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, 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
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of October 31, 1996.
19,950,000
<PAGE>
PART I
ITEM 1 Statement of Financial Position as of
October 31, 1996 and April 30, 1996
Statement of Operations for the Three and Six
Month Periods Ended October 31, 1996 and 1995
Statement of Changes in Stockholders' Equity
for the Three Month Periods Ended October
31, 1996 and 1995
Statement of Cash flows for the Three and Six Month Periods Ended
October 31, 1996 and 1995
Notes to Financial Statements as of October
31, 1996
<PAGE>
MARKET AMERICA, INC. Statement of Financial Position as of
October 31, 1996 and April 30, 1996
- -----------------------------------------------------------------------
<TABLE>
<CAPTION>
(Unaudited)
October 31, April 30,
ASSETS 1996 1996
- ------ ----------- ------------
<S> <C> <C>
CURRENT ASSETS
Cash $13,580,725 $10,455,908
Advances to employees 21,364 8,600
Interest receivable 1,236
Notes receivable, employees 68,670 58,379
Inventories 1,113,560 1,020,117
Prepaid expenses 9,167 17,147
----------- -----------
Total current assets 14,793,486 11,561,387
----------- -----------
PROPERTY AND EQUIPMENT
Furniture and equipment 678,076 588,455
Software 128,840 128,840
Leasehold improvements 2,570 2,570
----------- -----------
Total property and equipment 809,486 719,865
Less accumulated depreciation 229,966 176,966
----------- -----------
Net property and equipment 579,520 542,899
----------- -----------
OTHER ASSETS
Investments 130,000
Deposits 681 681
Notes receivable, employees 3,317
----------- -----------
Total other assets 681 133,998
----------- -----------
TOTAL ASSETS $15,373,687 $12,238,284
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES
Accounts payable $ 1,421,504 $ 1,024,429
Sales and payroll taxes payable 176,045 233,515
Commissions payable 1,159,244 1,842,806
Accrued compensation 70,053 376,746
Notes payable, related party 177,623 292,714
Current portion of obligation
under capital lease 3,218 2,921
Current portion of notes payable 251,399 240,970
Income taxes payable 1,193,046 1,372,978
----------- -----------
Total current liabilities 4,452,132 5,387,079
----------- -----------
LONG-TERM DEBT, including capital lease
obligation, net of current portion 318,810 324,355
----------- -----------
UNEARNED REVENUE 604,663 357,101
----------- -----------
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 9,958,082 6,129,749
----------- -----------
Total stockholders' equity 9,998,082 6,169,749
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $15,373,687 $12,238,284
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
MARKET AMERICA, INC. Statement of Operations for the
Three and Six Month Periods Ended
October 31, 1996 and 1995
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Month Periods Ended Six Month Periods Ended
------------------------- -----------------------
October 31, October 31, October 31, October 31,
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
SALES $15,498,785 $10,092,046 $31,183,453 $17,578,053
COST OF SALES 2,755,257 1,941,177 5,724,139 3,729,383
----------- ----------- ----------- -----------
GROSS PROFIT 12,743,528 8,150,869 25,459,314 13,848,670
----------- ----------- ----------- -----------
OPERATING EXPENSES
Commissions 7,261,106 4,666,593 14,275,380 8,003,543
Salaries and wages 764,559 330,256 1,632,582 590,663
Taxes 156,784 75,286 297,041 185,841
Advertising 3,439 31,339 8,420 31,939
Travel/entertainment 76,335 54,820 334,277 108,836
Consulting 79,200 77,010 199,720 579,206
Freight 806,084 359,339 1,515,503 671,791
Professional fees 199,808 66,415 314,415 266,877
Office 60,338 53,253 142,196 125,005
Insurance 74,029 26,292 135,181 43,112
Rent 119,300 52,144 169,515 76,103
Telephone/utilities 69,595 96,150 114,812 139,548
Depreciation and
amortization 27,224 20,709 52,478 34,684
Interest 6,923 49,649 16,431 54,929
Leases 16,564 3,279 24,924 11,733
Cleaning/maintenance 54,211 8,892 70,408 26,559
Bad debts 28,824 12,107 75,177 16,791
