USNA 10-K & 10-Q changes, risk factors and insider trading

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

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

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

•Changes we are required to make to our AssociateBrand Partner Compensation Plan in certain markets, including limits on the amount of AssociateBrand Partner compensation we can pay, may hurt our ability to attract and retain Associates,Brand Partners, result in regulatory risk and affect our operating results.

•Legal action by former AssociatesBrand Partners or third parties against us could harm our business.

•If we are unable to attract and retain active AssociatesBrand Partners and Preferred Customers, our business may be harmed.

•The Hiya Acquisition may be viewed negatively by our Associates.Brand Partners.

We regularly analyze our business model in response to settlements between the FTC and other direct selling companies, as well as guidance and other communications issued by the FTC, and from time to time we refine aspects of our business model where appropriate. While we maintain a robust AssociateBrand Partner compliance program and strive to educate our AssociatesBrand Partners on compliant claims, if a regulator determines we are making misleading claims, this could lead to an FTC investigation, which could harm our business operations. Additionally, while we strive to ensure that our compensation plan is compliant with applicable laws and regulatory guidance 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.

We are also subject to various direct selling laws and regulations in our other markets, including China (as explained below). 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 would have on our business. Failure by us, or our Associates,Brand Partners, 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 AssociatesBrand Partners in connection with the sale of our products or the improper promotion of our Compensation Plan could adversely affect our business.

All AssociatesBrand Partners contractually agree to adhere to our policies. Although these policies prohibit AssociatesBrand Partners from making false, misleading and other improper claims regarding products or income potential from the sale of the products, from time to time Associates,Brand Partners, 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. Legal actions against us or our AssociatesBrand Partners or others who are associated with us could lead to increased regulatory scrutiny of our business, including our business model. While we take what we believe to be commercially reasonable steps to regularly train our Associates,Brand Partners, and monitor their activities to promote compliance with our policies and guard against illegal or unethical conduct by Associates,Brand Partners, there can be no assurance that our efforts will be sufficient to accomplish this objective. In the past, we have experienced adverse publicity both within and outside of our sales force for enforcing our AssociateBrand Partner policies and procedures. This type of adverse publicity has made, and will continue to make, it difficult for us to attract and retain AssociatesBrand Partners 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.Brand Partners.

Our AssociatesBrand Partners 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.Brand Partners. 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 AssociatesBrand Partners from independent contractors to employees under California state law. Although we prevailed in this litigation and continue to believe we have legally and appropriately classified our AssociatesBrand Partners as independent contractors, it is possible that future lawsuits or potential future laws, could negatively impact the independent contractor status of our AssociatesBrand Partners or distributors in direct selling companies in general.

In March 2024, a new Department of Labor (DOL) rule regarding the classification of workers as employees vs. independent contractors under the Fair Labor Standards Act went into effect but became subject to litigation. If the 2024 DOL final rule or other federal, state or local laws and regulations or the interpretation of such laws and regulations require us to treat our AssociatesBrand Partners as employees, or if our AssociatesBrand Partners 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 AssociateBrand Partner Compensation Plan, or changes we make to it, may be viewed negatively by some Associates,Brand Partners, 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 AssociateBrand Partner 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 AssociatesBrand Partners and whether such changes will achieve their desired results. For example, in 2023 we launched our Affiliate program in threecertain markets and this program creates a new and different element of our Compensation Plan. In 2025, we are also makingmade certain modifications to our Compensation Plan to enhance the earning opportunity for AssociatesBrand Partners and prioritize sales and customer growth. There can be no assurance that changes to our AssociateBrand Partner Compensation Plan will allow us to successfully attract new AssociatesBrand Partners or retain existing Associates,Brand Partners, nor can we assure that any changes we make to our Compensation Plan will achieve our desired results. We may also face legal challenges and disputes from our AssociatesBrand Partners in one or more markets regarding changes to the Compensation Plan. Additionally, the payment of AssociateBrand Partner 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 AssociateBrand Partner incentives as a percentage of net sales. Furthermore, such changes may make it difficult to attract and retain qualified and motivated Associates.Brand Partners.

Changes we are required to make to our AssociateBrand Partner Compensation Plan in certain markets, including limits on the amount of AssociateBrand Partner compensation we can pay, may hurt our ability to attract and retain Associates,Brand Partners, result in regulatory risk and affect our operating results.

We have been required to modify our AssociateBrand Partner Compensation Plan in certain markets to comply with the laws and regulations in these markets or the interpretation of the same by authorities in these markets. For example, we have been required to use a different compensation plan for our BabyCare operations in China (as noted elsewhere in this report) and have been required to modify our Compensation Plan in India, South Korea, Malaysia, and Indonesia to comply with applicable laws and regulations. We obtain regulatory approval of our Compensation Plan when required or, when not required, we may seek a legal opinion regarding compliance. We may also be prohibited from distributing products through direct selling or paying multilevel compensation in some countries. Several markets, including China, South Korea, and Indonesia also impose limits on the amount of compensation we can pay to our AssociateBrand Partner sales force.

