USANA Misled Shareholders By Cherry Picking Their Results For Their First Quarter Earnings and 8-K SEC Filing and Neglected To Report Hong Kong's Major Decline

USANA Health Sciences (USNA) misled shareholders in their first quarter earnings on May 5, 2015 by cherry picking those markets with an increase in sales while neglecting to report any information on markets that decreased such as Hong Kong. For example, USANA stated “Net sales in Greater China increased 43.0% year-over-year due to growth in Mainland China. Specifically, local currency sales in Mainland China increased 121% year-over year” What USANA didn't tell you in their earnings release was the fact that Hong Kong sales declined by about $15 million or 63%!

USANA only compared year-over-year results. However, USANA is NOT a seasonal stock. If we look at the earnings result quarter-over-quarter, here is what it would look like: Net Sales in Greater China decreased 2.6% quarter-over-quarter due to a declining market in Hong Kong. Specifically, sales in Hong Kong declined $10.2 million or 54.5% quarter-over-quarter. This was slightly offset by growth in mainland China where sales increased by $7.5 million or 9.8% quarter-over-quarter.

In case you missed it - Hong Kong's decrease outweighs mainland China's increase quarter-over-quarter.

Putting this into perspective and why Hong Kong's numbers are significant:

Q1 2015 Hong Kong sales estimated around $8,529,000

Q1 2013 Hong Kong sales were $41,597,000

USANA May Have Misled Shareholders During Fourth Quarter Earnings 2012 Conference Call Regarding BabyCare, China, and Hong Kong

USANA Health Sciences, Inc. (USNA) appears to have misled shareholders during their fourth quarter 2012 earnings conference call on February 6, 2013 as well as several other calls in the past.


When USANA purchased BabyCare Ltd. in August 2010 (an already established direct selling (single level marketing) company in mainland China) it added 12,000 Active Associates and 7000 Active Preferred Customers to USANA's "Greater China" region. Over the last couple years USANA has attributed any of Hong Kong declining active associates to BabyCare, claiming that leaders would re-evaluate where to go (USANA Hong Kong, or China BabyCare).

Today (over two years later), BabyCare has about 17,000 Active Associates and about 2000 Active Preferred Customers. That's a net gain of ZERO customers since USANA purchased BabyCare! So all this talk about BabyCare being a hot market is simply untrue. All this talk about BabyCare siphoning off Hong Kong distributors was a farce. Truth be told, BabyCare is an utter failure and has virtually no growth.

I have datamined USANA's BabyCare distributor IDs and found there to be 38,000 issued ID numbers as of September 2012. If there are only 17,000 active associates in Babycare right now, then over half of all the associates recruited in BabyCare have quit since USANA purchased them.

As for Preferred Customers, what a utter failure. USANA doesn't explicitly state what the figure is this quarter, but since there are 4000 total preferred customers in Greater China, it seems like a safe bet that BabyCare accounts for 2000 active preferred customers. If this figure is accurate, then Babycare has lost 70% of their active preferred customers.

That's a huge problem if Active Associates in Babycare are required to have a certain number of customers to be qualified to earn a commission check.


What is hot right now is the growth in Hong Kong, which is largely attributed to Chinese Nationals from mainland China being illegally recruited into USANA's MLM Hong Kong market (instead of in BabyCare). They are recruited from mainland China and put in USANA under an address from someone living in Hong Kong. This way Auditors, shareholders, and federal regulators can be fooled. USANA allows this to happen and even has a policy set up that allows for over 15 distributors to share the same home address and the same credit card when signing up with USANA.

Stock analysts refuse to address these BabyCare issues with USANA and really don't seem to have a clue about what USANA is doing in China.

USANA Recruits Chinese Nationals To Participate and Build Their Business in Hong Kong in Violation of Chinese Direct Selling Laws.

I've been stating this for years now. USANA has been recruiting citizens from mainland China as distributors in a multilevel marketing company for their Hong Kong territory. I've pointed out in the past how USANA's Hong Kong distributor numbers are way out of proportion (now 1 in every 112 Hong Kong citizens are USANA distributors = RED FLAG) and that mainland China only allows their citizens to participate in SINGLE-level marketing companies.

Well, today USANA was asked during their dismal second quarter earnings results the following question by John San Marco at Janney Montgomery Scott LLC:

"Do you know what the percentage of your Hong Kong associates that are actually Chinese nationals?" - Transcripts

Finally, someone asks USANA a real question instead of the soft balls USANA usually receives. Dave Wentz's first answer was a very calculated "No, we do not". If Dave is being honest, then USANA's management team doesn't know their ass from a hole in the ground. But I'm sure USANA knows the answer but refuses to publicly disclose that number.

Better yet, Dave Wentz could have just simply quoted their own internal document that surfaced over a year ago!

"IV. What is the biggest market that buys our products that we are not eligible to operate in?

i. Once again I couldn’t give you an exact answer on this. Since I work with our Asian markets, I know that a large sum of product ends up in China, but I’m sure product somehow gets shipped to other unauthorized markets as well… "

Dave could have simply stated that he isn't sure of the exact percentage, but that a "LARGE SUM OF PRODUCT ENDS UP IN CHINA". But Dave is only the CEO, so why would he know any of this...

After John San Marco asked for USANA to at least give a ball park estimate on the percentage, Dave Wentz replies back with:

"We definitely have a number of people who are building in Hong Kong. We do not have a percentage or have a number that we could point to with any accuracy."

 Really!? Chinese Nationals "building in Hong Kong"? Uh oh! Dave Wentz was not suppose to admit that. During the first quarter's conference call 3 months ago, USANA's Fred Cooper said "we have a large group of Asian Associates who are involved with USANA only because of the products and are buying in Hong Kong for consumption only."

So now USANA is in a pickle. Dave Wentz lets the truth come out and admits that the Chinese Nationals are actually building a USANA downline in Hong Kong. So USANA has been "Cheating in China". And of course they are having trouble "transitioning" these distributors over to BabyCare because they all know that without a downline they have no chance of making a dime. The product is over priced and over rated. There is little to no demand for USANA's product except as a required purchase to participate in a pyramid scheme. To transition these Chinese Nationals over to BabyCare would mean breaking apart their already formed downlines. And best of all, these downlines are attached beneath many of USANA's top distributors. That is why USANA's distributor leaders were upset about some changes USANA was trying to implement which forced USANA to quickly retract their plan. To split up the Chinese Nationals out from USANA would mean top distributors of USANA losing tens of thousands of dollars in commissions. Commissions which come from the mandatory product purchases by these Chinese Nationals in order to participate in the scheme.


Lastly, John San Marco asks USANA if there are any Chinese Laws that prevent Chinese Nationals from doing any sort of multilevel marketing outside their borders. Dave defers the question to Jim Bramble, USANA's legal officer. Jim dances around the question and John had to then be more specific. Finally, Jim makes the following statement:

"Well if an individual does not have residency in Hong Kong and the ability to build in Hong Kong, then they can only build in China." - Jim Bramble

Jim follows that up with a lot of rambling and back peddling. So in otherwords, Chinese Nationals are not legally allowed to participate in USANA's multilevel marketing business opportunity whatsoever. I have been making this claim for a while now USANA finally admits it. But wait a minute, in regards to Chinese Nationals, Dave Wentz had just stated that "We definitely have a number of people who are building in Hong Kong." I think we have a winner folks. USANA caught in a lie regarding Chinese Nationals as USANA distributors.


I want to thank John San Marco at Janney Montgomery Scott LLC for asking USANA his questions. Good job.

USANA'a Hong Kong active associate numbers may begin declining because of BabyCare Ltd.

Now that USANA Health Sciences owns BabyCare Ltd in China, will USANA continue to recruit Chinese Nationals into their Hong Kong market?  Currently, China has outlawed Multilevel Marketing because they consider it to be a pyramid scheme. Only Single Level direct selling is allowed. Distributors are not allowed to recruit additional distributors.

It appears that USANA and their distributors have been recruiting people from mainland China into their Multilevel Marketing business opportunity through their Hong Kong market. As I pointed out in a previous blog posting regarding USANA's active associates per territory, USANA's Hong Kong territory reveal that 1 in every 135 Hong Kong citizens are active distributors in USANA's business. That's very suspicious when you consider that USANA's United States market has 1 in every 5436 American citizen as an active Usana distributor.

So if USANA's Hong Kong territory has been used to funnel profits to USANA through illegal means (recruiting people from mainland China), and now USANA owns BabyCare Ltd, will those mainland Chinese distributors who joined USANA illegally leave USANA and join BabyCare Ltd instead? I believe this may be the case. This would mean that USANA's Hong Kong active associate figures will begin to drop. Keep in mind, people living in Hong Kong would not be able to join BabyCare Ltd because Hong Kong is not part of mainland China. Now if USANA believes their Hong Kong active associate numbers are going to decline as a result of BabyCare Ltd, then USANA has a responsibility to inform their shareholders since it is a material matter.

Regardless, I firmly believe there is sufficient evidence for a SEC investigation of USANA's distributor recruiting in their Hong Kong territory. I believe this is a SEC issue because if illegal distributor activities within a foreign country such as China is confirmed, it may account for a very substantial amount of USANA's net revenues and gross profits. If this is truly the case, then shareholders may suffer massive loses in their investment in USANA's stock. Another consequence will be a damaging blow to the auditing firm PriceWaterHouseCoopers' reputation since they have been notified of this matter almost a year ago.

I would ask that anyone with additional information or evidence please email me. Your identity will not be revealed.

UPDATED September 21, 2010 at 7:47 PM:
If USANA's management HYPOTHETICALLY told an investment firm that they are expecting Hong Kong active associate numbers to be lower because of BabyCare Ltd, but did not make this statement publicly to all shareholders, does this violate SEC laws due to insider trading?