Miscellaneous 2,004 33,090 2,951 76,719
----------- ----------- ----------- -----------
Total operating
expenses 9,806,327 6,016,623 19,381,411 11,043,879
----------- ----------- ----------- -----------
INCOME FROM
OPERATIONS 2,937,201 2,134,246 6,077,903 2,804,791
----------- ----------- ----------- -----------
OTHER INCOME (LOSS)
Interest 131,032 49,382 244,030 86,902
Miscellaneous 11,109 12,255 71,611 15,932
Loss on sale of
assets (4,595)
----------- ----------- ----------- -----------
Total other
income 142,141 61,637 311,046 102,834
----------- ----------- ----------- -----------
INCOME BEFORE
INCOME TAXES 3,079,342 2,195,883 6,388,949 2,907,625
PROVISION FOR FEDERAL/
STATE INCOME TAXES 1,245,288 815,699 2,560,616 1,097,636
----------- ----------- ----------- -----------
NET INCOME $ 1,834,054 $ 1,380,184 $ 3,828,333 $ 1,809,989
=========== =========== =========== ===========
NET INCOME PER SHARE $ .09 $ .07 $ .19 $ .09
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
MARKET AMERICA, INC. Statement of Changes in Stockholders'
Equity for the Three Month Periods
Ended October 31, 1996 and 1995
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common Stock Additional
--------------------- Paid-In Retained
Shares Amount Capital Earnings Total
---------- -------- --------- -------- -----
<S> <C> <C> <C> <C> <C>
Balances at
July 31,
1995 19,950,000 $199 $39,801 $1,406,327 $1,446,327
Net income 1,380,184 1,380,184
---------- ---- ------- ---------- ----------
Balances at
October 31,
1995 19,950,000 $199 $39,801 $2,786,511 $2,826,511
========== ==== ======= ========== ==========
Balances at
July 31,
1996 19,950,000 $199 $39,801 $8,124,028 $8,164,028
Net income 1,834,054 1,834,054
---------- ---- ------- ---------- ----------
Balances at
October 31,
1996 19,950,000 $199 $39,801 $9,958,082 $9,998,082
========== ==== ======= ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
MARKET AMERICA, INC. Statement of Cash Flows For the
Three and Six Month Periods Ended
October 31, 1996 and 1995
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Month Periods Ended Six Month Periods Ended
------------------------- -----------------------
October 31, October 31, October 31, October 31,
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES
Net income $ 1,834,054 $1,380,184 $ 3,828,333 $1,809,989
Add items not requiring use
of cash
Depreciation and amortization 27,746 20,709 53,000 34,684
Consulting fees for note payable 400,000
(Increase) in advances to employees (9,264) (13,570) (12,764) (30,090)
(Increase) decrease in notes
receivable to employees (37,177) (6,974)
Decrease in interest receivable 1,236
(Increase) decrease in inventories 445,848 (99,302) (93,443) (375,547)
(Increase) decrease in prepaid
expenses (4,522) 32,831 7,980 (3,786)
Increase (decrease) in accounts
payable 227,901 (22,088) 397,075 248,331
Increase (decrease) in
taxes payable (95,571) 665,967 (237,402) 551,782
Increase (decrease) in
commissions payable 110,500 202,900 (683,562) 289,150
Increase (decrease) in accrued
compensation 17,578 6,076 (306,693) (87,494)
Increase (decrease) in unearned
revenue 62,038 (190,612) 247,562 (152,772)
(Decrease) in interest payable (7,109)
----------- ---------- ----------- ----------
Net cash provided from
operating activities 2,579,131 1,983,095 3,194,348 2,677,138
----------- ---------- ----------- ----------
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchase of furniture and
equipment (56,228) (144,731) (89,621) (165,177)
Decrease in deposits 5,500 5,500
Sale of investments 130,000
----------- ---------- ----------- ----------
Net cash provided (used) from
investing activities (56,228) (139,231) 40,379 (159,677)
----------- ---------- ----------- ----------
CASH FLOWS FROM FINANCING
ACTIVITIES
Increase (decrease) in advances
from shareholders 3,505 (115,091)
Reduction in obligations under
capital lease (1,389) (1,389)
Increase (decrease) in notes
payable 19,527 (59,631) 6,570 (60,396)
----------- ---------- ----------- ----------
Net cash provided (used) from
