10-Q 1 mcaribe10q_march2002.txt ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended March 31, 2002 [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission File No. 0-15336 MARGO CARIBE, INC. A Puerto Rico Corporation - I.R.S. No. 66-0550881 Address of Principal Executive Offices: Road 690, Kilometer 5.8 Vega Alta, Puerto Rico 00692 Registrant's Telephone Number: (787) 883-2570 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 and (2) has been subject to the filing requirements for the past 90 days. YES X NO ------- ------- The registrant had 1,883,822 shares of common stock, $.001 par value, outstanding as of March 14, 2002. ================================================================================ MARGO CARIBE, INC. AND SUBSIDIARIES FORM 10-Q FOR THE FIRST QUARTER ENDED MARCH 31, 2002 TABLE OF CONTENTS PART I ------ Page ---- ITEM 1. FINANCIAL STATEMENTS -------------------- Condensed Consolidated Balance Sheets 4 Condensed Consolidated Statements of Operations 5 Condensed Consolidated Statement of Shareholders' Equity 6 Condensed Consolidated Statements of Cash Flows 7 Notes to Condensed Consolidated Financial Statements 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS ----------------------------------------------- OF OPERATIONS AND FINANCIAL CONDITION 13 ------------------------------------- ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT ---------------------------------------------- MARKET RISK 18 ----------- PART II ------- ITEM 1. LEGAL PROCEEDINGS 19 ----------------- ITEM 2. CHANGES IN SECURITIES 19 --------------------- ITEM 3. DEFAULTS UPON SENIOR SECURITIES 19 ------------------------------- ITEM 4. SUBMISSION OF MATTERS TO A VOTE 19 ------------------------------- OF SECURITY HOLDERS ------------------- ITEM 5. OTHER INFORMATION 19 ----------------- ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 19 -------------------------------- SIGNATURES ---------- 2 FORWARD LOOKING STATEMENTS When used in this Form 10-Q or future filings by the Company with the Securities and Exchange Commission, in the Company's press releases or other public or shareholder communications, or in oral statements made with the approval of an authorized executive officer, the words or phrases "would be", "will allow", "intends to", "will likely result", "are expected to", "will continue", "is anticipated", "believes", "estimate", "project", or similar expressions are intended to identify "forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. The Company wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made, and to advise readers that various factors, including regional and national economic conditions, natural disasters, competitive and regulatory factors and legislative changes, could affect the Company's financial performance and could cause the Company's actual results for future periods to differ materially from those anticipated or projected. The Company does not undertake, and specifically disclaims any obligation, to update any forward-looking statements to reflect occurrences or unanticipated events or circumstance after the date of such statements. 3 MARGO CARIBE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS March 31, 2002 and December 31, 2001 (Unaudited) ASSETS ------ 2002 2001 ----------- ----------- Current assets: Cash and equivalents $ 624,623 $ 838,921 Accounts receivable, net 2,084,777 1,798,251 Inventories 3,416,133 3,510,381 Current portion of note receivable -- 26,331 Prepaid expenses and other current assets 329,548 296,482 ----------- ----------- Total current assets 6,455,081 6,470,366 Property and equipment, net 1,336,647 1,398,689 Land held for future development 1,060,936 1,053,406 Notes receivable 42,164 42,164 Other assets 44,396 44,396 ----------- ----------- Total assets $ 8,939,224 $ 9,009,021 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ Current liabilities: Current portion of long-term debt $ 105,128 $ 129,047 Notes payable 1,930,500 1,930,500 Accounts payable 636,026 868,071 Accrued expenses 200,256 194,294 ----------- ----------- Total current liabilities 2,871,910 3,121,912 Long-term debt 307,528 307,528 ----------- ----------- Total liabilities 3,179,438 3,429,440 ----------- ----------- Commitments and contingencies Shareholders' equity: Preferred stock, $0.01 par value; 250,000 shares authorized, no shares issued -- -- Common stock, $.001 par value; 10,000,000 shares authorized; 1,923,622 shares issued, and 1,883,822 shares outstanding 1,924 1,924 Additional paid-in capital 4,659,792 4,659,792 Retained earnings 1,194,358 1,014,153 Treasury stock, 39,800 common shares,at cost (96,288) (96,288) ----------- ----------- Total shareholders' equity 5,759,786 5,579,581 ----------- ----------- Total liabilities and shareholders' equity $ 8,939,224 $ 9,009,021 =========== =========== See accompanying notes to condensed consolidated financial statements. 