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Item 2. Management’s Discussion and Analysis

2024-08-13 compared with 2024-05-14 · 169 added, 80 removed, 231 unchanged (52% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion is intended to assist in the understanding of our consolidated financial position and results of operations for the three months ended March 31, 2024 as compared to the same period in 2023, and should be read in conjunction with Item 1 “Financial Statements” in Part I of this quarterly report on Form 10-Q and Item 1A “Risk Factors” in Part I of our 2023 Annual Report.

The following discussion is intended to assist in the understanding of our consolidated financial position and results of operations for the three and six months ended June 30, 2024 as compared to the same period in 2023 and should be read in conjunction with Item 1 “Financial Statements” in Part I of this quarterly report on Form 10-Q and Item 1A “Risk Factors” in Part I of our 2023 Annual Report.

Unless stated otherwise, all financial information presented below, throughout this report, and in the condensed consolidated financial statements and related notes includes Mannatech and all of our subsidiaries on a consolidated basis.

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(ii) Europe/the Middle East/Africa (“EMEA”) (Austria, the Czech Republic, Denmark, Estonia, Finland, Germany, the Republic of Ireland, Namibia, the Netherlands, Norway, South Africa, Spain, Sweden and the United Kingdom);

and (iii) Asia/Pacific (Australia, Japan, New Zealand, the Republic of Korea, Singapore, Taiwan, Hong Kong, and China).

and (iii) Asia/Pacific (Australia, Japan, New Zealand, the Republic of Korea, Singapore, Taiwan, Thailand, Hong Kong, and China).

We also ship our products to customers in the following countries:

Belgium, France, Greece, Italy, Luxembourg, and Poland.

During the quarter ended June 30, 2024 the Company liquidated its entity in Sweden, Mannatech Sverige AB.

We conduct our business as a single operating segment and primarily sell our products through a network of approximately 142,000 active associates and preferred customer positions held by individuals that purchased our products and/or packs or paid associate fees during the last twelve months, who we refer to as current associates and preferred customers .

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Overview of Operating Results

Consolidated net sales for the three months ended March 31, 2024 was $29.4 million, as compared to $34.1 million for the three months ended March 31, 2023, a decrease of $4.7 million, or 13.8%.

For the three months ended March 31, 2024, our net sales decreased $3.9 million, or 11.4% on a Constant dollar basis (see Non-GAAP Financial Measures, below);

and unfavorable foreign exchange caused a $0.8 million decreased in GAAP net sales as compared to the same period in 2023.

The decline in revenues was principally in our Asia/Pacific region reflecting reduced associate recruiting and continued weak economic conditions.

Income from operations was $0.8 million for the three months ended March 31, 2024 as compared to $0.7 million in the same period last year.

On a Constant dollar basis (see Non-GAAP Measures, below), income from operations was unfavorably affected by $0.3 million due to foreign exchange.

Higher gross profit margins reflecting continued improvement in supply chain and product costs, coupled with lower selling and administrative expenses resulting from cost reductions, more than offset the profitability impact from the decline in revenues.

Net income was $1.2 million for the three months ended March 31, 2024, or $0.63 per diluted share, as compared to $0.6 million, or $0.32 per diluted share for the three months ended March 31, 2023.

Consolidated net sales for the three months ended June 30, 2024 was $27.7 million, as compared to $32.6 million for the three months ended June 30, 2023, a decrease of $4.9 million, or 14.9%.

Consolidated net sales for the six months ended June 30, 2024 was $57.1 million, as compared to $66.7 million for the six months ended June 30, 2023, a decrease of $9.6 million, or 14.4%.

The decline in revenues was principally due to supply chain constraints, items on back order, and some weakening of economic conditions in Asia.

The decrease in revenue during the six months ended June 30, 2024 was accompanied by a 1.4% drop in gross profit margins due to the effects of supply chain disruptions, which increased fulfillment costs.

Despite these challenges, management continued to prioritize the reduction of selling and administrative expenses as a countermeasure to soften the impact on profitability.

These efforts yielded a $1.4 million reduction in payroll costs and $1.3 million reduction in consulting fees, compared with the six months ended June 30, 2023.

Foreign currency gains of $0.9 million and $1.1 million in the quarters ended March 31, 2024 and June 30, 2024, respectively, were related to the strengthening of the U.S.

