Mannatech Inc: Form 10-Q for the period ended Mar 31, 2026

The following discussion is intended to assist in the understanding of our consolidated financial position and results of operations for the three months ended March 31, 2026 as compared to the same period in 2025 and should be read in conjunction with Item 1 “Financial Statements” in Part I of this quarterly report on Form 10-Q and Item 1A “Risk Factors” in Part I of our 2025 Annual Report. Unless stated otherwise, all financial information presented below, throughout this report, and in the condensed consolidated financial statements and related notes includes Mannatech and all of our subsidiaries on a consolidated basis. To supplement our financial results presented in accordance with GAAP, we disclose certain adjusted financial measures which we refer to as Constant dollar (“Constant dollar”) measures, which are non-GAAP financial measures. Refer to the Non-GAAP Financial Measures section herein for a description of how such Constant dollar measures are determined.

COMPANY OVERVIEW

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

We sell our products principally through network marketing distribution channels via our active associates (“independent associate” or “associates” or “distributors”) and to our “preferred customers,” which we believe is the most cost-effective way to introduce our products and communicate information about our business to the global marketplace quickly and effectively. Network marketing minimizes upfront costs, as compared to conventional marketing methods, and allows us to be more responsive to the ever-changing overall market conditions, as well as continue to research and develop high quality products and focus on controlled successful international expansion. We believe the network marketing channel also allows us to effectively communicate the potential benefits and unique properties of our proprietary products to our consumers. In addition, network marketing provides our associates with an avenue to supplement their income by building their own business centered on our business philosophies and unique products. As of March 31, 2026, we had approximately 111,000 active associates and preferred customer positions held by individuals that purchased our products and/or paid associate fees during the last twelve months. At the time of purchase, a customer may choose to sign up as a “preferred customer” to receive the same pricing on our products as our associates and to receive emails about our products and promotions. Preferred customers do not participate in the Company’s compensation plan.

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

Our common stock trades on The Nasdaq Capital Markets (“Nasdaq”) under the symbol “MTEX.” As disclosed in our Annual Report on Form 10‑K filed on April 15, 2026, we are subject to certain Nasdaq listing requirements, including minimum stockholders’ equity requirements. On April 20, 2026, we received written notice from the Listing Qualifications Department of the Nasdaq Stock Market LLC notifying the Company that it is not in compliance with Nasdaq Listing Rule 5550(b)(1), which requires listed companies on the Nasdaq Capital Market to maintain minimum stockholder's equity of $2,500,000. The 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. There can be no assurance that Nasdaq will accept our compliance plan or that we will be able to regain compliance within the applicable time period. Management is evaluating available options to address the stockholders’ equity deficiency, which may include actions to improve operating results, capital‑raising transactions, or other strategic alternatives.

The Company maintains a corporate website at www.mannatech.com (http://www.mannatech.com).

Overview of Operating Results

Consolidated net sales for the three months ended March 31, 2026 was $24.9 million, as compared to $26.6 million for the three months ended March 31, 2025, a decrease of $1.6 million, or 6.2%. The decline in revenues was principally due to slowing demand in certain regions we operate within.

Net realized and unrealized foreign currency gains for the three months ended March 31, 2026 was $1.4 million. For the three months ended March 31, 2025 foreign currency loss was $0.4 million.

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

RESULTS OF OPERATIONS

Three Months Ended March 31, 2026 Compared to Three Months Ended March 31, 2025

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

Non-GAAP Financial Measures

To supplement our financial results presented in accordance with GAAP, we disclose operating results that have been adjusted to exclude the impact of changes due to the translation of foreign currencies into U.S. dollars, including changes in: Net Sales, Gross Profit, and 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 March 31, 2026, our net sales decreased $2.2 million, or 8.1% on a Constant dollar basis, (see reconciliation of Non-GAAP Financial Measures in the tables below); and foreign exchange caused a $0.5 million increase in GAAP net sales as compared to the same periods in 2025,.

