-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BUbObQg+evb6it9Msd8JnsI80OupQ8zYC98mBZyFHAUG+2OVByRALRUCZEzJdPsf UolK4gr8PfB0uZcHNrSF8A== 0000950170-96-000605.txt : 19960814 0000950170-96-000605.hdr.sgml : 19960814 ACCESSION NUMBER: 0000950170-96-000605 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960813 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: MARGO NURSERY FARMS INC CENTRAL INDEX KEY: 0000808493 STANDARD INDUSTRIAL CLASSIFICATION: AGRICULTURE PRODUCTION - CROPS [0100] IRS NUMBER: 592142653 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-15336 FILM NUMBER: 96610914 BUSINESS ADDRESS: STREET 1: ROAD 690 KILOMETER 5 8 CITY: VEGA ALTA STATE: PR ZIP: 00692 BUSINESS PHONE: 8098832570 MAIL ADDRESS: STREET 2: ROAD 690 KILOMETER 5 8 CITY: VEGA ALTA STATE: PR ZIP: 00692 10-Q 1 =============================================================================== 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 JUNE 30, 1996 [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission File No. 0-15336 MARGO NURSERY FARMS, INC. A Florida Corporation - I.R.S. No. 59-2807561 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 1,895,322 shares of common stock, $.001 par value, outstanding as of August 9, 1996. Total Pages in Report: Exhibit Index: =============================================================================== MARGO NURSERY FARMS, INC. AND SUBSIDIARIES FORM 10-Q FOR THE SECOND QUARTER AND SIX MONTHS ENDED JUNE 30, 1996 TABLE OF CONTENTS PART I PAGE ---- ITEM 1. FINANCIAL STATEMENTS Consolidated Balance Sheets 4 Consolidated Statements of Operations 5 Consolidated Statement of Shareholders' Equity 6 Consolidated Statements of Cash Flows 7 Notes to Consolidated Financial Statements 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION 12 PART II ITEM 3. LEGAL PROCEEDINGS 19 ITEM 4. DEFAULTS UPON SENIOR SECURITIES 19 ITEM 5. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS 20 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 20 2 SIGNATURES 3
MARGO NURSERY FARMS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS June 30, 1996 and December 31, 1995 (Unaudited) ASSETS 1996 1995 ----------- ----------- Current assets: Cash and equivalents $ 1,622,620 $ 785,490 Short term investments 500,000 500,000 Restricted cash - 6,732,597 Accounts receivable, net 962,046 692,165 Inventories 2,491,741 2,340,373 Due from shareholder 200,385 - Prepaid expenses and other current assets 118,890 166,947 ----------- ----------- Total current assets 5,895,682 11,217,572 Property and equipment, net 3,888,616 3,587,982 Notes receivable 389,014 444,411 Other assets 72,167 150,617 ----------- ----------- Total assets $10,245,479 $15,400,582 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current installments of long-term debt $ 34,374 $ 3,663,475 Notes payable 500,000 500,000 Accounts payable 367,042 372,025 Accrued expenses 180,653 1,555,187 Due to shareholder - 106,786 ----------- ----------- Total current liabilities 1,082,069 6,197,473 Long-term debt 423,986 354,707 ----------- ----------- Total liabilities 1,506,055 6,552,180 ----------- ----------- Commitments and contingencies - - Shareholders' equity: Common stock, $.001 par value; 10,000,000 shares authorized; 1,915,122 shares issued, and 1,895,322 shares outstanding 1,915 1,915 Additional paid-in capital 4,637,706 4,637,706 Retained earnings 4,157,917 4,266,895 Treasury stock, 19,800 common shares, at cost (48,788) (48,788) Foreign currency translation loss (9,326) (9,326) ----------- ----------- Total shareholders' equity 8,739,424 8,848,402 ----------- ----------- Total liabilities and shareholders' equity $10,245,479 $15,400,582 =========== ===========
See accompanying notes to consolidated financial statements. 4
MARGO NURSERY FARMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS For the Periods ended June 30, 1996 and 1995 (Unaudited) THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, --------------------------- ------------------------- 1996 1995 1996 1995 ---------- ---------- ---------- ---------- Net sales $1,742,806 $1,365,484 $3,138,932 $2,666,287 Cost of sales 1,060,931 838,723 1,880,757 1,537,747 ---------- ---------- ---------- ---------- Gross profit 681,875 526,761 1,258,175 1,128,540 Selling, general and administrative expenses 523,618 478,738 1,025,168 949,608 ---------- ---------- ---------- ---------- Income from operations 158,257 48,023 233,007 178,932 ---------- ---------- ---------- ---------- Other income (expense): Interest income 90,192 123,912 190,864 236,905 Interest expense (70,497) (112,228) (167,715) (223,019) Litigation expenses (63,258) (91,970) (93,258) (175,786) Litigation settlement (302,884) - (302,884) 120,000 Miscellaneous income 24,553 33,019 31,008 40,746 ---------- ---------- ---------- ---------- (321,894) (47,267) (341,985) (1,154) ---------- ---------- ---------- ---------- Income (loss)before provision for income tax (163,637) 756 (108,978) 177,778 Provision for income tax - - - - ---------- ---------- ---------- ---------- Net income (loss) $ (163,637) $ 756 $ (108,978) $ 177,778 ========== ========== ========== ========== Net income (loss) per common share $(0.09) $ 0.00 $(0.06) $ 0.09 ========== ========== ========== ========== Weighted average number of common shares 1,895,322 1,895,322 1,895,322 1,895,322 ========== ========== ========== ==========
