Quarterly Report for Quarter Ending September 30, 2026 (Form 10-Q)

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, 2026 as compared to the same period in 2025 and should be read in conjunction with Item 1 "Financial Statements" in Part I of this quarterly report on Form 10-Q and Item 1A "Risk Factors" in Part I of our 2025 Annual Report. Unless stated otherwise, all financial information presented below, throughout this report, and in the condensed consolidated financial statements and related notes includes Mannatech and all of our subsidiaries on a consolidated basis. To supplement our financial results presented in accordance with GAAP, we disclose certain adjusted financial measures which we refer to as Constant dollar ("Constant dollar") measures, which are non-GAAP financial measures. Refer to the Non-GAAP Financial Measures section herein for a description of how such Constant dollar measures are determined.

COMPANY OVERVIEW

The Company is a global wellness solution provider, which was incorporated and began operations in November 1993. We develop and sell innovative, high quality, proprietary nutritional supplements, topical and skin care and anti-aging products, and weight-management products that target optimal health and wellness. We currently sell our products in three regions: (i) the Americas (the United States, Canada and Mexico); (ii) Europe/the Middle East/Africa ("EMEA") (Austria, the Czech Republic, Denmark, Estonia, Finland, Germany, the Republic of Ireland, Namibia, the Netherlands, Norway, South Africa, Spain, Sweden and the United Kingdom); and (iii) Asia/Pacific (Australia, Japan, New Zealand, the Republic of Korea, Singapore, Thailand, Hong Kong, Taiwan and China). We also ship our products to customers in the following countries: Belgium, France, Greece, Italy, Luxembourg, and Poland.

We sell our products principally through network marketing distribution channels via our active associates ("independent associate" or "associates" or "distributors") and to our "preferred customers," which we believe is the most cost-effective way to introduce our products and communicate information about our business to the global marketplace quickly and effectively. Network marketing minimizes upfront costs, as compared to conventional marketing methods, and allows us to be more responsive to the ever-changing overall market conditions, as well as continue to research and develop high quality products and focus on controlled successful international expansion. We believe the network marketing channel also allows us to effectively communicate the potential benefits and unique properties of our proprietary products to our consumers. In addition, network marketing provides our associates with an avenue to supplement their income by building their own business centered on our business philosophies and unique products. As of September 30, 2026, we had approximately 111,000 active associates and preferred customer positions held by individuals that purchased our products and/or paid associate fees during the last twelve months. At the time of purchase, a customer may choose to sign up as a "preferred customer" to receive the same pricing on our products as our associates and to receive emails about our products and promotions. Preferred customers do not participate in the Company's compensation plan.

The Company also operates a non-direct selling business in mainland China. In 2016, we formed our China subsidiary, Meitai Daily Necessities & Health Products Co., Ltd. ("Meitai"). Unlike Mannatech's business operations in other markets, Meitai operates under a cross-border e-commerce model, where consumers in China can buy Mannatech products manufactured overseas via Meitai's website. Currently, Meitai is not a direct selling company in China, nor can it operate under a multi-level marketing model in China. Products purchased on Meitai's website are for personal use and not for resale. Meitai offers a rewards program to incentivize existing customers to refer other customers to purchase products from Meitai's website. Customs regulations in China include purchase limits to ensure that purchased products are for personal consumption.

Our common stock trades on the Nasdaq Capital Markets ("Nasdaq") under the symbol "MTEX." As disclosed in our Annual Report on Form 10-K filed on April 15, 2026, we are subject to certain Nasdaq listing requirements, including minimum stockholders' equity requirements. On April 20, 2026, we received written notice from the Listing Qualifications Department of the Nasdaq Stock Market LLC notifying the Company that it is not in compliance with Nasdaq Listing Rule 5550(b)(1) (the "Rule"), which requires listed companies on the Nasdaq Capital Market to maintain minimum stockholder's equity of $2,500,000. This notice does not result in the immediate delisting of the Company's common stock from the Nasdaq Capital Market. Pursuant to Nasdaq rules, we have been provided a period of time to submit a plan to regain compliance. On June 4, 2026, the Company submitted its plan to regain compliance with the Rule to Nasdaq. The Company requested the full 180-calendar day extension to evidence compliance. The extension, if granted, would go through October 17, 2026. Nasdaq acknowledged timely receipt of the plan on June 5, 2026. On June 30, 2026, additional information was requested including monthly balance sheet and income statement projections for the next 12 months along with an explanation of all assumptions. The information was due on or before July 14, 2026. On July 14, 2026, the Company provided the requested information and receipt of the additional information was confirmed on July 21, 2026.

