================================================================================
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, 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 | |
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of December 8, 1997.
19,950,000
================================================================================
<PAGE>
PART I
ITEM 1 Statement of Financial Position as of October 31, 1997 and April
30, 1997
Statement of Operations for the Three and Six Month Periods Ended
October 31, 1997 and 1996
Statement of Changes in Stockholders' Equity for the Three Month
Periods Ended October 31, 1997 and 1996
Statement of Cash Flows for the Three and Six Month Periods Ended
October 31, 1997 and 1996
Notes to Financial Statements as of October 31, 1997
2
<PAGE>
Statement of Financial Position as of
MARKET AMERICA, INC. October 31, 1997 and April 30, 1997
- --------------------------------------------------------------------------------
ASSETS
(Unaudited)
October 31, April 30,
1997 1997
---- ----
CURRENT ASSETS
Cash and cash equivalents $ 24,415,912 $ 2,323,943
Short-term investments 17,294,869
Advances and receivables 30,993
Advances to officers and employees 63,457
Notes receivable, employees 57,093 58,095
Inventories 1,990,886 1,244,586
Other current assets 25,990 19,944
------------ -------------
Total current assets 26,584,331 20,941,437
------------ -------------
PROPERTY AND EQUIPMENT
Furniture and equipment 909,303 839,057
Software 258,204 128,840
Leasehold improvements 6,370 2,570
------------ -------------
1,173,877 970,467
Less accumulated depreciation and
amortization 371,419 294,553
------------ -------------
Total property and equipment 802,458 675,914
------------ -------------
OTHER ASSETS
Restricted cash 76,907 74,077
Deposits 2,670
------------ -------------
Total other assets 79,577 74,077
------------ -------------
TOTAL ASSETS $ 27,466,366 $ 21,691,428
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 961,696 $ 1,550,609
Payroll taxes payable 5,747 43,854
Sales taxes payable 497,245 239,414
Commissions payable 1,549,145 1,516,365
Accrued compensation 84,718 276,212
Income taxes payable 2,574,241 1,866,021
Unearned revenue 882,000 1,026,022
Current portion of long-term debt 259,884 250,254
------------ -------------
Total current liabilities 6,814,676 6,768,751
------------ -------------
LONG-TERM DEBT 233,520 281,707
------------ -------------
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 20,378,170 14,600,970
------------ -------------
Total stockholders' equity 20,418,170 14,640,970
------------ -------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 27,466,366 $ 21,691,428
============ =============
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
Statement of Operations for the Three
and Six Month Periods Ended October 31,
MARKET AMERICA, INC. 1997 and 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Month Periods Ended Six Month Periods Ended
------------------------------ ---------------------------------
October 31, October 31, October 31, October 31,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
SALES $ 21,729,643 $ 15,498,785 $ 41,193,466 $ 31,183,453
COST OF SALES 3,275,930 2,755,257 5,928,709 5,724,139
------------ ------------ ------------ ------------
GROSS PROFIT 18,453,713 12,743,528 35,264,757 25,459,314
------------ ------------ ------------ ------------
OPERATING EXPENSES
Commissions 10,272,125 7,261,106 19,002,581 14,275,380
Salaries 1,170,856 764,559 2,094,338 1,632,582
Freight 564,695 806,084 1,492,182 1,515,503
Consulting 22,427 79,200 78,363 199,720
Rent 163,864 119,300 287,356 169,515
Depreciation and amortization 42,775 27,224 76,866 52,478
Other operating expenses 997,433 748,854 2,779,796 1,536,233
------------ ------------ ------------ ------------
Total operating expenses 13,234,175 9,806,327 25,811,482 19,381,411
------------ ------------ ------------ ------------
INCOME FROM OPERATIONS 5,219,538 2,937,201 9,453,275 6,077,903
------------ ------------ ------------ ------------
OTHER INCOME (LOSS)
Interest 242,168 131,032 414,491 244,030
Loss on disposal of assets (4,595)
Miscellaneous (25,747) 11,109 9,140 71,611
------------ ------------ ------------ ------------
Total other income 216,421 142,141 423,631 311,046
------------ ------------ ------------ ------------
INCOME BEFORE TAXES 5,435,959 3,079,342 9,876,906 6,388,949
PROVISION FOR INCOME TAXES 2,310,846 1,245,288 4,099,706 2,560,616
------------ ------------ ------------ ------------