Foreign exchange gains also included a one-time gain of $0.2 million during the quarter ended June 30, 2024 attributable to the liquidation of the Company’s entity in Sweden.

Net loss was $0.6 million for the three months ended June 30, 2024, or $0.33 per diluted share, as compared to a net loss of $1.1 million, or $0.59 per diluted share for the three months ended June 30, 2023.

Net income was $0.6 million for the six months ended June 30, 2024, or $0.30 per diluted share, as compared to a net loss of $0.5 million , or $0.27 per diluted share for the three months ended June 30, 2023.

RESULTS OF OPERATIONS

Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023

The table below summarizes our consolidated operating results in dollars and as a percentage of net sales for the three months ended March 31, 2024 and 2023 (in thousands, except percentages):

Three Months Ended June 30, 2024 Compared to Three Months Ended June 30, 2023

The table below summarizes our consolidated operating results in dollars and as a percentage of net sales for the three months ended June 30, 2024 and 2023 (in thousands, except percentages):

2024 2023 Change from

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Selling and administrative expenses 10,860 39.1 % 13,079 40.1 % (2,219) (17.0) %

Depreciation and amortization expense 416 1.4 % 387 1.1 % 29 7.5 %

Total operating expenses 22,520 81.2 % 26,544 81.4 % (4,024) (15.2) %

Income from operations 820 2.8 % 713 2.1 % 107 15.0 %

Interest income, net 18 0.1 % 24 0.1 % (6) (25.0) %

Loss from operations (1,143) (4.1) % (954) (2.9) % (189) 19.8 %

Interest expense, net (105) (0.4) % (10) — % (95) 950.0 %

Other income, net 1,120 4.0 % 150 0.5 % 970 646.7 %

Loss before income taxes (128) (0.5) % (814) (2.5) % 686 (84.3) %

Income tax expense (496) (1.8) % (291) (0.9) % (205) 70.4 %

Net loss $ (624) (2.2) % $ (1,105) (3.4) % $ 481 (43.5) %

Six Months Ended June 30, 2024 Compared to Six Months Ended June 30, 2023

The table below summarizes our consolidated operating results in dollars and as a percentage of net sales for the six months ended June 30, 2024 and 2023 (in thousands, except percentages):

2024 2023 Change from

net sales Total

net sales Dollar Percentage

Net sales $ 57,133 100.0 % $ 66,708 100.0 % $ (9,575) (14.4) %

Cost of sales 12,658 22.2 % 14,417 21.6 % (1,759) (12.2) %

Gross profit 44,475 77.8 % 52,291 78.4 % (7,816) (14.9) %

Operating expenses:

Commissions and incentives 23,345 40.9 % 27,022 40.5 % (3,677) (13.6) %

Selling and administrative expenses 21,452 37.5 % 25,510 38.2 % (4,058) (15.9) %

Total operating expenses 44,797 78.4 % 52,532 78.7 % (7,735) (14.7) %

Loss from operations (322) (0.6) % (241) (0.4) % (81) 33.6 %

Interest (expense) income, net (87) (0.2) % 14 — % (101) (721.4) %

Other income, net 1,990 3.5 % 483 0.7 % 1,507 312.0 %

Income before income taxes 1,581 2.8 % 256 0.4 % 1,325 517.6 %

Income tax provision (1,025) (1.8) % (757) (1.1) % (268) 35.4 %

Net income $ 1,180 4.0 % $ 604 1.8 % $ 576 95.4 %

Net income (loss) $ 556 1.0 % $ (501) (0.8) % $ 1,057 (211.0) %

Non-GAAP Financial Measures

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Currency impact is determined as the difference between the actual GAAP results and the recalculated results for the current year at the Constant dollar rates.

A reconciliation non-GAAP financial measures to GAAP results for the three months ended March 31, 2024 and 2023 is presented as follows (in millions, except percentages) :

Three-month period ended March 31, 2024 March 31, 2023 Constant $ Change

For the three and six months ended June 30, 2024, our net sales decreased $4.2 million and $8.1 million, or 12.9% and 12.1% on a Constant dollar basis, respectively (see reconciliation of Non-GAAP Financial Measures in the tables below);

and unfavorable foreign exchange caused a $0.7 million and $1.5 million decrease in GAAP net sales as compared to the same periods in 2023, respectively.

