What changed in this filing

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Item 1A. Risk Factors

2025-02-21 compared with 2024-02-28 · 41 added, 63 removed, 381 unchanged (21% of the section changed)

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Because our Hong Kong operations account for a substantial portion of our overall business, and substantially all of our Hong Kong business is derived from the sale of products to members in China, any material adverse change in our business relating to either Hong Kong or China would likely have a material adverse impact on our overall business.

In 2023 and 2022, approximately 79% and 78% of our revenue was generated in Hong Kong, respectively.

Substantially all of our Hong Kong revenues are derived from the sale of products that are delivered to members in China.

In 2024 and 2023, approximately 82% and 79% of our revenue was generated in Hong Kong, respectively, and substantially all of our Hong Kong revenues are derived from the sale of products that are delivered to members in China.

This geographic concentration in our business means that events or conditions that could negatively impact this geographic region or our operations in this region, including the current economic challenges facing China and Hong Kong, are having and could in the future have a greater adverse impact upon our overall business and financial results than would be the case with a company having greater geographic diversification.

Our Hong Kong operations are being adversely affected by recent political and social developments in Hong Kong, and the negative impact on our operations and financial performance could continue or intensify.

Our headquarters and a significant number of our employees are based in Hong Kong, and our Hong Kong subsidiary generates a substantial portion of our overall business.

Hong Kong has in recent years experienced significant political unrest and social strife, including a series of large-scale protests.

These developments, along with the impact of the COVID-19 pandemic, led us in 2020 to cease conducting member meetings and events in Hong Kong.

Inasmuch as member meetings and events located in Hong Kong have in the past served as an important component of our product marketing and distribution efforts, we believe that these developments have negatively affected our operations and financial performance.

Although we were able to sponsor a large in-person member event in Hong Kong in the fourth quarter of 2023, it is too early to predict whether these developments will continue to adversely affect our overall business, results of operations and financial condition.

Hong Kong's political and economic landscape has in recent years undergone significant change, and this upheaval or related consequences could negatively impact our business and financial performance.

In addition to the fact that our Hong Kong subsidiary generates a substantial portion of our overall business, a significant number of our employees are based in Hong Kong.

The political and economic landscape in Hong Kong has in recent years undergone significant change, largely due to the increasing influence of the Chinese government.

This development, along with the impact of the COVID-19 pandemic, led us to cease conducting member meetings and events in Hong Kong for a period of time.

We have since been able to substantially resume normal operations in Hong Kong, but Hong Kong's economy is now increasingly integrated with that of China.

We relocated our corporate headquarters from Hong Kong to California in February 2025.

It is unclear how changed circumstances in Hong Kong will in the future affect our business, but it is possible that the upheaval in Hong Kong's political and economic affairs or related consequences could adversely affect our future business, results of operations and financial condition.

We experienced negative operating cash flows during the years ended December 31, 2024, 2023 and 2022, and only modest positive operating cash flows during the years ended December 31, 2021 and 2020.

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There have been several instances where adverse publicity in China has harmed our business.

See “Item 1A.

Risk Factors - Our business in China is subject to compliance with a myriad of applicable laws and regulations…”.

In addition, our members’ and consumers’ perception of the safety and quality of our products and ingredients, as well as similar products and ingredients distributed by other companies, can be significantly influenced by media attention, publicized scientific research or findings, widespread product liability claims and other publicity concerning our products or ingredients or similar products and ingredients distributed by other companies.

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We operate globally, and as a result, our business and revenues are impacted by global economic and geopolitical conditions.

The instability in global financial markets, inflation, shortages and delays related to global supply chain challenges, uncertainties related to the imposition and lifting of governmental restrictions to mitigate the spread of COVID-19, the current economic challenges in China, changes in government policies, geopolitical turmoil and other disruptions to global and regional economies and markets continue to add uncertainty to global economic conditions.

The instability in global financial markets, tariff and trade wars, inflation, shortages and delays related to global supply chain challenges, the current economic challenges in China, changes in government policies, geopolitical turmoil and other disruptions to global and regional economies and markets continue to add uncertainty to global economic conditions.

The continuing effect of any or all of these events could adversely impact demand for our products, harm our business, results of operations and financial condition.

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Further, we currently source each of these products from a single supplier.

