EMSquared Review: Mannatech charity opp spinoff?
The company name “EMSquared” is derived from the concept of “eradicating malnutrition”, using the “squared” efforts of a group. And with the name explained, you’re pretty much getting the thrust behind the EMSquared opportunity.
EMSquared are based out of the US state of Texas and headed up by Sam Castor (right), who is credited as CEO and Founder.
Castor founded Mannatech in 1993 and served as CEO until his resignation in 2007.
It should be noted at this point that Castor was credited as “Samuel L. Caster” (or just Sam Caster) during his time at Mannatech. Typo or not I can’t say, but he’s being credited as “Sam Castor” in all the EMSquared promotional material I’ve seen.
Castor resigned from Mannatech in 2007, amidst ongoing legal and regulatory controversy.
Mr. Caster suggested his own resignation so he could focus on company marketing, said (Mannatech board member) Mr. Larry A. Jobe. Mr. Jobe said the board wasn’t displeased with Mr. Caster, but that the lawsuits gave members ‘a lot of concern.'”
Paperwork filed with the SEC indicate disagreements between Caster and the board of directors were the reason for Caster’s resignation.
The lawsuits mentioned above include a class-action lawsuit filed in 2005 against Mannatech by stock holders. The lawsuit alleged that Mannatech had made
a series of material misrepresentations; specifically: failing to control its sales associates and allowing them to make false claims concerning the efficacy of Mannatech products.
Separately in July 2007, after an investigation that began in October of 2006, Mannatech and Sam Castor were charged by the Texas Attorney General for
operating an illegal marketing scheme in violation of state law.
Mannatech settled the civil complaint on February 26, 2009 by agreeing to pay $4 million in restitution to clients who purchased products and $2 million to the state to cover its costs in the case.
In addition, Sam Caster agreed to pay a $1 million civil penalty.
Castor was no stranger to regulatory action from the Texas AG, with his first two major business ventures having previously attracted their attention too:
Sam Caster’s first major business venture, Eagle Shield, was an insulation product that claimed to utilize new technology developed by NASA and could reduce heating and cooling costs by up to 40%.
The Attorney General of Texas concluded that the product’s technology long predated NASA and did not reduce consumers’ bills in the amounts advertised.
Caster’s second product, the “Electrocat,” was sold as a pest control device. The Electrocat reportedly emitted pulsed vibrations that repelled rats, crickets, snakes, ticks, spiders, mosquitoes, and scorpions.
However, in January 1991, the Attorney General of Texas investigated the product and found that the Electrocat emitted no vibrations whatsoever.
The Attorney General declared, “The device is a hoax, and stands on the same scientific footing as a perpetual motion machine.”
Following his resignation, Castor continued on as an “independent consultant” to Mannatech. In the years that followed, Mannatech went through multiple CEO resignations. Subsequently, net income and affiliate numbers also plummeted:
Publicity over the company’s lawsuits began to damage the balance sheets and stock performance.
After profits of $32 million in 2006 and $6.6 million in 2007, Mannatech reported a $12.6 million loss in 2008 and a $17.3 million loss in 2009. By mid-year 2010, one quarter of Mannatech’s sales were gone.
2010 losses were $10.6 million. As the company’s market capitalizations continued to fall, S&P Indices dropped it from the S&P 600 Index, stating “They are no longer representative of the small cap market space.”
Recruiting efforts continued dropping in 2011, widening company losses to 20.6 million.
Fast forward to 2013 and things seem to have turned around (net-income was $300,000), largely on the back of increased affiliate recruitment in Asia and Europe and net sales increases in Asia, the US and Europe.
Net sales for Asia/Pacific increased 16.4% to $20.6 million as compared to $17.7 million in the fourth quarter 2012 due to a 21.8% increase in the number of active associates and members in the region.
Net sales for North America increased 5.9% to $21.7 million as compared to $20.5 million in the fourth quarter of 2012. The increase in revenue was due to a 13.7% increase in the revenue generated per active associate and member.
Net sales for Europe, the Middle East and Africa increased 2.4% to $4.2 million as compared to $4.1 million in the fourth quarter of 2012. This increase was primarily due to a 13.9% increase in the number of active associates and members.
We reported net income for 2013 of $3.2 million, compared to net loss of $1.4 million in 2012.
In addition to his $1 million civil penalty, Castor
was barred by the attorney general of Texas from serving as a director, officer, or employee of Mannatech for five years—from February, 2009 until February, 2014. Caster was also barred from taking a role in any other multi-level marketing programs during that time.
In March 2014, a month after his MLM ban lapsed, Castor began appearing in Mannatech promotional videos as Mannatech’s “founder and visionary.”
