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 January 31, 1997
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
Number of shares outstanding of each of the issuer's classes of common stock as
of March 12, 1997: 19,950,000
PART I
ITEM 1 Statement of Financial Position as of January 31, 1997 and April 30, 1996
Statement of Operations for the Three and Nine Month Periods
Ended January 31, 1997 and January 31, 1996
Statement of Changes in Stockholders' Equity for the Three
Month Periods Ended January 31, 1997 and January 31, 1996
Statement of Cash Flows for the Three and Nine Month Periods Ended
January 31, 1997 and January 31, 1996
Notes to Financial Statements as of January 31, 1997
MARKET AMERICA, INC. Statement of Financial Position as of
January 31, 1997 and April 30, 1996
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ASSETS
------
(Unaudited)
January 31, April 30,
1997 1996
----------- -----------
CURRENT ASSETS
Cash $13,704,811 $10,455,908
Advances to employees 3,100 8,600
Interest receivable 1,236
Notes receivable, employees 67,349 58,379
Inventories 1,156,511 1,020,117
Prepaid federal income tax 220,858
Prepaid expenses 72,990 17,147
----------- -----------
Total current assets 15,225,619 11,561,387
----------- -----------
PROPERTY AND EQUIPMENT
Furniture and equipment 732,034 588,455
Software 128,840 128,840
Leasehold improvements 2,570 2,570
----------- -----------
Total property and equipment 863,444 719,865
Less accumulated depreciation 260,252 176,966
----------- -----------
Net property and equipment 603,192 542,899
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OTHER ASSETS
Investments 130,000
Deposits 681 681
Notes receivable, employees 3,317
----------- -----------
Total other assets 681 133,998
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TOTAL ASSETS $15,829,492 $12,238,284
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Accounts payable $ 861,600 $ 1,024,429
Sales and payroll taxes payable 148,629 233,515
Commissions payable 1,224,454 1,842,806
Accrued compensation 49,178 376,746
Notes payable, related party 165,700 292,714
Current portion of obligation under
capital lease 3,375 2,921
Current portion of notes payable 251,361 240,970
Income taxes payable 224,004 1,372,978
------------ ------------
Total current liabilities 2,928,301 5,387,079
------------ ------------
LONG-TERM DEBT, Including capital lease
obligation, net of current portion 301,937 324,355
------------ ------------
UNEARNED REVENUE 694,048 357,101
------------ ------------
STOCKHOLDERS' EQUITY
Common stock $.00001 par value;
800,000,000 shares authorized;
19,950,000 shares issued and
outstanding 199 199
Additional paid-in capital 39,801 39,801
Retained earnings 11,865,206 6,129,749
----------- -----------
Total stockholders' equity 11,905,206 6,169,749
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $15,829,492 $12,238,284
=========== ============
The accompanying notes are an integral part of these financial statements.