If demand decreases significantly, government regulation restricts their sale, we are unable to adequately source or deliver the products, or we are unable to offer the products for any reason without suitable replacements, our business, results of operations and financial condition could be materially and adversely affected.

If demand decreases significantly, government regulation re stricts their sale, we are unable to adequately source or deliver the products, or we are unable to offer the products for any reason without suitable replacements, our business, results of operations and financial condition could be materially and adversely affected.

Our future success will also depend on our ability to reduce our dependence on these few products by developing and introducing new products and product or feature enhancements in a timely manner.

Even if we are able to develop and commercially introduce new products and enhancements, they may not achieve market acceptance and the revenue generated from these new products and enhancements may not offset the costs, which could substantially impair our business, results of operations and financial condition.

Epidemics, such as the COVID-19 pandemic, or natural disasters, terrorist attacks or acts of war or hostility may seriously harm our business.

Epidemics, natural disasters, terrorist attacks or acts of war or hostility may seriously harm our business.

Epidemics, natural disasters, terrorist attacks or acts of war or hostility may cause damage or disruption to us, our employees, our facilities and our members and customers, which could negatively impact our revenues, results of operations and financial condition.

For example, in late 2019 or early 2020 an outbreak of COVID-19 was first identified in China and subsequently spread around the world, being declared a global pandemic by the World Health Organization in March 2020.

The outbreak caused the Chinese government to implement powerful measures to control the virus, such as requiring businesses to close throughout areas of China and restricting public gatherings and certain travel within the country.

We have significant business in China and in 2023 generated approximately 79% of our revenue in Hong Kong, substantially all of which was derived from the sale of products to members in China.

The Chinese and Hong Kong governments, like the governments of other countries in which we operate, continue to adjust the restrictive measures that they impose to control COVID-19 based on then-current local circumstances;

however, it should be noted that the Chinese and Hong Kong governments imposed some of the most restrictive COVID-19 control measures of any country in the world.

While the Chinese and Hong Kong governments took comprehensive steps to relax many of their COVID-19 control measures in late 2022, these disruptions materially negatively impacted our financial results from 2020 through 2022.

This less restrictive business environment continued throughout 2023.

We are hopeful that this improved state of affairs will enable us to continue more normal operations in China and Hong Kong, but it is still too early to accurately predict the impact on us of this relaxation of control measures and whether it will prove enduring.

Ultimately, the severity of the impact on us of the COVID-19 pandemic will depend on future developments, including the duration and spread of the virus, and related control measures, which we are unable to accurately predict.

This and other epidemics, such as the avian influenza, or natural disasters have in the past and could in the future adversely affect our business, results of operations and financial condition.

Terrorist attacks, the national and international responses to terrorist attacks, and acts of war or hostility could materially and adversely affect our business, results of operations, and financial condition in ways that we currently cannot predict.

For example, COVID-19 was first identified in China and subsequently spread quickly around the world, causing the governments of countries in which we operate to impose restrictive measures to control the virus.

The disruptions wrought by COVID-19 materially negatively impacted our operations and financial results from 2020 through 2022.

Although the public health restrictions put in place at the time have largely been lifted, if the COVID-19 virus and its variants cause a resurgence of infection, or if other public health emergencies arise in the future, it could lead to additional restrictive measures that would have a material and adverse effect on our business.

In addition, terrorist attacks, the national and international responses to terrorist attacks, and acts of war or hostility could materially and adversely affect our business, results of operations, and financial condition in ways that we currently cannot predict.

For example, the imposition of sanctions in response to Russia’s invasion of Ukraine in 2022 required that we alter some of our operations in our Russia and Kazakhstan market, including ceasing to sell certain of our products in that market.

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Moreover, as our business evolves, we may require additional or different management members, directors or consultants, and there can be no assurance that we will be able to locate, attract and retain them if and when they are needed.

Our recent loss of a significant number of members is adversely affecting our business, and if we cannot stabilize or increase the number of members our business could be further negatively impacted.

Our continuing loss of a significant number of members is adversely affecting our business, and if we cannot stabilize or increase the number of members our business could be further negatively impacted.

We distribute our products through independent members, and we depend upon them directly for all of our sales in most of our markets.

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Our members may terminate their services with us at any time and, like most direct selling organizations, we have a high rate of attrition.

We had 16% fewer active members at December 31, 2023 as compared to the end of 2022, and 16% fewer active members at the end of 2022 as compared to the end of 2021.

We had 5% fewer active members at December 31, 2024 as compared to the end of 2023, and 16% fewer active members at the end of each of 2023 and 2022 as compared to the end of the previous year.

These losses in the number of active members were a significant factor contributing to the decrease in our recent year-over-year sales.

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our actions to enforce our policies and procedures;

regulatory actions or charges or private actions against us or others in our industry, such as the 100-day campaign initiated in China in January 2019 (as well as its extension and aftermath, including the related look-back review);

general economic, business and political conditions, including the recent political unrest in Hong Kong and the imposition of restrictive measures that curtail person-to-person interactions, as recently experienced resulting from the COVID-19 pandemic;

regulatory actions or charges or private actions against us or others in our industry;

general economic, business and political conditions, including the potential governmental imposition of restrictive measures that may curtail person-to-person interactions, as recently experienced resulting from the COVID-19 pandemic, and political unrest in Hong Kong;

increased use of social sharing channels, which may allow members to more easily engage with their customers and other members in other opportunities;

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Enforcement measures regarding these violations, which can include arrests, raise the uncertainty and perceived risk associated with conducting this business, especially among those who are aware of the enforcement actions but not the specific activities leading to the enforcement action.

We believe that this has led some existing members in China (who are signed up as members in Hong Kong) to leave the business or curtail their selling activities and has led some potential members to choose not to participate.

We believe that this led some members in China (who are signed up as members in Hong Kong) to leave the business or curtail their selling activities and has led some potential members to choose not to participate.

Among other things, we are managing this risk with more training and public relations efforts that are designed, among other things, to distinguish our company from businesses that make no attempt to comply with the law.

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An increase in the amount of compensation paid to members would reduce profitability.

We incur significant expense in the payment of compensation to our members, which represented approximately 42% of net sales during each of 2023 and 2022.

We incur significant expense in the payment of compensation to our members, which represented approximately 41% and 42% of net sales during each of 2024 and 2023, respectively.

We compensate our members by paying commissions, bonuses, and certain awards and prizes.

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Various other factors could harm our business in Hong Kong and China, such as worsening economic conditions in Hong Kong or China, adverse developments relating to the industry in which we conduct our business, adverse local publicity, negative changes to our business and/or social media coverage, geopolitical or trade tensions between the United States and China or other events that may be out of our control.

For example, in January 2019 the Chinese government announced a 100-day campaign focusing on companies involved in the sale of food, equipment, daily necessities, small home electrical appliances and services that are claimed to promote health.

For example, in 2019 the Chinese government announced a 100-day campaign focusing on companies involved in the sale of food, equipment, daily necessities, small home electrical appliances and services that are claimed to promote health.

The Chinese government ministries in charge of this campaign indicated that they were targeting illegal practices in the industry, particularly the manufacture and sale of counterfeit and substandard products, and false advertising and misleading claims as to the health benefits of products and services.

It is understood that the campaign was specifically focused on the business practices of direct selling companies.

In January 2019 we, like some of our peers, voluntarily decided to temporarily suspend our member activities, such as product roadshows, product trainings and larger company-sponsored events, in China.

We did this because we learned that the 100-day campaign was announced in broad outlines by the central government, and the interpretation and enforcement of the campaign was delegated to the provincial and local governments.

We consider it a top priority for our business to develop an understanding of and cooperate with all levels and jurisdictions of the government agencies and did not want to run the risk of being inadvertently entangled in the government enforcement actions as the provincial and local government formulate and implement their interpretive guidance and rule-making.

Although we have been able to relax some restrictions on member activities in certain markets, it may again in the future be necessary or advisable to suspend member activities or take similar actions, and the resulting periods of reduced activity may have a material adverse effect on our business.

Although the 100-day campaign was due to expire in April 2019, we are not aware of any information indicating that the campaign has formally concluded.

However, the Chinese government subsequently announced that it would conduct a “look-back review” to evaluate the 100-day campaign.

As part of this review, we understand that various Chinese governmental agencies formed a working group to assess the 100-day campaign, particularly focusing on the health market and its supervision in certain provinces.

