<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB
[X] Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934.
For the year ended December 31, 1999.
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)
Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act:
Common stock, par value $.001 per share.
Preferred stock, par value $.001 per share.
Based upon the $2.47 per share closing price of the registrant's Common Stock as
of March 6, 2000, the aggregate value of the shares of Common Stock held by
nonaffiliates as of such date was $10,682,750.
Number of shares of common stock outstanding as of March 6, 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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained, herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
State issuer's revenues for its most recent year - $5,927,125
DOCUMENTS INCORPORATED BY REFERENCE
None
<PAGE> 2
PART I
This Annual Report on Form 10-KSB contains forward-looking statements that are
not statements of historical fact. Forward-looking statements by their nature
involve substantial risks and uncertainties, and actual results may differ
materially from such statements. These forward-looking statements are based
largely on the Company's expectations and are subject to a number of risks and
uncertainties, including but not limited to, those risks associated with
economic conditions generally and the economy in those areas where the Company
has or expects to have assets and operations; risks relating to changes in
interest rates and in the availability, cost and terms of financing; risks
related to the performance of financial markets; risks related to changes in
domestic and foreign laws, regulations and taxes; risks associated with future
profitability; and other factors discussed elsewhere in this report.
ITEM I. BUSINESS
THE COMPANY
Knox Nursery, Inc. (the Company) is a Florida corporation, having its offices in
Orlando, Florida. The Company is a wholesale plant nursery with two operating
divisions: 1) the Plug Division, with sales of seedling annuals (plugs) to
brokers and other nurseries located throughout the United States and Canada; and
2) the Finished Products Division, with sales of annual plants to wholesalers,
landscapers and large final-use customers located primarily in Central Florida.
The Plug Division, which accounts for 60% of the Company's sales, is responsible
for sowing millions of seeds annually, then precisely growing the seedlings for
4 to 10 weeks until the "prefinished" plants are shipped to commercial growers
throughout the country. These growers will then transplant the plugs into larger
pots and containers for resale to their customers.
The Finished Products Division receives its prefinished material from the Plug
Division, transplants it into the appropriate containers, then carefully grows
the material to a mature ready-to-sell condition. The finished plants are then
delivered to mass merchandisers such as Lowe's, Home Depot, and Wal Mart,
landscapers, and local final-use customers such as Walt Disney World and
Universal Studios.
In February, 1997, the Company completed its new 6 acre plug production facility
in Winter Garden, Florida, on a 33 acre parcel purchased in 1996. This complex
is 12 miles from the original 12 1/2 acre location in Orlando. With the
completed facility, Knox's growing space has doubled.
The new location does much more than add additional plant space. It is a
technologically advanced facility, costing the Company $6,000,000 to construct.
This addition gives Knox Nursery a competitive advantage in the marketplace.
Now, the total growing environment can be micro-managed. The temperature,
moisture, humidity and light within the growing facility can be accurately
controlled to provide optimum growing environments for maximum growth in the
shortest periods. Additionally, this new facility lowers labor costs by
approximately 40%, which constitutes the largest single cost to the Company.
Therefore, even though the cost for the new facility was considerable, the
advantages for the Company will provide greater future profits.
In 1999, the Company made capital expenditures in excess of $1,000,000, most
significantly in two areas. First, new visioning and reworking equipment was
purchased to ensure that the Company provides the fullest trays available to its
customers - Knox can now promise the highest guarantees in the industry. Second,
a new germination room was constructed at the Winter Garden facility, which will
increase germination rates dramatically, enhance revenue, and decrease costs
because fewer poorly germinated plugs will need to be replaced.
MARKET ENVIRONMENT
The Company targets medium to large wholesale growers for its pre-finished lines
of plants, however, smaller growers are not ignored. The overall floriculture
industry in the United States is a $3.7 billion industry.
In Florida alone, the industry generates over $642 million in sales.
INDUSTRY ANALYSIS
The bedding plant industry consists of a small group of independent producers,
many of whom are customers of Knox Nursery. The industry is currently being
consolidated by
<PAGE> 3
large growers who are expanding and beginning to direct their sales effort to
large, mass marketers. These large marketers are important to the Company, and
it is the plan of Knox Nursery to take advantage of its current plant expansion,
and attempt to further its share of the larger, mass marketer business.
