USANA Should Answer The Following Questions During Their July 24, 2012 Second Quarter Earnings Release and Conference Call.

(Updated July 26, 2012 at bottom of posting)

USANA's second quarter earnings will be released Tuesday July 24, 2012 and a follow up conference call will take place on Wednesday at 11:00 AM. I have a few very simple and important questions analysts or shareholders should ask USANA during the conference call for the second quarter earnings release. It is in the best interest of the shareholders that USANA answer the following questions.

1) How much (or percentage) of the distributor incentives was the result of active associates purchasing the minimum requirement every 28 days in order to be commission eligible? (VERY IMPORTANT QUESTION)

2) Of the distributors that USANA considers "Full Time" (Gold Directors and up), ON AVERAGE how much (or percentage) of the commission paid to them comes from preferred customers and how much (or percentage) comes from downline distributors? (VERY IMPORTANT QUESTION)

3) How many active associates and preferred customers are in each of USANA's territories? (Australia, New Zealand, South Korea, Japan, Malaysia, Philippines, Hong Kong, Mainland China, United States, Canada, Mexico, etc...) Please break it down by territory and not region.

4) How many distributors either renewed their distributor membership or purchased a Business Development System (BDS) in the last 12 months? (Will tell shareholders how many TOTAL distributors USANA has)

5) What percentage of USANA's net revenue was the result of product being retailed to customers outside distributor membership program? (If there are no retail sales, then why are associates being lured into the distributorship?)


Questions 1 & 2 are extremely important and shareholders and analysts should demand an answer to them. Its about time USANA explain where the commission comes from that pays tens of millions of dollars to their Full-Time (Gold Directors and up) distributors while leaving the remaining 99% of distributors profitless.

I challenge at least one of these USANA analysts to ask the above questions.

Scott Van Winkle - Canaccord Genuity, Research Division
Rommel T. Dionisio - Wedbush Securities Inc., Research Division
John P. San Marco - Janney Montgomery Scott LLC, Research Division
Frank A. Camma - Sidoti & Company, LLC
Timothy Ramey - D.A. Davidson & Co.
Per Osland (ph) – Jefferies & Company
Mimi Noel - Sidoti & Company
Doug Lane - Jefferies & Company
Diederik Basch – Canaccord Adams
Madeline Miller -- D.A. Davidson & Company

(Updated July 26, 2012)

Of course important questions like the ones I proposed above do not get answered and USANA continues to hide falling distributor numbers in many of their territories. Beginning last quarter, USANA decided to stop disclosing United States, Canada, and Mexico distributor numbers and instead just grouped them all together. Okay, not a big deal. However, USANA now includes their newest territories from EUROPE in the North American distributor numbers. For those that don't know, the United States and Europe are separated by about 3000 miles of ocean. So it is completely irrational for USANA to combine the European segments along with the North American segments because they are so incredibly geographically different. The only reason for USANA to have done this is to mask the continuing dismal distributor numbers in the US and Canada by including a new territory that is expected to have somewhat rapid growth. I call this sleazy and USANA's stock analysts are too blind to have noticed.

If you wanted to take the United States revenue and divide it by the number of active associates for the United States territory, then you can forget it.

USANA lost “Major Customers” to ARIIX, which may adversely affect 3rd quarter earnings

USANA states in their own words the following in many of their 10-K SEC filings: My Emphasis in BOLD Red

Major Customers
 
Sales are made to independent Associates and Preferred Customers.  No single customer has ever accounted for 10% or more of net sales in any fiscal year.  Notwithstanding the foregoing, the nature of our business model results in a significant amount of sales to several different Associate leaders and their downline sales organizations.  Although no single Associate has ever accounted for 10% or more of our net sales, the loss of a key Associate leader or that Associate’s downline sales organization would adversely affect our net sales and our overall operating results.

That is exactly what has and is happening!


Back on May 9, 2011 I reported that four of USANA's top executives (Fred Cooper, Jeff Yates, Mark Wilson, and Riley Timmer ) resigned from their position. However, USANA released this information publicly on May 10, 2011. How did I know 1 day ahead of time? USANA sent out a private memo to all of their Gold director distributors and up. They were privy to insider information before shareholders. However, stock analysts completely dismissed this fact. So when USANA stated in a press release that these executives resigned May 10th, that is not the case according to the May 9th private memo.

