multi-level marketing model in China. Products purchased on Meitai's website are for personal use and not for resale. Meitai
offers a rewards program to incentivize existing customers to refer other customers to purchase products from Meitai's website. Customs regulations in
China include purchase limits to ensure that purchased products are for personal consumption.
Our common stock trades 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
On our website (https://www.mannatech.com), we make available free of charge 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 1410 Lakeside Parkway, Suite 200,
Flower Mound, Texas 75028, Attention: Investor Relations, or by contacting our investor relations department at (972) 471-6512 or IR@mannatech.com.
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Business Segment, Products and Product Development
Business Segment. The Company's sole reporting segment is one where we sell proprietary nutritional supplements, skin care and anti-aging
products, and weight-management and fitness products through network marketing distribution channels operating in twenty-four markets. Mannatech’s
subsidiary in China, Meitai, operates under a cross-border e-commerce model, where consumers in China can buy Mannatech products directly from Meitai
via the internet.
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. Scientists also discovered that there are more than 200 monosaccharides
that 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 or glycans. 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.
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.
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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) designed to
help provide support for the immune system.
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In 2001, we broadened our proprietary ingredients by developing the Ambroglycin blend, a balanced food-mineral matrix designed to help
deliver nutrients to the body and which is used in our proprietary Catalyst™ and Glycentials vitamin/mineral supplements.
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In 2004, we introduced our proprietary blend of antioxidant nutrients, MTech AO Blend ingredient, which is used in our proprietary
antioxidant Ambrotose AO product.
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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.
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In 2007, we introduced into the United States market our skin care and anti-aging line of products designed to support skin’s natural texture,
beauty, and elasticity. We also launched our PhytoMatrix caplets, Advanced Ambrotose capsules and Manna•Bears supplement into
international markets.
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In 2008, we introduced a proprietary proteolytic enzyme and phytosterol dietary supplement designed to support 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 designed to assist targeted fat loss when combined with exercise and a healthy diet in our OsoLean powder.
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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, which is a symbiotic digestive product containing
probiotics, prebiotics, and digestive enzymes. In addition, we improved our Ambrotose products to include beta-Carotene.
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In 2010, we launched our Mannatech LIFT Skin Care System, which is paraben-free and formulated to give skin a more natural youthful
appearance.
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In 2011, we introduced our reformulated version of our Omega-3 supplement, which now includes Vitamin D3 and features EPA/DHA
essential acids. We expanded several previously launched products from our domestic line to our international markets.
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In 2012, we launched our NutriVerus powder, a single product that features all of our core scientific technologies at an 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.
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In 2013, we launched Uth 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.
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In 2014, we launched GlycoBOOM™ Advanced Immune Support Supplement (now known as MannaBoom ), packed with nutrients that are
designed to support the body’s natural defenses.
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In 2015, Mannatech introduced a new brain supplement, Cognitate , featuring a proprietary blend of natural ingredients designed to aid
memory, recall and cognition.
In 2016, Mannatech rebranded the Company, including all new packaging and labels, introduced a line of Essential Oils, along with an
innovative, natural fat-loss system, TruHealth . Included in the system is the TruPLENISH Nutritional Shake, TruPURE Cleanse
Slimsticks and TruSHAPE Fat-Loss Capsules.
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In 2017, Mannatech launched several new products, including: GinMAX , a fast-acting, long-lasting ginseng supplement that utilizes both
fermented red and fermented white ginseng, fortified with glyconutrients; GlycoCafé , a glyconutritional coffee made with the whole coffee
fruit; and Luminovation, a line of mass-market and premium Korean beauty products.
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In 2018, Mannatech launched a unique fitness drink, Empact+ , combining fueling, hydration and recovery in one product. Mannatech also
introduced significant enhancements to its signature Ambrotose product with the launch of Ambrotose Life , with more than double the
Manapol of its Advanced Ambrotose formula along with additions of modified citrus pectin, and stabilized rice bran. Ambrotose Life is
available in a bulk canister (unflavored), along with flavored single serving sachets.
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In 2019, Mannatech’s key product launches were: Eye Health, TruPlenish Chocolate and Vanilla sachets, New Catalyst, Women’s Health,
reformulated TruShape, Liver Support, Hangover Support and Sleep Support products into various markets.
In 2020, Mannatech’s key product launches included a product suite to address microbiome health: new GI-Defense intestinal support
product, improved GI-ProBalance pre/pro-biotic product and improved GI-Zyme digestive enzyme product, reformulated ImmunoStart and
MannaBOOM products, an innovative new Joint Support product in Japan, an innovative new immune support product named MannaGel in
Hong Kong and a re-launch of its MannaBears gummies.
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In 2021, Mannatech introduced a new ginger hibiscus flavor to the existing Ambrotose Life product offering, Liver Support, providing detox
support for healthy liver function. In addition, Mannatech introduced Sugar Balance, Inner Beauty (a collagen product), Luminovation
Renewal, Joint Support and MannaZen con Aloe Prime in Mexico.
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Mannatech offers products that include glyconutrients, a unique category of nutrients sourced from plants and designed to provide a variety of
health benefits. We focus on producing products that are from natural sources, as well as other scientifically based efficacious sources.
Integrative 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.
Targeted Health, which is designed to give bodies an extra edge with products designed to target specific areas and provide additional nutrients
that help support body system health.
Weight and Fitness, which offers products designed to curb appetite and burn fat, build lean muscle tissue, and support recovery from
overexertion.
Skin Care, which offers several products formulated with more than 30 botanical ingredients that are designed to give the skin a more natural,
youthful appearance by moisturizing, hydrating and reducing the appearance of fine lines and wrinkles.
Essentials, a sub-category of Targeted Health, offers a variety of dietary supplements that are formulated with a simpler ingredient profile, at a price
point that is intended to be a value-add for Preferred Customers and Associates.
Home Living, a category of products designed to make homes a peaceful haven that supplement wellness. Currently, products in this category are
only offered in Korea.
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Table of Contents
The following table summarizes our global product offerings, by category:
Product Category
Integrative Health
Targeted Health
Weight and Fitness
Skin Care
Essentials
Home Living
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Ambrotose Complex, Ambrotose AO , Advanced Ambrotose , Ambrotose Life
Catalyst™, Cognitate , Manapol Powder, MannaBears™, MultiKids, Nutriverus™, Optimal Support Packets,
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PhytoMatrix , PLUS™, Chaga Cafe, Glycentials™, MannaTea™, PhytoCleanse, and TruCoffee
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Representative Products
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BounceBack , CardioBALANCE , GI-ProBalance Slimstick, GI-Zyme , GI-Defense™, Blood Sugar ProBalance,
ImmunoSTART , Manna-C ™, MannaBOOM Slimsticks, MannaCLEANSE™, Omega-3 with Vitamin D3, PhytAloe , I-
Start, MannaAloe with AloePrime , Chlorophyll, MANNAGEL™, MegaKids, and Jumping Hi Kids.
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OsoLean , SPORT™, TruHealth Fat Loss System, including: TruPLENISH™, TruPURE , TruSHAPE™, Tru-C™,
EMPACT+ , EM·PACT , Mannashake, and TruCoffee™
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Emprizone , FIRM with Ambrotose , Uth Facial Cleanser, Uth Skin Rejuvenation Crème, Uth Moisturizer, FreshDen ,
Organt , Luminovation™, and MannaDent
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Catalyst™ Multivitamin, Eye Support, Sleep Support, Liver Support, Joint Support, and SUPERFOOD
SERENITY Oils and Blends and PURO
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A significant portion of our revenue is derived from our Ambrotose Life , TruHealth , Advanced Ambrotose , Optimal Support Packets, and GI-
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Pro products. Revenue from these products were as follows for the years ended December 31, 2021 and 2020 (in thousands, except percentages):
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Ambrotose Life
TruHealth
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Manapol Powder
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Advanced Ambrotose
GI-Pro (MicroBiome)
Total
2021
2020
Sales by
product
% of total
net sales
Sales by
product
% of total
net sales
$
$
28,776
18,010
13,141
11,158
8,478
79,563
18.0 % $
11.3 %
8.2 %
7.0 %
5.3 %
49.8 % $
36,066
16,263
7,187
14,662
7,513
81,691
23.8 %
10.7 %
4.7 %
9.7 %
5.0 %
53.9 %
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:
• marketability and proprietary nature of the product;
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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.
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We procure select products from single vendors who control certain product formulations, ingredients, or other intellectual property rights
associated with such products. Certain of our supply agreements contain exclusivity clauses for the supply of certain raw materials and products, some of
which are conditioned upon compliance with minimum purchase requirements. In the event we become unable to source any products or ingredients from
our suppliers, we believe that we would be able to replace those products with alternate suppliers, except Arabinogalactan and Manapol powder. Due to the
unique nature of each ingredient, important components used in the formulation of our Ambrotose
complex, we are unable to identify an alternative
supplier at this time for these ingredients.
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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 support 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. We believe 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 2020, approximately 125 million global direct sellers collectively generated annual retail sales of $179 billion.
Operating Strengths
High-Quality, Innovative, Proprietary Products. We base our product concept on the scientific belief that certain glyconutrients, also known as
glycans, monosaccharides and polysaccharides, 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 by developing scientifically sound, and innovative wellness solutions, with safe ingredients that are designed to use nutrients working
through normal physiology to help achieve and maintain optimal health and wellness.
We believe that our proprietary blends and formulas distinguish us as a leader in the global nutritional supplements industry. 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.
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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.
Mannatech’s team of experienced researchers and scientists 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, institutions, 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 efforts include new product development, enhancement of existing products, clinical studies and trials, FDA
compliance, safety monitoring/adverse event reporting and science and substantiation of products.
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 (as defined below) 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;
the South African Department of Health and the South African Health Products Regulatory Authority Board;
the Hong Kong Food and Environmental Hygiene Department and Department of Health Drug Office; and
the China Food and Drug Administration.
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, some 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 select stability studies under
both controlled ambient and accelerated temperature storage conditions to ensure label claims throughout the shelf life of our products. To further ensure
product quality, our third-party manufacturers are predominately certified as NSF facilities according to the NSF/ANSI 173 Dietary Supplement Standard,
which is the only American national standard for dietary supplements. This certification is designed to ensure that Good Manufacturing Practices are used in
the manufacturing facility. All of Mannatech's dietary supplements have been confirmed to be gluten-free.
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Global Scientific Advisory Board. A charter for an advisory board has been established and the board is filled by a combination of independent
scientists and doctors from multiple disciplines, along with one member of Mannatech staff. Certain member(s) of the Global Scientific Advisory Board
(“GSAB”) review each new and reformulated product as needed to ensure ingredients and products are up to Mannatech’s high standards and are in line with
the latest, viable research. The GSAB may also make ingredient and product suggestions for new products.
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 panels of independent associates in councils and forums based around the
world which help identify and effectively relay the needs of our independent business-building associates to us. These advisory councils meet 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.
Support Philosophy for Our Independent Associates and Preferred Customers. We are fully committed to providing the highest level of support
services to our independent associates and preferred customers and believe that we meet expectations and build customer loyalty through the following:
offering highly-personalized and responsive customer service;
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offering a satisfaction guarantee product return policy;
providing comprehensive corporate websites that provide instant access to Internet ordering, marketing, technical and educational
information, and unique and
tools (mannatech.com, allaboutmannatech.com, mannatechscience.org,
library.mannatech.com, training.mannatech.com, library.mannatech.com, events.mannatech.com, and mannafest.com);
innovative marketing
▪ 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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providing Mannatech+, an app and web-based platform to provide personalized web pages, to share videos, digital flyers, and more;
providing Social Media Studio, an app that assists Associates in creating custom social media postings, while utilizing the latest
methods to identify non-compliant posts and alert Associates to make alterations before posting;
offering, in the United States and Canada, an effective compilation of online marketing and training tools;
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; and
sponsoring 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.
Flexible Operating Strategy. We believe efficiency, focus, and flexibility are paramount to our operations. For more than 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
manufacturers to help prevent any risk of interruption in production should any existing contractors become unable to perform satisfactorily.
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. At December 31, 2021, 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.
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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 charitable giving program. To achieve our goal, we believe we must focus
on the following business priorities:
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.
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.
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.
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.
Provide Outstanding Product Value and Results to Customers. We work to ensure that all associates and their customers have a great
experience with each of our products that deliver tangible results, are supported by science, and are backed by a powerful satisfaction guarantee.
Mannatech has created a culture around Customer Obsession. Our Customers are at the center of everything we do.
Intellectual Property
Trademarks. We pursue registrations for various trademarks associated with our key products and branding initiatives. As of December 31, 2021,
we had 38 registered trademarks in the United States and five trademark applications pending with the United States Patent and Trademark Office. As of
December 31, 2021, we had 606 registered trademarks in 40 countries and 20 trademark applications pending in 11 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.
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Patents. The Company applies for patent protection in various countries for the technology related to our product formulations. As of December 31,
2021, we had 11 patents for technology related to our Ambrotose formulation, all of which are in 10 foreign jurisdictions. Overall, as of December 31,
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2021, 94 patents have been assigned, issued, granted or validated to Mannatech in major global markets for the technology relating to our Ambrotose ,
Ambrotose AO , Ambrotose Life , GI‑ProBalance™, PhytoMatrix , and NutriVerus™ product formulations, as well as in the field of biomarker assays.
Currently, we have six patent applications pending in various jurisdictions relating to the technology supporting many of 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 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.
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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. Independent associates and preferred customers purchase our products at a discounted wholesale value. Independent associates 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 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 163,000 active associate and preferred customer positions held by individuals that purchased our products and/or packs or
paid associate fees during the year ended December 31, 2021, and we had approximately 183,000 active associate and preferred customer positions held by
individuals that purchased our products and/or packs or paid associate fees during the year ended December 31, 2020. 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,
preferred customers, 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;
• 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 Tracker , a customized business-building genealogy system, which contains graphs, maps, alerts, reports, and web video
conferencing for our independent associates;
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offering, in the United States and Canada, a compilation of online marketing and training tools, including personalized web pages; 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 19 independent associate achievement levels; from lowest to highest, these include
Associate, Silver Associate, Gold Associate, Director, Silver Director, Gold Director, Executive, Silver Executive, Gold Executive, Presidential, Bronze
Presidential, Silver Presidential, Gold Presidential, Platinum Presidential, 1-Star Platinum, 2-Star Platinum, 3-Star Platinum, 4-Star Platinum and Crown
Platinum Ambassador. 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 structure, allows independent associates to build their
network by expanding their existing downlines into all international markets except China. 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.
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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. Together, our commissions and incentives range approximately from 35% 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 product sales and the attainment of certain associate achievement levels. All
commissions are earned from the sale of our products. 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 our independent associates for both their sales and the sales of those in their downline organization.
Our global associate career and compensation plan identifies and pays six types of commissions to our qualified independent associates, which are
based on the following:
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generating product sales to preferred customers from an independent associate’s global downline to earn certain achievement levels;
generating product sales from newly enrolled independent associates or preferred customers who place a product order;
obtaining certain achievement levels and enrolling other independent associates who place or sell qualifying orders;
obtaining and developing certain achievement levels within their downline organizations through product sales to qualify for additional
bonuses; and
various other sales incentive programs.
Management of Independent Associates. We actively monitor our independent associates’ activities related to 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 engage a third-party service provider to assist in managing our compliance
monitoring process. 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 program also provides our independent associates with a standardized and anonymous complaint process. When a complaint is filed against an
independent associate, our business ethics department conducts a mandatory investigation of the allegations to determine whether a violation of the policies
and procedures has occurred. If a violation is found, the complaint moves through the compliance process where the person against whom the complaint has
been filed has an opportunity to respond to the allegations. Depending on the nature of the violation, we may impose various sanctions, including written
warnings, mandatory training, 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 found to be de minimis and isolated.
Product Return Policy. We stand behind our 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. Refunds are processed and returned in the same
form of payment that was originally used in the sale. Each country in which we operate has specific product return guidelines. However, we allow our
associates and preferred customers to exchange products as long as the products are unopened and in good condition. Our return policies for our retail
customers and our associates and preferred customers are as follows:
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Retail Customer Product Return Policy. This policy allows a retail customer to return any of our products to the original associate who sold the
product and receive a full cash refund from the associate for the first 180 days following the product’s purchase if located in the United States and Canada,
and for the first 90 days following the product’s purchase in other countries where we sell our products. The associate may return or exchange the product
based on the associate product return policy. In China, where we sell our products under a cross-border e-commerce model, we have a 14-day return policy.
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Associate and Preferred Customer Product Return Policy. This policy allows the associate or preferred customer to return an order within one year
of the purchase date upon terminating his/her account. If an associate or preferred customer returns a product unopened and in good condition, he/she may
receive a full refund minus a 10% restocking fee. We may also allow the associate or preferred customer to receive a full satisfaction guarantee refund if they
have tried the product and are not satisfied for any reason, excluding promotional materials. This satisfaction guarantee refund applies in the United States
and Canada, only for the first 180 days following the product’s purchase, and applies in other countries where we sell our products for the first 90 days
following the product’s purchase; however, any commissions earned by an associate will be deducted from the refund. If we discover abuse of the refund
policy, we may terminate the associate's or preferred customer's account.
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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:
• minimize the time required to process orders and distribute products;
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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.
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 may help to optimize their earnings.
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We also maintain a written business continuity plan, which was developed using the guidelines published by the National Institute of Standards of
Technology, to minimize the risk of data loss due to any interruption in business. Our business continuity plan encompasses all critical aspects of our
business and identifies contacts and resources. Additionally, we perform daily backup procedures using a combination of onsite and cloud-based services to
ensure all data is recoverable. We proactively monitor various software, hardware, and network infrastructure systems to ensure optimal performance and
security. We also perform routine maintenance procedures and periodically upgrade our software and hardware to help ensure that our systems are secure and
work efficiently and effectively to minimize the risk of business interruption. Although we maintain an extensive business continuity 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. For information
regarding technology-related risks, see the information in "Item 1A: Risk Factors -Risks Affecting Our Business and Industry- 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
operating results could be adversely affected."
We continue to enhance our information technology, websites, and e-commerce platforms to remain competitive, efficient and secure.
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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;
income claims;
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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 Food and Drug Administration;
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 “FFDC 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 FFDC Act, that defined current Good Manufacturing Practices in the manufacture and holding of dietary supplements (the “Good
Manufacturing Practices”). 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
FDA created the Office of Dietary Supplements (“ODSP”) on December 21, 2015. The creation of this new office elevates the FDA’s program from its
previous status as a division under the Office of Nutrition and Dietary Supplements. ODSP will continue to monitor the safety of dietary supplements.
The Dietary Supplement Health and Education Act of 1994, referred to as DSHEA, revised the provisions of the FFDC 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 FFDC 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 company's website, 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 designed
to promote and assure compliance by our employees and independent associates related to the requirements of DSHEA, the FFDC 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) the Americas (the United States, Canada and Mexico); (ii) EMEA (Austria, the Czech Republic, Denmark, Estonia, Finland, Germany, the
Republic of Ireland, Namibia, the Netherlands, Norway, South Africa, Spain, Sweden and the United Kingdom); and (iii) Asia/Pacific (Australia, Japan,
New Zealand, the Republic of Korea, Singapore, Taiwan, Hong Kong and China). 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;
the Vitamins and Dietary Supplement industry in South Africa falls under the legislation covering Complementary and Alternative Medicines,
which is currently regulated under the Medicines and Related Substances Act, 1965 (Act No. 101 of 1965);
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;
the Consumer Protection Act of 2007, the Distance Selling Regulations Act of 2001 in Ireland;
various European Union (“EU”) regulations and pronouncements, subject to local statutes and regulations, address both our selling activities
and the sale of food supplements in EU member nations, including, primarily, the EU Food Supplement Directive (2002/46/EC) and Nutrition
and Health Claims Regulations (2006/1924/EC);
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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;
the Retail Trade Act of January 15, 1996, regulating both multi-level marketing (article 22) and pyramid sales (article 23), and Spanish Law
1/2007 on Consumer Protection (“Spanish Consumers Act”), regulating consumer protection, including warranties and product liability, in
Spain;
the Regulation of Act 1700 of 2013, Article 2.2.50 on December 27, 2013 governs the Activities of Network Marketing or Multilevel
Marketing companies through monitoring compensation plans, contract conditions and enacting preventive suspension, in Colombia; and
the Regulation on the Prohibition of Pyramid Selling, the Regulation on Administration of Direct Sales, the Law on Protection of Consumer
Rights, the Food Safety Law, and the Anti-Unfair Competition Law in China.
