MLM Income Disclosures

[Arthur Rubin]

Mary Kay makeup sucks. It's oily and waxy and if it even touches my skin, I break out. The Mary Kay and Avon ladies are why there's a big rack of swords in the entryway, it makes them run screaming.

Does the rack of swords work on Jehovah's Witnesses, also? Something we might need to consider....

[Cathulhu]

It does work, Arthur, but not as well as siccing the pigs on them, which my mother has done.

[ArthurWankspittle]

Mary Kay makeup sucks. It's oily and waxy and if it even touches my skin, I break out. The Mary Kay and Avon ladies are why there's a big rack of swords in the entryway, it makes them run screaming.

Does the rack of swords work on Jehovah's Witnesses, also? Something we might need to consider....

"You're a bit early for the seance." usually works pretty well.

[Kestrel]

Does the rack of swords work on Jehovah's Witnesses, also? Something we might need to consider....

"You're a bit early for the seance." usually works pretty well.

My daughter drew an arcane Japanese "alchemical symbol" on the front porch with sidewalk chalk, and that same night the cat left the uneaten rear half of a rat in the center of it. I discovered it about 3 days later.

Didn't see the JWs at my door for months after that.

Didn't see the UPS delivery man at my door either.

[Kestrel]

When looking for the real scoop on MLMs, finding audited financials with Income Disclosure statements is ideal. Of course, privately-owned MLMs operating in the United States are not required to release such statements. So we look to Canada or the UK whenever possible, and the Income Disclosure statements filed there have been very revealing.

I have a friend involved in ViSalus, an MLM marketer of overpriced meal replacement shakes, who wants me to participate in her “Body by Vi” weight loss challenge. If she signs up 3 customers she gets her shakes for free. ViSalus has splashy presentations of their business “opportunity” with all the usual outrageous MLM claims. I'm a CPA; I want real numbers. ViSalus is privately owned, and operates wholly within the US, so refuting their claims with actual company results is not that easy. And without real numbers, my friend wants to believe that this MLM is somehow different from all the others.

But sometimes there is another source within US financial statements. I googled “ViSalus 10-K” and discovered that in 2010 ViSalus was 43.6%-owned subsidiary of Blyth, Inc. Blyth is publicly owned and files audited financial statements with the SEC.

BOOM.

There’s still no Income Disclosure statement for ViSalus, but get a look at the notes in the current Blyth 10-K annual report:

ViSalus’ business is affected by extensive laws, governmental regulations and similar constraints, and their failure to comply with those constraints may have a material adverse effect on ViSalus’ financial condition and operating results. There can be no assurance that ViSalus or its distributors are in compliance with all of these regulations, and the failure by ViSalus or its distributors’ failure to comply with these regulations or new regulations could lead to the imposition of significant penalties or claims and could negatively impact ViSalus’ business.

Clearly the auditors don’t like MLMs. Wonder why?

ViSalus did not meet its predefined operating target for calendar year 2010.

ViSalus experienced a substantial decline in revenues and operating margins last year compared to its forecasts.

Sales at ViSalus increased $20.6 million or 157% from $13.1 million in fiscal 2010 to $33.7 million in fiscal 2011. This growth is a result of a 330% increase in distributors on a year-over-year basis.

Oh-ho! Wouldn’t you expect the increase in sales to mirror the increase in distributors? Surely such a fantastic business opportunity would show a one-for-one match: 3x the number of distributors means 3x the sales revenue, right?

Yet, while the number of ViSalus distributors more than tripled, sales grew only 1.5 times. Do the math. Average sales per individual distributor were DOWN by 40%! Another way of looking at it would be to assume that sales per existing distributor remained constant from the year before and just tally the amount of new revenue brought in by the new distributors. How does that look? For every new distributor added, sales only went up by a few cents. The rate of increase in distributors was more than twice the rate of increase in sales. That's like saying, “We opened a lot of new Wal-Mart stores, but they’re all the size of Dollar General.”

