<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the quarter ended March 31, 2000.
Commission file number 0-27805.
KNOX NURSERY, INC.
------------------
(Exact name of registrant as specified in its charter.)
Florida 59-1787808
------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4349 N. Hiawassee Road, Orlando, FL 32818
----------------------------------- -----
(Address of principle executive offices) (Zip Code)
(407) 293-3721
--------------
(Registrant's telephone number, including area code)
Number of shares of common stock outstanding as of May 8, 2000 is 11,605,000.
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 (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
YES [X] NO [ ]
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KNOX NURSERY, INC.
INDEX
Page No.
--------
PART I. Financial Information
Item 1. Financial Statements
Balance Sheets .................................. 2
Statements of Operation ......................... 4
Statements of Cash Flows ........................ 5
Notes to Financial Statements ................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation........................ 10
PART II. Other Information.............................................. 11
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
KNOX NURSERY, INC.
BALANCE SHEET
March 31, 2000
(Unaudited)
2000
-----------
ASSETS
Current assets:
Cash and cash equivalents $ 156,060
Trade accounts receivable, net 1,345,743
Inventories 1,441,494
Prepaid expenses 22,908
Deposits 11,858
-----------
Total current assets 2,978,063
Investment in Cooperative Bank 7,645
Property, plant and equipment, net 6,466,917
Deferred loan cost, net of accumulated amortization 50,653
-----------
Total assets $ 9,503,278
===========
2
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,690,679
Accounts expenses 107,656
Accrued income taxes 84,470
Current installments of long-term debt 956,600
-----------
Total current liabilities 2,839,405
-----------
Long-term debt, excluding current installments 3,875,685
Due to stockholders 345,000
Deferred income taxes 300,000
-----------
Total liabilities 7,360,090
Stockholders' equity:
Common stock 11,605
Additional paid-in capital 1,289,926
Retained earnings 854,122
Treasury stock (12,465)
-----------
Total stockholders' equity 2,143,188
-----------
Total liabilities and stockholders' equity $ 9,503,278
===========
See accompanying notes to financial statements.
3
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KNOX NURSERY, INC.
Statements of Operations
For the three months ended March 31, 2000 & 1999
(Unaudited)
2000 1999
------------ -----------
Sales $ 2,205,721 1,935,814
Cost of Sales 1,359,789 1,113,609
------------ -----------
Gross Profit 845,932 822,205
Operating expenses 509,357 546,934
------------ -----------
Operating income 336,575 275,271
Other income (expense):
Interest expense (95,636) (86,056)
Interest and dividend 104 97
Other 300 (1,829)
------------ -----------
Total other income (expense) (95,232) (87,778)
------------ -----------
Net income before income taxes 241,343 187,483
Income tax expense (84,470) (65,619)
------------ -----------
Net income $ 156,873 121,864
Basic income per common share $ 0.013 0.011
Weighted average shares 11,605,000 11,605,000
outstanding
See accompanying notes to financial statements.
4
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KNOX NURSERY, INC.
Statements of Cash Flow
For the three months ended March 31, 2000 & 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
--------- --------
<S> <C> <C>
Cash flows from operating activity:
Net income $ 156,873 121,864
Adjustments to reconcile net income to cash
Provided by operating activities:
Depreciation and amortization 181,284 174,174
Cash provided by (used for) changes in:
Trade accounts receivable (932,276) (746,391)
Inventories (74,987) (130,000)
Prepaid expenses (8,178) 4,009
Deposits -- (1,000)
Accounts payable 615,664 209,461
Accrued expenses and other liabilities 145,886 141,540
--------- --------
Net cash provided by (used in) operating activities 84,266 (226,343)
Cash flows from investing activities:
Purchase of property and equipment (175,011) (21,488)
Investment in Cooperative Bank 2,833 3,113
--------- --------
Net cash used in investing activities (172,178) (18,375)
Cash flows from financing activities:
Repayment of long-term debt (86,563) (77,783)
Proceeds from long-term borrowings -- 325,000
Proceeds from the sale of treasury stock 37,500 5,000
Treasury stock issued 69,756 --
Net increase (decrease) in due to stockholders 50,000 (50,000)
Loan issuance fees -- (22,087)
--------- --------
Net cash provided by financing activities 73,526 183,243
--------- --------
Net decrease in cash and cash equivalents (17,219) (64,588)
Cash and cash equivalents at beginning of year 173,279 123,345
--------- --------
Cash and cash equivalents at end of quarter $ 156,060 58,757
</TABLE>
See accompanying notes to financial statements
5
<PAGE> 6
KNOX NURSERY, INC.
