What changed in this filing

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Item 1A. Risk Factors

2024-03-28 compared with 2023-03-17 · 61 added, 57 removed, 431 unchanged (21% of the section changed)

20 unchanged sentences

• our ability to provide proprietary quality-driven products that the market demands;

• competition in recruiting and retaining independent associates.

• competition with other direct selling companies and gig economy companies in recruiting and retaining independent associates.

The loss of key high-level independent associate leaders could negatively impact our associate growth and our revenue.

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Although we have entered into employment agreements with certain senior executive officers, and do not believe that any of them are planning to leave or retire in the near term, we cannot assure you that our senior executive officers or members of our senior management team will remain with us.

As previously disclosed, on January 8, 2024, we were notified by David A.

Johnson, the Company's Chief Financial Officer, of his resignation from his position effective January 22, 2024.

Additionally, as previously disclosed, on March 13, 2024, the Company announced the retirement of Alfredo (Al) Bala, the Chief Executive Officer, on April 1, 2024.

Landen Fredrick will be promoted to President and Chief Executive Officer, and he will continue to serve as interim Chief Financial Officer.

We are conducting a search for a permanent Chief Financial Officer, but there is no assurance that we will be able to identify, attract or hire a replacement in a timely manner.

The loss or limitation of the services of any of our executive officers or members of our senior management team, including our regional and country managers, or the inability to attract additional qualified management personnel could have a material adverse effect on our business, financial condition, results of operations, or independent associate relations.

1 unchanged sentence

Our success and competitive position largely depend on our ability to protect the following proprietary rights:

• our Ambrotose ® complex, a glyconutritional dietary supplement ingredient consisting of a blend of monosaccharides, or sugar molecules, used in the majority of our products;

• our Ambrotose ® complex, a glyconutritional dietary supplement consisting of a blend of monosaccharides, or sugar molecules, which is a stand-alone product and also used as an ingredient in many of our products;

• the MTech AO Blend ® formulation, our proprietary antioxidant technology used in the Ambrotose AO ® product;

6 unchanged sentences

However, our business, profitability, and growth prospects could be adversely affected if we fail to receive adequate protection of our proprietary rights.

Although several patents pertaining to Ambrotose ® technology have expired, Mannatech continues to actively explore additional patent protection of its technology and pursue expanded patent protection strategies.

Although several patents pertaining to our Ambrotose ® technology have expired, Mannatech continues to actively explore additional patent protection of its technology and pursue expanded patent protection strategies.

Our Ambrotose ® product formulation has proprietary elements and we have contractual arrangements with certain suppliers affording us exclusive access to certain ingredients in those formulations.

2 unchanged sentences

The pending patent applications are at various stages of processing, depending on the timeline of each market’s patent offices.

Most of our patents for the Ambrotose AO ® , GI-ProBalance ® ™, PhytoMatrix ® , NutriVerus™, and PhytoBlend ® formulations and our patents in the field of biomarker assays do not expire for another three or more years.

Our inability to develop and introduce new products that gain independent associate, preferred customer, and market acceptance could harm our business.

3 unchanged sentences

Factors that could affect our ability to continue to introduce new products include, among others, government regulations, the inability to attract and retain qualified research and development staff, the termination of third-party research and collaborative arrangements, proprietary protections of competitors that may limit our ability to offer comparable products, and the difficulties in anticipating changes in consumer tastes and buying preferences.

Our inability to develop products, sales platforms, affiliate opportunities, and other initiatives or maintain an affiliate salesforce and market acceptance for our new Trulu brand and products could harm our business.

The failure of our Trulu brand and products to attract or gain acceptance from affiliates or consumers could negatively affect our operating results.

Our operating results have been and could be adversely affected if the Trulu products, affiliate platform, and business opportunity do not generate sufficient enthusiasm and financial benefit to attract affiliates who are interested in selling the Trulu products, building a customer base, and promoting the affiliate program.

In 2023, our Trulu product sales and affiliate participation were below expectations.

Potential factors affecting interest in the Trulu affiliate program and its products include, among other things, perceived product quality and value, similarities to other products, product effectiveness, growth of the gig economy, perceived economic success in the affiliate business opportunity, our technology infrastructure and capabilities, restrictions in social or digital media for sharing products and attracting consumers, and regulatory restrictions on claims.

If we are unable to anticipate changes in consumer preferences and trends, our business, financial condition, and operating results could be materially adversely affected.

