Current Focus and Growth Strategy

 We have implemented or are implementing the following strategies and initiatives intended

In 2022 we plan to increaseexecute our global growth strategy which is focused on increasing the number of active Customers who use our products throughout the world and, thereby, further our company vision:

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Customer Experience and Technology Enhancements.  To generate active Customer growth, we are striving to enhance the overall experience a customer has when doing business with USANA, which we sometimes refer to as "customer experience" or our "customer experience initiative." To improve our customer experience, we continue to improve the speed, convenience, and ease with which customers do business with USANA. In 2019, this will include improving our mobile technology platform, offering new payment options to meet the demands of active Customers across the globe, providing quick and simple product education, capturing important feedback, and making it easier for our active Customers to share their experience with friends and family.



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Social Media and Sharing:  Historically, the direct selling channel has been characterized by in-person promotion and selling of products. While we believe that direct selling will continue to rely on person-to-person relationships, we believe that the future of direct selling entails sharing, marketing and selling products through various social media platforms, which is sometimes referred to as social sharing. Consequently, (i) we continue to increase our emphasis on training and educating our Associates to market and sell our products through social sharing, and (ii) many of our customer experience initiatives are also intended to enhance our social sharing platform. For example, over the last few years we have worked to implement aWeChat platform for our active Customers in China. In 2019, we will continue to improve ourWeChat technologies to further promote social sharing and we will introduce aWeChat platform for our Chinese customers in markets outside of China.



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Product Innovation and Deployment.  Our research and development team continually reviews the latest scientific findings related to nutrition, conducts or manages research and clinical trials, reviews new technologies, and attends scientific conferences. If, in that process, we see potential for a new product or ingredient that provides a measurable and important health benefit, and we believe this benefit can be realized by a significant number of our customers, we will generally pursue development of that product. For 2019, our science team has developed new products and formulated upgrades to certain existing products within each of our current product categories that we plan to introduce throughout the year. These include new food products, Celavive ® product line extensions, and upgrades to certain of our nutritional supplements. During the year, we also plan to launch a new healthy living product line and focus extensively on the customer experience associated with this line. This new line will offer products that are customer focused, demonstrable, and easily sharable through social sharing. Finally, we have also begun implementing a plan to bring the manufacturing of our food products in-house, which will provide us with several advantages and efficiencies over third-party manufacturing.

In the first quarter of 2018, we launched our Celavive skin and personal care line in every market except China. We then launched this line in China late in the third quarter of 2018. Our 2019 objective is to further promote the Celavive line and to introduce certain product line extensions during the year.

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Existing Market Growth and International Expansion.  After opening of our four new European markets in 2018, during 2019 we will focus on generating sales and active Customer growth in our existing markets. This strategy includes enhancing our focus and development of submarkets, which entails targeting and addressing the needs of different customer demographics within a single market.

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Notwithstanding our current focus, we continue to believe that growth opportunities exist in new international markets and plan to expand our business to new markets in the future. We select new markets following an assessment of several factors, including market size, anticipated demand for USANA products, receptiveness to direct selling, and the market entry process, which includes consideration of possible regulatory restrictions on our products or our direct selling model. Wherever possible, we endeavor to integrate our Associate Compensation Plan in each market to allow Associates to receive compensation for global—not merely local—product sales. We believe our seamless Compensation Plan enhances our ability to expand internationally, and we intend, where permitted, to integrate future markets into this Compensation Plan.

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Successfully Grow each of our Regions through Market Specific Strategies and Incentives.  While our objective is to generate sales and active Customer growth in each of our markets around the world, in light of the strength of our Asia Pacific region and our growing active Customer base in Asia, we continue to believe that our Asia Pacific region represents our most significant and imminent growth opportunity. Over the last few years, we have generated solid growth in several markets within this region, especially in mainland China. Although, mainland China is our largest market, we continue to believe that it provides a significant growth opportunity for our business. Accordingly, we will continue to focus on growing in China during 2019. To that end, we plan to execute a variety of market-specific strategies in 2019 in Asia Pacific, and mainland China specifically, to generate growth, which include offering: (i) certain new product introductions described above; (ii) targeted product promotions during the year; and (iii) other performance-based incentive offerings during the year. For example, 2018 marked the first time that we have included product sales and promotions at our China National Meeting.markets.  We plan to holddo this meetingby (i) continuing to advance our digital strategy through targeted investments; (ii) continuing to pursue product development and further leveraging our foods manufacturing facility; (iii) focusing on our China market in Macau again during 2019particular and expectour customer base in that market, and (iv) pursuing growth opportunities through business development activities.

Digital Investments

Expanding, enhancing and leveraging our digital capabilities to once again offer productcreate the best overall customer experience remains a top priority. Collaboration between our sales leaders and management team, combined with assessment of customer feedback, are some of the driving forces behind our planned digital investments in 2022. Among the many projects planned for sale to improvethe year, we highlight the following: (i) building on the experience we providedshopping cart conversion rate progress made in 2018. Additionally, we plan to continue to improve our information systems, technology2021 and infrastructure in China during 2019.

(ii) enhancing onboarding programs and training tools for new Associates.

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Conversion rates: In 2021 we focused on improving the customer shopping experience and our internal data indicates that shopping cart conversion rates have improved meaningfully. This year we will focus on the next step of improving the checkout process.

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Onboarding programs and training tools: We plan to roll out a new education and communication onboarding program for our new Associates in Q2 2022. This program will offer product education and utilize our key online and app-based digital tools that we introduced in 2021. The combination of these learning tools is intended to improve the onboarding process and experience for new Associates through additional communication, notifications and orientation, which we believe will help drive more efficient customer acquisition

Product Development

Our Americas and Europe region is also very important to our business and a significant partfoods plant ("USANA North" facility) in Salt Lake City, UT, houses the manufacturing for all of our growth strategy. Notwithstandingfoods-related products, is now fully operational. We believe the foregoing, our sales and active Customer resultsinvestments in this region have declined overfacility will allow us to be more agile and cost efficient in responding to both current and future opportunity.

Although the last few years. Our objective for this region remains centered on increasing the overall numberrollout of active Customers who consistently use USANA products. To achieve our objective, we plan to execute a number of strategiesadditional Active Nutrition products were delayed in this region in 2019, which include new product introductions and certain product promotions similar to those that will be offered in our Asia Pacific region. Additionally, we plan to begin offering a variety of new initiatives in select markets in this region, particularly2021, we have officially resumed the rollout in Q1 2022, beginning with our Nutrimeal Free Active and Collagen Protein Bar, both of which are being manufactured in the U.S., on a limited time or trial basis. These initiatives will include certain product enhancements and new compensation and loyalty offerings for our sales force and customers.

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Increase Brand Awareness.  We continue to pursue strategies to increase our brand awareness around the world to accomplish our Company vision. In this regard, in 2018 we renewed and extended our relationship with Dr. Mehmet Oz as a Trusted Partner and Sponsor ofThe Dr. Oz Show. While this partnership has focused on ourUSANA North America region historically, it now focuses on China as well. Additionally, this partnership is intended to increase brand awareness and recognition of the USANA brand in our other regions. Under this partnership, USANA products are regularly featured onThe Dr. Oz Show and viewers of the show are able to purchase USANA products via a direct link onThe Dr. Oz Show website. We also promote global awareness of the USANA brand through professional athlete sponsorships and credible associations with individuals and organizations. Examples of this include our sponsorship of the U.S. Ski Team, Speed Skating Canada, and US Speedskating, our partnership with the Women's Tennis Association, and our support of AFC Bournemouth ofThe Premier League in England. We continue to serve as the official health supplement supplier for these teams and

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organizations and are also increasing our sponsorship of individual athletes who rely on our products and brand. We seek to leverage these relationships to build brand credibility and increase product consumption and loyalty.

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Pursue Strategic Acquisitions.  We believe that attractive acquisition opportunities may arise in the future.facility. We intend to introduce additional new Active Nutrition products throughout 2022, as well as several products in conjunction with USANA’s 30^th year anniversary.

China Strategy

We remain very optimistic about the long-term growth prospects in our China business. We made progress in 2021 in several different areas of the business, including:

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Our research collaboration agreement with Beijing University of Chinese Medicine (China), which has several research projects that have been approved and are underway.

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Our China leadership team, which has been strengthened through the addition of several experienced professionals.

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Our branch office redesign strategy, which we believe will drive increased customer activity and retention.

Other key initiatives in China in 2022 include:

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Continuing our digital transformation: We will continue to make several digital investments aimed at improving the overall customer experience. These investments include: (i) improving the speed and efficiency of the onboarding process through automation, (ii) enhancing notifications within the shopping app, which will help drive increased retention, (iii) simplifying the shopping experience, and (vi) adding features and functionality to existing apps that will help improve overall efficiency and stimulate growth.

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Enhancing our Associate-focused marketing content: We plan to leverage new product training videos, testimonials and business trainings from our new media studio. We believe this will help with new customer acquisition while also improving longevity.

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Building upon recent collaborations and partnerships. We recently renewed our partnership with the National Sports Training Bureau and we are looking for additional partnerships to promote our new Active Nutrition line. We also continue to work closely with Beijing University of Chinese Medicine (China) and we hope to have meaningful results from many of these projects and to start commercializing products as soon as possible.

Business Development

A strong balance sheet and our willingness to invest in growth allows us to pursue strategic acquisitiona wide-range of opportunities that wouldare additive to our long-term success. Our focus remains on opportunities that strengthen, diversify, and grow our customer base, expand ourworldwide business by focusing on: (i) overall nutrition; (ii) vertical integration; (iii) product lines, enhance our manufacturing and technical expertise, allow vertical integration, or otherwise complement our business or further our strategic goals.

Products

The following table summarizes information concerning our principal product lines.

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In addition to the products described above, we offer products designed specifically for prenatal, infant, and young-child age groups in China. As we continue to focus on personalization and innovation, we will look for innovative product opportunities such as our Celavive and Active Nutrition product line.lines.

 The approximate

Total product sales, as a percentage of total productnet sales, represented by our top-selling products for the last three fiscal years is as follows:

Other top-selling products include our HealthPak 100Soy Lecithin, Hepasil, and CoQuinone 30.HealthPak™.

Geographic Presence

 Our products are distributed and sold in 24 markets.

We have organized ourongoing operations in the following markets, intowhich are presented in two geographic regions: (i)(1) Asia Pacific, which includes three sub-regions, and (ii)(2) Americas and Europe, as noted below.

Table of ContentsEurope. Asia Pacific is further divided into three sub-regions: (i) Greater China, (ii) Southeast Asia Pacific, and (iii) North Asia.  The countries included in these regions and sub-regions are described below:

Asia Pacific

 Asia Pacific is organized into three sub-regions: Greater China, Southeast Asia Pacific, and North Asia. Markets included in each of these sub-regions are as follows:

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Greater China—Hong Kong, Taiwan, and China. Our business in China is conducted by BabyCare Holdings, Ltd. ("BabyCare"), our wholly-owned subsidiary



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Southeast Asia Pacific—Australia, New Zealand, Singapore, Malaysia, the Philippines, Thailand and Indonesia



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North Asia—Japan and South Korea

 Asia Pacific has driven our growth the last several years. Since our acquisition of BabyCare in 2010, our strategy in Asia Pacific has been centered on generating growth in mainland China. Consequently, our growth in Asia Pacific over the last few years has been led by China, and we believe that China will continue to drive our growth in this region going forward. We also expect our business to grow in most of our other markets in this region.

Americas and Europe

Impact of Foreign Currency Exchange

 Americas and Europe is our most mature region. Over the last few years, net sales in this region have decreased on a constant currency basis due to active Customer declines in several markets within the region including the United States. We continue to implement growth strategies in this region and remain optimistic about our potential to generate growth going forward. During 2018, we opened four new European markets; Germany, Spain, Italy and Romania. These new markets commenced operations late in the second quarter of 2018 and are supported by our European regional headquarters in Paris, France, which allows us to leverage existing infrastructure and efficiently expand our consumer base throughout Europe.

Because we have operations in multiple markets, with sales and expenses being generated and incurred in multiple currencies, our reported U.S. dollar sales and earnings can be significantly affected by fluctuations in currency exchange rates.  In general, our operating results are affected positively by a weakening of the U.S. dollar and negatively by a strengthening of the U.S. dollar. In 2018,2021, net sales outside of the United States represented approximately 90.2%90.7% of consolidated net sales.

Research and Development

We focus our research and development ("(“R&D"&D”) efforts on developing and bringing to market high-quality,high quality, science-based products that promote long-term health and wellness. Our research and developmentR&D activities include developing products that are new to USANA and new to the industry, updating existing USANA brandUSANA-brand formulas to keep them current with the latest science, and adapting existing formulas to meet ever-changing consumer preferences and regulations in global markets.

Our scientific staff includes experts on human nutrition, cellular biology, biochemistry, genetics, the microbiome, natural product chemistry, foods and cosmetic science, and clinical research. These experts continually review the latest published research on nutrition, present their findings at scientific conferences, publish in scientific journals, and collaborate with third-party researchers and institutions to identify possible new products and product upgrade opportunities.  

The R&D team is also involved in protecting our proprietary position with exclusive ingredients, proprietary formulations, product-specific scientific validation, and, in some cases, patent protection. Additional researchIn 2020, we announced the issuance of U.S. Patent 10,632,101 for our InCelligence complex formula. Research continues to support our proprietary USANA InCelligence Technology based on cell-signaling andtechnology, advances in microbiome supplementation, continues, with new products being readied for launch in 2019.immune system support, stress adaptation, and brain health.  

Our in-house research team has builtestablished and maintained good working relationships with scientists at a number of universities and research institutes, including the University of Washington, the University of Texas Medical Branch—Galveston, the University of Utah, The Foods for Health Institute at The University

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of California Davis, Roseman University of Health Sciences, University of Memphis, Beijing University of Chinese Medicine (China), Peking University (China), Central Queensland University (Australia), University of Ghent (Belgium), and The University of North Carolina at Pembroke.other academic institutions globally.  These relationships help us continue to advance our knowledge, expertise and leadership in several areas of applied human nutrition.