MARKET SEGMENT
Knox Nursery has over 200 independent salespeople representing the Company
selling its pre-finished products around the United States. The Company has
certain advantages in the Southeastern United States because of its location,
and the Company run distribution system of delivery trucks. Also, with its
Florida location and its warm climate, the Company escapes the high energy costs
of northern areas. This competitive advantage allows the Company to offer better
prices than many of its competitors. In one popular area, the supplying of
Gerbera Daisies, Knox Nursery is the largest grower and supplier of this species
in the United States.
INTERNET PRESENCE
The Company maintains two interactive web-sites:
www.knoxnursery.com - the site is designed to service the B2B sector, enabling
brokers and wholesalers to check plant availability, schedule delivery dates,
and place orders on line, without having to make extensive phone calls to
numerous growers around the country.
www.homegardenerdirect.com - this site is designed to service the B2C sector,
enabling the home gardener to check plant availability, schedule delivery dates,
and place orders on-line. Consumers can now have nursery fresh plants arrive at
their front door, without having to deal with the middleman.
Knox Nursery will continue to develop these web-sites, as the phenomenal
potential of e-commerce presents another area of profitable diversification for
the Company.
ALLIANCE WITH GARDEN.COM
On February 28, 2000, the Company announced that it has entered into an
exclusive partnership to offer flowering annuals via the Garden.com web site.
Garden.com is a leading online retailer of products and services for the home
gardener. This alliance matches Garden.com's online marketing expertise,
customer service and scaleable virtual supply chain with the Company's stellar
reputation for high quality plants and high-volume production capabilities.
This new relationship is another example of the Company's continuing search for
opportunities to diversify and complement its product offerings.
ITEM 2. PROPERTIES
The Company maintains the following facilities:
Principle corporate offices 4349 N. Hiawassee Rd. 2,500 sq. ft.
Orlando, Florida
The Company does not anticipate that it will require any additional office
facilities. However, if additional office space is required in the future, the
available property will allow for needed expansion.
Finished Products Division 4359 N. Hiawassee Rd. 240,000 sq. ft.
Orlando, Florida (9 structures)
The 12 1/2 acres at this location have been fully developed.
Plug Division 940 Avalon Road 280,000 sq. ft.
Winter Garden, Florida
The entire Avalon Road property is a "Master Planned Project", consisting of
four phases when fully developed.
ITEM 3. LEGAL PROCEEDINGS
The Company was not involved in any litigation at December 31, 1999 or on the
date of this report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to security holders during the fourth quarter of 1999.
<PAGE> 4
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock is traded on The NASD OTC Bulletin Board, under the
symbol "KNUR." Prior to June, 1998 the Company's shares were not traded on any
market. The first active trading in the shares of the Company began in the
fourth quarter of 1998. The high and low closing interdealer sales prices for
each quarter since trading commenced are as follows: fourth quarter 1998 high of
$1.625 and low of $.25; first quarter 1999 high of $1.187 low of $.468; second
quarter 1999 high of $.625 low of $.343; third quarter 1999 high of $.437 low of
$.218; fourth quarter 1999 high of $.437 low of $.10.
The Company has not paid any cash dividends on its Common Stock since inception
and does not anticipate paying cash dividends in the foreseeable future. The
future payment of dividends is directly dependent upon future earnings of the
Company, its financial requirements and other factors to be determined by the
Company's Board of Directors, in its sole discretion. For the foreseeable
future, it is anticipated that any earnings which may be generated from the
Company's operations will be used to finance the growth of the Company, and that
cash dividends will not be paid to Common stockholders.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial information is qualified by and should be read
in conjunction with the Company's financial statement and notes thereto included
elsewhere in this Annual Report on Form 10-KSB.
