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 endedJune 30, 2022 as compared to the same period in 2021, 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 2021 Annual Report. Unless stated otherwise, all financial information presented below, throughout this report, and in the consolidated financial statements and related notes includesMannatech 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.
PRÉSENTATION DE L’ENTREPRISE
The Company is a global wellness solution provider, which was incorporated and began operations inNovember 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) theAmericas (the United States ,Canada andMexico ); (ii)Europe /theMiddle East /Africa ("EMEA") (Austria , theCzech Republic ,Denmark ,Estonia ,Finland ,Germany , theRepublic of Ireland ,Namibia ,the Netherlands ,Norway ,South Africa ,Spain ,Sweden and theUnited Kingdom ); and (iii)Asia/Pacific (Australia ,Japan ,New Zealand , theRepublic of Korea ,Singapore ,Taiwan ,Hong Kong , andChina ). We also ship our products to customers in the following countries:Belgium ,France ,Greece ,Italy , Luxembourg, andPoland . We conduct our business as a single operating segment and primarily sell our products through a network of approximately 152,000 active associates and preferred customer positions held by individuals that purchased our products and/or packs or paid associate fees during the last 12 months, who we refer to as current associates and preferred customers. New pack sales and the receipt of new associate fees in connection with new positions in our network are leading indicators for the long-term success of our business. New associate or preferred customer positions are created in our network when our associate fees are paid or packs and products are purchased for the first time under a new account. We operate as a seller of nutritional supplements, topical and skin care and anti-aging products, and weight-management products through our network marketing distribution channels operating in twenty-four countries and direct e-commerce retail inChina . 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 inChina , Meitai, is currently operating as a traditional retailer under a cross-border e-commerce model. Meitai cannot legally conduct a direct selling business inChina unless it acquires a direct selling license inChina .
La Société maintient un site Web d’entreprise à l’adresse www.mannatech.com.
Conditions économiques actuelles et développements récents
Overall net sales decreased$7.5 million , or 17.7%, to$35.0 million , during the three months endedJune 30, 2022 , as compared to the same period in 2021. Net sales for the six months endedJune 30, 2022 decreased by$13.4 million , or 16.7%, to$67.4 million , as compared to the same period in 2021. For each of the three and six months endedJune 30, 2022 , our net sales decreased 11.3% on a Constant dollar basis (see Non-GAAP Measures, below); foreign exchange during the three and six months endedJune 30, 2022 decreased GAAP net sales by$2.7 million and$4.3 million , as compared to the same period in 2021. For the three and six months endedJune 30, 2022 , our operations outside of theAmericas accounted for approximately 73.7% and 71.1%, respectively, of our consolidated net sales. In addition to the strong US Dollar, supply chain constraints worldwide impacted sales during the three and six months endedJune 30, 2022 . For example, inNorth America , we have experienced a shortage of an ingredient used in some core products, and we have begun to move forward with our manufacturing partners with an alternative.
Pour les trois mois terminés
21
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Table des matières
RÉSULTATS DES OPÉRATIONS
Trois mois terminés
The table below summarizes our consolidated operating results in dollars and as a percentage of net sales for the three months endedJune 30, 2022 and 2021 (in thousands, except percentages): 2022 2021 Change from 2021 to 2022 Total % of Total % of Dollar Percentage dollars net sales dollars net sales Net sales$ 34,976 100.0 %$ 42,504 100.0 %$ (7,528) (17.7) % Cost of sales 7,920 22.6 % 10,126 23.8 % (2,206) (21.8) % Gross profit 27,056 77.4 % 32,378 76.2 % (5,322) (16.4) % Operating expenses: Commissions and incentives 14,137 40.4 % 16,898 39.8 % (2,761) (16.3) % Selling and administrative expenses 6,914 19.8 % 7,571 17.8 % (657) (8.7) % Depreciation and amortization expense 301 0.9 % 442 1.0 % (141) (31.9) % Other operating costs 4,851 13.9 % 5,449 12.8 % (598) (11.0) % Total operating expenses 26,203 74.9 % 30,360 71.4 % (4,157) (13.7) % Income from operations 853 2.4 % 2,018 4.7 % (1,165) (57.7) % Interest income 23 0.1 % 7 - % 16 228.6 % Other income (expense), net (84) (0.2) % 152 0.4 % (236) (155.3) % Income before income taxes 792 2.3 % 2,177 5.1 % (1,385) (63.6) % Income tax provision (98) (0.3) % (48) (0.1) % (50) 104.2 % Net income$ 694 2.0 %$ 2,129 5.0 %$ (1,435) (67.4) %
Semestre terminé
The table below summarizes our consolidated operating results in dollars and as a percentage of net sales for the six months endedJune 30, 2022 and 2021 (in thousands, except percentages): Change from 2022 2021 2021 to 2022 Total % of Total % of dollars net sales dollars net sales Dollar Percentage Net sales$ 67,360 100.0 %$ 80,823 100.0 %$ (13,463) (16.7) % Cost of sales 15,011 22.3 % 17,348 21.5 % (2,337) (13.5) % Gross profit 52,349 77.7 % 63,475 78.5 % (11,126) (17.5) % Operating expenses: Commissions and incentives 27,245 40.4 % 32,496 40.2 % (5,251) (16.2) % Selling and administrative expenses 13,823 20.5 % 14,682 18.2 % (859) (5.9) % Depreciation and amortization expense 633 0.9 % 952 1.2 % (319) (33.5) % Other operating costs 9,760 14.5 % 10,538 13.0 % (778) (7.4) % Total operating expenses 51,461 76.4 % 58,668 72.6 % (7,207) (12.3) % Income from operations 888 1.3 % 4,807 5.9 % (3,919) (81.5) % Interest income 38 0.1 % 29 - % 9 31.0 % Other (expense) income, net 1 - % (130) (0.2) % 131 (100.8) % Income before income taxes 927 1.4 % 4,706 5.8 % (3,779) (80.3) % Income tax provision (99) (0.1) % (383) (0.5) % 284 (74.2) % Net income$ 828 1.2 %$ 4,323 5.3 %$ (3,495) (80.8) % 22
