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MarketScreener Homepage  >  Equities  >  Nasdaq  >  Mannatech, Incorporated    MTEX

MANNATECH, INCORPORATED

(MTEX)
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Mannatech Incorporated : INC Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-K)

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03/26/2020 | 06:00am EDT
The following discussion is intended to assist in the understanding of our
consolidated financial position and our results of operations for each of the
two years ended December 31, 2019 and 2018. This discussion should be read in
conjunction with "Item 15. - Consolidated Financial Statements beginning on page
F-1 of this report and with other financial information included elsewhere in
this report. Unless stated otherwise, all financial information presented below,
throughout this report, and in the consolidated financial statements and related
notes includes Mannatech and all of our subsidiaries on a consolidated basis.
Refer to the Non-GAAP Financial Measure section herein for a description of how
Constant dollar ("Constant dollar") growth rate (a Non-GAAP financial metric) is
determined.

COMPANY OVERVIEW

Mannatech 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, 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, Hong Kong, and China).

We conduct our business as a single reporting segment and primarily sell our
products through a network of approximately 169,000 active associates and
preferred customer positions held by individuals that had purchased our products
and/or packs or paid associate fees during the last 12 months, who we refer to
as current associates and preferred customers. New pack sales and the receipt of
new associate fees in connection with new positions in our network are leading
indicators for the long-term success of our business. New associate or preferred
customer positions are created in our network when associate fees are paid or
packs and products are purchased for the first time under a new account. We
operate as a seller of nutritional supplements, topical and skin care and
anti-aging products, and weight-management products through our network
marketing distribution channels operating in 25 countries and cross-border
e-commerce retail in China. We review and analyze net sales by geographical
location and by packs and products on a consolidated basis. Each of our
subsidiaries sells similar products and exhibits similar economic
characteristics, such as selling prices and gross margins.

Because we sell our products through network marketing distribution channels,
the opportunities and challenges that affect us most are: recruitment of new and
retention of current associates and preferred customers that occupy sales or
purchasing positions in our network; entry into new markets and growth of
existing markets; niche market development; new product introduction; and
investment in our infrastructure. Our subsidiary in China, Meitai, is currently
operating under a cross-border e-commerce model. Meitai cannot legally conduct a
direct selling business in China unless it acquires a direct selling license in
China.


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Current Economic Conditions and Recent Developments


Overall net sales decreased $15.8 million, or 9.1%, for 2019, as compared to
2018. Our 2019 net sales declined $10.6 million, or 6.1%, on a Constant dollar
basis (see Non-GAAP Financial Measures, below), and unfavorable foreign exchange
caused a $5.3 million decrease in GAAP net sales as compared to 2018. In
December 2019, a novel virus began in China with no material impact to our 2019
sales. Please see Note 16 Subsequent Events for additional information regarding
recent developments of this virus.

Our operations outside of the Americas accounted for approximately 69.6% and 66.2% of our consolidated net sales for 2019 and 2018, respectively.

The net sales comparisons for the year ended December 31, 2019 and December 31, 2018 were primarily affected by decreases in the overall number of active associates and preferred customers.


Associate fees are collected in all markets except Korea and Mexico, where packs
are still sold. Associate fees are paid annually in order for the associate to
be entitled to earn commissions, benefits and incentives. The number of packs
sold to, and associate fees paid by, new and continuing independent associates
and preferred customers decreased 0.7% during 2019 to approximately 96,000 as
compared to 96,700 during 2018. In addition, average pack value decreased by $2,
to $24 for the year ended December 31, 2019, as compared to $26 for the same
period in 2018.

The number of product orders decreased 5.8% during the year ended December 31,
2019 to approximately 841,700 as compared to 893,500 during the same period in
2018. The average product order value decreased 3.6% during the year ended
December 31, 2019 to $190, as compared to $197 for the same period in 2018.
Revenue deferred through the loyalty program decreased 15.1% during the year
ended December 31, 2019 as compared to the same period in 2018.

Excluding the effects due to the translation of foreign currencies into U.S.
dollars, net sales would have decreased $10.6 million for 2019. 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

Year Ended December 31, 2019 compared to Year Ended December 31, 2018


The tables below summarize our consolidated operating results in dollars and as
a percentage of net sales for the years ended December 31, 2019 and 2018 (in
thousands, except percentages).