When developing and manufacturing our products we follow the highest applicable industry quality standards, as established by the U.S. Food and Drug Administration ("FDA"(“FDA”), U.S. Pharmacopeia ("USP"(“USP”), other leading non-governmental agencies ("NGO"(“NGO”), and government agencies.  Our ingredients are selected to meet a number of criteria, including, but not limited to:to safety, potency, purity, stability, bioavailability, and efficacy.  We control the quality of our products throughout all our internal processes, beginning at the formulation stage.  We maintain our quality control through controlled sourcing of raw ingredients, manufacturing, packaging and labeling.labeling, with testing occurring at several stages of manufacturing.

In fiscal years 2016, 2017,2021, 2020, and 2018,2019, we expended $8.8$11.1 million, $9.0$10.6 million, and $10.2 million,$10.3 million, respectively, on product research and developmentR&D activities.  Going forward, we expect to continue to increase our spending and resources for research and developmentR&D to advance our expertise and leadership in cellular nutrition, as well as overall health and wellness. USANA'sWe believe our attention to product quality is a sustainable competitive advantage that we believe also provides a substantial barrier to entry for competitors who wish to enter our space.

Manufacturing and Quality Assurance

We conduct manufacturing, production and quality control operations for approximately 71%63% of our products in-house. We have established and maintain a manufacturing and quality control facility at our corporate headquarters in Salt Lake City, Utah. In 2019, we expanded this facility to allow us to manufacture our food products in-house. This facility started to produce saleable product during the fourth quarter of 2020. BabyCare manufactures and produces nearly alla significant portion of its products in-house and maintains manufacturing and quality control facilities in Beijing, China and Tianjin, China. This section of this reportAnnual Report gives you more information about our manufacturing, production and quality control operations.

Tablet

Manufacturing

Our tablet production process uses automatic and semi-automatic equipment and includes the following activities:activities by type:

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auditing and qualifying suppliers of raw materials;



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acquiring raw materials;



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analyzing raw material quality;



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weighing or otherwise measuring raw materials;



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mixing raw materials into batches;



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forming mixtures into tablets;



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coating and sorting the tablets;



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analyzing tablet quality;



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packaging finished products; and



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analyzing finished product quality.

We conduct sample testing of raw materials, in-process materials, and finished products for purity, potency, and composition to determine whether our products conform to our internal specifications, and we maintain complete documentation for each of these tests. We employ a qualified staff of

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professionals to develop, implement and maintain a quality system designed to assure that our products are manufactured to our internal and applicable regulatory agency specifications.

Our Salt Lake City, Utah manufacturing facility is registered, as required, with the FDA, Health Canada Natural Health Products Directorate, the Australian Therapeutic Goods Administration ("TGA"(“TGA”), and other governmental agencies, as required. This facility is audited regularly by theseagencies. These and other various organizations and government agencies regularly audit this facility to assess, among other things, compliance with current Good Manufacturing Practices ("GMPs"(“GMPs”) and with labeling claims. Additionally, our Salt Lake City, Utah manufacturing facility is certified, through inspection and audits, with the Islamic Foods and Nutrition Counsel of America in compliance with Halal, The Organized Kashrus Laboratories in compliance with Kosher, NSF International in compliance with product testing and GMPs, and the TGA in compliance with the current Therapeutic Goods Act in Australia.

The manufacture of nutritional or dietary supplements and related products in the United States requires compliance with dietary supplement GMPs, which are based on the food-model GMPs and pharmaceutical GMPs, with additional requirements that are specific to dietary supplements. We are audited by the FDA, specifically for dietary supplements, and have historically been found in compliance with GMPs for dietary supplements.

        Our Beijing, China manufacturing facility has historically registered with the China Food and Drug Administration ("CFDA"), and other governmental agencies, as required. Pursuant to a reorganization of certain departments of the Chinese government in 2018, CFDA has now been consolidated into China's new State Administration of Market Regulation ("SAMR"). Our facility in Beijing is audited regularly by various organizations and government agencies to assess, among other things, compliance with applicable GMPs, and with labeling claims.

Personal Care Products Manufacturing

        The production process for personal care products includes identifying and evaluating suppliers of raw materials, acquiring raw materials, analyzing raw material quality, weighing or otherwise measuring the raw materials, mixing raw materials into batches, analyzing liquid batch quality, packaging finished products, and analyzing finished product quality. We conduct sample testing of raw materials, in-process materials, and finished products for purity, potency, and composition to determine whether our products conform to our internal specifications, and we maintain complete documentation for each of these tests.

        At our Salt Lake City facility, we have standard technology for producing batches of personal care items, and we have semi-automatic packaging equipment for packaging end products. We employ qualified staff to develop, implement, and maintain a quality system. Although the FDA has not promulgated GMPs for personal care items, it has issued guidelines for manufacturing personal care products. We voluntarily maintain compliance with the guidance established by the FDA and the Personal Care Products Council.

Our Beijing, China manufacturing facility is registered with State Administration of Market Regulation (“SAMR”), which incorporated the China Food and Drug Administration in 2018 as part of a larger reorganization of the Chinese government. Our facility in Beijing is audited regularly by various organizations and government agencies to assess, among other things, compliance with applicable GMPs, and with labeling claims.

Third-Party Suppliers and Manufacturers

We contract with third-party suppliers and manufacturers for the production of somecertain of our products, which account for approximately 29% of37% of our product sales. These third-party suppliers and manufacturers produce and, in most cases, package these products according to formulations that have been developed by or in conjunction with our in-house product development team. These products include most of our gelatin-capsulated supplements, Rev3 Energy®Energy^® Drink, Probiotic, our powdered drink mixes, foods and certain of our personal care and skincare products, including our new Celavive line for markets outside of China. Products manufactured by third-party suppliers at their locations must also pass through quality control and assurance procedures to ensure they are manufactured in conformance with our specifications.

Table As noted above, with the expansion of Contentsour manufacturing facility in Salt Lake City, Utah, we are able to self-manufacture our foods product line. Additionally, we plan to increase the proportion of the personal care and skincare products that we manufacture. This will reduce our reliance on third-party suppliers and manufacturers and add to our operating strengths, which are described below in this Annual Report.

Quality Control and Assurance

We have in-house microbiology and analytical chemistry labs in which we conduct quality control processes. In our microbiology laboratory, scientists test for biological contamination of raw materials and finished goods. In our analytical chemistry laboratory, scientists test for chemical contamination and accurate levels of active ingredients in both raw materials and finished products. Scientists also identify and confirm all raw materials used in the manufacturing process through scientifically valid means. Both laboratories conduct stability tests on finished products to determine the shelf life of our products. Our Salt Lake City, Utah laboratory staff also performs chemical assays on vitamin and mineral constituents, using USP methods and other internally validated methods. In addition to our quality control and clinical laboratories, both our headquarters and China facilities also house a laboratory designated for research and development.R&D.

Raw Materials

Most of the raw ingredients that are used in the manufacture of our products are available from a number of suppliers. We have not generally experienced difficultyOur raw material suppliers must demonstrate stringent process and quality control before we use their products in obtaining necessary quantities of raw ingredients.our manufacturing process. When supplies of certain raw materials have tightened, we have been able to find alternative sources of raw materials, and believe we will be able to do so in the future, if the need arises. Our raw material suppliers must demonstrate stringent process and quality control before we use their products in our manufacturing process.

Distribution and Marketing

General

We distribute our products internationally through direct selling, which relies onentails person-to-person marketing and selling of products. Direct selling is based on the strength of personal relationships and recommendations that frequently come from friends, neighbors, relatives, and close acquaintances. We believe that direct selling is an effective way to distribute our products because it allows person-to-person product education, as well as higher levels of customer service, all of which are not as readily available through other distribution channels. As noted under the caption "Current Focus and Growth Strategy," above, we believe that the future of direct selling is "social sharing" which entails sharing, marketing and selling products through various social media platforms. Consequently, we continue to increase our emphasis on training and educating our Associates to market and sell our products through social sharing.

Structure of Direct Selling Program

 Associates.    A

Overview. Although our direct selling philosophy and strategy are generally consistent in our markets around the world, certain aspects of our business may differ from market to market as a result of different legal and regulatory regimes, operational requirements or other factors. These differences may include how individuals join USANA, the compensation they are paid, the products they sell, and other components of their relationship with USANA. For example, China has enacted and maintains unique business laws and regulations governing direct selling that differ materially from our other markets around the world. Consequently, we have adjusted our direct selling program in China to comply with these laws and regulations. To do this, we operate our business in China through BabyCare. BabyCare utilizes a business model in China that is consistent with the philosophy of our worldwide business model, but different in structure from our other markets. These differences are explained below under “China Business.”

Associates. Outside of China, a person who wishes to sell USANA products must join our independent sales force as an Associate. A person becomes a USANA Associate by completing an application under the sponsorship of an existing Associate. The new Associate then becomes part of the sponsoring Associate'sAssociate’s sales organization. New Associates must agree to adhere to the USANA policies and procedures. Under our policies and procedures, Associates may not, among other things: (i) use deceptive or unlawful practices to sell USANA products; (ii) make deceptive or unlawful claims or representations concerning our products or Compensation Plan; or (iii) sell competitive products to other USANA Associates or solicit USANA Associates to participate in other direct selling opportunities. Associates who violate our policies are subject to discipline, which may include the termination of their purchase and distribution rights. New Associates are required to purchase a starter kit that includes a detailed manual describing our business and products, as well as our policies and procedures. We sell these kits at a nominal price averaging $30approximately $22 in each of our markets and these kits are fully refundable under our return policy, which is described elsewhere in this report. No other direct investment is required to become an Associate.

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Once a person becomes an Associate, she, he, or hethey may purchase products directly from us at wholesale prices for their personal use and for resale to customers. Our Associates are also entitled to build sales organizations by attracting, enrolling and selling product to new active Customers.customers. Associates are not required to recruit or sponsor new Associates and we do not compensate Associates for sponsoring or recruiting Associates. The sponsoring of new Associates results in the creation of multiple levels within our direct sales structure. Sponsored Associates are referred to as part of the sales organization of the sponsoring Associate. New Associates in turn may also sponsor new Associates and Preferred Customers, creating additional levels in their sales network, but also forming a part of the same sales organization as the original sponsoring Associate. As outlined below, Associates who are interested in earning income with USANA must successfully sell USANA products and establish a network of product consumers in order to qualify for commissions, including bonuses. Subject to payment of a minimal annual account renewal fee, Associates may continue to distribute or consume our products as long as they adhere to our policies and procedures.

Associate Compensation. This section describes our Associate Compensation Plan generally, except for our China operations, which are discussed separately below under the caption “China Business.” Our Compensation Plan provides several opportunities for Associates to earn compensation, provided they are willing to work consistently at (i) sharing, marketing and selling USANA products to consumers and (ii) building, training, and retaining their sales organizations. The purpose behind each form of compensation under our Compensation Plan is to reward committed Associates for generating product sales either directly or indirectly through their sales organization and network of product consumers.

Associates can earn compensation under the Compensation Plan in four ways:

With the exception of our China market (discussed below), we endeavor to integrate our Compensation Plan seamlessly across all markets where legally permissible, allowing Associates to receive commissions for global—not merely local—product sales. This seamless sales organization structure is designed to allow Associates to build a global network by establishing or expanding their sales organization in any of the markets where we operate. We believe our Compensation Plan significantly enhances our ability to expand internationally, and we intend to continue to integrate new markets, where permitted, into our Compensation Plan.

Preferred Customers and Retail Customers.Customers. We also sell products directly to Preferred Customers and retail customers who purchase the products only for their personal use. Preferred Customers enroll with USANA, generally through an introduction by an Associate, and purchase product directly from the Company. Retail customers, however, generally purchase directly from Associates. Neither Preferred Customers nor retail customers may resell or distribute our products, regardless of where they purchased them. To sell USANA products, a Preferred Customer or retail customer must become an Associate.

These various customer programs give us access to a customer market that would otherwise be missed, by targeting consumers who enjoy USANA products, but who prefer not to maintain a distribution relationship with us. Although our policies prohibit Preferred Customers and retail customers from engaging in retail sales of products, they may enroll as Associates at any time in the future, if they desire.

AssociateChina Business. As explained above, the Chinese government maintains direct selling laws and regulations that differ materially from our other markets around the world. Although these laws and regulations permit direct selling, they impose a number of financial and operational restrictions, including a prohibition of pyramid selling and multi-level compensation systems. The Chinese government has also implemented a number of administrative and regulatory measures around direct selling to control these prohibited activities. To reduce the risk that the Chinese government might view BabyCare’s business model as conflicting with these laws and regulations, BabyCare utilizes a business model that is different from the model we use elsewhere in the world. BabyCare’s business model has been developed specifically for the China market and is based on, among other things: (i) BabyCare’s communications with the Chinese government, (ii) BabyCare’s interpretation of China's direct selling laws and regulations, as well as its understanding of how the government interprets and enforces these laws and regulations, and (iii) BabyCare’s understanding of how other multinational direct selling companies operate in China. Consequently, individuals who join BabyCare in China do not participate in our Compensation Plan outside of China; instead, they are compensated under BabyCare’s compensation plan, which has been established for China. Notwithstanding the foregoing, BabyCare has not received approval from the Chinese government that its business model, compensation plan or operations comply with applicable laws and regulations, including those pertaining to direct selling.

BabyCare sells products in China through a variety of methods, including: (a) online through its website; (b) at physical branch retail locations; (c) through direct sellers in provinces and municipalities where BabyCare has received a direct selling license granted by the local provincial government; and (d) through independent distributors who are considered independent business owners under Chinese law. Individuals who reside in China and who are interested in being part of our business in China may do so by enrolling with BabyCare. While the process for enrolling with BabyCare is similar to the process for joining our business in other markets, individuals must initially enroll with BabyCare as a China Preferred Customer ("CPC"). CPCs are similar to Preferred Customers in our other markets, but CPCs may also refer other CPCs in China and receive free product value from us on future product purchases based on the volume of product purchased by CPCs they have referred.