NET INCOME $ 3,125,113 $ 1,834,054 $ 5,777,200 3,828,333
============ ============ ============ =========
NET INCOME PER SHARE $ .16 $ .09 $ .29 $ .19
============ ============ ============ =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
Statement of Changes in Stockholders'
Equity for the Three Month Periods
MARKET AMERICA, INC. Ended October 31, 1997 and 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common Stock Additional
------------------------- Paid-in Retained
Shares Amount Capital Earnings Total
----------- ------ --------- ---------- ------
<S> <C> <C> <C> <C> <C>
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
========== ==== ======= =========== ===========
Balances at July 31, 1997 19,950,000 $199 $39,801 $17,253,057 $17,293,057
Net income 3,125,113 3,125,113
---------- ---- ------- ------------ -----------
Balances at October 31, 1997 19,950,000 $199 $39,801 $20,378,170 $20,418,170
========== ==== ======= =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
Statement of Cash Flows for the Three and Six Month
MARKET AMERICA, INC. Periods Ended October 31, 1997 and 1996
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Month Periods Ended Six Month Periods Ended
----------------------------- ------------------------------
October 31, October 31, October 31, October 31,
1997 1996 1997 1996
----------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $3,125,113 $1,834,054 $5,777,200 $3,828,333
Add items not requiring the use of cash:
Depreciation and amortization 42,775 27,224 76,866 52,478
Increase in advances to and receivables
from employees (94,450) (9,264) (94,450) (12,764)
(Increase) decrease in notes receivable,
employees (469) (37,177) 1,002 (6,974)
Decrease in interest receivable 1,236
(Increase) decrease in inventories (203,230) 445,848 (746,300) (93,443)
(Increase) decrease in prepaid expenses 33,424 (4,522) (6,046) 7,980
Increase (decrease) in accounts payable (485,553) 227,901 (588,913) 397,075
Increase (decrease) in taxes payable 1,183,004 (95,571) 927,944 (237,402)
Increase (decrease) in commissions
payable 262,608 110,500 32,780 (683,562)
Increase (decrease) in accrued
compensation (33,555) 17,578 (191,494) (306,693)
Increase (decrease) in unearned revenue 75,300 62,038 (144,022) 247,562
------------- ------------ ----------- ----------
NET CASH PROVIDED FROM
OPERATING ACTIVITIES 3,904,967 2,578,609 5,044,567 3,193,826
------------ ----------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of short-term
investments 17,294,869
Purchase of furniture and equipment
(41,749) (55,706) (70,246) (89,099)
Purchase of software (129,364) (129,364)
Purchase of leasehold improvements
(3,800) (3,800)
Sale of investments 130,000
Increase in restricted cash (1,943) (2,830)
Increase in
deposits (2,670) (2,670)
------------ ----------- ---------- ---------
NET CASH PROVIDED (USED)
FROM INVESTING ACTIVITIES
(179,526) (55,706) 17,085,959 40,901
------------ ----------- ---------- ---------
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
(22,922) 19,527 (38,557) 6,570
------------ ----------- ----------- ----------
NET CASH PROVIDED (USED)
FROM FINANCING ACTIVITIES
(22,922) 21,643 (38,557) (109,910)
------------ ----------- ----------- ----------
NET INCREASE IN CASH 3,702,519 2,544,546 22,091,696 3,124,817
CASH AT BEGINNING OF PERIOD
20,713,393 11,036,179 2,323,943 10,455,908
------------ ----------- ----------- ----------
CASH AT END OF PERIOD $24,415,912 $13,580,725 $24,415,912 $13,580,725
============ =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
Notes to Financial Statements
MARKET AMERICA, INC. As of October 31, 1997
- --------------------------------------------------------------------------------
Interim Financial Information
The unaudited interim financial statements of Market America, Inc. (the
"Company") 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, 1997 and for the three and six month
periods ended October 31, 1997 and 1996. 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 quarter and six months ended
October 31, 1997 may not be indicative of the results that may be expected for
the fiscal year ending April 30, 1998.
Earnings Per Share
Effective for years beginning subsequent to December 15, 1996, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 128. This statement specifies the calculation, presentation, and disclosure
requirements for earnings per share. The implementation of this statement is not
expected to have a material effect on the Company's financial statements.
Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or
market. Inventories increased from $1,787,656 at July 31, 1997 to $1,990,886 at
October 31, 1997. This $203,230 (11%) increase is primarily attributed to
additional products offered by the Company.
Accounts Payable
The Company's trade accounts payable decreased from $1,550,609 at April 30, 1997
to $961,696 at October 31, 1997, in part because the Company's strong cash
position has enabled it take advantage of all available vendor discounts.
Management continues to monitor accounts payable closely and is constantly
exploring ways to maximize vendor discount programs.
Related Party Transactions
The Company leased a yacht which is used as an integral part of direct sales
training and recruitment program. The yacht is leased from an entity of which
Mr. & Mrs. James H. Ridinger, officers and major stockholders of the Company,
have a beneficial interest. During the quarter ended October 31, 1997, $178,655
of expenses in excess of income were incurred relating to the maintenance and
operation of the yacht. Management believes that a significant portion of the
operating and maintenance expenses of the yacht can be offset through chartering
in the future.
7
<PAGE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANAYLSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity & Capital Resources
The Company considers all highly liquid investments with maturities of three
months or less when purchased to be cash equivalents. Cash and cash equivalents
increased approximately $22.1 million to $24.4 million for the six months ending
October 31, 1997. This increase can be attributed primarily to the conversion of
$17.3 million of short-term investment to cash during the quarter ended July 31,
1997. Management is currently evaluating various short-term investment options
for the Company.
The nature of the Company's business and its continued growth is yielding
considerable cash flow from operations. The Company's cash flow from operations
was $3.9 million for the three months ended October 31, 1997, as compared to
$2.6 million for the same period of the previous year. This $1.3 million
increase can be attributed primarily to the increase in the Company's net
earnings. Given the cash provided by operations and the current cash balances of
the Company, management believes that it has sufficient working capital for the
next year. However, an unusually adverse operating environment could require the
use of cash reserves.
The Company's warehouse and office lease expired on October 31, 1997. An
18-month lease extension with a buyout option was executed for the present
facility subsequent to the expiration of the original lease. Management
continues to explore other alternatives to leasing this facility. At this time,
management has not reached a decision as to whether the Company will continue
leasing at the present or another location.
On October 31, 1997 current assets and liabilities of the Company were
approximately $26.6 million and $6.8 million, respectively. The Company's
current ratio was 3.90 to 1.0 at October 31, 1997 versus 3.09 to 1.0 at April
30, 1997. Stockholders' equity increased approximately $3.1 million during the
three month period ending October 31, 1997. The Company has not declared any
stock or cash dividends since its inception. Management has no plans to declare
any dividends in the near future as all cash and cash equivalents are being
maintained for operations and future expansion.
Results of Operations
Sales revenue for the three and six months ended October 31, 1997, were $21.7
million and $41.2 million compared to $15.5 million and $31.2 million, increases
of approximately 40% and 32% respectively, compared to the corresponding 1996
periods. Management believes the three and six month increases in sales are due
to an expanding distributor base which has increased consumer awareness of the
Company and its products. The Company's sales and weight loss, health, and
nutritional products continue to be strong due to the general public's interest
in health and fitness. Also, considerable interest has been received regarding
the new Motivestm customized cosmetics line. This product line has steadily
increased its position within the Company's product alignment and management
believes sales of the product will continue to grow and that it will become a
sales leader.
8
<PAGE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANAYLSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONT'D)
The Company's gross profit percentages for the three and six months ended
October 31, 1997 were 84.92% and 85.61% respectively, compared to 82.22% and
81.64% for the same 1996 periods. The increase in gross profit percentages were
primarily due to the sales mix of products sold during the periods, inasmuch as
the increase in sales of higher gross profit margin products was greater than
increases in sales of other products, yielding a higher overall gross profit.
Management's constant search for higher gross profit producing products, such as
the Motivestm customized cosmetics line, also contributed to the increase.
Commissions paid to independent distributors are a vital part of the Company's
marketing program. Commissions grew approximately $3.0 million to $4.7 million
for the three and six months ended October 31, 1997, versus the corresponding
periods in 1996. The dollar increase in commissions was roughly proportional to
the increase in revenue for the three and six month periods ending October 31,
1997, although commissions, as a percentage of sales, grew slightly during the
periods. Management expects commissions as a percentage of sales to remain
relatively constant for the remainder of 1997.
