What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2025-02-21 compared with 2024-02-28 · 50 added, 70 removed, 128 unchanged (48% of the section changed)

4 unchanged sentences

Our wholly-owned subsidiaries have an active physical presence in the following markets:

the Americas, which consists of the United States, Canada, Cayman Islands, Mexico and Peru;

the Americas, which consists of the United States, Canada, Cayman Islands, Mexico, Peru and Colombia;

Greater China, which consists of Hong Kong, Taiwan and China;

Southeast Asia, which consists of Malaysia, Singapore and Thailand;

Southeast Asia, which consists of Malaysia and Singapore;

We also operate in Russia and Kazakhstan through our engagement with a local service provider.

5 unchanged sentences

For further information regarding some of the risks associated with our loss of members, see “Item 1A.

Risk Factors - Our recent loss of a significant number of members is adversely affecting our business…”.

Risk Factors - Our continuing loss of a significant number of members is adversely affecting our business…”.

We generate approximately 94% of our net sales from subsidiaries located outside the Americas, with sales of our Hong Kong subsidiary representing 82% of net sales in the latest fiscal year.

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For further information regarding some of the risks associated with the conduct of our business in China and Hong Kong, see “Item 1A.

Risk Factors,” and more specifically under the captions “Risk Factors - Because our Hong Kong operations account for a substantial portion of our overall business...”, “Risk Factors - Our Hong Kong operations are being adversely affected by recent political and social developments in Hong Kong….”, and “Risk Factors - Our business in China is subject to compliance with a myriad of applicable laws and regulations...”.

Risk Factors,” and more specifically under the captions “Risk Factors - Because our Hong Kong operations account for a substantial portion of our overall business...”, “Risk Factors - Hong Kong's political and economic landscape has in recent years undergone significant change...”, and “Risk Factors - Our business in China is subject to compliance with a myriad of applicable laws and regulations...”.

China has been and continues to be our most important business development project.

We operate an e-commerce direct selling platform in Hong Kong that generates revenue derived from the sale of products to members in Hong Kong and elsewhere, including China.

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

Through a separate Chinese entity, we operate an e-commerce retail platform in China.

We operate an e-commerce direct selling platform in Hong Kong that in 2024 generated approximately 82% of our revenue, substantially all of which was derived from the sale of products that are delivered to members in China.

Through a separate Chinese entity, we also operate an e-commerce retail platform in China.

We believe that neither of these activities require a direct selling license in China, which we do not currently hold.

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We are unable to predict whether and when we will be successful in obtaining a direct selling license to operate in China, and if we are successful, when we will be permitted to conduct direct selling operations and whether such operations would be profitable.

In January 2019 the Chinese government announced a 100-day campaign focused 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 conducted a campaign in 2019 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.

The campaign and associated negative media coverage resulted in a significant adverse impact on our business, as consumers widely curtailed their purchases within the affected industries.

We, like some of our peers, voluntarily decided in January 2019 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 government enforcement actions as the provincial and local governments 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 from time to time, and such 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 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 in the long-term as purveyors of substandard products are driven from the market.

In late 2019 or early 2020 an outbreak of COVID-19 was first identified in China and subsequently spread around the world.

On March 11, 2020 the World Health Organization declared the COVID-19 outbreak a global pandemic.

The outbreak caused the Chinese government to implement powerful measures to control the virus, such as requiring businesses to close throughout various 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 the 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.

Of particular note, the spread of the Omicron variant in Hong Kong and China, along with the imposition of strong government control measures, significantly disrupted our operations and negatively affected our results of operations in 2022.

During the first half of the year, our third-party logistics providers also experienced substantial difficulties importing and distributing our products in China.

However, by early June 2022 the Chinese government began relaxing some of its more stringent policies and we found that the difficulties encountered by our third-party logistics providers were largely resolved by the end of the month.

Over the course of the pandemic, we also took steps to adapt some of our marketing programs, such as relying on certain product promotions and webcast training, to overcome the physical restrictions imposed in response to the pandemic.