See accompanying notes to consolidated financial statements. 5
MARGO NURSERY FARMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY Six Months ended June 30, 1996 (Unaudited) COMMON COMMON ADDITIONAL CUMULATIVE STOCK STOCK PAID-IN RETAINED TREASURY TRANSLATION SHARES AMOUNT CAPITAL EARNINGS STOCK ADJUSTMENT TOTAL --------- ------ ---------- -------- -------- ----------- ------- Balance at December 31, 1995 1,895,322 $1,915 $4,637,706 $4,266,895 ($ 48,788) ($ 9,326) $8,848,402 Net loss - - - (108,978) - - (108,978) --------- ------ ---------- ---------- --------- --------- ---------- Balance at June 30, 1996 1,895,322 $1,915 $4,637,706 $4,157,917 ($ 48,788) ($ 9,326) $8,739,424 ========= ====== ========== ========== ========= ========= ==========
See accompanying notes to consolidated financial statements. 6
MARGO NURSERY FARMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Six Months ended June 30, 1996 and 1995 (Unaudited) 1996 1995 ---------- ---------- Cash flows from operating activities: Net income (loss) $ (108,978) $ 177,778 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 221,137 128,249 Changes in assets and liabilities affecting cash flows from operating activities: Accounts receivable (269,881) (207,579) Inventories (151,368) (220,584) Prepaid expenses and other current assets 48,057 73,400 Increase in due to shareholder, net (373,677) - Other assets 69,507 2,049 Accounts payable (4,983) (68,426) Accrued expenses (1,374,534) 69,681 Income tax payable - (14,829) ---------- ---------- Net cash used in operating activities (1,944,720) (60,261) ---------- ---------- Cash flows from investing activities: Decrease in short term investments - 210,359 Decrease (increase) in restricted cash 6,732,597 (181,183) Additions to property, plant and equipment (300,971) (321,812) Collection of (increase in) notes receivable (2,165) 14,378 ---------- ---------- Net cash provided by (used in) financing activities) 6,429,461 (278,258) ---------- ---------- Cash flows from financing activities: Repayment of short-term borrowings - (100,000) Repayment of long-term debt (3,647,611) (33,690) ---------- ---------- Net cash used in financing activities (3,647,611) (133,690) ---------- ---------- Net increase (decrease) in cash 837,130 (472,209) Effect of change in exchange rates on cash - 952 Cash and equivalents at beginning of year 785,490 1,871,931 ---------- ---------- Cash and equivalents at end of period $1,622,620 $1,400,674 ========== ==========
See accompanying notes to consolidated financial statements. 7 MARGO NURSERY FARMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 1996 (Unaudited) NOTE 1 - BASIS OF PRESENTATION These interim consolidated financial statements include the financial statements of Margo Nursery Farms, Inc. and its wholly owned subsidiaries, Margo Landscaping and Design, Inc. ("Margo Landscaping") Rain Forest Products Group, Inc. ("Rain Forest"), and Margo Bay Farms, Inc. ("Bay Farms"). These interim consolidated financial statements are unaudited, but include all adjustments that, in the opinion of management, are necessary for a fair statement 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 generally accepted accounting principles. The preparation of interim financial statements relies on estimates. Therefore, the results of operations for the six months ended June 30, 1996 are not necessarily indicative of the operating results to be expected for the year ending December 31, 1996. 