4 MARGO CARIBE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS For the Three Months ended March 31, 2002 and 2001 2002 2001 ----------- ----------- Net sales $ 2,319,703 $ 2,169,761 Cost of sales 1,405,629 1,389,433 ----------- ----------- Gross profit 914,074 780,328 Selling, general and administrative expenses 727,244 692,654 ----------- ----------- Income from operations 186,830 87,674 ----------- ----------- Other income (expense): Interest income 3,468 14,986 Interest expenses (17,400) (32,717) Miscellaneous income 7,307 1,401 ----------- ----------- (6,625) (16,330) ----------- ----------- Net income $ 180,205 $ 71,344 =========== =========== Basic income per common share $ .10 $ .04 =========== =========== Diluted income per common share $ .09 $ .04 =========== =========== See accompanying notes to condensed consolidated financial statements. 5

MARGO CARIBE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY Three Months ended March 31, 2002 (Unaudited) Common stock Common Additional shares stock paid-in Retained Treasury outstanding amount capital earnings stock Total ----------- ---------- ---------- ---------- ---------- ---------- Balance at December 31, 2001 1,883,822 $ 1,924 $4,659,792 $1,014,153 $ (96,288) $5,579,581 Net income -- -- -- 180,205 -- 180,205 ---------- ---------- ---------- ---------- ---------- ---------- Balance at March 31, 2002 1,883,822 $ 1,924 $4,659,792 $1,194,358 $ (96,288) $5,759,786 ========== ========== ========== ========== ========== ========== See accompanying notes to condensed consolidated financial statements.

6 MARGO CARIBE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Three Months Ended March 31, 2002 and 2001 (Unaudited) 2002 2001 --------- --------- Cash flows from operating activities: ------------------------------------- Net income $ 180,205 $ 71,344 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 121,017 118,444 Provision for uncollectible accounts receivable 7,500 6,000 Gain on disposition of vehichle (6,287) -- Changes in assets and liabilities affecting cash flows from operating activities: Accounts receivable (294,026) (129,189) Inventories 94,248 (183,679) Prepaid expenses and other current assets (33,066) 31,735 Other assets -- (904) Accounts payable (232,045) (100,192) Accrued expenses 5,962 (2,788) --------- --------- Net cash used in operating activities (156,492) (189,229) --------- --------- Cash flows from investing activities: ------------------------------------- Additions to property and equipment (28,188) (125,509) Collection of amount due from shareholder -- 63,774 Increase in notes receivable -- (4,999) Repayment of notes receivable 26,331 -- Investment in land held for future development (7,530) -- --------- --------- Net cash used in investing activities (9,387) (66,734) --------- --------- Cash flows from financing activities: ------------------------------------- Repayment of long-term debt (48,419) (25,881) --------- --------- Net cash used in financing activities (48,419) (25,881) --------- --------- Net decrease in cash (214,298) (281,844) -------------------- Cash and equivalents at beginning of period 838,921 973,061 ------------------------------------------------ --------- --------- Cash and equivalents at end of period $ 624,623 $ 691,217 ------------------------------------------------ ========= ========= See accompanying notes to condensed consolidated financial statements. 7 MARGO CARIBE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS March 31, 2002 (Unaudited) Note 1 - Basis of Presentation ------------------------------ These interim condensed consolidated financial statements include the financial statements of Margo Caribe, Inc. and its wholly-owned subsidiaries (collectively "the Company"), Margo Nursery Farms, Inc., Margo Landscaping and Design, Inc., Margo Garden Products, Inc., Rain Forest Products Group, Inc., Margo Flora, Inc., Garrochales Construction and Development Corporation and Margo Development Corporation. These interim condensed consolidated financial statements are unaudited, but include all adjustments that, in the opinion of management, are necessary for a fair presentation of the Company's financial position, results of operations and cash flows for the periods covered. These statements have been prepared in accordance with the United States Securities and