MARKET AMERICA, INC. Statement of Cash Flows for the Three and Nine Month
Periods Ended January 31, 1997 and January 31, 1996
- --------------------------------------------------------------------------------
Three Months Periods Ended Nine Months Periods Ended
-------------------------- -------------------------
January 31, January 31, January 31, January 31,
1997 1996 1997 1996
----------- ----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,907,124 $ 1,075,914 $ 5,735,457 $ 2,885,903
Add items not requiring the use of cash:
Depreciation and amortization 30,286 18,117 83,286 52,801
Decrease in advances to employees 18,264 10,646 5,500 5,556
(Increase) decrease in notes receivable 1,321 (48,929) (5,656) (48,929)
Decrease in interest receivable 1,236
(Increase) decrease in inventories (42,951) 67,748 (136,394) (307,799)
(Increase) in prepaid expenses (63,823) (26,967) (55,843) (30,753)
(Increase) in prepaid income taxes (220,858) (220,858)
Increase (decrease) in accounts payable (559,904) (186,692) (162,829) 8,100
Increase (decrease) in taxes payable (996,458) (103,763) (1,233,860) 511,666
Increase (decrease) in commissions payable 65,210 (10,600) (618,352) 278,550
Increase (decrease) in accrued compensation (20,875) 3,888 (327,568) (83,606)
Increase (decrease) in unearned revenue 89,385 84,660 336,947 (68,112)
(Decrease) in notes payable, related parties (11,923) (127,014)
(Decrease) in notes payable (16,007) (9,434)
(Decrease) in interest payable (7,109)
----------- ----------- ----------- -----------
NET CASH FLOWS PROVIDED FROM
OPERATING ACTIVITIES 178,791 884,022 3,264,618 3,196,268
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of furniture and equipment (53,958) (16,769) (143,579) (184,516)
Decrease in deposits 5,500
Sale of investments 130,000
----------- ----------- ----------- -----------
NET CASH FLOWS (USED)
FROM INVESTING ACTIVITIES (53,958) (16,769) (13,579) (179,016)
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Reduction in obligations under capital lease (747) (2,136)
Increase (decrease) in notes payable (3,441) 303,625
----------- ----------- ----------- -----------
NET CASH FLOWS PROVIDED (USED)
FROM FINANCING ACTIVITIES (747) (3,441) (2,136) 303,625
----------- ----------- ----------- -----------
TOTAL INCREASE IN CASH 124,086 863,812 3,248,903 3,320,877
CASH AT BEGINNING OF PERIOD 13,580,725 5,287,105 10,455,908 2,830,040
----------- ----------- ----------- -----------
CASH AT END OF PERIOD $13,704,811 $ 6,150,917 $13,704,811 $ 6,150,917
=========== =========== =========== ===========
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 January 31, 1997 and January 31, 1996
- --------------------------------------------------------------------------------
Common Stock Additional
------------------- Paid-in Retained
Shares Amount Capital Earnings Total
---------- ------ ---------- ----------- -----------
Balances at October 31, 1995 19,950,000 $199 $39,801 $ 2,751,403 $ 2,791,403
Net income 1,075,914 1,075,914
---------- ---- ------- ----------- -----------
Balances at January 31, 1996 19,950,000 $199 $39,801 $ 3,827,317 $ 3,867,317
========== ==== ======= =========== ===========
Balances at October 31, 1996 19,950,000 $199 $39,801 $ 9,958,082 $ 9,998,082
Net income 1,907,124 1,907,124
---------- ---- ------- ----------- -----------
Balances at January 31, 1997 19,950,000 $199 $39,801 $11,865,206 $11,905,206
========== ==== ======= =========== ===========
The accompanying notes are an integral part of these financial statements.
MARKET AMERICA, INC. Statement of Operations for the Three and Nine Month
Periods Ended January 31, 1997 and January 31, 1996
- --------------------------------------------------------------------------------
Three Months Periods Ended Nine Months Periods Ended
-------------------------- -------------------------
January 31, January 31, January 31, January 31,
1997 1996 1997 1996
----------- ----------- ----------- -----------
SALES $15,960,661 $10,279,955 $47,144,117 $27,858,008
COST OF SALES 3,345,007 2,248,549 9,069,149 5,977,932
----------- ----------- ----------- -----------
GROSS PROFIT 12,615,654 8,031,406 38,074,968 21,880,076
----------- ----------- ----------- -----------
OPERATING EXPENSES
Commissions 7,820,018 4,647,010 22,095,398 12,650,553
Salaries 869,832 394,650 2,502,414 985,313
Taxes 81,948 114,057 378,989 299,898
Advertising 11,050 5,480 19,470 37,419
Travel/entertainment 43,771 39,602 378,048 148,438
Consulting 102,354 147,096 302,074 726,302
Freight 561,638 452,695 2,077,141 1,124,486
Professional fees 4,363 65,071 318,778 331,948
Office 100,150 63,414 242,346 188,419