On October 14, 2026, the Company filed a Current Report on Form 8-K reporting the completion of an internal corporate restructuring of certain foreign subsidiaries, which resulted in a non-cash remeasurement of a deferred tax liability and a corresponding increase in the Company's consolidated stockholders' equity. On October 16, 2026, the Listing Qualifications staff of Nasdaq notified the Company, in writing, that, based on that Form 8-K, the Company complies with Nasdaq Listing Rule 5550(b)(1). Nasdaq's notice further stated that, consistent with its letter dated October 6, 2026, if the Company fails to evidence compliance with this requirement in its next periodic report filed with the SEC, the Company may be subject to delisting, and that the Company would have the right to request a hearing before a Nasdaq Hearings Panel before any such action takes effect. The October 2026 restructuring of certain foreign subsidiaries described above was a non-cash, balance-sheet transaction. The transaction did not generate cash and did not otherwise affect the Company's net sales, results of operations, liquidity, or cash flows. Management continues to evaluate available options to address the Company's operating performance and liquidity position, which may include actions to improve operating results, capital-raising transactions, or other strategic alternatives.

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

Overview of Operating Results

Consolidated net sales for the three months ended September 30, 2026 was $24.9 million, as compared to $29.2 million for the three months ended September 30, 2025, a decrease of $4.3 million, or 14.7%. Consolidated net sales for the nine months ended September 30, 2026 was $76.4 million, as compared to $81.4 million for the nine months ended September 30, 2025 , a decrease of $5.0 million, or 6.1%. The decline in revenues in the third quarter was principally due to slowing demand in certain regions we operate within.

Net realized and unrealized foreign currency loss for the three and nine months ended September 30, 2026 was $2.1 million and $0.4 million, respectively. For the three months ended September 30, 2025 net realized and unrealized foreign currency gains was $0.6 million. For the nine months ended September 30, 2025 net realized and unrealized foreign currency loss was $2.6 million.

Net income was $8.9 million for the three months ended September 30, 2026, or $4.61 per diluted share, as compared to net income of $1.9 million, or $1.01 per diluted share for the three months ended September 30, 2025.

Net income was $10.9 million for the nine months ended September 30, 2026, or $5.63 per diluted share, as compared to a net loss of $3.9 million, or $2.06 per diluted share for the nine months ended September 30, 2025.

The Company reported a pre-tax loss of approximately $2.0 million for the three months ended September 30, 2026 and pre-tax income of approximately $0.3 million for the nine months ended September 30, 2026. Net income for both periods was driven primarily by a non-cash income tax benefit of $10.9 million and $10.5 million, respectively. This benefit did not generate cash and is not indicative of the Company's operating performance. See Income Tax Provision below and Note 4, Liquidity And Going Concern to the condensed consolidated financial statements for further discussion.

RESULTS OF OPERATIONS

Three Months Ended September 30, 2026 Compared to Three Months Ended September 30, 2025

The table below summarizes our consolidated operating results in dollars and as a percentage of net sales for the three months ended September 30, 2026 and 2025 (in thousands, except percentages):

																		Change from
		2026								2025								2025 to 2026
		Total				% of				Total				% of
		dollars				net sales				dollars				net sales				Dollar				Percentage
Net sales		$	24,872				100.0	%		$	29,161				100.0	%		$	(4,289	)			(14.7	)%
Cost of sales			6,292				25.3	%			6,890				23.6	%			(598	)			(8.7	)%
Gross profit			18,580				74.7	%			22,271				76.4	%			(3,691	)			(16.6	)%
Operating expenses:
Commissions and incentives			9,609				38.6	%			11,192				38.4	%			(1,583	)			(14.1	)%
Selling and administrative expenses			8,699				35.0	%			9,072				31.1	%			(373	)			(4.1	)%
Total operating expenses			18,308				73.6	%			20,264				69.5	%			(1,956	)			(9.7	)%
Income from operations			272				1.1	%			2,007				6.9	%			(1,735	)			(86.4	)%
Interest expense, net			(119	)			(0.5	)%			(104	)			(0.4	)%			(15	)			14.4	%
Other (expense) income, net			(2,107	)			(8.5	)%			611				2.1	%			(2,718	)			(444.8	)%
(Loss) income before income taxes			(1,954	)			(7.9	)%			2,514				8.6	%			(4,468	)			(177.7	)%
Income tax benefit (expense)			10,859				43.7	%			(590	)			(2.0	)%			11,449				(1940.5	)%
Net income		$	8,905				35.8	%		$	1,924				6.6	%		$	6,981				362.8	%