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.
In the United States, the FTC has jurisdiction to regulate direct selling companies under the Federal Trade Commission Act (the “FTC Act”). The
FTC’s interpretation of the applicable direct selling laws and regulations has evolved over the last several years as represented in various consent orders
between the FTC and certain direct selling companies, informal guidance issued by the FTC to the direct selling channel, and informal communications from
the FTC to the channel. The FTC, through these consent orders, guidance and communications, has addressed a variety of consumer protection issues,
including misleading earnings representations by a company’s independent distributors, as well as the fairness and legal validity of a company’s business
model and distributor compensation plan. The consent orders, guidance and communication from the FTC have also created ambiguity and uncertainty
regarding the proper interpretation of the laws, regulations and judicial precedent applicable to direct selling, and more specifically network marketing, in the
United States.
Additionally, in the United States, we are also subject to regulatory oversight, including routine inquiries and enforcement actions, from various
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 and business ethics 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 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.
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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.
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 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 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 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, 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 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 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.
In China, multi-level marketing is prohibited by the Regulation on the Prohibition of Pyramid Selling. While selling products via a direct sales
channel is permitted, persons or entities conducting direct selling activities must have a direct selling license per the Regulation on the Administration of
Direct Sales. In addition, under the Food Safety Law, most of our dietary supplements are not allowed to be sold in physical stores unless registered with the
China Food Safety Administration. However, those products are allowed to be sold under a retail cross-border e-commerce model. Lastly, overall operations
and trade practices are governed by the Consumer Protection Law and the Anti-Unfair Competition Law.
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.
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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 Consumer Ombudsman 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 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 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.
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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.
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 principles 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 Spain, our network marketing system, overall operations, and trade practices are governed by the Retail Trade Act and the Spanish Consumers
Act. Such laws contain a wide range of provisions covering trade practices, including multi-level marketing, pyramid sales, warranties and product liability.
While regulation of food supplements and cosmetics is generally harmonized throughout the EU and must conform to EU standards, the Spanish Agency for
Medicines and Health Products oversees cosmetics and the Spanish Agency for Consumer Affairs, Food Safety and Nutrition oversees food supplements.
In South Africa, 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 Foodstuffs, Cosmetics and Disinfectants Act 1972, and the Medicines and Related
Substances Act 1965 currently apply.
Other Regulations. Our operations are also subject to a variety of other regulations, including:
•
•
•
•
•
•
•
•
•
•
•
•
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:
•
•
•
claims made about our products;
promises or claims of income or other promises or claims by our independent associates; and
sales of products in markets where the products have not been approved or licensed.
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In some markets, including the United States, improper product claims by independent associates could result in our products being 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:
• AdvoCare International;
• GNC Holdings, Inc.;
• Herbalife Nutrition Ltd.;
• Nature’s Sunshine Products, Inc.;
• NOW Foods;
• Nu Skin Enterprises, Inc.;
•
•
•
Reliv International, Inc.;
Solgar Vitamin and Herb Company, Inc.;
Swanson Health Products;
• Usana Health Sciences, Inc.; and
• 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
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:
• Amway Corporation;
•
Forever Living Products, Inc.;
• Herbalife Nutrition Ltd.;
• Mary Kay, Inc.;
• Nature’s Sunshine Products, Inc.;
• Nu Skin Enterprises, Inc.;
•
Shaklee Worldwide; and
• Usana Health Sciences, Inc.
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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 exclusive, proprietary blend of high-quality products;
our 28 year track record in the business of selling nutritional products;
our business model which does not require our independent associates to carry inventory or accounts receivable;
our unique and financially rewarding global associate compensation plan;
our innovative marketing and educational tools; and
our easy and convenient delivery system.
•
•
•
•
•
•
Employees
At December 31, 2021 and 2020, we employed 247 and 226 people, respectively, as set forth below:
Americas
Asia/Pacific
EMEA
Total
Full-time employees
Part-time employees
Total
2021
2020
146
89
12
247
2021
2020
246
1
247
127
87
12
226
225
1
226
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 risk factors outlined below should be considered in evaluating our business and future
prospects. Several of the risks are part of conducting business in the industry and sales channel in which we operate and will likely remain ongoing. The fact
that these risks are characteristic of the dietary supplement industry or the direct selling channel does not lessen their significance. The risks outlined below
are not the only risks we may encounter. Additional risks not currently known to us or that may currently reasonably seem immaterial also may have an
adverse effect on our business.
Risks Affecting Our Business and Industry
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 preferred customers. We rely on
our non-employee independent associates to market and sell our products to customers to generate growth and to attract new independent associates who are
interested in building a business. Our ability to increase sales depends on our ability to increase the number of customers in each of our markets around the
world. Our success will also depend on our ability to retain and motivate our existing independent associates and attract new independent associates. 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 preferred customers, including:
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•
•
•
•
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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.
The loss of key high-level independent associate leaders could negatively impact our associate growth and our revenue.
As of December 31, 2021, we had approximately 163,000 active associates and preferred customer positions held by individuals who purchased our
products and/or packs or paid associate fees within the last 12 months, of which 201 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.
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:
•
•
•
•
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.
However, changes could be viewed negatively by some independent associates, could cause failure to achieve desired long-term results and have a
negative impact on revenue.
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An increase in the amount of commissions and incentives paid to independent associates adversely affects our earnings.
The payment of commissions and incentives, including bonuses and prizes, is our most significant expense. Together, our commissions and
incentives range approximately from 35% 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 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.
The loss of key management personnel could adversely affect our business, financial condition, results of operations or independent associate relations.
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 senior executive officers, 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 executive officers or members of our senior management team 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.
If we are unable to protect the proprietary rights of our products, our business could suffer.
Our success and competitive position largely depend on our ability to protect the following proprietary rights:
•
•
•
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 , Ambrotose Life PhytoMatrix , NutriVerus™,
and GI-ProBalance products in the United States and certain foreign countries. As of December 31, 2021, we had 11 patents for the technology relating to
our Ambrotose formulation, all of which were issued, granted, and validated in 10 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.
®,
®
®
®
Although several patents pertaining to Ambrotose technology have expired, Mannatech continues to actively explore additional patent protection
of its technology and pursue expanded patent protection strategies. Our Ambrotose product formulation has proprietary elements and we have contractual
arrangements with certain suppliers affording us exclusive access to certain ingredients in those formulations. If we fail to maintain exclusivity with those
suppliers, our business could be adversely affected. We have a number of pending patent applications for additional protection of Ambrotose -related
technology. The pending patent applications are at various stages of processing, depending on the timeline of each market’s patent offices.
®
Most of our patents for the Ambrotose AO , GI-ProBalance ™, PhytoMatrix , NutriVerus™, and PhytoBlend formulations and our patents in the
®
®
®
®
®
®
field of biomarker assays do not expire for another four or more years.
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Our inability to develop and introduce new products that gain independent associate, preferred customer, 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 preferred
customers. 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.
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 preferred customers, 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 preferred customer 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:
•
•
•
•
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;
• manufacture and deliver our products in sufficient volumes and in a timely manner; and
•
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 and preferred customers in a
timely manner, some of our products could be rendered obsolete, which could negatively impact our revenues, financial condition, and operating results.
If our outside suppliers and manufacturers fail to supply products in sufficient quantities and in a timely fashion, our business could suffer.
Outside manufacturers produce 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 and Manapol powder. Due to the unique nature of each ingredient, important components 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.
®
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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 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, disease, crop conditions, climate change, transportation
interruptions and natural disasters or other catastrophic events. For example, in March 2020, the WHO declared the outbreak of COVID-19 as a pandemic,
which has spread throughout our international regions and throughout the United States. Beginning in 2020 and continuing through 2021, the Company
experienced shortages of raw materials and ingredients for some of its products. We have experienced challenges in getting these materials and ingredients to
our contract manufacturers and finished products to our distribution centers resulting from reductions in global transportation capacity and other logistical
issues within the supply chain. The extent to which COVID-19 impacts our future operations will depend on future developments, which are highly
uncertain and cannot be predicted with confidence, including the duration of the outbreak, new information which may emerge concerning the severity of
COVID-19 and multiple new variants of the virus that causes COVID-19, and the actions to contain COVID-19 or treat its impact, or the safety and efficacy
of the various vaccines approved to treat COVID-19, among others. In particular, the continued spread of COVID-19 globally could adversely impact our
operations, including among others, our manufacturing and supply chain, sales and marketing and clinical trial operations and could have an adverse impact
on our business and our financial results.
If we are exposed to product liability claims, we may be liable for damages and expenses, which could affect our overall financial condition, results of
operations and cash flows.
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.
Several years ago, 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 many 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.
Concentration Risk
®
A significant portion of our revenue is derived from our Ambrotose Life , TruHealth , Advanced Ambrotose , Optimal Support Packets, and GI-
Pro products. A decline in sales value of such products could have a material adverse effect on our earnings, cash flows, and financial position. Revenue
from these products were as follows for the years ended December 31, 2021 and 2020 (in thousands, except percentages):
™
®
™
®
Ambrotose Life
TruHealth
®
Manapol Powder
®
Advanced Ambrotose
GI-Pro (MicroBiome)
Total
2021
2020
Sales by
product
% of total
net sales
Sales by
product
% of total
net sales
$
$
28,776
18,010
13,141
11,158
8,478
79,563
18.0 % $
11.3 %
8.2 %
7.0 %
5.3 %
49.8 % $
36,066
16,263
7,187
14,662
7,513
81,691
23.8 %
10.7 %
4.7 %
9.7 %
5.0 %
53.9 %
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.
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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, and could have a negative impact on our profitability and growth prospects.
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.
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 preferred customers to buy products from competitors rather than
from us. Such competition could adversely affect our business and current market share.
A downturn in the economy, including as a result of COVID-19, could affect consumer purchases of discretionary items such as the health and wellness
products that we offer, which could 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,
including as a result of COVID-19, could adversely impact consumer purchases of discretionary items such as health and wellness products. The United
States and global economies may slow 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. In the event of
such economic downturn, the U.S. and global economies could become 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 harm our business by adversely affecting our revenues, results of operations, cash flows and financial condition. We cannot predict these
economic conditions or the impact they would have on our consumers or business.
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:
•
•
•
•
•
•
•
•
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 or regulatory investigations regarding the business practices or products or our competitors, specifically those competitors within the
direct selling channel.
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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 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:
•
•
•
•
•
•
•
order processing;
supply chain management;
customer service;
product distribution;
commission processing;
cash receipts and payments; and
financial reporting.
These systems and operations are vulnerable to damage and interruption from 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
business continuity 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.
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.
The regulatory climate for data privacy and protection continues to grow in scope and complexity both domestically and in the international markets
in which we operate. Although there is no single federal law in the United States imposing a cross-sectoral data breach notification obligation, virtually every
state has enacted breach notification requirements. Additionally, many of the international countries in which we operate have proposed or enacted laws or
regulations on the appropriate use and disclosure of financial and personal data. The EU adopted the General Data Protection Regulation (“GDPR”) on April
27, 2016. The GDPR went into effect on May 25, 2018. The GDPR applies to organizations based in the EU and organizations based outside of the EU that
offer products or services to individuals in the EU or that otherwise monitor individuals in the EU. While U.S. state laws generally cover specific categories
of sensitive personal data (e.g., social security numbers, bank account numbers, and credit card numbers), the GDPR notification requirements will apply to
incidents involving any personal data, meaning any data related to an identified person. In Canada, the Personal Information Protection and Electronic
Documents Act (“PIPEDA”) went into effect on November 1, 2018. PIPEDA applies to foreign organizations with a real and substantial link to Canada that
collect, use, or disclose the personal information of Canadians in the course of their commercial activities. Under PIPEDA, an organization must notify
individuals of any breach of the security of safeguards involving their personal information if it is reasonable to believe that the breach creates a “real risk of
significant harm.” Concurrently, the organization must also report to the Privacy Commissioner of Canada. As noted above, many states have enacted data
protection requirements. The California Consumer Privacy Act ("CCPA"), a state statute signed into law on June 28, 2018 and effective on January 1, 2020,
provides enhanced data privacy protections to California residents. The CCPA applies to companies with annual gross revenues in excess of $25 million. The
South Africa Protection of Personal Information Act (“POPI”) went effective on July 1, 2021. POPI shares similarities with both the EU GDPR and the
CCPA. Most recently, China passed the PIPL on August 20, 2021. The PIPL is designed to protect online users’ data privacy, effective on November 1,
2021. Regarded as China’s version of the GDPR, the PIPL lays out a comprehensive set of rules on how business operators should collect, use, process,
share, and transfer personal information in China. Our failure or inability to comply with data protection regimes domestically and in foreign countries could
result in fines, penalties, injunctions, or material litigation expenditures.
With increased frequency in recent years, cyber-attacks against companies have resulted in breaches of data security. Our business requires the
storage and transmission of suppliers’ data and our independent associates’ and customers’ personal, credit card, and other confidential information. Our
information technology systems are susceptible to a growing and evolving threat of cybersecurity risk. Any substantial compromise of our data security,
whether externally or internally, or misuse of associate, customer, or employee data, could cause considerable damage to our reputation, cause the public
disclosure of confidential information, and result in lost sales, significant costs, and litigation, which would negatively affect our financial position and
results of operations. Although we maintain policies and processes surrounding the protection of sensitive data, which we believe to be adequate, there can
be no assurances that we will not be subject to such claims in the future.
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We rely upon our existing cash balances and cash flow from operations to fund our business and meet our contractual obligations. 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 and some of these costs are fixed contractual obligations. As of December 31, 2021 and 2020, cash and cash equivalents held
in bank accounts in foreign countries totaled $22.6 million and $18.6 million, respectively.
We maintain supply agreements with our suppliers and manufacturers. Certain of our supply agreements contain exclusivity clauses for the supply
of certain raw materials and products, some of which are conditioned upon compliance with minimum purchase requirements. One of our supply
agreements, under which the supplier provides us with certain aloe vera-based raw materials, requires us to purchase raw materials in an aggregate amount of
$4.8 million through 2022. Failure to satisfy minimum purchase requirements could result in the loss of exclusivity, which could adversely affect our
business.
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 equity financing, transfer cash in a manner that could be taxed, 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.
Risks Related to Our International Operations
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, Spain, Sweden, the United Kingdom, Australia, Japan, New Zealand, the Republic of
Korea, Singapore, Taiwan, Hong Kong and China. We operate in China on a non-direct selling business model instead of our traditional network marketing
model. In China, multi-level marketing is prohibited by the Prohibition of Pyramid Selling and direct selling without a license is prohibited by the Regulation
on the Administration of Direct Sales. 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:
•
•
•
•
•
•
•
•
inflation;
the renegotiation or modification of various agreements;
increases in custom duties and tariffs;
changes and limits in export controls;
complex U.S. and foreign laws, treaties and regulations, including without limitation, tax laws, the U.S. Foreign Corrupt Practices Act, and
similar anti-bribery and corruption acts and regulations in many of the markets in which we operate;
trademark availability and registration issues;
changes in exchange rates;
changes in taxation;
• wars, civil unrest, acts of terrorism and other hostilities;
•
•
•
•
•
•
political, economic, and social conditions;
the effects of COVID-19;
changes to trade practice laws or regulations governing direct selling and network marketing;
increased government scrutiny surrounding direct selling and network marketing;
changes in the perception of network marketing; and
risk of our independent associates offering business opportunities in China.
In February 2022, following Russia’s invasion of Ukraine, the U.S. and the European Union imposed various economic sanctions against Russia. If
Russia responds with retaliatory measures such as restrictions on the sale of oil or other energy resources from Russia to other countries in the region, that
could result in an increase in our global shipping expenses, reduce our sales, or otherwise have an adverse effect on our European operations. Additionally,
escalation by Russia beyond Ukraine and into other countries within the region, could also reduce our sales and have a negative effect on our European
operations
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The risks outlined above could adversely affect our ability to sell products, obtain international customers, or to operate our international business
profitably, which would have a negative impact on our overall business and results of operations. 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.
Currency exchange rate fluctuations could reduce our overall profits.
For the year ended December 31, 2021, we recognized 78.1% of net sales in markets outside of the United States and 70.7% in markets outside of
the Americas. For the year ended December 31, 2020, we recognized 77.7% of net sales in markets outside of the United States and 70.3% in markets
outside of the Americas. 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, while our 2021 net sales
increased 3.1% on a Constant dollar basis (see Item 7, Non-GAAP Financial Measures), favorable foreign exchange caused a $3.7 million increase in GAAP
net sales as compared to 2020. In other words, 2021 sales would have been $3.7 million lower than the reported value, except for the impact of foreign
exchange. 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.
The spread of COVID-19 underscores certain risks we face, and the rapid development and fluidity of this situation precludes any prediction as to the
ultimate adverse impact to us of COVID-19.
On March 11, 2020 the World Health Organization declared COVID-19 a pandemic, and on March 13, 2020 the United States declared a national
emergency with respect to COVID-19. The spread of COVID-19 underscores certain risks we face in our business that are described in this Annual Report
on Form 10-K. Governmental and non-governmental organizations may not effectively combat the spread and severity of COVID-19, which could adversely
impact our profitability. The adverse economic effects of COVID-19 may materially decrease demand for our products based on changes in consumer
behavior or the restrictions in place by governments trying to curb the outbreak. For example, we rescheduled in-person corporate sponsored events in 2020
and in 2021, opting instead to hold virtual events. In many cases, our associates canceled in-person sales meetings and utilized online platforms to meet
virtually. We have held virtual company sponsored events in early 2021, and while we hope to hold corporate sponsored in-person events later in 2022, we
are prepared to transition those planned in-person events to virtual events. The continued uncertainty regarding the spread and duration of the COVID-19
pandemic, including the multiple new variants of the virus that causes COVID-19, could lead to adverse impacts on our sales in fiscal year 2022 and our
overall liquidity.
The spread of COVID-19, or actions taken to mitigate this spread domestically and in our international markets, could have material and adverse
effects on our ability to operate effectively, including as a result of the complete or partial closure of certain businesses and the inability of our associates to
market our products as a result of “shelter-in-place” and similar policies that may be implemented in an effort to mitigate the spread of COVID-19.
Furthermore, the outbreak of COVID-19 has severely impacted global economic activity, and caused significant volatility and negative pressure in the
financial markets. We experienced challenges in getting raw materials and ingredients to our contract manufacturers and finished products to our distribution
centers resulting from reductions in global transportation capacity.
The fluidity of this situation precludes any prediction as to the ultimate adverse impact to us of COVID-19. We are continuing to monitor the spread
of COVID-19 and related risks. The magnitude and duration of the pandemic and its impact on our business, results of operations, financial position, and
cash flows is uncertain as this continues to evolve globally. However, as new variants of the virus continue to emerge, such impact could grow and our
business, results of operations, financial position, and cash flows could be materially adversely affected.
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Risks Related to Regulation
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:
•
•
•
•
•
ambiguity in statutes;
regulations and related court decisions;
the discretion afforded to regulatory authorities and courts interpreting and enforcing laws;
new regulations affecting our business; and
changes to, or interpretations of, existing regulations affecting our business.
On January 4, 2018, The Federal Trade Commission (the “FTC”) issued “Business Guidance Concerning Multi-Level Marketing” a non-binding
guidance in question-and-answer format clarifying the FTC’s enforcement position regarding multi-level marketing. The guidance focuses on the
characteristics of multi-level marketing and delineates the factors that the FTC staff is likely to consider in assessing whether or not a compensation structure
is problematic. The FTC has broad enforcement authority and, while it issues guidance on how it interprets the applicable law, that guidance is not ultimately
binding on the FTC. As a result, the FTC could decide to investigate or bring an enforcement action regarding practices that we interpret to be in line with
applicable law and/or FTC guidance. For example, the FTC has challenged the distributor compensation plans used by other multi-level-marketing
companies over the last few years. The FTC obtained consent decrees with those companies requiring those companies to (i) discontinue using all, or certain
components of, their compensation plans; and (ii) implement a compensation plan that received prior approval from the FTC. In 2019, the FTC continued to
challenge compensation plans and structures within the direct selling channel. In October 2019, following ongoing discussions with the FTC pertaining to an
enforcement action, one of our competitors changed its business model from multi-level-marketing to direct-to-consumer as part of a stipulated order for
permanent injunction. While consent decrees and orders entered into by our competitors are not binding on the Company, it does provide an insight into the
FTC’s priorities regarding its interpretation and enforcement of regulations pertaining to the multi-level-marketing business model. While we prioritize
ensuring that our business and compensation model are compliant, we cannot be certain that the FTC or similar regulatory body in another country will not
modify or otherwise amend its guidance, laws, or regulations or interpret in a way that would render our current practices inconsistent with the same.