A CPC may become a direct seller or independent distributor (which we report collectively as Associates) in China by electing to do so and agreeing to adhere to BabyCare’s policies and procedures in China. Our direct sellers in China are permitted by our policies and the terms of our direct selling licenses to sell product away from fixed retail locations in the provinces and municipalities where BabyCare has been granted a local direct selling license. Direct sellers are compensated for their sales under BabyCare’s compensation plan and do not receive compensation for promotional, marketing, or sales services that independent distributors are eligible to receive (as described below). Independent distributors are independent business owners who sell BabyCare’s products in China and also provide promotional, marketing, and sales services for BabyCare in China. Under BabyCare’s compensation plan, independent distributors are compensated not only for their own product sales, but also for their productivity in providing promotional, marketing and sales services. BabyCare’s compensation to its independent distributors for these services is intended and designed to be business-to-business compensation under Chinese law. To calculate independent distributor compensation for these services, we (i) use our world-wide Compensation Plan to track sales volume, and other metrics for the group of CPCs, distributors and others in China to whom the independent distributor provides promotional, marketing and sales services on behalf of BabyCare; (ii) calculate the fee-based compensation for the various services performed by the distributor; and (iii) pay the corresponding service fee to the independent distributor in China on a monthly basis. The fee-based compensation we pay our China independent distributors is comparable to the compensation available to our Associates in other markets and competitive with other direct selling companies in China.

BabyCare’s business model, compensation plan and operations in China involve certain risks and uncertainties, as discussed further in Item 1A. Risk Factors. We endeavor to mitigate these risks and uncertainties through various measures, including by seeking to understand and obey laws and regulations, training our employees and sales force, engaging in dialogue with government officials to better understand their goals and explain our plans, and cooperating in inquiries and other matters of interest to regulators. However, these efforts do not completely eliminate the significant risks associated with BabyCare’s operations in China.

Associate Training and MotivationMotivation.

Initial training of Associates about USANA, our products and Compensation Plan, and global direct selling in general, is provided primarily by an Associate'sAssociate’s sponsor and others in the Associate'sAssociate’s sales organization. We develop and sell training materials and sales tools to assist Associates in building their businesses, and we provide reprints from commercial publications that feature USANA that may be used as sales tools. We also sponsor and conduct regional, national, and international Associate events, as well as intensive leadership training seminars. Attendance at these sessions is voluntary, and we undertake no generalized effort to provide individualized training to Associates, although experience shows that the most effective and successful Associates tend to be those who participate in such training activities. Although we provide leadership training and sales tools, we ultimately rely on our Associates to sell our products, attract new active Customerscustomers to purchase our products, and to educate and train new Associates regarding our products and Compensation Plan.

Associate Compensation

        China Business.    Because of unique business laws and regulations in China governing direct selling that differ materially from our other markets, we operate our business in China through a Chinese subsidiary, BabyCare. The Chinese permit direct selling and have issued regulations that contain a number of financial and operational restrictions. China prohibits pyramid promotion and selling and multi-level compensation systems and has implemented a number of administrative and regulatory methods to control these activities. We have adjusted our direct selling program in China to comply with these laws.

        BabyCare sells products in China through a variety of methods, including: (a) online through its website; (b) at physical branch retail locations; (c) through direct sellers in provinces and municipalities where BabyCare has received a direct sales license; and (d) through independent distributors who are

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considered independent business owners under Chinese law. BabyCare's business model has been developed specifically for China's laws and regulations based on, among other things: (i) BabyCare's communications with the Chinese government, (ii) BabyCare's interpretation of the direct selling laws and regulations, as well as its understanding of how the government interprets and enforces the regulations, and (iii) BabyCare's understanding of how other multinational direct selling companies operate in China.

        Individuals who reside in China and who are interested in being part of USANA's organization in China may do so by enrolling with BabyCare. While the process for enrolling with BabyCare is similar to the process for joining USANA, individuals must initially enroll with BabyCare as a China Preferred Customer, or CPC. CPCs are similar to Preferred Customers in our other markets, but CPCs also have the right in China to refer other CPCs and receive rebates on future product purchases based on the volume of product purchased by CPCs they have referred. A CPC may become a direct seller or independent distributor (collectively referred to as Associates) in China by electing to do so and agreeing to adhere to BabyCare's policies and procedures in China. Our direct sellers in China are permitted by our policies and the terms of our direct selling licenses to sell away from fixed retail locations in the provinces and municipalities where BabyCare has been granted a direct selling license and are compensated under BabyCare's compensation plan. Our independent distributors, who are independent business owners under Chinese law, sell BabyCare products and provide various sales, marketing and other support services to BabyCare and its customers in China. Our distributors in China do not participate in our global Compensation Plan for Associates; instead they are compensated for their services under BabyCare's separate compensation plan established for China.

        Operating in China involves certain risks and uncertainties to our business, as discussed further in Item 1A. Risk Factors. We endeavor to mitigate these risks and uncertainties through various measures, including by seeking to understand and obey laws and regulations, training our employees and sales force, engaging in dialogue with government officials to better understand their goals and explain our plans, and cooperating in inquiries and other matters of interest to regulators. However, these efforts do not eliminate the significant risks associated with operating in China.

        Markets Outside China.    This section describes our Compensation Plan generally, except for our China operations as discussed above.

        Our Compensation Plan provides several opportunities for Associates to earn compensation, provided they are willing to consistently work at (i) sharing, marketing and selling USANA products to consumers, and (ii) building, training, and retaining their sales organizations. The purpose behind each form of compensation under our Compensation Plan is to reward committed Associates for generating product sales either directly or indirectly through their sales organization and network of product consumers.

        Associates can earn compensation under the Compensation Plan in four ways:

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Commissions.  The primary way an Associate is compensated is through earning commissions. Associates earn commissions by generating sales volume points, which are a unit of measure of the product sales of their sales organization. Each of our products is assigned a sales volume point value comprised of a certain percentage of the product price in U.S. dollars. To be eligible to earn commissions, an Associate must sell a certain amount of product each month. Associates do not earn commissions for simply recruiting and enrolling others in their organization. Commissions are paid only on the sale of products. In most markets, we pay Associates their commissions on a weekly basis.



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Bonuses.  We offer Associates several bonus opportunities, including our leadership bonus, elite bonus, and lifetime matching bonus. These bonus opportunities are based on a

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pay-for-performance philosophy and, therefore, are paid out when the Associate achieves certain performance measures.

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Retail Mark-Ups.  As discussed previously, in markets where retail mark-ups are permitted, our Associates purchase products from us at the Preferred Price and may resell them to consumers at higher retail prices. This allows the Associate to retain the retail mark-up as another form of compensation.



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Contests and Promotions.  We regularly sponsor contests and promotions designed to incentivize Associates to generate sales, grow their active Customer base and ultimately increase the number of USANA product users. These promotions are also based on a pay-for-performance philosophy and, therefore, are only paid upon the achievement of certain objectives.

        We endeavor to integrate our Compensation Plan seamlessly across all markets (except China) where legally permissible, allowing Associates to receive commissions for global—not merely local—product sales. This seamless sales organization structure is designed to allow Associates to build a global network by establishing or expanding their sales organization in any of the markets where we operate. We believe our Compensation Plan significantly enhances our ability to expand internationally, and we intend to continue to integrate new markets, where permitted, into our Compensation Plan.

Operating Strengths

Our principal objective is to improve the overall health and nutrition of individuals and families around the world.  We do this through (i) developing and manufacturing high-quality, science-based nutritional, and personal care and skincare products that promote long-term health, (ii) personalizing our products to our customers' needs and desires; and (iii) providing ana global direct selling opportunity through direct sales for our Associates who desire to distribute our products and earn supplemental income. Our strategy is to capitalize on our operating strengths, which include:include (i) a strong research and developmentR&D program; (ii) significant in-house manufacturing capability; (iii) high quality science-based products; (iv) an equitable Associate Compensation Plan; (v) a scalable business model; and (vi) an experienced management team.

Emphasis on Research and Development.Development. We have a technical team of experienced scientists, including several holding doctoral degrees, quality engineers, and regulatory specialists who contribute to our research and developmentR&D activities. In our research and developmentR&D laboratories, our scientists and researchers:

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Investigate activities of natural extracts and formulated products in laboratory and clinical settings;



•

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Investigate activities of natural extracts and formulated products in laboratory and clinical settings;

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Identify and research combinations of nutrients that may be candidates for new products;

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Develop new nutritional ingredients for use in supplements;

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Study the metabolic activities of existing and newly identified nutritional ingredients;

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Enhance existing USANA brand products, as new discoveries in nutrition, personal care and skincare are made;

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Formulate products to meet diverse regulatory requirements across all of our markets; and

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Investigate processes for improving the production of our formulated products.

Our in-house research combinations of nutrients that may be candidates for new products;



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Develop new nutritional ingredients for use in supplements;



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Study the metabolic activities of existing and newly identified nutritional ingredients;



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Enhance existing USANA brand products, as new discoveries in nutrition and skin care are made;



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Formulate products to meet diverse regulatory requirements across all of our markets; and



•

Investigate processes for improving the production of our formulated products.

        Our scientists and researchersteam also conductconducts double-blind, placebo-controlled, clinical studies, which are intended to further evaluate the efficacy of our products. In addition, we collaborate with outside research organizations to further support various aspects of our research and developmentR&D efforts. Our in-house research team has funded clinical research programs and works closely with scientists at a number of universities and research institutes, including those listed under the caption "Research“Research and Development"Development” above, to maintain our

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leadership in clinical research in nutrition, oxidative stress, glycemic stress, chronic inflammation and health implications of the microbiome. We have also funded clinical research programs at Boston University, the University of Colorado, the University of Utah, the University of Sydney in Australia, The Orthopedic Specialty Hospital (or "TOSH"), and Utah State University. Our R&D team also works closely with the Medical staff at Sanoviv Medical Institute in Rosarito, Mexico to obtain additional perspectives on the use of supplements in a clinical setting and to get feedback on formulas in development. It is through our internal research and developmentR&D efforts, as well as our relationships with outside research organizations and health care providers, that we can provide what we believe to be some of the highest quality health products in the industry.

In-house Manufacturing. We manufacture products that account for approximately three-fourthsapproximately 63% of our product sales. We believe that our ability to manufacture our own products in-house is a significant competitive advantage for the following reasons:

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We can better control the quality of raw materials and finished products;



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We can more reliably monitor the manufacturing process to better guarantee potency and bioavailability and to reduce the risk of product contamination;



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We can better control production schedules to increase the likelihood of maintaining an uninterrupted supply of products for our customers;



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We are able to produce most of our own prototypes in the research phase of product development; and



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We are better able to manage the underlying costs associated with manufacturing our products.

Science-based Quality Products. As a result of our emphasis on research and developmentR&D and our in-house manufacturing capabilities, we have developed a line of high-quality healthhigh quality products that we believe provides health benefits to our customers. Our products have been developed based on a combination of published research, in-house laboratory and third-party clinical studies, and sponsored research.

Equitable Associate Compensation Plan and Support. We are committed to increasing our product sales by providing a competitive compensation plan that attracts and retains Associates who constitute our sales force. We motivate our Associates by paying incentives on a weekly basis. Additionally,basis, in most markets. Where permissible, our Compensation Plan is where permissible,implemented as a global-seamless plan, meaning that Associates can be compensated each week for their business success in any market in which they have product consumers and/or a sales organization where we conduct business. As noted elsewhere in this report, ourOur China operations maintain their own compensation plan, which is structured differently than USANA'sour plan in other markets. In China, we pay Associates on a monthly basis. 

To support our Associates, we sponsor virtual and in-person meetings and events throughout the year, where we offer information about our products and our global direct selling system. These meetings are designed to assist Associates in business development and to provide a forum for interaction with some of our Associate leaders and with members of the USANAour management team. Due to the ongoing COVID-19 pandemic, we continue utilizing a primarily virtual strategy to hold meetings and events with our Associates; however, in markets where health and safety best practices have allowed us to safely do so, we have held in-person meetings. We also provide low-cost sales tools and resources, which we believe are an integral part of building and maintaining a successful home-based business for our Associates.

In addition to company-sponsored meetings, sales tools and resources, we maintain a website exclusively for our Associates, where they can access the latest USANA news, obtain training materials, manage their personal information, enroll new customers, shop for products, and register for company-sponsored events. Additionally, through this website, Associates can access other online services to which they may subscribe. For example, we offer an online business management service, which

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includes a tool that helps Associates track and manage their business activity, a personal webpage to which prospects or retail customers can be directed, and e-cards for advertising.

We also believe that recognition is an important factor in supporting and retaining our Associates. We understand that being a successful USANA Associate requires hard work and dedication, and we celebrate key achievements and rank advancements of our Associates. We believe that our recognition programs greatly contribute to our ability to retain our Associates.

Business Model. We believe that our direct-selling business model provides, among others, the following advantages:

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No requirement for a company-employed sales force to sell our products, with a relatively low incremental cost to add a new active Customer;



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Commissions paid to our Associates are tied to sales performance;



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Accounts receivable are minimal because payment is required at the time an active Customer purchases product;



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A stream of recurring revenue from our monthly product subscription program known as "Auto Order," which we utilize in all of our markets (for the year ended December 29, 2018, this program represented 55% of our product sales volume); and



•

We can typically expand into new international markets with moderate investment because we generally maintain only warehouse facilities, customer support, and minimal administrative facilities in those international markets. Larger markets, including China however, require more significant local investment.

Experienced Management Team. Our management team includes individuals with expertise in various scientific and managerial disciplines, including global direct selling, nutrition, product research and development, international development, marketing, sales, information technology, manufacturing, finance, legal, regulatory, and operations. This team is responsible for supporting growth, research and development,R&D, international expansion, strengthening our financial condition, and improving our internal controls.

Competition

Our industry is very competitive and the barriers to entry are not significant. We compete with manufacturers, distributors, and retailers of nutritional products in many channels, including global direct sales,selling, specialty retail stores, wholesale stores, and the internet generally. We also compete with other public and privately owned direct sellersglobal network marketers for distributor talent, including for example Amway, Herbalife, and Nu Skin. On both fronts, compared to USANA, some of our competitors are significantly larger, than we are, have a longer operating history, higher visibility and name recognition, and greater financial resources than we do.resources. We compete with these entities by emphasizing to our Associates, Preferred Customers, and potential customers the strengths of our business, as described in the "Operating"Operating Strengths" section above, to our Associates, Preferred Customers and potential customers.above.  