If we fail to comply with the legal requirements for our Compensation Plan in our various markets, including the limits on compensation we are legally permitted to pay, we may incur fines or other sanctions, including the loss of applicable licenses to conduct our business. These required changes to our Compensation Plan, including compensation limits, may also be viewed as limiting the incentive for people to join our AssociateBrand Partner sales force and may reduce the competitive advantage of our AssociateBrand Partner Compensation Plan.

Our operations in China are conducted by BabyCare, our 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, including 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 them. As a result, there can be no assurance that the Chinese government’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.Brand Partners.

In addition to BabyCare's direct selling business in China, we periodically offer and sell certain U.S. products in China through a cross-border e-commerce sales channel by utilizing one of our separate China subsidiaries that is registered to engage in cross-border e-commerce. This cross-border e-commerce channel is legally required to be separate from BabyCare's direct selling business in China. The products that we offer and sell through this channel are neither registered for retail sale in China nor registered as direct selling products under BabyCare's direct selling license. Consequently, products sold via our cross-border e-commerce channel can only be sold to China customers for their personal consumption and cannot be sold through BabyCare's direct selling channel. BabyCare's direct selling business in China could be negatively impacted if China regulatory authorities (i) attribute our cross-border e-commerce sales and related product claims to BabyCare's direct selling business, and (ii) make a determination that the same are in violation of direct selling or other applicable laws and regulations.

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’Brand Partners’ compliance with these regulations, however, we cannot guarantee that any of our AssociatesBrand Partners residing outside of China or any of BabyCare’s AssociatesBrand Partners 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’s business have resulted in warnings from the Chinese government as well as the payment of fines by BabyCare or its distributors. We expect that BabyCare will continue to face the risk of government inquiries, complaints or investigations. Any determination that BabyCare’s business or the activities of its AssociatesBrand Partners are not in compliance with applicable regulations could result in additional fines, disruption of business, or the suspension or termination of BabyCare’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 assurance that the Chinese government’s interpretation and enforcement of applicable laws and regulations will not negatively impact BabyCare’s business, result in regulatory investigations or lead to fines or penalties against BabyCare, USANA or our AssociatesBrand Partners in China.

In many market areas, other direct selling companies already have significant market penetration, the effect of which could be to desensitize the local population to a new opportunity, such as USANA, or to make it more difficult for us to attract qualified AssociatesBrand Partners 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.

Trade policies and actions which have been, or in the future may be, implemented by the United States 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. In 2025, there have been increased, consistent, ongoing discussions and activities from the new U.S. presidential administration that raise concern in this regard.

For the year ended DecemberJanuary 28,3, 2024,2026, 89.3%75.7% of our total net sales were generated in markets outside of the United States. Consequently, exchange rate fluctuations have, and will continue to have, a significant effect on our sales and earnings. If exchange rates fluctuate dramatically, it may become uneconomical for us to establish or to continue activities in certain countries. For instance, changes in currency exchange rates may affect the relative prices at which we and our competitors sell similar products in the same market. As our business expands outside the United States, an increasing share of our net sales and operating costs is transacted in currencies other than the U.S. dollar. Accounting practices require that our non-U.S. financial results be converted to U.S. dollars for reporting purposes. Consequently, our reported net earnings may be significantly affected by fluctuations in currency exchange rates, with earnings generally increasing with a weaker U.S. dollar and decreasing with a strengthening U.S. dollar.

We contract with third-party suppliers and manufacturers for the production of certain of our products, which accounted for approximately 31%44% of our product sales for the year ended DecemberJanuary 28,3, 2024.2026. These third-party suppliers and manufacturers produce and, in most cases, package the products according to formulations and specifications 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 Drink, Probiotic, our powdered drink mixes, foods, and certain of our personal care products, including our Celavive line for markets outside of China. Hiya and Rise also utilizesutilize third-party manufacturers for certain of their products. 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. We cannot assure you that our outside contract manufacturers will continue to reliably supply products to us at the levels of quality, or the quantities, we require, and in compliance with our specifications or applicable laws, including under the FDA’s GMP regulations. We have encountered situations in the past where we have had disagreements with contract manufacturers about the overall quality of products they have produced for us, and specifically whether such products conform to our specifications. We have also suspended and terminated relationships with contract manufacturers for quality issues and non-conforming products. While our business continuation plan contemplates events such as these, identifying and obtaining acceptable replacement manufacturing sources, on a timely basis or at all, is challenging. Additionally, transferring our third-party manufacturing business to another contract manufacturer can be expensive, time-consuming, result in delays in our production or shipping, reduce our net sales, damage our relationship with customers and damage our reputation in the marketplace.

In the past, we have experienced temporary shortages of the raw materials used in certain of our nutritional products. Although we had identified multiple sources to supply such raw material ingredients, quantities of the materials we purchased during these shortages were at higher prices, which had a negative impact on our gross margins for those products. While we periodically experience price increases due to unexpected raw material shortages and other unanticipated events, we have been able to manage this by increasing the price at which we sell our products, therefore, this has historically not resulted in a material effect on our gross margin. Supply chain interruptions, including as a result of shortages and transportation issues or unexpected increases in demand, and price increases can adversely affect us as well as our suppliers and Associates,Brand Partners, whose performance may have a significant impact on our results. Such shortages or disruptions could be caused by factors beyond the control of our suppliers, AssociatesBrand Partners or us. Any of these events, if they were to occur, could harm our business, results of operations and financial condition.