In the second quarter of fiscal 2010, ViSalus revised downward its revenues forecast for the current fiscal year as a result of lower demand for its product reflecting lower consumer spending attributed to the domestic economic recession and a higher than anticipated attrition rate in its distributor base. These factors together required management to focus its efforts on stabilizing its distributor base and curtailing its international expansion plans. Accordingly, management reduced its current year and long-term forecasts in response to the weakening demand for its products. The impairment analysis performed indicated that the goodwill in ViSalus was fully impaired, as its fair value was less than its carrying value, including goodwill.

We determined that the recorded values of trade names, trademarks and customer relationships within ViSalus, in the Direct Selling segment, were impaired. As a result of these impairment analyses performed, the intangible assets were determined to be impaired, as their fair value was less than their carrying value.

“… a higher than anticipated attrition rate in its distributor base...” Mmm hmm. If the business opportunity is as good as they claim, why are the distributors bailing out? I thought MLMs thrived during a bad economy, so what's wrong with this one? And the value of the premium (the Goodwill) which Blythe paid for ViSalus has been written down to Zero. Now we know why the planned Canadian launch (with the mandatory Income Disclosure statements) was postponed.

Notwithstanding the above, a 157% overall increase in sales is still a 157% increase, despite the repercussions for individual ViSalus distributors. Therefore, in early 2011, Blyth exercised its option to purchase additional shares of ViSalus and increase its ownership percentage to 57.5%. Business is business, after all.

[ArthurWankspittle]

ViSalus’ business is affected by extensive laws, governmental regulations and similar constraints, and their failure to comply with those constraints may have a material adverse effect on ViSalus’ financial condition and operating results. There can be no assurance that ViSalus or its distributors are in compliance with all of these regulations, and the failure by ViSalus or its distributors’ failure to comply with these regulations or new regulations could lead to the imposition of significant penalties or claims and could negatively impact ViSalus’ business.

I read that as "you are involved in diet/vitamin supplement/weight loss and if you get too close to being medicine or healthcare and some distributor(s) say some they shouldn't, then some federal authority may be round to kick the stuffing out of you."
Looks very much like a warning off the auditors that if you aren't careful with your advertising and marketing, and you get shut down, don't say we didn't warn you.

[Kestrel]

I read that as "you are involved in diet/vitamin supplement/weight loss and if you get too close to being medicine or healthcare and some distributor(s) say some they shouldn't, then some federal authority may be round to kick the stuffing out of you."
Looks very much like a warning off the auditors that if you aren't careful with your advertising and marketing, and you get shut down, don't say we didn't warn you.

In the interests of space I didn't quote the entire financial statement note. The clip I posted led you to a conclusion I did not anticipate. So I'll now post the complete text of this particular note.

You make a good point, and some of the note does warn about the products and advertising claims. There's also a warning about the "employee or contractor" employment tax liability issue. But the network marketing method gets much more extensive warnings.

ViSalus’ business is affected by extensive laws, governmental regulations and similar constraints, and their failure to comply with those constraints may have a material adverse effect on ViSalus’ financial condition and operating results.

ViSalus is affected by extensive laws, governmental regulations, administrative determinations, court decisions and similar constraints. Such laws, regulations and other constraints exist at the federal, state or local levels in the United States, including regulations pertaining to:
• the formulation, manufacturing, packaging, labeling, distribution, importation, sale and storage of their products;
• product claims and advertising, including direct claims and advertising by ViSalus, as well as claims and advertising by distributors, for which they may be held responsible;
• their network marketing program; and
• taxation of their independent distributors (which in some instances may impose an obligation on ViSalus to collect the taxes and maintain appropriate records).

There can be no assurance that ViSalus or its distributors are in compliance with all of these regulations, and the failure by ViSalus or its distributors’ failure to comply with these regulations or new regulations could lead to the imposition of significant penalties or claims and could negatively impact ViSalus’ business. In addition, the adoption of new regulations or changes in the interpretations of existing regulations may result in significant compliance costs or discontinuation of product sales and may negatively impact the marketing of ViSalus’ products, resulting in significant loss of sales revenues.

