MANNATECH INC000105635812/31Non-accelerated FilerTRUEFALSE10-Q3/31/20212021Q3FALSE2,063,280FALSEYesTRUEFALSEYes8728170.010.011,000,0001,000,0000.00010.000199,000,00099,000,0002,742,8572,742,8572,063,2802,071,081679,577671,776P3M0.80.20.20.20.30.3P2YP3YP10YP5YSUBSEQUENT EVENTSOn April 10, 2020, the Company received loan proceeds of $2,243,687 (the “Loan”) under the Paycheck Protection Program (“PPP”). The PPP was established under the recent CARES Act and is administered by the U.S. Small Business Administration. The Loan to the Company was made through JPMorgan Chase Bank, N. A., the Company’s existing banker (the “Lender”). At the time the Company applied for and received the Loan, the Company planned to use the Loan proceeds for covered payroll costs, rent and utilities in accordance with the relevant terms and conditions of the CARES Act. After the Company received the proceeds of the Loan, the SBA provided subsequent guidance interpreting the PPP. Based on such subsequent guidance, the Company made the determination to repay the Loan in full, which it did on April 30, 2020.2,243,68700010563582021-01-012021-03-31xbrli:shares00010563582021-04-30iso4217:USD00010563582021-03-3100010563582020-12-31iso4217:USDxbrli:shares00010563582020-01-012020-03-310001056358us-gaap:CommonStockMember2020-12-310001056358us-gaap:AdditionalPaidInCapitalMember2020-12-310001056358us-gaap:RetainedEarningsMember2020-12-310001056358us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-12-310001056358us-gaap:TreasuryStockMember2020-12-310001056358us-gaap:RetainedEarningsMember2021-01-012021-03-310001056358us-gaap:AdditionalPaidInCapitalMember2021-01-012021-03-310001056358us-gaap:TreasuryStockMember2021-01-012021-03-310001056358us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-01-012021-03-310001056358us-gaap:CommonStockMember2021-03-310001056358us-gaap:AdditionalPaidInCapitalMember2021-03-310001056358us-gaap:RetainedEarningsMember2021-03-310001056358us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-03-310001056358us-gaap:TreasuryStockMember2021-03-310001056358us-gaap:CommonStockMember2019-12-310001056358us-gaap:AdditionalPaidInCapitalMember2019-12-310001056358us-gaap:RetainedEarningsMember2019-12-310001056358us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-12-310001056358us-gaap:TreasuryStockMember2019-12-3100010563582019-12-310001056358us-gaap:RetainedEarningsMember2020-01-012020-03-310001056358us-gaap:AdditionalPaidInCapitalMember2020-01-012020-03-310001056358us-gaap:TreasuryStockMember2020-01-012020-03-310001056358us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-01-012020-03-310001056358us-gaap:CommonStockMember2020-03-310001056358us-gaap:AdditionalPaidInCapitalMember2020-03-310001056358us-gaap:RetainedEarningsMember2020-03-310001056358us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-03-310001056358us-gaap:TreasuryStockMember2020-03-3100010563582020-03-31mtex:region0001056358country:KR2021-03-310001056358country:KR2020-12-310001056358us-gaap:OtherAssetsMember2021-03-310001056358us-gaap:OtherAssetsMember2020-12-310001056358mtex:AccruedExpensesMember2021-03-310001056358mtex:AccruedExpensesMember2020-12-310001056358mtex:OtherlongtermliabilitiesMember2021-03-310001056358mtex:OtherlongtermliabilitiesMember2020-12-310001056358mtex:SoftwareToolsMember2021-03-310001056358mtex:AssociateFeesMember2021-03-3100010563582020-01-012020-12-31xbrli:pure0001056358us-gaap:SalesReturnsAndAllowancesMember2019-12-310001056358us-gaap:SalesReturnsAndAllowancesMember2020-01-012020-12-310001056358us-gaap:SalesReturnsAndAllowancesMember2020-12-310001056358us-gaap:SalesReturnsAndAllowancesMember2021-01-012021-03-310001056358us-gaap:SalesReturnsAndAllowancesMember2021-03-3100010563582017-04-170001056358srt:MinimumMember2021-01-012021-03-310001056358srt:MaximumMember2021-01-012021-03-310001056358us-gaap:EmployeeStockOptionMember2021-01-012021-03-310001056358mtex:IncentiveStockOptionsMember2021-01-012021-03-310001056358mtex:A2017PlanMemberus-gaap:EmployeeStockOptionMember2021-01-012021-03-310001056358mtex:A2017PlanMemberus-gaap:EmployeeStockOptionMember2020-01-012020-03-310001056358mtex:A2017PlanMemberus-gaap:EmployeeStockOptionMember2021-03-310001056358us-gaap:AccumulatedTranslationAdjustmentMember2020-12-310001056358us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember2020-12-310001056358us-gaap:AccumulatedTranslationAdjustmentMember2021-01-012021-03-310001056358us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember2021-01-012021-03-310001056358us-gaap:AccumulatedTranslationAdjustmentMember2021-03-310001056358us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember2021-03-3100010563582021-03-022021-03-0200010563582021-03-162021-03-160001056358mtex:PropertyandEquipmentnetMember2021-03-310001056358us-gaap:OtherAssetsMember2020-03-310001056358mtex:PropertyandEquipmentnetMember2020-03-310001056358mtex:AccruedExpensesMember2020-03-310001056358mtex:CurrentportionofcapitalleasesMember2021-03-310001056358mtex:CurrentportionofcapitalleasesMember2020-03-310001056358mtex:OtherlongtermliabilitiesMember2020-03-310001056358us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel1Member2021-03-310001056358us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2021-03-310001056358us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Member2021-03-310001056358us-gaap:FairValueMeasurementsRecurringMember2021-03-310001056358us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel1Member2020-12-310001056358us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2020-12-310001056358us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Member2020-12-310001056358us-gaap:FairValueMeasurementsRecurringMember2020-12-31mtex:country0001056358srt:AmericasMember2021-01-012021-03-310001056358srt:AmericasMember2020-01-012020-03-310001056358srt:AsiaPacificMember2021-01-012021-03-310001056358srt:AsiaPacificMember2020-01-012020-03-310001056358us-gaap:EMEAMember2021-01-012021-03-310001056358us-gaap:EMEAMember2020-01-012020-03-310001056358mtex:ConsolidatedProductSalesMember2021-01-012021-03-310001056358mtex:ConsolidatedProductSalesMember2020-01-012020-03-310001056358mtex:ConsolidatedPackSalesMember2021-01-012021-03-310001056358mtex:ConsolidatedPackSalesMember2020-01-012020-03-310001056358mtex:ConsolidatedOtherIncludingFreightMember2021-01-012021-03-310001056358mtex:ConsolidatedOtherIncludingFreightMember2020-01-012020-03-310001056358srt:ReportableGeographicalComponentsMembersrt:AmericasMember2021-03-310001056358srt:ReportableGeographicalComponentsMembersrt:AmericasMember2020-12-310001056358srt:AsiaPacificMembersrt:ReportableGeographicalComponentsMember2021-03-310001056358srt:AsiaPacificMembersrt:ReportableGeographicalComponentsMember2020-12-310001056358srt:ReportableGeographicalComponentsMemberus-gaap:EMEAMember2021-03-310001056358srt:ReportableGeographicalComponentsMemberus-gaap:EMEAMember2020-12-3100010563582021-06-30


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended:  March 31, 2021
OR
¨    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________.
Commission File No. 000-24657
MANNATECH, INCORPORATED
(Exact Name of Registrant as Specified in its Charter)
Texas 75-2508900
(State or other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.)
1410 Lakeside Parkway, Suite 200, Flower Mound, Texas 75028
(Address of Principal Executive Offices) (Zip Code)
Registrant’s Telephone Number, including Area Code: (972) 471-7400
                Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.0001 per shareMTEXThe Nasdaq Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “accelerated filer”, “large accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ¨
Accelerated filer ¨
Non-accelerated filer x
Smaller reporting company x
Emerging Growth Company ¨

If an emerging growth company, indicated by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No x 




As of April 30, 2021, the number of shares outstanding of the registrant’s sole class of common stock, par value $0.0001 per share, was 2,063,280.