Legal action by former AssociatesBrand Partners or third parties against us could harm our business.

We continually monitor and review our Associates’Brand Partners’ compliance with our policies and procedures as well the laws and regulations applicable to our business. In the ordinary course of our business, AssociatesBrand Partners occasionally fail to adhere to our policies and procedures. If this happens, we may take disciplinary action against the breaching Associate.Brand Partner. This disciplinary action is based on the facts and circumstances of the particular case and may include anything from warnings for minor violations to termination of the Associate’sBrand Partner’s purchase and distribution rights for more serious violations. From time to time, we become involved in litigation with ana AssociateBrand Partner whose purchase and distribution rights have been terminated. We consider this type of litigation to be routine and incidental to our business. While neither the existence nor the outcome of this type of litigation is typically material to our business, in the past we have been involved in litigation of this nature that resulted in a large cash award against us.

Our competitors have also been involved in this type of litigation, and more and more of these cases have resulted in class action litigation, where the result has been a large cash award against the competitor or a large cash settlement by the competitor. These types of challenges, awards or settlements could provide incentives for similar actions by other former AssociatesBrand Partners against us in the future, which could result in class action litigation against us. Any such challenge involving others in our industry or us, could harm our business by resulting in fines or damages against us, creating adverse publicity about us or our industry, or hurting our ability to attract and retain customers.

We believe that AssociateBrand Partner compliance is critical to the integrity of our business, and,and therefore, we will continue to be assertive in ensuring that our AssociatesBrand Partners comply with our policies and procedures. As such, there can be no assurance that this type of litigation will not occur again in the future or result in an award or settlement that has a materially adverse effect on our business. We could also be subject to challenges by private parties in civil actions. We are aware of recent civil litigation against various direct selling companies in the United States, which have already resulted in settlements and may result in additional significant settlements in the future by these companies. There can be no assurance that we will not be challenged by private parties in litigation.

AsIn more fully disclosed in Item 9A. “Controls and Procedures,” in 20242024, we concluded that our disclosure controls and procedures were not effective as of December 30, 2023, due to material weaknesses in internal control over financial reporting. The material weaknesses resulted from an insufficient complement of trained resources with specialized skills and knowledge in information technology general controls (ITGCs), or an alternative contingency plan, to timely respond to the impacts of turnover in key personnel with responsibility for ITGCs that occurred during 2023. Although these material weaknesses did not result in any errors to the financial statements, and there were no changes to previously released financial results, the applicable control deficiencies were not remediated as of December 30, 2023, and,and consequently, there was a reasonable possibility that it could have resulted in a material misstatement in the Company's financial statements that would not have been detected.

The Company’s management, under the oversight of the Audit Committee, has completed a remediation plan for these material weaknesses as described more fully in Item 9A. “Controls2024 and Procedures,” and management haslater concluded that these material weaknesses havehad been remediated, that the related controls arewere effective,effective. andSimilarly, for fiscal year 2025, management has concluded that the Company's disclosure controls and internal control over financial reporting are effective as of DecemberJanuary 28,3, 2024.2026. Going forward, if we fail to maintain effective internal controls, we could be required to take costly and time-consuming corrective measures, to remedy any number of deficiencies, significant deficiencies or material weaknesses, be required to restate the affected historical financial statements, be subjected to investigations and/or sanctions by federal and state securities regulators and be subjected to civil lawsuits by security holders. Any of the foregoing could also cause investors to lose confidence in our reported financial information and in our company and would likely result in a decline in the market price of our stock and in our ability to raise additional financing if needed in the future.

Concern over climate change, including plastics and packaging materials, in particular, may result in new or increased legal and regulatory requirements, including, for example, two climate disclosure laws and recycling laws adopted by California in 2023.California. Increased regulatory requirements related to environmental causes, and related ESG disclosure rules, including the new California lawslaws, additional states that have enacted similar laws, and theany SEC'snew disclosurelaws proposalor regulations on climate change,change promulgated by the SEC, other states, or other countries in which we do business, may result in increased compliance costs or increased costs of energy, raw materials or compliance with emissions standards, which may cause disruptions in the manufacture of our products or an increase in operating costs. Any failure to achieve our sustainability goals or a perception (whether or not valid) of our failure to act responsibly with respect to the environmental, human capital, or social issues, or to effectively respond to new, or changes in, legal or regulatory requirements concerning environmental or other ESG matters, or increased operating or manufacturing costs due to increased regulation or environmental causes could adversely affect our business and reputation and increase risk of litigation.

If we are unable to attract and retain active AssociatesBrand Partners and Preferred Customers, our business may be harmed.

Our consumer base includes AssociatesBrand Partners who personally consume and sell our products, Preferred Customers who join USANA and simply consume our products, and retail customers who do not join USANA but purchase products directly from us or one of our AssociatesBrand Partners and consume our products. We refer to Associates,Brand Partners and Preferred Customers in this Annual Report together as active Customers. We rely largely on our AssociatesBrand Partners 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 our number of active Customers. Our success will also depend on our ability to retain and motivate our existing AssociatesBrand Partners and attract new AssociatesBrand Partners to sell our products. AssociatesBrand Partners 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. 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 each of the other risks identified in this Annual Report. Our AssociatesBrand Partners may terminate their services at any time and, like most direct selling companies, we experience a high turnover among new active Customers from year to year. Customers may also stop buying from us at any time and it is challenging to determine why a customer actually stops buying. InFor 2023the last few years, most of our markets, including China, have experienced active Customer declines. If our strategies, including our customer experience strategy, do not generate growth in our active Customer base, our operating results could be harmed.

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

Our executive officers are primarily responsible for our day-to-day operations, and we believe our success depends in part on our ability to retain our executive officers, to compensate our executive officers at attractive levels, and to continue to attract additional qualified individuals to our management team. We depend upon the services of our ExecutiveChairman Chairman, Kevin Guest; ourand Chief Executive OfficerOfficer, andKevin President, Jim H. BrownGuest; and our Chief Financial Officer, Douglas Hekking, as well as other key members of our executive team. We cannot guarantee continued service by our key executive officers. We do not maintain key man life insurance on any of our executive officers, nor do we have an employment agreement with any of our executive officers. The loss or limitation of the services of any of our executive officers or the inability to attract additional qualified management personnel could have a material adverse effect on our business, financial condition, or results of operations.

Risks Associated with Business Development ActivitiesActivities, Acquisitions and Acquisitionsour Acquired Businesses

Our growth strategy contemplates acquiring additional businesses, such as the Hiya Acquisition that we completed during 2024 and theour twoacquisition businessesof weRise acquiredand another small business in 2022. We may acquire additional businesses in the future to the extent that we find prospects that meet our acquisition criteria. Our acquisition criteria includes, but is not limited to: vertical integration; product and category expansion; channel expansion; geographic expansion; and other opportunities that strengthen, diversify and grow our world-wideomni-channel business. Our completed and potential future acquisitions entail a variety of risks and uncertainties, including: (i) potential disruption to our directcore sellingnutritional business; (ii) failure to achieve our strategic objectives, efficiencies, and growth strategies for the acquisition; (iii) potential loss of key employees, customers, or other stakeholders of acquired businesses, particularly given that our strategy contemplates our acquired businesses operating and growing independently of USANA; (iv) general risks associated with owning and overseeing businesses and industries where we have limited or no prior experience; (v) expense and indebtedness, including unanticipated liabilities and litigation; (vi) shareholder dilution; (vii) difficulty in implementing an effective control environment for acquired companies, in a timely and efficient manner; or (viii) the failure to consummate transactions in a timely or efficient manner or at all.

The Hiya Acquisition was consummated in December 2024 and various integration activities havecommenced onlyin recently commenced.2025. The pursuit of the Hiya Acquisition, preparation for the integration of Hiya and the integration of Hiya have required the time and attention of USANA and Hiya management and other internal resources and the integration of Hiya may continue to do so. This may disrupt our ongoing business and the business of the combined company.

The Hiya Acquisition may be viewed negatively by our Associates.Brand Partners.

The Hiya Acquisition and our expansion into new businesses may be viewed negatively by some of our AssociatesBrand Partners as Hiya sells products that are similar to, and potentially competitive with, those of our directcore sellingnutritional business and may be perceived as utilizing disproportionate resources for business that does not relate to direct selling. These perspectives of our AssociatesBrand Partners could have a material negative impact on the number or productivity of our AssociatesBrand Partners and result in a reduction in our net sales or active Customer counts.

Our ability to attract and retain active Customers in our core nutritional business and to sustain and enhance sales through our AssociatesBrand Partners can be affected by adverse publicity or negative public perception regarding our industry, our competition, or our business generally. Our business prospects, financial condition and results of operations could be adversely affected if our public image or reputation were tarnished by negative publicity. This negative public perception may include publicity regarding the legality of direct selling, the quality or efficacy of nutritional supplement products or ingredients in general or our products or ingredients specifically, data privacy or security concerns, and regulatory investigations, regardless of whether those investigations involve us or our AssociatesBrand Partners or the business practices or products of our competitors or other direct selling companies.

We face intense competition in the business of distributing and marketing nutritional supplements, vitamins and minerals, personal care products, and other nutritional products, as described in greater detail in “Business — Competition.” Numerous manufacturers, distributors, and retailers compete actively for consumers and, in the case of other direct selling companies, for Associates.Brand Partners. Additionally, our failure to develop and utilize AI technology throughout our business could negatively impact our competitive position in the market. AI technology is playing a greater role in product development, operational efficiency, shopping experience, customer engagement, and overall marketing. Our business could be harmed if we are unable to adopt and utilize these technologies as quickly or efficiently as our competition. There can be no assurance that we will be able to compete in this intensely competitive environment. In addition, nutrition and personal care products can be purchased in a wide variety of channels of distribution, including retail stores. Entry to market is not particularly capital intensive or otherwise subject to high barriers and as a result, new competitors can enter easily and compete with us for customers and distributors, including our Associates.Brand Partners. Our product offerings in each product category are also relatively small, compared to the wide variety of products offered by many of our competitors.

