Welcome to the Mannatech Incorporated Second Quarter 2009 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentations. (Operator's Instructions) As a reminder, this conference is being recorded. I would like to now turn the conference over to our moderator for today, Mr. Gary Spinell, Vice President of Finance and Administration. Thank you. Mr. Spinell, you may begin your conference.

Thank you. Good morning, everyone. This is Gary Spinell, and I welcome you to Mannatech's second quarter 2009 earnings call. Before we begin the call I will first read the Safe Harbor statement. During this conference call we may make forward-looking statements which can involve future events or future financial performance. Forward-looking statements generally can be identified by the use of phrases or terminology such as will continue, may, believe, intend, expects, potential, should, and plan, or other similar words, or the negative of such terminology. We caution listeners that such forward-looking statements are subject to certain events, risks, uncertainties, and other factors, and speak only as of today. We also refer our listeners to review our SEC submission. Thank you, and now I will turn the call over to Mr. Wayne Badovinus, Mannatech's President and CEO.

Hello, and good morning, everyone. This is Wayne Badovinus, President and CEO of Mannatech. It is a pleasure to be here to update you on our progress. The economic environment and current foreign exchange market continue to create a challenging environment for most companies and Mannatech is no exception. At the same time, we are beginning to build on the foundation of sales and recruiting growth we described in our last call. We believe maintaining this recruiting growth and ultimately generating sales and profitability will be the result. Our version of an economic stimulus plan or the Y.E.S. Plan as we call it, was launched in late January. There has been great associate enthusiasm and excitement about this plan, throughout North America and South Africa. Our domestic pack sales have increased dramatically compared to last year. Quarterly recruiting totals are at the highest level in over a year and attendance at our regional events is up appreciably compared to last year, and we continue to aggressively manage expense levels. While many of our results are positive, the company still reported a net loss of $5.5 million or $0.21 per share in the second quarter of 2009. This compares to a net loss of $10.5 million or $0.40 loss per share for the second quarter of 2008. Net income was negatively impacted due to the short-term costs associated with greater pack sales and expanding our customer base. Steve Fenstermacher, our CFO, will provide additional insight on this in a few minutes. Our operating expenses for the second quarter of 2009 were $29.9 million, a 38.6% savings compared to the second quarter of 2008. We have now operated at lower levels of operating expenses for a full year. Second quarter 2009 sales were $77.6 million, a decrease of 10.6% from the same…

Thanks, Wayne, and good morning, everyone. To recap our second quarter, sales were $77.6 million for the quarter, our operating deficit was $11 million, our net loss was $5.5 million, and the deficit per share was $0.21. As Wayne pointed out, Mannatech again made progress, however, in the second quarter by increasing our pack sales compared to last year, thus reversing that decline trend and also posting an increase in new recruiting as well. These two key performance factors have always been regarded as leading indicators for future sales trends. While our sales total of $77.6 million for the quarter was down from Q2 of 2008 by 10.6%, we essentially equalled the sales level of last year's third quarter, and we beat the Q4 2008 and Q1 2009 sales as well. We were up almost 10% in trend from first quarter sales in the second quarter. Our recruiting results were very encouraging, showing increases of at least 20% or greater against each quarter since a year ago. The combined effects of the popularity of the new All-Star $499 initial purchase pack and the motivational aspects of the annual travel incentive contest, drove our domestic business in the quarter on a very specific basis, in additional also to our international operations. We saw pack sales grow 22% and our attraction of new associates improved 27%. We briefly described in earlier conference calls, our plan of commissions and bonuses related to sales of initial purchase packs and the program of great travel incentive trips for which our business builders qualify each spring. We saw a tremendous response this year with increased recruiting in packs sales which surpassed several previous years' incentive period results. The short-term commission costs rose to levels which were higher than expected, but we also saw new associate signups…

Thank you, Steve. I have now been at Mannatech for a little over one year. We have accomplished a great deal and learned a lot in the past 12 months, and now we are clearly focused on what we will accomplish in the next 12 months. Looking back, we've created a sense of accountability and attention to detail across our organization for expense control. As stated earlier, our operating expenses are running consistently well below prior year. We settled all outstanding major litigation. The second quarter was the first full quarter in almost two years in which we did not have to divert a considerable amount of time and resources to litigation. We are now fully focused on growing the business. We launched two major products, OsoLean fat loss powder and BounceBack capsules, which have both proven to be powerful products to the field. We stabilized the declining sales trend and appear to have turned the corner on recruiting. The last six months' recruiting results are extremely noteworthy, and Mannatech was recently named the official nutritional company of the US Open of the International Sports Karate Association. This is the world's most prestigious martial arts organization and competition. But it is even more fun to talk about the future. Although we have improved sales in recruiting in North America, we are not standing still. Rather, these results indicate just the beginning of where we believe this business is going. It is imperative that you know we are working diligently to launch an extensive number of initiatives in the next six months. First, the 499 All-Star Pack and Y.E.S. Plan will launch in Europe this fall and will be launched in our Asian markets in January. Second, two weeks ago we announced we will open four markets in Europe in one…

(Operator's Instructions) Your first question comes from the line of Peter Park.