FTC determinations such as these have created ambiguity regarding the proper interpretation of the law and regulations applicable to direct selling
companies, and in particular, companies that use a multi-level-marketing business model, in the United States. While a consent order between the FTC and a
specific company does not represent judicial precedent and is not legally binding on other companies, FTC officials have indicated that companies within the
direct selling channel should look to these consent orders for guidance. Additionally, while communications and guidance from the FTC to the direct selling
channel in 2019 and 2018 reinforce the principles contained in these consent orders, these communications have also created ambiguity and uncertainty
regarding the proper interpretation of the laws, regulations and judicial precedent applicable to direct selling in the United States. We continue to analyze the
consent orders, guidance and other communications issued by the FTC. Although we strive to ensure that our overall business model and compensation plans
are regulatory compliant in each of our markets, we cannot assure you that a regulator, if it were to review our business, would agree with our assessment
and would not require us to change one or more aspects of our operations. Any action against us in the future by the FTC or another regulator could
materially and adversely affect our operations.
On October 28, 2021, the Company received a letter from the Federal Trade Commission (“FTC”) regarding “Notices of Penalty Offenses
Concerning Money-Making Opportunities and Endorsement and Testimonials." The Company was among 1,100 other companies to receive the letter which
put companies on notice that they should be aware of what constitutes false or misleading income, earning, or product claims. As the FTC made clear in the
letter, receipt of the letter is not a determination of wrongdoing. From a procedural standpoint, the FTC would still have to file a formal action if they
determine the Company is in violation of the parameters laid out in the letter and then undergo an administrative hearing process. The letter is the first step in
a process for the FTC to impose “civil monetary penalties of up to $43,792 per violation.” Nearly all Direct Selling Association (“DSA”) member companies
received the notice along with non-members of the DSA in the direct selling channel, gig companies, franchise companies, and other companies offering
business opportunities.
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We cannot predict what effect additional governmental regulations, judicial decisions, or administrative orders, when and if promulgated, would
have on our business. Failure by us, or our associates, to comply with these laws, regulations, or guidance, could have a material adverse effect on our
business in a particular market or in general. Finally, the continuation of regulatory challenges, investigations and litigation against other direct selling
companies could harm our business and the direct selling channel if the laws and regulations are interpreted in a way that results in additional restrictions on
direct selling companies in general.
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, make non-compliant statements, create promotional materials, or
otherwise provide information that does not accurately describe our products or marketing program. In addition to policies prohibiting improper product
claims, we also have policies that prohibit our independent associates from selling our products or otherwise conducting business in markets outside of the
countries in which we operate or in a manner inconsistent with how we operate in a specific country.
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. For
example, Meitai does not operate as a direct selling company in mainland China and does not hold a direct selling license in China. Additionally, direct
selling regulations in China prevent persons who are not Chinese nationals from engaging in direct selling in China. While we have policies that prohibit our
independent associates from conducting business in markets other than those in which we currently operate and we have provided information on how
Meitai operates in China as a non-direct selling business under an e-commerce model, we cannot guarantee that our independent associates will not violate
our policies or violate Chinese law or other applicable regulations, and therefore, might result in regulatory action and adverse publicity, which would harm
our business in China or our business generally.
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, we are subject to the risk in some jurisdictions of being responsible for
social security and similar social 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/or related social taxes in those jurisdictions, plus any related assessments and penalties, which could harm our
financial condition and operating results.
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 preferred customers, 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. As a member of the U.S. Direct Selling
Association (the “DSA”), we are required to adhere to a code of ethics that protects our associates and their customers, and ensures all DSA members remain
accountable to regulators, consumers, independent distributors, and the public.
On January 4, 2019, the DSA established a third party self-regulatory program to be administered by the Council of Better Business Bureaus. The
new entity, the Direct Selling Self-Regulatory Council (“DSSRC”), will engage in active monitoring of the entire direct selling marketplace, including
websites and social media of direct selling companies and their respective independent distributors in the areas of income representations and product claims.
The DSSRC will report potentially non-compliant companies to the appropriate government agencies and will manage consumer/company complaint
resolution.
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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 preferred customer.
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.
On December 5, 2018, our Korean subsidiary, Mannatech Korea (“MK”), received a visit from three officials with the Korean Fair Trade
Commission (“KFTC”). They advised MK’s management that they would be conducting a routine audit of commissions and bonuses paid to MK’s
independent associates. The physical audit was concluded on December 10, 2018. The KFTC issued the Examiner’s Report on November 19, 2019. While
MK has refined how incentive rewards are included in overall compensation for its associates in Korea in response to discussions with KFTC officials, no
fines or sanctions were proposed in the report and on March 17, 2020, MK received notice that the KFTC commissioners accepted the recommendation in
the Examiner's Report. While neither the Company nor MK anticipate any further issues related to this particular matter, we cannot currently predict whether
or not MK will be subject to similar or other audits in the future. A negative outcome of any future audits could have an adverse effect on our business.
In addition, in the past, and because of the industry in which we operate, we have experienced inquiries regarding specific independent associates.
The Company may, directly or indirectly, be affected by government laws and regulations related to climate change.
Climate change, or legal, regulatory or market measures to address climate change, may negatively affect our business and operations. There is
growing concern that carbon dioxide and other greenhouse gases in the atmosphere may have an adverse impact on global temperatures, weather patterns,
and the frequency and severity of extreme weather and natural disasters. In the event that climate change has a negative effect on agricultural productivity,
we may be subject to decreased availability or less favorable pricing for certain commodities that are necessary for our products, such as Aloe Vera and other
plant-based raw materials used in our products. Adverse weather conditions and natural disasters can reduce crop size and crop quality, which in turn could
reduce our supplies of raw materials, lower recoveries of usable raw materials, increase the prices of our raw materials, increase our cost of storing and
transporting our raw materials, or disrupt production schedules.
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 (e.g., licensing and registration requirements; regulations pertaining to commission payments);
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
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.
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On October 16, 2018, inspectors from the FDA arrived at the Company’s headquarters to conduct an inspection of the facility and an audit of the
Company’s policies and processes. The audit included a review of the remedial steps taken by the Company in response to the Warning Letter issued by the
FDA on November 14, 2017. The FDA closed its audit on October 24, 2018 and issued its report to the Company. The investigators had no objections to the
corrective actions taken by the Company in response to the November 2017 Warning Letter. The Company responded with corrective actions to the 2018
report on November 13, 2018. On March 1, 2019, we received a notice from the FDA requesting a meeting to discuss and clarify the corrective actions taken
in response to the audit. We met with the FDA and believe our response met their concerns. To date, we have not received any further inquiries from the
FDA.
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.
We operate a non-direct selling business in mainland China. In 2016, we formed our China subsidiary, Meitai. Unlike Mannatech’s business operations in
other markets, Meitai operates under a cross-border e-commerce model, where consumers in China can buy Mannatech products manufactured overseas via
Meitai's website. Meitai is currently not a direct selling company in China nor can it operate under a multi-level marketing model in China. Products
purchased on Meitai's website are for personal use and not for resale. Meitai offers a rewards program to incentivize existing customers to refer other
customers to purchase products from Meitai’s website. Customs regulations in China include purchase limits to ensure that purchased products are for
personal consumption. Regulators in China may change how they interpret and enforce regulations regarding e-commerce sales and how goods are imported
through the free trade zone for sale to consumers in China. As a result, there can be no assurance that the Chinese government’s current or future
interpretation and application of existing and new regulations will not negatively impact our business in China, result in regulatory investigations, or lead to
fines or penalties against us.
On January 8, 2019, China’s State Administration of Market Regulation, along with 12 other government ministries and agencies, jointly launched a
nationwide “100-day campaign” to crack down on illegal practices involving health products, and in particular, those operating in the direct selling channel.
The campaign was initiated amid growing controversies surrounding, Quanjian, a licensed direct selling company suspected of operating a pyramid scheme
and engaging in marketing practices that exaggerated the effectiveness of its health products. Other direct selling firms operating in China were cautioned to
stop making false or exaggerated health claims through public advertising and their distributors. As part of the 100-day campaign, China also suspended the
registration, approval, and issuance of direct selling licenses. The 100-day campaign was completed on April 18, 2019. Subsequent to the campaign,
Quanjian was fined approximately $14.0 million and its founder and chairman was sentenced to nine years in prison and assessed a fine of approximately
$7.0 million. The suspension of issuing direct selling licenses continues.
Many direct selling companies operating in China are still experiencing negative effects to their business operations including limited sales meetings,
media scrutiny, and unfavorable consumer sentiment towards direct selling companies. Chinese officials of various ministries and agencies stated that they
will continue to monitor healthcare product and direct selling companies. The suspension on issuing direct selling licenses remains in effect and it is unclear
whether there will be changes to the application processes if and when the suspension is lifted.
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. On February 11, 2019, the FDA issued a statement from FDA
Commissioner, Dr. Scott Gottlieb, regarding the agency's efforts to strengthen the regulation of dietary supplements. The FDA will be prioritizing and
focusing resources on misbranded products bearing unproven claims to treat, cure, or mitigate disease. Commissioner Gottlieb established a Dietary
Supplement Working Group tasked with reviewing the agency's organizational structure, process, procedures, and practices to identify opportunities to
modernize the oversight of dietary supplements. Additionally, on December 21, 2015, the FDA created the Office of Dietary Supplements (“ODSP”). The
creation of this new office elevates the FDA’s program from its previous status as a division under the Office of Nutrition and Dietary Supplements. ODSP
will continue to monitor the safety of dietary supplements. In markets outside of the United States, prior to commencing operations or marketing new
products, we may be required to obtain approvals, registrations, licenses, or certifications from an agency comparable to the FDA for the specific market.
Approvals or registration may require reformulation of our products or may be unavailable to us with respect to certain products or ingredients. We must also
comply with product labeling regulations, which vary by jurisdiction.
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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 future to set new limits on acceptable levels of nutrients. South Africa has also implemented new
“complementary medicine” legislation, which requires a significant dossier in order to register current and new products. Mannatech is working toward
complying with the new legislation and is in contact with the Direct Selling Association in South Africa. In August 2016, the FDA published its revised draft
guidance on Dietary Supplements: New Dietary Ingredient Notifications and Related Issues. If a company sells a dietary supplement containing an
ingredient that FDA considers either not a dietary ingredient or a new dietary ingredient (“NDI”) that needs an NDI notification, the agency may threaten or
initiate enforcement against the Company. For example, it might send a warning letter that can trigger consumer lawsuits, demand a product recall, or even
work with the Department of Justice to bring a criminal action. Our operations could be harmed if new guidance or 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.
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 reflect the economic reality of the relationship between our entities and 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. Scrutiny has increased with the advent of the Organization for Economic Co-operation and Development Base Erosion and
Profit Shifting project.
We are subject to income taxes in the U.S. and numerous international jurisdictions. Our income tax provision and cash tax liability in the future
could be adversely affected by changes in earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets and
liabilities, changes in tax laws and the discovery of new information in the course of our tax return preparation process. We are also subject to ongoing tax
audits. These audits can involve complex issues, which may require an extended period of time to resolve and can be highly judgmental. Tax authorities may
disagree with certain tax reporting positions taken by us and, as a result, assess additional taxes against us. We regularly assess the likely outcomes of these
audits in order to determine the appropriateness of our tax provision. The amounts ultimately paid upon resolution of these or subsequent tax audits could be
materially different from the amount previously included in our income tax provision, and, therefore, could have a material impact on our profitability.
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Risks Related to Owning Our Common Stock
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:
•
•
•
•
•
•
•
•
•
•
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 demand and daily trading volume of our shares;
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. For example,
general economic conditions, such as the COVID-19 pandemic, recession or interest rate or currency rate fluctuations in the United States or abroad, could
negatively affect the market price of our common stock in the future.
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, 2021, our directors and executive officers collectively with their families and affiliates, beneficially owned approximately
45.07% 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.
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 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. Our
bylaws provide that directors are elected by a plurality vote and that directors can only be removed for cause upon the affirmative vote of the holders of a
majority of the issued and outstanding shares entitled to be cast for the election of such directors. Furthermore, our bylaws establish advance notice
requirements for nominations for election to our board of directors or for proposing matters that can be acted on by shareholders at shareholder meetings. 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.
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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.
As of the date of issuance of this report, we were in compliance with the continued listing requirements. However, we cannot assure you that we
will be successful in continuing to meet all requisite continued listing criteria.
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.
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.
Item 1B. Unresolved Staff Comments
None.
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Item 2. Properties
We lease property at several locations for our headquarters and distribution facilities, including:
Location
Flower Mound, Texas (corporate headquarters)
St. Leonards, Australia (Australian headquarters)
Shibuya-ku, Tokyo, Japan (Japanese headquarters)
Yeongnam Tower, Sincheon-dong, (Daegu Center)
Gangnam-gu, Seoul, Korea (Republic of Korea headquarters)
Gangnam-gu Seoul, Korea (Seoul training center)
Haewoondae-gu, Busan, Korea (Pusan training center)
Incheon, South Korea (Incheon training center)
Taipei, Taiwan (Taiwan headquarters)
Tsuen Wan, New Territories, Hong Kong (office)
Hengqin, Zhuhai, China (office)
Tianhe, Guangzhou, China (office)
Richmond, BC (Canada training center)
Markham, ON (office)
Bedfordview, South Africa (office)
Guadalajara, Mexico (customer service center)
Mexico City, 1st flr Mexico (customer service center)
Mexico City, 3rd flr Mexico
Monterrey, Mexico (office)
Colima, Mexico (office)
(1)
Renewable monthly.
Area
Expiration date
52,992 sq. feet
3,939 sq. feet
5,338 sq. feet
3,558 sq. feet
10,604 sq. feet
18,468 sq. feet
6,796 sq. feet
7,757 sq. feet
260 sq. feet
5,306 sq. feet
930 sq. feet
110 sq. feet
1,963 sq. feet
1,714 sq. feet
4,122 sq. feet
4,187 sq. feet
1,324 sq. feet
1,324 sq. feet
1,701 sq. feet
732 sq. feet
June 2028
(1)
N/A
September 2022
June 2022
June 2025
June 2025
March 2022
April 2022
January 2023
June 2022
September 2022
July 2022
September 2022
September 2024
(1)
N/A
March 2022
August 2022
August 2022
June 2022
December 2022
To maximize our operating strategy and minimize costs, we contract with third-party distribution and fulfillment facilities in our three regions: (i)
the Americas, (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.
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Item 3. Legal Proceedings
See Note 12 to our Consolidated Financial Statement, Litigation, which is incorporated herein by reference.
Item 4. Mine Safety Disclosures
Not Applicable.
39
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Item 5. 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.”
PART II
Holders. As of February 28, 2022, there were 1,107 shareholders of record.
Recent Sales of Unregistered Securities. None.
Uses of Proceeds from Registered Securities. None.
Issuer Purchases of Equity Securities. None.
Item 6. [Reserved]
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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, 2021 and 2020. This discussion should be read in conjunction with “Item 15. – Consolidated Financial Statements”
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
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 and anti-aging products, and weight-management products that target optimal health
and wellness. We currently sell our products in three regions: (i) the Americas (the United States, Canada and Mexico); (ii) Europe/the Middle East/Africa
(“EMEA”) (Austria, the Czech Republic, Denmark, Estonia, Finland, Germany, the Republic of Ireland, Namibia, the Netherlands, Norway, South Africa,
Spain, Sweden and the United Kingdom); and (iii) Asia/Pacific (Australia, Japan, New Zealand, the Republic of Korea, Singapore, Taiwan, Hong Kong, and
China).
We conduct our business as a single reporting segment and primarily sell our products through a network of approximately 163,000 active
associates and preferred customer positions held by individuals that purchased our products and/or packs or paid associate fees during the last 12 months,
who we refer to as current associates and preferred customers. New pack sales and the receipt of new associate fees in connection with new positions in our
network are leading indicators for the long-term success of our business. New associate or preferred customer positions are created in our network when our
associate fees are paid or packs and products are purchased for the first time under a new account. We operate as a seller of nutritional supplements, topical
and skin care and anti-aging products, and weight-management products through our network marketing distribution channels operating in 24 countries and
direct e-commerce retail in China. We review and analyze net sales by geographical location and by packs and products on a consolidated basis. Each of our
subsidiaries sells similar products and exhibits similar economic characteristics, such as selling prices and gross margins.
Because we sell our products through network marketing distribution channels, the opportunities and challenges that affect us most are: recruitment
of new and retention of current associates and preferred customers that occupy sales or purchasing positions in our network; entry into new markets and
growth of existing markets; niche market development; new product introduction; and investment in our infrastructure. Our subsidiary in China, Meitai, is
currently operating as a traditional retailer under a cross-border e-commerce model. Meitai cannot legally conduct a direct selling business in China unless it
acquires a direct selling license in China.
Current Economic Conditions and Recent Developments
Overall net sales increased $8.4 million, or 5.5%, for 2021, as compared to 2020. Our 2021 net sales increased $4.7 million, or 3.1%, on a Constant
dollar basis (see Non-GAAP Financial Measures, below), and favorable foreign exchange caused a $3.7 million increase in GAAP net sales as compared to
2020.
41
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RESULTS OF OPERATIONS
Year Ended December 31, 2021 compared to Year Ended December 31, 2020
The tables below summarize our consolidated operating results in dollars and as a percentage of net sales for the years ended December 31, 2021
and 2020 (in thousands, except percentages).
2021
2020
Change
Total
Dollars
% of
net sales
Total
dollars
% of
net sales
Dollar
Percentage
Net sales
Cost of sales
Gross profit
$
159,762
34,149
125,613
100.0 % $
21.4 %
78.6 %
151,407
35,505
115,902
100.0 % $
23.5 %
76.5 %
Operating expenses:
Commissions and incentives
Selling and administrative expenses
Depreciation and amortization
Other operating costs
Total operating expenses
Income from operations
Interest income
Other (expense) income, net
Income before income taxes
Income tax provision
Net income
$
63,784
29,427
1,719
21,634
116,564
9,049
66
(223)
8,892
950
9,842
39.9 %
18.4 %
1.1 %
13.5 %
73.0 %
5.7 %
— %
(0.1) %
5.6 %
0.6 %
6.2 % $
61,349
27,845
1,990
20,227
111,411
4,491
83
1,151
5,725
536
6,261
40.5 %
18.4 %
1.0 %
13.4 %
73.6 %
3.0 %
0.1 %
0.8 %
3.8 %
0.4 %
4.1 % $
8,355
(1,356)
9,711
2,435
1,582
(271)
1,407
5,153
4,558
(17)
(1,374)
3,167
414
3,581
5.5 %
(3.8) %
8.4 %
4.0 %
5.7 %
(13.6) %
7.0 %
4.6 %
101.5 %
(20.5) %
119.4 %
55.3 %
77.2 %
(57.2)%
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, 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.
Net sales
Product
Pack and associate fees
Other
Gross profit
Income from operations
2021
GAAP
Measure:
Total $
Non-GAAP
Measure:
Constant $
2020
GAAP
Measure:
Total $
Constant Dollar Change
Dollar
Percent
$
$
$
$
$
$
159.8 $
151.0 $
8.0 $
0.8 $
125.6 $
9.0 $
156.1 $
147.6 $
7.7 $
0.7 $
122.8 $
8.3 $
151.4 $
146.2 $
4.2 $
1.0 $
115.9 $
4.5 $
4.7
1.4
3.5
(0.3)
6.9
3.8
3.1 %
1.0 %
83.3 %
(30.0)%
6.0 %
84.4 %
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Table of Contents
Net Sales in Dollars and as a Percentage of Consolidated Net Sales
Consolidated net sales by region for the years ended December 31, 2021 and 2020 were as follows (in millions, except percentages):
Americas
Asia/Pacific
EMEA
Total
2021
46.8
97.7
15.3
159.8
$
$
29.3 % $
61.1 %
9.6 %
100.0 % $
2020
44.9
92.1
14.4
151.4
29.7 %
60.8 %
9.5 %
100.0 %
Consolidated domestic and foreign net sales for the years ended December 31, 2021 and 2020 were as follows (in millions, except percentages):
Domestic
Foreign
Total
Net Sales
2021
35.0
124.8
159.8
$
$
21.9 % $
78.1 %
100.0 % $
2020
33.7
117.7
151.4
22.3 %
77.7 %
100.0 %
Overall net sales increased by $8.4 million, or 5.5%, for 2021, as compared to 2020. For the year ended December 31, 2021, our operations outside
of the Americas accounted for approximately 70.7% of our consolidated net sales, whereas in the same period in 2020, our operations outside of the
Americas accounted for approximately 70.3% of our consolidated net sales.
