The Marketing Alliance Announces Financial Results for its Fiscal 2021 First Quarter Ended June 30, 2020

ST. LOUIS--(BUSINESS WIRE)--The Marketing Alliance, Inc. (OTC: MAAL) (“TMA” or the “Company”), today announced financial results for its fiscal 2021 first quarter ended June 30, 2020.

FY 2021 First Quarter Financial Highlights (all comparisons to the prior year period)

• Revenues decreased to $7,601,566 compared to $8,935,704, largely due to a $855,123 decline in family entertainment revenues as the Company was forced to close its family entertainment locations during the quarter due to the COVID-19 pandemic
• Commission and fee revenues from the Company’s core insurance distribution business declined slightly (down 3.6%) despite disruption due to the pandemic
• Operating loss was ($46,083), as compared to operating income of $176,662 in the prior year quarter. The loss was largely due to reduced revenues in the family entertainment business
• Operating EBITDA (excluding investment portfolio income) was $61,228, compared to $309,981 in the prior year quarter
• Non-operating investment gain, net, of $540,569 compared to a gain of $289,378 in the prior year quarter
• Net income for the quarter was $318,565, or $0.04 per share, as compared to net income of $278,193, or $0.03 per share, in the prior year period

Management Comments

Timothy M. Klusas, TMA’s Chief Executive Officer, commented, “Despite the challenges and disruptions caused by the pandemic, our team’s actions served to mitigate these impacts in each of our businesses. In the insurance distribution business, we were well-prepared due to our past work with our agency and carrier partners to implement digital processes in the life insurance application process through our call center. Our agencies offered their brokers processes that minimized in-person exams and contact through our call center that allowed them to find acceptable coverage for their clients. While the pandemic has certainly created obstacles to completing applications such as clients deferring in-person medical exams, difficulties in medical record retrieval from vacated physician offices, and carriers instituting temporary waiting periods due to COVID, we felt these delays began to abate through the period and saw adoption of modern digital processes by our agencies brokers almost by necessity. Our construction business did not have the emergency work that we had in the period last year, but we did a better job managing projects which resulted in better results on the bottom line. We were able to observe additional appropriate safety requirements in this business and except for not being able to meet with engineers and large contractors in person on future projects, our business performed well.”

Mr. Klusas concluded, “As we discussed in previous quarters, the largest impact on our operations was the COVID-19 impact on our family entertainment business because of the uncertainty around the future of a business that features indoor exercise and large gatherings. This uncertainty regarding the prospects of the business led us to aggressively write down the related asset values while leaving TMA in a position where we could evaluate the business as the situation changes. While all locations were closed to the public during the quarter and remain closed as of today, we also permanently closed two locations, reducing our number of locations from six to four.”

Fiscal 2021 First Quarter Financial Review

• Total revenues for the three-month period ended June 30, 2020 were $7,601,566 as compared to $8,935,704 in the prior year quarter. This decrease was due mostly to a decrease in family entertainment revenue relative to the prior year period, less revenue in the construction business as we did not pursue emergency work versus the prior year (which had the effect of greater reductions in costs leading to an increase in gross profit), and a decrease in insurance revenue due to some of the challenges in completing applications during the pandemic mentioned above.

• Net operating revenue (gross profit) for the quarter was $1,374,155, compared to net operating revenue of $2,169,520 in the prior-year fiscal period. The decline was due to lower gross profit in the family entertainment business but was offset by higher gross profit in the construction business.

• Operating expenses decreased to $1,420,238, or 18.7% of total revenues for the fiscal 2020 first quarter, as compared to $1,992,858, or 22.3% of total revenues for the same period of the prior year. The reduction in operating expenses was due in part to less rent and compensation expenses of six family entertainment locations, versus nine in the previous year period, and less travel and meetings due to the pandemic.

• The Company reported an operating loss of ($46,083), compared to operating income of $176,662 in the prior-year period. This operating loss for the period was in part the result of the aforementioned impacts on the family entertainment business due to COVID-19, with the reductions in revenue not being fully offset by reduced expenses.

• Operating EBITDA (excluding investment portfolio income) was $61,228, compared to $309,981 in the prior year quarter. A note reconciling operating EBITDA to operating income can be found at the end of this release.

• Investment gain, net (from non-operating investment portfolio) for the quarter was $540,569, as compared to $289,378 for the same quarter of the previous fiscal year.

• Net income for the fiscal 2021 first quarter was $318,565, or $0.04 per share, as compared to net income of $278,193, or $0.03 per share, in the prior year period. The increase was largely due to higher investment income due to unrealized gains from the Company’s equity portfolio at June 30, 2020, when compared to the prior year period.

Balance Sheet Information

• TMA’s balance sheet at June 30, 2020, reflected cash and cash equivalents of $1,489,730, working capital of $7,140,318, and shareholders’ equity of $7,216,071; compared to cash and cash equivalents of $2,130,973, working capital of $10,241,394, and shareholders’ equity of $7,299,119 as of March 31, 2020. Due to collateral requirements related to refinancing bank debt in the quarter, the Company lists Restricted Cash separately on the balance sheet from cash and cash equivalents to reflect the cash balances collateralizing debt and specifies in Current Assets the restricted amount scheduled to become unrestricted in the next twelve months.

About The Marketing Alliance, Inc.

Headquartered in St. Louis, MO, TMA provides support to independent insurance brokerage agencies, with a goal of integrating insurtech engagement platforms to provide members value-added services on a more efficient basis than they can achieve individually. The Company also owns an earth moving and excavating (construction) business and four children’s play and party facilities. Investor information can be accessed through the shareholder section of TMA’s website at: http://www.themarketingalliance.com/shareholder-information.

TMA’s common stock is quoted on the OTC Markets (http://www.otcmarkets.com) under the symbol “MAAL”.

Forward Looking Statement

Investors are cautioned that forward-looking statements involve risks and uncertainties that may affect TMA's business and prospects. Examples of forward-looking statements include, among others, statements we make regarding our expectations for our performance, and our ability and intent to pay dividends in future periods and the production of favorable returns to shareholders, our ability to obtain industry acceptance and competitive advantages of a multi-carrier digital platform for life insurance applications, our expectations with respect to the distribution of new life insurance products, the effects of ongoing uncertainty regarding our annuity business and our ability to continue to diversify our earth moving and excavating business. Any forward-looking statements contained in this press release represent our estimates, expectations or intentions only as of the date hereof, or as of such earlier dates as are indicated, and should not be relied upon as representing our views as of any subsequent date. These statements involve a number of risks and uncertainties, including, but not limited to, the effect of the COVID-19 pandemic on our business, financial condition and results of operations, as well as the pandemic’s effect of heightening other risks within our business, privacy and cyber security regulations, expectations of the economic environment; material adverse changes in economic conditions in the markets we serve and in the general economy; future state and federal regulatory actions and conditions in the states in which we conduct our business; our ability to work with carriers on marketing, distribution and product development; pricing and other payment decisions and policies of the carriers in our insurance distribution business, changes in the public securities markets that affect the value of our investment portfolio, weather and environmental conditions in the areas served by our earth moving and excavation business, the integration of our operations with those of businesses or assets we have acquired or may acquire in the future and the failure to realize the expected benefits of such acquisition and integration. While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so.

