Thursday, July 30, 2015

USANA Spends Less Than 1% of Net Sales on Research and Development While Claiming They Develop Science-Based Products That Reduce The Risk of Chronic Degenerative Disease.

USANA prides itself on science and research. However, that is one of USANA's most erroneous claims.
THE SCIENCE BEHIND USANA
"At USANA, scientific research is at the heart of every product we offer. Whether in studies conducted by top scientists in our on-site laboratories, or findings from the many research partnerships we have across the globe, USANA is fully committed to the research and development of cutting-edge nutritional technology.


And, of course, our state-of-the-art manufacturing facilities ensure that each product we create is made with the same high quality that set us apart from others in the past and will allow us to lead the field in the future."

 - Dr. Myron Wentz
, Founder and Chairman, USANA Health Sciences

Since 1996, USANA has sold $6.5 billion in product. From that money, USANA has spent $50.3 million in research and development, which represents only 0.8% of net sales. This is not representative of a company that is committed to research and development. In contrast, drug manufacturer Merck in 2014 alone spent $7.1 billion on
research and development, which represents 17% of their net sales. In 2014, Pfizer spent $8.4 billion on research and development, which represents 16.9% of their net sales.

USANA 2014 10-K SEC Filing 
"Our research and development efforts are focused on developing and providing high-quality, science-based products that promote long-term health and reduce the risk of chronic degenerative disease."

USANA claims their products can reduce the risk of chronic degenerative disease? I thought dietary supplement manufacturers were not allowed to make such claims unless they can back it up with substantial evidence.

Tuesday, May 12, 2015

USANA Misled Shareholders By Cherry Picking Their Results For Their First Quarter Earnings and 8-K SEC Filing and Neglected To Report Hong Kong's Major Decline

USANA Health Sciences (USNA) misled shareholders in their first quarter earnings on May 5, 2015 by cherry picking those markets with an increase in sales while neglecting to report any information on markets that decreased such as Hong Kong. For example, USANA stated “Net sales in Greater China increased 43.0% year-over-year due to growth in Mainland China. Specifically, local currency sales in Mainland China increased 121% year-over year” What USANA didn't tell you in their earnings release was the fact that Hong Kong sales declined by about $15 million or 63%!

USANA only compared year-over-year results. However, USANA is NOT a seasonal stock. If we look at the earnings result quarter-over-quarter, here is what it would look like: Net Sales in Greater China decreased 2.6% quarter-over-quarter due to a declining market in Hong Kong. Specifically, sales in Hong Kong declined $10.2 million or 54.5% quarter-over-quarter. This was slightly offset by growth in mainland China where sales increased by $7.5 million or 9.8% quarter-over-quarter.

In case you missed it - Hong Kong's decrease outweighs mainland China's increase quarter-over-quarter.

Putting this into perspective and why Hong Kong's numbers are significant:
Q1 2015 Hong Kong sales estimated around $8,529,000
Q1 2013 Hong Kong sales were $41,597,000

Tuesday, May 5, 2015

USANA Will Release Their First Quarter Earnings Report For 2015 and Reveal How Effective The Doctor Oz Show Was For Them.

Today's Q1 2015 earnings release after the markets close will reveal how successful USANA's strategy was to promote their products through the Doctor Oz Show. If there are a couple million viewers watching the show each day and just 1% of them become Preferred Customers, we should see a substantial increase in the number of preferred customers in the United States and in Canada. 20K? 40K? 100K? I don't know. They promote a USANA product every month since January and the earnings report covers three months. If the number of additional preferred customers in the United States quarter over quarter is under 20K, then I would consider the effectiveness of the Dr. Oz Show to be a bust.


*** EARNINGS RELEASE UPDATE ***
Regarding the "Americas and Europe" market, which is where the Doctor Oz Show viewers are allowed to register as preferred customers:

USANA gained only 3000 additional preferred customers quarter over quarter from 60,000 to 63000.
USANA gained only 1000 additional Associates quarter over quarter from 85,000 to 86,000.

This should not go unnoticed by stock analysts and should question USANA during the earnings conference call tomorrow why there was no impact from the popular Doctor Oz Show after showcasing 3 USANA products over the course of 3 months to several million viewers. I believe this revelation is evidence of a product with no demand in the free market at its current selling price, which is the price the associates and preferred customers pay. In other words, if you put USANA products on store shelves nobody would buy it!

Tuesday, April 21, 2015

Ten Doctors Ask Columbia University To Drop Dr. Mehmet Oz From Their Faculty For Promoting Quack Treatments.

Dr. Mehmet Oz partnered up with USANA a while back and has now recently promoted USANA's products on his Doctor Oz Show. According to USANA's president Kevin Guest, USANA pays Dr. Oz an annual fee to advertise USANA products on the show. I believe this is akin to Oz being a paid spokesman for USANA. Dr. Oz uses his stature in the medical industry as a means to get his audience to trust him and the products advertised on his program, whether the products are effective or not. Since he's paid by the manufacturers of product he promotes on his show, it might as well be considered peddling.

USANA is required to put on the label of their supplements "This product is not intended to diagnose, treat, cure, or prevent any disease", so it makes it against the law for USANA (or its distributors) to advertise as such. The way around this is to have someone other than USANA or its distributors make all the health claims. That is where Dr. Oz fits in (as well as The Comparitive Guide To Nutritional Supplements).

Interestingly enough, I am not the only one who thinks Dr. Oz is a quack. On April 15, 2015, ten doctors from around the country have signed a letter to Columbia University demanding Oz be removed from their faculty. The letter reads as follows:

Lee Goldman, M.D.
Dean of the Faculties of Health Sciences and Medicine
Columbia University


Dear Dr. Goldman:

I am writing to you on behalf of myself and the undersigned colleagues below, all of whom are distinguished physicians.

