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, 2001
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)
1302 Pleasant Ridge Road
Greensboro, North Carolina
(Address of principal executive offices)
27409
(Zip Code)
(336) 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 / /
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of March 16, 2001.
19,420,000
================================================================================
1
PART I
ITEM 1 Statement of Financial Position as of January 31, 2001 (Unaudited)
and April 30, 2000
Statement of Operations for the Three and Nine-Month Periods Ended
January 31, 2001 and 2000 (Unaudited)
Statement of Changes in Stockholders' Equity for the Nine- Month
Periods Ended January 31, 2001 and 2000 (Unaudited)
Statement of Cash Flows for the Nine-Month Periods Ended January 31,
2001 and 2000 (Unaudited)
Notes to Financial Statements as of January 31, 2001 (Unaudited)
2
Statement of Financial Position as of
MARKET AMERICA, INC. January 31, 2001 and April 30, 2000
- --------------------------------------------------------------------------------------------------
(Unaudited)
January 31, 2001 April 30, 2000
-------------------- -------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 47,947,586 $ 43,870,755
Securities available-for-sale 9,750,934 9,299,820
Income tax receivable 1,120,161 -
Advances to related parties 5,160 6,978
Notes receivable, officers, directors
and employees 423,175 425,958
Inventories 3,478,421 2,430,734
Deferred tax assets 575,000 404,000
Other current assets 526,690 151,281
------------ ------------
Total current assets 63,827,127 56,589,526
------------ ------------
PROPERTY AND EQUIPMENT
Yacht 3,610,000 3,610,000
Building 4,616,905 -
Furniture and equipment 5,201,746 3,007,076
Building construction in progress - 3,076,870
Software 397,000 306,975
Leasehold improvements 1,247,367 348,410
------------ ------------
15,073,018 10,349,331
Less accumulated depreciation and
amortization 1,664,818 1,093,028
------------ ------------
Total property and equipment 13,408,200 9,256,303
------------ ------------
OTHER ASSETS
Restricted cash 2,902,228 2,637,635
Other 1,232,821 1,282,000
------------ ------------
Total other assets 4,135,049 3,919,635
------------ ------------
TOTAL ASSETS $ 81,370,376 $ 69,765,464
============ ============
The accompanying notes are an integral part of these financial statements.
3
Statement of Financial Position as of
MARKET AMERICA, INC. January 31, 2001 and April 30, 2000
- --------------------------------------------------------------------------------------------------
(Unaudited)
January 31, 2001 April 30, 2000
-------------------- -------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 80,926 $ 73,949
Accounts payable - trade 1,661,831 2,095,449
Commissions payable 2,667,250 2,542,125
Sales tax payable 856,066 845,454
Income taxes payable 212,796 3,642,394
Other accrued liabilities 1,119,735 837,481
Unearned revenue 3,248,547 2,694,246
------------ ------------
Total current liabilities 9,847,151 12,731,098
------------ ------------
LONG-TERM DEBT 1,975,096 755,214
------------ ------------
STOCKHOLDERS' EQUITY
Common stock, $.00001 par value;
800,000,000 shares authorized;
19,420,000 and 19,550,000 shares issued
and outstanding at January 31, 2001 and
April 30, 2000, respectively 194 195
Additional paid-in-capital 39,801 39,801
Retained earnings 69,426,067 56,187,461
Accumulated other comprehensive income:
Unrealized gains on available-for-sale
securities, net of deferred taxes 82,067 51,695
------------ ------------
Total stockholders' equity 69,548,129 56,279,152
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 81,370,376 $ 69,765,464
============ ============
The accompanying notes are an integral part of these financial statements.