Nine Months Ended September 30, 2026 Compared to Nine Months Ended September 30, 2025

The table below summarizes our consolidated operating results in dollars and as a percentage of net sales for the nine months ended September 30, 2026 and 2025 (in thousands, except percentages):

																		Change from
		2026								2025								2025 to 2026
		Total				% of				Total				% of
		dollars				net sales				dollars				net sales				Dollar				Percentage
Net sales		$	76,439				100.0	%		$	81,403				100.0	%		$	(4,964	)			(6.1	)%
Cost of sales			18,512				24.2	%			20,495				25.2	%			(1,983	)			(9.7	)%
Gross profit			57,927				75.8	%			60,908				74.8	%			(2,981	)			(4.9	)%
Operating expenses:
Commissions and incentives			29,879				39.1	%			31,312				38.5	%			(1,433	)			(4.6	)%
Selling and administrative expenses			26,957				35.3	%			29,865				36.7	%			(2,908	)			(9.7	)%
Total operating expenses			56,836				74.4	%			61,177				75.2	%			(4,341	)			(7.1	)%
Income (loss) from operations			1,090				1.4	%			(269	)			(0.3	)%			1,359				(505.2	)%
Interest expense, net			(339	)			(0.4	)%			(279	)			(0.3	)%			(60	)			21.5	%
Other expense, net			(429	)			(0.6	)%			(2,551	)			(3.1	)%			2,122				(83.2	)%
Income (loss) before income taxes			322				0.4	%			(3,099	)			(3.8	)%			3,421				(110.4	)%
Income tax benefit (expense)			10,547				13.8	%			(819	)			(1.0	)%			11,366				(1387.8	)%
Net income (loss)		$	10,869				14.2	%		$	(3,918	)			(4.8	)%		$	14,787				(377.4	)%

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 (Loss) 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 and our operating results. To exclude the impact of changes due to the translation of foreign currencies into U.S. dollars in the current year, we calculate current year results at a constant exchange rate utilizing the prior year's rate. Currency impact is determined as the difference between the actual GAAP results and the recalculated results for the current year at the Constant dollar rates.

For the three months ended September 30, 2026, our net sales decreased $4.3 million, or 14.6% on a Constant dollar basis. For the nine months ended September 30, 2026, our net sales decreased $5.1 million, or 6.3% on a Constant dollar basis (see reconciliation of Non-GAAP Financial Measures in the tables below). Foreign exchange caused a $0.0 million decrease and a $0.1 million increase in GAAP net sales for the three and nine months ended September 30, 2026, as compared to the same periods in 2025, respectively.

A reconciliation of non-GAAP financial measures to GAAP results for the three and nine months ended September 30, 2026 and 2025 is presented as follows (in millions, except percentages):

Three-month period ended		September 30, 2026												September 30, 2025				Constant $ Change
		GAAP								Non-GAAP				GAAP
		Measure:				Translation				Measure:				Measure:
		Total $				Adjustment				Constant $				Total $				Dollar				Percent
Net sales		$	24.9			$	0.0			$	24.9			$	29.2			$	(4.3	)			(14.6	)%
Gross profit		$	18.6			$	0.0			$	18.6			$	22.3			$	(3.7	)			(16.6	)%
Income from operations		$	0.3			$	(0.1	)		$	0.2			$	2.0			$	(1.8	)			(90.0	)%

Nine-month period ended		September 30, 2026												September 30, 2025				Constant $ Change
		GAAP								Non-GAAP				GAAP
		Measure:				Translation				Measure:				Measure:
		Total $				Adjustment				Constant $				Total $				Dollar				Percent
Net sales		$	76.4			$	(0.1	)		$	76.3			$	81.4			$	(5.1	)			(6.3	)%
Gross profit		$	57.9			$	(0.0	)		$	57.9			$	60.9			$	(3.0	)			(4.9	)%
Income (loss) from operations		$	1.1			$	(0.1	)		$	1.0			$	(0.3	)		$	1.3				(433.3	)%

Net Sales by Region

Operations outside of the Americas accounted for approximately 75.9% of our consolidated net sales for the three months ended September 30, 2026, as compared to 72.9% in the same period last year.

