The Marketing Alliance Announces Financial Results for its Fiscal 2020 Second Quarter Ended September 30, 2019

The Marketing Alliance, Inc. (OTC:MAAL) (“TMA” or the “Company”), today announced financial results for its fiscal 2020 second quarter ended September 30, 2019.

FY 2020 Second Quarter Financial Highlights (all comparisons to the prior year period)

• Revenues increased 7.4% to $8,695,723, largely due to higher commission and fee revenue in the insurance distribution business and higher construction revenue
• Operating income was $150,678, as compared to operating loss of $(48,144) in the prior year quarter, largely due to lower operating expenses during the quarter
• Operating EBITDA (excluding investment portfolio income and impairment charges) was $292,744, compared to $148,350 in the prior year quarter
• Non-operating investment gain, net, of $93,800 compared to a gain of $243,972 in the prior year quarter
• Net income was $120,710, or $0.02 per share, as compared to net income of $280,151, or $0.03 per share in the prior year period, reflecting an increase in revenues and operating profit in this period, which was offset by lower investment gain, net versus the previous year, and the impact of a non-operating gain of $248,138 last year generated from the sale of equipment in the prior year period

Management Comments

Timothy M. Klusas, TMA’s Chief Executive Officer, commented, “We were pleased to achieve over 7% revenue growth, largely due to higher commission income from our insurance distribution business. Over the past year, TMA has seen an acceleration in the adoption of digital applications across our agency network, as more agents prefer a streamlined option that reduces the time and redundancies of selling life insurance. Many of our carrier and agency partners have invested resources in these digital platforms, and we are serving to compound the effects of these investments by providing an enhanced call center that retains agent engagement and increases the speed of application processing. With a focus on improving the process behind the digital offerings of our agencies and carriers, we believe TMA is helping our agencies and their agents use technology to reach more customers.”

Mr. Klusas continued, “We were also pleased with the results in the construction and family entertainment businesses. Our construction business reported favorable top line growth, which served to reduce the “unevenness” mentioned last quarter where we incurred expenses without corresponding revenue. This happened when large projects expanded beyond their initial scope, and the timing of these supplemental revenues (above contract amounts) that arrived after the end of quarter. We completed highway projects for new customers that had the effect of offsetting a weak agricultural construction market due to low crop prices. The family entertainment business, while down in revenue in part due to fewer stores this year than last year, performed better due to cost reduction measures in the quarter. Overall, we were also pleased with the growth in operating income during the quarter, which was the result of both revenue increases and lower operating expenses for the period.”

Fiscal 2020 Second Quarter Financial Review

• Total revenues for the three-month period ended September 30, 2019, were $8,695,723 as compared to $8,098,472 in the prior year quarter. This was due mostly to increases in insurance commission and construction revenue which offset a decrease in family entertainment revenue relative to the prior year period, which was due in part to one less store than the previous year quarter.

• Net operating revenue (gross profit) for the quarter was $2,119,307 compared to net operating revenue of $2,292,352 in the prior-year fiscal period.

• Operating expenses decreased to $1,968,629, or 22.6% of total revenues for the fiscal 2020 second quarter, as compared to $2,340,496, or 28.9% of total revenues for the same period of the prior year. Operating expenses decreased as a percentage of total revenues, mainly due to lower compensation, rent, and depreciation and amortization expense in the quarter compared to the prior year quarter.

• The Company reported operating income of $150,678, compared to operating loss of $(48,144) in the prior-year period. This increase in operating income was partially the result of lower operating expense during the quarter, versus the prior year period, as previously mentioned.

• Operating EBITDA (excluding investment portfolio income) for the quarter was $292,744, compared to $148,350 in the prior year period. A note reconciling operating EBITDA to operating income can be found at the end of this release.

• Investment gain (loss), net (from non-operating investment portfolio) for the quarter was $93,800, as compared to $243,972 for the same quarter of the previous fiscal year.

• Net income for the fiscal 2020 second quarter was $120,710, or $0.02 per share, as compared to net income of $280,151, or $0.03 per share, in the prior year period. The decrease in net income was primarily due to lower investment gain, net in this period and the impact of non-operating income generated from a gain on the sale of excess construction equipment of $248,138 in the prior year quarter, which were offset by higher operating income in this quarter.

Fiscal 2020 Six Months Financial Review

• Total revenues for the six months ended September 30, 2019 were $17,631,427, compared to $16,009,140, for the prior-year period. Increases in insurance distribution revenues of approximately $1.7 million and an increase in construction revenue helped to offset a decrease in family entertainment revenue for the six-month period.

• Net operating revenue gross profit was $4,288,827, which compares to net operating revenue of $4,396,252 in the prior-year fiscal period.

• Operating expenses decreased in the first six months of this fiscal year compared to the same period last year driven by lower expenses across the business, including compensation, rent expense and other general and administrative expenses

• The Company reported operating income of $327,340 for the six months ended September 30, 2019, compared to an operating loss of ($222,487) for the prior-year period due to the factors discussed above.

• Operating EBITDA (excluding investment revenue) for the six months was $602,725 versus $153,347 in the prior-year period. A note reconciling Operating EBITDA to Operating Income can be found at the end of this release.

• Net income for the six months ended September 30, 2019, was $398,903 or $0.05 per share, compared to a net income of $123,359, or $0.02 per share, for the prior-year six-month period. The year over year increase was the result of higher operating income and higher investment gain compared to the prior year period. Net income was higher in this six month period even after taking into account the gain on sale of construction equipment of $248,138 during the prior year period.

Balance Sheet Information

• TMA’s balance sheet at September 30, 2019 reflected cash and cash equivalents of approximately $3.7 million, working capital of $7.2 million, and shareholders’ equity of $9.0 million; compared to cash and cash equivalents of approximately $3.6 million, working capital of $9.4 million, and shareholders’ equity of $10.1 million, at March 31, 2019.

About The Marketing Alliance, Inc.

Headquartered in St. Louis, MO, TMA operates three businesses. TMA provides support to independent insurance brokerage agencies, with a goal of providing 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 eight 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 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 the Department of Labor’s Fiduciary Rule in our annuity business, our ability to continue to diversify our earth moving and excavating business and our ability to increase revenue and reduce costs from our family entertainment 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, 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 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 and Six Months Ended September 30, 2019 and 2018
Unaudited
	Three Months Ended				Six Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
Commission and fee revenue	$ 7,176,583		$ 6,566,675		$ 14,829,512		$ 13,095,944
Family entertainment revenue	910,360		1,108,888		1,769,694		2,217,051
Construction revenue	576,280		373,972		979,621		614,708
Other operating income	32,500		48,937		52,600		81,437
Total revenues	8,695,723		8,098,472		17,631,427		16,009,140
Distributor related expenses:
Distributor bonuses and commissions	5,529,122		4,762,397		11,262,094		9,632,100
Business processing and distributor costs	389,057		377,569		776,214		782,875
Depreciation	1,650		110		2,700		4,200
	5,919,829		5,140,076		12,041,008		10,419,175
Costs of construction:
Direct and indirect costs of construction	366,637		308,952		792,997		498,065
Depreciation	20,800		16,500		31,200		33,000
	387,437		325,452		824,197		531,065
Family entertainment costs of sales	269,150		340,592		477,395		662,648
Total costs of revenues	6,576,416		5,806,120		13,342,600		11,612,888
Net operating revenue	2,119,307		2,292,352		4,288,827		4,396,252
Operating expenses	1,968,629		2,340,496		3,961,487		4,618,739
Operating income (loss)	150,678		(48,144)		327,340		(222,487)
Other income (expense):
Investment gain, net	93,800		243,972		383,178		285,751
Interest expense	(86,448)		(88,767)		(174,228)		(175,929)
Interest rate swap, fair value adjustment income (loss)	(6,697)		4,271		(32,987)		12,401
Swap settlement income (expense)	3,777		3,381		9,100		5,785
Gain (loss) on disposal of property and equipment	-		248,138		-		248,138
Income before provision for income taxes	155,110		362,851		512,403		153,659
Income tax expense (benefit)	34,400		82,700		113,500		30,300
Net income	$ 120,710		$ 280,151		$ 398,903		$ 123,359
Average Shares Outstanding	8,032,266		8,032,266		8,032,266		8,032,266
Operating Income per Share	$ 0.02		$ (0.01)		$ 0.04		$ (0.03)
Net Income per Share	$ 0.02		$ 0.03		$ 0.05		$ 0.02

CONSOLIDATED BALANCE SHEETS
As of September 30, 2019 and March 31, 2019
Unaudited
	September 30, 2019		March 31, 2019
ASSETS
Cash and cash equivalents	$ 3,719,677		$ 3,636,824
Investments	8,074,789		8,566,183
Receivables	11,319,338		11,086,215
Other	497,864		703,442
Total Current Assets	23,611,668		23,992,664
Property and Equipment, net	1,571,274		1,765,521
Intangible Assets, net	106,402		125,137
Operating lease right-of-use assets	3,741,605		-
Other	1,410,001		1,465,895
Total Non Current Assets	6,829,282		3,356,553
Total Assets	$ 30,440,950		$ 27,349,217
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities	16,408,947		14,570,833
Interest rate swap liability	-		-
Long Term Liabilities	5,057,528		2,676,682
Total Liabilities	21,466,475		17,247,515
Shareholders' Equity	8,974,475		10,101,702
Total Liabilities and Shareholders' Equity	$ 30,440,950		$ 27,349,217

Note – Operating EBITDA (excluding investment portfolio income)

Fiscal 2020 second quarter operating EBITDA (excluding investment portfolio income) was determined by adding fiscal 2020 second quarter operating income of $150,678 and depreciation and amortization expense of $142,066 for a total of $292,744. Fiscal 2019 second quarter operating EBITDA (excluding investment portfolio income) was determined by adding Fiscal 2019 second quarter operating loss of $(48,144) and depreciation and amortization expense of $196,494 for a total of $148,350.

Fiscal 2020 six months operating EBITDA (excluding investment portfolio income) was determined by adding fiscal 2019 six-month operating income of $327,340 and depreciation and amortization expense of $275,385 for a total of $602,725. Fiscal 2019 six months operating EBITDA (excluding investment portfolio income) was determined by adding fiscal 2019 six-month operating loss of ($222,487) and depreciation and amortization expense of $375,834 for a total of $153,347.

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.

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