MTEX 10-K & 10-Q changes, risk factors and insider trading

As of December 31, 2024,2025, we had approximately 133,000114,000 active associates and preferred customer positions held by individuals who purchased our products and/or packs or paid associate fees within the last 12 months, of which 155146 occupied the highest associate levels under our global compensation plan. These independent associate leaders are important in maintaining and growing our revenue. As a result, the loss of a high-level independent associate or a group of leading associates in the independent associates’ networks of downlines, whether by their own choice or through disciplinary actions by us for violations of our policies and procedures, could negatively impact our associate growth and our revenue.

A significant portion of our revenue is derived from our Ambrotose Life®, TruHealth™, Ambrotose, and Optimal Support Packets and Ambrotose products. A decline in sales value of such products could have a material adverse effect on our earnings, cash flows, and financial position.

The global nutrition and skin care industries are intensely competitive and thethere strengtheningis ofrisk anyassociated ofwith ourcompetition competitorsfrom couldlarger, harmmore ourestablished business.companies who have greater financial resources.

The global nutrition and skin care industries are intensely fragmented and competitive. We compete for independent associates with other network marketing companies outside the global nutrition and skin care industries. Many of our competitors have greater name recognition and financial resources, which may give them a competitive advantage. Our competitors may also be able to devote greater resources to marketing, promotional, and pricing campaigns that may influence our continuing and potential independent associates and preferred customers to buy products from competitors rather than from us. Larger, more established competitors may be able to devote more resources to artificial intelligence (“AI”) technologies in the areas of product development, operational efficiencies, and customer engagement. Our business could be harmed if we are unable to adopt and use AI technology as efficiently as our competitors. Such competition could adversely affect our business and current market share. Additionally, nutrition and skin care products may be purchased in multiple channels of distribution, including retail stores and via online retailers such as Amazon that host third-party sellers enabling new competitors to enter the market.

As noted above, many states have enacted data protection requirements. California enacted CCPA, effective on January 1, 2020, as amended by the California Privacy Rights Act to provide enhanced data privacy protections to California residents. CCPA applies to companies with annual gross revenues in excess of $25 million and other thresholds.Virginia,thresholds. Virginia, Colorado, Connecticut, Utah, Iowa, Indiana, Tennessee, Montana, Texas, Florida, Delaware, and Oregon all have adopted laws introducing privacy obligations and many other states are considering and may enact similar legislation. A broad range of legislative measures also have been introduced at the federal level. The FTC and state attorneys general also review privacy and data protection for consumers.

We incorporate various artificial intelligence (“AI”) solutions into our digital infrastructure, services, offerings and features, and these applications are becoming important in our operations. We have not established definitive policies regarding the use of AI platforms and algorithms in our business and with our data and information, and we do not have systems in place that inventory all of the AI-based applications that may be in use in our enterprise. Our competitors or other third parties may incorporate AI into their products and operations more quickly or more successfully than us, which could impair our ability to compete effectively and adversely affect our results of operations. Additionally, if the content, analyses, search results or recommendations that AI applications assist in producing are, or are alleged to be, deficient, inaccurate, biased or in violation of third parties’ intellectual property rights, our business, reputation, financial condition, and results of operations could be adversely affected.

On April 23, 2024, we entered into an unsecured Loan and Promissory Note agreements with three related parties, who are members of our Board of Directors, and who are current stockholders, in an aggregate principal amount of $3.6 million. The purpose of the borrowing was to provide funds for general working capital needs, including payment to vendors, expansion of the non-US operations, technology investment primarily for improving the customer ordering process and software updates to improve visibility of sales associate activity. As of December 31, 2024,2025, the aggregate outstanding principal balance was $2.9$2.8 million and the interest payable was $0.1$0.5 million. See Note 10,11, NOTES PAYABLE, for more information We may also incur additional indebtedness in the future, Our current debt service obligations require us to use a portion of our cash flow to pay interest and principal on debt instead of for other corporate purposes. If our cash flow and capital resources are insufficient to service our debt obligations, we may be forced to seek additional equity or debt capital or restructure our debt. However, these measures might be unsuccessful or inadequate in permitting us to meet scheduled debt service obligations.information.