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

25

Net Sales by Region

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

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

26

For the three months ended March 31, 2026, net sales in the Americas decreased by $2.3 million, or 25.6%, to $6.7 million, as compared to $9.0 million for the same period in 2025. The number of active independent associates and preferred customers decreased by 17.1%. There was a 10.2% decrease in revenue per active independent associate and preferred customer. Foreign currency had the effect of increasing revenue by $0.2 million for the three months ended March 31, 2026 when compared to the same period in 2025. The currency impact is primarily due to the strengthening of the Mexican Peso.

For the three months ended March 31, 2026, Asia/Pacific net sales increased by $0.5 million, or 3.2%, to $15.9 million, as compared to $15.4 million for the same period in 2025. There was a 21.3% increase in revenue per active independent associate and preferred customer, which was partially offset by a 14.8% decrease in the number of active independent associates and preferred customers. Foreign currency exchange had the effect of increasing revenue by $0.1 million for the three months ended March 31, 2026, as compared to the same period in 2025. The currency impact is primarily due to the strengthening of the Korean Won.

For the three months ended March 31, 2026, EMEA net sales increased by $0.1 million, or 4.5%, to $2.3 million, as compared to $2.2 million for the same period in 2025. There was a 10.9% increase in revenue per active independent associate and preferred customer, which was partially offset by a 5.8% decrease in the number of active independent associates and preferred customers. Foreign currency exchange had the effect of increasing revenue by $0.2 million for the three months ended March 31, 2026 as compared to the same period in 2025. The currency impact is primarily due to the strengthening of the South African Rand.

Sales Mix

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

27

Product Sales

Our product sales consist primarily of sales made to our independent associates and preferred customers at published wholesale prices. Product sales for the three months ended March 31, 2026 decreased by $1.6 million, or 6.1%, as compared to the same period in 2025. On a Constant dollar basis, product sales for the three months ended March 31, 2026 decreased $2.1 million, or 8.0% , as compared to the same period in 2025. The decrease in product sales for the three months ended March 31, 2026 reflects an 8.4% decrease in the number of orders processed, which was partially offset by a 3.9% increase in the average order value to $159, as compared to $153 for the same period in 2025.

Associate Fees and Recruiting

Recruitment of new independent associates and preferred customers decreased by 15.6% to 11,604 in the first quarter of 2026, as compared with 13,749 in the first 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 March 31, 2026 and 2025 were as follows:

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

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

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

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

Other Sales

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

For the three months ended March 31, 2026 and 2025, other sales were $0.3 million and $0.4 million, respectively.

Gross Profit

For the three months ended March 31, 2026, gross profit decreased by $0.9 million, or 4.4%, to $18.9 million, as compared to $19.7 million for the same period in 2025. For the three months ended March 31, 2026, gross profit as a percentage of net sales increased to 75.7%, as compared to 74.3% for the same period in 2025. The increase in gross profit as a percentage of net sales was primarily due to higher sales prices and lower inventory reserve additions 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 first quarter of 2026, as compared to the same period in 2025.

Commissions and Incentives

Commission expense for the three months ended March 31, 2026 decreased by 7.0%, or $0.7 million, to $9.3 million, as compared to $10.0 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 March 31, 2026, commissions as a percentage of net sales decreased to 37.6% as compared to 37.7% for the same period in 2025.

Incentive costs for the three months ended March 31, 2026 and 2025 decreased to $0.4 million, as compared to $0.5 million for the same period in 2025. For the three months ended March 31, 2026, incentives as a percentage of net sales decreased to 1.6% as compared to 2.0% for the same period in 2025.

Selling and Administrative Expenses

Selling and administrative expenses include a combination of both fixed and variable expenses. These expenses consist of compensation and benefits for employees; temporary and contract labor; accounting, legal and consulting fees; compensation to our board of directors; warehouse and fulfillment costs; depreciation and amortization; marketing-related expenses; travel and entertainment expenses; credit card processing fees; costs for software maintenance agreements; insurance; charitable contributions; office lease expense; utilities; bad debt; and other miscellaneous operating expenses.