In addition, ViSalus’ network marketing program is subject to a number of federal and state regulations administered by the FTC and various state agencies in the United States. ViSalus is subject to the risk that, in one or more markets, its network marketing program could be found not to be in compliance with applicable law or regulations. Regulations applicable to network marketing organizations generally are directed at preventing fraudulent or deceptive schemes, often referred to as “pyramid” or “chain sales” schemes, by ensuring that product sales ultimately are made to consumers and that advancement within an organization is based on sales of the organization’s products rather than investments in the organization or other non-retail sales related criteria. The regulatory requirements concerning network marketing programs do not include “bright line” rules and are inherently fact-based, and thus, even in jurisdictions where ViSalus believes that its network marketing program is in full compliance with applicable laws or regulations governing network marketing systems, it is subject to the risk that these laws or regulations or the enforcement or interpretation of these laws and regulations by governmental agencies or courts can change. The failure of ViSalus’ network marketing program to comply with current or newly adopted regulations could negatively impact its business in a particular market or in general.

[Doc Bunkum]

Anyone list Market America yet?

Market America 2009 Annual Report

All 17 pages.

[Kestrel]

Anyone list Market America yet?

Market America 2009 Annual Report

All 17 pages.

Page 3: Nice graph. I see the 2009 sales are projected to continue on the upward curve. What happened to the "general and administrative expenses" in 2008? That's a 7.4 million (16%) increase over 2007, whereas the 2006-2007 difference was stable.

Page 5: Property and Equipment - Yachts. Book value increase of 4.3 million. Now I know that the carrying value of assets is "lower of cost or market, net of depreciation." Unless a company is distressed and selling stuff off, auditors won't let you mark UP book values. So they spent at least 4.3 million on yachts. Just what are these folks selling, anyway, that they need to dump that much money in yachts?

Oh, by the way, their yachts are worth more than their buildings. Is that where the executive offices are located?

Page 7: General and Administrative Expenses: Salaries increased 4 million. Consulting increased 2.7 million. Want to guess who got that money? Want to guess who DIDN'T?

Loss attributable to non-controlling interest (% ownership of another company): losses went up 8.6 million. Bad investment choices? Maybe they should reconsider those increases in salaries and consulting fees...

Page 8: Stockholder's Equity increased 16.8 million in 2008. But 2008 distributions to stockholders were 26.6 million LESS than 2007 distributions. All of a sudden, the increase in equity doesn't look so good.

Page 11: "The Company markets a large variety of high quality, consumer-oriented and market-driven products through a vast network of independent contractors and through the Company’s website - the Internet’s ultimate online destination." For this you need yachts?

"The Company also sponsors conventions and seminars for its Distributors. Revenue from ticket sales to the conventions and seminars amounted to approximately 4.0% and 3.7% of total sales for the years ended December 31, 2008 and 2007, respectively." So their sales force is BUYING tickets to company-sponsored conventions? Most non-MLM businesses I know of pay their employees to attend such events (and pay the air fare, hotel, and meal expenses too). Want to guess whether this company's distributors got reimbursed for their travel expenses?

Property and equipment depreciation rates: Yachts - 10 years. They write down the value of the yachts 10% a year. The rate is fine. But remember the 4.3 million increase the yachts' book value? After adjusting for depreciation, we find that the amount actually spent on new yachts in 2008 is over 6.5 million. Can I get an office on one of those?

Page 12: Advertising: 2007 - 2.2 million; 2008 - 0.5 million. That's a 77% decrease. Hey, Mr. and Ms. Distributor! This company's products sell themselves so well that advertising isn't important (despite what the recruiting literature implied). Don't worry, tho, the company is still behind you all the way. Besides, the yachts are better advertisements than any ol' conventional advertisement, anyway.

Hope everyone had good years in 2009 and 2010!

[Imaloser]

Sees as if MLM people making decent income are like the Sasquatch, Everyone's heard of them, some people have seen them, but verifiable proof is quite elusive.

[Doc Bunkum]

Empower Network

"The income statistics above are for all active affiliates world wide for the date specified above, are based in US dollars, and update daily."