Additionally, if we are unable to anticipate changes in the gig and sharing economies and adapt our business opportunity accordingly, our ability to capture growth trends in the social-selling e-commerce marketplace could be materially adversely affected.

Our failure to appropriately respond to changing consumer preferences and demand for new products or product enhancements could significantly harm our relationship with independent associates and preferred customers, our product sales, as well as our financial condition and operating results.

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Our business depends in large part on our ability to maintain consumer confidence in the safety and quality of our products.

We have rigorous product safety and quality standards, which we expect our third-party contract manufacturers to meet.

We have rigorous product safety and quality standards,

which we expect our third-party contract manufacturers to meet.

However, despite our commitment to product safety and quality, our contract manufacturers may not always meet these standards, particularly as we expand our manufacturing operations and product offerings.

1 unchanged sentence

If our contract manufacturers fail to comply with our product safety and quality standards or applicable law, or if our products are or become contaminated, damaged, adulterated, mislabeled, or misbranded, whether caused by us or someone in our supply chain or events outside of our or their control, we may be required to undertake costly remediation efforts, which may include product recalls, formulation changes, the destruction of inventory, and supply chain interruption, and may become subject to negative publicity, regulatory action or fines, and product liability claims, which could materially harm our reputation, business, financial condition, and operating results.

The loss of suppliers or shortages of raw materials could have an adverse effect on our business, financial condition, or results of operations.

The loss of suppliers, shortages of raw materials or our failure to satisfy minimum purchase requirements could have an adverse effect on our business, financial condition, or results of operations.

We depend on outside suppliers for raw materials.

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We are also subject to delays caused by any interruption in the production of these materials including weather, disease, crop conditions, climate change, energy costs, currency fluctuations, logistics service capacities, transportation interruptions, and natural disasters or other catastrophic events.

For example, in March 2020, the WHO declared the outbreak of COVID-19 as a pandemic, which has spread throughout our international regions and throughout the United States.

Beginning in 2020 and continuing through 2022, the Company experienced shortages of raw materials and ingredients for some of its products.

We have experienced challenges in getting these materials and ingredients to our contract manufacturers and finished products to our distribution centers resulting from reductions in global transportation capacity and other logistical issues within the supply chain.

The extent to which COVID-19 impacts our future operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the outbreak, new information which may emerge concerning the severity of multiple new variants of the virus that causes COVID-19, and the actions to contain COVID-19 or treat its impact, or the safety and efficacy of the various vaccines approved to treat COVID-19, among others.

In particular, the continued spread of COVID-19 globally could adversely impact our operations, including among others, our manufacturing and supply chain, sales and marketing and clinical trial operations and could have an adverse impact on our business and our financial results.

For example, in March 2020, the WHO declared the outbreak of COVID-19 as a pandemic, which spread throughout our international regions and throughout the United States.

Beginning in 2020 and continuing through 2023 , the Company experienced challenges in getting certain materials and ingredients to our contract manufacturers and finished products to our distribution centers resulting from reductions in global transportation capacity and other logistical issues within the supply chain.

The extent to which COVID-related factors impact our future operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the continued use of updated COVID-19 vaccines, the impact of variants of COVID-19 and post-COVID conditions often referred to as “Long COVID” or “long-haul COVID,” among others.

In particular, the spread of new COVID-19 variants or other rapidly spreading communicable diseases globally could adversely impact our operations, including among others, our manufacturing and supply chain, sales and marketing and clinical trial operations and could have an adverse impact on our business and our financial results.

We maintain supply agreements with our suppliers and manufacturers.

Certain of our supply agreements contain exclusivity clauses for the supply of certain raw materials and products, some of which are conditioned upon compliance with minimum purchase requirements.

One of our supply agreements, under which the supplier provides us with certain aloe vera-based raw materials, requires us to purchase raw materials in an aggregate amount of $4.2 million through 2024.

Failure to satisfy minimum purchase requirements could result in the loss of exclusivity, which could adversely affect our business.

If we are exposed to product liability claims, we may be liable for damages and expenses, which could affect our overall financial condition, results of operations and cash flows.

10 unchanged sentences

Concentration Risk

A significant portion of our revenue is derived from our Ambrotose Life ® , TruHealth ™ , Advanced Ambrotose ® , Manapol® Powder and Optimal Support Packets.