Exchange Commission's instructions to Form 10-Q, and therefore, do not include all information and footnotes necessary for a complete presentation of financial statements in conformity with accounting principles generally accepted in the United States of America. The preparation of interim financial statements relies on estimates. Therefore, the results of operations for the three months ended March 31, 2002 are not necessarily indicative of the operating results to be expected for the year ending December 31, 2002. These statements should be read in conjunction with the Company's Consolidated Financial Statements and Notes thereto included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2001. Note 2 - Use of Estimates in the Preparation of Financial Statements -------------------------------------------------------------------- The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 8 The allowance for doubtful accounts is an amount that management believes will be adequate to absorb estimated losses on existing accounts receivable that become uncollectible based on evaluations of collectibility of specific customers and their prior credit experience. Because of uncertainties inherent in the estimation process, management's estimate of credit losses inherent in the existing accounts receivable and related allowance may change in the near term. Direct and indirect costs that are capitalized as part of inventory of plant material which management estimates cannot be recovered from future sales of plant inventory are charged to cost of sales. Management's determination of the amount of capitalized costs that should be charged to cost of sales is based on historical sales experience and its judgement with respect to the future marketability of the inventory. Note 3 - Inventories -------------------- At March 31, 2002 and December 31, 2001, inventories included the following: Description 2002 2001 --------------------------- ---------- ----------- Plant material $2,858,730 $2,813,920 Lawn and garden products 322,964 362,273 Raw materials and supplies 234,439 334,188 ---------- ---------- $3,416,133 $3,510,381 ========== ========== Note 4 - Property and Equipment ------------------------------- At March 31, 2002 and December 31, 2001 property and equipment included the following: Description 2002 2001 ----------------------------- ---------- ---------- Leasehold improvements $1,389,800 $1,364,949 Equipment and fixtures 1,589,012 1,585,675 Transportation equipment 474,615 460,232 Real estate property 224,327 224,327 --------- ---------- 3,677,754 3,635,183 Less accumulated depreciation and amortization (2,341,107) (2,236,494) ---------- ---------- $1,336,647 $1,398,689 ========== ========== 9 Note 5 - Income (loss) per Common Share --------------------------------------- The Company reports its earnings per share (EPS) using Financial Accounting Standards Board Statement No. 128, Earnings Per Share ("SFAS 128"). SFAS 128 requires dual presentation of basic and diluted EPS. Basic EPS is computed by dividing income attributable to common stockholders by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. Basic and diluted income per common share for the periods ended March 31, 2002 and 2001 were determined as follows: Three Months ended March 31, Basic income per common share: 2002 2001 ----------------------------- ---------- ---------- Net income attributable to common shareholders $ 180,205 $ 71,344 ========== ========== Weighted average number of common shares outstanding 1,883,822 1,882,322 ========== ========== Basic income per common share $ .10 $ .04 ========== ========== Diluted income per common share: ------------------------------- Net income attributable to common shareholders $ 180,205 $ 71,344 ========== ========== Weighted average number of common shares outstanding 1,883,822 1,882,322 Plus incremental shares from assumed exercise of stock options 51,963 7,268 ---------- ---------- Adjusted weighted average shares 1,935,785 1,889,590 ========== ========== Diluted income per common share $ .09 $ .04 ========== ========== Note 6 - Segment Information ---------------------------- The Company reports its segment information pursuant to Financial Accounting Standards Board Statement No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131"). SFAS 131 establishes standards for the way an enterprise reports information about operating segments in annual financial statements and requires that enterprises report selected information about operating segments in interim financial reports issued to shareholders. Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing 10 performance. The Statement requires a reconciliation of total segment revenue and expense items and segment assets to the amounts in the enterprise's financial statements. SFAS 131 also requires a descriptive report on how the operating segments were determined, the products and services provided by the operating segments, and any measurement differences used for segment reporting and financial statement reporting. The Company's management monitors and manages the financial performance of three primary business segments: the production and distribution of plants, sales of lawn and garden products and landscaping services. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company evaluates performance based on net income or loss. The financial information presented below was derived from the Company's accounting system and is based on internal management accounting policies. The information presented does not necessarily represent each segments's financial condition and results of operations as if they were independent entities. The Company's segment information for the three months ended March 31, 2002 and 2001, is as follows:

Three Months ended March 31, 2002 Lawn & Garden -------------------------------------------------- Plants Products Landscaping Totals -------------------------------------------------- Revenues from external customers $ 909,956 $ 716,225 $ 693,522 $2,319,703 Intersegment revenues 119,249 21,988 -- 141,237 Interest income 3,468 -- -- 3,468 Interest expense 17,400 -- -- 17,400 Depreciation and amortization 105,837 10,059 5,121 121,017 Segment income (loss) 37,230 50,154 92,821 180,205 Segment assets 6,706,440 1,149,878 1,082,906 8,939,224 Expenditures for segment assets 28,188 -- -- 28,188

11

Three Months ended March 31, 2001 Lawn & Garden -------------------------------------------------- Plants Products Landscaping Totals -------------------------------------------------- Revenues from external customers $1,078,549 $ 663,236 $ 427,976 $2,169,761 Intersegment revenues 32,894 16,809 -- 49,703 Interest income 14,986 -- -- 14,986 Interest expense 32,717 -- -- 32,717 Depreciation and amortization 102,808 9,971 5,665 118,444 Segment income (loss) 68,165 28,599 (25,420) 71,344 Segment assets 7,723,302 1,063,383 531,194 9,317,879 Expenditures for segment assets 125,509 -- -- 125,509

Note 7 - Supplemental Disclosures for the Consolidated Statements of Cash Flows ------------------------------------------------------------------------------- a) Non-Cash Investing Activities ----------------------------- During the three months ended March 31, 2002, the Company applied a certificate of deposit amounting to $500,000 to pay off a note that was secured by such certificate. Subsequently, during this same period, the Company opened a certificate of deposit amounting to $500,000 with the proceeds from a note payable to another financial institution. The Company also traded-in a vehicle with a book value of approximately $700, for a new vehicle with a cost of $31,500, receiving $7,000 as trade-in value for the old vehicle, and assuming a related debt of $24,500. During the three months ended March 31, 2001, the Company transferred unamortized leasehold improvements with a cost of $331,456 and a book value of $45,384 as an amount due from shareholder, in connection with a commitment made by the shareholder regarding the termination of a lease agreement of a 27 acre parcel of land previously leased to the Company. b) Other Cash Flow Transactions ---------------------------- Other cash flow transactions for the three months ended March 31, 2002 and 2001, include interest payments amounting to approximately $17,200 and $39,000, respectively. There were no income tax payments for the three months ended March 31, 2002 and 2001. 12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND ----------------------------------------------------------------------- FINANCIAL CONDITION ------------------- Margo Caribe, Inc. and its subsidiaries, (collectively, the "Company") are in the business of growing, distributing and installing tropical plants and trees. The Company is also engaged in the manufacturing and distribution of its own line ("Rain Forest") of planting media and aggregates, the distribution of lawn and garden products and also provides landscaping design and installation services. The Company's real estate development division is currently permitting and designing an affordable housing project in the Municipality of Arecibo, Puerto Rico. PRINCIPAL OPERATIONS -------------------- The Company's operations are focused in the Commonwealth of