10-Q 1 margo10qmar2001.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, 2001 [ ] 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 1,882,322 shares of common stock, $.001 par value, outstanding as of May 14, 2001. MARGO CARIBE, INC. AND SUBSIDIARIES FORM 10-Q FOR THE FIRST QUARTER ENDED MARCH 31, 2001 TABLE OF CONTENTS PART I ------ Page ---- ITEM 1. FINANCIAL STATEMENTS (Unaudited) -------------------------------- 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 18 ----------------- ITEM 2. CHANGES IN SECURITIES 18 --------------------- ITEM 3. DEFAULTS UPON SENIOR SECURITIES 18 ------------------------------- ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 18 --------------------------------------------------- ITEM 5. OTHER INFORMATION 18 ----------------- ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 18 -------------------------------- 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, 2001 and December 31, 2000 (Unaudited) ASSETS ------ 2001 2000 ----------- ----------- Current assets: Cash and equivalents $ 691,217 $ 973,061 Short-term investments 500,000 500,000 Accounts receivable, net 1,358,895 1,235,706 Inventories 3,353,753 3,170,074 Prepaid expenses and other current assets 276,764 308,499 ----------- ----------- Total current assets 6,180,629 6,187,340 Property and equipment, net 1,683,223 1,676,158 Due from shareholder 330,495 394,269 Land held for future development 988,485 988,485 Notes receivable 65,753 60,754 Other assets 69,294 68,390 ----------- ----------- Total assets $ 9,317,879 $ 9,375,396 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ Current liabilities: Current portion of long-term debt $ 77,522 $ 103,403 Notes payable 2,455,500 2,455,500 Accounts payable 1,038,787 1,138,979 Accrued expenses 196,356 199,144 ----------- ----------- Total current liabilities 3,768,165 3,897,026 Long-term debt 239,482 239,482 ----------- ----------- Total liabilities 4,007,647 4,136,508 ----------- ----------- 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; 1,922,122 shares issued, and 1,882,322 shares outstanding 1,922 1,922 Additional paid-in capital 4,657,544 4,657,544 Retained earnings 747,054 675,710 Treasury stock, 39,800 common shares,at cost (96,288) (96,288) ----------- ----------- Total shareholders' equity 5,310,232 5,238,888 ----------- ----------- Total liabilities and shareholders' equity $ 9,317,879 $ 9,375,396 =========== =========== 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, 2001 and 2000 (Unaudited) 2001 2000 ----------- ----------- Net sales $ 2,169,761 $ 2,107,556 Cost of sales 1,389,433 1,372,128 ----------- ----------- Gross profit 780,328 735,428 Selling, general and administrative expenses 692,654 608,404 ----------- ----------- Income from operations 87,674 127,024 ----------- ----------- Other income (expense): Interest income 14,986 28,155 Interest expense (32,717) (26,240) Terminated merger expenses -- (157,281) Miscellaneous income 1,401 9,109 ----------- ----------- (16,330) (146,257) ----------- ----------- Net income (loss) $ 71,344 $ (19,233) =========== =========== Basic and diluted income (loss) per common share $ 0.04 $ (0.01) =========== =========== 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, 2001 (Unaudited) Common Common Additional stock stock paid-in Retained Treasury shares amount capital earnings stock Total ---------- ---------- ---------- ---------- ---------- ---------- Balance at December 31, 2000 1,882,322 $ 1,922 $4,657,544 $ 675,710 $ (96,288) $5,238,888 Net income -- -- -- 71,344 -- 71,344 ---------- ---------- ---------- ---------- ---------- ---------- Balance at March 31, 2001 1,882,322 $ 1,922 $4,657,544 $ 747,054 $ (96,288) $5,310,232 ========== ========== ========== ========== ========== ==========

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, 2001 and 2000 (Unaudited) 2001 2000 ----------- ----------- Cash flows from operating activities: ------------------------------------- Net income (loss) $ 71,344 $ (19,233) Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation and amortization 118,444 111,203 Provision for uncollectible accounts receivable 6,000 6,000 Changes in assets and liabilities affecting cash flows from operating activities: Accounts receivable (129,189) (355,518) Inventories (183,679) (11,826) Prepaid expenses and other current assets 31,735 (18,819) Other assets (904) -- Due from shareholder 63,774 -- Accounts payable (100,192) (67,742) Accrued expenses (2,788) (15,836) ----------- ----------- Net cash used in operating activities (125,455) (371,771) ----------- ----------- Cash flows from investing activities: ------------------------------------- Increase in notes receivable (4,999) -- Additions to property and equipment (125,509) (40,577) ----------- ----------- Net cash used in investing activities (130,508) (40,577) ----------- ----------- Cash flows from financing activities: ------------------------------------- Repayment of long-term debt (25,881) (50,043) Issuance of common stock from conversion of stock options -- 19,845 ----------- ----------- Net cash used in financing activities (25,881) (30,198) ----------- ----------- Net decrease in cash and equivalents (281,844) (442,546) ------------------------------------ Cash and equivalents at beginning of year 973,061 1,082,592 ------------------------------------------ ----------- ----------- Cash and equivalents at end of period $ 691,217 $ 640,046 -------------------------------------- =========== =========== See accompanying notes to condensed consolidated financial statements. 