                                 2019                        2018                       Change
                          Total         % of          Total         % of
                         Dollars      net sales      dollars      net sales      Dollar      Percentage
Net sales              $ 157,728        100.0  %   $ 173,558        100.0  %   $ (15,830 )       (9.1 )%
Cost of sales             31,550         20.0  %      34,476         19.9  %      (2,926 )       (8.5 )%
Gross profit             126,178         80.0  %     139,082         80.1  %     (12,904 )       (9.3 )%

Operating expenses:
Commissions and
incentives                64,254         40.7  %      73,514         42.4  %      (9,260 )      (12.6 )%
Selling and
administrative
expenses                  30,824         19.5  %      34,156         19.7  %      (3,332 )       (9.8 )%
Depreciation and
amortization               2,088          1.3  %       2,064          1.0  %          24          1.2  %
Other operating costs     22,579         14.3  %      29,438         17.0  %      (6,859 )      (23.3 )%
Total operating
expenses                 119,745         75.9  %     139,172         80.2  %     (19,427 )      (14.0 )%
Income (loss) from
operations                 6,433          4.1  %         (90 )       (0.1 )%       6,523     (7,247.8 )%
Interest income
(expense)                    (16 )          -  %         288          0.2  %        (304 )     (105.6 )%
Other income
(expense), net              (681 )       (0.4 )%         291          0.2  %        (972 )      334.0  %
Income (loss) before
income taxes               5,736          3.6  %         489          0.3  %       5,247      1,073.0  %
Income tax provision      (2,447 )       (1.6 )%      (4,375 )       (2.5 )%       1,928        (44.1 )%
Net income (loss)      $   3,289          2.1  %   $  (3,886 )       (2.2 )%   $   7,175        184.6  %




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Non-GAAP Financial Measures


To supplement our financial results presented in accordance with generally
accepted accounting principles in the United States ("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.

                                             2019                   2018           Constant $ Change
                                     GAAP         Non-GAAP          GAAP
                                   Measure:       Measure:        Measure:
                                   Total $       Constant $       Total $        Dollar        Percent
Net sales                        $    157.7$     163.0$    173.6$   (10.6 )       (6.1 )%
Product                          $    154.6$     159.7$    170.2$   (10.5 )       (6.2 )%
Pack and associate fees          $      2.3$       2.4$      2.5$    (0.1 )       (4.0 )%
Other                            $      0.8$       0.9$      0.9     $       -            -  %
Gross profit                     $    126.2$     130.5$    139.1

$ (8.6 ) (6.2 )% Income (loss) from operations $ 6.4$ 7.7$ (0.1 )$ 7.8 (7,800.0 )%

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

Consolidated net sales by region for the years ended December 31, 2019 and 2018 were as follows (in millions, except percentages):


                    2019                 2018
Americas     $  48.0     30.4 %   $  58.7     33.8 %
Asia/Pacific    96.0     60.9 %     101.7     58.6 %
EMEA            13.7      8.7 %      13.2      7.6 %
Total        $ 157.7    100.0 %   $ 173.6    100.0 %



Net Sales

Overall net sales decreased by $15.8 million, or 9.1%, for 2019, as compared to 2018. For the year ended December 31, 2019, our operations outside of the Americas accounted for approximately 69.6% of our consolidated net sales, whereas in the same period in 2018, our operations outside of the Americas accounted for approximately 66.2% of our consolidated net sales.


Sales for the Americas decreased by $10.7 million, or 18.2%, to $48.0 million
for 2019 as compared to $58.7 million for the same period in 2018. This decrease
was primarily due to an 18.4% decline in the number of active independent
associates and preferred customers partially offset by a 16.5% increase in
revenue per active independent associate and preferred customer.

During 2019, Asia/Pacific sales decreased by $5.7 million, or 5.6%, to $96.0
million as compared to $101.7 million for 2018. This decrease was primarily due
to a 9.7% decrease in the number of active independent associates and preferred
customers partially offset by a 2.4% increase in revenue per active independent
associate and preferred customer. During the year ended December 31, 2019, the
loyalty program in Asia/Pacific decreased sales by $1.2 million, as compared to
the same period in 2018. Foreign currency exchange had the effect of decreasing
revenue by $4.1 million for the year ended December 31, 2019, as compared to the
same period in 2018. The currency impact is primarily due to the weakening of
the Korean Won, Australian Dollar, Chinese Yuan, New Zealand Dollar, Taiwanese
Dollar and Singapore Dollar, which was partially offset by the strengthening of
the Japanese Yen and Hong Kong Dollar.


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During 2019, EMEA sales increased by $0.5 million, or 3.8%, to $13.7 million as
compared to $13.2 million for 2018. This increase was primarily due to a 11.5%
increase in revenue per active independent associate and preferred customer,
which was partially offset by a 2.9% decrease in the number of active
independent associates and preferred customers. Foreign currency exchange had
the effect of decreasing revenue by $1.2 million when the year ended
December 31, 2019 is compared to the same period in 2018.  The currency impact
is primarily due to the weakening of the South African Rand, British Pound,
Euro, Norwegian Krone, Swedish Krona and Danish Krone.