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, 1995. NOTE 2 - RESTRICTED CASH AND RELATED DEBT During 1991, one of the Company's principal lenders commenced litigation against the Company due to the Company's non-compliance with several covenants under a modified loan agreement. In connection with the settlement of a tort claim in 1992, the Company was required to place $4,000,000 of the settlement proceeds in an escrow account. In connection with the settlement of the Company's insurance claims arising from Hurricane Andrew (also in 1992), the 8 Company was required to deposit $1,970,435 (less court costs of $19,677) with the court. At December 31, 1995, these amounts were as follows: DESCRIPTION AMOUNT ----------- ------ Proceeds from the settlement of tort claim, including interest income $4,544,795 Proceeds from Hurricane Andrew, including interest income 2,187,802 ---------- $6,732,597 ========== At December 31, 1995, the principal balance of debt subject to litigation amounted to $3,592,241 and related accrued interest amounted to approximately $1,307,000. On May 29, 1996, the Company reached a settlement agreement with its principal lender. Under the settlement agreement, the Company paid $5,285,000 to settle all claims brought by its lender against the Company, as well as all counterclaims brought by the Company against its lender. At the time of settlement, the Company's principal balance and accrued interest on the loans subject to litigation amounted to $5,003,537. As a result of the settlement, the Company recognized a loss of $302,884 as of May 31, 1996, which included $21,421 in related expenses. (refer to "ITEM 3. Legal Proceedings"). NOTE 3 - NOTES RECEIVABLE At December 31, 1993, the Company had a note receivable with an outstanding principal balance of $996,962, from the sale of Cariplant S.A. (a former Dominican Republic subsidiary) to Altec International, C. por A. ("Altec"), another Dominican Republic company. The note was originally due in 180 equal monthly installments of $9,638, including interest at 8%, through April 2008. The note is collateralized by the common stock and personal guarantee of the major shareholder of Cariplant. From the inception of the note in March 1993, the Company received several payments. However, Altec has been unable to meet its obligation. As of June 30, 1996, the Company is in process of 9 obtaining a mortgage on Cariplant's property and equipment, as well as negotiating a modification of the repayment terms of the outstanding unpaid principal balance of $996,962. Company management anticipates that Altec will accept the modification, however, due to the unfavorable collection experience, as well as the current difficulties of operating in the Dominican Republic, in 1994 Company management wrote down the carrying amount of the note to $316,000, representing the estimated value of Cariplant's land and related improvements, including buildings, shadehouses, and fixed and installed equipment. The write-down, amounting to $680,962 was included as an other expense in the consolidated statements of operations for the year ended December 31, 1994. At June 30, 1996 and December 31, 1995, notes receivable included the following: DESCRIPTION 1996 1995 ----------- -------- -------- Note receivable from Altec $301,621 $301,621 10% note, due October 1996, collateralized by real property 26,083 23,918 8% notes, due on demand, personally guaranteed by various Company personnel (no collections are expected in 1996) 61,310 118,872 -------- -------- $389,014 $444,411 ======== ======== NOTE 4 - PROPERTY AND EQUIPMENT At June 30, 1996 and December 31, 1995 property and equipment consisted of the following: DESCRIPTION 1996 1995 ----------- ---------- ---------- Land and land improvements $ 859,380 $ 859,380 Buildings 447,057 219,404 Equipment and fixtures 1,373,693 1,187,716 10 Transportation equipment 605,499 571,736 Stock Plants 97,277 97,277 Leasehold improvements 1,831,051 1,675,605 Construction in progress - 81,068 --------- --------- 5,213,957 4,692,186 Less accumulated depreciation and amortization (1,325,341) (1,104,204) $3,888,616 $3,587,982 ========== ========== NOTE 5 - NET INCOME PER COMMON SHARE Net income (loss) per share of common stock is computed by dividing the net income or loss by the weighted average number of shares of common stock outstanding during the relevant periods. NOTE 6 - SUPPLEMENTAL DISCLOSURES FOR THE CONSOLIDATED STATEMENTS OF CASH FLOWS a) NON-CASH INVESTING AND FINANCING ACTIVITIES During the six months ended June 30, 1996, the Company acquired a residence (previously leased by the Company) from a partnership, whose partners included among others, the Company's Chairman of the Board, Chief Executive Officer and major shareholder and his spouse. The purchase price of the residence, determined by an independent certified real estate appraiser, amounted to $220,800. Regarding the acquisition, the Company assumed a commercial loan amounting to $87,789, owed by the partnership, recorded an account payable to the Company's major shareholders amounting to $66,506, and applied $57,562 and $8,943 to the principal and interest, respectively, of a note receivable owed by a consultant to the Company (who was also a shareholder in the partnership). b) OTHER CASH FLOW TRANSACTIONS Other cash flow transactions for the six months ended June 30, 1996 and 1995, include interest payments amounting to approximately $1,474,447 (of which $1,411,296 represents the accrued interest portion in connection with a settlement agreement with the Company's former principal lender) and 11 $43,300, respectively. Income tax payments for the six months ended June 30, 1995 amounted to $15,000. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Margo Nursery Farms, Inc. and its subsidiaries, Margo Landscaping & Design, Inc. ("Margo Landscaping") Rain Forest Products Group, Inc. ("Rain Forest") and Margo Bay Farms, Inc. ("Bay Farms"), are primarily engaged in the business of growing, distributing and installing tropical plants and trees. The Company has historically sold its products to wholesalers, retailers, interiorscapers, landscapers, builders, plant leasing companies and other growers located throughout the United States, the Caribbean, Canada and Europe. The Company is also engaged in sales of lawn and garden products (principally plastic pots, terracotta pottery, potting soils, chemicals and fertilizers) and also provides landscaping design and installation services. PRINCIPAL OPERATIONS The Company's business is currently conducted at two locations, one in Puerto Rico and another in South Florida. These operations are described below: PUERTO RICO OPERATIONS The Company's operation in Puerto Rico is conducted at a 119 acre nursery farm in Vega Alta, Puerto Rico, approximately 25 miles west of San Juan. This farm is leased from Michael J. Spector and Margaret D. Spector, who are directors, officers and principal shareholders of the Company. The Company's 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. The Company produces various types of palms, flowing and ornamental plants, trees, shrubs and ground covers. Its customers are primarily located in Puerto Rico and the Caribbean. As a bona fide agricultural enterprise, the Company enjoys a 90% tax deduction from income derived from its production for sales in 12 Puerto Rico. It has also been granted a 90% tax exemption for income derived from its export sales. The Company also receives credits for certain federal income taxes under Section 936 of the Internal Revenue Code. Margo Landscaping provides landscaping services to customers in Puerto Rico and the Caribbean, including landscape design and installation. Margo Landscaping is also engaged in sales of plastic and terracotta pottery, as well as lawn and garden products. During the fourth quarter of 1995, Margo Landscaping became a wholesaler for Monsanto Corporation's Solaris Group, which includes the Ortho, Roundup and Greensweeep product lines (chemicals and pesticides). In August 1995, the Company formed another wholly-owned Puerto Rico subsidiary, Rain Forest Products Group, Inc. ("Rain Forest"). Rain Forest commenced operations in April 1996, and is engaged in the manufacturing and distribution of potting soils, mulch, professional growing mixes, river rock and gravels throughout Puerto Rico and the Caribbean. The Company has requested a tax exemption grant from the Government of the Commonwealth of Puerto Rico for the operations of Rain Forest. SOUTH FLORIDA OPERATIONS The South Florida operation, conducted through Bay Farms, consists of a 71 acre nursery farm located approximately 20 miles south of Miami, Florida. In August 1992, substantially all of the Company's facilities in South Florida were destroyed by Hurricane Andrew. During 1993 and 1994, the Company rebuilt a portion of its facilities. Approximately 20 acres are currently in production. During 1994, Bay Farms resumed limited sales. FUTURE OPERATIONS The Company will continue to concentrate its economic and managerial resources in expanding its operations in Puerto Rico. The Company's Board of Directors has concluded that these operations present attractive opportunities for the future. The Board believes that the Company should continue to capitalize its advantage as one of the largest, full service nurseries in the region. 