Product Returns

Product returns have not been a material factor in our business, totaling approximately 0.6% of net sales in 2021, and 0.7% of net sales in 2016, 2017,2020, and 2018,2019, respectively. Customer satisfaction has always been and will continue to be a hallmark of our business. We believe that we have always offered a generous product return policy. Our standard return policy allows Associates and Preferred Customerscustomers to receive a 100% refund on the purchase price on all product orders that are unused and returned within the first 30 days following purchase. Additionally, we offer a 100% refund of the sales price of anyon all product orders that are unused and resalable products that are returned up to one year from the date of purchase. This standard policy differs slightly in a few of our international markets due to applicable regulations in those markets. To avoid manipulation of our Compensation Plan, return of product when

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the purchase amount exceeds $100 and the product was not damaged at the time of receipt by the Associate may result in cancellation of an Associate'sAssociate’s distributorship.

Major Customers

 Sales are made

We sell product to independent Associates and Preferred Customers. No single Associate or Preferred Customer accounted for 10% or more of net sales.sales in any of the last three fiscal years. Notwithstanding the foregoing, the nature of our business model results in a significant amount of sales to several different Associate leaders and their sales organizations. Although no single Associate accounted for 10% or more of our annual net sales, the loss of a key Associate leader or that Associate'sAssociate’s sales organization could adversely affect our net sales and our overall operating results. See "Risk“Item 1A. Risk Factors."”

Associate Compliance

Our reputation depends upon the quality of our products and the integrity of our Associates. We continually monitor and review our Associates'Associates’ compliance with our policies and procedures as well as the laws and regulations applicable to our business around the world. Part of this review entails an assessment of our Associates'Associates’ sales activities to ensure that they are actually selling products to consumers. Our policies and procedures require Associates to present our products and the USANA opportunity ethically and honestly. Associates are not permitted to make claims about our products or Compensation Plan that are not consistent with our policies and procedures and applicable laws and regulations. The majority of our Associates must use marketing and promotional materials provided by USANA. Associates who have achieved a certain leadership level are permitted however, to produce their own marketing and promotional materials, but only if such materials are approved by usmaterials. However, prior to their use.doing so, Associates are required to complete an Advertising Certification to help educate them and prevent them from making unapproved product and business claims.

In the ordinary course of our business, we encounter Associates who fail to adhere to our policies and procedures. We systematically review reports of alleged Associate misbehavior. Infractions of the policies and procedures are reported to our Ethics and Education group, who determine what, if any, disciplinary action is warranted in each case. More serious infractions are also reported to our Ethics Committee, which includes USANA executives. If we determine that an Associate has violated any of our policies and procedures, we may take a number of disciplinary actions, including warnings, fines or probation. WeAmong other measures, we may also withdraw or deny awards, suspend privileges, withhold commissions until specific conditions are satisfied, or take other appropriate actions in our discretion, including termination of the Associate'sAssociate’s purchase and distribution rightsrights.

Because we believe that Associate compliance is critical to the integrity of our business, we are aggressive in ensuring that our Associates comply with our policies and procedures. When an Associate fails to comply with our policies and procedures, we may terminate the Associate'sAssociate’s purchase and distribution rights. From time to time, we become involved in litigation with Associates whose purchase and distribution rights have been terminated. We consider such litigation to be routine and incidental to our business and we will continue to be aggressive in ensuring that our Associates comply with our policies and procedures.

Information Technology

We believe that the ability to efficiently manage sales, active Customer data, distribution, compensation, manufacturing, inventory, accounting and finance, and communication functions through the use of secure, sophisticated, and dependable information processing systems is critical to our success.  We continually evaluate changes in the information technology environment in connection with our efforts to ensure that we are capitalizingcapitalize on new technologies, keepingkeep pace with regulatory standards, and ensuring thatsecure our systems and data are secure.data. Over the last several years, we have meaningfully invested in technology systems and infrastructure to create a better overall customer experience for our customers and we will continue to invest in this area going forward.

Our information technology resources are maintained primarily by our in-house staff to optimally support our customer base and core business processes. Our IT staff manages an array of systems and processes whichthat support our global operations 24 hours a day and 365 days a year. Three of our most critical applications include:

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A web-based application that provides online services to Associates, such as training sessions and presentations, online shopping, enrollment, a real-time reporting engine, Company and product information, web-hosting, email, and other tools to help Associates effectively manage their business and sales organizations.



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A web-based order-entry system that handles order entry, customer information, compensation, Associate business structure, returns, invoices, and other transactional-based processes.



•

A fully integrated world-wide Enterprise Resource Planning ("ERP") system that handles accounting, human resources, inventory management, production processes, quality assurance, and reporting requirements in a multinational environment.

Our web applications are supported by a clustered environment providing high availability. All production systems are fully backed-upbacked up and stored off-site to mitigate the risk of significant interruption of our business in the event of a disaster at the locations of our primary servers.

For information regarding technology-related risks, see the information in "Item“Item 1A: Risk Factors" under the caption "We rely on information technology to support our operations and reporting environments. A security failure of that technology could impact our ability to operate our businesses effectively, adversely affect our reported financial results, impact our reputation and expose us to potential liability or litigation."Factors.”

Regulatory Matters

General. In every jurisdiction in which we operate, our business is subject to extensive governmental regulation. These regulations exist at various national and local levels and pertain to our products, direct selling, and other aspects of our business. In this section, we describe the material regulations that are applicable to our business.

Product Regulation. Numerous governmental agencies regulate the formulation, manufacturing, holding, packaging, labeling, advertising, promoting, importing, distributing, shipping, and selling of health supplements, cosmetics, and foods. In the United States, these agencies include for example, the Federal Trade Commission ("FTC"(“FTC”) under the FTC Act, as amended, the FDA, under the Food, Drug, and Cosmetic Act, ("FDCA"as amended (“FDCA”) and related regulations, the Consumer Product Safety Commission, the U.S. Department of Agriculture, the Environmental Protection Agency, the United States Customs and Border Patrol, and the United States Postal Service.

Our largest selling product group includes products that are regulated as dietary supplements under the FDCA. Dietary supplements are also regulated in the United States under the Dietary Supplement Health and Education Act of 1994, ("DSHEA"as amended (“DSHEA”), which we believe is generally favorable to the dietary supplement industry. Some of our powdered drink, food bar, and other nutrition products are regulated as foods under the Nutrition Labeling and Education Act of 1990, ("NLEA"as amended (“NLEA”). The NLEA establishes requirements for ingredient and nutritional labeling including product labeling claims. The manufacture of nutritional or dietary supplements and related products in the United States requires compliance with dietary supplement GMPs, which are based on the food-model GMPs and Pharmaceutical GMPs, with additional requirements that are specific to dietary supplements. We are audited annually by the FDA, specifically for dietary supplements and have been found in compliance with GMPs for dietary supplements. The Dietary Supplement & Nonprescription Drug Consumer Protection Act requires manufacturers of dietary supplementsupplements and over-the-counter (“OTC”) products to notify the FDA when they receive reports of serious adverse events occurring within the

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United States. We have an internal adverse event reporting system that has been in place for several years, and we believe that we are in compliancecomply with this law.

In general, our personal care and skincare products, which are regulated as cosmetic products by the FDA, are not subject to pre-market approval by that agency. Cosmetics, however, are subject to regulation by the FDA under the adulteration and misbranding provisions of the FDCA. Cosmetics also are subject to specific labeling regulations, including warning statements, if the safety of a cosmetic is not adequately substantiated or if the product may be hazardous, as well as ingredient statements and other packaging requirements under The Fair Packaging and Labeling Act. Cosmetics that meet the definition of a drug, such as sunscreens, are regulated as drugs. Over-the-counter ("OTC")OTC drug products, including cosmetics, may be marketed if they conform to the requirements of the OTC monograph that is applicable to that drug. Drug products not conforming to monograph requirements require an approved New Drug Application ("NDA"(“NDA”) before marketing may begin. Under these provisions, if the agency were to find that a product or ingredient of one of our OTC drug products is not generally recognized as safe and effective or is not included in a final monograph that is applicable to one of our OTC drug products, we would be required to reformulate or cease marketing that product until it is the subject of an approved NDA or until the time, if ever, that the monograph is amended to include such product.

Advertising of our products in the United States is subject to regulation by the FTC under the FTC Act. Under the FTC's Substantiation Doctrine, an advertiser is required to have a "reasonable basis" for all objective product claims before the claims are made. Failure toClaims by us or our Associates about our products that cannot be adequately substantiate claimssubstantiated may be considered eitherunfair or deceptive acts or unfair practices. Pursuantpractices and may expose us to thisliability under the FTC requirement, we are required to have adequate substantiation for all material advertising claims that we make for our products in the United States.Act. In recent years, the FTC has initiated numerous investigations of and actions against companies that sell dietary supplement, weight-management, and cosmetic products. The FTC has issued guidance to assist companies in understanding and complying with its substantiation requirement. We believe that we have adequate substantiation for all material advertising claims that we make for our products in the United States, and we believe that we have organized the documentation to support our advertising and promotional practices in compliance with these guidelines.practices. However, no assurance can be given that the FTC would reach the same conclusion if it were to review or question our substantiation for our advertising claims in the United States.

The FTC may enforce compliance with the law in a variety of ways both administratively and judicially, using compulsory process, cease and desist orders, and injunctions. FTC enforcement can result in orders requiring, among other things, limits on advertising, corrective advertising, consumer redress, divestiture of assets, rescission of contracts, and such other relief as the agency deems necessary to protect the public. Violation of theseDuring 2020, for example, the FTC sent warning letters to several nutrition companies and direct-selling companies in connection with advertising claims that the companies and/or their distributor sales people were making about the respective company's products ability to prevent or treat COVID-19.  Failure to adhere to FTC warning letters or other orders couldcan result in substantial financial or other penalties. Although, to our knowledge, we have not been the subject of any action by the FTC, no assurance can be given that the FTC will not question our advertising or other operations in the United States in the future. Any action in the future by the FTC could materially and adversely affect our ability to successfully market our products successfully in the United States.

The manufacturing, labeling, and advertising of our products are also regulated by various governmental agencies outside the United States in each country where they are distributed. In Australia, product registration, labeling and manufacturing is regulated by the TGA. In Japan, the Ministry of Health, Labor and Welfare regulates these activities. In China, SAMR regulates these activities. Upon entering a new market, prior to commencing operations or marketing products, we may be required to obtain approvals, licenses, or certifications from that country's Food Administration, Ministry of Health or comparable agency. Approvals or licensing may be conditioned on reformulation of USANA products for the particular market or approval or licensing otherwise may be unavailable with respect to certain products or product ingredients in a given market.

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        We must also comply with local product labeling and packaging regulations that vary from country to country. For example, China extensively regulates the registration, labeling and marketing of our products. In China, our nutritional products are typically classified as "health“health functional foods"foods” and our personal care and skincare products are classified typically classified as "non-special“non-special use cosmetics."” The registration process for health functional foods in China is complex and can be unpredictable. It generally requires extensive analysis and approval by the SAMR. As a result, it can take several years to register a product as a health functional food in China. While all products currently sold by BabyCare in China have been registered with the SAMR, we continue to work through the registration process for other health functional food products, which we also hope to begin selling through BabyCare in the future.  SAMR and other governmental agencies also enforce advertising and other regulations that restrict the ability of health products companies to advertise the benefits of their products in China. 

In Australia, the TGA regulates product registration, labeling and manufacturing. In Japan, the Ministry of Health, Labor and Welfare regulates these activities. Upon entering a new market, prior to commencing operations or marketing products, we may be required to obtain approvals, licenses, or certifications from that country’s Food Administration, Ministry of Health or comparable agency. Approvals or licensing may be conditioned on reformulation of USANA products for the particular market or approval or licensing otherwise may be unavailable with respect to certain products or product ingredients in a given market.

We cannot predict the nature of any future laws, regulations, interpretations, or applications, nor can we determine what effect additional governmental regulations or administrative orders, when and if promulgated, would have on our business. Future changes could include requirements for the reformulation of certain products to meet new standards, the recall or discontinuation of certain products that cannot be reformulated, additional record keeping, expanded documentation of the properties of certain products, expanded or different labeling, and additional scientific substantiation. Any or all of these requirements could have a material adverse effect on our business, financial condition, and operating results.

Direct Selling Regulation.Regulation. Various laws and regulations in all of our markets regulate direct selling. These laws and regulations exist at many levels of government in many different forms, including statutes, rules, regulations, judicial decisions, and administrative orders. Generally, the regulations are directed at: (i) ensuring that product sales ultimately are made to consumers and that advancement within a sales organization is based on product sales rather than on investments in the organization or on other criteria that are not related to sales; and (ii) preventing the use of deceptive or fraudulent practices that have sometimes been inappropriately associated with legitimate direct selling activities. Direct selling regulations are inherently fact-based and often do not include "bright line"“bright line” rules. In most of our markets, these regulations are subject to discretionary interpretation by regulators and respective legal authority.authorities. Consequently, the regulations, or a regulator'sregulator’s interpretation and enforcement of the regulations, could change at any time. If that were to occur, we may be required to change our business model in the respective market in an effort to comply.

In the United States, the FTC has jurisdiction to regulate direct selling companies under the FTC Act. The FTC'sFTC’s interpretation of the applicable direct selling laws and regulations has evolved over the last several years as represented in various consent orders between the FTC and certain direct selling companies, relatingguidance issued by the FTC to the direct selling industry and informal communications from the FTC to the industry. The FTC, through these consent orders, guidance and communications, has addressed a variety of consumer protection issues, including misleading earnings representations by a company'scompany or its independent distributors, as well as the fairness and legal validitycompliance of a company'scompany’s business model and distributor compensation plan. For instance,example, in July 2016,2020, the FTC entered into asent warning letters to several direct-selling companies in connection with income claims allegedly made by the companies and/or their distributor sales forces in the context of the respective company's business opportunity during the COVID-19 pandemic. The consent order with a direct selling company following an enforcement action in whichorders, guidance and communication from the FTC had alleged that, among other things, the direct selling company's distributors were making misleading representationshave also created a degree of ambiguity and uncertainty regarding income and that the company was utilizing an unfair and deceptive compensation plan. Additionally, in September 2016,how the FTC entered into a consent order with another direct selling company following an enforcement action in whichand other regulators will interpret the FTC had alleged that the company's distributors were making misleading earnings representationslaws, regulations and that the company was utilizing an illegal business model. In each of these settlements, the FTC required the censured company to pay a significant fine, revise its U.S. business model and compensation plan to comply with various restrictions on how it can compensate independent distributors and to make changes to its marketing practices to avoid misleading income representations. FTC determinations such as these have created ambiguity as to the proper interpretation of the law and regulationsjudicial precedent applicable to direct selling companies in the U.S. Although these settlements do not represent judicial precedent or have the force of law or a new rule or regulation, FTC officials have indicated that the direct selling industry should look to the principles underlying these consent orders for guidance in their own businesses.