<PAGE> 5
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1999 1998 1997
--------------------------------------------------------
<S> <C> <C> <C>
Statement of Operations:
Sales 5,927,125 5,485,870 5,646,995
Cost of Sales 3,995,471 3,711,104 4,711,616
--------- --------- ---------
Gross Profit 1,931,654 1,774,766 935,379
Operating Expenses 1,921,957 1,799,919 1,766,027
--------- --------- ---------
Income (loss) from operations 9,697 (25,153) (830,648)
Other income (expense) (228,750) (333,501) (432,956)
--------- --------- ---------
Net (loss) before taxes (219,053) (358,654) (1,263,604)
Income tax benefit 64,753 147,025 129,477
--------- --------- ---------
Net (loss) (154,300) (211,629) (1,134,127)
Net (loss)
per common share
Basic $ 0.013 $ 0.021 $ 0.138
Diluted $ 0.013 $ 0.021 $ 0.138
Weighted average
common shares
outstanding
Basic 11,605,000 11,605,000 8,200,000
Diluted 11,605,000 11,605,000 8,200,000
<CAPTION>
Years Ended December 31,
------------------------
1999 1998 1997
--------------------------------------------------------
Balance Sheet Data:
Cash and cash equivalents 173,279 123,345 44,101
Current assets 1,979,841 1,476,317 1,518,326
Working capital (95,708) 428,524 (576,187)
Total assets 8,514,161 7,705,425 8,381,618
Stockholders equity 1,879,059 2,033,359 1,377,578
</TABLE>
<PAGE> 6
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following is a discussion of the financial condition and results of
operation of the Company as of December 31, 1999. This discussion and analysis
should be read in conjunction with the Company's audited Financial Statements
including the Notes thereto which are included elsewhere in this Form 10-KSB.
GENERAL
Knox Nursery, Inc. founded in 1962, is located in Central Florida and has two
operating divisions: 1) the Plug Division, with sales of seedling annuals
(plugs) to brokers and other nurseries throughout the United States; and 2) the
Finished Products Division, with sales of four inch annuals to wholesalers,
landscapers and large final-use customers located primarily in Central Florida.
REVENUE
For the year ended December 31, 1999, revenue was $5,927,125, an increase of
$441,255, or 8% from the $5,485,870 posted for the year ended December 31, 1998.
Plug Division revenue increased $184,760 even though 1999 sales to its single
largest customer were $703,372 less than in 1998, a 51% decrease. This shortfall
was more than overcome by an $888,132 increase in sales to other customers, a
46% increase. Finished Products ended 1999 with a $256,495 revenue gain, or 12%
over 1998, spurred by sales to its marquis customers, Disney World, Universal
Studios, Wal Mart, Home Depot, and particularly, Lowe's, Inc.
COSTS AND EXPENSES
For the year ended December 31, 1999, cost of sales was $3,995,471, an increase
of $284,367, or 8% from the $3,711,104 posted for the year ended December 31,
1998. Operating expenses for 1999 amounted to $1,921,957, an increase of
$122,038, or 7% from the $1,799,919 recorded in 1998. Within operating expenses,
advertising costs experienced the largest change, from $17,525 in 1998 to
$179,979 in 1999, a $162,454 increase. The increase resulted from a national
print advertisement as well as AOL banner and other internet fees. Interest
expense fell from $421,289 in 1998 to $370,388 in 1999, a decrease of $50,901,
or 12%. The decrease is attributed to lower outstanding credit line balances and
refinancing debt at 7.5%, down from over 9%. The other income of $141,163
results primarily from the favorable resolution of a sales tax issue with the
State of Florida, for which the most adverse outcome had been accrued in prior
financial statements.
<PAGE> 7
The Company recorded a net loss from operations in 1999 of $154,300 compared to
a net loss of $211,629 in 1998, an improvement of $57,329. Non-cash charges for
depreciation and amortization were $685,455 in 1999 and $697,386 in 1998.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1999, the Company had a working capital deficit of $95,708,
compared to a surplus of $428,524 at December 31, 1998. The decrease in working
capital was substantially due to larger year-end payable balances caused by the
funding of capital expenditures and the build-up of raw-material inventory.
During 1999, the Company obtained a $300,000 loan from Nations Bank to partially
fund the new Germination Building at the Winter Garden facility. The Company has
a $600,000 line of credit with Nations Bank upon which it draws as is necessary.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Financial Statements and Notes
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND
FINANCIAL DISCLOSURE
There have been no changes in, or disagreements with, the accountants for the
Company which require reporting under Item 9.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information as of the date of this Form
10-KSB with respect to the directors and executive officers of the Company. A
summary of the background and experience of these individuals is set forth after
the table. The executive officers serve at the discretion of the Company's Board
of Directors.