We are subject to liquidity risk, which could adversely affect our financial condition and results of operationsoperations.

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, 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, Taiwan, Hong Kong, and China). We also ship our products to customers in the following countries: Belgium, France, Greece, Italy, Luxembourg, and Poland. During the second quarter of 2024,2025, the Company liquidated its entity in Sweden,Denmark, Mannatech SverigeDenmark AB.ApS.

We conduct our business as a single operating segment and primarily sell our products through a network of approximately 133,000114,000 active associates and preferred customer positions held by individuals that purchased our products and/or packs or paid associate fees during the last twelve months, who we refer to as current associates and preferred customers. New pack sales and the receipt of new associate fees in connection with new positions in our network are leading indicators for the long-term success of our business. New associate or preferred customer positions are created in our network when our associate fees are paid, or packspaid and/or products are purchased for the first time under a new account. We review and analyze net sales by geographical location and by packs and products on a consolidated basis. Each of our subsidiaries sells similar products and exhibits similar economic characteristics, such as selling prices and gross margins.

We generatedincurred an operating loss of $0.4 million for the year ended December 31, 2025, as compared to operating income of $1.4 million for the year ended December 31, 2024, as compared to an operating loss of $1.0 million for the same period last year. Our 2025 operating income, on a Constant dollar basis (see Non-GAAP Financial Measures, below), was $0.1 million. Our 2024 operating income, on a Constant dollar basis (see Non-GAAP Financial Measures, below), was $2.2 million.

To supplement our financial results presented in accordance with generally accepted accounting principles in the United States ("GAAP"), the table below summarizes 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) 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 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 At December 31, 2024, our net sales declined $11.4 million, or 8.6% on a Constant dollar basis (see reconciliation of Non-GAAP Financial Measures in the table below); unfavorable foreign exchange caused a $2.7 million decrease in GAAP net sales as compared to the same period in 2023.rates.

For the yearsyear ended December 31, 2024,2025, our operations outside of the Americas accounted for 66.3%69.9% of our consolidated net sales, as compared to 67.6%66.3% in 2023.2024.

Sales for the Americas decreased by $3.1$7.2 million, or 7.2%,18.1%, to $39.7$32.5 million for 20242025 as compared to $42.8$39.7 million for the same period in 2023.2024. This decrease was primarily due to a 8.6%12.9% decline in the number of active independent associates and preferred customers,customers which was partially offset byand a 1.5%4.0% increasedecrease in revenue per active independent associate and preferred customer. Sales in the Americas includes the Mexico region. As a result of the weakening of the Mexican Peso in 2024,2025, foreign currency exchange had the effect of decreasing revenue by $0.1$0.3 million for the year ended December 31, 2024,2025, as compared to the same period in 2023.2024.

During 2024,2025, Asia/Pacific sales decreased by $10.4$2.6 million, or 13.1%,3.8%, to $69.0$66.4 million as compared to $79.4$69.0 million for 2023.2024. Foreign currency exchange had the effect of decreasing revenue in 20242025 by $2.7$1.8 million, as compared to the same period in 2023.2024. The currency impact is primarily due to the weakening of the Korean Won and Japanese Yen.Won. In addition, net sales in the Asia/Pacific region was negatively impacted by a 4.5%13.9% decrease in the number of active independent associates and preferred customers, which was partially offset by a 17.0% increase in revenue per active independent associate and preferred customer. The number of active independent associates and preferred customers in the Asia/Pacific region decreased 9.0% in 2024 as compared to 2023.

For the year ended December 31, 2024,2025, EMEA sales decreased by $0.6$0.1 million, or 6.1%,1.1%, to $9.2$9.1 million as compared to $9.8$9.2 million for 2023.2024. This decrease was primarily due to a 6.9%3.8% decrease in the number of active independent associates and preferred customers, which was partially offset by a 0.9%0.4% increase in revenue per active independent associate and preferred customer. Foreign currency exchange had the effect of increasing revenue by $0.1$0.2 million for the year ended December 31, 2024,2025, as compared to the same period in 2023.2024. The currency impact is primarily due to the strengthening of the South African Rand and British Pound.Rand.