WeCore developnutritional: and manufacture high quality, science-basedCore nutritional and personal care and skincare products that are distributed internationally primarily through direct selling. We use this distribution method because we believe it is more conducive to meeting our visionprimary asbusiness awith company,approximately which is to improve the overall health and nutrition84% of individualsconsolidated andnet familiessales aroundduring the world.2025. Our core nutritional customer base is primarily comprised of two types of customers: “AssociatesBrand Partners” and “Preferred Customers,” referred to together as “active Customers.” Our AssociatesBrand Partners also sell our products to retail customers. AssociatesBrand Partners share in our company vision by acting as independent distributors of our products in addition to purchasing our products for their personal use. In 2023, we launched our Affiliate program in the United States, Canada, and MexicoMexico, and are evaluating introducing the program in other markets. This programwhich offers another sales and compensation opportunity to individuals who are interested in selling USANA products. Affiliates are discussed and reported in thisthe report withas Associates.part of our Brand Partners. Preferred Customers purchase our products strictly for personal use and are not permitted to resell or to distribute the products. We only count as active Customers those AssociatesBrand Partners and Preferred Customers who have purchased from us at any time during the most recent three-month period. As of DecemberJanuary 28,3, 2024,2026, we had approximately 454,000 direct selling387,000 active Customers worldwide. In addition, on December 23, 2024, we acquired a 78.85% controlling ownership interestworldwide in Hiya, a leading provider of high-quality children's health and wellness products through which we operate our direct-to-consumercore nutritional business.

Because we primarily sell our products to a customer base of independent AssociatesBrand Partners and Preferred Customers, we increase our sales by increasing the number of our active Customers, the amount they spend on average, or both. Our primary focus continues to be increasing the number of active Customers. We believe this focus is consistent with our vision of improving the overall health and nutrition of individuals and families around the world. Sales to AssociatesBrand Partners account for approximately 52%53% of direct sellingour segment product sales during 2024,2025, with the remainder being to Preferred Customers. Increases or decreases in product sales are typically the result of variations in the volume of product sold relating to fluctuations in the number of active Customers purchasing our products. The number of active AssociatesBrand Partners and Preferred Customers is therefore used by management as a key non-financial indicator to evaluate our operational performance.

The table below summarizes the change in our direct selling active Customer base by geographic region, rounded to the nearest thousand, as of the dates indicated.

Product sales along with the shipping and handling fees billed to our customers are recorded as revenue net of applicable sales discounts when, or as control of, the promised product is transferred to the customer, which is at the time of delivery to the third partythird-party carrier for shipment. Payments received for unshipped products are recorded as deferred revenue and are included in the "Other current liabilities" line item in the consolidated balance sheet.sheets. Also reflected in net sales is a provision for a refund liability for sales returns, which is estimated based on our historical experience. Additionally, other types of revenue include fees, which are paid by the customer at the beginning of the service period, for access to online customer service applications and annual account renewal fees for Associates,Brand Partners, for which control is transferred over time as services are delivered and are recognized as revenue on a straight-line basis over the term of the respective contracts.

Cost of sales primarily consists of expenses related to raw materials, labor, quality assurance, overhead costs, and overheadfreight costsout that are all directly associated with the production and distribution of our products and sales materials, as well as duties and taxes that are associated with the import and export of our products. As international sales increase as a percentage of net sales, cost of sales are increasingly affected by additional duties, freight, and other factors, such as changes in currency exchange rates.

AssociateBrand Partner incentives expense is incurred only in the core nutritional segment and includes all forms of commissions, and other incentives paid to our Associates.Brand Partners. Incentives paid to AssociatesBrand Partners include bonuses earned, rewards from contests and promotions, and base commissions, which makes up the majority of our AssociateBrand Partner incentives expense. We pay bonuses to AssociatesBrand Partners based on certain business-related criteria, total base commission earnings, and leadership level. Contests and promotions are offered as an incentive and reward to our AssociatesBrand Partners and are typically paid out only after ana AssociateBrand Partner achieves specific criteria. Base commissions are paid out on the sale of products. AssociatesBrand Partners earn their commissions based on sales volume points that are generated in their sales organization. Sales volume points are assigned to each commissionable product and comprise a certain percent of the product price. Items such as our starter kits and sales tools have no sales volume point value, and commissions are not paid on the sale of these items. Although insignificant to our financial statements, ana AssociateBrand Partner may earn commissions on sales volume points that are generated from personal purchases that are not considered part of their “Qualifying Sales.” To be eligible to earn commissions, ana AssociateBrand Partner must reach a certain level of Qualifying Sales each month, which may include product that they use personally or that they resell to consumers. AssociatesBrand Partners do not earn commissions on their Qualifying Sales. Commissions paid to AssociatesBrand Partners on personal purchases are considered a sales discount and are reported as a reduction to our net sales.