A reconciliation non-GAAP financial measures to GAAP results for the three and six months ended June 30, 2024 and 2023 is presented as follows (in millions, except percentages) :

Three-month period ended June 30, 2024 June 30, 2023 Constant $ Change

Total $ Translation Adjustment Non-GAAP

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Gross profit 21.4 0.5 21.9 25.6 (3.7) (14.5) %

Income from operations 0.8 0.3 1.1 0.7 0.4 57.1 %

Consolidated net sales for the three months ended March 31, 2024 decreased by $4.7 million, or 13.8%, to $29.4 million, as compared to $34.1 million for the same period in 2023.

Our operations outside of the Americas accounted for approximately 65.3% of our consolidated net sales in the three months ended March 31, 2024, as compared to 69.2% in the same period last year.

Consolidated net sales by region for the three months ended March 31, 2024 and 2023 were as follows (in millions, except percentages) :

Loss from operations (1.1) 0.1 (1.0) (1.0) — — %

Six-month period ended June 30, 2024 June 30, 2023 Constant $ Change

Total $ Translation Adjustment Non-GAAP

Constant $ GAAP

Total $ Dollar Percent

Net sales $ 57.1 $ 1.5 $ 58.6 $ 66.7 $ (8.1) (12.1) %

Gross profit 44.5 1.2 45.7 52.3 (6.6) (12.6) %

(Loss) income from operations (0.3) $ 0.4 0.1 (0.2) 0.3 (150.0) %

Net Sales by Region

Operations outside of the Americas accounted for approximately 65.7% of our consolidated net sales in the three months ended June 30, 2024, as compared to 67.5% in the same period last year.

Our operations outside of the Americas accounted for approximately 65.5% of our consolidated net sales in the six months ended June 30, 2024, as compared to 68.4% in the same period last year.

Consolidated net sales by region for the three months ended June 30, 2024 and 2023 were as follows (in millions, except percentages) :

Region Three Months Ended

March 31, 2024 Three Months Ended

March 31, 2023

June 30, 2024 Three Months Ended

June 30, 2023

Americas $ 9.5 34.3 % $ 10.6 32.5 %

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Total $ 27.7 100.0 % $ 32.6 100.0 %

For the three months ended March 31, 2024, net sales in the Americas decreased by $0.3 million, or 2.9%, to $10.2 million, as compared to $10.5 million for the same period in 2023.

Consolidated net sales by region for the six months ended June 30, 2024 and 2023 were as follows (in millions, except percentages) :

Region Six Months Ended

June 30, 2024 Six Months Ended

June 30, 2023

Americas $ 19.7 34.5 % $ 21.1 31.6 %

Asia/Pacific 33.0 57.8 % 40.4 60.6 %

EMEA 4.4 7.7 % 5.2 7.8 %

Total $ 57.1 100.0 % $ 66.7 100.0 %

For the three months ended June 30, 2024, net sales in the Americas decreased by $1.1 million, or 10.4%, to $9.5 million, as compared to $10.6 million for the same period in 2023.

R evenue per active independent associate and preferred customer decreased by 13.3% , which was partially offset by a 3.3% increase in number of active independent associates and preferred customers.

Foreign currency had the effect of increasing revenue by $0.2 million for the three months ended March 31, 2024, as compared to the same period in 2023.

The currency impact is due to the strengthening of the Mexican Peso.

For the three months ended March 31, 2024, Asia/Pacific net sales decreased by $4.0 million, or 19.0%, to $17.1 million, as compared to $21.1 million for the same period in 2023 .

Foreign currency had no effect on revenue f or the three months ended June 30, 2024 when compared to the same period in 2023.

For the six months ended June 30, 2024, net sales in the Americas decreased by $1.4 million, or 6.6%, to $19.7 million, as compared to $21.1 million for the same period in 2023.

R evenue per active independent associate and preferred customer decreased by 9.6% , which was partially offset by a 1.6% increase in number of active independent associates and preferred customers.

Foreign currency had the effect of increasing revenue by $0.1 million for the six months ended June 30, 2024, as compared to the same period in 2023.

The currency impact is primarily due to the strengthening of the Mexican Peso.

For the three months ended June 30, 2024, Asia/Pacific net sales decreased by $3.4 million, or 17.6%, to $15.9 million, as compared to $19.3 million for the same period in 2023 .