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 independent associates and preferred customers;

• changes in competitors' products;

• changes in economic conditions, including as a result of COVID-19;

• 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 years ended December 31, was as follows (in millions,
except percentages):

                                                                         Change
                                             2019       2018      Dollar     Percentage
Consolidated product sales                 $ 154.6$ 170.2$ (15.6 )       (9.2 )%
Consolidated pack sales and associate fees     2.3        2.5       (0.2 )       (8.0 )%
Consolidated other                             0.8        0.9       (0.1 )      (11.1 )%
Total consolidated net sales               $ 157.7$ 173.6$ (15.9 )       (9.2 )%




Product Sales

Our product sales are made to independent associates and preferred customers at
published wholesale prices. Product sales for the year ended December 31, 2019
decreased by $15.6 million, or 9.2%, to $154.6 million, as compared to $170.2
million for the same period in 2018. The decrease in product sales was primarily
due to a decrease in the number of orders processed. The average order value in
2019 was $190, as compared to $197 for the same period in 2018. The number of
orders processed during the year ended December 31, 2019 decreased by 5.8% as
compared to the same period in 2018.

Pack Sales and Associate Fees

The Company collects associate fees in all markets except Korea and Mexico, where packs are still sold. 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.

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In the Korea and Mexico markets, packs may still be purchased by our associates
who wish to build a Mannatech business. We do not collect associate fees or sell
packs in our non-direct selling business in mainland China. 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, additional products, and eligibility for
additional commissions and incentives.

The dollar amount of pack sales and associate fees associated with new and
continuing independent associate positions held by individuals in our network
was as follows, for the years ended December 31 (in millions, except
percentages):

                                     Change
            2019     2018     Dollar    Percentage
New        $ 0.6$ 0.7$ (0.1 )      (14.3 )%
Continuing   1.7      1.8      (0.1 )       (5.6 )%
Total      $ 2.3$ 2.5$ (0.2 )       (8.0 )%



Total pack sales and associate fees for the year ended December 31, 2019
decreased by $0.2 million, or 8.0%, to $2.3 million, as compared to $2.5 million
for the same period in 2018 as the number of packs sold and associate fees
collected decreased by 0.7%. Also, the average pack value for the year ended
December 31, 2019 was $24, as compared to $26 for the same period in 2018.

During 2019 and 2018, we took the following actions in an effort to increase the number of independent associates and preferred customers:

• registered our most popular products with the appropriate regulatory

agencies in all countries of operations;

• 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 active new and continuing active associates and preferred customers who purchased our packs or products or paid associate fees during the twelve months ended December 31 was as follows:


                 2019               2018
New         81,000    47.9 %   86,000    43.0 %
Continuing  88,000    52.1 %  114,000    57.0 %
Total      169,000   100.0 %  200,000   100.0 %



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; and
(iii) training and event registration fees. Promotional materials, training,
database applications and business management tools to support our independent
associates, which in turn helps stimulate product sales.


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For the year ended December 31, 2019, other sales decreased by $0.1 million, or
11.1%, to $0.8 million, as compared to $0.9 million for the same period in 2018.
The decrease was primarily due to the decrease in active new and continuing
active associates and preferred customers.

Gross Profit


For the year ended December 31, 2019, gross profit decreased by $12.9 million,
or 9.3%, to $126.2 million, as compared to $139.1 million for the same period in
2018. Gross profit as a percentage of net sales decreased to 80.0% for 2019, as
compared to 80.1% for 2018. The decrease in gross profit percentage was
primarily due to increased inventory write-offs.

Commission and Incentives


Commission expenses decreased for the year ended December 31, 2019, by 10.7%, or
7.4 million to $61.7 million, as compared to $69.1 million for the same period
in 2018. Commissions as a percentage of net sales were 39.1% for the year ending
December 31, 2019 and 39.8% for the same period in the prior year. This decrease
was primarily due to the elimination of stale vouchers on terminated accounts.

Incentive costs decreased for the year ended December 31, 2019 by 40.9%, or $1.8
million, to $2.6 million as compared to $4.4 million for the same period in
2018. The costs of incentives, as a percentage of net sales decreased to 1.6%
for the year ended December 31, 2019, as compared to 2.5% for the same period in
2018. This decrease was related to incentives in the Americas and Asia/Pacific.