Finally, after four consecutive quarters during which we were unable to sponsor any in-person member events in China, Macau or Hong Kong, we sponsored an in-person event at the end of the third quarter of 2022 in China.

Notwithstanding this modestly improved state of affairs, through late 2022 the Chinese and Hong Kong governments continued to impose strong control measures that were negatively impacting our ability to interact with our members and the ability of our members to interact with each other and their customers.

Although it was initially announced as a 100-day campaign, we are not aware of any information indicating that the campaign has ever been formally concluded.

In any case, the business environment in China for health product companies can be challenging, which has from time to time been exacerbated by negative social media sentiment expressed for these types of companies.

In late 2019 or early 2020 an outbreak of COVID-19 was first identified in China and subsequently spread quickly around the world, resulting in a global pandemic.

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

Over the course of the pandemic, we took steps to adapt some of our marketing programs, such as relying on certain product promotions and webcast training, to overcome the physical restrictions imposed in response to the pandemic.

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

This less restrictive business environment in China and Hong Kong continued throughout 2023, and we were able to sponsor a number of in-person member events in China during 2023, as well as a large in-person event in Macau during the second quarter of 2023 and a large in-person event in Hong Kong during the fourth quarter of 2023.

We are planning more such events and are hopeful that we will continue to normalize operations in China and Hong Kong.

Nevertheless, it is still too early to accurately predict the impact on us and our third-party providers 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 the related control measures, which we are unable to accurately predict.

This less restrictive business environment in China and Hong Kong continued throughout 2023 and 2024, and we have been able to sponsor in-person member events in China, Hong Kong and/or Macau during each quarter since the first quarter of 2023.

We are continuing to plan and sponsor more such events consistent with normal operations.

See “Item 1A.

Risk Factors - Epidemics, such as the COVID-19 pandemic, or natural disasters, terrorist attacks or acts of war…”.

Recent political and social developments in Hong Kong, along with the impact of the COVID-19 pandemic and related government control measures, are also adversely affecting our Hong Kong operations and led us in 2020 to cease sponsoring 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.

Risk Factors - Epidemics, natural disasters, terrorist attacks or acts of war…”.

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.

See “Item 1A.

Risk Factors - Our Hong Kong operations are being adversely affected by recent political and social developments in Hong Kong...”.

Risk Factors - Hong Kong's political and economic landscape has in recent years undergone significant change...”.

Statement of Operations Presentation

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Members can also earn additional income, trips and other prizes in specific time-limited promotions and contests we hold from time to time.

Member commissions are dependent on the sales mix and, for each of fiscal 2023 and 2022 represented 42% of net sales.

Member commissions are dependent on the sales mix and, for fiscal 2024 and 2023, represented 41% and 42% of net sales, respectively.

Occasionally, we make modifications and enhancements to our compensation plan to help motivate members, which can have an impact on member commissions.

28 unchanged sentences

Russia and Kazakhstan

1 United States, Canada, Mexico and Peru.

1 United States, Canada, Mexico, Peru and Colombia.

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

1 unchanged sentence

Risk Factors.”

Net sales were $43.9 million for the year ended December 31, 2023 compared with $49.1 million a year ago, a decrease of $5.2 million, or 11%.

Hong Kong net sales, substantially all of which were derived from the sale of products shipped to members residing in China, decreased $3.5 million, or 9%, over the prior year.

The decrease in Hong Kong net sales was primarily due to the changes in deferred revenue in the two years.

Deferred revenue increased $569,000 during 2023, but decreased $2.9 million during the prior year as promotional orders from December 2021 were fulfilled and recognized, resulting in a $3.5 million variance.

As a result of tepid consumer sentiment in China during 2023, our order volume was down 3% compared with the prior year.

The decrease in Hong Kong net sales was also due to the recognition of lower administrative fees in 2023 as compared to the prior year, as increased activity within member electronic wallet (eWallet) accounts resulted in less fees assessed during the current year.

