MANNATECH INC 10-K

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. PART III Documents Incorporated by Reference 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 F- 1 Report of Independent Registered Public Accounting Firm: BDO USA, LLP; Dallas, Texas; PCAOB ID#243 F- 2 Consolidated Balance Sheets as of December 31, 2021 and 2020 F- 4 Consolidated Statements of Operations for the years ended December 31, 2021 and 2020 F- 5 Consolidated Statements of Comprehensive Income for the years ended December 31, 2021 and 2020 F- 5 Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2021 and 2020 F- 6 Consolidated Statements of Cash Flows for the years ended December 31, 2021 and 2020 F- 7 Notes to Consolidated Financial Statements 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 INDEX TO EXHIBITS Incorporated by Reference Exhibit Number Exhibit Description Form File No. Exhibit (s) Filing Date 3.1 Amended and Restated Articles of Incorporation of Mannatech, dated May 19, 1998. S-1 333-63133 3.1 October 28, 1998 3.2 Amendment to the Amended and Restated Articles of Incorporation of Mannatech, dated January 13, 2012. 8-K 000-24657 3.1 January 17, 2012 3.3 Fifth Amended and Restated Bylaws of Mannatech, effective August 25, 2014. 8-K 000-24657 3.1 August 27, 2014 4.1 Specimen Certificate representing Mannatech’s common stock, par value $0.0001 per share. S-1 333-63133 4.1 October 28, 1998 4.2 Description of Securities 10-K 000-24657 4.2 March 26, 2020 10.1† Mannatech, Incorporated 2017 Stock Incentive Plan S-8 333-233418 4.1 August 22, 2019 10.2† First Amendment to Mannatech, Incorporated 2017 Stock Incentive Plan 10-Q 000-24657 10.1 August 7, 2019 10.3† Form of Performance Stock Unit Award Agreement 10-Q 000-24657 10.2 August 8, 2017 10.4† Form of Stock Option Award Agreement 10-Q 000-24657 10.3 August 8, 2017 10.5† Form of Restricted Stock Unit Award Agreement 10-Q 000-24657 10.4 August 8, 2017 10.6† Form of Stock Appreciation Rights Award Agreement 10-Q 000-24657 10.5 August 8, 2017 10.7† Form of Restricted Stock Award Agreement 10-Q 000-24657 10.6 August 8, 2017 10.8† Form of Performance Stock Award Agreement 10-Q 000-24657 10.7 August 8, 2017 10.9† Amended and Restated 1998 Incentive Stock Option Plan, dated August 7, 2004. 10-K 000-24657 10.1 March 15, 2004 10.10† Amended and Restated 2000 Option Plan, dated August 7, 2004. 10-K 000-24657 10.1 March 15, 2004 10.11 Form of Indemnification Agreement between Mannatech and each member of the Board of Directors of Mannatech Korea Ltd., dated March 3, 2004. 10-Q 000-24657 10.2 August 9, 2004 10.12 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. 10-Q 000-24657 10.4 November 4, 2010 10.13 Commercial Lease Agreement between Mannatech and SCG Lakeside Commerce Center, L.P., dated October 18, 2017. 10-K 000-24657 10.12 March 26, 2018 10.14 Employment Agreement between Alfredo Bala and Mannatech, effective October 1, 2007, dated September 18, 2007. 8-K 000-24657 10.1 September 24, 2007 10.15 Executive Service Agreement between Mannatech Korea, Ltd. and Yong Jae (Patrick) Park, dated October 1, 2009. 10-Q 000-24657 10.1 May 12, 2015 10.16 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) 10-K 00-24657 10.61 March 14, 2017 14.1 Code of Ethics. 10-K 000-24657 14.1 March 16, 2007 21* List of Subsidiaries. * * * * 23.1* Consent of BDO USA, LLP. * * * * 24* Power of Attorney, which is included on the signature page of this annual report on Form 10-K. * * * * 60 Table of Contents Incorporated by Reference Exhibit Number Exhibit Description Form File No. Exhibit (s) Filing Date 31.1* Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, of the Chief Executive Officer of Mannatech. * * * * 31.2* Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, of the Chief Financial Officer of Mannatech. * * * * 32.1* Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of the Chief Executive Officer of Mannatech. * * * * 32.2* Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of the Chief Financial Officer of Mannatech. * * * * 99.1* Financial Statement Schedule Regarding Valuation and Qualifying Accounts. * * * * 101.INS* XBRL Instance Document * * * * 101.SCH* XBRL Taxonomy Extension Schema Document * * * * 101.CAL* XBRL Taxonomy Extension Calculation Linkbase Document * * * * 101.LAB* XBRL Taxonomy Extension Label Linkbase Document * * * * 101.PRE* XBRL Taxonomy Extension Presentation Linkbase Document * * * * 101.DEF* XBRL Taxonomy Extension Definition Linkbase Document * * * * * Filed herewith. † Management contract, compensatory plan or arrangement. 