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Item 7. Management’s Discussion and Analysis

2025-03-26 compared with 2024-03-28 · 93 added, 77 removed, 255 unchanged (40% 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 our results of operations for each of the two years ended December 31, 2023 and 2022.

The following discussion is intended to assist in the understanding of our consolidated financial position and our results of operations for each of years ended December 31, 2024 and 2023.

This discussion should be read in conjunction with “Item 15.1 – Consolidated Financial Statements” beginning on page F-1 of this report and with other financial information included elsewhere in this report.

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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, Thailand, Taiwan, Hong Kong, and China).

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

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

We conduct our business as a single reporting segment and primarily sell our products through a network of approximately 145,000 active associates and preferred customer positions held by individuals that purchased our products and/or packs or paid associate fees during the last 12 months, who we refer to as active associates and preferred customers .

During the second quarter of 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 133,000 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 .

New pack sales and the receipt of new associate fees in connection with new positions in our network are leading indicators for the long-term success of our business.

New associate or preferred customer positions are created in our network when our associate fees are paid or products and packs are purchased for the first time under a new account.

We review and analyze net sales by geographical location and by products and packs on a consolidated basis.

New associate or preferred customer positions are created in our network when our associate fees are paid, or packs and products are purchased for the first time under a new account.

We review and analyze net sales by geographical location and by packs and products on a consolidated basis.

Each of our subsidiaries sells similar products and exhibits similar economic characteristics, such as selling prices and gross margins.

Because we sell our products principally through network marketing distribution channels, the opportunities and challenges that affect us most are:

recruitment of new and retention of active associates and preferred customers that occupy sales or purchasing positions in our network;

recruitment of new and retention of current associates and preferred customers that occupy sales or purchasing positions in our network;

entry into new markets and growth of existing markets;

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Our 2024 net sales declined $11.4 million, or 8.6%, on a Constant dollar basis (see Non-GAAP Financial Measures, below), and unfavorable foreign exchange caused a $2.7 million decrease in GAAP net sales as compared to 2023.

We incurred an operating loss of $1.0 million for the year ended December 31, 2023, as compared to $0.4 million for the same period last year.

Our 2023 operating loss, on a Constant dollar basis (see Non-GAAP Financial Measures, below), was $0.4 million.

In June 2023, the Company launched a tiered affiliate program in the United States under the brand name, “Trulu™.” The Trulu brand is operated by our wholly owned subsidiary, “NEMO”, and is separate from our network marketing business.

For the year ended December 31, 2023 , we incurred an operating loss of $1.1 million in connection with the start-up of our NEMO business.

Excluding the startup loss of NEMO from the consolidated operating loss on a Constant dollar basis, we would have generated an operating profit of approximately $0.7 million in 2023, as compared to an operating loss of $0.4 million in 2022 .

We generated operating income of $1.4 million for the year ended December 31, 2024, as compared to an operating loss of $ 1.0 million for the same period last year.

Our 2024 operating income, on a Constant dollar basis (see Non-GAAP Financial Measures, below), was $2.2 million.

On a consolidated basis, the strength of the U.S.

dollar against the Korean Won during 2024, provided a foreign currency gain of $2.6 million in other income.

This resulted in net income of $2.5 million, or $1.32 per diluted share, for the year ended December 31, 2024, as compared to a net loss of $2.2 million, or $1.20 per diluted share for the year ended December 31, 2023.