Selling, general and administrative expenses include wages and benefits, depreciation and amortization, lease costs and utilities, AssociateBrand Partner event costs, advertising, professional fees, marketing, and research and development expenses. Wages and benefits represent the largest component of selling, general and administrative expenses. Significant depreciation and amortization expense is incurred as a result of investments in physical facilities, computer and information technology infrastructure to support our international operations.operations, and intangible assets.

Our discussion and analysis is focused on our 20242025 and 20232024 financial results, including comparisons of our year-over-year performance between these years. Discussion and analysis of our 20222023 fiscal year specifically, as well as the year-over-year comparison of our 20232024 financial performance to 2022,2023, are located in Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 30,28, 2023,2024, filed with the SEC on FebruaryMarch 27,12, 2024,2025, which is available on our investor relations website at https://ir.usana.com or the SEC’s website at www.sec.gov. That information is incorporated by reference into this report.

Net sales in 20242025 decreasedincreased 7.2%,8.3%, or $66.5$70.8 million, to $854.5$925.3 million, compared with 2023.2024. The decrease in net sales increase was primarily the result of aadding decreasethe inyear-to-date averageincremental spendsales perfor Customer and a decrease in active Customers, due to a challenging economic environment in manyHiya of our$130.0 keymillion, markets,partially whichoffset had varying degrees of impact on attracting new customers. We experiencedby a decline in activenet Customerssales of 6.0% compared tofor the priorcore year.nutritional segment. Additionally, unfavorable changes in currency exchange rates decreased net sales for the year by an estimated $13.6$3.1 million.

Net earnings attributable to USANA decreased 34.1%74.4% to $42.0$10.8 million in 2024,2025, when compared with 2023.2024. The decrease in net earnings attributable to USANA was primarily the result of decreaseda sales, higher relativelower operating expenses,margin and a highersubstantial increase in the effective tax rate.rate for 2025.

The following table summarizes the changes in our net sales by geographic regionsegment for the fiscal years ended DecemberJanuary 28,3, 2024,2026, and December 30,28, 20232024:

AssociateBrand Partner Incentives

Income taxes increased to 72.4% of pre-tax earnings in 2025, up from 44.9% of pre-tax earnings in 2024, up from 37.7% of pre-tax earnings in 2023.2024. The higher effective tax rate iswas primarilydriven attributableby tolower the distribution of pre-taxU.S. earnings betweenbefore markets.taxes Thisincluding increasecost wasrealignment offset,and inimpairment part,while bystill paying a changerelatively insimilar U.S. tax law for foreign currency conversionamount of foreign branch operations.taxes.

Diluted earnings per share attributable to USANA decreased to $0.58 in 2025 from $2.19 in 2024 from $3.30 in 2023.2024. This decrease can be attributed to lower netearnings earnings.from operations and a substantial increase in the effective tax rate for 2025.

We believe our current liquidity, through cash flow from operations,operations along with our line of credit, is adequate to meet our cash requirements and sustain our operations. Maintaining a capital structure that emphasizes sufficient liquidity and adaptability in the prevailing economic climate is our top priority. We actively assess potential acquisition opportunities and investments in complementary ventures. While we continuously aim to preserve ample liquidity and ensure business continuity amid uncertainties, we also explore initiatives such as stock repurchases. These strategic decisions have the potential to impact our liquidity, enabling us to navigate these challenging times effectively.

Cash and cash equivalents decreased to $158.4 million at January 3, 2026, from $181.8 million at December 28, 2024, from $330.4 million at December 30, 2023.2024. Cash flow provided by operating and financing activities was $61.0 million and $9.6$22.3 million, respectively, offset by cash used in investing activities and financing activities of $213.1$10.1 million.million and $40.6 million, respectively. Additionally, unfavorablefavorable changes in currency exchange rates,rates have impacted cash and cash equivalents, and restricted cash by an estimated $6.2$5.1 million.

As discussed above, our principal source of liquidity comes from cash flows from operations. Net cash flow provided by operating activities totaled $61.0$22.3 million in 2024.2025. Net earnings combined with adjustments of non-cash itemsitems, an increase in accounts payable, and an increase in accrued employee compensation due to severance accruals contributed positively to our net cash flow provided by operating activities, partially offset by changespurchases inof workinginventories capital.and accrued Brand Partner incentives.

Other significant uses of cash included the Hiya Acquisition of $203.3 million, net of cash acquired, and an investment of $10.1$13.8 million to purchase property and equipment.equipment, Additionally,and cash used to repurchase and retire shares totaled $9.4$27.5 million in 2024.2025.

Net cash flow provided by operating activities totaled $70.6$61.0 million in 2023.2024. Net earnings combined with adjustments of non-cash items contributed positively to our net cash flow provided by operating activities, partially offset by $14.5 millionchanges in cashworking used to purchase property and equipment primarily related to our digital commerce initiatives and our India operations and cash used to repurchase and retire shares of $11.6 million.capital.