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        Additionally, in January 2018,United States. In October 2021, the FTC, issuedpursuant to its non-binding Business Guidance Concerning Multi-Level Marketing, which it intended to reinforce many of the principles contained in the consent orders described above and to provide other operational guidance to direct selling companies. We have analyzed the consent orders and the Business Guidance issued byPenalty Offense Authority under the FTC and are in the process of both (i) refining aspects of our U.S. business model based on the principles contained in these documents, and (ii) conducting additional analysisAct, sent letters to determine if further changes to our model may be necessary. We cannot assure youover 1,100 companies, including USANA, warning them that the FTC could seek penalties of up to $43,792 per violation for conduct determined to be unfair, deceptive, or otherwise unlawful in certain prior FTC actions. The letter did not accuse any recipient company, including USANA, of engaging in unlawful conduct. But if it werethe FTC later alleges that we have engaged in acts or practices found to review our U.S. business, would not require us to change onebe unfair, deceptive, or more aspects of our operationsunlawful in the U.S.actions referenced in the future. Any action against us in the future by the FTCletters, we could materiallybe at risk of penalties and adversely affect our operations in the U.S.other potential liability.

 The

As noted above, the Chinese government has adopted direct selling laws and regulations that contain a number of financial and operational restrictions on direct selling companies, as well as prohibitions on pyramid selling and multi-level compensation. These regulations are also subject to discretionary interpretation and enforcement by various municipal, provincial and state officials in China. Departments within the Chinese government that regulate direct selling include the Ministry of Commerce ("MOFCOM"(“MOFCOM”), the Ministry of Public Security ("MPS"(“MPS”) and their regional and local counterparts. BabyCare'sBabyCare’s business model has been developed specifically for China's laws and regulationsChina based on, among other things: (i) BabyCare'sBabyCare’s communications with the Chinese government, (ii) BabyCare'sBabyCare’s interpretation of the direct selling laws and regulations, as well as its understanding of how the government interprets and enforces the regulations, and (iii) BabyCare'sBabyCare’s understanding of how other multinational direct selling companies operate in China.

Notwithstanding the foregoing, the direct selling industry in China, as well as the regulatory environment for thatthe industry, continues to evolve and receive significant attention and scrutiny from the Chinese government and the media in China. For example, in JanuaryChinese media. In 2019, following unfavorable media coverage of certain health product companies and direct selling companies, several departments of the Chinese government, including SAMR, MPS, and MOFCOM, initiated a 100-day review of health product and direct selling companies. This review required direct-selling companies in China. This 100-day review requires direct-selling companiesChina such as BabyCare to conduct a self-assessment of the regulatory compliance of their business (including product regulatory compliance and direct selling regulatory compliance) and to provide information to the Chinese government regarding the same.that assessment. The 100-day review will also entailentailed a review of a company'sdirect sellers' regulatory compliance by various departments of the Chinese government. During this review, period, the Chinese government, has, among other things, (i) instructed direct selling companies not to not hold large distributor meetings, and (ii) suspended its application review process for direct sales licenses and authorizations.

        Prior to 2019, including in 2017 following various media reports, certain departments of the The Chinese government includinghas yet to re-open the SAMRapplication review process for direct sales licenses and MPS, carried out a three-month reviewauthorizations or indicate if or when it plans to do so. The Chinese government's scrutiny of the direct selling industry to investigate alleged violations ofhas been higher following the direct selling regulations and anti-pyramiding regulations. 2019 review.  

The Chinese government has taken action historically against direct selling companies that it believes have violated the government'sgovernment’s direct selling regulations and anti-pyramiding laws. The government'sgovernment’s action in this regard has entailed investigating direct selling companies and their distributors, imposing significant fines and, in some cases, shutting down companies.companies it believed to be in violation. Historically, there have been instances when inquiries or complaints about BabyCare'sBabyCare’s business resulted in warnings from the Chinese government, as well as the payment of fines by BabyCare or its distributors.

BabyCare has obtained direct selling licenses in certain provinces and municipalities and itin China, but must obtain various licenses and approvalsothers from additional municipalitiesprovinces and provinces within Chinamunicipalities if it is to operatecontinue to expand its direct selling business model in China. As of the date of this report,Annual Report, BabyCare has been granted licenses to engage in direct selling in the municipalitiesprovinces and provincesmunicipalities of Beijing, Jiangsu, Shaanxi, and Tianjin. In 2016, BabyCare received preliminary approval from the Chinese government to expand its direct selling business into the following eight additional provinces and municipalities: Liaoning Province, Shandong Province, Shanxi Province, Sichuan Province, Guangdong Province, Dalian

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City, Qingdao City, and Shenzhen City. Issuance of final direct selling approvals for these municipalities and provinces was contingent upon BabyCare satisfying certain conditions and reporting requirements. Although BabyCare has been working to satisfy these conditions and reporting requirements, we now believe that BabyCare will not be issued the final direct selling approvals for some or all of these eight additional provinces and municipalities under the current applications due to (i) delays by BabyCare in completing the same, (ii) the reorganization of several departments of the Chinese government in 2018, (iii) the Chinese government's 100-day review of the direct sales industry, which commenced in January 2019, and/or (iv) the related suspension of the Chinese government's application review process for direct sales licenses and approvals during the 100-day review. Consequently, we anticipate that BabyCare will need to reapply for these approvals at some point following the 100-day review period. Due to the unpredictability created by these complications, and the discretion maintained by the Chinese government, there is no guarantee that BabyCare will be successful in reapplying for these approvals or that the Chinese government will ultimately grant BabyCare a direct sales license in these or in other jurisdictions, which could delay or adversely affect BabyCare's growth and business.

Direct selling companies, and the industry in general, continue to experience significant media and public scrutiny in many countries.scrutiny. Several companies similar to oursUSANA recently have been scrutinized and penalized in several markets where we operate, including the United States, Canada, China, Japan, and South Korea. This scrutiny, along with the uncertainty of the laws and regulations pertaining to direct selling in many countries, can affect how a regulator or member of the public, including investors, perceiveperceives us. For instance, there has been significant media and short-seller attention given to the viability and legality of direct selling in the United States and China over the past few years. This attention has led to intense public scrutiny of our industry, as well as volatility in our stock price and the stock prices of other direct selling companies who operate in the same markets. We cannot predict the impact that this scrutiny may have on our business or industry in the future.

We detail more of the various risks associated with the regulation of our overall business, direct selling business model and Compensation Plan in this reportAnnual Report in “Item 1A. "Risk“Risk Factors."”

Transfer Pricing Regulation.In the United States and many other countries, we are subject to transfer pricing and other tax regulations that are designed to ensure that appropriate levels of income are reported by our U.S.United States or international entities and are taxed accordingly. We have adopted transfer prices, which are supported by formal transfer pricing studies for the sale of products to our subsidiaries in accordance with applicable transfer pricing laws. In addition, we have entered into agreements with our subsidiaries for services and other contractual obligations, such as the payment of Associate incentives that are also supported by the same formal transfer pricing studies. IfWe have experienced instances in the past where international taxing authorities have successfully challenged our transfer pricing calculations and agreements and assessed us additional tax. Going forward, if the U.S. Internal Revenue Service (“IRS”) or the taxing authorities of any other jurisdiction were to successfully challenge these agreements or require changes in our standard transfer pricing practices for products, we could become subject to higher taxes and our earnings could be adversely affected. The tax treaties between the United States and most countries provide competent authority for relief to avoid any double taxation. We believe that we operate in compliance with all applicable transfer pricing regulations. There can be no assurance, however, that we will continue to be found to be operating in compliance with transfer pricing regulations or that those laws will not be modified, which may require that we change our operating procedures.

Intellectual Property

Trademarks. We have developed and use registered trademarks in our business, particularly relating to our corporate and product names.  We own 3026 trademarks that are registered with the U.S. Patent and Trademark Office.  Federal registration of a trademark enables the registered owner of the mark to bar the unauthorized use of the registered mark by a third party in connection with a similar product in the samesimilar channels of trade by any third-party anywhere in the United States, regardless of whether the registered owner has ever used the trademark in the area where the unauthorized use occurs.  We have

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filed applications and own trademark registrations, and we intend to register additional trademarks in countries outside the United States where USANA products are or may be sold in the future.  Protection of registered trademarks in some jurisdictions may not be as extensive as the protection in the United States.

We also claim ownership and protection of certain product names, unregistered trademarks, and service marks under common law.  Common law trademark rights do not provide the same level of protection that is afforded by the registration of a trademark.  In addition, common law trademark rights are limited to the geographic area in which the trademark is actually used.  We believe these trademarks, whether registered or claimed under common law, constitute valuable assets, adding to recognition of USANA and the effective marketing of USANA products.  Trademark registration once obtained is essentially perpetual, subject to the payment of a renewal fee.fee and continue usage of the trademark. We therefore believe that these proprietary rights have been and will continue to be important in enabling us to compete.

Patent. We own U.S. Patent 10,632,101 for our InCelligence complex formula. 

Trade Secrets. We own certain intellectual property, including trade secrets that we seek to protect, in part, through operational protections and confidentiality agreements with employees, consultants, vendors and other parties.  Even where these agreements exist, there can be no assurance that these agreements will not be breached, that we would have adequate remedies for any breach, or that our trade secrets will not otherwise become known to or independently developed by competitors.  Our proprietary product formulations are generally considered trade secrets, but are not otherwise protected under intellectual property laws.

 Patents.    We have two U.S. patents that relate to the method of extracting an antioxidant from olives and the byproducts of olive oil production. These patents were issued in 2002 and will continue in force until December 20, 2019.

We intend to protect our legal rights concerning intellectual property by all appropriate legal action.  Consequently, we may become involved from time to time in litigation to determine the enforceability, scope, and validity of any of the foregoing proprietary rights.  Any intellectual property litigation could result in substantial cost and divert the efforts of management and technical personnel.

Seasonality

Although we are not significantly affected by seasonality, we do experience variations in the activity of our Associatescustomers in many of our markets in the first and fourth quarters around major cultural events such as Chinese New Year and Christmas.

Backlog

Our products are typically shipped within 72 hours after receipt of an order. As of February 22, 201925, 2022, we had no significant backlog of orders.

Working Capital Practices

 We

Due to our dual role as manufacturer and distributor, we require substantial inventories, as such, we strive to maintain sufficient amounts of inventory in stock in order to provide a high level of service to our customers. Substantial inventories are requiredAdditionally, we have strategically increased our inventory levels over the last few years as we have introduced new product lines, supported promotional activity, and attempted to meetoffset disruptions related to the needs ofCOVID-19 pandemic that have impacted our dual role as manufacturerability to operate and distributor.ship products. We also watch seasonal commodity markets and may buy ahead of normal demand to hedge against cost increases and supply risks.

Environment Laws

We are not aware of any instance in which we have contravened federal, state, or local laws relating to protection of the environment or in which we otherwise may be subject to liability for environmental conditions that could materially affect operations.

Our Values and Culture

Our business is driven by our four Core Values:

Our leadership believes we can have the most significant impact by focusing on education and awareness, career and leadership skill development, and community engagement. In 2021, we launched several initiatives related to these focus areas including leadership and employee trainings with an emphasis on fostering a diverse and inclusive workplace, over 1,500 employee volunteer hours to organizations that support equity, and creating programs that support internal mobility for underrepresented groups. We fully intend to build on what we have done to this point while also expanding into workshops and events, community partnerships, and programs that help to develop and retain talent. This is all achieved by the cross-functional efforts across all areas of the business, coordinated and directed by the DEI council and its executive sponsors.

We understand the value of developing employees at every level.  Our leaders actively participate in leadership development programs that include mentorship and coaching, online learning, and regular company and industry specific training programs.  Additionally, we have over 90% of our global employee population engaged in our online learning platform and more than 300 participants have completed our mentorship and coaching program.  All employees are encouraged to attend training specific to their role, as well as, utilize our tuition reimbursement program, which has provided additional monetary support to employees at all levels as they pursue bachelor and advanced college degrees.

Employees who work out of our corporate headquarters have access to an on-site gym, exercise classes, free access to massages, and chiropractic care.  We also have a health clinic located on the campus of our corporate headquarters to provide medical and mental health care, which is actively engaged in the health of about 36% of our eligible employees.

The health and safety of our employees around the world remains our top priority. We remain committed to being socially responsible as a corporate leader in each of our markets and doing our part to reduce the spread of COVID-19. As such, we are continuing to utilize a modified operating model in each of our markets as necessary to follow applicable guidelines from government and health officials. Although a significant portion of our non-manufacturing and non-distribution employees continued with remote working arrangements, we began efforts during the second quarter of 2021 to bring these employees back to our offices, in markets where health and safety best practices have allowed us to safely do so. In connection with this effort, we are permitting most of our employees to utilize a hybrid work schedule, which allows them to split their time working at the office and remotely. Employees working on site are required to follow applicable health and safety guidelines. We are also continuing to utilize flexible shift schedules, time and attendance policies, and sick-leave policies to promote health, wellness and safety. Where necessary in our international markets, we have temporarily closed product will-call centers and continue to offer curbside delivery and subsidized shipping to customers. We will continue to monitor the situation surrounding the pandemic and implement additional risk mitigation actions where necessary.

In addition, a discussion of the risks relating to our ability to attract and retain active Associates and Preferred Customers, and the loss of key management, is discussed further in Item 1A. Risk Factors.

Information About Our Executive Officers and Directors

Executive Officers

The following table sets forth certain information regarding our Executive Officers as of the date of this Annual Report.

Kevin G. Guest. Mr. Guest joined USANA on a part-time basis in April 2003, as Executive Director of Media and Events. Following our acquisition of the media, video, and event-productions company FMG Productions founded by Mr. Guest, he became a full-time employee of the Company and was promoted to Vice President of Media and Events in February 2004. In January 2006, he was appointed Executive Vice President of Marketing and served in that role until July 2008, when he was appointed Chief Marketing Officer. In May 2011, he was appointed President of North America and in October 2012, he was named President of the Americas, Europe and South Pacific. In August 2014, Mr. Guest was appointed President of USANA and in August 2015, he was appointed Co-Chief Executive Officer. He served in this capacity until November 2016, when he was appointed Chief Executive Officer. In May 2020, Mr. Guest was appointed as Chairman of the Board and Chief Executive Officer.  Mr. Guest's important role as the leading force of our management and sales efforts, and his talent as a motivating leader, qualify him to serve as a member of the Board. Mr. Guest earned a B.A. in Communications from Brigham Young University.

