USANA HEALTH SCIENCES INC

General

We distribute products from our core nutritional business internationally primarily through direct selling, which entails 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 elsewhere in this report, through Hiya and Rise, we have expanded our distribution channel to an omni-channel platform and believe this platform provides a new and diversified opportunity for sales and customer growth.

Structure of Core Nutritional Program

Overview. Although our core nutritional business 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 differs in structure from our other markets. These differences are explained below under “China Business.”

Brand Partners. Outside of China, a person who wishes to sell products from our core nutritional business must join our independent sales force as a Brand Partner. A person becomes a USANA Brand Partner by completing an application under the sponsorship of an existing Brand Partner. The new Brand Partner then becomes part of the sponsoring Brand Partner’s sales organization. New Brand Partners must agree to adhere to the USANA policies and procedures. Under our policies and procedures, Brand Partners may not, among other things: (i) use deceptive or unlawful practices to sell products; (ii) make deceptive or unlawful claims or representations concerning our products or Compensation Plan; or (iii) sell competitive products to other Brand Partners or solicit Brand Partners to participate in other direct selling opportunities. Brand Partners who violate our policies are subject to discipline, which may include the termination of their purchase and distribution rights. New Brand Partners 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 approximately $16 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 a Brand Partner.

A Brand Partner may purchase products directly from us at wholesale prices for their personal use and for resale to customers. Our Brand Partners are also entitled to build sales organizations by attracting, enrolling and selling product to new customers. Brand Partners are not required to recruit or sponsor new Brand Partners and we do not compensate Brand Partners for sponsoring or recruiting Brand Partners. The sponsoring of new Brand Partners results in the creation of multiple levels within our direct sales structure. Sponsored Brand Partners are referred to as part of the sales organization of the sponsoring Brand Partner. New Brand Partners in turn may sponsor new Brand Partners and Preferred Customers, creating additional levels in their sales network, but also forming a part of the same sales organization as the original sponsoring Brand Partner. As outlined below, Brand Partners who are interested in earning income with USANA must successfully sell 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, Brand Partners may continue to distribute or consume our products as long as they adhere to our policies and procedures.

Brand Partner Compensation. This section describes our Brand Partner 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 Brand Partners to earn compensation, provided they are willing to work consistently at (i) sharing, marketing and selling our 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 Brand Partners for generating product sales either directly or indirectly through their sales organization and network of product consumers.

Brand Partners can earn compensation under the Compensation Plan in four ways:

•Commissions. The primary way a Brand Partner is compensated is through earning commissions. Brand Partners earn commissions by generating sales volume points, which are based on product sales of their sales organization. We have assigned each of our products a sales volume point value comprised of a certain percentage of the product price in U.S. dollars. To be eligible to earn commissions, a Brand Partner must sell a certain amount of product each month. Brand Partners 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 Brand Partners their commissions on a weekly basis.

•Bonuses. We offer Brand Partners several bonus opportunities, including our new sales bonus, our new milestone bonus, leadership bonus, elite bonus, and lifetime matching bonus. These bonus opportunities are based on a pay-for-performance philosophy and, therefore, are paid out when the Brand Partner achieves certain performance measures.

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

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

With the exception of our China market (discussed below), we endeavor to integrate our Compensation Plan across markets where legally permissible, allowing Brand Partners to receive commissions for global product sales. This sales organization structure is designed to allow Brand Partners to build a global network by establishing or expanding their sales organization in 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. 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 a Brand Partner, and purchase product directly from the Company. Retail customers, however, purchase directly from Brand Partners or directly from the Company without enrolling as a Preferred Customer. Neither Preferred Customers nor retail customers may resell or distribute our products, regardless of where they purchased them. To sell our products, a Preferred Customer or retail customer must become a Brand Partner.

These various customer programs give us access to a customer market that would otherwise be missed, by targeting consumers who enjoy our 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 Brand Partners at any time in the future, if they desire.

Affiliate program. We offer an Affiliate Program in certain markets. Affiliates receive unique links to share advertising and products with their prospective customers. Affiliates earn a commission on all orders placed through their links, with commission percentages ranging from 15-20% of the product sale amount based on the product category.

China 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 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 either a traditional Preferred Customer (as described previously in this report) or China Preferred Customer ("CPC"). CPCs are similar to traditional Preferred Customers, but CPCs may also refer other CPCs and Preferred Customers in China and receive product vouchers from us to redeem on future product purchases based on the volume of product purchased by customers they have referred.

A Preferred Customer or CPC may become a direct seller or independent distributor (which we report collectively as Brand Partners) 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 worldwide Compensation Plan to track sales volume, and other metrics for the group of Preferred Customers, 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. While we have historically paid compensation to our distributors and direct sellers in China on a monthly basis, we are moving toward paying compensation in China on a weekly basis to eligible Brand Partners, similar to our other markets. The fee-based compensation we pay our China independent distributors is comparable to the compensation available to our Brand Partners 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.

Brand Partner Training and Motivation. Initial training of Brand Partners about USANA, our products and Compensation Plan, and global direct selling in general, is provided primarily by a Brand Partner’s sponsor and others in the Brand Partner’s sales organization. We develop and provide training materials and sales tools to assist Brand Partners 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 Brand Partner 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 Brand Partners, although experience shows that the most effective and successful Brand Partners tend to be those who participate in such training activities. Although we provide leadership training and sales tools, we ultimately rely on our Brand Partners to sell our products, attract new customers to purchase our products, and to educate and train new Brand Partners regarding our products and Compensation Plan.

Structure of Hiya and Rise Businesses

Hiya operates largely through a subscription-based direct-to-consumer business model. A customer's initial order from Hiya comes with a sustainable, refillable glass bottle that kids can personalize and additional orders come with educational material and games. Hiya also utilizes social media to promote sales across various platforms through brand-focused content and influencer partnerships. Hiya's diversified marketing also utilizes internet and social media keyword searches, influencers and paid advertisements, podcasts, advertorial publishing and direct mail campaigns. In 2025, Hiya began expanding its distribution channel to include third-party marketplace sales, and will further expand its channel in 2026 to include select retail locations. Rise's distribution channel for its products includes direct-to-consumer sales, third-party marketplace sales, and sales through certain key retailers. Notwithstanding its omni-channel platform, Rise relies on orders from key retailers to generate the majority of its sales and we cannot assure you that orders from these retailers will continue, increase in volume, or meet Rise's current or future forecasts.