10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended:  September 30, 2016

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.)
600 S. Royal Lane, Suite 200, Coppell, Texas	75019
(Address of Principal Executive Offices)	(Zip Code)

Registrant’s Telephone Number, including Area Code:  (972) 471-7400

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  ☒  No  ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “accelerated filer”, “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

As of October 31, 2016, the number of shares outstanding of the registrant’s sole class of common stock, par value $0.0001 per share, was 2,686,868.

MANNATECH, INCORPORATED

TABLE OF CONTENTS

Special Note Regarding Forward-Looking Statements	1
Part I – FINANCIAL INFORMATION
Item 1. Financial Statements	2
Consolidated Balance Sheets as of September 30, 2016 (unaudited) and December 31, 2015	2
Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2016 and 2015 (unaudited)	3
Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2016 and 2015 (unaudited)	3
Consolidated Statement of Shareholders’ Equity as of September 30, 2016 (unaudited) and December 31, 2015	4
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2016 and 2015 (unaudited)	5
Notes to Unaudited Consolidated Financial Statements	6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Company Overview	20
Results of Operations	21
Liquidity and Capital Resources	29
Critical Accounting Policies and Estimates	32
Recent Accounting Pronouncements	36
Item 3. Quantitative and Qualitative Disclosures About Market Risk	36
Item 4. Controls and Procedures	37
Part II – OTHER INFORMATION
Item 1. Legal Proceedings	38
Item 1A. Risk Factors	38
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	38
Item 3. Defaults Upon Senior Securities	38
Item 4. Mine Safety Disclosures	38
Item 5. Other Information	38
Item 6. Exhibits	38
Signatures	39

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, 2015, and the “Risk Factors” section in Part II, Item 1A of this Form 10-Q, 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:

§ 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 thereto;

§ the ability to attract and retain independent associates and members;

§ 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.

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,” “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,” “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

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

MANNATECH, INCORPORATED AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

ASSETS	September 30, 2016 (unaudited)			December 31, 2015
Cash and cash equivalents	$	38,311		$	31,994
Restricted cash		1,513			1,511
Accounts receivable, net of allowance of $456 and $261 in 2016 and 2015, respectively		72			369
Income tax receivable		16			4
Inventories, net		10,394			9,199
Prepaid expenses and other current assets		2,919			2,905
Deferred commissions		3,742			3,443
Deferred tax assets, net		27			460
Total current assets		56,994			49,885
Property and equipment, net		3,670			3,848
Construction in progress		926			839
Long-term restricted cash		7,040			6,586
Other assets		4,451			3,759
Long-term deferred tax assets, net		4,708			3,725
Total assets	$	77,789		$	68,642
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current portion of capital leases	$	379		$	447
Accounts payable		5,188			2,683
Accrued expenses		5,112			6,221
Commissions and incentives payable		11,277			6,818
Taxes payable		538			736
Current deferred tax liability		85			84
Current notes payable		805			713
Deferred revenue		9,640			8,677
Total current liabilities		33,024			26,379
Capital leases, excluding current portion		346			612
Long-term deferred tax liabilities		26			24
Long-term notes payable		706			1,069
Other long-term liabilities		1,648			1,994
Total liabilities		35,750			30,078
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, 2,764,963 shares issued and 2,686,868 shares outstanding as of September 30, 2016 and 2,773,972 shares issued and 2,682,078 shares outstanding as of December 31, 2015		—			—
Additional paid-in capital		39,164			40,494
Retained earnings		8,798			8,589
Accumulated other comprehensive income		3,597			686
Treasury stock, at average cost, 78,095 shares as of September 30, 2016 and 91,894 shares as of December 31, 2015, respectively		(9,520	)		(11,205	)
Total shareholders’ equity		42,039			38,564
Total liabilities and shareholders’ equity	$	77,789		$	68,642

See accompanying notes to unaudited consolidated financial statements.

2

MANNATECH, INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS – (UNAUDITED)

(in thousands, except per share information)

	Three months ended September 30,						Nine months ended September 30,
	2016			2015			2016			2015
Net sales	$	48,146		$	43,860		$	137,664		$	134,956
Cost of sales		9,736			8,253			28,225			25,076
Gross profit		38,410			35,607			109,439			109,880
Operating expenses:
Commissions and incentives		19,985			17,867			56,019			54,296
Selling and administrative expenses		9,877			9,001			28,199			26,412
Depreciation and amortization expense		507			433			1,427			1,324
Other operating costs		7,534			6,072			22,863			18,493
Total operating expenses		37,903			33,373			108,508			100,525
Income from operations		507			2,234			931			9,355
Interest income (expense)		(16	)		93			(5	)		154
Other income (expense), net		232			(2,418	)		(471	)		(3,802	)
Income (loss) before income taxes		723			(91	)		455			5,707
Benefit (provision) for income taxes		562			159			90			(1,397	)
Net income	$	1,285		$	68		$	545		$	4,310
Earnings per common share:
Basic	$	0.47		$	0.03		$	0.20		$	1.61
Diluted	$	0.46		$	0.03		$	0.19		$	1.58
Weighted-average common shares outstanding:
Basic		2,706			2,681			2,703			2,679
Diluted		2,818			2,721			2,812			2,727

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME– (UNAUDITED)

(in thousands)

		Three months ended September 30,				Nine months ended September 30,
		2016		2015		2016		2015
Net income	$	1,285	$	68	$	545	$	4,310
Foreign currency translations		1,407		464		2,911		432
Comprehensive income	$	2,692	$	532	$	3,456	$	4,742

See accompanying notes to unaudited consolidated financial statements.

3

MANNATECH, INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

– (UNAUDITED)

(in thousands)

	Common stock Par value		Additional paid in capital			Retained earnings			Accumulated other comprehensive income		Treasury stock			Total shareholders’ equity
Balance at December 31, 2015	$	—	$	40,494		$	8,589		$	686	$	(11,205	)	$	38,564
Net income		—		—			545			—		—			545
Declared dividends		—		—			(336	)		—		—			(336	)
Charge related to stock-based compensation		—		(356	)		—			—		830			474
Stock option exercises		—		(815	)		—			—		855			40
Repurchase of common stock		—		(159	)		—			—		—			(159	)
Foreign currency translations		—		—			—			2,911		—			2,911
Balance at September 30, 2016	$	—	$	39,164		$	8,798		$	3,597	$	(9,520	)	$	42,039

See accompanying notes to unaudited consolidated financial statements.

4

MANNATECH, INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS – (UNAUDITED)

(in thousands)

	Nine months ended September 30,
	2016			2015
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	545		$	4,310
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		1,427			1,324
Provision for inventory losses		208			434
Provision for doubtful accounts		516			275
Loss on disposal of assets		415			28
Stock-based compensation expense		474			450
Tax benefit from exercise of stock options		—			(16	)
Deferred income taxes		(401	)		6
Changes in operating assets and liabilities:
Accounts receivable		(213	)		(77	)
Income tax receivable		(11	)		(16	)
Inventories		(903	)		(1,730	)
Prepaid expenses and other current assets		306			655
Other assets		(183	)		(138	)
Deferred commissions		(171	)		230
Accounts payable		2,457			116
Accrued expenses and other liabilities		(1,771	)		633
Taxes payable		(376	)		(637	)
Commissions and incentives payable		4,184			2,174
Deferred revenue		664			(210	)
Change in restricted cash		(17	)		26
Net cash provided by operating activities		7,150			7,837
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment		(1,676	)		(1,583	)
Net cash used in investing activities		(1,676	)		(1,583	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from stock options exercised		40			30
Repurchase of common stock		(159	)		—
Payment of cash dividends		(336	)		—
Tax benefit from exercise of stock options		—			16
Proceeds from note payable		—			1,148
Repayment of capital lease obligations		(1,136	)		(1,276	)
Net cash used in financing activities		(1,591	)		(82	)
Effect of currency exchange rate changes on cash and cash equivalents		2,434			1,121
Net increase in cash and cash equivalents		6,317			7,293
Cash and cash equivalents at the beginning of the period		31,994			27,999
Cash and cash equivalents at the end of  the period	$	38,311		$	35,292
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Income taxes paid	$	1,830		$	4,394
Interest paid on capital leases and financing arrangements	$	90		$	69
Assets acquired through financing arrangements	$	529		$	671

See accompanying notes to unaudited consolidated financial statements.

5

NOTE 1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Mannatech, Incorporated (together with its subsidiaries, the “Company”), located in Coppell, Texas, was incorporated in the state of Texas on November 4, 1993 and is listed on the NASDAQ Global Select Market (“Nasdaq”) under the symbol “MTEX”. The Company develops, markets, and sells high-quality, proprietary nutritional supplements, topical and skin care products, and weight-management products. We currently sell our products in three regions: (i) the Americas (the United States, Canada, Colombia 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 and Hong Kong).

Independent associates (“associates”) purchase the Company’s products at published wholesale prices to either sell to retail customers or for personal use. Members purchase the Company’s products at a discount from published retail prices primarily for personal use.  The Company cannot distinguish products sold for personal use from other sales 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 accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with instructions for Form 10-Q and Rule 10-01 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 accounting principles generally accepted in the United States of America (“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, 2015 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, 2015 and filed with the United States Securities and Exchange Commission (the “SEC”) on March 15, 2016 (the “2015 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 2015 Annual Report.

Principles of Consolidation

The consolidated financial statements and footnotes include the accounts of the Company 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 generally accepted accounting principles 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 and Cash Equivalents

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 of submission to the credit card processor. As of September 30, 2016 and December 31, 2015, credit card receivables were $1.9 million and $0.4 million, respectively. As of September 30, 2016 and December 31, 2015, cash and cash equivalents held in bank accounts in foreign countries totaled $33.8 million and $31.3 million, respectively. The Company invests cash in liquid instruments, such as money market funds and interest bearing deposits.  The Company also holds cash in high quality financial institutions and does not believe it has an excessive exposure to credit concentration risk.

6

Restricted Cash

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 September 30, 2016 and December 31, 2015, our total restricted cash was $8.6 million and $8.1 million, respectively.

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 each of September 30, 2016 and December 31, 2015, receivables consisted primarily of amounts due from members and associates. 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. At September 30, 2016 and December 31, 2015, the Company held an allowance for doubtful accounts of $0.5 million and $0.3 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 market. The Company periodically reviews inventories for obsolescence, and any inventories identified as obsolete are reserved or written off.

Property and Equipment

Property and equipment are stated at cost, less accumulated depreciation and amortization computed using the straight-line method over the estimated useful life of each asset. Leasehold improvements are amortized over the shorter of the lease term or the estimated useful life of the improvements. Expenditures for maintenance and repairs are charged to expense as incurred. The cost of property and equipment sold or otherwise retired and the related accumulated depreciation are removed from the accounts and any resulting gain or loss is included in other operating costs in the accompanying Consolidated Statements of Operations. The estimated useful lives of fixed assets are as follows:

	Estimated useful life
Office furniture and equipment	5 to 7 years
Computer hardware and software	3 to 5 years
Automobiles	3 to 5 years
Leasehold improvements(1)	2 to 10 years

⁽¹⁾ The Company amortizes leasehold improvements over the shorter of the useful estimated life of the leased asset or the lease term.

Property and equipment are reviewed for impairment whenever an event or change in circumstances indicates that the carrying amount of an asset or group of assets may not be recoverable. The impairment review includes a comparison of future projected cash flows generated by the asset or group of assets with its associated net carrying value. If the net carrying value of the asset or group of assets exceeds expected cash flows (undiscounted and without interest charges), an impairment loss is recognized to the extent the carrying amount of the asset exceeds its fair value.

On August 29, 2016, we received information indicating that a portion of the capitalized costs related to an item included in our computer hardware and software asset group would not be completed due to problems with the vendor in completing the code. We evaluated the project and determined a charge was required due to the abandonment of the project. For the quarter and year ending September 30, 2016 we recorded $0.4 million in operating expenses that represented work that was performed, but which no longer has any value to the Company or any possibility of affecting future cash inflows.

7

Other Assets

As of September 30, 2016 and December 31, 2015, other assets were $4.5 million and $3.8 million, respectively, and primarily consisted of deposits for building leases in various locations of $2.5 million and $1.9 million, respectively. Additionally, included in the September 30, 2016 and December 31, 2015 balances was $1.7 million and $1.6 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. Also included in each of the September 30, 2016 and December 31, 2015 balances was $0.2 million of indefinite lived intangible assets relating to the Manapol® powder trademark.

Notes Payable

Notes payable were $1.5 million and $1.8 million as of September 30, 2016 and December 31, 2015, respectively, as a result of funding from a capital financing agreement related to our investment in computer hardware and software and other financing arrangements. At September 30, 2016, the current portion was $0.8 million and the long-term portion was $0.7 million.  At December 31, 2015, the current portion was $0.7 million and the long-term portion was $1.1 million.

Other Long-Term Liabilities

Other long-term liabilities were $1.6 million and $2.0 million as of September 30, 2016 and December 31, 2015, respectively.  At September 30, 2016 and December 31, 2015, the Company recorded $0.2 million and $0.7 million, respectively, in other long-term liabilities related to uncertain income tax positions (see Note 8, Income Taxes of the Company’s annual report on Form 10-K for the year ended December 31, 2015, filed March 15, 2016). 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 September 30, 2016 and December 31, 2015, accrued restoration costs related to these leases amounted to $0.5 million and $0.4 million, respectively.  At each of September 30, 2016 and December 31, 2015, 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 $0.5 million (see Note 10, Employee Benefit Plans, of the Company’s 10-K, filed March 15, 2016).

Revenue Recognition and Deferred Commissions

The Company’s revenue is derived from sales of individual products, sales of its starter and renewal packs, and shipping fees. Substantially all of the Company’s product and pack sales are made to associates at published wholesale prices and to members at discounted published retail prices. 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 packs and products upon receipt by the customer. Corporate-sponsored event revenue is recognized when the event is held. The Company defers certain components of its revenue. At September 30, 2016 and December 31, 2015, the Company’s deferred revenue was $9.6 million and $8.7 million, respectively. When participating in the Company’s loyalty program, customers earn loyalty points from qualified automatic orders that can be applied to future purchases. The Company defers the dollar equivalent in revenue of these points until the points are applied, forfeited, or expired, which includes an estimate of the percentage of the unvested loyalty points that are expected to be forfeited or expired. The deferred revenue associated with the loyalty program at September 30, 2016 and December 31, 2015, was $8.0 million and $8.1 million, respectively. Deferred revenue consisted primarily of: (i) sales of packs and products shipped but not received by the customers by the end of the respective period; (ii) revenue from the loyalty program; and (iii) prepaid registration fees from customers planning to attend a future corporate-sponsored event. In total current assets, the Company defers commissions on (i) the sales of packs and products shipped but not received by the customers by the end of the respective period and (ii) the loyalty program. Deferred commissions were $3.7 million and $3.4 million at September 30, 2016 and December 31, 2015, respectively.

8

Loyalty program	(in thousands)
Loyalty deferred revenue as of January 1, 2015	$	9,703
Loyalty points forfeited or expired		(8,801	)
Loyalty points used		(15,077	)
Loyalty points vested		20,403
Loyalty points unvested		1,845
Loyalty deferred revenue as of December 31, 2015	$	8,073

Loyalty deferred revenue as of January 1, 2016	$	8,073
Loyalty points forfeited or expired		(5,334	)
Loyalty points used		(11,879	)
Loyalty points vested		15,556
Loyalty points unvested		1,559
Loyalty deferred revenue as of  September 30, 2016	$	7,975

The Company estimates a sales return reserve for expected sales refunds based on historical experience over a rolling six-month period. If actual results differ from our estimated sales return reserve due to various factors, the amount of revenue recorded each period could be materially affected. 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 nine months ended September 30, 2016 our sales return reserve consisted of the following (in thousands):

Sales reserve as of January 1, 2016	$	147
Provision related to sales made in current period		1,026
Adjustment related to sales made in prior periods		7
Actual returns or credits related to current period		(872	)
Actual returns or credits related to prior periods		(145	)
Sales reserve as of September 30, 2016	$	163

Shipping and Handling Costs

The Company records freight and shipping fees collected from its customers as revenue. The Company records inbound freight as a component of inventory and cost of sales.

Commissions and Incentives

Associates earn commissions and incentives based on their direct and indirect commissionable net sales over 13 business periods each year. Each business period equals 28 days. The Company accrues commissions and incentives when earned by associates and pays commissions on product sales three weeks following the business period end and pays commissions on its pack sales five weeks following the business period end.

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, Colombia, and Mexico operations, and changes in the pension obligation for its Japanese employees.

9

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 at September 30, 2016 and December 31, 2015, consisted of the following (in thousands):

	September 30, 2016			December 31, 2015
Raw materials	$	537		$	1,187
Finished goods		10,581			9,277
Inventory reserves for obsolescence		(724	)		(1,265	)
Total	$	10,394		$	9,199

NOTE 3: INCOME TAXES

For the three and nine months ended September 30, 2016, the Company’s effective tax rate was (77.7)% and (19.8)%, respectively. Taxes for the nine months ended September 30, 2016 were a $0.1 million benefit on a $0.5 million pre-tax book income mainly due to fluctuation of income between quarters resulting in a refund and valuation allowances released in Switzerland. For the three and nine months ended September 30, 2015, the Company’s effective income tax rate was 175.5% and 24.5%, respectively.  For the three and nine months ended September 30, 2016 and 2015, the Company’s effective tax rate was determined based on the estimated annual effective tax rate.

The effective tax rates for the three and nine months ended September 30, 2016 were lower than what would have been expected if the U.S. federal statutory rate were applied to income before taxes. Items decreasing the effective income tax rate include the favorable rate differences from foreign jurisdictions, fluctuation of income between quarters resulting in a refund, further valuation allowance release from Switzerland and certain tax reserve items that were removed due to the expiration of the applicable statute of limitations. Items discrete to the third quarter include foreign exchange losses and increased losses in jurisdictions for which no taxable benefit can be recorded.

The effective tax rates for the three months ended September 30, 2015 were higher than what would have been expected if the federal statutory rate were applied to income before taxes. Items increasing the effective tax rate include a return to provision adjustment offset by favorable rate differences from foreign jurisdictions and the utilization of foreign income tax credit. The effective tax rates for the nine months ended September 30, 2015 were lower than what would have been expected if the federal statutory rate were applied to income before taxes. Items decreasing the effective income tax rate include the favorable rate differences from foreign jurisdictions due to the overall profitability and the utilization of foreign income tax credit.

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 2008 Stock Incentive Plan. In determining the potential dilution effect of outstanding stock options during the three months ended September 30, 2016 and 2015, the Company used the quarter’s average common stock closing price of $18.02 and $18.13 per share, respectively. In determining the potential dilution effect of outstanding stock options during the nine months ended September 30, 2016 and 2015, the Company used the nine-month average common stock closing price of $19.12 and $19.83 per share, respectively. For the three- and nine-months ended September 30, 2016, approximately 0.1 million shares of the Company’s stock subject to options were excluded from the diluted EPS calculation as their effect would have been antidilutive.

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NOTE 5: STOCK-BASED COMPENSATION

The Company currently has one active stock-based compensation plan, which was approved by shareholders. The Company grants stock options to employees, consultants, and board members at the fair market value of its common stock, on the date of grant, with a term no greater than ten years. The majority of stock options vest over two or three years. Shareholders who own 10% or more of the Company’s outstanding stock are granted incentive stock options at an exercise price that may not be less than 110% of the fair market value of the Company’s common stock on the date of grant and have a term no greater than five years.

In February 2008, the Company’s Board of Directors approved the Mannatech, Incorporated 2008 Stock Incentive Plan, as amended (the “2008 Plan”), which reserved up to 100,000 (as adjusted for a 1-for-10 reverse stock split) shares of common stock for issuance of stock options and restricted stock to our employees, board members, and consultants, plus any shares reserved under the Company’s then-existing, unexpired stock plans for which options had not yet been issued, and any shares underlying outstanding options under the then-existing stock option plans that terminate without having been exercised in full. The 2008 Plan was approved by the Company’s shareholders at the 2008 Annual Shareholders’ Meeting and was amended at the 2012 Annual Shareholders’ Meeting to increase the number of shares of common stock subject to the plan by 100,000 and amended again at the 2014 Annual Shareholders’ Meeting to increase the number of shares of common stock subject to the plan by an additional 130,000. As of September 30, 2016, the 2008 Plan had 85,397 stock options available for grant before the plan expires on February 20, 2018.