We understand that during September 2019 the working group evaluated the performance and results of a number of organizations and governmental departments in these provinces and made recommendations for various improvements.

It was noted that each province had opened a number of investigative cases, had successfully closed numerous cases, and had imposed various fines and penalties.

We understand that the look-back review continued after September 2019, and we are not aware that this review has been completed.

As a result, the business environment in China for health product companies continues to be challenging, which has sometimes been exacerbated by negative social media sentiment expressed for these types of companies.

We believe that the campaign, as well as its extension and aftermath (including the look-back review), will continue to negatively impact our business in China in the near-term, but will ultimately benefit us and Chinese consumers as purveyors of substandard products are driven from the market.

As a result, we and some of our peers voluntarily decided to temporarily suspend our member activities, such as product roadshows, product trainings and larger company-sponsored events, in China.

We did this because we learned that the campaign was announced in broad outlines by the central government, and the interpretation and enforcement of the campaign was delegated to the provincial and local governments.

We consider it a top priority for our business to develop an understanding of and cooperate with all levels and jurisdictions of the government agencies and did not want to run the risk of being inadvertently entangled in the government enforcement actions as the provincial and local government formulated and implemented their interpretive guidance and rule-making.

It may again in the future be necessary or advisable to suspend member activities or take similar actions, and the resulting periods of reduced activity may have a material adverse effect on our business.

Although we attempt to work closely with both national and local Chinese governmental agencies in conducting our business, our efforts to comply with national and local laws may be harmed by a rapidly evolving regulatory climate, concerns about activities resembling violations of direct selling, pyramid selling or multi-level marketing legislation, subjective interpretations of laws and regulations, and activities by individual members that may violate laws notwithstanding our policies prohibiting such activities.

Any determination that our operations or activities, or the activities of our individual members, employee sales representatives, or importers of record are not in compliance with applicable laws and regulations could result in the imposition of substantial fines, extended interruptions of business, restrictions on our future ability to obtain business licenses or expand into new locations, changes to our business model, the termination of required licenses to conduct business, or other actions, any of which could materially harm our business, results of operations and financial condition.

Changes in government trade and economic policies, including the imposition or threatened imposition of tariffs and other restrictive trade policies, and ongoing political and economic disputes between the United States and other jurisdictions, particularly China, may have a negative effect on global economic conditions and our business, financial results and financial condition.

Changes in government trade and economic policies, including the imposition and threatened imposition of tariffs and other restrictive trade policies, and ongoing political and economic disputes between the United States and other jurisdictions, particularly China, may have a negative effect on global economic conditions and our business, financial results and financial condition.

The United States has in recent years enacted tariffs on certain items.

Further, there are ongoing discussions and activities regarding changes to other U.S.

trade policies and treaties.

Further, with President Trump's re-election in 2024, significant increases in tariffs on foreign imports into the United States have been proposed or, the case of imports from China imposed.

In response, a number of our markets, particularly China, have implemented tariffs on U.S.

imports or otherwise imposed non-tariff barriers such as slow-walking custom clearance of American-made products in response to these U.S.

These developments, together with the threat of new tariffs and other restrictive trade policies, may have a material adverse effect on global economic conditions and the stability of global financial markets, and they may significantly reduce global trade and, in particular, adversely affect trade and economic relations between China and the United States.

Tensions between the United States and China have increased over the past few years as a result of disputes in areas including trade policy, intellectual property, cybersecurity and data privacy.

Tensions have become particularly acute following the China legislature’s passage of a national security law in June 2020 that changed the way Hong Kong has been governed since the territory was handed over by the United Kingdom to China in 1997.

imports or otherwise imposed non-tariff barriers such as slow-walking custom clearance of American-made products.

trade policies can change quickly, and the extent and duration of tariffs and other trade barriers are difficult to predict.

These developments, together with the threat of new tariffs and other restrictive trade policies and the uncertainties they create, may have a material adverse effect on global economic conditions and the stability of global financial markets, and they may significantly reduce global trade and, in particular, adversely affect trade and economic relations between China and the United States.

Tensions between the United States and China have increased in recent years as a result of disputes in areas including trade policy, intellectual property, cybersecurity and data privacy.

Tensions became particularly acute following the China legislature’s passage of a national security law in 2020 that changed the way Hong Kong has been governed since the territory was handed over by the United Kingdom to China in 1997.