For the three months ended March 31, 2026, selling and administrative expenses decreased by $0.7 million, or 7.3%, to $9.3 million, as compared to $10.0 million for the same period in 2025. The decrease in selling and administrative expenses was the result of a $0.3 million reduction in office expenses, a $0.2 million decrease in legal and consulting fees, a $0.1 million decrease in marketing costs and a $0.1 million decrease in payroll costs. Selling and administrative expenses, as a percentage of net sales, for the three months ended March 31, 2026 decreased to 37.3% from 37.7% for the same period in 2025.

Other Income (Expense), Net

Foreign exchange gains were $1.4 million for the three months ended March 31, 2026. Foreign exchange losses were $0.4 million for the three months ended March 31, 2025.

Income Tax Provision

Income tax expense was $0.2 million for the three months ended March 31, 2026 and 2025.

Income tax (provision) or benefit 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 three months ended March 31,:

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

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

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

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

The provision for income taxes is directly related to our profitability and changes in the taxable income across countries of operation. For the three months ended March 31, 2026 and 2025, the Company’s effective tax rate was 14.5% and (15.6)% , respectively.

The effective tax rates for the three months ended March 31, 2026 and 2025 was different from the federal statutory rate due primarily to the mix of earnings across jurisdictions and the associated valuation allowances recorded on losses in certain jurisdictions.

LIQUIDITY AND CAPITAL RESOURCES

Cash and Cash Equivalents

As of March 31, 2026, our cash and cash equivalents increased by 13.4%, or $0.8 million, to $7.0 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 March 31, 2026 and December 31, 2025, respectively. The long-term portion of restricted cash balances was $0.2 million at each of March 31, 2026 and December 31, 2025

Our principal use of cash is to pay for operating expenses, including commissions and incentives, capital assets, inventory purchases, and periodic cash dividends. We did not pay a dividend in the current quarter. Business objectives, operations, and expansion of operations are funded through net cash flows from operations rather than incurring long-term debt.

Working Capital

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

Net Cash Flows

Our net consolidated cash flows consisted of the following, for the three months ended March 31, (in millions):

Operating Activities

Operating activities provided $1.1 million cash for the three months ended March 31, 2026 as compared to cash used of $1.4 million for the same period in 2025.

Investing Activities

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

Financing Activities

For the three months ended March 31, 2026, our financing activities used cash of $0.1 million in the repayment of finance lease obligations. For the three months ended March 31, 2025, our financing activities used cash of $0.1 million in the repayment of finance lease obligations and $0.1 million in the repayment of notes payable.

Liquidity and Going Concern

As of March 31, 2026, our cash and cash equivalents was $7.0 million and working capital of $1.7 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.

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

• Decline in net sales, operating losses, and negative cash flows from operations;
• Capital expenditure requirements that have historically reduced available liquidity; and
• An organizational structure that is no longer aligned with the Company’s current operating scale, resulting in inefficiencies and elevated fixed costs

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

• Capital Discipline: The Company has suspended non-essential capital expenditures, and no discretionary capital projects are planned for fiscal year 2026, which is expected to significantly reduce cash outflows.
• Cost Reduction Plan: Management has developed and begun executing a comprehensive cost reduction plan designed to better align the Company’s cost structure with its current operations. This includes cost reduction of certain functional areas and a reduction in fixed selling, general, and administrative expenses.
• Margin Improvement Initiatives: The Company is implementing targeted price increases and continues to focus on supply chain optimization to improve gross margins.
• Compensation and Cost Controls: The Company has implemented adjustments to compensation structures and other cost control measures to reduce operating expenses and improve cash flow.
• Revenue Growth Focus: Management is prioritizing initiatives aimed at stabilizing and increasing revenue to support improved operating performance and liquidity.
• ERP Systems Improvement: During 2025 we had several issues with one of our order processing systems in North America. This issue resulted in an estimated loss of over $6.0 million in revenue. The Company believes this loss in revenue affected its ability to generate operating income for the remainder of the year 2025.