We are surprised and dismayed that Columbia University's College of Physicians and Surgeons would permit Dr. Mehmet Oz to occupy a faculty appointment, let alone a senior administrative position in the Department of Surgery.

As described here and here, as well as in other publications, Dr. Oz has repeatedly shown disdain for science and for evidence-based medicine, as well as baseless and relentless opposition to the genetic engineering of food crops.  Worst of all, he has manifested an egregious lack of integrity by promoting quack treatments and cures in the interest of personal financial gain.

Thus, Dr. Oz is guilty of either outrageous conflicts of interest or flawed judgements about what constitutes appropriate medical treatments, or both.  Whatever the nature of his pathology, members of the public are being misled and endangered, which makes Dr. Oz's presence on the faculty of a prestigious medical institution unacceptable.

Sincerely yours,
Henry I. Miller, M.D.
Robert Wesson Fellow in Scientific Philosophy
& Public Policy
Hoover Institution
Stanford University
Stanford, CA

Scott W. Atlas, M.D.
David and Joan Traitel Senior Fellow
Hoover Institution
Stanford University
Stanford, CA

Jack Fisher, M.D.
Professor of Surgery (emeritus)
University of California, San Diego
La Jolla, CA

Shelley Fleet, M.D.
Anesthesiologist
Longwood, FL

Gordon N. Gill, M.D.
Dean (emeritus) of Translational Medicine
University of California, San Diego
La Jolla, CA

Michael H. Mellon, M.D.
Pediatric Allergist
San Diego, CA

GIlbert Ross, M.D.
President (Acting) and Executive Director
American Council on Science and Health
New York, NY

Samuel Schneider, M.D.
Psychiatrist
Princeton, NJ

Glenn Swogger Jr. M.D.
Director of the Will Menninger Center for Applied Behavioral Sciences (retired)The Menninger Foundation
Topeka, KS

Joel E. Tepper, M.D.
Hector MacLean Distinguished Professor of Cancer Research
Dept of Radiation Oncology
University of North Carolina School of Medicine
Chapel Hill, NC

Dr. Oz plans to rebuttal this claim about being a quack on one of his upcoming shows, likely this Thursday April 23. Once the show airs, I'll update this posting with his official response.

Here is Dr. Oz's response given on a news program:

Tuesday, January 27, 2015

USANA Becomes Trusted Partner and Sponsor of the Dr. Oz Show - Gives Preferential Treatment To Gold Directors and Above

USANA's latest marketing campaign designed to get USANA products in the eyes of Dr. Mehmet Oz viewers may only benefit the top 1% of USANA associates Gold Directors and above as well as provide means to falsely satisfy associate's 5 customer rule and fool federal regulators.

According to USANA document Trusted Partner and Sponsor of The Dr. Oz Show - Partnership Guidelines

Allocation of Preferred Customers and Sales Volume
Preferred Customers, Sales Volume Points (SVP), and other leads that come in through www.USANAhealth.net - a shopping experience for viewers of The Dr. Oz Show - will be provided to recognition-eligible Gold Directors or above who reside in the United States and Canada.

We will allocate leads to each Associate meeting the above criteria, filtering first by pin level and then by application date. That means we will move down the tree of Associates residing in the United States or Canada, going from the longest tenured Star Diamonds to our new Golds. The process will restart each time every eligible Associate has been allocated a new lead.

This only applies for www.USANAhealth.net. We will follow existing protocol for anything that comes in through www.USANA.com.

So when someone watches the Dr. Oz show that features a USANA product and goes to USANAHealth.net to order the product or become a preferred customer, USANA gives the commission points and preferred customer to a preferential class of USANA distributors who are Gold Directors and above, which represents less than 1% of USANA associates!

This is a very clever trick by USANA that could be used to fool federal regulators such as the FTC by giving the top 1% of associates (who also happen to account for the majority of commissions paid out) customers as a way to automatically satisfy one of the Amway safeguards - USANA's Five Customer Rule, which was designed to protect associates from falling victim to a pyramid scheme. There are not enough preferred customers according to USANA's SEC filings to satisfy the 5 customer rule for most who received a commission check and I believe there are even fewer retail customers. I believe if the FTC were to investigate USANA, USANA would be unable to produce any proof that the majority of commissions paid out were legitimately paid to individuals satisfying the 5 customer rule.

It may also be against the law for USANA to assign customers generated from the Dr. Oz show exclusively to preferential group of distributors as well as paying them commissions for sales those distributors had nothing to do with.


UPDATE - FEBRUARY 11, 2015:
After the 4th quarter earnings statement was released, president Kevin Guest made the following statement regarding the allocation of customers who purchase from the Dr. Oz show after asked about it from a stock analyst during a conference call:

So we’ve a referral system in place. usana.com has millions of people visit it on a yearly basis. So we do receive referrals that are unsolicited directly from someone. And so we’ve a referral system in place and it's basically the same system that they fall into from a referral system. And it’s computer functioning, it’s non-biased and we distribute those leads just as we would distribute anyone visiting usana.com- Kevin Guest - President
 Reference for this quote can be found on the Seeking Alpha transcript of the conference call.

That statement by the USANA president was very misleading when he claimed it was "non-biased". In fact, it couldn't be any more bias. Only Gold Directors and above will benefit, which accounts for less than 1% of USANA's associates.

Thursday, January 15, 2015

USANA Associate Trying To Sign You Up As A Distributor? Then You Need To Know What a Pyramid Scheme Is!

Anyone who has been approached by a USANA distributor trying to sign you up in a business opportunity needs to understand what they're about to get themselves into. The following video is probably the best video explaining what a pyramid scheme is. I believe USANA is a pyramid scheme where 99% of distributors lose money while funding the pyramid scheme that enriches less than 1% of distributors.