Operations outside of the Americas accounted for approximately 72.4% of our consolidated net sales for the nine months ended September 30, 2026, as compared to 69.2% in the same period last year.

Consolidated net sales by region for the three months ended September 30, 2026 and 2025 were as follows (in millions, except percentages):

		Three Months Ended								Three Months Ended
Region		September 30, 2026								September 30, 2025
Americas		$	6.0				24.1	%		$	7.9				27.1	%
Asia/Pacific			16.6				66.7	%			18.8				64.4	%
EMEA			2.3				9.2	%			2.5				8.5	%
Total		$	24.9				100.0	%		$	29.2				100.0	%

Consolidated net sales by region for the nine months ended September 30, 2026 and 2025 were as follows (in millions, except percentages):

		Nine Months Ended								Nine Months Ended
Region		September 30, 2026								September 30, 2025
Americas		$	21.1				27.6	%		$	25.1				30.8	%
Asia/Pacific			48.3				63.2	%			49.5				60.8	%
EMEA			7.0				9.2	%			6.8				8.4	%
Total		$	76.4				100.0	%		$	81.4				100.0	%

For the three months ended September 30, 2026, net sales in the Americas decreased by $1.9 million, or 24.1%, to $6.0 million, as compared to $7.9 million for the same period in 2025. During the three months ended September 30, 2026, there was an 8.4% decrease in revenue per active independent associate and preferred customer and a 17.1% decrease in the number of active independent associates and preferred customers. Foreign currency had no effect on revenue for the three months ended September 30, 2026.

For the nine months ended September 30, 2026, net sales in the Americas decreased by $4.0 million, or 15.9%, to $21.1 million, as compared to $25.1 million for the same period in 2025. The number of active independent associates and preferred customers decreased by 16.6%, which was partially offset by a 1.4% increase in revenue per active independent associate and preferred customer. Foreign currency had the effect of increasing revenue by $0.2 million for the nine months ended September 30, 2026 when compared to the same period in 2025. The currency impact is primarily due to the strengthening of the Mexican Peso.

For the three months ended September 30, 2026, Asia/Pacific net sales decreased by $2.2 million, or 11.7%, to $16.6 million, as compared to $18.8 million for the same period in 2025. There was a 13.6% decrease in revenue per active independent associate and preferred customer, which was partially offset by a 2.2% increase in the number of active independent associates and preferred customers. Foreign currency exchange had the effect of decreasing revenue by $0.1 million for the three months ended September 30, 2026, as compared to the same period in 2025. The currency impact is primarily due to the weakening of the Korean Won.

For the nine months ended September 30, 2026, Asia/Pacific net sales decreased by $1.2 million, or 2.4%, to $48.3 million, as compared to $49.5 million for the same period in 2025. There was a 4.5% decrease in revenue per active independent associate and preferred customer and an 8.1% decrease in the number of active independent associates and preferred customers. Foreign currency exchange had the effect of decreasing revenue by $0.6 million for the nine months ended September 30, 2026, as compared to the same period in 2025. The currency impact is primarily due to the weakening of the Korean Won.

For the three months ended September 30, 2026, EMEA net sales decreased by $0.2 million, or 8.0%, to $2.3 million, as compared to $2.5 million for the same period in 2025. There was a 10.9% decrease in the number of active independent associates and preferred customers, which was partially offset by a 3.3% increase in revenue per active independent associate and preferred customer. Foreign currency exchange had the effect of increasing revenue by $0.1 million for the three months ended September 30, 2026 as compared to the same period in 2025. The currency impact is primarily due to the strengthening of the South African Rand.

For the nine months ended September 30, 2026, EMEA net sales increased by $0.2 million, or 2.9%, to $7.0 million, as compared to $6.8 million for the same period in 2025. There was a 15.6% increase in revenue per active independent associate and preferred customer, which was partially offset by a 5.3% decrease in the number of active independent associates and preferred customers. Foreign currency exchange had the effect of increasing revenue by $0.5 million for the nine months ended September 30, 2026 as compared to the same period in 2025. The currency impact is primarily due to the strengthening of the South African Rand.