-------------------------------------------------------------------------------- Table of Contents Non-GAAP Financial Measures To supplement our financial results presented in accordance with GAAP, we disclose operating results that have been adjusted to exclude the impact of changes due to the translation of foreign currencies intoU.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 intoU.S. dollars, we calculate current year results and prior year results at a constant exchange rate, which is the prior year's rate. Currency impact is determined as the difference between actual growth rates and constant currency growth rates. Three-month period ended June 30, 2022 June 30, 2021 Constant $ Change (in millions, except GAAP Non-GAAP GAAP percentages) Measure: Measure: Measure: Total $ Constant $ Total $ Dollar Percent Net sales$ 35.0 $ 37.7 $ 42.5 $ (4.8) (11.3) % Product 33.0 35.5 40.4 (4.9) (12.1) % Pack sales and associate fees 1.8 2.0 1.9 0.1 5.3 % Other 0.2 0.2 0.2 - - % Gross profit 27.1 29.3 32.4 (3.1) (9.6) % Income from operations 0.9 1.6 2.0 (0.4) (20.0) % Six-month period ended June 30, 2022 June 30, 2021 Constant $ Change (in millions, except GAAP Non-GAAP GAAP percentages) Measure: Measure: Measure: Total $ Constant $ Total $ Dollar Percent Net sales$ 67.4 $ 71.7 $ 80.8 $ (9.1) (11.3) % Product 63.8 67.9 76.3 (8.4) (11.0) % Pack sales and associate fees 3.1 3.4 4.1 (0.7) (17.1) % Other 0.5 0.5 0.4 0.1 25.0 % Gross profit 52.3 56.0 63.5 (7.5) (11.8) % Income from operations 0.9 2.0 4.8 (2.8) (58.3) % Net Sales Consolidated net sales for the three months endedJune 30, 2022 decreased by$7.5 million , or 17.7%, to$35.0 million as compared to$42.5 million for the same period in 2021. Consolidated net sales for the six monthsJune 30, 2022 , decreased by$13.4 million , or 16.7%, to$67.4 million as compared to$80.8 million for the same period in 2021.
Ventes nettes consolidées par région pour les trois mois clos
Three Months Ended Three Months Ended
Region June 30, 2022 June 30, 2021
Americas $ 9.2 26.3 % $ 12.4 29.2 %
Asia/Pacific 22.7 64.8 % 26.1 61.4 %
EMEA 3.1 8.9 % 4.0 9.4 %
Total $ 35.0 100.0 % $ 42.5 100.0 %
23
-------------------------------------------------------------------------------- Table of Contents Consolidated net sales by region for the six months endedJune 30, 2022 and 2021 were as follows (in millions, except percentages): Six Months Ended Six Months Ended Region June 30, 2022 June 30, 2021 Americas $ 19.5 28.9 % $ 23.3 28.8 % Asia/Pacific 41.8 62.0 % 49.7 61.5 % EMEA 6.1 9.1 % 7.8 9.7 % Total $ 67.4 100.0 % $ 80.8 100.0 % For the three months endedJune 30, 2022 , net sales in theAmericas decreased by$3.2 million , or 25.8%, to$9.2 million , as compared to$12.4 million for the same period in 2021. We have experienced a shortage of an ingredient used in some core products, and we have begun to move forward with our manufacturing partners with an alternative. Our number of active independent associates and preferred customers declined 10.9% and revenue per active independent associate and preferred customer declined 16.7%. For the six months endedJune 30, 2022 , net sales in theAmericas decreased by$3.8 million , or 16.3%, to$19.5 million , as compared to$23.3 million for the same period in 2021. Our number of active independent associates and preferred customers declined 9.7% and revenue per active independent associate and preferred customers decreased 6.4%. For the three months endedJune 30, 2022 , our operations outside of theAmericas accounted for approximately 73.7% of our consolidated net sales, whereas in the same period in 2021, our operations outside of theAmericas accounted for approximately 70.8% of our consolidated net sales. For the six months endedJune 30, 2022 , our operations outside of theAmericas accounted for approximately 71.1% of our consolidated net sales, whereas in the same period in 2021, our operations outside of theAmericas accounted for approximately 71.2% of our consolidated net sales. For the three months endedJune 30, 2022 ,Asia/Pacific net sales decreased by$3.4 million , or 13.0%, to$22.7 million , as compared to$26.1 million for the same period in 2021. AtJune 30, 2022 , we have deferred$0.3 million revenue for orders shipped but not received by customers inHong Kong ,$0.2 million of which were from recent second quarter orders, which is an improvement as compared to the$0.9 million deferred atMarch 31, 2022 as logistics in that market improved during the second quarter. Revenue per active independent associate and preferred customer decreased 6.6% and the number of active independent associates and preferred customers decreased 6.9%. Foreign currency exchange had the effect of decreasing revenue by$2.4 million for the three months endedJune 30, 2022 , as compared to the same period in 2021. The currency impact is primarily due to the weakening of the Korean Won, Japanese Yen, and Australian Dollar. For the six months endedJune 30, 2022 ,Asia/Pacific net sales decreased by$7.9 million , or 15.9%, to$41.8 million , as compared to$49.7 million for the same period in 2021. The result was a 9.5% decrease in revenue per active independent associate and preferred customer and a 11.5% decrease in the number of active independent associates and preferred customers. Foreign currency exchange had the effect of decreasing revenue by$3.9 million for the six months endedJune 30, 2022 as compared to the same period in 2021. The currency impact is primarily due to the weakening of the Korean Won, Japanese Yen, and Australian Dollar. For the three months endedJune 30, 2022 , EMEA net sales decreased by$0.9 million , or 22.5%, to$3.1 million , as compared to$4.0 million for the same period in 2021. The decrease was primarily due to a 28.2% decrease in the number of active independent associates and preferred customers, which was partially offset by an 8.0% increase in revenue per active independent associate and preferred customer. We believe the war inUkraine and inflation are impacting our business. Foreign currency exchange had the effect of decreasing revenue by$0.3 million for the three months endedJune 30, 2022 as compared to the same period in 2021. The currency impact is primarily due to the weakening of the South African Rand, and the Euro. 24 -------------------------------------------------------------------------------- Table of Contents For the six months endedJune 30, 2022 , EMEA net sales decreased by$1.7 million , or 21.8%, to$6.1 million , as compared to$7.8 million for the same period in 2021. The decrease was primarily due to a 26.6% decrease in the number of active independent associates and preferred customers, which was partially offset by an 8.9% increase in revenue per active independent associate and preferred customer. Foreign currency exchange had the effect of decreasing revenue by$0.4 million for the six-month period endingJune 30, 2022 as compared to the same period in 2021. The currency impact is primarily due to the weakening of the South African Rand, and the Euro.
