The following discussion is intended to assist in the understanding of our consolidated financial position and results of operations for the three and nine months ended September 30, 2008 as compared to the same period in 2007. Unless stated otherwise, all financial information presented below, throughout this report, and in the consolidated financial statements and related notes includes Mannatech, Incorporated and all of our subsidiaries on a consolidated basis.

Company Overview

We develop innovative, high-quality, proprietary nutritional supplements, topical and skin care products, and weight-management products that are sold through a global network-marketing system operating in the United States, Canada, Australia, the United Kingdom, Japan, New Zealand, the Republic of Korea, Taiwan, Denmark, Germany and South Africa. We will begin selling product in Singapore in the fourth quarter of 2008. The United States location processes orders for the United States, Canada, and South Africa. The Australian location process orders for both Australia and New Zealand and will process orders for Singapore beginning in the fourth quarter of 2008. The United Kingdom location processes orders for the United Kingdom, Denmark and Germany. The Switzerland office was created to manage certain day to day business needs of non-North American markets and coordinates our continued global expansion.

We operate as a single business segment and primarily sell our products through a network of approximately 540,000 independent associates and members who have purchased our products or packs within the last 12 months, which we refer to as current independent associates and members. We operate as a seller of nutritional supplements through our network marketing distribution channels operating in eleven different countries. We review and analyze our net sales by geographical location and further analyze our net sales by packs and by products. Each of our subsidiaries sells the same types of products and possesses similar economic characteristics, such as selling prices and gross margins.

Net sales decreased by 19.5% and 18.3%, respectively, for the three and nine months ended September 30, 2008, as compared to the same periods in 2007. Our gross profit as a percentage of sales for the three and nine months ended September 30, 2008, was 44.2% and 40.2%, respectively.

Because we sell our products through network-marketing distribution channels, the opportunities and challenges that affect us most are: recruitment and retention of independent associates and members, entry into new markets and growth of existing markets, new product introduction, and investment in our infrastructure.

During 2007 and 2008, we were subject to certain negative publicity resulting from heightened litigation activities. See Note 7 ("Litigation") to the consolidated financial statements included in this report for a detailed discussion of such legal proceedings.

In order to reward our independent associates for their business building successes, we modified our global associate career and compensation plan by increasing opportunities for certain qualified independent associates to earn additional bonuses, including matching bonuses for enrollers. These changes became effective for all countries except Taiwan and Korea in the business period beginning March 22, 2008. The changes became effective for Taiwan in the business period beginning May 17, 2008 and for Korea in the business period beginning June 14, 2008. We reduced the payout on global automatic orders in order to fund the new bonus pools

In March 2008, we launched a new global sales platform in the United States designed to assist our independent associates in their business-building efforts. Also in March 2008, we launched Bounce-Back™, an all natural product that supports recovery after physical activity or over-exertion, in the United States.

In July 2008, we eliminated approximately 60 positions, or roughly 15% of our U.S. workforce in an effort to reduce expenses to reposition us for improved profitability. In connection with our reduction in workforce, we accrued approximately $1.0 million of severance payments and outplacement fees for the period ended June 30, 2008, substantially all of which was paid at September 30, 2008.

In September 2008, the purity of Mannatech's PLUS™ and Ambrotose AO® glyconutritional supplements has been certified to show they meet their label claims for ingredients and purity by NSF International, an independent, accredited testing organization. In June, Mannatech received certifications from NSF for its Ambrotose® and Advanced Ambrotose™ products. The products were certified according to the NSF/ANSI 173 Dietary Supplement Standard-the only American national standard for dietary supplements.

In September 2008, we launched OsoLean™, a new fat-loss product. OsoLean™ whey protein supplement is an all-natural powder product that mixes with a variety of food and beverages allowing consumers to easily add it to any weight management and fitness program.

Results of Operations



The table below summarizes our consolidated operating results in dollars and as
a percentage of net sales for the three months ended September 30, 2008 and
2007.



