What changed in this filing

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Item 1A. Risk Factors

2022-03-15 compared with 2021-03-19 · 36 added, 25 removed, 443 unchanged (12% of the section changed)

60 unchanged sentences

The pending patent applications are at various stages of processing, depending on the timeline of each market’s patent offices.

Most of our patents for the Ambrotose AO ® , GI-ProBalance ® ™, PhytoMatrix ® , NutriVerus™, and PhytoBlend ® formulations and our patents in the field of biomarker assays do not expire for another five or more years.

Our inability to develop and introduce new products that gain independent associate, preferred customer, and market acceptance could harm our business.

20 unchanged sentences

However, the failure of our primary suppliers or manufacturers to supply ingredients or produce our products could adversely affect our business operations.

We believe we have dependable suppliers for all of our ingredients and we have identified alternative sources for all of our ingredients, except Arabinogalactan and Manapol.

We believe we have dependable suppliers for all of our ingredients and we have identified alternative sources for all of our ingredients, except Arabinogalactan and Manapol ® powder.

Due to the unique nature of each ingredient, important components used in the formulation of our Ambrotose ® complex, we are unable to identify an alternative supplier at this time.

7 unchanged sentences

For example, in March 2020, the WHO declared the outbreak of COVID-19 as a pandemic, which has spread throughout our international regions and throughout the United States.

During 2020, the Company experienced shortages of raw materials and ingredients for some of its products.

We have experienced challenges in getting these materials and ingredients to our contract manufacturers and finished products to our distribution centers resulting from reductions in global transportation capacity.

Beginning in 2020 and continuing through 2021, the Company experienced shortages of raw materials and ingredients for some of its products.

The extent to which COVID-19 impacts our future operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the outbreak, new information which may emerge concerning the severity of COVID-19 and multiple new variants of the virus that causes COVID-19, and the actions to contain COVID-19 or treat its impact, or the safety and efficacy of the various vaccines approved to treat COVID-19, among others.

21 unchanged sentences

18,010 11.3 % 16,263 10.7 %

Manapol ® Powder

13,141 8.2 % 7,187 4.7 %

Advanced Ambrotose ®

11,158 7.0 % 14,662 9.7 %

Optimal Support Packets 7,996 5.3 % 4,110 2.6 %

GI-Pro (MicroBiome) 8,478 5.3 % 7,513 5.0 %

57 unchanged sentences

As noted above, many states have enacted data protection requirements.

Most recently, the California Consumer Privacy Act ("CCPA"), a state statute signed into law on June 28, 2018 and effective on January 1, 2020, provides enhanced data privacy protections to California residents.

The California Consumer Privacy Act ("CCPA"), a state statute signed into law on June 28, 2018 and effective on January 1, 2020, provides enhanced data privacy protections to California residents.

The CCPA applies to companies with annual gross revenues in excess of $25 million.

The South Africa Protection of Personal Information Act (“POPI”) went effective on July 1, 2021.

POPI shares similarities with both the EU GDPR and the CCPA.

Most recently, China passed the PIPL on August 20, 2021.

The PIPL is designed to protect online users’ data privacy, effective on November 1, 2021.

Regarded as China’s version of the GDPR, the PIPL lays out a comprehensive set of rules on how business operators should collect, use, process, share, and transfer personal information in China.

Our failure or inability to comply with data protection regimes domestically and in foreign countries could result in fines, penalties, injunctions, or material litigation expenditures.

With increased frequency in recent years, cyber-attacks against companies have resulted in breaches of data security.

With increased frequency i n recent years, cyber-attacks against companies have resulted in breaches of data security.

Our business requires the storage and transmission of suppliers’ data and our independent associates’ and customers’ personal, credit card, and other confidential information.

36 unchanged sentences

• risk of our independent associates offering business opportunities in China.

In February 2022, following Russia’s invasion of Ukraine, the U.S.

and the European Union imposed various economic sanctions against Russia.

If Russia responds with retaliatory measures such as restrictions on the sale of oil or other energy resources from Russia to other countries in the region, that could result in an increase in our global shipping expenses, reduce our sales, or otherwise have an adverse effect on our European operations.