Puerto Rico ("Puerto Rico"). These operations are conducted at a 92 acre nursery farm in Vega Alta, Puerto Rico, approximately 25 miles west of San Juan, and a 13 acre nursery in the Municipality of Barranquitas, Puerto Rico. The 92 acre farm is leased from Michael J. Spector and Margaret Spector, who are directors, officers and principal shareholders of the Company. The 13 acre nursery in Barranquitas is leased from Cali Orchids, Inc., an unrelated third party. The Company's operations include Margo Caribe, Inc. (the holding company), Margo Nursery Farms, Inc. ("Nursery Farms"), Margo Landscaping & Design, Inc. ("Landscaping"), Margo Garden Products, Inc. ("Garden Products"), Rain Forest Products Group, Inc. ("Rain Forest"), Margo Flora, Inc., Garrochales Construction and Development Corporation and Margo Development Corporation, all Puerto Rico corporations. Nursery Farms, which operates under the trade name of Margo Farms del Caribe, is engaged in the production and distribution of tropical and flowering plants. Its products are primarily utilized for the interior and exterior landscaping of office buildings, shopping malls, hotels and other commercial sites, as well as private residences. In Vega Alta, Nursery Farms produces various types of palms, flowering and ornamental plants, trees, shrubs, bedding plants and ground covers. In Barranquitas, Nursery Farms (operating as Margo Flora) produces orchids, bromeliads, anthuriums, spathiphylum and poincettias. Its customers include wholesalers, retailers, chain stores and landscapers primarily located in Puerto Rico and the Caribbean. As a bona fide agricultural enterprise, both Nursery Farms and Margo Flora enjoy a 90% tax exemption under Puerto Rico law from income derived from its nursery business in Puerto Rico. 13 Landscaping provides landscaping, maintenance and design services to customers in Puerto Rico and the Caribbean, including commercial as well as residential landscape design and landscaping. Garden Products is engaged in sales of lawn and garden products, including plastic and terracotta pottery, planting media (soil, peat moss, etc.) and mulch. Among the various lawn and garden product lines it distributes, Garden Products is the exclusive distributor (for Puerto Rico and the Caribbean) of Sunniland Corporation's fertilizer and pesticide products. The Company also distributes Colorite garden hoses, Greenes Fence Company, Fiskars Consumer Products Division, State Line Bark & Mulch, L.R. Nelson Consumer Products, Tel-Com decorative pottery, Crysalia plastic pottery, and DEROMA Italian terracotta pottery. Garden Products also markets and merchandises Ortho and Round-up brand products for the Scotts Company at all Home Depot stores operating in Puerto Rico. Rain Forest is engaged in the manufacturing of potting soils, mulch, professional growing mixes, river rock and gravels and related aggregates. Rain Forest's products are marketed by Garden Products. The Company enjoys a tax exemption grant from the Government of Puerto Rico for the manufacturing operations of Rain Forest. Margo Development Corporation and Garrochales Construction and Development Corporation are presently engaged in obtaining development permits on a new site for the development of a residential project in the Municipality of Arecibo, Puerto Rico. FUTURE OPERATIONS ----------------- The Company will continue to concentrate its economic and managerial resources in expanding and improving its present operations in Puerto Rico and the Caribbean. The Company's Board of Directors has determined that these operations present the Company's most attractive opportunities for the near future. The Board believes that the Company should continue to capitalize on its advantage as one of the largest, full service nurseries in the region. The Company is a supplier of plants and lawn and garden products for The Home Depot Puerto Rico ("Home Depot"), the largest mainland retailer of lawn and garden products according to Nursery Retailer magazine. Home Depot currently has seven stores in Puerto Rico and plans to open one more store during 2002. The Company is also a supplier of live goods (plant material) to Wal*Mart International, which has ten stores throughout Puerto Rico, including a recently opened "super center".The Company also supplies plant material and lawn and garden products to six Sam's Club, a division of Wal*Mart International. During the first quarter of 2002, the Company continued to increase its sales to 14 Kmart Corporation. Kmart has 24 stores in Puerto Rico and 4 stores in the U.S. Virgin Islands. Kmart promotes its garden centers' sales with the Company's plant material as well as with lawn and garden products. During the fourth quarter of 2001, the Company became a supplier to Costco Wholesale, which opened 2 stores in Puerto Rico and plans to open two additional stores during 2002. The Company is currently concluding the landscaping of a commercial shopping center in the Municipality of Dorado, Puerto Rico, and expects to provide it with landscape maintenance services once it is concluded. During May 2002, the Company commenced providing landscape maintenance for a residential housing project at an approximate yearly fee of $180,000. During December 2000, the Company purchased approximately 109 acres of land in the Municipality of Arecibo, Puerto Rico, for the development of a residential housing project. The Company paid approximately $950,000 plus incidental expenses for this land. The Company is currently in the process of designing a master development plan, as well as obtaining permits for the development of this site. The Company recently received an endorsement from the Puerto Rico Housing Bank, which will enable prospective buyers to qualify for government assistance in purchasing homes from this project. 15 RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2001 ------------------------------------------------------------------------ During the three months ended March 31, 2002, the Company had net income of approximately $180,000, or $.10 per share, compared to net income of approximately $71,000 for the same period in 2001, or $.04 per share. This represents an overall increase in net income of approximately $109,000, or $.06 per share. The Company's increase in net income for the three months ended March 31, 2002 when compared to the same period in 2001 is due to an increase of approximately $100,000 in income from operations, and a decrease in other expenses of approximately $9,000. The increase in consolidated income from operations of $100,000 is primarily due to a 7% increase in consolidated net sales together with an overall improvement in gross profit of 3.4%. This overall improvement was offset in part by an increase of 5% in selling, general and administrative expenses. The decrease in other expenses of $9,000 is principally due to a significant decrease in interest expense, offset in part, by a decrease in interest income. Sales ----- The Company's consolidated net sales for the three months ended March 31, 2002 were approximately $2,320,000, compared to $2,170,000 for the same period in 2001, representing an increase of of approximately $150,000, or 7%. The 7% increase in consolidated net sales for the three months ended March 31, 2002 was due to an increase of approximately 62% or $266,000 in revenues from landscaping services, together with an increase of approximately 8% or $53,000 in sales of lawn and garden, while sales of plant material decreased approximately 16% or $169,000. Revenues from landscaping services increased due to increased project volume as well as increased maintenance services during the three months ended March 31, 2002 when compared to the same period in 2001. Increase in sales of lawn and garden products was due to increases in sales to retail chain stores during the three months ended March 31, 2002. Decrease in sales of plant material was due to a decrease in sales to one of the Company's major retail chain stores during the three months ended March 31, 2002, when compared to the same period in 2001. 16 Gross Profits ------------- The Company's consolidated gross profit for the three months ended March 31, 2002 was approximately 39.4%, compared to 36% for the same period in 2001, or an increase of 3.4%. The increase in gross profit for the three months ended March 31, 2002 when compared to the same period in 2001 was due to increases in gross profit from landscaping services and sales of lawn and garden products. Gross profit from sales of plant material decreased for the three months ended March 31, 2002 when compared to the same period in 2001. Landscaping services, with approximately 30% of consolidated sales, had a gross profit of approximately 39% for the three months ended March 31, 2002, compared to approximately 20% of consolidated sales and a gross profit of approximately 26% for the same period in 2001. Sales of lawn and garden products with approximately 31% of consolidated sales, had a gross profit of approximately 46% for the three months ended March 31, 2002, compared to approximately 31% of consolidated sales and a gross profit of approximately 41% for the same period in 2001. Sales of plant material, with approximately 