Selling and Administrative Expenses

Selling and administrative expenses include a combination of both fixed and variable expenses. These expenses consist of compensation and benefits for employees, temporary and contract labor and marketing-related expenses.


For the year ended December 31, 2019, overall selling and administrative
expenses decreased by $3.3 million, or 9.8%, to $30.8 million, as compared to
$34.2 million for the same period in 2018. The decrease in selling and
administrative expenses consisted of a $2.1 million decrease in marketing costs,
of which $1.1 million was a VAT refund that was originally recorded in marketing
costs, a $0.6 million decrease in distribution costs, a $0.4 million decrease in
stock based compensation expense and a $0.2 million decrease in contract labor
costs.

Other Operating Costs

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


For the year ended December 31, 2019, other operating costs decreased by $6.9
million, or 23.3%, to $22.6 million, as compared to $29.4 million for the same
period in 2018. For the year ended December 31, 2019, other operating costs, as
a percentage of net sales, were 14.3%, as compared to 17.0% for the same period
in 2018. The decrease was due to a $2.2 million decrease in travel and
entertainment costs associated with management's decision to conduct Mannafest
as a regional event instead of an international event, a $2.2 million decrease
in office expenses due to the corporate office relocation during 2018, a $1.4
million decrease in legal and consulting fees, a $0.5 million decrease in bad
debt expense, a $0.4 million decrease in credit card fees and a $0.1 million
decrease in charitable contributions.

Depreciation and Amortization Expense

For both the years ended December 31, 2019 and 2018, depreciation and amortization expense was $2.1 million.

Other Income (Expense), net

Primarily due to foreign exchange gains, other (expense) income was $(0.7) million and $0.3 million for the years ending December 31, 2019 and 2018, respectively.

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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 years ended December 31:

Country            2019     2018
Australia         30.0 %   30.0 %
Bermuda              - %      - %
Canada            26.5 %   26.5 %
China             25.0 %   25.0 %
Colombia          33.0 %   33.0 %
Cyprus            12.5 %   12.5 %
Denmark           22.0 %   22.0 %
Gibraltar         10.0 %   10.0 %
Hong Kong         16.5 %   16.5 %
Japan             34.6 %   30.2 %
Mexico            30.0 %   30.0 %
Norway            22.0 %   23.0 %
Republic of Korea 22.0 %   22.0 %
Russia(1)         20.0 %   20.0 %
Singapore         17.0 %   17.0 %
South Africa      28.0 %   28.0 %
Sweden            21.4 %   22.0 %
Switzerland(2)     9.2 %    9.2 %
Taiwan            20.0 %   20.0 %
Ukraine(3)        18.0 %   18.0 %
United Kingdom    19.0 %   19.0 %
United States     21.0 %   21.0 %


(1)On August 1, 2016, the Company established a legal entity in Russia called
Mannatech RUS Ltd., but currently does not operate in Russia.
(2)On July 1, 2019, the Company suspended operations in Switzerland, but
maintains the legal entity.
(3)On March 21, 2014, the Company suspended operations in the Ukraine, but
maintains the legal entity, Mannatech Ukraine LLC.

Foreign Tax


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.

U.S. Tax
On December 22, 2017, President Trump signed into law H.R. 1/Public Law No.
115-97, "An Act to provide for reconciliation pursuant to titles II and V of the
concurrent resolution on the budget for fiscal year 2018." Pursuant to ASC
740-10-25-47, the effects of the new federal legislation are recognized upon
enactment, which is the date the president signs a bill into law.

On December 22, 2017, the SEC staff issued Staff Accounting Bulletin ("SAB")
118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act ("TCJA")
("SAB 118"), which provides guidance on accounting for the impact of the Act, in
effect allowing an entity to use a methodology similar to the measurement period
in a business combination. Pursuant to the disclosure provisions of SAB 118, as
of September 30, 2018, the Company had completed its accounting for the tax
effects of the Act.


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In Financial Accounting Standards Board ("FASB") staff Q&A Topic 740, No. 5,
Accounting for Global Intangible Low-Taxed Income, the FASB staff noted that ASC
740, Income Taxes ("Topic 740"), was not clear with respect to the appropriate
accounting for Global Intangible Low-Taxed Income ("GILTI"), and accordingly, an
entity may either: (1) elect to treat taxes on GILTI as period costs similar to
special deductions, or (2) recognize deferred tax assets and liabilities when
basis differences exist that are expected to affect the amount of GILTI
inclusion upon reversal (the deferred method). The Company will account for
GILTI in the year the tax is incurred as a period cost.

We use the recognition and measurement provisions of 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.