Total operating expenses, as a percentage of sales, were 60.90% and 62.66% for
the three and six month periods ended October 31, 1997 as compared to 63.27% and
62.15% for the respective 1996 periods. The largest component of total operating
expenses was commissions expense. As previously discussed, commissions expense
remained relatively constant as a percentage of sales and was directly related
to the increase in sales volume. Salary expenses, as a percentage of sales, for
the three and six month periods ended October 31, 1997, were 5.39% and 5.08%.
This compares to the 4.93% and 5.24% for the same 1996 periods. Due to an
expanding product line and double digit increases in sales revenue, the Company
has had to employ more people to run its operations efficiently. The Company has
increased it's full-time workforce approximately 50% from October 31, 1996 to
October 31, 1997.
Pre-tax income, as a percentage of sales, increased 5.15% to 25.02% and 3.49% to
23.98% for the three and six month periods ended October 31, 1997, as compared
to the same periods last year. This resulted in an increase in income taxes for
the current year. Income taxes were $2.3 million and $4.1 million for the three
and six months ended October 31, 1997. They increased from $1.2 million and $2.6
million for the same periods in 1996. The increases in sales, gross profit, and
corresponding net income were the primary reason for the increased tax
liability. Income taxes payable grew from $1,866,021 at April 30, 1996 to
$2,574,241 at October 31, 1997.
9
<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, except that the Company's defense of
numerous appeals in the case originally styled as Larry A. Masi
v. Market America, Inc. et al., Civil Case No. 95-CV-6374 (D.
N.J.), have concluded favorably for the Company, with the
bankruptcy court's approval of a settlement agreement being
upheld and all appeals of Mr. Masi having been exhausted.
The Company is subject to other litigation from time to time
arising from its operations, including litigation involving
distributor compliance and 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 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of stockholders of the Company was held on
September 30, 1997. At the meeting, James H. Ridinger, Loren A.
Ridinger, Dennis J. Franks and Marty Weissman were unanimously
re-elected as directors of the Company.
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
10
<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)
Date: December 15, 1997 By: /s/
---------------------------------
James H. Ridinger, President
and CEO
Date: December 15, 1997 /s/
---------------------------------
James H. Ridinger, President
and CEO (as Principal Financial
Officer)
11
<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)
3.1 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 3.3 to the Com pany's Annual Report on
Form 10-K 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 filed with
the Commission on July 30, 1996, Commission File No.
000-23250)
10.1* Lease between Miracle Marine, Inc. and Market America, Inc.
dated June 1, 1997
27* Financial Data Schedule
* Filed herewith.
12
EXHIBIT 10.1
NORTH CAROLINA
LEASE AGREEMENT
---------------
GUILFORD COUNTY
THIS LEASE AGREEMENT, made and entered into this 1st day of June, 1997,
by and between Miracle Marine, Inc., a North Carolina Corporation, hereinafter
called the "Lessor", and Market America, Inc. a North Carolina Corporation,
hereinafter called the "Lessee";
W I T N E S S E T H:
That in consideration of the covenants, conditions and agreements
hereinafter contained, Lessor does hereby lease to Lessee, and Lessee does
hereby rent from Lessor the premises more particularly described as follows:
For description see attached Exhibit A.
TO HAVE AND TO HOLD said property, together with all privileges and
appurtenances thereunto belonging to Lessee, his successors and assigns, for the
term and under the conditions hereinafter set forth, to-wit:
1. Term. The term of this Lease shall be for a period commencing on the
1st day that Lessee has possession of said property and ending on the 30th day
of the first full month five years thereafter.
2. RENEWAL. If this Lease shall not have been canceled pursuant to the
provisions hereinafter set forth and if Lessee shall, during the original term
hereof, keep and perform each and every covenant, provision and agreement herein
contained, and provided that Lessee shall not be in default under any of the
terms, covenants or conditions of this Lease at the end of the term, then Lessee
<PAGE>
may, at his option, renew this lease for any additional term of five (5) years.