A few months later again, and now Castor looks set to return to the MLM industry with EMSquared.
Read on for a full review of the EMSquared MLM business opportunity.
The EMSquared Product Line
Mannatech have been marketing glyconutrients products since their inception, with the company claiming to have spent $50 million in research and development.
EMSquared follows a similar nutrition-based product orientation, marketing what they call the “Hope Bar”.
The Hope Bar is “THE” Standardized whole food bar. That means we use nothing but whole food ingredients enriched with nothing but food-sourced vitamins, minerals, proteins and fats.
Hope bars are one of the most nutritionally dense whole food products on the planet. And every time you choose to nourish yourself, our company will donate a Hope bar to a malnourished child.
As above, the Hope Bar is specifically targeted at “malnourished children”, with the intent being that this will factor into how the product is marketed (see above image).
Purportedly, one Hope Bar provides satisfactorily daily nourishment for one child (up to 10 years of age).
No retail pricing for Hope Bars is provided on the EMSquared website, however I have seen affiliates marketing the bars as costing $2.50, equating one box of Hope Bars to $75 (30 bars a box).
For each box of Hope Bars purchased, EMSquared match it and donate the box for distribution through MannaRelief. MannaRelief is a separate company, launched by Sam Castor in 1999:
In 1999, Sam Caster and his wife Linda founded MannaRelief Ministries, a non-profit organization that provides nutraceuticals to orphanages.
For whatever reason, the above is not disclosed on the EMSquared website, despite the emphasis of “100% transparency” on the company website page MannaRelief is mentioned:
The EMSquared Compensation Plan
Foreword: The EMSquared compensation plan in its current format is quite confusing, with the company going out of their way to replace typical MLM terminology with charity jargon.
I’ve done my best to make sense of it below and explain it in a relatively straight-forward matter below, but it may need to be revised at a later date. /end foreword
The EMSquared compensation plan revolves around affiliate acquiring hearts, the acquisition of which is tracked through a unilevel style compensation structure.
A unilevel style compensation structure places an affiliate at the top of a unilevel team (level 1). If any of these level 1 affiliates go on to recruit new affiliates, they are placed on level 2 of the original affiliates unilevel team:
If any level 2 affiliates recruit new affiliates, they are placed on level 3 and so on and so forth. There is no limit to the width or depth of a unilevel team, with level 1 expanding out as wide as the number of affiliates are personally recruited. The depth of the unilevel team expands down however many generations of recruitment take place.
Note that each level 1 recruited affiliate leg is independent of the others.
In EMSquared, the company makes the following definitions for the following level 1 recruitment legs:
- the level 1 unilevel leg with the highest production of Hope Bar box purchases is referred to as the “Giving Team”
- all other unilevel legs are referred to as “Reward Teams”
Heart Points Acquisition
Keeping in mind that one heart point in the EMSquared compensation plan equates to $1, affiliates are paid based on their personally acquisition of heart points and that of their recruited downlines.
The best way to explain the acquisition of hearts I feel is via an equation. Here are the components of the Heart Points acquisition equation:
- Personal Heart Points are obtained at a rate of 3 hearts after an initial four boxes of Hope Bar box sales are generated by an affiliate (including personally acquired donor and supporter purchases)
- Reward Team Heart Points are the collectively accumulated Heart Points generated by an affiliate’s Reward Teams
- Giving Team Bonus Points is matching point bonus that generates the point value generated via Reward Team Heart Points against the total points generated by an affiliate’s Giving Team (note that if the Giving Team’s total point generation is less than the Reward Team Heart Points, the amount of points generated in Giving Team Bonus Points will not exceed 100% of the points generated by the Giving Team)
- Per Child Points are derived from the total number of boxes (children fed) purchased or sold by an affiliate’s Reward Teams
Thus the equation for an affiliate’s monthly heart points is as follows:
Personal Heart Points + Reward Team Heart Points + Giving Team Bonus Points + Per Child Points = an EMSquared affiliate’s monthly heart points.
To further illustrate heart point generation, I’ve include the following diagram below from the EMSquared compensation plan:
As you can see, the total using the above equation is 1118 points for this particular month (dark blue circle). This is confirmed with the point value given in the non-cropped compensation plan slide (blue circle):
A note on the achievement level in the above example (which is 3, in the green circle). In the EmSquared compensation plan material, 9 affiliate levels are provided with corresponding payouts (ignore the “Hero” payouts for now, we’ll discuss those later):
I initially thought that these might restrict affiliate payments, however that does not seem to be the case. In the level 3 example above, the 1119 heart points figure clearly exceeds the 400 total hearts figure cited. Ditto on the payment.