<TABLE>
<CAPTION>
Name Age Position with the Company
---- --- -------------------------
<S> <C> <C>
Bruce R. Knox 34 President and Director
James M. Knox 38 Vice President and Director
M. Nadine Knox 65 Director
</TABLE>
BRUCE R. KNOX, PRESIDENT
Bruce R. Knox was born in Orlando, Florida on October 5, 1965. He graduated from
Bishop Moore High School in May, 1983 and soon entered the family business.
Bruce began in production and has been a supervisor in all areas of the nursery,
culminating with his appointment as President in March, 1995.
<PAGE> 8
Bruce has served the state floriculture industry as well. He has previously
served on the State Board of Directors for the Florida Ornamental Growers
Association, and the Board of Directors of the Action Chapter of the Florida
Nurseryman and Growers Association. Bruce is a widely respected speaker on
industry topics and has been a featured speaker at such forums as the Seeley
Conference, the Professional Plant Growers Association, and the Southeast
Greenhouse Conference.
Bruce has done extensive travel researching nursery automation systems in the
United States and Europe. The benefits of this research resulted in the
construction of one of the most technologically advanced greenhouse ranges in
the world, Knox Nursery `s Avalon Plug Production Facility, which opened in
February, 1997.
JAMES M. (MONTY) KNOX, III, VICE PRESIDENT
Monty Knox was born on January 23, 1962 in Orlando, Florida. Monty graduated
from Bishop Moore High School in May, 1980 and attended the University of
Central Florida. He joined Knox Nursery in October, 1983. Monty started in
production, planning and sales. Monty was appointed Vice President in January,
1987.
Monty has served the nursery industry extensively in the State of Florida. Monty
has served on the Florida Nurseryman and Growers Association State Board of
Directors, Marketing Committee and FNATS Trade Show. He has served on the Action
Chapter of FNGA's Board of Directors, culminating as President in 1998. Monty
serves on the Florida Farm Bureau's State Water Advisory Committee, Tax Advisory
Committee, the Orange County Farm Bureau's Board of Directors and is Vice
Chairman of the Orange County Farm Bureau PAC. Monty also serves on Orange
County's Planning and Zoning Commission and Local Planning Agency. Monty has
been Chairman of Orange County's Agricultural Board since 1995.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth certain information relating to the compensation
paid by the Company for the years 1998 and 1999, as well as proposed
compensation for 2000.
<TABLE>
<CAPTION>
Name and Annual Compensation
Principal
Position Year Salary Bonus Other
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Bruce R. Knox
President, Director 2000 52,000 unknown unknown
1999 52,000 -0- -0-
1998 70,000 2,000 37,809
</TABLE>
<PAGE> 9
<TABLE>
<S> <C> <C> <C> <C>
James M. Knox, III
VP, Director 2000 25,000 -0- -0-
1999 25,000 1,000 1,694
1998 25,000 -0- 1,857
M. Nadine Knox
Secretary/Treasurer
Director 1999 44,712 -0- -0-
1998 101,500 2,885 -0-
</TABLE>
Footnotes:
1. In 1997, Bruce R. Knox and M. Nadine Knox did not receive salary for 18
weeks. That unpaid salary was paid in 1998,
2. In 1995, the Company loaned Bruce R. Knox $107,000, repayment of which has
been forgiven. In 1996, 1997 and 1998, Mr. Knox received 1099's reflecting
the forgiven debt and interest.
3. In 1996, the Company loaned James M. Knox, III $5,000, repayment of which
has been forgiven. In 1997, 1998 and 1999, Mr. Knox received 1099's
reflecting the forgiven debt and interest.
4. On August 1, 1999, M. Nadine Knox retired from the Company. Mrs. Knox
remains on the Board of Directors.
5. No other forms of compensation was received by the above principals.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following tables set forth certain information regarding the beneficial
ownership of the Company's Common Stock as of December 31, 1999 by (1) each
person (or group of affiliated persons) who to the knowledge of the Company is
the beneficial owner of five percent or more of the Company's outstanding Common
Stock, (2) each Director and each named Executive Officer of the Company and (3)
all Directors and Executive Officers of the Company as a group. Except as
otherwise noted, the Company believes that the persons listed in this table have
sole voting and investment power respecting all shares of Common Stock owned by
them. The business address of each Director and Executive Officer listed below
is the Company's corporate address, 4349 N. Hiawassee Road, Orlando, Florida,
32818.