Now I'm here to give shareholders heads up on the fact that USANA has lost many of their top distributors who quit their distributorship with USANA to join ARIIX, the multilevel marketing company founded by Fred Cooper and operated by the other three ex-USANA executives who resigned in May. USANA is falling apart and stock analysts covering USANA don't seem to have the shareholders in their best interests.

After some research, I have compiled a list of USANA distributors that have decided to join ARIIX (bottom of this posting). The list is incomplete since neither company publishes who their distributors are (so secretive). Most of the USANA distributor ranking I show below are as of October of 2010. I do not have any recent information of their rankings and USANA has taken great strides at keeping the information a secret.

2 - 5 Star Diamond Director
1 – 4 Star Diamond Director
*1 - 3 Star Diamond Director
2 – Diamond Director
1 – Ruby Director
2 – Gold Director
7 – Silver Director
1 – Bronze Director
1 – Director
2 – Achiever
6 – Builder
4 – Believers
3 – Sharers
 
*(Revised October 25, 2011: I must at one more 3-Star Diamond Director, Robert & Daryl Allen)

Five Six Diamond Directors are what I would consider KEY ASSOCIATE LEADERS. Many of the others were part of one of these key associate's “sales organization” and left USANA to follow their leader. These key leaders have been plastered all over USANA's website, sales material, training material and all over YouTube promoting USANA's business model and its product. However, these Diamond Directors left USANA even before ARIIX launched, which gaurantees these members key positions in the ARIIX compensation business model. This really says a lot about USANA's products and doesn't bode very well for the company. Also doesn't help that Dr. Ray Strand left USANA to join ARIIX. Recently Liz Strand (Ray's wide) had her USANA distributor page shut down as well.

That's not all. USANA terminated a couple of these key leaders (Lynn Allen Johnson & Duke Tubtim) when they were reported to USANA executives for being on a conference call with ARIIX and other interested individuals who wanted to find out more about ARIIX. Many should be very familiar with a recent 2008 arbitration that awarded an ex-USANA distributor $7,000,000 for being wrongfully terminated back in 2003. Well, now we are talking about a couple star-diamond directors that USANA terminated just a few months ago. So where are stock analysts on this issue?

Now I want to make a little prediction, but first I have to make the following very clear. I have no financial position on USANA's stock or any competitor to USANA. I have never traded USANA stock and never plan to. No one is paying me to write anything about USANA. I am volunteering my time to educate people. I do not like to see people lose their hard earned money because they were deceived or misled.

With that said, I believe USANA's active associate numbers will decline across most of their territories, with China being the exception. If USANA's own SEC filings state that “the loss of a key Associate leader or that Associate’s downline sales organization would adversely affect our net sales and our overall operating results. ” Notice it doesn't use the term “might”,“maybe” or “possibly”. It states it “would” adversely affect their overall operating results

The following is a list I have compiled of USANA distributors who have joined ARIIX.

USANA Distributor #133412 - Lynn Allen Johnson - 5 Star Diamond Director
ARIIX Distributor #10146 - Lynn Allen Johnson - Vision is Power Inc.- http://www.myariix.com/lynnallenjohnson

USANA Distributor #2119355 - Duke Tubtim - 5 Star Diamond Director - Millionaire Club
ARIIX Distributor #10198 - Duke Tubtim - Kaizen Support Group Inc. - http://www.myariix.com/Kaizensupport

USANA Distributor #2111980 - Timothy Lewis - 4 Star Diamond Director - Millionaire Club
ARIIX Distributor #10138 - Timothy Lewis - 4DL Enterprises Inc. - http://www.myariix.com/4dl

USANA Distributor #33009 - Robert & Daryl Allen - 3 Star Diamond Director - http://robertallen.usana.com
ARIIX  Distributor #213647 - Robert Allen - http://www.myariix.com/robertallen

USANA Distributor #295671 - Steve and Myrna Swartz - Diamond Director - Millionaire Club
ARIIX Distributor # 10168 - Steve Swartz - Have it All, Inc. - http://www.myariix.com/steve