Revenue per active independent associate and preferred custom er decreased 19.2%, which was partially offset by a 1.9% increase in the number of active independent associates and preferred customers.

In addition, due to supply chain issues we def erred a key product promotion in Korea to later in the year, which drove the decline in revenue in Korea.

Foreign currency exchange had the effect of decreasing revenue by $0.7 million for the three months ended June 30, 2024, as compared to the same period in 2023.

The currency impact is primarily due to the weakening of the Korean Won and Japanese Yen.

For the six months ended June 30, 2024, Asia/Pacific net sales decreased by $7.4 million, or 18.3%, to 33.0 million, as compared to 40.4 million for the same period in 2023 .

Revenue per active independent associate and preferred customer decreased 19.8%, which was partially offset by a 5.1% increase in the number of active independent associates and preferred customers.

Foreign currency exchange had the effect of de creasing revenue by $0.9 million for the three months ended March 31, 2024, as compared to the same period in 2023.

We def erred a key product promotion in Korea to later in the year due to supply chain issues , which drove the decline in revenue in Korea.

Foreign currency exchange had the effect of decreasing revenue by $1.5 million for the six months ended June 30, 2024, as compared to the same period in 2023.

The currency impact is primarily due to the weakening of the Korean Won and Japanese Yen.

For the three months ended March 31, 2024, EMEA net sales decreased by $0.4 million, or 16%, to $2.1 million, as compared to $2.5 million for the same period in 2023.

The decrease was primarily due to a 12.0% decrease in the number of active independent associates and preferred customers and an 4.5% decrease in revenue per active independent associate and preferred customer.

Foreign currency exchange had the effect of decreasing revenue by $0.1 million f or the three months ended March 31, 2024 as compared to the same period in 2023.

For the three months ended June 30, 2024, EMEA net sales decreased by $0.4 million, or 14.8%, to $2.3 million, as compared to $2.7 million for the same period in 2023.

The decrease was primarily due to a 10.1% decrease in the number of active independent associates and preferred customers and a 5.2% decrease in revenue per active independent associate and preferred customer.

Foreign currency exchange had a minimal effect on revenue for the three months ended June 30, 2024 as compared to the same period in 2023.

For the six months ended June 30, 2024, EMEA net sales decreased by $0.8 million, or 15.4%, to $4.4 million, as compared to $5.2 million for the same period in 2023.

The decrease was primarily due to a 11.8 % decrease in the number of active independent associates and preferred customers and a 5.9% decrease i n revenue per active independent associate and preferred customer.

Foreign currency exchange had the effect of decreasing revenue by $0.1 million for the six months ended June 30, 2024 as compared to the same period in 2023.

The currency impact is primarily due to the weakening of the South African Rand.

Our sales mix for the three months ended March 31, was as follows (in millions, except percentages) :

Three-month period ended March 31, 2024 March 31, 2023 Constant $ Change

Our sales mix for the three and six months ended June 30, was as follows (in millions, except percentages):

Three-month period ended June 30, 2024 June 30, 2023 Constant $ Change

Total $ Translation Adjustment Non-GAAP

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Total $ 27.7 $ 0.7 $ 28.4 $ 32.6 $ (4.2) (12.9) %

Six-month period ended June 30, 2024 June 30, 2023 Constant $ Change

Total $ Translation Adjustment Non-GAAP

Constant $ GAAP

Total $ Dollar Percent

Product $ 54.2 $ 1.4 $ 55.6 $ 62.9 $ (7.3) (11.6) %

Pack sales and associate fees 2.1 0.1 2.2 3.5 (1.3) (37.1) %

Other 0.8 0.0 0.8 0.3 0.5 166.7 %

Total $ 57.1 $ 1.5 $ 58.6 $ 66.7 $ (8.1) (12.1) %

Product Sales

Our product sales consist primarily of sales made to our independent associates and preferred customers at published wholesale prices.

Product sales for the three months ended March 31, 2024 decreased by $4.0 million, or 12.5%, as compared to the same period in 2023.

On a Constant dollar basis, product sales for the three months ended March 31, 2024 decreased $3.3 million , or 10.3%, as compared to the same period in 2023.

The decrease in product sales for the three months ended March 31, 2024 reflects a 7.1% decrease in the number of orders processed and a decrease in the average order value to $168, as compared to $185 for the same period in 2023.