Jim Brown. Mr. Brown joined USANA in 2006 as Vice President of Operations. In July 2011, he was appointed Vice President of Global Operations and served in that role until July 2012, when he was appointed Chief Production Officer. In November 2013, he was appointed Chief Operating Officer and in November 2016, he was appointed President and Chief Operating Officer. He served in those positions until October 2019, when the positions of President and Chief Operating Officer were separated and he became President. Prior to joining USANA, Mr. Brown was employed as a plant manager at Sonoco where he was responsible for safety, quality, finance, production, and maintenance. Mr. Brown received a bachelor’s degree with a double major in computer science and math, and an M.B.A. from Francis Marion University in Florence, South Carolina.

G. Douglas Hekking. Mr. Hekking became our Chief Financial Officer in May 2017. Mr. Hekking joined USANA in 1992 and has served in several management positions at the Company for the past 27 years, including Controller (March 1996 until February 2005), Vice President of Finance (2005–July 2007), Executive Director of Special Projects (July 2007–May 2011), Chief Financial Officer (May 2011–December 2012), Vice President of Finance (December 2012–May 2016), and Executive Vice President of Finance (May 2016–May 2017). Mr. Hekking received a B.S. in accounting from the University of Utah and an M.B.A. from Brigham Young University.

Paul A. Jones. Mr. Jones, Chief People Officer, joined USANA in 2005 as Vice President of Human Resources and served in this role until June 2007, when he left to complete a three-year service mission. Mr. Jones returned in July 2010 as Vice President of Human Resources, and served in this role until December 2012, when he was appointed Chief Financial Officer, serving in that position until May 2017. In August 2015, Mr. Jones was appointed to Chief Leadership Development Officer where he served until February 2021 when he was appointed to his current position of Chief People Officer. Prior to joining USANA, Mr. Jones was Vice President of Human Resources and later Vice President of Operations for Associated Food Stores, Inc. Mr. Jones received a B.S. in finance from Utah State University and M.A. in organizational management from the University of Phoenix.

P. Joshua Foukas. Mr. Foukas joined USANA in 2007 as Associate General Counsel and served in that role until he was appointed as Vice President of Finance and Legal in 2011.  He served in this finance position on an interim basis until December 2012, when he was appointed as Vice President of Legal and Investor Relations.  In January 2017, he was appointed Executive Vice President of Legal and in July 2018, he was promoted to Chief Legal Officer and named Corporate Secretary.  Prior to joining USANA, Mr. Foukas served as corporate counsel for a public biotech company.  Prior to that, he practiced law as a corporate and securities attorney with a law firm in Salt Lake City, Utah. Mr. Foukas received a B.A. from the University of Utah and a J.D. from the University of Idaho.

Daniel A. Macuga, Jr. Mr. Macuga joined USANA in 2007 as Vice President of Network Development and Public Relations. In July 2008, he was appointed as Vice President of Marketing, Public Relations and Social Media and in December 2011, he was appointed Chief Communications Officer. He served in that role until February 2014 when he was appointed Chief Communications Officer and Executive Vice President of Field Development for the Americas. In November 2016, Mr. Macuga was named Chief Communications Officer and in November 2017, he became Chief Communications and Marketing Officer. Prior to joining USANA, Mr. Macuga was employed at the Chrysler Corporation, where he spent 15 years working closely with independent dealership entrepreneurs to help them build their businesses, increase awareness for their products, and keep them focused on effective customer relationship management. Mr. Macuga received a B.A. in communications from the University of California, San Diego.

Robert A. Sinnott, M.N.S., Ph.D. Dr. Sinnott joined USANA as Chief Scientific Officer in August 2016. From 2005 to 2016, he was Chief Science officer of Mannatech, Inc. From 2009 to 2012, he also served as Co-Chief Executive Officer and from 2012 to 2016 as CEO of Mannatech. During his tenure at Mannatech, Dr. Sinnott served to further the company’s proprietary science, research and development, and initiated independent clinical trials, was responsible for oversight of quality assurance/quality control, global regulatory affairs, legal department, human resources, and global supply chain. Dr. Sinnott has held scientific and business positions in both industry and government over the past 25 years with experience in life sciences, chemistry, biotechnology and nutrition. For the past 18 years, he has worked directly in the dietary supplement industry both in the United States and internationally. From 2006 to 2011, Dr. Sinnott held a seat on the Board of Directors of the Council of Responsible Nutrition’s (the “CRN”), the leading trade association representing ingredient suppliers and manufacturers of dietary supplements. From 2009 to 2011, Dr. Sinnott also served as chair of the Senior Scientific Advisory Committee ("SSAC") for the CRN. The SSAC is comprised of the highest-ranking scientific officers of member companies. Its role is to assist the CRN with development and implementation of scientific strategy relating to scientific publications, scientific policies and programs by government agencies. Dr. Sinnott holds a B.S. in Biological Sciences, an M.S. in Natural Science, and a Ph.D. in Plant Sciences from Arizona State University, in Tempe, Arizona. His focus was on applied biological sciences, including biotechnology and plant medicinal chemistry.

Walter Noot. Mr. Noot joinedUSANA as Chief Information Officer in December 2016 and served in that role until he was promoted to Chief Operating Officer in October 2019. Mr. Noot has more than two decades of executive leadership experience and has worked with a wide range of businesses in many industries, from start-ups to multi-billion dollar companies. From 2014 until 2016, he was an executive officer of Young Living Essential Oils, LC, where he served as Chief Information Officer and Senior Vice President of Operations. While at Young Living, he oversaw improvements to the supply chain, implementation of a new ERP, and a software systems rebuild. Prior to joining Young Living, Mr. Noot was COO of Mona Vie, another direct sales company from 2012 to 2014, and he has held leadership positions with Computer Associates, Canon (Oce), and Onyx Graphics. He holds a B.S. in mechanical engineering from Brigham Young University.

David Mulham. Mr. Mulham joined USANA in 2009 as Field Development, Marketing and Customer Service Manager for Australia and New Zealand. In February 2011, he was appointed General Manager, for Australia and New Zealand and served in that role until June 2011, when he was appointed Vice President, Pacific Region (Australia, New Zealand and Philippines). In February 2014, he was appointed Executive Vice President of Field Development, Pacific Region and then in May 2015 he was named Executive Vice President, Pacific Region. He served in that role until January 2016 when he was appointed Executive Vice President, Pacific and Europe and then in September 2016, he was appointed Executive Vice President, the Americas, Pacific and Europe. He served in that position until February 2017, when he was appointed Chief Field Development Officer. Prior to joining USANA, Mr. Mulham had extensive experience in the direct selling industry working for Amway, Mary Kay, Nutri Metics and Dorling Kindersley Family Learning. He subsequently worked in property development as Director of both Hunter Valley Gardens and Tempus Two Winery. Mr. Mulham has a postgraduate diploma from Macquarie Graduate School of Management, Sydney, and received the Silver Stevie Award in 2015, for Executive of the Year – Health Products & Services and Pharmaceuticals.

Brent L. Neidig. Mr. Neidig joined USANA in December 2004, and served in a variety of positions until he departed in February 2011 to join Goldman Sachs. He was employed by Goldman Sachs as an associate in the Private Wealth Management Division until August 2012 when he rejoined USANA as Executive Director of Compliance. In November 2015, he was appointed Vice President of China Strategic Development and served in that role until February 2017, when he was appointed Executive Vice President of China. He served in that role until April 2019 when he was named Chief Officer and Managing Director of China. Mr. Neidig received a B.S. in accounting and M.B.A. from the University of Utah.

Board of Directors

The following table sets forth certain information regarding our Directors as of the date of this Annual Report.

Additional Available Information

We maintain our corporate headquarters, executive offices, and principal facilities at 3838 West Parkway Boulevard, Salt Lake City, Utah 84120. Our telephone number is (801) 954-7100. Our website address is www.usanahealthsciences.com.www.usanahealthsciences.com. The information on our website should not be considered part of and is not incorporated into this report on Form 10-K.Annual Report by reference.

We make available, free of charge at our corporate web site,website, copies of our reports filed with the SEC under the Exchange Act, including our annual reportsAnnual Reports on Form 10-K, quarterly reportsQuarterly Reports on Form 10-Q, current reportsCurrent Reports on Form 8-K, proxy statements, and all amendments to thesesuch reports, as soon as reasonably practicable after such reports or other material hashave been electronically filed with or furnished to the SEC pursuant to Section 13(a) or 15(d) of the Exchange Act. This information may also be obtained from the SEC'sSEC via its on-line database, which is located atwww.sec.gov.www.sec.gov.

You may also obtain, free of charge on our website, a copy of our Corporate Governance Guidelines, our Code of Ethics for Directors and Employees, and the Charterscharters of ourthe Audit Committee, Governance, Risk and Nominating Committee, Compensation Committee, and CompensationSustainability Committee of our Board of Directors.

Item 1A. Risk Factors

We are subject to and encounter various substantial risks and events that adversely affect our business, results of operations, cash flows, financial condition and the price of our common stock. You should consider the following risk factors, in addition to the information presented elsewhere in this report,Annual Report, particularly under the heading "Cautionary“Cautionary Note Regarding Forward-Looking Statements",” on page 1, and in the sectionsdisclosures contained in Part I, “Item 1. Business,” and Part II, “Item 7. Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations” of this report, as well as in the other filings we make from time to time with the SEC, in evaluating us, our business and an investment in our securities. The fact that some of these risk factors may be the same or similar to those that we have included in other reports that we have filed with the Securities and Exchange Commission in past periods means only that the risks are present in multiple periods. We believe that many of the risks that are described here are part of doing business in the industry in which we operate and will likely be present in all periods. The fact that certain risks are endemic to the industry does not lessen their significance.

The risks discussed below are not the only risks that we face. Additional risks not currently known to us or that we currently deem immaterial also may adversely affect our business.

Global Pandemic

         As a direct selling company, we sellThe COVID-19 pandemic is expected to continue and may adversely affect our products to a networkbusiness.

The COVID-19 pandemic, including the spread of active Customers. If we are unable to attract and retain active Customers,new variants of the virus, has negatively impacted our business may be harmed.

        Our consumer base includes (i) non-employee, independentin various markets around the world and continues to present an unpredictable operating environment for us in many of our markets. To address the pandemic, many governments have issued various restrictive orders that affect businesses and consumers. Government-imposed restrictions, health and safety mandated best practices, and public hesitance regarding in-person gatherings have reduced our ability and the ability of our Associates who personally consumeto hold sales meetings, required our associates to share and sell our products (ii) Preferred Customers who simply consume, but do not resellin a predominantly virtual environment, resulted in cancellations of key Company events and trips, required us to utilize a work-from-home strategy for all non-manufacturing and non-distribution employees, and required us to temporarily close our products,walk-in and (iii) retail customers who typically purchasefulfillment locations we maintain in some markets. The pandemic has also affected the availability and cost of various of our products directly from Associates. We rely largely onraw materials, packaging materials and shipping resources to transport our Associatesproduct to market and sell our products and to generate active Customer growth. Our ability to maintain and increase sales in the future will depend in large part upon our success in increasing the number of active Customers in each of ourvarious markets around the world. Our successsupply chain and logistics have incurred some disruption and we could experience more significant disruptions or face more significant closures in the future as the pandemic continues. These factors and others related to the COVID-19 pandemic, including the spread of new variants of the virus, will likely continue to negatively affect our business and our financial results in a number of ways. The situation around the world with respect to the COVID-19 pandemic continues to evolve and change rapidly, and uncertainty regarding its duration and future impact continues to exist.

A meaningful decline in our future operating results could also dependadversely affect our financial position, capital resources and liquidity. While we have not persistently drawn or maintained a standing balance on our Credit Facility, we are subject to certain financial covenants and leverage ratios under the Credit Facility. A significant decline in our future operating results because of the COVID-19 pandemic, or other similar health epidemic or pandemic event, could affect our ability to retain and motivatecomply with our existing Associates and attract new Associates. Associates

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typically market and sell our products on a part-time basis and often engage in other business activities, some of which may compete with us. We rely primarily upon our Associates to (i) attract, train and motivate new Associates, and (ii) attract and sell to Preferred Customers and retail customers. Our ability to continue to attract and retain active Customers can be affected by a number of factors, some of which are beyond our control, including:

•

General business and economic conditions;



•

Adverse publicity or negative misinformation about our industry, us or our products;



•

Negative public perceptions about direct selling in general;



•

High-visibility investigations or legal proceedings against direct selling companies by federal or state authorities or private citizens;



•

Public perceptions about the value and efficacy of nutritional or dietary supplement, products generally;



•

Other competing direct selling companies entering into the marketplace that may sell to our active Customers, or potential active Customers; and



•

Changes to the Compensation Plan required by law or implemented for business reasons that make attracting and retaining Associates more difficult.

         We can provide no assurance that we will be successful in increasing or retaining our number of active Customers or that their productivity will increase.

        Our Associates may terminate their services at any time, and, like most direct selling companies, we experience a high turnover among new Associates and Preferred Customers from year to year. Preferred Customers may stop buying from us at anytime and it is challenging for organizations like ours to determine why a customer stops buying. While our total number of active Customers has continued to increase during recent years, a few of our markets, including the United States, have experienced customer declines. If our strategies and initiatives, including our customer experience and social selling initiatives, do not drive growth in our active Customer base, particularly in the United States, Chinacovenants and other markets,obligations under our operating resultsCredit Facility, which could be harmed. We cannot accurately predict any fluctuation in the number and productivity of Associates because we primarily rely upon existing Associates to train new Associates and to motivate new and existing Associates. Our operating results in other markets could also be adversely affected if we do not generate sufficient interest in our business to successfully retain existing Associates and Preferred Customers and attract new Associates and Preferred Customers.

         The loss of a significant USANA Associate or Associate sales organization could adversely affect our business.