MANNATECH, INCORPORATED
TABLE OF CONTENTS
Part I – FINANCIAL INFORMATION 
  
  
  
  
Part II – OTHER INFORMATION 
  
  
  
  
  
  
  


Table of Contents
Special Note Regarding Forward-Looking Statements

Certain disclosures and analyses in this Form 10-Q, including information incorporated by reference, may include forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Private Securities Litigation Reform Act of 1995 that are subject to various risks and uncertainties. Opinions, forecasts, projections, guidance, or other statements other than statements of historical fact are considered forward-looking statements and reflect only current views about future events and financial performance. Some of these forward-looking statements include statements regarding:
management’s plans and objectives for future operations;
existing cash flows being adequate to fund future operational needs;
future plans related to budgets, future capital requirements, market share growth, and anticipated capital projects and obligations;
the realization of net deferred tax assets;
the ability to curtail operating expenditures;
global statutory tax rates remaining unchanged;
the impact of future market changes due to exposure to foreign currency translations;
the possibility of certain policies, procedures, and internal processes minimizing exposure to market risk;
the impact of new accounting pronouncements on financial condition, results of operations, or cash flows;
the outcome of new or existing litigation matters;
the outcome of new or existing regulatory inquiries or investigations; and
other assumptions described in this report underlying such forward-looking statements.
Although we believe that the expectations included in these forward-looking statements are reasonable, these forward-looking statements are subject to certain events, risks, assumptions, and uncertainties, including those discussed below, the “Risk Factors” section in Part I, Item 1A of our Form 10-K for the year ended December 31, 2020, and elsewhere in this Form 10-Q and the documents incorporated by reference herein. If one or more of these risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results and developments could materially differ from those expressed in or implied by such forward-looking statements. For example, any of the following factors could cause actual results to vary materially from our projections:
the impact of the outbreak of the novel coronavirus ("COVID-19") pandemic, the availability and effectiveness of vaccines on a widespread basis and the impact of any mutations of the virus;
overall growth or lack of growth in the nutritional supplements industry;
plans for expected future product development;
changes in manufacturing costs;
shifts in the mix of packs and products;
the future impact of any changes to global associate career and compensation plans or incentives or the regulations governing such plans and incentives;
the ability to attract and retain independent associates and preferred customers;
new regulatory changes that may affect operations, products or compensation plans or incentives;
the competitive nature of our business with respect to products and pricing;
publicity related to our products or network-marketing; and
the political, social, and economic climate of the countries in which we operate.
Forward-looking statements generally can be identified by use of phrases or terminology such as “may,” “will,” “should,” “could,” “would,” “expects,” “plans,” “intends,” “anticipates,” “believes,” “estimates,” “approximates,” “predicts,” “projects,” "hopes," “potential,” and “continues” or other similar words or the negative of such terms and other comparable terminology. Similarly, descriptions of Mannatech’s objectives, strategies, plans, goals, or targets contained herein are also considered forward-looking statements. Readers are cautioned when considering these forward-looking statements to keep in mind these risks, assumptions, and uncertainties and any other cautionary statements in this report, as all of the forward-looking statements contained herein speak only as of the date of this report.

Unless stated otherwise, all financial information throughout this report and in the Consolidated Financial Statements and related Notes include Mannatech, Incorporated and all of its subsidiaries on a consolidated basis and may be referred to herein as “Mannatech,” “the Company,” “its,” “we,” “us,” “our,” or “their.”

Our products are not intended to diagnose, cure, treat, or prevent any disease, and any statements about our products contained in this report have not been evaluated by the Food and Drug Administration, also referred to herein as the “FDA”.
1

Table of Contents
 PART I – FINANCIAL INFORMATION

Item 1. Financial Statements
MANNATECH, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
ASSETSMarch 31, 2021 (unaudited)December 31, 2020
Cash and cash equivalents$23,576 $22,207 
Restricted cash944 944 
Accounts receivable, net of allowance of $872 and $817 in 2021 and 2020, respectively225 186 
Income tax receivable536 1,008 
Inventories, net13,625 12,827 
Prepaid expenses and other current assets3,645 2,962 
Deferred commissions2,220 2,343 
Total current assets44,771 42,477 
Property and equipment, net3,949 4,494 
Construction in progress976 864 
Long-term restricted cash3,126 4,346 
Other assets10,866 11,977 
Long-term deferred tax assets, net1,053 1,178 
Total assets$64,741 $65,336 
LIABILITIES AND SHAREHOLDERS’ EQUITY  
Current portion of finance leases$89 $76 
Accounts payable4,836 4,797 
Accrued expenses7,369 8,691 
Commissions and incentives payable11,804 10,998 
Taxes payable1,251 1,400 
Current notes payable755 553 
Deferred revenue5,788 5,472 
Total current liabilities31,892 31,987 
Finance leases, excluding current portion111 129 
Deferred tax liabilities3 3 
Long-term notes payable  
Other long-term liabilities6,392 7,245 
Total liabilities38,398 39,364 
Commitments and contingencies
Shareholders’ equity:  
Preferred stock, $0.01 par value, 1,000,000 shares authorized, no shares issued or outstanding  
Common stock, $0.0001 par value, 99,000,000 shares authorized, 2,742,857 shares issued and 2,063,280 shares outstanding as of March 31, 2021 and 2,742,857 shares issued and 2,071,081 shares outstanding as of December 31, 2020  
Additional paid-in capital33,757 33,795 
Retained earnings4,074 2,213 
Accumulated other comprehensive income3,794 5,150 
Treasury stock, at average cost, 679,577 shares as of March 31, 2021 and 671,776 shares as of December 31, 2020(15,282)(15,186)
Total shareholders’ equity26,343 25,972 
Total liabilities and shareholders’ equity$64,741 $65,336 
See accompanying notes to unaudited consolidated financial statements.
2

Table of Contents
MANNATECH, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS – (UNAUDITED)
(in thousands, except per share information)
 Three Months Ended
March 31,
 20212020
Net sales$38,319 $36,605 
Cost of sales7,222 7,008 
Gross profit31,097 29,597 
Operating expenses:  
Commissions and incentives15,598 14,889 
Selling and administrative expenses7,111 6,855 
Depreciation and amortization expense510 520 
Other operating costs5,089 5,322 
Total operating expenses28,308 27,586 
Income from operations2,789 2,011 
Interest income, net22 50 
Other expense, net(282)(208)
Income before income taxes2,529 1,853 
Income tax (provision) benefit(335)934 
Net income$2,194 $2,787 
Earnings per common share:  
Basic$1.06 $1.17 
Diluted$1.04 $1.15 
Weighted-average common shares outstanding:  
Basic2,071 2,391 
Diluted2,116 2,415 

MANNATECH, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME – (UNAUDITED)
(in thousands)
 Three Months Ended
March 31,
 20212020
Net income$2,194 $2,787 
Foreign currency translations(1,356)(1,634)
Comprehensive income$838 $1,153 
 
See accompanying notes to unaudited consolidated financial statements.
3

Table of Contents
MANNATECH, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(UNAUDITED)
(in thousands)
 Common stock
Par value
Additional
paid-in
capital
Retained
earnings (accumulated deficit)
Accumulated
other
comprehensive
income
Treasury
stock
Total
shareholders’
equity
Balance at January 1, 2021$ $33,795 $2,213 $5,150 $(15,186)$25,972 
Net income— — 2,194 — — 2,194 
Payment of cash dividends— — (333)— — (333)
Charge related to stock-based compensation— 6 — — — 6 
Issuance of unrestricted shares— (44)— — 254 210 
Repurchase of common stock— — — — (350)(350)
Foreign currency translations— — — (1,356)— (1,356)
Balance at March 31, 2021$ $33,757 $4,074 $3,794 $(15,282)$26,343 

Balance at January 1, 2020$ $34,143 $(690)$3,757 $(9,935)$27,275 
Net income— — 2,787 — — 2,787 
Payment of cash dividends— — (300)— — (300)
Charge related to stock-based compensation— 83 — — — 83 
Issuance of unrestricted shares— (163)— — 373 210 
Repurchase of common stock— — — — (86)(86)
Foreign currency translations— — — (1,634)— (1,634)
Balance at March 31, 2020$ $34,063 $1,797 $2,123 $(9,648)$28,335 

See accompanying notes to unaudited consolidated financial statements.
4

Table of Contents
MANNATECH, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS – (UNAUDITED)
(in thousands)
 Three Months Ended
March 31,
 20212020
CASH FLOWS FROM OPERATING ACTIVITIES:  
Net income$2,194 $2,787 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
  
Depreciation and amortization510 520 
Non-cash operating lease expense483 576 
Provision for inventory losses162 36 
Provision for doubtful accounts74 21 
Loss on disposal of assets37  
Charge related to stock-based compensation216 292 
Deferred income taxes142 (132)
Changes in operating assets and liabilities:  
Accounts receivable(113)663 
Income tax receivable471 (1,024)
Inventories(960)(1,429)
Prepaid expenses and other current assets(171)257 
Deferred commissions123 (31)
Other assets660 (1,166)
Accounts payable39 1,403 
Accrued expenses(1,316)(1,636)
Other liabilities(858)(99)
Taxes payable(149)(243)
Commissions and incentives payable806 505 
Deferred revenue316 807 
Net cash provided by operating activities2,666 2,107 
CASH FLOWS FROM INVESTING ACTIVITIES:  
Acquisition of property and equipment(124)(232)
Proceeds from sale of assets  
Net cash used in investing activities(124)(232)
CASH FLOWS FROM FINANCING ACTIVITIES:  
Repurchase of common stock(350)(86)
Payment of cash dividends(333)(300)
Repayment of other notes payable and finance lease obligations (362)(458)
Net cash used in financing activities(1,045)(844)
Effect of currency exchange rate changes on cash and cash equivalents(1,348)(1,606)
Net (decrease) increase in cash, cash equivalents, and restricted cash149 (575)
Cash, cash equivalents, and restricted cash at the beginning of the period27,497 31,000 
Cash, cash equivalents, and restricted cash at the end of the period$27,646 $30,425 
 

See accompanying notes to unaudited consolidated financial statements.