Recruitment of new independent associates and preferred customers decreased by 13.6% to 16,027 in the first quarter of 2024 from 18,547 in the first quarter of 2023.We attribute the lower number of orders processed in the three months ended March 31, 2024 to a combination of the lower number of new independent associates and preferred customers recruited during the period and the loss of continuing independent associates and preferred customers.

As a group, continuing independent associates and preferred customers place more orders than new recruits.

Therefore, the decline in continuing independent associates and preferred customers had a larger impact on the number of orders we received in 2024.

The approximate number of new and continuing active independent associates and preferred customers who purchased our packs or products or paid associate fees during the twelve months ended March 31, 2024 and 2023 were as follows:

Product sales for the three months ended June 30, 2024 decreased by $4.7 million, or 15.2%, as compared to the same period in 2023.

On a Constant dollar basis, product sales for the three months ended June 30, 2024 decreased $4.0 million, or 12.9%, as compared to the same period in 2023.

The decrease in product sales for the three months ended June 30, 2024 reflects a 7.9% decrease in the number of orders processed and a decrease in the average order value to $166, as compared to $173 for the same period in 2023.

Product sales for the six months ended June 30, 2024 decreased by $8.7 million, or 13.8%, as compared to the same period in 2023.

On a Constant dollar basis, product sales for the six months ended June 30, 2024 declined $7.3 million, or 11.6%, as compared to the same period in 2023.

The decrease in product sales for the six months ended June 30, 2024 reflects a 7.5% decrease in the number of orders processed and a decrease in the average order value to $167, as compared to $179 for the same period in 2023.

Pack sales, Associate Fees and Recruiting

Recruitment of new independent associates and preferred customers decreased by 13.6% to 16,690 in the second quarter of 2024 from 19,309 in the second quarter of 2023.We attribute the lower number of orders processed in the three months ended June 30, 2024 to a combination of the lower number of new independent associates and preferred customers recruited during the period.

New 74,000 52.1 % 75,000 52.8 %

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Total 142,000 100.0 % 142,000 100.0 %

Pack Sales and Associate Fees

The Company collects associate fees in lieu of selling packs in certain markets.

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Promotional materials, training, database applications and business management tools support our independent associates, which in turn helps stimulate product sales.

For the three months ended March 31, 2024 and 2023, other sales were $0.4 million and $0.1 million, respectively.

For the three months ended March 31, 2024, gross profit decreased by $3.6 million, or 13.5%, to $23.1 million, as compared to $26.7 million for the same period in 2023.

For the three months ended June 30, 2024 and 2023, other sales were $0.4 million and $0.2 million, respectively.

For the six months ended June 30, 2024 and 2023, other sales were $0.8 million and $0.3 million, respectively.

For the three months ended June 30, 2024, gross profit decreased by $4.2 million, or 16.5%, to $21.4 million, as compared to $25.6 million for the same period in 2023.

The decrease in gross profit in dollar terms is principally due to the decline in sales.

For the three months ended March 31, 2024, gross profit as a percentage of net sales increased to 78.6%, as compared to 78.3% for the same period in 2023 largely due to reduced costs of freight and shipping and other supply chain initiatives.

For the three months ended June 30, 2024, gross profit as a percentage of net sales decreased to 77.1%, as compared to 78.5% for the same period in 2023.

Some of the increase in costs were related to increased freight costs related to back ordered items and running some sales promotions on products thereby reducing our margin.

For the six months ended June 30, 2024, gross profit decreased by $7.8 million, or 14.9%, to $44.5 million, as compared to $52.3 million for the same period in 2023.

The decrease in gross profit in dollar terms is principally due to the decline in sales.

For the six months ended June 30, 2024, gross profit as a percentage of net sales decreased to 77.8%, as compared to 78.4% for the same period in 2023.

Commissions and Incentives

Commission expense for the three months ended March 31, 2024 decreased by 13.4%, or $1.7 million, to $11.2 million, as compared to $12.9 million for the same period in 2023.

Commission expense for the three months ended June 30, 2024 decreased by 12.5%, or $1.6 million, to $11.1 million, as compared to $12.7 million for the same period in 2023.

Commissions are earned on sales.

