SEC Filing | Mannatech

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 21, 1998

FILE NO. 333-49851

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-1

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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MANNATECH, INCORPORATED

(Exact Name of Registrant as Specified in Its Charter)

TEXAS 2833 75-2508900
(State or other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
Incorporation or Organization) No.)

600 S. ROYAL LANE, SUITE 200
COPPELL, TEXAS 75019
(972) 471-7400

(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)

CHARLES E. FIORETTI
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
MANNATECH, INCORPORATED
600 S. ROYAL LANE, SUITE 200
COPPELL, TEXAS 75019
(972) 471-7400

(Name, and address, including zip code, and telephone number,
including area code, of agent for service)
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COPIES TO:

J. KENNETH MENGES, JR., P.C. PAUL V. ROGERS, ESQ.
Akin, Gump, Strauss, Hauer & Feld, Hale and Dorr LLP
L.L.P.
1700 Pacific, Suite 4100 60 State Street
Dallas, Texas 75201 Boston, Massachusetts 02109
(214) 969-2800 (617) 526-6000

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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
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If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /

If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /

If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /

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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.

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SUBJECT TO COMPLETION, DATED MAY 21, 1998

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.

8,000,000 SHARES

[LOGO]

COMMON STOCK
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Of the 8,000,000 shares of Common Stock offered hereby, 6,000,000 shares are
being sold by the Company and 2,000,000 shares are being sold by the Selling
Shareholders. See "Principal and Selling Shareholders." The Company will not
receive any of the proceeds from the sale of the shares by the Selling
Shareholders.

Prior to this offering, there has been no public market for the Common Stock
of the Company. It is currently estimated that the initial public offering price
will be between $10.00 and $12.00 per share. See "Underwriting" for a discussion
of the factors to be considered in determining the initial public offering
price. The Common Stock has been approved for quotation and trading, subject to
official notice of issuance, on the Nasdaq National Market under the symbol
"MTEX."

SEE "RISK FACTORS" COMMENCING ON PAGE 8 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.

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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

PRICE UNDERWRITING PROCEEDS PROCEEDS
TO DISCOUNTS AND TO TO SELLING
PUBLIC COMMISSIONS (1) COMPANY (2) SHAREHOLDERS (2)

Per Share..................... $ $ $ $
Total (3)..................... $ $ $ $

(1) The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities under the Securities Act of 1933,
as amended. See "Underwriting."

(2) Before deducting expenses payable by the Company estimated at $1,100,000.

(3) The Company and certain Selling Shareholders have granted to the
Underwriters a 30-day option to purchase up to an additional 1,200,000
shares of Common Stock solely to cover over-allotments, if any. If such
option is exercised in full, the total Price to Public, Underwriting
Discounts and Commissions, Proceeds to Company and Proceeds to Selling
Shareholders will be $ , $ , $ and $ , respectively. See
"Underwriting."

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The shares of Common Stock are offered by the several Underwriters, subject
to receipt and acceptance by them and to their right to reject any order in
whole or in part. It is expected that delivery
of the shares of Common Stock will be made at the offices of Adams, Harkness &
Hill, Inc., Boston, Massachusetts, on or about , 1998.

Adams, Harkness & Hill, Inc.

NationsBanc Montgomery Securities LLC

Piper Jaffray Inc.

The date of this Prospectus is , 1998.

[Pictures of the Company's products and events.]

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN THESE
SECURITIES OR THE IMPOSITION OF PENALTY BIDS IN CONNECTION WITH THE OFFERING.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."

PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND THE FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE
IN THIS PROSPECTUS. INVESTORS SHOULD CAREFULLY CONSIDER THE RISK FACTORS RELATED
TO THE PURCHASE OF COMMON STOCK OF THE COMPANY. UNLESS OTHERWISE INDICATED, ALL
INFORMATION IN THIS PROSPECTUS REFLECTS A 1,000-FOR-1 SPLIT OF THE COMPANY'S
OUTSTANDING COMMON STOCK EFFECTED IN 1997 (THE "STOCK SPLIT"). SEE "RISK
FACTORS."

THE COMPANY

Mannatech develops and sells proprietary nutritional supplements and topical
products through a network marketing system. The Company sells its products in
the United States and Canada, through a network consisting of approximately
221,000 active Associates (an "active" Associate has purchased products from the
Company within the last 12 months) as of April 30, 1998, and is currently
planning to expand into Australia, while continuing to assess the potential of
other foreign markets. Since commencing operations in November 1993, the
Company's sales have grown from approximately $8.5 million in 1994 to
approximately $150.9 million in 1997.

The Company pursues a two-fold business strategy: (i) to develop a
proprietary line of nutritional supplements having both health benefits and mass
appeal to a general population demanding non-toxic healthcare alternatives, and
(ii) to provide an appealing framework for persons interested in the products to
establish a direct sales business. To date, the Company has focused its
development efforts primarily in the area of carbohydrate technology, creating a
proprietary ingredient, Ambrotose-TM- Complex, which combines the naturally
occurring sugars required to support optimal cell-to-cell communication.
Additional Company efforts have been focused on developing products based on
scientific advances in the emerging field of phytochemistry, which has
identified certain naturally occurring components of various plants, known as
"phytochemicals," which, while not essential to sustain life, are fundamental to
optimal health.

Ambrotose-TM- Complex is the cornerstone of the Company's product lines.
These products are designed to support various systems and functions of the
human body, including (i) the cell-to-cell communication system, (ii) the immune
system, (iii) the endocrine system, (iv) the intestinal system and (v) the
dermal system. The Company also markets products designed to aid in sports
performance and nutritional support. The Company's products, Man-Aloe-Registered
Trademark-, Ambrotose-TM- and Bulk Ambrotose-TM-, are designed to support
cell-to-cell communication. For immune system support, the Company offers
Phyt-Aloe-Registered Trademark-, for adults, and Phyto-Bears-Registered
Trademark-, a chewable gummi-bear nutritional supplement product marketed to
children but popular with adults. Other products include MVP-TM- and Plus for
endocrine system support, MannaCleanse-TM- for intestinal system support and
Emprizone-Registered Trademark-, Firm and Naturalizer for dermal care. The
Company offers several products designed to aid sports performance by enhancing
the body's natural recovery process and supporting lean tissue development,
including Em-Pact-TM-, Bulk Em-Pact-TM- and Sport with Ambrotose-TM-. The
Company also markets Profile 1, Profile 2 and Profile 3, which support the
body's nutritional needs.

In March 1998, the Company introduced MannaBAR-TM-, a nutritional supplement
bar in two versions that contains the equivalent of the Company's recommended
minimum daily supply of Ambrotose-TM- Complex, Phyt-Aloe-Registered Trademark-
and Plus. In addition to MannaBAR-TM-, the Company plans to release at least one
new product in 1998 and additional products as new nutritional compounds or
areas of consumer demand are identified by the Company. All new products are
expected to contain proprietary components.

section of people, particularly those seeking to supplement family income, start
a home-based business or pursue employment opportunities other than
conventional, full-time employment.

In 1997, the Company made a substantial investment in infrastructure,
including investments in its new headquarters building, new distribution center,
information technology systems and new research and development laboratory. The
Company believes it will be able to continue its sustained and profitable growth
by capitalizing on its operating strengths, including its (i) proprietary
product offerings, (ii) superior research and development capability, (iii)
strong Associate support philosophy, (iv) flexible operating strategy and (v)
experienced management team.

Prior to June 1, 1997, certain of the Company's intellectual property rights
and marketing rights were held by limited partnerships controlled by certain of
the Company's shareholders. On June 1, 1997, in order to simplify the Company's
ownership structure and consolidate all operating activities, the Company
entered into agreements to effect a reorganization through merging with the
corporate general partners of the limited partnerships in which the Company was
the surviving corporation and exchanging shares of Common Stock for the entire
ownership interests of the limited partnerships (the "Reorganization"). Pursuant
to the Reorganization, the Company issued an aggregate of 10,000,000 shares of
Common Stock to the holders of the general partnership and the limited
partnership interests. In addition, during May and June 1997 the Company issued
2,027,571 shares of Common Stock in consideration for the cancellation of
incentive compensation agreements with two shareholder-employees and four other
employees of the Company, including 626,971 shares issued to cancel incentive
compensation agreements that had been provided in lieu of ownership interests in
the limited partnerships. See Note 9 to the Financial Statements. The net effect
of the foregoing transactions was to increase the number of shares of Common
Stock outstanding by 12,027,571, while retaining substantially the same relative
ownership of the Company among the Company's original shareholders. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Certain Transactions-Partnership Transactions" and "-Incentive
Compensation Agreements."

The Company was incorporated in Texas in 1993 under the name Emprise
International, Inc. and changed its name to Mannatech, Incorporated in 1995. The
principal executive offices of the Company are located at 600 S. Royal Lane,
Suite 200, Coppell, Texas 75019, and the Company's telephone number is (972)
471-7400.

THE OFFERING

Common Stock offered by:
The Company.................................................. 6,000,000 shares
The Selling Shareholders..................................... 2,000,000 shares
Common Stock to be outstanding after this offering............. 28,151,738 shares(1)
Use of proceeds................................................ For international expansion, capital
investments, working capital and other general
corporate purposes. See "Use of Proceeds."

Nasdaq National Market symbol.................................. MTEX

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(1) Includes 50,000 shares of Common Stock to be sold in the offering upon
exercise of an outstanding warrant (the "Exercised Warrant Shares"). Does
not include (i) 2,500,000 shares of Common Stock reserved for issuance under
the Company's 1997 Stock Option Plan and 1998 Incentive Stock Option Plan,
of which 1,600,000 shares were subject to outstanding options as of April
30, 1998 at a weighted average exercise price of $1.45 per share, (ii)
100,000 shares of Common Stock reserved for issuance subject to another
option outstanding as of April 30, 1998 at an exercise price of $2.00 per
share, and (iii) 425,015 shares (which number does not include the Exercised
Warrant Shares) of Common Stock reserved for issuance subject to a warrant
outstanding as of April 30, 1998 at an exercise price of $1.35 per share.

SUMMARY FINANCIAL INFORMATION

THREE MONTHS ENDED MARCH
YEAR ENDED DECEMBER 31, 31,
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1994(1) 1995 1996 1997 1997 1998
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(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
STATEMENT OF INCOME DATA:
Net sales.................................. $ 8,540 $ 32,234 $ 86,574 $ 150,857 $ 33,544 $ 41,059
Cost of sales.............................. 1,499 4,880 13,406 24,735 5,501 6,060
Commissions................................ 3,256 12,339 35,155 61,677 13,685 16,883
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Gross profit........................... 3,785 15,015 38,013 64,445 14,358 18,116
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Operating expenses:
Selling and administrative expenses...... 2,063 7,012 17,764 27,846 5,827 7,684
Other operating costs.................... 2,115 5,253 11,746 19,402 3,744 4,696
Cancellation of incentive compensation
agreements............................. - - - 2,192(2) - -
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Total operating expenses............... 4,178 12,265 29,510 49,440 9,571 12,380
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Income (loss) from operations.............. (393) 2,750 8,503 15,005 4,787 5,736
Other (income) expense, net................ 21 181 (116) (43) 139 (62)
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Income (loss) before income taxes.......... (414) 2,569 8,619 15,048 4,648 5,798
Income tax (benefit) expense............... (131) 130 1,295 4,249 1,322 2,198
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Net income (loss).......................... $ (283) $ 2,439 $ 7,324 $ 10,799 $ 3,326 $ 3,600
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Earnings (loss) per common share:(3)
Basic.................................... $ (0.01) $ 0.12 $ 0.36 $ 0.50 $ 0.16 $ 0.16
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Diluted.................................. $ (0.01) $ 0.12 $ 0.36 $ 0.48 $ 0.16 $ 0.15
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Weighted average common and common
equivalent shares outstanding:(3)
Basic.................................... 20,627 20,627 20,627 21,449 20,627 22,051
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Diluted.................................. 20,627 20,627 20,627 22,400 20,627 23,647
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PRO FORMA INFORMATION:(4)
Income (loss) before income taxes, as
reported................................. $ (414) $ 2,569 $ 8,619 $ 15,048 $ 4,648
Pro forma provision for income tax
(benefit) expense........................ (155) 964 3,232 5,793 1,789
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Pro forma net income (loss)................ $ (259) $ 1,605 $ 5,387 $ 9,255 $ 2,859
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PRO FORMA EARNINGS (LOSS) PER COMMON
SHARE:(3)
Basic...................................... $ (0.01) $ 0.08 $ 0.26 $ 0.43 $ 0.14
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Diluted.................................... $ (0.01) $ 0.08 $ 0.26 $ 0.41 $ 0.14
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OTHER FINANCIAL DATA:
Depreciation and amortization.............. $ 4 $ 75 $ 414 $ 1,189 $ 129 $ 399
Capital expenditures(5).................... $ 72 $ 769 $ 2,660 $ 9,135 $ 3,720 $ 1,813
Dividends declared per common share........ $ 1.00(6) $ 1.00(6) $ 10.00(6) $ 0.37 $ - $ 0.12

MARCH 31, 1998
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ACTUAL AS ADJUSTED(7)
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(IN THOUSANDS)

BALANCE SHEET DATA:
Cash and cash equivalents.............................................................. $ 952 $ 61,300
Working capital........................................................................ (8,469) 51,879
Total assets........................................................................... 23,119 83,049
Total liabilities...................................................................... 19,489 19,489
Redeemable warrants.................................................................... 300 300
Total shareholders' equity............................................................. 3,330 63,260

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(1) Statement of Income Data for the year ended December 31, 1994 includes the
period from November 4, 1993 (inception) through December 31, 1994. For the
two months of operations ended December 31, 1993, the Company's financial
data consisted of net sales of $0, selling and administrative expenses of
$43,049, other operating costs of $68,683 and a net loss of ($112,733). The
balance sheet reflects a total shareholders' deficit of ($111,733).

(2) In June 1997 and December 1997, the Company recorded one-time charges to
operations for the issuance of stock in exchange for the cancellation of
certain incentive compensation agreements. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Certain
Transactions."

(3) Computed on the basis described in Note 1 in the Notes to Financial
Statements.

(4) The pro forma information shows the Company's net income and earnings per
share as if all income earned by the Company and the limited partnerships
was taxable at federal and state statutory rates.

(5) Capital expenditures include assets acquired through capital lease
obligations of $397,402 in 1997.

(6) Dividends were calculated based upon shares outstanding prior to the Stock
Split and the Reorganization (10,000 shares), each of which took place in
1997. Aggregate dividends declared amounted to $10,000, $10,000 and $100,000
in 1994, 1995 and 1996, respectively.

(7) Adjusted to give effect to the sale of 6,000,000 shares of Common Stock
offered by the Company hereby at an assumed initial public offering price of
$11.00 per share and the application of the estimated net proceeds
therefrom. See "Use of Proceeds" and "Capitalization."

TRADEMARKS

The tradename Mannatech and the Company's logo is a Texas trademark of the
Company. Product names used in this Prospectus are, in certain cases, trademarks
and are also the property of the Company, including; Ambrotose-TM-; Bulk
Ambrotose-TM-; Man-Aloe-Registered Trademark-; MannaBAR-TM- (carbohydrate
formula); MannaBAR-TM- (protein formula); MVP-TM- Phyt-Aloe-Registered
Trademark-; Phyto-Bears-Registered Trademark-; MannaCleanse-TM-; and
Emprizone-Registered Trademark-. Manapol-Registered Trademark- is a registered
trademark of Carrington Laboratories, Inc. All other tradenames and trademarks
appearing in this Prospectus are the property of their respective owners.

RISK FACTORS

THE FOLLOWING RISK FACTORS SHOULD BE CONSIDERED CAREFULLY IN ADDITION TO THE
OTHER INFORMATION IN THIS PROSPECTUS BEFORE PURCHASING THE COMMON STOCK OFFERED
BY THIS PROSPECTUS. EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE
DISCUSSION IN THIS PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS THAT
INVOLVE RISKS AND UNCERTAINTIES. WHEN USED IN THIS PROSPECTUS, THE WORDS
"BELIEVES," "EXPECTS," "ANTICIPATES," "INTENDS," "ESTIMATES," "SHOULD," "WILL
LIKELY," "PLANS TO" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY SUCH
FORWARD-LOOKING STATEMENTS. THE CAUTIONARY STATEMENTS MADE IN THIS PROSPECTUS
SHOULD BE READ AS BEING APPLICABLE TO ALL RELATED FORWARD-LOOKING STATEMENTS
WHEREVER THEY APPEAR IN THIS PROSPECTUS. THE COMPANY'S ACTUAL RESULTS COULD
DIFFER MATERIALLY FROM THOSE DISCUSSED HEREIN. IMPORTANT FACTORS THAT COULD
CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE THOSE DISCUSSED BELOW, AS WELL
AS THOSE DISCUSSED ELSEWHERE HEREIN.

RELIANCE UPON ASSOCIATES. The Company distributes its products exclusively
through its Associates, and the Company's success depends in significant part
upon its ability to attract, maintain and motivate a large base of Associates,
who, in turn, recruit additional Associates to purchase and sell the Company's
products. Significant turnover among Associates from year to year, which the
Company believes is typical of direct selling, requires the sponsoring of new
Associates by existing Associates in order to maintain or increase the overall
Associate force. Efforts by Associates to obtain new Associates are affected by
the level of Associate motivation, which in turn can be positively or negatively
affected by certain factors, including general economic conditions,
modifications in the amount of commission and training fees paid, and public
perception of the quality of the Company's products. The Company's ability to
attract and retain new Associates could be negatively affected by adverse
publicity relating to the Company or its services or its operations, including
its network marketing system. Because of the number of factors that impact the
recruiting of Associates, the Company cannot predict when or to what extent
increases or decreases in the level of Associate retention will occur. In
addition, the number of Associates as a percentage of the population may reach
levels that become difficult to exceed due to the finite number of persons
inclined to pursue direct selling as a business. There can be no assurance that
the number or productivity of Associates will be sustained at current levels or
will increase in the future. The failure of the Company to attract and retain
Associates in sufficient numbers would have a material adverse effect on the
Company's business, results of operations and financial condition. Furthermore,
the Company's business, results of operations and financial condition could be
materially adversely affected if the Company finds it necessary to terminate a
significant number of Associates or certain Associates who play a key role in
the Company's distribution system. See "Business-Growth Strategy" and "- Product
Distribution System."

REGULATION AND MANAGEMENT OF ASSOCIATES. Associates are independent
contractors, not employees of the Company, and are not subject to the same level
of direction and oversight as Company employees. While the Company has policies
and rules in place governing the conduct of Associates, as well as a systematic
method of discipline, and periodically reviews the sales methods of Associates,
it is difficult to enforce such policies and rules. The Company's efforts to
manage its Associates can result in litigation from time to time between the
Company and its Associates and an adverse outcome in such litigation could
adversely affect the Company's business, results of operations and financial
condition. See "Business-Legal Proceedings." Violations of these policies and
rules reflect negatively on the Company and could also lead to formal or
informal complaints by various federal, state or foreign regulatory authorities.
In addition, formal and informal complaints regarding Associate conduct issues
are filed from time to time with state attorney general offices. These offices
have, from time-to-time, contacted the Company and, in two instances, have met
with representatives of the Company to review the activities of the Company and
its Associates in their respective jurisdictions. Complaints by federal, state
or foreign regulatory authorities may occur in the future and could have a
material adverse effect on the Company's business, results of operations and
financial condition. If the Company enters new international markets, the
challenge of coordinating existing Associate requirements, policies and
procedures with the overlay

of international legal requirements will provide the potential for increased
risk to the Company. See "Business-Product Distribution System-Management of
Associates."

The Company's network marketing system is or may be subject to or affected
by extensive government regulation, including, without limitation, federal and
state regulation of the offer and sale of business franchises, business
opportunities and securities. Various governmental agencies monitor direct
selling activities, and the Company has occasionally been requested to supply
information regarding its marketing plan to certain of such agencies. Although
the Company believes that its network marketing system is currently in
compliance with the laws and regulations relating to direct selling activities,
there is no assurance that legislation and regulations adopted in particular
jurisdictions in the future will not adversely affect the Company's business,
results of operations and financial condition. The Company also could be found
to be in non-compliance with existing statutes or regulations as a result of,
among other things, vicarious liability arising from allegations of misconduct
and misconduct by Associates, who are independent contractors over whom the
Company has limited control, the ambiguous nature of certain of the regulations,
and the considerable interpretive and enforcement discretion statutorily granted
to regulatory authorities. Any assertion or determination that the Company or
the Associates are not in compliance with existing statutes or regulations could
have a material adverse effect on the Company's business, results of operations
and financial condition. Furthermore, an adverse determination by any one state
could influence the decisions of regulatory authorities in other jurisdictions.
See "Business-Product Distribution System-Management of Associates."

ABILITY TO MANAGE GROWTH. The Company's officers have had limited
experience in managing companies as large as the Company. Further growth and
expansion of the Company's business would place additional demands upon the
Company's current management and other resources and would require additional
production capacity, working capital, information systems, and management,
operational and other financial resources. Further growth of the Company will
depend on various factors, including, among others, its ability to attract and
retain new Associates, the development of new products, competition and federal
and state regulation of the nutritional supplements industry. Not all of the
foregoing factors are within the control of the Company. No assurance can be
given that the Company's business will grow in the future and that the Company
will be able to effectively manage such growth. If the Company is unable to
manage growth effectively, the Company's business, results of operations and
financial condition would be materially adversely affected. See "Business-Growth
Strategy," "-Product Distribution System-Associate Development," "-Product
Distribution System-Management of Associates," "-Information Technology and
Systems," "-Production and Distribution" and "Management."

COMPETITION. The nutritional supplements market is large and intensely
competitive. The Company competes directly with companies that manufacture and
market nutritional products in each of the Company's product lines, including
General Nutrition Companies, Inc., Solgar Vitamin and Herb Company, Inc.,
Twinlab Corporation and Weider Nutrition International, Inc. Many of the
Company's competitors in the nutritional supplements market have longer
operating histories and greater name recognition and financial resources than
the Company. In addition, nutritional supplements can be purchased in a wide
variety of channels of distribution. While the Company believes that consumers
appreciate the convenience of ordering products from home through a sales
person, the buying habits of many consumers accustomed to purchasing products
through traditional retail channels are difficult to change. The Company's
product offerings in each product category are also relatively small compared to
the wide variety of products offered by many other nutritional supplement
companies. There can be no assurance that the Company's business, results of
operations and financial condition will not be adversely affected by market
conditions and competition in the future.

The Company also competes in the nutritional supplements market and for new
Associates with other direct selling organizations, many of which have longer
operating histories and greater name recognition and financial resources than
the Company, including Amway Corporation, Nu Skin

Enterprises, Inc., Body Wise International, Inc., ENVION International,
Herbalife International, Inc., Enrich International, Rexall Showcase
International, Forever Living Products, Inc. and Melaleuca, Inc. The Company
competes for new Associates on the basis of its compensation plan and its
proprietary and quality products. The Company believes that many more direct
selling organizations will enter the marketplace as this channel of distribution
expands over the next several years. The Company also competes for the
commitment of its Associates. Given that the pool of individuals interested in
direct selling tends to be limited in each market, the potential pool of
Associates for the Company's products is reduced to the extent other network
marketing companies successfully recruit these individuals into their
businesses. There can be no assurance that other network marketing companies
will not be able to recruit the Company's existing Associates or deplete the
pool of potential Associates in a given market. The competition for Associates
from such other companies could have a material adverse effect on the Company's
business, results of operations and financial condition. See
"Business-Competition."

POTENTIAL EFFECTS OF ADVERSE PUBLICITY. The Company's products contain
vitamins, minerals, herbs and other ingredients that the Company regards as safe
when taken as directed by the Company and that various scientific studies have
suggested may offer health benefits. The Company conducts quality control
testing on its products and, from time to time, conducts or sponsors scientific
studies relating to the benefits of its products. The Company is highly
dependent upon Associate perception of the overall integrity of its business, as
well as the safety and quality of its products and similar products distributed
by other companies which may not adhere to the same quality standards as the
Company. The size of the Company's distribution force and results of operations
can be particularly affected by adverse publicity regarding the Company, or its
competitors, including publicity regarding the legality of network marketing,
the quality of the Company's products and product ingredients or those of its
competitors, regulatory investigations of the Company or the Company's
competitors and their products, Associate actions, the Company's management of
its Associates and the public's perception of the Company's Associates and
direct selling businesses generally. See "-Limited Availability of Conclusive
Clinical Studies," "Business-Products" and "-Product Distribution System."

RELIANCE ON CERTAIN ASSOCIATES. The Company's compensation plan allows
Associates to sponsor new Associates. The sponsoring of new Associates creates
multiple Associate levels in the network marketing structure. Sponsored
Associates are referred to as "downline" Associates within the sponsoring
Associates' "downline network." If downline Associates also sponsor new
Associates, additional levels of downline Associates are created, with the new
downline Associates also becoming part of the original sponsor's "downline
network." As a result of this network marketing distribution system, Associates
develop relationships with other Associates. The Company believes that its
revenue is generated from thousands of Associate networks. The loss of a
high-level sponsoring Associate or another key Associate together with a group
of leading Associates in such Associate's downline network, or the loss of a
significant number of Associates for any reason, could adversely affect sales of
the Company's products and impair the Company's ability to attract new
Associates, which would have a material adverse effect on the Company's
business, results of operations and financial condition. As of April 30, 1998,
only one of the Company's Associates had executed a non-competition agreement.
See "Business-Product Distribution System-Associate Development."

RISKS ASSOCIATED WITH INTERNATIONAL EXPANSION. An element of the Company's
growth strategy is to initiate the distribution and sale of the Company's
products in international markets. The Company may experience difficulty
entering new international markets due to greater regulatory barriers, the
necessity of adapting to new regulatory systems and problems related to entering
new markets with different cultural bases and political systems. The Company's
planned international operations will be subject to political and economic
uncertainties, including, among others, inflation, risk of renegotiation or
modification of existing agreements or arrangements with governmental
authorities, transportation, tariffs, export control, government regulation,
trademark availability and registration issues, currency exchange rate
fluctuations, foreign exchange restrictions which limit the repatriation of
investments and

earnings therefrom, changes in taxation, hostilities or confiscation of
property. Changes related to these matters could have a material adverse effect
on the Company's business, results of operations and financial condition. No
assurance can be given that the Company will be able to successfully reformulate
its product lines in any of the Company's potential new markets to attract local
consumers or to meet regulatory requirements. The failure to do so would have a
material adverse effect on the Company's business, results of operations and
financial condition. See "Business-Growth Strategy."

RELIANCE ON AND CONCENTRATION OF OUTSIDE MANUFACTURERS. All of the
Company's products are manufactured by outside contractors. The Company's profit
margins and its ability to deliver its existing products on a timely basis are
dependent upon the ability of the outside manufacturers to continue to supply
products that meet the Company's quality standards in a timely and
cost-efficient manner. In response to the Company's growth, relationships were
developed with three large manufacturers in 1997. Currently, substantially all
of the Company's products are produced by these manufacturers. The Company's
ability to enter new markets and sustain satisfactory levels of sales in each
market will be dependent in part upon the ability of these or other suitable
outside manufacturers to reformulate existing products, if necessary to comply
with local regulations or market environments, for introduction into such
markets. Finally, the development of additional new products in the future will
likewise be dependent in part on the services of suitable outside manufacturers.
The failure of any manufacturer to supply products as required by the Company
could have a material adverse effect on the Company's business, results of
operations and financial condition.

The Company currently acquires ingredients solely from suppliers that are
considered by the Company to be the superior suppliers of such ingredients. The
Company believes it has developed dependable alternative sources for all of its
ingredients except Manapol-Registered Trademark- and arabinogalactan, which are
components of the Company's proprietary raw material. The Company believes that,
in the event it is unable to source any ingredients from its current suppliers,
such ingredients could be produced by the Company or replaced with substitute
ingredients. However, any delay in replacing or substituting such ingredients
would have a material adverse effect on the Company's business, results of
operations and financial condition. See "Business-Production and Distribution."

DEPENDENCE ON PROPRIETARY INGREDIENT. Two ingredients are proprietary to
the Company: (i) Ambrotose-TM- Complex, a glyconutritional dietary supplement
consisting of a blend of plant polysaccharides, which is a component of each of
the Company's products; and (ii) Dioscorea Complex, a blend of herbal extracts.
The Company's success will depend in large part on its ability to protect and
promote its proprietary rights to these products, in particular Ambrotose-TM-
Complex. The Company has filed a composition and use of matter patent
application for this compound, and has entered into confidentiality agreements
with its manufacturers and suppliers to protect its proprietary rights. However,
there can be no assurance that the Company will be granted a patent for its
Ambrotose-TM- Complex compound or that any such patent granted to the Company
will not be substantially narrower in scope than that sought in the Company's
application or that other means employed by the Company to protect its
proprietary rights will be adequate. Any failure of the Company to protect its
proprietary rights would have a material adverse effect on the Company's
business, results of operations and financial condition.

GOVERNMENT REGULATION OF PRODUCTS AND MARKETING; IMPORT RESTRICTIONS. In
addition to regulation of its direct selling activities, the Company, in both
its United States and foreign markets, is or will be subject to and affected by
extensive laws, governmental regulations, administrative determinations, court
decisions and similar constraints (as applicable, at the federal, state and
local levels) including, among other things, regulations pertaining to (i) the
formulation, manufacturing, packaging, labeling, distribution, importation, sale
and storage of the Company's products, (ii) product claims and advertising
(including direct claims and advertising by the Company as well as claims and
advertising by Associates, for which the Company may be held responsible), (iii)
the Company's network marketing system,

(iv) transfer pricing and similar regulations that affect the level of foreign
taxable income and customs duties, and (v) taxation of Associates, which in some
instances may impose an obligation on the Company to collect the taxes and
maintain appropriate records. See "Business-Government Regulation."

The Company may experience complications regarding health and safety and
food and drug regulations for nutritional products. Many products could require
reformulation to comply with local requirements. In some foreign countries,
certain nutritional products may be considered foods, while other countries may
consider them drugs. New regulations could be adopted or any of the existing
regulations could be changed at any time in a manner that could have a material
adverse effect on the Company's business, results of operations and financial
condition. Duties on imports are a component of national trade and economic
policy and could be changed in a manner that would be materially adverse to the
Company's sales and its competitive position compared to locally produced goods,
in particular in countries where the Company's products would be subject to high
customs duties. In addition, import restrictions in certain countries and
jurisdictions will limit the Company's ability to import products from the
United States. Present or future health and safety or food and drug regulations
could delay or prevent the introduction of new products into a given country or
marketplace or suspend or prohibit the sale of existing products in such country
or marketplace. The occurrence of any of these complications could have a
material adverse effect on the Company's business, results of operations and
financial condition.

If the Company expands into foreign markets, the Company will be affected by
the general stability of foreign governments and the regulatory environment
relating to the degree of acceptance attendant to network marketing generally,
and nutritional supplements and other products of the Company's line,
specifically.

DEPENDENCE ON KEY PERSONNEL. The Company's success will depend largely on
the efforts and abilities of senior management, particularly Charles E.
Fioretti, Chairman of the Board and Chief Executive Officer, and Samuel L.
Caster, President, each a founder of the Company. There can be no assurance that
the Company's existing management team will be able to manage the Company or its
growth or that the Company will be able to attract and retain additional
qualified personnel as needed in the future. The loss of the services of Messrs.
Fioretti or Caster or the services of other members of senior management, or the
failure of the Company to attract and retain additional qualified personnel,
could have a material adverse effect on the Company's business, results of
operations and financial condition. See "Management."