5

Table of Contents
Three Months Ended
March 31,
20212020
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:  
Income taxes paid$19 $362 
Interest paid on finance leases and other financing arrangements9 19 
Operating lease right-of-use assets acquired in exchange for new operating lease liabilities32  
Finance lease right-of-use assets acquired in exchange for new finance lease liabilities 47 
See accompanying notes to unaudited consolidated financial statements.



6

MANNATECH, INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS



    
NOTE 1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

    Mannatech, Incorporated (together with its subsidiaries, the “Company”), located in Flower Mound, Texas, was incorporated in the state of Texas on November 4, 1993 and is listed on the Nasdaq Global Select Market under the symbol “MTEX”. The Company develops, markets, and sells high-quality, proprietary nutritional supplements, topical and skin care and anti-aging products, and weight-management products. We currently sell our products into three regions: (i) the Americas (the United States, Canada and Mexico); (ii) EMEA (Austria, the Czech Republic, Denmark, Estonia, Finland, Germany, the Republic of Ireland, Namibia, the Netherlands, Norway, South Africa, Spain, Sweden and the United Kingdom); and (iii) Asia/Pacific (Australia, Japan, New Zealand, the Republic of Korea, Singapore, Taiwan, Hong Kong, and China).

Active business building associates ("independent associates" or "associates" or "distributors") and preferred customers purchase the Company’s products at published wholesale prices. The Company cannot distinguish products sold for personal use from other sales, when sold to associates, because it is not involved with the products after delivery, other than usual and customary product warranties and returns. Only associates are eligible to earn commissions and incentives. The Company operates a non-direct selling business in mainland China. Our subsidiary in China, Meitai Daily Necessity & Health Products Co., Ltd. (“Meitai”), is operating as a traditional retailer under a cross-border e-commerce model in China. Meitai cannot legally conduct a direct selling business in China unless it acquires a direct selling license in China.

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and with instructions for Form 10-Q and Article 8-03 of Regulation S-X. Accordingly, the Company’s consolidated financial statements and footnotes contained herein do not include all of the information and footnotes required by GAAP to be considered “complete financial statements”. However, in the opinion of the Company’s management, the accompanying unaudited consolidated financial statements and footnotes contain all adjustments, including normal recurring adjustments, considered necessary for a fair presentation of the Company’s consolidated financial information as of, and for, the periods presented. The Company cautions that its consolidated results of operations for an interim period are not necessarily indicative of its consolidated results of operations to be expected for its fiscal year. The December 31, 2020 consolidated balance sheet was included in the audited consolidated financial statements in the Company’s annual report on Form 10-K for the year ended December 31, 2020 and filed with the United States Securities and Exchange Commission (the “SEC”) on March 19, 2021 (the “2020 Annual Report”), which includes all disclosures required by GAAP. Therefore, these unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements of the Company included in the 2020 Annual Report.

The Company depends on an independent sales force of distributors to market and sell its products to consumers. Social distancing and shelter-in-place directives in response to the COVID-19 pandemic have impacted and may continue to impact their ability to engage with potential and existing customers. The adverse economic effects of COVID-19 may also materially decrease demand for the Company’s products based on changes in consumer behavior or the restrictions in place by governments trying to curb the outbreak. For example, the Company has rescheduled corporate sponsored events, and in some cases, our associates have canceled sales meetings.

While the conditions described above are expected to be temporary, prolonged workforce disruptions, disruption in our supply chain or potential decreases in consumer demands may negatively impact sales in fiscal year 2021 and the Company’s overall liquidity. The full impact of COVID-19 continues to evolve and we are actively monitoring the global situation with a focus on our financial condition, liquidity, operations, suppliers, industry, and workforce.



7

MANNATECH, INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Principles of Consolidation

The consolidated financial statements and footnotes include the accounts of Mannatech and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of the Company’s consolidated financial statements in accordance with GAAP requires the use of estimates that affect the reported value of assets, liabilities, revenues and expenses. These estimates are based on historical experience and various other factors. The Company continually evaluates the information used to make these estimates as the business and economic environment changes. Historically, actual results have not varied materially from the Company’s estimates and the Company does not currently anticipate a significant change in its assumptions related to these estimates. However, actual results may differ from these estimates under different assumptions or conditions.

The use of estimates is pervasive throughout the consolidated financial statements, but the accounting policies and estimates considered the most significant are described in this note to the consolidated financial statements, Organization and Summary of Significant Accounting Policies.

Cash, Cash Equivalents, and Restricted Cash

The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. The Company includes in its cash and cash equivalents credit card receivables due from its credit card processor, as the cash proceeds from credit card receivables are received within 24 to 72 hours. At each of March 31, 2021 and December 31, 2020, credit card receivables were $2.4 million. As of March 31, 2021 and December 31, 2020, cash and cash equivalents held in bank accounts in foreign countries totaled $20.3 million and $18.6 million, respectively. The Company invests cash in liquid instruments, such as money market funds and interest-bearing deposits. The Company holds cash in high quality financial institutions and does not believe it has an excessive exposure to credit concentration risk.

    A significant portion of our cash and cash equivalent balances were concentrated within the Republic of Korea, with total net assets within this foreign location totaling $19.9 million and $21.0 million at March 31, 2021 and December 31, 2020, respectively. In addition, for the three months ended March 31, 2021 and 2020, a concentrated portion of our operating cash flows were earned from operations within the Republic of Korea.  An adverse change in economic conditions within the Republic of Korea could negatively affect the Company’s results of operations.   

The Company is required to restrict cash for: (i) direct selling insurance premiums and credit card sales in the Republic of Korea; (ii) reserve on credit card sales in the United States and Canada; and (iii) the Australia building lease collateral. As of March 31, 2021 and December 31, 2020, our total restricted cash was $4.1 million and $5.3 million, respectively.

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the Company's consolidated balance sheets to the total amount presented in the consolidated statement of cash flows (in thousands):
March 31, 2021December 31, 2020
Cash and cash equivalents at beginning of period$22,207 $24,762 
Current restricted cash at beginning of period944 943 
Long-term restricted cash at beginning of period4,346 5,295 
Cash, cash equivalents, and restricted cash at beginning of period$27,497 $31,000 
Cash and cash equivalents at end of period$23,576 $22,207 
Current restricted cash at end of period944 944 
Long-term restricted cash at end of period3,126 4,346 
Cash, cash equivalents, and restricted cash at end of period$27,646 $27,497 

8

MANNATECH, INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Accounts Receivable

Accounts receivable are carried at their estimated collectible amounts. Receivables are created upon shipment of an order if the credit card payment is rejected or does not match the order total. As of March 31, 2021 and December 31, 2020, receivables consisted primarily of amounts due from preferred customers and associates. At each of March 31, 2021 and December 31, 2020, the Company's accounts receivable balance (net of allowance) was $0.2 million. The Company periodically evaluates its receivables for collectability based on historical experience, recent account activities, and the length of time receivables are past due and writes-off receivables when they become uncollectible. As of March 31, 2021 and December 31, 2020, the Company held an allowance for doubtful accounts of $0.9 million and $0.8 million, respectively.

Inventories

Inventories consist of raw materials, finished goods, and promotional materials that are stated at the lower of cost (using standard costs that approximate average costs) or net realizable value. The Company periodically reviews inventories for obsolescence and any inventories identified as obsolete are reserved or written off.