13 The Company has achieved a history of good margins in Puerto Rico because of the variety and quality of its inventory. The Company believes that it can increase its sales and margins by investing in a larger and more sophisticated facility and by increasing the size and variety of its inventory. During January 1994, the Company leased approximately 27 more acres adjacent to its nursery facilities in Vega Alta, Puerto Rico. The Company also began production and sales of bedding plants and annuals during late 1993 which provided increased sales during 1994 and 1995 and should continue to provide increased sales in the future. During the second quarter of 1996, the Company entered into a contract with the Commonwealth of Puerto Rico's Department of Transportation for $820,000 to provide palms, trees, and flowering shrubs for the planting and beautification of Puerto Rico Highway Num. 3, from the city of Carolina to the city of Fajardo. In January 1993, the Company formed a new wholly-owned subsidiary, Margo Landscaping and Design, Inc. ("Margo Landscaping") to perform the Company's landscaping business in Puerto Rico. Among various landscaping projects that Margo Landscaping has obtained is a contract with a local construction company to landscape a new U.S. Coast Guard Housing Project located in Bayamon, Puerto Rico for approximately $645,000. This project is scheduled for commencement during the third quarter of 1996. Margo Landscaping also has two other significant projects scheduled for commencement during the third quarter of 1996. The first is the landscaping of the new campus premises of the Interamerican University, also in Bayamon, for approximately $300,000. The second project is the landscaping of a new cross-taxi-way at Luis Munoz Marin International Airport in San Juan, also for approximately $300,000. During the third quarter of 1993, Margo Landscaping commenced with the sale of garden products (principally Italian terracotta pottery). During 1994, the Company began to sell plastic pottery manufactured by Duraco Products. During the first quarter of 1995, Margo Landscaping became involved in the sale of planting media which includes bagged potting soil, peat moss, cypress mulch, pine bark nuggets, etc. 14 In addition, the Company became the exclusive distributor for Sunniland Corporation's fertilizer and pesticide products for Puerto Rico and the Caribbean. Sunniland Corporation, based in Sanford, Florida, is a leading manufacturer of fertilizer and pesticide products for mass merchandisers, retail chains, garden centers, supermarkets and landscapers. On September 28, 1995, the Company entered into a wholesale agreement with Monsanto Puerto Rico, a division of Monsanto Company, to become a wholesaler of the Solaris product line, which includes Roundup, Ortho and Greensweep, in Puerto Rico and certain other locations in the Caribbean. The Company is already marketing the Solaris product line in Puerto Rico, the U.S. Virgin Islands, the Netherlands Antilles and the British West Indies. In August 1995, the Company formed another wholly-owned Puerto Rico subsidiary, Rain Forest. Commencing in April 1996, Rain Forest is engaged in the manufacturing and distribution of its own line of potting soils, mulch, professional growing mix, river rock and gravels throughout Puerto Rico and the Caribbean. The Company has requested a tax exemption grant from the government of the Commonwealth of Puerto Rico for the operations of Rain Forest. The Company believes that the addition of the Sunniland and Solaris product lines together with increased sales of the Rain Forest line and other products will result in lawn and garden products representing an increasing proportion of the Company's overall sales. In South Florida, the Board decided to rebuild a portion of the Company's facilities and resume limited production and marketing of plants. In this connection, during 1993 the Company built a 3.9 acre saran house and prepared 16 acres of sun growing area for new plant production. During 1994, the South Florida operation resumed sales on a limited basis. The Company intends to carefully monitor the viability of the South Florida operation. RESULTS OF OPERATIONS FOR THE SECOND QUARTERS AND SIX MONTHS ENDED JUNE 30, 1996 AND 1995 During the first six months of 1996, the Company incurred a net loss of approximately $109,000, or $.06 per share, compared to net income of $178,000 for the same period in 1995, or $.09 per share. 15 For the quarter ended June 30, 1996, the Company incurred a net loss of approximately $164,000, or $0.09 per share, compared to net income of $1,000 for the same period in 1995 or $0.00 per share. The net loss incurred for the first six months, as well as the second quarter of 1996, when compared to the same periods in 1995 is principally due to the settlement of litigation with the Company's former principal lender. The settlement resulted in a charge to other expenses of approximately $303,000, as discussed below. Income from operations for the first six months of 1996 increased to approximately $233,000 from $179,000 for the same period in 1995, or 30%. Income from operations for the second quarter of 1996 also increased