The Company records stock-based compensation expense related to granting stock options in selling and administrative expenses. During the three months ended September 30, 2016 and 2015, the Company granted zero and 12,000 stock options, respectively. The fair value of stock options granted during the three months ended September 30, 2015 was approximately $10.36 per share.  During the nine months ended September 30, 2016 and 2015, the Company granted 10,000 and 32,000 stock options, respectively. The fair value of stock options granted during the nine months ended September 30, 2016 was approximately $12.18 per share. The Company recognized compensation expense as follows for the three and nine months ended September 30 (in thousands):

	Three months ending September 30				Nine months ending September 30
	2016		2015		2016		2015
Total gross compensation expense	$	115	$	149	$	474	$	450
Total tax benefit associated with compensation expense		15		38		62		111
Total net compensation expense	$	100	$	111	$	412	$	339

As of September 30, 2016, the Company expects to record compensation expense in the future as follows (in thousands):

	Three months		Year ending December 31,
	ending December 31, 2016		2017		2018		2019
Total gross unrecognized compensation expense	$	106	$	297	$	91	$	29
Tax benefit associated with unrecognized compensation expense		14		33		7		—
Total net unrecognized compensation expense	$	92	$	264	$	84	$	29

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NOTE 6: SHAREHOLDERS’ EQUITY

Treasury Stock

On June 30, 2004, the Company’s Board of Directors authorized the Company to repurchase, in the open market, the lesser of (i) 131,756 shares of its common stock and (ii) $1.3 million of its shares, (the “June 2004 Plan”).  On August 28, 2006, a second program permitting the Company to purchase, in the open market, up to $20 million of its outstanding shares was approved by the Board of Directors (the “August 2006 Plan”).  On July 14, 2011, the Company’s Board of Directors authorized the Company to reactivate the June 2004 Plan.  On August 31, 2016, the Company’s Board of Directors reactivated the August 2006 Plan and authorized the Company to repurchase up to $0.5 million of the Company’s outstanding common shares in open market transactions.  As of November 8, 2016, the maximum number of shares available for repurchase under the June 2004 Plan was 19,084, and the total number of shares purchased in the open market under the June 2004 Plan was 112,672.  As of November 8, 2016, there was $19.8 million remaining for repurchase under the August 2006 Plan, and the total value of shares repurchased in the open market under the August 2006 plan was $0.2 million. The Company does not have any stock repurchase plans or programs other than the June 2004 Plan and the August 2006 Plan.

During the three and nine months ended September 30, 2016, the company repurchased 9,009 shares at an average price of $17.54.

Accumulated Other Comprehensive Income

Accumulated other comprehensive income, displayed in the Consolidated Statements of Shareholders’ Equity and Comprehensive Income, 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, 2015	$	358	$	328	$	686
Current-period change 1		2,911		—		2,911
Balance as of September 30, 2016	$	3,269	$	328	$	3,597

¹ No amounts reclassified from accumulated other comprehensive income.

Dividends

On August 11, 2016, the Board of Directors declared a dividend of $0.125 per share that was paid on September 21, 2016 to shareholders of record on August 31, 2016.

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NOTE 7: LITIGATION

Patent Litigation

Mannatech, Incorporated v. Wellness Quest, LLC and Harley Reginald McDaniel, Case No. 3:14-cv-2497, U.S. District Court, for the Northern District of Texas, Dallas Division

On July 11, 2014 the Company filed a patent infringement lawsuit against Wellness Quest, LLC and Dr. H. Reginald McDaniel (“Defendants”) alleging the Defendants infringe United States Patent Nos. 7,157,431 and 7,202,220, both entitled “Compositions of Plant Carbohydrates as Dietary Supplements” (the “Patents”) and seeking to stop the Defendants’ manufacture, offer, and sale of infringing glyconutritional dietary supplement products. On July 16, 2014, the Company filed a Motion for Preliminary Injunction preventing Defendants from infringing the Patents pending a final decision on the merits. On August 29, 2014, the Defendants filed their Response to Plaintiff’s Motion for Preliminary Injunction and Brief in Support along with their Answer and Affirmative Defenses. On November 4, 2014, the Court denied the Company’s Motion for Preliminary Injunction and Motion to Expedite Discovery.  On December 15, 2014, the Company deposed Dr. Reginald McDaniel. Each party has submitted its list of claim constructions/definitions and a list of the supporting authority.  Each party has filed its opening brief and its respective responsive brief. Defendants designated an expert and the Company deposed the expert on January 27, 2015 regarding his claim construction opinions while reserving the right to examine him later regarding other matters.  Mediation on this matter was held on April 24, 2015. A settlement was not reached.

On May 12, 2015 the Company received notice of an Order of Transfer advising that the case had been reassigned from Judge Ed Kinkeade to Judge David C. Godbey for all further proceedings. On July 20, 2015, the Court issued its Markman ruling adopting the Company’s proposed claim construction for all disputed terms except for “dietary supplement composition” which it found needed no construction. On August 20, 2015, Defendants filed a request for an interlocutory appeal, and the Company filed a reply on October 6, 2015. The Company also filed a separate motion requesting entry of a final judgment and permanent injunction on September 8, 2015.

On November 5, 2015 the Court issued an Order accepting Defendants’ stipulation of infringement under the Court’s claim interpretation and granted the Company’s partial motion for summary judgment and issued a permanent injunction against Defendants’ infringement of the Patents. The Court stayed the permanent injunction until the conclusion of Defendants’ appeal to the U.S. Court of Appeals for the Federal Circuit (the “Court of Appeals”). On December 3, 2015, Defendants filed their Notice of Appeal which was docketed by the Court of Appeals on December 8, 2015. Defendants-Appellants filed their brief with the Court of Appeals on February 28, 2016. The Company-Appellee filed its brief with the Court of Appeals on March 24, 2016. Oral argument for the appeal was held on August 1, 2016.  Each side was given fifteen minutes for argument before the Appellate Court.  On August 5, 2016, the Court of Appeals issued a per curium opinion affirming the trial court’s judgment in favor of the Company. On August 10, 2016, the Company filed a motion to lift the stay of permanent injunction previously issued by the trial court. On August 24, 2016, the Company received confirmation from its counsel that Defendants changed the formulation of the infringing product to a formulation proposed by the Company. Defendants filed their response to the Company’s motion on August 31, 2016. The parties conferred via telephone and electronic mail on August 31, 2016 and September 1, 2016 regarding the Company’s motion and Defendants’ response.  On September 1, 2016 the Company filed an Amended Certificate of Conference with the Court advising that the Company’s motion was now unopposed. The Court has yet to rule on this motion. This matter remains open.

This lawsuit continues the Company’s enforcement of its patent rights, and the Company intends to vigorously prosecute this matter.  Based on the previous successful patent infringement lawsuits against Country Life, LLC, Glycobiotics International, Inc., Techmedica Health, Inc., IonX Holdings, Inc., Boston Mountain Laboratories, Inc., Green Life, LLC, Xiong Lo, and RBC Life Sciences, Inc., the Company believes there is a strong likelihood that it will obtain permanent injunctions against the manufacture and sale of any infringing products for the duration of the Company’s patents.

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Breach of Contract

Diana Anselmo and New Day Today Corporation v. Mannatech, Incorporated, Case No. DC-15-01904, Judicial District Court, Dallas County, Texas

On February 18, 2015 Ms. Diana Anselmo and New Day Today Corporation (collectively, the “Plaintiffs”) filed suit against Mannatech alleging breach of contract pertaining to a portion of proceeds from a Mannatech Associate position once held by Ms. Anselmo’s former husband, Ray Gebauer. Plaintiffs are seeking damages in excess of $1,000,000 and a declaration that the Company continue to pay Plaintiffs proceeds from Mr. Gebauer’s former account.

The Company filed its answer on March 23, 2015 denying the Plaintiffs’ allegations. The Court set the case for trial on March 7, 2016; however, on December 7, 2015 the Court granted the parties Agreed Motion for Continuation and reset the trial for September 26, 2016. At a hearing on August 19, 2016, the Court granted a continuance and reset the trial for November 14, 2016, and on October 18, 2016, the Court reset the trial for December 5, 2016.

The Court issued a mediation order on April 20, 2015.  The Company filed a Motion for Summary Judgment on June 15, 2016. The Mediation was conducted on June 17, 2016. The parties entered into a Mediation Settlement Agreement (“MSA”) that was contingent upon Plaintiff Anselmo reaching an acceptable compromise and settlement with the Internal Revenue Service (“IRS”) on or before July 18, 2016. On July 11, 2016, the Company was notified that Plaintiff Anselmo did not reach an acceptable compromise with the IRS, thus making the MSA null and void.

Plaintiffs filed their response to the Company’s Motion for Summary Judgment on August 5, 2016. The hearing on that motion was held on August 11, 2016 and due to time constraints was continued on August 19, 2016. On August 31, 2016 the Court entered an Order Denying the Company’s Motion for Summary Judgment. Discovery formally closed on October 7, 2016. At a hearing on October 10, 2016, the Company argued that it should be allowed further discovery related to the assertions by Plaintiff Anselmo that she was not legally married to Mr. Gebauer both before and after the Company and Plaintiff Anselmo entered into the contract at issue.  The Court ordered Plaintiffs to produce communications with the IRS regarding Plaintiff Anselmo’s relationship to Mr. Gebauer.   It is not possible at this time to predict whether 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, the Company believes it has a valid defense and will vigorously defend this claim. This matter remains open.

Uniscience Solution v. Chang, et al.; Chang, et al. v. Uniscience Solution, Randy Lee, and Mannatech, Inc. (cross-defendant), Case No. 16K03995 (Superior Court of California, Los Angeles Co.)

On June 1, 2016 the Company received notice that on May 20, 2016 Vivian Hsiaoling Chang and Alan Jyh Woei Hsu (collectively, the “Cross-plaintiffs”) filed an unverified cross-complaint against the Company and Uniscience Solution, and Randy Lee alleging breach of contract seeking $22,300 plus unspecified special and punitive damages in addition to attorneys’ fees and related costs. Cross-plaintiffs, Uniscience Solution, and Randy Lee are independent distributors of the Company who entered into an agreement, separate and apart from their respective distributor agreements with the Company. The Cross-plaintiffs assert that Mannatech is a party to such other agreement; which it is not. The Company filed an answer denying the assertions in the unverified cross-complaint. On September 23, 2016, the Cross-plaintiffs and Uniscience Solution entered into a settlement agreement. On September 27, 2016, the Cross-plaintiffs filed a Request for Dismissal with the Court dismissing all claims against the Company with prejudice. On October 26, 2016, the Company received notice from its counsel that the Court entered the Dismissal on October 3, 2016. This matter is closed.

Trademark Opposition – U.S. Patent and Trademark Office (“USPTO”)

United States Trademark Opposition No. 91221493, Shaklee Corporation v. Mannatech, Incorporated re: UTH

On April 15, 2015 the Company received notice that Shaklee Corporation filed a Notice of Opposition to the Company’s trademark application for UTH (stylized as Ū^th) with the USPTO. On May 19, 2015, the Company filed an answer to the opposition and also filed a counterclaim seeking to cancel Shaklee’s registration of its YOUTH mark. Shaklee filed an extension to oppose the UTH mark on June 18, 2015, and the request to extend time to oppose was granted until July 18, 2015. Shaklee filed a second extension on July 17, 2015, and the request to extend time to oppose has been granted until September 16, 2015. Shaklee filed motions to strike the Company’s Affirmative Defenses to the Opposition and Counterclaim to cancel their registrations.  The Company filed responses and the Trademark Trial and Appeal Board (“TTAB”) ruled in Shaklee’s favor. The Company filed an amended Answer to the Opposition and Amended Counterclaim on November 18, 2015. Shaklee then filed an answer to the Company’s Counterclaim on December 30, 2015.

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On September 15, 2015 Shaklee filed two more Notices of Opposition for the UTH & Design and ŪTH applications. The Company filed Answers and Counterclaims on November 20, 2015. On January 25, 2016, the Company filed a motion to strike Shaklee’s affirmative defense on cancellation. On May 17, 2016, the TTAB granted the Company’s motion to strike Shaklee’s affirmative defense on cancellation. On August 9, 2016, Shaklee filed a Motion for Summary Judgment on the Company’s cancellation filing of its YOUTH mark. On September 9, 2016, the Company filed a Motion for Request for Discovery to Respond to Summary Judgment under Rule 56(d). On September 28, 2016, Shaklee filed a response to the Company’s motion to cancel the request for discovery. The Company plans to file a response in support of the motion under Rule 56(d) on October 18, 2016. The proceedings, including discovery, have been suspended until the TTAB can rule on the motions.This matter remains open.

It is not possible at this time to predict the outcome of the USPTO action or whether 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, the Company believes it has a valid defense and will vigorously defend this claim.

Arbitration Proceeding

Mannatech v. Samuel L. Caster and Wonder Enterprises, LLC, Demand for Arbitration, Case No. 01-15-0003-6812.

On May 29, 2015 the Company initiated arbitration proceedings against Samuel L. Caster and Wonder Enterprises, LLC (“Respondents”) alleging breach of contract by Mr. Caster and his company, Wonder Enterprises, under a series of consulting agreements entered into by the parties. Mannatech seeks to recover actual damages, costs of court and prejudgment interest together with disgorgement of all benefits received by the Respondents. The Company estimates its damages to be between $500,000 and $3,500,000. On June 12, 2015 Respondents contacted the Company’s counsel to request mediation. The parties agreed to mediate this dispute, and mediation was held on August 17, 2015. However, a settlement was not reached. A preliminary hearing for arbitration was held on September 18, 2015, and a final hearing commenced on April 25, 2016. A hearing was held on March 2, 2016 where the arbitrator granted Respondents’ request to file a motion for summary judgment and granted the Company until March 21, 2016 to issue its response. The arbitrator also granted the Company’s motion to compel the Respondents to produce the customer list for Mr. Caster’s former company, EM Squared. The Company filed its response to Respondents’ Motion for Summary Judgment on March 21, 2016. The arbitration hearing was scheduled to begin on August 29, 2016; however, the parties reached a settlement agreement and on August 25, 2016 the arbitrator entered the Agreed Order of Dismissal, dismissing all claims with prejudice.  This matter is closed.

Administrative Proceedings

Mannatech Korea, Ltd. V. Busan Custom Office, Busan District Court, Korea

On or before April 12, 2015 Mannatech Korea, Ltd. filed a suit against the Busan Custom Office (“BCO”) to challenge BCO’s method of calculation regarding its assessment notice issued on July 11, 2013. The assessment notice included an audit of the Company’s imported goods covering fiscal years 2008 through 2012 and required the Company to pay $1.0 million for this assessment, which was paid in January 2014. Both parties submitted a response to the Court’s inquiry on January 15, 2016. The final hearing for the case was held on May 26, 2016, where each party presented their respective arguments. The judge originally set the decision hearing for June 30, 2016; however, after several postponements on the decision hearing to July 14, 2016 and then to August 18, 2016, the decision date of the case was set to October 27, 2016. On October 27, 2016, the Court decided the case in the Company’s favor. However, the BCO may file an appeal within 14 days from the day the BCO receives the decision letter, which the Court released on November 3, 2016. This matter remains open.

There are other ongoing audits in various international jurisdictions that the Company does not expect will have a material effect on our financial statements.

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Litigation in General

The Company is or may become subject to claims in the normal course of business. The Company believes such claims can be resolved without any material adverse effect on its consolidated financial position, results of operations, or cash flows.

The Company maintains certain liability insurance; however, certain costs of defending lawsuits are not covered or are 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 or as they become determinable.

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.

NOTE 8: 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 Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 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 September 30, 2016.  The table below presents the recorded amount of financial assets measured at fair value (in thousands) on a recurring basis as of September 30, 2016 and December 31, 2015.

September 30, 2016	Level 1		Level 2		Level 3		Total
Assets
Money Market Funds – Fidelity, US	$	1,012	$	—	$	—	$	1,012
Interest bearing deposits – various banks		22,534		—		—		22,534
Total assets	$	23,546	$	—	$	—	$	23,546
Amounts included in:
Cash and cash equivalents	$	16,993	$	—	$	—	$	16,993
Restricted cash		740		—		—		740
Long-term restricted cash		5,813		—		—		5,813
Total	$	23,546	$	—	$	—	$	23,546

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December 31, 2015	Level 1		Level 2		Level 3		Total
Assets
Money Market Funds – Fidelity, US	$	319	$	—	$	—	$	319
Interest bearing deposits – various banks		14,134		—		—		14,134
Total assets	$	14,453	$	—	$	—	$	14,453
Amounts included in:
Cash and cash equivalents	$	8,281	$	—	$	—	$	8,281
Restricted cash		737		—		—		737
Long-term restricted cash		5,435		—		—		5,435
Total	$	14,453	$	—	$	—	$	14,453

NOTE 9: SEGMENT INFORMATION

The Company conducts its business as a single operating segment, consolidating all of its business units into a single reportable entity, as a seller of proprietary nutritional supplements, topical and skin care and anti-aging products, and weight-management and fitness products through its network marketing distribution channels operating in twenty-five countries. Each of the Company’s business units sells similar packs and products 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 packs 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 operates facilities in thirteen countries and sells product in twenty-five countries around the world. These facilities are located in the United States, Canada, Switzerland, Australia, the United Kingdom, Japan, the Republic of Korea (South Korea), Taiwan, South Africa, Hong Kong, Singapore, Colombia and Mexico. Each facility services different geographic areas. We currently sell our products in three regions: (i) the Americas (the United States, Canada, Colombia 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 and Hong Kong).

Consolidated net sales shipped to customers in these regions, along with pack and product information for the three and nine months ended September 30, were as follows (in millions, except percentages):

	Three months								Nine months
Region	2016				2015				2016				2015
Americas	$	19.0	39.4	%	$	17.8	40.6	%	$	54.0	39.2	%	$	54.7	40.5	%
Asia/Pacific		25.5	52.9	%		22.0	50.1	%		73.2	53.2	%		68.3	50.6	%
EMEA		3.6	7.7	%		4.1	9.3	%		10.5	7.6	%		12.0	8.9	%
Totals	$	48.1	100.0	%	$	43.9	100.00	%	$	137.7	100.0	%	$	135.0	100.0	%

	Three months				Nine months
	2016		2015		2016		2015
Consolidated product sales	$	39.8	$	35.3	$	113.6	$	105.8
Consolidated pack sales		6.9		7.1		20.2		24.9
Consolidated other, including freight		1.4		1.5		3.9		4.3
Consolidated total net sales	$	48.1	$	43.9	$	137.7	$	135.0

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Long-lived assets, which include property and equipment and construction in process for the Company and its subsidiaries, as of September 30, 2016 and December 31, 2015, reside in the following regions, as follows (in millions):

Region	September 30, 2016		December 31, 2015
Americas	$	3.3	$	3.5
Asia/Pacific		1.2		1.1
EMEA		0.1		0.1
Total	$	4.6	$	4.7

Inventory balances, which consist of raw materials, work in process, finished goods, and promotional materials, as offset by the allowance for slow moving or obsolete inventories, reside in the following regions (in millions):

Region	September 30, 2016		December 31, 2015
Americas	$	4.3	$	3.4
Asia/Pacific		4.3		4.3
EMEA		1.8		1.5
Total	$	10.4	$	9.2

NOTE 10: RECENT ACCOUNTING PRONOUNCEMENTS

In May 2014, the FASB issued Accounting Standards Update “ASU” 2014-09, Revenue from Contracts with Customers. This new standard requires companies to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which a company expects to be entitled in exchange for those goods or services. Under the new standard, revenue is recognized when a customer obtains control of a good or service. The standard allows for two transition methods – entities can either apply the new standard (i) retrospectively to each prior reporting period presented, or (ii) retrospectively with the cumulative effect of initially applying the standard recognized at the date of initial adoption. In July 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers, which defers the effective date by one year to December 15, 2017 for fiscal years, and interim periods within those fiscal years, beginning after that date. Early adoption of the standard is permitted, but not before the original effective date of December 15, 2016. In March 2016, the FASB issued ASU 2016-08 Revenue from Contracts with Customers, Principal versus Agent Considerations (Reporting Revenue versus Net), in April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers, identifying Performance Obligations and Licensing, and in May 2016, the FASB issued ASU 2016-12, Revenue from Contracts with Customers, Narrow-Scope Improvements and Practical Expedients, which provide additional clarification on certain topics addressed in ASU 2014-09. ASU 2016-08, ASU 2016-10, and ASU 2016-12 follow the same implementation guidelines as ASU 2014-09 and ASU 2015-14. The Company is evaluating this updated standard to determine if adoption will have a material impact on the Company’s consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which is intended to simplify the accounting for stock based compensation.  The areas for simplification in ASU 2016-09 involve several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The update is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted, provided that, if an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period, and all amendments are adopted in the same period. Certain detailed transition provisions apply if an entity elects to early adopt.  The Company is currently evaluating the impact of this standard on the Company’s consolidated results of operations and financial condition.

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In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which is intended to reduce the existing diversity in practice of how certain cash receipts and cash payments are presented and classified in the statement of cash flows. This update provides guidance on eight specific cash flow issues. The update is effective for fiscal periods beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. None of the specific issues in the update materially impact the Company’s consolidated statement of cash flows.

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.

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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 and nine months ended September 30, 2016 as compared to the same periods in 2015, and should be read in conjunction with Item I “Financial Statements” in Part I of this quarterly report on Form 10-Q. 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 generally accepted accounting principles in the United States ("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

Since November 1993, we have continued to develop innovative, high quality, proprietary nutritional supplements, topical, skin care and anti-aging products, and weight-management products that are sold through a global network marketing system. We operate in three geographic regions: (i) the Americas (the United States, Canada, Colombia 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 and Hong Kong). By the fourth quarter of 2016, we anticipate commencing a non-direct selling business segment in China.

