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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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Inventory value is routinely compared to the market value of inventory and any inventory in excess of fair market value is written down. In addition, inventory is also reviewed for obsolescence and any such identified inventory is written off. The determination is based on assumptions about demand for the products, estimated future sales and management’s future plans. If actual sales or management plans are less favorable then those originally projected by management, additional inventory write-downs may be required. Inventory value at June 30, 2002 was $5.3 million.

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Property and equipment are reviewed for impairment whenever an event or change in circumstances indicates the carrying amount of an asset or group of assets may be unrecoverable. The impairment review includes a comparison of future projected cash flows generated by the asset or group of assets with its associated carrying value. If the carrying value of the asset or group of assets exceeds expected cash flows (undiscounted and without interest charges), an impairment loss would have to be recognized to the extent the carrying amount of the asset exceeds its fair value. Property and equipment net book value at June 30, 2002 was $9.2 million.

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Mannatech evaluates the probability of realizing the future benefits of any net deferred tax assets and records a valuation allowance for a portion or all of the net deferred tax assets when it is more likely than not that such portion, or all of such deferred tax assets, may not be realized. As of June 30, 2002, Mannatech had net deferred tax assets of $1.5 million.

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Mannatech defers all of its revenue until the associate or member is estimated to have receipt of the shipment. Mannatech also defers a portion of its revenue from the sale of its starter and renewal packs when the revenue exceeds the total average wholesale value of all individual items included in such packs and amortizes such deferrals over a twelve-month period. Some of the more expensive packs also contain an event admission pass, which allows an associate free admission to a corporate sponsored event. Revenues from these packs are allocated between products and event admission based on the proportionate average fair value of products and the allocated event admission. Beginning in September 2002, Mannatech will include a one-year subscription to its magazine in some of its packs. Mannatech will allocate a portion of the revenue received from certain pack sales to the magazine subscription. The allocated event admission revenue and the subscription revenue contained in certain of its packs will be amortized over a twelve-month period. If Mannatech changes the contents of the packs or shipping methods, additional revenues may need to be deferred and recognized over a one-year period.

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Statement Of Position No. 98-1, “Accounting for the Costs of Computer Software Developed or Obtained for Internal Use” (“SOP 98-1”) requires capitalization of qualifying costs after the conceptual formulation stage has been completed. As a result of adopting SOP 98-1, Mannatech capitalizes qualifying costs related to the development of its internally-developed software applications including: GlycoScience.com, a scientific web database; Enterprise system, a sales and commission database; and Success Tracker™, a web-based training and marketing tool for its associates. Mannatech amortizes such qualifying costs over the estimated useful life of the software, which is either three or five years. Since adoption of SOP 98-1, Mannatech has capitalized a total of $5.0 million in internally-developed software, which currently has a net book value of $1.5 million and is included in property and equipment.

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minimal growth in the number of independent associates and members who routinely purchase products;

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uncertain general economic conditions; and

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the level of uncertainty relating to the implementation of the new global associate incentive/compensation plan that will be implemented in September 2002.

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GlycentialsTM Vitamin, AmbroglycinTM Mineral and Antioxidant Formula, introduced in August 2001, a dietary supplement that helps provide a balanced food matrix of vitamins, chelated minerals, trace minerals, antioxidant co-factors and Ambrotose® complex;

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CardioBALANCETM Heart Care Formula, introduced in October 2001, a dietary supplement that helps provide a wide range of specific nutritional benefits designed to aid in keeping an already healthy cardiovascular system strong and well; and

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GlycoLEAN® Body System, reformulated and introduced in January 2002 that includes a full spectrum of various weight management products, new and updated comprehensive information, charts, better tasting meal replacement drinks and reformulated GlycoLEAN® Accelerator2™, which includes a new ephedrine-free ingredient.

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associates’ placement and position within the incentive/compensation plan;

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volume of their direct and indirect commissionable sales; and

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achievement of certain levels to qualify for the various incentive/compensation programs.