39% of consolidated sales had a gross profit of approximately 35% for the three months ended March 31, 2002, compared to approximately 49% of consolidated sales and a gross profit of approximately 37% for the same period in 2001. Selling, General and Administrative Expenses -------------------------------------------- Selling, general and administrative expenses (SG&A) were approximately $727,000 for the three months ended March 31, 2002 compared to $693,000 for the same period in 2001. This represented a 5% increase in dollar terms and a decrease of approximately 1% as a percentage of sales. The overall increase of approximately $34,000 in SG&A for the three months ended March 31, 2002, when compared to the same period in 2001 is principally due to increases in compensation expenses. Other Income and Expenses ------------------------- The decrease in interest income for the three months ended March 31, 2002, when compared to the same period in 2001, is due to a reduction of funds invested as well as lower yields obtained during 2002. 17 The decrease in interest expense for the three months ended March 31, 2002, when compared to the same period in 2000, is due to a decrease in the outstanding balance of notes payable, as well as lower interest rates experienced during the first three months of 2002. FINANCIAL CONDITION ------------------- The Company's financial condition at March 31, 2002 remains comparable with that of December 31, 2001. The Company's current ratio continues to be strong, with a ratio of 2.2 to 1 at March 31, 2002, compared to 2.1 to 1 at December 31, 2001. At March 31, 2002, the Company had cash of approximately $625,000, compared to $839,000 at December 31, 2001. The decrease in cash at March 31, 2002 is principally due to cash outflows from operations ($156,000), additions to property and equipment ($28,000) and repayment of long-term debt ($48,000), offset by cash flows from repayment of note receivable ($26,000). Shareholders' equity at March 31, 2002 increased due to net income for the three month period. No dividends were declared nor stock issued during the three months ended March 31, 2002. Current Liquidity and Capital Resources --------------------------------------- The nursery industry requires producers to maintain large quantities of stock plants and inventory to meet customer demand and to assure a new source of products in the future. The Company believes it has adequate resources to meet its current and anticipated liquidity and capital requirements. The Company finances its working capital needs from cash flows from operations as well as borrowings under two short-term credit facilities with two local commercial banks. As of May 14, 2002, the Company has available two short-term credit facilities aggregating $3.5 million, of which approximately $1,570,000 was available as of such date. One of the credit facilities for $2.5 million is secured by the Company's trade accounts receivable and inventory. The other credit facility in the amount of $1.0 million is unsecured. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ---------------------------------------------------------- Not applicable. 18 PART II - Other Information ITEM 1. LEGAL PROCEEDINGS ----------------- In the opinion of the Company's management, any pending or threatened legal proceedings of which management is aware will, not have a material adverse effect on the financial condition of the Company. ITEM 2. CHANGES IN SECURITIES --------------------- Not applicable. ITEM 3. DEFAULTS UPON SENIOR SECURITIES ------------------------------- Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS ----------------------------------------------------- Not applicable. ITEM 5. OTHER INFORMATION ----------------- Not applicable. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K -------------------------------- (a) Exhibits -------- None. (b) Reports on Form 8-K. -------------------- The Company did not file any Reports on Form 8-K during the three months ended March 31, 2002. 19 SIGNATURES Pursuant to the requirements 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. MARGO CARIBE, INC. Date: May 14, 2002 By: /s/ Michael J. Spector ------------ ---------------------------- Michael J. Spector, Chairman of the Board and Chief Executive Officer Date: May 14, 2002 By: /s/ J. Fernando Rodriguez ------------ ----------------------------- J. Fernando Rodriguez President and Chief Operating Officer Date: May 14, 2002 By: /s/ Alfonso Ortega ------------ ---------------------------- Alfonso Ortega, Vice President, Treasurer, Principal Financial and Accounting Officer 20