Nos ventes totales et notre composition des ventes pourraient être influencées par l’un des éléments suivants :
•l’impact de la pandémie de COVID-19, la disponibilité et l’efficacité des vaccins à grande échelle et l’impact de toute mutation du virus ;
• le conflit actuel entre
•l’impact de l’inflation ;
•les perturbations de la chaîne d’approvisionnement ;
•l’évolution de nos prix de vente ;
•modifications des frais d’expédition ;
•l’évolution de la demande des consommateurs ;
•l’évolution du nombre d’associés indépendants et de clients privilégiés ;
•l’évolution des produits des concurrents ;
•changements de conditions économiques;
•l’évolution de la réglementation ;
•annonces de nouvelles études scientifiques et percées ;
•l’introduction de nouveaux produits ;
•arrêt de produits existants ;
• publicité négative ;
•modifications de nos programmes de commissions et d’incitatifs ;
•concurrence directe ; et
•les fluctuations des taux de change des devises étrangères.
Notre composition des ventes pour les trois et six mois terminés
Three Months Ended
June 30, Change
2022 2021 Dollar Percentage
Consolidated product sales $ 33.0 $ 40.4 $ (7.4) (18.3) %
Consolidated pack sales and associate fees 1.8 1.9 (0.1) (5.3) %
Consolidated other 0.2 0.2 - - %
Total consolidated net sales $ 35.0 $ 42.5 $ (7.5) (17.6) %
Six Months Ended
June 30, Change
2022 2021 Dollar Percentage
Consolidated product sales $ 63.8 $ 76.3 $ (12.5) (16.4) %
Consolidated pack sales and associate fees 3.1 4.1 (1.0) (24.4) %
Consolidated other 0.5 0.4 0.1 25.0 %
Total consolidated net sales $ 67.4 $ 80.8 $ (13.4) (16.6) %
25
-------------------------------------------------------------------------------- Table of Contents Product Sales Our product sales are made to our independent associates and preferred customers at published wholesale prices. Product sales for the three months endedJune 30, 2022 decreased by$7.4 million , or 18.3%, as compared to the same period in 2021. Product sales decrease as both the average order value declined and the number of orders processed decreased. The average order value for the three months endedJune 30, 2022 was$176 , as compared to$198 for the same period in 2021. The number of orders processed during the three months endedJune 30, 2022 decreased by 8.4%, to 194,555, as compared to 212,455 for the same period in 2021. Product sales for the six months endedJune 30, 2022 decreased by$12.5 million , or 16.4%, as compared to the same period in 2021. Product sales decreased as both the average order value declined and the number of orders processed decreased. The average order value for the six months endedJune 30, 2022 was$177 , as compared to$193 for the same period in 2021. The number of orders processed during the six months endedJune 30, 2022 decreased by 7.2%, to 384,255, as compared to 414,184 for the same period in 2021.