GOVERNMENT REGULATION OF DIRECT SELLING ACTIVITIES. Direct selling
activities are regulated by various governmental agencies. These laws and
regulations are generally intended to prevent fraudulent or deceptive schemes,
often referred to as "pyramid" or "chain sales" schemes, that promise quick
rewards for little or no effort or risk, require high entry costs, use high
pressure recruiting methods and/or do not involve legitimate products. Based on
the Company's experience and research and the nature and scope of inquiries from
government regulatory authorities, the Company believes that it is in material
compliance with the laws and regulations relating to direct selling activities
of all of the states and countries in which the Company operates, although prior
practices of the Company during its earlier, developmental phases may have not
been fully compliant. Despite this belief, the Company could be found not to be
in material compliance with existing regulations as a result of, among other
things, the considerable interpretative and enforcement discretion given to
regulators or misconduct by Associates. Any assertion or determination that the
Company is not currently, or was not in the past, in compliance with laws or
regulations governing the Company's direct selling activities could have a
material adverse effect on the Company's business, results of operations and
financial condition. In addition, in any country or jurisdiction, the adoption
of new laws or regulations or changes in the interpretation of existing laws or
regulations could generate negative publicity and/or have a material adverse
effect on the Company's business, results of operations and financial condition.
The Company cannot determine the effect, if any, that future governmental
regulations or administrative orders may have on the Company's business, results
of operations and financial condition. Moreover, governmental regulations in
countries where the

Company may in the future commence operations may prevent, delay or limit market
entry of certain products or require the reformulation of such products.
Regulatory action, whether or not it results in a final determination adverse to
the Company, has the potential to create negative publicity, with detrimental
effects on the motivation and recruitment of Associates and, consequently, on
the Company's business, results of operations and financial condition. See
"-Potential Effects of Adverse Publicity," "-Risks Associated with International
Expansion" and "Business-Government Regulation."

As is the case with most network marketing companies, the Company has from
time-to-time received inquiries from various government regulatory authorities
regarding the nature of its business and other issues such as compliance with
local business opportunity laws and Associate sales practices. Although to date
none of these inquiries has resulted in a finding materially adverse to the
Company, adverse publicity resulting from inquiries into the Company's
operations by government agencies could materially adversely affect the
Company's business, results of operations and financial condition. See
"-Potential Effects of Adverse Publicity."

PRODUCT LIABILITY. Under applicable laws and regulations, the Company, like
any other retailer, distributor or manufacturer of products that are designed to
be ingested by consumers or applied to their bodies, faces an inherent risk of
exposure to product liability claims in the event that the use of its products
results in an allegation of loss or injury. Although the Company has not been
the subject of material product liability claims, no assurance can be given that
the Company may not be exposed to future product liability claims, including,
among other things, that its products contain contaminants or include inadequate
instructions as to use or inadequate warnings concerning side effects and
interactions with other substances. The Company maintains product liability
insurance, however, the successful assertion or settlement of any uninsured
claim, a significant number of insured claims, a claim exceeding the Company's
insurance coverage or adverse publicity associated with any product liability
allegation could have a material adverse effect on the Company's business,
results of operations and financial condition.

One of the Company's products, MVP-TM-, contains country mallow, a plant
which contains an ephedra. Ephedrine products have been the subject of adverse
publicity in the United States and other countries relating to alleged harmful
effects, including the deaths of several individuals. The United States Food and
Drug Administration (the "FDA") has received numerous reports of adverse
reactions to the ingestion of a naturally-occurring form of ephedrine from the
Chinese herb, Ma Huang. The FDA has issued a warning to consumers regarding the
possible effects of ephedrine ingestion and has also issued a proposed
regulation for dietary supplements containing ephedrine. The proposed regulation
would prohibit dietary supplements containing eight milligrams or more of
ephedrine alkaloids per serving, and would not permit such products to contain
any other stimulant ingredients. The FDA is also considering whether to also
prohibit diuretic or laxative ingredients in such products. In addition, the
labeling of supplements would be prohibited from suggesting or recommending
conditions of use that would result in an intake of eight milligrams or more of
ephedrine alkaloids within a six-hour period, or a total daily intake of 24
milligrams or more. The FDA proposal would also require a warning not to take
the product for more than seven days, and would prohibit the supplements from
being represented, either expressly or implicitly, as being suitable for
long-term uses, such as for weight loss or body building. Similarly, claims for
increased energy, increased mental concentration or enhanced well-being that
might encourage the consumer to take more of the product to achieve more of the
purported effect would be required to be accompanied by a warning stating that
taking more than the recommended serving may cause a heart attack, stroke,
seizure or death. If the proposed regulation were to be implemented, MVP would
be subject to its labeling requirements and possibly to reformulation. Company
sales of MVP were $3.8 million, $5.5 million and $5.9 million in 1995, 1996 and
1997, respectively. Moreover, depending on claims made for the product, the FDA
could regulate it as a drug, thus requiring product approval prior to marketing.
The negative publicity or product liability claims that could stem

from such actions could have a material adverse effect on the Company's
business, results of operation and financial condition.

LIMITED AVAILABILITY OF CONCLUSIVE CLINICAL STUDIES. In general, the
Company's products consist of food, nutritional supplements and topical
products, one of which, Emprizone-Registered Trademark-, is classified in the
United States as an "over-the-counter" ("OTC") drug which the Company believes
does not require approval from the FDA or other regulatory agencies prior to
sale. Although many of the ingredients in the Company's products are vitamins,
minerals, herbs and other substances for which there is a long history of human
consumption, some of the Company's products contain innovative ingredients or
combinations of ingredients. Although the Company believes all of its products
to be safe when taken as directed by the Company, there is little long-term
experience with human consumption of certain of these innovative product
ingredients or combinations thereof in concentrated form. The Company performs
research and/or tests in connection with the formulation and production of its
products, and from time to time conducts or sponsors clinical studies. See
"-Product Liability."

VARIATIONS IN OPERATING RESULTS. The Company may experience variations on a
quarterly basis in its results of operations, in response to, among other
things, the timing of Company-sponsored Associate events; new product
introductions; the opening of new markets; the timing of holidays, especially in
the fourth quarter, which may reduce the amount of time Associates spend selling
the Company's products or recruiting new Associates; the adverse effect of
Associates' or the Company's failure, and allegations of their failure, to
comply with applicable government regulations; the negative impact of changes in
or interpretations of regulations that may limit or restrict the sale of certain
of the Company's products; the operation of its network marketing system; the
introduction of its products into each market; the recruitment and retention of
Associates; the inability of the Company to introduce new products or the
introduction of new products by the Company's competitors; general conditions in
the nutritional supplement and personal care industries or the network marketing
industry; and consumer perceptions of the Company's products and operations. In
particular, because the Company's products are ingested by consumers or applied
to their bodies, the Company is highly dependent upon consumers' perception of
the safety, quality and effectiveness of its products. As a result, substantial
negative publicity, whether founded or unfounded, concerning one or more of the
Company's products or other products similar to the Company's products could
adversely affect the Company's business, results of operations and financial
condition.

As a result of these and other factors the Company's quarterly revenues,
expenses and results of operations could vary significantly in the future, and
period-to-period comparisons should not be relied upon as indications of future
performance. There can be no assurance that the Company will be able to increase
its revenues in future periods or be able to sustain its level of revenue or its
rate of revenue growth on a quarterly or annual basis. Furthermore, no
assurances can be given that the Company's revenue growth rate in new markets
where operations have not commenced will follow this pattern. Due to the
foregoing factors, the Company's future results of operations could be below the
expectations of public market analysts and investors. In such event, the market
price of the Common Stock would likely be materially adversely affected. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

CONTROL BY INSIDERS. Upon completion of this offering, Charles E. Fioretti,
Samuel L. Caster and the Company's other directors and officers, together with
members of their families and entities that may be deemed affiliates of or
related to such persons or entities, will beneficially own approximately 43.1%
of the Common Stock outstanding. These individuals are likely to be able to
maintain effective control of the Company, including the ability to elect a
majority of the Board of Directors of the Company (the "Board of Directors"). In
addition, such a high level of ownership by such persons may have a significant
effect in delaying, deferring or preventing a change in control of the Company
or other events which could be of benefit to the Company's other shareholders
including mergers, acquisitions, tender offers

and proxy contests. Accordingly, holders of Common Stock may be deprived of an
opportunity to sell their shares at a premium over the trading price. See
"Principal and Selling Shareholders."

UNSPECIFIED USE OF PROCEEDS. The principal purposes of this offering are to
provide the capital for international expansion, to allow the Company to make
additional capital investments, to increase the Company's working capital and
financial flexibility, to facilitate future access by the Company to public
equity markets and to provide increased visibility, credibility and name
recognition for the Company in the marketplace where several of its competitors
are publicly held companies. The Company has not yet identified specific uses
for a majority of the net proceeds, and, pending such uses, the Company expects
that it will invest such net proceeds in short-term, interest-bearing
investment-grade securities. Accordingly, the Company's management will have
broad discretion as to the use of such net proceeds without any action or
approval of the Company's shareholders. See "Use of Proceeds."

NO PRIOR MARKET FOR COMMON STOCK; PRICE VOLATILITY. Prior to this offering,
there has been no public market for the Common Stock, and there can be no
assurance that an active trading market will develop subsequent to this offering
or, if developed, that it will be sustained. The initial public offering price
will be determined by negotiation among the Company, the Selling Shareholders
and the Underwriters. See "Underwriting" for a discussion of factors to be
considered in determining the initial public offering price. Upon commencement
of this offering, it is expected that the Common Stock will be quoted on the
Nasdaq National Market, which has experienced and is likely to experience in the
future significant price and volume fluctuations which could adversely affect
the market price of the Common Stock without regard to the operating performance
of the Company. In addition, the Company believes that factors such as quarterly
fluctuations in the financial results of the Company, the Company's earnings,
changes in earnings estimates by analysts, financial or business announcements
by the Company or its competitors, the overall economy and the condition of the
financial markets could cause the market price of the Common Stock to fluctuate
substantially.

ANTI-TAKEOVER MATTERS. Certain provisions of the Company's Amended and
Restated Articles of Incorporation (the "Articles"), the Company's Amended and
Restated Bylaws (the "Bylaws") and the Texas Business Corporation Act (the
"TBCA") may have the effect of discouraging unsolicited proposals for
acquisition of the Company. The Company's Bylaws provide for a classified Board
of Directors serving staggered terms of three years. Additionally, the Board of
Directors has the authority to issue up to 1,000,000 shares of preferred stock
having such rights, preferences and privileges as are designated by the Board of
Directors without shareholder approval. Effective September 1, 1997, the TBCA
restricts certain business combinations with any "affiliated shareholder," as
defined therein. These provisions may have the effect of delaying, deterring or
preventing a takeover of the Company and could limit the price that certain
investors might be willing to pay in the future for the Common Stock. See
"Description of Capital Stock-Preferred Stock" and "-Anti-Takeover
Considerations."

SHARES ELIGIBLE FOR FUTURE SALE. Sales of a substantial number of shares of
Common Stock in the public market following this offering could adversely affect
the market price for the Common Stock. Upon completion of this offering, the
Company will have 28,151,738 shares of Common Stock outstanding, assuming no
exercise of the Underwriters' over-allotment option. Of these shares, the
8,000,000 shares offered hereby, except for Directed Shares as defined below,
will be freely tradeable without restriction or further registration under the
Securities Act of 1933, as amended (the "Securities Act"), unless purchased by
"affiliates" of the Company, as that term is defined in Rule 144 under the
Securities Act ("Rule 144") described below. The Underwriters have reserved for
sale to certain Associates at the initial public offering price 600,000 shares
of Common Stock offered hereby (the "Directed Shares"). The number of shares
available for sale to the general public in this offering will be reduced to the
extent such Associates purchase the Directed Shares. Any Directed Shares not so
purchased will be offered by the Underwriters to the general public on the same
basis as the other shares offered hereby. To the extent that any of the Directed
Shares offered hereby are acquired by certain Associates, such

Associates will be prohibited from offering, selling, pledging, contracting to
sell, granting any option to purchase or otherwise disposing of any shares for a
period of 120 days following the effective date of the Registration Statement.
The remaining 20,151,738 shares of Common Stock outstanding upon completion of
this offering are "restricted securities," as that term is defined in Rule 144
(the "Restricted Shares"). Of the Restricted Shares, 10,000 shares will be
eligible for sale in the open market commencing 90 days after the effective date
of the Registration Statement and an additional 20,047,571 shares will be
eligible for sale in the open market upon expiration of certain lock-up
agreements 180 days after the effective date of the Registration Statement, all
under and subject to the restrictions contained in Rule 144 and Rule 701. The
Underwriters may, in their sole discretion, and at any time without notice can,
release all or any portion of the Restricted Shares subject to such lock-up
agreements.

Under the 1997 Stock Option Plan, as of the date of this Prospectus options
to purchase 1,600,000 shares of Common Stock are outstanding, all of which will
become exercisable 90 days after the effective date of this Prospectus. An
additional 400,000 shares will be available for future grants to employees and
consultants of the Company under the 1997 Stock Option Plan. Under the 1998
Incentive Stock Option Plan (the "1998 Stock Option Plan"), as of the date of
this Prospectus there are 500,000 shares reserved for future option grants. The
Company intends to register on Form S-8 under the Securities Act the offering
and sale of Common Stock issuable under the 1997 Stock Option Plan and the 1998
Stock Option Plan as soon as practicable after the date of this Prospectus. All
of the shares issuable upon the exercise of outstanding options under the 1997
Stock Option Plan are subject to lock-up agreements.

As of the date of this Prospectus, an additional 100,000 shares of Common
Stock are issuable upon the exercise of an outstanding option (the "Non-Plan
Option") at an exercise price of $2.00 per share, which will become exercisable
90 days after the effective date of this Prospectus. In addition, as of the date
of this Prospectus, a warrant (the "Warrant") to purchase 475,015 shares of
Common Stock is outstanding, which is currently exercisable. The shares issuable
upon exercise of the Non-Plan Option and the Warrant are also subject to lock-up
agreements. The holder of the Warrant possesses registration rights with respect
to the shares of Common Stock underlying the Warrant, of which 50,000 shares are
being sold in this offering. Sales of shares of Common Stock under either Rule
144 or pursuant to a registration statement could have a material adverse effect
on the price of the Common Stock. See "Management-Stock Option Plans,"
"Description of Capital Stock-Warrants," "Shares Eligible for Future Sale" and
"Underwriting."

DILUTION TO NEW INVESTORS. Purchasers of Common Stock in this offering will
incur immediate and substantial dilution in net tangible book value per share.
See "Dilution."

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 6,000,000 shares of
Common Stock offered by the Company hereby at an assumed initial public offering
price of $11.00 per share, after deducting the estimated underwriting discounts
and estimated offering expenses payable by the Company, are estimated to be
approximately $60 million. The Company will not receive any proceeds from the
sale of shares by the Selling Shareholders. See "Principal and Selling
Shareholders."

Of the net proceeds to the Company, the Company intends to use approximately
(i) $23 million for international expansion, including, but not limited to,
expenditures for business and product registration, product reformulations,
initial inventory and infrastructure buildup, (ii) $19 million for capital
investments, including, but not limited to, continued expansion of corporate
facilities, possible purchases of manufacturing capabilities and new
technologies and acquisitions of raw material sources, and (iii) $18 million for
working capital and general corporate purposes, including the repayment of debt
and the funding of accrued commissions and other accrued expenses. The Company
has no present commitments or agreements with respect to any acquisitions or
purchases of manufacturing capabilities, new technologies or raw material
sources. Pending application of the net proceeds, the Company will invest such
proceeds in short-term, interest-bearing instruments and investment grade
securities.

DIVIDEND POLICY

The Company has in the past paid dividends to its shareholders, including
dividends in 1997 in the aggregate amount of $6,928,547. The Company currently
intends to declare a fixed dividend of $1,326,104, or $0.06 per share, in May
1998. This dividend is expected to be paid entirely out of pre-offering
earnings, and therefore is not expected to have a dilutive effect on equity.
Following this offering, the Company currently does not anticipate that any
dividends will be paid on its Common Stock in the foreseeable future. The
Company intends from time to time to re-evaluate this policy based on its net
income and its alternative uses for retained earnings, if any. Any future
payments of dividends will be subject to the discretion of the Board of
Directors and subject to certain limitations under the TBCA. The timing, amount
and form of dividends, if any, will depend, among other things, on the Company's
results of operations, financial condition, cash requirements and other factors
deemed relevant by the Board of Directors.

CAPITALIZATION

The following table sets forth the short-term debt and capitalization of the
Company as of March 31, 1998 and as adjusted to reflect the application of the
estimated net proceeds from the sale of 6,000,000 shares of Common Stock offered
by the Company hereby at an assumed initial public offering price of $11.00 per
share. The capitalization information set forth in the table below is qualified
by the more detailed Financial Statements and Notes thereto included elsewhere
in this Prospectus and should be read in conjunction with such Financial
Statements and Notes. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

MARCH 31, 1998
-------------------------
ACTUAL AS ADJUSTED(1)
--------- --------------
(IN THOUSANDS)

Short-term debt, including current maturities of long-term debt........................ $ 1,160 $ 1,160
--------- --------------
--------- --------------
Total long-term debt, less current portion............................................. $ 104 $ 104
Redeemable warrants.................................................................... 300 300
Shareholders' equity:
Common stock, $0.0001 par value, 100,000,000 shares authorized (actual and as
adjusted); 22,101,738 shares issued and outstanding (actual); 28,151,738 shares
issued and outstanding (as adjusted)(2)............................................ 2 3
Additional paid-in capital........................................................... 2,632 62,562
Retained earnings.................................................................... 695 695
--------- --------------
Total shareholders' equity......................................................... 3,330 63,260
--------- --------------
Total capitalization............................................................. $ 3,734 $ 63,664
--------- --------------
--------- --------------

- ------------------------

(1) As adjusted to give effect to (i) the exercise of a portion of the Warrant
at an exercise price of $1.35 per share, relating to the 50,000 Exercised
Warrant Shares, and (ii) the sale of 6,000,000 shares of Common Stock
offered by the Company hereby at an assumed offering price of $11.00 per
share and the application of the estimated net proceeds therefrom.

(2) Excludes (i) 2,500,000 shares reserved for issuance under the 1997 Stock
Option Plan and 1998 Stock Option Plan, of which 1,600,000 shares will be
issuable upon the exercise of outstanding options, (ii) 100,000 shares
issuable upon the exercise of the Non-Plan Option and (iii) 425,015 shares
(which number does not include the Exercised Warrant Shares) issuable upon
the exercise of the Warrant.

DILUTION

The net tangible book value of the Common Stock as of March 31, 1998 was
approximately $3.3 million or $0.15 per share. Net tangible book value per share
represents the Company's total tangible assets less total liabilities, divided
by the total number of shares of Common Stock outstanding.

After giving effect to the sale of the 6,000,000 shares of Common Stock
offered by the Company hereby and the receipt of the net proceeds therefrom (at
an assumed initial public offering price of $11.00 per share) and the issuance
of the 50,000 Exercised Warrant Shares as discussed below, the net tangible book
value of the Common Stock as of March 31, 1998 would have been approximately
$63.3 million or $2.25 per share. This represents an immediate increase in net
tangible book value of $2.10 per share to existing shareholders and an immediate
dilution in net tangible book value of $8.75 per share to purchasers of Common
Stock in this offering. The following table illustrates the per share dilution
as of March 31, 1998:

Assumed initial public offering price per share................ $ 11.00
Net tangible book value per share as of March 31, 1998....... $ 0.15
Increase per share attributable to new shareholders(2)....... 2.10
---------
Net tangible book value per share as of March 31, 1998 after
this offering(1).............................................. 2.25
---------
Dilution per share to new shareholders......................... $ 8.75
---------
---------

- ------------------------

(1) If the Underwriters' over-allotment option is exercised in full, the net
tangible book value per share after this offering would be $2.49 per share,
resulting in dilution to new shareholders of $8.51 per share.

(2) Also includes the increase attributable to the issuance of the 50,000
Exercised Warrant Shares immediately prior to the closing of this offering.

The following table sets forth as of March 31, 1998, after giving effect to
this offering, the number of shares of Common Stock purchased from the Company,
the total consideration paid and the average price per share paid by existing
shareholders and by new shareholders:

SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------------- -------------------------- PRICE PAID
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------- ---------- -------------- ---------- -----------

Existing shareholders(1)................ 22,151,738 78.7% $ 2,701,948 3.9% $ 0.12
New shareholders........................ 6,000,000 21.3 66,000,000 96.1 11.00
------------- ----- -------------- -----
Total............................... 28,151,738 100.0% $ 68,701,948 100.0%
------------- ----- -------------- -----
------------- ----- -------------- -----

- ------------------------

(1) Including the issuance of the 50,000 Exercised Warrant Shares immediately
prior to the closing of this offering.

Sales by the Selling Shareholders in this offering will reduce the number of
shares held by existing shareholders as of March 31, 1998 to 20,151,738, or
71.6% of the total number of shares of Common Stock outstanding immediately
after this offering (19,851,738 shares or 68.3% if the underwriters over-
allotment option is exercised in full), and will increase the number of shares
being purchased by new investors to 8,000,000, or approximately 28.4% of the
total number of shares of Common Stock outstanding immediately after this
offering (9,200,000 shares or 31.7% if the Underwriters' over-allotment option
is exercised in full). See "Principal and Selling Shareholders."

There have been no exercises of outstanding stock options as of the date of
this Prospectus. As of the date of this Prospectus, there are (i) options
outstanding under the 1997 Stock Option Plan to purchase 1,600,000 shares of
Common Stock at a weighted average exercise price of $1.45 per share, none of
which are vested or exercisable as of the date of this Prospectus, (ii) the
Non-Plan Option to purchase 100,000 shares of Common Stock at an exercise price
of $2.00 per share, which is not vested or

exercisable as of the date of this Prospectus, (iii) the Warrant to purchase
475,015 shares of Common Stock at an exercise price of $1.35 per share, which is
currently fully exercisable and a portion of which, equal to 50,000 shares of
Common Stock, will be exercised and sold in this offering, and (iv) 400,000 and
500,000 shares of Common Stock available for grant under the Company's 1997
Stock Option Plan and 1998 Stock Option Plan, respectively. To the extent that
any shares of Common Stock are issued upon exercise of (i) any of these options
or the Warrant or (ii) any additional options that are granted under the 1997
Stock Option Plan, the 1998 Stock Option Plan or otherwise, there will be
further dilution to new investors. See "Management-Stock Option Plans," and
"Principal and Selling Shareholders."

SELECTED FINANCIAL DATA

The Selected Financial Data set forth below for each of the four years ended
December 31, 1997 have been derived from, and should be read in conjunction
with, the financial statements of the Company audited by Price Waterhouse LLP,
with respect to 1997, and Belew Averitt LLP, with respect to earlier periods,
independent public accountants, whose reports appear elsewhere in this
Prospectus. The Selected Financial Data set forth below for the three months
ended March 31, 1997 and 1998 have been derived from the Company's unaudited
financial statements but have been prepared on the same basis as the audited
financial statements of the Company included herein and, in the opinion of
management, include all adjustments, consisting of normally recurring
adjustments considered necessary for a fair presentation of the Company's
financial position and results of operations for such period. The information
contained in this table should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Financial Statements and accompanying Notes thereto included elsewhere in
this Prospectus.

THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------- --------------------
1994(1) 1995 1996 1997 1997 1998
---------- --------- --------- --------- --------- ---------

(UNAUDITED)

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

STATEMENT OF INCOME DATA:
Net sales.................................... $ 8,540 $ 32,234 $ 86,574 $ 150,857 $ 33,544 $ 41,059
Cost of sales................................ 1,499 4,880 13,406 24,735 5,501 6,060
Commissions.................................. 3,256 12,339 35,155 61,677 13,685 16,883
---------- --------- --------- --------- --------- ---------
Gross profit............................... 3,785 15,015 38,013 64,445 14,358 18,116
---------- --------- --------- --------- --------- ---------
Operating expenses:
Selling and administrative expenses........ 2,063 7,012 17,764 27,846 5,827 7,684
Other operating costs...................... 2,115 5,253 11,746 19,402 3,744 4,696
Cancellation of incentive compensation
agreements............................... - - - 2,192(2) - -
---------- --------- --------- --------- --------- ---------
Total operating expenses................... 4,178 12,265 29,510 49,440 9,571 12,380
---------- --------- --------- --------- --------- ---------
Income (loss) from operations................ (393) 2,750 8,503 15,005 4,787 5,736
Other (income) expense, net.................. 21 181 (116) (43) 139 (62)
---------- --------- --------- --------- --------- ---------
Income (loss) before income taxes............ (414) 2,569 8,619 15,048 4,648 5,798
Income tax (benefit) expense................. (131) 130 1,295 4,249 1,322 2,198
---------- --------- --------- --------- --------- ---------
Net income (loss)............................ $ (283) $ 2,439 $ 7,324 $ 10,799 $ 3,326 $ 3,600
---------- --------- --------- --------- --------- ---------
---------- --------- --------- --------- --------- ---------
Earnings (loss) per common share:(3)
Basic...................................... $ (0.01) $ 0.12 $ 0.36 $ 0.50 $ 0.16 $ 0.16
---------- --------- --------- --------- --------- ---------
---------- --------- --------- --------- --------- ---------
Diluted.................................... $ (0.01) $ 0.12 $ 0.36 $ 0.48 $ 0.16 $ 0.15
---------- --------- --------- --------- --------- ---------
---------- --------- --------- --------- --------- ---------
Weighted average common and common equivalent
shares outstanding:(3)
Basic...................................... 20,627 20,627 20,627 21,449 20,627 22,051
---------- --------- --------- --------- --------- ---------
---------- --------- --------- --------- --------- ---------
Diluted.................................... 20,627 20,627 20,627 22,400 20,627 23,647
---------- --------- --------- --------- --------- ---------
---------- --------- --------- --------- --------- ---------
PRO FORMA INFORMATION:(4)
Income (loss) before income taxes, as
reported................................... $ (414) $ 2,569 $ 8,619 $ 15,048 $ 4,648
Pro forma provision for income tax (benefit)
expense.................................... (155) 964 3,232 5,793 1,789
---------- --------- --------- --------- ---------
Pro forma net income (loss).................. $ (259) $ 1,605 $ 5,387 $ 9,255 $ 2,859
---------- --------- --------- --------- ---------
---------- --------- --------- --------- ---------
PRO FORMA EARNINGS (LOSS) PER COMMON
SHARE:(3)
Basic........................................ $ (0.01) $ 0.08 $ 0.26 $ 0.43 $ 0.14
---------- --------- --------- --------- ---------
---------- --------- --------- --------- ---------
Diluted...................................... $ (0.01) $ 0.08 $ 0.26 $ 0.41 $ 0.14
---------- --------- --------- --------- ---------
---------- --------- --------- --------- ---------
OTHER FINANCIAL DATA:
Depreciation and amortization................ $ 4 $ 75 $ 414 $ 1,189 $ 129 $ 399
Capital expenditures(5)...................... $ 72 $ 769 $ 2,660 $ 9,135 $ 3,720 $ 1,813
Dividends declared per common share.......... $ 1.00(6) $ 1.00(6) $ 10.00(6) $ 0.37 $ - $ 0.12

DECEMBER 31,
------------------------------------------
1994 1995 1996 1997
--------- --------- --------- --------- MARCH 31,
1998
-------------
(UNAUDITED)

(IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents.................................... $ 283 $ 953 $ 1,160 $ 61 $ 952
Working capital.............................................. (364) (1,069) (2,260) (8,105) (8,469)
Total assets................................................. 1,540 5,613 11,209 19,883 23,119
Total liabilities............................................ 1,832 5,845 10,058 17,206 19,489
Redeemable warrants.......................................... - - - 300 300
Total shareholders' equity (deficit)......................... (292) (232) 1,151 2,378 3,330

- ------------------------------

(3) Computed on the basis described in Note 1 in the Notes to Financial
Statements.

(4) The pro forma information shows the Company's net income and earnings per
share as if all income earned by the Company and the Partnerships was
taxable at federal and state statutory rates.

(5) Capital expenditures include assets acquired through capital lease
obligations of $397,402 in 1997.

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of the Company's financial condition
and results of operations should be read in conjunction with the Financial
Statements and Notes thereto included elsewhere in this Prospectus.

OVERVIEW

Mannatech develops and sells proprietary nutritional supplements and topical
products through a network marketing system. The Company sells its products in
the United States and Canada, through a network of approximately 221,000 active
Associates as of April 30, 1998, and is currently planning to expand into
Australia, while continuing to assess the potential of other foreign markets.

Since commencement of operations in November 1993, the Company has achieved
rapid year-to-year growth in net sales. This growth is primarily attributable to
the increase in both existing and new product sales, growth in the number of
Associates and expansion into new geographic markets in the United States and
Canada.

The Company's revenues are derived primarily from sales of its products,
Associate application and renewal fees, and sales aids, which include starter
kits, promotional packs and other promotional materials. Revenues are recognized
when products or sales aids are shipped. The Company's revenues are based
primarily on the wholesale prices of the products sold. The Company currently
outsources all of its product manufacturing needs and all of its ingredients are
supplied by outside vendors.

As a result of the Company's expansion into Canada, and its change, in the
fourth quarter of 1997, to higher quality manufacturers, the Company has
experienced an increase in cost of sales as a percentage of net sales. Sales of
products in Canada have also resulted in increased shipping costs and additional
costs to reformulate certain products.

Associates are compensated by commissions, which are directly correlated to
the placement and position of the Associate within the Company's compensation
plan, volume of direct sales and number of new enrolled Associates. Commissions
as a percentage of net sales were 38.3%, 40.6%, 40.9% and 41.1% for 1995, 1996,
1997 and the three months ended March 31, 1998, respectively. The Company
believes that, under the Company's existing compensation plan, commissions will
not exceed 42% of net sales. See "Business-Product Distribution System-Associate
Compensation."

The Company's selling and administrative expenses consist of human resource
expense, including wages, bonuses and marketing expenses, and are a mixture of
both fixed and variable expenses. Company-sponsored Associate events held
throughout the year also have an effect on its selling and administrative
expenses, as does the Company's continuing commitment to investment in
information technology systems. In 1997, the Company recorded sales and
administrative expenses at 18.5% of net sales, a lower rate than prior years, as
a result of increased net sales, a reduction in executive salaries beginning in
June 1997 and the management of expenses.

The increased demand for the Company's products has necessitated significant
investment in infrastructure to support the growth of the Company. In 1997, the
Company invested in its new headquarters building, new distribution center and
new research and development laboratory. As a result of its investment in
infrastructure, the Company's other operating costs have increased
significantly.

The Company is subject to taxation in the United States at the federal
statutory tax rates of 34% for 1995 and 1996 and 35% for 1997. The Company is
also subject to taxation in various state jurisdictions with an average
statutory tax rate of approximately 5%. With the expected international
expansion, a portion of the Company's income will be subject to taxation in the
country in which it operates and the Company may be eligible for foreign tax
credits for the amount of foreign taxes paid in a given period to offset taxes
otherwise payable. The Company may not be able to fully utilize such foreign tax
credits in the United States. The use of the foreign tax credits would be based
upon the proportionate amount of net sales in each country. This could result in
the Company paying a higher overall effective tax rate on its worldwide
operations. Many of the countries in which the Company is considering for
expansion during 1998 and beyond have maximum statutory tax rates in excess of
the United States rate.