The approximate number of active new and continuing active associates and preferred customers who purchased our products or packs and/or paid associate fees during the twelve monthsyears ended December 31 was as follows:

Pack Sales and Associate Fees

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

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

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; and (iv) a reserve for estimated sales refunds and returns.fees. Promotional materials, training, database applications and business management tools are utilized to support our independent associates, which in turn helps stimulate product sales.

For the years ended December 31, 20242025 and 2023,2024, overall selling and administrative expenses were $41.7$39.6 million and $50.2$41.7 million, respectively. The decrease of $8.5$2.1 million primarily includes a $3.2$1.6 million decrease in payroll related costs, $1.6 million decrease in legal and consulting fees, $1.5 million decrease in marketing costs,a $0.6 million decrease in miscellaneouswarehouse operatingcosts, expenses,a $0.5$0.1 million decrease in travel and entertainment costs, $0.5a $0.1 million decrease in officecharitable expenses,contributions, $0.4a $0.1 million decrease in creditmiscellaneous cardadministrative feesexpenses, andwhich was offset by a $0.2$0.4 million decreaseincrease in contract labormarketing costs.

Primarily due to foreign exchange gains,losses, other incomeexpense was $2.6$2.1 million for the year ended December 31, 2024.2025. At December 31, 2023,2024, other expenseincome was $0.2$2.6 million, primarily due to foreign exchange losses.gains.

(1) Includes blended state effective rate of 1.2% for 20242025 and 20232024 in addition to the U.S federal statutory rate of 21%.

For the years ended December 31, 20242025 and 2023,2024, the Company’s effective tax rate was 33.4%426.6% and (98.1)%,33.4%, respectively. In 20242025 and 2023,2024, the Company’s effective tax rate differed from the statutory rate due to the mix of earnings across jurisdictions and the associated valuation allowances recorded on losses in certain jurisdictions.jurisdictions, as well as the deferred tax liability recorded for unremitted earnings of certain foreign subsidiaries. The Company recording a valuation allowance on deferred tax assets was largely driven by changes in earnings mix between jurisdictions, and the relative impact of these items on decreased earnings.

WeThere believeare variations in the impactactivity of seasonalityour onassociates and customers in many of our consolidatedmarkets resultsin ofthe operationsfirst isand minimal.fourth quarters attributable to events such as Christmas and Lunar New Year. We have experienced and believe we will continue to experience variations on our quarterly results of operations in response to, among other things:

LIQUIDITY ANDLIQUIDITY, CAPITAL RESOURCES AND GOING CONCERN

Cash and cash equivalents was $11.4$6.2 million at December 31, 2024,2025, as compared to $7.7$11.4 million as of December 31, 2023.2024. 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 was $0.6 million andat $0.9each million atof December 31, 20242025 and 2023,2024, respectively. The long-term portion of restricted cash was $0.6$0.2 million and $0.7$0.6 million at December 31, 20242025 and 2023,2024, respectively. Fluctuations in currency rates producedresulted in a decrease of $0.8$0.7 million in cash and cash equivalents in 2024.2025.

Working capital represents total current assets less total current liabilities. At December 31, 2024,2025, our working capital was $5.2$1.8 million as compared to $1.9$5.2 million at December 31, 2023.2024. The increasedecrease in working capital principally reflects the increasedecrease in our cash balancebalance, which was utilized to fund our operations in 2024,2025, as well as pay down our current liabilities and fund financing activities.

Cash providedused in operating activities was $2.3$3.0 million for the year ended December 31, 2024,2025, as compared to acash useprovided of cash of $2.4$2.3 million in the prior year. The primary factors driving the improvementdecline in cash flow from operating activities were net loss of $15.2 million compared to net income of $2.5 million comparedand toan aunrealized netforeign currency loss of $2.2$1.6 million andcompared to an Unrealizedunrealized FXforeign currency gain of $3.3 million compared to $0 for the years ended December 31, 20242025 and 2023,2024, respectively.