Other Assets

As of March 31, 2021 and December 31, 2020, other assets were $10.9 million and $12.0 million, respectively. These amounts primarily consisted of right-of-use assets related to operating leases for office space and equipment, net of lease incentives, of $6.1 million and $6.9 million as of March 31, 2021 and December 31, 2020, respectively. See Note 8, Leases for more information on these assets. Also included in Other Assets were deposits for building leases in various locations of $2.0 million and $2.2 million as of March 31, 2021 and December 31, 2020, respectively. Additionally, included in the March 31, 2021 and December 31, 2020 balances were $2.5 million and $2.6 million, respectively, representing a deposit with Mutual Aid Cooperative and Consumer in the Republic of Korea, an organization established by the Republic of Korea’s Fair Trade Commission to protect consumers who participate in network marketing activities. Finally, each of the March 31, 2021 and December 31, 2020 balances included $0.2 million of indefinite lived intangible assets relating to the Manapol® powder trademark.

Accrued Expenses

As of March 31, 2021 and December 31, 2020, accrued expenses were $7.4 million and $8.7 million, respectively. These amounts primarily consisted of $1.7 million and $1.9 million representing employee benefits, which included accrued wages, bonus and severance as of March 31, 2021 and December 31, 2020, respectively. Also included in the March 31, 2021 and December 31, 2020 balances were non-inventory accrued liabilities of $2.1 million and $2.2 million, respectively. Additionally, included in the March 31, 2021 and December 31, 2020 balances were $1.9 million and $2.1 million for the current portion of operating lease liabilities, respectively. At March 31, 2021 and December 31, 2020, also included in the balances were $0.9 million and $1.2 million for accrued auditing and accounting fees, respectively. At March 31, 2021 and December 31, 2020, other accrued expenses were $0.8 million and $1.3 million, respectively.

Notes Payable

Notes payable were $0.8 million and $0.6 million as of March 31, 2021 and December 31, 2020, respectively, as a result of funding from a capital financing agreement related to our investment in leasehold improvements, computer hardware and software and other financing arrangements. As of March 31, 2021 and December 31, 2020, the current portion was $0.8 million and $0.6 million, respectively.




9

MANNATECH, INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Other Long-Term Liabilities

Other long-term liabilities were $6.4 million and $7.2 million as of March 31, 2021 and December 31, 2020, respectively.  As of March 31, 2021 and December 31, 2020, the balance is primarily composed of long-term operating lease obligations of $5.4 million and $6.1 million, respectively. See Note 8, Leases for more information. Additionally, as of March 31, 2021 and December 31, 2020, the Company recorded $0.2 million in other long-term liabilities related to uncertain income tax positions (see Note 7, Income Taxes, of the Company’s 2020 Annual Report). Certain operating leases for the Company’s regional office facilities contain a restoration clause that requires the Company to restore the premises to its original condition. At each of March 31, 2021 and December 31, 2020, accrued restoration costs related to these leases amounted to $0.3 million. At each of March 31, 2021 and December 31, 2020, the Company also recorded a long-term liability for estimated defined benefit obligation related to a non-U.S. defined benefit plan for its Japan operations of $0.3 million (see Note 9, Employee Benefit Plans, of the Company’s 2020 Annual Report).

Revenue Recognition

The Company’s revenue is derived from sales of individual products and associate fees or, in certain geographic markets, starter packs. Substantially all of the Company’s product sales are made at published wholesale prices to associates and preferred customers. The Company records revenue net of any sales taxes and records a reserve for expected sales returns based on its historical experience. The Company recognizes revenue from shipped products when control of the product transfers to the customer, thus the performance obligation is satisfied. Corporate-sponsored event revenue is recognized when the event is held.
Revenues from associate fees relate to providing associates with the right to earn commissions, benefits and incentives for an annual period. Revenue from software tools included in the first contractual year is recognized over three months and revenue from associate fees is recognized over 12 months (see Contracts with Multiple Performance Obligations for recognition guidelines). Almost all orders are paid via credit card. See Note 10, Segment Information, for disaggregation of revenues by geographic segment and type.
The Company collected associate fees within the United States, Canada, South Africa, Japan, Australia, New Zealand, Singapore, Hong Kong, Taiwan, Austria, the Czech Republic, Denmark, Estonia, Finland, Germany, the Republic of Ireland, the Netherlands, Norway, Spain, Sweden and the United Kingdom.

    Contracts with Multiple Performance Obligations

Orders placed by associates or preferred customers constitute our contracts. Product sales placed in the form of an automatic order contain two performance obligations: (a) the sale of the product and (b) the loyalty program. For these contracts, the Company accounts for each of these obligations separately as they are each distinct. The transaction price is allocated between the product sale and the loyalty program on a relative standalone selling price basis. Sales placed through a one-time order contain only the first performance obligation noted above - the sale of the product.

The Company provides associates with access to a complimentary three-month package for the Success TrackerTM and Mannatech+ online business tools with the first payment of an associate fee. The first payment of an associate fee contains three performance obligations: (a) the associate fee, whereby the Company provides an associate with the right to earn commissions, bonuses and incentives for a year; (b) three months of complimentary access to utilize the Success Tracker™ online tool; and (c) three months of complimentary access to utilize the Mannatech+ online business tool. The transaction price is allocated between the three performance obligations on a relative standalone selling price basis. Associates do not have complimentary access to online business tools after the first contractual period.

With regards to both of the aforementioned contracts, the Company determines the standalone selling prices based on our overall pricing objectives, taking into consideration market conditions and other factors, including the value of the contracts.

    Deferred Commissions

The Company defers commissions on (i) the sales of products shipped but not received by customers by the end of the respective period and (ii) the loyalty program. Deferred commissions are incremental costs and are amortized to expense consistent with how the related revenue is recognized. Deferred commissions were $2.3 million for the year ended December 31, 2020. Of this balance, $1.2 million was amortized to commissions expense for the three months ended March 31, 2021. At March 31, 2021, deferred commissions were $2.2 million.

10

MANNATECH, INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

    Deferred Revenue

    The Company defers certain components of its revenue. Deferred revenue consisted of: (i) sales of products shipped but not received by customers by the end of the respective period; (ii) revenue from the loyalty program; (iii) prepaid registration fees from customers planning to attend a future corporate-sponsored event; and (iv) prepaid annual associate fees. At December 31, 2020, the Company’s deferred revenue was $5.5 million. Of this balance, $3.8 million was recognized as revenue for the three months ended March 31, 2021. At March 31, 2021, the Company’s deferred revenue was $5.8 million.

The Company’s customer loyalty program conveys a material right to the customer as it provides the promise to redeem loyalty points for the purchase of products, which is based on earning points through placing consecutive qualified orders. The Company factors in breakage rates, which is the percentage of the loyalty points that are expected to be forfeited or expire, for purposes of revenue recognition. Breakage rates are estimated based on historical data and can be reasonably and objectively determined. The deferred revenue associated with the loyalty program at March 31, 2021 and December 31, 2020 was $4.2 million and $4.5 million, respectively.
Loyalty program(in thousands)
Loyalty deferred revenue as of January 1, 2020$3,127 
Loyalty points forfeited or expired(3,249)
Loyalty points used(9,385)
Loyalty points vested12,771 
Loyalty points unvested1,223 
Loyalty deferred revenue as of December 31, 2020$4,487 

Loyalty deferred revenue as of January 1, 2021$4,487 
Loyalty points forfeited or expired(1,151)
Loyalty points used(2,327)
Loyalty points vested2,117 
Loyalty points unvested1,111 
Loyalty deferred revenue as of March 31, 2021$4,237 

    Sales Refund and Allowances
The Company utilizes the expected value method, as set forth by Accounting Standard Codification ("ASC") Topic 606 Revenue from Contracts with Customers ("ASC 606"), to estimate the sales returns and allowance liability by taking the weighted average of the sales return rates over a rolling six-month period. The Company allocates the total amount recorded within the sales return and allowance liability as a reduction of the overall transaction price for the Company’s product sales. The Company deems the sales refund and allowance liability to be a variable consideration.

11

MANNATECH, INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Historically, sales returns have not materially changed through the years, as the majority of our customers who return their merchandise do so within the first 90 days after the original sale. Sales returns have historically averaged 1.5% or less of our gross sales. For the three months ended March 31, 2021 our sales return reserve consisted of the following (in thousands):
Sales reserve as of January 1, 2020$68 
Provision related to sales made in current period1,028 
Adjustment related to sales made in prior periods5 
Actual returns or credits related to current period(959)
Actual returns or credits related to prior periods(71)
Sales reserve as of December 31, 2020$71 
Sales reserve as of January 1, 2021$71 
Provision related to sales made in current period262 
Adjustment related to sales made in prior periods(14)
Actual returns or credits related to current period(179)
Actual returns or credits related to prior periods(54)
Sales reserve as of March 31, 2021$86 

    Shipping and Handling Costs

The Company records inbound freight as a component of inventory and cost of sales. The Company records freight and shipping fees collected from its customers as fulfillment costs. In accordance with ASC 606-10-25-18a, freight and shipping fees are not deemed to be separate performance obligations as these activities occur before the customer receives the product.
Commissions and Incentives

Associates earn commissions and incentives based on their direct and indirect commissionable net sales over each month of the fiscal year. The Company accrues commissions and incentives when earned by associates and pays commissions on product and pack sales on a monthly cycle.