I then thought perhaps they were used to limit the counted heart points from any given Rewards Team, however in the level 3 example above, the bottom right Rewards Team is generated 70 heart points over a cited 50 boxes of Hope Bars.
In the level chart above, 30 boxes puts that Rewards Team at level 3. Try as I might, I couldn’t get 80, 80 and 50 to equal 70 in any combination. My conclusion is that the 70 figure is a result of that Rewards Team being between levels 3 and 4, with only the level 3 Hope Bar requirement being shown in the example, and not the actual number of boxes being shown.
EMSquared mention that an affiliate’s own rank is determined by the rank of their highest ranked Rewards Team, so there’s likely to be some significance, even if the company isn’t explaining what that is at this point in time.
If anyone has any other ideas, feel free to leave a comment because at this point I’m a bit stumped. Other than bragging rights, I’m currently unclear on how the EMSquared levels fit into the compensation plan.
Hero status within EMSquared increases the Heart Point value from $1 to $1.50 per point.
An affiliate can acquire EMSquared status by spending $499 on a “Hero Pack” when they join EMSquared, or by purchasing or personally generating the sale of 30 boxes of Hope Bars within a rolling thirty-day period.
In the above level 3 example, a regular EMSquared affiliate would earn $1119 for the month. If that affiliate had Hero status, they’d earn $1678.50.
Note that affiliate presentations cite the cost of a Hero Pack at $499, however the EMSquared compensation plan material states it’s $375. Given the affiliate advertising appears to be more recent, I’m inclined to go with that figure for this review.
Hero Pack Recruitment Incentives
There are two primary Heart Point incentives to promote the recruitment of EMSquared affiliates who purchase a Hero Pack when they sign up:
- 25 Heart Points are paid out to the recruiting affiliate everytime a newly recruited affiliate purchases a Hero Pack
- a further 175 Heart Points are paid out for every three newly recruited Hero Pack purchasing affiliates, counted within any given 90 day rolling period
Note that in order to qualify for the above incentives, an EMSquared affiliate must themselves be Hero Status qualified.
Basic affiliate membership to EMSquared is $49 annually.
Hero Status affiliate is $499 (possibly $375 according to the EMSquared compensation plan).
All EMSquared affiliates are required to spend at least $75 on Hope Bars a month for commission qualification.
In order to fend off the expected “what about the children?” charity excuses, I’ll preface by stating there’s absolutely nothing wrong with donating boxes of nutrition bars to impoverished children.
That part of EMSquared is perfectly fine.
The red flags arise, as they typically do with any charity MLM, when you go over the business opportunity side of the business.
In MLM you need to have retail sales and to that end EMSquared have donor and supporter customer classes. Both have nothing to do with the compensation plan and both count as retail.
Yes the products purchased can be given away but money wise revenue is being generated from non-participants and a product is being bought (regardless of whether it’s ultimately donated to charity or not).
The legitimacy of EMSquared as an MLM business opportunity primarily hinges on the success of the company in attracting a large number of supporter and donor customers/donators (whatever you want to call them). The revenue these two classes generate for the company has to be larger than the affiliate base, or we run into problems.
If we separate the charity-side of the business, failure to attract a significant number of supporter and donor customer classes results in the majority of revenue paid out in commissions being sourced from affiliates and paid out to those who recruit the most.
Short of the charity smoke and mirrors, that would leave absolutely no difference between EMSquared and your run of the mill recruitment-driven pyramid scheme.
The key question then becomes how viable is it to expect people to pay $75 a month or more to donate without the attached business opportunity?
With all purchases being commissionable, and adding to that company expenses, naturally EMSquared are going to run at a higher overhead than a dedicated charity. Are non-affiliates going to be prepared to bear the brunt of those additional costs?
Surely a competing charity without the MLM overhead would be able to provide nutrition to more kids dollar for dollar?
And that brings us to one of the core issues with combining charity and MLM. Does the charitable component of the business opportunity exist on its merit alone, or is it simply there in an attempt to justify what is otherwise a recruitment numbers game?
Again, the existence of a large number of donors and supporters would confirm perceived value in the charitable aspect of the business. That unfortunately cannot yet bet judged until at least a few months in (EMSquared has only just prelaunched).
On the affiliate side of things, the motive behind the monthly commitment is a core issue the same as with any other MLM business opportunity.
Psuedo-compliance wise, the scripted answer to the question is “I buy umpteen boxes of Hope Bars and have recruited others because I care about the children”. Be that as it may, let’s take a look at things from a regulatory standpoint.
