UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarterly period ended July 31, 1996
Commission file number 000-23250
MARKET AMERICA, INC.
(Exact name of registrant as specified in its charter)
North Carolina 56-1784094
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
7605-A Business Park Drive
Greensboro, North Carolina
(Address of principal executive offices)
27409
(Zip Code)
(910) 605-0040
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of July 31, 1996:
19,950,000
PART I
ITEM 1 Statement of Financial Position as of July 31, 1996 and
April 30, 1996
Statement of Operations for the Three Month Periods Ended
July 31, 1996 and 1995
Statement of Changes in Stockholders' Equity for the Three
Month Periods Ended July 31, 1996 and 1995
Statement of Cash Flows for the Three Month Periods Ended
July 31, 1996 and 1995
Notes to Financial Statements as of July 31, 1996
MARKET AMERICA, INC. Statement of Financial Position as
Of July 31, 1996 and April 30, 1996
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ASSETS
------
(Unaudited)
July 31, April 30,
1996 1996
----------- ---------
CURRENT ASSETS
Cash $11,036,179 $10,455,908
Advances to employees 12,100 8,600
Interest receivable 1,236
Notes receivable, employees 28,176 58,379
Inventories 1,559,408 1,020,117
Prepaid expenses 4,645 17,147
----------- -----------
Total current assets 12,640,508 11,561,387
----------- -----------
PROPERTY AND EQUIPMENT
Furniture and equipment 621,848 588,455
Software 128,840 128,840
Leasehold improvements 2,570 2 570
----------- -----------
Total property and equipment 753,258 719,865
Less accumulated depreciation 202,220 176,966
----------- -----------
Net property and equipment 551,038 542,899
----------- -----------
OTHER ASSETS
Investments 130,000
Deposits 681 681
Notes receivable, employees 3,317 3,317
----------- -----------
Total other assets 3,998 133,998
----------- -----------
TOTAL ASSETS $13,195,544 $12,238,284
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Accounts payable $ 1,193,604 $1,024,429
Sales and payroll taxes payable 149,334 233,515
Commissions payable 1,048,744 1,842,806
Accrued compensation 52,475 376,746
Notes payable - related party 174,118 292,714
Current portion of obligation
under capital lease 3,066 2,921
Current portion of notes payable 241,900 240,970
Income taxes payable 1,315,328 1,372,978
----------- -----------
Total current liabilities 4,178,569 5,387,079
----------- -----------
LONG-TERM DEBT, Including capital
lease obligation, net of current
portion 310,326 324,355
----------- -----------
UNEARNED REVENUE 542,621 357,101
----------- -----------
COMMITMENTS
STOCKHOLDERS' EQUITY
Common stock, $.00001 par value;
800,000,000 shares authorized;
19,950,000 issued and outstanding 199 199
Additional paid-in capital 39,801 39,801
Retained earnings 8,124,028 6,129,749
----------- -----------
Total stockholders' equity 8,164,028 6,169,749
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $13,195,544 $12,238,284
=========== ===========
The accompanying notes are an integral part of these financial statements.
MARKET AMERICA, INC. Statement of Operations for
The Three Month Periods Ended
July 31, 1996 and 1995
- --------------------------------------------------------------------------------
July 31, July 31,
1996 1995
-------- --------
SALES $15,684,671 $ 7,486,007
COST OF SALES 2,968,885 1,788,206
----------- -----------
GROSS PROFIT 12,715,786 5,697,801
----------- -----------
OPERATING EXPENSES
Commissions 7,014,274 3,336,950
Salaries and wages 868,023 260,407
Taxes and licenses 140,257 110,555
Advertising and promotion 4,981 600
Travel and entertainment 257,942 54,016
Consulting 120,520 502,196
Freight 709,419 312,452
Professional fees 114,607 200,462
Office 81,858 71,752
Insurance 61,152 16,820
Rent 50,215 23,959
Utilities 45,217 43,398
Depreciation and amortization 25,254 13,975
Interest 9,508 5,280
Leases 8,360 8,454
Cleaning and maintenance 16,197 17,667
Bad debts 46,353
Miscellaneous 947 48,313
----------- -----------
Total operating expenses 9,575,084 5,027,256
----------- -----------
INCOME FROM OPERATIONS 3,140,702 670,545
----------- -----------
OTHER INCOME (LOSS)
Interest 112,998 37,520
Loss on sale of assets (4,595)
Miscellaneous 60,502 3,677
----------- -----------
Total other income 168,905 41,197
----------- -----------
INCOME BEFORE INCOME TAXES 3,309,607 711,742
PROVISION FOR FEDERAL AND
STATE INCOME TAXES 1,315,328 281,937
----------- -----------
NET INCOME $ 1,994,279 $ 429,805
=========== ===========
NET INCOME PER SHARE $ .10 $ .02
=========== ===========
The accompanying notes are an integral part of these financial statements.