Additionally, escalation by Russia beyond Ukraine and into other countries within the region, could also reduce our sales and have a negative effect on our European operations

The risks outlined above could adversely affect our ability to sell products, obtain international customers, or to operate our international business profitably, which would have a negative impact on our overall business and results of operations.

5 unchanged sentences

If the United States dollar changes relative to applicable local currencies, there is a risk our reported sales, operating expenses, and net income could significantly fluctuate.

For example, while our 2020 net sales declined 2.7% on a Constant dollar basis (see Item 7, Non-GAAP Financial Measures ), unfavorable foreign exchange caused a $2.1 million decrease in GAAP net sales as compared to 2019.

In other words, 2020 sales would have been $2.1 million higher than the reported value, except for the impact of foreign exchange.

For example, while our 2021 net sales increased 3.1% on a Constant dollar basis (see Item 7, Non-GAAP Financial Measures ), favorable foreign exchange caused a $3.7 million increase in GAAP net sales as compared to 2020.

In other words, 2021 sales would have been $3.7 million lower than the reported value, except for the impact of foreign exchange.

There can be no assurance that foreign currency fluctuations will not have a material adverse effect on our business, assets, financial condition, liquidity, results of operations or cash flows.

6 unchanged sentences

The adverse economic effects of COVID-19 may materially decrease demand for our products based on changes in consumer behavior or the restrictions in place by governments trying to curb the outbreak.

For example, we rescheduled in-person corporate sponsored events in 2020 and opted to hold virtual events.

For example, we rescheduled in-person corporate sponsored events in 2020 and in 2021, opting instead to hold virtual events.

In many cases, our associates canceled in-person sales meetings and utilized online platforms to meet virtually.

1 unchanged sentence

The continued uncertainty regarding the spread and duration of the COVID-19 pandemic, including the multiple new variants of the virus that causes COVID-19, could lead to adverse impacts on our sales in fiscal year 2022 and our overall liquidity.

The spread of COVID-19, or actions taken to mitigate this spread, could have material and adverse effects on our ability to operate effectively, including as a result of the complete or partial closure of certain businesses and the inability of our associates to market our products as a result of “shelter-in-place” and similar policies that may be implemented in an effort to mitigate the spread of COVID-19.

The spread of COVID-19, or actions taken to mitigate this spread domestically and in our international markets, could have material and adverse effects on our ability to operate effectively, including as a result of the complete or partial closure of certain businesses and the inability of our associates to market our products as a result of “shelter-in-place” and similar policies that may be implemented in an effort to mitigate the spread of COVID-19.

Furthermore, the outbreak of COVID-19 has severely impacted global economic activity, and caused significant volatility and negative pressure in the financial markets.

3 unchanged sentences

The magnitude and duration of the pandemic and its impact on our business, results of operations, financial position, and cash flows is uncertain as this continues to evolve globally.

However, if the spread continues on its current trajectory, such impact could grow and our business, results of operations, financial position, and cash flows could be materially adversely affected.

However, as new variants of the virus continue to emerge, such impact could grow and our business, results of operations, financial position, and cash flows could be materially adversely affected.

Risks Related to Regulation

9 unchanged sentences

• changes to, or interpretations of, existing regulations affecting our business.

On January 4, 2018, The Federal Trade Commission (the “FTC”) issued “Business Guidance Concerning Multi-Level Marketing” a non-binding guidance in question-and-answer format clarifying the FTC’s enforcement position regarding multi-

level marketing.

The guidance focuses on the characteristics of multi-level marketing and delineates the factors that the FTC staff is likely to consider in assessing whether or not a compensation structure is problematic.

14 unchanged sentences

Any action against us in the future by the FTC or another regulator could materially and adversely affect our operations.

On October 28, 2021, the Company received a letter from the Federal Trade Commission (“FTC”) regarding “Notices of Penalty Offenses Concerning Money-Making Opportunities and Endorsement and Testimonials." The Company was among 1,100 other companies to receive the letter which put companies on notice that they should be aware of what constitutes false or misleading income, earning, or product claims.

As the FTC made clear in the letter, receipt of the letter is not a determination of wrongdoing.