61 Table of Contents SIGNATURES 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. MANNATECH, INCORPORATED Dated: March 15, 2022 By: /s/ Alfredo Bala Alfredo Bala Chief Executive Officer (principal executive officer) Dated: March 15, 2022 By: /s/ David A. Johnson David A. Johnson Chief Financial Officer (principal financial officer) 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 Title Date /s/ Alfredo Bala Chief Executive Officer (principal executive officer) March 15, 2022 Alfredo Bala /s/ David A. Johnson Chief Financial Officer (principal financial officer) March 15, 2022 David A. Johnson /s/ J. Stanley Fredrick Chairman of the Board March 15, 2022 J. Stanley Fredrick /s/ Robert A. Toth Director March 15, 2022 Robert A. Toth /s/ Kevin Andrew Robbins Director March 15, 2022 Kevin Andrew Robbins /s/ Larry A. Jobe Director March 15, 2022 Larry A. Jobe /s/ Eric W. Schrier Director March 15, 2022 Eric W. Schrier /s/ Tyler Rameson Director March 15, 2022 Tyler Rameson 63 Table of Contents INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm F- 2 Consolidated Balance Sheets as of December 31, 2021 and 2020 F- 4 Consolidated Statements of Operations for the years ended December 31, 2021 and 2020 F- 5 Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2021 and 2020 F- 5 Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2021 and 2020 F- 6 Consolidated Statements of Cash Flows for the years ended December 31, 2021 and 2020 F- 7 Notes to Consolidated Financial Statements F- 9 F-1 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 $ 24,185 $ 22,207 Restricted cash 944 944 Accounts receivable, net of allowance of $987 and $817 in 2021 and 2020, respectively 90 186 Income tax receivable 342 1,008 Inventories, net 12,020 12,827 Prepaid expenses and other current assets 2,888 2,962 Deferred commissions 2,369 2,343 Total current assets 42,838 42,477 Property and equipment, net 2,882 4,494 Construction in progress 1,357 864 Long-term restricted cash 503 4,346 Other assets 9,220 11,977 Deferred tax assets, net 2,825 1,175 Total assets $ 59,625 $ 65,333 LIABILITIES AND SHAREHOLDERS’ EQUITY Current portion of finance leases $ 68 $ 76 Accounts payable 3,969 4,797 Accrued expenses 9,224 8,691 Commissions and incentives payable 9,611 10,998 Taxes payable 2,154 1,400 Current notes payable 205 553 Deferred revenue 4,867 5,472 Total current liabilities 30,098 31,987 Finance leases, excluding current portion 66 129 Other long-term liabilities 5,049 7,245 Total liabilities 35,213 39,361 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 33,277 33,795 Retained earnings 7,708 2,213 Accumulated other comprehensive income 2,342 5,150 Treasury stock, at average cost, 802,170 shares as of December 31, 2021 and 671,776 shares as of December 31, 2020 ( 18,915 ) ( 15,186 ) Total shareholders’ equity 24,412 25,972 Total liabilities and shareholders’ equity $ 59,625 $ 65,333 See accompanying notes to consolidated financial statements. F-4 Table of Contents MANNATECH, INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share information) For the years ended December 31, 2021 2020 Net sales $ 159,762 $ 151,407 Cost of sales 34,149 35,505 Gross profit 125,613 115,902 Operating expenses: Commissions and incentives 63,784 61,349 Selling and administrative expenses 29,427 27,845 Depreciation and amortization 1,719 1,990 Other operating costs 21,634 20,227 Total operating expenses 116,564 111,411 Income from operations 9,049 4,491 Interest