Sales for the Americas increased by $1.9 million, or 4.2%, to $46.8 million for 2021 as compared to $44.9 million for the same period in 2020. This
increase was primarily due to a 9.9% increase in revenue per active independent associate and preferred customer and a 1.7% increase in the number of
active independent associates and preferred customers. Foreign currency exchange had the effect of increasing revenue by $0.2 million for the year ended
December 31, 2021, as compared to the same period in 2020. The currency impact is due to the strengthening of the Mexican Peso.
During 2021, Asia/Pacific sales increased by $5.6 million, or 6.1%, to $97.7 million as compared to $92.1 million for 2020. This increase was
primarily due to a 20.5% increase in revenue per active independent associate and preferred customer, which was partially offset by a 4.3% decrease in the
number of active independent associates and preferred customers. Foreign currency exchange had the effect of increasing revenue by $2.3 million for the
year ended December 31, 2021, as compared to the same period in 2020. The currency impact is primarily due to the strengthening of the Korean Won and
Australian Dollar, which was partially offset by the weakening of the Japanese Yen.
During 2021, EMEA sales increased by $0.9 million, or 6.3%, to $15.3 million as compared to $14.4 million for 2020. This increase was primarily
due to a 25.9% increase in revenue per active independent associate and preferred customer and a 9.0% increase in the number of active independent
associates and preferred customers. Foreign currency exchange had the effect of increasing revenue by $1.2 million for the year ended December 31, 2021 as
compared to the same period in 2020. The currency impact is primarily due to the strengthening of the South African Rand.
Our sales mix for the years ended December 31, was as follows (in millions, except percentages):
Consolidated product sales
Consolidated pack sales and associate fees
Consolidated other
Total consolidated net sales
Change
2021
2020
Dollar
Percentage
$
$
151.0 $
8.0
0.8
159.8 $
146.2 $
4.2
1.0
151.4 $
4.8
3.8
(0.2)
8.4
3.3 %
90.5 %
(20.0) %
5.5 %
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Product Sales
Our product sales are made to our independent associates and preferred customers at published wholesale prices. Product sales for the year ended
December 31, 2021 increased by $4.8 million, or 3.3%, to $151.0 million, as compared to $146.2 million for the same period in 2020. The increase in
product sales was primarily due to an increase in the average order value. The average order value in 2021 was $190, as compared to $183 for the same
period in 2020. The number of orders processed during the year ended December 31, 2021 decreased by 2.3% as compared to the same period in 2020.
Pack Sales and Associate Fees
The Company collects associate fees in lieu of selling packs in certain markets. Associate fees are paid annually by new and continuing associates
to the Company, which entitle them to earn commissions, benefits and incentives for that year. The Company collected associate fees in lieu of pack sales
within the United States, Canada, South Africa, Japan, Australia, New Zealand, Singapore, Hong Kong, Taiwan, Austria, the Czech Republic, Denmark,
Estonia, Finland, Germany, the Republic of Ireland, the Netherlands, Norway, Spain, Sweden and the United Kingdom.
In the Republic of Korea and Mexico, packs may still be purchased by our associates who wish to build a Mannatech business. These packs contain
products that are discounted from both the published retail and associate prices. There are several pack options available to our associates. Pack sales may be
completed during the final stages of the registration process, entitling the Associates to earn commissions, benefits, and incentives for that year. These packs
can provide new associates with valuable training and promotional materials, as well as products for resale to retail customers, demonstration purposes, and
personal consumption. Business-building associates in these markets can also purchase an upgrade pack, which provides the associate with additional
promotional materials. We also do not collect associate fees or sell packs in our non-direct selling business in mainland China.
The dollar amount of pack sales and associate fees associated with new and continuing independent associate positions held by individuals in our
network was as follows, for the years ended December 31 (in millions, except percentages):
New
Continuing
Total
2021
2020
Dollar
Percentage
$
$
0.5 $
7.5
8.0 $
0.5 $
3.7
4.2 $
—
3.8
3.8
— %
102.7 %
90.5 %
Change
Total pack sales and associate fees for the year ended December 31, 2021 increased by $3.8 million, or 90.5%, to $8.0 million, as compared to $4.2
million for the same period in 2020. The number of packs sold and associate fees collected increased by 4.2%. Also, the average pack value for the year
ended December 31, 2021 was $84, as compared to $45 for the same period in 2020.
During 2021 and continuing into 2022, we took the following actions in an effort to increase the number of independent associates and preferred
customers:
•
•
•
•
•
•
•
•
registered our most popular products with the appropriate regulatory agencies in all countries of operations where possible;
rolled out new products;
launched an aggressive marketing and educational campaign;
continued to strengthen compliance initiatives;
concentrated on publishing results of research studies and clinical trials related to our products;
initiated additional incentives;
explored new advertising and educational tools to broaden name recognition; and
implemented changes to our global associate career and compensation plan.
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The approximate number of active new and continuing active associates and preferred customers who purchased our packs or products or paid
associate fees during the twelve months ended December 31 was as follows:
New
Continuing
Total
84,000
79,000
163,000
2021
51.5
48.5
100.0
%
%
%
83,000
100,000
183,000
2020
45.4
54.6
100.0
%
%
%
Other Sales
Other sales consisted of: (i) sales of promotional materials; (ii) monthly fees collected for the Success Tracker™ and Mannatech+ customized
electronic business-building and educational materials, databases and applications; (iii) training and event registration fees; and (iv) a reserve for estimated
sales refunds and returns. Promotional materials, training, database applications and business management tools to support our independent associates, which
in turn helps stimulate product sales.
For the year ended December 31, 2021, other sales decreased by $0.2 million, or 20.0%, to $0.8 million, as compared to $1.0 million for the same
period in 2020. The decrease was primarily due to the decrease in active new and continuing active associates and preferred customers.
Gross Profit
For the year ended December 31, 2021, gross profit increased by $9.7 million, or 8.4%, to $125.6 million, as compared to $115.9 million for the
same period in 2020. Gross profit as a percentage of net sales increased to 78.6% for 2021, as compared to 76.5% for 2020 due to the benefits from foreign
exchange (mostly Korea Won and South Africa Rand), price increases in a few markets and improvements in our supply chain.
Commission and Incentives
As sales grew, commission expenses increased for the year ended December 31, 2021, by 4.9%, or $2.9 million to $61.6 million, as compared to
$58.7 million for the same period in 2020. Commissions as a percentage of net sales were 38.5% for the year ending December 31, 2021 and 38.8% for the
same period in the prior year.
Incentive costs decreased for the year ended December 31, 2021 by 18.5%, or $0.5 million, to $2.2 million as compared to $2.7 million for the same
period in 2020. The costs of incentives, as a percentage of net sales decreased to 1.4% for the year ended December 31, 2021, as compared to 1.8% for the
same period in 2020. This decrease was related to travel incentives in the Americas and Asia/Pacific as governments required quarantine periods before
entering the country, which reduced travel.
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.
For the year ended December 31, 2021, overall selling and administrative expenses increased by $1.6 million, or 5.7%, to $29.4 million, as
compared to $27.8 million for the same period in 2020. The increase in selling and administrative expenses consisted of a $1.9 million increase in payroll
costs and a $0.1 million increase in distribution costs, which was partially offset by a $0.3 million decrease in contract labor costs and a $0.1 million
decrease in stock-based compensation.
Other Operating Costs
Other operating costs include accounting/legal/consulting fees, travel and entertainment expenses, credit card processing fees, off-site storage fees,
utilities, bad debt, and other miscellaneous operating expenses.
For the year ended December 31, 2021, other operating costs increased by $1.4 million, or 7%, to $21.6 million, as compared to $20.2 million for
the same period in 2020. For the year ended December 31, 2021, other operating costs, as a percentage of net sales, were 13.5%, as compared to 13.4% for
the same period in 2020. The increase was due to a $0.8 million increase in consulting fees, and the $0.6 million charge to earnings for our expected outcome
from the Korea Customs Audit (see Note 11).
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Depreciation and Amortization Expense
For the years ended December 31, 2021 and 2020, depreciation and amortization expense was $1.7 million and $2.0 million, respectively.
Other (Expense) Income, net
Primarily due to foreign exchange gains, other (expense) income was $(0.2) million and $1.2 million for the years ending December 31, 2021 and
2020, respectively.
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
2021
2020
(3)
(2)
Australia
Bermuda
Canada
(1)
China
Colombia
Cyprus
Denmark
Gibraltar
Hong Kong
Japan
Mexico
Norway
Republic of Korea
Russia
Singapore
South Africa
Sweden
Switzerland
Taiwan
Ukraine
United Kingdom
United States
(7)
(6)
(4)
(5)
30.0 %
— %
26.5 %
5.0 %
31.0 %
12.5 %
22.0 %
11.3 %
16.5 %
34.6 %
30.0 %
22.0 %
22.0 %
20.0 %
17.0 %
28.0 %
20.6 %
9.2 %
20.0 %
18.0 %
19.0 %
23.2 %
30.0 %
— %
26.5 %
25.0 %
32.0 %
12.5 %
22.0 %
10.0 %
16.5 %
34.6 %
30.0 %
22.0 %
22.0 %
20.0 %
17.0 %
28.0 %
21.4 %
9.2 %
20.0 %
18.0 %
19.0 %
23.8 %
(1)
(2)
(3)
For 2020 and 2021, the Company qualifies for a reduced 5% tax rate in China as a Small Low Profit Enterprise.
On November 1, 2019, the Company suspended operations in Colombia, but maintains the legal entity, Mannatech Colombia SAS.
For 2021, the Company will pay taxes at 10% Gibraltar earnings until August 1, 2021, and 12.5% from August 1, 2021 onward.
On August 1, 2016, the Company established a legal entity in Russia called Mannatech RUS Ltd., but currently does not operate in Russia.
On July 1, 2019, the Company suspended operations in Switzerland, but maintains the legal entity.
On March 21, 2014, the Company suspended operations in the Ukraine, but maintains the legal entity, Mannatech Ukraine LLC.
Includes blended state effective rate of 2.2% for 2021 and 2.8% for 2020 in addition to the U.S federal statutory rate of 21%.
(4)
(5)
(6)
(7)
Foreign Tax
Income from our international operations is subject to taxation in the countries in which we operate. Although we may receive foreign income tax credits
that would reduce the total amount of income taxes owed in the United States, we may not be able to fully utilize our foreign income tax credits in the United
States.
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U.S. Tax
For each of the years ended December 31, 2021 and 2020, the Company’s effective tax rate was (10.7)% and (9.4)%, respectively. In 2021, the
Company’s effective rate differed from the statutory rate due to the effect of changes in valuation allowances recorded in certain jurisdictions, taking the IRC
Section 250 deduction, and applying foreign tax credits. In 2020, the Company had a significant decrease in its rate due to the carryback of U.S net operating
losses as allowed by the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"), enacted on March 27, 2020.
At December 31, 2021 and 2020, the Company’s valuation allowance was $7.9 million and $11.9 million, respectively. The provisions of
Accounting Standards Codification Topic 740, Income Taxes (“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 allowance against the Company’s deferred tax assets consisted of the following at December 31 (in thousands):
Country
Australia
China
Colombia
Cyprus
Mexico
Norway
South Africa
Switzerland
Taiwan
United States
Total
2021
2020
$
$
—
0.5
0.5
0.2
1.9
0.1
0.2
0.5
0.6
3.4
7.9
$
$
0.2
0.4
0.6
0.2
3.1
0.1
0.2
0.5
1.1
5.5
11.9
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:
•
•
•
•
•
•
•
•
•
the timing of the introduction of new products and incentives;
our ability to attract and retain associates and preferred customers;
the timing of our incentives and contests;
the general overall economic outlook;
government regulations;
global pandemic;
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.
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LIQUIDITY AND CAPITAL RESOURCES
Cash and Cash Equivalents
As of December 31, 2021, our cash, cash equivalents and restricted cash decreased by 6.8%, or $1.9 million, to $25.6 million from $27.5 million as
of December 31, 2020. 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. The current portion of restricted cash at each of
December 31, 2021 and 2020 was $0.9 million. Fluctuations in currency rates produced a decrease of $2.7 million in cash and cash equivalents in 2021 as
compared to an increase of $1.3 million in 2020.
Our principal use of cash is to pay for operating expenses, including commissions and incentives, capital assets, inventory purchases, and periodic
cash dividends. 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, 2021, our working capital increased by $2.2 million, or
21.0%, to $12.7 million from $10.5 million at December 31, 2020. The increase in working capital is primarily due to a decrease in our current liabilities.
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
2021
2020
$
$
$
10.8 $
(0.7) $
(9.3) $
6.0
(0.9)
(9.9)
Cash provided by operating activities increased by $4.8 million for the year ended December 31, 2021, as compared to the same period in 2020. For
the year ended December 31, 2021, this increase was due to improved operating profits and working capital management.
Investing Activities
During the year ended December 31, 2021 and 2020, we invested $0.7 million and $0.9 million in computer hardware and software, respectively.
Financing Activities
For the year ended December 31, 2021, our financing activities used cash of $9.3 million compared to cash used of $9.9 million for the same period
of 2020. For the year ended December 31, 2021, we used approximately $0.4 million in the repayment of finance lease obligations and other long term
liabilities, $4.3 million in the payment of dividends to shareholders, $5.1 million in the repurchase of common stock, which was partially offset by $0.5
million cash provided by the exercise of stock options. For the year ended December 31, 2020, we used approximately $0.6 million in the repayment of
finance lease obligations and other long term liabilities, $3.4 million in the payment of dividends to shareholders, and $5.9 million for the repurchase of
common stocks.
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General Liquidity and Cash Flows
Short Term Liquidity
We believe our existing liquidity and cash flows from operations are adequate to fund our normal expected future business operations for the next
12 months. As our primary source of liquidity is our cash flows from operations, this will be dependent on our ability to maintain and/or continue to improve
revenue as compared to our 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.
As of December 31, 2021 and 2020, cash and cash equivalents held in bank accounts in foreign countries totaled $22.6 million and $18.6 million,
respectively.
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. The Canada Revenue Agency is auditing
the Company's GST filings from January 2019 through April 2021. Management believes the likelihood of an additional GST liability or penalty from the
audit is remote and therefore has not accrued a liability related to this audit at December 31, 2021. For more information see Note 1 Organization and
Summary of Significant Accounting Policies, Note 7 Income Taxes, Note 11, Commitments and Contingencies, and Note 12 Litigation to our Consolidated
Financial Statements.
We have contractual 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. At December 31, 2021, we have one supply agreement that requires the Company to purchase an
aggregate of $4.8 million through 2022, with no purchase commitments thereafter. We also maintain other supply agreements and manufacturing agreements
to protect our products, regulate product costs, and help ensure quality control standards. These agreements do not require us to purchase any minimum
quantities. We have no present commitments or agreements with respect to acquisitions or purchases of any manufacturing facilities; however, management
from time to time explores the possibility of the benefits of purchasing a raw material manufacturing facility to help control costs of our raw materials and
help ensure quality control standards.
We have operating lease liabilities for the property and equipment we use in our business operations. These operating lease liabilities represent our
minimum future payment obligations on operating leases, including imputed interest. At December 31, 2021, our operating lease liabilities were $5.8
million, of which $1.5 million was recorded in Accrued expenses and $4.3 million was recorded in Other long-term liabilities. We also have finance lease
liabilities of $0.1 million and lease restoration liabilities of $0.3 million.
We have pension obligation of $0.9 million related to our employee benefit plan at our Japan subsidiary.
Responding to COVID-19, we have taken steps to protect the health, safety and well-being of our customers, associates, employees, and
communities by closing some offices and equipping various staff members to work remotely. The Company depends on an independent salesforce of
distributors to market and sell its products to consumers. Developments such as social distancing and shelter-in-place directives has impacted their ability to
engage with potential and existing customers. The adverse economic effects of COVID-19 includes government restriction and changes in consumer demand
for the Company’s products. The Company has rescheduled corporate sponsored events, and in some cases, our associates have canceled sales meetings.
For some products, the Company experienced shortages of raw materials and ingredients. We experienced challenges in getting materials and ingredients
to our contract manufacturers and finished products to our distribution centers as a result of reductions in global transportation capacity. Despite the impact
on the global supply chain, the Company has overcome obstacles in shipping to our customers.
Prolonged workforce disruptions, continued disruption in our supply chain and potential decreases in consumer demands could negatively impact
our sales as well as the Company’s overall liquidity in the next twelve months, however, such impact is currently unknown.
Long Term Liquidity
We believe our cash flows from operations should be adequate to fund our normal expected future business operations and possible international
expansion costs for the long term. As our primary source of liquidity is from our cash flows from operations, this will be dependent on our ability to maintain
and and/or improve revenue as compared to operational expenses.
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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.
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.
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CRITICAL ACCOUNTING ESTIMATES
Our consolidated financial statements are prepared in accordance with GAAP. The application of GAAP requires us to make estimates and
assumptions that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on the financial
condition or results of operations of Mannatech at the date of our financial statements. 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, 2021:
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 net realizable value. 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, 2021 and 2020, our inventory reserves were $0.4 million and $0.5 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 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.
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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.
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 material impairments existed during the years ended December 31, 2021 and 2020.
Uncertain Income Tax Positions and Tax Valuation Allowances
As of December 31, 2021, there was nothing recorded in other long-term liabilities on our consolidated balance sheet related to uncertain income tax
positions. As required by ASC Topic 740, Income Taxes (“ASC Topic 740”), we use judgments and make estimates and assumptions related to evaluating the
probability of uncertain income tax positions. We base our estimates and assumptions on the potential liability related to an assessment of whether the
income tax position will “more likely than not” be sustained in an income tax audit. We are also subject to periodic audits from multiple domestic and
foreign tax authorities related to income tax and other forms of taxation. These audits examine our tax positions, timing of income and deductions, and
allocation procedures across multiple jurisdictions. Depending on the nature of the tax issue, we could be subject to audit over several years. Therefore, our
estimated reserve balances and liability related to uncertain income tax positions may exist for multiple years before the applicable statute of limitations
expires or before an issue is resolved by the taxing authority. Additionally, we may be requested to extend the statute of limitations for tax years under audit.
It is reasonably possible the tax jurisdiction may request that the statute of limitations be extended, which may cause the classification between current and
long-term to change. We believe our tax liabilities related to uncertain tax positions are based upon reasonable judgment and estimates; however, if actual
results materially differ, our effective income tax rate and cash flows could be affected in the period of discovery or resolution. There are ongoing income tax
audits in various international jurisdictions that we believe are not material to our financial statements.
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, 2021, we maintained a
valuation allowance for deferred tax assets arising from our operations of $7.9 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, 2021, we had net deferred
tax assets, after valuation allowance and deferred tax liabilities, totaling $2.8 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.
Transfer Pricing
In many countries, including the U.S., we are subject to transfer pricing and other tax regulations designed to ensure that appropriate levels of
income are reported as earned by our U.S. and foreign entities and are taxed accordingly. In the normal course of business, we are audited by federal, state
and foreign tax authorities, and subject to inquiries from those tax authorities regarding the amount of taxes due. These inquiries may relate to the timing and
amount of deductions and the allocation of income among various tax jurisdictions. We believe that our tax positions comply with applicable tax law and
intend to defend our positions, if necessary. Our effective tax rate in each financial statement period could be impacted if we prevailed in matters for which
reserves have been established, or were required to pay amounts more than established reserves.
Revenue Recognition
Our revenue is derived from sales of individual products and associate fees or, in certain geographic markets, starter packs. Substantially all of our
product and pack sales are to associates and preferred customers at published wholesale prices. We record revenue net of any sales taxes and record a reserve
for expected sales returns based on historical experience. We recognize revenue from shipped packs and products upon receipt by the customer. Corporate-
sponsored event revenue is recognized when the event is held.
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Orders placed by associates or preferred customers constitute our contracts. Product sales placed in the form of an automatic order contain two
performance obligations: (a) the sale of the product and (b) the loyalty program. For these contracts, the Company accounts for each of these obligations
separately as they are each distinct. The transaction price is allocated between the product sale and the loyalty program on a relative standalone selling price
basis. Sales placed through a one-time order contain only the first performance obligation noted above - the sale of the product.