If you are a family member, friend, co-worker, or neighbor of someone you know who has been conned into one of these scams, I recommend sending them this video.

Monday, October 20, 2014

USANA May Have Made Half a Billion Dollars In Sales From Conducting Illegal Multi-Level Marketing In Mainland China

USANA May Have Received at Least $440 million From Illegal Sales in Mainland China Since 2007

It may be that by secretly recruiting hundreds of thousands of Chinese Nationals as USANA distributors, which violates China's direct selling laws and possibly the Foreign Corrupt Practices Act (FCPA), USANA may have received $440 million from illegal sales in mainland China since 2007. USANA is a Multi-Level Marketing (MLM) company that makes most of its revenue from the product purchased by their sales reps also known as distributors. Mainland China has banned MLM, but that has not stopped USANA from recruiting China's citizens. USANA has hidden this information from investors, auditors, and regulators.

USANA is allowed to conduct MLM business in Hong Kong, which has a population of about 7 million. USANA has also purchased a company called Babycare, which has a direct selling license in mainland China through Single-Level Marketing, which means there are no downlines or commissions paid to any upline members. Since 2009 USANA's revenue for Hong Kong began increasing at a very rapid pace, which outpaced any of their other markets. The number of distributors they reported each quarter was such that 1 in every 100 Hong Kong citizens would have to be a USANA distributor, which was absurd since the ratio of USANA distributors in the United States is about 1 in every 3600 people. USANA's sales in Hong Kong peeked to $48.5 million in the fourth quarter of 2012. Since then, there has been a sharp decline in Hong Kong Sales at the same time a sharp increase in Babycare sales. As of last quarter (Q2-2012) USANA made only $15.4 million from Hong Kong. This is a substantial decline in sales, yet USANA has simply brushed it off as an expected decline as members join Babycare in mainland China rather than USANA in Hong Kong.

What's the big secret you may ask? In order to circumvent foreign laws, USANA recruited Chinese Nationals into USANA and had them register using a fake address in Hong Kong ("Room 1906 Kwong Yat House" for example). This way all of the Chinese citizens appear to be residing in Hong Kong when in fact they lived in areas such as Beijing. They did not join to spend $1000 USD (¥ 6100 CNY) on vitamins because they simply wanted the product (otherwise they would have been Preferred Customers), but joined as distributors so they can participate in MLM, which China considers is a pyramid scheme. Many if not most of them joined with a "3-business center" plan, which means they were sold the idea that they can maximize their profits if they start with the ability to create a bigger downline. Again, all of this is outlawed in mainland China, but that didn't stop USANA from swindling about $440 million from China. But remember, according to USANA these Chinese distributors reside in Hong Kong using the same phoney address!

The evidence that Chinese Nationals signed up as USANA distributors in Hong Kong can be found within the genealogy reports from those distributors who are their upline. The following link was a genealogy report from an upper level USANA distributor who had thousands of Chinese Nationals in their downline. USANA has since blocked the link, but here it is for historical record.
http://www.usana.com/DlmXlsServlet.xls?savedReportId=32397555
I have retained a copy of this document however:  www.mlmpyramid.com/USANA_32397555.xls


The Appearance That Babycare Has Been Growing at a Rapid Rate During The Last Several Quarters May Be Nothing More Than The Manipulation of Number.


USANA has claimed Babycare is growing in mainland China. However, it may be nothing more than the transfer of sales from Hong Kong to Mainland China. Sales that were once attributed to USANA's Hong Kong market is now simply being reported in Babycare. USANA's auditor KPMG LLP should investigate the sales that were once reported as Hong Kong and now seem to be reported as Babycare. So the whole notion that USANA is “growing” its Babycare subsidiary may not be true.

On USANA's last quarter's conference call, Dave Wentz was asked where he projects Hong Kong's sales should stabilize (in light of the rapid decline in sales). Dave Wentz responded with the following (my emphasis in bold highlight):
"Well, Hong Kong's a fairly small market, population wise. And so we believe it will be -- I mean, if you were to compare it to other markets at the same population size, we expect it to be more successful than a number of them. But there will be a level that hits it right, that matches the market size and the number of leaders that we have there. But a lot of focus has moved from Hong Kong to China, as we all know, and that's where a much bigger opportunity is." - Seeking Alpha Transcript
It would seem to me that Dave is trying to justify Hong Kong's declining sales and distributor numbers. He should have simply told investors the truth that Hong Kong's numbers have been grossly overstated for the last several years because the sales were actually from mainland China instead of Hong Kong. Now what if we interpolate the sales from 2007 to the last quarter and consider anything above that line to be from mainland China? I choose 2007 because of evidence that shows Chinese Nationals being recruited into USANA since 2007 using a phoney address as seen in the genealogy report I referenced above.

USANA has been telling investors and stock analysts that Babycare has picked up business in China. However, this might not actually be true. I believe USANA is simply transferring the reported sales from one territory to another to make it appear as if business is growing in China. As you can see, Q1-2013 is the start at which Babycare sales started to sky rocket. This may actually simply be the transfer of reported sales from one market to another. Notice that Hong Kong decreases by almost the same amount Babycare China increases.
Many years ago USANA began recruiting Chinese Nationals from mainland China into their multilevel marketing compensation plan in Hong Kong. China's direct selling law forbids multilevel marketing from being conducted. So what USANA did is have those from China's mainland sign up using a phoney residential address in Hong Kong.

It's one thing if a few rogue USANA associates were breaking the law by signing up people from mainland China. It's another thing for USANA to knowingly circumvent China's laws and have them all share the same phoney address in Hong Kong when they sign up. This may be a violation of the Foreign Corrupt Practices Act. The extent of this violation isn't about a couple dollars from a few bad associates. In fact, it may be closer to $440 Million over the last 6 years that actually is the direct result of Chinese Nationals in mainland China who were illegally participating and conducting a multilevel marketing scheme within their country.