If, during the first additional five (5) year term, this Lease shall not have
been canceled pursuant to the provisions hereinafter set forth and if Lessee
shall, during the first additional five (5) year term hereof, keep and perform
each and every covenant, provision and agreement herein contained, and provided
that Lessee shall not be in default under any of the terms, covenants or
conditions of this Lease at the end of said term, then Lessee may, at his
option, renew this lease for an additional term of five (5) years. If the above
conditions are met by Lessee, then Lessee may, at his option, renew this lease
for two additional five (5) year terms (three (3) total five years renewal
options).
Unless Lessee gives written notice to Lessor of his intention not to
exercise its right to renew for the three additional five (5) years of the
Lease, within sixty (60) days prior to the date of termination of the original
term or any subsequent renewal term, then this Lease shall automatically be
renewed for an additional five year term.
3. RENTAL.
A. As rental for said property, Lessee shall pay to Lessor or Lessor's
agent, without notice or demand therefore, the sum of Twenty Thousand Dollars
and 00 cents ($20,000.00 per month) "Base Rent" in lawful money of the United
States in equal monthly installments, each in advance, on the first day of each
month, during the term of this lease, and payment for the first month of leasing
shall be made upon the date Lessor shall have made the property available for
possession by the Lessee. Rent for any partial month shall be paid in advance at
that daily rate equal to the monthly Base Rent divided by the number of days in
the month for which such rent is due. Lessee shall pay to Lessor any and all
revenues received from chartering or otherwise subletting the property.
2
<PAGE>
4. LATE CHARGE. If Lessor does not receive the rental payment within
fifteen (15) days from when due, Lessee shall pay to Lessor a late charge of
five percent (5%) of any outstanding balance, including previously unpaid
balances, of the payment due to cover costs of securing and processing any late
payments.
5. TAXES. Lessee shall pay all personal property ad valorem taxes and
assessments which may be levied, assessed or charged against the demised
premises. Lessee shall pay all license, privilege or other taxes levied,
assessed or charged against it on account of the operation of its business or on
account of personal property belonging to Lessee, provided that Lessor and
Lessee respectively shall be entitled either prior to or subsequent to payment
to contest as improper, excessive or invalid any such taxes or assessments.
Taxes will be escrowed and Lessee will pay 1/12th of the annual taxes along with
the rent payment.
6. FUEL. Lessee shall pay all charges for generators/batteries which
supply electrical power, fuel oil, natural gas, water, and any other "utilities"
consumed on the personal property.
7. REPAIRS AND MAINTENANCE. Lessee shall, during the term of this Lease,
and any renewal or extension thereof, at its sole expense, keep the interior of
the leased premises in good order and repair, reasonable wear and tear and
damage by accidental fire or other casualty excepted. Lessee shall not knowingly
permit or willingly permit to be committed any act or thing contrary to the
rules and regulations prescribed from time to time by the Board of Health or
which shall be contrary to the rules and regulations of Federal, State or
Municipal authority.
3
<PAGE>
Lessee's duty to repair and maintain shall include the replacement of all
light bulbs and broken glass in windows in those areas that it occupies as the
leased premises. Lessee shall maintain in good working order and repair all
facilities and other fixtures and equipment installed for the general supply of
hot water and cold water, heat, air conditioning and electricity.
Lessee, during the term of this Lease, or any renewal or extension
thereof, shall keep the structural supports of the personal property in good
order and repair
8. ALTERATIONS AND ADDITIONS. Lessee shall have the right to make
changes, improvements, alterations or additions to the areas which it leases,
subject to the following conditions.
9. INSURANCE. Lessee shall at all times during the term of this Lease and
any renewal period thereof, at his own cost and expense, insure and keep in
effect on the personal property standard fire and extended coverage insurance
with a company authorized to do business in the United States. Fire and
liability insurance premiums will be escrowed and Lessee will pay 1/12 of the
annual premiums along with the rent payment. In addition thereto, Lessee shall
insure any of its equipment, machinery, and other assets located on the personal
property in such amount and against such risks as it may deem advisable. Lessee
shall, during the term of this Lease Agreement or any renewal thereof, carry and
maintain comprehensive public liability insurance, including property damage,
4
<PAGE>
insuring Lessee and Lessor against liability for injuries to persons or property
occurring in or about the leased premises or common areas or arising out of the
ownership, maintenance, use or occupancy thereof. The liability of this
insurance shall not be less than TWO MILLION DOLLARS ($2,000,000.00) for any one
person injured or killed and not less than ONE MILLION EIGHT HUNDRED THOUSAND
AND NO/100 DOLLARS ($1,800,000,00) for property damage. Lessor and Lessee and
all parties claiming under them hereby mutually release and discharge each other
from all claims and liabilities arising from or caused by any hazard covered by
insurance on the leased property, or covered by insurance in connection with
property on or activities conducted on the leased property, regardless of the
cause of the damage or loss, and the parties each agree to have their respective
insurance companies waive, if possible, in writing and for the express benefit
of the others any rights of subrogation that the companies may have, if at all,
against the Lessor or Lessee, as the case may be.