REORGANIZATION

In December 1994, to achieve certain tax efficiencies and to protect certain
of the Company's proprietary rights, the Company transferred certain rights and
interest in intellectual property, its right to use a supplier's trademark and
its marketing rights to two affiliated partnerships (the "Royalty Partnership"
and the "Marketing Partnership," respectively). The Marketing Partnership was
owned by two affiliated partnerships that also shared common ownership with the
Company (collectively with the Royalty Partnership and the Marketing
Partnership, the "Partnerships"). The respective ownership interests in the
Partnerships were structured with the intention of retaining the same economic
interests among the partners as that of the shareholders of the Company. In the
case of the intellectual property and trademark transferred to the Royalty
Partnership, the Company entered into a 17-year agreement with the Royalty
Partnership to pay a royalty based on sales volume. In the case of the Marketing
Partnership, the Company paid a commission based on a specified percentage of
sales volume. At the time of transfer, the rights and interest in intellectual
property, supplier's trademark and marketing rights had a minimal basis. During
1994, the Company also entered into separate incentive compensation agreements
with two of its shareholders pursuant to which the Company agreed to pay
commissions based on specified monthly sales volumes and increases in number of
new enrolled Associates. These agreements were designed to compensate for the
differences in ownership in the Partnerships for one of the principal
shareholders and to provide compensation to a shareholder in lieu of receiving a
Partnership interest.

On June 1, 1997, in order to simplify the Company's ownership structure and
consolidate all operating activities, the Company entered into agreements to
effect the Reorganization through merging with the corporate general partners of
the Partnerships in which the Company was the surviving corporation and
exchanging shares of Common Stock for the entire ownership interests of the
Partnerships. Pursuant to the Reorganization, the Company issued an aggregate of
10,000,000 shares of Common Stock to holders of the general partnership and
limited partnership interests. In addition, during May and June 1997 the Company
issued 2,027,571 shares of Common Stock in consideration for the cancellation of
incentive compensation agreements with two shareholder-employees and four other
employees of the Company, including 626,971 shares issued to cancel incentive
compensation agreements that had been provided in lieu of ownership interests in
the Partnerships. See Note 9 to the Financial Statements. The net effect of the
foregoing transactions was to increase the number of shares of Common Stock
outstanding by 12,027,571 while retaining substantially the same relative
ownership of the Company. The only ownership percentage change among the
original shareholders related to 208,024 shares granted to one shareholder in
recognition of significant contributions to the Company, which resulted in minor
dilution to the other original seven shareholders at the time of the exchange.
No monetary consideration changed hands and the changes were designed to
reestablish the original economic characteristics of the Company. Other than the
new shares issued to the four employees to cancel their incentive compensation
agreements, relative ownership interests, as evidenced by retention of economic
risks and benefits, remained virtually the same. After the exchange, the Company
terminated and liquidated the Partnerships at no gain or loss.

RESULTS OF OPERATIONS

The following table summarizes the Company's operating results as a
percentage of net sales for each of the periods indicated:

THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED
MARCH 31,
------------------------------- ------------------------
1995 1996 1997 1997 1998
--------- --------- --------- ----------- -----------

Net sales........................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales....................................... 15.1 15.5 16.4 16.4 14.8
Commissions......................................... 38.3 40.6 40.9 40.8 41.1
--------- --------- --------- ----- -----
Gross profit...................................... 46.6 43.9 42.7 42.8 44.1
Operating expenses:
Selling and administrative expenses............... 21.8 20.5 18.5 17.4 18.7
Other operating costs............................. 16.3 13.6 12.8 11.1 11.4
Cancellation of incentive compensation
agreements...................................... - - 1.4 - -
--------- --------- --------- ----- -----
Income from operations.............................. 8.5 9.8 10.0 14.3 14.0
Other (income) expense, net......................... 0.5 (0.2) (0.0) 0.4 (0.2)
--------- --------- --------- ----- -----
Income before income taxes.......................... 8.0 10.0 10.0 13.9 14.2
Income tax expense.................................. 0.4 1.5 2.8 4.0 5.4
--------- --------- --------- ----- -----
Net income.......................................... 7.6% 8.5% 7.2% 9.9% 8.8%
--------- --------- --------- ----- -----
--------- --------- --------- ----- -----

THREE MONTHS ENDED MARCH 31, 1998 AND MARCH 31, 1997

NET SALES. Net sales increased 22.4% to $41.0 million for the three months
ended March 31, 1998 from $33.5 million for the three months ended March 31,
1997. This increase was primarily attributable to the following:

- $6.8 million, or 90.6%, was due to the sale of several products which were
not available for sale during the first three months of 1997.

- $2.4 million, or 32.0%, was due to an increase in existing product sales,
which increase resulted solely from increases in the volume of products
sold.

- ($1.7) million, or (22.6%), was due to a decrease in Associate application
fees. Associate application fees decreased due to a delay in introducing
new Associate packs or starter packs until the second quarter of 1998.
Many Associates delayed signing up new Associates and their own renewal
until the new packs were available.

COST OF SALES. Cost of sales increased 10.1% to $6.1 million for the three
months ended March 31, 1998 from $5.5 million for the comparable period in 1997.
As a percentage of net sales, cost of sales decreased to 14.8% for the three
months ended March 31, 1998 from 16.4% for the comparable period in 1997.
Increased sales accounted for $1.4 million of the increase in cost of sales,
which was partially offset by the positive effects of variances from the
Company's standard costs which resulted in a reduction in cost of sales of $0.8
million.

COMMISSIONS. Commissions consist of payments to Associates for sales
activity. Commissions increased 23.4% to $16.9 million for the three months
ended March 31, 1998 from $13.7 million for the comparable period in 1997. As a
percentage of net sales, commissions increased to 41.1% for the three months
ended March 31, 1998 from 40.8% for the comparable period in 1997.

GROSS PROFIT. Gross Profit increased 26.2% to $18.1 million for the three
months ended March 31, 1998 from $14.4 million for the comparable period in
1997. As a percentage of net sales, gross profit increased to 44.1% for the
three months ended March 31, 1998 from 42.8% for the comparable period in 1997.
These changes were primarily attributable to the factors described above.

SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative expenses
consist of human resource expenses, including wages, bonuses and marketing
expenses, and are a mixture of both fixed and variable expenses. Selling and
administrative expenses increased 31.9% to $7.7 million for the three months
ended March 31, 1998 from $5.8 million for the comparable period in 1997. As a
percentage of net sales, selling and administrative expenses increased to 18.7%
for the three months ended March 31, 1998 from 17.4% for the comparable period
in 1997. The dollar amount increase was due primarily to sales increases, and
$1.5 million expended on the Company's first large scale annual Associate
meeting. The increase as a percentage of net sales resulted from the cost of the
Associate meeting which was only partially offset by the Company achieving
certain sales volume-based efficiencies relating to human resources and
marketing expenses.

OTHER OPERATING COSTS. Other operating costs include utilities,
depreciation, travel, office supplies and printing expenses. Other operating
costs increased 25.4% to $4.7 million for the three months ended March 31, 1998
from $3.7 million for the comparable period in 1997. As a percentage of net
sales, other operating costs increased to 11.4% for the three months ended March
31, 1998 from 11.2% for the comparable period in 1997. The dollar amount
increase was primarily related to sales and to additional facilities costs
related to the relocation of the Company's worldwide headquarters and
distribution center to its current location in March 1997. The increase as a
percentage of net sales related to the increased facilities costs and the
incurrence of costs associated with the Company's planned international
expansion.

OTHER (INCOME) EXPENSE, NET. Other (income) expense consists of interest
income, royalties from vendors and settlement of lawsuits. Other (income)
expense increased 144.6% to ($62,000) for the three months ended March 31, 1998
from $139,000 for the comparable period in 1997. As a percentage of net sales,
other (income) expense increased to (0.2%) in the first three months ended March
31, 1998 from 0.4% for the comparable period in 1997. The expense for the three
months ended March 31, 1997 related primarily to legal actions and related
charges for the settlement of lawsuits.

INCOME TAX EXPENSE. Income tax expense increased 66.2% to $2.2 million for
the three months ended March 31, 1998 compared to $1.3 million for the
comparable period in 1997. The effective tax rate increased to 38.0% for the
three months ended March 31, 1998 from 28.2% for the comparable period in 1997.
The increase in the effective tax rate was primarily the result of the Company's
reorganization which began June 1, 1997. Prior to that date, the income from the
Partnerships was subject to income tax only at the individual partners' level.
See "Certain Transactions."

NET INCOME. Net income increased 8.3% to $3.6 million for the three months
ended March 31, 1998 from $3.3 million for the comparable period in 1997. As a
percentage of net sales, net income decreased to 8.8% for the three months ended
March 31, 1998 from 9.9% for the comparable period in 1997. This decrease was
primarily related to the increase in effective tax rate mitigated by the factors
described above.

YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1996

NET SALES. Net sales increased 74.3% to $150.9 million in 1997 from $86.6
million in 1996. This increase was primarily attributable to the following:

- $44.5 million, or 69.2%, was due to an increase in existing product sales,
which increase resulted solely from increases in the volume of products
sold.

- $13.5 million, or 21.0%, was due to an increase in Associate application
fees. Associate application fees increased due to the enrollment of new
Associates and the renewal fees of existing Associates.

- $6.3 million, or 9.8%, was due to the introduction in July 1997 of
MannaCleanse-TM-, an intestinal support product, and Bulk Ambrotose-TM-, a
cell-to-cell communication support product.

COST OF SALES. Cost of sales increased 84.5% to $24.7 million in 1997 from
$13.4 million in 1996. As a percentage of net sales, cost of sales increased to
16.4% for 1997 from 15.5% in 1996. The increase in cost of sales was due to a
$10.8 million increase in sales of finished goods, a $0.6 million increase in
shipping costs due to increased sales volume, a $0.3 million increase in
shipping costs for Canadian finished goods and a ($0.4) million decrease in
normal costs of spoilage and shrinkage of inventory.

COMMISSIONS. Commissions increased 75.4% to $61.7 million in 1997 from
$35.2 million in 1996. As a percentage of net sales, commissions increased to
40.9% for 1997 from 40.6% in 1996.

GROSS PROFIT. Gross profit increased 69.5% to $64.4 million in 1997 from
$38.0 million in 1996. As a percentage of net sales, gross profit decreased to
42.7% in 1997 from 43.9% in 1996. These changes were primarily attributable to
the factors described above.

SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative expenses
increased 56.7% to $27.8 million in 1997 from $17.8 million in 1996. As a
percentage of net sales, selling and administrative expenses decreased to 18.5%
in 1997 from 20.5% in 1996. The dollar amount increase was primarily
attributable to an increase in bonuses and compensation paid and an increase in
number of employees to support the Company's growth in net sales. The decrease
in the percentage of net sales was primarily attributable to certain
efficiencies achieved by the Company in managing sales growth and reductions in
executive salaries beginning in June 1997 of approximately $600,000. Executive
salaries were reduced to reflect salaries commensurate with those paid by
similar public companies. The Company does not expect increases in executive
salaries in the foreseeable future other than those increases necessary in the
marketplace to recruit, reward and retain qualified executives.

OTHER OPERATING COSTS. Other operating costs increased 65.2% to $19.4
million in 1997 from $11.7 million in 1996. This increase was primarily due to
costs associated with the Company's investment in its infrastructure. As a
percentage of net sales, other operating costs decreased to 12.8% in 1997 from
13.6% in 1996. This decrease was primarily attributable to increased sales
volume and the Company achieving certain volume-based efficiencies due to
increased net sales. If sales volumes remain constant, these volume-based
efficiencies are expected to remain constant as they are directly related to
sales volumes.

CANCELLATION OF INCENTIVE COMPENSATION AGREEMENTS. Cancellation of
incentive compensation agreements consisted of a one-time charge in 1997
totaling approximately $2.2 million. This charge resulted from the exchange of
Common Stock for the cancellation of certain incentive compensation agreements.
See "Certain Transactions."

OTHER (INCOME) EXPENSE, NET. Other (income) expense decreased 62.8% to
$(43,000) in 1997 from $(116,000) in 1996. As a percentage of net sales, other
(income) expense decreased to (0.0)% in 1997 from (0.2)% in 1996. The change in
1997 was primarily attributable to the settlement in 1997 of various lawsuits
totaling $110,000 versus settlement expense of $59,000 in 1996.

INCOME TAX EXPENSE. Income tax expense increased to $4.2 million in 1997
compared to $1.3 million in 1996. The effective tax rate increased significantly
to 28.2% in 1997 from 15.0% in 1996. The increase in the effective tax rate was
primarily the result of the Company's reorganization as of June 1, 1997. Prior
to that date, the Partnerships were subject to income tax only at the individual
partners' level. See "Certain Transactions."

NET INCOME. Net income increased 47.4% to $10.8 million in 1997 from $7.3
million in 1996. As a percentage of net sales, net income decreased to 7.2% in
1997 compared to 8.5% in 1996. This decrease was primarily related to the
cancellation of the incentive compensation agreements, additional income tax
expense and the reorganization of the Partnerships. See "Certain Transactions."

YEARS ENDED DECEMBER 31, 1996 AND DECEMBER 31, 1995

NET SALES. Net sales increased 168.6% to $86.6 million in 1996 from $32.2
million in 1995. This increase was primarily attributable to the following:

- $29.6 million, or 54.4%, was due to an increase in existing product sales,
which increase resulted solely from increases in the volume of products
sold.

- $18.0 million, or 33.1%, was due to an increase in Associate application
fees. Associate application fees increased due to the enrollment of new
Associates and the renewal fees of existing Associates.

- $3.6 million, or 6.6%, was due to the introduction of a new nutritional
supplement product line, consisting of Profile 1, Profile 2 and Profile 3,
in May 1996, and the introduction of a new raw material, Ambrotose-TM-, in
October 1996.

- $3.2 million, or 5.9%, was due to the commencement of operations in Canada
in April 1996.

COST OF SALES. Cost of sales increased 174.7% to $13.4 million in 1996 from
$4.9 million in 1995. As a percentage of net sales, cost of sales increased to
15.5% in 1996 from 15.1% in 1995. The increase in cost of sales was comprised of
an $8.3 million increase in sales of finished goods and a $200,000 increase in
sales of finished goods in Canada.

COMMISSIONS. Commissions increased 184.9% to $35.2 million in 1996 from
$12.3 million in 1995. As a percentage of net sales, commissions increased to
40.6% in 1996 from 38.3% in 1995. The increase was primarily attributable to the
introduction of an additional type of commission for the Associates'
compensation plan during 1995. Once a commission plan is introduced, there is
generally a short time lag before the Associates begin to qualify for the
payment of commissions. During 1996, this new commission structure accounted for
a 2.0% increase (as a percentage of net sales) in total commissions.

GROSS PROFIT. Gross profit increased 153.2% to $38.0 million in 1996 from
$15.0 million in 1995. As a percentage of net sales, gross profit decreased to
43.9% in 1996 from 46.6% in 1995. These changes were primarily attributable to
the factors described above.

SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative expenses
increased 153.3% to $17.8 million in 1996 from $7.0 million in 1995. As a
percentage of net sales, selling and administrative expenses decreased to 20.5%
in 1996 from 21.8% in 1995. The dollar amount increase was primarily
attributable to sales increases. The decrease as a percentage of net sales was
primarily attributable to increased sales and the Company achieving certain
sales volume-based efficiencies for human resources and marketing expenses.

OTHER OPERATING COSTS. Other operating costs increased 123.6% to $11.7
million in 1996 from $5.3 million in 1995. As a percentage of net sales, other
operating costs decreased to 13.6% in 1996 from 16.3% in 1995. The dollar amount
increase was primarily attributable to the increase in sales, which was offset
by the Company recording approximately $400,000 in consulting fees associated
with the Company's entry into the Canadian market.

OTHER (INCOME) EXPENSE, NET. Other (income) expense in 1996 increased to
$(116,000) from $181,000 in 1995. In 1995, the Company incurred an expense of
$180,600 as a result of the settlement of a lawsuit related to the termination
of a former employee. In 1996, the Company recorded an additional

expense of $59,000 related to the settlement of this lawsuit, which was more
than offset by approximately $160,000 of interest income and royalty income.

INCOME TAX EXPENSE. Income tax expense increased $1.2 million to $1.3
million in 1996 compared to $129,959 in 1995. The effective tax rate increased
to 15.0% in 1996 from 5.1% in 1995. The effective tax rate significantly varied
from the statutory rate of 34% primarily due to the $5.8 million of Partnership
income included with the Company's income as discussed previously. See
"-Reorganization" and "Certain Transactions."

NET INCOME. Net income increased 200.2% to $7.3 million in 1996 from $2.4
million in 1995. As a percentage of net sales, net income increased to 8.5% in
1996 as compared to 7.6% in 1995. The increase was the result of the factors
described above.

SELECTED QUARTERLY STATEMENTS OF INCOME

The following table sets forth certain unaudited quarterly statement of
income data for each of the nine quarters ending with the quarter ended March
31, 1998. In the opinion of management, this information has been prepared on
the same basis as the audited Financial Statements contained herein and includes
all necessary adjustments, consisting only of normal recurring adjustments, that
the Company considers necessary to present fairly this information in accordance
with generally accepted accounting principles. This information should be read
in conjunction with the Financial Statements and Notes thereto appearing
elsewhere in this Prospectus. The Company's operating results for any one
quarter are not necessarily indicative of results for any future period.

THREE MONTHS ENDED
-----------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30,
1996 1996 1996 1996(1) 1997 1997 1997
----------- ----------- ----------- ----------- ----------- ----------- -----------
(IN THOUSANDS)

STATEMENT OF INCOME DATA:
Net sales......................... $ 14,475 $ 19,743 $ 23,507 $ 28,849 $ 33,544 $ 38,096 $ 39,787
Cost of sales..................... 1,910 3,008 3,165 5,323 5,501 6,041 6,324
Commissions....................... 5,891 8,060 9,554 11,650 13,685 15,586 15,839
----------- ----------- ----------- ----------- ----------- ----------- -----------
Gross profit.................. 6,674 8,675 10,788 11,876 14,358 16,469 17,624
Operating expenses:
Selling and administrative
expenses...................... 2,640 4,447 3,811 6,866 5,827 7,762 6,350
Other operating costs........... 1,590 2,260 2,550 5,346 3,744 4,973 4,684
Cancellation of incentive
compensation agreements(3).... - - - - - 1,821 -
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income (loss) from operations..... 2,444 1,968 4,427 (336) 4,787 1,913 6,590
Other (income) expense, net....... (9) (16) - (91) 139 120 (85)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income (loss) before income
taxes........................... 2,453 1,984 4,427 (245) 4,648 1,793 6,675
Income tax (benefit) expense...... 366 298 669 (38) 1,322 509 1,900
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income (loss) $ 2,087 $ 1,686 $ 3,758 $ (207) $ 3,326 $ 1,284 $ 4,775
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
PRO FORMA INFORMATION:(4)
Income (loss) before income taxes,
as reported..................... $ 2,453 $ 1,984 $ 4,427 $ (245) $ 4,648 $ 1,793 $ 6,675
Pro forma provision for income tax
(benefit) expense............... 940 744 1,660 (92) 1,789 690 2,570
----------- ----------- ----------- ----------- ----------- ----------- -----------
Pro forma net income (loss)....... $ 1,533 $ 1,240 $ 2,767 $ (153) $ 2,859 $ 1,103 $ 4,105
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------

DEC. 31, MAR. 31,
1997(2) 1998
----------- -----------

STATEMENT OF INCOME DATA:
Net sales......................... $ 39,430 $ 41,059
Cost of sales..................... 6,870 6,060
Commissions....................... 16,567 16,883
----------- -----------
Gross profit.................. 15,993 18,116
Operating expenses:
Selling and administrative
expenses...................... 7,906 7,684
Other operating costs........... 6,001 4,696
Cancellation of incentive
compensation agreements(3).... 371 -
----------- -----------
Income (loss) from operations..... 1,715 5,736
Other (income) expense, net....... (217) (62)
----------- -----------
Income (loss) before income
taxes........................... 1,932 5,798
Income tax (benefit) expense...... 518 2,198
----------- -----------
Net income (loss) $ 1,414 $ 3,600
----------- -----------
----------- -----------
PRO FORMA INFORMATION:(4)
Income (loss) before income taxes,
as reported..................... $ 1,932
Pro forma provision for income tax
(benefit) expense............... 744
-----------
Pro forma net income (loss)....... $ 1,188
-----------
-----------

- ------------------------------

(1) For the fourth quarter of 1996 cost of sales included various
book-to-physical inventory adjustments and a charge for the adjustments in
the standard cost of inventory. Selling and administrative expenses included
an accrual for discretionary bonuses to all employees and a charge for
severance packages. Other operating costs increased due to certain year-end
accruals for attorneys' fees, travel and general operating expenses.

(2) For the fourth quarter of 1997 cost of sales included a write-off of accrued
inventory and book-to-physical inventory adjustments. Selling and
administrative expenses included accruals for (i) discretionary bonuses for
all employees, (ii) termination expenses and (iii) disputed freight
expenses. Other operating costs increased for the accrual of various
attorney and consulting fees and compensation expenses related to the
issuance of stock options to certain nonemployees.

(3) In June 1997 the Company recorded a one-time charge to operations for the
issuance of Common Stock in exchange for the cancellation of certain
incentive compensation agreements. An additional incentive compensation
agreement was cancelled in December 1997. See "-Reorganization" and "Certain
Transactions."

(4) The pro forma information shows the Company's net income as if all income
earned by the Company and the Partnerships was taxable at federal and
statutory rates.

The following table sets forth certain unaudited quarterly results of
operations expressed as a percentage of net sales for each of the nine quarters
ending with the period ended March 31, 1998.

THREE MONTHS ENDED
-----------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30,
1996 1996 1996 1996 1997 1997 1997
----------- ----------- ----------- ----------- ----------- ----------- -----------

AS A PERCENTAGE OF NET SALES:
Net sales......................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales..................... 13.2 15.2 13.5 18.4 16.4 15.9 15.9
Commissions....................... 40.7 40.8 40.6 40.4 40.8 40.9 39.8
----- ----- ----- ----- ----- ----- -----
Gross profit.................... 46.1 44.0 45.9 41.2 42.8 43.2 44.3
Operating expenses:
Selling and administrative
expenses...................... 18.2 22.5 16.2 23.8 17.4 20.4 15.9
Other operating costs........... 11.0 11.5 10.9 18.5 11.1 13.0 11.8
Cancellation of incentive
compensation agreements....... - - - - - 4.8 -
----- ----- ----- ----- ----- ----- -----
Income (loss) from operations..... 16.9 10.0 18.8 (1.1) 14.3 5.0 16.6
Other (income) expense, net....... - - - (0.3) 0.4 0.3 (0.2)
----- ----- ----- ----- ----- ----- -----
Income (loss) before income taxes,
as reported..................... 16.9 10.0 18.8 (0.8) 13.9 4.7 16.8
Income tax (benefit) expense...... 2.5 1.5 2.8 (0.1) 4.0 1.3 4.8
----- ----- ----- ----- ----- ----- -----
Net income (loss)................. 14.4% 8.5% 16.0% (0.7%) 9.9% 3.4% 12.0%
----- ----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- ----- -----

DEC. 31, MAR. 31,
1997 1998
----------- -----------

AS A PERCENTAGE OF NET SALES:
Net sales......................... 100.0% 100.0%
Cost of sales..................... 17.4 14.8
Commissions....................... 42.0 41.1
----- -----
Gross profit.................... 40.6 44.1
Operating expenses:
Selling and administrative
expenses...................... 20.1 18.7
Other operating costs........... 15.2 11.4
Cancellation of incentive
compensation agreements....... 0.9 -
----- -----
Income (loss) from operations..... 4.4 14.0
Other (income) expense, net....... (0.5) (0.2)
----- -----
Income (loss) before income taxes,
as reported..................... 4.9 14.2
Income tax (benefit) expense...... 1.3 5.4
----- -----
Net income (loss)................. 3.6% 8.8%
----- -----
----- -----

The Company may experience variations on a quarterly basis in its results of
operations, in response to, among other things, the timing of Company-sponsored
Associate events; new product introductions; the opening of new markets; the
timing of holidays, especially in the fourth quarter, which may reduce the
amount of time Associates spend selling the Company's products or recruiting new
Associates, the adverse effect of Associates' or the Company's failure, and
allegations of their failure, to comply with applicable government regulations;
the negative impact of changes in or interpretations of regulations that may
limit or restrict the sale of certain of the Company's products; the operation
of its network marketing system; the introduction of its products into each
market; the recruitment and retention of Associates; the inability of the
Company to introduce new products or the introduction of new products by the
Company's competitors; general conditions in the nutritional supplement and
personal care industries or the network marketing industry; and consumer
perceptions of the Company's products and operations. In particular, because the
Company's products are ingested by consumers or applied to their bodies, the
Company is highly dependent upon consumers' perception of the safety, quality
and effectiveness of its products. As a result, substantial negative publicity,
whether founded or unfounded, concerning one or more of the Company's products
or other products similar to the Company's products could adversely affect the
Company's business, results of operations and financial condition.

LIQUIDITY AND CAPITAL RESOURCES

The Company's principal capital requirement is to fund working capital to
support its growth. To date, the Company has financed its operations primarily
through cash flows derived from operating activities. Primarily as a result of
the Company's investment in the infrastructure necessary to support the

rapid growth of the Company, the Company had working capital deficiencies of
$2.3 million, $8.1 million and $8.4 million as of December 31, 1996, December
31, 1997 and March 31, 1998, respectively. The Company believes its current
infrastructure is sufficient to support its near term growth. Additionally, as
disclosed in "Dividend Policy," the Company will cease its future distributions
to shareholders providing additional liquidity.

In January 1998, the Company entered into a $1.5 million interim lease
line-of-credit agreement (the "Line of Credit Agreement") with Banc One Leasing
Corporation to fund the purchase of furniture and certain capital equipment in
connection with the Company's relocation to its new facility. The Line of Credit
Agreement bears interest at the prime interest rate of Bank One, Columbus, NA
plus one-half percent, is secured by the leased assets, is guaranteed by two of
the Company's shareholders and will expire on December 15, 1998. The Line of
Credit Agreement allows the Company to convert amounts drawn thereunder into
capital leases and, in March 1998, the Company converted $631,000 which had been
drawn on the Line of Credit Agreement into a capital lease (the "Capital
Lease"). The Capital Lease bears interest at 9.3%, is collateralized by the
leased assets and is payable in 36 installments. In addition to the Capital
Lease, $378,000 had been drawn under the Line of Credit Agreement, leaving an
available balance of $491,000.

The Company plans to improve its working capital position, make additional
investments in its new distribution center, research and development laboratory,
and complete its internally developed software program. The Company intends to
fund these initiatives with proceeds from this offering, net cash provided by
operating activities and additional borrowings under the Line of Credit
Agreement described above. See "Use of Proceeds."

Net cash provided by operating activities was $3.1 million, $9.6 million,
$19.4 million and $4.3 million in 1995, 1996, 1997 and for the three months
ended March 31, 1998, respectively. Throughout these periods, the Company
experienced increases in net income as a result of increases in net sales, which
were partially offset by increases in inventories.

Net cash used in investing activities was $843,000, $3.2 million, $8.9
million and $0.7 million in 1995, 1996, 1997 and the three months ended March
31, 1998, respectively. These activities consisted primarily of purchases of
property and equipment in connection with the Company's relocation to its new
facility in April 1997, and the relocation of the Company's distribution center
and build out of its research and development facility in the first quarter of
1998.

Net cash used in financing activities totaled $1.6 million, $6.2 million,
$11.6 million and $2.6 million in 1995, 1996, 1997 and for the three months
ended March 31, 1998, respectively. In 1995, 1996 and through the reorganization
of the Company in June 1997, the Company made distributions to partners of the
Partnerships. Following the reorganization, the Company has paid dividends on a
monthly basis to its shareholders in the amount of $0.02-$0.06 per share and
expects to continue to pay dividends each month until the consummation of this
offering. See "Dividend Policy."

The Company anticipates that its existing capital resources, including cash
provided by operating activities and bank borrowings, together with the
anticipated proceeds from this offering, will be adequate to fund the Company's
operations for at least the next 12 months. Of the net proceeds to the Company,
the Company intends to use approximately (i) $23 million for international
expansion, including, but not limited to, expenditures for business and product
registration, product reformulations, initial inventory and infrastructure
buildup, (ii) $19 million for capital investments, including, but not limited
to, continued expansion of corporate facilities, possible purchases of
manufacturing capabilities and new technologies and acquisitions of raw material
sources, and (iii) $18 million for working capital and general corporate
purposes, including the repayment of debt and the funding of accrued commissions
and other accrued expenses. The Company has no present commitments or agreements
with respect to any acquisitions or purchases of manufacturing capabilities, new
technologies or raw material sources. There can be no assurance that changes
will not occur that would consume available

capital resources before such time. The Company's capital requirements depend on
numerous factors, including the timing and pace of the Company's entry into
international markets, growth in the number of Associates and its research and
development efforts. To the extent that the Company's existing capital
resources, together with the anticipated proceeds of this offering, are
insufficient to meet its capital requirements, the Company will be required to
raise additional funds. There can be no assurance that additional funding, if
necessary, will be available on favorable terms, if at all.

RECENT FINANCIAL ACCOUNTING STANDARDS BOARD STATEMENTS

In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("FAS") No. 130, "Reporting
Comprehensive Income." FAS 130 establishes standards for the report and display
of comprehensive income and its components (revenues, expenses, gains, and
losses) in a full set of general purpose financial statements. FAS 130 requires
that an enterprise (i) classify items of other comprehensive income by their
nature in a financial statement and (ii) display the accumulated balance of
other comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of a statement of financial position. FAS
130 is effective for fiscal years beginning after December 15, 1997. The Company
does not expect the impact of FAS 130 to be material.

In June 1997, the FASB issued FAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." FAS 131 established standards for reporting
information about operating segments in annual financial statements and requires
reporting of selected information about operating segments in interim financial
reports issued to shareholders. FAS 131 also establishes standards for related
disclosure about products and services, geographic areas and major customers.
FAS 131 is effective for financial statements for periods beginning after
December 15, 1997, and requires the restatement of disclosures for earlier
periods for comparative purposes unless the information is not readily
available, in which case a description of unavailable information is required.
The Company does not expect the impact of FAS 131 to be material.

In February 1998, the FASB issued FAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits." FAS 132 revises footnote disclosure
requirements for employer pensions and other retiree benefits, standardizes the
disclosure requirements, requires additional information on changes in the
benefit obligations and calculating the fair values of plan assets, and
eliminates certain disclosures. FAS 132 is effective for financial statements
for periods beginning after December 15, 1997. As the Company does not provide a
defined benefit plan, this pronouncement will not impact the Company.

YEAR 2000 COMPLIANCE

Many existing computer programs and databases use only two digits to
identify a year in the date field (I.E., 98 would represent 1998). These
programs and databases were designed and developed without considering the
impact of the upcoming millennium. If not corrected, many computer systems could
fail or create erroneous results in the year 2000. The Company believes that all
of its systems currently in use are Year 2000 compliant, largely due to the
short operating history of the Company. The majority of the Company's critical
business applications are developed internally, with Year 2000 compliant tools,
and as such the Company is not dependent on external vendors for Year 2000
compliance, except for the banking system utilized by the Company to process
payments, including credit cards.

IMPACT OF INFLATION

The Company believes that inflation has not had a material impact on its
historical operations or profitability.

BUSINESS

GENERAL

Mannatech develops and sells proprietary nutritional supplements and topical
products through a network marketing system. The Company sells its products in
the United States and Canada, through a network consisting of approximately
221,000 active Associates as of April 30, 1998, and is currently planning to
expand into Australia, while continuing to assess the potential of other foreign
markets. Since commencing operations in November 1993, the Company's sales have
grown from approximately $8.5 million in 1994 to approximately $150.9 million in
1997.

The Company pursues a two-fold business strategy: (i) to develop a
proprietary line of nutritional supplements having both health benefits and mass
appeal to a general population demanding non-toxic healthcare alternatives and
(ii) to provide an appealing framework for persons interested in the products to
establish a direct sales business. To date, the Company has focused its
development efforts primarily in the area of carbohydrate technology, creating a
proprietary ingredient, Ambrotose-TM- Complex, which combines the naturally
occurring sugars required to support optimal cell-to-cell communication.
Additional Company efforts have been focused on developing products based on
scientific advances in the emerging field of phytochemistry, which has
identified certain naturally occurring components of various plants, known as
"phytochemicals," which, while not essential to sustain life, are fundamental to
optimal health.