4
Statement of Operations for the Three and
MARKET AMERICA, INC. Nine-Month Periods Ended January 31, 2001 and 2000 (Unaudited)
- ----------------------------------------------------------------------------------------------------------------------------------
Three-Month Periods Ended Nine-Month Periods Ended
------------------------- ------------------------
January 31, 2001 January 31, 2000 January 31, 2001 January 31, 2000
---------------- ---------------- ---------------- ----------------
SALES $ 32,564,585 $ 32,392,382 $ 101,416,349 $ 98,015,294
COST OF SALES 8,450,477 7,984,405 26,570,136 24,617,996
------------ ------------ ------------- ------------
GROSS PROFIT 24,114,108 24,407,977 74,846,213 73,397,298
------------ ------------ ------------- ------------
SELLING EXPENSES
Commissions 14,107,445 15,243,384 44,533,385 45,003,295
------------ ------------ ------------- ------------
14,107,445 15,243,384 44,533,385 45,003,295
------------ ------------ ------------- ------------
GENERAL and ADMINISTRATIVE
EXPENSES
Salaries 1,804,410 1,778,152 5,171,301 4,382,111
Lease expense 279,427 446,779 914,437 948,827
Depreciation & amortization 358,619 89,811 684,371 254,850
Consulting 53,161 106,749 566,868 323,279
Other operating expense 1,821,033 1,454,145 4,848,344 4,049,236
------------ ------------ ------------- ------------
4,316,650 3,875,636 12,185,321 9,958,303
------------ ------------ ------------- ------------
INCOME FROM OPERATIONS 5,690,013 5,288,957 18,127,507 18,435,700
------------ ------------ ------------- ------------
OTHER INCOME (EXPENSE)
Interest income 787,974 703,413 2,121,720 1,619,336
Interest expense (64,569) (136,298) (116,838) (142,522)
Dividend income 26 - 1,443 71,449
Realized gain (loss) on
available-for-sale securities 235,207 (4,844) 606,607 143,728
Loss on disposal of assets 19,765 - (92,398) -
Miscellaneous 136,660 213,621 461,623 556,622
------------ ------------ ------------- ------------
Total other income (expense) 1,115,063 775,892 2,982,157 2,248,613
------------ ------------ ------------- ------------
INCOME BEFORE TAXES 6,805,076 6,064,849 21,109,664 20,684,313
PROVISION FOR
INCOME TAXES 2,179,742 2,465,861 7,502,059 7,990,601
------------ ------------ ------------- ------------
NET INCOME $ 4,625,334 $ 3,598,988 $ 13,607,605 $ 12,693,712
============ ============ ============= ============
BASIC EARNINGS PER COMMON
SHARE $ 0.24 $ 0.18 $ 0.70 $ 0.64
============ ============ ============= ============
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES OUTSTANDING 19,420,000 19,950,000 19,431,051 19,950,000
============ ============ ============= ============
The accompanying notes are an integral part of these financial statements.
5
Statement of Changes in Stockholders' Equity for the
Nine-Month Periods Ended January 31, 2001 and 2000
MARKET AMERICA, INC. (Unaudited)
- ----------------------------------------------------------------------------------------------------------------------
Additional Other
Common Stock Paid-in Retained Comprehensive
Shares Amount Capital Earnings Income Total
------------------------------------------------------------------------------------------
Balance at April 30, 1999 19,950,000 $ 199 $ 39,801 $39,632,535 $ - $39,672,535
Comprehensive Income:
Reclassification
adjustment for gains
realized in net
income, net
of deferred taxes
of $57,491 (86,237) (86,237)
Unrealized holding
gains on available-
for-sale securities,
net of deferred taxes
of $8,973 13,462 13,462
Net Income 12,693,712 12,693,712
------------------------------------------------------------------------------------------
Total Comprehensive
Income 12,620,937
-----------
Balance at January 31, 2000 19,950,000 $ 199 $ 39,801 $52,326,247 $ (72,775) $52,293,472
==========================================================================================
Balance at April 30, 2000 19,550,000 $ 195 $ 39,801 $56,187,461 $ 51,695 $56,279,152
Comprehensive Income:
Reclassification
adjustment for gains
realized in net
income, net
of deferred taxes
of $226,738 (379,869) (379,869)
Unrealized holding
gains on available-
for-sale securities,
net of deferred taxes
of $240,862 410,241 410,241
Net Income 13,607,605 13,607,605
-----------
Total Comprehensive
Income 13,637,977
Purchase and retirement of
common stock (130,000) (1) - (368,999) - (369,000)
------------------------------------------------------------------------------------------
Balance at January 31, 2001 19,420,000 $ 194 $ 39,801 $69,426,067 $ 82,067 $69,548,129
==========================================================================================