Comprehensive Income and Accumulated Other Comprehensive Income

Comprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources and includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. The Company’s comprehensive income consists of the Company’s net income, foreign currency translation adjustments from its Japan, Republic of Korea, Taiwan, Denmark, Norway, Sweden, Mexico and China operations, remeasurement of intercompany balances classified as equity in its Korea, and Mexico operations, and changes in the pension obligation for its Japanese employees.
    Accounting Pronouncements Issued But Not Yet Effective

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"). This standard adds to U.S. GAAP an impairment model (known as the current expected credit loss ("CECL") model) that is based on expected losses rather than incurred losses. Under the new guidance, an entity recognizes as an allowance its estimate of expected credit losses, which is intended to result in the more timely recognition of losses. Under the CECL model, entities will estimate credit losses over the entire contractual term of the instrument (considering estimated prepayments, but not expected extensions or modifications) from the date of initial recognition of the financial instrument. Measurement of expected credit losses are to be based on relevant forecasts that affect collectability. The scope of financial assets within the CECL methodology is broad and includes trade receivables from certain revenue transactions and certain off-balance sheet credit exposures. Different components of the guidance require modified retrospective or prospective adoption. In November 2019, the FASB issued ASU 2019-10, Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842) ("ASU 2019-10") which defers the effective date for smaller reporting companies by three years to December 15, 2022 for fiscal years, and interim periods within those fiscal years, beginning after that date. Accordingly, this standard will be effective for the Company as of January 1, 2023. While our review is ongoing, we believe ASU 2016-13 will only have applicability to our receivables from revenue transactions. Under ASC 606, revenue is recognized when, among other criteria, it is probable that the entity will collect the
12

MANNATECH, INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

consideration to which it is entitled for goods or services transferred to a customer. At the point that trade receivables are recorded, they become subject to the CECL model and estimates of expected credit losses on trade receivables over their contractual life will be required to be recorded at inception based on historical information, current conditions, and reasonable and supportable forecasts. The Company is continuing to evaluate whether the new guidance will have an impact on our consolidated financial statements or existing internal controls.

    Other recently issued accounting pronouncements did not or are not believed by management to have a material impact on the Company’s present or future financial statements.


NOTE 2: INVENTORIES

Inventories consist of raw materials, finished goods, and promotional materials. The Company provides an allowance for any slow-moving or obsolete inventories. Inventories as of March 31, 2021 and December 31, 2020, consisted of the following (in thousands):
 March 31, 2021December 31, 2020
Raw materials$2,696 $2,713 
Finished goods11,374 10,585 
Inventory reserves for obsolescence(445)(471)
Total$13,625 $12,827 


NOTE 3: INCOME TAXES

For the three months ended March 31, 2021 and 2020, the Company’s effective tax rate was 13.3% and (50.4)%, respectively. For the three months ended March 31, 2021 and 2020, the Company's effective tax rate was determined based on the estimated annual effective income tax rate.


13

MANNATECH, INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The effective tax rate for the three months ended March 31, 2021 was different from the federal statutory rate due primarily to the mix of earnings across jurisdictions and the associated valuation allowance recorded on losses in certain jurisdictions.

The effective tax rate for the three months ended March 31, 2020 was different from the federal statutory rate due primarily to the $1.2 million benefit recorded in connection with the carryback of U.S. net operating losses as allowed by the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"), enacted on March 27, 2020.



NOTE 4: EARNINGS PER SHARE

    The Company calculates basic Earnings per Share ("EPS") by dividing net income by the weighted-average number of common shares outstanding for the period. Diluted EPS also reflects the potential dilution that could occur if common stock were issued for awards outstanding under the Mannatech, Incorporated 2017 Stock Incentive Plan (described below).

    In determining the potential dilutive effect of outstanding stock options for the three months ended March 31, 2021 and 2020, the Company used the quarterly average common stock close price of $18.25 and $14.23 per share, respectively.

For the three months ended March 31, 2021, there were 2.07 million weighted-average common shares outstanding used for the basic EPS calculation. For the three months ended March 31, 2021, approximately 0.05 million shares subject to options were included in the calculation resulting in 2.12 million dilutive shares used to calculate diluted EPS. For the three months ended March 31, 2021, approximately 0.1 million shares of the Company's common stock subject to options were excluded from the diluted EPS calculation as the effect would have been antidilutive.

For the three months ended March 31, 2020, there were 2.39 million weighted-average common shares outstanding used for the basic EPS calculation. For the three months ended March 31, 2020, approximately 0.02 million shares subject to options were included in the calculation resulting in 2.42 million dilutive shares used to calculate diluted EPS. For the three months ended March 31, 2020, approximately 0.3 million of the Company's common stock subject to options were excluded from the diluted EPS calculation as the effect would have been antidilutive.

14

MANNATECH, INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5: STOCK-BASED COMPENSATION

The Company currently has one active stock-based compensation plan, the Mannatech, Incorporated 2017 Stock Incentive Plan, which was adopted by the Company’s Board of Directors (the "Board") on April 17, 2017 and was approved by its shareholders on June 8, 2017, and subsequently amended by the Board at its February 2019 special meeting, which amendment was approved by the Company's shareholders on June 11, 2019 (as amended, the "2017 Plan"). The 2017 Plan supersedes the Mannatech, Incorporated 2008 Stock Incentive Plan (as amended, the "2008 Plan"), which was set to expire on February 20, 2018. The Board has reserved a maximum of 370,000 shares of our common stock that may be issued under the 2017 Plan (subject to adjustments for stock splits, stock dividends or other changes in corporate capitalization). As of March 31, 2021, the Company had a total of 154,155 shares available for grant under the 2017 Plan, which expires on April 16, 2027.

The 2017 Plan provides for grants of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, performance stock and performance stock units to our employees, board members, and consultants. However, only employees of the Company and its corporate subsidiaries are eligible to receive incentive stock options. The exercise price per share for all stock options will be no less than the market value of a share of common stock on the date of grant. Any incentive stock option granted to an employee owning more than 10% of our common stock will have an exercise price of no less than 110% of our common stock’s market value on the grant date.

The majority of stock options vest over two or three years, and generally are granted with a term of ten years, or five years in the case of an incentive option granted to an employee who owns more than 10% of our common stock.

The Company records stock-based compensation expense related to granting stock options in selling and administrative expenses. During the three months ended March 31, 2021 and 2020, the Company granted no stock options. The Company recognized compensation expense as follows for the three months ended March 31 (in thousands):

 Three Months Ended
March 31,
 20212020
Total gross compensation expense$6 $38 
Total tax benefit associated with compensation expense1 4 
Total net compensation expense$5 $34 
 
As of March 31, 2021, the Company expects to record compensation expense in the future as follows (in thousands):
Nine months
ending
December 31,
2021
Year ending December 31,
 20222023
Total gross unrecognized compensation expense$9 $3 $ 
Tax benefit associated with unrecognized compensation expense2 1  
Total net unrecognized compensation expense$7 $2 $ 

15

MANNATECH, INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6: SHAREHOLDERS’ EQUITY

Treasury Stock

    During the three months ended March 31, 2021, the Company repurchased 19,039 shares of its common stock outstanding at an average price of $18.38. During the three months ended March 31, 2020, the Company repurchased 5,299 additional shares of its common stock outstanding at an average price of $16.24.

As of March 31, 2021, the Company had 2,063,280 shares of common stock outstanding. As of March 31, 2020, the Company had 2,389,206 shares of common stock outstanding.

Accumulated Other Comprehensive Income

Accumulated other comprehensive income, reflected in the Consolidated Statement of Shareholders’ Equity, represents net income plus the results of certain shareholders’ equity changes not reflected in the Consolidated Statements of Operations, such as foreign currency translation and certain pension and post-retirement benefit obligations. The after-tax components of accumulated other comprehensive income, are as follows (in thousands):
 Foreign
Currency
Translation
Pension
Postretirement
Benefit
Obligation
Accumulated
Other
Comprehensive
Income, Net
Balance as of December 31, 2020$4,793 $357 $5,150 
Current-period change (1)
(1,356) (1,356)
Balance as of March 31, 2021$3,437 $357 $3,794 
(1)No material amounts reclassified from accumulated other comprehensive income.

