Mannatech Inc.

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Mannatech Inc.

600 South Royal Lane, Suite 200
Coppell, Texas 75019
U.S.A.
Telephone: (972) 471-7400
Fax: (972) 471-7260
Web site: http://www.mannatech-inc.com

Public Company
Incorporated: 1993 as Emprise International, Inc.
Employees: 294
Sales: $179.7 million (1999)
Stock Exchanges: NASDAQ
Ticker Symbol: MTEX
NAIC: 422210 Botanicals Wholesaling

Mannatech Inc. is a relatively new but rapidly growing firm that uses multilevel marketing (MLM) to sell a variety of nutritional supplements in the form of capsules, drink powders, bars, and chewable products. Its patent-pending and proprietary Ambrotose complex, made with Aloe Vera juice and other ingredients, is found in almost all of its various products. Mannatech leaders state that their company joined the supplement industry due in part to the U.S. Congress passing a 1994 law that prevented overregulation by the Food and Drug Administration (FDA). Mannatech thus is part of a growing industry fueled by favorable laws, increasing consumer demand for natural health products, and more acceptance by health care professionals who during much of the 20th century considered supplements a form of quackery. Mannatech operates in the United States, Canada, Australia, and the United Kingdom.

Getting Started

Mannatech began as Emprise International, Inc., incorporated on November 4, 1993 under Texas laws. William C. Fioretti was its first president/CEO. His cousin Charles E. Fioretti was a founding director and vice-president. Samuel L. Caster was Emprise’s third founding director. Other original officers were Secretary Gary L. Watson and Treasurer/Chief Financial Officer Patrick D. Cobb.

Sam Caster, in an interview in the January 1998 Success magazine, explained some of the background that led to the start of Emprise. In the 1980s he used multilevel marketing to sell insulation through a company called Eagle Shield. Although that firm’s gross sales reached $120 million in its third year, the firm’s products lacked patent protection and were not consumable, and thus sales quickly declined.

Caster then teamed up with biochemist William (Bill) Fioretti. The two looked into nutritional products, but decided that the timing was not right. * ‘Instead, we decided to go into the Pharmaceuticals business and actually started making biotech products for the agriculture industry.” But then a new federal law changed everything.

“We started the company,” said Sam Caster in the Mannatech Magazine (1998, volume 3, number 1), “as a result of Congress’ passage of the Dietary Supplement Health and Education Act.” That 1994 law, sponsored by Utah Senator Orrin Hatch, prevented the FDA from closely regulating vitamins and nutritional supplements like it regulated drugs. Many supplement and natural products firms had lobbied for passage of that law, a major victory for the industry.

’ The real key to this new law was that if you were willing to do research on a particular functioning component of any food product, that information could then be reported in what’s known as a peer-review journal,” said Caster in Success. “And that offered a huge, huge, opportunity to reenter the nutrition industry.”

Caster and Fioretti hired scientists from three pharmaceutical firms, including Carrington Laboratories of Dallas. In 1994 Emprise began selling products made with Manapol, a patented stabilized form of Aloe Vera made by Carrington. Aloe Vera was well known for its healing and health benefits, but under most manufacturing conditions the fresh plant product lost its usefulness.

In 1994 Emprise introduced the following products: ManAloe, Plus caplets, MVP, Sport capsules, PhytAloe, Firm, and Naturalizer (later renamed Ambroderm). Based on the sale of those products, in 1994, the company’s first full year in business, its net sales were $8.4 million, with a net loss of $342,000.

Expansion in the Mid-1990s

In 1995 the company introduced three new products: Emprizone, EmPact sports drink, and chewable PhytoBears, a more nutritious version of the popular Gummi Bears candy. A major step occurred in 1996 when the firm introduced its patent-pending product Ambrotose, described in company literature as “naturally occuring [sic] plant polysaccharides including freeze-dried Aloe Vera Gel Extract-Manapol powder.” From that point, most company products contained Ambrotose. Other new products in 1996 were Profile 1, Profile 2, Profile 3 vitamins and minerals, Sport with Ambrotose, and Mannatonin tablets made with Manapol and melatonin.

Emprise officials in 1995 also began the process of changing the company’s name to Mannatech Incorporated. By early 1996 the transition was completed.

With new products and more distributors signed up, the company’s net sales in 1995 increased to $32.1 million, and Emprise gained a net income of $2.3 million. In 1996 sales jumped to $86.3 million with net income of $7.2 million. In 1996 the American Naturopathic Medical Association honored Mannatech with the Biochemistry Discovery of the Year Award, and the NBC Today Show highlighted the firm’s PhytoBears chewable supplements as one of the top products of 1996. Other positive publicity came when USA Track & Field chose Mannatech to supply supplements to the American athletes participating in the 2000 Olympics.