<PAGE> 10
Table 1. Security Ownership of Certain Beneficial Owners
<TABLE>
<CAPTION>
Name and Address of Amount and Nature Percent
Title of Class Beneficial Owner of Beneficial Owner of Class
- -------------- ---------------- ------------------- --------
<S> <C> <C> <C>
Common Stock James M. Knox, Jr. 720,000 6.2%
(Former President)
Table 2. Security Ownership of Management
Common Stock Bruce R. Knox 2,426,666 20.9%
4349 N. Hiawassee Rd.
Orlando, Florida 32818
Common Stock James M. Knox, III 2,426,666 20.9%
4349 N. Hiawassee Rd.
Orlando, Florida 32818
Common Stock M. Nadine Knox 2,426,668 20.9%
11056 Bayshore Drive
Windermere, Florida
</TABLE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the preceding two years the Company has not been a party to any
transactions with related parties. Additionally, the Company is not now a party
to any transactions with related parties.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K.
No current reports on Form 8-K were filed by the Company during the fourth
quarter ended December 31, 1999.
<PAGE> 11
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: March 28, 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 March 28, 2000
------------------- Director
Bruce R. Knox
/s/ James M. Knox, III Vice President March 28, 2000
------------------- Director
James M. Knox, III
/s/ M. Nadine Knox Director March 28, 2000
-------------------
M. Nadine Knox
</TABLE>
<PAGE> 12
KNOX NURSERY, INC.
Financial Statements
DECEMBER 31, 1999 AND 1998
(WITH INDEPENDENT AUDITORS' REPORT THEREON)
<PAGE> 13
KNOX NURSERY, INC.
Table of Contents
<TABLE>
<S> <C>
Independent Auditors' Report..........................................................................F-1
Financial Statements
Balance Sheets...................................................................................F-2
Statements of Operations.........................................................................F-3
Statements of Stockholders' Equity...............................................................F-4
Statements of Cash Flows.........................................................................F-5
Notes to Financial Statements.........................................................................F-7
Supplementary Information
Schedule of Operating Expenses..................................................................F-16
</TABLE>
<PAGE> 14
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Knox Nursery, Inc.:
We have audited the accompanying balance sheets of Knox Nursery, Inc. as of
December 31, 1999 and 1998, and the related statements of operations,
stockholders' equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Knox Nursery, Inc. as of
December 31, 1999 and 1998, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion on the financial
statements of Knox Nursery, Inc. taken as a whole. The supplementary information
included in Schedule 1 is presented for purposes of additional analysis and is
not a required part of the basic financial statements. The supplementary
information has been subject to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, is fairly stated in all
material respects in relation to the basic financial statements taken as a
whole.
/s/ Tedder, James, & Worden, P.A.
February 7, 2000
Orlando, Florida
F-1
<PAGE> 15
KNOX NURSERY, INC.
Balance Sheets
December 31, 1999 and 1998
<TABLE>
<CAPTION>
ASSETS 1999 1998
------ ----------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 173,279 123,345
Trade accounts receivable, net 413,467 353,969
Inventories 1,366,507 979,419
Prepaid expenses 14,730 15,382
Note receivable from officer -- 1,694
Deposits 11,858 2,508
----------- ----------
Total current assets 1,979,841 1,476,317
Investment in Cooperative Bank 10,478 13,591
Property, plant and equipment, net 6,467,405 6,163,202
of $63,892 and $41,852 in 1999 and 1998 56,437 52,315
----------- ----------
Total assets $ 8,514,161 7,705,425
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current installments of long-term debt $ 954,295 388,609
Accounts payable 1,075,015 494,541
Accrued expenses 46,239 164,643
----------- ---------
Total current liabilities 2,075,549 1,047,793
Long-term debt, excluding current installments 3,964,553 4,009,520
Due to stockholders 295,000 250,000
Deferred income taxes 300,000 364,753
----------- ----------
Total liabilities 6,635,102 5,672,066
Stockholders' equity:
Common stock 11,605 11,605
Additional paid-in capital 1,184,670 1,184,670
Retained earnings 697,249 851,549
Treasury stock (14,465) (14,465)
----------- ----------
Total stockholders' equity 1,879,059 2,033,359
----------- ----------
Total liabilities and stockholders' equity $ 8,514,161 7,705,425
=========== ==========
</TABLE>
See accompanying notes to financial statements.
F-2
<PAGE> 16
KNOX NURSERY, INC.
Statement of Operations
For the years ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
----------- ----------
<S> <C> <C>
Sales $ 5,927,125 5,485,870
Cost of sales 3,995,471 3,711,104
----------- ----------
Gross profit 1,931,654 1,774,766
Operating expenses 1,921,957 1,799,919
----------- ----------
Income (loss) from operations 9,697 (25,153)
Other income (expense):
Interest expense (370,388) (421,289)
Interest and dividend income 475 11,252
Gain on sale of investments -- 44,063
Other, net 141,163 32,473
----------- ----------
Total other income (expense) (228,750) (333,501)
----------- ----------
Loss before income taxes (219,053) (358,654)
Income tax benefit 64,753 147,025
----------- ----------
Net loss $ (154,300) (211,629)
=========== ==========
Basic loss per common share $ (0.013) (0.021)
=========== ==========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 17
KNOX NURSERY, INC.
Statement of Stockholders' Equity
For the years ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED TREASURY
STOCK CAPITAL EARNINGS STOCK TOTAL
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balances, December 31, 1997 $ 8,200 306,200 1,063,178 -- 1,377,578
Issuance of common stock 3,405 884,408 -- -- 887,813
Purchase of treasury stock -- -- -- (25,403) (25,403)
Issuance of treasury stock -- (5,938) -- 10,938 5,000
Net loss -- -- (211,629) -- (211,629)
---------- ---------- ---------- ---------- ----------
Balances, December 31, 1998 11,605 1,184,670 851,549 (14,465) 2,033,359
Net loss -- -- (154,300) -- (154,300)
---------- ---------- ---------- ---------- ----------
Balances, December 31, 1999 $ 11,605 1,184,670 697,249 (14,465) 1,879,059
========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 18
KNOX NURSERY, INC.
Statements of Cash Flows
For the years ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
----------- ----------
<S> <C> <C>
Increase in cash and cash equivalents:
Cash flows from operating activities:
Net loss $ (154,300) (211,629)
Adjustments to reconcile net loss to cash
provided by (used in) operating activities:
Depreciation and amortization 685,455 697,386
Gain on sale of investments -- (44,063)
Deferred income taxes (64,753) (147,025)
Cash provided by (used for) changes in:
Trade accounts receivable (59,498) 77,413
Refundable income taxes -- 91,294
Inventories (387,088) (86,084)
Prepaid expenses 652 407
Deposits (9,350) (150)
Accounts payable 580,474 (486,668)
Accrued expenses (118,404) (84,789)
----------- ----------
Net cash provided by (used in) operating activities 473,188 (193,908)
----------- ----------
Cash flows from investing activities:
Purchase of property, plant and equipment (967,618) (63,202)
Investment in Cooperative Bank 3,113 --
Proceeds from sale of investments -- 44,063
----------- ----------
Net cash used in investing activities (964,505) (19,139)
----------- ----------
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 19
KNOX NURSERY, INC.
Statements of Cash Flows, Continued
For the years ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
----------- ----------
<S> <C> <C>
Cash flows from financing activities:
Repayment of long-term debt (747,542) (878,492)
Proceeds from long-term borrowings 1,268,261 100,000
Net increase in due to stockholders 45,000 165,000
Collections on note receivable from officer 1,694 38,373
Issuance of common stock -- 887,813
Purchase of treasury stock -- (25,403)
Proceeds from the sale of treasury stock -- 5,000
Deferred loan cost (26,162) --
----------- ----------
Net cash provided by financing activities 541,251 292,291
----------- ----------
Net increase in cash and cash equivalents 49,934 79,244
Cash and cash equivalents at beginning of year 123,345 44,101
----------- ----------
Cash and cash equivalents at end of year $ 173,279 123,345
=========== ==========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 20
KNOX NURSERY, INC.
Notes to Financial Statements
December 31, 1999 and 1998
(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) INVENTORIES
Inventories of plants, seeds and supplies are stated at the
lower of cost (first-in, first-out) or market.
(c) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Assets are
depreciated by the straight-line and accelerated methods over
the estimated useful lives of the individual assets.