From a procedural standpoint, the FTC would still have to file a formal action if they determine the Company is in violation of the parameters laid out in the letter and then undergo an administrative hearing process.

The letter is the first step in a process for the FTC to impose “civil monetary penalties of up to $43,792 per violation.” Nearly all Direct Selling Association (“DSA”) member companies received the notice along with non-members of the DSA in the direct selling channel, gig companies, franchise companies, and other companies offering business opportunities.

We cannot predict what effect additional governmental regulations, judicial decisions, or administrative orders, when and if promulgated, would have on our business.

Failure by us, or our associates, to comply with these laws, regulations, or guidance, could have a material adverse effect on our business in a particular market or in general.

Finally, the continuation of regulatory challenges, investigations and litigation against other direct selling companies could harm our business and the direct selling channel if the laws and regulations are interpreted in a way that results in additional restrictions on direct selling companies in genera l.

Independent associates could fail to comply with our associate policies and procedures or make improper product, compensation, marketing or advertising claims that violate laws or regulations, which could result in claims against us that could harm our financial condition and operating results.

37 unchanged sentences

In addition, in the past, and because of the industry in which we operate, we have experienced inquiries regarding specific independent associates.

The Company may, directly or indirectly, be affected by government laws and regulations related to climate change.

Climate change, or legal, regulatory or market measures to address climate change, may negatively affect our business and operations.

There is growing concern that carbon dioxide and other greenhouse gases in the atmosphere may have an adverse impact on global temperatures, weather patterns, and the frequency and severity of extreme weather and natural disasters.

In the event that climate change has a negative effect on agricultural productivity, we may be subject to decreased availability or less favorable pricing for certain commodities that are necessary for our products, such as Aloe Vera and other plant-based raw materials used in our products.

Adverse weather conditions and natural disasters can reduce crop size and crop quality, which in turn could reduce our supplies of raw materials, lower recoveries of usable raw materials, increase the prices of our raw materials, increase our cost of storing and transporting our raw materials, or disrupt production schedules.

If we violate governmental regulations or fail to obtain necessary regulatory approvals, our operations could be adversely affected.

41 unchanged sentences

Subsequent to the campaign, Quanjian was fined approximately $14.0 million and its founder and chairman was sentenced to nine years in prison and assessed a fine of approximately $7.0 million.

The suspension of issuing direct selling licenses continues.

Many direct selling companies operating in China are still experiencing negative effects to their business operations including limited sales meetings, media scrutiny, and unfavorable consumer sentiment towards direct selling companies.

30 unchanged sentences

Scrutiny has increased with the advent of the Organization for Economic Co-operation and Development Base Erosion and Profit Shifting project.

On December 22, 2017, the U.S.

enacted the Tax Cuts and Jobs Act (the "TCJA").

The Internal Revenue Service ("IRS") continues to issue guidance related to the passage of the Act.

As new guidance is issued it may have a material impact on our financial statements.

In addition, there is a risk that U.S.

states and foreign jurisdictions may amend their tax laws in response to the Act, which could have a material impact on our future results.

We are subject to income taxes in the U.S.

and numerous international jurisdictions.

Our income tax provision and cash tax liability in the future could be adversely affected by changes in earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities, changes in tax laws and the discovery of new information in the

course of our tax return preparation process.

We are also subject to ongoing tax audits.

35 unchanged sentences

Furthermore, our bylaws establish advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted on by shareholders at shareholder meetings.

In addition, the Texas Business Organization Code restricts, subject to exceptions, business

combinations with any “affiliated shareholder.” Any or all of these provisions could delay, deter or help prevent a takeover of our Company and could limit the price investors are willing to pay for our common stock.

In addition, the Texas Business Organization Code restricts, subject to exceptions, business combinations with any “affiliated shareholder.” Any or all of these provisions could delay, deter or help prevent a takeover of our Company and could limit the price investors are willing to pay for our common stock.

Our failure to comply with The Nasdaq Global Select Market continued listing standards may adversely affect the price and liquidity of our shares of common stock as well as our ability to raise capital in the future.

21 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors