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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 July 31, 1997
Commission file number 000-23250
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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 September 9, 1997.
19,950,000
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<PAGE>
PART I
ITEM 1 Statement of Financial Position as of July 31, 1997 and April 30, 1997
Statement of Operations for the Three Month Periods Ended
July 31, 1997 and 1996
Statement of Changes in Stockholders' Equity for the Three
Month Periods Ended July 31, 1997 and 1996
Statement of Cash Flows for the Three Month Periods Ended
July 31, 1997 and 1996
Notes to Financial Statements as of July 31, 1997
<PAGE>
Statement of Financial Position as of
MARKET AMERICA, INC. July 31, 1997 and April 30, 1997
- --------------------------------------------------------------------------------
ASSETS
(Unaudited)
July 31, April 30,
1997 1997
--------------- ----------------
CURRENT ASSETS
Cash and cash equivelents $ 20,713,393 $ 2,323,943
Short-term investments 17,294,869
Notes receivable, employees 56,624 58,095
Inventories 1,787,656 1,244,586
Other current assets 59,414 19,944
-------------- ---------------
Total current assets 22,617,087 20,941,437
-------------- ---------------
PROPERTY AND EQUIPMENT
Furniture and equipment 867,554 839,057
Software 128,840 128,840
Leasehold improvements 2,570 2,570
-------------- ---------------
998,964 970,467
Less accumulated depreciation 328,644 294,553
-------------- ---------------
Total property and equipment 670,320 675,914
-------------- ---------------
OTHER ASSETS
Restricted cash 74,964 74,077
-------------- ---------------
TOTAL ASSETS $ 23,362,371 $ 21,691,428
============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,447,249 $ 1,550,609
Sales and payroll taxes
payable 255,834 283,268
Commissions payable 1,286,537 1,516,365
Accrued compensation 118,273 276,212
Income taxes payable 1,638,395 1,866,021
Unearned revenue 806,700 1,026,022
Current portion of long-term
debt 261,366 250,254
-------------- ---------------
Total current liabilities 5,814,354 6,768,751
-------------- ---------------
LONG-TERM DEBT 254,960 281,707
-------------- ---------------
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 17,253,057 14,600,970
-------------- ---------------
Total stockholders' equity 17,293,057 14,640,970
-------------- ---------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 23,362,371 $ 21,691,428
============== ===============
The accompanying notes are an integral part of these financial statements.
<PAGE>
Statement of Operations for the Three Month
MARKET AMERICA, INC. Periods Ended July 31, 1997 and 1996
- --------------------------------------------------------------------------------
July 31, July 31,
1997 1996
------------ ------------
SALES $ 19,463,823 $15,684,671
COST OF SALES 2,652,779 2,968,885
------------ ------------
GROSS PROFIT 16,811,044 12,715,786
------------ ------------
OPERATING EXPENSES
Commissions 8,730,456 7,014,274
Salaries 1,010,694 868,023
Freight 927,487 709,419
Consulting 55,936 120,520
Rents 110,992 50,215
Depreciation and amortization 34,091 25,254
Other operating expenses 1,707,650 787,379
------------ ------------
Total operating expenses 12,577,306 9,575,084
------------ ------------
INCOME FROM OPERATIONS 4,233,738 3,140,702
------------ ------------
OTHER INCOME (LOSS)
Interest income 172,323 112,998
Loss on disposal of assets (4,595)
Miscellaneous 34,886 60,502
------------ ------------
Total other income 207,209 168,905
------------ ------------
INCOME BEFORE TAXES 4,440,947 3,309,607
PROVISION FOR INCOME TAXES 1,788,860 1,315,328
------------ ------------
NET INCOME $ 2,652,087 $ 1,994,279
============ ============
NET INCOME PER SHARE $ .13 $ .10
The accompanying notes are an integral part of these financial statements.
<PAGE>
Statement of Changes in Stockholders' Equity for the
MARKET AMERICA, INC. Three Month Periods Ended July 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 April 30, 1996 19,950,000 $ 199 $ 39,801 $ 6,129,749 $ 6,169,749
Net income 1,994,279 1,994,279
----------- ---------- -------- ----------- -----------
Balances at July 31, 1996 19,950,000 $ 199 $ 39,801 $ 8,124,028 $ 8,164,028
=========== ========== ======== =========== ===========
Balances at April 30, 1997 19,950,000 $ 199 $ 39,801 $14,600,970 $14,640,970
Net income 2,652,087 2,652,087
----------- ---------- -------- ----------- -----------
Balances at July 31, 1997 19,950,000 $ 199 $ 39,801 $17,253,057 $17,293,057
=========== ========== ======== ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Statement of Changes in Stockholders' Equity for the
MARKET AMERICA, INC. Three Month Periods Ended July 31, 1997 and 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
July 31, July 31,
1997 1996
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,652,087 $ 1,994,279
Add items not requiring the use of cash
Loss on sale of assets 4,595
Depreciation and amortization 34,091 25,254
(Increase) in employee advances (3,500)
Decrease in interest receivable 1,236
(Increase) in inventories (543,070) (539,291)
(Increase) decrease in other current assets (39,470) 12,502
Increase (decrease) in accounts payable (103,360) 169,175
(Decrease) in taxes payable (255,060) (141,831)
(Decrease) in commission payable (229,828) (794,062)
(Decrease) in accrued compensation (157,939) (324,271)
Increase (decrease) in unearned revenue (219,322) 185,520
---------- ----------
NET CASH PROVIDED FROM OPERATING ACTIVITIES 1,138,129 589,606
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of short-term investments 17,294,869
Decrease in notes receivable, employees 1,471 30,203
Purchase of equipment (28,497) (33,393)
Sale of long-term investment 125,405
Increase in restricted cash (887)
----------- -----------
NET CASH PROVIDED FROM INVESTING ACTIVITIES 17,266,956 122,215
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on notes payable (15,635) (131,550)
----------- -----------
NET INCREASE IN CASH 18,389,450 580,271
CASH AT BEGINNING OF PERIOD 2,323,943 10,455,908
----------- -----------
CASH AT END OF PERIOD $20,713,393 $11,036,179
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Notes to Financial Statements
MARKET AMERICA, INC. As of July 31, 1997
- --------------------------------------------------------------------------------
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, 1997.