        We rely on the successful efforts of our Associates that become leaders with our Company. Our Compensation Plan is designed to permit Associates to sponsor new Associates and Preferred Customers, thereby creating sales organizations. As a result, Associates develop business and personal relationships with other Associates and Preferred Customers. The loss of a key Associate or group of Associates, large turnover or decreases in the size of the key Associate force, seasonal or other decreases in product purchases, sales volume reduction, the costs associated with training new Associates, and other related expenses may adversely affect our business, financial condition, or results of operations.

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         The violation of marketing or advertising laws by Associates in connection with the sale of our products or the improper promotion of our Compensation Plan could adversely affect our business.

        All Associates contractually agree to adhere to our policies and procedures. Although these policies and procedures prohibit Associates from making false, misleading and other improper claims regarding products or income potential from the distribution of the products, Associates may, without our knowledge and in violation of our policies, create promotional materials or otherwise provide information that does not accurately describe USANA, our products or the Associate Compensation Plan. They also may make statements regarding potential earnings, product claims, or other matters in violation of our policies or applicable laws and regulations concerning these matters. These violations may result in legal action against us by regulatory agencies, state attorneys general, or private parties. Legal actions against our Associates or others who are associated with us could lead to increased regulatory scrutinyan event of our business, including our business model. We take what we believe to be commercially reasonable steps to (i) regularly train our active Associate base, and (ii) monitor the activities of our Associates to guard against misrepresentation and other illegal or unethical conduct by Associates and to assure compliance withdefault under the terms of our policiesCredit Facility. An event of default under our Credit Facility could result in our inability to access funding under the facility and procedures and Compensation Plan. There can be no assurance, however, that our efforts in this regard will be sufficient to accomplish this objective, particularly in times and regions where we may experience rapid growth. Adverse publicity resulting from such activitiesrepayment acceleration of any outstanding balances under the facility, which could also make it more difficult for us to attract and retain Associates and may have ana material adverse effect on our business, financial condition and liquidity.

Our results of operations.

         We may haveoperations could also be negatively impacted if the reality or could incur obligations relating to the activitiesfear of our Associates.

        Our Associates are subject to taxation,another communicable and rapidly spreading disease, health crisis, or natural disaster results in some instances, legislationbusiness interruption, travel restrictions or governmental agencies impose an obligation on us to collect taxes, such as sales taxes or value added taxes, and to maintain appropriate recordsavoidance of such transactions. In addition, we are subject to the risk in some jurisdictions of being responsible for social security and similar taxes with respect to our Associates. In particular, the laws in the United States regarding independent contractor status continue to evolve and, in some cases, have been applied unfavorably against direct selling and other companies. In the event that local laws and regulations or the interpretation of local laws and regulations change to require us to treat our independent Associates as employees, or if our Associates are deemed by local regulatory authoritiespublic gatherings in one or more of our markets. It is difficult to predict the jurisdictions in which we operate to beimpact on our employees rather than independent contractors, under existing laws and interpretations, we may be held responsible for a varietybusiness, if any, of obligations that are imposed upon employers relating to their employees, including social security and related taxes in those jurisdictions, plus any related assessments and penalties, which could harm our financial condition and operating results.the emergence of new epidemics or other crises.  

Risk Associated with Direct Selling

Direct selling is subject to intense government scrutiny, and regulation and changes in the law, or the interpretation and enforcement of the law, might adversely affect our business.

Various laws and regulations in the United States and other countries regulate direct selling. These laws and regulations exist at many levels of government in many different forms, including statutes, rules, regulations, judicial decisions, and administrative orders. Direct selling regulations are inherently fact-based, and often do not include "bright line"“bright line” rules. Additionally, weWe are also subject to the risk that the laws and regulations, or a regulator'sregulator’s interpretation and enforcement of the laws and regulations, could change. From time to time, we have received requests to supply information regarding our business to regulatory agencies. We have also been required to modify our Compensation Plan in the past in certain jurisdictions in order to comply with the interpretation of the regulations by local authorities. Where required by law, weWe obtain regulatory approval of our Compensation Plan when required or, where approval iswhen not required, or available, the favorablewe may seek a legal opinion of local counsel as to regulatoryregarding compliance. Further, we

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We may simplyalso be prohibited from distributing products through direct selling or paying multilevel compensation in some countries, or we may be forced to alter our Compensation Plan.countries.

In the United States, the FTC has actively warned various direct selling companies and the industry as a whole about certain business practices associated with direct selling and entered into several highly publicized settlements with several direct selling companies that required those companies to modify their compensation plans and business models. Those settlements resulted from FTC enforcement actions brought by the FTC involving a variety of alleged violations of consumer protection laws, including misleading earnings representations by the companies' independent distributors, as well as theand legal validitycompliance of the companies'those companies’ business modelmodels and distributor compensation plans. For instance,example, in July 2016, the FTC entered into a consent ordersettlement with aanother direct selling company following an enforcement action in which the FTC alleged that among other things, the company’s distributors were making misleading earnings representations and that the company was utilizing an illegal business model. Also in 2016, the FTC entered into a settlement with another direct selling company'scompany following an enforcement action in which the FTC alleged that the company’s distributors had made misleading income representations and that the company was utilizing an unfair and deceptive compensation plan. In September 2016,2019, the FTC entered into a consent ordersettlement with a direct selling company following an FTC enforcement action, which included the alleged violations noted above. Pursuant to this settlement, the company is permanently prohibited from using a multilevel compensation plan in the United States. Following this settlement, the FTC initiated litigation with another direct selling company following an enforcement actionfor similar alleged violations and is seeking similar remedies, including a prohibition of multilevel compensation in whichthe U.S. In 2020, the FTC alleged, among other things,sent warning letters to several direct-selling companies regarding product and/or income claims that the company's distributorscompanies and/or their distributor sales forces were making misleading earnings representations and thatrelated to the company was utilizing an illegal business model. The consent orderCOVID-19 pandemic. Settlements, such as those described in each of thesethe cases required the respectivedescribed above, may require a direct selling company to among other things, pay a significant fine, revise its U.S. business model and compensation plan to comply with various restrictions on how it can compensate independent distributors and change its marketing practices to avoid misleading product or income representations.

        FTC determinations such as these have created an ambiguity regarding the proper interpretation of the law and regulations applicable to direct selling companies in the U.S.representations, among other things. Although a consent ordersettlement between the FTC and a specific company does not represent judicial precedent,generally have force of law or binding effect on other companies, FTC officials have indicated that the direct selling industry should look to these consent orders, and the principles contained therein, for guidance.

In January 2018,October 2021, the FTC, issued non-binding guidancepursuant to its Penalty Offense Authority under the FTC Act, sent letters to over 1,100 companies, including USANA, warning them that the FTC could seek penalties of up to $43,792 per violation for conduct determined to be unfair, deceptive, or otherwise unlawful in certain prior FTC actions. The letter did not accuse any recipient company, including USANA, of engaging in unlawful conduct. But if the FTC later alleges that we have engaged in acts or practices found to be unfair, deceptive, or unlawful in the actions referenced in the letters, we could be at risk of penalties and other potential liability. We regularly analyze our business model in response to settlements between the FTC and other direct selling industry, suggesting it was intending to reinforce the principles contained in these consent orderscompanies, as well as guidance and provide other operational guidance. We have analyzed the consent orders and the subsequent guidancecommunications issued by the FTC, and from time to time we are in the process of both (i) refiningrefine aspects of our U.S. business model based on the principles contained in the FTC materials, and (ii) conducting additional analysis to determine if further changes to our model may be necessary.where appropriate. Although we strive to ensure that our overall business model and compensation plansplan are compliant with applicable laws and regulations, as well as regulatory compliantguidance, in each of our markets, we cannot assure you that a regulator, if it were to review our business, would agree with our assessment and would not require us to change one or more aspects of our operations. Any action against us in the future by the FTC or another regulator could materially and adversely affect our operations.

The FTC is currently advocating and considering certain legal and regulatory changes that, if implemented, could have a material adverse effect on our business.  For example, the FTC has formally asked Congress to pass legislation that would allow the FTC to recover monetary redress for consumers pursuant to Section 13(b) of the FTC Act.  The FTC is also currently reviewing the Business Opportunity Rule, which according to the FTC requires business opportunity sellers to give prospective buyers specific information to help them evaluate a business opportunity, thus ensuring that the prospective purchasers have the information they need in order to assess the risks of buying a work-at-home program or any other business opportunity.  Direct sellers like USANA are currently exempt from the Business Opportunity Rule, but the FTC could include direct sellers within the scope of the rule as a result of the review.  If direct sellers become subject to the Business Opportunity Rule, we will have to comply with disclosure requirements that could significantly increase the cost of doing business and have other material adverse effects on our business.

We cannot predict the nature of any future law, regulation, or guidance, nor can we predict what effect additional governmental regulations, judicial decisions, or administrative orders when and if promulgated, would have on our business. Failure by us, or our Associates, to comply with these laws, regulations, or guidance, could have a material adverse effect on our business in a particular market or in general. Finally, the continuation of regulatory challenges, investigations and litigation against other direct selling companies could harm our business and industry if the laws and regulations are interpreted in a way that results in additional restrictions on direct selling companies in general.

The violation of marketing or advertising laws by Associates in connection with the sale of our products or the improper promotion of our Compensation Plan could adversely affect our business.

All Associates contractually agree to adhere to our policies. Although these policies prohibit Associates from making false, misleading and other improper claims regarding products or income potential from the sale of the products, from time to time Associates, without our knowledge and in violation of our policies, create promotional materials or otherwise provide information that does not accurately describe USANA, our products or the Compensation Plan. They also may make statements regarding potential earnings, product claims, or other matters in violation of our policies or applicable laws and regulations concerning these matters. These violations may result in legal action against us in our various markets by regulatory agencies, state attorneys general, or private parties – and in China by the Chinese government. Legal actions against us or our Associates or others who are associated with us could lead to increased regulatory scrutiny of our business, including our business model. We take what we believe to be commercially reasonable steps to (i) regularly train our active Associate base and (ii) monitor the activities of our Associates to guard against misrepresentation and other illegal or unethical conduct by Associates and to assure compliance with our policies. There can be no assurance, however, that our efforts in this regard will be sufficient to accomplish this objective. Adverse publicity resulting from such activities could also make it more difficult for us to attract and retain Associates and Preferred Customers and may have an adverse effect on our business, financial condition, and results of operations.

We may have or could incur obligations relating to the activities of our Associates.

Our Associates are subject to taxation, and, in some instances, legislation or governmental agencies may impose an obligation on us to collect taxes, such as sales taxes or value added taxes, and to maintain appropriate records of such transactions. In addition, we are subject to the risk in some jurisdictions of being responsible for social security and similar taxes as well as employee benefits with respect to our Associates. In particular, the laws regarding independent contractor status in certain jurisdictions, including the United States, continue to evolve and, in some cases, authorities have sought to apply these laws unfavorably against gig economy, platform and direct selling companies, including USANA. In 2020, we were named as a defendant in a private lawsuit in California by a plaintiff’s firm that is seeking to reclassify our California Associates from independent contractors to employees under California state law.  While we do not believe this litigation is material to our business, and we believe we have legally and appropriately classified our Associates as independent contractors, it is possible that this lawsuit or potential future laws, could negatively impact the independent contractor status of our Associates or distributors in direct selling companies in general. If federal, state or local laws and regulations or the interpretation of such laws and regulations change to require us to treat our Associates as employees, or if our Associates are deemed by local regulatory authorities in one or more of the jurisdictions in which we operate to be our employees rather than independent contractors, under existing laws and interpretations, we may be deemed to be responsible for a variety of obligations that are imposed upon employers relating to their employees, including social security and related taxes in those jurisdictions, wages, employee benefits, plus any related assessments and penalties, which could harm our financial condition and operating results.

Our Associate Compensation Plan, or changes we make to it, may be viewed negatively by some Associates, could fail to achieve our desired objectives, and could have a negative impact on our business.

From time to time, we modify our Compensation Plan to (i) keep it competitive and attractive, (ii) cause or address a change in Associate behavior, (iii) conform to legal and regulatory requirements, or (iv) address other business needs. It is difficult to predict how any changes to the plan will be viewed by Associates and whether such changes will achieve their desired results. There can be no assurance that changes to our Associate Compensation Plan will allow us to successfully attract new Associates or retain existing Associates, nor can we assure that any changes we make to our Compensation Plan will achieve our desired results. Additionally, the payment of Associate incentives under our Compensation Plan is our most significant expense. Modifying our Compensation Plan directly affects the incentives we pay as a percentage of net sales. There can be no assurance that changes to the Compensation Plan will be successful in achieving target levels of Associate incentives as a percentage of net sales. Furthermore, such changes may make it difficult to attract and retain qualified and motivated Associates.

Risks Related to Our China Business

Our Greater China region accounts for a significant part of our business and expected growth. AnyA decline in sales or customers in this region would harm our business, financial condition and results of operations.

Our Greater China region consists of China, Hong Kong, and Taiwan and is currentlyhas been our largest region for sales over the last several years and most rapidly growing region.China has been our largest market. Our international growth strategy has been centeredfocused largely on growing BabyCare's business inour China for the last several years. As a result of this strategy, China has been our fastest growing market and is now our largest individual market representing approximately 50% ofbusiness. In 2019, our sales and active Customer count.counts in both the Greater China region and our China market declined, largely because of a challenging operating environment in China. Additionally, throughout 2021, and 2020, health officials in Greater China continued to respond to the COVID-19 pandemic, which also created a challenging environment for our business in China. If we are not successful in continuing to grow BabyCare'sBabyCare’s sales and customer base in China, our consolidated growth as a company will be negatively affected and our

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business, financial condition, results of operations and cash flows may be harmed. BabyCare must comply with significant operational, financial, and other regulatory requirements to engage in direct selling in China. WhileAlthough we believe that we will be successful in growing BabyCare'sBabyCare’s business in China, it is difficult to assess the extent to which BabyCare'sBabyCare’s business model and Associate compensation plan will be successful or deemed to be compliant with applicable Chinese laws and regulations. Although we are required to conduct our operations in China through BabyCare, we believe that our long-term success in China continues to depend on our ability to successfully integrate, to the extent possible, our operations with BabyCare's operations. In light of the factors listed above, and the other risks to our business, there can be no assurance that we will be successful in growingcontinuing to increase sales and customers in China through BabyCare.