7 MARGO CARIBE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS March 31, 2001 (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, 2001 are not necessarily indicative of the operating results to be expected for the year ending December 31, 2001. These statements should be read in conjunction with the Company's Consolidated Financial Statements and Notes thereto included its Annual Report on Form 10-K for the fiscal year ended December 31, 2000. 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 and 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. Note 3 - Inventories -------------------- At March 31, 2001 and December 31, 2000, inventories comprised the following: Description 2001 2000 --------------------------- ---------- ---------- Plant material $2,639,969 $2,556,984 Lawn and garden products 376,797 250,135 Raw materials and supplies 336,987 362,955 ---------- ---------- $3,353,753 $3,170,074 ========== ========== Note 4 - Property and Equipment ------------------------------- At March 31, 2001 and December 31, 2000 property and equipment consisted of the following: Description 2001 2000 --------------------------------- ---------- --------- Leasehold improvements $ 1,359,798 $ 1,338,304 Equipment and fixtures 1,539,438 1,443,925 Transportation equipment 450,691 442,189 Real estate property 224,327 224,327 ----------- ----------- 3,574,254 3,448,745 Less accumulated depreciation and amortization (1,891,031) (1,772,587) ----------- ----------- $ 1,683,223 $ 1,676,158 =========== =========== Note 5 - Net Income (loss) per Common Share ------------------------------------------- Financial Accounting Standards Board Statement No. 128, Earnings Per Share establishes standards for computing and presenting earnings per share ("EPS"). It replaces the presentation of primary EPS with basic EPS, and requires dual presentation of basic and diluted EPS on the face of the statement of operations. Basic EPS is computed by dividing income available 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. 9 Basic and diluted income (loss) per common share at March 31, 2001 and 2000 were computed as follows: 2001 2000 ----------- ----------- Basic income (loss) per common share: ------------------------------------- Net income (loss) attributable to common shareholders $ 71,344 $ (19,233) =========== =========== Weighted average number of common shares outstanding 1,882,322 1,878,860 =========== =========== Basic income (loss) per common share $ 0.04 $ (0.01) =========== =========== Diluted income per common share: -------------------------------- Net income (loss) available to common shareholders $ 71,344 $ (19,233) =========== =========== Weighted average number of common shares outstanding 1,882,322 1,878,860 Plus incremental shares from assumed conversions of stock options 7,268 -- ----------- ----------- Adjusted weighted average shares 1,889,590 1,878,860 =========== =========== Diluted income (loss) per common share $ 0.04 $ (0.01) =========== =========== For the three months ended March 31, 2000, the effect of the assumed exercise of stock options determined using the treasury stock method was antidilutive; thus no incremental shares were added to the weighted average number of common shares outstanding. Note 6 - Segment Information ---------------------------- Financial Accounting Standards Board Statement No. 131, "Disclosures about Segments of an Enterprise and Related Information", 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 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. 10 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 internal management accounting system and are 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 as of and for the three months ended March 31, 2001 and 2000, is as follows:

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 134,686 -- -- 134,686

2000 ------------------------------------------------------ Lawn & Garden Plants Products Landscaping Totals ------------------------------------------------------ Revenues from external customers $ 1,051,448 $ 531,025 $ 525,083 $ 2,107,556 Intersegment revenues 62,273 8,847 -- 71,120 Interest income 28,155 -- -- 28,155 Interest expense 26,240 -- -- 26,240 Depreciation and amortization 90,312 7,128 13,763 111,203 Segment income (loss) (59,926) 27,852 12,841 (19,233) Segment assets 7,127,581 1,008,150 648,241 8,783,972 Expenditures for segment assets 40,577 -- -- 40,577