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 ANAYLSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
As of May 1, 1997, the company began its sixth year of operations.
Sales and net income continued to increase, with sales climbing to $19,463,823
for the quarter ended July 31, 1997, and net income reaching $2,652,087. Sales
increased 24% compared to the quarter ended July 31, 1996, and the net income
increased 33% over the same quarter. As of July 31, 1997, current assets
exceeded current liabilities by $16,802,733, for a current ratio of 3.89 to 1.
This compares with a current ratio of 3.02 to 1 for the quarter ended July 31,
1996. Total assets have increased over $10,000,000 (from $13,195,544 to
$23,362,371) from July 31, 1996 to July 31, 1997.
The increase in sales for the quarter ending July 31, 1997 is
attributable to the continued expansion of the independent sales force and its
above average retention rate. Management believes that customer purchases
continue to grow due to the variety and quality of products available and the
convenient manner in which purchases can be made.
The company's gross profit percentage of 86% for the quarter ended July
31, 1997 is a 5% improvement over the 81% gross profit percentage for the
quarter ending July 31, 1996. Commissions paid out to distributors remained
constant at 45% of gross sales. Other expenses increased $920,271 to $1,707,650
for the quarter ended July 31, 1997. This was primarily attributable to higher
mailing costs due to the United Parcel Service strike, revision of the Company's
marketing video, and production expenses relating to the Company's recently
introduced individually blended cosmetics line. Interest income increased
approximately $60,000 (53%) to $172,000 during the three months ending July 31,
1997, due primarily to increases in cash and short term investments. Management
continues to focus on earning the highest possible yields for its cash and
short-term investments while maintaining low risk.
Liquidity & Capital Resources
Cash and cash equivalents increased approximately $18.4 million to
$20.7 million for the three months ending July 31, 1997. The increase is
primarily attributed to the conversion of $17.3 million of short-term
investments to cash. The company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash equivalents.
Continued record sales growth has forced the Company to re-evaluate its
present office and warehouse facilities. The current lease expires October 31,
1997 and the company has not yet renewed it. Management is presently
investigating various options but no commitments or contingencies relating to
this matter exist at this time. Management believes that the future working
capital needs of the company can be satisfied by cash generated from operations.
Net cash provided from operating activities was $1.1 million for the quarter
ended July 31, 1997. A capital building project, however, would require the use
of cash reserves or require outside financing. At this time, it is premature to
predict or estimate the extent of any capital project since management is
presently evaluating the situation.
Stockholder's equity increased $2.7 million to $17.3 million during the
three months ended July 31, 1997. Sales of $19.5 million for the quarter were up
24% compared to the quarter ended July 31, 1996. Payment of dividends is at the
sole discretion of the Board of Directors. At this time, there are no plans to
declare or pay any dividends.
<PAGE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANAYLSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - continued
The Company has been able to control material cost increases by its
suppliers through increased sales volumes and volume purchases. Market America
has attracted manufacturers from around the world, keeping many of them
performing at peak capacity. All purchases by the company, as well as sales to
distributors, are in U.S. dollars.
The Company is a plaintiff and defendant in various lawsuits arising in
the ordinary course of business. In the opinion of the Company's legal counsel
and management, any liability resulting from such litigation will not be
material in relation to the Company's financial position.
<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
Notification of change of auditors for the fiscal year
ended April 30, 1997, filed on July 23, 1997, amended on
August 21, 1997.
<PAGE>
_______________________________________________________________________________
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 September 15, 1997 /s/ James H. Ridinger
------------------ -----------------------------------
James H. Ridinger, President and CEO
(Principal Executive Officer and
Principal Financial Officer)
<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
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extractd from the
Statement of Financial Position at July 31, 1997 (Unaudited) and the Statement
of Operations for the three months ended July 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-30-1997
<PERIOD-START> MAY-01-1997
<PERIOD-END> JUL-31-1997
<EXCHANGE-RATE> 1.000
<CASH> 20,713,393
<SECURITIES> 0
<RECEIVABLES> 56,624
<ALLOWANCES> 0
<INVENTORY> 1,787,656
<CURRENT-ASSETS> 22,617,087
<PP&E> 998,964
<DEPRECIATION> 328,644
<TOTAL-ASSETS> 23,362,371
<CURRENT-LIABILITIES> 5,814,354
<BONDS> 0
0
0
<COMMON> 199
<OTHER-SE> 17,292,858
<TOTAL-LIABILITY-AND-EQUITY> 23,362,371
<SALES> 19,463,823
<TOTAL-REVENUES> 19,463,823
<CGS> 2,652,779
<TOTAL-COSTS> 2,652,779
<OTHER-EXPENSES> 12,577,306
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 4,440,947
<INCOME-TAX> 1,788,860
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,652,087
<EPS-PRIMARY> 0.13
<EPS-DILUTED> 0.13
</TABLE>