USANA has in the past stated that an undisclosed amount of people from mainland China are purchasing product from Hong Kong for their own personal use and not building a USANA business. Then over the last year, USANA has stated that they have a new policy that restricts people from purchasing USANA product from outside their own market. So those from mainland China are not suppose to purchase USANA product from Hong Kong anymore. USANA has also stated that they are shifting their focus from Hong Kong to Babycare in China. They also admitted that some of those who were signed up in Hong Kong will now be signed up in Babycare in China.


Why Did So Many of USANA's Hong Kong Full-Time Leaders Vanish?

USANA distributors who are able to obtain at least 10,000 sales volume FROM their downline (5000 points on their left leg and 5000 on their right leg) each week for 4 consecutive weeks are given titles such as Gold Director, Ruby Director, Emerald Director, Diamond Director, and Star-Diamond Director. USANA labels this class of distributors as “FULL-TIME DISTRIBUTORS”. Anyone beneath this ranking USANA classifies as only “PART-TIME DISTRIBUTORS”.

Reading USANA's recruiting material one may believe there are a lot of distributors with these high rankings. Those that reach this level can be making $50,000 in commission to over $1 million in commission per year. USANA has had over 2,000,000 distributors since they began in 1992. Over the last several years I have collected data of USANA distributor leadership rankings. As of June 2014 there are only about 3141 USANA distributors in the world that are a rank of Gold Director or higher (full-time), which is an unknown fact that is not disclosed to investors or even new distributors before or after they sign up. Interestingly, over the last two year 531 FULL-TIME USANA distributors have dropped out or have been terminated. Remember, these are distributors who are highly ranked, collecting thousands if not millions in commissions from USANA (approximately $38 million each year according to 2006 US Associate Earnings Documents).
The bigger eye opener is that out of the 531 Full-Time distributors that have left, 378 of them are from Hong Kong alone! 12 Diamond, 7 Emerald, 59 Ruby, and 300 Gold Directors have been removed from Hong Kong and possibly transferred to Babycare. If these members were making the kind of commissions their USANA rank suggests, and they were kicked out of USANA and turned into Babycare Distributors, what incentive would keep them as Babycare distributors if they are all of the sudden going to be collecting no commission at all? Remember, Babycare distributors cannot make a commission from other participants purchases because they cannot have a downline. Yet, Babycare sales and associates have been skyrocketing along with the fact the percent of distributor incentives to net sales did not dramatically change from the loss of all these high ranking USANA distributors that USANA would no longer supposedly be paying commissions to.


Where Are The Regulators?
So what's going on here? I believe USANA auditors need to investigate this issue and get to the bottom of it. I believe the Federal Trade Commission (FTC) needs to also open an investigation into the “PAYMENT FOR REFERRAL” plan USANA has implemented world wide which pays a referral commission to anyone who recruits Chinese Nationals into Babycare and receives commissions from their purchases, even though Babycare distributors are forbidden to participate in MLM. I also believe the SEC needs to open an investigation into USANA's possible violation of the Foreign Corrupt Practices Act by circumventing China's laws by having thousands their citizens sign up using a phoney address to participate in USANA's Multilevel Marketing scheme which may be responsible for over $440 million dollars in funds from the citizens in mainland China.

Wednesday, October 1, 2014

A Lawsuit Filed in July by USANA Claims Sales Were Dramatically and Negatively Impacted - USANA Versus Belynda Lee


In a lawsuit filed on July 25, 2014 USANA seeks at least $3 million in damages from a former employee that USANA believes "has dramatically and negatively impacted USANA’s sales". Because of the amount and the significance of the quoted statement I believe USANA had an obligation to disclose the court case and negative sales impact to their shareholders. I cannot find any public mention of this issue by USANA to its shareholders.  

USANA Health Sciences V. Lee was filed in the Utah District Court. I will briefly discuss the court issue and pull quotes from the court document with my emphasis added in bold as well as the occasional link on certain key words.

Belynda Lee was hired by USANA in 2005 as Asian Market Development Manager. In March 2011 she was promoted to Vice President over its Canadian and North American Asian Market. On January 23, 2014 she submitted a letter of resignation to USANA, which ended on February 6, 2014. USANA and Belynda agreed to a separation agreement. This agreement consisted of a non-solicitation agreement as well as a non-compete agreement.

20. In exchange for Ms. Lee's non-solicitation, non-competition, and other promises, USANA agreed to pay Ms. Lee $53,045.01 within seven days of her resignation date.


USANA also extended the life of her Stock-Settled Stock Appreciation Rights.

21. In addition, USANA agreed to extend the life of 5000 of Ms. Lee’s Stock-Settled Stock Appreciation Rights (“SSAR’s”), awarded on July 21, 2008, until October 21, 2014. On February 6, 2014, Ms. Lee exercised these rights, sold the underlying shares, and received proceeds of $209,700.

22. USANA further agreed to extend the life of the equivalent of 6000 of Ms. Lee’s SSAR’s, awarded on July 21, 2011, until May 6, 2014. On February 10, 2014, Ms. Lee exercised these rights, sold the underlying shares, and received proceeds of $227,040.

23. Finally, USANA agreed that an additional 6,000 SSAR’s would continue to vest on Ms. Lee’s behalf, would become available to exercise on July 27, 2014, and would not expire until October 27, 2014.

24. The extension of Ms. Lee’s SSAR’s was made “[c]onditional upon [Ms. Lee] complying with the non-solicitation and non-competition restrictions” of the Separation Agreement.

So now the interesting part begins. According to the court documents, USANA agreed to a "limited waiver" which would allow Belynda to accept a position a Nerium Internation without violating her non-compete restriction. However, she violated that agreement.