Ventes de packs et frais associés
The Company collects associate fees in lieu of selling packs in certain markets. Associate fees are paid annually by new and continuing associates to the Company, which entitle them to earn commissions, benefits and incentives for that year. The Company collected associate fees in lieu of pack sales withinthe United States ,Canada ,South Africa ,Japan ,Australia ,New Zealand ,Singapore ,Hong Kong ,Taiwan ,Austria , theCzech Republic ,Denmark ,Estonia ,Finland ,Germany , theRepublic of Ireland ,the Netherlands ,Norway ,Spain ,Sweden and theUnited Kingdom . In theRepublic of Korea andMexico , packs may still be purchased by our associates who wish to build aMannatech business. These packs contain products that are discounted from both the published retail and associate prices. There are several pack options available to our associates. In certain of these markets, pack sales are completed during the final stages of the registration process and can provide new associates with valuable training and promotional materials, as well as products for resale to retail customers, demonstration purposes, and personal consumption. Business-building associates in these markets can also purchase an upgrade pack, which provides the associate with additional promotional materials. We also do not collect associate fees or sell packs in our non-direct selling business in mainlandChina . The dollar amount of pack sales and associate fees associated with new and continuing independent associate positions held by individuals in our network was as follows for the three and six months endedJune 30 , (in millions, except percentages): Three Months Ended June 30, Change 2022 2021 Dollar Percentage New$ 0.1 $ 0.1 $ - - % Continuing 1.7 1.8 (0.1) (5.6) % Total$ 1.8 $ 1.9 $ (0.1) (5.3) % Six Months Ended June 30, Change 2022 2021 Dollar Percentage New$ 0.2 $ 0.2 $ - - % Continuing 2.9 3.9 (1.0) (25.6) % Total$ 3.1 $ 4.1 $ (1.0) (24.4) % Total pack sales and associate fees for the three months endedJune 30, 2022 decreased by$0.1 million , or 5.3%, to$1.8 million , as compared to$1.9 million for the same period in 2021. The average value of packs and associate fees decreased to$77 for the second quarter of 2022, as compared to$81 for the same period in 2021. The total number of packs and associate fees sold decreased by 580, or 2.4%, to 23,268 for the three months endedJune 30, 2022 , as compared to the same period in 2021. Total pack sales and associate fees for the six months endedJune 30, 2022 decreased by$1.0 million , or 24.4%, to$3.1 million , as compared to$4.1 million for the same period in 2021. The average value of packs and associate fees decreased to$66 for the second quarter of 2022, as compared to$89 for the same period in 2021. The total number of packs and associate fees sold increased by 1,015, or 2.2%, to 46,998 for the six months endedJune 30, 2022 , as compared to the same period in 2021. 26 -------------------------------------------------------------------------------- Table of Contents Pack sales and associate fees correlate to new associate positions held by individuals in our network when a starter pack or associate fee is purchased and to continuing associate positions held by individuals in our network when an upgrade pack or renewal associate fee is purchased. However, there is no direct correlation between product sales and the number of new and continuing associate positions and preferred customer positions held by individuals in our network because associates and preferred customers utilize products at different volumes.
En 2021 et jusqu’en 2022, nous avons pris les mesures suivantes pour recruter et fidéliser des associés et des clients privilégiés :
•enregistré nos produits les plus populaires auprès des organismes de réglementation appropriés dans tous les pays d’exploitation ;
• déployé de nouveaux produits ;
•poursuite d’une campagne de marketing et d’éducation agressive ;
•continué de renforcer les initiatives de conformité ;
• concentré sur la publication des résultats d’études de recherche et d’essais cliniques liés à nos produits ;
•lancé des incitations supplémentaires ;
•continué d’explorer de nouveaux outils publicitaires et éducatifs pour accroître la notoriété du nom; et
• mis en œuvre des changements à notre plan de carrière et de rémunération des associés à l’échelle mondiale.
The approximate number of new and continuing active independent associates and preferred customers who purchased our packs or products or paid associate fees during the twelve months endedJune 30, 2022 and 2021 were as follows: 2022 2021 New 81,000 53.3 % 86,000 48.9 % Continuing 71,000 46.7 % 90,000 51.1 % Total 152,000 100.0 % 176,000 100.0 % Recruitment of new independent associates and preferred customers decreased by 7.9% to 19,823 in the second quarter of 2022 from 21,527 in the second quarter of 2021. Other Sales Other sales consisted of: (i) sales of promotional materials; (ii) monthly fees collected for the Success Tracker™ and Mannatech+ customized electronic business-building and educational materials, databases and applications; (iii) training and event registration fees; and (iv) a reserve for estimated sales refunds and returns. Promotional materials, training, database applications and business management tools support our independent associates, which in turn helps stimulate product sales.
Pour chacun des trois mois terminés
Pour les six mois terminés
et
Bénéfice brut
For the three months endedJune 30, 2022 , gross profit decreased by$5.3 million , or 16.4%, to$27.1 million , as compared to$32.4 million for the same period in 2021. For the three months endedJune 30, 2022 , gross profit as a percentage of net sales increased to 77.4%, as compared to 76.2% for the same period in 2021. For the six months endedJune 30, 2022 , gross profit decreased by$11.1 million , or 17.5%, to$52.3 million , as compared to$63.5 million for the same period in 2021. For the six months endedJune 30, 2022 , gross profit as a percentage of net sales decreased to 77.7%, as compared to 78.5% for the same period in 2021.
Commissions et incitations
Commission expense for the three months endedJune 30, 2022 decreased by 19.4%, or$3.2 million , to$13.2 million , as compared to$16.4 million for the same period in 2021. For the three months endedJune 30, 2022 , commissions as a percentage of net sales decreased to 37.7% from 38.5% for the same period in 2021. Commission expense for the six months endedJune 30, 2022 , decreased by 18.4%, or$5.7 million , to$25.5 million , as compared to$31.2 million for the same period in 2021. For the six months endedJune 30, 2022 , commissions as a percentage of net sales decreased to 37.9% from 38.7% for the same period in 2021. 27 -------------------------------------------------------------------------------- Table of Contents Incentive costs for the three months endedJune 30, 2022 increased to$0.9 million , as compared to$0.5 million for the same period in 2021. For the three months endedJune 30, 2022 , incentives as a percentage of net sales increased to 2.7% from 1.3% for the same period in 2021. Incentive costs for the six months endedJune 30, 2022 , increased to$1.7 million , as compared to$1.2 million for the same period in 2021. For the six months endedJune 30, 2022 , incentives as a percentage of net sales increased to 2.6% from 1.5% for the same period in 2021.
Frais de vente et administratifs
Les frais de vente et d’administration comprennent une combinaison de frais fixes et variables. Ces dépenses comprennent la rémunération et les avantages sociaux des employés, la main-d’œuvre temporaire et contractuelle et les dépenses liées au marketing, telles que les coûts liés à l’organisation de nos événements parrainés par l’entreprise.
