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Item 1A. Risk Factors

2025-02-18 compared with 2024-02-20 · 83 added, 88 removed, 232 unchanged (42% of the section changed)

You should consider carefully the following risks and uncertainties when reading this Report.

If any of the events described below actually occurs, the Company’s business, financial condition and operating results could be materially adversely affected.

If any of the events described below actually occur, the Company’s business, financial condition, and operating results could be materially adversely affected.

You should understand that it is not possible to predict or identify all such risks and uncertainties.

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Risks Related to Our Business

The weight management industry is highly competitive and the development and acceptance of weight-loss medicines and other products could result in decreased demand for our services and products.

Competition is intense in the weight management industry and we must remain competitive in the areas of program efficacy, price, taste, customer service and brand recognition.

Our competitors include companies selling weight loss medications, pharmaceutical products and weight loss programs, digital tools, app-based health and wellness monitoring solutions and

wearable trackers, as well as a wide variety of diet foods and meal replacement bars and shakes, appetite suppressants and nutritional supplements.

Some of our competitors are significantly larger than we are and have substantially greater resources.

Any increased competition from new entrants into our industry or any increased success by existing competition could result in reductions in our sales or prices, or both, which could have an adverse effect on our business and results of operations.

Additionally, the entrance into the market and growing acceptance of the favorably perceived and easier to use weight loss medications, such as GLP-1s, has reduced and may further reduce demand for our services and products.

Deterioration of economic conditions, an economic recession or slow growth, periods of inflation or economic uncertainty, could continue to adversely affect consumer spending as well as demand for our products.

General global economic downturns and macroeconomic trends, including heightened inflation, capital market volatility, interest rate and currency rate fluctuations, and economic slowdown or recession, may result in unfavorable conditions that could negatively affect consumer spending and demand for our products, and exacerbate some of the other risks that affect our business, financial condition and results of operations.

For example, economic forces, including changes in disposable consumer income and/or reductions in discretionary spending, unemployment levels, labor shortages, demographic trends, inflation and consumer confidence in the economy, may cause consumers to defer or decrease purchases of our products and programs which could adversely affect our revenue, gross profit, and/or our overall financial condition and operating results.

General global economic downturns and macroeconomic trends, including the possibility of heightened inflation, capital market volatility, interest rate and currency rate fluctuations, and economic slowdown or recession, may result in unfavorable conditions that could negatively affect consumer spending and demand for our products, and exacerbate some of the other risks that affect our business, financial condition and results of operations.

For example, economic forces, including changes in disposable consumer income and/or reductions in discretionary spending, unemployment levels, labor shortages, demographic trends, inflation and consumer confidence in the economy, may cause consumers to defer or decrease purchases of our products which could adversely affect our revenue, gross profit, and/or our overall financial condition and operating results.

The success of our business is dependent on our ability to maintain and grow our network of OPTA VIA coaches .

We consider our number of active earning OPTA VIA coaches and average quarterly revenue per active earning OPTA VIA coach to be key indicators of our financial performance and condition.

As of December 31, 2023, the Company had 41,100 total active earning OPTA VIA Coaches as compared to 60,900 as of December 31, 2022.

As of December 31, 2024, the Company had 27,100 total active earning OPTA VIA coaches as compared to 30,000 as of September 30, 2024 and 41,100 as of December 31, 2023.

If we are unable to reverse the downtrend of the number of active earning coaches, which has been declining since Q3 2022, or revenue per active earning coach, which has been declining since Q2 2023, our future revenue and operating results will continue to be adversely affected, as we believe that the success of the Company depends on the success of our OPTA VIA coaches.

Additionally, OPTA VIA coaches are subject to high turnover, and we depend on our network of OPTA VIA coaches to continually grow their businesses by supporting customers and attracting, training and motivating new OPTA VIA coaches.

Our failure to provide the business essentials and competitive compensation necessary to motivate OPTA VIA Coaches to grow their businesses will adversely affect our future growth and operating results.

Our failure to provide the business essentials, education, and competitive compensation necessary to motivate OPTA VIA coaches to grow their businesses will adversely affect our future growth and operating results.

The growth and sustainability of our network of OPTA VIA coaches is also subject to risks which may be outside of our control.

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and regulatory actions against our Company, competitors in our industry, or other direct selling companies.

If we do not continue to develop innovative new products or if our products do not continue to appeal to the market, or if we are unable to successfully expand or respond to consumer trends, our business may suffer.

The increasing focus of consumers on more integrated lifestyle and fitness approaches rather than just food, nutrition and diet could adversely impact the popularity of our programs.

Our future success depends on our ability to continue to develop and market new, innovative products and to enhance our existing products, each on a timely basis to respond to new and evolving consumer demands, achieve market acceptance and keep pace with new nutritional, weight management, technological and other developments.

We may not be successful in developing, introducing on a timely basis or marketing any new or enhanced products, and we cannot assure you that any new or enhanced products will appeal to the market.