We currently conduct our business as a single operating segment and primarily sell our products through a network of approximately 221,000 active independent associate and member positions held by individuals that purchased our products and/or packs during the last 12 months, who we refer to as current independent associates and members. New pack sales and positions in our network are leading indicators for the long-term success of our business. New associate or member positions are created in our network when our packs and products are purchased for the first time. We operate as a seller of nutritional supplements, topical skin care and anti-aging products, and weight-management products through our network marketing distribution channels operating in twenty-five countries. 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 active independent associates and members who 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.

Current Economic Conditions and Recent Developments

Overall net sales increased $4.2 million, to $48.1 million, during the three months ended September 30, 2016, as compared to the same period in 2015.  Net sales increased $2.7 million, or 2.0% during the nine months ended September 30, 2016, as compared to the same period in 2015. For the three and nine months ended September 30, 2016, our operations outside of the Americas accounted for approximately 60.5% and 60.8%, respectively, of our consolidated net sales.

The net sales comparisons for the three- and nine-month periods were affected by the loyalty program and the launch of new products and promotions in markets in the Americas and Asia/Pacific during the third quarter of 2016. Sales from new products and promotions increased third quarter 2016 net sales by $4.1 million and increased net sales for the nine month ended September 30, 2016 by $7.4 million, as compared to the same periods in 2015. The loyalty program increased third quarter 2016 net sales by $0.5 million and decreased net sales for the nine months ended September 30, 2016 by $1.7 million, as compared to the same periods in 2015.

Excluding the effects due to the translation of foreign currencies into U.S. dollars, net sales would have increased $3.0 million and $4.9 million for the three and nine months ended September 30, 2016, respectively. These adjusted net sales expressed in Constant dollars are a non-GAAP financial measure discussed in further detail below.

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RESULTS OF OPERATIONS

Three Months Ended September 30, 2016 compared to Three Months Ended September 30, 2015

The table below summarizes our consolidated operating results in dollars and as a percentage of net sales for the three months ended September 30, 2016 and 2015 (in thousands, except percentages):

	2016						2015						Change from 2015 to 2016
	Total dollars			% of net sales			Total dollars			% of net sales			Dollar			Percentage
Net sales	$	48,146			100.0	%	$	43,860			100.0	%	$	4,286			9.8	%
Cost of sales		9,736			20.2	%		8,253			18.8	%		1,483			18.0	%
Gross profit		38,410			79.8	%		35,607			81.2	%		2,803			7.9	%
Operating expenses:
Commissions and incentives		19,985			41.5	%		17,867			40.7	%		2,118			11.9	%
Selling and administrative expenses		9,877			20.5	%		9,001			20.5	%		876			9.7	%
Depreciation and amortization expense		507			1.1	%		433			1.0	%		74			17.1	%
Other operating costs		7,534			15.6	%		6,072			13.9	%		1,462			24.1	%
Total operating expenses		37,903			78.7	%		33,373			76.1	%		4,530			13.6	%
Income from operations		507			1.1	%		2,234			5.1	%		(1,727	)		(77.3	)%
Interest income (expense)		(16	)		—	%		93			0.2	%		(109	)		(117.2	)%
Other income (expense), net		232			0.5	%		(2,418	)		(5.5	)%		2,650			109.6	%
Income (loss) before income taxes		723			1.5	%		(91	)		(0.2	)%		814			894.5	%
Benefit for income taxes		562			1.2	%		159			0.4	%		403			253.5	%
Net income	$	1,285			2.7	%	$	68			0.2	%	$	1,217			1789.7	%

Nine Months Ended September 30, 2016 compared to Nine Months Ended September 30, 2015

The table below summarizes our consolidated operating results in dollars and as a percentage of net sales for the nine months ended September 30, 2016and 2015 (in thousands, except percentages):

	2016						2015						Change from 2015 to 2016
	Total dollars			% of net sales			Total dollars			% of net sales			Dollar			Percentage
Net sales	$	137,664			100.0	%	$	134,956			100.0	%	$	2,708			2.0	%
Cost of sales		28,225			20.5	%		25,076			18.6	%		3,149			12.6	%
Gross profit		109,439			79.5	%		109,880			81.4	%		(441	)		(0.4	)%
Operating expenses:
Commissions and incentives		56,019			40.7	%		54,296			40.2	%		1,723			3.2	%
Selling and administrative expenses		28,199			20.5	%		26,412			19.6	%		1,787			6.8	%
Depreciation and amortization expense		1,427			1.0	%		1,324			1.0	%		103			7.8	%
Other operating costs		22,863			16.6	%		18,493			13.7	%		4,370			23.6	%
Total operating expenses		108,508			78.8	%		100,525			74.5	%		7,983			7.9	%
Income from operations		931			0.7	%		9,355			6.9	%		(8,424	)		(90.0	)%
Interest income (expense)		(5	)		—	%		154			0.1	%		(159	)		(103.2	)%
Other expense, net		(471	)		(0.3	)%		(3,802	)		(2.8	)%		3,331			87.6	%
Income before income taxes		455			0.3	%		5,707			4.2	%		(5,252	)		(92.0	)%
Benefit (provision) for income taxes		90			0.1	%		(1,397	)		(1.0	)%		1,487			106.4	%
Net income	$	545			0.4	%	$	4,310			3.2	%	$	(3,765	)		(87.4	)%

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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)	September 30, 2016				September 30, 2015		Change
	GAAP Measure: Total $		Non-GAAP Measure: Constant $		GAAP Measure: Total $		Dollar			Percent
Net Sales	$	48.1	$	46.9	$	43.9	$	3.0			6.8	%
Product		39.8		38.8		35.3		3.5			9.9	%
Pack		6.9		6.7		7.1		(0.4	)		(5.6	)%
Other		1.4		1.4		1.5		(0.1	)		(6.7	)%
Gross Profit		38.4		37.4		35.6		1.8			5.1	%
Income from Operations		0.5		0.2		2.2		(2.0	)		(90.9	)%

Nine-month period ended (in millions, except percentages)	September 30, 2016				September 30, 2015		Change
	GAAP Measure: Total $		Non-GAAP Measure: Constant $		GAAP Measure: Total $		Dollar			Percent
Net Sales	$	137.7	$	139.9	$	135.0	$	4.9			3.6	%
Product		113.6		115.3		105.8		9.5			9.0	%
Pack		20.2		20.7		24.9		(4.2	)		(16.9	)%
Other		3.9		3.9		4.3		(0.4	)		(9.3	)%
Gross Profit		109.4		110.9		109.9		1.0			0.9	%
Income from Operations		0.9		1.0		9.4		(8.4	)		(89.4	)%

Net Sales

Consolidated net sales for the three months ended September 30, 2016 increased by $4.2 million, or 9.8%, to $48.1 million, as compared to $43.9 million for the same period in 2015.  Consolidated net sales for the nine months ended September 30, 2016 increased by $2.7 million, or 2.0%, to $137.7 million, as compared to $135.0 million for the same period in 2015.

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

Consolidated net sales by region for the three months ended September 30, 2016 and 2015 were as follows (in millions, except percentages):

Region	Three months ended September 30, 2016				Three months ended September 30, 2015
Americas	$	19.0	39.5	%	$	17.8	40.6	%
Asia/Pacific		25.5	53.0	%		22.0	50.1	%
EMEA		3.6	7.5	%		4.1	9.3	%
Total	$	48.1	100.0	%	$	43.9	100.0	%

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Consolidated net sales by region for the nine months ended September 30, 2016 and 2015 were as follows (in millions, except percentages):

Region	Nine months ended September 30, 2016				Nine months ended September 30, 2015
Americas	$	54.0	39.2	%	$	54.7	40.5	%
Asia/Pacific		73.2	53.2	%		68.3	50.6	%
EMEA		10.5	7.6	%		12.0	8.9	%
Total	$	137.7	100.0	%	$	135.0	100.0	%

For the three months ended September 30, 2016, net sales in the Americas increased by $1.2 million, or 6.7%, to $19.0 million, as compared to $17.8 million for the same period in 2015. This increase was primarily due to a 14.9% increase in revenue per active independent associate and member offset by a 7.1% decline in the number of active independent associates and members. During the three months ended September 30, 2016, new products and promotions increased sales by $1.0 million and the loyalty program increased sales by $0.1 million, as compared to the same period in 2015.

For the nine months ended September 30, 2016, net sales in the Americas decreased by $0.7 million, or 1.3%, to $54.0 million, as compared to $54.7 million for the same period in 2015.  This decrease was primarily due to a 13.0% decline in the number of active independent associates and members partially offset by a 6.2% increase in revenue per active independent associate and member. Further, during the nine months ended September 30, 2016, the loyalty program decreased sales by $1.0 million, as compared to the same period in 2015.

For the three months ended September 30, 2016, our operations outside of the Americas accounted for approximately 60.5% of our consolidated net sales, whereas in the same period in 2015, our operations outside of the Americas accounted for approximately 59.4% of our consolidated net sales.

For the nine months ended September 30, 2016, our operations outside of the Americas accounted for approximately 60.8% of our consolidated net sales, whereas in the same period in 2015, our operations outside of the Americas accounted for approximately 59.5% of our consolidated net sales.

For the three months ended September 30, 2016, Asia/Pacific net sales increased by $3.5 million, or 15.9%, to $25.5 million, as compared to $22.0 million for the same period in 2015. During the three months ended September 30, 2016, new products and promotions in Asia/Pacific increased sales by $2.9 million and the loyalty program increased sales by $0.4 million, as compared to the same period in 2015. Foreign currency exchange had the effect of increasing revenue by $1.6 million for the three months ended September 30, 2016, as compared to the same period in 2015. The currency impact is primarily due to the strengthening of the Korean Won, Australian Dollar, New Zealand Dollar, Singapore Dollar, Taiwanese Dollar, and Japanese Yen partially offset by the weakening of the Hong Kong Dollar. Revenue per active independent associate and member increased by 11.4% during the three months ended September 30, 2016, as compared to the same period in 2015.

For the nine months ended September 30, 2016, Asia/Pacific net sales increased by $4.9 million, or 7.2%, to $73.2 million, as compared to $68.3 million for the same period in 2015.  New products and promotions increased sales in Asia/Pacific by $4.8 million, partially offset by the loyalty program, which decreased sales for the nine months ended September 30, 2016 by $0.4 million, as compared to the same period in 2015.  Foreign currency exchange had the effect of decreasing revenue by $0.5 million for the nine months ended September 30, 2016, as compared to the same period in 2015.  The currency impact is primarily due to the weakening of the Korean Won, Australian Dollar, New Zealand Dollar, Taiwanese Dollar, Hong Kong Dollar, and Singapore Dollar partially offset by the strengthening of the Japanese Yen. Revenue per active independent associate and member increased by 3.0% during the nine months ended September 30, 2016, as compared to the same period in 2015.

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For the three months ended September 30, 2016, EMEA net sales decreased by $0.5 million, or 12.2%, to $3.6 million, as compared to $4.1 million for the same period in 2015.  Revenue per active independent associate and member decreased by 15.8% as compared to the same period in 2015, which was partially offset by an increase of 7.2% in active associates and members as compared to the same period in 2015. The launch of new products and promotions in EMEA increased net sales by $0.2 million. Foreign currency exchange had the effect of decreasing revenue by $0.3 million when the three-month period ending September 30, 2016 is compared to the same period in 2015.  The currency impact is primarily due to the weakening of the South Africa Rand and British Pound.

For the nine months ended September 30, 2016, EMEA net sales decreased by $1.5 million, or 12.5%, to $10.5 million, as compared to $12.0 million for the same period in 2015.  Revenue per active independent associate and member decreased by 18.4% as compared to the same period in 2015. Foreign currency exchange had the effect of decreasing revenue by $1.5 million when the nine-month period ending September 30, 2016 is compared to the same period in 2015.  The currency impact is primarily due to the weakening of the South Africa Rand and British Pound.

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

· changes in our sales prices;

· changes in consumer demand;

· changes in the number of associates and members;

· 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 and nine months ended September 30, was as follows (in millions, except percentages):

	Three Months Ended September 30				Change
	2016		2015		Dollar			Percentage
Consolidated product sales	$	39.8	$	35.3	$	4.5			12.7	%
Consolidated pack sales		6.9		7.1		(0.2	)		(2.8	)%
Consolidated other, including freight		1.4		1.5		(0.1	)		(6.7	)%
Total consolidated net sales	$	48.1	$	43.9	$	4.2			9.6	%

	Nine Months Ended September 30				Change
	2016		2015		Dollar			Percentage
Consolidated product sales	$	113.6	$	105.8	$	7.8			7.4	%
Consolidated pack sales		20.2		24.9		(4.7	)		(18.9	)%
Consolidated other, including freight		3.9		4.3		(0.4	)		(9.3	)%
Total consolidated net sales	$	137.7	$	135.0	$	2.7			2.0	%

Product Sales

Our product sales are made to our independent associates at published wholesale prices. We also sell our products to members at discounted published retail prices.

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Product sales for the three months ended September 30, 2016 increased by $4.5 million, or 12.7%, as compared to the same period in 2015. The increase in product sales was primarily due to an increase in the average order size. The average order value for the three months ended September 30, 2016 was $172, as compared to $154 for the same period in 2015. The number of orders processed during the three months ended September 30, 2016 decreased by 5.7%, as compared to the same period in 2015.

Product sales for the nine months ended September 30, 2016 increased by $7.8 million, or 7.4%, as compared to the same period in 2015. The increase in product sales was primarily due to an increase in the average order size. The average order value for the nine months ended September 30, 2016 was $167, as compared to $155 for the same period in 2015. The number of orders processed during the nine months ended September 30, 2016 decreased by 1.1%, as compared to the same period in 2015.

Pack Sales

Packs may be purchased by our independent 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 independent associates. In certain markets, pack sales are completed during the final stages of the registration process and can provide new independent associates with valuable training and promotional materials, as well as products for resale to retail customers, demonstration purposes, and personal consumption. Business-building independent associates can also purchase an upgrade pack, which provides the associate with additional promotional materials, additional products, and eligibility for additional commissions and incentives. Many of our business-building independent associates also choose to purchase renewal packs.

The dollar amount of pack sales associated with new and continuing associates was as follows, for the three and nine months ended September 30 (in millions, except percentages):

	Three Months Ended September 30				Change
	2016		2015		Dollar			Percentage
New	$	3.6	$	2.4	$	1.2			50.0	%
Continuing		3.3		4.7		(1.4	)		(29.8	)%
Total	$	6.9	$	7.1	$	(0.2	)		(2.8	)%

	Nine Months Ended September 30				Change
	2016		2015		Dollar			Percentage
New	$	8.9	$	6.7	$	2.2			32.8	%
Continuing		11.3		18.2		(6.9	)		(37.9	)%
Total	$	20.2	$	24.9	$	(4.7	)		(18.9	)%

Total pack sales for the three months ended September 30, 2016 decreased by $0.2 million, or 2.8%, to $6.9 million, as compared to $7.1 million for the same period in 2015. Average pack value for the three months ended September 30, 2016 was $228, as compared to $220 for the same period in 2015. The total number of packs sold decreased by 1,600, or 5.0%, to 30,500 for the three months ended September 30, 2016, as compared to the same period in 2015.

Total pack sales for the nine months ended September 30, 2016 decreased by $4.7 million, or 18.9%, to $20.2 million, as compared to $24.9 million for the same period in 2015. Average pack value for the nine months ended September 30, 2016 was $212, as compared to $236 for the same period in 2015. The total number of packs sold decreased by 10,700 or 10.1%, to 95,100 for the nine months ended September 30, 2016, as compared to the same period in 2015.

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Pack sales correlate to new associates who purchase starter packs and to continuing associates who purchase upgrade or renewal packs. However, there is no direct correlation between product sales and the number of new and continuing associates and members because associates and members utilize products at different volumes.

During 2015 and continuing into 2016, we took the following actions to recruit and retain associates and members:

• explored new international markets;

• rolled out new products;

• launched 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;

• explored 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 members who purchased our packs or products during the twelve months ended September 30, 2016 and 2015 were as follows:

	2016				2015
New		99,000	44.8	%		97,000	43.9	%
Continuing		122,000	55.2	%		124,000	56.1	%
Total		221,000	100.0	%		221,000	100.0	%

Recruitment of new independent associates and members increased 6.2% during the three months ended September 30, 2016 as compared to the same period in 2015.  The number of new independent associate and member positions held by individuals in our network for the three months ended September 30, 2016 was approximately 25,000, as compared to 23,600 for the same period in 2015.

Other Sales

Other sales consisted of: (i) freight revenue charged to our independent associates and members; (ii) sales of promotional materials; (iii) monthly fees collected for Success Tracker™ and Navig8™ customized electronic business-building and educational materials, databases and applications; (iv) training and event registration fees; and (v) 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 the three months ended September 30, 2016, other sales decreased by $0.1 million, or 6.7%, to $1.4 million, as compared to $1.5 million for the same period in 2015. The decrease was primarily due to a decrease in freight revenue partially offset by an increase in sales refunds.

For the nine months ended September 30, 2016, other sales decreased by $0.4 million, or 9.3%, to $3.9 million, as compared to $4.3 million for the same period in 2015. The decrease was primarily due to a decrease in freight revenue partially offset by an increase in event fees.

Gross Profit

For the three months ended September 30, 2016, gross profit increased by $2.8 million, or 7.9%, to $38.4 million, as compared to $35.6 million for the same period in 2015. For the three months ended September 30, 2016, gross profit as a percentage of net sales decreased to 79.8%, as compared to 81.2% for the same period in 2015. During the three months ending September 30, 2016 as compared to the three months ending September 30, 2015, the decline in gross profit percentage was due to promotional discounting, increases in transportation costs, and the effect of foreign exchange.

For the nine months ended September 30, 2016, gross profit decreased by $0.5 million, or 0.4%, to $109.4 million, as compared to $109.9 million for the same period in 2015. For the nine months ended September 30, 2016, gross profit as a percentage of net sales decreased to 79.5%, as compared to 81.4% for the same period in 2015. The decline in gross profit percentage was primarily due to promotional discounting, increases transportation costs, and the effects of foreign exchange.

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Commissions and Incentives

Commission expenses for the three months ended September 30, 2016 increased by 11.8%, or $2.0 million, to $19.1 million, as compared to $17.1 million for the same period in 2015. For the three months ended September 30, 2016, commissions as a percentage of net sales increased to 39.8% from 39.0% for the same period in 2015.

Commission expenses for the nine months ended September 30, 2016 increased by 3.1%, or $1.6 million, to $53.8 million, as compared to $52.2 million for the same period in 2015. For the nine months ended September 30, 2016, commissions as a percentage of net sales increased to 39.1% from 38.6% for the same period in 2015.

Incentive costs for the three months ended September 30, 2016 increased by 13.9%, or $0.1 million, to $0.8 million, as compared to $0.7 million for the same period in 2015. For the three months ended September 30, 2016, incentives as a percentage of net sales increased to 1.8% from 1.7% for the same period in 2015.

Incentive costs for the nine months ended September 30, 2016 increased by 6.2%, or $0.1 million, to $2.2 million, as compared to $2.1 million for the same period in 2015. For the nine months ended September 30, 2016 and 2015, incentives as a percentage of net sales were 1.6%.

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, warehousing costs, and marketing-related expenses, such as the costs to introduce our new brand, and the costs related to hosting our corporate-sponsored events.

For the three months ended September 30, 2016, selling and administrative expenses increased by $0.9 million, or 9.7%, to $9.9 million, as compared to $9.0 million for the same period in 2015. The increase in selling and administrative expenses consisted primarily of a $0.4 million increase in marketing related costs, a $0.2 million increase in contract labor costs, a $0.2 million increase in warehouse charges, and a $0.1 million increase in payroll related costs as some non-recurring reductions in payroll costs were offset by the costs of additional employees. Selling and administrative expenses, as a percentage of net sales, for the three months ended September 30, 2016 and 2015 were 20.5%.

For the nine months ended September 30, 2016, selling and administrative expenses increased by $1.8 million, or 6.8%, to $28.2 million, as compared to $26.4 million for the same period in 2015. The increase in selling and administrative expenses consisted primarily of a $0.4 million increase in warehousing costs, a $0.4 million increase in contract labor costs, a $0.2 million increase in marketing costs, and a $0.8 million increase in payroll related costs as some non-recurring reductions in payroll costs were offset by the costs of additional employees. Selling and administrative expenses, as a percentage of net sales, for the nine months ended September 30, 2016 increased to 20.5% from 19.6% for the same period in 2015.

Other Operating Costs

Other operating costs include accounting/legal/consulting fees, travel and entertainment, credit card processing fees, utilities, bad debt, and other miscellaneous operating expenses. Changes in other operating costs are associated with the changes in our net sales.

For the three months ended September 30, 2016, other operating costs increased by $1.4 million, or 24.1%, to $7.5 million, as compared to $6.1 million for the same period in 2015. For the three months ended September 30, 2016, other operating costs as a percentage of net sales increased to 15.6% from 13.9% for the same period in 2015. The increase in other operating costs was due to a $0.7 million increase in legal and consulting fees as we continue to explore expansion into new markets, transform our supply chain and defend our patents, a $0.4 million abandonment charge of internally developed back office software, a $0.1 million increase in research and development costs, a $0.1 million increase in credit card fees, and a $0.1 million increase in travel and entertainment costs.