Notes to Financial Statements
March 31, 2000 and 1999
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) DESCRIPTION OF BUSINESS
Knox Nursery, Inc. is located in Central Florida and has two
operating divisions: 1) the Finished Product Division, with
sales of 4 inch annuals to wholesalers, landscapers and large
final-use customers located primarily in Central Florida, and
2) the Plug Division, with sales of seedling annuals (plugs)
to brokers and other nurseries located throughout the United
States.
(b) BASIS OF PRESENTATION
The accompanying unaudited financial statements of Knox
Nursery, Inc. have been prepared in accordance with the
instructions and requirements of Form 10-QSB and Regulation
S-B and, therefore, do not include all information and
footnotes for a fair presentation of financial position,
results of operation and cash flows in conformity with
generally accepted accounting principals. In the opinion of
management all adjustments, consisting of normal recurring
accruals considered necessary for a fair presentation have
been included. Operating results for this three-month period
ended March 31, 2000 are not necessarily indicative of the
results that may be expected for the year ended December 31,
2000.
(c) USE OF ESTIMATES
Management of the Company has made certain estimates and
assumptions relating to the reporting of assets and
liabilities and the disclosure of contingent assets and
liabilities to prepare these financial statements in
conformity with generally accepted accounting principles.
Actual results could differ from those estimates.
(d) BASIC INCOME PER COMMON SHARE
Net income per share amounts are based on the weighted
average number of common and common stock equivalents issued
and outstanding of 11,605,000 for the quarters ended March
31, 2000 and 1999.
6
<PAGE> 7
(e) IMPAIRMENT
The Company periodically reviews long-lived assets to be held
and used in operations for impairment whenever events or
changes in circumstances indicate that the carrying value of an
asset may not be recoverable. An impairment loss is recognized
when the estimated undiscounted future cash flows from the
assets are less than the carrying value of the assets. Assets
to be disposed of are reported at the lower of their carrying
amount or fair value less cost to sell.
(2) INVENTORIES
Inventories at March 31, 2000 consisted of:
2000
----------
Work in process $1,197,598
Materials and supplies 243,896
----------
Total Inventory $1,441,494
==========
(3) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at March 31, 2000 consisted of the
following:
2000
------------
Land $ 272,169
Buildings and improvements 6,873,311
Machinery and equipment 1,808,320
Automotive equipment 308,794
Office furniture and equipment 174,306
Construction in process 735,389
------------
10,172,289
Less accumulated depreciation (3,705,372)
------------
Net property, plant and equipment $ 6,466,917
============
7
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KNOX NURSERY, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2000 AND 1999
(4) LONG-TERM DEBT
Long-term debt consists of the following at March 31, 2000:
2000
----------
NationsBank:
Construction loan ($4,500,000 limit) with interest
fixed at 7.5%, principal and interest due in level
monthly payments based on a 15-year amortization
with a final balloon payment of all unpaid principal
and accrued interest on May 8, 2002. Loan is
collateralized by land, buildings and improvements. $3,885,128
Credit line loan ($600,000 limit) with interest equal
to the prime rate plus 1%. Line of credit renews
annually with similar terms and rates. Loan is
collateralized by land, buildings and improvements. 600,000
Commercial loan ($160,000 limit) with interest at a
fixed rate of 7.5%, due with principal and interest
due in 59 equal monthly installment ending May 8,
2001. Loan is collateralized by land, buildings and
improvements. 38,187
Commercial loan ($200,000 limit) with interest at a
fixed rate of 7.5%, due in 36 equal monthly
installments ending February 5, 2000. Loan is
collateralized by land, buildings and improvements. --
Commercial loan with interest at a fixed rate of
8.5%, due in 59 equal monthly installments ending
August 25, 2004. Loan is collateralized by land,
buildings and improvements. 271,191
----------
8
<PAGE> 9
Commercial loan with interest at a fixed rate of
9.0%, due in 60 equal monthly installments ending
August 1, 2004. Loan is collateralized by a 2000
International truck 37,779
----------
4,832,285
Less current installments 956,600
----------
Long-term debt, excluding current installments $3,875,685
==========
(5) Contingencies
In the normal course of business, the Company is subject to certain
obligations and litigation. Management, after consultation with
counsel, intends to vigorously defend its positions and is of the
opinion that the ultimate resolution of such matters will not have a
material adverse effect on the Company's financial position or results
of operations.