Outside of our Hong Kong business, net sales decreased $1.7 million, or 16%, over the prior year, with decreased year-over-year net sales in each other geographic market except the Americas.

The decrease in net sales during 2023 resulted in a loss from operations for the year, as well as negative cash flows from operations.

Net sales were $43.0 million for the year ended December 31, 2024 compared with $43.9 million a year ago, a decrease of $961,000, or 2%.

Hong Kong net sales, substantially all of which were derived from the sale of products shipped to members residing in China, were almost the same as the prior year, increasing $208,000, or 1%, over the prior year.

Outside of our Hong Kong business, net sales decreased $1.2 million, or 13%, over the prior year primarily due to decreased year-over-year net sales in our business in the Americas and Taiwan which were somewhat offset by an increase in year-over-year net sales in our Chinese e-commerce retail business.

As of December 31, 2024, deferred revenue was $6.4 million, which primarily consisted of $4.9 million pertaining to unshipped product orders and unredeemed product vouchers, as well as $1.5 million in auto ship advances.

Gross profit was 74.0% of net sales for the year ended December 31, 2024 compared with 74.6% of net sales for the year ended December 31, 2023.

Excluding the impact of decreased administrative fee revenue referred to above, the gross profit margin percentage in 2023 slightly improved over the prior year primarily due to lower logistics costs.

The decline in gross profit margin was primarily attributable to higher costs related to our Premium Noni juice product.

Commissions Expense

Commissions were 40.9% of net sales for the year ended December 31, 2024 compared with 41.9% of net sales for the year ended December 31, 2023.

Excluding the impact of decreased administrative fee revenue referred to above, commissions as a percentage of net sales decreased slightly in 2023 as compared to the prior year.

The decline in commissions as a percentage of net sales was primarily due to lower weekly commissions earned during 2024.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $16.0 million for each of the years ended December 31, 2023 and 2022.

Selling, general and administrative expenses as a percentage of net sales increased in the current year as compared to the prior year due to the decrease in net sales in the current year and the relatively inelastic nature of these expenses.

Selling, general and administrative expenses decreased to $15.5 million for the year ended December 31, 2024, as compared to $16.0 million for the year ended December 31, 2023.

The decrease was primarily due to lower insurance and other general business expenses .

Selling, general and administrative expenses as a percentage of net sales were modestly lower in the current year as compared to the prior year.

Other Income, Net

Other income increased to $2.4 million for the year ended December 31, 2023 as compared with $872,000 in the prior year.

The increase in other income is primarily due to greater interest earned on our cash equivalents as compared to the prior year.

An income tax provision of $177,000 was recognized for the year ended December 31, 2023 compared with $289,000 for the year ended Decemb er 31, 2022 .

The tax provision for 2022 primarily resulted from the impact of the global intangible low-taxed income (“GILTI”) inclusion offset by foreign tax credit attributes generated as a result of GILTI, as well as income tax expense from various foreign jurisdictions.

Our effective tax rate for the year ended December 31, 2023 was lower than in the year ended December 31, 2022 primarily because our reduced income in foreign operations during the year ended December 31, 2023.

Other income decreased to $1.9 million for the year ended December 31, 2024, as compared to $2.4 million in the prior year.

The decrease in other income was primarily due to less interest earned during 2024 as compared to the prior year.

An income tax provision of $48,000 was recognized for the year ended December 31, 2024 compared with $177,000 for the year ended December 31, 2023 .

The tax provision for 2023 primarily resulted from the impact of Subpart F income inclusion, limitations on executive compensation under Internal Revenue Code Section 162(m), and income tax expense from various foreign jurisdictions.

Our effective tax rate for the year ended December 31, 2024 was lower than in the year ended December 31, 2023 primarily because of reduced income in foreign operations during the year ended December 31, 2024.

Liquidity and Capital Resources

At December 31, 2023, our cash and cash equivalents totaled $56.2 million.