For the years ended December 31, 20242025 and 2023, we invested $0.3 million and $0.7 million, respectively. During the years ended December 31, 2024 and 2023,2024, we invested approximately $0.3$1.4 million and $0.7$0.3 million in back-office software projects and equipment, reported as property and equipment, respectively.

For the year ended December 31, 2024,2025, our financing activities providedused cash of $2.0$0.5 million as compared to acash useprovided of cash of $1.9$2.0 million for the same period of 2023.2024. During 2025, we used $0.3 million in the repayment of finance lease obligations and $0.2 million in the repayment of notes payable. For the year ended December 31, 2024, we received $3.6 million from the issuance of notes payable (see Note 10,11, Notes Payable) and we used $1.6 million in the repayment of finance lease obligations. For the year ended December 31, 2023, we used approximately $1.0 million in the repayment of finance lease obligations and other long-term liabilities, $0.7 million in the payment of dividends to shareholders, and $0.2 million for the repurchase of common stock.liabilities.

General Liquidity and CashGoing FlowsConcern

The following discussion is intended to assist in the understanding of our consolidated financial position and results of operations for the three and six months ended MarchJune 31,30, 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.

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 MarchJune 31,30, 2026, we had approximately 111,000116,000 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 ChinaChina, 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 Thethe 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. TheThis 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. ThereOn canJune be4, no2026, assurancethe thatCompany Nasdaqsubmitted will accept our complianceits plan or that we will be able to regain compliance withinwith the applicableRule timeto period.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. Management iscontinues evaluatingto evaluate available options to address the stockholders’ equity deficiency, which may include actions to improve operating results, capital‑raising transactions, or other strategic alternatives.

Consolidated net sales for the three months ended MarchJune 31,30, 2026 was $24.9$26.7 million, as compared to $26.6$25.7 million for the three months ended MarchJune 31,30, 2025, an increase of $1.0 million, or 3.8%. Consolidated net sales for the six months ended June 30, 2026 was $51.6 million, as compared to $52.2 million for the six months ended June 30, 2025 , a decrease of $1.6$0.7 million, or 6.2%.1.3%. The decline in revenues in the second quarter was principally due to slowing demand in certain regions we operate within.

Net realized and unrealized foreign currency gains for the three and six months ended MarchJune 31,30, 2026 was $1.4$0.3 million.million and $1.7 million, respectively. For the three and six months ended MarchJune 31,30, 2025 net realized and unrealized foreign currency loss was $0.4$2.7 million.million and $3.2 million, respectively.

Net income was $1.0 million for the three months ended MarchJune 31,30, 2026, or $0.49$0.53 per diluted share, as compared to a net loss of $1.5$4.3 million, or $0.80$2.27 per diluted share for the three months ended MarchJune 31,30, 2025.

Three Months Ended MarchJune 31,30, 2026 Compared to Three Months Ended MarchJune 31,30, 2025

The table below summarizes our consolidated operating results in dollars and as a percentage of net sales for the three months ended MarchJune 31,30, 2026 and 2025 (in thousands, except percentages):

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 MarchJune 31,30, 2026, our net sales increased $1.3 million, or 5.1% on a Constant dollar basis. For the six months ended June 30, 2026, our net sales decreased $2.2$0.8 million, or 8.1%1.5% on a Constant dollar basis,basis (see reconciliation of Non-GAAP Financial Measures in the tables below);. and foreignForeign exchange caused a $0.5$0.3 million decrease and a $0.2 million increase in GAAP net sales for the three and six months ended June 30, 2026, as compared to the same periods in 2025,.2025, respectively.

A reconciliation of non-GAAP financial measures to GAAP results for the three and six months ended MarchJune 31,30, 2026 and 2025 is presented as follows (in millions, except percentages):

Operations outside of the Americas accounted for approximately 73.1%68.5% of our consolidated net sales infor the three months ended MarchJune 31,30, 2026, as compared to 66.2%67.7% in the same period last year.