As of December 31, 2019 and 2018, we adjusted our valuation allowance for
deferred tax assets in the following table (in millions), as we believe the
"more likely than not" criterion for recognition and realization purposes, as
defined in Topic 740, cannot be met. The U.S. valuation allowance decreased due
to the utilization of net operating losses in the current year.

Country              2019      2018
Australia           $  0.2$  0.3
China                  0.3       0.3
Colombia               0.6       0.6
Hong Kong                -         -
Mexico                 3.3       3.1
Norway                 0.1       0.1
South Africa           0.2       0.2
Sweden                   -         -
Switzerland            0.5         -
Taiwan                 1.0       0.9
Ukraine                0.1       0.1
United Kingdom         0.1       0.1
United States          6.0       6.9
Other Jurisdictions      -       0.2
Total               $ 12.4$ 12.8



For the years ended December 31, 2019 and 2018, the Company's effective tax rate
was 42.5% and 894.7%, respectively. In 2019, the Company had a significant
decrease in its rate due to the mix of earnings across jurisdictions. For 2018,
the Company had a significant increase in its rate due to the mix of earnings
across jurisdictions, valuation allowance recorded on losses in certain
jurisdictions, and the impact of GILTI as a result of the TCJA passed in 2017.


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SEASONALITY


We believe the impact of seasonality on our consolidated results of operations
is minimal. We have experienced and believe we will continue to experience
variations on our quarterly results of operations in response to, among other
things:

• the timing of the introduction of new products and incentives;

• our ability to attract and retain associates and preferred customers;

• the timing of our incentives and contests;

• the general overall economic outlook;

• government regulations;

• the outcome of certain lawsuits;

• the perception and acceptance of network marketing; and

• the consumer perception of our products and overall operations.




As a result of these and other factors, our quarterly results may vary
significantly in the future. Period-to-period comparisons should not be relied
upon as an indication of future performance since we can give no assurances that
revenue trends in new markets, as well as in existing markets, will follow our
historical patterns. The market price of our common stock may also be adversely
affected by the above factors.


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LIQUIDITY AND CAPITAL RESOURCES

Cash and Cash Equivalents


As of December 31, 2019, our cash, cash equivalents and restricted cash
increased by 1.4%, or $0.4 million, to $31.0 million from $30.6 million as of
December 31, 2018. 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)
Australia building lease collateral. The current portion of restricted cash at
December 31, 2019 and 2018 was $0.9 million and $1.5 million, respectively.
Fluctuations in currency rates produced a decrease of $0.6 million in cash and
cash equivalents in 2019 as compared to an increase of $1.6 million in 2018.

Our principal use of cash is to pay for operating expenses, including
commissions and incentives, capital assets, inventory purchases, and periodic
cash dividends. We fund our business objectives, operations, and expansion of
our operations 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 December 31, 2019, our working capital increased by $3.3 million, or 37.5%,
to $12.1 million from $8.8 million at December 31, 2018. The increase in working
capital is primarily due to decreases in accounts payable.

Net Cash Flows

Our net consolidated cash flows consisted of the following, for the years ended December 31 (in millions):


Provided by / (used in):   2019       2018
Operating activities     $  4.9$  (0.2 )
Investing activities     $ (1.2 )$  (2.3 )
Financing activities     $ (2.7 )$ (12.1 )



Operating Activities

Cash provided by operating activities increased by $5.1 million for the year
ended December 31, 2019, as compared to the same period in 2018. For the year
ended December 31, 2019, sources of cash include our profits and working capital
management.

Investing Activities

For the year ended December 31, 2019, our investing activities used cash of $1.2
million, as compared to cash used of $2.3 million for the same period of 2018.
During the year ended December 31, 2019, we invested $0.8 million in computer
hardware and software and $0.4 million for leasehold improvements in various
international offices and training centers. During the year ended December 31,
2018, we invested $2.2 million in computer hardware and software, $1.9 million
in leasehold improvements and $0.5 million in office furniture and equipment as
we moved our corporate headquarters to a new building. Of this $4.6 million
investment, $2.3 million was funded from a capital financing agreement.

Financing Activities


For the year ended December 31, 2019, our financing activities used cash of $2.7
million compared to cash used of $12.1 million for the same period of 2018. For
the year ended December 31, 2019, we used approximately $1.2 million in the
repayment of finance lease obligations and other long term liabilities, $1.2
million in the payment of dividends to shareholders, and $0.3 million in the
repurchase of common stock. For the year ended December 31, 2018, we used cash
of approximately $1.5 million to repay capital lease obligations, $3.1 million
for payment of dividends to shareholders, and $7.5 million for the repurchase of
common stock, which was partially offset by cash provided by the exercise of
stock options.