                                                                                    Change from
                                       2008                    2007                 2008 to 2007
                                Total       % of        Total       % of
                               dollars    net sales    dollars    net sales     Dollar     Percentage
                                                ( in thousands, except percentages)
Net sales                      $ 77,991         100 %  $ 96,911         100 %  $ (18,920 )      (19.5 )%
Cost of sales                    11,105        14.2 %    14,868        15.3 %     (3,763 )      (25.3 )%
Commissions and incentives       32,396        41.6 %    43,230        44.6 %    (10,834 )      (25.1 )%
                                 43,501        55.8 %    58,098        59.9 %    (14,597 )      (25.1 )%
Gross profit                     34,490        44.2 %    38,813        40.1 %     (4,323 )      (11.1 )%
Operating expenses:
Selling and administrative       18,753        24.0 %    21,342        22.0 %     (2,589 )      (12.1 )%
Depreciation and
amortization                      3,172         4.1 %     2,953         3.1 %        219          7.4 %
Other operating                  11,493        14.7 %    12,796        13.2 %     (1,303 )      (10.2 )%
Total operating expenses         33,418        42.8 %    37,091        38.3 %     (3,673 )       (9.9 )%
Income (loss) from
operations                        1,072         1.4 %     1,722         1.8 %       (650 )      (37.7 )%
Interest income                     266         0.3 %       614         0.6 %       (348 )      (56.7 )%
Other income (expense), net      (2,047 )      (2.6 )%     (194 )      (0.2 )%    (1,853 )     (955.2 )%
Income (loss) before income
taxes                              (709 )      (0.9 )%    2,142         2.2 %     (2,851 )     (133.1 )%
(Provision) benefit for
income taxes                        280         0.4 %      (396 )      (0.4 )%       676        170.7 %
Net income (loss)              $   (429 )      (0.5 )% $  1,746         1.8 %  $  (2,175 )     (124.6 )%

The table below summarizes our consolidated operating results in dollars and as a percentage of net sales for the nine months ended September 30, 2008 and 2007.

                                                                                      Change from
                                       2008                     2007                  2008 to 2007
                                 Total       % of         Total       % of
                                dollars    net sales     dollars    net sales     Dollar     Percentage
                                                 ( in thousands, except percentages)
Net sales                      $ 256,223         100 %  $ 313,453         100 %  $ (57,230 )      (18.3 )%
Cost of sales                     37,014        14.4 %     45,564        14.5 %     (8,550 )      (18.8 )%
Commissions and incentives       116,256        45.4 %    142,456        45.5 %    (26,200 )      (18.4 )%
                                 153,270        59.8 %    188,020        60.0 %    (34,750 )      (18.5 )%
Gross profit                     102,953        40.2 %    125,433        40.0 %    (22,480 )      (17.9 )%
Operating expenses:
Selling and administrative        63,349        24.7 %     63,331        20.2 %         18          0.0 %
Depreciation and
amortization                       9,225         3.6 %      7,283         2.3 %      1,942         26.7 %
Other operating                   49,530        19.4 %     41,432        13.2 %      8,098         19.5 %
Total operating expenses         122,104        47.7 %    112,046        35.7 %     10,058          9.0 %
Income (loss) from
operations                       (19,151 )      (7.5 )%    13,387         4.3 %    (32,538 )     (243.1 )%
Interest income                    1,219         0.5 %      1,902         0.6 %       (683 )      (35.9 )%
Other income (expense), net       (2,450 )      (1.0 )%       (91 )      (0.1 )%    (2,359 )   (2,592.3 )%
Income (loss) before income
taxes                            (20,382 )      (8.0 )%    15,198         4.8 %    (35,580 )     (234.1 )%
(Provision) benefit for
income taxes                       7,134         2.8 %     (5,036 )      (1.6 )%    12,170        241.7 %
Net income (loss)              $ (13,248 )      (5.2 )% $  10,162         3.2 %  $ (23,410 )     (230.4 )%

                    MANNATECH, INCORPORATED AND SUBSIDIARIES

       NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



Net Sales in Dollars and as a Percentage of Consolidated Net Sales



Consolidated net sales shipped to customers by location for the three months
ended September 30, 2008 and 2007 were as follows:



