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 October 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 December 14, 2001.
19,420,000
================================================================================
PART I
ITEM 1 Statement of Financial Position as of October 31, 2001 (Unaudited)
and April 30, 2001
Statement of Operations for the Three and Six-Month Periods Ended
October 31, 2001 and 2000 (Unaudited)
Statement of Changes in Stockholders' Equity for the Six- Month Periods
Ended October 31, 2001 and 2000 (Unaudited)
Statement of Cash Flows for the Six-Month Periods Ended October 31,
2001 and 2000 (Unaudited)
Notes to Financial Statements as of October 31, 2001 (Unaudited)
2
Statement of Financial Position as of
MARKET AMERICA, INC. October 31, 2001 and April 30, 2001
- --------------------------------------------------------------------------------
(Unaudited)
October 31, 2001 April 30, 2001
---------------- ---------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 60,135,599 $ 60,511,367
Investment in available-for-sale securities 12,202,969 6,301,797
Income tax refunds receivable -- 2,366,440
Interest receivable 89,234 550,827
Advances to related parties -- 16,222
Advances to officers, directors and
employees 413,936 236,467
Inventories 3,291,137 3,296,701
Deferred tax assets 343,000 372,500
Prepaid income taxes 854,136 --
Other current assets 296,177 134,190
--------------- ---------------
Total current assets 77,626,188 73,786,511
--------------- ---------------
PROPERTY AND EQUIPMENT
Furniture and equipment 5,916,314 5,346,209
Buildings 8,153,533 4,593,133
Yacht 3,610,000 3,610,000
Software 435,802 397,000
Building construction in progress 66,785 --
Leasehold improvements 1,280,306 1,253,536
--------------- ---------------
19,462,740 15,199,878
Less accumulated depreciation and
amortization 2,581,814 1,913,505
--------------- ---------------
Total property and equipment 16,880,926 13,286,373
--------------- ---------------
OTHER ASSETS
Restricted cash 2,785,000 2,933,477
Deposit on building -- 1,100,000
Other 1,431,550 1,326,729
--------------- ---------------
Total other assets 4,216,550 5,360,206
--------------- ---------------
TOTAL ASSETS $ 98,723,664 $ 92,433,090
=============== ===============
The accompanying notes are an integral part of these financial statements.
3
Statement of Financial Position as of
MARKET AMERICA, INC. October 31, 2001 and April 30, 2001
- --------------------------------------------------------------------------------
(Unaudited)
October 31, 2001 April 30, 2001
---------------- ---------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 85,726 $ 80,478
Accounts payable - trade 1,627,697 1,861,504
Commissions payable 3,081,225 2,676,825
Sales tax payable 952,040 1,039,156
Income taxes payable -- 3,811,363
Other accrued liabilities 608,702 526,462
Due to related parties 32,078 --
Unearned revenue 3,840,892 4,289,569
--------------- ---------------
Total current liabilities 10,228,360 14,285,357
--------------- ---------------
LONG-TERM DEBT 1,909,854 1,955,346
--------------- ---------------
DEFERRED TAX LIABILITIES 125,000 92,300
--------------- ---------------
STOCKHOLDERS' EQUITY
Common stock, $.00001 par value;
800,000,000 shares authorized;
19,420,000 shares issued and
outstanding at October 31, 2001 and 194 194
April 30, 2001
Additional paid-in-capital 39,801 39,801
Retained earnings 86,388,546 76,030,856
Accumulated other comprehensive income:
Unrealized gains on available-for-sale
securities, net of deferred taxes 31,909 29,236
--------------- ---------------
Total stockholders' equity 86,460,450 76,100,087
--------------- ---------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 98,723,664 $ 92,433,090
=============== ===============
The accompanying notes are an integral part of these financial statements.