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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 for the next 12 months. As
our primary source of liquidity is our cash flows from operations, this will be
dependent on our ability to maintain and/or continue to improve revenue as
compared to our 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. As of December 31,
2019 and 2018, cash and cash equivalents held in bank accounts in foreign
countries totaled $18.2 million and $19.9 million, respectively.

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. Additionally, COVID-19 could adversely impact our
workforce, supply chain or demand for our products and therefore, our liquidity
in the next twelve months, however, such impact is currently unknown. For more
information, see Note 7 Income Taxes, Note 12 Litigation and Note 16 Subsequent
Events 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 and and/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.


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CONTRACTUAL OBLIGATIONS


 The following summarizes our future commitments and obligations associated with
various agreements and contracts as of December 31, 2019, for the years ending
December 31 (in thousands):

                       2020         2021         2022         2023         2024        Thereafter       Total
Finance lease
obligations         $    104$     90$     64$     36$     10     $          -     $    304
Purchase
obligations (1)(2)     5,167           67           67            -            -                -        5,301
Operating leases       2,131        1,592        1,145          606        
 613            2,139        8,226
Note payable and
other financing
arrangements             778          370            -            -            -                -        1,148
Employment
agreements               440            -            -            -            -                -          440
Royalty agreement         59            7            -            -            -                -           66
Tax liability (3)          -            -            -            -            -              191          191
Other obligations
(4)                      222           32          178           24          119              475        1,050
Total commitments
and obligations     $  8,901$  2,158$  1,454$    666     $   

742 $ 2,805$ 16,726




(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 $12.1 million of finished product purchase orders that
may be canceled or with delivery dates that have changed as of December 31,
2019.
(3)Represents the tax liability associated with uncertain tax positions, see
Note 7 to our Consolidated Financial Statements, Income Taxes to our
consolidated financial statements.
(4)Other obligations are composed of pension obligations related to the
Company's international operations (approximately $0.8 million) and lease
restoration obligations (approximately $0.3 million).

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 possibility of
the benefits of purchasing a raw material manufacturing facility to help control
costs of our raw materials and help ensure quality control standards.

OFF-BALANCE SHEET ARRANGEMENTS

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

MARKET RISKS

Please see "Quantitative and Qualitative Disclosure about Market Risk" under Item 7A of this Form 10-K for additional information about our Market Risks.

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CRITICAL ACCOUNTING POLICIES AND ESTIMATES


Our consolidated financial statements are prepared in accordance with accounting
principles generally accepted in the United States of America ("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 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
December 31, 2019:

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. At December 31, 2019 and
2018, our inventory reserves were $0.9 million and $0.5 million, respectively.

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 December 31, 2019, the estimated useful lives and net
carrying values of fixed assets are as follows:

                                                                    Net carrying
                                                                      value at
                                                        Estimated   December 31,
                                                       useful life      2019
Office furniture and equipment                         5 to 7 years $0.9

million

Computer hardware and software                         3 to 5 years  2.5 million
Automobiles                                            3 to 5 years  0.1 million
                                                       2 to 10
Leasehold improvements(1)                              years         1.8 million
Total net carrying value at December 31, 2019                       $5.3

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 and construction in progress 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
material impairments existed during the year ended December 31, 2019. During the
year ended December 31, 2018, no material impairments existed.


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Uncertain Income Tax Positions and Tax Valuation Allowances


As of December 31, 2019, we recorded $0.2 million in other long-term liabilities
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. 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.

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 December 31, 2019, we maintained a
valuation allowance for deferred tax assets arising from our operations of $12.4
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 December 31, 2019, we had net deferred tax assets,
after valuation allowance, totaling $0.9 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.

In February 2018, the FASB issued Accounting Standards Update ("ASU") No.
2018-02, Income Statement - Reporting Comprehensive Income (Topic 220) ("ASU
2018-02"). The guidance in ASU 2018-02 allows an entity to elect to reclassify
the stranded tax effects related to the Act from accumulated other comprehensive
income into retained earnings. ASU 2018-02 is effective for fiscal years
beginning after December 15, 2018, with early adoption permitted. The adoption
of this standard had no impact on our consolidated financial statements.



Revenue Recognition


Our revenue is derived from sales of individual products and associate fees or,
in certain geographic markets, starter and renewal packs. Substantially all of
the Company's product sales are made at published wholesale prices to associates
and preferred customers. The Company records revenue net of any sales taxes and
records a reserve for expected sales returns based on its historical experience.
The Company recognizes revenue from shipped products when control of the product
transfers to the customer, thus the performance obligation is satisfied.
Corporate-sponsored event revenue is recognized when the event is held.