The accompanying notes are an integral part of these financial statements
6
Statement of Cash Flows for the Nine-
Month Periods Ended January 31, 2001 and 2000
MARKET AMERICA, INC. (Unaudited)
- -----------------------------------------------------------------------------------------------------------------------
January 31, 2001 January 31, 2000
------------------- ------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 13,607,605 $ 12,693,712
Adjustments to reconcile net income to net cash
provided from operating activities:
Loss on disposal of fixed assets 92,398 -
Depreciation and amortization 684,371 254,850
Deferred income taxes (185,000) -
(Gain) loss on sales of available-for-sale securities (606,607) (143,728)
(Increase) decrease in income tax receivable (1,120,161) -
(Increase) decrease in inventories (1,047,687) (548,766)
(Increase) decrease in other current assets (375,409) (55,233)
(Increase) decrease in other assets 37,275 -
Increase (decrease) in accounts payable (433,618) 339,037
Increase (decrease) in commissions payable 125,125 237,983
Increase (decrease) in sales tax payable 10,612 5,849
Increase (decrease) in income taxes payable (3,429,598) (1,796,817)
Increase (decrease) in other accrued liabilities 282,253 (14,966)
Increase (decrease) in unearned revenue 554,301 652,364
------------ ------------
NET CASH PROVIDED FROM OPERATING ACTIVITIES 8,195,860 11,624,285
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of available-for-sale securities (24,544,425) (39,848,579)
Proceeds from sale of available-for-sale securities 24,744,291 35,121,196
(Increase) decrease in notes receivable, officers,
directors and employees 2,783 (248,838)
(Advances to) repayments from related parties 1,818 (236,970)
(Increase) decrease in other assets - (988,925)
Increase in restricted cash (264,593) (3,638,680)
Proceeds from sale of equipment 68,000 -
Capital expenditures (4,984,762) (5,854,798)
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (4,976,888) (15,695,594)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Purchase and retirement of common stock (369,000) -
Proceeds from long-term debt 1,280,837 -
Principal payments on long-term debt (53,978) (90,000)
------------ ------------
NET CASH PROVIDED FROM (USED IN)
FINANCING ACTIVITES 857,859 (90,000)
------------ ------------
NET INCREASE (DECREASE) IN CASH &
CASH EQUIVALENTS 4,076,831 (4,161,309)
CASH & CASH EQUIVALENTS AT
BEGINNING OF PERIOD 43,870,755 45,426,920
------------ ------------
CASH & CASH EQUIVALENTS AT END OF PERIOD $ 47,947,586 $ 41,265,611
============ ============
The accompanying notes are an integral part of these financial statements.
7
Statement of Cash Flows for the Nine-
Month Periods Ended January 31, 2001 and 2000
MARKET AMERICA, INC. (Unaudited)
- -------------------------------------------------------------------------------------------------------------------
January 31, 2001 January 31, 2000
-------------------- --------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid during the year for:
Interest $ 116,838 $ 142,522
Income taxes $ 12,236,340 $ 10,054,702
SUPPLEMENTAL DISCLOSURES OF NONCASH
INVESTING AND FINANCING ACTIVITIES
Net change in unrealized holding gains or losses on
available -for-sale securities, net of deferred
income tax (benefit) of $19,000 and ($48,525) $ 30,372 ($ 72,775)
The accompanying notes are an integral part of these financial statements.
8
Notes to Financial Statements
MARKET AMERICA, INC. January 31, 2001 (Unaudited)
- --------------------------------------------------------------------------------
Interim Financial Information
The unaudited interim financial statements of Market America, Inc. (the
"Company") as of January 31, 2001 and 2000 have been prepared in accordance with
the rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. In the opinion of
management, the accompanying interim financial statements contain all
adjustments, consisting of normal recurring adjustments, necessary to present
fairly the Company's financial statements as of January 31, 2001 and 2000 and
for the three and nine-month periods ended January 31, 2001 and 2000. Management
suggests that these financial statements should be read in conjunction with the
audited financial statements and notes thereto included in the Company's latest
Annual Report on Form 10-K. The results of operations for the three and
nine-month periods ended January 31, 2001 may not be indicative of the results
that may be expected for the fiscal year ending April 30, 2001.