In March 1997 Mannatech moved to its new 110,000-square-foot headquarters in Coppell, Texas, and the following January its new distribution center opened nearby, capable of shipping 40,000 orders daily. To plan for future growth, the company also teamed up with “an international distribution partner that has over 450 distribution centers worldwide,” according to Mannatech Magazine.

Mannatech in 1997 introduced three new products (Bulk Ambrotose, Bulk EmPact, and MannaCleanse), and its net sales reached $150.6 million, with a net 1997 income of $10.6 million.

Leading Distributors in the Middle to Late 1990s

Mannatech’s growth came not only from the corporation’s efforts but also its independent self-employed distributors, called “Associates” by the company. One leading associate was Vivian Saccucci, a homemaker and mother of four who daily milked 46 cows and helped her husband run a remote Canadian dairy farm before joining Mannatech. By 1997 she was one of the firm’s top 100 income earners, which allowed her and her husband to sell their dairy in 1998.

Gene and Lora Enabnit owned four women’s clothing stores in Iowa before becoming Mannatech associates. Although they earlier had a poor experience with another MLM firm, in 1995 they became Mannatech associates. By 1997 they had been honored as Mannatech’s Distributor of the Year and had made almost $1 million in Mannatech, which allowed them to sell their stores and buy a farm. Their purpose was not to grow crops but to build memories and enjoy the rural lifestyle, including Gene’s prized restored tractors and other farm equipment. “Mannatech has made it possible for us to spend so much time and share so much with our children and their families,” said Gene in a 1997 Mannatech Magazine, adding “How can you put a price on that?”

A third Mannatech distributorship was started by Joyce Oliveto in 1996. She started distributing Mannatech products to clients at her Brighton, Michigan healing center called Health Horizons. By the end of her first year with Mannatech, Oliveto made $30,000 a month. In 1998 she and her new husband used Mannatech profits to buy an 80-acre children’s camp to serve needy Detroit children.

To facilitate communication between the corporation and its distributors, in October 1996 Mannatech associates elected their first Associate Advisory Council, comprised of six women and six men. By that time the number of Associates had reached more than 152,000, so a formal structure was needed to build bridges and solve problems.

Growth and Challenges in the Late 1990s and Beyond

To expand internationally, in 1998 Mannatech installed a new mainframe computer system that was needed to create a seamless global commission system, in which distributors would be paid commissions for their integrated downlines, instead of being paid separate commissions for sales in different nations.

In fall 1998 Mannatech began recruiting new distributors and shipping products in Australia, its first market outside North America. The company’s six-person staff worked in an office in Hombush, a Sydney suburb. The following spring, on April 30, 1999 Board Chairman Charles Fioretti and President Sam Caster wrote to Mannatech shareholders as follows: “Australia has responded enthusiastically to our products as well as to our Mannatech culture, as sales there have far exceeded our expectations.”

Company Perspectives:

The Mannatech Mission is to provide the opportunity for our Associates to realize their dreams and to help them create financial independence by providing proprietary products backed by scientific validation and innovative research. Mannatech is committed to providing uncompromising service and cutting-edge systems to support the realization of these dreams.

New Mannatech products introduced in 1998 included protein and carbohydrate versions of its MannaBar nutritional bars, each with the company’s recommended daily minimum amount of Ambrotose, PhytAloe, and Plus. A Canadian company headed by lawyer Saul Katz helped develop MannaBars and other nutrition bars in cooperation with the University of Alberta Hospital, which received royalties on the sale of MannaBars. Mannatech in 1998 also introduced Manna-C capsules with Ambrotose and herbs to provide Vitamin C and other nutrients, Bulk PhytAloe, and Ambrostart drink powder with Ambrotose and Bulk PhytAloe to start the day.

Mannatech in February 1999 became a public corporation with the initial public offering (IPO) of its common stock traded on the Nasdaq National Market. Underwriters for the Mannatech IPO were Milliard Lyonds; NationsBanc Montgomery Securities; and Piper Jaffray. Mannatech stock prices increased 181 percent to close at $22.50 per share after its first day of trading. The next day the stock reached $44.50 per share.

Some analysts thought that part of that huge stock gain was probably due to Mannatech Associates investing in the company, but confusion accounted for the rest of the rapid gain. “I think people thought this was an Internet or a technology company: Mann-A-TECH,” said Joe Hammer of Adams, Harkness & Hill in the February 22,1999 issue of the Investment Dealers’ Digest. In any case, Mannatech’s stock performance declined during the rest of 1999 and early 2000, falling below $5 per share.