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For the nine months ended September 30, 2016, other operating costs increased by $4.4 million, or 23.6%, to $22.9 million, as compared to $18.5 million for the same period in 2015. For the nine months ended September 30, 2016, other operating costs as a percentage of net sales increased to 16.6% from 13.7% for the same period in 2015. The increase in other operating costs was due to a $1.8 million increase in legal and consulting fees as we continue to explore expansion into new markets, transform our supply chain and defend our patents, a $1.4 million increase in travel and entertainment costs attributed to events for our independent associates, travel to Colombia for market launch support, and travel to China for the new market launch that is expected in the fourth quarter, a $0.4 million abandonment charge of internally developed back office software, a $0.8 million increase in miscellaneous administrative costs such as research and development, accounting fees and bad debt, and a $0.2 million increase in credit card fees, partially offset by a $0.2 million decrease in office expenses.

Depreciation and Amortization Expense

Depreciation and amortization expense was $0.5 million and $0.4 for the three months ending September 30, 2016 and 2015, respectively. 

Depreciation and amortization expense was $1.4 million and $1.3 for the nine months ending September 30, 2016 and 2015, respectively. 

Other Income (Expense), Net

Due to foreign exchange gains and losses, other income (expense) was $0.2 million and ($2.4) million for the three months ending September 30, 2016 and 2015, respectively.

Due to foreign exchange losses, other income (expense) was ($0.5) million and ($3.8) million for the nine months ending September 30, 2016 and 2015, respectively.

Provision for Income Taxes

Provision for income taxes include current and deferred income taxes for both our domestic and foreign operations. Our statutory income tax rates by jurisdiction are as follows, for the three and nine months ended September 30:

Country	2016			2015
Australia		30.0	%		30.0	%
Canada		26.5	%		26.5	%
Cyprus		12.5	%		12.5	%
Colombia(1)		25.0	%		—	%
Denmark		22.0	%		23.5	%
Gibraltar		10.0	%		10.0	%
Hong Kong		16.5	%		16.5	%
Japan		35.4	%		35.4	%
Mexico		30.0	%		30.0	%
Norway		25.0	%		27.0	%
Republic of Korea		22.0	%		22.0	%
Singapore		17.0	%		17.0	%
South Africa		28.0	%		28.0	%
Sweden		22.0	%		22.0	%
Switzerland		16.2	%		16.2	%
Taiwan		17.0	%		17.0	%
United Kingdom		20.0	%		20.0	%
United States		37.5	%		37.5	%

⁽¹⁾ On February 13, 2016, the Company started operations in Colombia.

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Income from our international operations is subject to taxation in the countries in which we operate. Although we may receive foreign income tax credits that would reduce the total amount of income taxes owed in the United States, we may not be able to fully utilize our foreign income tax credits in the United States.

We use the recognition and measurement provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 740, Income Taxes (“Topic 740”), to account for income taxes. The provisions of Topic 740 require a company to record a valuation allowance when the “more likely than not” criterion for realizing net deferred tax assets cannot be met. Furthermore, the weight given to the potential effect of such evidence should be commensurate with the extent to which it can be objectively verified. As a result, we reviewed the operating results, as well as all of the positive and negative evidence related to realization of such deferred tax assets, to evaluate the need for a valuation allowance in each tax jurisdiction.

For the periods ended September 30, 2016 and December 31, 2015, we maintained the following valuation allowances for deferred tax assets totaling $8.0 million and $9.0 million, respectively, as we believe the “more likely than not” criterion for recognition and realization purposes, as defined in FASB ASC Topic 740, cannot be met.

Country	September 30, 2016		December 31, 2015
Mexico	$	2.3	$	2.5
Sweden		0.1		0.1
Switzerland		0.1		1.0
Taiwan		1.2		1.2
Ukraine		0.1		0.1
United States		4.1		4.0
Other Jurisdictions		0.1		0.1
Total	$	8.0	$	9.0

The dollar amount of the provisions for income taxes is directly related to our profitability and changes in the taxable income among countries.  For the three and nine months ended September 30, 2016, the Company’s effective income tax rate was (77.7)% and (19.8)% respectively, as compared to 175.5% and 24.5%, respectively, for the same periods in 2015.

The overall effective tax rate was lower than what would have been expected if the U.S. federal statutory rate were applied to income before taxes. Items decreasing the effective income tax rate include the favorable rate differences from foreign jurisdictions, fluctuation of income between quarters resulting in a refund, further valuation allowance release from Switzerland and certain tax reserve items were removed because the applicable statute of limitations had expired.

The effective tax rates for the three months ended September 30, 2015 were higher than what would have been expected if the federal statutory rate were applied to income before taxes. Items increasing the effective tax rate include a return to provision adjustment offset by favorable rate differences from foreign jurisdictions and the utilization of foreign income tax credit. The effective tax rates for the nine months ended September 30, 2015 were lower than what would have been expected if the federal statutory rate were applied to income before taxes. Items decreasing the effective income tax rate include the favorable rate differences from foreign jurisdictions due to the overall profitability and the utilization of foreign income tax credit.

LIQUIDITY AND CAPITAL RESOURCES

Cash and Cash Equivalents

As of September 30, 2016, our cash and cash equivalents increased by 19.7%, or $6.3 million, to $38.3 million from $32.0 million as of December 31, 2015. At September 30, 2016 and December 31, 2015, our restricted cash balances were $8.6 million and $8.1 million, respectively. Finally, fluctuations in currency rates produced an increase of $2.4 million and $1.1 million in cash and cash equivalents for the nine month periods ending September 30, 2016 and 2015, respectively.

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Our principal use of cash is to pay for operating expenses, including commissions and incentives, capital assets, inventory purchases, periodic cash dividends (if any), and international expansion. Business objectives, operations, and expansion of operations are funded through net cash flows from operations rather than incurring long-term debt.

Working Capital

Working capital represents total current assets less total current liabilities. At September 30, 2016 and December 31, 2015, our working capital was $24.0 million and $23.5 million, respectively.

Net Cash Flows

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

Provided by/(Used in):	2016			2015
Operating activities	$	7.2		$	7.8
Investing activities	$	(1.7	)	$	(1.6	)
Financing activities	$	(1.6	)	$	(0.1	)

Operating Activities

Cash provided by operating activities was $7.2 million for the nine months ended September 30, 2016, as compared to cash provided by operating activities of $7.8 million for the same period in 2015. During the nine months ended September 30, 2016, our accounts payable increased as we purchased inventory. Due to the timing of our commission payments, we used less cash to pay commissions during the nine months ended September 30, 2016, compared to the same period in 2015. We defer certain components of our revenue and commission expense as discussed in Revenue Recognition and Deferred Commissions in Note 1 Organization and Summary of Significant Accounting Policies. We defer the recognition of revenue on payments received and related commission expenses on payments made. Payments received related to the revenue deferral resulted in a source of $0.7 million in cash for the nine months ended September 30, 2016, as compared to a use of $0.2 million for the same period in 2015. Commission payments related to the increased revenue deferral were a use of $0.2 million in cash for the nine months ended September 30, 2016, as compared to a source of $0.2 million for the same period in 2015.

Investing Activities

For the nine months ended September 30, 2016 and 2015, we invested cash of $1.7 million and $1.6 million, respectively. During the nine months ended September 30, 2016, we invested approximately $1.3 million in back-office software projects, approximately $0.3 million in leasehold improvements in various international offices and training centers, and approximately $0.1 in office furniture and equipment.  During the nine months ended September 30, 2015, we invested approximately $1.2 million in back-office software projects and approximately $0.4 million in leasehold improvements in various international offices and training centers.

Financing Activities

For the nine months ended September 30, 2016, we used $1.1 million in the repayment of capital lease obligations, $0.3 million in the payment of dividends to shareholders, and $0.2 million in the repurchase of common stock, which was partially offset by cash provided by the exercise of stock options. For the nine months ended September 30, 2015, we used $1.3 million in the repayment of capital lease obligations, which was substantially offset by funding from a capital financing agreement and cash provided by the exercise of stock options.

General Liquidity and Cash Flows

Short Term Liquidity

We believe our existing liquidity and cash flows from operations are adequate to fund our normal expected future business operations and possible international expansion costs for the next 12 months. As our primary source of liquidity is our cash flow from operations, this will be dependent on our ability to maintain and increase revenue and/or continue to reduce operational expenses. However, if our existing capital resources or cash flows become insufficient to meet current business plans, projections, and existing capital requirements, we may be required to raise additional funds, which may not be available on favorable terms, if at all.

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We are engaged in ongoing audits in various tax jurisdictions and other disputes in the normal course of business. It is impossible at this time to predict whether we will incur any liability, or to estimate the ranges of damages, if any, in connection with these matters. Adverse outcomes on these uncertainties may lead to substantial liability or enforcement actions that could adversely affect our cash position. For more information, see Note 3 Income Taxes and Note 7 Litigation to our consolidated financial statements.

Long Term Liquidity

We believe our cash flows from operations should be adequate to fund our normal expected future business operations and possible international expansion costs for the long term. As our primary source of liquidity is from our cash flows from operations, this will be dependent on our ability to maintain or improve revenue as compared to operational expenses.

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

Our future access to the capital markets may be adversely impacted if we fail to maintain compliance with the Nasdaq Marketplace Rules for the continued listing of our stock. We continuously monitor our compliance with the Nasdaq continued listing rules.

CONTRACTUAL OBLIGATIONS

The following summarizes our future commitments and obligations associated with various agreements and contracts as of September 30, 2016, for the years ending December 31 (in thousands):

Commitments and obligations	Remaining 2016		2017		2018		2019		2020		Thereafter		Total
Capital lease obligations	$	121	$	371	$	206	$	52	$	12	$	—	$	762
Operating leases		1,131		2,431		1,715		865		128		—		6,270
Employment agreements		690		230		—		—		—		—		920
Royalty agreement		15		59		59		59		59		6		257
Tax liability (3)		—		562		—		—		—		154		716
Notes payable and other financing arrangements		283		708		579		—		—		—		1,570
Other obligations(4)		351		196		58		58		116		874		1,653
Total commitments and obligations(1)(2)	$	2,591	$	4,557	$	2,617	$	1,034	$	315	$	1,034	$	12,148

(1) For purposes of the table, a purchase obligation is defined as an agreement to purchase goods or services that is non-cancelable, enforceable and legally binding on the Company that specifies all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction.

(2) Excludes approximately $19.9 million of finished product purchase orders that may be cancelled or for which delivery dates have changed as of September 30, 2016.

(3) Represents the tax liability associated with uncertain tax positions, see Note 3 "Income Taxes" to our consolidated financial statements.

(4) Other obligations are composed of pension obligations related to the Company’s international operations (approximately $1.2million) and lease restoration obligations (approximately $0.5million).

We have maintained purchase commitments with certain raw material suppliers to purchase minimum quantities and to ensure exclusivity of our raw materials and the proprietary nature of our products. Currently, we have one supply agreement that requires minimum purchase commitments. We also maintain other supply agreements and manufacturing agreements to protect our products, regulate product costs, and help ensure quality control standards. These agreements do not require us to purchase any set minimums. We have no present commitments or agreements with respect to acquisitions or purchases of any manufacturing facilities; however, management from time to time explores the possible benefits of purchasing a raw material manufacturing facility to help control costs of our raw materials and help ensure quality control standards.

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OFF-BALANCE SHEET ARRANGEMENTS

We do not have any special-purpose entity arrangements, nor do we have any off-balance sheet arrangements.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America. The application of GAAP requires us to make estimates and assumptions that affect the reported values of assets and liabilities at the date of our financial statements, the reported amounts of revenues and expenses during the reporting period, and the related disclosures of contingent assets and liabilities. We use estimates throughout our financial statements, which are influenced by management’s judgment and uncertainties. Our estimates are based on historical trends, industry standards, and various other assumptions that we believe are applicable and reasonable under the circumstances at the time the consolidated financial statements are prepared. Our Audit Committee reviews our critical accounting policies and estimates. We continually evaluate and review our policies related to the portrayal of our consolidated financial position and consolidated results of operations that require the application of significant judgment by our management. We also analyze the need for certain estimates, including the need for such items as allowance for doubtful accounts, inventory reserves, long-lived fixed assets and capitalization of internal-use software development costs, reserve for uncertain income tax positions and tax valuation allowances, revenue recognition, sales returns, and deferred revenues, accounting for stock-based compensation, and contingencies and litigation. Historically, actual results have not materially deviated from our estimates. However, we caution readers that actual results could differ from our estimates and assumptions applied in the preparation of our consolidated financial statements. 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 critical accounting policies and estimates as of September 30, 2016.

Inventory Reserves

Inventory consists of raw materials, finished goods, and promotional materials that are stated at the lower of cost (using standard costs that approximate average costs) or market. We record the amounts charged by the vendors as the costs of inventory. Typically, the net realizable value of our inventory is higher than the aggregate cost. Determination of net realizable value can be complex and, therefore, requires a high degree of judgment. In order for management to make the appropriate determination of net realizable value, the following items are considered: inventory turnover statistics, current selling prices, seasonality factors, consumer demand, regulatory changes, competitive pricing, and performance of similar products. If we determine the carrying value of inventory is in excess of estimated net realizable value, we write down the value of inventory to the estimated net realizable value.

We also review inventory for obsolescence in a similar manner and any inventory identified as obsolete is reserved or written off. Our determination of obsolescence is based on assumptions about the demand for our products, product expiration dates, estimated future sales, and general future plans. We monitor actual sales compared to original projections, and if actual sales are less favorable than those originally projected by us, we record an additional inventory reserve or write-down. Historically, our estimates have been close to our actual reported amounts. However, if our estimates regarding inventory obsolescence are inaccurate or consumer demand for our products changes in an unforeseen manner, we may be exposed to additional material losses or gains in excess of our established estimated inventory reserves.

Long Lived Fixed Assets and Capitalization of Software Development Costs

In addition to capitalizing long lived fixed asset costs, we also capitalize costs associated with internally-developed software projects (collectively “fixed assets”) and amortize such costs over the estimated useful lives of such fixed assets. Fixed assets are carried at cost, less accumulated depreciation computed using the straight-line method over the assets’ estimated useful lives. Leasehold improvements are amortized over the shorter of the remaining lease terms or the estimated useful lives of the improvements. Expenditures for maintenance and repairs are charged to operations as incurred. If a fixed asset is sold or otherwise retired or disposed of, the cost of the fixed asset and the related accumulated depreciation or amortization is written off and any resulting gain or loss is recorded in other operating costs in our consolidated statement of operations.

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We review our fixed assets for impairment whenever an event or change in circumstances indicates the carrying amount of an asset or group of assets may not be recoverable, such as plans to dispose of an asset before the end of its previously estimated useful life. Our impairment review includes a comparison of future projected cash flows generated by the asset, or group of assets, with its associated net carrying value. If the net carrying value of the asset or group of assets exceeds expected cash flows (undiscounted and without interest charges), an impairment loss is recognized to the extent the carrying amount exceeds the fair value. The fair value is determined by calculating the discounted expected future cash flows using an estimated risk-free rate of interest. Any identified impairment losses are recorded in the period in which the impairment occurs. The carrying value of the fixed asset is adjusted to the new carrying value, and any subsequent increases in fair value of the fixed asset are not recorded. In addition, if we determine the estimated remaining useful life of the asset should be reduced from our original estimate; the periodic depreciation expense is adjusted prospectively, based on the new remaining useful life of the fixed asset.

The impairment calculation requires us to apply judgment and estimates concerning future cash flows, strategic plans, useful lives, and discount rates. If actual results are not consistent with our estimates and assumptions, we may be exposed to an additional impairment charge, which could be material to our results of operations. In addition, if accounting standards change, or if fixed assets become obsolete, we may be required to write off any unamortized costs of fixed assets, or if estimated useful lives change, we would be required to accelerate depreciation or amortization periods and recognize additional depreciation expense in our consolidated statement of operations.

Historically, our estimates and assumptions related to the carrying value and the estimated useful lives of our fixed assets have not materially deviated from actual results. As of September 30, 2016, the estimated useful lives and net carrying values of fixed assets were as follows:

	Estimated useful life	Net carrying value at September 30, 2016
Office furniture and equipment	5 to 7 years	$	0.4 million
Computer hardware and software	3 to 5 years		2.2 million
Automobiles	3 to 5 years		— million
Leasehold improvements	2 to 10 years(1)		1.1 million
Total net carrying value at September 30, 2016		$	3.7 million

(1) We amortize leasehold improvements over the shorter of the useful estimated life of the leased asset or the lease term.

The net carrying costs of fixed assets are exposed to impairment losses if our assumptions and estimates of their carrying values change, there is a change in estimated future cash flow, or there is a change in the estimated useful life of the fixed asset. Based on management’s analysis, no impairment indicators existed for the nine months ended September 30, 2016 and the year ended December 31, 2015, except for a $0.4 million abandonment charge of back office software during the third quarter.

Uncertain Income Tax Positions and Tax Valuation Allowances

As of September 30, 2016, we recorded $0.2 million in other long-term liabilities and $0.6 million in taxes payable on our consolidated balance sheet related to uncertain income tax positions. As required by FASB ASC Topic 740, Income Taxes, we use judgments and make estimates and assumptions related to evaluating the probability of uncertain income tax positions. We base our estimates and assumptions on the potential liability related to an assessment of whether the income tax position will “more likely than not” be sustained in an income tax audit. We are also subject to periodic audits from multiple domestic and foreign tax authorities related to income tax and other forms of taxation. These audits examine our tax positions, timing of income and deductions, and allocation procedures across multiple jurisdictions. As part of our evaluation of these tax issues, we establish reserves in our consolidated financial statements based on our estimate of current probable tax exposures. Depending on the nature of the tax issue, we could be subject to audit over several years. Therefore, our estimated reserve balances and liability related to uncertain income tax positions may exist for multiple years before the applicable statute of limitations expires or before an issue is resolved by the taxing authority. Additionally, we may be requested to extend the statute of limitations for tax years under audit. It is reasonably possible the tax jurisdiction may request that the statute of limitations be extended, which may cause the classification between current and long-term to change. We believe our tax liabilities related to uncertain tax positions are based upon reasonable judgment and estimates; however, if actual results materially differ, our effective income tax rate and cash flows could be affected in the period of discovery or resolution. There are ongoing income tax audits in various international jurisdictions that we believe are not material to our financial statements.

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We also review the estimates and assumptions used in evaluating the probability of realizing the future benefits of our deferred tax assets and record a valuation allowance when we believe that a portion or all of the deferred tax assets may not be realized. If we are unable to realize the expected future benefits of our deferred tax assets, we are required to provide a valuation allowance. We use our past history and experience, overall profitability, future management plans, and current economic information to evaluate the amount of valuation allowance to record. As of September 30, 2016, we had valuation allowance for deferred tax assets arising from our operations of $8.0 million because they did not meet the “more likely than not” criteria as defined by the recognition and measurement provisions of FASB ASC Topic 740, Income Taxes. In addition, as of September 30, 2016, we had deferred tax assets, after valuation allowance, totaling $4.7 million, which may not be realized if our assumptions and estimates change, which would affect our effective income tax rate and cash flows in the period of discovery or resolution.

Revenue Recognition and Deferred Commissions

Our revenue is derived from sales of individual products, sales of starter and renewal packs, and shipping fees. Substantially all of our product and pack sales are to associates at published wholesale prices and to members at discounted published retail prices. We record revenue net of any sales taxes and record a reserve for expected sales returns based on historical experience.

We recognize revenue from shipped packs and products upon receipt by the customer. Corporate-sponsored event revenue is recognized when the event is held. We defer certain components of revenue. At September 30, 2016 and December 31, 2015, deferred revenue was $9.6 million and $8.7 million, respectively. When participating in the Company’s loyalty program, customers earn loyalty points from qualified automatic orders that can be applied to future purchases. We defer the dollar equivalent in revenue of these points until the points are applied, forfeited or expired, which includes an estimate of the percentage of the unvested loyalty points that are expected to be forfeited or expired. The deferred revenue associated with the loyalty program at each of September 30, 2016 and December 31, 2015 was $8.0 million and $8.1 million, respectively. Deferred revenue consisted primarily of: (i) sales of packs and products shipped but not received by the customers by the end of the respective period; (ii) revenue from the loyalty program; and (iii) prepaid registration fees from customers planning to attend a future corporate-sponsored event. In total current assets, the Company defers commissions on (i) the sales of packs and products shipped but not received by the customers by the end of the respective period and (ii) the loyalty program. At September 30, 2016 and December 31, 2015, deferred commissions were $3.7 million and $3.4 million, respectively.

Loyalty program	(in thousands)
Loyalty deferred revenue as of January 1, 2015	$	9,703
Loyalty points forfeited or expired		(8,801	)
Loyalty points used		(15,077	)
Loyalty points vested		20,403
Loyalty points unvested		1,845
Loyalty deferred revenue as of December 31, 2015	$	8,073

Loyalty deferred revenue as of January 1, 2016	$	8,073
Loyalty points forfeited or expired		(5,334	)
Loyalty points used		(11,879	)
Loyalty points vested		15,556
Loyalty points unvested		1,559
Loyalty deferred revenue as of  September 30, 2016	$	7,975

Product Return Policy

We stand behind our packs and products and believe we offer a reasonable and industry-standard product return policy to all of our customers. We do not resell returned products. Refunds are not processed until proper approval is obtained. All refunds must be processed and returned in the same form of payment that was originally used in the sale. Each country in which we operate has specific product return guidelines. However, we allow our associates and members to exchange products as long as the products are unopened and in good condition. Our return policies for our retail customers and our associates and members are as follows:

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· Retail Customer Product Return Policy. This policy allows a retail customer to return any of our products to the original associate who sold the product and receive a full cash refund from the associate for the first 180 days following the product’s purchase if located in the United States and Canada, and for the first 90 days following the product’s purchase in the remaining countries.  The associate may then return or exchange the product based on the associate product return policy.

· Associate and Member Product Return Policy. This policy allows the associate or member to return an order within one year of the purchase date upon terminating his/her account. If an associate or member returns a product unopened and in good condition, he/she may receive a full refund minus a 10% restocking fee. We may also allow the associate or member to receive a full satisfaction guarantee refund if they have tried the product and are not satisfied for any reason, excluding promotional materials. This satisfaction guarantee refund applies in the United States and Canada, only for the first 180 days following the product’s purchase, and applies in the remaining countries for the first 90 days following the product’s purchase; however, any commissions earned by an associate will be deducted from the refund. If we discover abuse of the refund policy, we may terminate the associate’s or member’s account.

Historically, sales returns estimates have not materially deviated from actual sales returns, as the majority of our customers who return merchandise do so within the first 90 days after the original sale. Based upon our return policies and historical experience, we estimate a sales return reserve for expected sales refunds over a rolling six-month period. If actual results differ from our estimated sales returns reserves due to various factors, the amount of revenue recorded each period could be materially affected. Historically, our sales returns have not materially changed through the years and have averaged 1.5% or less of our gross sales.

Accounting for Stock-Based Compensation

We grant stock options to our employees, board members, and consultants. At the date of grant, we determine the fair value of a stock option award and recognize compensation expense over the requisite service period, or the vesting period of such stock option award, which is two to four years. The fair value of the stock option award is calculated using the Black-Scholes option-pricing model. The Black-Scholes option-pricing model requires us to apply judgment and use highly subjective assumptions, including expected stock option life, expected volatility, expected average risk-free interest rates, and expected forfeiture rates.  For the nine months ended September 30, 2016, our assumptions and estimates used for the calculated fair value of stock options granted were as follows:

	June 2016 Grant
Estimated fair value per share of options granted:	$	12.18
Assumptions:
Annualized dividend yield		—	%
Risk-free rate of return		1.1	%
Common stock price volatility		73.5	%
Expected average life of stock options (in years)		4.5

The assumptions we use are based on our best estimates and involve inherent uncertainties related to market conditions that are outside of our control. If actual results are not consistent with the assumptions we use, the stock-based compensation expense reported in our consolidated financial statements may not be representative of the actual economic cost of stock-based compensation. For example, if actual employee forfeitures significantly differ from our estimated forfeitures, we may be required to make an adjustment to our consolidated financial statements in future periods.

If we grant additional stock options in the future, we would be required to recognize additional compensation expense over the vesting period of such stock options in our consolidated statement of operations. As of September 30, 2016, we had 85,397 shares available for grant in the future.

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Contingencies and Litigation

Each quarter, we evaluate the need to establish a reserve for any legal claims or assessments. We base our evaluation on our best estimates of the potential liability in such matters. The legal reserve includes an estimated amount for any damages and the probability of losing any threatened legal claims or assessments. We consult with our general and outside counsel to determine the legal reserve, which is based upon a combination of litigation and settlement strategies. Although we believe that our legal reserve and accruals are based on reasonable judgments and estimates, actual results could differ, which may expose us to material gains or losses in future periods. If actual results differ, if circumstances change, or if we experience an unanticipated adverse outcome of any legal action, including any claim or assessment, we would be required to recognize the estimated amount which could reduce net income, earnings per share, and cash flows.

RECENT ACCOUNTING PRONOUNCEMENTS

See Note 10, Recent Accounting Pronouncements in the Notes to our Unaudited Consolidated Financial Statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We do not engage in trading market risk sensitive instruments and do not purchase investments as hedges or for purposes “other than trading” that are likely to expose us to certain types of market risk, including interest rate, commodity price, or equity price risk. Although we have investments, we believe there has been no material change in our exposure to interest rate risk. We have not issued any variable rate debt instruments, entered into any forward or futures contracts, purchased any options, or entered into any swap agreements.

We are exposed, however, to other market risks, including changes in currency exchange rates as measured against the United States dollar. Because the change in value of the United States dollar measured against foreign currency may affect our consolidated financial results, changes in foreign currency exchange rates could positively or negatively affect our results as expressed in United States dollars. For example, when the United States dollar strengthens against foreign currencies in which our products are sold or weakens against foreign currencies in which we may incur costs, our consolidated net sales or related costs and expenses could be adversely affected. We translate our revenues and expenses in foreign markets using an average rate. We believe inflation has not had a material impact on our consolidated operations or profitability.

We maintain policies, procedures, and internal processes in an effort to help monitor any significant market risks and we do not use any financial instruments to manage our exposure to such risks. We assess the anticipated foreign currency working capital requirements of our foreign operations and maintain a portion of our cash and cash equivalents denominated in foreign currencies sufficient to satisfy most of these anticipated requirements.

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We caution that we cannot predict with any certainty our future exposure to such currency exchange rate fluctuations or the impact, if any, such fluctuations may have on our future business, product pricing, operating expenses, and on our consolidated financial position, results of operations, or cash flows. However, to combat such market risk, we closely monitor our exposure to currency fluctuations. The regions and countries in which we currently have exposure to foreign currency exchange rate risk include (i) the Americas (Canada, Colombia and Mexico); (ii) EMEA (Austria, the Czech Republic, Denmark, Estonia, Finland, Germany, the Republic of Ireland, the Netherlands, Norway, South Africa, Spain, Sweden, Switzerland and the United Kingdom); and (iii) Asia/Pacific (Australia, Japan, New Zealand, the Republic of Korea, Singapore, Taiwan and Hong Kong). The current (spot) rate, average currency exchange rates, and the low and high of such currency exchange rates as compared to the United States dollar, for each of these countries as of and for the nine months ended September 30, 2016 were as follows:

	Nine months ended September 30, 2016						As of September 30, 2016
Country (foreign currency name)	Low		High		Average		Spot
Australia (Australian Dollar)		0.68691		0.78026		0.74201		0.76743
Canada (Canadian Dollar)		0.68483		0.79791		0.75723		0.76383
Colombia (Peso)		0.00029		0.00036		0.00033		0.00035
Czech Republic (Koruna)		0.03980		0.04271		0.04130		0.04155
Denmark (Kroner)		0.14414		0.15513		0.14988		0.15059
Hong Kong (Hong Kong Dollar)		0.12785		0.12903		0.12881		0.12896
Japan (Yen)		0.00825		0.00999		0.00923		0.00987
Mexico (Peso)		0.05044		0.05824		0.05478		0.05156
New Zealand (New Zealand Dollar)		0.63880		0.74437		0.69259		0.72778
Norway (Krone)		0.11191		0.12447		0.11909		0.12442
Republic of Korea (Won)		0.00081		0.00092		0.00086		0.00091
Singapore (Singapore Dollar)		0.69341		0.74766		0.72966		0.73417
South Africa (Rand)		0.05949		0.07523		0.06706		0.07282
Sweden (Krona)		0.11550		0.12544		0.11920		0.11676
Switzerland (Franc)		0.97787		1.05040		1.02078		1.03153
Taiwan (New Taiwan Dollar)		0.02968		0.03218		0.03090		0.03188
United Kingdom (British Pound)		1.29057		1.48192		1.39404		1.30081
Various countries (1) (Euro)		1.07517		1.15428		1.11616		1.12231

⁽¹⁾ Austria, Germany, the Netherlands, Estonia, Finland, the Republic of Ireland and Spain

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer (principal executive officer) and our Chief Financial Officer (principal financial officer), have concluded, based on their evaluation as of the end of the period covered by this report, that our disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Exchange Act) are effective to ensure that information required to be disclosed by us in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and include controls and procedures designed to ensure that information required to be disclosed by us in such reports is accumulated and communicated to our management, including our principal executive and financial officers, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

During the quarter ended September 30, 2016, there were no changes in our internal control over our financial reporting that we believe materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

37

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

See Note 7, “Litigation,” of our Notes to Unaudited Consolidated Financial Statements, which is incorporated herein by reference.

Item 1A. Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2015, which could materially affect our business or our consolidated financial position, results of operations, and cash flows. The risks described in our Annual Report on Form 10-K are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be insignificant also may become materially adverse or may affect our business in the future or our consolidated financial position, results of operations, or cash flows.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

We have an ongoing authorization, originally approved by our Board of Directors in 2006, and subsequently reactivated by our Board of Directors in August of 2016, to repurchase up to $0.5 million (of the original $20.0 million authorization) in shares of our common stock in the open market.

During the three-month period ended September 30, 2016, we repurchased the following shares of our common stock:

Period	Total number of shares purchased		Average price paid per share		Dollar value of shares that may yet  be purchased (a) (in thousands)
July 2016		—	$	—	$	20,000
August 2016		1,756	$	16.92		19,970
September 2016		7,253	$	17.69		19,841
Total		9,009

(a) Remaining value of the original $20.0 million approved on August 28, 2006 (the “August 2006 Plan”).

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not Applicable.

Item 5. Other Information

None.

Item 6 Exhibits

See Index to Exhibits following the signature page of this Quarterly Report on Form 10-Q.

38

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	MANNATECH, INCORPORATED
Dated: November 8, 2016	By:	/s/ Alfredo Bala
		Alfredo Bala
		Chief Executive Officer
		(principal executive officer)

Dated: November 8, 2016	By:	/s/ David A. Johnson
		David A. Johnson
		Chief Financial Officer
		(principal financial officer)

39

INDEX TO EXHIBITS

		Incorporated by Reference
Exhibit Number	Exhibit Description	Form	File No.	Exhibit (s)	Filing Date
3.1	Amended and Restated Articles of Incorporation of Mannatech, dated May 19, 1998.	S-1	333-63133	3.1	October 28, 1998
3.2	Certificate of Amendment to the Amended and Restated Articles of Incorporation of Mannatech, dated January 13, 2012.	8-K	000-24657	3.1	January 17, 2012
3.3	Fifth Amended and Restated Bylaws of Mannatech, dated August 25, 2014.	8-K	000-24657	3.1	August 27, 2014
4.1	Specimen Certificate representing Mannatech’s common stock, par value $0.0001 per share.	S-1	333-63133	4.1	October 28, 1998
31.1*	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, of the Chief Executive Officer of Mannatech.	*	*	*	*
31.2*	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, of the Chief Financial Officer of Mannatech.	*	*	*	*
32.1*	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of the Chief Executive Officer of Mannatech.	*	*	*	*
32.2*	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of the Chief Financial Officer of Mannatech.	*	*	*	*
101.INS*	XBRL Instance Document	*	*	*	*
101.SCH*	XBRL Taxonomy Extension Schema Document	*	*	*	*
101.CAL*	XBRL Taxonomy Extension Calculation Linkbase Document	*	*	*	*
101.LAB*	XBRL Taxonomy Extension Label Linkbase Document	*	*	*	*
101.PRE*	XBRL Taxonomy Extension Presentation Linkbase Document	*	*	*	*
101.DEF*	XBRL Taxonomy Extension Definition Linkbase Document	*	*	*	*

* Filed herewith.

EX-31.1

Exhibit 31.1

CERTIFICATION

PURSUANT TO 17 CFR 240.13a-14

PROMULGATED UNDER

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Alfredo Bala, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Mannatech, Incorporated;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 8, 2016	/s/ Alfredo Bala
	Alfredo Bala
	Chief Executive Officer
	(principal executive officer)

EX-31.2

Exhibit 31.2

CERTIFICATION

PURSUANT TO 17 CFR 240.13a-14

PROMULGATED UNDER

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, David A. Johnson, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Mannatech, Incorporated;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 8, 2016	/s/ David A. Johnson
	David A. Johnson
	Chief Financial Officer
	(principal financial officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Mannatech, Incorporated (the “Company”) on Form 10-Q for the period ending September 30, 2016 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Alfredo Bala, Chief Executive Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 8, 2016	/s/ Alfredo Bala
	Alfredo Bala
	Chief Executive Officer
	(principal executive officer)

A SIGNED ORIGINAL OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906 HAS BEEN PROVIDED TO MANNATECH, INCORPORATED AND FURNISHED TO THE SECURITIES AND EXCHANGE COMMISSION OR ITS STAFF UPON REQUEST.

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Mannatech, Incorporated (the “Company”) on Form 10-Q for the period ending September 30, 2016 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, David A. Johnson, Chief Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 8, 2016	/s/ David A. Johnson
	David A. Johnson
	Chief Financial Officer
	(principal financial officer)

A SIGNED ORIGINAL OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906 HAS BEEN PROVIDED TO MANNATECH, INCORPORATED AND FURNISHED TO THE SECURITIES AND EXCHANGE COMMISSION OR ITS STAFF UPON REQUEST.

XML

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2016	Oct. 31, 2016
Document and Entity Information [Abstract]
Entity Registrant Name	MANNATECH INC
Entity Central Index Key	0001056358
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		2,686,868
Document Fiscal Year Focus	2016
Document Fiscal Period Focus	Q3
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2016

XML

CONSOLIDATED BALANCE SHEETS - (UNAUDITED) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
ASSETS
Cash and cash equivalents	$ 38,311	$ 31,994
Restricted cash	1,513	1,511
Accounts receivable, net of allowance of $456 and $261 in 2016 and 2015, respectively	72	369
Income tax receivable	16	4
Inventories, net	10,394	9,199
Prepaid expenses and other current assets	2,919	2,905
Deferred commissions	3,742	3,443
Deferred tax assets, net	27	460
Total current assets	56,994	49,885
Property and equipment, net	3,670	3,848
Construction in progress	926	839
Long-term restricted cash	7,040	6,586
Other assets	4,451	3,759
Long-term deferred tax assets, net	4,708	3,725
Total assets	77,789	68,642
LIABILITIES AND SHAREHOLDERS' EQUITY
Current portion of capital leases	379	447
Accounts payable	5,188	2,683
Accrued expenses	5,112	6,221
Commissions and incentives payable	11,277	6,818
Taxes payable	538	736
Current deferred tax liability	85	84
Current notes payable	805	713
Deferred revenue	9,640	8,677
Total current liabilities	33,024	26,379
Capital leases, excluding current portion	346	612
Long-term deferred tax liabilities	26	24
Long-term notes payable	706	1,069
Other long-term liabilities	1,648	1,994
Total liabilities	35,750	30,078
Commitments and contingencies
Shareholders' equity:
Preferred stock, $0.01 par value, 1,000,000 shares authorized, no shares issued or outstanding	0	0
Common stock, $0.0001 par value, 99,000,000 shares authorized, 2,764,963 shares issued and 2,686,868 shares outstanding as of September 30, 2016 and 2,773,972 shares issued and 2,682,078 shares outstanding as of December 31, 2015	0	0
Additional paid-in capital	39,164	40,494
Retained earnings	8,798	8,589
Accumulated other comprehensive income	3,597	686
Treasury stock, at average cost, 78,095 shares as of September 30, 2016 and 91,894 shares as of December 31, 2015, respectively	(9,520)	(11,205)
Total shareholders' equity	42,039	38,564
Total liabilities and shareholders' equity	$ 77,789	$ 68,642

XML

CONSOLIDATED BALANCE SHEETS - (UNAUDITED) (Parenthetical) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
ASSETS
Accounts receivable, allowance for doubtful accounts	$ 456	$ 261
Shareholders' equity:
Preferred stock, par value (in dollars per share)	$ 0.01	$ 0.01
Preferred stock, shares authorized (in shares)	1,000,000	1,000,000
Preferred stock, shares issued (in shares)	0	0
Preferred stock, shares outstanding (in shares)	0	0
Common stock, par value (in dollars per share)	$ 0.0001	$ 0.0001
Common stock, shares authorized (in shares)	99,000,000	99,000,000
Common stock, shares issued (in shares)	2,764,963	2,773,972
Common stock, shares outstanding (in shares)	2,686,868	2,682,078
Treasury stock, shares (in shares)	78,095	91,894

XML

CONSOLIDATED STATEMENTS OF OPERATIONS - (UNAUDITED) - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
CONSOLIDATED STATEMENTS OF OPERATIONS - (UNAUDITED) [Abstract]
Net sales	$ 48,146	$ 43,860	$ 137,664	$ 134,956
Cost of sales	9,736	8,253	28,225	25,076
Gross profit	38,410	35,607	109,439	109,880
Operating expenses:
Commissions and incentives	19,985	17,867	56,019	54,296
Selling and administrative expenses	9,877	9,001	28,199	26,412
Depreciation and amortization expense	507	433	1,427	1,324
Other operating costs	7,534	6,072	22,863	18,493
Total operating expenses	37,903	33,373	108,508	100,525
Income from operations	507	2,234	931	9,355
Interest income (expense)	(16)	93	(5)	154
Other income (expense), net	232	(2,418)	(471)	(3,802)
Income (loss) before income taxes	723	(91)	455	5,707
Benefit (provision) for income taxes	562	159	90	(1,397)
Net income	$ 1,285	$ 68	$ 545	$ 4,310
Earnings per common share:
Basic (in dollars per share)	$ 0.47	$ 0.03	$ 0.20	$ 1.61
Diluted (in dollars per share)	$ 0.46	$ 0.03	$ 0.19	$ 1.58
Weighted-average common shares outstanding:
Basic (in shares)	2,706	2,681	2,703	2,679
Diluted (in shares)	2,818	2,721	2,812	2,727

XML

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - (UNAUDITED) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - (UNAUDITED) [Abstract]
Net income	$ 1,285	$ 68	$ 545	$ 4,310
Foreign currency translations	1,407	464	2,911	432
Comprehensive income	$ 2,692	$ 532	$ 3,456	$ 4,742

XML

CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY - (UNAUDITED) - 9 months ended Sep. 30, 2016 - USD ($) $ in Thousands	Common Stock Par Value [Member]	Additional Paid in Capital [Member]	Retained Earnings [Member]	Accumulated Other Comprehensive Income [Member]	Treasury Stock [Member]	Total
Beginning balance at Dec. 31, 2015	$ 0	$ 40,494	$ 8,589	$ 686	$ (11,205)	$ 38,564
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income	0	0	545	0	0	545
Declared dividends	0	0	(336)	0	0	(336)
Charge related to stock-based compensation	0	(356)	0	0	830	474
Stock option exercises	0	(815)	0	0	855	40
Repurchase of common stock	0	(159)	0	0	0	(159)
Foreign currency translations	0	0	0	2,911	0	2,911
Ending balance at Sep. 30, 2016	$ 0	$ 39,164	$ 8,798	$ 3,597	$ (9,520)	$ 42,039

XML

CONSOLIDATED STATEMENTS OF CASH FLOWS - (UNAUDITED) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$ 545	$ 4,310
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	1,427	1,324
Provision for inventory losses	208	434
Provision for doubtful accounts	516	275
Loss on disposal of assets	415	28
Stock-based compensation expense	474	450
Tax benefit from exercise of stock options	0	(16)
Deferred income taxes	(401)	6
Changes in operating assets and liabilities:
Accounts receivable	(213)	(77)
Income tax receivable	(11)	(16)
Inventories	(903)	(1,730)
Prepaid expenses and other current assets	306	655
Other assets	(183)	(138)
Deferred commissions	(171)	230
Accounts payable	2,457	116
Accrued expenses and other liabilities	(1,771)	633
Taxes payable	(376)	(637)
Commissions and incentives payable	4,184	2,174
Deferred revenue	664	(210)
Change in restricted cash	(17)	26
Net cash provided by operating activities	7,150	7,837
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment	(1,676)	(1,583)
Net cash used in investing activities	(1,676)	(1,583)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from stock options exercised	40	30
Repurchase of common stock	(159)	0
Payment of cash dividends	(336)	0
Tax benefit from exercise of stock options	0	16
Proceeds from note payable	0	1,148
Repayment of capital lease obligations	(1,136)	(1,276)
Net cash used in financing activities	(1,591)	(82)
Effect of currency exchange rate changes on cash and cash equivalents	2,434	1,121
Net increase in cash and cash equivalents	6,317	7,293
Cash and cash equivalents at the beginning of the period	31,994	27,999
Cash and cash equivalents at the end of the period	38,311	35,292
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Income taxes paid	1,830	4,394
Interest paid on capital leases and financing arrangements	90	69
Assets acquired through financing arrangements	$ 529	$ 671

XML

ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

9 Months Ended

Sep. 30, 2016

ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Abstract]

ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTE 1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Mannatech, Incorporated (together with its subsidiaries, the “Company”), located in Coppell, Texas, was incorporated in the state of Texas on November 4, 1993 and is listed on the NASDAQ Global Select Market (“Nasdaq”) under the symbol “MTEX”. The Company develops, markets, and sells high-quality, proprietary nutritional supplements, topical and skin care products, and weight-management products. We currently sell our products in three regions: (i) the Americas (the United States, Canada, Colombia 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 and Hong Kong).