Earnings Per Share
The Company computes earnings per share ("EPS") based upon the requirements of
Statement of Financial Accounting Standards No. 128. This statement specifies
the calculation, presentation and disclosure requirements for both basic and
diluted EPS. The Company does not have any securities or contracts outstanding
with dilutive potential for its common shares.
Reclassifications
Certain reclassifications have been made to prior period amounts to conform with
the current period financial statements presentation. Reclassifications made had
no effect on previously reported net income.
Related Party Transactions
In December 1999, the Company entered into an agreement with a company owned by
Mr. and Mrs. James H. Ridinger, officers and directors of the Company, to lease
real estate in Miami, Florida for direct sales training and education, as well
as other corporate functions. The twenty-year lease requires a monthly rental
payment of $60,000. The Company is committed to expand the training and meeting
facility space in Miami, Florida in the near future. Management is currently
reviewing various alternatives for expansion. The Company may construct an
additional $1.85 million training and meeting facility on this leased property
or lease a facility on a separate piece of property owned by the same related
company. The amount of rent expense under this agreement aggregated to $180,000
and $540,000 for the three and nine-month periods ended January 31, 2001,
respectively. The related company owed the Company $5,160 at January 31, 2001.
The Company also has a 33-year net ground lease with a related company, owned by
Mr. and Mrs. Ridinger, for land in Greensboro, North Carolina on which the
Company's new office and distribution center was constructed. Required rental
payments under the original lease were $10,666 per month. In October 2000, the
agreement was amended to require monthly rental payments of $17,000. The amount
of rent expense under this agreement aggregated to $51,000 and $121,330 for the
three and nine-month periods ended January 31, 2001, respectively.
Notes receivable, officers, directors and employees included amounts due from
officers and directors of $ 416,712 at January 31, 2001.
All of the Company's leasehold improvements are to properties leased from
related companies owned by Mr. and Mrs. Ridinger.
Related party transactions in past periods are more fully described in the
Company's most recent annual report on Form 10-K.
9
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Liquidity and Capital Resources
The Company had unrestricted and restricted cash on deposit with various
financial institutions and available-for-sale debt securities totaling $60.6
million as of January 31, 2001 compared to $55.8 million as of April 30, 2000.
The $60.6 million as of January 31, 2001 was comprised of $47.9 million of
unrestricted cash, $2.9 million of restricted cash and $9.8 million of
available-for-sale securities.
The restricted cash consisted primarily of certificates of deposit, which were
restricted for use as collateral under a guarantee of a $5.3 million loan
extended by a financial institution to a related company controlled by Mr. and
Mrs. James H. Ridinger, officers and directors of the Company, during fiscal
2000. The related company used the proceeds from the loan to purchase real
estate in Miami, Florida. The Company is leasing this real estate under a
twenty-year agreement. The real estate is to be used for direct sales training
and education as well as other corporate functions (see Related Party
Transactions in the Notes to Financial Statements above). The Company is
committed to expand the training and meeting facility space in Miami, Florida in
the near future. Management is currently reviewing various alternatives for
expansion. The Company may construct an additional $1.85 million training and
meeting facility on this leased property or lease a facility on a separate piece
of property owned by the same related company.
The available-for-sale debt securities consist of obligations of governmental
agencies and commercial paper. These securities were purchased in order to
increase the Company's yield on assets pending use in the Company's business and
can be converted into cash if the need arise.
In July 2000, the Company completed its new 102,000 square foot office and
distribution facility in Greensboro, North Carolina. The Company financed the
building with approximately $2.5 million of cash from operations and a five-year
$2.1 million loan bearing interest at 7.625% annually. The loan requires 59
monthly payments of $19,750, including interest, with a balloon payment of all
outstanding principal and interest due as the 60th payment. The building was
constructed on land leased from a related company (see "Related Party
Transactions" in the Notes to Financial Statements above).