For the three months endedJune 30, 2022 , selling and administrative expenses decreased by$0.7 million , or 8.7%, to$6.9 million , as compared to$7.6 million for the same period in 2021. The decrease in selling and administrative expenses consisted of a$0.4 million decrease in marketing costs, a$0.1 million decrease in contract labor costs, a$0.1 million decrease in warehouse costs and a$0.1 million decrease in payroll costs. Selling and administrative expenses, as a percentage of net sales, for the three months endedJune 30, 2022 increased to 19.8% from 17.8% for the same period in 2021. For the six months endedJune 30, 2022 , selling and administrative expenses decreased by$0.9 million , or 5.9%, to$13.8 million as compared to$14.7 million for the same period in 2021. The decrease in selling and administrative expenses consisted of a$0.5 million decrease in marketing costs, a$0.2 million decrease in payroll costs, a$0.1 million decrease in contract labor costs and a$0.1 million decrease in warehouse costs. Selling and administrative expenses, as a percentage of net sales, for the six months endedJune 30, 2022 increased to 20.5% from 18.2% or the same period in 2021.
Autres frais de fonctionnement
Les autres coûts d’exploitation comprennent les frais comptables/juridiques/de conseil, les frais de déplacement et de représentation, les frais de traitement des cartes de crédit, les frais de stockage hors site, les services publics, les créances irrécouvrables et d’autres dépenses d’exploitation diverses.
For the three months endedJune 30, 2022 , other operating costs decreased by$0.6 million , or 11.0%, to$4.9 million , as compared to$5.4 million for the same period in 2021. For the three months endedJune 30, 2022 , other operating costs as a percentage of net sales increased to 13.9% from 12.8% for the same period in 2021. The decrease in operating costs was primarily due to a$0.2 million decrease in credit card fees, a$0.2 million decrease in bad debt expense, a$0.1 million decrease in legal and consulting fees, and a$0.1 million decrease in other costs that are variable to revenue. For the six months endedJune 30, 2022 , other operating costs decreased by$0.8 million , or 7.4%, to$9.8 million , as compared to$10.5 million for the same period in 2021. For the six months endedJune 30, 2022 , other operating costs as a percentage of net sales increased to 14.5% from 13.0% for the same period in 2021. The decrease in operating costs was primarily due to a$0.4 million decrease in credit card fees, a$0.3 million decrease in legal and consulting fees and a$0.1 million decrease in other costs that are variable to revenue.
Dotation aux amortissements
La dotation aux amortissements a été
La dotation aux amortissements a été
Autres revenus (charges), nets
En raison des gains et des pertes de change, d’autres charges ont été
En raison des gains et des pertes de change, les autres revenus ont été
28 -------------------------------------------------------------------------------- Table of Contents Income Tax (Provision) Benefit (Provision) benefit for income taxes include current and deferred income taxes for both our domestic and foreign operations. Our statutory income tax rates by jurisdiction are as follows, for the three and six months endedJune 30 : Country 2022 2021 Australia 30.0 % 30.0 % Bermuda - % - % Canada 26.5 % 26.5 % China(1) 2.5 % 5.0 % Colombia(2) 35.0 % 31.0 % Cyprus 12.5 % 12.5 % Denmark 22.0 % 22.0 % Gibraltar(3) 12.5 % 10.0 % Hong Kong 16.5 % 16.5 % Japan 34.6 % 34.6 % Mexico 30.0 % 30.0 % Netherlands(4) 25.8 % - % Norway 22.0 % 22.0 % Republic of Korea 22.0 % 22.0 % Russia(5) 20.0 % 20.0 % Singapore 17.0 % 17.0 % South Africa 28.0 % 28.0 % Sweden 20.6 % 20.6 % Switzerland(6) 9.2 % 9.2 % Taiwan 20.0 % 20.0 % Ukraine(7) 18.0 % 18.0 % United Kingdom 19.0 % 19.0 % United States(8) 22.2 % 23.8 % (1)For 2021 and 2022, the Company qualifies for reduced tax rates of 5% and 2.5%, respectively, inChina as a Small Low Profit Enterprise. (2)OnNovember 1, 2019 , the Company suspended operations inColombia , but maintained the legal entity, Mannatech Colombia SAS. During the second quarter of 2022, the Company liquidated the entity. (3)For 2021, the Company will pay taxes at 10% forGibraltar earnings untilAugust 1, 2021 , and 12.5% fromAugust 1, 2021 onward. (4)OnSeptember 13, 2021 , the Company established a legal entity inthe Netherlands calledMannatech Netherlands B.V. (5)OnAugust 1, 2016 , the Company established a legal entity inRussia calledMannatech RUS Ltd. , but currently does not operate inRussia . (6)OnJuly 1, 2019 , the Company suspended operations inSwitzerland , but maintains the legal entity. (7)OnMarch 21, 2014 , the Company suspended operations inUkraine , but maintains the legal entity,Mannatech Ukraine LLC . (8)Includes blended state effective rate of 1.2% for 2022 and 2.8% for 2021 in addition toU.S federal statutory rate of 21%. Income from our international operations is subject to taxation in the countries in which we operate. Although we may receive foreign income tax credits that would reduce the total amount of income taxes owed inthe United States , we may not be able to fully utilize our foreign income tax credits inthe United States . We use the recognition and measurement provisions of the FASB ASC Topic 740, Income Taxes ("Topic 740"), to account for income taxes. The provisions of Topic 740 require a company to record a valuation allowance when the "more likely than not" criterion for realizing net deferred tax assets cannot be met. Furthermore, the weight given to the potential effect of such evidence should be commensurate with the extent to which it can be objectively verified. As a result, we reviewed the operating results, as well as all of the positive and negative evidence related to realization of such deferred tax assets to evaluate the need for a valuation allowance in each tax jurisdiction. The provision for income taxes is directly related to our profitability and changes in the taxable income among countries of operation. For the three and six months endedJune 30, 2022 , the Company's effective tax rate was 12.4% and 10.7%, respectively. For the three and six months endedJune 30, 2021 , the Company's effective tax rate was 2.2% and 8.1%, respectively. The effective tax rates for the three and six months endedJune 30, 2022 were different from the federal statutory rate due primarily to the effect of changes in valuation allowances recorded in certain jurisdictions and the foreign derived intangible deduction in the US.