Additional Cost-Cutting measures effective March 31, 2026

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

• Director compensation — conversion to equity: On March 10, 2026, the Board of Directors approved changes to director compensation effective April 1, 2026, enabling directors to elect to receive the remaining balance of their 2026 retainer and other fees as stock grants in lieu of cash for the remainder of the calendar year. The Company received final elections from all Board members by March 13, 2026. The conversion of Board fees from cash to equity is expected to generate an annual cash preservation benefit of approximately $0.8 million, with approximately $0.6 million expected to be realized during the remainder of fiscal 2026.
• Headcount and personnel cost reductions: The Company implemented meaningful headcount-related reductions across headquarters personnel, while preserving key capabilities in finance, legal, operations, and revenue support. These reductions are expected to generate significant cost savings over the next 12 months, with a proportionate benefit anticipated over the remainder of fiscal 2026.
• Facilities and overhead actions: Management is evaluating lease renegotiation and sublease alternatives to reduce facilities expenses.

Management has prepared cash flow projections that incorporate these plans, as well as historical liquidity trends, and reflect its best estimates of future operating performance and liquidity needs. 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, and there can be no assurance 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.

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

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

Long Term Liquidity

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

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

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

OFF-BALANCE SHEET ARRANGEMENTS

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

CRITICAL ACCOUNTING ESTIMATES

Our condensed consolidated financial statements are prepared in accordance with GAAP. The application of GAAP requires us to make estimates and assumptions that affect the reported values of assets and liabilities at the date of our financial statements, the reported amounts of revenues and expenses during the reporting period, and the related disclosures of contingent assets and liabilities. We use estimates throughout our financial statements, which are influenced by management’s judgment and uncertainties. Our estimates are based on historical trends, industry standards, and various other assumptions that we believe are applicable and reasonable under the circumstances at the time the condensed consolidated financial statements are prepared. Our Audit Committee reviews our significant accounting policies and critical estimates. We continually evaluate and review our policies related to the portrayal of our consolidated financial position and consolidated results of operations that require the application of significant judgment by our management. We also analyze the need for certain estimates, including the need for such items as allowance for credit losses, inventory reserves, long-lived fixed assets and capitalization of internal-use software development costs, reserve for uncertain income tax positions and tax valuation allowances, revenue recognition, sales returns, and deferred revenues, accounting for stock-based compensation, and contingencies and litigation. Historically, actual results have not materially deviated from our estimates. However, we caution readers that actual results could differ from our estimates and assumptions applied in the preparation of our condensed consolidated financial statements. If circumstances change relating to the various assumptions or conditions used in our estimates, we could experience an adverse effect on our financial position, results of operations, and cash flows. We have identified the following applicable significant accounting policies and critical estimates as of March 31, 2026.

Inventory Reserves

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

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

Tax Valuation Allowances

As of March 31, 2026, there was nothing recorded on our condensed consolidated balance sheet related to uncertain income tax positions. As required by Topic 740, we use judgments and make estimates and assumptions related to evaluating the probability of uncertain income tax positions. We base our estimates and assumptions on the potential liability related to an assessment of whether the income tax position will “more likely than not” be sustained in an income tax audit. We are also subject to periodic audits from multiple domestic and foreign tax authorities related to income tax and other forms of taxation. These audits examine our tax positions, timing of income and deductions, and allocation procedures across multiple jurisdictions. Depending on the nature of the tax issue, we could be subject to audit over several years. There are ongoing income tax audits in various international jurisdictions that we believe are not material to our financial statements.

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

We are exposed, however, to other market risks, including changes in currency exchange rates as measured against the United States dollar. Because the change in value of the United States dollar measured against foreign currency may affect our consolidated financial results, changes in foreign currency exchange rates could positively or negatively affect our results as expressed in United States dollars. For example, when the United States dollar strengthens against foreign currencies in which our products are sold or weakens against foreign currencies in which we may incur costs, our consolidated net sales or related costs and expenses could be adversely affected. We translate our revenues and expenses in foreign markets using an average rate.