Ambrotose-TM- Complex is the cornerstone of the Company's product lines.
These products are designed to support various systems and functions of the
human body, including (i) the cell-to-cell communication system, (ii) the immune
system, (iii) the endocrine system, (iv) the intestinal system and (v) the
dermal system. The Company also markets products designed to aid in sports
performance and nutritional support. The Company's products,
Man-Aloe-Registered Trademark-, Ambrotose-TM- and Bulk Ambrotose-TM-, are
designed to support cell-to-cell communication. For immune system support, the
Company offers Phyt-Aloe-Registered Trademark-, for adults, and
Phyto-Bears-Registered Trademark-, a chewable gummi-bear nutritional supplement
product marketed to children but popular with adults. Other products include
MVP-TM- and Plus for endocrine system support, MannaCleanse-TM- for intestinal
system support and Emprizone-Registered Trademark-, Firm and Naturalizer for
dermal care. The Company offers several products designed to aid sports
performance by enhancing the body's natural recovery process and supporting lean
tissue development, including Em-Pact-TM-, Bulk Em-Pact-TM- and Sport with
Ambrotose-TM-. The Company also markets Profile 1, Profile 2 and Profile 3,
which support the body's nutritional needs.

In March 1998, the Company introduced MannaBAR-TM-, a nutritional supplement
bar in two versions that contain the equivalent of the Company's recommended
minimum daily supply of Ambrotose-TM- Complex, Phyt-Aloe-Registered Trademark-
and Plus. In addition to MannaBAR-TM-, the Company plans to release at least one
new product in 1998 and additional products as new nutritional compounds or
areas of consumer demand are identified by the Company. All new products are
expected to contain proprietary components.

The Company's products are marketed exclusively through a network marketing
system. The Company believes that its network marketing system is well-suited to
its products, which emphasize health and nutrition, because network marketing
allows in-person product education not available through traditional marketing
techniques. The Company's network marketing system appeals to a broad cross-
section of people, particularly those seeking to supplement family income, start
a home-based business or pursue employment opportunities other than
conventional, full-time employment.

INDUSTRY OVERVIEW

The nutritional supplements industry is highly fragmented and intensely
competitive. It includes companies that manufacture and distribute products
which are generally intended to enhance the body's performance and well being.
Nutritional supplements include vitamins, minerals, dietary supplements,

herbs, botanicals and compounds derived therefrom. Opportunities in the
nutritional supplements industry were enhanced by the enactment of the Dietary
Supplement Health and Education Act of 1994 ("DSHEA"). Under DSHEA, vendors of
dietary supplements are now able to educate consumers regarding the effects of
certain component ingredients.

According to Packaged Facts, an independent consumer market research firm,
the retail market for nutritional supplements has experienced a compound annual
growth rate in the United States of over 15% from 1992 to 1996. Sales in the
principal domestic market in which the Company's products compete totaled
approximately $6.5 billion in 1996. The Company believes that growth in the
nutritional supplement market is driven by several factors, including (i) the
general public's heightened awareness and understanding of the connection
between diet and health, (ii) the aging population, particularly the baby-boomer
generation, which is more likely to consume nutritional supplements, (iii)
product introductions in response to new scientific research and (iv) the
nationwide trend toward preventive medicine.

Nutritional supplements are sold primarily through mass market retailers,
including mass merchandisers, drug stores, supermarkets and discount stores;
health food stores; mail order companies; and direct sales organizations. Direct
selling, of which network marketing is a significant segment, has been enhanced
in the past decade as a distribution channel due to advancements in technology
and communications resulting in improved product distribution and faster
dissemination of information. The distribution of products through network
marketing has grown significantly in recent years. The World Federation of
Direct Selling Associations (the "WFDSA") reports that, from 1990 through 1996,
worldwide direct distribution of goods and services to consumers increased
approximately 65%, resulting in the sale of nearly $80 billion of goods and
services in 1996. The Direct Sellers Association (the "DSA") reported total 1996
direct sales at retail of $20.8 billion in the United States. According to the
"Survey of Attitudes toward Direct Selling," commissioned by the DSA, and
conducted and prepared by Wirthlin Worldwide (the "Wirthlin Report"), among the
three categories experiencing the greatest gains in the direct selling industry
since 1976 are food, nutrition and wellness products.

According to the Wirthlin Report, approximately 51% of the American public
has purchased products or services from a direct selling company at some point
in the past, with 29% of those having made such a purchase in the last 12
months. Four in 10 adult Americans have expressed an interest in direct selling
as a method of buying products and services, and 23% of those who have never
purchased products and services from direct selling companies are interested in
direct selling. The Company believes it is positioned to capitalize on the
trends of growth in direct sales and demand for nutritional supplement products.

OPERATING STRENGTHS

The Company's two-fold business strategy is to (i) develop a proprietary
line of nutritional supplements having both health benefits and mass appeal to a
general population demanding non-toxic healthcare alternatives, and (ii) provide
an appealing framework for persons interested in the products to establish a
direct sales business. The Company believes that it will be able to continue its
growth by capitalizing on the following operating strengths:

PROPRIETARY PRODUCT OFFERINGS. The Company offers an innovative line of
products based upon its proprietary, patent-pending research. The Company
believes that the discovery and development of products containing certain
carbohydrates necessary to optimum health represents an expanding business
opportunity for the Company. The Company recognized the nutritional need for the
eight known monosaccharides to support optimal health, and developed and filed a
patent application on a compound containing these monosaccharides. The Company
includes this compound, Ambrotose-TM- Complex, in each of its products. The
Company believes that maintaining a proprietary line of products is

important for two reasons: (i) it is a marketing factor that differentiates the
Company from its competitors; and (ii) the limited availability helps to drive
demand and enables premium pricing.

SUPERIOR RESEARCH AND DEVELOPMENT CAPABILITY. The Company believes that its
experienced personnel and new research and development facilities will allow it
to develop and market additional new proprietary products. The Company's
research and development efforts are led by two scientists with an aggregate of
34 years of experience designing products based on emerging carbohydrate
technology. In March 1998, the Company completed construction of a
technologically advanced laboratory to be used for both quality assurance and
product development. As a complement to its in-house staff and facilities, the
Company has sought, and will continue to seek, strategic alliances with several
large manufacturers of nutritional supplements. These companies work with the
Company to create, develop and manufacture its proprietary products and lend
additional guidance which is helpful to the Company's strategic planning. In
addition, the Company works with other smaller product companies to identify and
develop new innovative niche products.

STRONG ASSOCIATE SUPPORT PHILOSOPHY. The Company is committed to providing
the highest level of support services to its Associates. The Company believes
that it meets the needs of, and builds loyalty with, its Associates through its
highly personalized and responsive customer service. Company-sponsored Associate
events held several times throughout the year provide education and training for
thousands of Associates. These conferences feature a schedule of events that
offers information, aids in business development for Associates and provides a
venue for Associates to interact with the leading distributors and researchers
of the Company. In addition, the Company believes it offers one of the most
financially rewarding compensation plans offered to Associates in the direct
selling industry. Commissions as a percentage of net sales were 38.3%, 40.6%,
40.9% and 41.1% for 1995, 1996, 1997 and the three months ended March 31, 1998,
respectively.

FLEXIBLE OPERATING STRATEGY. The Company considers flexibility to be a key
component of its existing and ongoing success. The Company outsources production
and forms strategic alliances to minimize capital expenditure where practicable.
However, the Company maintains control of key operating functions, including
product development and formulation, product warehousing and distribution,
financial and operating functions and proprietary product raw material sourcing.
The Company believes it is positioned to enter international markets in an
efficient and cost-effective manner by leveraging the expertise and resources of
its strategic allies in the areas of distribution and logistics, call center
operations, product registration and export requirements. Information technology
also plays a key role in providing operating flexibility to the Company. The
proprietary technology systems used by the Company are designed to be quickly
and easily adaptable in order to support expansion into new markets. By
developing this technology infrastructure, the Company believes it has reduced
the risks associated with operational inefficiencies typically encountered by
network marketing companies during periods of rapid growth.

EXPERIENCE AND DEPTH OF MANAGEMENT TEAM. The Company's management team is
comprised of experienced individuals drawn from a variety of backgrounds and
expertise in certain fields, including product research and development,
marketing, direct sales, legal and compliance, information technology and
product distribution. All principal managers have substantial business
experience, most with larger concerns, and bring the perspective of traditional
business to the multi-level marketing endeavor of the Company. The goal of the
management team is to provide a sound, systematic, reliable framework within
which each Associate can fit his or her personal style of conducting business.

GROWTH STRATEGY

The Company's primary growth strategy is to increase product sales through
existing distribution channels, to continue to expand operations in existing
markets in the United States and Canada and to enter select foreign markets. The
Company believes that its growth will be based on the following factors:

INTRODUCE NEW PRODUCTS. The Company's product development strategy is to
expand its existing product lines and bring new proprietary and, where possible,
patentable products to market that can be developed into new product lines.
Since its inception, the Company has introduced new products each year,
including, in March 1998, MannaBARs-TM-, which provide a new delivery system for
its proprietary nutritional supplement compounds in the form of bars made from
whole food sources. MannaBAR-TM- was developed partly in response to strong
Associate demand. The Company currently intends to introduce new products each
year, which are expected to contain one or more proprietary components and
complement existing products. The Company believes that its newly enhanced
research and development capabilities will facilitate its ability to develop
these new products.

ATTRACT NEW ASSOCIATES AND ENHANCE ASSOCIATE PRODUCTIVITY. The Company has
enjoyed significant growth in the number of Associates by leveraging its
operating strengths and creating a business climate which promotes growth in the
number of Associates qualifying for recognition and increases the retention,
motivation and productivity of high-level Associates. The Company plans to
introduce new Associate achievement levels in part to encourage greater
retention, motivation and productivity. In addition, the Company plans to
encourage growth in the number of Presidential Associates, currently the highest
level of achievement attainable by an Associate, by modifying Associate training
and recognition programs.

ENTER NEW MARKETS. In 1998, the Company plans to expand its operations into
Australia and explore possibilities for further expansion in several additional
countries. By employing its flexible operating strategy in the international
sector, the Company believes it will be able to enter new markets in a
cost-effective and efficient manner. In addition, the Company will evaluate the
following factors in its decision to expand into new markets: (i) size of
market; (ii) anticipated demand; and (iii) ease of entry. The Company believes
that growth potential exists in international markets. See "Risk Factors-Risks
Associated with International Expansion."

PRODUCTS

The Company markets a line of quality, proprietary products, including 17
different nutritional products and three topical products. The Company also
offers a variety of sales aids, including enrollment and renewal kits (which
include products), brochures and videotapes which accounted for approximately
24.7% of net sales in 1997. The Company believes its focused product line
contributes to efficient distribution and inventory management.

The Company believes that the discovery and use of certain carbohydrates
offers significant potential for nutritional benefits. Healthy bodies, comprised
of many sophisticated components working together, must have accurate internal
communication to function at an optimal level. In its most basic form, this
communication occurs at the cellular level and is referred to by molecular
biologists as cell-to-cell communication. To maintain a healthy body, cells must
"talk" to other cells. Scientists have learned that glycoproteins, or molecules
found on the surface of all cells, play a key role in all cell-to-cell
communication. The name, glycoprotein, is derived from the molecules'
composition: sugar (glyco) and protein. Because up to 85% of glycoproteins are
composed of specific monosaccharides, the body's need for these carbohydrates is
important.

HARPER'S BIOCHEMISTRY, a leading biochemistry reference source, lists eight
monosaccharides commonly found in human glycoproteins which are known to be
important to the healthy functioning of cell-to-cell communications in the human
body. These monosaccharides include fucose, galactose, glucose, mannose,
N-acetylgalactosamine, N-acetylglucosamine, N-acetylneuraminic acid and xylose,
and belong to a universe of approximately 200 monosaccharides found in nature.

The Company recognized the human body's need for these monosaccharides to
support optimal health. In response, the Company developed and filed a patent
application on Ambrotose-TM- Complex, which is directed at these monosaccharides
and their various uses. By filing this patent application, the

Company seeks to establish a proprietary position in the nutritional supplement
market. This proprietary glyconutritional compound, Ambrotose-TM- Complex, is a
component of each of the Company's products.

The following chart lists the Company's products as of April 30, 1998.

CELL-TO-CELL ENDOCRINE INTESTINAL DERMAL
COMMUNICATION IMMUNE SYSTEM SYSTEM SYSTEM SYSTEM
--------------------- ------------- --------------- --------------- -------------
-----------------------------------------------------------------------------------------------------

Ambrotose-TM-.................. X

Bulk Ambrotose-TM-............. X
-----------------------------------------------------------------------------------------------------

Bulk Em-Pact...................

Em-Pact........................
-----------------------------------------------------------------------------------------------------

Emprizone-Registered Trademark-.. X

Firm........................... X
-----------------------------------------------------------------------------------------------------

Man-Aloe-Registered Trademark-.. X

MannaCleanse-TM-............... X
-----------------------------------------------------------------------------------------------------

MannaBAR-TM-
Carbohydrate Formula........... X X X

MannaBAR-TM-
Protein Formula................ X X X
-----------------------------------------------------------------------------------------------------

Mannatonin..................... X

MVP-TM-........................ X
-----------------------------------------------------------------------------------------------------

Naturalizer.................... X

Phyt-Aloe-Registered Trademark-.. X
-----------------------------------------------------------------------------------------------------

Phyto-Bears-Registered Trademark-.. X

Plus........................... X
-----------------------------------------------------------------------------------------------------

Profile 1......................

Profile 2......................
-----------------------------------------------------------------------------------------------------

Profile 3......................

Sport with Ambrotose-TM-.......

SPORTS
PERFORMANCE NUTRITIONAL NEEDS
----------------- -----------------
--------------

Ambrotose-TM-..................
Bulk Ambrotose-TM-.............
--------------
Bulk Em-Pact................... X
Em-Pact........................ X
--------------
Emprizone-Registered Trademark-
Firm...........................
--------------
Man-Aloe-Registered Trademark-.
MannaCleanse-TM-...............
--------------
MannaBAR-TM-
Carbohydrate Formula...........
MannaBAR-TM-
Protein Formula................
--------------
Mannatonin.....................
MVP-TM-........................
--------------
Naturalizer....................
Phyt-Aloe-Registered Trademark-
--------------
Phyto-Bears-Registered Trademar
Plus...........................
--------------
Profile 1...................... X
Profile 2...................... X
--------------
Profile 3...................... X
Sport with Ambrotose-TM-....... X

PRODUCT DEVELOPMENT

The Company's overall product strategy is to develop proprietary nutritional
supplements which capitalize on existing and emerging scientific knowledge and
the growing worldwide interest in alternative healthcare and optimal health. The
Company focuses on bringing new proprietary and, where possible, patentable
products to market that can be developed into new product lines, while expanding
its existing product line. The Company believes it is well positioned to take
advantage of the ability to provide educational information regarding dietary
supplements and the increased development of nutritional supplements and
functional foods resulting from the enactment of DSHEA.

The Company intends to launch new products each year at its corporate
events. Selection of the products developed will be based on the marketability
and proprietary nature of the product, taking into

account regulatory considerations, the availability of components and the
existence of data supporting claims of functionality. To support and validate
the proprietary nature of the Company's product line, appropriate research is
conducted under the direction of the Company's research and development
department both before and after product launch. The Company believes that the
completion of its new laboratory will help to accelerate and improve new product
development.

The following chart indicates the year of introduction of each of the
Company's products:

YEAR PRODUCTS INTRODUCED
- --------- ----------------------------------------------------------------------------

1994 Man-Aloe-Registered Trademark-, Plus, MVP-TM-, Sport, Naturalizer,
Phyt-Aloe-Registered Trademark-, Firm

1995 Phyto-Bears-Registered Trademark-, Em-Pact-TM-,
Emprizone-Registered Trademark-

1996 Ambrotose-TM-, Mannatonin, Profile 1, 2 and 3, Sport with Ambrotose-TM-

1997 Bulk Ambrotose-TM-, Bulk Em-Pact-TM-, MannaCleanse-TM-

1998 MannaBAR-TM- Carbohydrate Formula, MannaBAR-TM- Protein Formula

PRODUCT DISTRIBUTION SYSTEM

OVERVIEW. The foundation of the Company's sales philosophy and distribution
system is network marketing. As with most network marketing systems, the
Company's Associates purchase products for retail sale and personal consumption.
The Company believes network marketing is an effective vehicle to distribute the
Company's products for the following reasons: (i) the benefits of the Company's
products are more readily explained on an individual, educational basis, which
emphasizes the manner in which its products work, and is more direct than the
use of television and print advertisements; (ii) direct sales allow for actual
product testing by a potential consumer; (iii) the impact of Associate and
consumer testimonials is enhanced; and (iv) as compared to other distribution
methods, Associates can provide higher levels of customer service and attention
by, among other things, following up on sales to ensure proper product usage and
customer satisfaction, and encouraging repeat purchases.

The Company encourages Associates to enroll new Associates with whom the
Associates may have an ongoing relationship as a family member, friend, business
associate, neighbor or otherwise. The Company believes that Associates will be
more likely to remain with the Company if they are enrolled with the Company by
someone with whom they have an ongoing relationship. The Company also believes
that its network marketing system will continue to build a base of potential
consumers for additional products. The Company encourages, but does not require,
Associates to use the Company's products, nor does the Company require a person
to be an Associate in order to be a consumer of the Company's products. The
Company believes its network marketing system is particularly attractive to
prospective Associates because of the potential for supplemental income and
because Associates are not required to purchase any inventory, have no account
collection issues, have minimal paperwork requirements and have a flexible work
schedule. The sales efforts of Associates are supported through various means,
including Company-sponsored training held periodically throughout the year.

The effectiveness of direct selling as a distribution channel has been
enhanced in the past decade through advancements in communications, including
telecommunications, and the proliferation of the use of videotape players, fax
machines and personal computers. The Company produces high-quality video tapes
and audio tapes for use in product education, demonstrations and sponsoring
sessions that project a desired image for the Company and its product line. The
Company believes that high quality sales aids play an important role in the
success of Associate efforts. The Company is committed to fully utilizing
current and future technological advances to continue to enhance the
effectiveness of direct selling.

Associates pay for products prior to shipment. The Company carries no
accounts receivable from Associates, except for minor amounts owing to check
returns or other exceptions. Associates pay for products primarily by credit
card, with cash, money orders and checks representing a small portion of all
payments. Associates may automatically order product, applied to a credit card,
on a continuous basis, and receive a discount. Automatic orders accounted for
approximately 36.9% of net sales for the year ended December 31, 1997.

ASSOCIATE DEVELOPMENT. The Company believes that the key contributing
factors to its long-term growth and success are the recruitment of new
Associates and retention of existing Associates. The Company is active in the
development of Associates, including in the areas of recruitment, training,
support, motivation and compensation.

The Company primarily relies on current Associates to sponsor new
Associates. The sponsoring of new Associates creates multiple levels in the
network marketing structure. Persons whom an Associate sponsors are referred to
as "downline" or "sponsored" Associates. Once a person becomes an Associate, he
or she is able to purchase products directly from the Company at wholesale
prices for resale to consumers or for personal consumption. The Associate is
also entitled to sponsor other Associates in order to build a network of
Associates and product users.

The Company also relies heavily on existing Associates to train new
Associates, utilizing a new training program for Associates ("Accredited
Training") developed using both the expertise of experienced corporate trainers
and the experience of seasoned Associates. While the Company provides brochures,
magazines and other sales materials, Accredited Training is specially designed
to provide systematic and uniform training to Associates about the Company, its
products, methods of doing business and compensation plan. As of January 1998,
only Associates who have participated in Accredited Training are eligible to
receive remuneration for training other Associates.

The Company makes the needs of its Associate a priority, in accordance with
its stated corporate philosophy. The Company provides a high level of support
services tailored to the needs of its Associates, including training meetings,
educational and informative conference calls, automated fax services, ordering
and distribution system, personalized customer service via telephone, the
Internet and e-mail, 24-hour, seven days per week access to certain information
through touch-tone phones and a liberal product return policy. The Company's
support system includes a current database of all Associates and their upline
and downline Associates. The Company also provides business development
materials that the Company believes will increase both product sales and
recruitment. The Company believes that enhancing an Associate's efforts through
effective support mechanisms has been and will continue to be important to the
success of the Company.

The Company currently recognizes Associate performance with four levels of
Associate leadership achievement: Regional; National; Executive; and
Presidential. Each leadership level is vested with the opportunity for
additional compensation ranging from 4% of commissionable sales at the Regional
Director level to 16% of commissionable sales at the Presidential level. The
Company intends to develop additional achievement levels in the future specially
designed to stimulate continued production and downline growth by motivating
Associates at the highest levels. Additionally, the Company intends to expand
its program of Associate recognition to express its appreciation for increased
levels of performance and to further motivate Associates.

ASSOCIATE COMPENSATION. All Associate compensation is paid directly by the
Company and is based on sales of the Company's products, leadership and
training. The Company offers a compensation plan which combines aspects of two
widely-used multi-level marketing compensation plans. The Company's compensation
plan integrates a single downline, or "unilateral" element, with a multiple
downline, or "binary" element, and adds additional compensation based upon
attainment of certain Associate leadership levels and training performance. The
"unilateral" and "binary" elements of the compensation plan are similar to other
multi-level marketing compensation plans. Leadership bonuses pay associates as
much as 16% of commissionable sales as various leadership levels are attained.
The compensation plan includes bonuses or commissions for qualified associates
ranging from $20 to $180 earned as new associates enter their downline
organization. Associates who have completed "accredited training" can receive a
commission for each additional Associate they train. Bonuses or commissions
ranging from $10 to $200 are also earned on products included in starter or
introductory packs. The result of this "hybrid" structure is to compensate both
Associates in the early stages of building their business and Associates with
more established organizations, by rewarding Associates for breadth as well as
depth in their downline organizations. In addition to the "hybrid" compensation
plan, Associates earn compensation for retail sales of products.

Based upon its knowledge of other industry-related network marketing
compensation plans, the Company believes that its compensation plan is among the
most financially rewarding plans offered in the industry, with commissions as a
percentage of net sales of 38.3%, 40.6%, 40.9% and 41.1% for 1995, 1996, 1997
and the three months ended March 31, 1998, respectively.

The Company, in configuring its international compensation plans, will not
employ its existing compensation plan outside of the United States and Canada.
In the international sector, the Company intends to use substantially similar
unilateral plans from country to country, which will be tailored to fit the
applicable laws and other considerations governing compensation of Associates in
each country. The Company plans to seamlessly integrate its international
compensation plans across all markets in which the Company's products are, or
will be, sold. This will allow Associates to receive commissions for global
product sales, rather than merely local product sales. The seamless downline
structure will be designed to allow an Associate to build a global network by
creating downlines in international markets. Associates will not be required to
establish new downlines or requalify for higher levels of commissions within
each new country in which they begin to operate. The Company intends to develop
international compensation plans which will be designed to pay approximately the
same percentage compensation as in the United States and which will stimulate
both product sales as well as the development of width and breath in downline
organizations in accordance with local laws.

MANAGEMENT OF ASSOCIATES. The Company takes an active role in the
management of its Associates. Many multi-level marketing companies encounter
difficulty with regulatory authorities due to lack of oversight of Associate
activities. Any oversight process is complicated by the fact that Associates are
not legally employees of the Company, but are independent contractors. However,
the Company seeks to restrict the statements and conduct of Associates regarding
the Company's business by contractually binding Associates to abide by the
Associate Policies and Procedures (the "Policies and Procedures") promulgated by
the Company. Each Associate receives a copy of the Policies and Procedures which
must be followed in order to maintain the Associate's status in the
organization. Associates are expressly forbidden from making any representation
as to the possible earnings of any Associate, other than through statements of
the Company indicating the range of actual earnings by all Associates and other
required information, prepared in accordance with applicable law. Associates are
also prohibited from creating any marketing literature that has not been
approved by the Company or a qualified attorney. The Company monitors Associate
web sites and Internet conduct on a regular and continuing basis.

The Company enforces the Policies and Procedures through its disciplinary
procedure, which is instituted through the filing of a complaint against the
Associate, followed by a response from the Associate, an investigation of the
facts, and the presentation of the facts to a committee of corporate

managers not within the Company's compliance department (the "Compliance
Department") for determination. The Compliance Department is also free to
evaluate complaints, and where the conduct complained of is not within the scope
of the Policies and Procedures, referring the complaint to an Associate Advisory
Counsel for intervention to address Associate ethics. The Compliance Department
also has the discretion to intervene with Associates at a lower level of
discipline, while still creating a record of the possible infraction and
educating the Associate through its practice of issuing warning letters. The
Associate is educated as to the nature of the complaint against him or her, the
policy alleged to have been violated, and then, without a finding of whether the
conduct occurred or not, is asked to confirm in writing that he or she
understands the policy in question, agreeing that he or she will thereafter
follow all of the Policies and Procedures of the Company.

The Compliance Department and the Director of Specialized Information
monitor training meetings at various locations and at corporate events,
generating a "report card" for the presenting Associate, offering critiques and
employing the Associate disciplinary process, where necessary. The Compliance
and Legal Departments, in cooperation with the other departments of the Company,
regularly evaluate Associate conduct and the need for new and revised
rule-making. The Company also tracks Associate compliance intervention and
communication through a system that allows both corporate personnel and
regulatory officials to review details about Associate compliance intervention,
timing and disposition. The Company believes that the compliance program
reflects positively on the Company, helps in the maintenance of Associate ethics
and aids the Company's recruiting activities.

PRODUCT RETURN POLICY. The Company's product return policy provides that
retail customers may return the unused portion of any product to the selling
Associate and receive a full cash refund. Any Associate who provides a refund to
a customer is reimbursed with product by the Company upon providing proper
documentation and the remainder of the product. Historically, product returns
have not been significant. Returns as a percentage of net sales were 0.6%, 1.2%,
1.5% and 1.5% in 1995, 1996, 1997 and the three month period ended March 31,
1998, respectively.

INFORMATION TECHNOLOGY AND SYSTEMS

The Company believes that maintaining sophisticated and reliable transaction
processing systems is essential to the long-term success of the Company. The
Company's systems are designed to: (i) reduce the time required to supply an
Associate or customer with the products of the Company; (ii) provide detailed
and customized billing information; (iii) respond quickly to Associate needs and
information requests; (iv) provide detailed and accurate information concerning
qualification and downline activity; (v) provide detailed and customized
Associate commission payments; (vi) support the functions of the Company's
Customer Service Department; and (vii) monitor, analyze and report financial and
operating trends. In order to meet these needs and expand transaction processing
systems to accommodate the Company's expected growth, capital and operating
expenditures for information technology operations and development activities
are expected to be approximately $4 million during 1998.

The suppliers of computer hardware to the Company are Dell Computer
Corporation, Hewlett-Packard Company, Compaq Computer Corporation and Digital
Equipment Corp. ("DEC"). The DEC hardware systems are linked to provide a high
level of availability for critical business applications. The Company believes
the global presence of these suppliers will be an important factor in supporting
the Company's expansion plans.

The Company's financial software was upgraded at the end of 1996 with the
acquisition of a sophisticated financial system, capable of operating on several
platforms. The system exists in a client-server environment, employs a graphical
interface and has a relational and scaleable database to accommodate the need
for business modifications and growth. In addition, the Company has purchased a
decision-support system which interfaces with its financial systems. These
systems, used in tandem, enable the Company to track and analyze financial
information and operations efficiently and effectively,

as well as create and produce custom reports. The Company believes that its
computer systems have been developed and operate using products which are Year
2000 compliant.

The Company believes that its significant investment in software, hardware
and personnel will enable it to (i) respond rapidly to its business needs for
information technology assessment and development, (ii) manage international
growth and its seamless downline structure, and (iii) reduce expenses as a
percentage of sales as revenues increase.

PRODUCTION AND DISTRIBUTION

All of the Company's products are manufactured by outside contractors.
Production outsourcing provides the Company with the production capacity
necessary to respond to fluctuations in sales, and significantly limits
investment in capital equipment. All outside contractors have signed agreements
to keep the Company's formulations confidential and to not emulate them. In
order to meet the Company's needs, relationships were developed with three large
contractors in 1997. With the increased capacity, the Company believes that it
currently has in place the manufacturers necessary to meet its volume
requirements over the next several years, including expansion into foreign
markets. The Company, however, continues to identify new quality-driven
manufacturers to supply the products necessary to the Company's success. The
Company seeks to obtain cost efficiencies by reviewing, from time to time,
pricing considerations and by requiring competitive bids from various
manufacturers meeting its quality and performance requirements.

Two ingredients are proprietary to the Company: (i) Ambrotose-TM- Complex, a
glyconutritional dietary supplement consisting of a blend of plant
polysaccharides, and (ii) Dioscorea Complex, a blend of herbal extracts.
Separate individual contractors manufacture these ingredients under strict
confidentiality agreements. The Company plans to bring the blending of all
proprietary formulas in-house, further protecting the confidential nature and
high quality standards of its proprietary formulations. In the meantime, the
Company continues to identify high quality sources of supply for its
ingredients. The Company's employees audit all critical contract vendors and
suppliers on a semi-annual basis. See "Risk Factors-Dependence on Proprietary
Ingredient."

In January 1998, the Company's Texas distribution operation relocated to a
new $1.3 million, 75,000 square foot facility in Coppell, Texas. The facility
includes an automated pick-to-light system that the Company believes will
enhance productivity and support order volume growth, and is capable of
processing 6,000 orders per shift. The facility also contains a warehouse,
distribution offices and an ingredient mixing area that is expected to be
operational by the third quarter of 1998. The Canadian distribution center is a
contract operation occupying a 6,000 square foot compartment in a 100,000 square
foot building which currently fills approximately 800 orders per day.

In March 1998, the Company completed construction of its technologically
advanced research and development laboratory that includes gas and liquid
chromatographs and mass spectrometers which will be used to maintain quality
standards, support the Company's research and development commitment in the area
of new herbal complexes, and support the development of new products as well as
its existing product line.

GOVERNMENT REGULATION

In the United States and in foreign markets, the Company is or will be
subject to and affected by extensive laws, governmental regulations,
administrative determinations, court decisions and similar constraints (as
applicable, at the federal, state and local levels) including, among other
things, regulations pertaining to (i) the formulation, manufacturing, packaging,
labeling, distribution, importation, sale and storage of the Company's products,
(ii) product claims and advertising (including direct claims and advertising by
the Company as well as claims and advertising by Associates, for which the
Company may be held responsible), (iii) the Company's network marketing system,
(iv) transfer pricing and similar regulations that affect the level of foreign
taxable income and customs duties, and (v) taxation of Associates, which in some
instances may impose an obligation on the Company to collect the taxes and
maintain appropriate records. See "Risk Factors-Government Regulation of
Products and Marketing; Import Restrictions."

PRODUCTS. The formulation, manufacturing, packaging, storing, labeling,
advertising, distribution and sale of the Company's products are subject to
regulation by one or more governmental agencies, including the FDA, the Federal
Trade Commission ("FTC"), the Consumer Product Safety Commission, the Department
of Agriculture, the Environmental Protection Agency and the Postal Service. The
Company's activities are also regulated by various agencies of the states,
localities and foreign countries in which the Company's products are
manufactured, distributed and sold. The FDA, in particular, regulates the
formulation, manufacture, packaging, storage, labeling, promotion, distribution
and sale of foods, dietary supplements and OTC drugs, such as those distributed
by the Company. FDA regulations require the Company and its suppliers to meet
relevant good manufacturing practice ("GMP") regulations for the preparation,
packing and storage of drugs. The FDA has published a Notice of Advanced Rule
Making for GMPs for dietary supplements, but it has not yet issued a proposal.