Le taux d’imposition effectif pour les trois mois terminés
29 -------------------------------------------------------------------------------- Table of Contents LIQUIDITY AND CAPITAL RESOURCES
Trésorerie et équivalents de trésorerie
As ofJune 30, 2022 , our cash and cash equivalents decreased by 14.9%, or$3.6 million , to$20.6 million from$24.2 million as ofDecember 31, 2021 . The Company is required to restrict cash for: (i) direct selling insurance premiums and credit card sales in theRepublic of Korea ; (ii) reserve on credit card sales inthe United States andCanada ; and (iii) theAustralia building lease collateral. The current portion of restricted cash balances were$0.9 million at each ofJune 30, 2022 andDecember 31, 2021 . The long-term portion of restricted cash balances were$0.5 million at each ofJune 30, 2022 andDecember 31, 2021 . Finally, fluctuations in currency rates produced a decrease of$2.8 million and$1.3 million in cash and cash equivalents for the six months endedJune 30, 2022 and 2021, respectively. Our principal use of cash is to pay for operating expenses, including commissions and incentives, capital assets, inventory purchases, and periodic cash dividends. Business objectives, operations, and expansion of operations are funded through net cash flows from operations rather than incurring long-term debt. Working Capital Working capital represents total current assets less total current liabilities. AtJune 30, 2022 andDecember 31, 2021 , our working capital was$9.9 million and$12.7 million , respectively.
Flux de trésorerie nets
Nos flux de trésorerie nets consolidés se composaient des éléments suivants, pour les six mois terminés
Provided by/(Used in): 2022 2021 Operating activities$ 1.5 $ 8.3 Investing activities$ (0.5) $ (0.3) Financing activities$ (1.8) $ (6.2) Operating Activities For the six months endingJune 30, 2022 , we operated the business for a small profit. We collect cash and pay the related commission on orders shipped but not yet received by customers, and this deferred revenue and other working capital is a source of cash, which is offset by the cash we have invested in inventory that is turning over slower in this economic environment. During the same period in 2021, our primary source of cash was our profitable operations, which provided$8.3 million cash flow.
Activités d’investissement
For the six months endedJune 30, 2022 and 2021, we invested cash of$0.5 million and$0.3 million , respectively. During the six months endedJune 30, 2022 , we invested approximately$0.5 million in back-office software projects reported as construction in progress. During the six months endedJune 30, 2021 , we invested approximately$0.3 million in back-office software projects.
Activités de financement
For the six months endedJune 30, 2022 and 2021, our financing activities used cash of$1.8 million and$6.2 million , respectively. For the six months endedJune 30, 2022 , we used$0.8 million in payments of dividends to shareholders,$0.6 million in the repurchase of our company stock and$0.3 million in the repayment of finance lease obligations. For the six months endedJune 30, 2021 , we used$4.9 million in the repurchase of our company stock,$0.7 million in the repayment of finance lease obligations and$0.7 million in payments of dividends to shareholders. 30
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Liquidité générale et flux de trésorerie
Liquidité à court terme
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 flow from operations, this will be dependent on our ability to maintain and increase revenue and/or continue to reduce operational expenses. However, if our existing capital resources or cash flows become insufficient to meet current business plans, projections, and existing capital requirements, we may be required to raise additional funds, which may not be available on favorable terms, if at all. We are engaged in ongoing audits in various tax jurisdictions and other disputes in the normal course of business. It is impossible at this time to predict whether we will incur any liability, or to estimate the ranges of damages, if any, in connection with these matters. Adverse outcomes on these uncertainties may lead to substantial liability or enforcement actions that could adversely affect our cash position. For more information, see Note 3, Income Taxes, and Note 7, Litigation, to our consolidated financial statements. We have contractual purchase commitments with certain raw materials suppliers to purchase minimum quantities and to ensure exclusivity of our raw materials and the proprietary nature of our products. AtJune 30, 2022 , we have one supply agreement that requires the Company to purchase an aggregate of$2.1 million through 2022, with no purchase commitments thereafter. We expect to renegotiate this agreement and if we fail to maintain exclusivity our business could be adversely affected. 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 minimum quantities. 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 the costs of our raw materials and help ensure quality control standards. We have operating lease liabilities for the property and equipment we use in our business operations. These operating lease liabilities represent our minimum future payment obligations on operating leases, including imputed interest. AtJune 30, 2022 , our operating lease liabilities were$6.2 million , of which$1.6 million was recorded in Accrued expenses and$4.6 million was recorded in Other long-term liabilities. We also have finance lease liabilities of$0.1 million and lease restoration liabilities of$0.3 million .