Total cash and cash equivalents decreased by $13.5 million from December 31, 2022 to December 31, 2023, primarily due to cash used in operating activities and dividends paid during 2023.

At December 31, 2024, our cash, cash equivalents and marketable securities totaled $43.9 million.

Total cash, cash equivalents and marketable securities decreased by $12.2 million from December 31, 2023 to December 31, 2024 due to the dividends paid during 2024 and the payment of the repatriation tax on the deemed repatriation of deferred foreign income as required by the U.S.

Tax Cuts and Jobs Act.

We consider all highly liquid investments with original maturities of three months or less, when purchased, to be cash equivalents.

As of December 31, 2023, we had $47.2 million in available-for-sale investments classified as cash equivalents.

As of December 31, 2024, we had $36.0 million in available-for-sale investments classified as either cash equivalents or marketable securities.

In addition, cash and cash equivalents included $3.6 million held in banks located in China subject to foreign currency controls.

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Cash used in operations was $3.4 million and $4.3 million during 2024 and 2023, respectively.

Income tax paid during April 2023 and 2022 for the repatriation tax on the deemed repatriation of deferred foreign income was $3.0 million and $1.6 million, respectively.

Disregarding these payments, cash used in operations improved $2.0 million in 2023 primarily due to an increase in interest earned on our cash equivalents, as well as less employee-related payouts compared to the prior year.

Cash used in investing activities totaled $46,000 and $143,000 during 2023 and 2022, respectively.

Cash used in financing activities during 2023 and 2022 consisted solely of quarterly dividend payments of $0.20 per common share, totaling an aggregate of $9.2 million and $9.1 million during 2023 and 2022, respectively.

Income tax paid during A pril 2024 and 2023 for the repatriation tax on the deemed repatriation of deferred foreign income was $4.0 million and $3.0 million, respectively.

Disregarding these payments, cash flows from operations improved $1.8 million primarily due to improved management of inventories and operating costs during 2024 as compared to the prior year, as well as a timing difference related to weekly commission outflows .

Cash used in investing activities totaled $30.1 million and $46,000 during 2024 and 2023, respectively.

During 2024, were purchased $70.4 million in marketable securities with original maturities greater than three months, and as such, reflect these purchases as an investing activity.

These purchases of marketable securities were offset by $40.4 million of proceeds received from maturities of marketable securities.

Cash used in financing activities during 2024 and 2023 consisted solely of quarterly dividend payments of $0.20 per common share, totaling $9.2 million in each period.

Subsequent to December 31, 2024, on February 3, 2025, the Board of Directors declared another quarterly cash dividend of $0.20 on each share of common stock outstanding.

The dividend will be payable on March 1, 2024 to stockholders of record on February 20, 2024.

The dividend will be payable on February 28, 2025 to stockholders of record on February 18, 2025.

W e expect to continue paying a quarterly cash dividend of $0.20 on each share of common stock outstanding for the foreseeable future .

However, any future cash dividends will be at the sole discretion of the Board of Directors, and will depend on our financial condition, results of operations, capital requirements and other factors considered relevant by the Board of Directors.

On January 12, 2016, the Board of Directors authorized an increase to our stock repurchase program first approved on July 28, 2015 from $15.0 million to $70.0 million.

In 2016, the Board of Directors authorized an increase to our stock repurchase program first approved in 2015 from $15.0 million to $70.0 million.

Any repurchases will be made in accordance with all applicable securities laws and regulations, including Rule 10b-18 of the Exchange Act.

2 unchanged sentences

As of December 31, 2024, $21.9 million of the $70.0 million stock repurchase program remained available for future purchases, inclusive of related estimated income tax.

No repurchases were made under the stock repurchase program in 2024 or 2023.

We believe that our existing internal liquidity, supported by cash and cash equivalents, as well as cash flows from operations should be adequate to fund normal business operations and address our financial commitments for the foreseeable future.

17 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 7. Management’s Discussion and Analysis