USANA Distributor #3053770 - Iris Lee - Team ASD – Diamond Director - http://teamasd.usana.com/
ARIIX Distributor #10228 - Iris Lee - IS Health Enterprises Ltd. - http://myariix.com/teamasd

USANA Distributor # - Sandy LV - Ruby Director -
ARIIX Distributor #19176 - Sandy LV - http://www.myariix.com/sandy

USANA Distributor #2127139 - Tatyana Sutherland - Gold Director - http://www.usana.com/webhosting/tatyana
ARIIX Distributor #11188 - Tatyana Sutherland

USANA Distributor #2765838 - Tracee Gluhaich - Gold Director - http://truehealthintl.usana.com/
ARIIX Distributor #18696 - Tracee Gluhaich - http://www.myariix.com/truehealthintl

USANA Distributor #3216982 - Phyllis Goodman - Silver Director - http://health4lifeinc.usana.com/
ARIIX Distributor #10847 - Phyllis Goodman - http://www.myariix.com/phyllisgoodman

USANA Distributor #2137359 - Glenna and Richard Norris - Silver Director
ARIIX Distributor #59886 - Glenna and Richard Norris, CHHC - http://www.myariix.com/gnr

USANA Distributor #3704262 - Randy "Yosef" Katz - Silver Director - Sabai Marketing Group http://www.usana.com/webhosting/sabaiARIIX Distributor #10247 - Randy "Yosef" Katz - Sabai - http://www.myariix.com/esuite/home/sabai

USANA Distributor #86832 - John & Carol Cliffe - Silver Director -  http://riskfree.usana.com/
ARIIX Distributor #11327 - John Cliffe -

USANA Distributor#2811720 - David & Monica Rendon - Silver Director - http://www.achievinghealth.usana.com
ARIIX Distributor #42887 - David & Monica Rendon - http://www.myariix.com/rendon

USANA Distributor #2554180 - Marlisa Hurt - Silver Director - http://www.usana.com/webhosting/marlisa
ARIIX Distributor #33636 - Marlisa Hurt


USANA Distributor #2320280 - Jean Amicarella - Silver Director -  http://www.usana.com/webhosting/jeana
USANA Distributor #3669898 - Jean Amicarella - Sharer -  http://www.usana.com/webhosting/jeanamic (Yes, two USANA IDs with separate websites for this unique distributor)
ARIIX Distributor #17766 - Jean Amicarella - http://www.myariix.com/ariixinfo

USANA Distributor #128089 - Larry & Susie Sisson - Bronze Director -  http://www.usana.com/distWeb/site/sisson
ARIIX Distributor #10547 - Larry & Susie Sisson - http://www.myariix.com/myfreedom

USANA Distributor #244097 - Arlene Hutchinson - Director - http://www.usana.com/webhosting/bhealthy2
ARIIX Distributor #11578 - Ennis Hutchinson - http://www.myariix.com/marketing

USANA Distributor #3940012 - Pollawat Pankam - Achiever
ARIIX Distributor #11357 - Pollawat Pankam - http://www.myariix.com/esuite/home/username/

USANA Distributor #2398784 - Maryann Cady - Achiever -  http://www.usana.com/webhosting/maryanncady
ARIIX Distributor #38008 - Maryann Cady - http://www.myariix.com/maryanncady

USANA Distributor #3936760 - Somboon Pongpruk - Builder -  http://how2success.usana.com/
ARIIX Distributor #11376 - Somboon Pongpruk - http://www.myariix.com/esuite/home/online

USANA Distributor #3909038, 4112764 & 4380414 (Builder) - Anh Vongbandith - http://www.dreamsmadeinc.usana.com/
ARIIX Distributor #12816 - Anh Vongbandith - http://www.myariix.com/DreamsMadeInc

 USANA Distributor #3250998 - Melissa Daniels - Builder -  http://www.usana.com/webhosting/mdaniels
ARIIX Distributor #11496 - Healthy 4 Life, LCC - Melissa Daniels - http://www.myariix.com/healthy4life