Sales Mix

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

Three-month period ended		September 30, 2026												September 30, 2025				Constant $ Change
		GAAP								Non-GAAP				GAAP
		Measure:				Translation				Measure:				Measure:
		Total $				Adjustment				Constant $				Total $				Dollar				Percent
Product		$	24.5			$	-			$	24.5			$	28.7			$	(4.2	)			(14.6	)%
Associate fees			0.1				-				0.1				0.1				-				0.0	%
Other			0.3				-				0.3				0.4				(0.1	)			(25.0	)%
Total sales		$	24.9			$	-			$	24.9			$	29.2			$	(4.3	)			(14.6	)%

Nine-month period ended		September 30, 2026												September 30, 2025				Constant $ Change
		GAAP								Non-GAAP				GAAP
		Measure:				Translation				Measure:				Measure:
		Total $				Adjustment				Constant $				Total $				Dollar				Percent
Product		$	75.1			$	(0.1	)		$	75.0			$	79.9			$	(4.9	)			(6.1	)%
Associate fees			0.3				-				0.3				0.3				-				0.0	%
Other			1.0				-				1.0				1.2				(0.2	)			(16.7	)%
Total sales		$	76.4			$	(0.1	)		$	76.3			$	81.4			$	(5.1	)			(6.3	)%

Product Sales

Our product sales consist primarily of sales made to our independent associates and preferred customers at published wholesale prices. Product sales for the three months ended September 30, 2026 decreased by $4.2 million, or 14.6%, as compared to the same period in 2025. On a Constant dollar basis, product sales for the three months ended September 30, 2026 decreased $4.2 million, or 14.6%, as compared to the same period in 2025. The decrease in product sales for the three months ended September 30, 2026 reflects a 1.2% decrease in the average order value to $166, as compared to $168 for the same period in 2025 and a 10.2% decrease in the number of orders processed.

Product sales for the nine months ended September 30, 2026 decreased by $4.8 million, or 6.0%, as compared to the same period in 2025. On a Constant dollar basis, product sales for the nine months ended September 30, 2026 declined $4.9 million, or 6.1% , as compared to the same period in 2025. The decrease in product sales for the nine months ended September 30, 2026 reflects a 9.8% decrease in the number of orders processed, as compared to the same period in 2025.

Associate Fees and Recruiting

Recruitment of new independent associates and preferred customers decreased by 30.5% to 9,095 in the third quarter of 2026, as compared with 13,078 in the third quarter of 2025.

Associate fees are closely related to recruiting and retention of business-building associates. The approximate number of new and continuing active independent associates and preferred customers who purchased our products or paid associate fees during the twelve months ended September 30, 2026 and 2025 were as follows:

		2026								2025
New			49,000				44.1	%			55,000				46.2	%
Continuing			62,000				55.9	%			64,000				53.8	%
Total			111,000				100.0	%			119,000				100.0	%

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

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

For each of the three months ended September 30, 2026 and 2025, associate fees were $0.1 million.

For each of the nine months ended September 30, 2026 and 2025, associate fees were $0.3 million.

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

Other Sales

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

For the three months ended September 30, 2026 and 2025, other sales were $0.3 million and $0.4 million, respectively.

For the nine months ended September 30, 2026 and 2025 other sales were $1.0 million and $1.2 million, respectively.

Gross Profit

For the three months ended September 30, 2026, gross profit decreased by $3.7 million, or 16.6%, to $18.6 million, as compared to $22.3 million for the same period in 2025. For the three months ended September 30, 2026, gross profit as a percentage of net sales decreased to 74.7%, as compared to 76.4% for the same period in 2025. The decrease in gross profit as a percentage of net sales was primarily due to increased freight and distribution costs, particularly in Hong Kong and Europe, as well as increased inventory reserve charges in the United States, Mexico, and Thailand, compared to the same period in 2025.

For the nine months ended September 30, 2026, gross profit decreased by $3.0 million, or 4.9%, to $57.9 million, as compared to $60.9 million for the same period in 2025. For the nine months ended September 30, 2026, gross profit as a percentage of net sales increased to 75.8%, as compared to 74.8% for the same period in 2025. The increase in gross profit as a percentage of net sales was primarily due to more favorable pricing resulting in lower finished product costs, as compared to the same period in 2025. The timing of certain sales promotions also increased gross profit as a percentage of net sales during the nine months ended September 30, 2026, as compared to the same period in 2025.