Consolidated net sales by region for the three months ended MarchJune 31,30, 2026 and 2025 were as follows (in millions, except percentages):

For the three months ended MarchJune 31,30, 2026, EMEA net sales in the Americas increased by $0.1 million, or 4.5%,1.2%, to $2.3$8.4 million, as compared to $2.2$8.3 million for the same period in 2025. ThereThe increase was primarily due to the recognition of revenue associated with expired loyalty credits. During the three months ended June 30, 2026, there was a 10.9%20.4% increase in revenue per active independent associate and preferred customer,customer; which was partially offset by a 5.8%15.9% decrease in the number of active independent associates and preferred customers. Foreign currency exchange had theno effect of increasingon revenue by $0.2 million for the three months ended MarchJune 31,30, 2026 as compared to the same period in 2025. The currency impact is primarily due to the strengthening of the South African Rand.2026.

Our sales mix for the three and six months ended MarchJune 31,30, was as follows (in millions, except percentages):

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 MarchJune 31,30, 2026 decreasedincreased by $1.6$1.0 million, or 6.1%,4.0%, as compared to the same period in 2025. On a Constant dollar basis, product sales for the three months ended MarchJune 31,30, 2026 decreasedincreased $2.1$1.3 million, or 8.0% ,5.2%, as compared to the same period in 2025. The decreaseincrease in product sales for the three months ended MarchJune 31,30, 2026 reflects an 8.4% decrease in the number of orders processed, which was partially offset by a 3.9%11.5% increase in the average order value to $159,$165, as compared to $153$148 for the same period in 2025.

Recruitment of new independent associates and preferred customers decreasedincreased by 15.6%33.3% to 11,60417,200 in the firstsecond quarter of 2026, as compared with 13,74912,908 in the firstsecond quarter of 2025. We attribute the lower number of orders processed in the three months ended March 31, 2026 to a combination of the lower number of new independent associates and preferred customers recruited during the period.

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 MarchJune 31,30, 2026 and 2025 were as follows:

For each of the three months ended MarchJune 31,30, 2026 and 2025, associate fees were $0.1 million.

For each of the three months ended MarchJune 31,30, 2026 and 2025, other sales were $0.3 million and $0.4 million, respectively.million.

For the three months ended MarchJune 31,30, 2026, gross profit decreasedincreased by $0.9$1.6 million, or 4.4%,8.4%, to $18.9$20.5 million, as compared to $19.7$18.9 million for the same period in 2025. For the three months ended MarchJune 31,30, 2026, gross profit as a percentage of net sales increased to 75.7%,76.9%, as compared to 74.3%73.6% for the same period in 2025. The increase in gross profit as a percentage of net sales was primarily due to higherincreased salessales, pricesmore favorable pricing and lowerpurchasing inventoryarrangements reservenegotiated additionswith manufacturers and the Company's continued focus on reducing freight costs and finished product cost of sales, 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 firstsecond quarter of 2026, as compared to the same period in 2025.

Commission expense for the three months ended MarchJune 31,30, 2026 decreasedincreased by 7.0%,8.4%, or $0.7$0.8 million, to $9.3$10.3 million, as compared to $10.0$9.5 million for the same period in 2025. Commissions are earned on sales. Commission expense in dollar terms decreased during the three months ended March 31, 2026 primarily due to a decline in our sales. For the three months ended MarchJune 31,30, 2026, commissions as a percentage of net sales decreasedincreased to 37.6%38.7% as compared to 37.7%37.0% for the same period in 2025.

IncentiveCommission costsexpense for the threesix months ended MarchJune 31,30, 2026 andincreased 2025by decreased1.0%, or $0.2 million, to $0.4$19.7 million, as compared to $0.5$19.5 million for the same period in 2025. Commissions are earned on sales. For the threesix months ended MarchJune 31,30, 2026, incentivescommissions as a percentage of net sales decreasedincreased to 1.6%38.1% as compared to 2.0%37.4% for the same period in 2025.