The Company is also a guarantor of a $1.6 million loan by a financial
institution to a related company controlled by Mr. and Mrs. Ridinger. The
related company used the loan proceeds to purchase the land on which the Company
constructed its new office and distribution facility in Greensboro, North
Carolina. This loan and the Company's building loan are cross-collateralized by
the land being leased from the related company and by the building constructed
thereon by the Company. The guaranteed loan is repayable over a five-year
period.
Management believes that its current level of cash and cash equivalents and its
cash provided by operations will provide sufficient resources for operations in
the foreseeable future. In the event that the Company's operating environment
becomes adverse, there can be no assurance that additional financing would not
be required.
The $3.4 million decrease in cash provided from operating activities is
primarily due to larger estimated federal income tax payments and a change in
the Company's multi-state allocation methodology which resulted in a $1.1
million receivable.
The significant change in cash used in investing activities between the
nine-month periods ending January 31, 2001 and 2000 is attributed to a decision
by management during fiscal 2000 to restrict $3.64 million for the purposes of
expanding corporate facilities in both North Carolina and Florida. During the
nine-month period ended January 31, 2000, the Company converted approximately
$4.93 million more of cash into available-for-sale securities than during the
comparable fiscal 2001 period.
The increase in cash provided by financing activities is due to loan proceeds
obtained to finance the new headquarters and distribution facility in
Greensboro, North Carolina.
10
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - CONTINUED
Results of Operations
The Company's sales continued to grow during the three and nine-month periods
ended January 31, 2001. Net sales increased 0.5% to $32.6 million from $32.4
million for the quarter ended January 31, 2001 compared to the same period in
2000. Net sales also increased by 3.5% to $101.4 million from $98.0 million for
the nine-month period ended January 31, 2001 compared to the same period in
2000. In management's judgment, fiscal 2001 sales through January 31, 2001 have
not maintained historical growth rates due primarily to the following:
o Corporate sales and marketing personnel and field sales and distribution
managers focused their efforts on the development, retooling,
implementation and training on our new Internet programs/products and the
revised Preferred Customer Program.
o Operations challenges associated with the move into the new facility in
Greensboro, North Carolina.
o Communication, training and implementation of procedural revisions to the
placement/submittal of distributor orders for commissionable products.
Management believes that the above factors contributed to a 14.5% decline in the
Company's distributor base during the nine-month period ended January 31, 2001.
However, with the above factors behind the Company and the reduction of the
distributor base, management was satisfied with the 3.5% sales increase.
Management does not believe that the decline in the distributor base is a
continuing trend. Management believes that the decline will be reversed now that
the above factors are behind the Company.
Commission expense was $14.1 million and $15.2 million for the three-month
periods ended January 31, 2001 and 2000, respectively. Commission expense was
$44.5 million and $45.0 million for the nine-month periods ended January 31,
2001 and 2000, respectively. Commissions, as a percentage of sales, were 43.3%
and 47.1% for the three-month periods ended January 31, 2001 and 2000,
respectively, and 43.9% and 45.9% for the nine-month periods ended January 31,
2001 and 2000, respectively. Management anticipates that commission expense will
range from 43% to 47% of sales on an annual basis.