The firm’s IPO raised funds needed for international expansion. In November 1999 Mannatech began operations in the United Kingdom by opening an office in the city of Basing-stoke. In early 2000 President Mike Steinle and other leaders of Mannatech Limited, the U.K. subsidiary of Mannatech Incorporated, held meetings in England, Scotland, and Northern Ireland. The country’s first national convention was held in Nottingham on February 5, 2000, featuring Mannatech Incorporated President Sam Caster.

To support such international expansion, in late 1999 Mannatech hired Prestige International to aid communication between Mannatech employees, sales associates, and customers. Prestige operated a “global call center network bridging the gap between companies and consumers,” according to a December 22, 1999 Business Wire. Prestige staff used 13 languages and telephones, fax, mail, and e-mail to serve its clients such as Mannatech.

Mannatech faced various legal and public relations challenges in the late 1990s. In February 1997 it entered into a consent decree with the state of Michigan in which the company agreed to monitor product purchases by its associates to prevent any coerced sales or stockpiled inventories.

Stephen Barrett, M.D. and chairman of Quackwatch Inc., asked, “Why are they telling consumers one thing and investors another?” He was referring to Mannatech telling consumers that its supplements were safe and effective but also telling investors in a stock prospectus that it was not sure if its products were safe or effective, according to the May 1999 National Council for Reliable Health Information Newsletter. The National Council Against Health Fraud was critical of what it considered Mannatech’s deceptive descriptions of Manapol.

Several newspaper articles in 1999 covered a serious problem involving Mannatech, the University of California at Irvine, and a researcher named Darryl See, M.D. who had joined the UC Irvine faculty in 1992. In 1997 See’s wife became a Mannatech distributor, and the following year he began speaking at Mannatech sales meetings. Mannatech also paid him $10,000 a month as a nutritional consultant. In 1998 See resigned from UC Irvine after admitting not following university research rules. In 1999 he published an article in the Journal of the American Nutraceutical Association, however, that caused concern for both the university and Mannatech. UC Irvine said his research was not funded, as See claimed, by a grant from the National Institutes of Health (NIH).

In August 1999 Mannatech sued See in the U.S. District Court in Dallas, alleging that he misled the company when he claimed that the study had been funded by the NIH and conducted under the auspices of the UC Irvine. See’s article claimed that Mannatech supplements ranked as one of the top five out of 196 tested supplements. He also claimed that Mannatech products were effective against AIDS and cancer. Mannatech distributors used See’s research to support their sales efforts and illustrate the positive effects of its glyconutritional products. Mannatech thus sued See for fraud, misrepresentation, and breach of contract. This story was covered on the Web page of MLM Watch (www.mlmwatch.org).

The See brouhaha illustrated important issues involving scientific research and commercial interests. Perhaps most important was the issue of conflict-of-interest, since See had financial incentives to demonstrate the value of Mannatech supplements. In the 1990s many supplement firms used scientists to back their efforts. How unbiased were they? Scientific fraud in several fields, not just nutrition, received more press coverage in the 1990s, aiding those who questioned the limits of science. In any case, Mannatech in 2000 continued to operate from its Texas base as it weathered the storm over the research by its former consultant.

Principal Subsidiaries

Mannatech Limited; Mannatech Foreign Sales Corporation; Internet Health Group; Mannatech Australia Pty, Limited.

Key Dates:

1993:: Emprise International, Inc. is incorporated under Texas law on November 4.
1994:: Company begins selling products with Manapol powder made by Carrington Laboratories.
1996:: Emprise changes name to Mannatech Incorporated; company’s independent associates elect the first Associate Advisory Council; firm begins operations in Canada.
1998:: Mannatech’s new distribution center is opened in Coppell, Texas; company begins Australian operations in the fall.
1999:: Mannatech goes public.
2000:: Expansion into Japan is planned; firm renews its contract with Carrington Laboratories, the producer of Manapol powder.

Principal Competitors

General Nutrition Companies, Inc.; Herbalife International, Inc.; Nu Skin Enterprises, Inc.; Rexall Showcase International; Rexall Sundown; Solgar Vitamin and Herb Company, Inc.; Twinlab Corporation; Weider Nutrition International, Inc.; Am-way Corporation; Body Wise International, Inc.; Enrich International, Inc.; ENVIÓN International; Melaleuca, Inc.; Forever Living Products, Inc.