(d) INCOME TAXES
Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases and operating
loss and tax credit carry forwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes
the enactment date.
General business credits, which include investment tax credits
and job credits, are accounted for as a reduction of income
tax liability in the year realized.
(e) CASH EQUIVALENTS
Cash equivalents represent short-term, highly liquid
commercial paper readily convertible to cash and with an
original maturity of three months or less. (J)
F-7
<PAGE> 21
KNOX NURSERY, INC.
Notes to Financial Statements
December 31, 1999 and 1998
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(f) INVESTMENT IN COOPERATIVE BANK
Investment in Cooperative Bank is carried at cost increased
for the amount of patronage refund certificates and patrons'
equity allocated, less distribution received.
(g) 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.
(h) BASIC LOSS PER COMMON SHARE
Net loss 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 years ended December 31,
1999 and 1998.
(i) COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board (FASB)
Issued Statement of Financial Accounting Standards (SFAS) No.
130, Reporting Comprehensive Income, effective for fiscal
years beginning after December 15, 1997. SFAS No. 130
establishes standards for reporting and display of
comprehensive income and its components in a full set of
general-purpose financial statements. Comprehensive income
includes all changes in equity during a period except those
resulting from investments by owners and distributions to
owners. The Company adopted SFAS No. 130 in the current year;
however, there were no changes in equity during the period
exclusive of net loss. As such comprehensive income for the
year ended December 31, 1999 is the amount shown on the
statement of operations as net loss.
(j) 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.
F-8
<PAGE> 22
KNOX NURSERY, INC.
Notes to Financial Statements
December 31, 1999 and 1998
(2) INVENTORIES
Inventories at December 31, 1999 and 1998 consisted of:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Work in process $ 1,142,611 835,480
Materials and supplies 223,896 143,939
------------ ------------
Total Inventory $ 1,366,507 979,419
============ ============
</TABLE>
(2)(3) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31, 1999 and 1998 consisted of
the following:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Land $ 272,169 272,169
Buildings and improvements 6,873,311 6,824,687
Machinery and equipment 1,803,278 1,535,472
Automotive equipment 308,794 259,732
Office furniture and equipment 172,293 194,595
Construction in process 567,433 6,365
------------ ------------
9,977,278 9,093,020
Less accumulated depreciation (3,529,873) (2,929,818)
------------ ------------
Net property, plant and equipment $ 6,467,405 6,163,202
============ ============
</TABLE>
Interest of $24,291 was capitalized into the cost of property, plant
and equipment during the year ended December 31, 1999. No interest was
capitalized during 1998.
F-9
<PAGE> 23
KNOX NURSERY, INC.
Notes to Financial Statements
December 31, 1999 and 1998
(4) LONG-TERM DEBT
Long-term debt consists of the following at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
--------------- ---------------
<S> <C> <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.
$ 3,940,692 4,133,893
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.
600,000 100,000
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.
47,916 85,079
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.
6,068 79,157
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.
283,698 --
</TABLE>
F-10
<PAGE> 24
KNOX NURSERY, INC.
Notes to Financial Statements
December 31, 1999 and 1998
(4) LONG-TERM DEBT, CONTINUED
<TABLE>
<CAPTION>
1999 1998
--------------- ---------------
<S> <C> <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.
40,474 --
--------------- ---------------
4,918,848 4,398,129
Less current installments 954,295 388,609
--------------- ---------------
Long-term debt, excluding current installments $ 3,964,553 4,009,520
=============== ===============
</TABLE>
Aggregate principal maturities for the years subsequent to December 31,
1999 are as follows:
<TABLE>
<S> <C>
2000 $ 954,295
2001 326,286
2002 3,509,936
2003 76,583
2004 51,748
----------
$4,918,848
==========
</TABLE>
The Company's loans have certain financial covenants, some of which
were waived for the years ended December 31, 1999 and 1998.
(5) LEASES
The Company leases certain production equipment under lease agreements
classified as operating leases. Future minimum lease payments under
non-cancelable operating leases (with initial or remaining lease terms
in excess of one year) as of December 31, 1999 are:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
<S> <C>
2000 $ 117,843
2001 90,843
----------
Total $ 208,686
==========
</TABLE>
Rent expense for the years ended December 31, 1999 and 1998 was
$124,913 for each year.