USANA Distributor #2479038 - Lucia Sanchez - Builder -  http://www.usanamexico.usana.com
ARIIX Distributor #34596 - Lucia Sanchez - http://www.myariix.com/ariixmexico

USANA Distributor #4202538 - Ed Walls - Builder - http://teamwalls.usana.com/
ARIIX Distributor #15538 - Edward Walls -

USANA Distributor #4086676 - John R. Parke - Builder - http://4086676.usana.com/
ARIIX Distributor #11507 - John R. Parke

USANA Distributor #4154550 - Rick & Cynthia Evans - Believer -  http://cevans.usana.com/
ARIIX Distributor #10896 - Rick & Cynthia Evans - http://www.myariix.com/rickevans

USANA Distributor #4446386 - Irv Segal - Believer - http://irvsegal.usana.com/
ARIIX Distributor #21328  - Irv Segal -

USANA Distributor #4353344 - Loredana Nuñez - Believer -  http://healthytime.usana.com/
ARIIX Distributor # - Francisco & Loredana Moreno -

USANA Distributor #4387858 - Ric & Carmen Goodson - Believer -
http://ricandcarmen.usana.com/
ARIIX Distributor #11387 - Ric & Carmen Goodson -
http://www.myariix.com/carmengoodson

USANA Distributor #3076606 - Angie Lee - Sharer
ARIIX Distributor #17818 - Angelica Lee - http://www.myariix.com/angielee

USANA Distributor #4202828 - Sou Fin Saechao - Sharer - http://4202828.usana.com/
ARIIX Distributor # - Sou Fin Saechao

USANA Distributor #3914138 - Jidbhong - Jayavasu - Sharer -
ARIIX Distributor #56076 - Dr Jidbhong Jayavasu - http://www.myariix.com/dr_jay

USANA Distributor #7662974 - Edward Williams - http://m3ister.usana.com/
ARIIX Distributor #12996 - Edward Williams - http://www.myariix.com/esuite/home/m3ister/

USANA Distributor #2926598 - Rick Billings - http://www.usana.com/distWeb/site/rickbillings
ARIIX Distributor #10727 - Rick Billings - http://www.myariix.com/RickBillings

USANA Distributor #2812402 - Mike Delevante - http://www.usana.com/distWeb/site/miked
ARIIX Distributor #10817 - Mike Delevante - http://www.myariix.com/mikedelevante

USANA Distributor #8297220 - Debbie Turner - http://turner.usana.com/
ARIIX Distributor #20916 - Debbie Turner - http://www.myariix.com/turner/

USANA Distributor #9638662 - Susan Hamilton - http://www.usana.com/webhosting/susanhamilton
ARIIX Distributor #34007 - Susan Hamilton, CHHC - http://www.myariix.com/SusanHamilton

USANA Distributor #9202660 - Chad zinda - http://www.usana.com/webhosting/9202660
ARIIX Distributor #  - Chad Zinda

USANA Distributor #9613734 - Lyn Clark -
ARIIX Distributor #37967 - Lyn Clark

USANA Distributor #7016988 - Emery Krahn - http://www.usana.com/webhosting/emery
ARIIX Distributor #36707 - Emery Krahn - http://www.myariix.com/emery

USANA's distributor Hall of Fame reveals their elaborate recruiting pyramid scheme

USANA's October 2010 Distributor Hall of Fame
Compiled and Analyzed

By: USANAWatchDog

October 2010

Click For FULL SIZE

USANA Health Sciences, Inc. does not publicly publish their distributor figures. So I must take it upon myself to compile and publish the information. It becomes very apparent why USANA refuses to disclose the distributor numbers; almost everyone is unable to make a profit!

Of course if this information were made available to prospects before they join USANA's business opportunity, the outcome may be very different. Who would join a failed business where 99% of USANA's sales representatives lose money? It is easy to see how bad the failure rate is when comparing the leadership levels in this diagram to USANA's last average distributor earnings figures: USANA's 2006 North American Distributor Earnings Statement. USANA has not published a relevant report since then.