CONSOLIDATED STATEMENTS OF OPERATIONS Three Months Ended June 30, 2020 and June 30, 2019 Unaudited
	Three Months Ended June 30,
		2020			2019
Commission and fee revenue	$	7,378,706		$	7,652,929
Family entertainment revenue		4,211			859,334
Construction revenue		218,649			403,341
Other operating revenue		-			20,100
Total revenues		7,601,566			8,935,704
Insurance distributor related expenses:
Distributor bonuses and commissions		5,642,818			5,732,972
Business processing and distributor costs		427,042			387,157
Depreciation		6,600			1,050
		6,076,460			6,121,179
Costs of construction:
Direct and indirect costs of construction		114,465			426,360
Depreciation		15,600			10,400
		130,065			436,760
Family entertainment costs of sales		20,886			208,245
Total costs of revenues		6,227,411			6,766,184
Net operating revenue		1,374,155			2,169,520
Operating expenses		1,420,238			1,992,858
Operating (loss) income		(46,083	)		176,662
Other income (expense):
Investment gain, net		540,569			289,378
Interest expense		(47,129	)		(87,780	)
Interest rate swap, fair value adjustment loss		(216	)		(26,290	)
Interest rate swap settlement income		(2,846	)		5,323
Net gain on disposal of property, equipment, and operating entities		(25,130	)		-
Income before provision for income taxes		419,165			357,293
Income tax expense		100,600			79,100
Net income	$	318,565		$	278,193
Average Shares Outstanding		8,032,266			8,032,266
Operating Income per Share	$	(0.01	)	$	0.02
Net Income per Share	$	0.04		$	0.03

CONSOLIDATED BALANCE SHEETS As of June 30, 2020 and March 31, 2020 Unaudited
	June 30, 2020		March 31, 2020
ASSETS
Cash and cash equivalents	$	1,489,730	$	2,130,973
Investments		4,709,810		6,762,510
Restricted Cash		507,800		-
Receivables		12,392,060		12,642,870
Other		627,782		716,576
Total Current Assets		19,727,182		22,252,929
Property and Equipment, net		1,267,284		1,072,685
Restricted Cash		3,492,200		-
Intangible Assets, net		11,663		28,815
Operating lease right-of-use assets		1,907,597		3,091,711
Other		732,696		878,725
Total Non Current Assets		7,411,440		5,071,936
Total Assets	$	27,138,622	$	27,324,865
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities		12,586,864		12,011,535
Long Term Liabilities		7,335,687		8,014,211
Total Liabilities		19,922,551		20,025,746
Shareholders' Equity		7,216,071		7,299,119
Total Liabilities and Shareholders' Equity	$	27,138,622	$	27,324,865

Note – Operating EBITDA (excluding investment portfolio income)

Fiscal 2021 first quarter operating EBITDA (excluding investment portfolio income) was determined by adding fiscal 2021 first quarter operating loss of ($46,083) and depreciation and amortization expense of $107,311 for a total of $61,228. Fiscal 2020 first quarter operating EBITDA (excluding investment portfolio income) was determined by adding fiscal 2020 first quarter operating income of $176,662 and depreciation and amortization expense of $133,319 for a total of $309,981.

The Company elects not to include investment portfolio income because the Company believes it is non-operating in nature.

The Company uses Operating EBITDA as a measure of operating performance. However, Operating EBITDA is not a recognized measurement under U.S. generally accepted accounting principles, or GAAP, and when analyzing its operating performance, investors should use Operating EBITDA in addition to, and not as an alternative for, income as determined in accordance with GAAP. Because not all companies use identical calculations, its presentation of Operating EBITDA may not be comparable to similarly titled measures of other companies and is therefore limited as a comparative measure. Furthermore, as an analytical tool, Operating EBITDA has additional limitations, including that (a) it is not intended to be a measure of free cash flow, as it does not consider certain cash requirements such as tax payments; (b) it does not reflect changes in, or cash requirements for, its working capital needs; and (c) although depreciation and amortization are non-cash charges, the assets being depreciated and amortized often will have to be replaced in the future, and Operating EBITDA does not reflect any cash requirements for such replacements, or future requirements for capital expenditures or contractual commitments. To compensate for these limitations, the Company evaluates its profitability by considering the economic effect of the excluded expense items independently as well as in connection with its analysis of cash flows from operations and through the use of other financial measures.

The Company believes Operating EBITDA is useful to an investor in evaluating its operating performance because it is widely used to measure a company’s operating performance without regard to certain non-cash or unrealized expenses (such as depreciation and amortization) and expenses that are not reflective of its core operating results over time. The Company believes Operating EBITDA presents a meaningful measure of corporate performance exclusive of its capital structure, the method by which assets were acquired and non-cash charges, and provides additional useful information to measure performance on a consistent basis, particularly with respect to changes in performance from period to period.