income 66 83 Other (expense) income, net ( 223 ) 1,151 Income before income taxes 8,892 5,725 Income tax (provision) benefit 950 536 Net income $ 9,842 $ 6,261 Income per common share: Basic $ 4.95 $ 2.80 Diluted $ 4.71 $ 2.77 Weighted-average common shares outstanding: Basic 1,990 2,235 Diluted 2,088 2,264 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in thousands) 2021 2020 Net income $ 9,842 $ 6,261 Other comprehensive income, net of tax: Foreign currency translations gain (loss) ( 2,832 ) 1,358 Pension obligations, net of tax provision of $13 and $19 in 2021 and 2020, respectively 24 35 Other comprehensive income $ ( 2,808 ) $ 1,393 Comprehensive income $ 7,034 $ 7,654 See accompanying notes to consolidated financial statements. F-5 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 $ — $ 34,143 $ ( 690 ) $ 3,757 $ ( 9,935 ) $ 27,275 Net Income — — 6,261 — — 6,261 Payment of cash dividends — — ( 3,358 ) — — ( 3,358 ) Charge related to stock-based compensation — 124 — — — 124 Issuance of unrestricted shares — ( 157 ) — — 367 210 Stock option exercises (cashless) — ( 315 ) — — 315 — Repurchase of common stock — — — — ( 5,933 ) ( 5,933 ) Foreign currency translation — — — 1,358 — 1,358 Pension obligations, net of tax of $19 — — — 35 — 35 Balance at December 31, 2020 $ — $ 33,795 $ 2,213 $ 5,150 $ ( 15,186 ) $ 25,972 Net Income — — 9,842 — — 9,842 Payment of cash dividends — — ( 4,347 ) — — ( 4,347 ) Charge related to stock-based compensation — 50 — — — 50 Issuance of unrestricted shares — ( 44 ) — — 254 210 Stock option exercises — ( 419 ) — — 964 545 Stock option exercises (cashless) — (105) — — 105 — Repurchase of common stock — — — — ( 5,052 ) ( 5,052 ) Foreign currency translation — — — ( 2,832 ) — ( 2,832 ) Pension obligations, net of tax o f $13 — — — 24 — 24 Balance at December 31, 2021 $ — $ 33,277 $ 7,708 $ 2,342 $ ( 18,915 ) $ 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) For the years ended December 31, 2021 2020 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 9,842 $ 6,261 Adjustments to reconcile net income to net cash provided by operating activities : Depreciation and amortization 1,719 1,990 Non-cash operating lease expense 2,201 1,942 Provision for inventory losses 638 506 Provision for doubtful accounts 246 208 (Gain) loss on disposal of assets 36 ( 5 ) Stock-based compensation expense 260 334 Deferred income taxes ( 1,728 ) ( 280 ) Changes in operating assets and liabilities: Accounts receivable ( 150 ) 561 Income tax receivable 666 ( 788 ) Inventories 169 ( 2,664 ) Prepaid expenses and other current assets 144 ( 738 ) Deferred commissions ( 26 ) ( 585 ) Other Assets 486 ( 1,139 ) Accounts payable ( 828 ) 1,271 Accrued expenses and other long-term liabilities ( 1,663 ) ( 2,383 ) Taxes payable 754 ( 787 ) Commissions and incentives payable ( 1,387 ) 1,270 Deferred revenue ( 605 ) 1,056 Net cash provided by operating activities 10,774 6,030 CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of property and equipment ( 650 ) ( 949 ) Proceeds from sale of assets — 2 Net cash used in investing activities ( 650 ) ( 947 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from stock options exercised 545 — Repurchase of common stock ( 5,052 ) ( 5,933 ) Payment of cash dividends ( 4,347 ) ( 3,358 ) Proceeds from Paycheck Protection Program Note Payable — 2,244 Repayment of Paycheck Protection Program Note Payable — ( 2,244 ) Repayment of finance lease obligations and other financing obligations ( 435 ) ( 628 ) Net cash used in financing activities ( 9,289 ) ( 9,919 ) Effect of currency exchange rate changes on cash and cash equivalents and restricted cash ( 2,700 ) 1,333 Net decrease in cash and cash equivalents and restricted cash ( 1,865 ) ( 3,503 ) Cash and cash equivalents and restricted cash at the beginning of the year 27,497 31,000 Cash and cash equivalents and restricted cash at the end of the year $ 25,632 $ 27,497 See accompanying notes to consolidated financial statements. F-7 Table of Contents SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: For the years ended December 31, 2021 2020 Income taxes paid, net $ 137 $ 989 Interest paid on finance leases and other financing obligations $ 31 $ 71 Accrued asset purchases $ — $ 709 Right of use assets acquired in exchange for new operating lease liabilities $ 70 $ 3,189 Finance lease right of use assets acquired in exchange for new finance lease liabilities $ — $ 47 Treasury shares exchanged for stock options exercised $ 105 $ 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 ): December 31, 2021 December 31, 2020 Cash and cash equivalents at beginning of period $ 22,207 $ 24,762 Current restricted cash at beginning of period 944 943 Long-term restricted cash at beginning of period 4,346 5,295 Cash and cash equivalents and restricted cash at beginning of period $ 27,497 $ 31,000 Cash and cash equivalents at end of period $ 24,185 $ 22,207 Current restricted cash at end of period 944 944 Long-term restricted cash at end of period 503 4,346 Cash and cash equivalents and restricted cash at end of period $ 25,632 $ 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: Estimated useful life Office furniture and equipment 5 to 7 years Computer hardware and software 3 to 5 years Automobiles 3 to 5 years Leasehold improvements 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 TM and Mannatech+ online business tools with the first payment of an associate fee. The first payment of an associate fee contains three performance obligations: (a) the associate fee, whereby the Company provides an associate with the right to earn commissions, bonuses and incentives for a year, (b) three months of complimentary access to utilize the Success Tracker™ online tool and (c) three months of complimentary access to utilize the Mannatech+ online business tool. The transaction price is allocated between the three performance obligations on a relative standalone selling price basis. Associates do not have complimentary access to online business tools after the first contractual period. With 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. O ur sales mix for the years ended December 31, was as follows (in millions, except percentages) : 2021 Percentage 2020 Percentage Consolidated product sales $ 151.0 94.5 % $ 146.2 96.5 % Consolidated pack sales and associate fees 8.0 5.0 % 4.2 2.8 % Consolidated other 0.8 0.5 % 1.0 0.7 % Total consolidated net sales $ 159.8 100.0 % $ 151.4 100.0 % 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 (in thousands) Loyalty deferred revenue as of January 1, 2020 $ 3,127 Loyalty points forfeited or expired ( 3,249 ) Loyalty points used ( 9,385 ) Loyalty points vested 12,771 Loyalty points unvested 1,223 Loyalty deferred revenue as of December 31, 2020 $ 4,487 Loyalty deferred revenue as of January 1, 2021 $ 4,487 Loyalty points forfeited or expired ( 3,987 ) Loyalty points used ( 9,809 ) Loyalty points vested 11,676 Loyalty points unvested 1,925 Loyalty deferred revenue as of December 31, 2021 $ 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 $ 68 Provision related to sales made in current period 1,028 Adjustment related to sales made in prior periods 5 Actual returns or credits related to current period ( 959 ) Actual returns or credits related to prior periods ( 71 ) Sales reserve as of December 31, 2020 $ 71 Sales reserve as of January 1, 2021 $ 71 Provision related to sales made in current period 778 Adjustment related to sales made in prior periods ( 11 ) Actual returns or credits related to current period ( 728 ) Actual returns or credits related to prior periods ( 55 ) Sales reserve as of December 31, 2021 $ 55 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 a t $ 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 S oftware 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 ): 2021 2020 Sales by product % of total net sales Sales by product % of total net sales Ambrotose Life ® $ 28,776 18.0 % $ 36,066 23.8 % TruHealth ™ 18,010 11.3 % 16,263 10.7 % Manapol ® Powder 