The Company provides associates with access to a complimentary three-month package for the Success Tracker
and Mannatech+ online business
tools with the first payment of an associate fee. The first payment of an associate fee contains three performance obligations: (a) the associate fee, whereby
the Company provides an associate with the right to earn commissions, bonuses and incentives for a year, (b) three months of complimentary access to
utilize the Success Tracker™ online tool and (c) three months of complimentary access to utilize the Mannatech+ online business tool. The transaction price
is allocated between the three performance obligations on a relative standalone selling price basis. Associates do not have complimentary access to online
business tools after the first contractual period.
TM
With regard to both of the aforementioned contracts, the Company determines the standalone selling prices based on our overall pricing objectives,
taking into consideration market conditions and other factors, including the value of the contracts.
Deferred Commissions
We defer commissions on (i) the sales of products shipped but not received by the customers by the end of the respective period and (ii) the loyalty
program. Deferred commissions are incremental costs and are amortized to expense consistent with how the related revenue is recognized. Deferred
commissions were $2.4 million and $2.3 million at December 31, 2021 and December 31, 2020, respectively.
Deferred Revenue
We defer certain components of revenue. Deferred revenue consists of: (i) sales of products shipped but not received by the customers by the end of
the respective period; (ii) revenue from the loyalty program; (iii) prepaid registration fees from customers planning to attend a future corporate-sponsored
event; and (iv) prepaid annual associate fees. At December 31, 2021 and December 31, 2020, deferred revenue was $4.9 million and $5.5 million,
respectively.
Our customer loyalty program conveys a material right to the customer as it provides the promise to redeem loyalty points for the purchase of products,
which is based on earning points through placing consecutive qualified automatic orders. The timing and recognition of loyalty points has not changed with
the adoption of ASC 606, Revenue from Contracts with Customers (“ASC Topic 606”). The Company factors in breakage rates, which is the percentage of
the loyalty points that are expected to be forfeited or expire, for purposes of revenue recognition. Breakage rates are estimated based on historical data and
can be reasonably and objectively determined. There have not been significant changes for the breakage estimate as a result of adopting ASC Topic 606. The
deferred revenue associated with the loyalty program at December 31, 2021 and December 31, 2020 was $4.3 million and $4.5 million, respectively.
Loyalty program
Loyalty deferred revenue as of January 1, 2020
Loyalty points forfeited or expired
Loyalty points used
Loyalty points vested
Loyalty points unvested
Loyalty deferred revenue as of December 31, 2020
Loyalty deferred revenue as of January 1, 2021
Loyalty points forfeited or expired
Loyalty points used
Loyalty points vested
Loyalty points unvested
Loyalty deferred revenue as of December 31, 2021
53
(in thousands)
3,127
(3,249)
(9,385)
12,771
1,223
4,487
4,487
(3,987)
(9,809)
11,676
1,925
4,292
$
$
$
$
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Product Return Policy
We stand behind our 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. Refunds are processed and returned in the same form of payment that
was originally used in the sale. Each country in which we operate has specific product return guidelines. However, we allow our associates and preferred
customers to exchange products as long as the products are unopened and in good condition. Our return policies for our retail customers and our associates
and preferred customers are as follows:
•
•
Retail Customer Product Return Policy. This policy allows a retail customer to return any of our products to the original associate who sold the
product and receive a full cash refund from the associate for the first 180 days following the product’s purchase if located in the United States and
Canada, and for the first 90 days following the product’s purchase in other countries where we sell our products. The associate may return or
exchange the product based on the associate product return policy. In China, where we sell our products under a cross-border e-commerce model,
we have a 14-day return policy.
Associate and Preferred Customer Product Return Policy. This policy allows the associate or preferred customer to return an order within one
year of the purchase date upon terminating his/her account. If an associate or preferred customer returns a product unopened and in good
condition, he/she may receive a full refund minus a 10% restocking fee. We may also allow the associate or preferred customer to receive a full
satisfaction guarantee refund if they have tried the product and are not satisfied for any reason, excluding promotional materials. This satisfaction
guarantee refund applies in the United States and Canada, only for the first 180 days following the product’s purchase, and applies in other
countries where we sell our products for the first 90 days following the product’s purchase; however, any commissions earned by an associate
will be deducted from the refund. If we discover abuse of the refund policy, we may terminate the associate's or preferred customer's account.
The Company utilizes the expected value method, as set forth by ASC Topic 606, to estimate the sales returns and allowance liability by taking the
weighted average of the sales return rates over a rolling six-month period. The Company allocates the total amount recorded within the sales return and
allowance liability as a reduction of the overall transaction price for the Company’s product sales. The Company deems the sales refund and allowance
liability to be a variable consideration. The method for estimating the sales returns and allowance liability has remained consistent as a result of adopting
ASC Topic 606.
Historically, sales returns estimates have not materially deviated from actual sales returns, as the majority of our customers who return merchandise
do so within the first 90 days after the original sale. Sales returns have historically averaged 1.5% or less of our gross sales. For the years ended
December 31, 2021 and December 31, 2020, our sales return reserve was composed of the following (in thousands):
Sales reserve as of January 1, 2020
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, 2020
Sales reserve as of January 1, 2021
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, 2021
54
$
$
$
$
68
1,028
5
(959)
(71)
71
71
778
(11)
(728)
(55)
55
Table of Contents
Accounting for Stock-Based Compensation
We grant stock options to our employees, board members, and consultants. At the date of grant, we determine the fair value of a stock option award
and recognize compensation expense over the requisite service period, or the vesting period of such stock option award, which is two or three years. The fair
value of the stock option award is calculated using the Black-Scholes option-pricing model (the “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, 2021, our assumptions and estimates used for the calculated fair value of
stock options granted in 2021 were as follows:
2021 Grants
Estimated fair value per share of options granted:
Assumptions:
Dividend yield
Risk-free rate of return
Common stock price volatility
Expected average life of stock options (in years)
$
June 2021 Grant
6.77
2.4 %
0.7 %
56.7 %
4.5
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, 2021, using our current assumptions
and estimates, we anticipate recognizing less than $0.1 million in gross compensation expense through 2022 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, 2021, we had 144,155 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 would include an estimated amount for any damages and the probability of losing any threatened legal
claims or assessments. No legal reserve was deemed necessary at December 31, 2021. 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.
In November 2021, the Busan Custom Office began an audit of the Korean customs values and while the audit continues, we have booked a $0.6
million charge to Other Operating Expenses for the most probable outcome. As we process commissions monthly Mannatech Korea receives from
Mannatech Inc. payments for members’ commissions and these intercompany payments are settled by way of netting set-off with other transactions. We are
seeking an official ruling from the Ministry of Economy and Finance involving the netting of receivables / payables in foreign currency between a Korean
resident and a non-resident and whether this should be reported to the Bank of Korea or a designated foreign exchange bank under compliance with the
Foreign Exchange Transactions Act ("FETA") of Korea. If it is confirmed in the ruling that the above transactions are subject to the advance reporting
requirement under the FETA, there is a possibility of a penalty for the violation.
55
Table of Contents
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 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/South America (Canada, Colombia and Mexico); (ii) EMEA (Austria, the Czech
Republic, Denmark, Estonia, Finland, Germany, the Republic of Ireland, the Netherlands, Norway, South Africa, Spain, Sweden, Switzerland and the United
Kingdom); and (iii) Asia/Pacific (Australia, Japan, New Zealand, the Republic of Korea, Singapore, Taiwan, Hong Kong and China). The current (spot) rate,
average currency exchange rates, and the low and high of such currency exchange rates as compared to the United States dollar, for each of these countries
as of and for the year ended December 31, 2021 were as follows:
Country (foreign currency name)
Australia (Australian Dollar)
Canada (Canadian Dollar)
China (Renminbi)
Colombia (Peso)
Czech Republic (Koruna)
Denmark (Kroner)
Hong Kong (Hong Kong Dollar)
Japan (Yen)
Mexico (Peso)
New Zealand (New Zealand Dollar)
Norway (Krone)
Republic of Korea (Won)
Singapore (Singapore Dollar)
South Africa (Rand)
Sweden (Krona)
Switzerland (Franc)
Taiwan (New Taiwan Dollar)
United Kingdom (British Pound)
Various countries
(Euro)
(1)
(1) Austria, Germany, the Netherlands, Estonia, Finland, the Republic of Ireland and Spain
56
Year ended December 31, 2021
High
Low
Average
0.70019
0.77363
0.15222
0.00025
0.04394
0.15082
0.12816
0.00867
0.04565
0.67204
0.10903
0.00084
0.72917
0.06149
0.10932
1.05953
0.03495
1.32070
1.12148
0.79516
0.83015
0.15751
0.00029
0.04819
0.16555
0.12901
0.00972
0.05100
0.74244
0.12215
0.00092
0.75882
0.07455
0.12242
1.13849
0.03631
1.41980
1.23148
0.75158
0.79796
0.15504
0.00027
0.04615
0.15915
0.12867
0.00912
0.04935
0.70760
0.11645
0.00087
0.74444
0.06779
0.11670
1.09446
0.03582
1.37596
1.18343
As of
December 31,
2021
Spot
0.72575
0.78254
0.15698
0.00025
0.04547
0.15231
0.12823
0.00869
0.04868
0.68359
0.11360
0.00084
0.73951
0.06276
0.11059
1.09274
0.03611
1.34915
1.13257
Table of Contents
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, 2021, there were no changes in our internal control over our financial reporting that we believe materially
affected, or are reasonably likely to materially affect, our internal control over financial reporting. We have not experienced any material changes to our
internal controls over financial reporting despite the fact that most of our employees are working remotely due to the COVID-19 pandemic. We are
continually monitoring and assessing the COVID-19 situation on our internal controls to minimize the impact on their design and operating effectiveness.
57
Table of Contents
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 (2013). Based on this evaluation,
management concluded that the Company’s internal control over financial reporting was effective as of December 31, 2021.
58
Table of Contents
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, 2021.
PART IV
Item 15. Exhibits and Financial Statement Schedule
(a) Documents filed as a part of the report:
1. Consolidated Financial Statements
The following financial statements and Report of Independent Registered Public Accounting Firm are filed as a part of this report on the
pages indicated:
Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm: BDO USA, LLP; Dallas, Texas; PCAOB ID#243
Consolidated Balance Sheets as of December 31, 2021 and 2020
Consolidated Statements of Operations for the years ended December 31, 2021 and 2020
Consolidated Statements of Comprehensive Income for the years ended December 31, 2021 and 2020
Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2021 and 2020
Consolidated Statements of Cash Flows for the years ended December 31, 2021 and 2020
Notes to Consolidated Financial Statements
F-1
F-2
F-4
F-5
F-5
F-6
F-7
F-9
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.
3. Exhibit List
See Index to Exhibits following Item 16 of this Annual Report on Form 10-K.
Item 16. Form 10-K Summary
Not Applicable.
59
Table of Contents
Exhibit
Number
Exhibit Description
Form
File No.
Exhibit (s)
Filing Date
INDEX TO EXHIBITS
Incorporated by Reference
3.1
3.2
3.3
4.1
4.2
10.1†
10.2†
10.3†
10.4†
10.5†
10.6†
10.7†
10.8†
10.9†
10.10†
10.11
10.12
10.13
10.14
10.15
10.16
14.1
21*
23.1*
24*
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.
Fifth Amended and Restated Bylaws of Mannatech, effective
August 25, 2014.
Specimen Certificate representing Mannatech’s common stock, par
value $0.0001 per share.
Description of Securities
Mannatech, Incorporated 2017 Stock Incentive Plan
First Amendment to Mannatech, Incorporated 2017 Stock
Incentive Plan
Form of Performance Stock Unit Award Agreement
Form of Stock Option Award Agreement
Form of Restricted Stock Unit Award Agreement
Form of Stock Appreciation Rights Award Agreement
Form of Restricted Stock Award Agreement
Form of Performance Stock Award Agreement
Amended and Restated 1998 Incentive Stock Option Plan, dated
August 7, 2004.
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.
Form of Indemnification Agreement between Mannatech and each
of the 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 SCG
Lakeside Commerce Center, L.P., dated October 18, 2017.
Employment Agreement between Alfredo Bala and Mannatech,
effective October 1, 2007, dated September 18, 2007.
Executive Service Agreement between Mannatech Korea, Ltd. and
Yong Jae (Patrick) Park, dated October 1, 2009.
Supply Agreement between Natural Aloe de Costa Rica, S.A. and
Mannatech, dated as of November 22, 2016 (portions of this
exhibit were omitted pursuant to a confidential treatment request
submitted pursuant to Rule 24b-2 of the Exchange Act)
Code of Ethics.
List of Subsidiaries.
Consent of BDO USA, LLP.
Power of Attorney, which is included on the signature page of this
annual report on Form 10-K.
60
S-1
8-K
8-K
S-1
10-K
S-8
10-Q
10-Q
10-Q
10-Q
10-Q
10-Q
10-Q
10-K
10-K
10-Q
333-63133
000-24657
000-24657
333-63133
000-24657
333-233418
000-24657
000-24657
000-24657
000-24657
000-24657
000-24657
000-24657
000-24657
000-24657
000-24657
3.1
3.1
3.1
4.1
4.2
4.1
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.1
10.1
10.2
October 28, 1998
January 17, 2012
August 27, 2014
October 28, 1998
March 26, 2020
August 22, 2019
August 7, 2019
August 8, 2017
August 8, 2017
August 8, 2017
August 8, 2017
August 8, 2017
August 8, 2017
March 15, 2004
March 15, 2004
August 9, 2004
10-Q
000-24657
10.4
November 4, 2010
10-K
8-K
000-24657
10.12
March 26, 2018
000-24657
10-Q
000-24657
10.1
10.1
September 24, 2007
May 12, 2015
10-K
00-24657
10.61
March 14, 2017
10-K
*
*
*
000-24657
14.1
March 16, 2007
*
*
*
*
*
*
*
*
*
Table of Contents
Exhibit
Number
31.1*
31.2*
32.1*
32.2*
99.1*
101.INS*
101.SCH*
101.CAL*
101.LAB*
101.PRE*
101.DEF*
Exhibit Description
Form
File No.
Exhibit (s)
Filing Date
Incorporated by Reference
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of
2002, of the Chief Executive Officer of Mannatech.
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of
2002, of the Chief Financial Officer of Mannatech.
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, of the Chief Executive Officer of Mannatech.
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, of the Chief Financial Officer of Mannatech.
Financial Statement Schedule Regarding Valuation and Qualifying
Accounts.
XBRL Instance Document
XBRL Taxonomy Extension Schema Document
XBRL Taxonomy Extension Calculation Linkbase Document
XBRL Taxonomy Extension Label Linkbase Document
XBRL Taxonomy Extension Presentation Linkbase Document
XBRL Taxonomy Extension Definition Linkbase Document
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
* Filed herewith.
† Management contract, compensatory plan or arrangement.
61
Table of Contents
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 15, 2022
Dated: March 15, 2022
MANNATECH, INCORPORATED
/s/ Alfredo Bala
Alfredo Bala
Chief Executive Officer
(principal executive officer)
/s/ David A. Johnson
David A. Johnson
Chief Financial Officer
(principal financial officer)
By:
By:
62
Table of Contents
POWER OF ATTORNEY
The undersigned directors and officers of Mannatech, Incorporated hereby constitute and appoint Larry A. Jobe and David A. Johnson, 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
/s/ Alfredo Bala
Alfredo Bala
/s/ David A. Johnson
David A. Johnson
/s/ J. Stanley Fredrick
J. Stanley Fredrick
/s/ Robert A. Toth
Robert A. Toth
/s/ Kevin Andrew Robbins
Kevin Andrew Robbins
/s/ Larry A. Jobe
Larry A. Jobe
/s/ Eric W. Schrier
Eric W. Schrier
/s/ Tyler Rameson
Tyler Rameson
Title
Chief Executive Officer
(principal executive officer)
Chief Financial Officer
(principal financial officer)
Chairman of the Board
Director
Director
Director
Director
Director
63
Date
March 15, 2022
March 15, 2022
March 15, 2022
March 15, 2022
March 15, 2022
March 15, 2022
March 15, 2022
March 15, 2022
Table of Contents
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2021 and 2020
Consolidated Statements of Operations for the years ended December 31, 2021 and 2020
Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2021 and 2020
Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2021 and 2020
Consolidated Statements of Cash Flows for the years ended December 31, 2021 and 2020
Notes to Consolidated Financial Statements
F-1
Page
F-2
F-4
F-5
F-5
F-6
F-7
F-9
Table of Contents
Report of Independent Registered Public Accounting Firm
Shareholders and Board of Directors
Mannatech, Incorporated
Flower Mound, Texas
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Mannatech, Incorporated (the “Company”) as of December 31, 2021 and 2020, the related
consolidated statements of operations, comprehensive income, shareholders’ equity, and cash flows for the years then ended, and the related notes and
schedule (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all
material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for the years then
ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s
consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board
(United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required
to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an
understanding of internal control over financial reporting 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.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or
fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for
our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required
to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our
especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the
financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit
matter or on the accounts or disclosures to which it relates.
Transfer Pricing
As described in Note 15 to the consolidated financial statements, the Company sells products in twenty-five countries around the world, and a substantial
majority of the Company’s consolidated net sales in 2021, were generated outside of the United States. As described in Note 7 to the consolidated financial
statements, $6.9 million of the Company’s $8.9 million in consolidated income before income taxes is generated in the United States. This is largely a
function of the Company’s transfer pricing policies, which govern the allocation of taxable income among the Company’s various tax jurisdictions.
We identified the Company’s determination of appropriate transfer pricing policies as a critical audit matter. As the tax regulations that exist over transfer
pricing are subjective and vary by jurisdiction, auditing management’s transfer pricing studies and transfer pricing policies was especially challenging and
required significant auditor judgement, including the involvement of tax professionals with specialized knowledge and skill.
The primary procedures we performed to address this critical audit matter included:
F-2
Table of Contents
• Utilizing personnel with specialized knowledge and skill in transfer pricing regulations to assist in evaluating (i) the reasonableness of the
Company’s transfer pricing policies, based on comparisons to comparable companies and precedents set by the various taxing authorities that
govern the jurisdictions in which the Company operates and (ii) jurisdictional profit margins to ensure that the Company’s intercompany
transactions and other income allocation methodologies are appropriate and comply with the Company’s transfer pricing policies.
/s/ BDO USA, LLP
We have served as the Company's auditor since 2007.
Dallas, Texas
March 15, 2022
F-3
Table of Contents
MANNATECH, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share information)
December 31, 2021 December 31, 2020
ASSETS
Cash and cash equivalents
Restricted cash
Accounts receivable, net of allowance of $987 and $817 in 2021 and 2020, respectively
Income tax receivable
Inventories, net
Prepaid expenses and other current assets
Deferred commissions
Total current assets
Property and equipment, net
Construction in progress
Long-term restricted cash
Other assets
Deferred tax assets, net
Total assets
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current portion of finance leases
Accounts payable
Accrued expenses
Commissions and incentives payable
Taxes payable
Current notes payable
Deferred revenue
Total current liabilities
Finance leases, excluding current portion
Other long-term liabilities
Total liabilities
Commitments and contingencies (Note 11)
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, 2,742,857 shares issued and 1,940,687
shares outstanding as of December 31, 2021 and 2,742,857 shares issued and 2,071,081 shares outstanding as
of December 31, 2020
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income
Treasury stock, at average cost, 802,170 shares as of December 31, 2021 and 671,776 shares as of December
31, 2020
Total shareholders’ equity
Total liabilities and shareholders’ equity
See accompanying notes to consolidated financial statements.
F-4
$
$
$
$
24,185 $
944
90
342
12,020
2,888
2,369
42,838
2,882
1,357
503
9,220
2,825
59,625 $
68 $
3,969
9,224
9,611
2,154
205
4,867
30,098
66
5,049
35,213
22,207
944
186
1,008
12,827
2,962
2,343
42,477
4,494
864
4,346
11,977
1,175
65,333
76
4,797
8,691
10,998
1,400
553
5,472
31,987
129
7,245
39,361
—
—
—
33,277
7,708
2,342
(18,915)
24,412
59,625 $
—
33,795
2,213
5,150
(15,186)
25,972
65,333
Table of Contents
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 (expense) income, net
Income before income taxes
Income tax (provision) benefit
Net income
Income per common share:
Basic
Diluted
Weighted-average common shares outstanding:
Basic
Diluted
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
Net income
Other comprehensive income, net of tax:
Foreign currency translations gain (loss)
Pension obligations, net of tax provision of $13 and $19 in 2021 and 2020, respectively
Other comprehensive income
Comprehensive income
See accompanying notes to consolidated financial statements.