The following table summarizes our contractual obligations and commitments as of DecemberJanuary 28,3, 2024,2026, and the effect such obligations and commitments are expected to have on our liquidity and cash flow in future periods:

“Other Commitmentscommitments” generally include consulting- and IT-related services, investments in brand awareness through corporate and athlete sponsorships, facility maintenance, services related to the events that we hold for our AssociatesBrand Partners both locally and internationally, and local lines of credit. Additionally, throughout the year we will enter into various short-term contracts, mostly for services related to events that we hold for our Associates.Brand Partners. Information with respect to our unconditional purchase obligations may be found in Note K to the Consolidatedconsolidated Financialfinancial Statementsstatements included in Part II, Item 8 of this Annual Report, which is incorporated by reference.

Revenue Recognition. Revenue is recognized when, or as, control of a promised product or service transfers to a customer, in an amount that reflects the consideration to which wethe expectCompany expects to be entitled in exchange for transferring those products or services. Revenue excludes taxes that have been assessed by governmental authorities and that are directly imposed on revenue-producing transactions between the Company and its customers, including sales, use, value-added, and some excise taxes. Revenue recognition is evaluated through the following five-step process:

A majority of ourthe Company’s core nutritional sales are for products sold at a point in time and shipped to customers, for which control is transferred to the customer as goods are delivered to the third-party carrier for shipment. WeThe receiveCompany receives payment, primarily via credit card, for the sale of products at the time customers place orders and payment is required prior to shipment. OurThe productCompany salesdoes contractsnot includerecognize termsassets thatassociated couldwith causecosts variabilityto in the transaction price for items such as discounts, credits,obtain or sales returns. Accordingly, the transaction price for product sales includes estimates of variable consideration to the extent it is probable thatfulfill a significantcontract reversal of revenue recognized will not occur. At the time of sale, we estimatewith a refund liability for the variable consideration based on historical experience.customer.

Initial product orders with a new core nutritional customer may include multiple performance obligations related to sales discounts earned under ourthe Company’s initial order reward program. Under this program, the customer receives an option to apply the discounts earned on the initial order to two subsequent Auto Orders, which conveys a material right to the customer. As such, the initial order transaction price is allocated to each separate performance obligation based on its relative standalone selling price and is recognized as revenue as each performance obligation is satisfied.

AssociateBrand Partner incentives represent consideration paid to a Brand Partner for distinct services provided in the sale of the Company's core nutritional products and include all forms of commissions, and other incentives paid to our Associates.Brand Partners. The Company may provide Brand Partner incentive promotions which are earned by Brand Partners for distinct services rendered. Brand Partner incentive promotions are recorded as the incentives are earned by the Brand Partners. With the exception of commissions paid to AssociatesBrand Partners on personal purchases, which are considered a sales discount and are reported as a reduction to net sales, theBrand Partner incentives are recorded as an operating expense. The amounts paid to Brand Partners are commensurate with the fair value received for the distinct services relatedrendered toby ourBrand product salesPartners and are recorded as an operating expense when revenue for the goods is recognized.

Core Nutritional: Core Nutritional is our primary business with approximately 82%84% of consolidated net sales during the threesix months ended AprilJuly 4, 2026. Our Core Nutritional customer base is primarily comprised of two types of customers: “Brand Partners” and “Preferred Customers,” referred to together as “active Customers.” Our Brand Partners also sell our products to retail customers. Brand Partners share in our company vision by acting as independent distributors of our products in addition to purchasing our products for their personal use. In 2023, we launched our Affiliate program in the United States, Canada, and Mexico, which offers another sales and compensation opportunity to individuals who are interested in selling USANA products. Affiliates are discussed and reported in the report as part of our Brand Partners. Preferred Customers purchase our products strictly for personal use and are not permitted to resell or to distribute the products. We only count as active Customers those Brand Partners and Preferred Customers who have purchased from us at any time during the most recent three-month period. As of AprilJuly 4, 2026, we had approximately 404,000384,000 active Customers worldwide in the Core Nutritional segment.business.

We have Core Nutritional 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. During the threesix months ended AprilJuly 4, 2026, net sales outside of the United States represented 91.3%91.1% of Core Nutritional net sales. In our net sales discussions that follow, we approximate the impact of currency fluctuations on net sales by translating current year sales at the average exchange rates in effect during the comparable periods of the prior year.

For more information relating to our reportable segments, see Note JK to our condensed consolidated financial statements.

The following table summarizes the approximate percentage of total product revenue for the Core Nutritional segmentbusiness that has been contributed by major product lines and our top-selling products for the current and prior-year periods, as indicated:

Sales to Brand Partners accounted for approximately 50%51% of Core Nutritional segmentbusiness sales during the threesix months ended AprilJuly 4, 2026, with the remainder of our sales generated from Preferred Customers. As of AprilJuly 4, 2026, Brand Partners and Preferred Customers represented approximately 41%43% and 59%,57%, respectively, of the total active Customer base for the quarter in the Core Nutritional segment.business. The table below summarizes the changes in our active Customer base for the Core Nutritional segmentbusiness by geographic region, rounded to the nearest thousand as of the dates indicated:

Hiya's active Monthly Subscribers are comprised of two types: first-time customers and recurring customers. First-time customers are viewed as an investment as the customer is provided a discount, and shipping costs are higher due to the inclusion of a refillable glass bottle. Additionally, as a direct-to-consumer company, customer acquisition is heavily influenced by the level of marketing spend. Recurring customers are not provided the same discount, and shipping costs are lower on refill orders. Both gross margins as well as operating margins improve with recurring customer orders, therefore, profitability margins are affected by sales mix between these two types of customers. As of AprilJuly 4, 2026 and MarchJune 29,28, 2025, Hiya had approximately 186,000166,000 and 224,000200,400 active Monthly Subscribers, respectively.