DSHEA revised the provisions of the Federal Food, Drug and Cosmetic Act
("FFDCA") concerning the composition and labeling of dietary supplements and,
the Company believes, is generally favorable to the dietary supplement industry.
The legislation creates a new statutory class of "dietary supplements." This new
class includes vitamins, minerals, herbs, amino acids and other dietary
substances for human use to supplement the diet, and the legislation
grandfathers, with certain limitations, dietary ingredients that were on the
market before October 15, 1994. A dietary supplement which contains a new
dietary ingredient (I.E., one not on the market before October 15, 1994) will
require evidence that the supplement contains only ingredients that have been
present in the food supply in a certain form or evidence of a history of use or
other evidence of safety establishing that it is reasonably expected to be safe.
Manufacturers of dietary supplements which make a "statement of nutritional
support," which is a statement describing certain types of product performance
characteristics, must have substantiation that the statement is truthful and not
misleading, must make a disclaimer in the statement itself and must notify the
FDA of the statement no later than 30 days after it is first made.

The majority of the products marketed by the Company are classified as
dietary supplements under the FFDCA. In September 1997 the FDA issued
regulations governing the labeling and marketing of dietary supplement products.
The regulations cover: (i) the identification of dietary supplements and their
nutrition and ingredient labeling; (ii) the terminology to be used for nutrient
content claims, health content claims and statements of nutritional support;
(iii) labeling requirements for dietary supplements for which "high potency" and
"antioxidant" claims are made; (iv) notification procedures for statements on
dietary supplements; and (v) premarket notification procedures for new dietary
ingredients in dietary supplements. The notification procedures became effective
in October 1997, while the new labeling requirements will not become effective
until March 23, 1999. The Company will be required to revise a substantial
number of its product labels to reflect the new requirements prior to the 1999
effective date, although the Company does not expect the cost or impact of such
actions to be material. In addition, the Company will be required to continue
its ongoing program of securing substantiation of its product performance
claims, and of notifying the FDA of certain types of performance claims made for
its

products. The Company's substantiation program involves compiling and reviewing
the scientific literature pertinent to the ingredients contained in the
Company's products.

In addition, in certain markets, including the United States, claims made
with respect to dietary supplement, personal care or other products of the
Company may change the regulatory status of the products. In the United States,
for example, it is possible that the FDA could take the position that claims
made for certain of the Company's products make those products new drugs
requiring preliminary approval or place those products within the scope of an
FDA OTC drug monograph. OTC monographs prescribe permissible ingredients and
appropriate labeling language, and require the marketer or supplier of the
products to register and file annual drug listing information with the FDA. Of
the products sold by the Company, only Emprizone-Registered Trademark- is
labeled as an OTC monograph drug, and the Company believes that it is in
compliance with the applicable monograph. In the event that the FDA asserted
that product claims for other products caused them to be new drugs or fall
within the scope of OTC monographs, the Company would be required either to file
a New Drug Application, comply with the applicable monographs or change the
claims made in connection with the products.

Dietary supplements are subject to the Nutrition, Labeling and Education Act
("NLEA"), and regulations promulgated thereunder, which regulates health claims,
ingredient labeling and nutrient content claims characterizing the level of a
nutrient in the product. NLEA prohibits the use of any health claim for dietary
supplements, unless the health claim is supported by significant scientific
agreement and is pre-approved by the FDA.

In foreign markets, prior to commencing operations and prior to making or
permitting sales of its products in the market, the Company may be required to
obtain an approval, license or certification from the country's ministry of
health or comparable agency. Where a formal approval, license or certification
is not required, the Company will nonetheless seek a favorable opinion of
counsel regarding the Company's compliance with applicable laws. Prior to
entering a new market in which a formal approval, license or certificate is
required, the Company will work with local authorities in order to obtain the
requisite approvals, license or certification. The approval process generally
requires the Company to present each product and product ingredient to
appropriate regulators and, in some instances, arrange for testing of products
by local technicians for ingredient analysis. Such approvals may be conditioned
on reformulation of the Company's products or may be unavailable with respect to
certain products or certain ingredients. The Company must also comply with
product labeling and packaging regulations that vary from country to country.

The FTC, which exercises jurisdiction over the marketing practices and
advertising of all the Company's products, has in the past several years
instituted enforcement actions against several dietary supplement companies for
false and misleading marketing practices and advertising of certain products.
These enforcement actions have resulted in consent decrees and monetary payments
by the companies involved. In addition, the FTC has increased its scrutiny of
the use of testimonials, which are utilized by the Company. Importantly, the FTC
requires substantiation for product claims at the time such claims are first
made. A failure to have substantiation when product claims are first made
violates the Federal Trade Commission Act. While the Company has not been the
subject of FTC enforcement action for the advertising of its products, there can
be no assurance that the FTC will not question the Company's advertising or
other operations in the future.

Through its manuals, seminars and other training materials and programs, the
Company attempts to educate Associates as to the scope of permissible and
impermissible activities in each market. The Company also investigates
allegations of Associate misconduct. However, Associates are generally
independent contractors, and the Company is not able to monitor directly all
Associate activities. As a consequence, there can be no assurance that
Associates comply with applicable regulations.

The Company is unable to predict the nature of any future laws, regulations,
interpretations or applications, nor can it predict what effect additional
governmental regulations or administrative orders,

when and if promulgated, would have on its business in the future. They could,
however, require the reformation of certain products not able to be
reformulated, imposition of additional recordkeeping requirements, expanded
documentation of the properties of certain products, expanded or different
labeling and scientific substantiation regarding product ingredients, safety or
usefulness. Any or all of such requirements could have a material adverse effect
on the Company's business, results of operations and financial condition.

NETWORK MARKETING SYSTEM. The Company's network marketing system is subject
to a number of federal and state regulations administered by the FTC and various
state agencies. Regulations applicable to network marketing organizations are
generally directed at ensuring that product sales are ultimately made to
consumers and that advancement within such organizations be based on sales of
the organizations' products rather than investments in the organizations or
other non-retail sales related criteria. For instance, in certain markets there
are limits on the extent to which Associates may earn royalties on sales
generated by Associates that were not directly sponsored by the Associate. Where
required by law, the Company will obtain regulatory approval of its network
marketing system or, where such approval is not required, the favorable opinion
of local counsel as to regulatory compliance. The FTC regulates trade practices
related to network marketing systems.

Under a consent decree entered into in February 1997 as a result of
negotiation with the Attorney General of the State of Michigan, the Company has
agreed to monitor product purchases by its Associates in Michigan. The purpose
of the monitoring is to identify and correct any instances of coerced sales. The
Company also conducts a number of random audits of Associates in Michigan for
evidence of stockpiling. To date, the Company has not found evidence of coerced
sales or stockpiling by its Associates in Michigan, and the Company's commission
policies are designed to provide no incentive or reward to Associates for
engaging in such activities.

In Canada, the regulation of the Company's network marketing system is
subject to both federal and provincial law. Under Canada's Federal Competition
Act (the "Competition Act"), the Company must ensure that any representations
relating to Associate compensation to a prospective Associate constitute fair,
reasonable and timely disclosure and that it meets other legal requisites of the
Competition Act. The Company's compensation plan has been reviewed by the
appropriate Canadian authorities. In addition, all Canadian provinces and
territories other than Ontario have legislation requiring the registration or
licensing of the Company as a direct seller within that jurisdiction. Licensing
is designed to maintain the standards of the direct selling industry and to
protect the consumer. Some provinces require that both the Company and its
Associates be licensed. The Company currently holds the requisite provincial or
territorial direct sellers' licenses.

OTHER REGULATIONS. The Company is also subject to a variety of other
regulations in various foreign markets, including regulations pertaining to
social security assessments and value added taxes, employment and severance pay
requirements, import/export regulations and antitrust issues. As an example, in
many markets the Company is substantially restricted in the amount and types of
rules and termination criteria that it can impose on Associates without causing
social security assessments to be payable by the Company on behalf of such
Associates and without incurring severance obligations to terminated Associates.
In some countries, the Company may be subject to such obligations in any event.
See "Risk Factors-Government Regulation of Products and Marketing; Import
Restrictions."

In certain countries, including the United States, the Company may also be
affected by regulations applicable to the activities of its Associates because
in some countries the Company is, or regulators may assert that the Company is,
responsible for its Associates' conduct, or such regulators may request or
require that the Company take steps to ensure its Associates' compliance with
regulations. The types of regulated conduct include, among other things,
representations concerning the Company's products, income representations made
by the Company or Associates and sales of products in markets in which such
products have not been approved, licensed or certified for sale. In certain
markets, including the United States, it is possible that improper product
claims by Associates could result in the Company's products being reviewed or
re-reviewed by regulatory authorities and, as a result, being classified or

placed into another category as to which stricter regulations are applicable. In
addition, certain labeling changes might be required.

COMPLIANCE PROCEDURES. The Company, its products and its network marketing
system are subject, both directly and indirectly through Associates' conduct, to
numerous federal, state and local regulations both in the United States and
foreign markets. Beginning in 1997, the Company began to institute formal
regulatory compliance measures by developing a system to identify specific
complaints against Associates and to remedy any violations by Associates through
appropriate sanctions, including warnings, suspensions and, when necessary,
terminations. At the same time the Company instituted internal policies for
compliance with FDA and FTC rules and regulations. See "-Product Distribution
System-Management of Associates."

In order to comply with regulations that apply to both the Company and its
Associates, the Company continues to conduct research into the applicable
regulatory framework prior to entering any new market to identify all necessary
licenses and approvals and applicable limitations on the Company's operations in
that market. The Company will devote substantial resources to obtaining such
licenses and approvals and bringing its operations into compliance with such
limitations. The Company will also research laws applicable to Associate
operations and revise or alter its business system, compensation plan, Associate
requirements and other materials and programs to provide Associates with
guidelines for operating a business, marketing and distributing the Company's
products and similar matters, as required by applicable regulations in each
market. However, the Company is not able to fully monitor its Associates
effectively to ensure that they refrain from distributing the Company's products
in countries where the Company has not commenced operations, and the Company
does not devote significant resources to such monitoring.

COMPETITION

The nutritional supplements industry is large and intensely competitive. The
Company competes directly with companies that manufacture and market nutritional
products in each of the Company's product lines, including General Nutrition
Companies, Inc., Solgar Vitamin and Herb Company, Inc., Twinlab Corporation and
Weider Nutrition International, Inc. Many of the Company's competitors in the
nutritional supplements market have longer operating histories and greater name
recognition and financial resources than the Company. In addition, nutritional
supplements can be purchased in a wide variety of channels of distribution.
While the Company believes that consumers appreciate the convenience of ordering
products from home through a sales person, the buying habits of many consumers
accustomed to purchasing products through traditional retail channels are
difficult to change. The Company's product offerings in each product category
are also relatively small compared to the wide variety of products offered by
many other nutritional product companies.

The Company also competes in the nutritional supplements market and for new
associates with other retail, multi-level marketing and direct selling companies
in the nutritional supplements industry by emphasizing the proprietary nature,
value, proprietary components and the quality of the Company's products and the
convenience of the Company's distribution system. The Company also competes with
other direct selling organizations, many of which have longer operating
histories and greater name recognition and financial resources than the Company.
They include Amway Corporation, Nu Skin Enterprises, Inc., Body Wise
International, Inc., ENVION International, Herbalife International, Inc., Enrich
International, Rexall Showcase International, Forever Living Products, Inc. and
Melaleuca, Inc. The Company competes for new Associates on the basis of its
compensation plan and its proprietary and quality products. The Company believes
that many more direct selling organizations will enter the marketplace as this
channel of distribution expands over the next several years. The Company also
competes for the commitment of its Associates. Given that the pool of
individuals interested in direct selling tends to be limited in each market, the
potential pool of Associates for the Company's products is reduced to the extent
other network marketing companies successfully recruit these individuals into
their businesses.

EMPLOYEES

As of April 30, 1998, the Company employed approximately 300 people, nine of
whom occupy executive positions. This number does not include Associates, who
are independent contractors rather than employees of the Company. A limited
number of employees are also Associates, having enrolled prior to a policy
instituted in May 1997, which precludes any further enrollment by employees as
Associates. The Company only allows employees to be Associates if they have
disclosed their status to the Company and have executed an agreement not to use
their employment status to assist in building their business as an Associate.
The Company is currently evaluating ways in which existing employee-Associates
can be fairly treated or compensated for the extinguishment of their rights as
Associates. The Company's employees are not unionized, and the Company believes
its relationship with its employees is good.

PROPERTIES

The Company leases approximately 110,000 square feet in Coppell, Texas for
its headquarters. The Company leases 75,000 square feet in Coppell, Texas for
its warehouse and distribution center. Each of the leases is for a term of 10
years, expiring in January 2007 and January 2008, respectively.

LEGAL PROCEEDINGS

The Company, in the ordinary course of business, is involved in various
legal proceedings. The Company does not believe the outcome of any of these
proceedings, other than those described below, would have a material adverse
effect on the Company's business, results of operations or financial condition.

In March 1998, the Company commenced an arbitration proceeding against an
Associate, its principal Dr. Joe Glickman, Jr., individually and as trustee of
Dr. Joe Glickman, Jr. Phyto Trust d/b/a/ Alotek (collectively, "Alotek"), for
the recovery of certain funds and the cancellation of Associate positions
claimed by Alotek. Based upon Alotek's refusal to arbitrate and a demand letter
from Alotek, alleging that the Company had, among other things, breached various
contracts, agreements and promises to Alotek, the Company sought and obtained a
temporary restraining order in Texas state district court restraining Alotek
from filing an action against the Company in any other court or forum pending
the court's ruling on whether Alotek's claims were subject to commercial
arbitration in Dallas, Texas. Thereafter, Alotek removed the state court action
to Federal District Court in Dallas, Texas, and concurrently commenced a suit in
Federal District Court in Montana claiming actual damages of approximately $17.1
million, as well as statutory damages and exemplary damages. The Company
contends that the actions of Alotek in instituting the Montana action were in
violation of the order of the state district court in Texas, and denies the
allegations contained in the Montana case. In May 1998, Alotek filed an amended
complaint naming Charles E. Fioretti, William C. Fioretti and Samuel L. Caster
individually as defendants in addition to the Company. Alotek's amended
complaint alleges lost revenue damages of approximately $53.6 million,
additional actual damages of at least approximately $14.2 million, plus
attorneys' fees and statutory and exemplary damages. The Company believes that
Alotek's claims are without merit and that the Company has valid defenses to all
allegations raised by Alotek. In May 1998, the Company also received a demand
letter from Alotek threatening to institute a "class action" on behalf of all of
the Company's Associates in federal court against the Company for alleged fraud
and misrepresentation. The Company considers Alotek's claims to be frivolous. If
a further suit is filed by Alotek, the Company intends to defend vigorously and
assert claims against Alotek for instituting frivolous litigation.

In October 1997, the Company filed an objection to the issuance of a
registered trademark to IntraCell Nutrition, Inc., which had filed a trademark
application for the name, "Manna." The Company contended in its objection, among
other things, that "Manna" is a general descriptor often applied to nutritional
products, and accordingly, is not entitled to trademark protection. The Company
therefore believes that there is a substantial likelihood that the Company will
prevail in its objection to the granting of the tradename.

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The Company's executive officers and directors and their ages as of March
31, 1998 are as follows:

NAME AGE POSITION
- ------------------------------------ --- ------------------------------------------------------------------------

Charles E. Fioretti................. 51 Chairman of the Board and Chief Executive Officer
Samuel L. Caster.................... 47 President and Director
Anthony E. Canale................... 45 Chief Operating Officer
Patrick D. Cobb..................... 45 Vice President, Chief Financial Officer, Secretary and Director
Deanne Varner....................... 45 General Counsel and Vice President of Compliance
Jeffrey P. Bourgoyne................ 36 Vice President of Operations
Peter E. Hammer..................... 43 Vice President of New Business and International Development
Bill H. McAnalley, Ph.D............. 54 Vice President of Research and Product Development
Eoin Redmond........................ 32 Vice President of Information Technology
Steven A. Barker.................... 48 Director
Chris T. Sullivan................... 50 Director

Charles E. Fioretti co-founded the Company in November 1993, has served as
Chairman of the Board and Chief Executive Officer since May 1997 and as a
director since November 1993. His current term as director expires in 2001. Mr.
Fioretti served as Chief Operating Officer of the Company from November 1993 to
July 1996. From June 1990 until April 1995, Mr. Fioretti was an owner and
operator of several Outback Steakhouse, Inc. restaurants in Arizona, Indiana and
Kentucky. Prior to his involvement with Outback Steakhouse, Inc., Mr. Fioretti
occupied executive positions with several national restaurant chains, including
Bennigan's, ChiChi's Mexican Restaurants, El Chico and Steak & Ale. Mr. Fioretti
is Peter E. Hammer's brother-in-law.

Samuel L. Caster co-founded the Company in November 1993 and since then has
served as President and as a director of the Company. His current term as
director expires in 2000. From April 1992 until August 1993, Mr. Caster also
served as co-founder, owner and President of Funds-4-Kids, Inc., a multi-level
marketing company that sold healthy alternative candy bars for children. From
January 1990 until April 1992, Mr. Caster served as a consultant for Metabolic
Technologies, Inc., a nutritional supplement multi-level marketing company that
sold metabolic vitamins. From April 1986 until December 1989, Mr. Caster was
President of Eagle Shield, Incorporated, a multi-level marketing company which
sold radiant barrier insulation. Eagle Shield, Incorporated filed for protection
under Chapter 11 of the United States Bankruptcy Code in December 1989.

Anthony E. Canale joined the Company in January 1997 and since then has
served as Chief Operating Officer of the Company. From February 1993 until
October 1996, Mr. Canale was President of Canale and Associates, an Outback
Steakhouse, Inc. joint venture partnership. Prior to that time, Mr. Canale
served as Regional Vice President and Vice President of Franchise Operations and
Food/Beverage Development for ChiChi's, Inc., Regional General Manager and
National Director of Operation Services for Kentucky Fried Chicken Corporation
and Executive Vice President and Chief Operating Officer of Kenny Rogers
Roasters Restaurants, Inc., all national restaurant chains. Mr. Canale holds a
B.S. in Management from American International College in Springfield,
Massachusetts.

Patrick D. Cobb joined the Company in August 1994 and since then has served
as Chief Financial Officer and Vice President. Mr. Cobb has served as Secretary
of the Company since February 1997 and as a director since November 1997. His
current term as director expires in 2000. From January 1994 until August 1994,
Mr. Cobb was President of Industrial Gasket, Inc., a metal stamping facility in
Oklahoma City. From August 1989 until October 1993, he was head of a Small
Business Management Program with

the Oklahoma VO-Tech System. From May 1981 until October 1993, Mr. Cobb was
employed by General Motors Corporation as a Senior Accountant and Financial
Forecaster. Mr. Cobb holds a B.S. in Finance from the University of Oklahoma and
is a Certified Public Accountant.

Deanne Varner joined the Company in January 1996 and since May 1996 has
served as General Counsel and Vice President of Compliance. From 1986 until
January 1996, Ms. Varner maintained a law practice in Dallas, Texas focusing on
business law and related transactions. Ms. Varner has over 20 years of
experience in business, corporate and transactional law. Ms. Varner holds a B.A.
in Social Sciences and a J.D. from Southern Methodist University.

Jeffrey P. Bourgoyne joined the Company in December 1996 and since February
1998 has served as Vice President of Operations. From May 1995 until December
1996, Mr. Bourgoyne served as facility manager for DSC Logistics, Inc., a
third-party logistics provider. From June 1993 until May 1995, Mr. Bourgoyne was
a Transportation Services Manager for Abbott Laboratories, a pharmaceutical
company. Mr. Bourgoyne holds a B.S. in Management from University of New Orleans
and an M.B.A. from Lake Forest Graduate School of Management.

Peter E. Hammer joined the Company in March 1995 and since January 1998 has
served as Vice President of New Business and International Development. From
November 1991 until February 1995, Mr. Hammer served as the Vice President and
Chief Information Officer of The Network, Inc., a business abuse solutions
company in Atlanta, Georgia. Prior to that, Mr. Hammer worked for several
companies developing and installing complex computer and information systems.
Mr. Hammer holds a B.A. in Liberal Arts from State University College at Buffalo
and an A.A.S. in Electronics from Suffolk Community College. Mr. Hammer is
Charles E. Fioretti's brother-in-law.

Bill H. McAnalley, Ph.D. joined the Company in July 1996 and has served as
Vice President of Research and Product Development and Chief Scientific Officer
since December 1997. From March 1995 until July 1996, Dr. McAnalley served as a
consultant to the Company. From March 1987 until February 1995, Dr. McAnalley
was Vice President of Research and Product Development at Carrington
Laboratories, Inc., a pharmaceutical research, development and manufacturing
company. Dr. McAnalley holds a Ph.D. in Pharmacology and Toxicology from the
University of Texas Health Science Center in Dallas, Texas.

Eoin Redmond joined the Company in July 1997 and since then has served as
Vice President of Information Technology. From August 1996 through June 1997,
Mr. Redmond was employed by the Company as a computer systems consultant. From
October 1995 until August 1996, Mr. Redmond was Head of Client Services for Tate
Bramald Ltd., an accounting software provider. From December 1993 until
September 1995, Mr. Redmond was employed as Technology Services Manager-Europe
for SSA Europe Ltd., an industrial software provider. From October 1987 until
October 1993, Mr. Redmond was employed as a Senior Software Manager for Team
Systems Group, Ltd., a reseller of turn-key software systems. Mr. Redmond
matriculated at Presentation College, County Wicklow, Ireland and subsequently
attended AnCo Technology Center, County Dublin, Ireland.

Steven A. Barker became a director of the Company in January 1998. His
current term as director expires in 1999. Dr. Barker has been a full professor
of Physiology, Pharmacology and Toxicology at Louisiana State University since
April 1990. Dr. Barker holds a B.S. and an M.S. in Chemistry and a Ph.D in
Chemistry/Neurochemistry from the University of Alabama-Birmingham.

Chris T. Sullivan became a director of the Company in October 1997. His
current term as director expires in 2001. Mr. Sullivan has been the Chairman of
the Board and Chief Executive Officer of Outback Steakhouse, Inc. since founding
that company in 1988. Mr. Sullivan serves on the executive committee for The
Outback/Gary Koch Pro-Am, the Tampa Bay Devil Rays, the Employment Policies
Institute and the Presidents Conference. Mr. Sullivan holds a degree in Business
and Economics from the University of Kentucky.

The Company has a classified Board of Directors. At each annual meeting of
shareholders, a class of directors will be elected to serve a three-year term
and until his successor is duly elected and qualified. See "Description of
Capital Stock-Anti-Takeover Considerations-Classified Board of Directors."
Officers serve at the discretion of the Board of Directors. Except as described
above, there are no family relationships among the directors and executive
officers.

COMMITTEES OF THE BOARD OF DIRECTORS

Subsequent to this offering, the Board of Directors will establish an audit
committee (the "Audit Committee") and a compensation committee (the
"Compensation Committee"). The Audit Committee will be comprised solely of two
independent directors and will be charged with reviewing the Company's annual
audit and meeting with the Company's independent accountants to review the
Company's internal controls and financial management practices. The Compensation
Committee will be comprised solely of independent directors. The Compensation
Committee will be responsible for establishing salaries, bonuses and other
compensation for the Company's executive officers.

Also, subsequent to this offering, the Board of Directors will establish an
option committee (the "Option Committee"). Pursuant to the terms of the 1997
Stock Option Plan and the 1998 Stock Option Plan, the authority to determine the
terms and conditions of each option to be issued under both the 1997 Stock
Option Plan and the 1998 Stock Option Plan and the responsibility for
administration of each such plan, which currently rests with the Board of
Directors, will be assumed by the Option Committee. The Option Committee will be
comprised solely of at least two "Non-Employee Directors," as such term is used
in Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended
(the "Exchange Act").

DIRECTOR COMPENSATION

Each director of the Company who is not an officer or employee of the
Company receives an annual fee of $30,000 for serving on the Board of Directors.
In addition, directors of the Company are reimbursed for their reasonable
out-of-pocket expenses in connection with their travel to and attendance at
meetings of the Board of Directors or committees thereof. Prior to his
appointment as a director, Dr. Barker was a consultant to the Company and was
paid $2,500 in consulting fees in 1997.

EXECUTIVE COMPENSATION

The following table summarizes the compensation paid to or earned during the
year ended December 31, 1997 by each person who served as the chief executive
officer of the Company during 1997 and the four other most highly compensated
executive officers of the Company (collectively, the "Named Executive
Officers").

SUMMARY COMPENSATION TABLE

LONG-TERM
COMPENSATION
--------------------
ANNUAL COMPENSATION NUMBER OF SHARES
------------------------ UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS GRANTED(#) COMPENSATION
- ------------------------------------------------- ----------- ----------- -------------------- --------------

Charles E. Fioretti(1) .......................... $ 403,434 $ 760,000 - $ 109,765(2)
Chairman of the Board and
Chief Executive Officer
Ronald E. Kozak(3) .............................. 94,101 150,000 200,000 297,347(4)
Chief Executive Officer
Samuel L. Caster ................................ 403,434 760,000 - 16,012(5 )
President
Anthony E. Canale ............................... 221,978 190,172 250,000 -
Chief Operating Officer
Deanne Varner ................................... 187,019 159,884 228,000 -
General Counsel and
Vice President of Compliance
Patrick D. Cobb ................................. 214,011 171,666 100,000 43,000(6 )
Vice President, Chief Financial Officer and
Secretary

- ------------------------------
(1) Mr. Fioretti became Chief Executive Officer of the Company on May 1, 1997.
(2) Represents the amount paid to Mr. Fioretti under his incentive compensation
agreement.
(3) Mr. Kozak resigned from his position as Chief Executive Officer of the
Company on May 1, 1997.
(4) Represents the amount distributed to Mr. Kozak pursuant to a severance
agreement between Mr. Kozak and the Company consisting of cash payments
totalling $175,000, incentive compensation payments totalling $73,412 and
the transfer of a Company vehicle and certain furniture valued at $48,935.
(5) Represents the amount paid to Mr. Caster under his incentive compensation
agreement.
(6) Represents the value of a Company vehicle transferred to Mr. Cobb in 1997.

The following table provides information on options granted to the Named
Executive Officers during the fiscal year ended December 31, 1997. As of
December 31, 1997, the Company had not granted any options to acquire shares of
Common Stock to Charles E. Fioretti, Chairman of the Board and Chief Executive
Officer, or Samuel L. Caster, President.

OPTION GRANTS IN LAST FISCAL YEAR

INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------------------------------ VALUE AT ASSUMED ANNUAL
NUMBER OF RATES OF STOCK PRICE
SHARES APPRECIATION FOR OPTION
UNDERLYING PERCENT OF TOTAL TERM(2)
OPTIONS OPTIONS GRANTED EXERCISE OR BASE EXPIRATION ------------------------
NAME GRANTED(#)(1) TO EMPLOYEES PRICE ($/SHARE) DATE 5% 10%
- -------------------------------- --------------- ----------------- ----------------- ----------- ----------- -----------

Ronald E. Kozak................. 200,000 12.5% $ 1.35 6/23/03 $ 91,825 $ 208,321
Anthony E. Canale............... 250,000 15.6 1.35 5/14/07 212,252 537,888
Deanne Varner................... 228,000 14.3 1.35 5/14/07 193,574 490,554
Patrick D. Cobb................. 100,000 6.3 1.35 5/14/07 84,901 215,155

- ------------------------------

(1) Options granted become exercisable 90 days after the completion of an
initial public offering of the Company's securities but in no event earlier
than the first anniversary of the date of grant.

(2) The 5% and 10% assumed annual compound rates of stock appreciation are
mandated by the rules of the Securities and Exchange Commission (the
"Commission") and do not represent the Company's estimate or projection of
future Common Stock prices. The actual value realized may be greater or less
than the potential realizable value set forth in the table.

The following table sets forth, as of December 31, 1997, the number of
options and the value of unexercised options held by the Named Executive
Officers. As of December 31, 1997, there had been no stock options exercised by
any Named Executive Officers.

FISCAL YEAR-END OPTION VALUES

NUMBER OF SHARES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
FISCAL YEAR-END(#) FISCAL YEAR-END(1)
------------------------------ ---------------------------
NAME EXERCISABLE(2) UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------------------------------- -------------- -------------- ----------- --------------

Ronald E. Kozak.................................... - 200,000 - $ 1,930,000
Anthony E. Canale.................................. - 250,000 - 2,412,500
Deanne Varner...................................... - 228,000 - 2,200,200
Patrick D. Cobb.................................... - 100,000 - 965,000

- ------------------------------
(1) There was no public trading market for the Common Stock at December 31,
1997. Accordingly, as permitted by the Commission, these values have been
calculated based on an assumed initial public offering price of $11.00 per
share less the per share exercise price of $1.35.

(2) Options granted become exercisable 90 days after the completion of an
initial public offering of the Company's securities but in no event earlier
than the date of grant.

STOCK OPTION PLANS

1997 STOCK OPTION PLAN. The 1997 Stock Option Plan was adopted on May 14,
1997 by the Board of Directors of the Company and approved by the shareholders
of the Company on the same date. The 1997 Stock Option Plan is intended to
encourage investment by the officers, employees, non-employee directors and
consultants of the Company in shares of Common Stock, thus creating in such
persons an increased interest in and greater concern for the welfare of the
Company.

Options granted under the 1997 Stock Option Plan may either be options that
qualify ("Incentive Stock Options") or options that do not qualify for treatment
as Incentive Stock Options under Section 422 of the Internal Revenue Code of
1986, as amended (the "Code").

Incentive Stock Options may be granted under the 1997 Stock Option Plan to
any person who is an officer or other employee (including officers and employees
who are also directors) of the Company or any parent or subsidiaries that may
exist in the future. Non-qualified options may be granted to consultants or
non-employee directors of the Company. The exercise price of Incentive Stock
Options must be at least the fair market value of a share of Common Stock on the
date of grant. A total of 2,000,000 shares of Common Stock have been reserved
for issuance upon the exercise of options granted or to be granted under the
1997 Stock Option Plan. As of the date of this Prospectus, options to purchase
1,600,000 shares of Common Stock are outstanding, with a weighted average
exercise price of $1.45 per share, none of which are vested or exercisable at
the date of this Prospectus and all of which will become vested and exercisable
90 days after the effective date of the Prospectus, and 400,000 shares remain
available for future option grants.

The 1997 Stock Option Plan provides that until such time as shares of Common
Stock are registered under Section 12 of the Exchange Act it is to be
administered by the Board of Directors and, after such registration, by the
Option Committee. The Option Committee will consist of at least two, but not
more than three, "Non-Employee Directors" as such term is defined in Rule 16b-3
promulgated under the Exchange Act. The Option Committee will have full and
final authority in its discretion, subject to the 1997 Stock Option Plan's
provisions, to determine, among other things, (i) the individuals to whom
options shall be granted, (ii) whether the option granted shall be an Incentive
Stock Option or a non-qualified stock option, (iii) the number of shares of
Common Stock covered by each option, (iv) the time or times at which options
will be granted, (v) the option vesting schedule, (vi) the exercise price of the
options and (vii) the duration of the options granted. The Option Committee will
also have the power to

construe and interpret the 1997 Stock Option Plan and make certain
determinations and take certain other actions deemed necessary or advisable for
the proper administration of the 1997 Stock Option Plan. The 1997 Stock Option
Plan may be amended, supplemented, suspended or terminated by the Board of
Directors at any time without the approval of the shareholders of the Company,
subject to certain exceptions, provided, however, that any such action may not
affect options previously granted under the 1997 Stock Option Plan.

1998 STOCK OPTION PLAN. The 1998 Stock Option Plan was adopted by the Board
of Directors on April 8, 1998. The 1998 Stock Option Plan is intended to
encourage investment by the officers and employees of the Company in shares of
Common Stock, thus creating in such persons an increased interest in and greater
concern for the welfare of the Company.