Our operations in China are subject to significant government regulation, as well as a variety of legal, political, and economic risks. If the Chinese government modifies theits direct selling laws and regulations, or interprets and enforces thethese laws and regulations in a manner that is adverse to our business in China, our consolidated business and results of operations may be materially harmed.

Our operations in China are conducted by BabyCare, a direct selling company that we indirectly acquired several years ago to facilitate our expansion into China.China subsidiary. BabyCare operates in China pursuant to direct selling laws and regulations that are uncertain and evolving. These regulations contain a number of financial and operational restrictions for direct selling companies, most notablyincluding prohibitions on pyramid selling and multi-level compensation. The laws and regulations are also subject to discretionary interpretation and enforcement by various state, provincial and municipal level officials in China. Regulators in China may modify current direct selling laws and regulations or change how they interpret and enforce the direct selling regulations, both current interpretations and enforcement thereof or future iterations. Regulators in China may also modify the current regulations.them. As a result, there can be no assurance that the Chinese government'sgovernment’s current or future interpretation and application of existing and new regulations will not negatively impact our business in China, result in regulatory investigations or lead to fines or penalties against us or our Associates.

The Chinese central government also exercises significant control over the Chinese economy, including through controlling capital, controlling foreign currency exchange, and foreign exchange rates controllingand tax regulations, providing preferential treatment to certain industry segments or companies and issuing required licenses to conduct business. In addition, weWe could face additional risks resulting from changes in China'sChina’s data privacy and security requirements. Accordingly, any adverse change in the Chinese governmental, economic or other policies could have a material adverse effect on BabyCare'sBabyCare’s business in China and our consolidated results of operations.

 Certain trade policies, tariffs, other trade actions implemented by the United States in 2018 against other countries, including China, relating to the import and export of certain products, and negotiations with respect thereto, may have a negative effect on our business, financial condition, and results of operations in China and other markets. China, and certain of our other markets, have imposed, or threatened to impose, tariffs on U.S. imports or to take other actions in retaliation to actions taken by the United States. These developments may have a material adverse effect on the economy, financial markets, and currency exchange rates in China and the United States, which represent our two largest markets. Additionally, any actions taken by the Chinese government, or the government in our other markets, to implement further trade policy changes, financial restrictions, or increased regulatory scrutiny on U.S. companies could negatively impact our business, financial condition, and results of operations.

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         WhileAlthough BabyCare utilizes a business model that has been developed specifically for China'sChina’s laws and regulations, BabyCare's modelthe Chinese government has not been formally approved by the Chinese government.BabyCare’s model, compensation plan, and operations.

        BabyCare's

BabyCare’s business model has been designed specifically for China'sChina’s laws and regulations based on, among other things:things, BabyCare’s (i) BabyCare's communications with the Chinese government, (ii) BabyCare's interpretation of the direct selling laws and regulations, as well as its understanding of how the government interprets and enforces the regulations, and (iii) BabyCare's understanding of how other multinational direct selling companies operate in China. Many of the components of BabyCare'sBabyCare’s business model are unique to China and are not part of our business model in our markets outside of China. For example, BabyCare sells products in China through a variety of methods, including: (a) online through its website; (b) at physical branch retail locations in China; (c) through direct sellers in provinces and municipalities where BabyCare has received a direct sales license; and (d) through independent distributors who are considered independent business owners under Chinese law. BabyCare has not received formal confirmation from the Chinese government that its business model and operations in China comply with applicable laws and regulations, including those pertaining to direct selling. We cannot be certainassure that Chinese regulatory authorities would deem BabyCare's business model, compensation plan or the activities of its employees, direct sellers or independent distributors will be deemed by Chinese regulatory authorities to be compliant with current or future laws and regulations. If BabyCare'sBabyCare’s model iswere deemed to be in violation of applicable regulations, as they are now or may in the future be interpreted or enforced, BabyCare could be subject to fines, penalties or suspension of its business in China or, ultimately, have its direct selling license revoked by the Chinese government, all of which could have a material adverse impact on our business in China.

         BabyCare'sBabyCare’s operations in China, and direct selling companies in general, are subject to significant government oversight, scrutiny and monitoring.

Chinese regulators regularly monitor and make inquiries about the business activities of direct sellers in China and have done so with BabyCare. These inquiries can arise in a variety of ways, including from complaints from customers, competitors or the media. For example, following various media reports in 2017, certain departments of the Chinese government, including the former State Administration of Industry and Commerce (now SAMR) and MPS, carried out a three-month review of the direct selling industry to investigate alleged violations of the direct selling regulations and anti-pyramiding regulations. Additionally, followingadverse media coverage of certain health product companies and direct selling companies in January of 2019, several departments of the Chinese government, including SAMR, MPS, and MOFCOM, initiated a 100-day review of health product and direct selling companies in China. The 100-day review requiresrequired applicable companies such as BabyCare to conduct a self-assessment of the regulatory compliance of their business (including product regulatory compliance and direct selling regulatory compliance) and to provide information to the government regarding the same. The 100-day review also entailsentailed a review of a company'scompany’s regulatory compliance by various departments of the Chinese government. During this review, period, the Chinese government, has, among other things, (i) instructed direct selling companies not to not hold large distributor meetings, and (ii) suspended its application review process for direct sales licenses and authorizations. The Chinese government has yet to re-open the application review process for direct sales licenses and authorizations or indicate if or when it plans to do so.

Direct selling regulations in China prevent persons who are not Chinese nationals from engaging in direct selling in China. We have implemented internal policies that are designed to promote our Associates’ compliance with these regulations, however, we cannot guarantee that any of our Associates residing outside of China or any of BabyCare’s Associates in China have not engaged or will not engage in activities that violate our policies in this market or that violate Chinese law or other applicable laws and regulations, which might result in regulatory action and adverse publicity and potential harm to our business in China.

The Chinese government has investigated and imposed significant fines on companies and their distributors believed to have violated direct selling and anti-pyramiding regulations. In some cases, it has even shut such companies down. There have been instances where inquiries or complaints about BabyCare'sBabyCare’s business have resulted in warnings from the Chinese government as well as the payment of fines by BabyCare. We expect that BabyCare will continue to face the risk of government inquiries, complaints or investigations, and anyinvestigations. Any determination that BabyCare'sBabyCare’s business or the activities of its Associates are not in compliance with applicable regulations could result in additional fines, disruption of business, or the suspension or termination of BabyCare'sBabyCare’s licenses, including its direct selling licenses, all of which could have a material adverse effect on our business and operations. There can be no

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assurance that the Chinese government'sgovernment’s interpretation and enforcement of applicable laws and regulations will not negatively impact BabyCare'sBabyCare’s business, result in regulatory investigations or lead to fines or penalties against BabyCare, USANA or our Associates in China.

        Additionally, the direct selling regulations in China prevent persons who are not Chinese nationals from engaging in direct selling in China. Although we have implemented internal policies that are designed to promote our Associates' compliance with these regulations, we cannot guarantee that any of our Associates living outside of China or any of BabyCare's Associates in China have not engaged or will not engage in activities that violate our policies in this market or that violate Chinese law or other applicable laws and regulations and, therefore, might result in regulatory action and adverse publicity, which would harm our business in China.

BabyCare must apply for and receive government approval to expand its business in China and the failure to obtain such approvals could negatively impact its ability to expand could be negatively impacted if it is unable to obtain such required approvals.and grow its business.

   BabyCare has obtained direct selling licenses in certain provinces and municipalities and it must obtain various licenses and approvals from additional municipalities and provinces within China if it is to operate its direct selling business model in China. WhileAlthough direct selling licenses are centrally issued, the licenses are generally valid only in the jurisdictions within which related approvals have been obtained. Those approvals are generally awarded on local and provincial bases, and the approval process requires involvement withof multiple ministries at each level. As of the date of this report, BabyCare has been granted licenses to engage in direct selling in the municipalities and provinces of Beijing, Jiangsu, Shaanxi, and Tianjin. In 2016, BabyCare received preliminary approval from the Chinese government to expand its direct selling business into the following eight additional provinces and municipalities: Liaoning Province, Shandong Province, Shanxi Province, Sichuan Province, Guangdong Province, Dalian City, Qingdao City, and Shenzhen City. Issuance of final direct selling approvals for these municipalities and provinces was contingent upon BabyCare satisfying certain conditions and reporting requirements. Although BabyCare has been working to satisfy these conditions and reporting requirements, we now believe that BabyCare will not be receive the final direct selling approvals for one or more of these eight additional provinces and municipalities under the current applications due to (i) delays by BabyCare in satisfying the conditions, (ii) the reorganization of several departments of the Chinese government in 2018, (iii) the Chinese government's 100-day review of the direct sales industry, which commenced in January 2019, and/or (iv) the related suspension of the Chinese government's application review process for direct sales licenses and approvals during the 100-day review. Consequently, if a previously submitted application is not approved, BabyCare will need to reapply for these approvals at some point following the 100-day review period. Due to these complications, and the discretion maintained by the Chinese government, there is no guarantee that BabyCare will be successful in reapplying for these approvals or that the Chinese government will ultimately grant BabyCare a direct sales license in these or other jurisdictions, either of which could adversely affect BabyCare's business.

 Going forward,

BabyCare also will be required to obtain licenses from municipalities and provinces within China where it currently does not hold a license. As noted above, theThe Chinese government communicated in January 2019 that, as part of the 100-day review of the direct selling industry, it had suspendedhas not yet reopened its application review process for direct sales licenses and approvals.approvals since suspending the process in 2019. If BabyCare is unable to obtain additional direct selling licenses and approvals as quickly as we would like, or at all, it would have a negativenegatively impact our ability to expand and grow our business in China. If and when the Chinese government again begins to accept direct selling applications and to issue direct sales licenses and authorizations, the process for obtaining the necessary government approvals will likely remain unpredictable, time-consuming and expensive. Additionally, the Chinese government may, as part of the 100-day review of the direct selling industry, or in the future, continue or increase its investigation and scrutiny of the direct selling industry or modify the applicable regulations and licensing process. If the current

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processes for obtaining approvals are suspended or otherwise delayed for an extended period of time, or indefinitely, these events could have a negative impact on BabyCare's growth prospects in China. Ultimately, there can be no assurance that BabyCare will be successful in maintaining its current direct-sellingdirect selling licenses or obtaining additional direct-sellingdirect selling licenses or the required approvals to expand into additional locations in China that are important to its business.

Risk Associated with Our International Operations

         RisksRisks associated with operating in international markets could restrict our ability to expand globally and harm our business and prospects, and we could be adversely affected by our failure to comply with the laws applicable to our foreign activities, including the U.S. Foreign Corrupt Practices Act and other similar worldwide anti-bribery laws.laws could adversely affect our business.

        Our international operations are presently conducted

We currently conduct our business in various foreign countries, and we expect thatto expand the number of countries in which we operate could expand in the future. Economic conditions, including those resulting from wars, civil unrest, political unrest, acts of terrorism and other conflicts or volatility in the global markets, may adversely affect our customers, their demand for our products and their ability to pay for our products. In addition, there are numerous risks inherent in conducting our business internationally, including, but not limited to, potential instability in international markets, changes in regulatory requirements applicable to international operations, currency fluctuations in foreign countries, political, economic and social conditions in foreign countries and complex U.S. and foreign laws and treaties, including tax laws, the U.S. Foreign Corrupt Practices Act ("FCPA"(“FCPA”), and the Bribery Act of 2010 (U.K.(“U.K. Anti-Bribery Act)Act”). In recent years, there have been an increasing number of investigations and other enforcement activities under these laws.laws, including a voluntary investigation we recently concluded concerning our China operations. The FCPA prohibits U.S.-based companies and their intermediaries from making improper payments to government officials for the purpose of obtaining or retaining business. The U.K. Anti-Bribery Act prohibits both domestic and international bribery as well as bribery across both public and private sectors. We pursue opportunities in certain parts of the world that experience government corruption and in certain circumstances compliance with anti-bribery laws may conflict with local customs and practices. Our policies mandate compliance with all applicable anti-bribery laws. Further, we require our partners, subcontractors, agents and others who work for us or on our behalf to comply with these and other anti-bribery laws.

Although we have policies and procedures and a compliance program designed to ensure that we our employees, associates, distributors, agents and others who work with us in foreign countries comply with the FCPA and other anti-bribery laws, there is no assurance that such policies or procedures will protect us against liability under the FCPA or other laws for actions taken by our agents, employees and intermediaries. If we are found to be liable for violations of these acts (either due to our own acts or our inadvertence or due to the acts or inadvertence of others), we could incur severe criminal or civil penalties or other sanctions, which could have a material adverse effect on our reputation, business, results of operations or cash flows. In addition, detecting, investigating and resolving actual or alleged violations of these acts is expensive and could consume significant time and attention of our senior management (see, "An internal investigation of our China operations is being conducted," below).management.

We believe that our ability to achieve future growth is dependent in part on our ability to continue our international expansion efforts. There can be no assurance, however, that we will be able to grow in our existing international markets or enter new international markets on a timely basis, or that new markets will be profitable. We must overcome significant regulatory and legal barriers before we can begin marketing in any international market. Also,In addition, before marketing commences in a new country or market, it is difficult to assess the extent to which our products and sales techniques will be accepted or successful in any given country. In addition to significant regulatory barriers, we may also encounter problems conducting operations in new markets with different cultures and legal systems from those encountered elsewhere. We may be required to reformulate certain of our products before commencing sales in a given country. Once we have entered a market, we must adhere to the regulatory and legal

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requirements of that market. No assurance can be given that we will be able to successfully reformulate our products in any of our current or potential international markets to meet local regulatory requirements or to attract local customers. Our failure to do so could have a material adverse effect on our business, financial condition, or results of operations. There can be no assurance that we will be able to obtain and retain necessary permits and approvals in new markets or that we will have sufficient capital to finance our expansion efforts in a timely manner.

In many market areas, other direct selling companies already have significant market penetration, the effect of which could be to desensitize the local Associate population to a new opportunity, such as USANA, or to make it more difficult for us to attract qualified Associates.Associates or sell to customers generally. Even if we are able to commence operations in new markets, there may not be a sufficient population of persons who are interested in our business. We believe our future success will depend in part on our ability to seamlessly integrate our Compensation Plan seamlessly across all markets where legally permissible. There can be no assurance, however, that we will be able to utilize our Compensation Plan seamlessly in all existing or future markets.

         An internal investigationTrade policies, disputes, tariffs or other international disputes could harm our business and operating results.