Our results of operations are highly dependent on the number of product sales generated by our OPTA VIA coaches.

Our failure to develop new products and to enhance our existing products, and the failure of our products to continue to appeal to the market could have an adverse impact on our ability to attract and retain customers and thus adversely affect our business, financial condition or results of operations.

Additionally, we commit and invest substantial time and resources into developing innovative new products.

There is no assurance that any new products will be successfully adopted by our customer base, or that we will be able promote such new products without taking steps such as reducing pricing or incurring acquisition costs that would affect our revenues and/or profitability.

Our collaboration with LifeMD may not achieve the anticipated benefits.

On December 13, 2023, we announced a new strategic collaboration (the “Collaboration”) with telehealth company, LifeMD, in furtherance of our expansion into the medically supported weight loss market, and with the expectation that the Collaboration would result in various long-term benefits to both companies, including increase in revenue, customer acquisition increase, and

longer tenure in customer retention.

Achieving the anticipated benefits of the Collaboration is subject to a number of uncertainties, including whether our business and LifeMD’s business can become integrated in an effective and efficient manner.

Failure to achieve these anticipated benefits could result in increased costs, decreases in the amount of expected revenues generated by the Collaboration and diversion of management’s attention and energy away from ongoing business operations, which could have a material adverse effect on our business or financial results.

The Collaboration’s success will depend to a substantial extent on the willingness of customers to use LifeMD’s telehealth platform.

If our customers do not perceive the benefits of LifeMD’s telehealth services, or if the Collaboration does not drive customer acquisition or retention, then our market may not develop, or it may develop more slowly than we expect.

Similarly, individual and healthcare industry concerns could limit acceptance of LifeMD’s healthcare services.

If any of these occur, it could have a material adverse effect on the success of the collaboration.

Finally, if LifeMD terminates its agreement with us, we may find it more difficult to attract new collaborators and our perception in the marketplace could be adversely affected.

Our Collaboration with LifeMD could open us up to additional risks.

The Collaboration may pose a number of risks, including:

LifeMD has discretion in determining the efforts and resources that they will apply;

LifeMD may not perform their obligations as expected;

and LifeMD may fail to comply with applicable regulatory requirements.

Healthcare professionals providing telehealth services have become subject to a number of lawsuits alleging malpractice and some of these lawsuits may involve large claims and significant defense costs.

Through the Collaboration, it is possible that these claims could also be asserted against us or our independent OPTA VIA coaches and include us as an additional defendant.

We could incur reputational harm or negative publicity in relation to an adverse event involving a LifeMD healthcare provider.

Additionally, a number of laws and regulations govern anti-kickbacks, physician self-referrals, and the business of advertising, promotion, dispensing, and marketing services, products, and pharmaceuticals.

These regulatory regimes are overseen by state and federal level governmental bodies, including the FDA, the U.S.

Department of Health and Human Services (“HHS”), and the FTC.

Through the Collaboration, failure to comply with the laws and regulations of these governmental agencies may result in legal or other enforcement actions, including orders to cease non-compliant activities.

There can be no assurance that we will not be subject to state, federal or foreign government actions or class action lawsuits, which could harm our business, financial condition and results of operations.

We may not be able to successfully implement new strategic initiatives, which could adversely impact our business.

We are continuously evaluating changing consumer preferences and the competitive environment of our industry and seeking out opportunities to improve our performance through the implementation of selected strategic initiatives.

The goal of these efforts is to develop and implement a comprehensive and competitive business strategy which addresses the continuing changes in the weight management industry environment and our position within the industry.

For example, as the healthcare industry continues to evolve its response to the obesity epidemic, so do the requirements, both regulatory and business, for providers.

If we do not successfully meet these requirements, we may not be perceived as an appropriate partner for certain purposes.

We may not be able to successfully implement our strategic initiatives and realize the intended business opportunities, growth prospects, including new business units, and competitive advantages.

Our efforts to capitalize on business opportunities may not bring the intended results.

Assumptions underlying expected financial results or consumer demand may not be met or economic conditions may deteriorate.

We also may be unable to attract and retain highly qualified and skilled personnel to implement our strategic initiatives.

If these or other factors limit our ability to successfully execute our strategic initiatives, our business activities, financial condition and results of operations may be adversely affected.

Our business depends on the effectiveness of our advertising and marketing programs, including the strength of the Company's and our OPTA VIA coaches’ social media presence, to attract and retain customers.

Use of social media may materially and adversely affect our reputation or subject us to fines or other penalties, and restrictions on the use of or access to social media may adversely impact sales of our products and services.

Our business success depends on our ability to attract and retain customers.

Our ability to attract and retain customers depends significantly on the effectiveness of our OPTA VIA coaches’ advertising and marketing practices.

Our OPTA VIA coaches support our customers and market our products and services primarily through word of mouth, email and via social media

channels such as Facebook, Instagram, X, and video conferencing platforms.