4
Statement of Operations for the Three and Six-Month
MARKET AMERICA, INC. Periods Ended October 31, 2001 and 2000 (Unaudited)
- --------------------------------------------------------------------------------
Three Month Periods Ended Six Month Periods Ended
------------------------------------ ------------------------------------
October 31, 2001 October 31, 2000 October 31, 2001 October 31, 2000
---------------- ---------------- ---------------- ----------------
SALES $ 37,141,864 $ 35,314,883 $ 77,191,194 $ 68,851,764
COST OF SALES 9,574,784 9,133,861 20,156,491 18,119,659
--------------- --------------- --------------- ---------------
GROSS PROFIT 27,567,080 26,181,022 57,034,703 50,732,105
--------------- --------------- --------------- ---------------
SELLING EXPENSES
Commissions 16,313,775 14,827,880 32,628,780 30,425,940
--------------- --------------- --------------- ---------------
GENERAL and ADMINISTRATIVE
EXPENSES
Salaries 2,124,207 1,886,703 4,081,838 3,366,891
Depreciation & amortization 367,441 138,162 676,246 325,752
Rents 308,754 270,165 603,849 635,010
Consulting 61,963 141,752 115,030 513,707
Other operating expenses 1,839,292 1,602,873 3,560,845 3,027,311
--------------- --------------- --------------- ---------------
4,701,657 4,039,655 9,037,808 7,868,671
--------------- --------------- --------------- ---------------
INCOME FROM OPERATIONS 6,551,648 7,313,487 15,368,115 12,437,494
--------------- --------------- --------------- ---------------
OTHER INCOME (EXPENSE)
Interest income 576,494 649,311 1,211,193 1,333,746
Interest expense (99,079) (40,529) (146,556) (52,269)
Dividend income 11,034 106 24,629 1,417
Realized gain (loss) on
available-for-sale
securities (3,029) 207,461 71,317 371,400
Loss on disposal of assets -- (1,899) -- (112,163)
Miscellaneous 137,498 161,538 234,403 324,963
--------------- --------------- --------------- ---------------
Total other income (expense) 622,918 975,988 1,394,986 1,867,094
--------------- --------------- --------------- ---------------
INCOME BEFORE TAXES 7,174,566 8,289,475 16,763,101 14,304,588
PROVISION FOR
INCOME TAXES 2,842,860 2,864,393 6,405,411 5,322,317
--------------- --------------- --------------- ---------------
NET INCOME $ 4,331,706 $ 5,425,082 $ 10,357,690 $ 8,982,271
=============== =============== =============== ===============
BASIC EARNINGS PER COMMON
SHARE $ 0.22 $ 0.28 $ 0.53 $ 0.46
=============== =============== =============== ===============
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES OUTSTANDING 19,420,000 19,420,978 19,420,000 19,436,576
=============== =============== =============== ===============
The accompanying notes are an integral part of these financial statements.
5
Statement of Changes in Stockholders' Equity for the Six-
MARKET AMERICA, INC. Month Periods Ended October 31, 2001 and 2000 (Unaudited)
- --------------------------------------------------------------------------------
Additional Accumulated Other
Common Stock Paid-in Retained Comprehensive
Shares Amount Capital Earnings Income Total
------------ ------------ ------------ ------------ ------------ ------------
Balance at April 30, 2000 19,550,000 $ 195 $ 39,801 $ 56,187,461 $ 51,695 $ 56,279,152
Purchase and retirement of
common stock (130,000) (1) -- (368,999) -- (369,000)
Comprehensive Income:
Net Income -- -- -- 8,982,271 -- 8,982,271
Other Comprehensive
Income:
Unrealized holdings
gains on available-
for-sale securities,
net of deferred
taxes of $148,282 -- -- -- -- 272,476 272,476
Reclassification
adjustment for gains
realized in net
income, net of
deferred taxes of
$148,282 -- -- -- -- (223,118) (223,118)
------------ ------------ ------------ ------------ ------------ ------------
Total Comprehensive
Income 9,031,629
------------
------------ ------------ ------------ ------------ ------------ ------------
Balance at October 31, 2000 19,420,000 $ 194 $ 39,801 $ 64,800,733 $ 101,053 $ 64,941,781
============ ============ ============ ============ ============ ============
Balance at April 30, 2001 19,420,000 $ 194 $ 39,801 $ 76,030,856 $ 29,236 $ 76,100,087
Comprehensive Income:
Net Income -- -- -- 10,357,690 -- 10,357,690
Other Comprehensive
Income:
Unrealized holding
gains on available-
for-sale securities
net of deferred taxes
of $27,327 -- -- -- -- 47,603 47,603
