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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 nine months ended September 30, 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 November 9, 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
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I. Financial Information
Item 1. Financial Statements
Balance Sheets.......................................... 3
Statements of Operation................................. 4
Statements of Cash Flows................................ 6
Notes to Financial Statements........................... 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation.......................... 11
PART II. Other Information.............................................. 12
</TABLE>
2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
KNOX NURSERY, INC.
BALANCE SHEET
September 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
2000
------------
<S> <C>
ASSETS
Current assets:
Trade accounts receivable, net ............................ $ 644,416
Inventories ............................................... 1,164,279
Prepaid expenses and other assets ......................... 147,481
Note receivable ........................................... 38,500
Deposits .................................................. 11,858
------------
Total current assets ............................... 2,006,534
Investment in Cooperative Bank .................................. 7,645
Property, plant and equipment, net .............................. 6,248,232
Deferred loan cost, net of accumulated amortization ............. 39,086
------------
Total assets ....................................... $ 8,301,497
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .......................................... $ 677,219
Accrued expenses .......................................... 191,105
Accrued income taxes ...................................... 84,084
Current installments of long-term debt .................... 656,600
------------
Total current liabilities .......................... 1,685,568
------------
Long-term debt, excluding current installments
4,013,017
Due to stockholders ............................................. 237,000
Deferred income taxes ........................................... 300,000
------------
Total liabilities .................................. 6,235,585
Stockholders' equity:
Common stock .............................................. 11,605
Additional paid-in capital ................................ 1,289,926
Retained earnings ......................................... 853,406
Treasury stock ............................................ (12,465)
------------
Total stockholders' equity ......................... 2,065,912
------------
Total liabilities and stockholders' equity ......... $ 8,301,497
============
</TABLE>
See accompanying notes to financial statements.
3
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KNOX NURSERY, INC.
Statements of Operations
For the three months ended September 30, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
Sales $ 748,557 $ 714,267
Cost of Sales 383,390 684,826
------------ ------------
Gross profit 365,167 29,441
Operating expenses 459,088 470,229
------------ ------------
Operating income (93,921) (440,788)
Interest expense (111,719) (123,174)
Other (13,102) (1,081)
------------ ------------
Total other expense (124,821) (124,255)
------------ ------------
Net loss before income taxes (218,742) (565,043)
Income tax benefit 76,560 0
------------ ------------
Net loss $ (142,182) (565,043)
============ ============
Basic loss per common share $ (0.012) (0.049)
============ ============
Weighted average shares 11,605,000 11,605,000
outstanding ============ ============
</TABLE>
See accompanying notes to financial statements.
4
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KNOX NURSERY, INC.
Statements of Operations
For the nine months ended September 30, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
Sales $ 5,404,357 4,707,105
Cost of Sales 3,397,432 3,235,350
------------ ------------
Gross profit 2,006,925 1,471,755
Operating expenses 1,451,863 1,505,548
------------ ------------
Operating income 555,062 (33,793)
Interest expense (300,098) (294,529)
Other (14,723) (5,717)
------------ ------------
Total other expense (314,821) (300,246)
------------ ------------
Net income (loss) before income taxes 240,241 (334,039)
Income tax expense 84,084 0
------------ ------------
Net income (loss) $ 156,157 (334,039)
============ ============
Basic income (loss) per share $ 0.013 (0.029)
============ ============
Weighted average shares
outstanding 11,605,000 11,605,000
============ ============
</TABLE>
See accompanying notes to financial statements.
5
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KNOX NURSERY, INC.
Statements of Cash Flow
For the three months ended September 30, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
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<S> <C> <C>
Cash flows from operating activity:
Net loss $ (142,182) $ (565,043)
Adjustments to reconcile net income to cash
Provided by operating activities:
Depreciation and amortization 181,285 178,097
Cash provided by (used for) changes in:
Trade accounts receivable 594,628 122,048
Inventories (270,260) (200,000)
Prepaid expenses (128,992) 4,442
Deposits -- (42,507)
Accounts payable (471,345) 213,481
Accrued expenses and other liabilities (3,720) 60,561
---------- ----------
Net cash used in operating activities (240,586) (228,921)
---------- ----------
Cash flows from investing activities:
Purchase of property and equipment (45,328) (256,366)
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Cash flows from financing activities:
Proceeds from long-term borrowings 219,267 615,389
Net decrease in due to stockholders (300,000) (105,000)
Loan issuance fees -- (18,645)
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Net cash (used in) provided by financing activities (80,733) 491,744
---------- ----------
Net (decrease) increase cash equivalents (366,647) 6,457
Cash and cash equivalents at beginning of quarter 366,647 145,341
---------- ----------
Cash and cash equivalents at end of quarter $ 0 $ 151,798
========== ==========
</TABLE>
See accompanying notes to financial statements
6
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KNOX NURSERY, INC.