11 Note 7 - Supplemental Disclosures for the Consolidated Statements of Cash Flows -------------------------------------------------------------------------------- a) Non-cash investing activities ----------------------------- During the three months ended March 31, 2000, 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, 2001 and 2000, include interest payments amounting to approximately $39,000 and $25,600, respectively. There were no income tax payments for the three months ended March 31, 2001 and 2000. 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 primarily engaged 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, sales of lawn and garden products and also provides landscaping design and installation services. The Company is also engaged in obtaining development permits on a new site for the development of a residential housing project. TERMINATION OF MERGER AGREEMENT WITH iTRACT, LLC ------------------------------------------------ On April 11, 2000, the Company entered into an agreement (the "iTract Merger Agreement") to merge with iTract, LLC, a privately held developmental stage internet company. The iTract Merger Agreement provided for the sale of all operating assets (subsidiaries) prior to the consummation of the merger. Accordingly, on June 30, 2000, the Company entered into an agreement with Empresas Margo, a wholly owned company of Michael J. Spector (the principal shareholder of the Company) to sell all of its assets. Because several of the conditions necessary for the merger to proceed did not occur by the agreed upon date of March 1, 2001, the Company's Board of Directors decided that it was not in the best interest of the Company or its shareholders to continue with the transaction and on March 5, 2001, voted to terminate the iTract Merger Agreement. The Company also terminated the agreement with Empresas Margo. PRINCIPAL OPERATIONS -------------------- The Company's operations are conducted 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 facility in the Municipality of 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 Develpoment Corporation and Margo Development Corporation, all Puerto Rico corporations. 13 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 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, Nursery Farms enjoys a 90% tax exemption under Puerto Rico law from income derived from its nursery business in Puerto Rico. 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 of Sunniland Corporation's fertilizer and pesticide products as well as DEROMA Italian terracotta pottery for Puerto Rico and the Caribbean. 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. 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 ----------------- Following the termination of the iTract Merger Agreeement, the Company will continue to concentrate its economic and managerial resources in expanding and improving its present operations in Puerto Rico. 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. 14 The Company is a supplier to The Home Depot Puerto Rico ("Home Depot"), the largest mainland retailer of lawn and garden products according to Nursery Retailer magazine. As of December 31, 2000, Home Depot had opened three stores in Puerto Rico. During 2000, Masso Expo (a former competitor of Home Depot) sold their stores to Home Depot. These stores have been closed for remodeling. Four of the six Masso Expo's locations are expected to open as Home Depot stores during the Company's third and fourth quarters of 2001. During the third quarter of 1999, the Company became the largest supplier of live goods (plant material) to Wal*Mart Stores, which has ten stores throughout Puerto Rico, including a new "super center", which opened during April 2001. During the second quarter of 2000, the Company commenced sales of plant material and lawn and garden products to Sam's Club, which has six stores throughout Puerto Rico. The Company has and intends to continue servicing Sam's Club during 2001 and beyond. The Company has increased sales to Kmart Stores in Puerto Rico during the first quarter of 2001. Kmart has 24 stores throughout Puerto Rico and 2 stores in the U.S. Virgin Islands and is promoting its garden centers' sales with the Company's plant material as well as lawn and garden products. During the first quarter of 2001, the Company commenced the landscaping of a large commercial shopping center for approximately $586,000, and is presently concluding a landscaping project at another shopping center. The Company continues to pursue other large projects for 2001 and beyond. On December 13, 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 $988,485 for this land. The Company is currently in process of surveying this property, in order to prepare a master development plan, as well as obtaining initial permits for future development. 