F-5
For the years ended December
31,
2021
2020
159,762 $
34,149
125,613
63,784
29,427
1,719
21,634
116,564
9,049
66
(223)
8,892
950
9,842 $
4.95 $
4.71 $
1,990
2,088
151,407
35,505
115,902
61,349
27,845
1,990
20,227
111,411
4,491
83
1,151
5,725
536
6,261
2.80
2.77
2,235
2,264
2021
2020
9,842 $
6,261
(2,832)
24
(2,808) $
7,034 $
1,358
35
1,393
7,654
$
$
$
$
$
$
$
Table of Contents
MANNATECH, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in thousands)
Common
stock
Additional
paid in
capital
Retained
earnings
(accumulated
deficit)
Accumulated
other
comprehensive
income
Treasury
stock
Total
shareholders’
equity
Balance at December 31, 2019
Net Income
Payment of cash dividends
Charge related to stock-based compensation
Issuance of unrestricted shares
Stock option exercises (cashless)
Repurchase of common stock
Foreign currency translation
Pension obligations, net of tax of $19
Balance at December 31, 2020
Net Income
Payment of cash dividends
Charge related to stock-based compensation
Issuance of unrestricted shares
Stock option exercises
Stock option exercises (cashless)
Repurchase of common stock
Foreign currency translation
Pension obligations, net of tax of $13
Balance at December 31, 2021
$
$
$
— $
—
—
—
—
—
—
—
—
— $
—
—
—
—
—
—
—
—
—
— $
34,143 $
—
—
124
(157)
(315)
—
—
—
33,795 $
—
—
50
(44)
(419)
(105)
—
—
—
33,277 $
(690) $
6,261
(3,358)
—
—
—
—
—
—
2,213 $
9,842
(4,347)
—
—
—
—
—
—
—
7,708 $
3,757 $
—
—
—
—
—
—
1,358
35
5,150 $
—
—
—
—
—
—
—
(2,832)
24
2,342 $
(9,935) $
—
—
—
367
315
(5,933)
—
—
(15,186) $
—
—
—
254
964
105
(5,052)
—
—
(18,915) $
27,275
6,261
(3,358)
124
210
—
(5,933)
1,358
35
25,972
9,842
(4,347)
50
210
545
—
(5,052)
(2,832)
24
24,412
See accompanying notes to consolidated financial statements.
F-6
Table of Contents
MANNATECH, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
Non-cash operating lease expense
Provision for inventory losses
Provision for doubtful accounts
(Gain) loss on disposal of assets
Stock-based compensation expense
Deferred income taxes
Changes in operating assets and liabilities:
Accounts receivable
Income tax receivable
Inventories
Prepaid expenses and other current assets
Deferred commissions
Other Assets
Accounts payable
Accrued expenses and other long-term liabilities
Taxes payable
Commissions and incentives payable
Deferred revenue
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment
Proceeds from sale of assets
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from stock options exercised
Repurchase of common stock
Payment of cash dividends
Proceeds from Paycheck Protection Program Note Payable
Repayment of Paycheck Protection Program Note Payable
Repayment of finance lease obligations and other financing obligations
Net cash used in financing activities
Effect of currency exchange rate changes on cash and cash equivalents and restricted cash
Net decrease in cash and cash equivalents and restricted cash
Cash and cash equivalents and restricted cash at the beginning of the year
Cash and cash equivalents and restricted cash at the end of the year
See accompanying notes to consolidated financial statements.
F-7
For the years ended December
31,
2021
2020
$
9,842 $
6,261
1,719
2,201
638
246
36
260
(1,728)
(150)
666
169
144
(26)
486
(828)
(1,663)
754
(1,387)
(605)
10,774
(650)
—
(650)
545
(5,052)
(4,347)
—
—
(435)
(9,289)
(2,700)
(1,865)
27,497
25,632 $
$
1,990
1,942
506
208
(5)
334
(280)
561
(788)
(2,664)
(738)
(585)
(1,139)
1,271
(2,383)
(787)
1,270
1,056
6,030
(949)
2
(947)
—
(5,933)
(3,358)
2,244
(2,244)
(628)
(9,919)
1,333
(3,503)
31,000
27,497
Table of Contents
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Income taxes paid, net
Interest paid on finance leases and other financing obligations
Accrued asset purchases
Right of use assets acquired in exchange for new operating lease liabilities
Finance lease right of use assets acquired in exchange for new finance lease liabilities
Treasury shares exchanged for stock options exercised
For the years ended December
31,
2021
2020
$
$
$
$
$
$
137
31
—
70
—
105
$
$
$
$
$
$
989
71
709
3,189
47
315
See accompanying notes to consolidated financial statements.
F-8
Table of Contents
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 Flower Mound, Texas, was incorporated in the state of Texas
on November 4, 1993 and is listed on The Nasdaq Global Select Market under the symbol “MTEX”. The Company develops, markets, and sells high-quality,
proprietary nutritional supplements, topical and skin care and anti-aging products, and weight-management products. We currently sell our products into
three regions: (i) the Americas (the United States, Canada and Mexico); (ii) EMEA (Austria, the Czech Republic, Denmark, Estonia, Finland, Germany, the
Republic of Ireland, Namibia, the Netherlands, Norway, South Africa, Spain, Sweden and the United Kingdom); and (iii) Asia/Pacific (Australia, Japan,
New Zealand, the Republic of Korea, Singapore, Taiwan, Hong Kong, and China).
Active business building associates ("independent associates" or "associates" or "distributors") and preferred customers purchase the Company’s
products at published wholesale prices. The Company cannot distinguish products sold for personal use from other sales, when sold to associates, because it
is not involved with the products after delivery, other than usual and customary product warranties and returns. Only associates are eligible to earn
commissions and incentives. The Company operates a non-direct selling business in mainland China. Our subsidiary in China, Meitai Daily Necessity &
Health Products Co., Ltd. (“Meitai”), is operating as a traditional retailer under a cross-border e-commerce model in China. Meitai cannot legally conduct a
direct selling business in China unless it acquires a direct selling license in China.
As a response to COVID-19, we closed some offices and worked remotely. The Company depends on an independent sales force of distributors to
market and sell its products to consumers. Developments such as social distancing and shelter-in-place directives impacted, and may continue to impact,
their ability to engage with potential and existing customers. The adverse economic effects of COVID-19 have had an impact on demand for the Company’s
products due to government restrictions and changes in consumer behavior. Moreover, the Company has rescheduled corporate sponsored events, and in
some cases, our associates have cancelled sales meetings.
For some products the Company experienced shortages of raw materials, packaging supplies and ingredients and we successfully worked through
challenges in getting these materials and ingredients to our contract manufacturers and finished products to our distribution centers. Despite the impact on
the global supply chain, the Company has overcome obstacles in shipping to our customers.
While the conditions described above are expected to be temporary, prolonged workforce disruptions, continued disruption in our supply chain and
potential changes in consumer demands could negatively impact our sales as well as the Company’s overall liquidity. We are managing with a focus on our
financial condition, liquidity, operations, suppliers, industry, and workforce.
Principles of Consolidation
The consolidated financial statements and footnotes include the accounts of the Company and its wholly-owned subsidiaries. All intercompany
balances and transactions have been eliminated in consolidation.
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.
F-9
Table of Contents
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 remeasured at their approximate historical rates, monetary assets and liabilities are remeasured at exchange rates in effect at the end of the year,
and revenues and expenses are remeasured at weighted-average exchange rates for the year. The local currency is the functional currency of our subsidiaries
in Japan, Republic of Korea, Taiwan, Norway, Denmark, Sweden, Mexico and China. These subsidiaries’ assets and liabilities are translated into 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.
Transaction losses totaled approximately $0.2 million for the year ended December 31, 2021 and transaction gains totaled approximately $1.1
million for the year ended December 31, 2020, and are included in other (expense) income, net in the Company’s consolidated statements of operations.
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, 2021 and 2020, credit card receivables were $1.2 million and $2.4 million, respectively, and cash and cash
equivalents held in bank accounts in foreign countries totaled $22.6 million and $18.6 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.
At December 31, 2021, a portion of our cash and cash equivalent balances were concentrated within the Republic of South Korea, with total net assets
within this foreign location totaling $20.1 million. In addition, for the year ended December 31, 2021, a concentrated portion of our operating cash flows
were earned from operations within the Republic of South Korea. An adverse change in economic conditions within the Republic of South Korea could
negatively affect the Company’s results of operations.
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, 2021 and 2020, our total restricted cash
was $1.4 million and $5.3 million, respectively. The Company classifies the restricted cash held in Korea and Australia as long-term since it relates to assets
and services contracted for longer than one year.
The following table provides a reconciliation of cash and cash equivalents, and restricted cash reported within the Company's consolidated balance
sheets to the total amount presented in the consolidated statement of cash flows (in thousands):
Cash and cash equivalents at beginning of period
Current restricted cash at beginning of period
Long-term restricted cash at beginning of period
Cash and cash equivalents and restricted cash at beginning of
period
Cash and cash equivalents at end of period
Current restricted cash at end of period
Long-term restricted cash at end of period
Cash and cash equivalents and restricted cash at end of period
$
$
$
$
December 31, 2021
22,207
944
4,346
27,497
24,185
944
503
25,632
December 31, 202
24,762
943
5,295
31,000
22,207
944
4,346
27,497
$
$
$
$
F-10
Table of Contents
Accounts Receivable
Accounts receivable are carried at their estimated collectible amounts. As of December 31, 2021 and 2020, receivables consisted primarily of
amounts due from preferred customers 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. As of December 31,
2021 and 2020, the Company held an allowance for doubtful accounts of $1.0 million and $0.8 million, respectively.
Inventories
Inventories consist of raw materials, finished goods, and promotional materials that are stated at the lower of cost (using standard costs that
approximate average costs) or net realizable value. The Company periodically reviews inventories for obsolescence and any inventories identified as
obsolete are reserved or written off.
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets were $2.9 million and $3.0 million at December 31, 2021 and 2020, respectively. Included in each of the
December 31, 2021 and 2020 balances were $1.1 million in other prepaid assets. Also included in the balances at December 31, 2021 and 2020 were $0.5
million and $1.1 million for other prepaid deposits, respectively. Also included in the balances at December 31, 2021 and 2020 were $1.3 million and $0.8
million in prepaid inventory, respectively.
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
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.
Other Assets
At December 31, 2021 and 2020, other assets were $9.2 million and $12.0 million, respectively. The December 31, 2021 and 2020 balances include
operating lease right of use assets of $4.7 million and $6.9 million, respectively. See Note 5, Leases for more information. Included in the December 31,
2021 and 2020 balances were deposits for building leases in various locations of $1.9 million and $2.2 million, respectively. Also included in the
December 31, 2021 and 2020 balances were $2.4 million and $2.6 million, respectively, representing a deposit with Mutual Aid Cooperative and Consumer
in the Republic of Korea, an organization established by the Republic of Korea’s Fair Trade Commission’s approval to compensate and protect consumers
who participate in network marketing activities from damages. Other assets at each of December 31, 2021 and 2020 also include $0.2 million of indefinite
lived intangible assets relating to the Manapol powder trademark.
®
Notes Payable
Notes payable were $0.2 million and $0.6 million as of December 31, 2021 and December 31, 2020, respectively, as a result of funding from a
capital financing agreement related to our investment in leasehold improvements, computer hardware and software and other financing arrangements.
Payments are made monthly according to the terms of the agreements which have a weighted average effective interest rate of 5.7% and are collateralized by
leasehold improvements and computer
F-11
Table of Contents
hardware and software. At December 31, 2021 and December 31, 2020 , the current portion was $0.2 million and $0.6 million, respectively.
Other Long-Term Liabilities
Other long-term liabilities were $5.0 million and $7.2 million as of December 31, 2021 and 2020, respectively. At December 31, 2021 and 2020, we
recorded long-term lease liabilities related to operating leases of $4.3 million and $6.1 million, respectively. See Note 5, Leases for more information.
At December 31, 2021, there was nothing recorded in other long-term liabilities related to uncertain income tax positions. At December 31, 2020, we
recorded $0.2 million in long-term liabilities related to uncertain income tax positions (see Note 7, 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. At each of
December 31, 2021 and 2020, accrued restoration costs related to these leases amounted to $0.3 million. At each of December 31, 2021 and 2020,
government mandated severance accruals in certain international offices amounted to $0.5 million. 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 $0.2 million and $0.4 million as of December 31,
2021 and 2020, respectively (See Note 9, Employee Benefit Plans).
Revenue Recognition
The Company’s revenue is derived from sales of individual products and associate fees or, in certain geographic markets, starter packs.
Substantially all of the Company’s product sales are made at published wholesale prices to associates and preferred customers. The Company records
revenue net of any sales taxes and records a reserve for expected sales returns based on its historical experience. The Company recognizes revenue from
shipped products when control of the product transfers to the customer, thus the performance obligation is satisfied. Corporate-sponsored event revenue is
recognized when the event is held.
Orders placed by associates or preferred customers constitute our contracts. Product sales placed in the form of an automatic order contain two
performance obligations: (a) the sale of the product and (b) the loyalty program. For these contracts, the Company accounts for each of these obligations
separately as they are each distinct. The transaction price is allocated between the product sale and the loyalty program on a relative standalone selling price
basis. Sales placed through a one-time order contain only the first performance obligation noted above - the sale of the product.
The Company provides associates with access to a complimentary three-month package for the Success Tracker
and Mannatech+ online business
tools with the first payment of an associate fee. The first payment of an associate fee contains three performance obligations: (a) the associate fee, whereby
the Company provides an associate with the right to earn commissions, bonuses and incentives for a year, (b) three months of complimentary access to
utilize the Success Tracker™ online tool and (c) three months of complimentary access to utilize the Mannatech+ online business tool. The transaction price
is allocated between the three performance obligations on a relative standalone selling price basis. Associates do not have complimentary access to online
business tools after the first contractual period.
TM
With regard to both of the aforementioned contracts, the Company determines the standalone selling prices based on our overall pricing objectives,
taking into consideration market conditions and other factors, including the value of the contracts.
Our sales mix for the years ended December 31, was as follows (in millions, except percentages):
Consolidated product sales
Consolidated pack sales and associate fees
Consolidated other
Total consolidated net sales
2021
Percentage
2020
Percentage
$
$
151.0
8.0
0.8
159.8
94.5 % $
5.0 %
0.5 %
100.0 % $
146.2
4.2
1.0
151.4
96.5 %
2.8 %
0.7 %
100.0 %
Revenues by reporting segment are presented in Note 15, Segment Information of our consolidated financial statements. We believe that the
disaggregation of our revenues as reflected above, coupled with further discussion below, and the reporting segment in Note 15, Segment Information depicts
how the nature, amount, timing and uncertainty of our revenues and cash flows are affected by economic factors.
F-12
Table of Contents
Deferred Commissions
The Company defers commissions on (i) the sales of products shipped but not received by customers by the end of the respective period and (ii) the
loyalty program. Deferred commissions are incremental costs and are amortized to expense consistent with how the related revenue is recognized. Deferred
commissions were $2.4 million and $2.3 million at December 31, 2021 and December 31, 2020, respectively. The full $2.3 million balance at December 31,
2020 was amortized to commissions expense for the twelve months ended December 31, 2021.
Deferred Revenue
The Company defers certain components of its revenue. Deferred revenue consisted of: (i) sales of products shipped but not received by the
customers by the end of the respective period; (ii) revenue from the loyalty program; (iii) prepaid registration fees from customers planning to attend a future
corporate-sponsored event; and (iv) prepaid annual associate fees. At December 31, 2021 and December 31, 2020, the Company’s deferred revenue was $4.9
million and $5.5 million, respectively. The full $5.5 million balance at December 31, 2020 was recognized as revenue for the twelve months ended
December 31, 2021.
The Company's customer loyalty program conveys a material right to the customer as it provides the promise to redeem loyalty points for the purchase of
products, which is based on earning points through placing consecutive qualified automatic orders. The Company factors in breakage rates, which is the
percentage of the loyalty points that are expected to be forfeited or expire, for purposes of revenue recognition. Breakage rates are estimated based on
historical data and can be reasonably and objectively determined. The deferred revenue associated with the loyalty program at December 31, 2021 and
December 31, 2020 was $4.3 million and $4.5 million, as follows:
Loyalty program
Loyalty deferred revenue as of January 1, 2020
Loyalty points forfeited or expired
Loyalty points used
Loyalty points vested
Loyalty points unvested
Loyalty deferred revenue as of December 31, 2020
Loyalty deferred revenue as of January 1, 2021
Loyalty points forfeited or expired
Loyalty points used
Loyalty points vested
Loyalty points unvested
Loyalty deferred revenue as of December 31, 2021
(in thousands)
3,127
(3,249)
(9,385)
12,771
1,223
4,487
4,487
(3,987)
(9,809)
11,676
1,925
4,292
$
$
$
$
Sales Refund and Allowances
The Company utilizes the expected value method to estimate the sales returns and allowance liability by taking the weighted average of the sales
return rates over a rolling six-month period. The Company allocates the total amount recorded within the sales return and allowance liability as a reduction
of the overall transaction price for the Company’s product sales. The Company deems the sales refund and allowance liability to be a variable consideration.
F-13
Table of Contents
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 years ended December 31,
2021 and December 31, 2020, our sales return reserve consisted of the following (in thousands):
Sales reserve as of January 1, 2020
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, 2020
Sales reserve as of January 1, 2021
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, 2021
$
$
$
$
68
1,028
5
(959)
(71)
71
71
778
(11)
(728)
(55)
55
Shipping and Handling Costs
The Company records inbound freight as a component of inventory and cost of sales. The Company records freight and shipping fees collected from
its customers as fulfillment costs. Freight and shipping fees are not deemed to be separate performance obligations as these activities occur before the
customer receives the product.
Commission and Incentive Expenses
Associates earn commissions and incentives based on their direct and indirect commissionable net sales over each month of the fiscal year. The
Company accrues commissions and incentives when earned by associates and pays commissions on product and pack sales on a monthly basis.
Advertising Expenses
The Company expenses advertising and promotions in selling and administrative expenses when incurred. Advertising and promotional expenses
remained constant at $3.5 million for each of the years ended December 31, 2021 and 2020. Educational and promotional items are sold to 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 $1.2 million and $0.8 million, respectively, for the years ended December 31, 2021 and 2020.
Salaries and contract labor are included in selling and administrative expenses and all other research and development costs are included in other operating
®
costs, including $0.3 million expenditure into clinical studies of Ambrotose and Manapol .
®
Stock-Based Compensation
The Company currently has one active stock-based compensation plan, the Mannatech, Incorporated 2017 Stock Incentive Plan, which was adopted
by the Company’s Board of Directors (the "Board") on April 17, 2017 and was approved by its shareholders on June 8, 2017. See Note 10, Stock Based
Compensation.
F-14
Table of Contents
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. During
each of the years ended December 31, 2021 and 2020, the Company capitalized $0.3 million of qualifying internal payroll costs. 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 and Accumulated Other Comprehensive Income
Comprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other events and
circumstances from non-owner sources and includes all changes in equity during a period except those resulting from investments by owners and
distributions to owners. The Company’s comprehensive income consists of the Company’s net income, foreign currency translation adjustments from its
Japan, Republic of Korea, Taiwan, Denmark, Norway, Sweden, Colombia, Mexico and China operations, remeasurement of intercompany balances of a
long-term-investment nature from its Taiwan, Mexico and Cyprus operations, and changes in the pension obligation for its Japanese employees.
Concentration Risk
®
A significant portion of our revenue is derived from our Ambrotose Life , TruHealth , Advanced Ambrotose , Optimal Support Packets, and GI-
Pro products. A decline in sales value of such products could have a material adverse effect on our earnings, cash flows, and financial position. Revenue
from these products were as follows for the years ended December 31, 2021 and 2020 (in thousands, except percentages):
™
®
™
®
Ambrotose Life
TruHealth
®
Manapol Powder
®
Advanced Ambrotose
GI-Pro (MicroBiome)
Total
2021
2020
Sales by
product
% of total
net sales
Sales by
product
% of total
net sales
$
$
28,776
18,010
13,141
11,158
8,478
79,563
18.0 % $
11.3 %
8.2 %
7.0 %
5.3 %
49.8 % $
36,066
16,263
7,187
14,662
7,513
81,691
23.8 %
10.7 %
4.7 %
9.7 %
5.0 %
53.9 %
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.