10. INDEMNIFICATION. With the exception of claims arising out of acts of
negligence of Lessor, its agents or employees, Lessee covenants and agrees that
at its sole expense, it will protect Lessor and save Lessor harmless from all
claims of all persons whomsoever arising from or out of the use or occupancy of
the leased premises by Lessee or Lessee's agents or employees, or subleases,
including the reimbursement of Lessor of all reasonable expenses incurred in
defending such claim.
11. FIRE OR OTHER CASUALTY LOSS. If the leased property should become
partially damaged by fire or other casualty during the base term of this Lease
or any renewal thereof, Lessor shall repair the same at his own expense with
reasonable dispatch, and if as a result thereof the premises hereby leased shall
be partially unsuitable or unfit for Lessee's purpose or use, then and in such
event, the rent herein reserved shall be reduced in proportion to the space not
usable until such premises have been repaired and restored.
5
<PAGE>
12. RIGHT OF ENTRY. Lessee agrees that Lessor, Lessor's agents or other
representatives, shall have the right without abatement or rent, to enter into
and upon the leased premises, or any part thereof, during regular business hours
for the purpose of examining same or making such repairs or alteration to the
leased premises as may be necessary for the safety and preservation thereof,
provided, however, that such examinations, repairs or alterations (unless of an
emergency nature) shall be made as to cause a minimum of interference to the
operation of Lessee's business conducted in or on the leased premises.
13. DEFAULT. The happening of one or both (A or B) of the following
listed events shall constitute a breach of this Lease Agreement on the part of
the Lessee, namely:
A. The failure of Lessee to pay rent payable under this Lease
Agreement within ten (10) days following written notice from Lessor of
failure to pay the full monthly rental on the first day of any rental
month. After such notice has been given to Lessee a total of three times,
no further notice shall be required if Lessee subsequently defaults in
payment of any monthly rental payment next due thereafter.
6
<PAGE>
B. The failure of Lessee to fully and promptly perform any act
required under this Lease or to otherwise comply with any terms or
provisions hereof for thirty (30) days or more after written notice given
to Lessee by Lessor notifying of said default. In all matters in this
Agreement, time is of the essence.
Upon the happening of any event of default by Lessee, Lessor, if Lessor
shall elect, may either (1) terminate the terms of this Lease Agreement, or (2)
terminate Lessee's right to possession to occupancy of the premises without
terminating the term of this Lease Agreement, and, in the event Lessor shall
exercise such second right of election, the same shall be effective as of twenty
(20) days after the date of such event of default.
If Lessor shall elect to terminate the terms of this Lease Agreement,
Lessor, upon such termination, shall be entitled to recover of Lessee all
accrued rent due and payable at the time of such default, plus any rents paid in
advance, which shall be applied to any balance due Lessor, of whatever kind, or
in the alternative, as liquidated damages forfeited to Lessor without waiver of
any other rights or remedies of Lessor. If Lessor shall elect to terminate the
terms of the Lease Agreement then after all accrued rents are paid the Lessor
and any funds owed to Lessor on account of any other terms of this Lease are
paid then Lessees obligations and liability under this Lease shall terminate.