A significant portion of our revenue is derived from our Ambrotose, Ambrotose Life ® , TruHealth ™ , Manapol®, and Optimal Support Packets 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, 2022 and 2021 (in thousands, except percentages) :

product % of total

net sales Sales by

product % of total

Ambrotose Life ®

$ 28,734 20.9 % $ 28,776 18.0 %

15,730 11.5 % 18,010 11.3 %

Advanced Ambrotose ®

9,624 7.0 % 11,158 7.0 %

Manapol ® Powder

7,909 5.8 % 13,141 8.2 %

Optimal Support Packets 6,916 5.0 % 7,593 4.7 %

Total $ 68,913 50.2 % $ 78,678 49.2 %

Our business is not currently exposed to customer concentration risk given that no independent associate has ever accounted for more than 10% of our consolidated net sales.

Currently, the Republic of Korea is our largest market.

An economic decline in the market, a shift in consumer demand for our products or business opportunity, or regulatory changes affecting our business model, products, or compensation plan in this market could have a material adverse effect on our earnings, cash flows, and financial position.

If we incur substantial liability from litigation, complaints, or enforcement actions or incur liabilities or penalties resulting from misconduct by our independent associates, our financial condition could suffer, and could have a negative impact on our profitability and growth prospects.

10 unchanged sentences

Such competition could adversely affect our business and current market share.

A downturn in the economy, including as a result of COVID-19, could affect consumer purchases of discretionary items such as the health and wellness products that we offer, which could have an adverse effect on our business, financial condition, profitability, and cash flows.

A downturn in the economy, including as a result of continuing COVID-related factors such as variants and post-COVID conditions, or other communicable and rapidly spreading diseases could affect consumer purchases of discretionary items such as the health and wellness products that we offer, which could have an adverse effect on our business, financial condition, profitability, and cash flows.

We appeal to a wide demographic consumer profile and offer a broad selection of health and wellness products.

A downturn in the economy, including as a result of COVID-19, could adversely impact consumer purchases of discretionary items such as health and wellness products.

A downturn in the economy, including as a result of the continuation of COVID-related factors or other rapidly spreading communicable diseases, could adversely impact consumer purchases of discretionary items such as health and wellness products.

The United States and global economies may slow dramatically as a result of a variety of problems, including turmoil in the credit and financial markets, concerns regarding the stability and viability of major financial institutions, the state of the housing markets, and volatility in worldwide stock markets.

30 unchanged sentences

Although there is no single federal law in the United States imposing a cross-sectoral data breach notification obligation, virtually every state has enacted breach notification requirements.

Additionally, many of the international countries in which we operate have proposed or enacted laws or regulations on the appropriate use and disclosure of financial and personal data.

Additionally, many U.S.

states and countries in which we operate have proposed or enacted laws or regulations on the appropriate use and disclosure of financial and personal data.

The EU adopted the General Data Protection Regulation (“GDPR”) on April 27, 2016.

17 unchanged sentences

Our information technology systems are susceptible to a growing and evolving threat of cybersecurity risk.

Any substantial compromise of our data security, whether externally or internally, or misuse of associate, customer, or employee data, could cause considerable damage to our reputation, cause the public disclosure of confidential information, and result in lost sales, significant costs, and litigation, which would negatively affect our financial position and results of operations.

If our third-party vendors do not maintain adequate security measures, do not require their sub-contractors to maintain adequate security measures, do not perform as anticipated and in accordance with contractual requirements, or become targets of cyber-attacks, we may experience breach of customer data or operational difficulties and increased costs, which could materially and adversely affect our business.

Any substantial compromise of our data security, whether externally or internally, or misuse of associate, customer, or employee data, could cause considerable damage to our

reputation, cause the public disclosure of confidential information, and result in lost sales, significant costs, and litigation, which would negatively affect our financial position and results of operations.

Although we maintain policies and processes surrounding the protection of sensitive data, which we believe to be adequate, there can be no assurances that we will not be subject to such claims in the future.

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As of December 31, 2023 and 2022, cash and cash equivalents held in bank accounts in foreign countries totaled $3.5 million and $11.3 million, respectively.

We maintain supply agreements with our suppliers and manufacturers.

Certain of our supply agreements contain exclusivity clauses for the supply of certain raw materials and products, some of which are conditioned upon compliance with minimum purchase requirements.

One of our supply agreements, under which the supplier provides us with certain aloe vera-based raw materials, requires us to purchase raw materials in an aggregate amount of $ 7.9 million through 2024.