Insurance 17,152 31,836 152,333 74,948
Rent 56,907 62,086 226,422 138,189
Telephone/utilities 28,665 50,926 143,477 190,474
Depreciation/amortization 30,286 18,117 82,764 52,801
Interest 1,377 58,671 17,808 113,600
Leases 4,178 4,746 29,102 16,479
Cleaning/maintenance 10,760 12,256 81,168 38,815
Bad debt expense 33,832 109,009
Miscellaneous 2,399 62,547 5,350 156,057
----------- ----------- ----------- -----------
Total operating expenses 9,780,680 6,230,260 29,162,091 17,274,139
----------- ----------- ----------- -----------
INCOME FROM OPERATIONS 2,834,974 1,801,146 8,912,877 4,605,937
----------- ----------- ----------- -----------
OTHER INCOME (LOSS)
Interest 152,945 67,252 396,975 154,154
Miscellaneous 62,369 25,468 133,980 41,400
Loss on sale of assets (4,595)
----------- ----------- ----------- -----------
Total other income 215,314 92,720 526,360 195,554
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 3,050,288 1,893,866 9,439,237 4,801,491
PROVISION FOR FEDERAL/STATE
INCOME TAXES 1,143,164 817,952 3,703,780 1,915,588
----------- ----------- ----------- -----------
NET INCOME $ 1,907,124 $ 1,075,914 $ 5,735,457 $ 2,885,903
=========== =========== =========== ===========
NET INCOME PER SHARE $ .09 $ .05 $ .28 $ .14
=========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANAYLSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
As of May 1, 1996, the Company, coming off of a record year of sales
growth, net income after tax, and earnings per share of $.26, began its
fifth year of operations. The Company's sales have grown from $1,321,874
in fiscal 1993; $9,931,946 in fiscal 1994; and $19,592,056 in fiscal
1995; to $42,479,911 in the fiscal year ended April 30, 1996. The 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%. The sales for the
second quarter ended October 31, 1996, were $15,498,785, an increase over
the second quarter ended October 31, 1995, of 54%. The sales for the
third quarter ended January 31, 1997, were $15,960,661, an increase over
the third quarter ended January 31, 1996, of 55%. Earnings per share were
$.011 for the fiscal year ended April 30, 1994, $.04 for the fiscal year
ended April 30, 1995, and $.26 for the fiscal year ended April 30, 1996.
Earnings per share for the quarter ended January 31, 1997, were $.09,
representing an 80% increase over the $.05 per share reported for the
quarter ended January 31, 1996. Earnings per share for the cumulative
nine month period ended January 31, 1997, were $.28, a 100% increase over
the $.14 earnings per share for the cumulative nine month period ended
January 31, 1996. In regard to liquidity, as of January 31, 1997, current
assets exceeded current liabilities by $12, 297,318 for a current ratio
of 5.2 to 1.
The Company has been successful in the selection of market driven
products for distribution through its ever-growing network of
"Unfranchise[TM]" independent contractors known as Market America
Business Development Centers. Products currently leading in consumer
popularity are in the growing market of preventative health/homeopathic
nutritional food supplements that focus on antioxidants. In addition,
unique residential maintenance 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. The Company has recently announced the
resumption of unlimited purchases of its most popular product,
Thermochrome Select, which had been limited. 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 the Company, supplier,
manufacturer, customer manager, and customer, customer share (the amount
of dollars expected to be spent each month by a customer through the
"Unfranchise"[TM]) is expected to 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.
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.Market.AmericaUSA.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 10 minutes of every day.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANAYLSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS -- continued
To date, the geographic areas that generally have experienced 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 throughout North
America in 1997. 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
NONE
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
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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)
Date /s/
---------------------- ------------------------------------
James H. Ridinger, President and CEO
(Principal Executive Officer
and Principal Financial Officer)
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*
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* Filed herewith