Dividends

On March 2, 2021, the Board declared a dividend of $0.16 per share that was paid on March 30, 2021 to shareholders of record on March 16, 2021, for an aggregate amount of $0.3 million.



NOTE 7: LITIGATION

Litigation - Product Liability

    Meeja Kim, et al., v. Mannatech Korea and Eunbee Cho, Seoul Southern District Court 2020-Gadan-216374
On March 4, 2020, a complaint was filed against Mannatech Korea. Mannatech Korea was served on March 10, 2020. The plaintiffs are the surviving spouse and three children (the “Plaintiffs”) of Kong Seokhwan, a cancer patient who died in October 2017. The Plaintiffs allege that co-defendant and former independent associate, Eunbee Cho, instructed the deceased to take the Company’s products as treatment for cancer. Eunbee Cho was found guilty of fraud and began serving a sentence of one year and six months in November 2019. The Plaintiffs are seeking damages in the amount of KRW ₩110 million (USD $99,220.00) plus interest of 12% per year. Mannatech Korea has engaged local counsel to defend this matter. An evidentiary hearing was held on October 21, 2020. Due to restrictions in place relating to COVID-19, hearings scheduled during the fourth quarter of 2020 for this matter were postponed; an evidentiary hearing was held on March 10, 2021. Another evidentiary hearing was held on April 28, 2021. During the hearing, co-defendant Eunbee Cho’s request to re-examine two witnesses was denied. Additionally, Plaintiff’s actual damages request was reduced from KRW ₩110 million to KRW ₩91,500,540 (USD $82,533.00). The hearing for final judgment in this matter was set for June 16, 2021. It is not possible at this time to predict whether Mannatech Korea will incur any liability, or to estimate the ranges of damages, if any, which may be incurred in connection with this matter. However, Mannatech Korea believes it has a valid defense and will vigorously defend this claim. This matter remains open.



16

MANNATECH, INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


Hong Wang v. Beili Guan, MTEX Hong Kong Limited, and Mannatech, Incorporated, Case No. 2020-Jin-0116-
Civil-7655, Binhai New District Court, Tianjin, China

On November 16, 2020, MTEX Hong Kong received service of process of the above-captioned matter. Hong Wang (the “Plaintiff”) is alleging that various Mannatech’s products that she purchased violate the China Food Safety Law. In addition, Plaintiff alleges that her son suffered from tooth decay after consuming the MannaBears product and that the product violates the China Consumer Protection Law. The Plaintiff is seeking damages of approximately USD $286,600. MTEX Hong Kong has engaged local counsel to defend this case. On November 22, 2020, MTEX Hong Kong filed a motion challenging the court’s jurisdiction.

On April 7, 2021, the Company received service of process of the above-captioned matter. The claims that the Plaintiff alleges against the Company are the same as those against MTEX Hong Kong. The Company has engaged the same counsel as above to defend this case. The Company filed a motion to challenge the court’s jurisdiction on April 22, 2021.

It is not possible at this time to predict whether MTEX Hong Kong or the Company will incur any liability, or to estimate the ranges of damages, if any, which may be incurred in connection with this matter. However, MTEX Hong Kong believes it has a valid defense and will vigorously defend this claim. This matter remains open.



Litigation in General

The Company has incurred several claims in the normal course of business. The Company believes such claims can be resolved without any material adverse effect on our consolidated financial position, results of operations, or cash flows.

The Company maintains certain liability insurance; however, certain costs of defending lawsuits are not covered by or only partially covered by its insurance policies, including claims that are below insurance deductibles. Additionally, insurance carriers could refuse to cover certain claims, in whole or in part. The Company accrues costs to defend itself from litigation as they are incurred.

    The outcome of litigation is uncertain, and despite management’s views of the merits of any litigation, or the reasonableness of the Company’s estimates and reserves, the Company’s financial statements could nonetheless be materially affected by an adverse judgment. The Company believes it has adequately reserved for the contingencies arising from current legal matters where an outcome was deemed to be probable, and the loss amount could be reasonably estimated. No legal reserve was deemed necessary at March 31, 2021.

17

MANNATECH, INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8: LEASES

The Company has entered into contractual lease arrangements to rent office space and equipment from third-party lessors. See Note 5 to the consolidated financial statements in our 2020 Annual Report.

    As of March 31, 2021, the Company had net operating lease right-of-use (“ROU”) assets of $6.1 million and net finance lease right-of-use assets of $0.3 million. At March 31, 2021, our operating lease liabilities were $7.3 million and our finance lease liabilities were $0.2 million.

The weighted-average remaining lease term and discount rate related to the Company’s operating lease liabilities as of March 31, 2021 were 5.37 years and 4.4%, respectively. The weighted-average remaining lease term and discount rate related to the Company’s finance lease liabilities as of March 31, 2021 were 2.66 years and 6.7%, respectively. The Company's lease discount rates are generally based on estimates of its incremental borrowing rate, as discount rates implicit in the Company's leases cannot be readily determined.

    As of March 31, 2021 and 2020 our leased assets and liabilities consisted of the following (in thousands):

LeasesClassificationMarch 31, 2021December 31, 2020
Right-of-use assets
    Operating leasesOther assets$6,096 $6,943 
    Finance leasesProperty and equipment, net261 288 
Total right-of-use assets$6,357 $7,231 
Current portion of lease liabilities
    Operating leasesAccrued expenses$1,883 $2,067 
    Finance leasesCurrent portion of finance leases89 76 
Long-term portion of lease liabilities
    Operating leasesOther long-term liabilities5,396 6,124 
    Finance leasesFinance leases, excluding current portion111 129 
Total lease liabilities$7,479 $8,396 

As of March 31, 2021 the Company's minimum future lease payments on operating and financing leases were as follows (in thousands):
March 31, 2021
Maturity of lease liabilitiesOperating LeasesFinancing Leases
Remaining 20211,707 73 
20221,744 75 
20231,193 47 
20241,280 21 
2025880 2 
Thereafter1,527  
Total minimum lease payments$8,331 $218 
Imputed interest(1,053)(18)
Present value of minimum lease payments$7,279 $200 
    
18

MANNATECH, INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9: FAIR VALUE

The Company utilizes fair value measurements to record fair value adjustments to certain financial assets and to determine fair value disclosures.

Fair Value Measurements and Disclosure (Topic 820) of the FASB establishes a fair value hierarchy that requires the use of observable market data, when available, and prioritizes the inputs to valuation techniques used to measure fair value in the following categories:
Level 1 – Quoted unadjusted prices for identical instruments in active markets.
Level 2 – Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-derived valuations in which all observable inputs and significant value drivers are observable in active markets.
Level 3 – Model-derived valuations in which one or more significant inputs or significant value drivers are unobservable, including assumptions developed by the Company.
The primary objective of the Company’s investment activities is to preserve principal while maximizing yields without significantly increasing risk. The investment instruments held by the Company are money market funds and interest-bearing deposits for which quoted market prices are readily available. The Company considers these highly liquid investments to be cash equivalents. These investments are classified within Level 1 of the fair value hierarchy because they are valued based on quoted market prices in active markets. The Company does not have any material financial liabilities that were required to be measured at fair value on a recurring basis at March 31, 2021. 

The table below presents the recorded amount of financial assets measured at fair value (in thousands) on a recurring basis as of March 31, 2021 and December 31, 2020.
March 31, 2021Level 1Level 2Level 3Total
Assets    
Money Market Funds – JPMorgan Chase, US$250 $ $ $250 
Interest bearing deposits – various banks6,159   6,159 
Total assets$6,409 $ $ $6,409 
Amounts included in:    
Cash and cash equivalents$3,352 $ $ $3,352 
Restricted cash680   680 
Long-term restricted cash2,377   2,377 
Total$6,409 $ $ $6,409 

December 31, 2020Level 1Level 2Level 3Total
Assets    
Interest bearing deposits – various banks6,385   6,385 
Total assets$6,385 $ $ $6,385 
Amounts included in:    
Cash and cash equivalents$2,137 $ $ $2,137 
Restricted cash680   680 
Long-term restricted cash3,568   3,568 
Total$6,385 $ $ $6,385 

19

MANNATECH, INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10: SEGMENT INFORMATION

The Company's sole reporting segment is one where we sell proprietary nutritional supplements, skin care and anti-aging products, and weight-management and fitness products through network marketing distribution channels operating in twenty-four countries. Each of the business units receives associate fees or sells similar packs (in the case of Mexico and South Korea, where packs have not been replaced with associate fees, see Note 1, Organization and Summary of Significant Accounting Policies) and possesses similar economic characteristics, such as selling prices and gross margins. In each country, the Company markets its products and pays commissions and incentives in similar market environments. The Company’s management reviews its financial information by country and focuses its internal reporting and analysis of revenues by pack sales and associate fees and product sales. The Company sells its products through its independent associates who occupy positions in our network and distribute products through similar distribution channels in each country. No single independent associate has ever accounted for more than 10% of the Company’s consolidated net sales. The Company also operates a non-direct selling business in mainland China. Our subsidiary in China, Meitai, is operating as a traditional retailer under a cross-border e-commerce model. Meitai cannot legally conduct a direct selling business in China unless it acquires a direct selling license in China.