Commission expense in dollar terms decreased during the three months ended March 31, 2024 primarily due to a decline in our sales.

For the three months ended March 31, 2024, commissions as a percentage of net sales increased to 38.1% from 37.9% for the same period in 2023.

Incentive costs for the three months ended March 31, 2024 decreased to $0.5 million, as compared to $0.6 million for the same period in 2023 .

For the three months ended March 31, 2024, incentives as a percentage of net sales decreased to 1.7% from 1.9% for the same period in 2023.

Commission expense in dollar terms decreased during the three months ended June 30, 2024 primarily due to a decline in our sales.

For the three months ended June 30, 2024, commissions as a percentage of net sales increased to 40.0% from 38.9% for the same period in 2023.

The increase in commissions was due partially to running promotions on our products.

Commission expense for the six months ended June 30, 2024 decreased by 12.9%, or $3.3 million, to $22.3 million, as compared to $25.6 million for the same period in 2023.

Commissions are earned on sales.

Commission expense in dollar terms decreased during the six months ended June 30, 2024 primarily due to a decline in our sales.

For the six months ended June 30, 2024, commissions as a percentage of net sales increased to 39.0% from 38.4% for the same period in 2023, due in part to the product promotions run in the quarter ended June 30, 2024.

Incentive costs for the three months ended June 30, 2024 decreased to $0.6 million, as compared to $0.8 million for the same period in 2023 .

For the three months ended June 30, 2024, incentives as a percentage of net sales decreased to 2.0% from 2.4% for the same period in 2023.

The decrease was related to travel incentives in the Americas and Asia/Pacific.

Incentive costs for the six months ended June 30, 2024 decreased to $1.1 million, as compared to $1.4 million for the same period in 2023 .

For the six months ended June 30, 2024, incentives as a percentage of net sales decreased to 1.8% from 2.1% for the same period in 2023.

The decrease was related to travel incentives in the Americas and Asia/Pacific.

Selling and Administrative Expenses

Selling and administrative expenses include a combination of both fixed and variable expenses.

These expenses consist of compensation and benefits for employees, temporary and contract labor and marketing-related expenses, accounting, legal and consulting fees, travel and entertainment expense, credit card processing fees, off-site storage fees, utilities, bad debt and other miscellaneous operating expenses.

For the three months ended March 31, 2024, selling and administrative expenses decreased by $1.9 million, or 15.5%, to $10.1 million, as compared to $12.0 million for the same period in 2023.

The decrease in selling and administrative expenses was the result of cost reductions implemented in the current period combined with other management initiated cost controls including a $0.7 million decrease in legal and consulting fees and a $0.5 million decrease in payroll costs.

Selling and administrative expenses, as a percentage of net sales, for the three months ended March 31, 2024 decreased to 34.6% from 35.3% for the same period in 2023.

Depreciation and Amortization Expense

Depreciation and amortization expense was $0.4 million for each of the three months ended March 31, 2024 and 2023.

These expenses consist of compensation and benefits for employees;

temporary and contract labor;

accounting, legal and consulting fees;

compensation to our board of directors;

warehouse and fulfillment costs;

depreciation and amortization;

marketing-related expenses;

travel and entertainment expenses;

credit card processing fees;

costs for software maintenance agreements;

charitable contributions;

office lease expense;

and other miscellaneous operating expenses.

For the three months ended June 30, 2024, selling and administrative expenses decreased by $2.2 million, or 17.0%, to $10.9 million, as compared to $13.1 million for the same period in 2023.

The decrease in selling and administrative expenses was the result of a $0.9 million reduction in payroll costs, a $0.7 million decrease in legal and consulting fees, a $0.3 million decrease in travel and entertainment costs, a $0.2 million decrease in marketing costs and a $0.1 million decrease in office expenses.

Selling and administrative expenses, as a percentage of net sales, for the three months ended June 30, 2024 decreased to 39.1% from 40.1% for the same period in 2023.

For the six months ended June 30, 2024, selling and administrative expenses decreased by $4.0 million, or 15.9%, to $21.5 million, as compared to $25.5 million for the same period in 2023.

The decrease in selling and administrative expenses was the result of judicious cost reductions, including a $1.4 million decrease in payroll costs and a $1.3 million decrease in consulting fees.

Selling and administrative expenses, as a percentage of net sales, for the six months ended June 30, 2024 decreased to 37.5% from 38.2% for the same period in 2023.