Options granted under the 1998 Stock Option Plan shall be options that
qualify ("Incentive Stock Options") under Section 422 of the Code.

Incentive Stock Options may be granted under the 1998 Stock Option Plan to
any person who is an officer or other employee (including officers and employees
who are also directors) of the Company or any parent or subsidiaries that may
exist in the future. The exercise price of Incentive Stock Options must be at
least the fair market value of a share of Common Stock on the date of grant. A
total of 500,000 shares of Common Stock have been reserved for issuance upon the
exercise of options granted or to be granted under the 1998 Stock Option Plan.
As of the date of this Prospectus, no options have been granted under the 1998
Stock Option Plan.

The 1998 Stock Option Plan provides that it is to be administered by the
Board of Directors or by an Option Committee appointed by the Board of Directors
and consisting of at least two "Non-Employee Directors" as such term is defined
in Rule 16b-3 promulgated under the Exchange Act. The Option Committee will have
the authority, in its discretion, subject to the 1998 Stock Option Plan's
provisions, to (i) grant Incentive Stock Options, in accordance with Section 422
of the Code; (ii) determine, upon review of relevant information and in
accordance with the 1998 Stock Option Plan, the fair market value of the Common
Stock; (iii) determine the exercise price per share of options to be granted;
(iv) determine the employees to whom, and the time or times at which, options
shall be granted and the number of shares to be represented by each option; (v)
interpret the 1998 Stock Option Plan; (vi) prescribe, amend and rescind rules
and regulations relating to the 1998 Stock Option Plan; (vii) determine the
terms and provisions of each option granted; (viii) accelerate or defer (with
the consent of the optionee) the exercise date of any option; (ix) authorize any
person to execute on behalf of the Company any instrument required to effectuate
the grant of an option previously granted by the Board of Directors; and (x)
make all other determinations deemed necessary or advisable for the
administration of the 1998 Stock Option Plan. The 1998 Stock Option Plan may be
amended or terminated by the Board of Directors or the Option Committee at any
time without the approval of the shareholders of the Company, subject to certain
exceptions.

MANAGEMENT BONUS PLAN

The executive officers and certain other members of corporate management are
eligible to receive annual bonuses in addition to their base salaries. The bonus
plan is based upon the attainment by management of certain financial goals of
the Company. The amount of each bonus paid pursuant to the bonus plan, prior to
this offering, had been reviewed and approved by the Board of Directors. After
this offering, amounts to be paid under the bonus plan will be reviewed and
approved by the Compensation Committee.

401(K) PLAN

Effective May 9, 1997, the Company adopted a 401(k) Pre-tax Savings Plan
(the "401(k) Plan"). All employees who have been employed by the Company for at
least 90 days at the beginning of a quarter

and are at least 21 years of age are eligible to participate. Employees may
contribute to the 401(k) Plan up to 15% of their current compensation, subject
to a statutorily prescribed annual limit. The 401(k) Plan provides that the
Company will make regular matching contributions to the 401(k) Plan in the
amount of $0.25 for each $1.00 contributed by the participant, up to 6% of the
participant's annual compensation, including overtime. The 401(k) Plan also
provides that the Company may determine to make a discretionary profit-sharing
contribution to the plan each year based upon the Company's profitability for
that year. Employee contributions and the Company's matching contributions are
paid to a corporate trustee and invested in various funds at the discretion of
the participant. The Company's contribution vests over five years or earlier
upon attainment of retirement at age 65, retirement for disability or upon death
of the employee or termination of the 401(k) Plan. Distributions may also be
made in the case of a financial hardship. Distributions may be made in the form
of a lump sum. The 401(k) Plan is intended to qualify under Section 401 of the
Code, so that contributions made by employees or by the Company to the 401(k)
Plan, and income earned on such contributions, are not taxable to employees
until withdrawn from the 401(k) Plan. As of the date of this Prospectus, the
Company has not made any profit-sharing contributions to the 401(k) Plan.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

During 1997 the Company had no compensation committee or other committee of
the Board of Directors performing similar functions. Decisions concerning
compensation of executive officers were made by the Board of Directors, which
included Charles E. Fioretti, Samuel L. Caster, Patrick D. Cobb and William C.
Fioretti, who was the Chief Scientific Officer and a director of the Company
until November 1997. Charles E. Fioretti and William C. Fioretti are cousins. It
is contemplated that the Board of Directors will establish the Compensation
Committee, consisting solely of independent directors, subsequent to
consummation of this offering.

CERTAIN TRANSACTIONS

PARTNERSHIP TRANSACTIONS

Prior to June 1, 1997, certain shareholders of the Company (the "Partners")
directly owned all of the limited partnership interests in three limited
partnerships: Beta M. Partners, Ltd. ("Beta"), Eleven Point Partners, Ltd.
("Eleven Point") and Power Three Partners, Ltd. ("Power Three"). All of the
limited partnership interests in Beta were owned by Charles E. Fioretti,
Chairman of the Board and Chief Executive Officer of the Company, Samuel L.
Caster, President and director of the Company, and William C. Fioretti, who at
the time was a director of the Company. Messrs. Charles E. Fioretti, Samuel L.
Caster and William C. Fioretti also owned all of the limited partnership
interests in Power Three. The limited partnership interests in Eleven Point were
owned equally by four other shareholders of the Company, including Patrick D.
Cobb, Chief Financial Officer and Secretary, and currently a director, of the
Company. The limited partnership interests in another limited partnership,
Dynamic Eight Partners, Ltd. ("Dynamic" and, collectively with Power Three, Beta
and Eleven Point, the "Partnerships") were all owned by Power Three and Eleven
Point. The corporate general partners of each of the Partnerships were also
owned and controlled by Messrs. Charles E. Fioretti, Samuel L. Caster and
William C. Fioretti.

The Partnerships were formed in 1994 to achieve certain tax efficiencies and
to protect certain of the Company's proprietary rights. In December 1994, the
Company transferred certain of its rights and interests in intellectual property
and the Company's right to use the trademark "Manapol-TM-," to Beta. The Company
then entered into a 17-year agreement to pay Beta a royalty based on the
Company's sales volume for the use of the intellectual property and trademark.
During 1995, 1996 and 1997, the Company, under this royalty agreement, incurred
expenses of approximately $979,000, $2,554,000 and $1,780,000, respectively.
Also in December 1994, the Company transferred certain marketing rights to
Dynamic. The Company paid Dynamic a commission, based on a specified sales
volume, in exchange for marketing and consulting services. During 1995, 1996 and
1997, the Company, under its marketing agreement with Dynamic, expensed
approximately $1,395,000, $3,295,000 and $2,275,000, respectively, for
consulting fees.

On June 1, 1997, the Company entered into a merger agreement with the
corporate general partners of the Partnerships, Eight Point Services, Inc.,
Triple Gold Business, Inc., Five Small Fry, Inc. and Beta Nutrient Technology,
Inc. (collectively, the "General Partners"). Pursuant to the merger agreement,
the General Partners were merged with and into the Company, and the issued and
outstanding shares of common stock of each such entity were converted into the
right to receive a certain number of shares of the Company's Common Stock. On
the same date, the Company entered into an exchange agreement among the Company
and the Partners, pursuant to which the Company acquired all of the Partners'
limited partnership interests in the Partnerships in exchange for Common Stock.
As a result of these transactions, an aggregate of 10,000,000 shares of Common
Stock were issued to the Partners, including 3,094,946, 3,094,946, 2,867,284 and
235,706 shares issued to Messrs. William C. Fioretti, Samuel L. Caster, Charles
E. Fioretti and Patrick D. Cobb, respectively.

INCENTIVE COMPENSATION AGREEMENTS

In 1994, the Company entered into incentive compensation agreements with
Charles E. Fioretti, the Chairman of the Board and Chief Executive Officer of
the Company, which was provided in lieu of ownership interests in the
Partnerships, Ray Robbins, a shareholder of the Company, which was provided in
part in lieu of ownership interests in the Partnerships, and certain other
employees of the Company. These incentive compensation agreements required the
Company to compensate such shareholders and employees based on the Company
achieving specified monthly sales volumes and certain levels of monthly growth
in the number of new Associates. Pursuant to these agreements, during 1995, 1996
and 1997, the Company paid Mr. Fioretti approximately $21,196, $96,522 and
$93,753, respectively, and, during 1995, 1996 and 1997, the Company paid Mr.
Robbins approximately $144,985, $510,996 and $466,603, respectively. In May and
June 1997, the Company terminated the incentive compensation agreements and
issued 227,662 shares of Common Stock to Mr. Fioretti, 607,333 shares of Common

Stock to Mr. Robbins and an aggregate of 1,192,576 shares of Common Stock to the
other employees in exchange for the termination of their incentive compensation
agreements. In March 1998, the Company terminated the remaining incentive
compensation agreement and issued 74,167 shares of Common Stock to an employee
in exchange for the termination of such agreement.

LOANS TO OFFICERS

Pursuant to an oral agreement to advance certain officers monies for the
payment of taxes due in connection with the cancellation of their incentive
compensation agreements, on December 31, 1997, the Company made loans of
$162,052 to Dr. Bill H. McAnalley, Vice President of Research and Product
Development of the Company, and of $121,782 to Peter E. Hammer, Vice President
of New Business and International Development of the Company. The loans bear no
interest and are due upon the earlier of December 31, 1998 or the date of a
public offering of the Common Stock, whichever is first to occur. The loans are
secured by shares of Common Stock owned by the shareholders and stock powers
have been executed allowing the Company to transfer such shares in the event the
loans are not repaid.

TRANSACTIONS WITH MULTI-VENTURE PARTNERS, LIMITED

In July 1997, in exchange for $10.00 and the agreement of Mr. Chris T.
Sullivan to serve on the Board of Directors, the Company issued Multi-Venture
Partners, Limited, an investment partnership formed by Mr. Sullivan and two
other partners ("Multi-Venture"), an option to purchase 100,000 shares of Common
Stock at an exercise price of $2.00 per share. In addition, in July 1997,
Messrs. Charles E. Fioretti, Samuel L. Caster and William C. Fioretti sold an
aggregate of 399,000 shares of Common Stock to Multi-Venture for an aggregate
consideration of $798,000 ($2.00 per share).

CION, LTD. AGREEMENT

In October 1995, certain shareholders of the Company, including Charles E.
Fioretti, William C. Fioretti, Samuel L. Caster, Patrick D. Cobb and Gary L.
Watson, formed Cion, Ltd. ("Cion"). The Company transferred to Cion its
exclusive international rights to market, sell, manufacture and distribute the
Company's products, excluding the United States, Canada and Mexico. In return,
Cion was to pay the Company royalties based on future sales plus a 1% ownership
of Cion. During 1995, Cion did not record any sales and in late 1995, Cion
ceased operations. In May 1996, Cion transferred all of its rights and
agreements to Mannatech, Ltd., an Isle of Man corporation, 99% owned by certain
employees and shareholders of the Company and 1% owned by the Company. On
January 1, 1997, Mannatech, Ltd. ceased operations and transferred all of its
exclusive international rights to market, sell, manufacture and distribute the
Company's products back to the Company.

LOANS TO AGRITECH LABS, INC.

During 1996 and 1997, the Company made advances to Agritech Labs, Inc. and
Agritech Technology, Ltd. (together "Agritech") in the aggregate amount of
approximately $918,000. Over 90% of the capital stock of Agritech is owned by
William C. Fioretti, Charles E. Fioretti, Samuel L. Caster and Patrick D. Cobb.
On August 31, 1997, due to concerns about the ability of Agritech to repay the
loans, each of Messrs. William C. Fioretti, Charles E. Fioretti, Samuel L.
Caster and Patrick D. Cobb and another shareholder of both Agritech and the
Company assumed the obligations of Agritech owed to the Company and issued
individual promissory notes to the Company representing the aggregate amount of
approximately $918,000. Each of the promissory notes bears interest at six
percent per annum and is payable on the earlier of December 31, 1998 or the date
that the maker sells Common Stock in an initial public offering of the Company's
securities. The principal amount outstanding under the notes issued by each of
Messrs. William C. Fioretti, Charles E. Fioretti and Samuel L. Caster is
approximately $275,400 and the principal amount outstanding under the note made
by Mr. Patrick D. Cobb is approximately $45,900. Each of Messrs. William C.
Fioretti, Charles E. Fioretti, Samuel L. Caster and Patrick D. Cobb will repay
to the Company all amounts owing under their respective notes with proceeds
received by them in this offering as Selling Shareholders.

PRINCIPAL AND SELLING SHAREHOLDERS

The following table sets forth as of April 30, 1998, and as adjusted to
reflect the sale by the Company of 6,000,000 shares of Common Stock in this
offering, the number of shares of Common Stock and the percentage of the
outstanding shares of such class that are beneficially owned by (i) each person
who is the beneficial owner of more than 5% of the outstanding shares of Common
Stock, (ii) each of the directors and the Named Executive Officers of the
Company, (iii) each Selling Shareholder and (iv) all of the current directors
and executive officers of the Company as a group.

SHARES BENEFICIALLY OWNED SHARES BENEFICIALLY OWNED
PRIOR TO OFFERING(1) NUMBER OF AFTER OFFERING(1)(2)
--------------------------- SHARES ---------------------------
NAME AND ADDRESS NUMBER PERCENT OFFERED NUMBER PERCENT
- -------------------------------------------------- ------------- ------------ ----------- ------------- ------------

Samuel L. Caster ................................. 5,886,946 26.6% 200,000 5,686,946 20.2%
c/o Mannatech, Incorporated
600 S. Royal Lane, Suite 200
Coppell, Texas 75019

William C. Fioretti(3) ........................... 5,896,946 26.7 800,000(4) 5,096,946 18.1
c/o Agritech Labs, Inc.
6333 N. St. Highway 161, Suite 350
Irving, Texas 75063

Charles E. Fioretti .............................. 5,584,946 25.3 200,000 5,384,946 19.1
c/o Mannatech, Incorporated
600 S. Royal Lane, Suite 200
Coppell, Texas 75019

Chris T. Sullivan(5).............................. 399,000 1.8 80,000 319,000 1.1

Patrick D. Cobb(6)................................ 378,956 1.7 70,000 308,956 1.1

H. Reginald McDaniel.............................. 546,600 2.5 35,000 511,600 1.8

Christopher A. Marlett(7)......................... 475,015 2.1 50,000 425,015 1.5

Dick Hankins, Jr.................................. 458,956 2.1 200,000 258,956 *

Don Herndon....................................... 458,956 2.1 64,000 394,956 1.4

Gary Watson....................................... 388,956 1.8 156,000 232,956 *

Bill H. McAnalley(8).............................. 303,667 1.4 60,000 243,667 *

Peter E. Hammer................................... 228,206 1.0 40,000 188,206 *

Kim Snyder........................................ 114,103 * 25,000 89,103 *

Kathy Schiffer.................................... 30,000 * 20,000 10,000 *

All executive officers and directors as a group
(11 persons)..................................... 12,781,721 57.8 650,000 12,131,721 43.1

- ------------------------------

* Less than 1%.

(1) The information contained in this table with respect to beneficial ownership
reflects "beneficial ownership" as defined in Rule 13d-3 under the Exchange
Act. All information with respect to the beneficial ownership of any
shareholder has been
furnished by such shareholder and, except as otherwise indicated or pursuant
to community property laws, each shareholder has sole voting and investment
power with respect to shares listed as beneficially owned by such
shareholder. Pursuant to the rules of the Commission, in calculating
percentage ownership, each person is deemed to beneficially own shares
subject to options or warrants exercisable within 60 days of the date of
this Prospectus, but shares subject to options or warrants owned by others
(even if exercisable within 60 days) are deemed not to be outstanding.

(2) Assumes no exercise of the Underwriters' over-allotment option.

(3) Includes 1,590,949 shares of Common Stock held by the Fioretti Family
Partnership, Ltd. of which William C. Fioretti is the general partner and
he, his wife and trusts for the benefit of their children are the limited
partners.

(4) Of the 800,000 shares offered by William C. Fioretti in this offering,
584,200 are held of record by William C. Fioretti and 215,800 are held of
record by the Fioretti Family Partnership, Ltd.

(5) All of these shares of Common Stock are held by Multi-Venture. The
management of Multi-Venture is controlled by its sole general partner, SBG
Investments, L.L.C. ("SBG"), which owns a .6% general partnership interest
in Multi-Venture. Mr. Sullivan owns a 27.2% interest in SBG. Mr. Sullivan
shares voting and dispositive power with respect to Common Stock owned by
Multi-Venture.

(6) Includes 60,000 shares of Common Stock held by Joni J. Cobb, Mr. Cobb's
spouse, and 10,000 shares held by trusts established for the benefit of Mr.
Cobb's children and stepchildren.

(7) Includes 475,015 shares of Common Stock subject to the Warrant, all of which
are currently exercisable, and 50,000 of which will be exercised and sold in
this offering.

(8) Includes 20,000 shares of Common Stock held by Dr. McAnalley's children and
sister.

DESCRIPTION OF CAPITAL STOCK

GENERAL

As of the date of this Prospectus, the authorized capital stock of the
Company consists of 99,000,000 shares of Common Stock, par value $0.0001 per
share, and 1,000,000 shares of Preferred Stock, par value $0.01 per share (the
"Preferred Stock"). Prior to this offering there were 22,101,738 shares of
Common Stock outstanding, held by 33 holders of record. Following this offering
(assuming no exercise of the over-allotment option granted to the Underwriters),
28,151,738 shares of Common Stock will be issued and outstanding (or 29,051,738
shares if the Underwriters over-allotment option is exercised in full). No
shares of Preferred Stock are outstanding. The following description is a
summary and is subject to and qualified in its entirety by reference to the
provisions of the Articles and the Bylaws, each of which is filed as an exhibit
to the Registration Statement of which this Prospectus forms a part.

COMMON STOCK

The holders of Common Stock are entitled to one vote for each share on all
matters voted upon by shareholders, including the election of directors, and do
not have cumulative voting rights. The holders of the Common Stock are entitled
to such dividends as may be declared at the discretion of the Board of Directors
out of funds legally available therefor. See "Dividend Policy." Holders of
Common Stock are entitled to share ratably in the net assets of the Company upon
liquidation after payment or provision for all liabilities. The holders of
Common Stock have no preemptive rights to purchase shares of stock in the
Company. Shares of Common Stock are not subject to any redemption provisions and
are not convertible into any other securities of the Company. All outstanding
shares of Common Stock are, and the shares of Common Stock to be issued by the
Company pursuant to this offering will be, upon payment therefor, fully paid and
nonassessable.

PREFERRED STOCK

The Board of Directors may from time to time authorize the issuance of one
or more classes or series of Preferred Stock without shareholder approval.
Subject to the provisions of the Articles and limitations prescribed by law, the
Board of Directors is authorized to change the number of shares constituting any
series and fix and determine the designation and preferences, limitations and
relative rights, including voting rights, of the shares of any series of
Preferred Stock so established, in each case without any action or vote by the
shareholders. The Company has no current plans to issue any shares of Preferred
Stock of any class or series.

One of the effects of undesignated Preferred Stock may be to enable the
Board of Directors to discourage an attempt to obtain control of the Company by
means of a tender offer, proxy contest, merger or otherwise, and thereby protect
the Company's management. The issuance of Preferred Stock pursuant to the Board
of Directors' authority described above may adversely affect the rights of the
holders of Common Stock. For example, Preferred Stock issued by the Company may
rank senior to the Common Stock as to dividend rights, liquidation preference or
both, may have full or limited voting rights and may be convertible into shares
of Common Stock. Accordingly, the issuance of shares of Preferred Stock may
discourage bids for the Common Stock or may otherwise adversely affect the
trading price of the Common Stock.

WARRANT SHARES

On May 1, 1997, pursuant to an agreement with a consultant, the Company
issued a warrant (the "Warrant") exercisable for 475,015 shares of Common Stock
(the "Warrant Shares") at an exercise price of $1.35 per share. The exercise
price and the number of shares issuable upon exercise of the Warrant are subject
to adjustment upon the occurrence of certain events, including (i) the issuance
of Common Stock as a dividend on shares of Common Stock, (ii) subdivisions or
combinations of the Common Stock,

(iii) the issuance of rights or warrants to purchase the Common Stock for less
than the market price, or (iv) the distribution of evidences of indebtedness or
assets to the holder of Common Stock or similar events. A holder of the Warrant
is not entitled to any voting, dividend or other rights as a shareholder of the
Company. The Warrant expires upon the earlier to occur of May 1, 2003 or 36
months after the registration of the Warrant Shares.

Holders of Warrant Shares are entitled to certain registration rights for
such Warrant Shares, including piggyback and demand registration rights. If the
Company proposes to register securities under the Securities Act, the holders of
Warrant Shares may require the Company, subject to certain volume and other
limitations, to include all or any portion of such Warrant Shares in such
registration at the Company's expense. Pursuant to such registration rights,
50,000 shares are being offered hereby. In addition, on two occasions during the
term of the Warrant, holders of a majority of the Warrant Shares (in the event
any part of the Warrant is transferred) can require the Company to file a
registration statement under the Securities Act covering all or any part of the
Warrant Shares. The expense of the registration will be paid by the Company only
with respect to the first demand registration.

CERTAIN EFFECTS OF AUTHORIZED BUT UNISSUED STOCK

Under the Articles, upon completion of this offering there will be
67,823,247 shares of Common Stock (assuming the Underwriters' over-allotment
option is not exercised and excluding an aggregate of 3,025,015 shares reserved
for issuance under the 1997 Stock Option Plan, the 1998 Stock Option Plan, the
Non-Plan Option and the Warrant) available for future issuance without
shareholder approval. These additional shares may be utilized for a variety of
corporate purposes, including future public offerings to raise additional
capital or facilitate acquisitions. The Company does not currently have any
plans to issue additional shares of Common Stock, other than shares of Common
Stock that may be issued upon the exercise of options and Warrants that have
been granted or may be granted in the future.

SPECIAL PROVISIONS OF THE ARTICLES, THE BYLAWS AND TEXAS LAW

The Texas Miscellaneous Corporation Laws Act (the "Texas Miscellaneous
Laws") authorizes corporations to limit or eliminate the personal liability of
directors to corporations and their shareholders for monetary damages for breach
of their fiduciary duty as directors except for liability of a director
resulting from (i) a breach of such director's duty of loyalty to the
corporation or its shareholders, (ii) an act or omission that is not in good
faith or that involves intentional misconduct or a knowing violation of laws,
(iii) a transaction from which the director received an improper personal
benefit or (iv) an act or omission for which the liability of the director is
expressly provided by an applicable statute. The Articles limit the liability of
directors of the Company (in their capacity as directors but not in their
capacity as officers) to the Company or its shareholders to the fullest extent
permitted by any applicable law. The inclusion of this provision in the Articles
may reduce the likelihood of derivative litigation against directors and may
discourage or deter shareholders from suing directors for breach of their duty
of care, even though such an action, if successful, might otherwise benefit the
Company and its shareholders. The inclusion of such provisions in the Articles
together with a provision in the Bylaws requiring the Company to indemnify its
directors, officers and certain other individuals against certain liabilities,
is intended to enable the Company to attract qualified persons to serve as
directors who might otherwise be reluctant to do so. The Commission has taken
the position that personal liability of directors for violations of the federal
securities laws cannot be limited and that indemnification by the issuer for
such violations is unenforceable.

The Company has entered into separate indemnification agreements with each
of its directors that may require the Company, among other things, to indemnify
them against certain liabilities that may arise by reason of their status or
service as directors to the maximum extent permitted under the TBCA and advance
their expenses incurred as a result of any proceeding against them for which
they could be indemnified, obtain directors' and officers' insurance or maintain
self-insurance in lieu thereof.

Under the TBCA, the board of directors of a corporation has the power to
amend and repeal the corporation's bylaws unless the corporation's articles of
incorporation reserve the power exclusively to the shareholders or a particular
bylaw expressly provides that the board of directors may not amend or repeal the
bylaw. The Bylaws give the Board of Directors the power to alter, amend or
repeal the Bylaws or adopt new bylaws. The Bylaws also provide that the number
of directors shall be fixed from time to time by resolution of the Board of
Directors. These provisions, in addition to the existence of authorized but
unissued capital stock, may have the effect, either alone or in combination with
each other, of discouraging an acquisition of the Company deemed undesirable by
the Board of Directors.

ANTI-TAKEOVER CONSIDERATIONS

ANTI-TAKEOVER STATUTE. On September 1, 1997, the Company became subject to
newly enacted Part 13 of the TBCA ("Part 13"), which subject to certain
exceptions, prohibits a Texas corporation from engaging in any "business
combination" with an "affiliated shareholder" for three years following the date
that such shareholder became an affiliated shareholder, unless: (i) prior to
such date, the board of directors of the corporation approved either the
business combination or the transaction that resulted in the shareholder
becoming an affiliated shareholder; or (ii) the business combination is
authorized at a meeting of shareholders called not less than six months after
such date by the affirmative vote of at least two-thirds of the outstanding
voting shares not owned by the affiliated shareholder.

Part 13 generally defines a "business combination" to include (i) any
merger, share exchange or conversion involving the corporation and the
affiliated shareholder, (ii) any sale, lease, exchange, mortgage, pledge,
transfer or other disposition of 10% or more of the assets of the corporation to
the affiliated shareholder, (iii) subject to certain exceptions, any transaction
that results in the issuance or transfer by the corporation of any stock of the
corporation to the affiliated shareholder, (iv) any transaction involving the
corporation that has the effect of increasing the proportionate ownership
percentage of the stock of any class or series of the corporation beneficially
owned by the affiliated shareholder, (v) any receipt by the affiliated
shareholder of the benefit of any loans, advances, guarantees, pledges or other
financial benefits provided by or through the corporation, or (vi) any adoption
of a plan or proposal for the liquidation or dissolution of the corporation
proposed by, or pursuant to any agreement or understanding with, an affiliated
shareholder. In general, Part 13 defines an "affiliated shareholder" as any
entity or person beneficially owning 20% or more of the outstanding voting stock
of the corporation and any entity or person affiliated with or controlling or
controlled by such entity or person. The provisions of Part 13 could have the
effect of delaying, deferring or preventing a change of control of the Company
even if a change of control were in the shareholders' interests.

CLASSIFIED BOARD OF DIRECTORS. The Bylaws provide for the Board of
Directors to be divided into three classes serving staggered three-year terms.
The term of office of the first class of directors will expire at the 1999
annual meeting of shareholders, the term of office of the second class will
expire at the 2000 annual meeting of shareholders and the term of office of the
third class will expire at the 2001 annual meeting of shareholders. The terms of
office of the current directors of the Company are set forth herein under
"Management--Executive Officers and Directors."

At each annual meeting of shareholders, the class of directors to be elected
at such meeting will be elected for a three-year term, and the directors in the
other two classes will continue in office. The staggered terms for directors may
affect the shareholders' ability to change control of the Company even if a
change of control were in the shareholders' interests.

SHAREHOLDER ACTION. As permitted by the TBCA, the Articles provide that any
action which is required to be, or may be, taken at any annual or special
meeting of the shareholders, may be taken without a meeting, without prior
notice, and without a vote, if a consent or consents in writing is signed by the
holder or holders of shares having not less than the minimum number of votes
that would be necessary to take such action at a meeting at which the holders of
all shares entitled to vote on the action

were present and voted. This provision could cause shareholders to approve
proposals in a more expeditious manner, which at times could be detrimental to
the minority shareholders.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Common Stock is ChaseMellon
Shareholder Services L.L.C.

SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has been no market for the Common Stock of the
Company. Future sales of substantial amounts of Common Stock in the public
market, or the perception that such sales might occur, could adversely affect
the market price of the Common Stock and could impair the ability of the Company
to raise equity capital in the future.

Upon completion of this offering, the Company will have 28,151,738 shares of
Common Stock outstanding, assuming no exercise of the Underwriters'
over-allotment option. Of these shares, the 8,000,000 shares offered hereby,
except for the Directed Shares, will be freely tradeable without restriction or
further registration under the Securities Act, unless purchased by an
"affiliate" of the Company, as that term is defined in Rule 144, as described
below.

LOCK-UP AGREEMENTS

All executive officers and directors and certain shareholders of the
Company, who in the aggregate hold 20,141,738 shares of Common Stock and options
to purchase 1,700,000 shares of Common Stock, have agreed, pursuant to certain
Lock-up Agreements (the "Lock-up Agreements"), that until 180 days after the
date of this Prospectus, they will not, directly or indirectly, offer, sell,
assign, transfer, encumber, contract to sell, grant an option to purchase, make
a distribution of, or otherwise dispose of, any shares of Common Stock, or any
securities convertible into or exchangeable for shares of Common Stock,
otherwise than (i) as a bona fide gift or gifts, provided that the donee or
donees thereof agree in writing as a condition precedent to such gift or gifts
to be bound by the terms of the Lock-up Agreements, or (ii) with the prior
written consent of Adams, Harkness & Hill, Inc. In addition, to the extent that
Directed Shares are acquired by certain Associates, such Associates will be
prohibited from offering, selling, pledging, contracting to sell, granting any
option to purchase, or otherwise disposing of any such shares for a period of
120 days following the effective date of this Prospectus.

SALES OF RESTRICTED SHARES

The 20,151,738 shares of Common Stock which are not being sold in of this
offering are "restricted securities" within the meaning of Rule 144 under the
Securities Act (the "Restricted Shares"). Of the Restricted Shares, 10,000
shares will be eligible for sale in the public market pursuant to Rule 144 and
Rule 701 under the Securities Act commencing 90 days after the effective date of
this Prospectus and an additional 20,047,571 shares will be eligible for sale in
the public market upon the expiration of Lock-up Agreements 180 days after the
date of this Prospectus, all under and subject to the restrictions contained in
Rule 144. Adams, Harkness & Hill, Inc., may in its sole discretion, and at any
time without notice can, release all or any portion of the Restricted Shares
subject to such Lock-up Agreements.

In general, under Rule 144, a person (or persons whose shares are required
under Rule 144 to be aggregated), including an "affiliate" of the Company, as
that term is defined under the Securities Act and the regulations promulgated
thereunder (an "Affiliate"), who has beneficially owned Restricted Shares for at
least one year is entitled to sell, within any three-month period, a number of
such shares that does not exceed the greater of (i) one percent of the then
outstanding shares of Common Stock (approximately 281,517 shares immediately
after this offering) or (ii) the average weekly trading volume in the Common
Stock during the four calendar weeks preceding the date on which notice of such
sale is filed, provided certain requirements concerning availability of public
information, manner of sale and notice of sale are satisfied. In addition,
Affiliates must comply with the restrictions and requirements of Rule 144, other
than the one-year holding period requirement, in order to sell shares of Common
Stock which are not restricted securities. Under Rule 144(k), a person who is
not an Affiliate and has not been an Affiliate for at least three months prior
to the sale and who has beneficially owned Restricted Shares for at least two
years may resell such shares without compliance with the foregoing requirements.
In meeting the one- and two-year holding periods described above, a holder of
Restricted Shares can include the holding

periods of a prior owner who was not an Affiliate. The one- and two-year holding
periods described above do not begin to run until the full purchase price or
other consideration is paid by the person acquiring the Restricted Shares from
the issuer or an Affiliate.