If their advertising and marketing campaigns do not generate a sufficient number of customers, our business, financial condition and results of operations will be adversely affected.

We and our OPTA VIA coaches, as well as social media influencers or other brand ambassadors that we may utilize from time to time, use email and social media platforms as a means of communicating with customers.

We use digital marketing, social media, and email marketing, among other means, to attract and retain customers.

Unauthorized or inappropriate use of these channels could result in harmful publicity or negative consumer experiences, which could have an adverse impact on the effectiveness of our marketing through these channels.

In addition, the rising popularity of social media and other consumer-oriented technologies has increased the speed and accessibility of information dissemination.

Our target consumers often value readily available information and often act on such information without further investigation and without regard to its accuracy.

The harm may be immediate without affording us an opportunity for redress or correction.

Negative or false commentary about us may be posted on social media platforms or similar devices at any time and may harm our business, brand, reputation, coaches, financial condition, and results of operations, regardless of the information’s accuracy.

An increase in the use of social media for product promotion and marketing may cause an increase in the burden on us to monitor compliance of such materials and increase the risk that such materials could contain problematic product or marketing claims in violation of applicable regulations.

As laws and regulations, including FTC enforcement, rapidly evolve to govern the use of these platforms and devices, the failure by us, our employees, or our coaches or other third parties acting at our direction to abide by applicable laws and regulations in the use of these platforms and devices could adversely impact our business, financial condition and results of operations or subject us to fines or other penalties.

Our direct selling model may be challenged, which could harm our business.

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As a result, regulators and courts have discretion in their application of these laws and regulations, and the enforcement or interpretation of these laws and regulations by government agencies or courts can change.

Additionally, the direct selling industry is also under regular scrutiny by the Direct Selling Self-Regulatory Council, which is one of the Better Business Bureau's National Programs, and other non-profit organizations.

These organizations identify perceived violations of laws and regulations by direct sellers in an effort to force companies to change their practices.

If companies do not voluntarily modify practices identified by these reviewing entities, they may report the perceived violations to law enforcement agencies.

Settlements between the FTC and other direct selling companies and guidance from the FTC have addressed inappropriate earnings and lifestyle claims and the importance of focusing on consumer sales.

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In addition, our ability to sustain satisfactory levels of sales is dependent in significant part on our ability to introduce innovative products.

However, governmental regulations can delay or prevent the introduction, or require the reformulation or

withdrawal, of certain of our products.

However, governmental regulations can delay or prevent the introduction, or require the reformulation or withdrawal, of certain of our products.

Any such regulatory action, whether or not it results in a final determination adverse to us, could create negative publicity, with detrimental effects on the motivation and recruitment of OPTA VIA coaches and, consequently, on sales.

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We manufacture and produce a portion of our products, which account for approximately 40% of our total unit sales, at our manufacturing facility in Owings Mills, Maryland.

As a result, we are dependent upon the uninterrupted and efficient operation of our sole manufacturing facility in Owings Mills, Maryland.

As a result, we are dependent upon the uninterrupted and efficient operation of this manufacturing facility.

The operations at this facility may be disrupted by a number of factors, including the following:

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Also, defending ourselves against such claims, regardless of their merit and ultimate outcome, may be lengthy and costly, and could adversely affect our brand image, customer loyalty and results of operations.

The weight management industry is highly competitive.

If any of our competitors or a new entrant into the market with significant resources pursues a weight management program similar to ours, our business could be significantly affected.

Competition is intense in the weight management industry and we must remain competitive in the areas of program efficacy, price, taste, customer service and brand recognition.

Our competitors include companies selling weight loss medications, pharmaceutical products and weight loss programs, digital tools, app-based health and wellness monitoring solutions and wearable trackers, as well as a wide variety of diet foods and meal replacement bars and shakes, appetite suppressants and nutritional supplements.

Some of our competitors are significantly larger than we are and have substantially greater resources.

New weight loss medications, products or services may put us at a competitive disadvantage and our business may suffer.

The weight management industry is subject to changing consumer demands based, in large part, on the efficacy and popular appeal of weight management programs.

The popularity of weight management programs is dependent, in part, on their ease of use, cost and channels of distribution as well as consumer trends, which continue to evolve with the introduction of new technologies and innovations, and, on an ongoing basis, many existing and potential providers of weight loss solutions, including many pharmaceutical firms with significantly greater financial and operating resources than we have, are developing new products and services.

The growing popularity of weight loss solutions, such as a drug therapy or GLP-1 medications, which may be perceived to be safe, effective and “easier” than a portion-controlled meal plan has affected the marketplace and could negatively impact our results of operations.

The increasing focus of consumers on more integrated lifestyle and fitness approaches rather than just food, nutrition and diet could adversely impact the popularity of our programs.

We may not be successful in developing, introducing on a timely basis or marketing any new or enhanced products, and we cannot assure you that any new or enhanced products will appeal to the market.

Our results of operations are highly dependent on the number of product sales generated by our OPTA VIA Coaches.