Other Income (Expense), Net

Due principally to foreign exchange gains and losses , other income was $0.9 million and $0.3 million for the three months ended March 31, 2024 and 2023, respectively .

Due to the strengthening of the U.S.

Dollar foreign exchange gains were $1.1 million and $0.2 million for the three months ended June 30, 2024 and 2023, respectively.

Foreign exchange gains were $2.0 million and $0.5 million for the six months ended June 30, 2024 and 2023, respectively.

Income Tax (Provision) Benefit

(Provision) benefit for income taxes include current and deferred income taxes for both our domestic and foreign operations.

Our statutory income tax rates for key jurisdictions are as follows, for the three months ended March 31:

Income tax expense was $0.5 million for the three months ended June 30, 2024 as compared to $0.3 million in the same period last year.

Income tax (provision) or benefit includes current and deferred income taxes for both our domestic and foreign operations.

Our statutory income tax rates for key jurisdictions are as follows, for the six months ended June 30:

Country 2024 2023

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The provision for income taxes is directly related to our profitability and changes in the taxable income among countries of operation.

For the three months ended March 31, 2024 and 2023, the Company’s effective tax rate was 36.0% and 43.6%, respectively.

The effective tax rates for the three months ended March 31, 2024 and 2023 was different from the federal statutory rate due primarily to the mix of earnings across jurisdictions and the associated valuation allowances recorded on losses in certain jurisdictions.

For the three and six months ended June 30, 2024, the Company’s effective tax rate was (277.4)% and 74.8%, respectively.

For the three and six months ended June 30, 2023, the Company’s effective tax rate was (20.8)% and (228.0)%, respectively.

The effective tax rates for the three and six months ended June 30, 2024 and 2023 was different from the federal statutory rate due primarily to the mix of earnings across jurisdictions and the associated valuation allowances recorded on losses in certain jurisdictions.

LIQUIDITY AND CAPITAL RESOURCES

Cash and Cash Equivalents

As of March 31, 2024, our cash and cash equivalents increased by 2.3%, or $0.2 million, to $7.9 million from $7.7 million as of December 31, 2023.

As of June 30, 2024, our cash and cash equivalents increased by 18.9%, or $1.5 million, to $9.2 million from $7.7 million as of December 31, 2023.

The Company is required to restrict cash for:

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and (iii) the Australia building lease collateral.

The current portion of restricted cash balances was $0.9 million at each of March 31, 2024 and December 31, 2023.

The long-term portion of restricted cash balances was $0.7 million at each of March 31, 2024 and December 31, 2023.

The current portion of restricted cash balances was $0.9 million at each of June 30, 2024 and December 31, 2023.

The long-term portion of restricted cash balances was $0.7 million at each of June 30, 2024 and December 31, 2023.

Our principal use of cash is to pay for operating expenses, including commissions and incentives, capital assets, inventory purchases, and periodic cash dividends.

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Working capital represents total current assets less total current liabilities.

At March 31, 2024 and December 31, 2023, our working capital was $2.1 million and $1.9 million , respectively.

At June 30, 2024 and December 31, 2023, our working capital was $4.0 million and $1.9 million , respectively.

Net Cash Flows

Our net consolidated cash flows consisted of the following, for the three months ended March 31 (in millions) :

Our net consolidated cash flows consisted of the following, for the six months ended June 30 (in millions) :

Provided by (Used in):

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Operating Activities

Operating activities provided $1.9 million cash for the three months ended March 31, 2024 as compared to $1.4 million for the same period in 2023.

Operating activities used $0.8 million cash for the six months ended June 30, 2024 as compared to a use of $1.3 million cash in the same period in 2023.

The improvement is due to reduced operating costs and management of inventory carrying balances, which yielded net income of $0.6 million for the six months ended June 30, 2024.

Investing Activities

At each of the three months ended March 31, 2024 and 2023, we invested cash of $0.1 million principally for back-office software projects and equipment, reported as property and equipment.

For the six months ended June 30, 2024 and 2023, we invested cash of $0.1 million and $0.4 million, respectively, principally for back-office software projects, reported as property and equipment.

Financing Activities

For the three months ended March 31, 2024 and 2023, our financing activities used cash of $0.3 million and $0.6 million, respectively.

For the three months ended March 31, 2024, we used $0.3 million in the repayment of finance lease obligations.

For the three months ended March 31, 2023, we used $0.4 million in payments of dividends to shareholders and $0.2 million in the repayment of finance lease obligations.

For the six months ended June 30, 2024 our financing activities provided cash of $3.1 million.

We received $3.6 million from the issuance of notes payable (see Note 4) and we used $0.5 million in the repayment of finance lease obligations.

For the six months ended June 30, 2023 our financing activities used $1.3 million.

For the six months ended June 30, 2023, we used $0.8 million in payments of dividends to shareholders, $0.4 million in the repayment of finance lease obligations and $0.1 million in the repurchase of common stock.

General Liquidity and Cash Flows

Short Term Liquidity

As of March 31, 2024, our cash and cash equivalents was $7.9 million.

As of June 30, 2024, our cash and cash equivalents was $9.2 million.

We believe our existing liquidity and cash flows from operations are adequate to fund our normal expected future business operations for the next twelve months.

On April 23, 2024, the Company entered into unsecured Loan and Promissory Note agreements with three related parties, who are members of the Company’s Board of Directors, and who are current stockholders of the Company, in an aggregate principal amount of $3.6 million.

The purpose of the borrowing was to provide funds to the Company for general working capital needs, including payment to vendors, expansion of the Company’s non-US operations, technology investment primarily for improving the customer ordering process and software updates to improve visibility of sales associate activity.

We have contractual purchase commitments with certain raw materials suppliers to purchase minimum quantities.

At March 31, 2024, we have one supply agreement which was amended on April 18, 2024, that requires the Company to purchase an aggregate of $3.4 million through 2025, with no purchase commitments thereafter.

At June 30, 2024, we have one supply agreement which was amended on April 18, 2024, that requires the Company to purchase an aggregate of $2.6 million through 2025, with no purchase commitments thereafter.

We also maintain other supply agreements and manufacturing agreements to protect our products, regulate product costs, and help ensure quality control standards.

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These operating lease liabilities represent our minimum future payment obligations on operating leases, including imputed interest.

At March 31, 2024, our operating lease liabilities were $3.9 million, of which $1.7 million was recorded in Accrued expenses and $2.2 million was recorded in Other long-term liabilities.

At June 30, 2024, our operating lease liabilities were $3.7 million, of which the current portion of $1.7 million is presented as a component of Accrued expenses and $2.0 million is presented as Operating lease liabilities excluding current portion on our Condensed Consolidated Balance Sheets.

We also have finance lease liabilities of $1.1 million and lease restoration liabilities of $0.3 million.

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If our existing capital resources or cash flows become insufficient to meet current business plans, projections, and existing capital requirements, we may be required to raise additional funds, which may not be available on favorable terms, if at all.

On March 11, 2024, the Company’s Board of Directors authorized the Company to enter into unsecured Loan and Promissory Note agreements (“Promissory Notes”) with three related parties, who are members of the Company’s Board of Directors, and who are current stockholders of the Company, in an aggregate principal amount of $3.6 million.

The purpose of the borrowing is to provide funds to the Company for general working capital needs, including payment to vendors, expansion of the Company’s non-US operations, technology investment primarily for improving the customer ordering process and software updates to improve visibility of sales associate activity.

The Company received a fairness opinion on the terms of the Promissory Notes on April 15, 2024, finding that the terms of the Promissory Notes are fair from a financial point of view.

We completed the financing on April 23, 2024.

Long Term Liquidity

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If circumstances change relating to the various assumptions or conditions used in our estimates, we could experience an adverse effect on our financial position, results of operations, and cash flows.

We have identified the following applicable significant accounting policies and critical estimates as of March 31, 2024.

We have identified the following applicable significant accounting policies and critical estimates as of June 30, 2024.

Inventory Reserves

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Tax Valuation Allowances

As of March 31, 2024, there was nothing recorded in other long-term liabilities on our condensed consolidated balance sheet related to uncertain income tax positions.

As of June 30, 2024, there was nothing recorded in other long-term liabilities on our condensed consolidated balance sheet related to uncertain income tax positions.

As required by Topic 740, we use judgments and make estimates and assumptions related to evaluating the probability of uncertain income tax positions.

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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-Q

Item 2. Management’s Discussion and Analysis