9
<PAGE> 10
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
REVENUE
For the three months ended March 31, 2000, revenue was $2,205,721, an increase
of $269,907, or 14% from the $1,935,814 posted for the quarter ended March 31,
1999. Plug Division revenue amounted to $1,750,264, an increase of $475,754, or
37%, over the $1,274,510 achieved in 1999. High customer demand for the
Company's plugs continue in the second quarter as booked orders show a 30%
increase over 1999. Finished Products sales decreased $205,847 to $455,457 for
the first quarter of 2000, as compared to $661,304 during 1999. This decline
was caused by the decision of a major retailer to use Knox Nursery as a
secondary vendor to its Central Florida stores in the early Spring season.
However, this retailer recently placed a large order for the second quarter of
2000 in excess of its purchases during the same period in 1999.
COSTS AND EXPENSES
For the three months ended March 31, 2000, cost of sales was $1,359,789, an
increase of $246,180, or 22% from the $1,113,609 posted for the quarter ended
March 31, 1999. Gross profit margin fell to 38% for the first three months of
2000, compared to 42% for the same period in 1999. The decline is attributed
primarily to the Finished Products Division, with a 23% gross margin for the
first three months of 2000, compared to 40% in 1999, caused by the previously
mentioned decline in revenue. Operating expenses for the first three months of
2000 amounted to $509,357, a decrease of $37,577, or 7% from the $546,934
recorded in the first quarter of 1999. Within operating expenses, advertising
costs experienced the largest change, from $101,642 in 1999 to $12,563 in 2000,
an $89,079 decrease. 1999's figure included the cost of a national print
advertisement, which was not repeated in 2000. Interest expense rose from
$86,056 during the first three months of 1999 to $95,636 in 2000, an increase
of $9,580, or 11%. The increase is attributed to higher outstanding credit line
balances.
10
<PAGE> 11
The Company recorded net income in the quarter ended March 31, 2000 of $156,873
compared to net income of $121,864 at March 31,1999, an improvement of $35,009.
Non-cash charges for depreciation and amortization were $181,284 for the three
months ended March 31, 2000, and $174,174 for the same period in 1999.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2000, the Company had a working capital surplus of $84,658. The
decrease in working capital was substantially due to larger quarter-end payable
balances caused by the funding of capital expenditures and the build-up of
inventory. The Company believes future working capital and capital expenditure
requirements can be met from cash provided from operating activities, existing
cash balances, and borrowings available under the existing credit facilities.
CAUTIONARY STATEMENTS FOR PURPOSES OF THE SAFE HARBOR
In addition to statements of historical fact, this quarterly report contains
forward-looking statements which are inherently subject to change, based on
known and unknown risks, including but not limited to changes in the market and
industry. Please refer to documents filed with the Securities and Exchange
Commission for additional information on factors that could materially affect
the Company's financial results.
PART II. OTHER INFORMATION
Item 1. Not applicable.
Item 2. Not applicable.
Item 3. Not applicable.
Item 4. Not applicable.
Item 5. Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit
27 Financial Data Schedule (SEC use only)
(b) No reports on Form 8-K were filed during the quarter
ended March 31, 2000.
11
<PAGE> 12
KNOX NURSERY, INC.
SIGNATURES
Pursuant to the requirement of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the registrant has caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
KNOX NURSERY, INC.
Registrant
Date: May 8, 2000 /s/ BRUCE R. KNOX
-------------------------------------
Bruce R. Knox
President
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report Is signed below by the following persons on behalf of the registrant on
the dates and in the capacities indicated.
Name Title Dates
---- ----- -----
/s/ Bruce R. Knox President May 8, 2000
- ------------------------ Director
Bruce R. Knox
/s/ James M. Knox, III Vice President May 8, 2000
- ------------------------ Director
James M. Knox, III
/s/ M. Nadine Knox Director May 8, 2000
- ------------------------
M. Nadine Knox
12
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<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 1
<CASH> 156,060
<SECURITIES> 0
<RECEIVABLES> 1,372,110
<ALLOWANCES> 26,367
<INVENTORY> 1,441,494
<CURRENT-ASSETS> 2,978,063
<PP&E> 10,172,289
<DEPRECIATION> 3,705,372
<TOTAL-ASSETS> 9,503,278
<CURRENT-LIABILITIES> 2,839,405
<BONDS> 0
0
0
<COMMON> 11,605
<OTHER-SE> 2,131,583
<TOTAL-LIABILITY-AND-EQUITY> 9,503,278
<SALES> 2,205,721
<TOTAL-REVENUES> 2,206,125
<CGS> 1,359,789
<TOTAL-COSTS> 1,867,646
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,500
<INTEREST-EXPENSE> 95,636
<INCOME-PRETAX> 241,343
<INCOME-TAX> 84,470
<INCOME-CONTINUING> 156,873
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 156,873
<EPS-BASIC> .013
<EPS-DILUTED> .013
</TABLE>