Nous avons des obligations de pension de
Responding to COVID-19, we have taken steps to protect the health, safety and
well-being of our customers, associates, employees, and communities by closing
some offices and equipping various staff members to work remotely. The Company
depends on an independent salesforce of distributors to market and sell its
products to consumers. Developments such as social distancing and
shelter-in-place directives have impacted their ability to engage with potential
and existing customers. The adverse economic effects of COVID-19 include
government restrictions and changes in consumer demand for the Company's
products. The Company has rescheduled corporate sponsored events, and in some
cases, our associates have canceled sales meetings.
Prolonged workforce disruptions, continued disruption in our supply chain or
potential decreases in consumer demands could negatively impact our sales as
well as the Company's liquidity in the fiscal year 2022; however, such impact is
currently unknown.
Long Term Liquidity
We believe our cash flows from operations should be adequate to fund our normal
expected future business operations. As our primary source of liquidity is from
our cash flows from operations, this will be dependent on our ability to
maintain or improve revenue as compared to operational expenses.
However, if our existing capital resources or cash flows become insufficient to
meet anticipated business plans and existing capital requirements, we may be
required to raise additional funds, which may not be available on favorable
terms, if at all.
Our future access to the capital markets may be adversely impacted if we fail to
maintain compliance with the Nasdaq Marketplace Rules for the continued listing
of our stock. We continuously monitor our compliance with the Nasdaq continued
listing rules.
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ARRANGEMENTS HORS BILAN
Nous n’avons pas d’arrangements d’entités ad hoc, ni d’arrangements hors bilan.
ESTIMATIONS COMPTABLES CRITIQUES
Our consolidated financial statements are prepared in accordance with GAAP. The application of GAAP requires us to make estimates and assumptions that affect the reported values of assets and liabilities at the date of our financial statements, the reported amounts of revenues and expenses during the reporting period, and the related disclosures of contingent assets and liabilities. We use estimates throughout our financial statements, which are influenced by management's judgment and uncertainties. Our estimates are based on historical trends, industry standards, and various other assumptions that we believe are applicable and reasonable under the circumstances at the time the consolidated financial statements are prepared. Our Audit Committee reviews our significant accounting policies and critical estimates. We continually evaluate and review our policies related to the portrayal of our consolidated financial position and consolidated results of operations that require the application of significant judgment by our management. We also analyze the need for certain estimates, including the need for such items as allowance for 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 significant accounting policies and critical estimates as ofJune 30, 2022 . Inventory Reserves Inventory consists of raw materials, finished goods, and promotional materials that are stated at the lower of cost (using standard costs that approximate average costs) or market. We record the amounts charged by the vendors as the costs of inventory. Typically, the net realizable value of our inventory is higher than the aggregate cost. Determination of net realizable value can be complex and, therefore, requires a high degree of judgment. In order for management to make the appropriate determination of net realizable value, the following items are considered: inventory turnover statistics, current selling prices, seasonality factors, consumer demand, regulatory changes, competitive pricing, and performance of similar products. If we determine the carrying value of inventory is in excess of estimated net realizable value, we write down the value of inventory to the estimated net realizable value. We also review inventory for obsolescence in a similar manner and any inventory identified as obsolete is reserved or written off. Our determination of obsolescence is based on assumptions about the demand for our products, product expiration dates, estimated future sales, and general future plans. We monitor actual sales compared to original projections, and if actual sales are less favorable than those originally projected by us, we record an additional inventory reserve or write-down. Historically, our estimates have been close to our actual reported amounts. However, if our estimates regarding inventory obsolescence are inaccurate or consumer demand for our products changes in an unforeseen manner, we may be exposed to additional material losses or gains in excess of our established estimated inventory reserves.
Immobilisations à long terme et capitalisation des coûts de développement de logiciels
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.
The net carrying costs of fixed assets are exposed to impairment losses if our
assumptions and estimates of their carrying values change, there is a change in
estimated future cash flow, or there is a change in the estimated useful life of
the fixed asset. Based on management's analysis, no impairment indicators
existed for the six months ended June 30, 2022 and the year ended December 31,
2021 .
Positions fiscales incertaines et déductions pour évaluation fiscale
As ofJune 30, 2022 , there was nothing recorded in other long-term liabilities on our consolidated balance sheet related to uncertain income tax positions. As required by Topic 740, we use judgments and make estimates and assumptions related to evaluating the probability of uncertain income tax positions. We base our estimates and assumptions on the potential liability related to an assessment of whether the income tax position will "more likely than not" be sustained in an income tax audit. We are also subject to periodic audits from multiple domestic and foreign tax authorities related to income tax and other forms of taxation. These audits examine our tax positions, timing of income and deductions, and allocation procedures across multiple jurisdictions. Depending on the nature of the tax issue, we could be subject to audit over several years. 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.