F-15
Table of Contents
The Company maintains supply agreements with its suppliers and manufacturers. Some of the supply agreements contain exclusivity clauses and/or
minimum annual purchase requirements. Failure to satisfy minimum purchase requirements could result in the loss of exclusivity. During the year ended
December 31, 2021, the Company purchased finished goods from four suppliers that accounted for 36.4% of the year's cost of sales. During the year ended
December 31, 2020, the Company purchased finished goods from four suppliers that accounted for 56.8% of the year's cost of sales. The Company maintains
other supply and manufacturing agreements to minimize exposure to supplier risk.
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.
Reclassification of Prior Year Presentation
Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the
reported balances or results of operations. An adjustment has been made to the Consolidated Balance Sheet for fiscal year ended December 31, 2020, to
reclassify the Deferred Tax Liabilities to Deferred Tax Assets.
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 2 to our
Consolidated Financial Statements, Fair Value, for more information.
Accounting Pronouncements Issued But Not Yet Effective
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
( “ASU 2016-13”). This standard adds to U.S. GAAP an impairment model (known as the current expected credit loss (“CECL model”) that is based on
expected losses rather than incurred losses. Under the new guidance, an entity recognizes as an allowance its estimate of expected credit losses, which is
intended to result in the more timely recognition of losses. Under the CECL model, entities will estimate credit losses over the entire contractual term of the
instrument (considering estimated prepayments, but not expected extensions or modifications) from the date of initial recognition of the financial instrument.
Measurement of expected credit losses are to be based on relevant forecasts that affect collectability. The scope of financial assets within the CECL
methodology is broad and includes trade receivables from certain revenue transactions and certain off-balance sheet credit exposures. Different components
of the guidance require modified retrospective or prospective adoption. ASU 2019-10 deferred the effective date of ASU 2016-13 for smaller reporting
companies. This standard will be effective for us as of January 1, 2023. While our review is ongoing, we believe ASU 2016-13 will only have applicability
to our receivables from revenue transactions. Under ASC Topic 606, revenue is recognized when, among other criteria, it is probable that the entity will
collect the consideration to which it is entitled for goods or services transferred to a customer. At the point that trade receivables are recorded, they become
subject to the CECL model and estimates of expected credit losses on trade receivables over their contractual life will be required to be recorded at inception
based on historical information, current conditions, and reasonable and supportable forecasts. The Company is currently evaluating whether the new
guidance will have an impact on our consolidated financial statements or existing internal controls.
Other recently issued accounting pronouncements did not or are not believed by management to have a material impact on the Company's present or
future financial statements.
F-16
Table of Contents
NOTE 2: 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:
• Level 1—Quoted unadjusted prices for identical instruments in active markets.
• Level 2—Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active
and model-derived valuations in which all observable inputs and significant value drivers are observable in active markets.
• Level 3—Model derived valuations in which one or more significant inputs or significant value drivers are unobservable, including assumptions
developed by the Company.
The primary objective of the Company’s investment activities is to preserve principal while maximizing yields without significantly increasing risk.
The investment instruments held by the Company are 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, which approximately equates to the carrying value due to
the relatively short maturities of these respective assets, (in thousands) on a recurring basis as of December 31, 2021 and 2020. 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, 2021 and 2020.
2021
Level 1
Level 2
Level 3
Total
Assets
Interest bearing deposits – various banks
Total assets
Amounts included in:
Cash and cash equivalents
Restricted cash
Long-term restricted cash
Total
Assets
Interest bearing deposits – various banks
2020
Total assets
Amounts included in:
Cash and cash equivalents
Restricted cash
Long-term restricted cash
Total
7,838 $
7,838 $
6,986 $
680
172
7,838 $
— $
— $
— $
—
—
— $
— $
— $
— $
—
—
— $
7,838
7,838
6,986
680
172
7,838
Level 1
Level 2
Level 3
Total
6,385 $
6,385 $
2,137 $
680
3,568
6,385 $
— $
— $
— $
—
—
— $
— $
— $
— $
—
—
— $
6,385
6,385
2,137
680
3,568
6,385
$
$
$
$
$
$
$
$
F-17
Table of Contents
NOTE 3: INVENTORIES
Inventories consist of raw materials, finished goods, and promotional materials. The Company provides an allowance for any slow-moving or
obsolete inventories. Inventories as of December 31, 2021 and 2020, consisted of the following (in thousands):
Raw materials
Finished goods
Inventory reserves for obsolescence
Total
NOTE 4: PROPERTY AND EQUIPMENT
2021
2020
$
$
3,271 $
9,196
(447)
12,020 $
2,713
10,585
(471)
12,827
As of December 31, 2021 and 2020, construction in progress was $1.4 million and $0.9 million, respectively, which is primarily comprised of back-
office software projects with service dates that are currently indeterminable. As of December 31, 2021 and 2020, property and equipment consisted of the
following (in thousands):
Office furniture and equipment
Computer hardware
Computer software
Automobiles
Leasehold improvements
ROU Assets- finance leases
Less accumulated depreciation and amortization
Property and equipment, net
Construction in progress
Total
NOTE 5: LEASES
2021
2020
$
$
2,648 $
3,755
44,303
81
4,292
177
55,256
(52,374)
2,882
1,357
4,239 $
2,739
3,856
44,264
81
4,508
260
55,708
(51,214)
4,494
864
5,358
The Company leases office space and equipment from third-party lessors and accounts for leases in accordance with ASC Topic 842, determining
whether an arrangement is a lease, or contains an embedded lease, at the inception of the contract. Right of use assets represent the Company’s right to use
an underlying asset over the lease term and lease liabilities represent the Company’s obligation to make future lease payments arising from the lease.
Operating lease liabilities and finance lease liabilities with terms greater than 12 months are recorded at the present value of the lease payments at
the commencement date. The related right of use assets are recorded on the same date at the amount of the initial liability, adjusted for incentives received,
prepayments made to the lessor, and any initial direct costs incurred, as applicable. The Company uses the discount rate implicit in the lease when it is
readily determinable. When it is not readily available, future lease payments are discounted using the incremental borrowing rate available to the Company.
The incremental borrowing rate is the rate available to the Company for a fully collateralized, fully amortizing loan with the same term as the lease. Lease
components, such as office space, are accounted for separately from the non-lease components, such as maintenance fees. Certain of the Company's leases
may also include rent escalation clauses or options to extend or terminate the lease. These options are included in the present value recorded for the leases
when it is reasonably certain that the Company will exercise that option. None of the Company’s current leases contain guarantees of residual value. Leases
with an initial term of 12 months or less are considered short term and are not recorded on the balance sheet. The Company recognizes a lease expense for
short term leases on a straight-line basis over the lease term.
F-18
Table of Contents
At December 31, 2021 and 2020, net operating lease right of use assets were $4.6 million and $6.9 million, respectively, and operating lease
liabilities were $5.8 million and $8.2 million, respectively. The Company presents right of use assets related to operating leases in its Consolidated Balance
Sheets as a component of "Other assets". The current portion of operating lease liabilities is presented as a component of "Accrued expenses" and the long-
term portion is presented as a component of "Other long-term liabilities". Generally, the Company’s operating leases relate to office space used in
Mannatech’s operations, including its headquarters in Flower Mound, Texas and office space in international locations in which the Company does business.
At December 31, 2021 and 2020, net finance lease right of use assets were $0.2 million and $0.3 million, respectively, and finance lease liabilities
were $0.1 million and $0.2 million, respectively. Right of use assets related to finance leases are presented on the Consolidated Balance Sheets as a
component of “Property and equipment, net” with related lease liabilities recorded as “Current portion of finance leases” or as “Finance leases, excluding
current portion”. As of December 31, 2021, all of the Company’s finance leases pertain to certain equipment used in the business.
As of December 31, 2021 and 2020, our leased assets and liabilities consisted of the following (in thousands):
Leases
Right of Use Assets
Operating leases
Finance leases
Total leased assets
Lease Liabilities
Current Portion
Operating leases
Finance leases
Long-Term Portion
Operating leases
Finance leases
Total leased liabilities
Classification
December 31, 2021
December 31, 2020
Other assets
Property and equipment, net
Accrued expenses
Current portion of finance leases
Other long-term liabilities
Finance leases, excluding current
portion
$
$
4,625 $
180
4,805
1,493
68
4,318
66
5,945 $
6,943
288
7,231
2,067
76
6,124
129
8,396
Operating lease costs are recognized on a straight-line basis over the lease term. Finance lease costs are composed of the amortization of the right of
use asset and the amounts recorded as interest. For the years ended December 31, 2021 and 2020, we incurred the following lease costs related to our
operating and finance leases (in thousands):
Classification
2021
2020
Lease Cost
Operating leases
Operating lease costs
Short term lease costs
Finance leases
Other operating cost
Other operating cost
Amortization of leased assets
Depreciation and amortization
Interest on lease liabilities
Interest expense
Total lease cost
F-19
$
$
2,201 $
339
108
28
2,676 $
2,074
245
111
17
2,447
Table of Contents
For the twelve months ended December 31, 2021 and 2020, cash paid for amounts included in the measurement of lease liabilities included (in
thousands):
Operating cash flows from operating leases
Financing cash flows from finance leases
2021
2020
$
$
2,164 $
87 $
2,400
103
As of December 31, 2021 and 2020 the Company's lease terms and discount rates were:
Operating leases
Weighted-average remaining lease term (years)
Weighted-average discount rate
Finance leases
Weighted-average remaining lease term (years)
Weighted-average discount rate
2021
2020
5.04
4.5 %
2.14
6.57 %
5.15
4.11 %
2.85
6.55 %
As of December 31, 2021 future minimum lease payments were as follows (in thousands):
Maturity of lease liabilities
2022
2023
2024
2025
2026
Thereafter
Total future minimum lease payments
Imputed interest
Present value of minimum lease payments
December 31, 2021
Operating Leases
Finance Leases
1,715 $
1,166
1,250
868
624
905
6,528 $
(716)
5,811 $
74
47
21
1
—
—
143
(10)
133
$
$
$
F-20
Table of Contents
NOTE 6: ACCRUED EXPENSES
As of December 31, 2021 and 2020, accrued expenses consisted of the following (in thousands):
Accrued asset purchases
Accrued compensation
Accrued sales and other taxes
Other accrued operating expenses
Customer deposits and sales returns
Accrued travel expenses related to corporate events
Accrued shipping and handling costs
Accrued legal and accounting fees
Current portion of operating lease liabilities
2021
2020
$
$
96 $
2,566
314
1,528
774
879
356
1,218
1,493
9,224 $
709
1,879
492
671
707
590
399
1,177
2,067
8,691
NOTE 7: INCOME TAXES
The components of the Company’s income before income taxes are attributable to the following jurisdictions for the years ended December 31 (in
thousands):
United States
Foreign
Income before income taxes
2021
2020
$
$
6,947
1,945
8,892
$
$
4,934
791
5,725
The components of the Company’s income tax provision (benefit) for the years ended December 31 (in thousands):
Current provision (benefit):
2021
2020
Federal
State
Foreign
Deferred provision (benefit):
Federal
State
Foreign
F-21
$
$
(17)
(161)
956
778
(1,183)
(131)
(414)
(1,728)
(950)
$
$
(1,086)
114
716
(256)
—
—
(280)
(280)
(536)
Table of Contents
For the years ended December 31, 2021 and 2020, the Company’s effective tax rate was (10.7)% and (9.4)%, respectively. The Company's effective
tax rate for the year ended December 31, 2021 differed from the statutory rate due to the release of valuation allowance on U.S. deferred tax assets due to the
expectation of current and future utilization. The Company's effective tax rate for the year ended December 31, 2020 differed from the statutory rate due to
the carryback of U.S net operating losses as allowed by the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"), enacted on March 27,
2020.
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
CARES NOL Carryback Benefit
Foreign Derived Intangible Income (FDII) deduction
Global Intangible Low Taxed Income (GILTI)
Foreign Charitable Contributions
Prior year adjustments
Withholding taxes
Changes to uncertain tax positions
Expiration of tax attribute
Other
(1)
2021
2020
21.0
0.8
0.7
(45.0)
—
(8.1)
—
0.7
1.3
2.5
(1.8)
17.4
(0.2)
(10.7)
%
%
21.0
2.9
1.9
(7.7)
(25.3)
(6.6)
(7.3)
1.4
8.2
3.2
—
—
(1.1)
(9.4)
%
%
(1)
This amount relates to the reversal of the 2018 GILTI inclusion due to the GILTI high-tax election the IRS made available in Q3 2020.
F-22
Table of Contents
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:
Deferred Revenue
Inventory
Accrued expenses
Net operating loss
Equity Compensation
Foreign tax credit carryover
Lease liability
Other
(1)
Total deferred tax assets
Valuation allowance
Total deferred tax assets, net of valuation allowance
Deferred tax liabilities:
Prepaid expenses
Deferred commissions
Internally-developed software
Lease assets
Fixed assets
Total deferred tax liabilities
Total net deferred tax asset
2021
2020
409 $
235
1,352
5,310
242
3,436
763
664
12,411 $
(7,934)
4,477 $
111
450
104
717
270
1,652 $
2,825 $
317
343
1,034
7,078
296
4,615
922
443
15,048
(11,933)
3,115
131
305
237
884
383
1,940
1,175
$
$
$
$
$
(1)
The Company’s net operating loss will expire as follows (dollar amounts in thousands):
Jurisdiction
Australia
Bermuda
China
Colombia
Cyprus
Gibraltar
Mexico
Norway
Russia
Singapore
South Africa
Sweden
Switzerland
Taiwan
Ukraine
United Kingdom
United States - State
Gross NOL
Tax Effected NOL
Expiration Years
Indefinite
44
— N/A
151
496
171
—
1,894
68
2024-2026
Indefinite
2026
Indefinite
2022-2028
Indefinite
2
25
181
94
622
684
2
64
812
Indefinite
Indefinite
Indefinite
Indefinite
2022-2028
2022-2031
Indefinite
Indefinite
2022-Indefinite
$
148 $
63
606
1,654
1,371
216
6,313
310
8
147
646
456
6,765
3,422
9
339
13,574
F-23
Table of Contents
We have U.S. foreign tax credit carryforwards of $3.4 million as of December 31, 2021, which will begin to expire in 2024. The Company
maintains a valuation allowance of $2.7 million against its foreign tax credit carryforwards.
At December 31, 2021 and 2020, the Company’s valuation allowance was $7.9 million and $11.9 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 allowance against the Company's deferred
tax assets consisted of the following at December 31 (in millions):
Country
Australia
China
Colombia
Cyprus
Mexico
Norway
South Africa
Switzerland
Taiwan
United States
Total
2021
2020
—
0.5
0.5
0.2
1.9
0.1
0.2
0.5
0.6
3.4
7.9
$
$
0.2
0.4
0.6
0.2
3.1
0.1
0.2
0.5
1.1
5.5
11.9
$
$
U.S. Tax
Deferred tax assets (liabilities) are classified in the accompanying Consolidated Balance Sheets at December 31 as follows (in thousands):
Deferred tax assets
Deferred tax liabilities
Net deferred tax assets
2021
2020
$
$
2,828 $
(3)
2,825 $
1,178
(3)
1,175
As of December 31, 2021, the Company had no unrecognized tax benefits. A reconciliation of the beginning and ending amount of unrecognized
tax benefits is as follows, for the years ended December 31, 2021 and 2020 (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
Settlements
Balance as of December 31
2021
2020
$
$
79 $
—
—
—
(79)
— $
79
—
—
—
—
79
The Company recognizes interest and/or penalties related to uncertain tax positions in current income tax expense. As of December 31, 2021, the
Company had no accrued interest and penalties in the consolidated balance sheet or the consolidated statement of operations. As of December 31, 2020, the
Company had accrued interest and penalties of $0.1 million in the consolidated balance sheet, of which $11 thousand were expensed in the consolidated
statement of operations. Although it is not reasonably possible to estimate the amount by which unrecognized tax benefits may increase or decrease within
the next twelve months due to uncertainties regarding the timing of any examinations, the Company does not expect its unrecognized tax benefits to decrease
during the next twelve months.
F-24
Table of Contents
The Company is subject to examination by taxing authorities in the United States and various state and foreign jurisdictions. As of December 31,
2021, 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
Japan
Republic of Korea
Switzerland
United States
Open Years
2013-2020
2017-2020
2017-2020
2017-2020
2018-2020
The IRS has opened an audit for tax year 2019. Audit work has not yet been scheduled so it is impossible to estimate any additional tax liability or
penalty that could result from the audit. We have not accrued a liability related to this audit at this time.
F-25
Table of Contents
NOTE 8: TRANSACTIONS WITH RELATED PARTIES AND AFFILIATES
The Company made cash donations of $0.6 million to the M5M Foundation for each of the years ended December 31, 2021 and December 31,
2020. The M5M Foundation is a 501(c)(3) charitable organization that works to combat the epidemic of childhood malnutrition on a global scale. Several of
the Company’s directors and officers and their family members serve on the board of the M5M Foundation, including:
• Al Bala, the Company’s CEO and President;
•
•
Chris Simons, the Company’s Regional Vice President EMEA; and
Landen Fredrick, the Company's Chief Sales and Marketing Officer and President, North America and son of J. Stanley Fredrick, the
Company’s Chairman of the Board and a major shareholder.
We paid employment compensation of approximately $375,000 and $407,000 in 2021 and 2020, respectively, for salary, bonus, auto allowance, and
other compensation to Landen Fredrick. Landen Fredrick is the 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. Effective November 12, 2019,
Landen Fredrick was promoted from Chief Global Sales Officer and President, North America to Chief Sales & Marketing Officer. Mr. Fredrick had served
as Chief Global Sales Officer and President, North America since January 1, 2018. Prior to that, Mr. Fredrick had served as Senior Vice President, Global
Operations since August of 2016, as Senior Vice President, Supply Chain and IT since August of 2015, Vice President, Global Operations since May of
2013, Vice President, North American Sales and Operations since January of 2011, Vice President, North American Sales since February of 2010 and as
Senior Director of Tools and Training since his hire in May of 2006. Landen Fredrick also serves as Chairman of the Board of the M5M Foundation.
Mr. Kevin Robbins is a member of the Company's Board of Directors, serving on the Science and Marketing Committee, and is also an independent
associate, holding a position in the Company's associate global downline network marketing system. He has also consulted on the associate commission plan
in the past, but did not do so during the years ended December 31, 2021 and 2020 . In addition, several of Mr. Robbins’ family members are independent
associates. The Company pays commissions and incentives to its independent associates and, during 2021 and 2020, the Company paid aggregate
commissions and incentives to Mr. Robbins and his family of approximately $1.8 million and $1.9 million, respectively. The aggregate amount of
commissions and incentives paid to Mr. Robbins was approximately $0.2 million in each of 2021 and 2020. The aggregate amount of commission and
incentives paid in 2021 and 2020 to Mr. Robbins' father, Ray Robbins, who holds positions in the Company's associate global downline network marketing
system was approximately $1.6 million and $1.7 million, 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.
Johanna Bala, the wife of Al Bala, the Company’s Chief Executive Officer and President, is an independent associate who earns commissions and
incentives. The aggregate amount of commission and incentives paid to Johanna Bala was approximately $0.1 million in each of 2021 and 2020. The
Company paid less than $0.1 million of commissions and incentives to other members of Al Bala's family in both years. All commissions and incentives paid
to Al Bala's family members are in accordance with the Company’s global associate career and compensation plan.
F-26
Table of Contents
NOTE 9: 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 each of the years ended December 31, 2021 and 2020,
the Company contributed approximately $0.3 million and $0.2 million to the 401(k) Plan for matching contributions, respectively.
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 a point system for position grade and years of service. 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.