27. In particular, Ms. Lee, together with her son and Aaron Dinh, directly or indirectly recruited members of USANA to leave USANA and join Nerium, for which Ms. Lee had been named Regional Vice President of Sales and General Manager of Canada.

28. Ms. Lee’s recruiting strategy was to contact USANA distributors, customers, and potential distributors and customers, together with or through her son and Aaron Dinh, to explain to them the purported problems with USANA, and to convince them that Nerium would be a better fit.

29. As a result of Ms. Lee’s efforts, several key USANA distributors and customers left USANA and joined Nerium, including Brenton Haag, Cathy Ngo, Aaron Dinh, May Anilhongse, Maurizio Flores, Coach Mike, and Christy Grisom.

30. Two of the distributors (Dinh and Ngo) were two-star Diamond Directors for USANA, which is a very significant distributor position within USANA. Their departure has dramatically and negatively impacted USANA’s sales, as they were highly recognized distributors with large, successful sales organizations. In addition, their departure has created negative publicity for USANA.

USANA admits in the court document that the departure of these high level associates negatively impacts their sales in a "dramatic" way. The wording of this implies a material significance that may have been required to mention in their second quarter 2014 SEC financial statement. The publishing date of that Q2 SEC filing was August 5, 2014 which should have been plenty of time to add a line item that mentioned this court case and the dramatic impact it had on their sales.

USANA goes on to make makes several "claims" and asks for an amount in damages. I will skip over those details and simply quote from the last couple pages.
WHEREFORE, USANA prays for judgment in his favor as follows:

1. On its first claim for relief, for a monetary judgment against Ms. Lee in an amount to be determined at trial, but not less than $1,000,000;

2. On its second claim for relief, for a monetary judgment against Ms. Lee in an amount to be determined at trial, but not less than $1,000,000;

3. On its third claim for relief, for a monetary judgment against Ms. Lee in an amount to be determined at trial, but not less than $1,000,000;

4. On its first, second, and third claims for relief, in the alternative, for a temporary restraining order, preliminary injunction, or permanent injunction, prohibiting Ms. Lee from continuing to act in a manner contrary to law;

5. On its fourth claim for relief, a declaratory judgment declaring that: (i) the Separation Agreement is an enforceable contract; (ii) USANA performed its obligations under the Separation Agreement; (iii) Ms. Lee materially breached the Separation Agreement by actively recruiting USANA distributors and customers to leave USANA; and that (iv) as a result of Ms. Lee’s breach, USANA is no longer obligated to provide the stock options (SSAR’s) it promised to provide, and that it can recoup the value of the SSAR’s Ms. Lee has already exercised;

6. For pre- and post-judgment interest on all sums due at the rate provided by law;

7. For an award of reasonable attorney’s fees and costs; and

8. For such other and further relief as the Court may deem equitable, appropriate and just under the circumstances.

DATED this 25th day of July, 2014.

USANA is seeking at least $3 million in damages. I believe this $3,000,000 could be considered materially significant when compared it to USANA's net revenues for Q2-2014 of $29 million before taxes.

Tuesday, July 29, 2014

USANA Second Quarter 2014 Earnings - Questions USANA Should Answer To Investors and Their Associates

USANA Health Sciences released their 2014 second quarter financial results. I would like to point out a few observations.

- USANA claims to now restrict associates purchases to within the country they reside. I believe this is in light of the fact they have had thousands possibly hundreds of thousands of USANA associates counted in their Hong Kong market that actually live in mainland China. This circumvents China's ban on multilevel marketing. USANA allowed all of these members to sign up in USANA's MLM using the SAME Hong Kong address (even though they actually lived in the mainland). Since USANA instructed these members to use a phoney address from Hong Kong, USANA knew this was wrong and violated foreign laws. Only a rat would construct such a circumvention.

I would love for a stock analyst to ask during the conference call "How many USANA associates switched to become Babycare associates?"


- USANA's Greater China sales declined year over year by $3.3 million. However, their active associates increased by 22,000 (102,000 to 125,000). This does not jive with historical patterns since there is a very direct correlation between the sales figure and the number of associates. So how is it that there is a 21% increase in the number of active associates yet a 4% decline in sales in the Greater China region? I have two theories!

Theory 1) 
Hong Kong USANA associates have decreased while mainland China Babycare associates have increased and I believe a USANA associate spends a lot more money upfront to activate their business center(s). USANA associates participating in the MLM pyramid scheme have incentives to purchase excess product (Professional Starter Kit costs $1250) in order to partake in many gimmicks that they are led to believe will help their chances of succeeding (Platinum Pace Setter, Matching Bonus, Contests, etc...). This is all based on the fact that upline associates will get commissions from their downline's spending spree.

Babycare associates do not have downlines and do not collect any commission from the personal product purchases made by fellow Babycare associates. So there is no incentive to spend a lot of product that they aren't going to sell anyway.

Theory 2)
Assuming USANA is making all Hong Kong associates who actually live in mainland China switch over to Babycare, USANA may have actually counted the same individual twice! Once for Hong Kong and once for Babycare.

I would love for a stock analyst to ask during the conference call "Did you switch Hong Kong associates over to Babycare associates and did you 'accidentally' count the same person twice? I ask this because it doesn't make sense that you have a 21% increase in active associates yet experience a 4% decline in sales."

And for the sake of the world, disclose the number of Babycare associates! The sales from that market represents more than 10% of overall sales. Therefore you should be required to disclose the number of associates you have in that market.

Lastly, I would like USANA to disclose a couple very simple numbers:
1. Number of active Babycare associates
2. Amount of commission paid to Babycare associates
3. Percentage of product purchased by Babycare associates that was retailed to the general public


Friday, June 13, 2014

USANA's 2 Star Diamond Director Aaron Dinh Quits USANA and Joins Nerium International

USANA Million Dollar Club Member
USANA's 2-star diamond director Aaron Dinh quits and joins Nerium International instead, another multilevel marketing pyramid scheme. Aaron was also a member of USANA's prestigious million dollar club. Why would someone at the top of the distributor hierarchy need to quit and start over with a similar scheme? I've sent Aaron a message asking for his comment and have not received any reply.