Reclassification
adjustment for net
gains realized in net
income, net of
deferred taxes of
$26,387 -- -- -- -- (44,930) (44,930)
------------ ------------ ------------ ------------ ------------ ------------
Total Comprehensive
Income 10,360,363
------------
Balance at October 31, 2001 19,420,000 $ 194 $ 39,801 $ 86,388,546 $ 31,909 $ 86,460,450
============ ============ ============ ============ ============ ============
The accompanying notes are an integral part of these financial statements
6
Statement of Cash Flows for the Six-
Month Periods Ended October 31, 2001 and 2000
MARKET AMERICA, INC. (Unaudited)
- --------------------------------------------------------------------------------
October 31, 2001 April 30, 2001
---------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 10,357,690 $ 8,982,271
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 676,246 325,752
Deferred income taxes 61,260 (64,400)
Loss on disposal of fixed assets -- 112,163
Gains on sales of available-for-sale securities (71,317) (374,225)
(Increase) decrease in income tax refunds receivable 2,366,440 --
(Increase) decrease in interest receivable 461,593 (27,321)
(Increase) decrease in inventories 5,564 (359,590)
(Increase) decrease in prepaid income taxes (854,136) --
(Increase) decrease in other current assets (161,987) (171,992)
(Increase) decrease in other assets (37,960) (12,725)
Increase (decrease) in accounts payable - trade (233,807) (675,530)
Increase (decrease) in commissions payable 404,400 107,656
Increase (decrease) in sales tax payable (87,116) 16,220
Increase (decrease) in income taxes payable (3,811,363) (3,479,000)
Increase (decrease) in other accrued liabilities 82,240 (163,237)
Increase (decrease) in unearned revenue (448,677) 260,195
--------------- ---------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 8,709,070 4,476,237
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of available-for-sale securities (12,152,318) (23,208,021)
Proceeds from sale or maturity of available-for-sale
securities 6,326,077 16,678,203
(Increase) decrease in advances to officers, directors
and employees (177,469) 48,998
(Increase) decrease in amounts due to/from
related parties 48,460 1,847
(Increase) decrease in other assets (74,958) --
(Increase) decrease in restricted cash 148,477 (238,568)
Capital expenditures (3,162,863) (4,432,699)
--------------- ---------------
NET CASH USED IN INVESTING ACTIVITIES (9,044,594) (11,150,240)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Purchase and retirement of common stock -- (369,000)
Principal payments on long-term debt (40,244) (35,026)
Proceeds from long-term debt -- 1,280,837
--------------- ---------------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (40,244) 876,811
--------------- ---------------
NET DECREASE IN CASH & CASH EQUIVALENTS (375,768) (5,797,192)
CASH & CASH EQUIVALENTS AT
BEGINNING OF PERIOD 60,511,367 43,870,755
--------------- ---------------
CASH & CASH EQUIVALENTS AT END OF PERIOD $ 60,135,599 $ 38,073,563
=============== ===============
The accompanying notes are an integral part of these financial statements.
7
Statement of Cash Flows for the Six-
Month Periods Ended October 31, 2001 and 2000
MARKET AMERICA, INC. (Unaudited)
- --------------------------------------------------------------------------------
October 31, 2001 April 30, 2001
---------------- ---------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid during the period for:
Interest $ 146,566 $ 52,269
Income taxes $ 8,679,060 $ 9,393,000
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 of $940 and $33,000 $ 2,673 $ 49,358
The accompanying notes are an integral part of these financial statements.
8
Notes to Financial Statements
MARKET AMERICA, INC. October 31, 2001 (Unaudited)
- --------------------------------------------------------------------------------
Interim Financial Information
The unaudited interim financial statements of Market America, Inc. (the
"Company") as of October 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 October 31, 2001 and 2000 and
for the three and six-month periods ended October 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
six-month periods ended October 31, 2001 may not be indicative of the results
that may be expected for the fiscal year ending April 30, 2002.