Failure to satisfy minimum purchase requirements could result in the loss of exclusivity, which could adversely affect our business.

If we are unsuccessful in generating positive cash flow from operations, we could exhaust our available cash resources and be required to secure additional funding through a debt or equity financing, transfer cash in a manner that could be taxed, significantly scale back our operations, and/or discontinue many of our activities, which could negatively affect our business and prospects.

Additional funding may not be available or may only be available on unfavorable terms.

We are subject to liquidity risk, which could adversely affect our financial condition and results of operations

Effective liquidity management is essential for the operation of our business.

Although we have implemented strategies to maintain sufficient and diverse sources of funding to accommodate planned, as well as unanticipated, changes in assets and liabilities, under various economic conditions, an inability to raise capital through operations and other sources could have a material adverse effect on our liquidity.

Our access to funding sources in amounts adequate to finance our activities could be impaired by factors that affect us specifically or the direct selling industry in general.

Factors that could detrimentally impact our access to liquidity sources include credit availability through commercial banking, foreign exchange controls, limitations on the repatriation of funds, and changes in currency policies or practices of foreign jurisdictions.

Deterioration in economic conditions may increase our cost of funding and limit our access to some sources of liquidity.

Risks Related to Our International Operations

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• changes in taxation;

• wars, civil unrest, acts of terrorism and other hostilities;

• wars, civil unrest, acts of terrorism, conflicts and other hostilities;

• political, economic, and social conditions;

• the effects of COVID-19;

• the continuing effects of COVID-related factors;

• changes to trade practice laws or regulations governing direct selling and network marketing;

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To date, we have not entered into any hedging contracts or participated in any hedging or derivative activities.

The spread of COVID-19 underscores certain risks we face, and the rapid development and fluidity of this situation precludes any prediction as to the ultimate adverse impact to us of COVID-19.

On March 11, 2020 the World Health Organization declared COVID-19 a pandemic, and on March 13, 2020 the United States declared a national emergency with respect to COVID-19.

The spread of COVID-19 underscores certain risks we face in our business that are described in this Annual Report on Form 10-K.

Governmental and non-governmental organizations may not effectively combat the spread and severity of COVID-19, which could adversely impact our profitability.

The adverse economic effects of COVID-19 may materially decrease demand for our products based on changes in consumer behavior or the restrictions in place by governments trying to curb the outbreak.

For example, we rescheduled in-person corporate sponsored events in 2021 and in 2022, opting instead to hold virtual events.

In many cases, our associates canceled in-person sales meetings and utilized online platforms to meet virtually.

The majority of our events in 2022 were held virtually and those events that were in-person had much lower attendance as compared to similar meetings prior to the pandemic.

While we do plan to hold corporate sponsored in-person events in 2023, we are prepared to transition those planned in-person events to virtual events.

The continued uncertainty regarding the spread and duration of the COVID-19 pandemic, including the multiple new variants of the virus that causes COVID-19, could lead to adverse impacts on our sales in fiscal year 2023 and our overall liquidity.

Notwithstanding the relaxation of pandemic-related constraints in certain markets, considerable uncertainty remains surrounding the potential effects and the effectiveness of government initiatives to contain the spread of COVID-19 domestically and in our international markets, could continue to have material and adverse effects on our ability to operate effectively.

Our ability and the ability of our independent associates to conduct business remains constrained in some of our key markets due to partial closure of certain businesses and the inability of our associates to market our products as a result of lockdowns and similar policies that may be implemented in an effort to mitigate the spread of COVID-19.

Furthermore, the outbreak of COVID-19 continues to impact global economic activity, and has caused significant volatility and negative pressure in the financial markets.

We experienced challenges in getting raw materials and ingredients to our contract manufacturers and finished products to our distribution centers resulting from reductions in global transportation capacity.

The fluidity of this situation precludes any prediction as to the ultimate adverse impact to us of COVID-19.

We are continuing to monitor the spread of COVID-19 and related risks.

The magnitude and duration of the pandemic and its impact on our business, results of operations, financial position, and cash flows is uncertain as this continues to evolve globally.

However, as new variants of the virus continue to emerge, such impact could grow and our business, results of operations, financial position, and cash flows could be materially adversely affected.

COVID-related factors and the possibility of other epidemics or rapidly spreading communicable disease may continue to negatively impact our business.

Due to the person-to-person nature of our direct selling business model, our financial results have been, and will likely continue to be, harmed if the fear of a communicable and rapidly spreading disease results in travel restrictions or cause people to avoid group meetings or gatherings or interaction with other people.