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the write-off, in 2001, of $100,000 of expired product inventory in the United Kingdom;

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the write-off, in 2001, of $221,000 of obsolete promotional videotapes in Japan, partially offset by;

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the change in the mix of finished goods sold to products that have lower average margins;

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the higher raw material ingredient costs; and

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the introduction of an incentive offer for a free product with the enrollment of an automatic order in 2002.

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a ($500,000) decrease related to canceling various contracts with third-party contractors to provide Mannatech’s international operations with order processing and customer service;

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a ($300,000) decrease in accounting, legal and consulting services primarily related to the cancellation of various consultant contracts that were no longer needed for Mannatech’s international operations;

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partially offset by a $200,000 increase in travel expenses primarily related to the timing of certain corporate-sponsored sales events;

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a $130,000 increase in insurance expense; and

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a $360,000 increase in various other operating expenses related to the increase in net sales.

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a decrease of ($0.6 million) in marketing expenses primarily related to reducing the number of corporate sponsored sales events held in international countries;

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a decrease of ($0.3 million) in freight and warehousing expenses, which was the result of the product mix sold;

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partially offset by an increase of $0.2 million in compensation and benefits related to cost of living raises and establishing in-house order processing and customer service centers in each of its foreign operations, except for Canada.

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a decrease of ($1.3 million) related to the termination of contracts with third party contractors who provided order processing and customer service for Mannatech’s international operations;

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a decrease of ($800,000) related to increases in travel, consulting, postage and telephone expenses incurred in the prior year related to expansion into the United Kingdom and Japan;

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partially offset by an increase of $200,000 in annual insurance premiums related to general and product liability insurance coverage; and

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an increase of $200,000 in various other operating expenses related to the increase in net sales.

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funding the remaining payments totaling $1.1 million related to the resignations of former executives in 2001. Under the terms of the various separation agreements, Mannatech is required to pay the remaining aggregate amount of $1.1 million, of which $0.8 million will be paid over the next twelve months;

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funding the payments relating to the renewal of its annual premium related to annual general and product liability insurance policies, totaling approximately $300,000, which were financed with a finance company and due in monthly installments through April 2003;

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funding the non-compete payments to a former medical director totaling $300,000 to be paid over twelve months, beginning in July 2002; and

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funding the inventory purchase commitment with its major supplier of Manapol®, one of the key ingredients used in Mannatech’s proprietary compound—Ambrotose® complex. The inventory purchase commitment requires Mannatech to purchase $1.8 million in 2002 and $2.5 million in 2003.

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success of retaining and expanding its associate and member base;

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its ability to refine and introduce new high-quality products that will increase sales; and

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effectively implementing its new global associate incentive/compensation plan.

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existing cash flows being adequate to fund future cash needs;

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management’s plans, objectives for its future operations and economic performance;

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the realization of deferred tax assets;

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the ability to maintain current levels of operating expenditures;

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the impact of future market changes due to its exposure to foreign currency translations;

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any significant impact on its financial condition, changes in financial conditions, results of operations or cash flows by recent accounting pronouncements;

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the outcome of regulatory and litigation matters;

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pack sales indicating future product sales potential;

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the global statutory tax rates remaining unchanged;

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the establishment of certain policies, procedures and internal processes to combat exposure to market risk; and

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the assumptions described in this report underlying such forward-looking statements.

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those described in the context of such forward-looking statements;

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future product development and manufacturing costs;

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the impact of any changes to Mannatech’s global incentive and compensation plans;

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the retention and expansion of Mannatech’s associate and member base;

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timely development and acceptance of new products or refinements of existing products;

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the markets for Mannatech’s domestic and international operations;

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the impact of new competition and competitive products and pricing;

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the political, social and economic climate in which Mannatech conducts its operations; and

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the risk factors described in other documents and reports filed with the Securities and Exchange Commission.

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a.

Mannatech held its 2002 Annual Shareholders’ Meeting on June 4, 2002 and the two proposals were described in detail in Mannatech’s definitive Proxy Statement filed with the Securities and Exchange Commission on April 24, 2002.

b.

Dr. John Stewart Axford, Alan D. Kennedy and Terry L. Persinger were elected to serve as Class III directors until Mannatech’s 2005 Annual Shareholders’ Meeting.

c.