OPTIONS

Rule 701 also provides that the shares of Common Stock acquired upon the
exercise of currently outstanding options issued under the Company's stock plans
may be resold by persons, other than Affiliates, beginning 90 days after the
effective date of this Prospectus, subject only to the manner of sale provisions
of Rule 144, and by Affiliates under Rule 144, without compliance with its
one-year minimum holding period, subject to certain limitations. As of March 31,
1998, 1,600,000 shares of Common Stock were subject to options issued under the
Company's 1997 Stock Option Plan all of which will become exercisable 90 days
after the completion of this offering. All of the shares issuable upon the
exercise of outstanding options following this offering are subject to lock-up
agreements. Options to purchase an additional 900,000 shares of Common Stock may
be granted under the Company's stock option plans. In addition, the Non-Plan
Option to acquire 100,000 shares of Common Stock is outstanding, but was not
exercisable as of the date of this Prospectus. As soon as practicable following
this offering, the Company intends to file a registration statement under the
Securities Act to register shares of Common Stock issuable or previously issued
upon the exercise of stock options granted under the Company's stock option
plans. Shares issued upon the exercise of stock options after the effective date
of this Prospectus or previously issued on exercise generally will be available
for sale in the open market.

REGISTRATION RIGHTS

The Company has also issued the Warrant to purchase 475,015 shares of Common
Stock, which is currently fully exercisable, 50,000 shares of which will be
exercised and sold in this offering. The holder of the Warrant has certain
registration rights with respect to such shares of Common Stock. See
"Description of Capital Stock--Warrant Shares."

UNDERWRITING

Subject to the terms and conditions of the Underwriting Agreement, the
Company and the Selling Shareholders have agreed to sell to each of the
Underwriters named below, and each of such Underwriters, for whom Adams,
Harkness & Hill, Inc., NationsBanc Montgomery Securities LLC and Piper Jaffray
Inc. are acting as representatives (the "Representatives"), has severally agreed
to purchase from the Company and the Selling Shareholders the respective number
of shares of Common Stock set forth opposite each Underwriter's name below:

NUMBER OF
SHARES OF
UNDERWRITER COMMON STOCK
- ------------------------------------------------------------------------------- ---------------

Adams, Harkness & Hill, Inc....................................................
NationsBanc Montgomery Securities LLC..........................................
Piper Jaffray Inc..............................................................

---------------
Total...................................................................... 8,000,000
---------------
---------------

Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all of the shares offered hereby,
if any are taken.

The Underwriters propose to offer the shares of Common Stock in part
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus, and in part to certain securities dealers at such
price less a concession of not in excess of $ per share. The Underwriters may
allow, and such dealers may re-allow, a concession not in excess of $ per
share to certain brokers and dealers. After the shares of Common Stock are
released for sale to the public, the offering price and other selling terms may
from time to time be varied by the Representatives.

The Company and the Selling Shareholders have granted the Underwriters an
option exercisable for 30 days after the date of this Prospectus to purchase up
to an aggregate of 1,200,000 additional shares of Common Stock to cover
over-allotments, if any. If the Underwriters exercise their over-allotment
option, the Underwriters have severally agreed, subject to certain conditions,
to purchase approximately the same percentage thereof that the number of shares
to be purchased by each of them, as shown in the foregoing table, bears to the
shares of Common Stock offered hereby. The Underwriters may exercise such option
only to cover over-allotments, if any, in connection with the sale of the
8,000,000 shares of Common Stock offered hereby.

The Company has agreed not to offer, sell, contract to sell or otherwise
dispose of any shares of Common Stock for a period of 180 days after the date of
this Prospectus without the prior written consent of Adams, Harkness & Hill,
Inc., except for the shares of Common Stock offered hereby and except that the
Company may issue securities pursuant to the Company's stock plans and upon the
exercise of outstanding options and warrants. In addition, all executive
officers and directors and certain shareholders of the Company, who in the
aggregate hold 20,141,738 shares of Common Stock and options to purchase
1,700,000 shares of Common Stock, have agreed, pursuant to certain Lock-up
Agreements (the

"Lock-up Agreements"), that until 180 days after the date of this Prospectus,
they will not, directly or indirectly, offer, sell, assign, transfer, encumber,
contract to sell, grant an option to purchase, make a distribution of, or
otherwise dispose of, any shares of Common Stock, or any securities convertible
into or exchangeable for shares of Common Stock, otherwise than (i) as a bona
fide gift or gifts, provided that the donee or donees thereof agree in writing
as a condition precedent to such gift or gifts to be bound by the terms of the
Lock-up Agreements, or (ii) with the prior written consent of Adams, Harkness &
Hill, Inc.

The Representatives of the Underwriters have informed the Company that they
do not intend to confirm sales to any account over which they exercise
discretionary authority.

In connection with this offering, the Underwriters may purchase and sell the
Common Stock in the open market. These transactions may include over-allotment
and stabilizing transactions and purchases to cover syndicate short positions
created in connection with this offering. Stabilizing transactions consist of
certain bids or purchases made for the purpose of preventing or retarding a
decline in the market price of the Common Stock. Syndicate short positions
involve the sale by the Underwriters of a greater number of shares of Common
Stock than they are required to purchase from the Company in this offering. The
Underwriters also may impose a penalty bid, whereby the syndicate may reclaim
selling concessions allowed to syndicate members or other broker-dealers in
respect of the Common Stock sold in this offering for their account if the
syndicate repurchases the shares in stabilizing or covering transactions. These
activities may stabilize, maintain or otherwise affect the market price of the
Common Stock, which may be higher than the price that might otherwise prevail in
the open market. These transactions may be affected on Nasdaq, in the
over-the-counter market or otherwise, and may, if commenced, be discontinued at
any time.

The Underwriters have reserved for sale approximately 600,000 shares of the
Common Stock offered hereby for sale at the initial public offering price to
certain Associates. The Underwriters have advised the Company that the price per
share for such shares will be the initial public offering price. The number of
shares available for sale to the general public in this offering will be reduced
to the extent such Associates purchase such reserved shares. Any reserved shares
not so purchased will be offered by the Underwriters to the general public on
the same basis as the other shares offered hereby. Any Associate who purchases
any of the shares offered in the offering will be prohibited from offering,
selling, pledging, contracting to sell, granting any option to purchase or
otherwise disposing of any such shares for a period of 120 days following the
effective date of the Registration Statement.

Prior to this offering, there has been no public market for the Common
Stock. The initial public offering price will be negotiated among the Company,
the Selling Shareholders and the Representatives. Among the factors to be
considered in determining the initial public offering price of the Common Stock,
in addition to prevailing market conditions, are the Company's historical
performance, estimates of the business potential and earnings prospects of the
Company, an assessment of the Company's management and the consideration of the
above factors in relation to market valuation of companies in related
businesses.

The Common Stock has been approved for quotation and trading, subject to
official notice of issuance, on the Nasdaq National Market under the symbol
"MTEX."

The Company and the Selling Shareholders agreed to indemnify the several
Underwriters against or contribute to losses arising out of certain liabilities,
including liabilities under the Securities Act.

LEGAL MATTERS

The validity of the issuance of the shares of Common Stock offered hereby
will be passed upon for the Company by Akin, Gump, Strauss, Hauer & Feld,
L.L.P., Dallas, Texas. Certain legal matters will be passed upon for the
Underwriters by Hale and Dorr LLP, Boston, Massachusetts.

EXPERTS

The financial statements of the Company as of December 31, 1997, and for the
year ended December 31, 1997 included in this Prospectus have been so included
in reliance on the report of Price Waterhouse LLP, independent accountants,
given on the authority of said firm as experts in auditing and accounting.

The financial statements of the Company as of December 31, 1995 and 1996,
and for each of the two years in the period ended December 31, 1996, included in
this Prospectus have been so included in reliance on the report of Belew Averitt
LLP ("Belew Averitt"), independent accountants, given on the authority of said
firm as experts in accounting and auditing.

In November 1997, the Company advised Belew Averitt that it would no longer
retain the firm as independent accountants. The reports of Belew Averitt on the
Company did not contain an adverse opinion or disclaimer of opinion, nor were
they qualified or modified as to uncertainty, audit scope or accounting
principles. The decision to change accountants was precipitated by the Company's
plan to complete an initial public offering in 1998 and was approved by the
Board of Directors in November 1997. During the periods audited by Belew Averitt
and through November 1997 there were no disagreements with Belew Averitt on any
matter of accounting principles or practices, financial statement disclosure or
auditing scope or procedure, which disagreement(s) if not resolved to the
satisfaction of Belew Averitt, would have caused it to make reference to the
subject matter of the disagreements in connection with its reports. Price
Waterhouse was engaged by the Company as its independent accountants in November
1997.

ADDITIONAL INFORMATION

The Company has not previously been subject to the reporting requirements of
the Exchange Act. The Company has filed with the Commission a Registration
Statement (which term shall include any amendments thereto) on Form S-1 under
the Securities Act with respect to the Common Stock offered hereby. This
Prospectus, which constitutes a part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement, certain
portions of which have been omitted as permitted by the rules and regulations of
the Commission. Statements contained in this Prospectus as to the contents of
any contract or other document are not necessarily complete, and in each
instance reference is made to the copy of such contract or other document filed
as an exhibit to the Registration Statement, each statement being qualified in
all respects by such reference. For further information with respect to the
Company and the Common Stock, reference is made to the Registration Statement,
including the exhibits and schedules thereto, copies of which may be examined
without charge at the Commission's principal office at 450 Fifth Street, N.W.,
Washington, D.C. 20549 and the regional offices of the Commission located at 7
World Trade Center, 13th Floor, New York, New York 10048 and Citicorp Center,
500 West Madison Street, 14th Floor, Chicago, Illinois 60661-2511. Copies of
such materials may be obtained from the Public Reference Section of the
Commission, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and
at its public reference facilities in New York, New York, and Chicago, Illinois,
at prescribed rates. The Commission also maintains a World Wide Web site that
contains reports, proxy and information statements and other information
regarding registrants (which, after this offering, will include the Company)
that file electronically with the Commission (at http://www.sec.gov).

Immediately following this offering, the Company will become subject to the
periodic reporting and other informational requirements of the Exchange Act. As
long as the Company is subject to such periodic reporting and information
requirements, it will file with the Commission all reports, proxy statements,
and other information required thereby. The Company intends to furnish holders
of the Common Stock with annual reports containing financial statements audited
by an independent certified public accounting firm and may furnish to
shareholders quarterly reports containing unaudited financial information for
the first three quarters of each fiscal year.

MANNATECH, INCORPORATED
INDEX TO FINANCIAL STATEMENTS

Annual Financial Statements:
Report of Independent Accountants................................................. F-2

Independent Auditor's Report...................................................... F-3

Balance Sheets as of December 31, 1996 and 1997 and March 31, 1998................ F-4

Statements of Income for the Years ended December 31, 1995, 1996 and 1997 and the
three months ended March 31, 1997 and 1998...................................... F-5

Statements of Changes in Shareholders' Equity (Deficit) for the Years ended
December 31, 1995, 1996 and 1997 and the three months ended March 31, 1998...... F-6

Statements of Cash Flows for the Years ended December 31, 1995, 1996 and 1997 and
the three months ended March 31, 1997 and 1998.................................. F-7

Notes to Financial Statements..................................................... F-8

F-1

REPORT OF INDEPENDENT ACCOUNTANTS

To Board of Directors and Shareholders of
Mannatech, Incorporated

In our opinion, the accompanying balance sheet and the related statements of
income, of changes in shareholders' equity (deficit) and of cash flows present
fairly, in all material respects, the financial position of Mannatech,
Incorporated at December 31, 1997, and the results of its operations and its
cash flows for the year in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.

PRICE WATERHOUSE LLP

Dallas, Texas
March 26, 1998

F-2

INDEPENDENT AUDITOR'S REPORT

Shareholders and Board of Directors
of Mannatech, Incorporated

We have audited the accompanying balance sheet of Mannatech, Incorporated as
of December 31, 1996, and the related statements of income, of changes in
shareholders' equity (deficit) and of cash flows for each of the years in the
two-year period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Mannatech, Incorporated as
of December 31, 1996, and the results of its operations and its cash flows for
each of the years in the two-year period ended December 31, 1996, in conformity
with generally accepted accounting principles.

BELEW AVERITT LLP

Dallas, Texas
August 21, 1997

F-3

MANNATECH, INCORPORATED

BALANCE SHEETS

DECEMBER 31, 1996 AND 1997 AND MARCH 31, 1998

DECEMBER 31,
------------------------------
1996 1997
-------------- -------------- MARCH 31,
1998
--------------
(UNAUDITED)

ASSETS

Cash and cash equivalents........................................ $ 1,159,937 $ 61,148 $ 952,196
Restricted cash.................................................. - 199,619 -
Accounts receivable, less allowance for doubtful accounts of
$194,000 in 1997............................................... 26,991 549,904 81,659
Receivable from related parties.................................. 502,417 148,888 133,888
Notes receivable from shareholders............................... - 1,571,347 1,601,377
Refundable income taxes.......................................... 741,000 - -
Inventories...................................................... 4,947,337 5,323,056 6,394,071
Prepaid expenses and other current assets........................ 166,471 542,978 956,616
Deferred tax assets.............................................. 149,000 88,000 88,000
-------------- -------------- --------------
Total current assets......................................... 7,693,153 8,484,940 10,207,807

Property and equipment, net...................................... 3,049,572 10,583,910 12,022,719
Other assets..................................................... 466,603 814,624 888,646
-------------- -------------- --------------
Total assets................................................. $ 11,209,328 $ 19,883,474 $ 23,119,172
-------------- -------------- --------------
-------------- -------------- --------------

LIABILITIES AND SHAREHOLDERS' EQUITY

Current portion of capital lease obligations..................... $ - $ 249,655 $ 1,160,410
Current portion of note payable.................................. 26,400 - -
Accounts payable................................................. 2,540,116 4,287,159 3,450,433
Accrued expenses................................................. 6,748,993 10,731,828 12,739,637
Dividends payable................................................ 100,000 1,321,654 1,326,104
Accounts payable to related parties.............................. 537,472 - -
-------------- -------------- --------------
Total current liabilities.................................... 9,952,981 16,590,296 18,676,584

Capital lease obligations, excluding current portion............. - 110,482 104,695
Deferred tax liabilities......................................... 105,000 505,000 708,000
-------------- -------------- --------------
Total liabilities............................................ 10,057,981 17,205,778 19,489,279
-------------- -------------- --------------

Commitments and contingencies (note 11).......................... - - -

Redeemable warrants.............................................. - 300,000 300,000

Shareholders' equity

Common stock, $.0001 par value, 100,000,000 shares authorized,
20,626,971 and 22,101,738 shares issued and outstanding,
respectively................................................... 2,063 2,210 2,210
Additional paid-in capital....................................... - 2,632,238 2,632,238
Retained earnings (deficit)...................................... 1,149,284 (256,752) 695,445
-------------- -------------- --------------
Total shareholders' equity................................... 1,151,347 2,377,696 3,329,893
-------------- -------------- --------------
Total liabilities and shareholders' equity................... $ 11,209,328 $ 19,883,474 $ 23,119,172
-------------- -------------- --------------
-------------- -------------- --------------

See accompanying notes to financial statements.

F-4

MANNATECH, INCORPORATED

STATEMENTS OF INCOME

FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997

AND THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998

DECEMBER 31, MARCH 31,
--------------------------------------- ------------------------
1995 1996 1997 1997 1998
----------- ----------- ------------- ----------- -----------
(UNAUDITED)

Net sales................................... $32,234,255 $86,574,444 $ 150,857,422 $33,543,507 $41,059,284
----------- ----------- ------------- ----------- -----------
Cost of sales............................... 4,880,331 13,406,303 24,735,616 5,500,720 6,060,118
Commissions................................. 12,338,513 35,155,231 61,677,103 13,685,060 16,883,420
----------- ----------- ------------- ----------- -----------
17,218,844 48,561,534 86,412,719 19,185,780 22,943,538
----------- ----------- ------------- ----------- -----------
Gross profit............................ 15,015,411 38,012,910 64,444,703 14,357,727 18,115,746
----------- ----------- ------------- ----------- -----------
Operating expenses:
Selling and administrative expenses....... 7,012,199 17,764,415 27,845,502 5,827,176 7,683,934
Other operating costs..................... 5,252,817 11,746,003 19,402,317 3,743,367 4,695,819
Cancellation of incentive compensation
agreements.............................. - - 2,191,610 - -
----------- ----------- ------------- ----------- -----------
Total operating expenses................ 12,265,016 29,510,418 49,439,429 9,570,543 12,379,753
----------- ----------- ------------- ----------- -----------
Income from operations...................... 2,750,395 8,502,492 15,005,274 4,787,184 5,735,993
Other (income) expense, net................. 180,970 (116,009) (43,170) 139,206 (61,963)
----------- ----------- ------------- ----------- -----------
Income before income taxes.................. 2,569,425 8,618,501 15,048,444 4,647,978 5,797,956
Income tax expense.......................... 129,959 1,294,692 4,249,540 1,322,686 2,198,000
----------- ----------- ------------- ----------- -----------
Net income.................................. $ 2,439,466 $ 7,323,809 $ 10,798,904 $ 3,325,292 $ 3,599,956
----------- ----------- ------------- ----------- -----------
----------- ----------- ------------- ----------- -----------
Earnings per common share:
Basic..................................... $ .12 $ .36 $ .50 $ .16 $ .16
----------- ----------- ------------- ----------- -----------
----------- ----------- ------------- ----------- -----------
Diluted................................... $ .12 $ .36 $ .48 $ .16 $ .15
----------- ----------- ------------- ----------- -----------
----------- ----------- ------------- ----------- -----------

Unaudited pro forma data (note 1)
Income before income taxes, as reported... 2,569,425 8,618,501 15,048,444 4,647,978
Pro forma provision for income taxes...... 963,534 3,231,938 5,793,651 1,789,471
----------- ----------- ------------- -----------
Pro forma net income...................... $ 1,605,891 $ 5,386,563 $ 9,254,793 2,858,507
----------- ----------- ------------- -----------
----------- ----------- ------------- -----------
Pro forma earnings per common share:
Basic..................................... $ .08 $ .26 $ .43 $ .14
----------- ----------- ------------- -----------
----------- ----------- ------------- -----------
Diluted................................... $ .08 $ .26 $ .41 $ .14
----------- ----------- ------------- -----------
----------- ----------- ------------- -----------

See accompanying notes to financial statements.

F-5

MANNATECH, INCORPORATED

STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)

FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997

AND THE THREE MONTHS ENDED MARCH 31, 1998

TOTAL
COMMON STOCK ADDITIONAL RETAINED SHAREHOLDERS'
------------------------- PAID-IN EARNINGS EQUITY
SHARES PAR VALUE CAPITAL (DEFICIT) (DEFICIT)
------------ ----------- ------------ ------------- ---------------

Balance at December 31, 1994..................... 20,626,971 $ 2,063 $ - $ (294,235) $ (292,172)
Dividends declared ($1.00 per share)(1)........ - - - (10,000) (10,000)
Net income..................................... - - - 2,439,466 2,439,466
Distributions to partners...................... - - - (2,369,631) (2,369,631)
------------ ----------- ------------ ------------- ---------------

Balance at December 31, 1995..................... 20,626,971 2,063 - (234,400) (232,337)
Dividends declared ($10.00 per share)(1)....... - - - (100,000) (100,000)
Net income..................................... - - - 7,323,809 7,323,809
Distributions to partners...................... - - - (5,840,125) (5,840,125)
------------ ----------- ------------ ------------- ---------------

Balance at December 31, 1996..................... 20,626,971 2,063 - 1,149,284 1,151,347
Issuance of common stock to cancel incentive
compensation agreements...................... 1,474,767 147 2,191,463 - 2,191,610
Vesting of nonemployee stock options........... - - 155,503 - 155,503
Tax benefit of shares issued for
merger of partnerships....................... - - 285,272 - 285,272
Dividends declared ($.37 per share)............ - - - (8,150,201) (8,150,201)
Net income..................................... - - - 10,798,904 10,798,904
Distributions to partners...................... - - - (4,054,739) (4,054,739)
------------ ----------- ------------ ------------- ---------------

Balance at December 31, 1997..................... 22,101,738 2,210 2,632,238 (256,752) 2,377,696
Dividends declared ($.12 per share)
(unaudited).................................. - - - (2,647,759) (2,647,759)
Net income (unaudited)......................... - - - 3,599,956 3,599,956
------------ ----------- ------------ ------------- ---------------
Balance at March 31, 1998 (unaudited)............ 22,101,738 $ 2,210 $ 2,632,238 $ 695,445 $ 3,329,893
------------ ----------- ------------ ------------- ---------------
------------ ----------- ------------ ------------- ---------------

- --------------------------

(1) Dividends are based on the shares outstanding prior to the reorganization
and the 1000-for-1 stock split (10,000 shares) as discussed in notes 1 and
12, respectively.

See accompanying notes to financial statements

F-6

MANNATECH, INCORPORATED

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
AND THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998

DECEMBER 31 MARCH 31
----------------------------------- ----------------------
1995 1996 1997 1997 1998
---------- ---------- ----------- ---------- ----------
(UNAUDITED)

Cash flows from operating activities:
Net income.................................................. $2,439,466 $7,323,809 $10,798,904 $3,325,292 $3,599,956
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................. 75,341 414,299 1,189,494 129,423 398,838
Loss (gain) on disposal of assets......................... 46,523 3,876 411,202 151,815 (60,687)
Noncash charge for cancellation of incentive compensation
agreements.............................................. - - 2,191,610 - -
Vesting of nonemployee stock options and warrants......... - - 455,503 - -
Loss on settlement of contract............................ 180,600 - - - -
Write-off of investment................................... - 115,000 - - -
Deferred income tax expense (benefit)..................... 122,959 (35,777) 461,000 178,000 203,000
Changes in operating assets and liabilities:
Accounts and notes receivable........................... 139,302 (449,899) (1,740,731) (95,574) 453,215
Refundable income taxes................................. (285,911) (455,089) 741,000 - -
Inventories............................................. (2,319,350) (1,801,879) (375,719) (1,698,687) (1,071,015)
Prepaid expenses and other current assets............... (106,878) (50,330) (376,507) (297,601) (413,638)
Other assets............................................ (166,261) 70,798 (4,749) (300) -
Accounts payable........................................ 1,136,864 191,504 1,747,043 2,096,629 (836,726)
Accrued expenses........................................ 1,828,109 4,269,253 4,268,107 4,023,381 2,007,809
---------- ---------- ----------- ---------- ----------
Net cash provided by operating activities............. 3,090,764 9,595,565 19,766,157 7,812,378 4,280,752
---------- ---------- ----------- ---------- ----------

Cash flows from investing activities:
Proceeds from sale of equipment............................. - - - - 36,472
Acquisition of property and equipment and construction in
progress.................................................. (768,505) (2,660,108) (8,737,232) (3,719,505) (903,291)
Security deposits........................................... - (460,350) - - -
Deposits of restricted cash................................. - - (199,619) - 199,619
Deferred offering costs..................................... - - (343,672) - (74,122)
Other assets................................................ (75,000) (40,000) - - -
---------- ---------- ----------- ---------- ----------
Net cash used in investing activities................. (843,505) (3,160,458) (9,280,523) (3,719,505 (741,322)
---------- ---------- ----------- ---------- ----------

Cash flows from financing activities:
Distributions to partners................................... (1,904,611) (5,268,033) (4,054,739) (2,269,328) -
Payment of dividends........................................ - (20,000) (6,928,547) (100,000) (2,643,309)
Repayment of capital lease obligations...................... - - (37,265) - (5,073)
Advances from shareholders and employees.................... 159,486 26,435 61,055 - -
Repayments to shareholders and employees.................... - (688,293) (808,527) (537,472) -
Advances from an affiliated company......................... 206,660 - - - -
Repayment to an affiliated company.......................... - (206,660) - - -
Payment of notes payable.................................... (39,537) (71,200) (26,400) (13,200) -
---------- ---------- ----------- ---------- ----------
Net cash used in financing activties.................. (1,578,002) (6,227,751) (11,584,423) (2,920,000) (2,648,382)
---------- ---------- ----------- ---------- ----------

Net increase (decrease) in cash and cash equivalents.......... 669,257 207,356 (1,098,789) 1,172,873 891,048

Cash and cash equivalents:
Beginning of year........................................... 283,324 952,581 1,159,937 1,159,937 61,148
---------- ---------- ----------- ---------- ----------
End of year................................................. $ 952,581 $1,159,937 $ 61,148 $2,332,810 $ 952,196
---------- ---------- ----------- ---------- ----------
---------- ---------- ----------- ---------- ----------

Supplemental disclosure of cash flow information:
Income taxes paid........................................... $ 296,000 $1,716,100 $ 68,800 - $2,280,000
---------- ---------- ----------- ---------- ----------
---------- ---------- ----------- ---------- ----------
Interest paid............................................... $ 8,000 $ - $ 10,885 - $ 12,630
---------- ---------- ----------- ---------- ----------
---------- ---------- ----------- ---------- ----------

A summary of non-cash investing and financing activities follows:
Accrued dividends and distributions......................... $ 475,020 $ 672,092 $ 1,321,654 - $1,326,104
---------- ---------- ----------- ---------- ----------
---------- ---------- ----------- ---------- ----------
Tax benefit of shares granted for merger of partnerships.... $ - $ - $ 285,272 - $ -
---------- ---------- ----------- ---------- ----------
---------- ---------- ----------- ---------- ----------
Assets aquired through capital lease obligations............ $ - $ - $ 397,402 - $ 910,041
---------- ---------- ----------- ---------- ----------
---------- ---------- ----------- ---------- ----------

See accompanying notes to financial statements

F-7

MANNATECH, INCORPORATED

NOTES TO FINANCIAL STATEMENTS

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Mannatech, Incorporated (the "Company") was incorporated in the State of
Texas on November 4, 1993, as Emprise International, Inc. Effective October 25,
1995, the Company changed its name to Mannatech, Incorporated. The Company,
located in Coppell, Texas, develops and sells proprietary nutritional
supplements and topical products through a network marketing system. The Company
sells its products in the United States and Canada and is currently planning to
expand into Australia, while continuing to assess the potential of other foreign
markets. Independent associates ("Associates") purchase products, at wholesale,
for the primary purpose of selling to retail consumers or for personal
consumption. In addition, Associates earn commissions on their sales volume.

REORGANIZATION

In December 1994, to achieve certain tax efficiencies and to protect certain
of the Company's proprietary rights, the Company transferred certain of its
rights and interests in intellectual property, the right to use a supplier's
trademark and its marketing rights to two affiliated partnerships ("Royalty
Partnership" and "Marketing Partnership," respectively, or collectively "the
Partnerships"). The Marketing Partnership was owned by two affiliated
partnerships that also shared common ownership with the Company. The respective
ownership interests in the Partnerships were structured with the intention of
retaining the same economic interests among the partners as that of the
shareholders of the Company. In the case of the intellectual property and
trademark transferred to the Royalty Partnership, the Company entered into a
17-year agreement with the Royalty Partnership to pay a royalty based on sales
volume. In the case of the Marketing Partnership, the Company paid a commission
based on a specified percentage of sales volume. At the time of transfer, the
rights and interest in intellectual property, supplier's trademark and marketing
rights had a minimal basis. During 1994, the Company also entered into separate
incentive compensation agreements with two of its shareholders pursuant to which
the Company agreed to pay commissions based on specified monthly sales volumes
and increases in number of new enrolled Associates. These agreements were
designed to compensate for the differences in ownership in the Partnerships for
one of the principal shareholders and to provide compensation to a shareholder
in lieu of receiving a Partnership interest.

On June 1, 1997, in order to simplify the Company's ownership structure and
consolidate all operating activities, the Company entered into agreements to
effect a reorganization through merging with the corporate general partners of
the Partnerships (with the Company as the surviving corporation) and exchanging
10,000,000 shares of Common Stock for the entire ownership interests of the
corporate general partners and the Partnerships and issued 2,027,571 shares of
Common Stock in consideration for the cancellation of incentive compensation
agreements with the two shareholder-employees and four other employees of the
Company. The net effect of the foregoing transactions was to increase the
Company's common shares outstanding by 12,027,571 while retaining substantially
the same relative original ownership of the Company. The only ownership
percentage change among the original shareholders related to 208,024 shares
granted to one shareholder in recognition of significant contributions to the
Company, which resulted in minor dilution to the other original seven
shareholders at the time of the exchange. The fair value of these additional
shares was expensed, and is included in cancellation of incentive compensation
agreements in the income statement. No monetary consideration changed hands and
the changes were designed to reestablish the original economic characteristics
of the Company. Aside from the new shares issued to the four employees to cancel
their incentive compensation agreements, relative ownership interests, as
evidenced by retention of economic risks and benefits, remained virtually the
same. After the exchange, the Company terminated and liquidated the Partnerships
at no gain or loss.

F-8

MANNATECH, INCORPORATED

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The accompanying financial statements include the accounts of the
Partnerships and the Company as if the merger was consummated on December 31,
1994. The merger was accounted using the historical basis for each entity,
effectively combining the entities as a pooling of interests.

USE OF ESTIMATES

In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make certain estimates and
assumptions that may affect the reported amounts of assets, liabilities,
revenues and expenses during the reporting periods. Actual results may differ
from such estimates.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments with original maturities
of three months or less to be cash equivalents.

RESTRICTED CASH

At December 31, 1997, $199,619 of cash was held by the Company's former
credit card processor under the terms of the credit card processing agreement.
The Company expects the restricted funds to be released early in 1998.

INVENTORIES

Inventories consist of raw materials, work-in-progress and finished goods
and are stated at the lower of cost (using the first-in, first-out method) or
market.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost, less accumulated depreciation
which is computed using the straight-line method over the estimated useful life
of each asset. Expenditures for maintenance and repairs are charged to expense
as incurred. The cost of property and equipment sold or otherwise retired and
the related accumulated depreciation are removed from the accounts and any
resulting gain or loss is included in other (income) expense.

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 not be recoverable. The impairment review includes a comparison of
future cash flows expected to be generated by the asset or group of assets with
their 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 is recognized to the extent the carrying amount of the asset
exceeds its fair value.

OTHER ASSETS

Other assets consist of deposits, deferred offering costs and organization
costs. Organization costs are being amortized on a straight-line basis over five
years. Deferred offering costs will be deducted from the proceeds of the
anticipated public offering of the Company's Common Stock.

F-9

MANNATECH, INCORPORATED

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ACCOUNTS PAYABLE

The Company records book overdrafts in its cash accounts as accounts
payable. Included in accounts payable are book overdrafts of $334,374 and
$1,028,676 at December 31, 1996 and 1997, respectively.

INCOME TAXES

The Company accounts for income taxes using the asset and liability approach
to financial accounting and reporting for income taxes. In the event that
differences between the financial reporting bases and the tax bases of the
Company's assets and liabilities result in net deferred tax assets, the Company
evaluates the probability of realizing the future benefits indicated by such
assets. A valuation allowance is provided 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, will not be realized.

Prior to the merger of the Partnerships, the Company and the Partnerships
filed separate tax returns. Prior to June 1, 1997, no provision for income taxes
was necessary in the financial statements for the income attributable to the
Partnerships because, as partnerships, they were not subject to federal income
tax because the tax effect of their activities flowed through directly to the
individual partners. Beginning June 1, 1997, all income earned by the Company
became subject to income tax.

PRO FORMA INFORMATION (UNAUDITED)

Pro forma income tax information has been provided, using the statutory tax
rate of the Company, as if all of the Company's and the Partnerships' income had
been subject to income taxes.

REVENUE RECOGNITION

Revenue is recognized for product sales upon shipment of the products to the
Associates. Annual Associate fees are received for promotional kits provided to
Associates, which include nutritional products and sales aids. These fees are
also recognized upon shipment of these products.

ACCOUNTING FOR STOCK-BASED COMPENSATION

The Company has adopted Statement of Financial Accounting Standards No. 123
("FAS 123"), "Accounting for Stock-Based Compensation," for stock-based
compensation issued to nonemployees. FAS 123 requires that stock-based
compensation be measured by the fair value at the date of grant. The Company
measures the cost of stock-based compensation issued to employees under
Accounting Principles Board Opinion 25, "Accounting for Stock Issued to
Employees" ("APB 25"), and its related interpretations. The Company has,
however, provided pro forma disclosures in note 10 for stock-based compensation
accounted for under APB 25, as required by FAS 123.