General and administrative expenses were $4.3 million and $3.9 million for the
three-month periods ended January 31, 2001 and 2000, respectively, and $12.2
million and $10.0 million for the nine-month periods ended January 31, 2001 and
2000, respectively. As a percentage of sales, general and administrative
expenses were 13.3% and 12.0% for the three-month periods ended January 31, 2001
and 2000, respectively, and 12.0% and 10.2% for the nine-month periods ended
January 31, 2001 and 2000, respectively. For the three and nine-month periods
ended January 31, 2001 and 2000, other general and administrative expenses
included the following items:
Three-Months Nine-Months
Ended January 31, Ended January 31,
2001 2000 2001 2000
----------- ----------- ----------- -----------
Repairs and maintenance $ 110,345 $ 140,898 $ 706,856 $ 235,690
Legal and professional fees 233,346 265,273 557,436 1,036,365
Insurance 278,464 60,895 520,317 525,721
Other taxes and licenses 137,406 192,172 472,525 441,700
Utilities 72,883 56,416 251,548 236,568
Other 988,589 738,491 2,339,662 1,573,192
----------- ----------- ----------- -----------
$ 1,821,033 $ 1,454,145 $ 4,848,344 $ 4,049,236
=========== =========== =========== ===========
11
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - CONTINUED
The increase in salary expense for the fiscal 2001 periods is primarily due to
additional human resources added in the computer and internet departments in
order to expand internet related products available to the Company's
distributors. The Company has also increased human resources in its field
development department in order to increase recruiting.
Management decisions during fiscal 2000 to upgrade facilities in both
Greensboro, North Carolina and Miami, Florida in order to better serve the needs
of the Company's distributors has led to increased general and administrative
expenses in several areas. The rise in consulting costs for the nine-month
period ended January 31, 2001 can be attributed to renovations of the Miami
training and office facility. The capitalized costs of these facilities and the
equipment and furnishings for both resulted in increased depreciation expense
for the fiscal 2001 periods.
Repairs and maintenance costs were higher during the nine-month fiscal 2001
period due to larger expenditures associated with the Company's yacht and Miami
training and office facility than were incurred during the comparable fiscal
2000 period.
Legal and professional fees were down in the fiscal 2001 periods, compared to
the comparable prior year period, due to costs during fiscal 2000 associated
with the settlement of the Securities and Exchange Commission administrative
proceeding and costs incurred defending the Company in a lawsuit brought by
various former distributors. These events are more fully described in the
Company's latest annual report on Form 10-K for the fiscal year ended April 30,
2000.
Insurance expense was higher during the three-month period ended January 31,
2001 compared to the same fiscal 2000 period as a result of a large stop-loss
refund received under the Company's self-insured program for health insurance
during the fiscal 2000 period. Management expects insurance expense to be
slightly higher for the year ended April 30, 2001 compared to fiscal 2000 due to
additional costs associated with the new headquarters and distribution facility
and related equipment in Greensboro, North Carolina.
The increase in other operating expenses during the three-month fiscal 2001
period is due to an accrual of an additional $387,487 for the settlement of a
previously reported lawsuit brought against the Company by various former
distributors. As previously reported in the Company's Annual Report on Form 10-K
for the year ended April 30, 1999, the United States District Court for the
Middle District of North Carolina entered a judgment against the Company in the
amount of $959,106 with respect to a number of claims made against the Company
by various former distributors. In connection with that judgement, the Company
filed a Motion for Judgement as a Matter of Law seeking to eliminate or reduce
the amount of the judgment on various grounds. This matter was concluded during
the three-month period that ended January 31, 2001 resulting in a final
judgement against the Company in the amount of $787,487. The Company had
previously accrued $400,000 towards the settlement of this matter. Without this
settlement costs, other operating expenses would have been approximately
$21,000 less during the three-month fiscal 2001 period than the three-month
fiscal 2000 period. Excluding this one time settlement charge, other general and
administrative costs for the nine-month fiscal 2001 period were $412,000 higher
than the comparable 2000 period. The increase is a result of higher travel costs
due to the Company's emphasis on distributor recruiting which has led to an
increased corporate presence at recruiting meetings and events. The Company has
also increased its charitable contributions by 75% over the amount donated in
fiscal 2000.
The effective income tax rate for the nine months ended January 31, 2001 was
35.5%, compared to 38.6% for the nine months ended January 31, 2000. During the
current year the effective rate of the company's state income tax accruals is
lower than prior years due to the company's muti-state allocation methodology.
The total effective tax rate is approximately 4.8% lower for the nine-month
period ended January 31, 2001 than it otherwise would have been.
The Company has amended several prior year state income tax returns due to a
change in its multi-state allocation methodology claiming refunds of
approximately $2.5 million. As of January 31, 2001 the refunds have not been
recorded pending approval by state taxing authorities.