                                         2008                   2007
                                     (In millions, except percentages)
             United States        $    40.0       51.3 %   $    55.4   57.2 %
             Canada                     5.7        7.3 %         6.1    6.3 %
             Australia                  6.4        8.2 %         7.0    7.2 %
             United Kingdom             1.2        1.6 %         1.7    1.8 %
             Japan                     10.8       13.8 %        10.3   10.6 %
             New Zealand                1.2        1.5 %         1.6    1.7 %
             Republic of Korea          8.4       10.8 %        11.9   12.3 %
             Taiwan                     1.2        1.5 %         1.5    1.5 %
             Denmark                    0.3        0.4 %         0.3    0.3 %
             Germany                    0.8        1.0 %         1.1    1.1 %
             South Africa               2.0        2.6 %           -      -
             Totals               $    78.0        100 %   $    96.9    100 %

Consolidated net sales shipped to customers by location for the nine months ended September 30, 2008 and 2007 were as follows:

                                         2008                    2007
                                      (In millions, except percentages)
             United States        $    137.3      53.6 %   $    191.8   61.2 %
             Canada                     17.8       6.9 %         20.7    6.6 %
             Australia                  20.8       8.1 %         22.0    7.0 %
             United Kingdom              3.8       1.5 %          5.0    1.6 %
             Japan                      33.9      13.3 %         31.4   10.0 %
             New Zealand                 4.2       1.6 %          5.4    1.7 %
             Republic of Korea          27.4      10.7 %         28.6    9.1 %
             Taiwan                      3.7       1.4 %          4.0    1.3 %
             Denmark                     0.9       0.4 %          1.2    0.4 %
             Germany                     3.0       1.2 %          3.4    1.1 %
             South Africa                3.4       1.3 %            -      -
             Totals               $    256.2       100 %   $    313.5    100 %

Net Sales

For the three and nine months ended September 30, 2008, our operations outside of the United States accounted for approximately 48.7% and 46.4%, respectively, of our consolidated net sales, whereas in the same period in 2007, our operations outside of the United States accounted for approximately 42.8% and 38.8%, respectively, of our consolidated net sales.

Consolidated net sales for the three months ended September 30, 2008 decreased by $18.9 million, or 19.5%, as compared to the same period in 2007. The opening of business in South Africa in the second quarter of 2008 increased sales by $2.0 million. This increase was offset by declines in international and domestic sales, caused by independent associate and member concerns about certain negative publicity, as well as economic conditions.

Overall, the appreciation of foreign currencies had approximately a $0.1 million favorable impact on net sales for the three months ended September 30, 2008 and a $4.3 million favorable impact on net sales for the nine months ended September 30, 2008.

Our total sales and sales mix may be influenced by any of the following:

• changes in our sales prices;

• changes in consumer demand;

• changes in competitors' products;

• changes in economic conditions;

• changes in regulations;

• announcements of new scientific studies and breakthroughs;

• introduction of new products;

• discontinuation of existing products;

• adverse publicity; and

• changes in our commissions and incentives programs.

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

                                        Three Months                               Nine Months
                                                    Change                                      Change
                            2008     2007    Dollar    Percentage     2008      2007*    Dollar    Percentage
Product sales              $ 61.1   $ 77.1   $ (16.0 )      (20.8 )% $ 199.7   $ 237.5   $ (37.8 )      (15.9 )%
Pack sales                   13.2     16.4      (3.2 )      (19.5 )%    45.5      61.9     (16.4 )      (26.5 )%
Other, including freight      3.7      3.4       0.3          8.8 %     11.0      14.1      (3.1 )      (22.0 )%
Total net sales            $ 78.0   $ 96.9   $ (18.9 )      (19.5 )% $ 256.2   $ 313.5   $ (57.3 )      (18.3 )%

* In April 2007, we began operating our new ERP System, which allowed us to separately quantify deferred revenue associated with sales of packs and products that were shipped but not yet received by customers. As a result, in April 2007, we began recording deferred revenue related to packs with pack sales and deferred revenue associated with products with product sales. For the three months ended March 31, 2007, other sales included $1.9 million related to the change in deferred revenue for packs and products shipped but not yet received by customers, rather than in the applicable pack or product sales category.