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 present diluted EPS because it 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 presentations. 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/stockholders of the Company, to lease
real estate in Miami, Florida for direct sales training and education, as well
as other corporate functions. The monthly rental is $60,000 and the lease has a
20-year term with a renewal option for an additional 20-year term. The Company
has paid a $600,000 non-interest bearing damage deposit as part of this lease,
which is included in other assets on the balance sheet. The amount of rent
expense under this agreement aggregated $180,000 and $360,000 during each of the
three and six-month periods ended October 31, 2001 and 2000, respectively. In
connection with this lease, the Company has guaranteed a $5.3 million five-year
loan to the related company for the purchase of the real estate being leased. As
of October 31, 2001, the guaranteed loan had an outstanding balance of
$4,132,002. The Company had restricted cash of $2,560,000 as collateral under
the loan guarantee as of October 31, 2001. During the three-month period ended
October 31, 2001, the Company began construction of a $675,000 building on this
leased property in order to further expand the meeting and training facilities
in Miami, Florida.
During the year ended April 30, 1999, the Company entered into a 33-year net
ground lease with a company owned by Mr. and Mrs. James H. Ridinger,
officers/stockholders of the Company, for the site on which the Company has
constructed its new headquarters and warehouse facility in Greensboro, North
Carolina at a cost of $4,593,133. Required rental payments are $17,000 per month
since October 2000, and $10,666 per month prior to that date. The amount of rent
expense under this agreement was $51,000 and $102,000 for the three-month and
six-month periods ended October 31, 2001, respectively. Rent expense for the
three-month and six-month periods ended October 31, 2000 was $38,332 and
$70,330, respectively. In June 1999, the Company paid $500,000 to the Ridinger
company for a Right of First Refusal on this site, which provides the Company
with the opportunity to purchase the land, should it be offered for sale, before
the land is offered for sale to other parties. The amount paid is included in
other assets and is being amortized on a straight-line basis over the lease
term. The unamortized balance will be applied to the purchase price of the land
in the event the Company buys it. On June 28, 1999, the Company became guarantor
of a $1.6 million bank loan to the Ridinger company used for the purchase of the
land. The guaranteed loan had an outstanding balance of $1,044,265 at October
31, 2001. This loan and the Company's term loan are cross-collateralized by the
land being leased from the Ridinger company and by the building improvement
constructed thereon by the Company. The guaranteed loan is repayable over a
five-year period.
9
Notes to Financial Statements
MARKET AMERICA, INC. October 31, 2001 (Unaudited)
- --------------------------------------------------------------------------------
In June 2001, the Company purchased a facility in Miami, Florida from an
unrelated party for $3,560,400. The Company had made an earnest money deposit of
$1,100,000 on this facility during the fourth quarter of fiscal 2001 and paid
the remaining $2,460,400 in cash upon closing. The Company will lease the land
on which the facility sits from a company owned by Mr. and Mrs. James H.
Ridinger, officers/stockholders of the Company, at an amount and period yet to
be determined. The building will be depreciated over the shorter of its
estimated useful life or the term of the ground lease.
Substantially all of the Company's leasehold improvements are to properties
leased from related companies.
Related party transactions are more fully described in the Company's most recent
Annual Report on Form 10-K.
Management Buyout Offer
On October 17, 2001, the Company issued a press release announcing that it
received a proposal from a management group composed of its President and Chief
Executive Officer, James H. Ridinger, and Senior Vice President, Loren Ridinger.
Mr. Ridinger holds approximately 77% of the Company's common stock. Under the
terms of the proposal, an entity which would hold the management group's stock
would be merged with and into the Company, with the Company as the surviving
corporation. All outstanding shares of the Company not already held by such
management group would be acquired for a cash price of $8.00 per share. The
Company's Board of Directors has not, as of the date of this report, taken any
action implementing the buyout offer but it is anticipated that the
implementation will be initiated within the next few weeks.