Independent associates (“associates”) purchase the Company’s products at published wholesale prices to either sell to retail customers or for personal use. Members purchase the Company’s products at a discount from published retail prices primarily for personal use.  The Company cannot distinguish products sold for personal use from other sales 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 accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with instructions for Form 10-Q and Rule 10-01 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 accounting principles generally accepted in the United States of America (“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, 2015 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, 2015 and filed with the United States Securities and Exchange Commission (the “SEC”) on March 15, 2016 (the “2015 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 2015 Annual Report.

Principles of Consolidation

The consolidated financial statements and footnotes include the accounts of the Company 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 generally accepted accounting principles 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 and Cash Equivalents

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 of submission to the credit card processor. As of September 30, 2016 and December 31, 2015, credit card receivables were $1.9 million and $0.4 million, respectively. As of September 30, 2016 and December 31, 2015, cash and cash equivalents held in bank accounts in foreign countries totaled $33.8 million and $31.3 million, respectively. The Company invests cash in liquid instruments, such as money market funds and interest bearing deposits.  The Company also holds cash in high quality financial institutions and does not believe it has an excessive exposure to credit concentration risk.

Restricted Cash

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 September 30, 2016 and December 31, 2015, our total restricted cash was $8.6 million and $8.1 million, respectively.

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 each of September 30, 2016 and December 31, 2015, receivables consisted primarily of amounts due from members and associates. 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. At September 30, 2016 and December 31, 2015, the Company held an allowance for doubtful accounts of $0.5 million and $0.3 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 market. The Company periodically reviews inventories for obsolescence, and any inventories identified as obsolete are reserved or written off.

Property and Equipment

Property and equipment are stated at cost, less accumulated depreciation and amortization computed using the straight-line method over the estimated useful life of each asset. Leasehold improvements are amortized over the shorter of the lease term or the estimated useful life of the improvements. Expenditures for maintenance and repairs are charged to expense as incurred. The cost of property and equipment sold or otherwise retired and the related accumulated depreciation are removed from the accounts and any resulting gain or loss is included in other operating costs in the accompanying Consolidated Statements of Operations. The estimated useful lives of fixed assets are as follows:

	Estimated useful life
Office furniture and equipment	5 to 7 years
Computer hardware and software	3 to 5 years
Automobiles	3 to 5 years
Leasehold improvements(1)	2 to 10 years

⁽¹⁾ The Company amortizes leasehold improvements over the shorter of the useful estimated life of the leased asset or the lease term.

Property and equipment are reviewed for impairment whenever an event or change in circumstances indicates that the carrying amount of an asset or group of assets may not be recoverable. The impairment review includes a comparison of future projected cash flows generated by the asset or group of assets with its associated net carrying value. If the net carrying value of the asset or group of assets exceeds expected cash flows (undiscounted and without interest charges), an impairment loss is recognized to the extent the carrying amount of the asset exceeds its fair value.

On August 29, 2016, we received information indicating that a portion of the capitalized costs related to an item included in our computer hardware and software asset group would not be completed due to problems with the vendor in completing the code. We evaluated the project and determined a charge was required due to the abandonment of the project. For the quarter and year ending September 30, 2016 we recorded $0.4 million in operating expenses that represented work that was performed, but which no longer has any value to the Company or any possibility of affecting future cash inflows.

Other Assets

As of September 30, 2016 and December 31, 2015, other assets were $4.5 million and $3.8 million, respectively, and primarily consisted of deposits for building leases in various locations of $2.5 million and $1.9 million, respectively. Additionally, included in the September 30, 2016 and December 31, 2015 balances was $1.7 million and $1.6 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. Also included in each of the September 30, 2016 and December 31, 2015 balances was $0.2 million of indefinite lived intangible assets relating to the Manapol® powder trademark.

Notes Payable

Notes payable were $1.5 million and $1.8 million as of September 30, 2016 and December 31, 2015, respectively, as a result of funding from a capital financing agreement related to our investment in computer hardware and software and other financing arrangements. At September 30, 2016, the current portion was $0.8 million and the long-term portion was $0.7 million.  At December 31, 2015, the current portion was $0.7 million and the long-term portion was $1.1 million.

Other Long-Term Liabilities

Other long-term liabilities were $1.6 million and $2.0 million as of September 30, 2016 and December 31, 2015, respectively.  At September 30, 2016 and December 31, 2015, the Company recorded $0.2 million and $0.7 million, respectively, in other long-term liabilities related to uncertain income tax positions (see Note 8, Income Taxes of the Company’s annual report on Form 10-K for the year ended December 31, 2015, filed March 15, 2016). 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 September 30, 2016 and December 31, 2015, accrued restoration costs related to these leases amounted to $0.5 million and $0.4 million, respectively.  At each of September 30, 2016 and December 31, 2015, 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 $0.5 million (see Note 10, Employee Benefit Plans, of the Company’s 10-K, filed March 15, 2016).

Revenue Recognition and Deferred Commissions

The Company’s revenue is derived from sales of individual products, sales of its starter and renewal packs, and shipping fees. Substantially all of the Company’s product and pack sales are made to associates at published wholesale prices and to members at discounted published retail prices. 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 packs and products upon receipt by the customer. Corporate-sponsored event revenue is recognized when the event is held. The Company defers certain components of its revenue. At September 30, 2016 and December 31, 2015, the Company’s deferred revenue was $9.6 million and $8.7 million, respectively. When participating in the Company’s loyalty program, customers earn loyalty points from qualified automatic orders that can be applied to future purchases. The Company defers the dollar equivalent in revenue of these points until the points are applied, forfeited, or expired, which includes an estimate of the percentage of the unvested loyalty points that are expected to be forfeited or expired. The deferred revenue associated with the loyalty program at September 30, 2016 and December 31, 2015, was $8.0 million and $8.1 million, respectively. Deferred revenue consisted primarily of: (i) sales of packs and products shipped but not received by the customers by the end of the respective period; (ii) revenue from the loyalty program; and (iii) prepaid registration fees from customers planning to attend a future corporate-sponsored event. In total current assets, the Company defers commissions on (i) the sales of packs and products shipped but not received by the customers by the end of the respective period and (ii) the loyalty program. Deferred commissions were $3.7 million and $3.4 million at September 30, 2016 and December 31, 2015, respectively.

Loyalty program	(in thousands)
Loyalty deferred revenue as of January 1, 2015	$	9,703
Loyalty points forfeited or expired		(8,801	)
Loyalty points used		(15,077	)
Loyalty points vested		20,403
Loyalty points unvested		1,845
Loyalty deferred revenue as of December 31, 2015	$	8,073

Loyalty deferred revenue as of January 1, 2016	$	8,073
Loyalty points forfeited or expired		(5,334	)
Loyalty points used		(11,879	)
Loyalty points vested		15,556
Loyalty points unvested		1,559
Loyalty deferred revenue as of  September 30, 2016	$	7,975

The Company estimates a sales return reserve for expected sales refunds based on historical experience over a rolling six-month period. If actual results differ from our estimated sales return reserve due to various factors, the amount of revenue recorded each period could be materially affected. 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 nine months ended September 30, 2016 our sales return reserve consisted of the following (in thousands):

Sales reserve as of January 1, 2016	$	147
Provision related to sales made in current period		1,026
Adjustment related to sales made in prior periods		7
Actual returns or credits related to current period		(872	)
Actual returns or credits related to prior periods		(145	)
Sales reserve as of September 30, 2016	$	163

Shipping and Handling Costs

The Company records freight and shipping fees collected from its customers as revenue. The Company records inbound freight as a component of inventory and cost of sales.

Commissions and Incentives

Associates earn commissions and incentives based on their direct and indirect commissionable net sales over 13 business periods each year. Each business period equals 28 days. The Company accrues commissions and incentives when earned by associates and pays commissions on product sales three weeks following the business period end and pays commissions on its pack sales five weeks following the business period end.

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, Colombia, and Mexico operations, and changes in the pension obligation for its Japanese employees.

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INVENTORIES

9 Months Ended

Sep. 30, 2016

INVENTORIES [Abstract]

INVENTORIES

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 at September 30, 2016 and December 31, 2015, consisted of the following (in thousands):

	September 30, 2016			December 31, 2015
Raw materials	$	537		$	1,187
Finished goods		10,581			9,277
Inventory reserves for obsolescence		(724	)		(1,265	)
Total	$	10,394		$	9,199

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INCOME TAXES

9 Months Ended

Sep. 30, 2016

INCOME TAXES [Abstract]

INCOME TAXES

NOTE 3: INCOME TAXES

For the three and nine months ended September 30, 2016, the Company’s effective tax rate was (77.7)% and (19.8)%, respectively. Taxes for the nine months ended September 30, 2016 were a $0.1 million benefit on a $0.5 million pre-tax book income mainly due to fluctuation of income between quarters resulting in a refund and valuation allowances released in Switzerland. For the three and nine months ended September 30, 2015, the Company’s effective income tax rate was 175.5% and 24.5%, respectively.  For the three and nine months ended September 30, 2016 and 2015, the Company’s effective tax rate was determined based on the estimated annual effective tax rate.

The effective tax rates for the three and nine months ended September 30, 2016 were lower than what would have been expected if the U.S. federal statutory rate were applied to income before taxes. Items decreasing the effective income tax rate include the favorable rate differences from foreign jurisdictions, fluctuation of income between quarters resulting in a refund, further valuation allowance release from Switzerland and certain tax reserve items that were removed due to the expiration of the applicable statute of limitations. Items discrete to the third quarter include foreign exchange losses and increased losses in jurisdictions for which no taxable benefit can be recorded.

The effective tax rates for the three months ended September 30, 2015 were higher than what would have been expected if the federal statutory rate were applied to income before taxes. Items increasing the effective tax rate include a return to provision adjustment offset by favorable rate differences from foreign jurisdictions and the utilization of foreign income tax credit. The effective tax rates for the nine months ended September 30, 2015 were lower than what would have been expected if the federal statutory rate were applied to income before taxes. Items decreasing the effective income tax rate include the favorable rate differences from foreign jurisdictions due to the overall profitability and the utilization of foreign income tax credit.

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EARNINGS PER SHARE

9 Months Ended

Sep. 30, 2016

EARNINGS PER SHARE [Abstract]

EARNINGS PER SHARE

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 2008 Stock Incentive Plan. In determining the potential dilution effect of outstanding stock options during the three months ended September 30, 2016 and 2015, the Company used the quarter’s average common stock closing price of $18.02 and $18.13 per share, respectively. In determining the potential dilution effect of outstanding stock options during the nine months ended September 30, 2016 and 2015, the Company used the nine-month average common stock closing price of $19.12 and $19.83 per share, respectively. For the three- and nine-months ended September 30, 2016, approximately 0.1 million shares of the Company’s stock subject to options were excluded from the diluted EPS calculation as their effect would have been antidilutive.

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STOCK-BASED COMPENSATION

9 Months Ended

Sep. 30, 2016

STOCK-BASED COMPENSATION [Abstract]

STOCK-BASED COMPENSATION

NOTE 5: STOCK-BASED COMPENSATION

The Company currently has one active stock-based compensation plan, which was approved by shareholders. The Company grants stock options to employees, consultants, and board members at the fair market value of its common stock, on the date of grant, with a term no greater than ten years. The majority of stock options vest over two or three years. Shareholders who own 10% or more of the Company’s outstanding stock are granted incentive stock options at an exercise price that may not be less than 110% of the fair market value of the Company’s common stock on the date of grant and have a term no greater than five years.

In February 2008, the Company’s Board of Directors approved the Mannatech, Incorporated 2008 Stock Incentive Plan, as amended (the “2008 Plan”), which reserved up to 100,000 (as adjusted for a 1-for-10 reverse stock split) shares of common stock for issuance of stock options and restricted stock to our employees, board members, and consultants, plus any shares reserved under the Company’s then-existing, unexpired stock plans for which options had not yet been issued, and any shares underlying outstanding options under the then-existing stock option plans that terminate without having been exercised in full. The 2008 Plan was approved by the Company’s shareholders at the 2008 Annual Shareholders’ Meeting and was amended at the 2012 Annual Shareholders’ Meeting to increase the number of shares of common stock subject to the plan by 100,000 and amended again at the 2014 Annual Shareholders’ Meeting to increase the number of shares of common stock subject to the plan by an additional 130,000. As of September 30, 2016, the 2008 Plan had 85,397 stock options available for grant before the plan expires on February 20, 2018.

The Company records stock-based compensation expense related to granting stock options in selling and administrative expenses. During the three months ended September 30, 2016 and 2015, the Company granted zero and 12,000 stock options, respectively. The fair value of stock options granted during the three months ended September 30, 2015 was approximately $10.36 per share.  During the nine months ended September 30, 2016 and 2015, the Company granted 10,000 and 32,000 stock options, respectively. The fair value of stock options granted during the nine months ended September 30, 2016 was approximately $12.18 per share. The Company recognized compensation expense as follows for the three and nine months ended September 30 (in thousands):

	Three months ending September 30				Nine months ending September 30
	2016		2015		2016		2015
Total gross compensation expense	$	115	$	149	$	474	$	450
Total tax benefit associated with compensation expense		15		38		62		111
Total net compensation expense	$	100	$	111	$	412	$	339

As of September 30, 2016, the Company expects to record compensation expense in the future as follows (in thousands):

	Three months		Year ending December 31,
	ending December 31, 2016		2017		2018		2019
Total gross unrecognized compensation expense	$	106	$	297	$	91	$	29
Tax benefit associated with unrecognized compensation expense		14		33		7		—
Total net unrecognized compensation expense	$	92	$	264	$	84	$	29

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SHAREHOLDERS' EQUITY

9 Months Ended

Sep. 30, 2016

SHAREHOLDERS' EQUITY [Abstract]

SHAREHOLDERS' EQUITY

NOTE 6: SHAREHOLDERS’ EQUITY

Treasury Stock

On June 30, 2004, the Company’s Board of Directors authorized the Company to repurchase, in the open market, the lesser of (i) 131,756 shares of its common stock and (ii) $1.3 million of its shares, (the “June 2004 Plan”).  On August 28, 2006, a second program permitting the Company to purchase, in the open market, up to $20 million of its outstanding shares was approved by the Board of Directors (the “August 2006 Plan”).  On July 14, 2011, the Company’s Board of Directors authorized the Company to reactivate the June 2004 Plan.  On August 31, 2016, the Company’s Board of Directors reactivated the August 2006 Plan and authorized the Company to repurchase up to $0.5 million of the Company’s outstanding common shares in open market transactions.  As of November 8, 2016, the maximum number of shares available for repurchase under the June 2004 Plan was 19,084, and the total number of shares purchased in the open market under the June 2004 Plan was 112,672.  As of November 8, 2016, there was $19.8 million remaining for repurchase under the August 2006 Plan, and the total value of shares repurchased in the open market under the August 2006 plan was $0.2 million. The Company does not have any stock repurchase plans or programs other than the June 2004 Plan and the August 2006 Plan.

During the three and nine months ended September 30, 2016, the company repurchased 9,009 shares at an average price of $17.54.

Accumulated Other Comprehensive Income

Accumulated other comprehensive income, displayed in the Consolidated Statements of Shareholders’ Equity and Comprehensive Income, 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, 2015	$	358	$	328	$	686
Current-period change 1		2,911		—		2,911
Balance as of September 30, 2016	$	3,269	$	328	$	3,597

¹ No amounts reclassified from accumulated other comprehensive income.

Dividends

On August 11, 2016, the Board of Directors declared a dividend of $0.125 per share that was paid on September 21, 2016 to shareholders of record on August 31, 2016.

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LITIGATION

9 Months Ended

Sep. 30, 2016

LITIGATION [Abstract]

LITIGATION

NOTE 7: LITIGATION

Patent Litigation

Mannatech, Incorporated v. Wellness Quest, LLC and Harley Reginald McDaniel, Case No. 3:14-cv-2497, U.S. District Court, for the Northern District of Texas, Dallas Division

On July 11, 2014 the Company filed a patent infringement lawsuit against Wellness Quest, LLC and Dr. H. Reginald McDaniel (“Defendants”) alleging the Defendants infringe United States Patent Nos. 7,157,431 and 7,202,220, both entitled “Compositions of Plant Carbohydrates as Dietary Supplements” (the “Patents”) and seeking to stop the Defendants’ manufacture, offer, and sale of infringing glyconutritional dietary supplement products. On July 16, 2014, the Company filed a Motion for Preliminary Injunction preventing Defendants from infringing the Patents pending a final decision on the merits. On August 29, 2014, the Defendants filed their Response to Plaintiff’s Motion for Preliminary Injunction and Brief in Support along with their Answer and Affirmative Defenses. On November 4, 2014, the Court denied the Company’s Motion for Preliminary Injunction and Motion to Expedite Discovery.  On December 15, 2014, the Company deposed Dr. Reginald McDaniel. Each party has submitted its list of claim constructions/definitions and a list of the supporting authority.  Each party has filed its opening brief and its respective responsive brief. Defendants designated an expert and the Company deposed the expert on January 27, 2015 regarding his claim construction opinions while reserving the right to examine him later regarding other matters.  Mediation on this matter was held on April 24, 2015. A settlement was not reached.

On May 12, 2015 the Company received notice of an Order of Transfer advising that the case had been reassigned from Judge Ed Kinkeade to Judge David C. Godbey for all further proceedings. On July 20, 2015, the Court issued its Markman ruling adopting the Company’s proposed claim construction for all disputed terms except for “dietary supplement composition” which it found needed no construction. On August 20, 2015, Defendants filed a request for an interlocutory appeal, and the Company filed a reply on October 6, 2015. The Company also filed a separate motion requesting entry of a final judgment and permanent injunction on September 8, 2015.

On November 5, 2015 the Court issued an Order accepting Defendants’ stipulation of infringement under the Court’s claim interpretation and granted the Company’s partial motion for summary judgment and issued a permanent injunction against Defendants’ infringement of the Patents. The Court stayed the permanent injunction until the conclusion of Defendants’ appeal to the U.S. Court of Appeals for the Federal Circuit (the “Court of Appeals”). On December 3, 2015, Defendants filed their Notice of Appeal which was docketed by the Court of Appeals on December 8, 2015. Defendants-Appellants filed their brief with the Court of Appeals on February 28, 2016. The Company-Appellee filed its brief with the Court of Appeals on March 24, 2016. Oral argument for the appeal was held on August 1, 2016.  Each side was given fifteen minutes for argument before the Appellate Court.  On August 5, 2016, the Court of Appeals issued a per curium opinion affirming the trial court’s judgment in favor of the Company. On August 10, 2016, the Company filed a motion to lift the stay of permanent injunction previously issued by the trial court. On August 24, 2016, the Company received confirmation from its counsel that Defendants changed the formulation of the infringing product to a formulation proposed by the Company. Defendants filed their response to the Company’s motion on August 31, 2016. The parties conferred via telephone and electronic mail on August 31, 2016 and September 1, 2016 regarding the Company’s motion and Defendants’ response.  On September 1, 2016 the Company filed an Amended Certificate of Conference with the Court advising that the Company’s motion was now unopposed. The Court has yet to rule on this motion. This matter remains open.

This lawsuit continues the Company’s enforcement of its patent rights, and the Company intends to vigorously prosecute this matter.  Based on the previous successful patent infringement lawsuits against Country Life, LLC, Glycobiotics International, Inc., Techmedica Health, Inc., IonX Holdings, Inc., Boston Mountain Laboratories, Inc., Green Life, LLC, Xiong Lo, and RBC Life Sciences, Inc., the Company believes there is a strong likelihood that it will obtain permanent injunctions against the manufacture and sale of any infringing products for the duration of the Company’s patents.

Breach of Contract

Diana Anselmo and New Day Today Corporation v. Mannatech, Incorporated, Case No. DC-15-01904, Judicial District Court, Dallas County, Texas

On February 18, 2015 Ms. Diana Anselmo and New Day Today Corporation (collectively, the “Plaintiffs”) filed suit against Mannatech alleging breach of contract pertaining to a portion of proceeds from a Mannatech Associate position once held by Ms. Anselmo’s former husband, Ray Gebauer. Plaintiffs are seeking damages in excess of $1,000,000 and a declaration that the Company continue to pay Plaintiffs proceeds from Mr. Gebauer’s former account.

The Company filed its answer on March 23, 2015 denying the Plaintiffs’ allegations. The Court set the case for trial on March 7, 2016; however, on December 7, 2015 the Court granted the parties Agreed Motion for Continuation and reset the trial for September 26, 2016. At a hearing on August 19, 2016, the Court granted a continuance and reset the trial for November 14, 2016, and on October 18, 2016, the Court reset the trial for December 5, 2016.

The Court issued a mediation order on April 20, 2015.  The Company filed a Motion for Summary Judgment on June 15, 2016. The Mediation was conducted on June 17, 2016. The parties entered into a Mediation Settlement Agreement (“MSA”) that was contingent upon Plaintiff Anselmo reaching an acceptable compromise and settlement with the Internal Revenue Service (“IRS”) on or before July 18, 2016. On July 11, 2016, the Company was notified that Plaintiff Anselmo did not reach an acceptable compromise with the IRS, thus making the MSA null and void.