RESULTS OF OPERATIONS

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Selling and administrative expenses 41,722 35.4 % 50,241 38.1 % (8,519) (17.0) %

Depreciation and amortization 1,628 1.2 % 1,627 1.2 % 1 0.1 %

Total operating expenses 90,031 76.4 % 103,829 78.7 % (13,798) (13.3) %

Loss from operations (964) (0.7) % (405) (0.3) % (559) 138.0 %

Interest income 4 — % 88 0.1 % (84) (95.5) %

Other expense, net (170) (0.2) % (162) (0.1) % (8) 4.9 %

Loss before income taxes (1,130) (0.9) % (479) (0.3) % (651) 135.9 %

Income (loss) from operations 1,429 1.2 % (964) (0.7) % 2,393 (248.2) %

Interest (expense) income (279) (0.2) % 4 — % (283) (7,075.0) %

Other income (expense), net 2,590 2.2 % (170) (0.1) % 2,760 1,623.5 %

Income (loss) before income taxes 3,740 3.2 % (1,130) (0.9) % 4,870 431.0 %

Income tax provision (1,250) (1.1) % (1,109) (0.8) % (141) 12.7 %

Net loss $ (2,239) (1.7) % $ (4,490) (3.3) % $ 2,251 50.1 %

Net income (loss) $ 2,490 2.1 % $ (2,239) (1.7) % $ 4,729 211.2 %

Non-GAAP Financial Measures

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dollars, including changes in:

Net Sales, Gross Profit, and Loss from Operations.

Net Sales, Gross Profit, and Income (Loss) from Operations.

We refer to these adjusted financial measures as Constant dollar items, which are Non-GAAP financial measures.

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dollars in the current year, we calculate current year results at a constant exchange rate utilizing the prior year’s rate.

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 (in millions, except percentages).

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

At December 31, 2024, our net sales declined $11.4 million, or 8.6% on a Constant dollar basis (see reconciliation of Non-GAAP Financial Measures in the table below);

unfavorable foreign exchange caused a $2.7 million decrease in GAAP net sales as compared to the same period in 2023.

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

2024 2023 Constant Dollar Change

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Gross profit $ 91.5 $ 2.2 $ 93.7 $ 102.9 $ (9.2) (8.9) %

Loss from operations $ (1.0) $ 0.6 $ (0.4) $ (0.4) $ — — %

Net Sales in Dollars and as a Percentage of Consolidated Net Sales

Income (loss) from operations $ 1.4 $ 0.8 $ 2.2 $ (1.0) $ 3.2 (320.0) %

Net Sales by Region

For the years ended December 31, 2024, our operations outside of the Americas accounted for 66.3% of our consolidated net sales, as compared to 67.6% in 2023.

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

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Total $ 117.9 100.0 % $ 132.0 100.0 %

Net sales decreased by $5.2 million, or 3.8%, for 2023, as compared to 2022.

For the year ended December 31, 2023, our operations outside of the Americas accounted for 67.6% of our consolidated net sales, as compared to 69.7% in 2022.

Sales for the Americas increased by $1.2 million, or 2.9%, to $42.8 million for 2023 as compared to $41.6 million for the same period in 2022.

This increase was primarily due to a 4.4% increase in revenue per active independent associate and preferred customer, which was partially offset by a 1.4% decline in the number of active independent associates and preferred customers.

Sales for the Americas decreased by $3.1 million, or 7.2%, to $39.7 million for 2024 as compared to $42.8 million for the same period in 2023.

This decrease was primarily due to a 8.6% decline in the number of active independent associates and preferred customers, which was partially offset by a 1.5% increase in revenue per active independent associate and preferred customer.

Sales in the Americas includes the Mexico region.

As a result of the strengthening of the Mexican Peso in 2023, foreign currency exchange had the effect of increasing revenue by $0.5 million for the year ended December 31, 2023, as compared to the same period in 2022.

As a result of the weakening of the Mexican Peso in 2024, foreign currency exchange had the effect of decreasing revenue by $0.1 million for the year ended December 31, 2024, as compared to the same period in 2023.

During 2024, Asia/Pacific sales decreased by $10.4 million, or 13.1%, to $69.0 million as compared to $79.4 million for 2023.

Foreign currency exchange had the effect of decreasing revenue in 2024 by $2.7 million, as compared to the same period in 2023.

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

In addition, net sales in the Asia/Pacific region was negatively impacted by a 12.2% decrease in revenue per active independent associate and preferred customer, which was partially due to the foreign exchange rate.

Offsetting these declines, the number of active independent associates and preferred customers in the Asia/Pacific region increased 7.9% in 2023 as compared to 2022 .

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

In addition, net sales in the Asia/Pacific region was negatively impacted by a 4.5% decrease in revenue per active independent associate and preferred customer.

The number of active independent associates and preferred customers in the Asia/Pacific region decreased 9.0% in 2024 as compared to 2023 .

For the year ended December 31, 2024, EMEA sales decreased by $0.6 million, or 6.1%, to $9.2 million as compared to $9.8 million for 2023.

This decrease was primarily due to a 14.5% decrease in the number of active independent associates and preferred customers, and a 2.9% decrease in revenue per active independent associate and preferred customer.

Foreign currency exchange had the effect of decreasing revenue by $0.9 million for the year ended December 31, 2023, as compared to the same period in 2022.

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

This decrease was primarily due to a 6.9% decrease in the number of active independent associates and preferred customers, which was partially offset by a 0.9% increase in revenue per active independent associate and preferred customer.

Foreign currency exchange had the effect of increasing revenue by $0.1 million for the year ended December 31, 2024, as compared to the same period in 2023.

The currency impact is primarily due to the strengthening of the South African Rand and British Pound.

Our sales mix for the years ended December 31, was as follows (in millions, except percentages):

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Total $ 117.9 $ 2.7 $ 120.6 $ 132.0 $ (11.4) (8.6) %

Product Sales

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

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On a constant dollar basis, product sales in 2024 decreased $10.5 million, or 8.4%, as compared to 2023.

The decrease in product sales in 2023 reflects a 7.2% decrease in the number of orders processed, partially offset by an increase in the average order value of $180, as compared to $175 for the same period in 2022.

The decrease in product sales in 2024 reflects a 7.2% decrease in the number of orders processed and a decrease in the average order value of $172, as compared to $180 for the same period in 2023.

We attribute the lower number of orders processed in 2024 to the loss of continuing independent associates and preferred customers as compared to the recruitment of new independent associates and preferred customers.

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Total 133,000 100.0 % 145,000 100.0 %

Pack Sales and Associate Fees

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

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We also do not collect associate fees or sell packs in our non-direct selling business in mainland China.

Pack sales and associate fees for the year ended December 31, 2024 decreased by $1.5 million, or 26.8%, to $4.1 million, as compared to $5.6 million for the same period in 2023.

On a constant dollar basis, pack sales and associate fees in 2024 decreased $1.3 million, or 23.2%, as compared to 2023.

The decrease in pack sales and associate fees in 2024 reflects a 3.7% decrease in the number of orders processed and a 24.2% decrease in the average order value of $49, as compared to $65 for the same period in 2023.

Other sales consisted of:

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For the year ended December 31, 2024, gross profit decreased by $11.4 million, or 11.1%, to $91.5 million, as compared to $102.9 million for the same period in 2023.

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

Gross profit as a percentage of net sales increased to 78.0% for 2023, as compared to 75.9% for 2022, largely due to reduced costs of freight and shipping and other supply chain initiatives, partially offset by certain raw materials price increases.

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

decline in sales.

Gross profit as a percentage of net sales decreased to 77.6% for 2024, as compared to 78.0% for 2023, largely due to increased costs related to supply chain challenges, including increased product costs and increased freight costs.

Commission and Incentives

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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 expenses, credit card processing fees, off-site storage fees, utilities, bad debt, and other miscellaneous operating expenses.

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 years ended December 31, 2024 and 2023, overall selling and administrative expenses were $41.7 million and $50.2 million, respectively.

The increase of $1.2 million primarily includes $0.9 million increase in legal and consulting fees related to the start-up of our NEMO business, $0.8 million increase in marketing costs, $0.5 million increase in our provision of bad debt, offset by a $1.0 million decrease in payroll and benefits costs .

The decrease of $8.5 million primarily includes a $3.2 million decrease in payroll related costs, $1.6 million decrease in legal and consulting fees, $1.5 million decrease in marketing costs, $0.6 million decrease in miscellaneous operating expenses, $0.5 million decrease in travel and entertainment costs, $0.5 million decrease in office expenses, $0.4 million decrease in credit card fees and a $0.2 million decrease in contract labor costs.

Depreciation and Amortization Expense

For each of the years ended December 31, 2023 and 2022, depreciation and amortization expense remained constant at $1.6 million.

Other Expense, net

Primarily due to foreign exchange losses, other expense wa s $0.2 million for each of the years ended December 31, 2023 and 2022.

Provision for Income Taxes

At December 31, 2024 and 2023, depreciation and amortization expense was $1.5 million and $1.6 million, respectively.

Other Income (expense), net

Primarily due to foreign exchange gains, other income wa s $2.6 million for the year ended December 31, 2024.

At December 31, 2023, other expense was $0.2 million, primarily due to foreign exchange losses.

Income Tax (Provision) Benefit

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

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22.2 % 22.2 %

(1) Includes blended state effective rate of 1.2% for 2023 and 2022 in addition to the U.S federal statutory rate of 21% and is now taxed at the full.

(1) Includes blended state effective rate of 1.2% for 2024 and 2023 in addition to the U.S federal statutory rate of 21%.

Income from our international operations is subject to taxation in the countries in which we operate.

Although we may receive foreign income tax credits that would reduce the total amount of income taxes owed in the United States, we may not be able to fully utilize our foreign income tax credits in the United States.

For each of the years ended December 31, 2023 and 2022, the Company’s effective tax rate was (98.1)% and (837.4)%, respectively.

In 2023, the Company’s effective tax rate differed from the statutory rate due to the mix of earnings across jurisdictions and the associated valuation allowances recorded on losses in certain jurisdictions.

In 2022, the Company's effective rate differed from the statutory rate due to additional taxes assessed as a result of the settlement of the income tax audit in Korea, the Company recording a valuation allowance on U.S.

deferred tax assets largely driven by changes in expected earnings mix between jurisdictions and the relative impact of these items on decreased earnings.

For the years ended December 31, 2024 and 2023, the Company’s effective tax rate was 33.4% and (98.1)%, respectively.

In 2024 and 2023, the Company’s effective tax rate differed from the statutory rate due to the mix of earnings across jurisdictions and the associated valuation allowances recorded on losses in certain jurisdictions.

We believe the impact of seasonality on our consolidated results of operations is minimal.

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Cash and cash equivalents was $11.4 million at December 31, 2024, as compared to $7.7 million as of December 31, 2023.

The current portion of restricted cash was $0.9 million at December 31, 2023 and 2022.

The Company is required to restrict cash for (i) direct selling insurance premiums and credit card sales in the Republic of Korea;

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and (iii) Australia building lease collateral.

The current portion of restricted cash was $0.6 million and $0.9 million at December 31, 2024 and 2023, respectively.

The long-term portion of restricted cash was $0.6 million and $0.7 million at December 31, 2024 and 2023, respectively.

Fluctuations in currency rates produced a decrease of $0.8 million in cash and cash equivalents in 2024.

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At December 31, 2024, our working capital was $5.2 million as compared to $1.9 million at December 31, 2023.

The decrease in working capital principally reflects the decrease in our cash balance which was utilized to fund our operations in 2023, as well as pay down our current liabilities and fund financing activities .

The increase in working capital principally reflects the increase in our cash balance which was utilized to fund our operations in 2024, as well as pay down our current liabilities and fund financing activities .

Net Cash Flows

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Operating Activities

Cash used in operating activities was $2.4 million for the year ended December 31, 2023, as compared to $2.6 million in the prior year.

Cash provided in operating activities was $2.3 million for the year ended December 31, 2024, as compared to a use of cash of $2.4 million in the prior year.

The primary factors driving the improvement in cash flow from operating activities were net income of $2.5 million compared to a net loss of $2.2 million and an Unrealized FX gain of $3.3 million compared to $0 for the years ended December 31, 2024 and 2023, respectively.

Investing Activities

For the year ended December 31, 2023 and 2022, we invested $0.7 million and $1.1 million, respectively.

During the year ended December 31, 2023, we invested approximately $0.7 million in back-office software projects and equipment, reported as property and equipment.

During the year ended December 31, 2022, we invested $1.1 million in computer hardware and software.

For the years ended December 31, 2024 and 2023, we invested $0.3 million and $0.7 million, respectively.

During the years ended December 31, 2024 and 2023, we invested approximately $0.3 million and $0.7 million in back-office software projects and equipment, reported as property and equipment, respectively.

Financing Activities

For the year ended December 31, 2023, we utilized $1.9 million for financing activities as compared to $4.3 million for the same period of 2022.

For the year ended December 31, 2023, we used approximately $1.0 million in the repayment of finance lease obligations and other long-term liabilities, $0.7 million in the payment of dividends to shareholders, and $0.2 million in the repurchase of common stock.

For the year ended December 31, 2024, our financing activities provided cash of $2.0 million as compared to a use of cash of $1.9 million for the same period of 2023.

During 2024, we received $3.6 million from the issuance of notes payable (see Note 10, Notes Payable) and we used $1.6 million in the repayment of finance lease obligations.

For the year ended December 31, 2023 , we used approximately $1.0 million in the repayment of finance lease obligations and other long-term liabilities, $0.7 million in the payment of dividends to shareholders, and $0.2 million for the repurchase of common stock.

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Short Term Liquidity

We believe our existing liquidity and projected cash flows from operations are adequate to fund our normal expected future business operations for the next 12 months.

As of December 31, 2023 and 2022, c ash and cash equivalents totaled $7.7 million and $13.8 million, respectively.

While our cash utilization in 2022 and 2023 has reduced our short-term liquidity, we do not believe the impact will prohibit us from meeting our obligations or from executing our business strategy.

See “Item 1A – Risk Factors – Risks Affecting Our Business and Industry - We are subject to liquidity risk, which could adversely affect our financial condition and results of operations.”

We have contractual purchase commitments with certain raw material suppliers to purchase minimum quantities and to ensure exclusivity of our raw materials and the proprietary nature of our products.

At December 31, 2023, we have one supply agreement that requires the Company to purchase an aggregate of $4.2 million through 2024, with no purchase commitments thereafter.

We are currently negotiating with the supplier to amend the agreement to meet current demand levels for these materials.

As of December 31, 2024 and 2023, our c ash and cash equivalents totaled $11.4 million and $7.7 million, respectively.

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 (see Note 10, Notes Payable).

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 material suppliers to purchase minimum quantities.

At December 31, 2024, we have one supply agreement which was amended on April 18, 2024, that requires the Company to purchase an aggregate of $1.1 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.

These agreements do not require us to purchase any minimum quantities.

We have no present commitments or agreements with respect to acquisitions or purchases of any manufacturing facilities;

however, management from time to time explores the possibility of the benefits of purchasing a raw material manufacturing facility to help control costs of our raw materials and help ensure quality control standards.

We have operating lease liabilities for the property and equipment we use in our business operations.

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

At December 31, 2023, our operating lease liabilities were $4.3 million, of which $1.7 million was recorded in Accrued expenses and $2.6 million was recorded in Other long-term liabilities.

At December 31, 2024, our operating lease liabilities were $2.8 million, of which $1.2 million is presented as the current portion and $1.6 million is presented as Operating lease liabilities excluding current portion on our Consolidated Balance Sheets.

We also have finance lease liabilities of $1.0 million and lease restoration liabilities of $0.3 million.

As our primary source of liquidity has historically been our cash flows from operations, our liquidity is dependent on our ability to maintain and/or continue to improve revenue as compared to our operational expenses.

In this regard, our management has established a 2024 business reorganization plan focusing on revenue growth, margin improvement and cost control and reduction.

Our current CEO has announced his retirement effective April 1, 2024.

However, he has agreed to continue to serve as an advisor to the Company to establish certain programs aimed at increasing our revenues and growing our preferred customer and associate base.

Concurrent with the retirement of our existing CEO, our current President and Chief Operating Officer has been promoted to the position of President & CEO.

Furthermore, our management has established a plan to improve margin through a price increase, continued focus on supply chain costs, and certain compensation plan adjustments, as well as to reorganize certain functional operations and reduce our fixed selling and administrative overhead.

However, if our reorganization plans are not successful, or if we are unable to renegotiate a favorable outcome to our minimum purchase commitment contracts, or if we experience prolonged workforce disruptions, disruption in our supply chain, and/or potential decreases in consumer demands, our sales and our overall liquidity in the next twelve months could be negatively impacted.

In this regard, our management has established a 2024 business reorganization plan focusing on revenue growth, margin improvement and cost control and reduction, including a plan to improve margin through a price increase, continued focus on supply chain costs, and certain compensation plan adjustments, as well as to reorganize certain functional operations and reduce our fixed selling and administrative overhead.

However, if our reorganization plans are not successful, or if we experience further or unexpected disruption in our

supply chain, and/or potential decreases in consumer demands, our sales and our overall liquidity in the next twelve months could be negatively impacted.

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.

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However, if our estimates regarding inventory obsolescence are inaccurate or consumer demand for our products changes in an unforeseen manner, we may be exposed to additional material losses or gains in excess of our established estimated inventory reserves.

At each of December 31, 2023 and 2022, our inventory reserves were $0.4 million .

At December 31, 2024 and 2023, our inventory reserves were $0.6 million and $0.4 million, respectively.

Tax Valuation Allowances

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We recognize revenue from shipped packs and products upon receipt by the customer.

We estimate order delivery dates using weighted averages of historical delivery data periodically provided by our freight carriers.

We record the value of orders shipped but not yet delivered to customers as Deferred Revenue on our Consolidated Balance Sheet.

If our assumptions and estimate of the delivery time from shipment to receipt by the customer changes, the new estimate could have a material impact on our revenues and financial results of operations.

Orders placed by associates or preferred customers constitute our contracts.

During the quarter ended September 30, 2024 the Company changed its shipping terms with customers such that ownership transfers upon delivery to the freight carrier, satisfying the Company's performance obligation.

Previously, the Company's shipping terms were Free on Board ("FOB") destination, so the Company recognized revenue upon delivery of the product to the customer and we recorded the value of orders shipped but not yet delivered to customers as Deferred Revenue on our Consolidated Balance Sheets.

Corporate-sponsored event revenue is recognized when the event is held.

Orders placed by associates or preferred customers constitute our contracts with customers.

Product sales placed in the form of an automatic order contain two performance obligations:

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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.

Sales placed through a one-time order contain only the first performance obligation noted above - the delivery of the product.

The Company provides associates with access to a complimentary three-month package for the Success TrackerTM and Mannatech+ online business tools with the first payment of an associate fee.

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This policy allows the associate or preferred customer to return an order within one year of the purchase date upon voluntarily terminating his/her account.

If an associate or preferred customer returns a product unopened and in good condition, he/she may receive a full refund minus a 10% processing fee.

If an associate or preferred customer returns a product unopened and in good condition, he/she may receive a full refund minus any shipping cost, if applicable.

We may also allow the associate or preferred customer to receive a full satisfaction guarantee refund if they have tried the product and are not satisfied for any reason, excluding promotional materials.

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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-K

Item 7. Management’s Discussion and Analysis