10
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 $75.1 as
of October 31, 2001 compared to $69.7 million as of April 30, 2001. The $75.1
million as of October 31, 2001 was comprised of $60.1 million of unrestricted
cash, $2.8 million of restricted cash and $12.2 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 stockholders of the Company, during fiscal
2000. The guaranteed loan had an outstanding balance of $4,132,002 as of October
31, 2001. The loan proceeds were used by the related company to purchase real
estate in Miami, Florida. The Company is leasing this real estate under a
twenty-year agreement. The real estate is used for direct sales training and
education as well as other corporate functions (see Related Party Transactions
in the Notes to Financial Statements above). During the three-month period ended
October 31, 2001, the Company began construction of a $675,000 building on this
leased real estate in order to further expand the training and meeting
facilities in Miami, Florida. The costs of this facility will be funded from
cash flows from operations.
The available-for-sale securities consist of 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 arises.
The Company has a five-year $2.1 million term loan related to its office and
distribution facility in Greensboro, North Carolina. The loan contains an annual
fixed interest rate of 7.625% and requires 59 monthly payments of $19,750,
including interest, with a balloon payment of all outstanding principal plus
interest due in June 2005. 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. The guaranteed loan had an outstanding balance
of $1,044,265 as of October 31,2001. The proceeds of the loan were used by the
related company 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.
In June 2001, the Company purchased a facility in Miami, Florida for $3,560,400.
The Company had made an earnest money deposit of $1,100,000 on this facility
during the fourth quarter of fiscal 2001 and paid the remaining $2,460,400 in
cash upon closing. See "Related Party Transactions" above for a further
discussion of this transaction.
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.
Results of Operations
The Company's sales continued to grow during the three and six-month periods
ended October 31, 2001. Net sales increased 5.2% to $37.1 million from $35.3
million for the quarter ended October 31, 2001 compared to the same period in
2000. Net sales also increased by 12.1% to $77.2 million from $68.9 million for
the six-month period ended October 31, 2001 compared to the same period in 2000.
During the current fiscal year, the Company's annual convention was moved from
August to July. Sales growth for the three-month period ended October 31, 2001
compared to the same fiscal 2001 period was 11.6% without the annual convention
revenue included in the fiscal 2001 period.
11
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - CONTINUED
Commission expense was $16.3 million and $14.8 million for the three-month
periods ended October 31, 2001 and 2000, respectively. Commission expense was
$32.6 million and $30.4 million for the six-month periods ended October 31, 2001
and 2000, respectively. Commissions, as a percentage of sales, were 43.9% and
42.0% for the three-month periods ended October 31, 2001 and 2000, respectively,
and 42.3% and 44.2% for the six-month periods ended October 31, 2001 and 2000,
respectively. Without the annual convention revenue included in the three-month
period ended October 31, 2000, commission expense was 44.5% of sales. The
commission payout as a percentage of business volume earned through
commissionable product sales has remained consistent during both the three and
six-month periods ended October 31, 2001 when compared to the same prior year
period.
General and administrative expenses were $4.7 million and $4.0 million for the
three-month periods ended October 31, 2001 and 2000, respectively, and $9.0
million and $7.9 million for the six-month periods ended October 31, 2001 and
2000, respectively. As a percentage of sales, general and administrative
expenses were 12.6% and 11.4% for the three-month periods ended October 31, 2001
and 2000, respectively, and 11.7% and 11.4% for the six-month periods ended
October 31, 2001 and 2000, respectively. Excluding the annual convention revenue
from the three-month fiscal 2001 period, general and administrative expenses
were 12.1% of sales. For the three and six-month periods ended October 31, 2001
and 2000, other general and administrative expenses included the following
items:
Three-Months Six-Months
Ended October 31, Ended October 31,
2001 2000 2001 2000
---------------- ---------------- ---------------- ----------------
Legal and professional fees $ 208,658 $ 172,312 $ 399,692 $ 324,090
Insurance 257,222 89,064 510,620 241,853
Other taxes and licenses 243,240 164,775 413,586 354,314
Utilities 104,543 86,225 179,660 178,665
Repairs and maintenance 177,544 414,589 351,789 596,511
Other 848,085 675,908 1,705,498 1,331,878
---------------- ---------------- ---------------- ----------------
$ 1,839,292 $ 1,602,873 $ 3,560,845 $ 3,027,311
================ ================ ================ ================
Due to efforts to expand human resources to better serve the Company's
distributors, the Company had a 19% larger workforce during the six-month period
ended October 31, 2001 compared to the six month period ended October 31, 2000.