financing activities 21,643 (59,631) (109,910) (60,396)
----------- ---------- ----------- ----------
TOTAL INCREASE IN CASH 2,544,546 1,784,233 3,124,817 2,457,065
CASH AT BEGINNING OF PERIOD 11,036,179 3,502,872 10,455,908 2,830,040
----------- ---------- ----------- ----------
CASH AT END OF PERIOD $13,580,725 $5,287,105 $13,580,725 $5,287,105
=========== ========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
MARKET AMERICA, INC. Statement of Cash Flows For the
Three and Six Month Periods Ended
October 31, 1996 and 1995
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Month Periods Ended Six Month Periods Ended
------------------------- -----------------------
October 31, October 31, October 31, October 31,
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
SUPPLEMENTAL INFORMATION
Income taxes paid in cash $1,336,364 $133,667 $2,728,234 $546,633
========== ======== ========== ========
Interest paid in cash $ 17,173 $ 3,031 $ 26,297 $ 6,249
========== ======== ========== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
MARKET AMERICA, INC. Notes to Financial Statements
As of October 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.
<PAGE>
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 $.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 for the 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%. Earnings per
share have grown consistently from $0.011 for the fiscal year of 1994, to $0.04
for the fiscal year of 1995, and to $0.26 for the fiscal year ending April 30,
1996. Earnings per share for the quarter ended July 31, 1996, were $0.10,
representing a 400% increase over the quarter ended July 31, 1995. Earnings per
share for the quarter ended October 31, 1996, was $.09, representing a 28.98%
increase over the quarter ended October 31, 1995. In regard to liquidity, as of
October 31, 1996, current assets exceeded current liabilities by $10,341,354 for
a current ratio of 3.33 to 1.
The Company has been successful in the selection of market driven products for
distribution through its ever-growing network of "UnfranchiseTM" 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 reorganized line of jewelry will enhance the 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 expected to be spent each month by a
customer through an "UnfranchiseTM") will 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.
<PAGE>
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., "UnfranchisesTM" that average one new "UnfranchiseTM"
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 throughout 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
"UnfranchisesTM" anywhere throughout US, Canada and the Caribbean.
<PAGE>
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
<PAGE>
- --------------------------------------------------------------------------------
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)
-----------------------------
James H. Ridinger,President
and CEO
-----------------------------
Edward W. Faulkner, Controller
<PAGE>
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*
- ----------
*Filed herewith
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
BALANCE SHEET OF MARKET AMERICA, INC. AS OF OCTOBER 31, 1996 AND THE RELATED
STATEMENTS OF OPERATIONS AND OF CASH FLOWS FOR THE THREE MONTHS THEN ENDED
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-1996
<PERIOD-END> OCT-31-1996
<CASH> 13,580,725
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 1,113,560
<CURRENT-ASSETS> 14,793,486
<PP&E> 809,486
<DEPRECIATION> 229,966
<TOTAL-ASSETS> 15,373,687
<CURRENT-LIABILITIES> 4,452,132
<BONDS> 0
0
0
<COMMON> 199
<OTHER-SE> 9,997,883
<TOTAL-LIABILITY-AND-EQUITY> 15,373,687
<SALES> 15,498,785
<TOTAL-REVENUES> 15,640,926
<CGS> 2,755,257
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 9,806,327
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,923
<INCOME-PRETAX> 3,079,342
<INCOME-TAX> 1,245,288
<INCOME-CONTINUING> 1,834,054
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,834,054
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
</TABLE>