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

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

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

Deferred Commissions

We defer commissions on (i) the sales of products shipped but not received by
the customers by the end of the respective period and (ii) the loyalty program.
Deferred commissions are incremental costs and are amortized to expense
consistent with how the related revenue is recognized. Deferred commissions were
$1.8 million and $2.4 million at December 31, 2019 and December 31, 2018,
respectively.

Deferred Revenue


We defer certain components of revenue. Deferred revenue consists of: (i) sales
of products shipped but not received by the customers by the end of the
respective period; (ii) revenue from the loyalty program; (iii) prepaid
registration fees from customers planning to attend a future corporate-sponsored
event; and (iv) prepaid annual associate fees. At December 31, 2019 and
December 31, 2018, deferred revenue was $4.4 million and $5.3 million,
respectively.

Our customer loyalty program conveys a material right to the customer as it
provides the promise to redeem loyalty points for the purchase of products,
which is based on earning points through placing consecutive qualified automatic
orders. The timing and recognition of loyalty points has not changed with the
adoption of ASC 606. The Company factors in breakage rates, which is the
percentage of the loyalty points that are expected to be forfeited or expire,
for purposes of revenue recognition. Breakage rates are estimated based on
historical data and can be reasonably and objectively determined. There have not
been significant changes for the breakage estimate as a result of adopting ASC
606. The deferred revenue associated with the loyalty program at December 31,
2019 and December 31, 2018 was $3.1 million and $4.2 million, respectively.

Loyalty program                                    (in thousands)

Loyalty deferred revenue as of January 1, 2018 $ 6,406 Loyalty points forfeited or expired

                        (4,332 )
Loyalty points used                                       (11,398 )
Loyalty points vested                                      12,469
Loyalty points unvested                                     1,086

Loyalty deferred revenue as of December 31, 2018 $ 4,231

Loyalty deferred revenue as of January 1, 2019$ 4,231 Loyalty points forfeited or expired

               (4,348 )
Loyalty points used                               (9,127 )
Loyalty points vested                             11,320
Loyalty points unvested                            1,051

Loyalty deferred revenue as of December 31, 2019$ 3,127

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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. Refunds are 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 preferred
customers 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
preferred customers are as follows:

• 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 other countries where we sell our products. In China, where

        we sell our products under a cross-border e-commerce model, we have a
        14-day return policy. The associate may then return or exchange the
        product based on the associate product return policy.

• Associate and Preferred Customer Product Return Policy. This policy

allows the associate or preferred customer to return an order within one

        year of the purchase date upon terminating his/her account. If an
        associate or preferred customer returns a product unopened and in good
        condition, he/she may receive a full refund minus a 10% restocking fee.
        We may also allow the associate or preferred customer to receive a full

satisfaction guarantee refund if they have tried the product and are not

satisfied for any reason, excluding promotional materials. 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 other countries where we sell our products 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 preferred customer's

account.



The Company utilizes the expected value method, as set forth by ASC 606, to
estimate the sales returns and allowance liability by taking the weighted
average of the sales return rates over a rolling six-month period. The Company
allocates the total amount recorded within the sales return and allowance
liability as a reduction of the overall transaction price for the Company's
product sales. The Company deems the sales refund and allowance liability to be
a variable consideration. The method for estimating the sales returns and
allowance liability has remained consistent as a result of adopting ASC 606.
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. Sales returns have
historically averaged 1.5% or less of our gross sales. For the years ended
December 31, 2019 and December 31, 2018, our sales return reserve was composed
of the following (in thousands):

Sales reserve as of January 1, 2018                 $   117

Provision related to sales made in current period 1,198 Adjustment related to sales made in prior periods (10 ) Actual returns or credits related to current period (1,125 ) Actual returns or credits related to prior periods (104 ) Sales reserve as of December 31, 2018

               $    76

Sales reserve as of January 1, 2019                 $    76

Provision related to sales made in current period 1,037 Adjustment related to sales made in prior periods 31 Actual returns or credits related to current period (973 ) Actual returns or credits related to prior periods (103 ) Sales reserve as of December 31, 2019

               $    68




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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 or three years. The fair value of the
stock option award is calculated using the Black-Scholes option-pricing model
(the "calculated fair value"). 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 year ended December 31, 2019, our
assumptions and estimates used for the calculated fair value of stock options
granted in 2019 were as follows:

2019 Grants                                          June

Estimated fair value per share of options granted: $ 3.72 Assumptions: Dividend yield

                                        7.5 %
Risk-free rate of return                              1.9 %
Common stock price volatility                        47.6 %

Expected average life of stock options (in years) 4.5




Historically, our estimates and underlying assumptions have not materially
deviated from our actual reported results and rates. However, we base
assumptions we use on our best estimates, which involves inherent uncertainties
based on 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 adjust our consolidated financial statements
in future periods. As of December 31, 2019, using our current assumptions and
estimates, we anticipate recognizing $0.1 million in gross compensation expense
through 2020 related to unvested stock options outstanding.