Commissions and Incentives

Commission expense for the three months ended September 30, 2026 decreased by 15.6%, or $1.7 million, to $9.2 million, as compared to $10.9 million for the same period in 2025. Commissions are earned on sales. For the three months ended September 30, 2026, commissions as a percentage of net sales decreased to 36.9% as compared to 37.5% for the same period in 2025.

Commission expense for the nine months ended September 30, 2026 decreased by 5.6%, or $1.7 million, to $28.8 million, as compared to $30.5 million for the same period in 2025. Commissions are earned on sales. For the nine months ended September 30, 2026, commissions as a percentage of net sales increased to 37.7% as compared to 37.4% for the same period in 2025.

Incentive costs for the three months ended September 30, 2026 increased to $0.4 million, as compared to $0.3 million for the same period in 2025. For the three months ended September 30, 2026, incentives as a percentage of net sales increased to 1.8% as compared to 0.9% for the same period in 2025.

Incentive costs for the nine months ended September 30, 2026 increased to $1.1 million, as compared to $0.8 million for the same period in 2025. For the nine months ended September 30, 2026, incentives as a percentage of net sales increased to 1.4% as compared to 1.0% for the same period in 2025.

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; accounting, legal and consulting fees; compensation to our board of directors; warehouse and fulfillment costs; depreciation and amortization; marketing-related expenses; travel and entertainment expenses; credit card processing fees; costs for software maintenance agreements; insurance; charitable contributions; office lease expense; utilities; bad debt; and other miscellaneous operating expenses.

For the three months ended September 30, 2026, selling and administrative expenses decreased by $0.4 million, or 4.1%, to $8.7 million, as compared to $9.1 million for the same period in 2025. The decrease in selling and administrative expenses was the result of a $0.4 million decrease in payroll costs. Selling and administrative expenses, as a percentage of net sales, for the three months ended September 30, 2026 increased to 35.0% from 31.1% for the same period in 2025.

For the nine months ended September 30, 2026, selling and administrative expenses decreased by $2.9 million, or 9.7%, to $27.0 million, as compared to $29.9 million for the same period in 2025. The decrease in selling and administrative expenses was the result of a $1.2 million decrease in payroll costs, a $0.4 million reduction in office expenses, a $0.4 million decrease in credit card fees, a $0.3 million decrease in marketing costs, a $0.2 million decrease in travel and entertainment costs, a $0.2 million decrease in warehouse costs, a $0.1 million decrease in depreciation expense, and a $0.1 million reduction in bad debt. Selling and administrative expenses, as a percentage of net sales, for the nine months ended September 30, 2026 decreased to 35.3% from 36.7% for the same period in 2025.

Other Income (Expense), Net

Foreign exchange losses, net were $2.1 million for the three months ended September 30, 2026. Foreign exchange gains, net were $0.6 million for the three months ended September 30, 2025.

Foreign exchange losses, net were $0.4 million and $2.6 million for the nine months ended September 30, 2026 and 2025, respectively.

Income Tax Provision

Income tax benefit was $10.9 million for the three months ended September 30, 2026. Income tax expense was $0.6 million for the three months ended September 30, 2025. Income tax benefit for the nine months ended September 30, 2026 was $10.5 million. Income tax expense was $0.8 million for the nine months ended September 30, 2025. This benefit did not generate cash and is not indicative of the Company's underlying operating performance; excluding its effect, the Company would have reported a pre-tax loss of approximately $2.0 million for the three months ended September 30, 2026 and pre-tax income of approximately $0.3 million for the nine months ended September 30, 2026.

Income tax expense includes current and deferred income taxes for both our domestic and foreign operations. Our statutory income tax rates for key jurisdictions are as follows, for the nine months ended September 30,:

Country		2026				2025
China(1)			5.0	%			5.0	%
Hong Kong			16.5	%			16.5	%
Japan			34.6	%			34.6	%
Republic of Korea			20.9	%			20.9	%
United States(2)			22.2	%			22.2	%

⁽¹⁾ For 2026, the Company qualified for a reduced tax rate of 5% in China as a Small Low Profit Enterprise.

⁽²⁾ Includes blended state effective rate of 1.2% for 2026 and 2025 in addition to U.S. federal statutory rate of 21%.

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

We use the recognition and measurement provisions of the FASB 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.

The provision for income taxes is directly related to our profitability and changes in the taxable income across countries of operation. For the three and nine months ended September 30, 2026, the Company's effective tax rate was 555.9% and (3,264.3)% , respectively. For the three and nine months ended September 30, 2025, the Company's effective tax rate was 23.5% and (26.4)%, respectively.

The effective tax rates for the three and nine months ended September 30, 2026 and 2025 was different from the federal statutory rate due primarily to the mix of earnings across jurisdictions and the associated valuation allowances recorded on losses in certain jurisdictions.

LIQUIDITY AND CAPITAL RESOURCES

Cash and Cash Equivalents

As of September 30, 2026, our cash and cash equivalents decreased by 12.4%, or $0.8 million, to $5.4 million from $6.2 million as of December 31, 2025. The Company is required to restrict cash for: (i) direct selling insurance premiums and credit card sales in the Republic of Korea and (ii) reserves related to credit card sales in the United States and Canada. The Company was previously required to maintain restricted cash as collateral for its Australia building lease; however, the lease expired on June 30, 2026 . The current portion of restricted cash balances was $0.2 million and $0.6 million at September 30, 2026 and December 31, 2025, respectively. The long-term portion of restricted cash balances was $0.3 million and $0.2 million at September 30, 2026 and December 31, 2025, respectively.

Our principal use of cash is to pay for operating expenses, including commissions and incentives, capital assets, and inventory purchases. 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, 2026 and December 31, 2025, our working capital was $3.0 million and $1.8 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):		2026				2025
Operating activities		$	0.1			$	(2.7	)
Investing activities		$	(0.3	)		$	(1.2	)
Financing activities		$	(0.0	)		$	(0.3	)

Operating Activities

Operating activities provided $0.1 million cash for the nine months ended September 30, 2026 as compared to cash used of $2.7 million for the same period in 2025.

Investing Activities

For the nine months ended September 30, 2026 and 2025, we invested cash of $0.3 million and $1.2 million, respectively, principally for back-office software projects, reported as property and equipment.

Financing Activities

For the nine months ended September 30, 2026, our financing activities used cash of less than $0.1 million. For the nine months ended September 30, 2026, $0.5 million of cash was provided for borrowings from notes payable, which was offset by the use of $0.3 million in the repayment of notes payable and $0.2 million in the repayment of finance lease obligations. For the nine months ended September 30, 2025, our financing activities used cash of $0.2 million in the repayment of finance lease obligations and $0.1 million in the repayment of notes payable.

Liquidity and Going Concern

As of September 30, 2026, our cash and cash equivalents was $5.4 million and working capital of $3.0 million, compared to cash and cash equivalents of $6.2 million and working capital of $1.8 million as of December 31, 2025. Management has considered these historical liquidity levels and trends, including fluctuations in working capital and cash balances, in evaluating the Company's ability to meet its future obligations. For the nine months ended September 30, 2026, the Company's net use of cash was reduced to $1.1 million, a decrease of approximately 76% compared to a net use of $4.6 million for the nine months ended September 30, 2025, representing the most significant improvement in the Company's liquidity trend reflected in these financial statements.

Management identified the following conditions that raised substantial doubt about the Company's ability to continue as a going concern:

●

Decline in net sales, operating losses, and negative cash flows from operations;

●

Capital expenditure requirements that have historically reduced available liquidity; and

●

An organizational structure that is no longer aligned with the Company's current operating scale, resulting in inefficiencies and elevated fixed costs

To address these conditions, management has implemented and/or plans to implement the following actions:

●

Capital Discipline: The Company has suspended non-essential capital expenditures, and no discretionary capital projects are planned for fiscal year 2026, which is expected to significantly reduce cash outflows.

●

Cost Reduction Plan: Management has implemented a cost reduction plan to better align the Company's cost structure with its current operations, including headcount-related reductions and other operating expense reductions. These measures contributed to a $2.9 million, or 9.7%, reduction in selling and administrative expenses for the nine months ended September 30, 2026, as compared to the same period in 2025. Other cost-cutting measures identified under this plan have not yet been implemented; management continues to monitor the results of the measures already in effect.

●

Margin Improvement Initiatives: The Company implemented targeted pricing actions and continued supply chain optimization, which contributed to a gross margin increase of approximately 100 basis points for the nine months ended September 30, 2026, as compared to the same period in 2025.

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Compensation and Cost Controls: The Company has implemented adjustments to compensation structures and other cost control measures to reduce operating expenses and improve cash flow.

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Revenue Growth Focus: Management is prioritizing initiatives aimed at stabilizing and increasing revenue to support improved operating performance and liquidity.

●

ERP Systems Improvement: During 2025 we had several issues with one of our order processing systems in North America. This issue resulted in an estimated loss of over $6.0 million in revenue. The Company believes this loss in revenue affected its ability to generate operating income for the remainder of the year 2025. This issue has been remediated.

Additional Cost-Cutting measures effective March 31, 2026

The Company implemented the following additional measures effective March 31, 2026:

●

Director compensation - conversion to equity: On March 10, 2026, the Board of Directors approved changes to director compensation effective April 1, 2026, enabling directors to elect to receive the remaining balance of their 2026 retainer and other fees as stock grants in lieu of cash for the remainder of the calendar year. The Company received final elections from all Board members by March 13, 2026. The conversion of Board fees from cash to equity is expected to generate an annual cash preservation benefit of approximately $0.8 million. As of September 30, 2026, approximately $0.2 million of the expected benefit is expected to be realized during the remainder of fiscal 2026.

●

Headcount and personnel cost reductions: Effective April 1, 2026, the Company implemented headcount-related reductions across headquarters personnel, while preserving key capabilities in finance, legal, operations, and revenue support.

●

Facilities and overhead actions: Management is evaluating lease renegotiation and sublease alternatives to reduce facilities expenses.

Management has prepared cash flow projections that incorporate these plans, as well as historical liquidity trends, and reflect its best estimates of future operating performance and liquidity needs. The Company has implemented the largest component of its cost reduction plan, the headcount-related reductions described above, and has achieved a $2.9 million reduction in selling and administrative expenses for the nine months ended September 30, 2026. While management plans to take appropriate actions to increase its liquidity, there can be no assurance that the Company will be successful in its efforts, or that management will be able to execute the remainder of its plan, or that, assuming the Company is able to strengthen its cash position, it will achieve sufficient revenue or profitable operations to continue as a going concern.

Subsequent developments relevant to the going concern assessment - Nasdaq stockholders' equity compliance. On October 14, 2026, the Company completed an internal restructuring of certain foreign subsidiaries that resulted in a non-cash remeasurement of a deferred tax liability and a corresponding increase in consolidated stockholders' equity, which the Company reported in a Form 8-K filed the same day. On October 16, 2026, Nasdaq staff confirmed, in writing, that based on that filing the Company complies with the minimum stockholders' equity requirement of Nasdaq Listing Rule 5550(b)(1). This transaction did not generate cash and did not affect the Company's net sales, operating results, or cash flows from operations, and accordingly does not address the liquidity conditions described above. Separately, for the nine months ended September 30, 2026, net cash provided by operating activities was approximately $0.1 million, compared to net cash used in operating activities of approximately $3.0 million for the nine months ended September 30, 2025, an improvement due primarily to a reduction in operating losses. A substantial portion of the improvement in net income for the nine-month period, however, is attributable to the non-cash deferred tax benefit recognized in connection with the October 2026 restructuring of certain foreign subsidiaries described above, rather than to a corresponding increase in cash-generative operating performance. Management believes that the plans described above, if successfully implemented, will meaningfully improve the Company's financial position and liquidity over time, and will continue to monitor the Company's performance, liquidity, and capital resources closely. Further action will be considered as needed. Notwithstanding these developments, as of the date of this Report, management has not concluded that the conditions giving rise to substantial doubt about the Company's ability to continue as a going concern have been resolved, and substantial doubt about the Company's ability to continue as a going concern within one year after the date these financial statements are issued continues to exist.

In addition, while the Company continues to closely monitor the results of mitigating these plans, it is evaluating other options for external capital injection.

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.

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.

OFF-BALANCE SHEET ARRANGEMENTS

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

CRITICAL ACCOUNTING ESTIMATES

Our condensed consolidated financial statements are prepared in accordance with GAAP. 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 condensed consolidated financial statements are prepared. Our Audit Committee reviews our significant accounting policies and critical 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 credit losses, 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 condensed 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 significant accounting policies and critical estimates as of September 30, 2026.

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 net realizable value. 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.

Tax Valuation Allowances

As of September 30, 2026, there was nothing recorded on our condensed consolidated balance sheet related to uncertain income tax positions. As required by Topic 740, we use judgments and make estimates and assumptions related to evaluating the probability of uncertain income tax positions. 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. Depending on the nature of the tax issue, we could be subject to audit over several years. There are ongoing income tax audits in various international jurisdictions that we believe are not material to our financial statements.