For the three months ended MarchJune 31,30, 2026, selling and administrative expenses decreased by $0.7$1.8 million, or 7.3%,16.7%, to $9.3$9.0 million, as compared to $10.0$10.8 million for the same period in 2025. The decrease in selling and administrative expenses was the result of a $0.7 million decrease in payroll costs, a $0.3 million reduction in officebad debt, a $0.3 million decrease in travel and entertainment expenses, a $0.2 million decrease in legalmarketing and consulting fees,costs, a $0.1 million decrease in marketingstock costscompensation expense and a $0.1 million decrease in payrollcredit costs.card fees. Selling and administrative expenses, as a percentage of net sales, for the three months ended MarchJune 31,30, 2026 decreased to 37.3%33.7% from 37.7%42.0% for the same period in 2025.

Foreign exchange gainsgains, net were $1.4$0.3 million for the three months ended MarchJune 31,30, 2026. Foreign exchange losseslosses, net were $0.4$2.7 million for the three months ended MarchJune 31,30, 2025.

Income tax (provision) or benefitexpense 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 threesix months ended MarchJune 31,30,:

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 six months ended MarchJune 31,30, 20262026, the Company’s effective tax rate was 12.9% and 13.7% , respectively. For the three and six months ended June 30, 2025, the Company’s effective tax rate was 14.5%(0.5)% and (15.64.1)% ,%, respectively.

The effective tax rates for the three and six months ended MarchJune 31,30, 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.

As of MarchJune 31,30, 2026, our cash and cash equivalents increaseddecreased by 13.4%,2.4%, or $0.8$0.2 million, to $7.0$6.0 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; (ii) reserves related to credit card sales in the United States and Canada; and (iii) collateral for a building lease in Australia. The current portion of restricted cash balances was $0.2 million and $0.6 million at MarchJune 31,30, 2026 and December 31, 2025, respectively. The long-term portion of restricted cash balances was $0.2 million at each of MarchJune 31,30, 2026 and December 31, 2025 Our principal use of cash is to pay for operating expenses, including commissions and incentives, capital assets, and inventory purchases, and periodic cash dividends. We did not pay a dividend in the current quarter.purchases. Business objectives, operations, and expansion of operations are funded through net cash flows from operations rather than incurring long-term debt.

Working capital represents total current assets less total current liabilities. At MarchJune 31,30, 2026 and December 31, 2025, our working capital was $1.7$2.5 million and $1.8 million, respectively.

Our net consolidated cash flows consisted of the following, for the threesix months ended MarchJune 31,30, (in millions):

Operating activities provided $1.1$0.3 million cash for the threesix months ended MarchJune 31,30, 2026 as compared to cash used of $1.4$5.1 million for the same period in 2025.

For the threesix months ended MarchJune 31,30, 2026 and 2025, we invested cash of $0.1 million and $0.5$0.6 million, respectively, principally for back-office software projects, reported as property and equipment.

For the threesix months ended MarchJune 31,30, 2026, our financing activities usedprovided cash of $0.1 million in the repayment of finance lease obligations.million. For the threesix months ended MarchJune 31,30, 2025,2026, our$0.4 financingmillion activities usedof cash was provided for borrowing from notes payable, which was offset by the use of $0.1$0.2 million in the repayment of finance lease obligations and $0.1 million in the repayment of notes payable. For the six months ended June 30, 2025, our financing activities used cash of $0.2 million in the repayment of finance lease obligations.

As of MarchJune 31,30, 2026, our cash and cash equivalents was $7.0$6.0 million and working capital of $1.7$2.5 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 six months ended June 30, 2026, the Company’s net use of cash was reduced to $0.5 million, a decrease of approximately 91% compared to a net use of $5.8 million for the six months ended June 30, 2025, representing the most significant improvement in the Company’s liquidity trend reflected in these financial statements.

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 $2.5 million reduction in selling and administrative expenses for the six months ended June 30, 2026. Net sales increased 3.8% for the three months ended June 30, 2026, as compared to the same period in 2025. 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, andor therethat canmanagement will be noable assuranceto 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.