This law criminalizes secessionist activities, subversion, terrorism, and collusion with a foreign country or with external elements to endanger national security in Hong Kong.

State Department has announced that the United States no longer considers Hong Kong to have significant autonomy from China, and the U.S.

administration is taking action to end many of the U.S.

government’s special trade and economic relations with Hong Kong.

Further, on July 14, 2020 the United States enacted the Hong Kong Autonomy Act (and the U.S.

President issued a related executive order), authorizing the U.S.

administration to impose sanctions against individuals and entities determined to materially contribute to the erosion of Hong Kong's autonomy, as well as to punish financial institutions that facilitate certain significant transactions.

The United States has since imposed sanctions on a number of individuals, and China has responded in kind.

These and other recent actions may represent an escalation in political and economic tensions involving the United States, China and Hong Kong, which could harm our business.

State Department has indicated that the United States no longer considers Hong Kong to have significant autonomy from China, and the United States has enacted sanctions against certain persons related to China's governance of Hong Kong.

China has responded in kind.

These and other recent actions reflect an escalation in political and economic tensions involving the United States, China and Hong Kong, which could harm our business.

A continued deterioration in these political or economic relations or other future unforeseen problems could disrupt our China and Hong Kong business (including our Hong Kong office and employees), adversely affect the distribution of our products, reduce our net sales, increase the cost of conducting our operations, or result in retaliatory actions against U.S.

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Of particular note is China's Cyber Security Law, which requires companies to take certain measures to ensure that the security of their networks and data stored on their networks.

Specifically, the Cyber Security Law provides that companies adopt a multi-level protection scheme under which network operators are required to perform obligations of security protection to ensure that the network is free from interference, disruption or unauthorized access, and prevent network data from being disclosed, stolen or tampered.

In addition, on June 10, 2021, the Standing Committee of the National People's Congress of China promulgated the Data Security Law, which took effect in September 2021.

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We also purchase a significant majority of inventories in U.S.

Our foreign currency exchange rate exposure to the South Korean won, Taiwan dollar, Japanese yen, Chinese yuan, Russian ruble, Kazakhstani tenge, Singaporean dollar, Malaysian ringgit, Thai baht, Indian rupee, Canadian dollar, Mexican peso, Peruvian sol and European euro collectively represented approximately 18% and 19% of our revenue in 2023 and 2022, respectively.

Our foreign currency exchange rate exposure to the South Korean won, Taiwan dollar, Japanese yen, Chinese yuan, Russian ruble, Kazakhstani tenge, Singaporean dollar, Malaysian ringgit, Indian rupee, Canadian dollar, Mexican peso, Peruvian sol, European euro and Colombian peso collectively represented approximately 16% and 18% of our revenue in 2024 and 2023, respectively.

Our foreign currency exchange rate exposure may increase in the near future as we develop opportunities in Southeast Asia, India, Canada, Central America, South America and Europe.

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Changes in tax or duty laws, and unanticipated tax or duty liabilities, could adversely affect our net income.

In the course of doing business we may be subject to various taxes, such as sales and use, value-added, and franchise.

In the course of doing business we may be subject to various taxes, such as sales and use, value-added, and franchise taxes.

We are also subject to income taxes in the United States and numerous foreign jurisdictions.

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In particular, the adoption of legislation requiring FDA approval of supplements or ingredients could delay or inhibit our ability to introduce new supplements.

We face similar pressures in our other markets, particularly in China where certain government ministries announced in January 2019 a comprehensive 100-day campaign focusing on companies involved in the sale of certain products, including nutritional supplements and health products.

This campaign, which may not have formally concluded, and may still be the subject of a “look-back review” being conducted by various Chinese governmental agencies, could result in new legislation or regulation.

We face similar pressures in our other markets, particularly in China where certain government ministries announced in 2019 a comprehensive 100-day campaign focusing on companies involved in the sale of certain products, including nutritional supplements and health products.

This campaign or other actions could result in new legislation or regulation in China.

In the United States, the FTC's Guides Concerning the Use of Endorsements and Testimonials in Advertising (the “Guides”) require disclosure of material connections between an endorser and the company they are endorsing and require the disclosure of typical results when these are different from those reported by the endorser.

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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