Plaintiffs filed their response to the Company’s Motion for Summary Judgment on August 5, 2016. The hearing on that motion was held on August 11, 2016 and due to time constraints was continued on August 19, 2016. On August 31, 2016 the Court entered an Order Denying the Company’s Motion for Summary Judgment. Discovery formally closed on October 7, 2016. At a hearing on October 10, 2016, the Company argued that it should be allowed further discovery related to the assertions by Plaintiff Anselmo that she was not legally married to Mr. Gebauer both before and after the Company and Plaintiff Anselmo entered into the contract at issue.  The Court ordered Plaintiffs to produce communications with the IRS regarding Plaintiff Anselmo’s relationship to Mr. Gebauer.   It is not possible at this time to predict whether 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, the Company believes it has a valid defense and will vigorously defend this claim. This matter remains open.

Uniscience Solution v. Chang, et al.; Chang, et al. v. Uniscience Solution, Randy Lee, and Mannatech, Inc. (cross-defendant), Case No. 16K03995 (Superior Court of California, Los Angeles Co.)

On June 1, 2016 the Company received notice that on May 20, 2016 Vivian Hsiaoling Chang and Alan Jyh Woei Hsu (collectively, the “Cross-plaintiffs”) filed an unverified cross-complaint against the Company and Uniscience Solution, and Randy Lee alleging breach of contract seeking $22,300 plus unspecified special and punitive damages in addition to attorneys’ fees and related costs. Cross-plaintiffs, Uniscience Solution, and Randy Lee are independent distributors of the Company who entered into an agreement, separate and apart from their respective distributor agreements with the Company. The Cross-plaintiffs assert that Mannatech is a party to such other agreement; which it is not. The Company filed an answer denying the assertions in the unverified cross-complaint. On September 23, 2016, the Cross-plaintiffs and Uniscience Solution entered into a settlement agreement. On September 27, 2016, the Cross-plaintiffs filed a Request for Dismissal with the Court dismissing all claims against the Company with prejudice. On October 26, 2016, the Company received notice from its counsel that the Court entered the Dismissal on October 3, 2016. This matter is closed.

Trademark Opposition – U.S. Patent and Trademark Office (“USPTO”)

United States Trademark Opposition No. 91221493, Shaklee Corporation v. Mannatech, Incorporated re: UTH

On April 15, 2015 the Company received notice that Shaklee Corporation filed a Notice of Opposition to the Company’s trademark application for UTH (stylized as Ū^th) with the USPTO. On May 19, 2015, the Company filed an answer to the opposition and also filed a counterclaim seeking to cancel Shaklee’s registration of its YOUTH mark. Shaklee filed an extension to oppose the UTH mark on June 18, 2015, and the request to extend time to oppose was granted until July 18, 2015. Shaklee filed a second extension on July 17, 2015, and the request to extend time to oppose has been granted until September 16, 2015. Shaklee filed motions to strike the Company’s Affirmative Defenses to the Opposition and Counterclaim to cancel their registrations.  The Company filed responses and the Trademark Trial and Appeal Board (“TTAB”) ruled in Shaklee’s favor. The Company filed an amended Answer to the Opposition and Amended Counterclaim on November 18, 2015. Shaklee then filed an answer to the Company’s Counterclaim on December 30, 2015.

On September 15, 2015 Shaklee filed two more Notices of Opposition for the UTH & Design and ŪTH applications. The Company filed Answers and Counterclaims on November 20, 2015. On January 25, 2016, the Company filed a motion to strike Shaklee’s affirmative defense on cancellation. On May 17, 2016, the TTAB granted the Company’s motion to strike Shaklee’s affirmative defense on cancellation. On August 9, 2016, Shaklee filed a Motion for Summary Judgment on the Company’s cancellation filing of its YOUTH mark. On September 9, 2016, the Company filed a Motion for Request for Discovery to Respond to Summary Judgment under Rule 56(d). On September 28, 2016, Shaklee filed a response to the Company’s motion to cancel the request for discovery. The Company plans to file a response in support of the motion under Rule 56(d) on October 18, 2016. The proceedings, including discovery, have been suspended until the TTAB can rule on the motions.This matter remains open.

It is not possible at this time to predict the outcome of the USPTO action or whether 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, the Company believes it has a valid defense and will vigorously defend this claim.

Arbitration Proceeding

Mannatech v. Samuel L. Caster and Wonder Enterprises, LLC, Demand for Arbitration, Case No. 01-15-0003-6812.

On May 29, 2015 the Company initiated arbitration proceedings against Samuel L. Caster and Wonder Enterprises, LLC (“Respondents”) alleging breach of contract by Mr. Caster and his company, Wonder Enterprises, under a series of consulting agreements entered into by the parties. Mannatech seeks to recover actual damages, costs of court and prejudgment interest together with disgorgement of all benefits received by the Respondents. The Company estimates its damages to be between $500,000 and $3,500,000. On June 12, 2015 Respondents contacted the Company’s counsel to request mediation. The parties agreed to mediate this dispute, and mediation was held on August 17, 2015. However, a settlement was not reached. A preliminary hearing for arbitration was held on September 18, 2015, and a final hearing commenced on April 25, 2016. A hearing was held on March 2, 2016 where the arbitrator granted Respondents’ request to file a motion for summary judgment and granted the Company until March 21, 2016 to issue its response. The arbitrator also granted the Company’s motion to compel the Respondents to produce the customer list for Mr. Caster’s former company, EM Squared. The Company filed its response to Respondents’ Motion for Summary Judgment on March 21, 2016. The arbitration hearing was scheduled to begin on August 29, 2016; however, the parties reached a settlement agreement and on August 25, 2016 the arbitrator entered the Agreed Order of Dismissal, dismissing all claims with prejudice.  This matter is closed.

Administrative Proceedings

Mannatech Korea, Ltd. V. Busan Custom Office, Busan District Court, Korea

On or before April 12, 2015 Mannatech Korea, Ltd. filed a suit against the Busan Custom Office (“BCO”) to challenge BCO’s method of calculation regarding its assessment notice issued on July 11, 2013. The assessment notice included an audit of the Company’s imported goods covering fiscal years 2008 through 2012 and required the Company to pay $1.0 million for this assessment, which was paid in January 2014. Both parties submitted a response to the Court’s inquiry on January 15, 2016. The final hearing for the case was held on May 26, 2016, where each party presented their respective arguments. The judge originally set the decision hearing for June 30, 2016; however, after several postponements on the decision hearing to July 14, 2016 and then to August 18, 2016, the decision date of the case was set to October 27, 2016. On October 27, 2016, the Court decided the case in the Company’s favor. However, the BCO may file an appeal within 14 days from the day the BCO receives the decision letter, which the Court released on November 3, 2016. This matter remains open.

There are other ongoing audits in various international jurisdictions that the Company does not expect will have a material effect on our financial statements.

Litigation in General

The Company is or may become subject to claims in the normal course of business. The Company believes such claims can be resolved without any material adverse effect on its consolidated financial position, results of operations, or cash flows.

The Company maintains certain liability insurance; however, certain costs of defending lawsuits are not covered or are 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 or as they become determinable.

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.

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FAIR VALUE

9 Months Ended

Sep. 30, 2016

FAIR VALUE [Abstract]

FAIR VALUE

NOTE 8: 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 Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 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 September 30, 2016.  The table below presents the recorded amount of financial assets measured at fair value (in thousands) on a recurring basis as of September 30, 2016 and December 31, 2015.

September 30, 2016	Level 1		Level 2		Level 3		Total
Assets
Money Market Funds – Fidelity, US	$	1,012	$	—	$	—	$	1,012
Interest bearing deposits – various banks		22,534		—		—		22,534
Total assets	$	23,546	$	—	$	—	$	23,546
Amounts included in:
Cash and cash equivalents	$	16,993	$	—	$	—	$	16,993
Restricted cash		740		—		—		740
Long-term restricted cash		5,813		—		—		5,813
Total	$	23,546	$	—	$	—	$	23,546

December 31, 2015	Level 1		Level 2		Level 3		Total
Assets
Money Market Funds – Fidelity, US	$	319	$	—	$	—	$	319
Interest bearing deposits – various banks		14,134		—		—		14,134
Total assets	$	14,453	$	—	$	—	$	14,453
Amounts included in:
Cash and cash equivalents	$	8,281	$	—	$	—	$	8,281
Restricted cash		737		—		—		737
Long-term restricted cash		5,435		—		—		5,435
Total	$	14,453	$	—	$	—	$	14,453

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SEGMENT INFORMATION

9 Months Ended

Sep. 30, 2016

SEGMENT INFORMATION [Abstract]

SEGMENT INFORMATION

NOTE 9: SEGMENT INFORMATION

The Company conducts its business as a single operating segment, consolidating all of its business units into a single reportable entity, as a seller of proprietary nutritional supplements, topical and skin care and anti-aging products, and weight-management and fitness products through its network marketing distribution channels operating in twenty-five countries. Each of the Company’s business units sells similar packs and products 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 packs 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 operates facilities in thirteen countries and sells product in twenty-five countries around the world. These facilities are located in the United States, Canada, Switzerland, Australia, the United Kingdom, Japan, the Republic of Korea (South Korea), Taiwan, South Africa, Hong Kong, Singapore, Colombia and Mexico. Each facility services different geographic areas. We currently sell our products in three regions: (i) the Americas (the United States, Canada, Colombia 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 and Hong Kong).

Consolidated net sales shipped to customers in these regions, along with pack and product information for the three and nine months ended September 30, were as follows (in millions, except percentages):

	Three months								Nine months
Region	2016				2015				2016				2015
Americas	$	19.0	39.4	%	$	17.8	40.6	%	$	54.0	39.2	%	$	54.7	40.5	%
Asia/Pacific		25.5	52.9	%		22.0	50.1	%		73.2	53.2	%		68.3	50.6	%
EMEA		3.6	7.7	%		4.1	9.3	%		10.5	7.6	%		12.0	8.9	%
Totals	$	48.1	100.0	%	$	43.9	100.00	%	$	137.7	100.0	%	$	135.0	100.0	%

	Three months				Nine months
	2016		2015		2016		2015
Consolidated product sales	$	39.8	$	35.3	$	113.6	$	105.8
Consolidated pack sales		6.9		7.1		20.2		24.9
Consolidated other, including freight		1.4		1.5		3.9		4.3
Consolidated total net sales	$	48.1	$	43.9	$	137.7	$	135.0

Long-lived assets, which include property and equipment and construction in process for the Company and its subsidiaries, as of September 30, 2016 and December 31, 2015, reside in the following regions, as follows (in millions):

Region	September 30, 2016		December 31, 2015
Americas	$	3.3	$	3.5
Asia/Pacific		1.2		1.1
EMEA		0.1		0.1
Total	$	4.6	$	4.7

Inventory balances, which consist of raw materials, work in process, finished goods, and promotional materials, as offset by the allowance for slow moving or obsolete inventories, reside in the following regions (in millions):

Region	September 30, 2016		December 31, 2015
Americas	$	4.3	$	3.4
Asia/Pacific		4.3		4.3
EMEA		1.8		1.5
Total	$	10.4	$	9.2

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RECENT ACCOUNTING PRONOUNCEMENTS

9 Months Ended

Sep. 30, 2016

RECENT ACCOUNTING PRONOUNCEMENTS [Abstract]

RECENT ACCOUNTING PRONOUNCEMENTS

NOTE 10: RECENT ACCOUNTING PRONOUNCEMENTS

In May 2014, the FASB issued Accounting Standards Update “ASU” 2014-09, Revenue from Contracts with Customers. This new standard requires companies to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which a company expects to be entitled in exchange for those goods or services. Under the new standard, revenue is recognized when a customer obtains control of a good or service. The standard allows for two transition methods – entities can either apply the new standard (i) retrospectively to each prior reporting period presented, or (ii) retrospectively with the cumulative effect of initially applying the standard recognized at the date of initial adoption. In July 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers, which defers the effective date by one year to December 15, 2017 for fiscal years, and interim periods within those fiscal years, beginning after that date. Early adoption of the standard is permitted, but not before the original effective date of December 15, 2016. In March 2016, the FASB issued ASU 2016-08 Revenue from Contracts with Customers, Principal versus Agent Considerations (Reporting Revenue versus Net), in April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers, identifying Performance Obligations and Licensing, and in May 2016, the FASB issued ASU 2016-12, Revenue from Contracts with Customers, Narrow-Scope Improvements and Practical Expedients, which provide additional clarification on certain topics addressed in ASU 2014-09. ASU 2016-08, ASU 2016-10, and ASU 2016-12 follow the same implementation guidelines as ASU 2014-09 and ASU 2015-14. The Company is evaluating this updated standard to determine if adoption will have a material impact on the Company’s consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which is intended to simplify the accounting for stock based compensation.  The areas for simplification in ASU 2016-09 involve several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The update is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted, provided that, if an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period, and all amendments are adopted in the same period. Certain detailed transition provisions apply if an entity elects to early adopt.  The Company is currently evaluating the impact of this standard on the Company’s consolidated results of operations and financial condition.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which is intended to reduce the existing diversity in practice of how certain cash receipts and cash payments are presented and classified in the statement of cash flows. This update provides guidance on eight specific cash flow issues. The update is effective for fiscal periods beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. None of the specific issues in the update materially impact the Company’s consolidated statement of cash flows.

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.

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ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

9 Months Ended

Sep. 30, 2016

ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Abstract]

Principles of Consolidation

Principles of Consolidation

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

Use of Estimates

Use of Estimates

The preparation of the Company’s consolidated financial statements in accordance with generally accepted accounting principles 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 and Cash Equivalents

Cash and Cash Equivalents

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 of submission to the credit card processor. As of September 30, 2016 and December 31, 2015, credit card receivables were $1.9 million and $0.4 million, respectively. As of September 30, 2016 and December 31, 2015, cash and cash equivalents held in bank accounts in foreign countries totaled $33.8 million and $31.3 million, respectively. The Company invests cash in liquid instruments, such as money market funds and interest bearing deposits.  The Company also holds cash in high quality financial institutions and does not believe it has an excessive exposure to credit concentration risk.

Restricted Cash

Restricted Cash

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 September 30, 2016 and December 31, 2015, our total restricted cash was $8.6 million and $8.1 million, respectively.

Accounts Receivable

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 each of September 30, 2016 and December 31, 2015, receivables consisted primarily of amounts due from members and associates. 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. At September 30, 2016 and December 31, 2015, the Company held an allowance for doubtful accounts of $0.5 million and $0.3 million, respectively.

Inventories

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 market. The Company periodically reviews inventories for obsolescence, and any inventories identified as obsolete are reserved or written off.

Property and Equipment

Property and Equipment

Property and equipment are stated at cost, less accumulated depreciation and amortization computed using the straight-line method over the estimated useful life of each asset. Leasehold improvements are amortized over the shorter of the lease term or the estimated useful life of the improvements. Expenditures for maintenance and repairs are charged to expense as incurred. The cost of property and equipment sold or otherwise retired and the related accumulated depreciation are removed from the accounts and any resulting gain or loss is included in other operating costs in the accompanying Consolidated Statements of Operations. The estimated useful lives of fixed assets are as follows:

	Estimated useful life
Office furniture and equipment	5 to 7 years
Computer hardware and software	3 to 5 years
Automobiles	3 to 5 years
Leasehold improvements(1)	2 to 10 years

⁽¹⁾ The Company amortizes leasehold improvements over the shorter of the useful estimated life of the leased asset or the lease term.

Property and equipment are reviewed for impairment whenever an event or change in circumstances indicates that the carrying amount of an asset or group of assets may not be recoverable. The impairment review includes a comparison of future projected cash flows generated by the asset or group of assets with its associated net carrying value. If the net carrying value of the asset or group of assets exceeds expected cash flows (undiscounted and without interest charges), an impairment loss is recognized to the extent the carrying amount of the asset exceeds its fair value.

On August 29, 2016, we received information indicating that a portion of the capitalized costs related to an item included in our computer hardware and software asset group would not be completed due to problems with the vendor in completing the code. We evaluated the project and determined a charge was required due to the abandonment of the project. For the quarter and year ending September 30, 2016 we recorded $0.4 million in operating expenses that represented work that was performed, but which no longer has any value to the Company or any possibility of affecting future cash inflows.

Other Assets

Other Assets

As of September 30, 2016 and December 31, 2015, other assets were $4.5 million and $3.8 million, respectively, and primarily consisted of deposits for building leases in various locations of $2.5 million and $1.9 million, respectively. Additionally, included in the September 30, 2016 and December 31, 2015 balances was $1.7 million and $1.6 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. Also included in each of the September 30, 2016 and December 31, 2015 balances was $0.2 million of indefinite lived intangible assets relating to the Manapol® powder trademark.

Notes Payable

Notes Payable

Notes payable were $1.5 million and $1.8 million as of September 30, 2016 and December 31, 2015, respectively, as a result of funding from a capital financing agreement related to our investment in computer hardware and software and other financing arrangements. At September 30, 2016, the current portion was $0.8 million and the long-term portion was $0.7 million.  At December 31, 2015, the current portion was $0.7 million and the long-term portion was $1.1 million.

Other Long-Term Liabilities

Other Long-Term Liabilities

Other long-term liabilities were $1.6 million and $2.0 million as of September 30, 2016 and December 31, 2015, respectively.  At September 30, 2016 and December 31, 2015, the Company recorded $0.2 million and $0.7 million, respectively, in other long-term liabilities related to uncertain income tax positions (see Note 8, Income Taxes of the Company’s annual report on Form 10-K for the year ended December 31, 2015, filed March 15, 2016). 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 September 30, 2016 and December 31, 2015, accrued restoration costs related to these leases amounted to $0.5 million and $0.4 million, respectively.  At each of September 30, 2016 and December 31, 2015, 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 $0.5 million (see Note 10, Employee Benefit Plans, of the Company’s 10-K, filed March 15, 2016).

Revenue Recognition and Deferred Commissions

Revenue Recognition and Deferred Commissions

The Company’s revenue is derived from sales of individual products, sales of its starter and renewal packs, and shipping fees. Substantially all of the Company’s product and pack sales are made to associates at published wholesale prices and to members at discounted published retail prices. 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 packs and products upon receipt by the customer. Corporate-sponsored event revenue is recognized when the event is held. The Company defers certain components of its revenue. At September 30, 2016 and December 31, 2015, the Company’s deferred revenue was $9.6 million and $8.7 million, respectively. When participating in the Company’s loyalty program, customers earn loyalty points from qualified automatic orders that can be applied to future purchases. The Company defers the dollar equivalent in revenue of these points until the points are applied, forfeited, or expired, which includes an estimate of the percentage of the unvested loyalty points that are expected to be forfeited or expired. The deferred revenue associated with the loyalty program at September 30, 2016 and December 31, 2015, was $8.0 million and $8.1 million, respectively. Deferred revenue consisted primarily of: (i) sales of packs and products shipped but not received by the customers by the end of the respective period; (ii) revenue from the loyalty program; and (iii) prepaid registration fees from customers planning to attend a future corporate-sponsored event. In total current assets, the Company defers commissions on (i) the sales of packs and products shipped but not received by the customers by the end of the respective period and (ii) the loyalty program. Deferred commissions were $3.7 million and $3.4 million at September 30, 2016 and December 31, 2015, respectively.

Loyalty program	(in thousands)
Loyalty deferred revenue as of January 1, 2015	$	9,703
Loyalty points forfeited or expired		(8,801	)
Loyalty points used		(15,077	)
Loyalty points vested		20,403
Loyalty points unvested		1,845
Loyalty deferred revenue as of December 31, 2015	$	8,073

Loyalty deferred revenue as of January 1, 2016	$	8,073
Loyalty points forfeited or expired		(5,334	)
Loyalty points used		(11,879	)
Loyalty points vested		15,556
Loyalty points unvested		1,559
Loyalty deferred revenue as of  September 30, 2016	$	7,975

The Company estimates a sales return reserve for expected sales refunds based on historical experience over a rolling six-month period. If actual results differ from our estimated sales return reserve due to various factors, the amount of revenue recorded each period could be materially affected. 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 nine months ended September 30, 2016 our sales return reserve consisted of the following (in thousands):

Sales reserve as of January 1, 2016	$	147
Provision related to sales made in current period		1,026
Adjustment related to sales made in prior periods		7
Actual returns or credits related to current period		(872	)
Actual returns or credits related to prior periods		(145	)
Sales reserve as of September 30, 2016	$	163

Shipping and Handling Costs

Shipping and Handling Costs

The Company records freight and shipping fees collected from its customers as revenue. The Company records inbound freight as a component of inventory and cost of sales.

Commissions and Incentives

Commissions and Incentives

Associates earn commissions and incentives based on their direct and indirect commissionable net sales over 13 business periods each year. Each business period equals 28 days. The Company accrues commissions and incentives when earned by associates and pays commissions on product sales three weeks following the business period end and pays commissions on its pack sales five weeks following the business period end.

Comprehensive Income and Accumulated Other Comprehensive Income

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, Colombia, and Mexico operations, and changes in the pension obligation for its Japanese employees.

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ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)

9 Months Ended

Sep. 30, 2016

ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Abstract]

Estimated useful lives of fixed assets

The estimated useful lives of fixed assets are as follows:

	Estimated useful life
Office furniture and equipment	5 to 7 years
Computer hardware and software	3 to 5 years
Automobiles	3 to 5 years
Leasehold improvements(1)	2 to 10 years

⁽¹⁾ The Company amortizes leasehold improvements over the shorter of the useful estimated life of the leased asset or the lease term.