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 December 31, 2019, we
had 162,767 shares available for grant in the future.

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. The legal reserve is developed in consultation with our general and
outside counsel and is based upon a combination of litigation and settlement
strategies. Although we believe that our legal reserves 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 that could reduce net income,
earnings per share, and cash flows.


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RECENT ACCOUNTING PRONOUNCEMENTS


In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses
(Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU
2016-13"). This standard adds to U.S. GAAP an impairment model (known as the
current expected credit loss ("CECL") model) that is based on expected losses
rather than incurred losses. Under the new guidance, an entity recognizes as an
allowance its estimate of expected credit losses, which is intended to result in
the more timely recognition of losses. Under the CECL model, entities will
estimate credit losses over the entire contractual term of the instrument
(considering estimated prepayments, but not expected extensions or
modifications) from the date of initial recognition of the financial instrument.
Measurement of expected credit losses are to be based on relevant forecasts that
affect collectability. The scope of financial assets within the CECL methodology
is broad and includes trade receivables from certain revenue transactions and
certain off-balance sheet credit exposures. Different components of the guidance
require modified retrospective or prospective adoption. ASU 2019-10 deferred the
effective date of ASU 2016-13 for all entities except SEC filers that are not
smaller reporting companies. This standard will be effective for us as of
January 1, 2023. While our review is ongoing, we believe ASU 2016-13 will only
have applicability to our receivables from revenue transactions. Under ASC 606,
revenue is recognized when, among other criteria, it is probable that the entity
will collect the consideration to which it is entitled for goods or services
transferred to a customer. At the point that trade receivables are recorded,
they become subject to the CECL model and estimates of expected credit losses on
trade receivables over their contractual life will be required to be recorded at
inception based on historical information, current conditions, and reasonable
and supportable forecasts. The Company is currently evaluating whether the new
guidance will have an impact on our consolidated financial statements or
existing internal controls.
See Note 1 to our Consolidated Financial Statements for further information on
recent accounting pronouncements.


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Item 7A. 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 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.

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) North America/South America
(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); (iii)
Asia/Pacific (Australia, Japan, New Zealand, the Republic of Korea, Singapore,
Taiwan, Hong Kong and China). 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 year ended
December 31, 2019 were as follows:

                                                                                          As of
                                                                                       December 31,
                                                Year ended December 31, 2019               2019
Country (foreign currency name)                 Low            High       Average          Spot
Australia (Australian Dollar)               0.67020          0.72704      0.69558          0.69952
Canada (Canadian Dollar)                    0.73332          1.34930      0.80226          0.76535
China (Renminbi)                            0.13932          0.14961      0.14485          0.14314
Columbia (Peso)                             0.00029          0.00032      0.00031          0.00030
Czech Republic (Koruna)                     0.04229          0.04504      0.04364          0.04404
Denmark (Kroner)                            0.14614          0.15446      0.14999          0.14995
Hong Kong (Hong Kong Dollar)                0.12739          0.12844      0.12764          0.12842
Japan (Yen)                                 0.00893          0.00950      0.00918          0.00917
Mexico (Peso)                               0.04965          0.05337      0.05198          0.05304
New Zealand (New Zealand Dollar)            0.62378          0.69141      0.65938          0.67226
Norway (Krone)                              0.10827          0.11881      0.11380          0.11361
Republic of Korea (Won)                     0.00082          0.00090      0.00086          0.00086
Singapore (Singapore Dollar)                0.71837          0.74303      0.73325          0.74127
South Africa (Rand)                         0.06502          0.07520      0.06934          0.07118
Sweden (Krona)                              0.10056          0.11329      0.10590          0.10723
Switzerland (Franc)                         0.97986          1.02998      1.00667          1.02998
Taiwan (New Taiwan Dollar)                  0.03161          0.03332      0.03238          0.03328
United Kingdom (British Pound)              1.20348          1.33940      1.27714          1.31181
Various countries (1) (Euro)                1.09099          1.15307      1.11976          1.12000

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

                                       61

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