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 (gain) loss
Benefits paid to participants
Special termination benefit
Foreign currency
Balance, end of year
Plan assets:
Fair value, beginning of year
Company contributions
Benefits paid to participants
Fair value, end of year
Funded status of the Benefit Plan as of December 31 (in thousands):
Benefit obligation
Fair value of plan assets
Excess of benefit obligation over fair value of plan assets
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
F-27
2021
2020
370 $
49
1
(4)
(171)
—
(32)
213 $
2021
2020
— $
171
(171)
— $
2021
2020
(213) $
—
(213) $
2021
2020
(213) $
(137)
(350) $
319
47
1
6
(30)
8
19
370
—
30
(30)
—
(370)
—
(370)
(370)
(194)
(564)
$
$
$
$
$
$
$
$
Table of Contents
Other changes recognized in comprehensive income (in thousands):
Net periodic cost
Current year actuarial (gain) loss
Amortization of transition obligation
Total recognized in other comprehensive income (loss)
Total recognized in comprehensive income
Amounts not yet reflected in net periodic benefit cost and included in accumulated other
comprehensive gain (in thousands):
Transition obligation
Prior service cost
Net actuarial gain (loss)
Total recognized in accumulated other comprehensive gain
Estimated amounts of amortized transition obligation (in thousands):
Transition obligation
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
$
$
$
$
$
$
Years Ended December 31,
2021
2020
7 $
(4)
(4)
(8)
(1) $
As of December 31,
2021
2020
49 $
84
4
137 $
10
6
(4)
2
12
62
139
(7)
194
2021
2020
(4) $
(4)
As of December 31,
2021
2020
213 $
213
—
370
370
—
The weighted-average assumptions to determine the benefit obligation and net cost are as follows:
Discount rate
Rate of increase in compensation levels
2021
2020
0.20 %
—
0.20 %
—
Components of Expense
Service Cost for the Benefit Plan is included within selling and administrative expenses and all other items noted in the table below (Interest Cost,
Amortization of Transition Obligation, and Prior Service Cost) are included within other (expense) income, net. Pension costs, which are included within
Consolidated Statement of Operations are detailed below for the years ended December 31 (in thousands):
Service cost
Interest cost
Amortization of transition obligation
Gain (loss)
Special termination
Prior service cost
Total pension expense
2021
2020
$
$
49 $
1
4
(4)
—
(43)
7 $
47
1
4
(6)
8
(44)
10
F-28
Table of Contents
Estimated Benefits and Contributions
The Company expects to contribute approximately $25,000 to the Benefit Plan in 2022. As of December 31, 2021, benefits expected to be paid by
the Benefit Plan for the next ten years is approximately as follows (in thousands):
2022
2023
2024
2025
2026
Next five years
Total expected benefits to be paid
$
$
25
19
14
31
34
296
419
NOTE 10: STOCK BASED COMPENSATION
Summary of Stock Plan
The Company currently has one active stock-based compensation plan, the 2017 Plan, which was adopted by the Company’s Board of Directors on
April 17, 2017 and was approved by its shareholders on June 8, 2017, and subsequently amended by the Board in February 2019, which was approved by the
Company's shareholders on June 11, 2019. The 2017 Plan supersedes the Mannatech, Incorporated 2008 Stock Incentive Plan, as amended, which was set to
expire on February 20, 2018. The Board has reserved a maximum of 370,000 shares of our common stock that may be issued under the 2017 Plan (subject to
adjustments for stock splits, stock dividends or other changes in corporate capitalization). As of December 31, 2021, the Company had a total of 144,155
shares available for grant under the 2017 Plan, which expires on April 16, 2027.
The 2017 Plan provides for grants of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, restricted stock
units, performance stock and performance stock units to our employees, board members, and consultants. However, only employees of the Company and its
corporate subsidiaries are eligible to receive incentive stock options. The exercise price per share for all stock options will be no less than the market value of
a share of common stock on the date of grant. Any incentive stock option granted to an employee owning more than 10% of our common stock will have an
exercise price of no less than 110% of our common stock’s market value on the grant date.
The majority of stock options vest over two or three years, and generally are granted with a term of ten years, or five years in the case of an
incentive option granted to an employee who owns more than 10% of our common stock.
A summary of changes in stock options outstanding during the year ended December 31, 2021, is as follows:
Outstanding at beginning of year
Granted
Exercised
Expired
Forfeit
Outstanding at end of year
Options exercisable at year end
Number of
Options
(in thousands)
Weighted
average
exercise
price
2021
Weighted
average
remaining
contractual
life
(in years)
Aggregate
intrinsic
value (in
thousands)
306 $
10
(58)
(14)
—
244 $
236 $
16.07
25.66
14.51
11.40
—
17.10
16.86
5.01 $
4.86 $
5,174
5,054
During 2021, the Company issued 58,483 new shares upon the exercise of options and granted 10,000 new options to management and members of
the Board. Options exercised during the year ending December 31, 2021 and December 31, 2020 had a total intrinsic value, calculated as the difference
between the exercise date stock price and the exercise price of $1.2 million and $0.1 million, respectively. Non-vested shares at each of December 31, 2021
and 2020 were approximately 8,336.
F-29
Table of Contents
Valuation and Expense Information Under FASB ASC Topic 718 Compensation – Stock Compensation
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.
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:
2021
2020
2.4 %
0.7 %
56.7 %
3.0 %
0.3 %
52.5 %
4.5 years
4.5 years
The computation of the expected volatility assumption used in the Black-Scholes calculations for new grants is based on historical volatility 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, 2021 and 2020 was $6.77 and $4.00 per
share, respectively. The total fair value of awards vested during the years ended December 31, 2021 and 2020 was less than $0.1 million and $0.3 million,
respectively.
The Company recorded the following amounts related to the expense of the fair values of options during the years ended December 31, 2021 and
2020 (in thousands):
Selling, general and administrative expenses and income from operations before income taxes
Benefit for income taxes
Effect on net income
2021
2020
$
$
50 $
(12)
38 $
124
(9)
115
As of December 31, 2021, the Company had less than $0.1 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):
Total gross unrecognized
compensation expense
Total tax benefit
associated
with unrecognized
compensation expense
Total net
unrecognized
compensation
expense
2022
2023
$
$
26 $
10
36 $
F-30
6 $
2
8 $
20
8
28
Table of Contents
NOTE 11: COMMITMENTS AND CONTINGENCIES
Purchase Commitments
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 November 2016, the Company entered into a four-year supply agreement to purchase an aloe vera powder in
whole leaf aloe form and an aloe vera gel extract from Natural Aloe de Costa Rica, S.A. The agreement changed from a 2 year auto-renew to 1 year and
extended until November 2022 with a 6 month transition period. As of December 31, 2021, the Company is required to purchase an aggregate of $4.8
million through 2022. Failure to satisfy minimum purchase requirements could result in the loss of exclusivity.
Royalty and Consulting Agreements
The Company utilizes royalty agreements with individuals and entities to provide compensation for items relating to developed products, websites
and emails provided to our associates. The Company paid royalties of less than $0.1 million for the year ended December 31, 2021 and $0.1 million for the
year ended December 31, 2020.
Employment Agreements
The Company has non-cancelable employment agreements with certain executives. If the employment relationships with these executives were
terminated, as of December 31, 2021, the Company would continue to be indebted to the executives for $0.6 million, payable through 2022.
Korean Customs Audit
In November, 2021, the Busan Custom Office began an audit of the Korean customs values and while the audit continues, we have booked a $0.6
million charge to Other Operating Expenses for the most probable outcome. As we process commissions monthly, Mannatech Korea receives from
Mannatech Inc. payments for members’ commissions and these intercompany payments are settled by way of netting set-off with other transactions. We are
seeking an official ruling from the Ministry of Economy and Finance involving the netting of receivables / payables in foreign currency between a Korean
resident and a non-resident and whether this should be reported to the Bank of Korea or a designated foreign exchange bank under compliance with the
Foreign Exchange Transactions Act ("FETA") of Korea. If it is confirmed in the ruling that the above transactions are subject to the advance reporting
requirement under the FETA, there is a possibility of a penalty for the violation.
F-31
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NOTE 12: LITIGATION
Litigation - Product Liability
Hong Wang v. Beili Guan, MTEX Hong Kong Limited, and Mannatech, Incorporated, Case No. 2020-Jin-0116-Civil-7655, Binhai New District
Court, Tianjin, China
On November 16, 2020, MTEX Hong Kong received service of process of the above-captioned matter. Hong Wang (the “Plaintiff”) is alleging that
various Mannatech’s products that she purchased violate the China Food Safety Law. In addition, Plaintiff alleges that her son suffered from tooth decay after
consuming the MannaBears product and that the product violates the China Consumer Protection Law. The Plaintiff is seeking damages of approximately
USD $286,600. MTEX Hong Kong has engaged local counsel to defend this case. On November 22, 2020, MTEX Hong Kong filed a motion objecting to
the court’s jurisdiction.
On April 7, 2021, the Company received service of process of the above-captioned matter. The claims that the Plaintiff alleges against the Company
are the same as those against MTEX Hong Kong. The Company has engaged the same counsel as above to defend this case. The Company filed a motion
objecting to the court’s jurisdiction on April 22, 2021. MTEX Hong Kong and the Company received the court’s ruling rejecting the objection on jurisdiction
on June 15, 2021 and June 21, 2021, respectively. Both entities filed a petition to appeal. On October 14, 2021, the District Appellate Court issued a decision
to uphold the jurisdiction. The final hearing for the case was held on December 17, 2021, where each party presented their respective arguments. On
December 29, 2021, the court issued judgment and decided in favor of the Company and MTEX Hong Kong. On March 9, 2022, the Company and MTEX
Hong Kong received notice from counsel that the Plaintiff appealed to the Tianjin Intermediate Court. A hearing date has not yet been set.
It is not possible at this time to predict whether MTEX Hong Kong will incur any liability, or to estimate the ranges of damages, if any, which may
be incurred in connection with this matter. However, both entities believe that they have a valid defense and will vigorously defend this claim. This matter
remains open.
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.
The outcome of litigation is uncertain, and despite management’s views of the merits of any litigation, or the reasonableness of the Company’s estimates
and reserves, the Company’s financial statements could nonetheless be materially affected by an adverse judgment. The Company believes it has adequately
reserved for the contingencies arising from current legal matters where an outcome was deemed to be probable, and the loss amount could be reasonably
estimated. No legal reserve was deemed necessary at December 31, 2021.
NOTE 13: 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.
F-32
Table of Contents
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. On August 31, 2016, the Company's Board of Directors reactivated
the August 2006 Plan. In August of 2016, and December of 2017, the Company's Board of Directors authorized the Company to repurchase up to $0.5
million, respectively, of the Company's outstanding common shares in open market transactions. In August of 2018 and November of 2018, the Company's
Board of Directors reactivated an additional $0.5 million (of the original $20.0 million authorization), respectively, in shares of the Company's common
stock to be repurchased in the open market. In December of 2019, the Company’s Board of Directors approved a share repurchase program to acquire up to
$1.0 million (of the original $20.0 million authorization) of the Company’s common stock through March 1, 2020. In August 2020, the Company’s Board of
Directors approved a share repurchase program to acquire up to $1.0 million (of the original $20.0 million authorization) of the Company’s common stock
through August 16, 2021. As of August 8, 2017, the total number of shares purchased in the open market under the June 2004 Plan was 112,672, and the
maximum number of remaining shares available for repurchase under the June 2004 Plan was 19,084. As of December 31, 2021, there was $12.6 million
remaining for repurchase under the August 2006 Plan, and the total value of shares repurchased in the open market under the August 2006 Plan was
$1.5 million. The Company does not have any stock repurchase plans or programs other than the June 2004 Plan and the August 2006 Plan.
On May 28, 2021, the Company commenced a cash tender offer to purchase up to 211,538 of its outstanding common stock, at a per share price of
$26.00 per share to each seller in cash, less any applicable withholding taxes and without interest (the "tender offer"). The tender offer expired on June 25,
2021. As a result of the tender offer, the Company accepted for purchase a total of 171,433 shares of its common stock, which were properly tendered and
not properly withdrawn at the price of $26.00 per share, for an aggregate purchase price of $4.5 million, which was funded from cash on hand. These shares
of common stock represented approximately 8.31% of the Company's total outstanding shares as of April 30, 2021.
During the year ended December 31, 2021, the Company repurchased 200,115 shares of its common stock, which includes the 171,433 shares of its
common stock repurchased pursuant to the tender offer, at an average price of $26.76. During the year ended December 31, 2020, the Company repurchased
351,581 shares of its common stock, which included 294,117 shares repurchased pursuant to the 2020 tender offer, at an average price of $17.79.
Equity-Based Compensation
During 2021, 58,483 shares were issued for stock option exercises and a total of 11,238 shares were issued to the members of the Board as
compensation for their work on the Board.
Accumulated Other Comprehensive Income
Accumulated other comprehensive income displayed in the Consolidated Statements of Shareholders’ Equity represents 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.
F-33
Table of Contents
The after-tax components of accumulated other comprehensive income, are as follows (in thousands):
Foreign
Currency
Translation
Pension
Postretirement
Benefit
Obligation
Accumulated
Other
Comprehensive
Income, Net
Balance as of December 31, 2019
Current-period change before reclassifications
Amounts reclassified from accumulated other comprehensive income (loss)
Income tax provision
Balance as of December 31, 2020
Current-period change before reclassifications
Amounts reclassified from accumulated other comprehensive income (loss)
Income tax provision
Balance as of December 31, 2021
$
$
$
3,435 $
1,358
—
—
4,793 $
(2,832)
—
—
1,961 $
322 $
—
54
(19)
357 $
—
37
(13)
381 $
3,757
1,358
54
(19)
5,150
(2,832)
37
(13)
2,342
Dividends
On March 2, 2021, the Board declared a dividend of $0.16 per share that was paid on March 30, 2021 to shareholders of record on March 16, 2021,
for an aggregate amount of $0.3 million.
On May 24, 2021, the Board declared a dividend of $0.16 per share that was paid on June 14, 2021 to shareholders of record on June 2, 2021, for an
aggregate amount of $0.3 million.
On August 31, 2021, the Board declared a dividend of $0.20 per share that was paid on September 29, 2021 to shareholders of record on September
15, 2021, for an aggregate amount of $0.4 million.
On November 22, 2021, the Board declared a dividend of $1.70 per share that was paid on December 29, 2021 to shareholders of record on
December 15, 2021, for an aggregate amount of $3.3 million. This dividend combined the quarterly dividend amount of $0.20 per share with a special
dividend amount of $1.50 per share.
During the year ended December 31, 2021, the Company declared and paid dividends amounting to an aggregate of $4.3 million. During the year
ended December 31, 2020, the Company declared and paid dividends amounting to an aggregate of $3.3 million. Payment of future dividends is at the
discretion of our Board of Directors.
NOTE 14: EARNINGS PER SHARE
The Company calculates basic Earnings per Share ("EPS") by dividing net income by the weighted-average number of common shares outstanding
for the period. Diluted EPS also reflects the potential dilution that could occur if common stock were issued for awards outstanding under the Mannatech,
Incorporated 2017 Stock Incentive Plan.
In determining the potential dilution effect of outstanding stock options during 2021, the Company used the average common stock close price of
$27.36 per share. For the year ended December 31, 2021, there were 1.99 million weighted-average common shares outstanding used for the basic EPS
calculation. For the year ended December 31, 2021, approximately 0.10 million shares subject to options were included in the calculation resulting in
2.09 million dilutive shares used to calculate diluted EPS. For the year ended December 31, 2021, approximately 0.1 million of the Company's common
stock subject to options were excluded from the diluted EPS calculation as the effect would have been antidilutive.
In determining the potential dilution effect of outstanding stock options during 2020, the Company used the average common stock close price of
$15.34 per share. For the year ended December 31, 2020, there were 2.24 million weighted-average common shares outstanding used for the basic EPS
calculation. For the year ended December 31, 2020, approximately 0.03 million shares subject to options were included in the calculation resulting in
2.26 million dilutive shares used to calculate diluted EPS. For the year ended December 31, 2020, approximately 0.9 million of the Company's common
stock subject to options were excluded from the diluted EPS calculation as the effect would have been antidilutive.
F-34
Table of Contents
NOTE 15: SEGMENT INFORMATION
The Company's sole reporting segment is one where we sell proprietary nutritional supplements, skin care and anti-aging products, and weight-
management and fitness products through network marketing distribution channels operating in twenty-four countries. Each of the business units receives
associate fees or sells similar packs (in the case of Mexico and South Korea, where packs have not been replaced with associate fees, see Note 1,
Organization and Summary of Significant Accounting Policies) 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 pack sales and associate fees and
product sales. The Company sells its products through its independent associates who occupy positions in our network and distribute products through
similar distribution channels in each country. No single independent associate has ever accounted for more than 10% of the Company’s consolidated net
sales. The Company also operates a non-direct selling business in mainland China. Our subsidiary in China, Meitai, is operating as a traditional retailer under
a cross-border e-commerce model. Meitai cannot legally conduct a direct selling business in China unless it acquires a direct selling license in China.
The Company operates facilities in eleven countries and sells product in twenty-five countries around the world. These facilities are located in the
United States, Canada, Australia, the United Kingdom, Japan, the Republic of Korea (South Korea), Taiwan, South Africa, Mexico, Hong Kong and China.
Each facility services different geographic areas. We currently sell our products in three regions: (i) the Americas (the United States, Canada and Mexico);
(ii) EMEA (Austria, the Czech Republic, Denmark, Estonia, Finland, Germany, the Republic of Ireland, Namibia, the Netherlands, Norway, South Africa,
Spain, Sweden and the United Kingdom); and (iii) Asia/Pacific (Australia, Japan, New Zealand, the Republic of Korea, Singapore, Taiwan, Hong Kong and
China).
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
Americas
Asia/Pacific
EMEA
Total
2021
46.8
97.7
15.3
159.8
$
$
29.3 % $
61.1 %
9.6 %
100.0 % $
2020
44.9
92.1
14.4
151.4
29.7 %
60.8 %
9.5 %
100.0 %
Consolidated product sales
Consolidated pack sales and associate fees
Consolidated other
Total
2021
2020
151.0 $
8.0
0.8
159.8 $
146.2
4.2
1.0
151.4
$
$
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
Americas
Asia/Pacific
EMEA
Total
2021
2020
$
$
3.8 $
0.4
—
4.2 $
4.4
1.0
—
5.4
F-35
Table of Contents
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
Americas
Asia/Pacific
EMEA
Total
2021
2020
5.7 $
4.7
1.6
12.0 $
5.8
5.7
1.3
12.8
$
$
F-36
The Company has these wholly-owned subsidiaries located throughout the world, as follows:
List of Subsidiaries
Exhibit 21
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
27.MTEX Hong Kong Limited
28.Mannatech Colombia SAS
29.Mannatech RUS Ltd.
30.Meitai Daily Necessity & Health Products Co., Ltd.
31.Meitai Daily Necessity & Health Products Co., Ltd. Guangzhou Branch
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Exhibit 23.1
Mannatech, Incorporated
Flower Mound, Texas
We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (Nos. 333-169468 and 333-169774) and Form S-8
(Nos. 333-72767, 333-77227, 333-94519, 333-47752, 333-113975, 333-153199, 333-182676,
333-197400 and 333-220539) of Mannatech, Incorporated and Subsidiaries of our report dated March 15, 2022, relating to the consolidated financial
statements and financial statement schedule, which appears in this Form 10-K.
/s/ BDO USA, LLP
BDO USA, LLP
Dallas, TX
March 15, 2022
CERTIFICATION
PURSUANT TO 17 CFR 240.13a-14
PROMULGATED UNDER
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Alfredo Bala, certify that:
Exhibit 31.1
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 15, 2022
/s/ Alfredo Bala
Alfredo Bala
Chief Executive Officer
(principal executive officer)
CERTIFICATION
PURSUANT TO 17 CFR 240.13a-14
PROMULGATED UNDER
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, David A. Johnson, certify that:
Exhibit 31.2
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 15, 2022
/s/ David A. Johnson
David A. Johnson
Chief Financial Officer
(principal 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, 2021 as filed
with the Securities and Exchange Commission on the date hereof (the “Report”), I, Alfredo Bala, Chief Executive 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 15, 2022
/s/ Alfredo Bala
Alfredo Bala
Chief Executive Officer
(principal executive 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, 2021 as filed
with the Securities and Exchange Commission on the date hereof (the “Report”), I, David A. Johnson, 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 15, 2022
/s/ David A. Johnson
David A. Johnson
Chief Financial Officer
(principal 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
Year Ended December 31, 2020
Deducted from asset accounts:
Allowance for doubtful accounts
Allowance for obsolete inventories
Valuation allowance for deferred tax assets
Included in accrued expenses:
Reserve for sales returns
Year Ended December 31, 2021
Deducted from asset accounts:
Allowance for doubtful accounts
Allowance for obsolete inventories
Valuation allowance for deferred tax assets
Included in accrued expenses:
Reserve for sales returns
Additions
Balance at
Beginning of
Year
Charged to
Costs and
Expenses
Charged to
other
Accounts
Deductions
Balance at
End of Year
$
$
$
$
$
$
$
$
708
874
12,375
208
506
(442)
68
1,033
817
471
11,933
71
246
638
(3,999)
767
—
—
—
—
—
—
—
—
(99) $
(909) $
— $
817
471
11,933
(1,030) $
71
(76) $
(662) $
— $
987
447
7,934
(783) $
55