7
<PAGE>
If Lessor shall elect to terminate Lessee's right to possession only
without terminating the term of this Lease, Lessor at Lessor's option, may enter
into the premises, remove Lessee's property, and hold possession of and sell the
same and apply the proceeds first to the cost of sale; second to rents and
damages due Lessor, and the surplus, if any, shall be paid to Lessee without
such entry and possession or sale terminating the term of this Lease or
otherwise releasing Lessee in full or in part from its obligation to pay the
rent herein reserved for the full term hereof, and in such case Lessee shall
remain liable to Lessor for all rents due under this Lease. However, Lessor will
make reasonable efforts to relet the property or any part thereof at a
reasonable rent to any person, firm or corporation other than Lessee. If any
rent collected by Lessor upon such reletting is not sufficient to pay monthly
the full amount theretofore paid by Lessee, Lessee shall pay to Lessor the
amount of each monthly deficiency upon demand, and, if the rent so collected
from such reletting is more than sufficient to pay the full amount of the rent
reserved hereunto, Lessor shall, at the end of the stated term hereof, apply any
surplus to the extent thereof to the discharge f any obligation for Lessee under
the terms of this Lease, and any remaining surplus shall be paid to Lessee.
However, nothing herein shall render Lessee liable for any greater sum than
would be payable if Lessee were not in default under the Lease.
8
<PAGE>
14. Bankruptcy. In the event Lessee shall be adjudicated a bankrupt, or a
temporary or permanent receiver is appointed for the Lessee in any Federal or
State Court, or petition in insolvency or liquidation proceedings is filed
against Lessee which shall not be dismissed within ninety (90) days, Lessor
shall have the right at his option, to immediately declare this contract and
lease null and void and resume possession of the property. In addition, Lessor
shall be entitled to recover reasonable attorneys fees incurred by the Lessor in
any proceeding protecting its rights under this paragraph.
15. SUBORDINATION - ATTORNMENT. This Lease shall be deemed subject and
subordinate to any lease which may heretofore or hereafter be executed by Lessor
covering the property, unless other written arrangements are agreed to by both
parties.
16. RELATIONSHIP BETWEEN PARTIES
This Lease shall not be construed to create a partnership, joint venture,
or agency relationships between the parties hereto.
17. NOTICES. Whenever in the lease it is provided that either the Lessor
or the Lessee may or shall give written notice to the other party, such notice
shall be deemed sufficiently given and effective if mailed by overnight mail or
registered mail, return receipt requested.
18. LEASE BINDING UPON HEIRS. The terms, covenants, conditions,
provisions and undertakings in this Lease shall extend to and be binding upon
the heirs, personal representatives, executors, administrators, successors and
assigns of such party, as if in each and every case so expressed.
19. RENOVATIONS. All renovations and modifications to the property will
be paid by Lessee.
9
<PAGE>
IN WITNESS WHEREOF, Lessor and Lessee have each executed this Lease
Agreement for the purposes and uses herein stated, in duplicate originals on the
day and year first above written.
LESSOR:
____________________________
MIRACLE MARINE, INC.
____________________________(SEAL)
MARKET AMERICA, INC.
10
<PAGE>
NORTH CAROLINA
GUILFORD COUNTY
I, Ms. Bonnie Loyd, a Notary Public for said County and State, do hereby
certify that Mr. James H. Ridinger and Mr. Joe Boylard, personally appeared
before me this day and acknowledged the due execution of the foregoing
instrument.
Witness my hand and official seal, this the 12, day of August, 1997.
________________________
Notary Public
My commission expires: _________________
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Statement of Financial Condition at October 31, 1997 (Unaudited) and the
Statement of Income for the three months ended October 31, 1997
(Unaudited) and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<CIK> 0000880121
<NAME> MARKET AMERICA, INC.
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-START> AUG-01-1997
<PERIOD-END> OCT-31-1997
<EXCHANGE-RATE> 1.000
<CASH> 24,415,912
<SECURITIES> 0
<RECEIVABLES> 30,993
<ALLOWANCES> 0
<INVENTORY> 1,990,886
<CURRENT-ASSETS> 26,584,331
<PP&E> 1,173,877
<DEPRECIATION> 371,419
<TOTAL-ASSETS> 27,466,366
<CURRENT-LIABILITIES> 6,814,676
<BONDS> 0
0
0
<COMMON> 199
<OTHER-SE> 20,417,971
<TOTAL-LIABILITY-AND-EQUITY> 27,466,366
<SALES> 21,729,643
<TOTAL-REVENUES> 21,729,643
<CGS> 3,275,930
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 13,234,175
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 5,435,959
<INCOME-TAX> 2,310,846
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,125,113
<EPS-PRIMARY> .16
<EPS-DILUTED> .16
</TABLE>