It is difficult to predict the impact on our business, if any, of the emergence of COVID-19 variants, COVID-related factors such as “Long COVID” or “Long-haul COVID” remain ongoing, new epidemics, or other crises.

The outbreak of COVID-19 in 2020 and ensuing pandemic resulted in significant contraction of economies around the world and interrupted global supply chains as many governments issued shelter-in-place orders to combat the spread of COVID-19.

Government-imposed restrictions and public hesitance regarding in-person gatherings, travel and visiting public places reduced our associates’ ability to hold sales meetings, resulted in cancellations of corporate-sponsored and associate-sponsored events, and incentive trips.

Our supply chain and logistics incurred some interruptions and cost impacts, and we could experience more significant interruptions and cost impacts or face more significant closures in the future, whether due to the ongoing effects of COVID-19 directly, or other related factors such as resistance to vaccines or resistance to vaccine requirements.

These factors and other events related to COVID-19 have negatively impacted our sales and operations and could continue to negatively affect our business and our financial results.

Although some of the negative impacts of COVID-19 have improved and many government restrictions have been lifted, this situation continues to be fluid and there is uncertainty regarding its duration and future impacts.

For example, COVID-19 variants have caused some of the pandemic’s negative impacts to return, and COVID-related factors affected our business in some of our Asian markets.

Risks Related to Regulation

53 unchanged sentences

In the event that local laws and regulations require us to treat our independent distributors as employees, or if our distributors are deemed by local regulatory authorities to be our employees, rather than independent contractors, we may be held responsible for social security and/or related social taxes in those jurisdictions, plus any related assessments and penalties, which could harm our financial condition and operating results.

Laws regarding independent contractor status in certain jurisdictions, including the U.S., continue to evolve and have been applied unfavorably to gig economy companies, platform companies, and some of our counterparts in the direct selling channel.

If federal, state, or local laws and regulations or the interpretation of those laws and regulations require us to treat our independent associates or Trulu affiliates as employees, or if they are deemed by local regulatory authorities in one or more of the jurisdictions in which we operate to be our employees rather than independent contractors, under existing laws and interpretations, we may be deemed to be responsible for a variety of obligations that are imposed upon employers relating to their employees, including social security and related taxes in those jurisdictions, wages, employee benefits, plus any related assessments and penalties, which could harm our financial position and operations.

Challenges by private parties to the form of our network marketing system could harm our business.

48 unchanged sentences

The formatting issues, which have been corrected, centered on stating “O g” or “0%” instead of “< 1g” or less than “< 1%” for sugar and sodium, respectively.

We were also asked to remove the statement, “Not a significant source of saturated fat, trans fat, cholesterol, protein, vitamin D, calcium, or iron.”

We were also asked to remove the statement, “Not a significant source of saturated fat, trans fat, cholesterol, protein, vitamin D, calcium, or iron.” While the labeling issues raised by the FDA have been corrected, we continued to experience FDA holds and future holds and requested changes could cause delays within our supply chain resulting in potential back orders, which could reduce associate and customer confidence and have a negative impact on our sales.

In some foreign countries, nutritional products are considered foods, while other countries consider them drugs.

20 unchanged sentences

Many direct selling companies operating in China are still experiencing negative effects to their business operations including limited sales meetings, media scrutiny, and unfavorable consumer sentiment towards direct selling companies.

Chinese officials of various ministries and agencies stated that they will continue to monitor healthcare product and direct selling companies.

Chinese officials of various ministries and agencies stated that they will continue to monitor healthcare product and direct

selling companies.

The suspension on issuing direct selling licenses remains in effect and it is unclear whether there will be changes to the application processes if and when the suspension is lifted.

35 unchanged sentences

We regularly assess the likely outcomes of these audits in order to determine the appropriateness of our tax provision.

The amounts ultimately paid upon resolution of these or subsequent tax audits could be materially different from the amount previously included in our income tax provision, and, therefore, could have a material impact on our profitability.

The amounts ultimately paid upon

resolution of these or subsequent tax audits could be materially different from the amount previously included in our income tax provision, and, therefore, could have a material impact on our profitability.

Risks Related to Owning Our Common Stock

52 unchanged sentences

Accordingly, additional risks and uncertainties not currently known, or that we currently deem not material, may also adversely affect our business operations.

Unresolved Staff Comments

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors