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Item 2. Management’s Discussion and Analysis

2025-05-13 compared with 2024-11-12 · 85 added, 167 removed, 237 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 and nine months ended September 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.

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, 2025 as compared to the same period in 2024 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 2024 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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We develop and sell innovative, high quality, proprietary nutritional supplements, topical and skin care and anti-aging products, and weight-management products that target optimal health and wellness.

We currently sell our products in twenty-five countries which we group into three regions:

We currently sell our products in three regions:

(i) the Americas (the United States, Canada and Mexico);

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

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 136,000 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 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 current associates and preferred customers that occupy sales or purchasing positions in our network;

entry into new markets and growth of existing markets;

niche market development;

new product introduction;

and investment in our infrastructure.

Our subsidiary in China, Meitai, is currently operating as a traditional retailer under a cross-border e-commerce model.

Meitai cannot legally conduct a direct selling business in China unless it acquires a direct selling license in China.

We sell our products principally through network marketing distribution channels via our active associates (“independent associate” or “associates” or “distributors”) and to our “preferred customers,” which we believe is the most cost-effective way to introduce our products and communicate information about our business to the global marketplace quickly and effectively.

Network marketing minimizes upfront costs, as compared to conventional marketing methods, and allows us to be more responsive to the ever-changing overall market conditions, as well as continue to research and develop high quality products and focus on controlled successful international expansion.

We believe the network marketing channel also allows us to effectively communicate the potential benefits and unique properties of our proprietary products to our consumers.

In addition, network marketing provides our associates with an avenue to supplement their income by building their own business centered on our business philosophies and unique products.

As of March 31, 2025, we had approximately 129,000 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.

At the time of purchase, a customer may choose to sign up as a “preferred customer” to receive the same pricing on our products as our associates and to receive emails about our products and promotions.

Preferred customers do not participate in the Company’s compensation plan.

The Company also operates a non-direct selling business in mainland China.

In 2016, we formed our China subsidiary, Meitai Daily Necessities & Health Products Co., Ltd.

Unlike Mannatech’s business operations in other markets, Meitai operates under a cross-border e-commerce model, where consumers in China can buy Mannatech products manufactured overseas via Meitai’s website.

Meitai is currently not a direct selling company in China nor can it operate under a multi-level marketing model in China.

Products purchased on Meitai’s website are for personal use and not for resale.

Meitai offers a rewards program to incentivize existing customers to refer other customers to purchase products from Meitai’s website.

Customs regulations in China include purchase limits to ensure that purchased products are for personal consumption.

Our common stock trades on The Nasdaq Capital Markets (“Nasdaq”) under the symbol “MTEX.”

The Company maintains a corporate website at www.mannatech.com.

Overview of Operating Results

Consolidated net sales for the three months ended September 30, 2024 was $31.7 million, as compared to $32.6 million for the three months ended September 30, 2023, a decrease of $0.9 million, or 2.5%.

Consolidated net sales for the nine months ended September 30, 2024 was $88.9 million, as compared to $99.3 million for the nine months ended September 30, 2023, a decrease of $10.4 million, or 10.5%.

Consolidated net sales for the three months ended March 31, 2025 was $26.6 million, as compared to $29.4 million for the three months ended March 31, 2024, a decrease of $2.8 million, or 9.6%.

The decline in revenues was principally due to slowing demand in Asia due to weakened economic conditions, relative to the prior year.

The decrease in revenue during the nine months ended September 30, 2024 was accompanied by a 2.2% decrease in gross profit margins, primarily due to increases in product costs and $0.6 million of inventory markdowns.

To mitigate the impacts to profitability, management continued to prioritize the reduction of selling and administrative expenses, which yielded a $4.3 million reduction in payroll costs and $1.5 million reduction in consulting and professional services costs, compared with the nine months ended September 30, 2023.

Net realized and unrealized foreign currency loss for the quarter ended September 30, 2024 was $1.5 million, primarily related to the effects of translation of the Company's balance sheet as the U.S.

Dollar strengthened relative to other currencies.

The quarter ended September 30, 2023 resulted in a foreign exchange gain of $0.3 million.

Net realized and unrealized foreign currency gains for the nine months ended September 30, 2024 and September 30, 2023 were $0.5 million and $0.8 million, respectively.

These were primarily related to the effects of translation gains and losses on the Company's balance sheet as the U.S.

Net realized and unrealized foreign currency loss for the quarter ended March 31, 2025 was $0.4 million, primarily related to the effects of translation of the Company's balance sheet as the U.S.

Dollar strengthened relative to other currencies.

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

Net loss was $0.3 million for the three months ended September 30, 2024, or $0.17 per diluted share, as compared to net income of $18,000, or $0.01 per diluted share for the three months ended September 30, 2023.

Net income was $0.2 million for the nine months ended September 30, 2024, or $0.12 per diluted share, as compared to a net loss of $0.5 million , or $0.26 per diluted share for the nine months ended September 30, 2023.

The quarter ended March 31, 2024 resulted in a foreign exchange gain of $0.9 million.

Net loss was $1.5 million for the three months ended March 31, 2025, or $0.80 per diluted share, as compared to net income of $1.2 million, or $0.63 per diluted share for the three months ended March 31, 2024.

RESULTS OF OPERATIONS

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

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

Three Months Ended March 31, 2025 Compared to Three Months Ended March 31, 2024

The table below summarizes our consolidated operating results in dollars and as a percentage of net sales for the three months ended March 31, 2025 and 2024 (in thousands, except percentages):

2025 2024 Change from

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Total operating expenses 20,569 77.4 % 22,277 75.8 % (1,708) (7.7) %

Income from operations 887 2.8 % 172 0.5 % 715 415.7 %

Interest expense, net (109) (0.3) % (17) (0.1) % (92) 541.2 %

(Loss) income from operations (833) (3.1) % 820 2.8 % (1,653) (201.6) %

Interest (expense) income, net (73) (0.3) % 18 0.1 % (91) (505.6) %

Other (expense) income, net (418) (1.6) % 871 3.0 % (1,289) (148.0) %

(Loss) income before income taxes (1,324) (5.0) % 1,709 5.8 % (3,033) (177.5) %

Income tax benefit (expense) 389 1.2 % (457) (1.4) % 846 (185.1) %

Income tax expense (206) (0.8) % (529) (1.8) % 323 (61.1) %

Net (loss) income $ (1,530) (5.8) % $ 1,180 4.0 % $ (2,710) (229.7) %

Nine Months Ended September 30, 2024 Compared to Nine Months Ended September 30, 2023

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

2024 2023 Change from

net sales Total

net sales Dollar Percentage

Net sales $ 88,858 100.0 % $ 99,261 100.0 % $ (10,403) (10.5) %

Cost of sales 20,763 23.4 % 21,042 21.2 % (279) (1.3) %

Gross profit 68,095 76.6 % 78,219 78.8 % (10,124) (12.9) %

Operating expenses:

Commissions and incentives 36,237 40.8 % 40,200 40.5 % (3,963) (9.9) %

Selling and administrative expenses 31,293 35.2 % 38,088 38.4 % (6,795) (17.8) %

Total operating expenses 67,530 76.0 % 78,288 78.9 % (10,758) (13.7) %

Income (loss) from operations 565 0.6 % (69) (0.1) % 634 (918.8) %

Interest expense, net (196) (0.2) % (3) — % (193) 6,433.3 %

Other income, net 495 0.6 % 803 0.8 % (308) (38.4) %

Income before income taxes 864 1.0 % 731 0.7 % 133 18.2 %

Income tax provision (636) (0.7) % (1,214) (1.2) % 578 (47.6) %

Net income (loss) $ 228 0.3 % $ (483) (0.5) % $ 711 (147.2) %

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.

For the three and nine months ended September 30, 2024, our net sales decreased $0.4 million and $8.5 million, or 1.2% and 8.6% on a Constant dollar basis, respectively (see reconciliation of Non-GAAP Financial Measures in the tables below);

and unfavorable foreign exchange caused a $0.5 million and $1.9 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 nine months ended September 30, 2024 and 2023 is presented as follows (in millions, except percentages) :

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

Total $ Translation Adjustment Non-GAAP

Constant $ GAAP

Total $ Dollar Percent

Net sales $ 31.7 $ 0.5 $ 32.2 $ 32.6 $ (0.4) (1.2) %

Gross profit 23.6 0.4 24.0 25.9 (1.9) (7.3) %

Income from operations 0.9 0.1 1.0 0.2 0.8 400.0 %

Nine-month period ended September 30, 2024 September 30, 2023 Constant $ Change

For the three months ended March 31, 2025, our net sales decreased $1.6 million or 5.4% on a Constant dollar basis,(see reconciliation of Non-GAAP Financial Measures in the tables below);

and unfavorable foreign exchange caused a $1.2 million decrease in GAAP net sales as compared to the same periods in 2024, respectively.

A reconciliation non-GAAP financial measures to GAAP results for the three months ended March 31, 2025 and 2024 is presented as follows (in millions, except percentages) :

Three-month period ended March 31, 2025 March 31, 2024 Constant $ Change

Total $ Translation Adjustment Non-GAAP

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Gross profit $ 19.7 $ 1.0 $ 20.7 $ 23.1 $ (2.4) (10.4) %

Income (loss) from operations 0.6 $ 0.5 1.1 (0.1) 1.2 (1,200.0) %

(Loss) income from operations $ (0.8) $ 0.3 $ (0.5) $ 0.8 $ (1.3) (162.5) %

Net Sales by Region

Operations outside of the Americas accounted for approximately 66.6% of our consolidated net sales in the three months ended September 30, 2024, as compared to 67.2% in the same period last year.

Our operations outside of the Americas accounted for approximately 65.8% of our consolidated net sales in the nine months ended September 30, 2024, as compared to 68.0% in the same period last year.

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

Operations outside of the Americas accounted for approximately 66.2% of our consolidated net sales in the three months ended March 31, 2025, as compared to 65.3% in the same period last year.

Consolidated net sales by region for the three months ended March 31, 2025 and 2024 were as follows (in millions, except percentages) :

Region Three Months Ended

September 30, 2024 Three Months Ended

September 30, 2023

Americas $ 10.6 33.4 % $ 10.7 32.8 %

Asia/Pacific 18.6 58.7 % 19.6 60.1 %

EMEA 2.5 7.9 % 2.3 7.1 %

Total $ 31.7 100.0 % $ 32.6 100.0 %

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

Region Nine Months Ended

September 30, 2024 Nine Months Ended

September 30, 2023

March 31, 2025 Three Months Ended

March 31, 2024

Americas $ 9.0 33.8 % $ 10.2 34.7 %

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Total $ 26.6 100.0 % $ 29.4 100.0 %

For the three months ended September 30, 2024, net sales in the Americas decreased by $0.1 million, or 0.9%, to $10.6 million, as compared to $10.7 million for the same period in 2023.

For the three months ended March 31, 2025, net sales in the Americas decreased by $1.2 million, or 11.8%, to $9.0 million, as compared to $10.2 million for the same period in 2024.

The number of active independent associates and preferred customers decreased by 12.0%, which was partially offset by a 0.2% increase in revenue per active independent associate and preferred customer.

Foreign currency had the effect of decreasing revenue by $0.2 million f or the three months ended September 30, 2024 when compared to the same period in 2023.

T he currency impact is primarily due to the weakening of the Mexican Peso.

For the nine months ended September 30, 2024, net sales in the Americas decreased by $1.4 million, or 4.4%, to $30.4 million, as compared to $31.8 million for the same period in 2023.

R evenue per active independent associate and preferred customer decreased 0.7% , which was partially offset by a 0.5% increase in number of active independent associates and preferred customers.

Foreign currency had no effect on revenue in the Americas for the nine months ended September 30, 2024, as compared to the same period in 2023.

For the three months ended September 30, 2024, Asia/Pacific net sales decreased by $1.0 million, or 5.1%, to $18.6 million, as compared to $19.6 million for the same period in 2023 .

T he number of active independent associates and preferred customers decreased by 9.2%, which was partially offset by a 4.5 % increase in r evenue per active independent associate and preferred custom er.

Foreign currency exchange had the effect of decreasing revenue by $0.4 million for the three months ended September 30, 2024, as compared to the same period in 2023.

Foreign currency had the effect of decreasing revenue by $0.2 million for the three months ended March 31, 2025 when compared to the same period in 2024.

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

For the three months ended March 31, 2025, Asia/Pacific net sales decreased by $1.7 million, or 9.9%, to $15.4 million, as compared to $17.1 million for the same period in 2024.

The number of active independent associates and preferred customers decreased by 10.9%, which was partially offset by a 1.1% increase in revenue per active independent associate and preferred customer.

Foreign currency exchange had the effect of decreasing revenue by $1.0 million for the three months ended March 31, 2025, as compared to the same period in 2024.

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

For the nine months ended September 30, 2024, Asia/Pacific net sales decreased by $8.4 million, or 14%, to $51.6 million, as compared to $60.0 million for the same period in 2023 .

A challenging economic environment in Korea led to a 5.3% decrease in r evenue per active independent associate and preferred customer , which was partially offset by a 1.5% increase in the number of active independent associates and preferred customers.

Foreign currency exchange had the effect of decreasing revenue by $2.0 million for the nine months ended September 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 September 30, 2024, EMEA net sales increased by $0.2 million, or 8.7%, to $2.5 million, as compared to $2.3 million for the same period in 2023.

For the three months ended March 31, 2025, EMEA net sales increased by $0.1 million, or 4.8%, to $2.2 million, as compared to $2.1 million for the same period in 2024.

The increase was primarily due to a 9.9% increase in revenue per active independent associate and preferred customer, which was partially offset by a 4.7% decrease in the number of active independent associates and preferred customers.

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

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

For the nine months ended September 30, 2024, EMEA net sales decreased by $0.6 million, or 8%, to $6.9 million, as compared to $7.5 million for the same period in 2023.

The decrease was primarily due to a 10.6 % decrease in the number of active independent associates and preferred customers and a 1.7% decrease i n revenue per active independent associate and preferred customer.

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

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

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

Total $ Translation Adjustment Non-GAAP

Constant $ GAAP

Total $ Dollar Percent

Product $ 30.1 $ 0.4 $ 30.5 $ 31.0 $ (0.5) (1.6) %

Pack sales and associate fees 1.3 — 1.3 1.2 0.1 8.3 %

Other 0.3 0.1 0.4 0.4 — — %

Total $ 31.7 $ 0.5 $ 32.2 $ 32.6 $ (0.4) (1.2) %

Nine-month period ended September 30, 2024 September 30, 2023 Constant $ Change

There was no foreign currency impact on revenue for the three months ended March 31, 2025 as compared to the same period in 2024.

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

Three-month period ended March 31, 2025 March 31, 2024 Constant $ Change

Total $ Translation Adjustment Non-GAAP

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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 September 30, 2024 decreased by $0.9 million, or 2.9%, as compared to the same period in 2023.

On a Constant dollar basis, product sales for the three months ended September 30, 2024 decreased $0.5 million, or 1.6%, as compared to the same period in 2023.

The decrease in product sales for the three months ended September 30, 2024 reflects a 6.4% decrease in the number of orders processed and a decrease in the average order value to $178, as compared to $177 for the same period in 2023.

The Company experienced supply chain issues with some products during 2024, which led to stock outs of certain products and affected the timing of certain key product promotions during the year.

Product sales for the nine months ended September 30, 2024 decreased by $9.6 million, or 10.2%, as compared to the same period in 2023.

On a Constant dollar basis, product sales for the nine months ended September 30, 2024 declined $7.8 million, or 8.3%, as compared to the same period in 2023.

The decrease in product sales for the nine months ended September 30, 2024 reflects a 7.2% decrease in the number of orders processed and a decrease in the average order value to $171, as compared to $178 for the same period in 2023.

Product sales for the three months ended March 31, 2025 decreased by $2.4 million, or 8.6%, as compared to the same period in 2024.

On a Constant dollar basis, product sales for the three months ended March 31, 2025 decreased $1.3 million, or 4.7%, as compared to the same period in 2024.

The decrease in product sales for the three months ended March 31, 2025 reflects a 1.5% decrease in the number of orders processed and a decrease in the average order value to $153, as compared to $168 for the same period in 2024.

Pack sales, Associate Fees and Recruiting

Recruitment of new independent associates and preferred customers decreased by 28.1% to 16,741 in the third quarter of 2024, as compared with 23,296 in the third quarter of 2023.

We attribute the lower number of orders processed in the three months ended September 30, 2024 to a combination of the lower number of new independent associates and preferred customers recruited during the period.

Recruitment of new independent associates and preferred customers decreased by 13.9% to 13,749 in the first quarter of 2025, as compared with 15,970 in the first quarter of 2024.

We attribute the lower number of orders processed in the three months ended March 31, 2025 to a combination of the lower number of new independent associates and preferred customers recruited during the period.

Pack sales and associate fees are closely related to recruiting and retention of business-building associates.

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 September 30, 2024 and 2023 were as follows:

New 61,000 47.3 % 77,000 53.8 %

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The decline in pack sales occurred principally in Korea.

Pack sales and associate fees for the three months ended March 31, 2025 decreased by $0.4 million, or 36.4%, to $0.7 million, as compared to $1.1 million for the same period in 2024.

On a constant dollar basis, pack sales and associate fees for the three months ended March 31, 2025 decreased $0.3 million, or 27.3%, as compared to 2024.

The decrease in pack sales and associate fees reflects a 24.3% decrease in the number of orders processed and a decrease in the average order value of $45, as compared to $51 for the same period in 2024.

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

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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 September 30, 2024 and 2023, other sales were $0.3 million and $0.4 million, respectively.

For the nine months ended September 30, 2024 and 2023, other sales were $1.2 million and $0.7 million, respectively.

For the three months ended September 30, 2024, gross profit decreased by $2.3 million, or 8.9%, to $23.6 million, as compared to $25.9 million for the same period in 2023.

For the three months ended September 30, 2024, gross profit as a percentage of net sales decreased to 74.5%, as compared to 79.6% for the same period in 2023.

For each of the three months ended March 31, 2025 and 2024, other sales were $0.4 million.

For the three months ended March 31, 2025, gross profit decreased by $3.4 million, or 14.6%, to $19.7 million, as compared to $23.1 million for the same period in 2024.

For the three months ended March 31, 2025, gross profit as a percentage of net sales decreased to 74.3%, as compared to 78.6% for the same period in 2024.

The decrease in gross profit in dollar terms is principally due to increased product costs, including inventory markdowns, and increased freight costs.

The timing of certain sales promotions also reduced gross profit as a percentage of net sales during the quarter, compared with the same period in 2024.

For the nine months ended September 30, 2024, gross profit decreased by $10.1 million, or 12.9%, to $68.1 million, as compared to $78.2 million for the same period in 2023.

The decrease in gross profit in dollar terms is principally due to increased costs related to supply chain challenges, including increased product costs and increased freight costs.

For the nine months ended September 30, 2024, gross profit as a percentage of net sales decreased to 76.6%, as compared to 78.8% for the same period in 2023.

Commissions and Incentives

Commission expense for the three months ended September 30, 2024 decreased by 2.0%, or $0.2 million, to $12.2 million, as compared to $12.4 million for the same period in 2023.

Commissions are earned on sales.

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

For the three months ended September 30, 2024, commissions as a percentage of net sales remained constant at 38.3%.

Commission expense for the nine months ended September 30, 2024 decreased by 9.2%, or $3.5 million, to $34.5 million, as compared to $38.0 million for the same period in 2023.

Commission expense for the three months ended March 31, 2025 decreased by 10.5%, or $1.2 million, to $10.0 million, as compared to $11.2 million for the same period in 2024.

Commissions are earned on sales.

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

For the nine months ended September 30, 2024, commissions as a percentage of net sales increased to 38.8% from 38.3% for the same period in 2023.

Incentive costs for the three months ended September 30, 2024 and 2023 remained constant at $0.7 million.

For the three months ended September 30, 2024, incentives as a percentage of net sales remained constant at 2.3%.

Incentive costs for the nine months ended September 30, 2024 decreased to $1.8 million, as compared to $2.2 million for the same period in 2023 .

For the nine months ended September 30, 2024, incentives as a percentage of net sales decreased to 2.0% from 2.2% for the same period in 2023.

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

Commission expense in dollar terms decreased during the three months ended March 31, 2025 primarily due to a decline in our sales.

For the three months ended March 31, 2025, commissions as a percentage of net sales decreased to 37.7% as compared to 38.1% for the same period in 2024.

Incentive costs for the three months ended March 31, 2025 and 2024 remained constant at $0.5 million.

For the three months ended March 31, 2025, incentives as a percentage of net sales increased to 2.0% as compared to 1.7% for the same period in 2024.

Selling and Administrative Expenses

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and other miscellaneous operating expenses.

For the three months ended September 30, 2024, selling and administrative expenses decreased by $2.8 million, or 21.8%, to $9.8 million, as compared to $12.6 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 $0.6 million decrease in marketing costs, a $0.6 million decrease to bad debt, a $0.3 million decrease in professional and consulting fees, a $0.2 million decrease in office expenses, $0.1 million decrease in depreciation expense and a $0.1 million decrease in travel and entertainment costs.

Selling and administrative expenses, as a percentage of net sales, for the three months ended September 30, 2024 decreased to 31.0% from 38.6% for the same period in 2023.

For the nine months ended September 30, 2024, selling and administrative expenses decreased by $6.8 million, or 17.8%, to $31.3 million, as compared to $38.1 million for the same period in 2023.

The decrease in selling and administrative expenses was the result of judicious cost reductions, including a $2.3 million decrease in payroll costs, a $1.7 million decrease in professional and consulting fees, a $0.9 million decrease in marketing costs, a $0.6 million decrease to bad debt, a $0.5 million decrease in costs of office space, a $0.4 million decrease in travel and entertainment costs, a $0.2 million decrease in contract labor costs and a $0.2 million decrease in credit card fees.

Selling and administrative expenses, as a percentage of net sales, for the nine months ended September 30, 2024 decreased to 35.2% from 38.4% for the same period in 2023.

For the three months ended March 31, 2025, selling and administrative expenses decreased by $0.6 million, or 5.4%, to $10.0 million, as compared to $10.6 million for the same period in 2024.

The decrease in selling and administrative expenses was the result of a $0.8 million reduction in payroll costs, which was offset by a $0.2 million increase in legal and consulting fees.

Selling and administrative expenses, as a percentage of net sales, for the three months ended March 31, 2025 increased to 37.7% from 36.0% for the same period in 2024.

Other Income (Expense), Net

Foreign exchange losses were $1.5 million for the three months ended September 30, 2024.

Foreign exchange gains were $0.3 million for the three months ended September 30, 2023.

Foreign exchange gains were $0.5 million and $0.8 million for the nine months ended September 30, 2024 and 2023, respectively.

Foreign exchange losses were $0.4 million for the three months ended March 31, 2025.

Foreign exchange gains were $0.9 million for the three months ended March 31, 2024.

Income Tax (Provision) Benefit

Income tax benefit was $0.4 million for the three months ended September 30, 2024 as compared to income tax expense of $0.5 million in the same period last year.

Income tax expense was $0.2 million for the three months ended March 31, 2025 as compared to $0.5 million in the same period in 2024.

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 nine months ended September 30:

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

Country 2025 2024

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

For the three and nine months ended September 30, 2024, the Company’s effective tax rate was 83.9%

and 71.1%, respectively.

For the three and nine months ended September 30, 2023, the Company’s effective tax rate was 43.0% and 166.1%, respectively.

The effective tax rates for the three and nine months ended September 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.

For the three months ended March 31, 2025 and 2024 , the Company’s effective tax rate was (15.1)% and 36.0%, respectively.

The effective tax rates for the three months ended March 31, 2025 and 2024 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 September 30, 2024, our cash and cash equivalents increased by 57.2%, or $4.5 million, to $12.2 million from $7.7 million as of December 31, 2023.

As of March 31, 2025, our cash and cash equivalents decreased by 18.2%, or $2.1 million, to $9.3 million from $11.4 million as of December 31, 2024.

The Company is required to restrict cash for:

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and (iii) collateral for a building lease in Australia.

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

The long-term portion of restricted cash balances was $0.6 million and $0.7 million at September 30, 2024 and December 31, 2023, respectively.

The current portion of restricted cash balances was $0.6 million at each of March 31, 2025 and December 31, 2024.

The long-term portion of restricted cash balances was $0.6 million at each of March 31, 2025 and December 31, 2024.

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 September 30, 2024 and December 31, 2023, our working capital was $5.7 million and $1.9 million , respectively.

At March 31, 2025 and December 31, 2024, our working capital was $4.0 million and $5.2 million , respectively.

Net Cash Flows

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

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

Provided by (Used in):

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Operating Activities

Operating activities provided $2.5 million cash for the nine months ended September 30, 2024 as compared to a use of $1.0 million cash in the same period in 2023.

The improvement is due to reduced operating costs and management of inventory carrying balances over the nine months ended September 30, 2024.

Operating activities used $1.4 million cash for the three months ended March 31, 2025 as compared to cash provided of $1.9 million in the same period in 2024.

Investing Activities

For the nine months ended September 30, 2024 and 2023, we invested cash of $0.4 million and $0.5 million, respectively, principally for back-office software projects, reported as property and equipment.

For the three months ended March 31, 2025 and 2024, we invested cash of $0.5 million and $0.1 million, respectively, principally for back-office software projects, reported as property and equipment.

Financing Activities

For the nine months ended September 30, 2024 our financing activities provided cash of $2.9 million.

We received $3.6 million from the issuance of notes payable (see Note 4) and we used $0.7 million in the repayment of finance lease obligations.

For the nine months ended September 30, 2023 our financing activities used $1.6 million.

For the nine months ended September 30, 2023, we used $0.7 million in payments of dividends to shareholders, $0.7 million in the repayment of finance lease obligations and $0.2 million in the repurchase of common stock.

For the three months ended March 31, 2025 and 2024, our financing activities used cash of $0.1 million and $0.1 million, respectively, in the repayment of finance lease obligations.

General Liquidity and Cash Flows

Short Term Liquidity

As of September 30, 2024, our cash and cash equivalents was $12.2 million.

As of March 31, 2025, our cash and cash equivalents was $9.3 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.

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

At September 30, 2024, we have one supply agreement which was amended on April 18, 2024, that requires the Company to purchase an aggregate of $1.8 million through 2025, with no purchase commitments thereafter.

At March 31, 2025, we have one supply agreement, that requires the Company to purchase an aggregate of $0.2 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 September 30, 2024, our operating lease liabilities were $3.3 million, of which $1.5 million is presented as the current portion and $1.8 million is presented as Operating lease liabilities excluding current portion on our Condensed Consolidated Balance Sheets.

At March 31, 2025, our operating lease liabilities were $2.5 million, of which $1.0 million is presented as the current portion and $1.5 million is presented as Operating lease liabilities excluding current portion on our Condensed Consolidated Balance Sheets.

We also have finance lease liabilities of $0.9 million and lease restoration liabilities of $0.3 million.

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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 September 30, 2024.

We have identified the following applicable significant accounting policies and critical estimates as of March 31, 2025.

Inventory Reserves

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Tax Valuation Allowances

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

As of March 31, 2025, 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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We record revenue net of any sales taxes and record a reserve for expected sales returns based on historical experience.

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.

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 FOB destination, so the Company recognized revenue upon delivery of the product to the customer.

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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