Loyalty deferred revenue

Loyalty program	(in thousands)
Loyalty deferred revenue as of January 1, 2015	$	9,703
Loyalty points forfeited or expired		(8,801	)
Loyalty points used		(15,077	)
Loyalty points vested		20,403
Loyalty points unvested		1,845
Loyalty deferred revenue as of December 31, 2015	$	8,073

Loyalty deferred revenue as of January 1, 2016	$	8,073
Loyalty points forfeited or expired		(5,334	)
Loyalty points used		(11,879	)
Loyalty points vested		15,556
Loyalty points unvested		1,559
Loyalty deferred revenue as of  September 30, 2016	$	7,975

Sales return reserve

For the nine months ended September 30, 2016 our sales return reserve consisted of the following (in thousands):

Sales reserve as of January 1, 2016	$	147
Provision related to sales made in current period		1,026
Adjustment related to sales made in prior periods		7
Actual returns or credits related to current period		(872	)
Actual returns or credits related to prior periods		(145	)
Sales reserve as of September 30, 2016	$	163

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INVENTORIES (Tables)

9 Months Ended

Sep. 30, 2016

INVENTORIES [Abstract]

Schedule of inventory

Inventories at September 30, 2016 and December 31, 2015, consisted of the following (in thousands):

	September 30, 2016			December 31, 2015
Raw materials	$	537		$	1,187
Finished goods		10,581			9,277
Inventory reserves for obsolescence		(724	)		(1,265	)
Total	$	10,394		$	9,199

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STOCK-BASED COMPENSATION (Tables)

9 Months Ended

Sep. 30, 2016

STOCK-BASED COMPENSATION [Abstract]

Schedule of compensation cost

The Company recognized compensation expense as follows for the three and nine months ended September 30 (in thousands):

	Three months ending September 30				Nine months ending September 30
	2016		2015		2016		2015
Total gross compensation expense	$	115	$	149	$	474	$	450
Total tax benefit associated with compensation expense		15		38		62		111
Total net compensation expense	$	100	$	111	$	412	$	339

Schedule of unrecognized compensation expense

As of September 30, 2016, the Company expects to record compensation expense in the future as follows (in thousands):

	Three months		Year ending December 31,
	ending December 31, 2016		2017		2018		2019
Total gross unrecognized compensation expense	$	106	$	297	$	91	$	29
Tax benefit associated with unrecognized compensation expense		14		33		7		—
Total net unrecognized compensation expense	$	92	$	264	$	84	$	29

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SHAREHOLDERS' EQUITY (Tables)

9 Months Ended

Sep. 30, 2016

SHAREHOLDERS' EQUITY [Abstract]

Components of accumulated other comprehensive income

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, 2015	$	358	$	328	$	686
Current-period change 1		2,911		—		2,911
Balance as of September 30, 2016	$	3,269	$	328	$	3,597

¹ No amounts reclassified from accumulated other comprehensive income.

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FAIR VALUE (Tables)

9 Months Ended

Sep. 30, 2016

FAIR VALUE [Abstract]

Fair value, assets measured on recurring basis

The table below presents the recorded amount of financial assets measured at fair value (in thousands) on a recurring basis as of September 30, 2016 and December 31, 2015.

September 30, 2016	Level 1		Level 2		Level 3		Total
Assets
Money Market Funds – Fidelity, US	$	1,012	$	—	$	—	$	1,012
Interest bearing deposits – various banks		22,534		—		—		22,534
Total assets	$	23,546	$	—	$	—	$	23,546
Amounts included in:
Cash and cash equivalents	$	16,993	$	—	$	—	$	16,993
Restricted cash		740		—		—		740
Long-term restricted cash		5,813		—		—		5,813
Total	$	23,546	$	—	$	—	$	23,546

December 31, 2015	Level 1		Level 2		Level 3		Total
Assets
Money Market Funds – Fidelity, US	$	319	$	—	$	—	$	319
Interest bearing deposits – various banks		14,134		—		—		14,134
Total assets	$	14,453	$	—	$	—	$	14,453
Amounts included in:
Cash and cash equivalents	$	8,281	$	—	$	—	$	8,281
Restricted cash		737		—		—		737
Long-term restricted cash		5,435		—		—		5,435
Total	$	14,453	$	—	$	—	$	14,453

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SEGMENT INFORMATION (Tables)

9 Months Ended

Sep. 30, 2016

SEGMENT INFORMATION [Abstract]

Net sales shipped to customers by geographic region

Consolidated net sales shipped to customers in these regions, along with pack and product information for the three and nine months ended September 30, were as follows (in millions, except percentages):

	Three months								Nine months
Region	2016				2015				2016				2015
Americas	$	19.0	39.4	%	$	17.8	40.6	%	$	54.0	39.2	%	$	54.7	40.5	%
Asia/Pacific		25.5	52.9	%		22.0	50.1	%		73.2	53.2	%		68.3	50.6	%
EMEA		3.6	7.7	%		4.1	9.3	%		10.5	7.6	%		12.0	8.9	%
Totals	$	48.1	100.0	%	$	43.9	100.00	%	$	137.7	100.0	%	$	135.0	100.0	%

Product and pack information

	Three months				Nine months
	2016		2015		2016		2015
Consolidated product sales	$	39.8	$	35.3	$	113.6	$	105.8
Consolidated pack sales		6.9		7.1		20.2		24.9
Consolidated other, including freight		1.4		1.5		3.9		4.3
Consolidated total net sales	$	48.1	$	43.9	$	137.7	$	135.0

Long-lived assets, by geographic region

Long-lived assets, which include property and equipment and construction in process for the Company and its subsidiaries, as of September 30, 2016 and December 31, 2015, reside in the following regions, as follows (in millions):

Region	September 30, 2016		December 31, 2015
Americas	$	3.3	$	3.5
Asia/Pacific		1.2		1.1
EMEA		0.1		0.1
Total	$	4.6	$	4.7

Inventory balances, by region

Inventory balances, which consist of raw materials, work in process, finished goods, and promotional materials, as offset by the allowance for slow moving or obsolete inventories, reside in the following regions (in millions):

Region	September 30, 2016		December 31, 2015
Americas	$	4.3	$	3.4
Asia/Pacific		4.3		4.3
EMEA		1.8		1.5
Total	$	10.4	$	9.2

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ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) $ in Thousands		3 Months Ended	9 Months Ended	12 Months Ended
		Sep. 30, 2016 USD ($)	Sep. 30, 2016 USD ($) Region Period	Dec. 31, 2015 USD ($)
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Abstract]
Number of regions in which company sells products | Region			3
Cash and Cash Equivalents [Abstract]
Credit card receivables		$ 1,900	$ 1,900	$ 400
Cash and cash equivalents held in foreign bank accounts		33,800	33,800	31,300
Restricted Cash [Abstract]
Restricted cash		8,600	8,600	8,100
Accounts Receivable [Abstract]
Allowance for doubtful accounts		500	500	300
Property, Plant and Equipment [Line Items]
Capitalized cost of operating expenses		400
Other Assets [Abstract]
Other assets		4,451	4,451	3,759
Deposits for building leases		2,500	2,500	1,900
Fair trade commission deposits		1,700	1,700	1,600
Indefinite lived intangible assets		200	200	200
Notes Payable [Abstract]
Notes payable		1,500	1,500	1,800
Notes payable, current portion		805	805	713
Notes payable, long-term portion		706	706	1,069
Other Long-Term Liabilities [Abstract]
Other long-term liabilities		1,648	1,648	1,994
Uncertain income tax position		200	200	700
Accrued lease restoration costs		500	500	400
Defined benefit plan obligation		500	500	500
Revenue Recognition and Deferred Commissions [Abstract]
Deferred revenue		9,640	9,640	8,677
Deferred revenue associated loyalty program		8,000	8,000	8,100
Deferred commissions		3,742	3,742	3,443
Loyalty Program [Roll Forward]
Loyalty deferred revenue, beginning balance			8,073	9,703
Loyalty points forfeited or expired			(5,334)	(8,801)
Loyalty points used			(11,879)	(15,077)
Loyalty points vested			15,556	20,403
Loyalty points unvested			1,559	1,845
Loyalty deferred revenue, ending balance		7,975	$ 7,975	8,073
Percentage of sale returns			1.50%
Commissions and Incentives [Abstract]
Number of business periods per year | Period			13
Number of days per business period			28 days
Number of weeks following business period end for payment of product sales commissions			three weeks
Number of weeks following business period end for payment of pack sales commissions			five weeks
Reserve for Sales Returns [Member]
Movement in Valuation Allowances and Reserves [Roll Forward]
Sales reserve, beginning of year			$ 147
Provision related to sales made in current period			1,026
Adjustment related to sales made in prior periods			7
Actual returns or credits related to current period			(872)
Actual returns or credits related to prior periods			(145)
Sales reserve, end of period		$ 163	$ 163	$ 147
Office Furniture and Equipment [Member] | Minimum [Member]
Property, Plant and Equipment [Line Items]
Estimated useful lives of assets			5 years
Office Furniture and Equipment [Member] | Maximum [Member]
Property, Plant and Equipment [Line Items]
Estimated useful lives of assets			7 years
Computer Hardware and Software [Member] | Minimum [Member]
Property, Plant and Equipment [Line Items]
Estimated useful lives of assets			3 years
Computer Hardware and Software [Member] | Maximum [Member]
Property, Plant and Equipment [Line Items]
Estimated useful lives of assets			5 years
Automobiles [Member] | Minimum [Member]
Property, Plant and Equipment [Line Items]
Estimated useful lives of assets			3 years
Automobiles [Member] | Maximum [Member]
Property, Plant and Equipment [Line Items]
Estimated useful lives of assets			5 years
Leasehold Improvements [Member] | Minimum [Member]
Property, Plant and Equipment [Line Items]
Estimated useful lives of assets	[1]		2 years
Leasehold Improvements [Member] | Maximum [Member]
Property, Plant and Equipment [Line Items]
Estimated useful lives of assets	[1]		10 years

[1] The Company amortizes leasehold improvements over the shorter of the useful estimated life of the leased asset or the lease term.

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INVENTORIES (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
INVENTORIES [Abstract]
Raw materials	$ 537	$ 1,187
Finished goods	10,581	9,277
Inventory reserves for obsolescence	(724)	(1,265)
Total	$ 10,394	$ 9,199

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INCOME TAXES (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
INCOME TAXES [Abstract]
Effective tax rate	(77.70%)	175.50%	(19.80%)	24.50%
Income tax benefit	$ (562)	$ (159)	$ (90)	$ 1,397
Pre-tax book income due to fluctuation of income between quarters			$ 500

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EARNINGS PER SHARE (Details) - $ / shares shares in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Average common stock closing price (in dollars per share)	$ 18.02	$ 18.13	$ 19.12	$ 19.83
Stock Options [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive securities excluded from computation of earnings per share (in shares)	0.1		0.1

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STOCK-BASED COMPENSATION (Details) $ / shares in Units, $ in Thousands		3 Months Ended		9 Months Ended
	May 28, 2014 shares	Sep. 30, 2016 USD ($) shares	Sep. 30, 2015 USD ($) $ / shares shares	Sep. 30, 2016 USD ($) Plan $ / shares shares	Sep. 30, 2015 USD ($) shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of active stock based compensation plan | Plan				1
Stock Options [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options granted (in shares) | shares		0	12,000	10,000	32,000
Weighted-average grant-date fair value (in dollars per share) | $ / shares			$ 10.36	$ 12.18
Stock Options [Member] | Minimum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period of stock options				2 years
Percentages of stock option ownership considered for higher exercise price of option				10.00%
Option exercise price as percentages of closing exercise price of stock for specific shareholders				110.00%
Stock Options [Member] | Maximum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Option contract term				10 years
Vesting period of stock options				3 years
Expiration period of stock option plan				5 years
2008 Plan [Member] | Stock Options [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares authorized (in shares) | shares		100,000		100,000
Number of shares adjusted due to reverse stock split (in shares) | shares				10
Increase in number of shares authorized (in shares) | shares	130,000			100,000
Number of shares available for grant (in shares) | shares		85,937		85,937
Share-based compensation expense [Abstract]
Total gross compensation expense		$ 115	$ 149	$ 474	$ 450
Total tax benefit associated with compensation expense		15	38	62	111
Total net compensation expense		100	$ 111	412	$ 339
Unrecognized compensation expense [Abstract]
Total gross unrecognized compensation expense to be recognized over remainder of current fiscal year		106		106
Total gross unrecognized compensation expense in 2017		297		297
Total gross unrecognized compensation expense in 2018		91		91
Total gross unrecognized compensation expense in 2019		29		29
Tax benefit associated with unrecognized compensation expense remainder of current fiscal year		14		14
Tax benefit associated with unrecognized compensation expense in 2017		33		33
Tax benefit associated with unrecognized compensation expense in 2018		7		7
Tax benefit associated with unrecognized compensation expense in 2019		0		0
Total net unrecognized compensation expense		92		92
Total net unrecognized compensation expense in 2017		264		264
Total net unrecognized compensation expense in 2018		84		84
Total net unrecognized compensation expense in 2019		$ 29		$ 29

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SHAREHOLDERS' EQUITY (Details) - USD ($) $ / shares in Units, $ in Thousands				3 Months Ended	9 Months Ended	28 Months Ended
		Nov. 08, 2016	Aug. 11, 2016	Sep. 30, 2016	Sep. 30, 2016	Nov. 08, 2016	Aug. 31, 2016	Aug. 28, 2006	Jun. 30, 2004
Equity, Class of Treasury Stock [Line Items]
Common stock repurchased (in shares)				9,009	9,009
Common stock repurchased average price (in dollars per share)				$ 17.54	$ 17.54
AOCI Attributable to Parent, Net of Tax [Roll Forward]
Beginning balance					$ 38,564
Current-period change	[1]				2,911
Ending balance				$ 42,039	$ 42,039
Dividends [Abstract]
Dividend payable, date declared					Aug. 11, 2016
Dividend payable per share (in dollars per share)			$ 0.125
Dividend payable, date to be paid					Sep. 21, 2016
Dividend payable, date of record					Aug. 31, 2016
June 2004 Plan [Member]
Equity, Class of Treasury Stock [Line Items]
Stock repurchase program, repurchase authorization					the lesser of (i) 131,756 shares of its common stock and (ii) $1.3 million of its shares
Number of common shares authorized to be repurchased (in shares)				131,756	131,756				131,756
Stock repurchase program, authorized amount				$ 1,300	$ 1,300				$ 1,300
June 2004 Plan [Member] | Subsequent Event [Member]
Equity, Class of Treasury Stock [Line Items]
Stock repurchase program, remaining number of shares authorized to be repurchased (in shares)		19,084				19,084
Common stock repurchased (in shares)						112,672
August 2006 Plan [Member]
Equity, Class of Treasury Stock [Line Items]
Stock repurchase program, repurchase authorization					up to $20 million of its outstanding shares
Stock repurchase program, authorized amount				20,000	$ 20,000			$ 20,000
Value authorized to be repurchased under reactivated repurchase plan				500	500		$ 500
August 2006 Plan [Member] | Subsequent Event [Member]
Equity, Class of Treasury Stock [Line Items]
Stock repurchase program, remaining authorized value to be repurchased		$ 19,800				$ 19,800
Stock repurchase program, value of shares repurchased		$ 200
Accumulated Other Comprehensive Income, Net [Member]
AOCI Attributable to Parent, Net of Tax [Roll Forward]
Beginning balance					686
Ending balance				3,597	3,597
Foreign Currency Translation [Member]
AOCI Attributable to Parent, Net of Tax [Roll Forward]
Beginning balance					358
Current-period change	[1]				2,911
Ending balance				3,269	3,269
Pension Postretirement Benefit Obligation [Member]
AOCI Attributable to Parent, Net of Tax [Roll Forward]
Beginning balance					328
Current-period change	[1]				0
Ending balance				$ 328	$ 328

[1] No amounts reclassified from accumulated other comprehensive income.

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LITIGATION (Details) - USD ($)			1 Months Ended
	Jun. 01, 2016	Feb. 18, 2015	Jan. 31, 2014	May 29, 2015
Ms. Diana Anselmo and New Day Today Corporation [Member] | Pending Litigation [Member]
Loss Contingencies [Line Items]
Damages sought		$ 1,000,000
Busan Custom Office [Member] | Pending Litigation [Member]
Loss Contingencies [Line Items]
Damages paid			$ 1,000,000
Samuel L. Caster and Wonder Enterprises, LLC [Member] | Minimum [Member]
Loss Contingencies [Line Items]
Estimated damages				$ 500,000
Samuel L. Caster and Wonder Enterprises, LLC [Member] | Maximum [Member]
Loss Contingencies [Line Items]
Estimated damages				$ 3,500,000
Vivian Hsiaoling Chang and Alan Jyh Woei Hsu [Member] | Pending Litigation [Member]
Loss Contingencies [Line Items]
Damages sought	$ 22,300

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FAIR VALUE (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Amounts included in [Abstract]
Restricted cash	$ 8,600	$ 8,100
Recurring Basis [Member]
Assets [Abstract]
Money Market Funds - Fidelity, US	1,012	319
Interest bearing deposits - various banks	22,534	14,134
Amounts included in [Abstract]
Cash and cash equivalents	16,993	8,281
Restricted cash	740	737
Long-term restricted cash	5,813	5,435
Total	23,546	14,453
Recurring Basis [Member] | Level 1 [Member]
Assets [Abstract]
Money Market Funds - Fidelity, US	1,012	319
Interest bearing deposits - various banks	22,534	14,134
Amounts included in [Abstract]
Cash and cash equivalents	16,993	8,281
Restricted cash	740	737
Long-term restricted cash	5,813	5,435
Total	23,546	14,453
Recurring Basis [Member] | Level 2 [Member]
Assets [Abstract]
Money Market Funds - Fidelity, US	0	0
Interest bearing deposits - various banks	0	0
Amounts included in [Abstract]
Cash and cash equivalents	0	0
Restricted cash	0	0
Long-term restricted cash	0	0
Total	0	0
Recurring Basis [Member] | Level 3 [Member]
Assets [Abstract]
Money Market Funds - Fidelity, US	0	0
Interest bearing deposits - various banks	0	0
Amounts included in [Abstract]
Cash and cash equivalents	0	0
Restricted cash	0	0
Long-term restricted cash	0	0
Total	$ 0	$ 0

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SEGMENT INFORMATION (Details) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016 USD ($) Country	Sep. 30, 2015 USD ($)	Sep. 30, 2016 USD ($) Region Segment Country	Sep. 30, 2015 USD ($)	Dec. 31, 2015 USD ($)
SEGMENT INFORMATION [Abstract]
Number of operating segments | Segment			1
Number of countries in which entity network marketing and distribution channels operates | Country			25
Minimum percentage of revenue considered for accounted of major customer			10.00%
Number of countries in which company operates facilities | Country	13		13
Number of countries in which company sells products | Country			25
Number of regions in which company sells products | Region			3
Revenue from External Customer [Line Items]
Consolidated total net sales	$ 48,146	$ 43,860	$ 137,664	$ 134,956
Percent of total revenue	100.00%	100.00%	100.00%	100.00%
Long-lived assets by regions [Abstract]
Long-lived assets	$ 4,600		$ 4,600		$ 4,700
Inventory, by country [Abstract]
Inventories, net	10,394		10,394		9,199
Consolidated Product Sales [Member]
Revenue from External Customer [Line Items]
Consolidated total net sales	39,800	$ 35,300	113,600	$ 105,800
Consolidated Pack Sales [Member]
Revenue from External Customer [Line Items]
Consolidated total net sales	6,900	7,100	20,200	24,900
Consolidated Other, Including Freight [Member]
Revenue from External Customer [Line Items]
Consolidated total net sales	1,400	1,500	3,900	4,300
Reportable Geographical Components [Member] | Americas [Member]
Revenue from External Customer [Line Items]
Consolidated total net sales	$ 19,000	$ 17,800	$ 54,000	$ 54,700
Percent of total revenue	39.40%	40.60%	39.20%	40.50%
Long-lived assets by regions [Abstract]
Long-lived assets	$ 3,300		$ 3,300		3,500
Inventory, by country [Abstract]
Inventories, net	4,300		4,300		3,400
Reportable Geographical Components [Member] | Asia/Pacific [Member]
Revenue from External Customer [Line Items]
Consolidated total net sales	$ 25,500	$ 22,000	$ 73,200	$ 68,300
Percent of total revenue	52.90%	50.10%	53.20%	50.60%
Long-lived assets by regions [Abstract]
Long-lived assets	$ 1,200		$ 1,200		1,100
Inventory, by country [Abstract]
Inventories, net	4,300		4,300		4,300
Reportable Geographical Components [Member] | EMEA [Member]
Revenue from External Customer [Line Items]
Consolidated total net sales	$ 3,600	$ 4,100	$ 10,500	$ 12,000
Percent of total revenue	7.70%	9.30%	7.60%	8.90%
Long-lived assets by regions [Abstract]
Long-lived assets	$ 100		$ 100		100
Inventory, by country [Abstract]
Inventories, net	$ 1,800		$ 1,800		$ 1,500