The decrease in our consolidated net sales consisted of a decrease in the volume of products and packs sold and a change in the mix of packs and products sold. Pack sales generally correlate to the number of new independent associates and members who purchase starter packs and with the number of continuing independent associates who purchase upgrade or renewal packs. However, there is not a direct correlation between the number of new and continuing independent associates and members purchasing packs and the amount of product sales because independent associates and members may consume different products at different consumption levels.

Product Sales

Product sales for the three months ended September 30, 2008 decreased $16.0 million, or 20.8%, as compared to the same period in 2007. The decrease of $16.0 million was comprised of a decrease in existing product sales of $20.3 million, which was partially offset by a $4.3 million increase attributable to the introduction of new products. Product sales for the nine months ended September 30, 2008 decreased $37.8 million, or 15.9%, as compared to the same period in 2007. The decrease of $37.8 million was comprised of a decrease in existing product sales of $47.7 million, which was partially offset by a $9.9 million increase attributable to the introduction of new products. We believe existing product sales for the three and nine months ended September 30, 2008 decreased primarily due to independent associate and member concerns over certain negative publicity resulting from ongoing litigation activities.

• Optimal Skin Care in North America and certain international markets;

• A new sales kit in the United States;

• PhytoMatrix™ in Japan, Taiwan, United Kingdom, Denmark, Germany, and South Korea;

• Bounce Back™ in North America, Australia, and New Zealand;

• OsoLean™ in North America; and

• Various Optimal Health and Optimal Weight and Fitness products in South Africa.

Pack Sales

We sell packs to independent associates, which entitles them to purchase products at wholesale prices. Members may also purchase packs, which entitles them to purchase our products at a discount from published retail prices. Depending on the type of pack purchased, a pack may include certain products, promotional and educational information, and policies and procedures. Independent associates may also purchase upgrade packs, entitling the independent associate to additional promotional materials and additional commissions and incentives. Our continuing associates also purchase annual renewal packs.

The number of new and continuing independent associates and members who purchased our packs during the twelve months ended September 30, 2008 and 2007 were as follows:

                                       2008             2007
                     New          140,000   25.9 % 196,000   34.1 %
                     Continuing   400,000   74.1 % 379,000   65.9 %
                     Total        540,000    100 % 575,000    100 %

For the twelve months ended September 30, 2008, the overall number of independent associates and members decreased by 35,000 or 6.1%, as compared to September 30, 2007. We experienced a decrease in the number of upgrade and renewal packs purchased by our continuing independent associates and a decrease in the number of new independent associates and members purchasing starter packs as compared to the same period in 2007. We believe the decrease in upgrade and renewal packs and starter packs purchased may relate to independent associate and member concerns over certain negative publicity resulting from ongoing litigation activities. We took the following actions to help increase the number of independent associates and members:

• registered our most popular products with the appropriate regulatory agencies in all countries of operations;

• focused on new product development;

• explored new international markets;

• launched a new, aggressive marketing and educational campaign;

• instituted a 100% satisfaction guarantee program;

• strengthened compliance initiatives;

• initiated additional incentives;

• explored new advertising and educational tools to broaden name recognition;

• implemented changes to our global associate career and compensation plan; and

• introduced new products.

                                             Three months
                                                           Change
                                2008       2007     Dollar    Percentage
                                  (in millions, except percentages)
                 New          $    6.8    $   7.9   $  (1.1 )      (13.9 )%
                 Continuing        6.4        8.5      (2.1 )      (24.7 )%
                 Total        $   13.2    $  16.4   $  (3.2 )      (19.5 )%

                                             Nine months
                                                           Change
                                2008       2007     Dollar    Percentage
                                  (in millions, except percentages)
                 New          $   21.4    $  32.2   $ (10.8 )      (33.5 )%
                 Continuing       24.1       29.7      (5.6 )      (18.9 )%
                 Total        $   45.5    $  61.9   $ (16.4 )      (26.5 )%

Total pack sales for the three and nine months ended September 30, 2008 decreased by $3.2 million, or 19.5% and $16.4 million, or 26.5%, respectively, compared to the same periods in 2007. The decrease in total pack sales was composed of decreases of $1.1 million and $10.8 million, respectively, related to a decrease in the number of new independent associates and members purchasing starter packs and decreases of $2.1 million and $5.6 million, respectively, related to a decrease in the number of renewal and upgrade packs purchased by our continuing independent associates.