This growth in the number of employees resulted in increased payroll expenses
and employee benefits.
Depreciation and amortization expense increased in the fiscal 2002 periods due
to the completion of the office and distribution facility in Greensboro, North
Carolina during July 2000, renovation completions of the office and training
center in Miami, Florida and the expansion of the training facilities in Miami,
Florida. The facility in North Carolina is being depreciated over 33 years
(ground lease term). The equipment and furnishings for these facilities are
being depreciated over 10 years.
The Company incurred larger consulting expenses during the fiscal 2001 periods
due to renovations of the leased corporate facility in Miami, Florida.
12
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - CONCLUDED
Insurance expense increased during the fiscal 2002 periods due to higher health
care costs incurred and number of employees covered under the Company's
self-insured health insurance plan. The amount of expense incurred under the
plan can vary from year to year depending upon the health and number of Company
employees. The Company's health plan does have a $50,000 annual stop limit per
employee and an annual aggregate stop loss limit of approximately $889,000. The
Company also incurred larger property insurance due to the expansion of
corporate facilities in both Greensboro, North Carolina and Miami, Florida.
Repairs and maintenance costs were lower during the fiscal 2002 periods due to
larger expenditures associated with the Company's yacht and the Miami training
and office facility during the prior year.
Other operating expenses were 2.3% and 2.0% of sales for the three-month periods
ended October 31, 2001 and 2000, respectively, with the annual convention income
excluded from the three-month period ended October 31, 2000. Other operating
expenses were 2.2% and 1.9% of sales for the six-month periods ended October 31,
2001 and 2000, respectively.
The increase in the income tax provision as a percentage of pretax income for
both the three and six-month periods ended October 31, 2001 is due to the
amendment of state income tax returns for fiscal years 1997, 1998 and 1999
during the three-month period ended October 31, 2000.
Earnings per share decreased from $.28 for the three-month period ended October
31, 2000 to $.22 for the three-month period ended October 31, 2001 due to the
Company's annual convention and related product sales being moved from August to
July during the current period. Earnings per share increased by $.07 during the
six-month period ended October 31, 2001 over the comparable prior year period
primarily due to the 12.1% sales growth during the current year.
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 Risk," 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
On October 19, 2001, a civil lawsuit was filed against the Company
and all of the Company's directors in Superior Court, Guilford
County, North Carolina. The Suit alleges that the proposal announced
on October 17, 2001 by a management group to acquire the Company is
detrimental to certain shareholders of the Company not affiliated
with the management group (see Notes to Financial Statements above).
The suit also requests that it be certified as a class action and
that the court enjoin the Company and the Company's directors from
proceeding with the proposed transaction. The suit also alleges that
all defendants have breached and are breaching fiduciary duties owed
to the plaintiff and other shareholders. The Company and the
Company's directors have not yet responded to the lawsuit but plan to
file timely responses denying the allegations.
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
None
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of the stockholders of the Company was held on
October 1, 2001. At the meeting, James H. Ridinger, Loren A. Ridinger
and Marty Weissman were unanimously re-elected to the Board of
Directors. No other matters were voted on by the stockholders at the
meeting.
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
On October 17, 2001, the Company filed a Form 8-K with the
Securities and Exchange Commission reporting under Item 5
thereof that it had received a proposal from a management
group composed of its President and Chief Executive Officer,
James H. Ridinger, and Senior Vice President, Loren Ridinger.
Under the terms of the proposal, all outstanding shares of the
Company not already held by such management group would be
acquired for a cash price of $8.00 per share.
14
- --------------------------------------------------------------------------------
SIGNATURE
- --------------------------------------------------------------------------------
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: December 17, 2001 /s/ James H. Ridinger
- ----------------------- ------------------------------------
James H. Ridinger, President and CEO
(Principal Executive Officer and
Principal Financial Officer)
15
EXHIBITS TO FORM 10-Q
EXHIBIT INDEX
Exhibit
Number Identification
------- --------------
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 Isotonix (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)
16