Net sales for the firstsecond quarter of 2026 increaseddecreased 0.3%5.3% to $250.2$223.3 million, ana increasedecrease of $0.7$12.6 million, compared with the prior-year quarter. The modest increasedecrease in sales is primarily the result of incremental net sales of $12.0 million for Rise, partially offset by a decline in both the Core Nutritional and Hiya segments of $6.4$7.9 million and $4.9$5.7 million, respectively.respectively, partially offset by a $1.0 million increase in net sales for Rise. Additionally, favorable changes in currency exchange rates positively impacted Core Nutritional net sales by an estimated $8.1$5.6 million in the current-year quarter.

Net earningsloss attributable to USANA for the firstsecond quarter of 2026 werewas $7.5$21.4 million, a decrease of 20.1% compared with $9.4net earnings of $9.7 million during the prior-year quarter. The change is primarily attributable to alower lowernet sales, operating margin andmargins, a higher effective tax raterate, and a goodwill impairment for our Hiya segment in the current-year quarter.

Three months ended AprilJuly 4, 2026 and MarchJune 29,28, 2025

Net sales in the Core Nutritional segmentbusiness for the three-month period ended AprilJuly 4, 2026 were $204.4$191.6 million, down 3.0%4.0% when compared to the corresponding period of 2025. On a constant currency basis, net sales in the Core Nutritional segmentbusiness declined 6.9%.6.8%. The decrease in Core Nutritional net sales was mainly due to a 12.0%the decrease in active Customers, partially offset by a 5.6% increase in average spend per active Customer.Customers.

Asia Pacific: Net sales declined 2.3%,3.7%, or 6.2%6.8% on a constant currency basis, in this regionbasis during the current-year quarter. Active Customers in this region declined 12.8%8.6% year-over-year, partially offset by an increase in average spend per active Customer.year-over-year. The net sales decline in this region reflects a continued challenging economicenvironment andto operatingattract environment.new customers.

Americas and Europe: Net sales declined 6.3%,5.0%, or 9.9%6.7% on a constant currency basis, in this regionbasis during the current-year quarter. Active Customers in this region declined 8.2%6.1% year-over-yearyear-over-year, andpartially offset by a slight increase in average spend per active Customer decreased 1.1% year-over-year.Customer. Year-over-year results in this region reflect a continued challenging environment to attract new customers.

Net sales in the Hiya segment for the three-month period ended AprilJuly 4, 2026 were $32.2$28.3 million, down 13.3%16.7% when compared to the corresponding period of 2025. The decrease was primarilydriven the result ofby a lowerchallenging customerdigital basemarketing environment, which created pressure in both net sales and asubscriber decrease in customer acquisitions.growth.

Net sales in the Rise segment for the three-month period ended AprilJuly 4, 2026 were $13.7$3.4 million, up 740.7%40.3% when compared to the corresponding period of 2025. The increase was primarily the result of the launchsales of Protein Pop inthrough large national retailers and club retailers.retailers not present in the prior-year period.

Diluted (Loss) Earnings per Share Attributable to USANA

Diluted (loss) earnings per share attributable to USANA decreased to $0.41$(1.16) during the second quarter of 2026 as compared to $0.49$0.52 reported in the prior-year quarter primarily as a result of the substantially higher income tax provision as well as lower earnings from operationsoperations, inhigher income taxes, and the current-yearnon-cash quarter.charge for goodwill impairment.

Cash and cash equivalents increased to $162.8$168.6 million as of AprilJuly 4, 2026, from $158.4 million as of January 3, 2026. Cash flow provided by operating activities was $9.8$33.1 million, offset by cash used in financing activities of $3.6$17.7 million, and cash used in investing activities of $2.6$6.7 million. Additionally, favorable changes in currency exchange rates have impacted cash and cash equivalents, and restricted cash by $0.9$1.5 million.

Net cash flow provided by operating activities was $15.5$33.1 million for the first threesix months of 2025.2026. Net earnings combined with adjustments of non-cash items and a decrease in inventory purchases contributed positively to our net cash flow provided by operating activities, partially offset by cash used to pay the 20242025 annual employee bonus and accrued Brand Partner incentives and the purchase of inventories.incentives.

Information with respect to our line of credit may be found in Note FG to the condensed consolidated financial statements included in Item 1 of Part I of this report.

Information with respect to share repurchases may be found in Note IJ to the condensed consolidated financial statements included in Item 1 of Part I of this report.