Other Sales

Other sales consisted of the following:

• sales of promotional materials;

• training and event registration fees;

• monthly fees collected for Success Tracker™, a customized electronic business-building and educational materials database for our independent associates that helps stimulate product sales and provide business management;

• freight revenue charged to our independent associates and members;

• a reserve for estimated sales refunds and returns; and

• for the three-months ended March 31, 2007, deferred revenue related to the timing of recognition of revenue for pack and product shipments.

Other sales for the three months ended September 30, 2008 increased by $0.3 million to $3.7 million as compared to $3.4 million for the same period in 2007. The increase in other sales primarily consisted of a decrease in sales refunds and returns of $0.5 million, which correlates with the decrease in product and pack sales, and an increase of $0.4 million in income related to a transactional tax holiday for certain sales occurring in 2008 and 2009, which was partially offset by a decrease of $0.6 million in freight fees. Despite the increase in freight charged per shipment, which was effective October 1, 2007, freight fees decreased due to the decrease in product and pack shipments.

Other sales for the nine months ended September 30, 2008 decreased by $3.1 million to $11.0 million as compared to $14.1 million for the same period in 2007. The decrease in other sales primarily consisted of a decrease of $1.7 million in freight fees, due to the decrease in product and pack shipments which more than offset the increase in freight charged per shipment, and the classification of deferred revenue of $1.9 million to pack and product sales, which was partially offset by an increase in income related to a transactional tax holiday for certain sales occurring in 2008 and 2009.

Gross profit for the three months ended September 30, 2008 decreased by $4.3 million, or 11.1%, to $34.5 million as compared to $38.8 million for the same period in 2007. For the three months ended September 30, 2008, gross profit as a percentage of net sales increased to 44.2% as compared to 40.1% for the same period in 2007. The decrease in gross profit was primarily due to a 19.5% decrease in net sales, which was partially offset by a 25.3% decrease in cost of sales and a 25.1% decrease in commissions and incentives.

Gross profit for the nine months ended September 30, 2008 decreased by $22.5 million, or 17.9%, to $103.0 million as compared to $125.4 million for the same period in 2007. For the nine months ended September 30, 2008, gross profit as a percentage of net sales increased to 40.2% as compared to 40.0% for the same period in 2007. The decrease in gross profit was primarily due to an 18.3% decrease in net sales, which was partially offset by an 18.8% decrease in cost of sales and an 18.4% decrease in commissions and incentives.

Cost of sales during the three months ended September 30, 2008 decreased by 25.3%, or $3.8 million, to $11.1million as compared to $14.9 million for the same period in 2007. The decrease in cost of sales was primarily due to a decrease in product costs of $1.8 million, which was consistent with the decline in sales for the quarter, and a $1.6 million decrease, primarily related to skin care inventory write-offs and complimentary products shipped in 2007 in connection with the recall of our North American Optimal Restoring Serum. Cost of sales as a percentage of net sales for the three months ended September 30, 2008 decreased to 14.2% as compared to 15.3% for the same period in 2007.

Cost of sales during the nine months ended September 30, 2008 decreased by 18.8%, or $8.6 million, to $37.0million as compared to $45.6 million for the same period in 2007. The decrease in cost of sales was primarily due to a decrease in product costs of $7.1 million, which was consistent with the decline in sales for the period, and a $1.3 million decrease, primarily related to skin care inventory write-offs and complimentary products shipped in 2007 in connection with the recall of our North American Optimal Restoring Serum. Cost of sales as a percentage of net sales for the nine months ended September 30, 2008 decreased slightly to 14.4% as compared to 14.5% for the same period in 2007.

Commission costs for the three months ended September 30, 2008 decreased by 23.0%, or $9.4 million, to $31.5 million as compared to $40.9 million for the same period in 2007. The decrease in commissions primarily related to the decrease in commissionable net sales. For the three months ended September 30, 2008, commissions as a percentage of net sales decreased to 40.4% from 42.2% for the same period of 2007, which is due to the change in the sales mix between packs and products and between countries.

Commission costs for the nine months ended September 30, 2008 decreased by . . .