The voting results for the two proposals were as follows:

d.

None.

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a.

Confidential Information:  For the purposes of this section, such Confidential Information shall include, but is not limited to:

(1)

The Company’s operating procedures, processes, formulae, know-how, scientific, technical, or product information, whether patentable or not, which is of value to the Company and not generally known by the Company’s competitors;

(2)

All confidential information obtained from third parties and customers concerning their products, business, or the direct sale and/or network/multi-level marketing of dietary supplements;

(3)

Confidential business information of the Company, including, but not limited to, marketing and business plans, associates and down line information, strategies, projections, business opportunities, client identities or lists, sales and cost information, internal financial statements or reports, profit, loss, or margin information, customer price information, compensation plans and strategies; and,

(4)

Confidential Information shall not include information which:

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b.

Any of the foregoing Confidential Information which is in McDaniel’s possession shall be returned upon request from the Company, and McDaniel shall have no further rights to utilize it for any purposes.

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a.

In consideration of the mutual promises contained in this Agreement, the sufficiency of which is acknowledged by the parties, McDaniel agrees that for a period of twelve (12) calendar months after the execution of this Agreement, McDaniel will not, either as a spokesman for, employee, consultant, owner, partner, shareholder, officer, or director, of or shareholder of more than 5% of the outstanding stock of a publicly traded company, for any business operation which competes in the Business currently engaged in by Company or any of its subsidiaries or affiliates, directly or indirectly:

(1)

become a spokesman for, employee, consultant, owner, partner, shareholder, officer, or director, of or shareholder of more than 5% of the outstanding stock of a publicly traded company for any business operation that is in the direct selling business generally, or in any business which competes in the Business currently engaged in by Company or any of its subsidiaries or affiliates.

(2)

Solicit or attempt to solicit any employees, or Mannatech Associates with whom the Company has had any contract during the term of this Agreement or for a period of 12 calendar months preceding the date of this Agreement or otherwise induce such Customers to reduce, terminate, restrict or otherwise alter business relationships with the Company in any fashion;

b.

In recognition of the broad geographic scope of the Company’s business

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operations throughout the entire United States, and the ease of competing with the Company, the restrictions on competition set forth herein are intended to cover those cities and states in the United States of America and foreign countries in which the Company does business on the date of the execution of this Agreement.

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1.

Term.  The terms of the Supply and License Agreements shall, as to each, be extended for an additional twelve and one-half (l2½) months from August 14, 2002 to August 31, 2003 (“Extended Term”), unless earlier terminated in accordance with the terms of the original Supply and/or License Agreement(s) or this Third Amendment, as the case may be.

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2.

Exclusivity

(a)

The Parties agree that the Supply and License Agreements shall be exclusive to the extent that CARALOE may not sell or distribute Manapol® in bulk or wholesale form for sale or otherwise, to anyone whom MANNATECH has by written notice to CARALOE identified as (and who is), an Independent Associate of MANNATECH (“Associate”), or whom CARALOE knows or should have known to be an Associate of Mannatech. For purposes of this paragraph 2, the words “bulk or wholesale” shall refer only to a sale of one (1) kilogram or more of Manapol® raw material.

(b)

CAROLE agrees to discontine making bulk or wholesale sales or distributions of Manapol® raw material to any Associate within thirty (30) days after receipt of written notice from MANNATECH identifying such Associate.

3.

Minimum Purchase Requirement.  Beginning January 2002 and monthly thereafter-MANNATECH shall purchase not less than 250 Kg of Manapol® powder until the end of the Extended Term of the Supply and License Agreements. CARALOE agrees that MANNATECH may increase its monthly orders, incrementally, in amounts not to exceed 20% more than the prior month’s order, subject to ninety (90) days prior written notice to CARALOE. In the event that MANNATECH reasonably anticipates that it shall require more than 20% more Manapol® than its prior monthly order, CARALOE will exert its best reasonable effort to deliver but will guarantee delivery if MANNATECH gives CARALOE at least 180 days prior written notice thereof.

4.

Pricing.  The price per kilogram payable by MANNATECH to CARALOE for Manapol® shall be dependent on the total quantity of Manapol® ordered by MANNATECH during a calendar month and shall be as follows:

5.