to approximately $158,000 from $48,000 for the same period in 1995, or 229%. Income from operations for both the six months and second quarter of 1996 was offset by other expenses (net) of approximately $342,000 and $322,000, respectively, both of which included a $303,000 charge from the settlement of litigation with the Company's former principal lender. SALES The Company's consolidated net sales for the first six months of 1996 were approximately $3,139,000, compared to $2,666,000 for the same period in 1995, or an increase of approximately 18%. The increase in sales for 1996 when compared to 1995, is due to a significant increase in sales of lawn and garden products, coupled with other increases in sales of plants as well as landscaping services. Sales for the second quarter of 1996 were approximately $1,743,000, compared to $1,365,000 for the same period in 1995, or an increase of 28%. The increase in sales for the second quarter of 1996 when compared to the same period in 1995 is also due to increased sales of lawn and garden products, as well as sales of plants and landscaping services. 16 GROSS PROFITS The Company's gross profit for the first six months of 1996 was 40.1% compared to 42.3% for 1995, or a decrease of 2.2%. This decrease in gross profit is due to the significant increase in sales of lawn and garden products during 1996, which result in a lower gross profit than sales of plants. Gross profit for the second quarter of 1996 was 39.1% compared to 38.6% for the same period in 1995, or an increase of 1/2%, also indicative of continued increased sales of lawn and garden products, which result in a lower gross profit than sales of plants. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses (SG&A) were approximately $1,025,000 and $950,000 for the first six months of 1996 and 1995, respectively, or an increase of 7.9%. This increase for 1996 is principally due to an increase in general and administrative expenses, as a result of additional administrative personnel and an increase in depreciation expense. Notwithstanding the increase, SG&A as a percentage of sales decreased to 33% in 1996 compared to 36% for the comparable period of 1995. SG&A expenses for the second quarter of 1996 were approximately $524,000 compared to $479,000 for the same period in 1995, or an increase of 9.3%, also as a result of increases in personnel and depreciation expenses. SG&A as a percentage of sales decreased to 30% for the second quarter of 1996, compared to 35% for the same period in 1995. OTHER INCOME AND EXPENSES Interest income and interest expense for the first six months as well as the second quarter of 1996 decreased significantly when compared to the same periods in 1995. This decrease is principally due to the settlement of litigation with the Company's former principal lender on May 29, 1996 (refer to "ITEM 3. Legal Proceedings"). The decrease in interest income as well as interest expense results from the application of restricted cash (formerly in escrow accounts) used for the payment of principal and accrued interest on the outstanding loans subject of the litigation. The 17 decrease in both interest income and interest expense represent approximately one month's interest. Litigation expenses represent legal fees incurred regarding the litigation and settlement with the Company's former principal lender. For the first six months as well as the second quarter of 1996, litigation expenses decreased by approximately $83,000 and $29,000, respectively, when compared to the same periods in 1995. As of June 30, 1996, management believes that it has recognized all legal expenses incurred in connection with the litigation and settlement agreement with its former principal lender. Litigation settlement income of $120,000 for the first six months of 1995 represents a settlement agreement received from a claim with the Puerto Rico Department of Agriculture relating to a case dating back to 1991. FINANCIAL CONDITION At June 30, 1996 the Company's financial condition improved substantially when compared with that of December 31, 1995. Although the Company's total assets and liabilities decreased by approximately $5.0 million as a result of the settlement of litigation with the Company's former principal lender when compared to December 31, 1995, the Company's current ratio increased to 5.5 to 1 at June 30, 1996, compared to 1.8 to 1 at December 31, 1995. Accordingly, the Company believes it has adequate resources to meet its current liquidity and capital requirements. For the first six months of 1996, the Company had invested approximately $301,000 for additional equipment at the Puerto Rico operation. This investment has