More than six months after a Federal Trade Commission action temporarily shuttered its business, Arizona-based Vemma Nutrition Co. continues to regain sales traction.
The company restarted operations on a limited basis on Oct. 8 and since then has seen 2,985 new customers and 25 new Affiliates join Vemma, the company said in its quarterly report to the U.S. District Court for the District of Arizona. Monthly gross sales have increased nearly 65 percent from $723,750 in November to $1,192,726 in February, with total gross sales exceeding $3.6 million during the period. The company also detailed extraordinary expenses it has incurred as a result of the temporary restraining order, including a more than $2.2 million write-off of inventory for international markets closed by the temporary receiver, expired inventory, inventory held at closed offices and other related adjustments, and a more than $1 million expense related to addressing its headquarters office lease and an equipment loan, both of which went into default when the temporary receiver shuttered the business.
Restarting the business has been challenging. Vemma was hit unexpectedly by the temporary restraining order on Aug. 24, and within hours a court-appointed receiver laid off nearly the entire staff, stopped all sales and halted commission payments. Several weeks later, the company made its case to U.S. District Court Judge John J. Tuchi, who adjusted the terms of the TRO when he put in place a less-restrictive preliminary injunction while the case continues through the court process. It took until Oct. 8 for Vemma to begin selling product and until Nov. 12 to gain approval to market a new compensation plan.
One of the biggest challenges to restarting operations, the company said in its report to the court, was securing a merchant bank to process its credit card orders. Vemma has not been able to secure a domestic merchant account and instead is processing orders with Paysafe, which processes through the Bank of Mauritius, an island nation off the coast of Africa. This arrangement costs more than Vemma’s previous processor, requires the company to maintain a larger reserve and also results in a higher rate of credit card declines. In addition, it took Vemma until January to establish the ability to process auto-delivery orders through Paysafe.
In early February, Vemma gained approval to revise its new compensation plan. The most recent plan continues to require that at least 51 percent of the total sales for an Affiliate’s entire organization come from sales to customers who are not participating in the business opportunity before that Affiliate qualifies for commissions or bonuses. It also maintains a binary structure but with some adjustments, including changes to the way bonuses are achieved and limits on how long organizational sales can be carried over. Compensation plan expert and CEO of InfoTrax Systems Mark Rawlins described the plan as containing clear rules that demonstrate to participants that “you not only need to do the work to get the benefits, you have to pay close attention to your downline activity, in order to get paid.”
While Vemma is selling product, marketing its business opportunity and paying commissions, many of the company’s operational decisions continue to be subject to FTC or court approval while the case is pending. The judge has ordered all parties to the case to hold good faith settlement discussions no later than June 3.