Mannatech Confidential Information.  CARALOE recognizes and acknowledges that MANNATECH’s tradename(s), trademarks, copyrights, patents, marketing plans, identity of and related information regarding its Associates, product formulations and other proprietary product information and any information relating to the management/operations of MANNATECH are valuable assets belonging to MANNATECH and as such are the sole property and may constitute trade secrets of Mannatech. Prior to and during the performance of the Supply and License Agreements, as amended hereby, that CARALOE may have or had access to certain confidential information pertaining to MANNATECH. CARALOE specifically agrees CARA.LOE will not at any time, during or after the performance of the Supply and License Agreements, as amended hereby, in any manner, either directly or indirectly, use, divulge, disclose, or communicate to any person, firm or corporation, any confidential

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information of any kind, nature, or description concerning any matters affecting or relating to the business of MANNATECH (hereinafter referred to as “Mannatech Confidential Information”). Mannatech Confidential Information includes but is not limited to: MANNATECH genealogies (being the information held by MANNATECH or by any current or former Associate of MANNATECH related to its Associates including without limitation its relationship with each of its Associate’s, the Associate’s name, upline and downline, charts, data reports, proprietary product information which may from time-to-time be made known to CARALOE, the names or practices of any of MANNATECH’s customers or Associates; MANNATECH’s marketing methods and related data; the names of MANNATECH’s vendors or suppliers; costs of materials; costs of its products generally, the prices MANNATECH obtains or has obtained or at which it sells or has sold its products or services; manufacturing and sales costs; lists or other written records used in N4ANNATECH’s business; compensation paid to its Associates, details of training methods, new products or new uses for old products, merchandising or sales techniques, contracts and licenses, business systems, computer programs, or any other confidential information of, about, or concerning the business of MANNATECH; its manner of operation or other confidential data of any kind, nature or description.

(a)

CARALOE shall have no obligation to maintain in confidence or return to MANNATECH any information (i) that was known to CARALOE prior to its disclosure to CARALOE by MANNATECH or any of its current or former Associates and that did not become known to CARALOE through disclosure by a person who was then known actually by CARALOE to have obtained such information or made such disclosure in violation of any obligation to MANNATECH, (ii) that is now in or hereafter enters the public domain other than due to a breach by CARALOE of this paragraph 5, (iii) that is disclosed to CARALOE by a third party who is not actually known by CARALOE to have obtained or disclosed such information in violation of any obligation to MANNATECH, or (iv) that is independently developed by CARALOE without the aid, application or use of any Mannatech Confidential information disclosed to CARALOE; and

(b)

CARALOE may make any disclosure of Mannatech Confidential Information (i) that it is necessary or appropriate to make in order to carry out its obligations under any written agreement with MANNATECH, (ii) that it is required or permitted to make pursuant to any written consent of or written agreement with MANNATECH or (iii) that it is required by law to make.

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6.

Remedies.  CARALOE acknowledges that MANNATECH has devoted considerable time and resources in connection with the development of its sales force and products and establishment of goodwill associated with the same. CARALOE acknowledges that a breach by CARALOE of paragraph 5 would cause MANNATECH to suffer irreparable harm, for which damages would be difficult to assess and further agrees that MANNATECH shall be entitled to injunctive relief in addition to any other right or remedy MANNATECH may have, including without limitation, the recovery of damages for the breach of this or any other surviving provision(s) in the Supply Agreement and License Agreement.

7.

Effect of Third Amendment.  This Third Amendment shall be effective on and after January 1, 2002 and shall supersede the First Amendment and the Second Amendment. Except as expressly amended by this Third Amendment, the terms of the Supply Agreement and the License Agreement shall remain in full force and effect. In the event of any inconsistencies between the terms of this Third Amendment and the terms of the Supply Agreement or the License Agreement, the terms of this Third Amendment shall control.

(i)

the Form 10-Q fully complies with the requirements of section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)); and

(ii)

the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Issuer.

(i)

the Form 10-Q fully complies with the requirements of section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)); and

(ii)

the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Issuer.