13,141 8.2 % 7,187 4.7 % Advanced Ambrotose ® 11,158 7.0 % 14,662 9.7 % GI-Pro (MicroBiome) 8,478 5.3 % 7,513 5.0 % Total $ 79,563 49.8 % $ 81,691 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 $ 7,838 $ — $ — $ 7,838 Total assets $ 7,838 $ — $ — $ 7,838 Amounts included in: Cash and cash equivalents $ 6,986 $ — $ — $ 6,986 Restricted cash 680 — — 680 Long-term restricted cash 172 — — 172 Total $ 7,838 $ — $ — $ 7,838 2020 Level 1 Level 2 Level 3 Total Assets Interest bearing deposits – various banks $ 6,385 $ — $ — $ 6,385 Total assets $ 6,385 $ — $ — $ 6,385 Amounts included in: Cash and cash equivalents $ 2,137 $ — $ — $ 2,137 Restricted cash 680 — — 680 Long-term restricted cash 3,568 — — 3,568 Total $ 6,385 $ — $ — $ 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) : 2021 2020 Raw materials $ 3,271 $ 2,713 Finished goods 9,196 10,585 Inventory reserves for obsolescence ( 447 ) ( 471 ) Total $ 12,020 $ 12,827 NOTE 4: PROPERTY AND EQUIPMENT 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) : 2021 2020 Office furniture and equipment $ 2,648 $ 2,739 Computer hardware 3,755 3,856 Computer software 44,303 44,264 Automobiles 81 81 Leasehold improvements 4,292 4,508 ROU Assets- finance leases 177 260 55,256 55,708 Less accumulated depreciation and amortization ( 52,374 ) ( 51,214 ) Property and equipment, net 2,882 4,494 Construction in progress 1,357 864 Total $ 4,239 $ 5,358 NOTE 5: LEASES 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 Classification December 31, 2021 December 31, 2020 Right of Use Assets Operating leases Other assets $ 4,625 $ 6,943 Finance leases Property and equipment, net 180 288 Total leased assets 4,805 7,231 Lease Liabilities Current Portion Operating leases Accrued expenses 1,493 2,067 Finance leases Current portion of finance leases 68 76 Long-Term Portion Operating leases Other long-term liabilities 4,318 6,124 Finance leases Finance leases, excluding current portion 66 129 Total leased liabilities $ 5,945 $ 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, w e incurred the following lease costs related to our operating and finance leases (in thousands): Lease Cost Classification 2021 2020 Operating leases Operating lease costs Other operating cost $ 2,201 $ 2,074 Short term lease costs Other operating cost 339 245 Finance leases Amortization of leased assets Depreciation and amortization 108 111 Interest on lease liabilities Interest expense 28 17 Total lease cost $ 2,676 $ 2,447 F-19 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): 2021 2020 Operating cash flows from operating leases $ 2,164 $ 2,400 Financing cash flows from finance leases $ 87 $ 103 As of December 31, 2021 and 2020 the Company's lease terms and discount rates were: 2021 2020 Operating leases Weighted-average remaining lease term (years) 5.04 5.15 Weighted-average discount rate 4.5 % 4.11 % Finance leases Weighted-average remaining lease term (years) 2.14 2.85 Weighted-average discount rate 6.57 % 6.55 % As of December 31, 2021 future minimum lease payments were as follows (in thousands): December 31, 2021 Maturity of lease liabilities Operating Leases Finance Leases 2022 $ 1,715 $ 74 2023 1,166 47 2024 1,250 21 2025 868 1 2026 624 — Thereafter 905 — Total future minimum lease payments $ 6,528 $ 143 Imputed interest ( 716 ) ( 10 ) Present value of minimum lease payments $ 5,811 $ 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) : 2021 2020 Accrued asset purchases $ 96 $ 709 Accrued compensation 2,566 1,879 Accrued sales and other taxes 314 492 Other accrued operating expenses 1,528 671 Customer deposits and sales returns 774 707 Accrued travel expenses related to corporate events 879 590 Accrued shipping and handling costs 356 399 Accrued legal and accounting fees 1,218 1,177 Current portion of operating lease liabilities 1,493 2,067 $ 9,224 $ 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) : 2021 2020 United States $ 6,947 $ 4,934 Foreign 1,945 791 Income before income taxes $ 8,892 $ 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 $ ( 17 ) $ ( 1,086 ) State ( 161 ) 114 Foreign 956 716 778 ( 256 ) Deferred provision (benefit): Federal ( 1,183 ) — State ( 131 ) — Foreign ( 414 ) ( 280 ) ( 1,728 ) ( 280 ) $ ( 950 ) $ ( 536 ) F-21 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: 2021 2020 Federal statutory income taxes 21.0 % 21.0 % State income taxes, net of federal benefit 0.8 2.9 Difference in foreign and United States tax on foreign operations 0.7 1.9 Effect of changes in valuation allowance ( 45.0 ) ( 7.7 ) CARES NOL Carryback Benefit — ( 25.3 ) Foreign Derived Intangible Income (FDII) deduction ( 8.1 ) ( 6.6 ) Global Intangible Low Taxed Income (GILTI) (1) — ( 7.3 ) Foreign Charitable Contributions 0.7 1.4 Prior year adjustments 1.3 8.2 Withholding taxes 2.5 3.2 Changes to uncertain tax positions ( 1.8 ) — Expiration of tax attribute 17.4 — Other ( 0.2 ) ( 1.1 ) ( 10.7 ) % ( 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: 2021 2020 Deferred Revenue $ 409 $ 317 Inventory 235 343 Accrued expenses 1,352 1,034 Net operating loss (1) 5,310 7,078 Equity Compensation 242 296 Foreign tax credit carryover 3,436 4,615 Lease liability 763 922 Other 664 443 Total deferred tax assets $ 12,411 $ 15,048 Valuation allowance ( 7,934 ) ( 11,933 ) Total deferred tax assets, net of valuation allowance $ 4,477 $ 3,115 Deferred tax liabilities: Prepaid expenses 111 131 Deferred commissions 450 305 Internally-developed software 104 237 Lease assets 717 884 Fixed assets 270 383 Total deferred tax liabilities $ 1,652 $ 1,940 Total net deferred tax asset $ 2,825 $ 1,175 (1) The Company’s net operating loss will expire as follows (dollar amounts in thousands): Jurisdiction Gross NOL Tax Effected NOL Expiration Years Australia $ 148 $ 44 Indefinite Bermuda 63 — N/A China 606 151 2024-2026 Colombia 1,654 496 Indefinite Cyprus 1,371 171 2026 Gibraltar 216 — Indefinite Mexico 6,313 1,894 2022-2028 Norway 310 68 Indefinite Russia 8 2 Indefinite Singapore 147 25 Indefinite South Africa 646 181 Indefinite Sweden 456 94 Indefinite Switzerland 6,765 622 2022-2028 Taiwan 3,422 684 2022-2031 Ukraine 9 2 Indefinite United Kingdom 339 64 Indefinite United States - State 13,574 812 2022-Indefinite 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 2021 2020 Australia $ — $ 0.2 China 0.5 0.4 Colombia 0.5 0.6 Cyprus 0.2 0.2 Mexico 1.9 3.1 Norway 0.1 0.1 South Africa 0.2 0.2 Switzerland 0.5 0.5 Taiwan 0.6 1.1 United States 3.4 5.5 Total $ 7.9 $ 11.9 U.S. Tax Deferred tax assets (liabilities) are classified in the accompanying Consolidated Balance Sheets at December 31 as follows (in thousands) : 2021 2020 Deferred tax assets $ 2,828 $ 1,178 Deferred tax liabilities ( 3 ) ( 3 ) Net deferred tax assets $ 2,825 $ 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): 2021 2020 Balance as of January 1 $ 79 $ 79 Additions for tax positions related to the current year — — Additions for tax positions of prior years — — Reductions of tax positions of prior years — — Settlements ( 79 ) — Balance as of December 31 $ — $ 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 Open Years Australia 2013-2020 Japan 2017-2020 Republic of Korea 2017-2020 Switzerland 2017-2020 United States 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: 2021 2020 Balance, beginning of year $ 370 $ 319 Service cost 49 47 Interest cost 1 1 Liability (gain) loss ( 4 ) 6 Benefits paid to participants ( 171 ) ( 30 ) Special termination benefit — 8 Foreign currency ( 32 ) 19 Balance, end of year $ 213 $ 370 Plan assets: 2021 2020 Fair value, beginning of year $ — $ — Company contributions 171 30 Benefits paid to participants ( 171 ) ( 30 ) Fair value, end of year $ — $ — Funded status of the Benefit Plan as of December 31 (in thousands) : 2021 2020 Benefit obligation $ ( 213 ) $ ( 370 ) Fair value of plan assets — — Excess of benefit obligation over fair value of plan assets $ ( 213 ) $ ( 370 ) Amounts recognized in the accompanying Consolidated Balance Sheets consist of, as of December 31 (in thousands) : 2021 2020 Accrued