The Company operates facilities in eleven countries and sells product in twenty-five countries around the world. These facilities are located in the United States, Canada, Australia, the Netherlands, Japan, the Republic of Korea (South Korea), Taiwan, South Africa, Mexico, Hong Kong and China. Each facility services different geographic areas. We currently sell our products in three regions: (i) the Americas (the United States, Canada and Mexico); (ii) EMEA (Austria, the Czech Republic, Denmark, Estonia, Finland, Germany, the Republic of Ireland, Namibia, the Netherlands, Norway, South Africa, Spain, Sweden and the United Kingdom); and (iii) Asia/Pacific (Australia, Japan, New Zealand, the Republic of Korea, Singapore, Taiwan, Hong Kong and China).

Consolidated net sales shipped to customers in these regions, along with pack or associate fee and product information for the three months ended March 31, were as follows (in millions, except percentages):
 Three Months Ended
March 31,
Region20212020
Americas$11.0 28.7 %$11.7 32.0 %
Asia/Pacific23.5 61.4 %21.4 58.4 %
EMEA3.8 9.9 %3.5 9.6 %
Totals$38.3 100.0 %$36.6 100.0 %

 Three Months Ended
March 31,
 20212020
Consolidated product sales$35.9 $35.9 
Consolidated pack sales and associate fees2.2 0.5 
Consolidated other0.2 0.2 
Consolidated total net sales$38.3 $36.6 

20

MANNATECH, INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Long-lived assets, which include property and equipment and construction in process for the Company and its subsidiaries, as of March 31, 2021 and December 31, 2020, reside in the following regions, as follows (in millions):
RegionMarch 31, 2021December 31, 2020
Americas$4.1 $4.4 
Asia/Pacific0.8 1.0 
EMEA  
Total$4.9 $5.4 

Inventory balances, which consist of raw materials, finished goods, and promotional materials, as offset by the allowance for slow moving or obsolete inventories, reside in the following regions (in millions):
RegionMarch 31, 2021December 31, 2020
Americas$5.7 $5.8 
Asia/Pacific6.2 5.7 
EMEA1.7 1.3 
Total$13.6 $12.8 

21

Table of Contents
Item 2.    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, 2021 as compared to the same period in 2020, and should be read in conjunction with Item 1 “Financial Statements” in Part I of this quarterly report on Form 10-Q, Item 1A “Risk Factors” in Part II of this quarterly report on Form 10-Q and Item 1A “Risk Factors” in Part I of our 2020 Annual Report. Unless stated otherwise, all financial information presented below, throughout this report, and in the consolidated financial statements and related notes includes Mannatech and all of our subsidiaries on a consolidated basis.  To supplement our financial results presented in accordance with GAAP, we disclose certain adjusted financial measures which we refer to as Constant dollar (“Constant dollar”) measures, which are non-GAAP financial measures. Refer to the Non-GAAP Financial Measures section herein for a description of how such Constant dollar measures are determined.

COMPANY OVERVIEW

The Company is a global wellness solution provider, which was incorporated and began operations in November 1993. 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 three regions: (i) the Americas (the United States, Canada and Mexico); (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).

We conduct our business as a single operating segment and primarily sell our products through a network of approximately 187,000 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 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 operate as a seller of nutritional supplements, topical and skin care and anti-aging products, and weight-management products through our network marketing distribution channels operating in 24 countries and direct e-commerce retail in China. 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 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.

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

Current Economic Conditions and Recent Developments

Overall net sales increased $1.7 million, or 4.7%, to $38.3 million, during the three months ended March 31, 2021, as compared to the same period in 2020.

Foreign currency translation affected the net sales comparisons for the three months ended March 31, 2021 and March 31, 2020. For the three months ended March 31, 2021, our net sales increased 0.5% on a Constant dollar basis (see Non-GAAP Measures, below); favorable foreign exchange during the three months ended March 31, 2021 caused a $1.5 million increase in GAAP net sales, as compared to the same period in 2020. Excluding the effects due to the translation of foreign currencies into U.S. dollars, net sales would have increased $0.2 million for the three months ended March 31, 2021 compared to the same period in 2020. These adjusted net sales expressed in Constant dollars are a non-GAAP financial measure discussed in further detail below.


22

Table of Contents



RESULTS OF OPERATIONS

Three Months Ended March 31, 2021 Compared to Three Months Ended March 31, 2020

The table below summarizes our consolidated operating results in dollars and as a percentage of net sales for the three months ended March 31, 2021 and 2020 (in thousands, except percentages):
 20212020Change from
2020 to 2021
 Total
dollars
% of
net sales
Total
dollars
% of
net sales
DollarPercentage
Net sales$38,319 100.0 %$36,605 100.0 %$1,714 4.7 %
Cost of sales7,222 18.8 %7,008 19.1 %214 3.1 %
Gross profit31,097 81.2 %29,597 80.9 %1,500 5.1 %
Operating expenses:
Commissions and incentives15,598 40.7 %14,889 40.7 %709 4.8 %
Selling and administrative expenses7,111 18.6 %6,855 18.7 %256 3.7 %
Depreciation and amortization expense510 1.3 %520 1.4 %(10)(1.9)%
Other operating costs5,089 13.3 %5,322 14.5 %(233)(4.4)%
Total operating expenses28,308 73.9 %27,586 75.4 %722 2.6 %
Income from operations2,789 7.3 %2,011 5.5 %778 38.7 %
Interest income22 0.1 %50 0.1 %(28)56.0 %
Other income, net(282)(0.7)%(208)(0.6)%(74)35.6 %
Income before income taxes2,529 6.6 %1,853 5.1 %676 36.5 %
        Income tax (provision) benefit(335)(0.9)%934 2.6 %(1,269)(135.9)%
Net income$2,194 5.7 %$2,787 7.6 %$(593)(21.3)%


Non-GAAP Financial Measures

To supplement our financial results presented in accordance with GAAP, we disclose operating results that have been adjusted to exclude the impact of changes due to the translation of foreign currencies into U.S. dollars, including changes in: Net Sales, Gross Profit, and Income from Operations. We refer to these adjusted financial measures as Constant dollar items, which are non-GAAP financial measures. We believe these measures provide investors an additional perspective on trends. To exclude the impact of changes due to the translation of foreign currencies into U.S. dollars, we calculate current year results and prior year results at a constant exchange rate, which is the prior year’s rate. Currency impact is determined as the difference between actual growth rates and constant currency growth rates.
Three-month period ended (in millions, except percentages)
March 31, 2021March 31, 2020Constant $ Change
 GAAP
Measure:
Total $
Non-GAAP
Measure:
Constant $
GAAP
Measure:
Total $
DollarPercent
Net sales$38.3 $36.8 $36.6 $0.2 0.5 %
Product35.9 34.6 35.9 (1.3)(3.6)%
Pack sales and associate fees2.2 2.1 0.5 1.6 320.0 %
Other0.2 0.2 0.2 — — %
Gross profit31.1 29.9 29.6 0.3 1.0 %
Income from operations2.8 2.4 2.0 0.4 20.0 %

Net Sales
23

Table of Contents

Consolidated net sales for the three months ended March 31, 2021 increased by $1.7 million, or 4.7%, to $38.3 million as compared to $36.6 million for the same period in 2020.

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

Consolidated net sales by region for the three months ended March 31, 2021 and 2020 were as follows (in millions, except percentages):
RegionThree Months Ended
March 31, 2021
Three Months Ended
March 31, 2020
Americas$11.0 28.7 %$11.7 32.0 %
Asia/Pacific23.5 61.4 %21.4 58.4 %
EMEA3.8 9.9 %3.5 9.6 %
Total$38.3 100.0 %$36.6 100.0 %

For the three months ended March 31, 2021, net sales in the Americas decreased by $0.7 million, or 6.0%, to $11.0 million, as compared to $11.7 million for the same period in 2020. This decrease was primarily due to a 13.9% decline in revenue per active independent associate and preferred customer, which was partially offset by a 9.2% increase in the number of active independent associates and preferred customers.

For the three months ended March 31, 2021, our operations outside of the Americas accounted for approximately 71.3% of our consolidated net sales, whereas in the same period in 2020, our operations outside of the Americas accounted for approximately 68.0% of our consolidated net sales.