Statements of Cash Flow
For the nine months ended September 30, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
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<S> <C> <C>
Cash flows from operating activity:
Net income (loss) $ 156,157 $ (334,039)
Adjustments to reconcile net income to cash
Provided by operating activities:
Depreciation and amortization 543,852 526,444
Cash provided by (used for) changes in:
Trade accounts receivable (230,949) 8,768
Inventories 202,228 --
Prepaid expenses (132,751) 13,327
Deposits -- (44,157)
Note receivable (38,500) --
Accounts payable (397,796) (16,029)
Accrued expenses and other liabilities 228,950 103,360
---------- ----------
Net cash provided by operating activities 331,191 257,674
---------- ----------
Cash flows from investing activities:
Purchase of property and equipment (307,328) (412,034)
Investment in Cooperative Bank 2,833 3,113
---------- ----------
Net cash used in investing activities (304,495) (408,921)
---------- ----------
Cash flows from financing activities:
Repayment of long-term debt (249,231) --
Proceeds from long-term borrowings -- 375,432
Proceeds from the sale of treasury stock 37,500 --
Treasury stock issued 69,756 --
Net decrease in due to stockholders (58,000) (155,000)
Loan issuance fees -- (40,732)
---------- ----------
Net cash (used in) provided by financing activities (199,975) 179,700
---------- ----------
Net (decrease) increase in cash and cash equivalents (173,279) 28,453
Cash and cash equivalents at beginning of period 173,279 123,345
---------- ----------
Cash and cash equivalents at end of period $ -- $ 151,798
========== ==========
</TABLE>
See accompanying notes to financial statements
7
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KNOX NURSERY, INC.
Notes to Financial Statements
September 30, 2000 & 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 the nine-month and
three-month periods ended September 30, 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 three-months and nine-months
ended September 30, 2000 and 1999.
8
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(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) LONG-TERM DEBT
Long-term debt consists of the following at September 30, 2000:
<TABLE>
<CAPTION>
2000
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<S> <C>
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. $ 3,770,474
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. 599,037
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. 21,372
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. 245,447
</TABLE>
9
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<TABLE>
<CAPTION>
2000
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<S> <C>
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. 33,287
-----------
4,669,617
Less current installments 656,600
-----------
Long-term debt, excluding current installments $ 4,013,017
</TABLE>
(3) 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.
10
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PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
REVENUE
For the nine months ended September 30, 2000, revenue was $5,404,357, an
increase of $697,252, or 15% from the $4,707,105 posted for the nine months
ended September 30, 1999. Plug Division revenue amounted to $4,011,744 an
increase of $980,177 or 32%, over the $3,031,567 achieved in 1999. Finished
Products sales decreased $282,925 to $1,392,613 for the first nine months of
2000, as compared to $1,675,538 in 1999. Plug revenue continued to grow since
the completion of the new plug facility at Winter Garden. The decline in
Finished Product 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 decrease was partially offset by an increase in internet
sales, as Knox Nursery introduced home gardeners nationwide to exclusive annual
varieties available only through it's website partner, garden.com.
COSTS AND EXPENSES
For the nine months ended September 30, 2000, cost of sales was $3,397,432 an
increase of $162,082 or 5% from the $3,235,350 posted for the nine months ended
September 30, 1999. Gross profit margin increased to 37% for the first nine
months of 2000, compared to 31% for the same period in 1999. This increase is
attributed primarily to the change in mix of product sold. Plug Division makes
up a greater share of the sales volume, with a more favorable profit margin.
Operating expenses for the first nine months of 2000 amounted to $1,451,863, a
decrease of $53,685 or 4% from the $1,505,548 recorded in the first nine months
of 1999. Within operating expenses, advertising costs experienced the largest
change, from $168,219 in 1999 to $15,481 in 2000, a $152,738 decrease. 1999's
figure included the cost of a national print advertisement which was not
repeated in 2000. Interest expense rose from $294,529 for the first nine months
of 1999 to $300,098 in 2000, an increase of $5,569 or 1.9%.
11
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The Company recorded net income in the nine months ended September 30, 2000 of
$156,157 compared to net income (loss) of ($334,039) at September 30, 1999, an
improvement of $490,196. Non-cash charges for depreciation and amortization were
$543,852 for the nine months ended September 30, 2000, and $526,444 for the same
period in 1999.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2000, the Company had a working capital surplus of $320,966,
compared to a $464,317 surplus at September 30, 1999. The decrease in working
capital was substantially due to an accrual for income taxes in 2000 that did
not exist in 1999. The Company believes future working capital and capital
expenditure requirements can be met from the cash provided from operating
activities.
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.
Exhibit 27 Financial Data Schedule
(a) Not applicable.
(b) No reports on Form 8-K were filed during the nine months
ended September 30, 2000.
12
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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: November 7, 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.
<TABLE>
<CAPTION>
Name Title Dates
---- ----- -----
<S> <C> <C>
/s/ Bruce R. Knox President November 9, 2000
-------------------------- Director
Bruce R. Knox
/s/ James M. Knox, III Vice President November 9, 2000
-------------------------- Director
James M. Knox, III
/s/ M. Nadine Knox Director November 9, 2000
--------------------------
M. Nadine Knox
</TABLE>
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