Constatation des revenus et commissions différées
Our revenue is derived from sales of individual products, sales of starter and renewal packs, associate fees and shipping fees. Substantially all of our product and pack sales are to associates and preferred customers at published wholesale prices. We record revenue net of any sales taxes and record a reserve for expected sales returns based on historical experience. We recognize revenue from shipped packs and products upon receipt by the customer. Corporate-sponsored event revenue is recognized when the event is held. Revenues from associate fees relate to providing associates with the rights to earn commissions, benefits and incentives for an annual period. Associate fees are recognized evenly over the course of the annual period of the associate's contract. We collected associate fees withinthe United States ,Canada ,South Africa ,Japan ,Australia ,New Zealand ,Singapore ,Hong Kong ,Taiwan ,Austria , theCzech Republic ,Denmark ,Estonia ,Finland ,Germany , theRepublic of Ireland ,the Netherlands ,Norway ,Spain , and theUnited Kingdom during the three and six months endedJune 30, 2022 . 33 -------------------------------------------------------------------------------- Table of Contents The arrangement regarding associate fees has three service elements: (1) providing new associates with the eligibility to earn commissions, benefits and incentives for twelve months, (2) three months of complimentary access to utilize the Success Tracker™ online tool, and (3) three months of complimentary access to utilize the Mannatech+ customized electronic business-building tool. Each of these service elements is provided over time to the customer. For the three and six months endedJune 30, 2022 , the associate fees were allocated to these three service elements on a relative standalone selling price basis in accordance with ASC 606. We defer certain components of revenue. AtJune 30, 2022 andDecember 31, 2021 , deferred revenue was$6.0 million and$4.9 million , respectively. When participating in our loyalty program, customers earn loyalty points from qualified automatic orders that can be applied to future purchases. We defer the dollar equivalent in revenue of these points until the points are applied, forfeited or expired, which includes an estimate of the percentage of the unvested loyalty points that are expected to be forfeited or expired. The deferred revenue associated with the loyalty program at each ofJune 30, 2022 andDecember 31, 2021 was$4.3 million . Deferred revenue consisted primarily of: (i) sales of packs and products shipped but not received by the customers by the end of the respective period; (ii) revenue from the loyalty program; and (iii) prepaid registration fees from customers planning to attend a future corporate-sponsored event. In total current assets, we defer commissions on (i) the sales of packs and products ordered but not received by the customers by the end of the respective period and (ii) the loyalty program. Deferred commissions were$3.2 million and$2.4 million atJune 30, 2022 andDecember 31, 2021 , respectively. Loyalty program (in thousands)
Revenus différés de fidélité au
Points de fidélité perdus ou expirés
(3,987) Loyalty points used (9,809) Loyalty points vested 11,676 Loyalty points unvested 1,925
Revenus différés de fidélité au
Revenus différés de fidélité au
Points de fidélité perdus ou expirés
(1,874) Loyalty points used (4,761) Loyalty points vested 5,681 Loyalty points unvested 972
Revenus différés de fidélité au
Politique de retour de produit
We stand behind our packs and products and believe we offer a reasonable and industry-standard product return policy to all of our customers. We do not resell returned products. Refunds are not processed until proper approval is obtained. All refunds must be processed and returned in the same form of payment that was originally used in the sale. Each country in which we operate has specific product return guidelines. However, we allow our associates and 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 inthe United States andCanada , and for the first 90 days following the product's purchase in other countries where we sell our products. 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 inthe United States andCanada , 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. 34 -------------------------------------------------------------------------------- Table of Contents Historically, sales returns estimates have not materially deviated from actual sales returns, as the majority of our customers who return merchandise do so within the first 90 days after the original sale. Based upon our return policies and historical experience, we estimate a sales return reserve for expected sales refunds over a rolling six-month period. If actual results differ from our estimated sales returns reserves due to various factors, the amount of revenue recorded each period could be materially affected. Historically, our sales returns have not materially changed through the years and have averaged 1.5% or less of our gross sales.
Comptabilisation de la rémunération à base d’actions
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 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.
May 2022 Grant June 2022 Grant
Estimated fair value per of options granted: $ 9.93 $ 6.72
Assumptions:
Annualized dividend yield 2.6 % 3.9 %
Risk-free rate of return 2.9 % 3.4 %
Common stock price volatility 63.6 % 64.9 %
Expected average life of stock options (in years) 4.5 4.5
The assumptions we use are based on our best estimates and involve inherent
uncertainties related to market conditions that are outside of our control. If
actual results are not consistent with the assumptions we use, the stock-based
compensation expense reported in our consolidated financial statements may not
be representative of the actual economic cost of stock-based compensation. For
example, if actual employee forfeitures significantly differ from our estimated
forfeitures, we may be required to make an adjustment to our consolidated
financial statements in future periods.
If we grant additional stock options in the future, we would be required to
recognize additional compensation expense over the vesting period of such stock
options in our consolidated statement of operations. As of June 30, 2022 , we had
126,276 shares available for grant in the future. During the six months ended
June 30, 2022 , the Company granted 11,807 stock options.
Éventualités et litiges
Each quarter, we evaluate the need to establish a reserve for any legal claims or assessments. We base our evaluation on our best estimates of the potential liability in such matters. The legal reserve includes an estimated amount for any damages and the probability of losing any threatened legal claims or assessments. We consult with our general and outside counsel to determine the legal reserve, which is based upon a combination of litigation and settlement strategies. Although we believe that our legal reserve and accruals are based on reasonable judgments and estimates, actual results could differ, which may expose us to material gains or losses in future periods. If actual results differ, if circumstances change, or if we experience an unanticipated adverse outcome of any legal action, including any claim or assessment, we would be required to recognize the estimated amount, which could reduce net income, earnings per share, and cash flows. OnOctober 28, 2021 , the Company received notice that it was among 1,100 companies scheduled to receive a letter from theFederal Trade Commission ("FTC") regarding "Notices of Penalty Offenses Concerning Money-Making Opportunities and Endorsement and Testimonials."Mannatech received the letter onOctober 28, 2021 . The letters put companies on notice that they should be aware of what constitutes false or misleading income, earning, or product claims. As theFTC makes clear in the letter, receipt of the letter is not a determination of wrongdoing. From a procedural standpoint, theFTC would still have to file a formal action if they were to determine the Company is in violation of the parameters laid out in the letter and then undergo an administrative hearing process. The letter is the first step in a process for theFTC to impose "civil monetary penalties of up to$43,792 per violation." Nearly allDirect Selling Association ("DSA") member companies received the notice along with non-members of the DSA in the direct selling channel, gig companies, franchise companies, and other companies offering business opportunities. 35
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