12
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - CONCLUDED
Forward-Looking Information
Statements in this report concerning the Company's business outlook for future
economic performance, anticipated profitability, revenues, expenses or other
financial items, together with other statements that are not historical facts,
are "forward-looking statements" as that term is defined under federal
securities laws. "Forward-looking statements" are subject to risks,
uncertainties and other factors, which could cause actual results to differ
materially from those stated in such statements. Such risks, uncertainties and
factors include, but are not limited to, decreases in sales volume or number of
distributors, unfavorable regulatory action, loss of key personnel, loss of key
suppliers and general economic conditions.
ITEM 3 QUANTITATIVE AND QUALITIVE DISCLOSURES ABOUT MARKET RISKS
The Company has evaluated the disclosure requirements of Item 305 of S-K
"Quantitative and Qualitative Disclosure about Market Risks," and has concluded
that the Company has no market risk sensitive instruments for which these
additional disclosures are required.
13
PART II
ITEM 1 LEGAL PROCEEDINGS
As previously reported in the Company's Annual Report on Form 10-K for
the year ended April 30, 1999, the United States District Court for the
Middle District of North Carolina entered a judgment against the Company
in the amount of $959,106 with respect to a number of claims made
against the Company by various former distributors. In connection with
that judgment, the Company filed a Motion for Judgment as a Matter of
Law seeking to eliminate or reduce the amount of the judgment on various
grounds. This matter was settled during the three-month period that
ended January 31, 2001 resulting in a final judgement against the
Company in the amount of $787,487.
The Company is periodically involved in routine litigation incidental to
its business, including litigation involving distributor terminations.
Management believes that any such pending litigation will not have a
material effect on the Company's financial position or results of
operations.
ITEM 2 CHANGES IN SECURITIES AND USE OF PROCEEDS
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
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SIGNATURE
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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: March 16, 2001 /s/ James H. Ridinger
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James H. Ridinger, President and CEO
(Principal Executive Officer and
Principal Financial Officer)
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EXHIBITS TO FORM 10-Q
EXHIBIT INDEX
Exhibit
Number Identification
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2.1 Agreement and Plan of Merger dated as of October 31, 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)
3.1 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)
3.2 Articles of Amendment of the Company (incorporated by reference to
Exhibit 3.1 to the Company's Annual Report on Form 10-K for the
fiscal year ended April 30, 1996 filed with the Commission on July
30, 1996, Commission File No. 000-23250)
3.3 By-laws of the Company (incorporated by reference to Exhibit 3.4
to the Company's Annual Report on Form 10-K for the fiscal year
ended April 30, 1996 filed with the Commission on July 30, 1996,
Commission File No. 000-23250)
10.2 Vendor agreement between Market America, Inc. and Isontonix (x)
Corporation dated October 25, 1993 (incorporated by reference to
Exhibit 10.2 to the Company's Annual Report on Form 10-K for the
fiscal year ended April 13, 1998 filed with the Commission on
August 13, 1998, Commission File No. 000-23250)
10.4 Lease between Miracle Holdings LLC and Market America, Inc. dated
November 1, 1998 (incorporated by reference to Exhibit 10.4 to the
Company's Annual Report on Form 10-K for the fiscal year ended
April 30, 1999 filed with the Commission on July 29, 1999,
Commission File No. 000-23250)
10.5 Right of First Refusal agreement between Market America, Inc. and
Miracle Holdings LLC dated May 20, 1999 (incorporated by reference
to Exhibit 10.5 to the Company's Annual Report on Form 10-K for
the fiscal year ended April 30, 1999 filed with the Commission on
July 29, 1999, Commission File No. 000-23250)
10.6 Lease between Miracle Properties LLC and Market America, Inc.
dated February 1, 2000 (incorporated by reference to Exhibit 10.6
to the Company's Annual Report on Form 10K for the fiscal year
ended April 30, 2000 filed with the Commission on July 28, 2000,
Commission File No. 000-23250)
27* Financial Data Schedule
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* Filed herewith.
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