been made in order to increase production as demand for the Company's products continues to grow. The Company's liabilities at June 30, 1996 include trade accounts with its suppliers, accounting accruals, as well as small loan balances collateralized with farm and transportation equipment. Stockholders' equity at June 30, 1996 decreased due to results of operations for the first six months, principally from the settlement of litigation with the Company's former principal 18 lender. There were no dividends declared nor issuance of capital stock. CURRENT LIQUIDITY AND CAPITAL RESOURCES The Company is presently current on all its obligations. Excess funds have been invested in short-term bank instruments. The Company believes it has adequate resources to meet its anticipated liquidity and capital requirements. ITEM 3. LEGAL PROCEEDINGS FIRST UNION NATIONAL BANK On May 29, 1996, Margo Nursery Farms, Inc. (including all related entities) and Michael J. Spector, the Chairman of the Board , Chief Executive Officer and the principal stockholder of the Company entered into a Settlement Agreement with First Union National Bank of Florida ("First Union"). The Settlement Agreement covered all claims brought by First Union against the Company and related entities (the "Margo Entities") related to a loan facility obtained by the Margo Entities from Southeast Bank, N.A. in 1988 and later acquired by First Union. The Settlement Agreement also settled all counterclaims brought by the Margo Entities against First Union related to First Union's efforts to collect such loan. The Settlement Agreement provided for a payment to First Union of $5,625,000, of which $5,285,000 corresponded to the Company and $340,000 corresponded to Mr. Spector. The settlement payment made by the Company resulted in a charge of approximately $302,884, which included $21,421 in related expenses. The charge was recognized in the second quarter of 1996, after the application of existing reserves of $5,003,537 (for outstanding principal and interest) allocated to this matter. ITEM 4. DEFAULTS UPON SENIOR SECURITIES Prior to the settlement discussed in Item 3 above, the Company was in default of certain provisions of its loan agreements with its principal lender. As a result of the settlement, the Company is no 19 longer in default with any provision of its past or present agreements. ITEM 5. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS The Company held its annual meeting of shareholders on August 9, 1996. At this meeting, shareholders were asked to vote on the election of directors and the appointment of Kaufman, Rossin & Company as auditors of the Company. The directors of the Company were reelected for an additional one-year term. Quorum at the meeting consisted of shares, or % of 1,895,322 total outstanding common shares. The results of the meeting were as follows: 1. ELECTION OF DIRECTORS NOMINEES FOR AGAINST ABSTAIN - -------- --- ------- ------- Blas R. Ferraiouli 1,885,076 300 0 Frederick Moss 1,885,076 300 0 Michael A. Rubin 1,885,076 300 0 Margaret D. Spector 1,885,076 300 0 Michael J. Spector 1,885,076 300 0 2. APPOINTMENT OF KAUFMAN, ROSSIN & COMPANY AS AUDITORS FOR AGAINST ABSTAIN --- ------- ------- 1,885,076 300 0 There were no broker non-votes with respect to any of the two proposals. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a) EXHIBITS -27- Financial Data Schedule (for SEC use only) 20 b) REPORTS ON FORM 8-K The Company filed the following Reports on Form 8-K during the quarter ended June 30, 1996: (1) Form 8-K, dated May 20, 1996, reporting under Item 5 "Other Events" the execution of an agreement with the Puerto Rico Department of Transportation. (2) Form 8-K, dated May 30, 1996, reporting under Item 5 "Other Events" the settlement of pending litigation with First Union National Bank of Florida. 21 SIGNATURES Pursuant to the requirements Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MARGO NURSERY FARMS, INC. Date: AUGUST 12, 1996 BY: /S/ MICHAEL J. SPECTOR ---------------- -------------------------- Michael J. Spector, President and Chief Executive Officer Date: AUGUST 12, 1996 BY: /S/ ALFONSO ORTEGA ---------------- ---------------------- Alfonso Ortega, Vice President, Treasurer, Principal Financial and Accounting Officer 22 EX-27 2
5 QUARTERLY6 REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED JUNE 30, 1996 1 6-MOS DEC-31-1995 JUN-30-1996 1,622,620 0 1,418,042 66,982 2,491,741 5,895,682 5,213,957 1,325,341 10,245,479 1,506,055 423,986 0 0 1,915 8,737,509 10,245,479 3,138,932 3,360,804 1,880,757 3,469,782 0 0 167,715 (108,978) 0 0 0 0 0 (108,978) (0.06) (0.06)
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