Thought this was note worthy since USANA would like people to believe in residual income. Well, when your downline drops out, you have no more income.

October 22, 2012: Aaron Dinh's Lamborghini

Saturday, May 31, 2014

Why USANA Products Are So Expensive - USANA's Own Words


A new USANA document written for their customer service employees shows them how to explain to customers why the products are so expensive. Why bother contacting USANA for the answer when yours truly can give you the document they provided for their customer service?

http://www.usana.com/UPLOADS/usana/2014/115/115-1_KAA.html

Product Pricing (Why the Products Are So Expensive)
Occasionally, we receive questions as to why our products are so expensive. You can use the following in response to this question:

Before pricing our products, we do our research to ensure that we not only supply the finest quality products, but at the best price possible. There are many factors that go into pricing: research, formulations, raw materials, costs associated with batch size, manufacturing, packaging, transportation, commissions, regulations, inflation, taxes based on the market, etc. All of these add up to the cost of doing business and impact the price USANA is able to offer on a product.
Posted: 25-Apr-2014


Lets break this down so we can see exactly why the products are "so expensive" as USANA puts it.

- Research and Formulations would be categorized under "Research & Development" and represents a measly 0.7% of the price of the product.

- Raw Materials, Costs associated with batch size, manufacturing, packaging, and transportation would be categorized under "Cost of Sales" and represents 18.5% of the price of the product.

- Commissions are categorized as "Associate Incentives" (which also includes bonuses, and certain awards and prizes) represents 43.2% of the price of the product - the biggest reason why the products are overpriced. It is also worth mentioning that two thirds of all USANA associates have never collected a single commission. Most of the commission is paid to the top 1% of associates. Last but not least, 99% of USANA associates do not make a profit. This category is the heart of the pyramid scheme.

- Regulations and Inflation. well I'm not sure where these fits in with the cost. However, even USANA's 10K SEC filings state this about inflation: "We do not believe that inflation has had a material impact on our historical operations or profitability." So why does USANA want their customers to now believe otherwise?

Interestingly enough, nothing about voluntarily manufacturing to "pharmaceutical good manufacturing practices" even made the list of excuses, although that would be considered part of Cost of Sales anyway.


So lets look at the price of the USANA Healthpak100 which can be purchased through auto-order (formally known as autoship) for $105.75

Healthpak100 Auto-Order price: $105.75
Cost of Sales: $19.61
Associate Incentives (commissions): $45.73
Selling, General, & Administrative (SG&A): $25.84 (Includes Research & Development of $0.74)
USANA Earnings: $14.56

How do USANA customers feel about this? Only 74 cents toward research and development! Now lets remove the commissions from the price of the Healthpak100. Instead of $105.75 for the Healthpak100, the product is now only $60.02 (We'll call it $59.95 for marketing purposes). Wouldn't you rather pay $59.95 for the product as a distributor (or customer) and be able to mark up the price yourself if you choose to retail the product? Remember, 66% of USANA associates never make a commission and 99% of associates never make a profit. So then what good does it do to overcharge 99.9% of USANA customers for an incentive they never benefit from? It only benefits the top 1% of distributors who are out primarily selling the "get rich scam" rather than selling the product...

USANAWatchDog answer to why USANA products are so expensive: 
To fund the pyramid scheme.

Sunday, May 25, 2014

USANA Training Material Teaches Its Distributors Not To Defend Their Position Against Negative Information

USANA provides their distributors with the following training material explaining how to deal with negative information about USANA. Here is a quick USANA review of an important piece of training material.

HOW TO DEAL WITH NEGATIVE MATERIAL ONLINE

Here's a few quotes from USANA:
- If it is negative, you need to ignore it
- Do not defend your position
- Do not view it again
- Do not leave a comment
- Do not rate positive OR negative
- Do not link to it
- DO NOT TALK ABOUT IT
- USANA is working to fix the problem
- Ignore negative information
- If approached, encourage others not to talk about it
- Report negative or false information to your market office
- DO NOT VIEW NEGATIVE MATERIAL AGAIN
- DO NOT COMMENT, RATE, VOTE OR LEAVE MESSAGES ON NEGATIVE POST
- DO NOT TALK ABOUT IT UNLESS IT IS BROUGHT UP TO YOU
Do not defend your position? This is because USANA cannot defend their position. I think this is important for people who are considering joining the distributorship to see USANA's training material before they waste thousands of dollars on a pyramid scheme that can't defend their position.

Wednesday, May 7, 2014

Former Herbalife Distributor Testimonials Represent The Bottom 99% of Distributors in All MLM Opportunities Including USANA

I strongly urge anyone considering to join USANA or any other multi-level marketing (MLM) company with intentions of making money watch the very compelling testimonials from Herbalife distributors who have lost thousands of dollars trying to achieve their dream. All MLM companies operate on the same principles and all have failure rates close to 99% of participants. The stories you will hear about in this video have been issues I have covered on this blog for many years.

http://www.factsaboutherbalife.com/former-herbalife-distributors-in-their-own-words/


I welcome your stories on this blog as well. If you feel you have been swindled, please explain why and how much money you have lost in the endeavor. Explain whether you returned product for a refund and if not, why. If you disagree with this testimonial or the notion that MLMs like USANA are pyramid schemes, explain why.

Tuesday, April 29, 2014

USANA Earnings Release for Q1 2014 - Analysts Must Demand USANA Disclose Number of Active Babycare Distributors in China.