[Kestrel]

Empower Network

"The income statistics above are for all active affiliates world wide for the date specified above, are based in US dollars, and update daily."

Empower Network provides educations products and services to network marketers that want to promote a primary business online.

This fella may actually be on to something... an MLM that sells MLM "educations" to MLM marketers. There ain't an unlimited market for MLM products or recruits, but there sure seems to be an unlimited market of fools, errrr, independent business owners who BELIEVE there is an unlimited market for whatever they're trying to sell, if they could only figure out how to do it.

He reminds me of the old joke about the newspaper ad that read "make $$$ fast - send $100 for the secret." Anyone who sent the $100 got a slip of paper that read "run ads saying 'make $$$ fast - send $100 for the secret.'"

About The Author: David Wood

I'm a man who passionately and ridiculously loves his wife. I love to chill, have strange conversations, talk about wormholes, play music, fight the rise of oppressive jerks who have nothing better to do than get in the way of REAL PROGRESS, do Wing Chun Kung Fu, listen to Coast to Coast AM until I believe Shape Shifting Lizards are real...

Yep, sounds JUST like the kind of guy who knows what everyone else wishes they knew, and knows how to teach it to you too! For a price, of course... $25/mo gets you the basic system. $100/mo gets you into the Inner Circle with reselling rights. (I wonder how many months' subscription are charged to your credit card in advance.) There's a Mastermind Intensive Video Series, too, but he's not going to tell you how much that costs until he's convinced you that you can't live without it.

BTW, he splits his time between Florida and Costa Rica, making it a little more difficult for the FTC to reach out and "touch" him.

[Doc Bunkum]

That MELALEUCA link on the first page doesn't seem to work.

Here's Melaleuca's 2010 Income Statistics.

What I find interesting is on that link Lambkin gave on the Mitt Romney's Money Man thread, Frank L. VanderSloot is described as "the billionaire businessman, owner of the privately-held company, Idaho Falls-based Melaleuca".

Billionaire businessman?

On that 2010 Income Stats link, 83.9% of the Business Builders had a range in income for 2010 of between $100 and $16,537 for an average of $2109 (I notice the put the high number first).

So a BB is averaging $2109 while VanderSloot becomes a billionaire.

That gives some indication where the money is flowing!

[soapboxmom]

That Income Disclosure is beyond hilarious. They put in the 61% of purchasers who are retail customers. Then they can significantly skew the figures so the reps look more successful. I fixed those tables for 2004 and much to my delight I discovered Robert Fitzpatrick had already done the same thing.

http://www.realscam.com/f9/melaleuca-scam-51/#post574

Frank is getting most of the money and outright lies to the public about the success of his beleaguered rep force. Out of 190,000 reps for 2004, Frankie claimed 20,000 made their primary living from Mela. Poppycock. Only 3,000 made more than $15,000.00 a year at that time. What a sick joke! Maybe Frankie would like to join my 9th grade Algebra class!

Soapboxmom

[Kestrel]

I just wanted to pass on a success story that came from Wes posting the Income Disclosures.

A family member made an information request for a work-at-home opportunity, and asked me to keep an eye out for the materials. He was out of town when they arrived in a vaguely-addressed Priority Mail envelope, so (at his request) I opened the envelope to see what it contained.

The whole thing sounded too good to be true. The folder was loaded with get-rich testimonials but never quite got around to naming the company or products. I did a little googling of the few clues provided and it turned out to be Herbalife. I shot straight back to this thread, printed out the Herbalife Income Disclosure, then slipped it into the folder.

He came home a few days later. He was getting interested, until he read the disclosure. He immediately tossed the package aside saying he couldn't believe anyone would do that much work for so little money. Then he cancelled his membership.

Thanks, Wes.

[wserra]

No problem. The hope that I can help head off potential victims of pyramids|TP scammers|sovrun scammers|advance fee scammers is why I spend so much time here.

Well, that and the excellent company.

And the opportunity to eviscerate fraudsters.

And the times I don't feel like working.

Hmm. Amongst the reasons . . .