ADVERTISING COSTS

Advertising and promotional expenses are included in selling and
administrative expenses and are charged to operations when incurred. Advertising
and promotional expenses were approximately $450,000, $1,475,000 and $2,241,000
for 1995, 1996 and 1997, respectively. Literature and promotional items are sold
to Associates to support their sales effort. Such items are included in
inventories and charged to cost of sales when sold.

F-10

MANNATECH, INCORPORATED

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RESEARCH AND DEVELOPMENT COSTS

The Company expenses research and development costs when incurred. Research
and development costs are included in other operating expenses and were
approximately $3,000, $283,000 and $381,000 in 1995, 1996 and 1997,
respectively.

SOFTWARE DEVELOPMENT COSTS

The Company capitalizes qualifying costs relating to the development of
internal use software. Capitalization of qualifying costs begins after the
conceptual formulation stage has been completed, and such costs are amortized
over the estimated useful life of the software, which is estimated at five
years. Capitalized costs totaled $58,000 and $1,713,000 in 1996 and 1997,
respectively. The Company did not capitalize any such costs during 1995. The
amounts capitalized in 1997 are included in construction in progress and are
expected to be completed during 1998.

During January 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1 "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 becomes effective
for all fiscal years beginning after December 15, 1998. The Company does not
expect the adoption of SOP 98-1 to have a material impact on Company's financial
statements.

EARNINGS PER SHARE

The Company calculates earnings per share pursuant to Statement of Financial
Accounting Standards No. 128, "Earnings per Share" ("FAS 128"). FAS 128 requires
dual presentation of basic and diluted earnings per share ("EPS") on the face of
the statement of income for all entities with complex capital structures and
requires a reconciliation of the numerator and denominator of the basic EPS
computation to the numerator and denominator of the diluted EPS computation.
Basic EPS calculations are based on the weighted-average number of common shares
outstanding during the period, while diluted EPS calculations are based on the
weighted-average common shares and dilutive common share equivalents outstanding
during each period.

CONCENTRATIONS OF CREDIT RISK

Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash, cash equivalents and
receivables from related parties. The Company utilizes financial institutions
which the Company considers to be of high credit quality. The Company believes
its receivables from related parties at December 31, 1997 and its notes
receivables from shareholders are fully collectible.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair value of the Company's financial instruments, including cash and
cash equivalents, notes receivable, note payable, capital leases and accrued
expenses, approximate their recorded values due to their relatively short
maturities.

COMMISSIONS

Commissions to Associates are based on several factors, namely direct and
indirect sales, signup and training of new associates. Commissions are accrued
when earned and generally paid within one month.

F-11

MANNATECH, INCORPORATED

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SEGMENT INFORMATION

The Company conducts its business within one industry segment. No Associate
accounted for more than 10% of total sales for the years ended December 31,
1995, 1996 and 1997. Sales to Canadian Associates began in 1996 and were less
than 10% of total sales in 1996. Such sales were 14% of total sales in 1997.

RECLASSIFICATIONS

Certain prior years' amounts have been reclassified to conform with the
current year presentation.

UNAUDITED INTERIM FINANCIAL INFORMATION

In the opinion of management, all adjustments, consisting only of normal
recurring adjustments that are necessary for fair presentation, have been
included in the unaudited financial information for the interim periods ended
March 31, 1997 and 1998.

2. INVENTORIES

Inventories at December 31, 1996 and 1997 consist of the following:

1996 1997
------------- -------------

Raw materials................................................... $ 3,447,362 $ 1,827,823
Work-in-progress................................................ 150,140 -
Finished goods.................................................. 1,349,835 3,495,233
------------- -------------
$ 4,947,337 $ 5,323,056
------------- -------------
------------- -------------

3. PROPERTY AND EQUIPMENT

Property and equipment at December 31, 1996 and 1997 consist of the
following:

ESTIMATED
USEFUL LIVES 1996 1997
-------------- ------------- --------------

Office furniture and equipment................ 5 to 7 years $ 740,170 $ 3,087,775
Computer equipment............................ 3 to 5 years 1,201,657 2,724,579
Automobiles................................... 5 years 327,202 298,722
Leasehold improvements........................ 10 years 88,165 3,162,714
------------- --------------
2,357,194 9,273,790
Less accumulated depreciation and
amortization................................ (390,278) (1,389,233)
------------- --------------
1,966,916 7,884,557
Construction in progress...................... 1,082,656 2,699,353
------------- --------------
$ 3,049,572 $ 10,583,910
------------- --------------
------------- --------------

Construction in progress primarily consists of the construction of a new
warehouse facility, a research and development laboratory and the internal
development of a new computer software package. Included in the December 31,
1997 balance are capital leases of $397,402 related to the warehouse equipment.

F-12

MANNATECH, INCORPORATED

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

4. ACCRUED EXPENSES

Accrued expenses at December 31, 1996 and 1997 consist of the following:

1996 1997
------------- --------------

Commissions payable............................................ $ 2,481,755 $ 3,801,324
Income taxes payable........................................... - 2,692,248
Accrued royalties and compensation............................. 2,361,703 1,251,215
Accrued inventory purchases.................................... 211,702 1,218,975
Sales and other taxes payable.................................. 900,154 812,368
Customer deposits.............................................. 536,037 216,436
Other accrued expenses......................................... 257,642 739,262
------------- --------------
$ 6,748,993 $ 10,731,828
------------- --------------
------------- --------------

5. NOTES PAYABLE

The Company had an unsecured noninterest bearing promissory note payable to
a former employee, payable in monthly installments of $6,600 through May 1997.
The note was repaid during 1997.

In May 1995, the Company and a shareholder entered into a $500,000
line-of-credit agreement with a bank. This line was collateralized by personal
assets of the shareholder. The interest rate was equal to the bank's prime rate,
which was 8.25% at December 31, 1996. During 1996, the shareholder borrowed
$250,000 of the line-of-credit for personal use, which was subsequently repaid
in full. The line of credit expired in September 1997, and there were no amounts
outstanding at December 31, 1996.

6. CAPITAL LEASE OBLIGATIONS

The Company leases certain furniture and equipment under various capital
leases agreements. These agreements have terms which range from three to five
years and contain either a bargain purchase option or a buyout provision which
the Company intends to exercise. A summary of future minimum payments under
these capital lease agreements are as follows:

YEAR ENDING DECEMBER 31,
- ------------------------------------------------------------------------------

1998.......................................................................... $ 265,907
1999.......................................................................... 37,586
2000.......................................................................... 37,586
2001.......................................................................... 37,586
2002.......................................................................... 28,189
--------------
Present value of future minimum lease payments................................ 406,854
Less imputed interest (approximately 12%)..................................... (46,717)
--------------
360,137
Less current portion of capital lease obligations............................. (249,655)
--------------
Capital lease obligations, excluding current portion.......................... $ 110,482
--------------
--------------

F-13

MANNATECH, INCORPORATED

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

7. INCOME TAXES

The components of the Company's income tax provision for 1995, 1996 and 1997
were as follows:

1995 1996 1997
----------- ------------- -------------

Current provision:
Federal.......................................... $ 5,844 $ 1,147,481 $ 3,324,855
State............................................ 1,156 182,988 463,685
----------- ------------- -------------
7,000 1,330,469 3,788,540
----------- ------------- -------------
Deferred provision:................................
Federal.......................................... 108,437 (32,777) 389,000
State............................................ 14,522 (3,000) 72,000
----------- ------------- -------------
122,959 (35,777) 461,000
----------- ------------- -------------
$ 129,959 $ 1,294,692 $ 4,249,540
----------- ------------- -------------
----------- ------------- -------------

A reconciliation of income tax based on the U.S. federal statutory rate is
summarized as follows for the years ended December 31:

1995 1996 1997
--------- --------- ---------

Federal statutory income taxes...................................... 34.0% 34.0% 35.0%
Partnership income.................................................. (47.0) (32.0) (9.4)
State income taxes, net of federal benefit.......................... 6.3 6.5 2.3
Nondeductible expenses.............................................. 13.9 9.0 0.5
Other............................................................... (2.1) (2.5) (0.2)
--------- --------- ---------
5.1% 15.0% 28.2%
--------- --------- ---------
--------- --------- ---------

F-14

MANNATECH, INCORPORATED

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

7. INCOME TAXES (CONTINUED)
Deferred taxes consisted of the following at December 31:

1996 1997
----------- -----------

Deferred tax assets:
Current:
Inventory capitalization........................................ $ 119,000 $ 86,000
Capital loss carryforward....................................... 20,000 -
Other........................................................... 10,000 2,000
----------- -----------
Total current deferred tax assets............................. 149,000 88,000
----------- -----------
Noncurrent:
Compensation expense............................................ - 318,000
Capital loss carryforward....................................... - 20,000
----------- -----------
Total noncurrent deferred tax assets.......................... - 338,000
----------- -----------
Total gross deferred tax assets............................. $ 149,000 $ 426,000
----------- -----------
----------- -----------
Deferred tax liabilities:
Noncurrent:
Depreciation and amortization................................... $ 105,000 $ 843,000
----------- -----------
----------- -----------

The net deferred tax assets (liabilities) are classified in the financial
statements as follows:

1996 1997
------------ ------------

Current deferred tax assets....................................... $ 149,000 $ 88,000
Noncurrent deferred tax liabilities............................... (105,000) (505,000)
------------ ------------
Net deferred tax assets (liabilities)............................. $ 44,000 $ (417,000)
------------ ------------
------------ ------------

It is the opinion of the Company's management that the deferred tax assets
will more likely than not be realized; therefore, a valuation allowance is not
required.

8. TRANSACTIONS WITH RELATED PARTIES AND AFFILIATES

In April 1994, the Company entered into an incentive compensation agreement
with Ray Robbins, a shareholder of the Company. The agreement and its subsequent
amendments required the Company to pay commissions based on a specified monthly
sales volume and admittance of independent Associates. During 1995, 1996 and
1997, the Company paid commissions to Mr. Robbins of approximately $145,000,
$511,000 and $467,000, respectively. During 1995, the Company paid a shareholder
of an affiliated company professional fees of approximately $162,000 to serve as
the Company's in-house counsel.

During 1995, 1996 and 1997, the Company advanced to certain employees,
shareholders and an affiliated company funds of which $502,417 and $148,888
remained unpaid at December 31, 1996 and 1997, respectively. During 1997, the
Company converted certain accounts receivable from an affiliated company to
notes receivable from the shareholders of the affiliated company. These
shareholders are also shareholders of the Company. The notes receivable bear
interest at 6.0%, and are due upon the earlier of the sale of the affiliated
company or December 31, 1998. The total amount of such notes outstanding at
December 31, 1997 was $934,929.

F-15

MANNATECH, INCORPORATED

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

8. TRANSACTIONS WITH RELATED PARTIES AND AFFILIATES (CONTINUED)

On December 31, 1997, the Company advanced $283,834 to two officers and
$352,584 to two directors of the Company to pay taxes due in connection with the
cancellation of their incentive compensation agreements. These advances are also
evidenced by notes receivable from the shareholders. These notes are noninterest
bearing, are collateralized by 203,101 shares of stock held by such shareholders
and are due upon the earlier of December 31, 1998 or upon sale of the stock. The
total amount of these notes outstanding at December 31, 1997 was $636,418.

9. CANCELLATION OF INCENTIVE COMPENSATION AGREEMENTS

Prior to June 1, 1997, the Company paid certain shareholders and employees
commissions which were based on sales volume. During 1997, the Company issued
2,027,571 shares of its Common Stock to shareholders and employees to cancel
these agreements. These shares included 626,971 of shares issued to cancel
incentive compensation agreements which had been provided to two shareholders in
lieu of ownership interests in the Partnerships (Note 1). The shares issued were
valued at $1.30 per share, which was based on an appraisal at the date of the
transaction. In December 1997, the Company agreed to cancel another incentive
compensation agreement by issuing 74,167 shares of Common Stock valued at $5.00
per share. As a result of these transactions, during 1997 the Company recognized
additional nonrecurring compensation expense of $2,191,610.

10. EMPLOYEE BENEFIT PLAN

EMPLOYEE RETIREMENT PLAN

Effective June 1, 1997, the Company adopted a defined contribution 401(k)
and profit-sharing plan (the "Plan"). The Plan covers all full-time employees
who have completed three months of service and attained the age of twenty-one.
Employees can contribute up to 15% of their annual compensation.

The Company will match 25% of the first 6% contributed and may also make
discretionary contributions to the Plan, which may not exceed 100% of the first
15% of the employees annual compensation. Company contributions to employees
vest ratably over a five-year period. During 1997, the Company contributed
approximately $49,000 to the Plan.

STOCK OPTION PLAN

In May 1997, the Board of Directors approved the 1997 Stock Option Plan (the
"Stock Option Plan") which provides incentive and nonqualified stock options to
employees and nonemployees, respectively. The Company reserved 2,000,000 shares
of common stock for issuance pursuant to the stock options

F-16

MANNATECH, INCORPORATED

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

10. EMPLOYEE BENEFIT PLAN (CONTINUED)
granted under the Stock Option Plan. As of December 31, 1997, 1,600,000 stock
options were outstanding, but not exercisable as follows:

WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
------------- -----------

Outstanding at January 1, 1997..................................... - -
Granted.......................................................... 1,600,000 $ 1.45
Exercised........................................................ - -
Canceled......................................................... - -
-------------
Outstanding at December 31, 1997................................... 1,600,000 $ 1.45
-------------
-------------
Options exercisable at December 31, 1997........................... - -
-------------
-------------
Weighted-average fair value of options granted during the year..... $ 1.11
-------------
-------------

Under the Stock Option Plan, incentive stock options granted to employees
are valued using the intrinsic method, are nontransferable and are granted for
terms no longer than ten years and at a price which may not be less than 100% of
the fair value of the common stock on the date of grant. During 1997, the
Company issued 1,244,000 stock options to employees at a price ranging from
$1.35 to $2.00 per share. No compensation cost was recognized as the exercise
price of the options was equal to the fair value of options at the date of
grant. Had compensation cost for employee stock options been determined based on
the Black-Scholes option-pricing model at the grant date, pro forma net income
and earnings per share for 1997 using the following weighted-average assumptions
would have been as follows:

Dividend yield.................................................................. 4%
Expected volatility............................................................. 0%
Risk-free rate of return........................................................ 5%
Expected life................................................................... 10 years

For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the vesting period. The Company's pro forma
information follows:

1997
--------------

Net income
As reported................................................................. $ 10,798,904
Pro forma................................................................... $ 10,719,225
Basic EPS
As reported................................................................. $ 0.50
Pro forma................................................................... $ 0.50
Diluted EPS
As reported................................................................. $ 0.48
Pro forma................................................................... $ 0.48

F-17

MANNATECH, INCORPORATED

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

10. EMPLOYEE BENEFIT PLAN (CONTINUED)

Under the Stock Option Plan, nonqualified stock options granted to
nonemployees are valued using the fair value method, are nontransferable and are
granted for terms no longer than six years and at a price which may not be less
than 100% of the fair value of the common stock on the date of grant. During
1997, the Company issued 356,000 nonqualified stock options to nonemployees at
an exercise price of $1.35 per share. Additionally, the Company issued 100,000
nonqualified stock options in June 1997. These options are priced at $2.00, vest
immediately, are exercisable after one year and have a term of six years.

During 1997, compensation expense of $155,503 was included in other
operating expenses for the nonemployee options. This expense was determined by
calculating the fair value of options granted on the date of grant using the
Black-Scholes option-pricing model and the following weighted-average
assumptions:

Dividend yield.................................................................. 4%
Expected volatility............................................................. 30%
Risk-free rate of return........................................................ 5%
Expected life................................................................... 6 years

During 1997, the Company granted to a consulting firm 475,015 warrants to
purchase the same number of shares of the Company's common stock which are
nontransferable and vest as follows: 178,125 shares at issuance and 26,990 each
month through March 1, 1998. The warrants are exercisable at $1.35 per share and
expire on the earlier of May 1, 2003 or 36 months after the warrant shares are
registered for public resale under the Securities Act of 1933. At December 31,
1997, 394,015 of the warrants were vested.

As a provision of the warrant agreement, the consulting firm can require the
Company to repurchase the outstanding warrants between May 1998 and May 1999 for
$300,000. Accordingly, it was determined that the fair value of the warrants as
of December 31, 1997 was $300,000.

11. COMMITMENTS AND CONTINGENCIES

The Company leases certain office space and equipment under various
noncancelable operating leases, and has options to renew and renegotiate most of
the leases. The leases expire at various times through January 2007. The Company
also leases equipment under month-to-month cancelable operating leases. Total
rent expense was $124,000, $317,000 and $702,000 in 1995, 1996 and 1997,
respectively.

Approximate future minimum rental commitments for the operating leases are
as follows:

YEARS ENDING DECEMBER 31,
- -------------------------------------------------------------------------------

1998........................................................................... $ 835,000
1999........................................................................... 794,000
2000........................................................................... 717,000
2001........................................................................... 706,000
2002........................................................................... 771,000
Thereafter..................................................................... 3,250,000
-------------
$ 7,073,000
-------------
-------------

F-18

MANNATECH, INCORPORATED

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

11. COMMITMENTS AND CONTINGENCIES (CONTINUED)

In 1995 and 1996, the Company entered into various cancellable employment
agreements with some of its key employees which provide for minimum annual
salaries based on sales volume. However, in 1997 the Company terminated several
of these contracts. As a result of the terminations, the Company incurred
approximately $499,000 in severance of which $145,000 was accrued at December
31, 1997. In December 1997, the Company entered into a purchase commitment with
a supplier to purchase approximately $2.6 million worth of raw materials over
the next twelve months.

12. STOCK SPLIT

On May 14, 1997, the Board of Directors declared a 1,000-for-1 stock split
of the Company's common stock. The Board also approved a change in the stated
par value of common shares from $.01 per share to $.0001 per share, and
increased the number of authorized shares to 100,000,000. All share and per
share data have been retroactively adjusted for this split.

13. LITIGATION

In 1995, the Company entered into a settlement and mutual release agreement
related to the termination of a former employee. Under the terms of the
agreement, the Company agreed to pay the former employee $83,000 in cash and
issued a $97,600 promissory note (note 5). In 1996, the Company paid an
additional $59,000 to the former employee related to this lawsuit. The
settlement is recorded in other (income) expense, net in the accompanying
financial statements.

The Company has pending claims incurred in the normal course of business
which, in the opinion of management, can be settled without material effect on
the accompanying financial statements.

14. EARNINGS PER SHARE

The following data show the amounts used in computing earnings per share and
the effect on the weighted average number of shares of dilutive common stock.
The number of shares used in the calculations for 1995 and 1996 reflect the
1,000-for-1 stock split on April 15, 1997.

1995 1996 1997
-------------- -------------- --------------

Net income available to common
shareholders............................... $ 2,439,466 $ 7,323,809 $ 10,798,904
-------------- -------------- --------------
-------------- -------------- --------------
Weighted average number of shares in basic
EPS........................................ 20,626,971 20,626,971 21,448,551
Effect of dilutive securities:
Stock options.............................. - - 770,018
Stock warrants............................. - - 181,815
-------------- -------------- --------------
Weighted average number of common shares and
dilutive potential common shares used in
diluted EPS................................ 20,626,971 20,626,971 22,400,383
-------------- -------------- --------------
-------------- -------------- --------------

F-19

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER
TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE
HEREOF.

-------------------

TABLE OF CONTENTS

PAGE
----

Prospectus Summary........................................................ 3
Risk Factors.............................................................. 8
Use of Proceeds........................................................... 17
Dividend Policy........................................................... 17
Capitalization............................................................ 18
Dilution.................................................................. 19
Selected Financial Data................................................... 21
Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 23
Business.................................................................. 34
Management................................................................ 49
Certain Transactions...................................................... 56
Principal and Selling Shareholders........................................ 58
Description of Capital Stock.............................................. 60
Shares Eligible for Future Sale........................................... 64
Underwriting.............................................................. 66
Legal Matters............................................................. 67
Experts................................................................... 68
Additional Information.................................................... 68
Index to Financial Statements............................................. F-1

-------------------

UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK OFFERED HEREBY, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.

8,000,000 SHARES

[LOGO]

COMMON STOCK
--------------

PROSPECTUS

--------------

Adams, Harkness & Hill, Inc.

NationsBanc Montgomery
Securities LLC

Piper Jaffray Inc.

, 1998

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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The estimated expenses in connection with the issuance and distribution of
the securities being registered, other than underwriting discounts and
commissions are set forth in the following table. Each amount, except for the
SEC and NASD fees, is estimated.

SEC registration fees................ $ 32,568
NASD filing fees..................... 11,540
Nasdaq National Market application
and listing fees................... 40,500
Transfer agents' and registrar's fees
and expenses....................... 12,000
Printing and engraving expenses...... 200,000
Legal fees and expenses.............. 400,000
Accounting fees and expenses......... 300,000
Blue sky fees and expenses........... 11,800
Miscellaneous........................ 91,592
-----------
Total............................ $ 1,100,000
-----------
-----------

The Company intends to pay all expenses of registration, issuance and
distribution, excluding underwriters' discounts and commissions, with respect to
the shares being sold by the Selling Shareholders.

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

The Company, a Texas corporation, is empowered by Article 2.02-1 of the
Texas Business Corporation Act (the "TBCA"), subject to the procedures and
limitations stated therein, to indemnify certain persons, including any person
who was, is or is threatened to be made a named defendant or respondent in a
threatened, pending, or completed action, suit or proceeding because the person
is or was a director or officer, against judgments, penalties (including excise
and similar taxes), fines, settlements and reasonable expenses (including court
costs and attorneys' fees) actually incurred by the person in connection with
the threatened, pending, or completed action, suit or proceeding. The Company is
required by Article 2.02-1 to indemnify a director or officer against reasonable
expenses (including court costs and attorneys' fees) incurred by him in
connection with a threatened, pending, or completed action, suit or proceeding
in which he is a named defendant or respondent because he is or was a director
or officer if he has been wholly successful, on the merits or otherwise, in the
defense of the action, suit or proceeding. Article 2.02-1 provides that
indemnification pursuant to its provisions is not exclusive of other rights of
indemnification to which a person may be entitled under the corporation's
articles of incorporation or any bylaw, agreement, vote of shareholders or
disinterested directors, or otherwise. The Amended and Restated Bylaws of the
Company provide for indemnification by the Company of its directors and officers
to the fullest extent permitted by the TBCA. In addition, the Company has,
pursuant to Article 1302-7.06 of the Texas Miscellaneous Corporation Laws Act,
provided in its Articles that a director of the Company shall not be liable to
the Company or its shareholders for monetary damages for an act or omission in a
director's capacity as director of the Company.

Furthermore, the Company has entered into individual indemnification
agreements with each director of the Company that contractually obligate the
Company to provide to the directors indemnification for liabilities they may
incur in the performance of their duties and insurance or self-insurance in lieu

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thereof. The form of such indemnification agreements with a schedule of director
signatories is filed as Exhibit 10.11 hereto.

The Underwriting Agreement among the Company and the Underwriters provides
for the indemnification by the Underwriters of the Company, certain of its
officers and any controlling person against any liabilities and expenses
incurred by any of them in certain stated proceedings and under certain stated
conditions.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

The following sets forth information regarding all sales of unregistered
securities of the Company during the past three years. All such shares were
issued in reliance upon an exemption from registration under the Securities Act
by reason of Section 4(2) or 3(b) of the Securities Act and/or the rules and
regulations promulgated thereunder. In connection with each of these
transactions, the shares were sold to a very limited number of persons and such
persons were provided access either through employment or other relationships to
all relevant information regarding the Company and/or represented to the Company
that they were "sophisticated" investors. No underwriters were involved in the
sales of securities set forth below. Appropriate legends are affixed to the
certificates evidencing such shares and such persons represented to the Company
that the shares were purchased for investment purposes only and with no view
toward distribution. All of the securities described below are deemed restricted
securities for purposes of the Securities Act.

1. Issuance of an aggregate of 10,000,000 shares of Common Stock on June 1,
1997 in exchange for (i) all the outstanding common stock of each of Eight Point
Services, Inc., Triple Gold Business, Inc., Five Small Fry, Inc. and Beta
Nutrient Technology, Inc., held by the individuals listed below, and (ii) all of
the limited partnership interests in Dynamic Eight Partners, Ltd., Power Three
Partners, Ltd., Beta M. Partners, Ltd. and Eleven Point Partners, Ltd. held by
the individuals listed below.

NAME NUMBER OF SHARES
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Samuel L. Caster.......................................................... 3,094,946
William C. Fioretti....................................................... 3,094,946
Charles E. Fioretti....................................................... 2,867,284
Patrick D. Cobb........................................................... 235,706
Dick R. Hankins........................................................... 235,706
Don W. Herndon............................................................ 235,706
Gary L. Watson............................................................ 235,706

2. Issuance of an aggregate of 2,027,571 shares of Common Stock to the
individuals set forth below on June 1, 1997 in exchange for the cancellation of
certain incentive compensation agreements.

NAME NUMBER OF SHARES
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Ray Robbins............................................................... 607,333
H. Reginald McDaniel...................................................... 546,600
Bill H. McAnalley, Ph.D................................................... 303,667
Peter E. Hammer........................................................... 228,206
Charles E. Fioretti....................................................... 227,662
Kim Snyder................................................................ 114,103

3. Issuance of 74,167 shares of Common Stock on March 3, 1998 to Richard
Howard in exchange for the cancellation of his incentive compensation agreement.

4. The Company has granted a warrant to purchase 475,015 shares of Common
Stock at a price of $1.35 per share.

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5. The Company has granted options to purchase an aggregate of 1,700,000
shares of Common Stock at a weighted average exercise price of $1.48.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(A) EXHIBITS

EXHIBIT NO. EXHIBITS
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1.1 Form of Underwriting Agreement.*

3.1 Amended and Restated Articles of Incorporation of the Company.*

3.2 Amended and Restated Bylaws of the Company.+

3.3 Amendment to the Bylaws of the Company.*

4.1 Specimen Certificate.*

4.2 Warrant dated May 1, 1997 issued to Christopher A. Marlett.+

5 Opinion and Consent of Akin, Gump, Strauss, Hauer & Feld, L.L.P.*

10.1 1997 Stock Option Plan dated May 20, 1997.+

10.2 1998 Incentive Stock Option Plan dated April 8, 1998.+

10.3 Agreement and Plan of Merger dated as of June 1, 1997 among the Company and Eight Point Services, Inc.,
Triple Gold Business, Inc., Five Small Fry, Inc., and Beta Nutrient Technology, Inc.+

10.4 Exchange Agreement dated June 1, 1997 among the Company and the limited partners of Power Three Partners,
Ltd., Eleven Point Partners, Ltd. and Beta M. Partners, Ltd.+

10.5 Plan and Agreement of Reorganization dated June 1, 1997 by and among the Company, Dynamic Eight Partners,
Ltd., Power Three Partners, Ltd., Eleven Point Partners, Ltd. and Beta M. Partners, Ltd. and the
general and limited partners of the partnerships.+

10.6 Exchange Agreement by and among Gary Watson, Patrick Cobb, Samuel Caster, Charles Fioretti and William
Fioretti and the Company dated August 31, 1997.+

10.7 Option Agreement dated July 1, 1997 with Multi-Venture Partners, Ltd.*

10.8 Form of Indemnification Agreement with a schedule of director signatures.+

10.9 Secured Promissory Note dated December 31, 1997 in the amount of $162,051.90 made by Bill McAnalley.+

10.10 Secured Promissory Note dated December 31, 1997 in the amount of $121,782.14 made by Peter E. Hammer.+

10.11 Master Lease Agreement dated December 23, 1997 by and between Banc One Leasing Corporation and the
Company.+

10.12 Letter of Understanding Regarding Development of Proprietary Information for the Company effective as of
August 1, 1997, as amended, by and between Bill H. McAnalley, Ph.D. and the Company.+

10.13 Commercial Lease Agreement dated November 7, 1996 between MEPC Quorum Properties II Inc. and the Company,
as amended by the First Amendment thereto dated May 29, 1997 and the Second Amendment thereto dated
November 13, 1997.+

10.14 Commercial Lease Agreement dated May 29, 1997 between MEPC Quorum Properties II Inc. and the Company, as
amended by the First Amendment thereto dated November 6, 1997.+

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EXHIBIT NO. EXHIBITS
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10.15 Assignment of Patent Rights dated October 30, 1997 by and among Bill H. McAnalley, H. Reginald McDaniel,
D. Eric Moore, Eileen P. Vennum and William C. Fioretti and the Company.+

10.16 Supply Agreement effective as of March 31, 1995 by and between the Company and Caraloe, Inc.+

10.17 Supply Agreement effective as of August 14, 1997 by and between the Company and Caraloe, Inc.+

10.18 Trademark License Agreement effective as of March 31, 1995 by and between the Company and Caraloe, Inc.+

10.19 Trademark License Agreement effective as of August 14, 1997 by and between the Company and Caraloe, Inc.+

10.20 Letter of Agreement from the Company to Michael L. Finney of LAREX, Incorporated dated December 23,
1997.+

10.21 Product Development and Distribution Agreement effective as of September 15, 1997 between New Era
Nutrition Inc. and the Company.+

10.22 Severance and Consulting Agreement and Complete Release dated August 1, 1997 between Ronald E. Kozak and
the Company.+

10.23 Summary of Management Bonus Plan.+

10.24 Promissory Note dated August 31, 1997 in the amount of $45,907.40 made by Patrick D. Cobb.+

10.25 Promissory Note dated August 31, 1997 in the amount of $275,444.42 made by Samuel L. Caster.+

10.26 Promissory Note dated August 31, 1997 in the amount of $275,444.42 made by Charles E. Fioretti.+

10.27 Individual Guaranty of Samuel L. Caster dated January 5, 1998.+

10.28 Individual Guaranty of Charles E. Fioretti dated January 5, 1998.+

16 Letter of Belew Averitt LLP, former accountants to the Company.*

23.1 Consent of Price Waterhouse LLP.*

23.2 Consent of Belew Averitt LLP.*

23.3 Consent of Akin, Gump, Strauss, Hauer & Feld, L.L.P. (included in its opinion filed as Exhibit 5 to this
Registration Statement).

24 Power of Attorney (included on signature page of this Registration Statement).+

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* Filed herewith

** To be filed by amendment

+ Previously filed

(B) FINANCIAL STATEMENT SCHEDULES

None.

Schedules not listed above have been omitted because they are not required,
are not applicable, or the information is included in the Financial Statements
or Notes thereto.

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ITEM 17. UNDERTAKINGS

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers, and controlling persons of the
registrant pursuant to Item 14 herein, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.

The undersigned registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of the
registration statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.

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SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 1 to Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Dallas, State of Texas on May 20, 1998.

MANNATECH, INCORPORATED

By: /s/ SAMUEL L. CASTER
-----------------------------------------
Samuel L. Caster
PRESIDENT

Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 1 to Registration Statement has been signed below by the following
persons in the capacities and as of the dates indicated.

SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------

Chairman of the Board and
* Chief Executive Officer
- ------------------------------ (principal executive May 20, 1998
Charles E. Fioretti officer)

/s/ SAMUEL L. CASTER
- ------------------------------ President and Director May 20, 1998
Samuel L. Caster

Vice President, Chief
/s/ PATRICK D. COBB Financial Officer and
- ------------------------------ Director (principal May 20, 1998
Patrick D. Cobb accounting and financial
officer)

*
- ------------------------------ Director May 20, 1998
Chris T. Sullivan

*
- ------------------------------ Director May 20, 1998
Steven A. Barker

*By: /s/ SAMUEL L. CASTER
-------------------------
Samuel L. Caster
ATTORNEY-IN-FACT

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INDEX TO EXHIBITS