USANA Health Sciences releases their first quarter 2014 earnings after the markets close today. I beleive it will be as usual, revenues up and active associate numbers up in select areas (I predict they will recruit 400,000 new associates this year alone). What USANA has refused to do for several years now is disclose the number of Babycare distributors. Babycare is a company USANA purchased that already had a direct selling license in mainland China. Multilevel Marketing (MLM) is banned in China so Babycare uses a single-level structure and no recruiting into downlines.

For several years USANA had allowed Chinese Nationals to be recruited into USANA distributor downlines in markets outside mainland China, such as Hong Kong. These illegally recruited distributors were given a phoney address and even phoney phone number. In fact, they were using the same address and USANA distributor genealogy reports show it by the thousands. This caused the Hong Kong active associate numbers to grow to levels that were suspicious: 1 in 100 in Hong Kong were USANA distributors?! Over the past several quarters now, Hong Kong active associates and revenues have declined greatly. USANA claims people from mainland China are no longer joining in Hong Kong. Yeah right...

I suspect USANA is simply fudging their numbers and the auditors have no way to check it. Since USANA allowed phoney addresses to be used thousands of times by Chinese Nationals, I would not put it passed them to simply report the number of Hong Kong USANA distributors minus those that had resided in mainland China. In other words, those from mainland China are still signed up as USANA distributors and in a downline structure, but are simply not being counted in Hong Kong anymore. Nobody can audit the genealogy structure, except the feds.I believe the revenues from Hong Kong are also simply being reported as Babycare revenue.

The main reason for my suspicion has been the fact USANA stopped reporting the number of Babycare associates. Analysts have repeatedly asked USANA to disclose the numbers of Babycare associates during several quarterly conference calls and every time USANA refused to disclose the figures.

My list of USANA disclosures are quite simple this time: DISCLOSE THE NUMBER OF BABYCARE ACTIVE ASSOCIATES.

While you're at it, disclose the number of United States associates, the number of Professional Startup Packages sold, the percent of net revenues that came from USANA associate's initial product purchase used to "activate" their first business center(s), the number of newly recruited associates, and the number of active associates that have been with USANA for more than 2 years.

(I have no stock position with USANA, never have and never will. I have no financial position whatsoever. I gain nothing from my blog. I have never been a USANA associate or an associate from any MLM company.)

Friday, April 11, 2014

FBI and DOJ Are Investigating Herbalife - Watch Out USANA Because Your Business Model Stinks Even Worse!

Today the Financial Times revealed that the FBI and the DOJ have been investigating Herbalife (HLF), another multilevel marketing company similar to USANA (USNA) but much larger. This news comes a month after revelations that the FTC is also investigating Herbalife. This will be an industry wide ripple effect that can collapse every MLM product-based pyramid scheme like Amway, Nu Skin, Monavie, USANA, and hundreds of others that all have very high distributor failure rates.

These failure rates are fixed, predictable, and designed to fail the majority of participants. The general rule is this: Product is overly priced even at the distributor's cost. Product must be purchased periodically throughout the year in order to collect points and be able to receive a commission. The majority of funds used to pay out commission to the distributors is primarily generated by the required purchases made by the distributors rather than from actual sales to people outside the network. Worst of all, about 99% of participating distributors end up losing money and never make a profit.

There are not enough cells to hold all the criminals perpetrating these pyramid schemes. If you believe you have been duped by one of these pyramid schemes I strongly urge you to file a complaint with the FTC or your local government.

Wednesday, March 12, 2014

FTC Opens Formal Investigation Into Herbalife. Look out USANA - Your Pyramid Scheme Is In Jeopardy!

The FTC has opened a formal investigation into the pyramid scheme allegations of Herbalife. I look forward to its conclusions and believe every MLM including USANA will have a grime future if the FTC shuts Herbalife down. Those in USANA or have been involved with them in the past ought to file a complaint with the FTC as soon as they can.

Thursday, January 16, 2014

China Orders Investigation Into Nu Skin for Conducting Illegal Business - Will USANA Be Next?

Quote from Reuters states the following "China's State Administration for Industry and Commerce (SAIC) on Thursday ordered local authorities to investigate media reports that allege skincare products company NU Skin Enterprises Inc distributes false information and conducts illegal business in China, state news agency Xinhua said."

This is exactly what China should do with USANA as well. I have for many years been writing about and showing evidence of massive China fraud regarding the recruitment of Chinese Nationals into USANA's Multilevel Marketing structure. This underground operation involves thousands of members which were all signed up in USANA using the same phoney Hong Kong address in order to circumvent the law. The time is now to act and any investigative firm that wants a lending hand, please contact me.

Sunday, December 15, 2013

After 21 Years USANA Only Considers About 2820 of Their Sales Representatives as Full Time Associates.


http://www.mlmpyramid.com/USANA_Full-Time_Dec2013.pdf
Multi-level marketing company USANA Health Sciences, Inc. has been in business for 21 years and has had a little over 1.6 million sales reps (known as “associates” or “distributors”) join their business opportunity. However, as of December 2013 only about 2820 USANA associates have reached the leadership ranking of Gold Director or higher. USANA refers to this small group of associates as “Full-Time” while the remaining 1.6 million associates as “Part-Time”. So only 0.18% of USANA associates ever made it to at least a gold director status. USANA does not disclose the number of full time associates to people who are being asked to sign up. Doing so may lessen the chances that the individual signs up. Click on the image on the right to view a PDF document that shows the number of full time associates in each of USANA's territories. You can also follow this direct link to the document: www.mlmpyramid.com/USANA_Full-Time_Dec2013.pdf


Market Diamond Director Emerald Director Ruby Director Gold Director Total
United States 66 39 117 389 611
Hong Kong 25 16 96 451 588
Australia 33 31 66 215 345
Canada 30 15 70 193 308
Philippines 6 8 22 130 166
Taiwan 11 6 28 117 162
Singapore 23 6 40 44 113
Malaysia 2 8 16 85 111
Mexico 6 6 12 79 104
Korea 13 6 27 53 99
New Zealand 5 9 11 70 95
Japan 16 1 34 38 89
Thailand 0 1 3 14 18
United Kingdom 0 1 3 4 8
France 0 0 0 2 2
Columbia 0 0 0 1 1

USANA should disclose the total distributor incentives ever paid to these 2820 full time associates.