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

We caution that we cannot predict with any certainty our future exposure to such currency exchange rate fluctuations or the impact, if any, such fluctuations may have on our future business, product pricing, operating expenses, and on our consolidated financial position, results of operations, or cash flows. However, to combat such market risk, we closely monitor our exposure to currency fluctuations.

Evaluation of Disclosure Controls and Procedures

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

Changes in Internal Control over Financial Reporting

During the quarter ended March 31, 2026, there were no changes in our internal control over our financial reporting that we believe materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Our profitability and market competitiveness may be adversely impacted by changes in trade policies, including tariffs or other factors.

Changes in trade policies, including the imposition of new tariffs or increases in existing tariffs between the United States, Mexico, Canada, China, South Korea or other countries, or reactionary measures including retaliatory tariffs, legal challenges, or currency manipulation, could adversely affect our cost structure and profitability. If tariffs on imported materials, components, or finished goods increase, our manufacturing and supply chain costs may rise. Furthermore, changes to trade policies, retaliatory measures, or prolonged uncertainty in trade relationships could result in supply chain disruptions, delayed shipments, or increased operational complexity, adversely affecting our business and financial results. While we take steps to mitigate or avoid these increased costs and disruptions, our ability to do so may be limited by operational and supply chain constraints and uncertainties, especially in the short term. In addition, our ability to recover cost increases and maintain profitability levels through price adjustments may be limited by competitive pressures, customer acceptance, and contractual limitations.

International trade disputes, geopolitical tensions, and military conflicts have led, and continue to lead, to new and increasing export restrictions, trade barriers, tariffs, and other trade measures that can increase our manufacturing and transportation costs, limit our ability to sell to certain customers or markets, limit our ability to procure, or increase our costs for, components or raw materials, impede or slow the movement of our goods across borders, or otherwise restrict our ability to conduct operations. Increasing protectionism, economic nationalism, and national security concerns may also lead to further changes in trade policy. We work closely with our manufacturing partners to implement ways to mitigate the impact of these tariffs on our supply chain as promptly and reasonably as practicable, including shifting production outside of areas where tariffs could increase our costs. We cannot predict what further actions may be taken with respect to export regulations, tariffs or other trade regulations between the United States and other countries, what products or companies may be subject to such actions, or what actions may be taken by other countries in retaliation. In addition, actions to mitigate the effect of these tariffs are disruptive on our operations, may not be completely successful and may result in higher long-term manufacturing costs. Moreover, there is no certainty that countries to which we have shifted our manufacturing operations will not be subject to similar tariffs in the future. As a result, we may be required to raise our prices on certain products, which could result in the loss of customers and harm to our revenue, market share, competitive position and operating performance.

Our failure to comply with The Nasdaq Capital Market continued listing standards may adversely affect the price and liquidity of our shares of common stock as well as our ability to raise capital in the future.

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), which requires listed companies on the Nasdaq Capital Market to maintain minimum stockholder's equity of $2,500,000.

Pursuant to Nasdaq rules, we have been provided a period of time to submit a plan to regain compliance. There can be no assurance that Nasdaq will accept our compliance plan or that we will be able to regain compliance within any applicable cure period. If we are unable to regain compliance, or if Nasdaq otherwise determines to delist our common stock, our securities could be removed from trading on The Nasdaq Capital Market.

A delisting could materially and adversely affect the liquidity and market price of our common stock, reduce analyst coverage and investor interest, and impair our ability to raise capital on acceptable terms, if at all. Any of these outcomes could have a material adverse effect on our business, financial condition, and results of operations.

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our 2025 Annual Report, which could materially affect our business or our consolidated financial position, results of operations, and cash flows. The risks described in our 2025 Annual Report are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be insignificant also may become materially adverse or may affect our business in the future or our consolidated financial position, results of operations, or cash flows.