For the three months ended March 31, 2021, Asia/Pacific net sales increased by $2.1 million, or 9.8%, to $23.5 million, as compared to $21.4 million for the same period in 2020. This increase was primarily due to a 7.2% increase in the number of active independent associates and preferred customers and a 2.4% increase in revenue per active independent associate and preferred customer. Foreign currency exchange had the effect of increasing revenue by $1.4 million for the three months ended March 31, 2021, as compared to the same period in 2020. The currency impact is primarily due to the strengthening of the Korean Won, Japanese Yen, Australian Dollar, Chinese Yuan (Renminbi), New Zealand Dollar, Taiwanese Dollar, Hong Kong Dollar and the Singapore Dollar.



For the three months ended March 31, 2021, EMEA net sales increased by $0.3 million, or 8.6%, to $3.8 million, as compared to $3.5 million for the same period in 2020. The increase was primarily due to a 29.6% increase in the number of active independent associates and preferred customers, which was partially offset by a 16.2% decline in revenue per active independent associate and preferred customer. Foreign currency exchange had the effect of increasing revenue by $0.1 million for the three-month period ending March 31, 2021 as compared to the same period in 2020.  The currency impact is primarily due to the strengthening of the South African Rand, British Pound and the Euro.

Our total sales and sales mix could be influenced by any of the following:
24

Table of Contents
the impact of the COVID-19 pandemic, the availability and effectiveness of vaccines on a widespread basis and the impact of any mutations of the virus;
changes in our sales prices;
changes in shipping fees;
changes in consumer demand;
changes in the number of independent associates and preferred customers;
changes in competitors’ products;
changes in economic conditions;
changes in regulations;
announcements of new scientific studies and breakthroughs;
introduction of new products;
discontinuation of existing products;
adverse publicity;
changes in our commissions and incentives programs;
direct competition; and
fluctuations in foreign currency exchange rates.

    

Our sales mix for the three months ended March 31, was as follows (in millions, except percentages):
 Three Months Ended
March 31,
Change
 20212020DollarPercentage
Consolidated product sales$35.9 $35.9 $— — %
Consolidated pack sales and associate fees2.2 0.5 1.7 340.0 %
Consolidated other0.2 0.2 — — %
Total consolidated net sales$38.3 $36.6 $1.7 4.6 %


Product Sales

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

Product sales for the three months ended March 31, 2021 and 2020 remained constant at $35.9 million. The average order value for the three months ended March 31, 2021 was $187, as compared to $183 for the same period in 2020. The number of orders processed during the three months ended March 31, 2021 decreased by 4.2%, to 201,729, as compared to 210,567 for the same period in 2020.


Pack Sales and Associate Fees

The Company collects associate fees in lieu of selling packs in certain markets. Associate fees are paid annually by new and continuing associates to the Company, which entitle them to earn commissions, benefits and incentives for that year. The Company collected associate fees in lieu of pack sales within the United States, Canada, South Africa, Japan, Australia, New Zealand, Singapore, Hong Kong, Taiwan, Austria, the Czech Republic, Denmark, Estonia, Finland, Germany, the Republic of Ireland, the Netherlands, Norway, Spain, Sweden and the United Kingdom.
25

Table of Contents

In the Republic of Korea and Mexico, packs may still be purchased by our associates who wish to build a Mannatech business. These packs contain products that are discounted from both the published retail and associate prices. There are several pack options available to our associates. In certain of these markets, pack sales are completed during the final stages of the registration process and can provide new associates with valuable training and promotional materials, as well as products for resale to retail customers, demonstration purposes, and personal consumption. Business-building associates in these markets can also purchase an upgrade pack, which provides the associate with additional promotional materials. We also do not collect associate fees or sell packs in our non-direct selling business in mainland China.


The dollar amount of pack sales and associate fees associated with new and continuing independent associate positions held by individuals in our network was as follows for the three months ended March 31, (in millions, except percentages):
 Three Months Ended
March 31,
Change
 20212020DollarPercentage
New$0.1 $0.1 $— — %
Continuing2.1 0.4 1.7 425.0 %
Total$2.2 $0.5 $1.7 340.0 %


    Total pack sales and associate fees for the three months ended March 31, 2021 increased by $1.7 million, or 340.0%, to $2.2 million, as compared to $0.5 million for the same period in 2020. Average pack and associate fee value for the three months ended March 31, 2021 was $99, as compared to $20 for the same period in 2020. The total number of packs and associate fees sold decreased by $219, or 1.0%, to 22,135 for the three months ended March 31, 2021, as compared to the same period in 2020.

Pack sales and associate fees correlate to new associate positions held by individuals in our network when a starter pack or associate fee is purchased and to continuing associate positions held by individuals in our network when an upgrade pack or renewal associate fee is purchased. However, there is no direct correlation between product sales and the number of new and continuing associate positions and preferred customer positions held by individuals in our network because associates and preferred customers utilize products at different volumes.

During 2020 and continuing into 2021, we took the following actions to recruit and retain associates and preferred customers:
registered our most popular products with the appropriate regulatory agencies in all countries of operations;
rolled out new products;
continued an aggressive marketing and educational campaign;
continued to strengthen compliance initiatives;
concentrated on publishing results of research studies and clinical trials related to our products;
initiated additional incentives;
continued to explore new advertising and educational tools to broaden name recognition; and
implemented changes to our global associate career and compensation plan.

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, 2021 and 2020 were as follows:
 20212020
New84,000 44.9 %80,000 48.2 %
Continuing103,000 55.1 %86,000 51.8 %
Total187,000 100.0 %166,000 100.0 %

Recruitment of new independent associates and preferred customers increased 4.6% in the first quarter of 2021, as compared to the first quarter of 2020. The number of new independent associates and preferred customer positions held by
26

Table of Contents
individuals in our network for the first quarter of 2021 was approximately 19,538, as compared to 18,687 for the same period in 2020.
Other Sales

Other sales consisted of: (i) sales of promotional materials; (ii) monthly fees collected for the Success Tracker™ and Mannatech+ customized electronic business-building and educational materials, databases and applications; (iii) training and event registration fees; and (iv) a reserve for estimated sales refunds and returns. Promotional materials, training, database applications and business management tools support our independent associates, which in turn helps stimulate product sales.

For each of the three months ended March 31, 2021 and 2020, other sales were $0.2 million.

Gross Profit

For the three months ended March 31, 2021, gross profit increased by $1.5 million, or 5.1%, to $31.1 million, as compared to $29.6 million for the same period in 2020. For the three months ended March 31, 2021, gross profit as a percentage of net sales increased to 81.2%, as compared to 80.9% for the same period in 2020 due to increased product promotions.

Commissions and Incentives

Commission expenses for the three months ended March 31, 2021 increased by 4.2%, or 0.6 million, to $14.9 million, as compared to $14.3 million for the same period in 2020. For the three months ended March 31, 2021, commissions as a percentage of net sales decreased to 38.9% from 39.1% for the same period in 2020.

Incentive costs for the three months ended March 31, 2021 increased to $0.7 million, as compared to $0.6 million for the same period in 2020. For the three months ended March 31, 2021, incentives as a percentage of net sales increased to 1.8% from 1.6% for the same period in 2020.


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, such as the costs related to hosting our corporate-sponsored events.

For the three months ended March 31, 2021, selling and administrative expenses increased by 0.2 million, or 3.7%, to $7.1 million, as compared to $6.9 million for the same period in 2020. The increase in selling and administrative expenses consisted of a $0.3 million increase in payroll costs, a $0.1 million increase in marketing costs, which was partially offset by a $0.1 million decrease in stock-based compensation and $0.1 million decrease in contract labor. Selling and administrative expenses, as a percentage of net sales, for the three months ended March 31, 2021 decreased to 18.6% from 18.7% for the same period in 2020.

Other Operating Costs

Other operating costs include accounting/legal/consulting fees, travel and entertainment expenses, credit card processing fees, off-site storage fees, utilities, bad debt and other miscellaneous operating expenses.

For the three months ended March 31, 2021, other operating costs decreased by $0.2 million, or 4.4%, to $5.1 million, as compared to $5.3 million for the same period in 2020. For the three months ended March 31, 2021, other operating costs as a percentage of net sales decreased to 13.3% from 14.5% for the same period in 2020. The decrease in operating costs was primarily due to a $0.3 million decrease in travel and entertainment and a $0.1 million decrease in office expenses, which was partially offset by a $0.2 million increase in consulting fees.

Depreciation and Amortization Expense

Depreciation and amortization expense was $0.5 million for each of the three months ended March 31, 2021 and 2020.


Other Income (Expense), Net