Tuesday, November 26, 2013

According to a USANA Document, 92% of Commissions Are Paid To Less Than 1% of USANA Distributors

http://www.usana.com/media/File/Prospecting%20page/Tools/US/USANABusiness/US-AveIncome.pdf
On USANA's website is a document titled "North American Average Total Earnings". Using a few of the numbers disclosed in this report, I will demonstrate how about 92% of the commission paid out goes to less than 1% of distributors, leaving only $52 per year on average for the remaining 99% of distributors.

USANA claims $616.72 was the average commission paid out if all 135,590 associates in the North American region are considered for 2011. Multiplying those two numbers together gives the total amount paid in commissions, which is $83.6 million.

In the chart, USANA shows that gold directors makes up 0.5% of everyone, which comes out to 677 associates if you multiply the 0.5% in the "of everyone" column by the total 135,590 associates. USANA also shows for the Gold Directors the percentage of Full-Time associates it represents, which is 67%. Now if you want to know the number of associates in the Ruby, Emerald, Diamond, and Star Diamond categories you simply multiple the percent of full-time for the category, multiply it by the number of Gold director associates and divide it by 67%. Now we have the number of associates for each leadership ranking from Gold Director on up to the Star Diamond Directors, which comes out to about 1009 associates.

USANA states in the report that $76,000 is the yearly average income for a full-time associate. Now multiply the $76,000 by the 1009 full-time associates, which comes out to $76.7 million.

$76.7 million for Full-time associates divided by the $83.6 total commissions paid is about 92%, which is the percentage of commissions paid to less than 1% of all associates.

Interestingly enough, USANA did not even update the report this year to show 2012 figures. Either USANA made a huge mistake in their report, or they do not want to publish any more distributor data that shows how little the majority of distributors make, which is virtually nothing. Certainly not enough to cover the required product purchases every 4-weeks.

Can USANA simply disclose the figures as they once did in their 2005 and 2006 North American Average Total Earnings report by showing the number of associates in each leadership rankings along with the total commission paid out in each of those levels instead of presenting a table that only shows theoretical figures that represents a very small percentage of each leadership level? Or is that just too much to ask?

Thursday, November 14, 2013

About 85 Percent of USANA's Philippine Associates Quit and The Hidden Information in USANA's Regional Data.

USANA Health Sciences made a couple blunders in the last couple days which I believe reveals an 85% dropout figure for the Philippines market which is not being disclosed to shareholders. USANA wrote a press release on November 12, 2013 regarding typhoon Haiyan. The following is a quote from that press release, which is referenced directly from USANA's website (and still there as I write this):

"We have an incredible USANA family of more than 175,000 strong in the Philippines," said Dan Macuga, USANA chief communications officer. "Their courage and goodness inspires our global team. That's why we feel it so important to help them and all those suffering in the aftermath of Super Typhoon Haiyan." - USANA Investor Relations

I wrote about this 175,000 number on my blog a couple days ago and low an behold USANA tried to change the press release some news organizations got by changing one of their own quotes! Some news agencies now have the same press release but with the following change:

"We have an incredible USANA family, 25,000 Distributors strong in the Philippines," said Dan Macuga, USANA chief communications officer. "Their courage and goodness inspires our global team. That's why we feel it so important to help them and all those suffering in the aftermath of Super Typhoon Haiyan." - Prnewswire

How is it that USANA can change a QUOTE that one of their executives made? It's a quote for goodness sake. I want to thank USANA for making two fantastic mistakes.
  1. USANA revealed that the total number of distributors they have recruited in the Philippines over the last 5 years is around 175,000.
  2. USANA reveals that there are only 25,000 active associates currently in the Philippines.

So 85% of the Philippine USANA distributors no longer purchase USANA product or participate in the business opportunity. My previous estimate two days ago was 17,000 active associates or a 90% dropout figure.

Here is the key information shareholders should understand here:
If the Philippines has 25,000 active associates, and the East Asia Pacific region has 60,000 active associates, then that means only 35,000 active associates can account for Australia, New-Zealand, Singapore, Malaysia, and Thailand.

Let me show the last time USANA disclosed active associate numbers by the territory: - USANAWatchDog Blog

Active distributors in East Asia Pacific for Second Quarter 2010 (3 years ago)
Australia and New-Zealand =18,000
Singapore = 5,000
Malaysia = 14,000
Philippines = 7,000
Thailand = Non-existent
This totals to 44,000 active associates.

Fast forward to today: Active distributors in East Asia Pacific for Second Quarter 2013 (today)
USANA states in their SEC filing that East Asia Pacific has 60,000 active associates.

Australia and New-Zealand =14,000 *
Singapore = 3,000 *
Malaysia = 12,000 *
Philippines = 25,000 (recently revealed in press release)
Thailand = 4,000 *

* My guestimate in order to make the numbers add up to the reported 60,000 for the region.
Since USANA no longer discloses active associate numbers for each market they are in, investors are left in the dark about the true operations of USANA. The markets were grouped into “regions” and began only reporting regional numbers.

Based on my guestimate, the following represents the percent change over the last 3 years for those markets:

Australia and New-Zealand = 22% DECLINE
Singapore = 40% DECLINE
Malaysia = 14% DECLINE
Philippines = 257% INCREASE
Thailand = new market