MARKET AMERICA, INC. Statement of Changes in Stockholders'
Equity for the Three Month Periods
Ended July 31, 1996 and 1995
- --------------------------------------------------------------------------------
Common Stock Additional
--------------------- Paid-In Retained
Shares Amount Capital Earnings Total
-------- ------ ---------- -------- -----
Balances at
April 30,
1995 19,950,000 $ 199 $ 39,801 $ 976,522 $1,016,522
Net income 429,805 429,805
---------- ------ -------- ---------- ----------
Balances at
July 31,
1995 19,950,000 $ 199 $ 39,801 $1,406,327 $1,446,327
========== ====== ======== ========== ==========
Balances at
April 30,
1996 19,950,000 $ 199 $ 39,801 $6,129,749 $6,169,749
Net income 1,994,279 1,994,279
---------- ------ -------- ---------- ----------
Balances at
July 31,
1996 19,950,000 $ 199 $ 39,801 $8,124,028 $8,164,028
========== ====== ======== ========== ==========
The accompanying notes are an integral part of these financial statements.
MARKET AMERICA, INC. Statement of Cash Flows For
The Three Month Periods Ended
July 31, 1996 and 1995
- --------------------------------------------------------------------------------
July 31, July 31,
1996 1995
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,994,279 $ 429,805
Add items not requiring the
use of cash
Loss on sale of assets 4,595
Depreciation and amortization 25,254 13,975
Consulting fees for note payable 400,000
(Increase) in employee advances (3,500) (16,520)
Decrease in interest receivable 1,236
Decrease in notes receivable, employees 30,203
(Increase) in inventories (539,291) (276,245)
(Increase) decrease in prepaid expenses 12,502 (36,617)
Increase in accounts payable 169,175 270,419
(Decrease) in taxes payable (141,831) (114,185)
Increase (decrease) in commissions payable (794,062) 86,250
(Decrease) in accrued compensation (324,271) (94,570)
(Decrease) in interest payable (7,109)
Increase in unearned revenue 185,520 37,840
----------- -----------
Net cash provided from
operating activities 619,809 693,043
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of furniture and equipment (33,393) (23,016)
Sale of real estate investment 125,405
----------- -----------
Net cash provided (used) from
investing activities 92,012 (23,016)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on notes payable (131,550)
Proceeds from notes payable 2,805
----------- -----------
Net cash provided (used) from
financing activities (131,550) 2,805
----------- -----------
NET INCREASE IN CASH 580,271 672,832
CASH AT BEGINNING OF PERIOD 10,455,908 2,830,040
----------- -----------
CASH AT END OF PERIOD $11,036,179 $ 3,502,872
=========== ===========
SUPPLEMENTAL INFORMATION:
Income taxes paid in cash $ 1,391,870 $ 412,350
=========== ===========
Interest paid in cash $ 9,124 $ 7,109
=========== ===========
The accompanying notes are an integral part of these financial statements.
MARKET AMERICA, INC. Notes to Financial Statements
As of July 31, 1996
- --------------------------------------------------------------------------------
The financial statements of Market America, Inc., included herein,
have been prepared without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Although
certain information normally included in financial statements prepared
in accordance with generally accepted accounting principles has been
condensed or omitted, Market America, Inc. believes that the
disclosures are adequate to make the information presented not
misleading. These financial statements should be read in conjunction
with the financial statements and notes thereto included in Market
America's annual report on Form 10-K for the fiscal year ended April
30, 1996.
The financial statements included herein reflect all normal recurring
adjustments that, in the opinion of management, are necessary for a
fair presentation. The results for interim periods are not necessarily
indicative of trends or of results to be expected for a full year.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
As of May 1, 1996, Market America, Inc., coming off a
record year of sales growth, net income after tax, and
earnings per share of $0.26, began its fifth year of
operations. The Company's sales have grown from $1,321,874
in 1993, $9,931,946 in 1994, and $19,592,056 in 1995, to
$42,479,911 as of the year ended April 30, 1996. Sales for
the first quarter ended July 31, 1996 were $15,684,671, an
increase over the first quarter ended July 31, 1995 of
110%. Earnings per share has grown at an ever increasing
percentage for the year ended from $0.0ll in 1994 and $0.04
in 1995 to $0.26 as of April 30, 1996. Earnings per share
for the quarter ended July 31, 1996, is $0.10, representing
a 400% increase over the quarter ended July 31, 1995. In
regard to liquidity, as of July 31, 1996, current assets
exceeded current liabilities by $8,461,939 for a current
ratio of 3.02 to 1. This compares with an excess of current
assets over current liabilities of $2,409,805 for a current
ratio of 1.78 to 1 for the quarter ended July 31, 1995,
representing a 70% increase.
The Company has shown continued success in the selection of
market driven products for distribution through its
ever-growing network of "Unfranchise [tm]" independent
contractors known as Market America, Inc. Business
Development Centers. Products currently leading in consumer
popularity are in the growing markets of preventive
health/homeopathic type nutritional food supplements that
focus on antioxidants. In addition, alternative home care,
home maintenance type products that are enzyme-based,
chemical free and environmentally cohabitant are growing
in popularity, specifically in stain removal, drain and
pool cleaners and plant additives that enhance growth.