To their credit, EMSquared permit an affiliate to donate their Heart Point commissions to one of their approved charities. As such, this becomes the defacto measuring stick for any affiliate who claims to be in the business opportunity “for the kids”.
If they’re donating their commissions, then and only then can they be believed. Otherwise the motive behind their participation becomes decidedly murky.
From a regulatory standpoint though, things are a simple. Affiliates join EMSquared, recruited a bunch of people and, as long as everyone keeps up their monthly minimum payments, make commissions.
Whatever the claimed reason for participation and purchase of Hope Bars, unless commissions are being donated to charity, one cannot discount the possibility of an affiliate being in it for the money.
Why is that problematic?
We then enter the scenario of a recruitment-driven scheme (defacto or otherwise), being marketed on the merits of charity.
Here are two real-world examples illustrating this exact point. The first is from EMSquared themselves, by way of a corporate marketing video:
Imagine for a second there are kids around the world that are eating meals that have absolutely no nutrition, some of them sick and even dying, you can now make an impact and be their hero by simply enjoying the bar yourself.
Now imagine those same kids playing, having fun and being happy (Ozedit: and not dying…).
And here’s an EMSquared affiliate, instructing potential recruits on what to say when they market the business over the phone:
I’ve just committed to a social giving cause called the EMSquared project. I’m super excited about it, it really stands for eradicating malnutrition in children around the world by squaring the efforts of others.
I’ve personally committed to feeding twenty children each month. I’m gunna send you a short video, I think it’ll tug at your heart-strings the way it did mine. And then I just wanna see if you’d be willing to help support me in feeding these twenty children.
In both cases, we’re looking at extremely manipulative marketing being used to market an MLM opportunity. What do you think most people are going to say when an EMSquared affiliate places the responsibility of dying kids at their feet, or makes them watch emotionally manipulative videos and then tells them 20 kids will starve if they don’t hand over cash?
EMSquared haven’t even launched yet and yet the tone for advertising the business opportunity has already been set:
“What? You don’t want to join?! Why do you hate starving kids? Have fun sleeping at night knowing that kids are dying because of your decision.”
To be fair, it’s not just EMSquared who suffer from this. Pretty much any MLM charity exhibits the same problem in their affiliate marketing – and this is precisely why the marriage of charity and MLM is generally not a good idea.
Similar arguments and flawed reasoning will naturally be brought up against anyone who voices even the slightest concern or criticism of the business model. Ultimately though, whatever charitable causes an MLM company attaches itself to, they are still bound to the same rules and regulations as any other company.
Action A (charity) does not excuse of nullify what goes on in Action B (the MLM business).
As for the whole Hero Status thing, there’s definitely some pay to play issues there (paying more when signing up directly influences Heart Point dollar values).
A EMSquared affiliate can of course hit Hero Status by generating the sale of or purchasing thirty boxes of Hope Bars in 30 days, however it’s far more likely they’ll just pay $500/$375 when joining.
It’s obviously likely that the prospect of trying to make back the initial cost via the recruitment of other Hero Pack purchasing affiliates will outweigh the incentive to generate 30 Hope Bar box sales in 30 days.
If you want to help malnourished children, by all means sign up to EMSquared as a supporter or donor but be aware of dollar for dollar where your money is going. I’ve personally yet to see a breakdown of the cost of two boxes of Hope Bars and how much of the $75 is paid out in MLM commissions.
Regardless, I find it hard to believe they can compete with a charity that does not have these liabilities… and that leaves with the MLM business opportunity in which affiliates are trying to sign up new affiliates and ignoring the other two customer classes.
One final note, I’ve seen Michael Rutherford’s name attached to EMSquared as an affiliate:
Rutherford and a few other presumably master distributors in EMSquared went down to Mexico a few weeks back to hand out some Hope Bars at orphanages. Rutherford’s involvement in EMSquared isn’t a red flag in and of itself, but it should be noted he was the master distributor for the failed MLM venture Rippln.
Grace has a history of representing ventures Terry LaCore is involved in (she’s also general counsel of bHip Global). During her time as Rippln’s general counsel, she issued at least one statement as a spokesperson for the company.
Whether any of the Rippln crew beyond Rutherford and Grace are involved in EMSquared is currently unclear. Sam Castor/Caster appear to be independent of Rippln so Grace and Rutherford’s involvement could just be co-incidental.
I did observe the word “gamifcation” being thrown around in EMSquared marketing presentations though, which is a word anyone even vaguely aware of Rippln should be familiar with.
Beats me how you turn the supply of nutrition to malnourished kids in Mexico into a game though… anyone?