Hi. How should I think about commissions as a percentage of sales going forward? Is the second quarter a blip or should we think about it being permanently higher like this?

Hi, Peter, good morning. The commissions rate in the qualifying period each year for our travel incentive contest generally shows an elevation compared to the third and fourth quarters of the year, if you go back and take a look at quarter-over-quarter comparisons. This year we were very pleased by the high level of recruiting success and frankly by the sheer numbers of new associates attracted to the business and our products. The accompanying number of specific bonuses which I mentioned during the main portion of the call which were triggered by many, many of the new associates that have joined us, elevated the rate higher than we've seen in the past couple of years due to a certain extent because those numbers are much lower in general terms, and the approach that appears to have been taken by a number of our existing and new associates as well is directed towards directly building their downline businesses to a much higher degree than we've seen over the last couple of years. So I would project that the elevation seen a little bit in the first quarter and then much higher in the second quarter, will begin to return to much more normalized levels as we transition through the third quarter, and further on from there different parameters will be in effect concerning a number of those bonuses, okay?

So you mean that those bonuses will be cut in future periods because —

Actually, the parameter for triggering the bonuses will be strengthened.

So making it harder for people to get those bonuses.

There will be additional results required in order to trigger the bonuses, Peter.

Got it, okay. Let's talk about your cash position, can you walk me through your cash that's available domestically and walk us through how you will fund yourself in future periods?

Well as you're aware we operate in a number of countries around the world and that gives us the ability to move cash to areas where we need it on a fairly regular basis. So we do have quite a bit of movement of cash that goes on during a given quarter and from month to month. There are different times when inventory investment is required, say in some of our international operations and our Swiss office coordinates that. There are other times when we have other needs here. So we have the ability to move the cash around to the points where we specifically need it. If you look on a quarter-to-quarter basis, the change from the end of March to the end of June in our primary cash number on the balance sheet really reflects the somewhat higher direct paid bonuses and commissions in the second quarter, Peter.

No, that's not where I'm going with this. So what I typically do is I look at your cash that's unrestricted on your balance sheet, which as of March was $26.4 million, and then it's disclosed in the 10-Q that there's $15.7 million that's offshore. There's roughly, I think $2.3 million that you need to pay out for a post-employment related royalty stream, and then you've got — at that time you had $1.6 million for dividends that are payable for the rest of 2009 if you keep going at your run rate. And I had $5 million in cash that you need to pay out for the Texas Attorney General. So that leaves a pro forma net unrestricted domestic cash position of less than $2 million, and I'm wondering how you're going to fund yourself with cash, given that on a go forward basis? That's my question.

Well, I'm not familiar with all of the timing assumptions which you have made in your calculations, Peter. We also have received a tax refund which, in the March and the June balance sheets is shown as a receivable, but the filing has occurred and since the end of the second quarter period we've also received that cash refund —

Is that the $6.7 million, you received that in cash?

A portion of it.

And when will you receive the rest?

There are different timing periods that relate to different years.

If you keep incurring losses in the future, how much can you get back in taxes from the government?

Well I can't give you a specific figure, but there are operating loss situations and carry-backs which will provide a certain amount, however, I have to make the point that with the current recruiting that we've seen the changes we expect to see in the next couple of months in our overall rate picture, especially the commissions rate, we are doing everything we can to return the company to profitability as rapidly as possible.

Got it. On the balance sheet you have the commissions and incentives payable that went up from $14 million to let's say $16.7 million in the second quarter. What will that number look like going forward? Is it just higher now because you had so much success with your downline recruiting, et cetera, and so that number will trend down in the future periods?

Actually, Peter, what you see on the balance sheet is somewhat of an accrual situation. As you're aware, our accounting is on a quarterly calendar basis so we're looking at March 31st and June 30th. The business with our associates in the field runs on 13 28-day operating periods and commissions are paid on the specific dates during those 28-day operating periods on a 17-day lag basis. Not to take you through all of the details here, but as the company grows with higher sales of pack and/or products, the commissions number in sheer dollars would be expected to continue to grow as well, but the payment date of those commissions is not specifically related to the calendar, if you will, it is related to the 28-day period. So depending on where we are in the 28-day operating period, you could see a higher number in commissions payable if the payment for the prior period is yet to be made et cetera, so you see where those details come in?

(Operator's Instructions) And there are no further questions at this time. Mr. Spinell, are there any closing remarks?

Thank you all very much for being with us today, and we look forward to speaking with you at the end of the next quarter.

Thank you, ladies and gentlemen, this concludes today's conference call. You may now disconnect.