Moving into the holiday season, management expects that the
newly enhanced product lines of jewelry and designer
fragrances will enhance second and third quarter sales.
The Company's product focus will continue to be on
consumables that are highly market driven. Implementation
has begun to compound the current growth of product sales
by the use of One to One Marketing. This is expected to
build customer loyalty through relationships cultivated
to increase "share of customer." The philosophy is fairly
simple, yet complex for other companies to implement.
Through collaboration between supplier, manufacturer and
customer, customer share (the amount of dollars spent each
month by a customer through an "Unfranchise[tm]" is
expected to dramatically increase. Market America, Inc.,
plans to compile accurate information that will allow for
mass customization of products and services for customers.
That is, supplying products that customers actually want in
a convenient, enjoyable, time saving environment that will
be competitively priced.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - continued
New visibility and image enhancement programs have been put
into place for Market America, Inc., with the establishment
of a world-wide web site. The Company welcomes the world to
visit its site address at WWW.MarketAmericaUSA.Com. This
combines with the Company's ongoing public relations
campaign that is expected to improve on the already steady
growth of new Market America, Inc. "Unfranchises[tm]" that
average one new "Unfranchise[tm]" opening every 15 minutes
of every day.
To date, the geographic areas that have experienced
phenomenal growth of Market America, Inc., Independent
Distributorships have been those areas that developed
meeting, training, and seminar systems. Management has
begun to see the development of these systems west of the
Eastern Seaboard and expects to realize the same type of
growth as the National Meeting, Training, and Seminar
System (NMTSS) expands through North America in the last
quarter of 1996 and throughout 1997.
Finally, Market America, Inc.'s, NMTSS provides
Distributors everywhere with a standardized, coordinated,
and comprehensive business introduction, training,
motivational, and support system. Meetings are coordinated,
publicized, and held in every geographical location where
there is Distributor organizational growth.
The NMTSS is comprised of business briefings, training
sessions, seminars, and conventions. Utilizing this system
allows every Distributor access to expert speakers and
trainers within Market America, Inc., and provides a means
to build "Unfranchises[tm]" anywhere throughout the U.S.,
Canada, and the Caribbean.
PART II
ITEM 1 LEGAL PROCEEDINGS
During the period covered by this report, no legal
proceedings required to be reported became reportable
events, and there were no material developments in or
terminations of previously reported proceedings.
ITEM 2 CHANGES IN SECURITIES
NONE
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
NONE
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual stockholders' meeting was held on August 19,
1996. The Company did not solicit proxies for the meeting,
but supplied the stockholders with an Information
Statement, a copy which was filed with the Commission on
July 30, 1996. The slate nominated by management for
election to the Board of Directors, as reported in the
Information Statement, was elected in its entirety.
ITEM 5 OTHER INFORMATION
NONE
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
The exhibits to this report are listed in the Exhibit
Index, which is incorporated herein by reference.
(b) REPORTS ON FORM 8-K
NONE
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SIGNATURES
- --------------------------------------------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MARKET AMERICA, INC.
(Registrant)
------------------------------------
James H. Ridinger, President and CEO
------------------------------------
Edward W. Faulkner, Controller
MARKET AMERICA, INC.
EXHIBITS TO FORM 10-Q
EXHIBIT INDEX
Exhibit
Number Identification
- ------- --------------
2(1) Agreement and Plan of Merger dated as of October 1, 1993 between
Atlantis Ventures, Inc. and Market America, Inc. and Addendum
(to same) dated October 1, 1993 (incorporated by reference to
Exhibits 2.1 and 2.2, respectively, to the Company's Current Report
on Form 8-K filed October 6, 1993, Commission File No. 000-23250)
3(i)(1) Articles of Incorporation of the Company (incorporated by
reference to Exhibit 3.1 to the Company's Current Report on
Form 8-K filed with the Commission on November 3, 1993, Commission
File No. 000-23250)
3(i)(2) Articles of Amendment of the Company (incorporated by reference to
Exhibit 3.3 to the Company's Annual Report on Form 10-K filed with
the Commission on July 30, 1996, Commission File No. 000-23250)
3(ii) By-Laws of the Company (incorporated by reference to Exhibit 3.4 to
the Company's Annual Report on Form 10-K filed with the Commission
on July 30, 1996, Commission File No. 000-23250)
4(1) Article 2 of the Articles of Incorporation of the Company
(incorporated by reference to Exhibit 3(i) to the Company's
Current Report on Form 8-K filed with the Commission on
November 3, 1993, Commission File No. 000-23250)
4(2) Articles of Merger of Atlantis Ventures, Inc. and Market
America, Inc. (incorporated by reference to Exhibit 2.3 to the
Company's Current Report on Form 8-K filed with the Commission
on November 3, 1993, Commission File No. 000-23250)
27 Financial Data Schedule