15 RESULTS OF OPERATIONS FOR THE FIRST QUARTERS ENDED MARCH 31, 2001 AND 2000 -------------------------------------------------------------------------- During the first three months of 2001, the Company had net income of approximately $71,000, or $.04 per share, compared to a net loss of approximately $19,000 for the same period in 2000, or $.01 per share. The increase in net income for the first three months of 2001 is due to a decrease in non-operational expenses. Non-operational expenses incurred during the first three months of 2000 included approximately $157,000 related to the terminated merger transaction with iTract, LLC. Sales ----- The Company's consolidated net sales for the first three months of 2001 were approximately $2,170,000, compared to $2,108,000 for the same period in 2000, or an increase of approximately 3%. The increase in sales for the first three months of 2001 is a mix of a an increase of 25% in lawn and garden products, offset by a decrease of 18% in landscaping services. Sales of plant material increased by 3%. Gross Profits ------------- The Company's gross profit for the first three months of 2001 was approximately 36%, compared to 35% for the same period in 2000, or a increase of approximately 1%. The increase in gross profit of 1% for the first three months of 2001 when compared to the same period in 2000 is principally due to an increase in gross profits from sales of plant material as well as lawn and garden products. Selling, General and Administrative Expenses -------------------------------------------- Selling, general and administrative expenses (SG&A) were approximately $693,000 and $608,000 for the first three months of 2001 and 2000, respectively, representing an increase of approximately 14% in dollar terms and an increase of 3% as a percentage of sales. The increase in SG&A (in dollar terms) for the first three months of 2001 when compared to the same period in 2000 is due, among other things, to increases in shipping and landscaping expenses. 16 Other Income and Expenses ------------------------- The decrease in interest income for the first three months of 2001 when compared to the same period in 2000, is due to the collection of an outstanding note receivable in December 2000. The increase in interest expense for 2001 when compared to 2000 is the result of additional borrowings of long-term debt during the latter part of 2000. Professional (legal, accounting and other) services incurred during the first three months of 2000 in connection with the terminated merger agreement with iTract, LLC, amounted to approximately $157,000. FINANCIAL CONDITION ------------------- The Company's financial condition at March 31, 2001 remains comparable with that of December 31, 2000. The Company's current ratio also continues comparable with a ratio of 1.6 to 1 at March 31, 2001 and December 31, 2000. At March 31, 2001, the Company had cash of approximately $691,000 and short term investments of $500,000, compared to cash of $973,000 and short term investments of $500,000 at December 31, 2000. The decrease in cash at March 31, 2001 is due to net cash outflows used in operations of approximately $125,000, and cash outflows arising from additions to property and equipment of $126,000, and repayment of long-term debt of $26,000. As a result of a decrease in current liabilities as of March 31, 2001, the Company's debt to equity ratio improved to approximately 75% compared to 79% at March 31, 2001. Shareholders'equity at March 31, 2001 remained comparable to December 31, 2000 due to the Company's net income for the quarter of approximately $71,000. There were no dividends declared nor issuance of capital stock during the first three months of 2001. Current Liquidity and Capital Resources --------------------------------------- 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 lines of credit with two local commercial banks. The two credit facilities provide for borrowings of up to $2 million, of which approximately $545,000 was available at March 31, 2001. 17 ITEM 3. QUANTITAIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK --------------------------------------------------------- Not applicable. 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 filed the following -------------------- Reports on Form 8-K during the quarter ended March 31, 2001: (i) Form 8-K dated March 5, 2001, reporting under Item 5 "Other Items", the termination of the Agreement and Plan of Merger with iTract, LLC. 18 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 NURSERY FARMS, INC. Date: May 14, 2001 By: /s/ Michael J. Spector ------------- ---------------------------- Michael J. Spector, Chairman of the Board and Chief Executive Officer Date: May 14, 2001 By: /s/ Alfonso Ortega ------------- ---------------------------- Alfonso Ortega, Vice President, Treasurer, Principal Financial and Accounting Officer 19