benefit liability $ ( 213 ) $ ( 370 ) Transition obligation and unrealized gain ( 137 ) ( 194 ) Net amount recognized in the consolidated balance sheets $ ( 350 ) $ ( 564 ) F-27 Table of Contents Years Ended December 31, Other changes recognized in comprehensive income (in thousands): 2021 2020 Net periodic cost $ 7 $ 10 Current year actuarial (gain) loss ( 4 ) 6 Amortization of transition obligation ( 4 ) ( 4 ) Total recognized in other comprehensive income (loss) ( 8 ) 2 Total recognized in comprehensive income $ ( 1 ) $ 12 As of December 31, Amounts not yet reflected in net periodic benefit cost and included in accumulated other comprehensive gain (in thousands) : 2021 2020 Transition obligation $ 49 $ 62 Prior service cost 84 139 Net actuarial gain (loss) 4 ( 7 ) Total recognized in accumulated other comprehensive gain $ 137 $ 194 Estimated amounts of amortized transition obligation (in thousands): 2021 2020 Transition obligation $ ( 4 ) $ ( 4 ) As of December 31, Aggregate Benefit Plan information and accumulated benefit obligation in excess of plan assets (in thousands): 2021 2020 Projected benefit obligation $ 213 $ 370 Accumulated benefit obligation 213 370 Fair value of plan assets — — The weighted-average assumptions to determine the benefit obligation and net cost are as follows: 2021 2020 Discount rate 0.20 % 0.20 % Rate of increase in compensation levels — — 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) : 2021 2020 Service cost $ 49 $ 47 Interest cost 1 1 Amortization of transition obligation 4 4 Gain (loss) ( 4 ) ( 6 ) Special termination — 8 Prior service cost ( 43 ) ( 44 ) Total pension expense $ 7 $ 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 $ 25 2023 19 2024 14 2025 31 2026 34 Next five years 296 Total expected benefits to be paid $ 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: 2021 Number of Options (in thousands) Weighted average exercise price Weighted average remaining contractual life (in years) Aggregate intrinsic value (in thousands) Outstanding at beginning of year 306 $ 16.07 Granted 10 25.66 Exercised ( 58 ) 14.51 Expired ( 14 ) 11.40 Forfeit — — Outstanding at end of year 244 $ 17.10 5.01 $ 5,174 Options exercisable at year end 236 $ 16.86 4.86 $ 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: 2021 2020 Dividend yield: 2.4 % 3.0 % Risk-free interest rate: 0.7 % 0.3 % Expected market price volatility: 56.7 % 52.5 % Average expected life of stock options: 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) : 2021 2020 Selling, general and administrative expenses and income from operations before income taxes $ 50 $ 124 Benefit for income taxes ( 12 ) ( 9 ) Effect on net income $ 38 $ 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 $ 26 $ 6 $ 20 2023 10 2 8 $ 36 $ 8 $ 28 F-30 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 Table of Contents 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 $ 3,435 $ 322 $ 3,757 Current-period change before reclassifications 1,358 — 1,358 Amounts reclassified from accumulated other comprehensive income (loss) — 54 54 Income tax provision — ( 19 ) ( 19 ) Balance as of December 31, 2020 $ 4,793 $ 357 $ 5,150 Current-period change before reclassifications ( 2,832 ) — ( 2,832 ) Amounts reclassified from accumulated other comprehensive income (loss) — 37 37 Income tax provision — ( 13 ) ( 13 ) Balance as of December 31, 2021 $ 1,961 $ 381 $ 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 2021 2020 Americas $ 46.8 29.3 % $ 44.9 29.7 % Asia/Pacific 97.7 61.1 % 92.1 60.8 % EMEA 15.3 9.6 % 14.4 9.5 % Total $ 159.8 100.0 % $ 151.4 100.0 % 2021 2020 Consolidated product sales $ 151.0 $ 146.2 Consolidated pack sales and associate fees 8.0 4.2 Consolidated other 0.8 1.0 Total $ 159.8 $ 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 2021 2020 Americas $ 3.8 $ 4.4 Asia/Pacific 0.4 1.0 EMEA — — Total $ 4.2 $ 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 2021 2020 Americas $ 5.7 $ 5.8 Asia/Pacific 4.7 5.7 EMEA 1.6 1.3 Total $ 12.0 $ 12.8 F-36