In the diagram, I represent USANA's distributors in a pyramid chart. The pyramid on the lower left represents all of USANA's distributors that have at one time or another received a commission check. Since the higher ranks represent such a small percentage of the total, the middle pyramid is a zoomed-in representation of the lower left pyramid's tip. The same goes for the upper right pyramid, which is a zoomed-in representation of the middle pyramid. The diagram does not even include the other 600,000+ distributors that have never received a commission check! USANA also only considers what is represented in the upper right pyramid as "Full Time" distributors (Gold Directors and up). Everyone else are just part timers according to USANA.

So what is USANA's response to this? I would love to know. USANA cannot claim that most distributors join only to receive discounts on the product because USANA's Preferred Customers pay the same price as distributors. All of USANA's distributors joined with the intent to "Make Money" (otherwise they would only be preferred customers). Distributors are forced to purchase over $100 worth of product every 4 weeks in order to receive their commission check. Just imagine each level of distributors making these required product purchases. Those purchases pay commission to the higher levels. What we have here is a very elaborate pyramid scheme.

The Security Exchange Commission, Federal Trade Commission, Stock Analysts, Shareholders, Distributors and Prospects should all be aware of the information presented in the diagram.

How is USANA a Pyramid Scheme? Prospecting Associates Should Read This Before Joining.

How is USANA a Pyramid Scheme?

In short, I believe USANA Health Sciences, Inc. is a pyramid scheme because associates can recruit an endless chain of new associates into a downline and are paid commission from the required product purchases made by each of the associates in the downline. Retailing USANA's products are unachievable due to the associates's exorbitant cost for the products. USANA associates resort to recruiting more sales representatives as their primary focus instead of retailing the product for a profit margin. The product is overpriced in order to fund the top recruiters in the pyramid scheme. As a result, 99% of USANA distributors never make a profit and lose a lot of their time and money.

   Required Product Purchases

The following is a statement from USANA's SEC filings regarding the requirement for associates to purchase product:

"To be eligible to earn commissions, an Associate must purchase a certain amount of product each month ("Qualifying Purchases"), which they may resell to consumers or use personally. Associates do not earn commissions on these Qualifying Purchases. Associates only earn commissions on the purchase of products by Associates in their down-line organization and Preferred Customers." - USANA's 10-K SEC Filing

First of all, the SEC Filing states that a certain amount product must be purchased each month, which is false. A certain amount of product must be purchased every 4 weeks, which happens 13 times a year instead of 12. USANA calls the amount of products associates are required to purchase as the "Personal Sales Volume" (PSV). It is very interesting that USANA chose the term "Personal Sales Volume" when in fact it is a "Personal Purchase Volume". The upline associates receive commission from the associate that makes these required purchases even in the product is never retailed to a customer. However, if the associate chooses to retail the product, that associate is not paid commission on the sale. Because the product is over priced, retailing for a profit margin is practically unheard of. What is actually happening here is that every associate is required to purchase about $110 worth of inventory every four weeks (13 times a year) and those inventory purchases pay commission to the associates who joined earlier.

What was left out of the SEC filing are the consequences of failing to purchase a certain amount of product every 4 weeks.

"If, at any time, an Associate’s PSV falls below the minimum requirement to remain active, the Associate will no longer be eligible for commission checks or bonuses or to advance in rank. The Associate will also lose any Carryover Volume, and he or she will not carry over any volume until re-activating the BC(s). The Carryover Volume will start again at zero." - USANA's Ask Andy

This rule threatens associates to continue purchasing inventory. A real business would not have such ridiculous hoops to jump through. Put it this way, if an associate were to sign up 10,000 preferred customers who purchase product on a regular basis, this associate will not be paid a single penny for their work unless the associate purchases $110 worth of inventory every 28 days. Why should a USANA associate be forced to purchase their own product if they don't need to? USANA would collapse if they did not force their distributors to purchase product every four weeks.

   Recruiting Associates Instead of Retailing Product

Associates can make far more money by selling the dream of becoming rich rather than selling USANA's vitamins or skincare products. In fact, as long as you sell the dream, the product sells itself!

USANA Pure Rest™

Example: USANA's Pure Rest(TM) melatonin product

Costs USANA associates $14.95 and retails for $17.94.

Each bottle Contains 56 tablets and each tablet contains 2 mg of melatonin.

So USANA's melatonin product costs associates 13.3 cents per milligram.

Most melatonin products retail for less than 3 cents per milligram - See for yourself!

All of USANA's products are overpriced like the above example!

However, when taking all of USANA's perks into consideration, USANA associates can potentially receive $20 in commission every 28 days from each associate in their downline simply from the required product purchases! Of course, what gets left out of their promotional material are the vast amounts of rules that prevent most all associates from making a dime. This is why is pays to recruit instead of retailing USANA's products.

   Endless Recruiting is How it Works

Most distributors do not remain in the pyramid scheme and drop out after only a few months. This is because reality sets in and they soon discover that nobody wants to purchase overpriced vitamins or skincare product. Not only that, but most of their family members, friends, and co-workers do not support their venture after being asked to join their downline. Because of this, there is a very high dropout rate for new associates in USANA's business opportunity. In fact, an estimated 81.5% of new associates drop out within their first year!

USANA knows that most associates drop out soon after they join and has developed a means to extract most of the money from the associate before they drop out. They do this two different ways. 1) in order for new associates to initially activate their business center and be eligible to collect commission, the associate must personally purchase about $220 worth of product. 2) Alternatively, a new associate can purchase one of four special enrollment packages ranging from $300 to $1250, which contains product and recruiting material.

   What Does The FTC Say About MLM and Pyramid Schemes?

In 2004, the Federal Trade Commission wrote a letter in response to a question the Direct Selling Association's president Neil H. Offen asked. The letter is titled "Staff Advisory Opinion - Pyramid Scheme Analysis". Mr. Offen requested a staff advisory opinion regarding the FTC's analysis of pyramid schemes.The response does not bode well for Multilevel Marketing companies like USANA. I recommend reading the memo for yourself.

"A multi-level compensation system funded primarily by such non-incidental revenues does not depend on continual recruitment of new participants, and therefore, does not guarantee financial failure for the majority of participants. In contrast, a multi-level compensation system funded primarily by payments made for the right to participate in the venture is an illegal pyramid scheme." (My Emphasis in Bold) - FTC Memo

USANA makes most of their net revenues from the money distributors pay in order to participate in the business opportunity. According to FTC's statement, it is very likely USANA is conducting an illegal pyramid scheme. 89% of USANA’s net revenue comes from distributors who purchase product and services from USANA.

"The Commission’s recent cases, however, demonstrate that the sale of goods and service; alone does not necessarily render a multi-level system legitimate. Modem pyramid schemes generally do not blatantly base commissions on the outright payment of fees, but instead try to disguise these payments to appear as if they are based on the sale of goods or services. The most common means employed to achieve this goal is to require a certain level of monthly purchases to qualify for commissions. While the sale of goods and services nominally generates all commissions in a system primarily funded by such purchases, in fact, those commissions are funded by purchases made to obtain the right to participate in the scheme. Each individual who profits, therefore, does so primarily from the payments of others who are themselves making payments in order to obtain their own profit. As discussed above, such a plan is little more than a transfer scheme, dooming the vast majority of participants to financial failure." (My Emphasis in Bold) - FTC Memo

According to this quote, simply because USANA has a product to market does not mean render the company legitimate. It goes on to explain that Modern Pyramid Schemes require a certain level of monthly purchases to qualify for commission and these schemes call the required purchases a "sale of goods". The majority of USANA's commissions paid out comes primarily from the associate's required inventory purchases. If an MLM company makes the majority of their net revenues from the payments made by distributors to qualify for commissions, then the company is an Illegal Pyramid Scheme.


   Conclusion

Based on the information I have provided above, I believe that USANA conducts an illegal pyramid scheme. 99% of USANA distributors lose money due to this scam. The FTC needs to investigate USANA and put an end to the fraud. USANA currently operates this pyramid scheme in Australia, New Zealand, Canada, the United Kingdom, the Netherlands, Hong Kong, Japan, Taiwan, Korea, Singapore, Mexico, Malaysia, Philippines, and the United States. I recommend any prospecting distributor from these countries to consider what I have written above and do your own research before making a decision whether to join or not.