F-11
<PAGE> 25
KNOX NURSERY, INC.
Notes to Financial Statements
December 31, 1999 and 1998
(6) INCOME TAXES
Income tax benefit for the years ended December 31, 1999 and 1998
consists of the following:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
--------- -------- --------
<S> <C> <C> <C>
1999:
Federal $ -- (62,400) (62,400)
State -- (2,353) (2,353)
--------- -------- --------
$ -- (64,753) (64,753)
========= ======== ========
1998:
Federal $ -- (141,688) (141,688)
State -- (5,337) (5,337)
--------- -------- --------
$ -- (147,025) (147,025)
========= ======== ========
</TABLE>
Total income tax benefit for the years ended December 31, 1999 and 1998
differed from amounts computed by applying the U.S. federal income tax
rate of 34% to net loss before income taxes as a result of the
following:
<TABLE>
<CAPTION>
1999 1998
----------- ----------
<S> <C> <C>
Computed "expected" tax benefit $ (74,478) (121,942)
Increase (Reduction) in income taxes resulting from:
State income benefit, net of federal income tax benefit (7,952) (13,168)
Non deductible expenses 1,317 1,190
General business credits 184,900 --
Change in valuation allowance for deferred tax assets (163,500) --
Other, net (5,040) (13,105)
----------- ----------
$ (64,753) (147,025)
=========== ==========
</TABLE>
F-12
<PAGE> 26
KNOX NURSERY, INC.
Notes to Financial Statements
December 31, 1999 and 1998
(6) INCOME TAXES, CONTINUED
The tax effects of temporary differences that give rise to a
significant portion of the deferred tax assets and deferred tax
liabilities as of December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
----------- ----------
<S> <C> <C>
Deferred tax assets:
General business credits $ 106,100 291,000
Net operating loss carry forward 834,434 445,592
Allowance for bad debts 9,400 9,544
----------- ----------
Total gross deferred tax assets 949,934 746,136
Less valuation allowance (173,500) (337,000)
----------- ----------
Net deferred tax assets 776,434 409,136
Deferred tax liabilities:
Inventory 520,630 368,262
Property and equipment, principally due to differences in
depreciation 555,804 405,627
----------- ----------
Total gross deferred tax liabilities 1,076,434 773,889
----------- ----------
Net deferred tax liability $ 300,000 364,753
=========== ==========
</TABLE>
At December 31, 1999, the Company has net operating loss carry forwards
of approximately $3,314,000 for the state of Florida and $2,089,000 for
federal income tax purposes, which are available to offset future
taxable income, if any, through 2019. The Company also has general
business credit carry forwards for federal income tax purposes of
approximately $106,100 which are available to reduce future federal
income taxes, if any, through 2009.
(7) PROFIT SHARING PLAN
The Company has established a voluntary employee savings plan, 401(k),
available to all employees who meet certain eligibility requirements.
The plan provides for a matching by the Company of the employee's
contribution to the plan not to exceed certain specified limits. During
the years ended December 31, 1999 and 1998, total Company contributions
to the plan were $22,240 and $18,964, respectively.
F-13
<PAGE> 27
KNOX NURSERY, INC.
Notes to Financial Statements
December 31, 1999 and 1998
(8) COMMON STOCK
During 1997 the Company amended the original Articles of Incorporation
to reflect an increase in the authorized common shares from 7,500 to
50,000,000; of which 40,000,000 are to be common and to provide for the
authorization of 10,000,000 preferred shares, both with a par value of
$.001 per share. At December 31, 1997, 8,200,000 shares of common stock
were issued and outstanding. During 1998 the Company issued an
additional 3,405,000 shares of common stock and repurchased 580,636
shares of previously issued common stock to be held as treasury stock.
The Company then sold 250,000 shares of its treasury stock, resulting
in 330,636 shares of treasury stock held at December 31, 1998. There
was no treasury stock activity during 1999. At December 31, 1999 and
1998, 11,605,000 shares of common stock were issued and outstanding.
(9) 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.
F-14
<PAGE> 28
KNOX NURSERY, INC.
SUPPLEMENTARY INFORMATION
DECEMBER 31, 1999 AND 1998
F-15
<PAGE> 29
Schedule I
KNOX NURSERY, INC.
Schedule of Operating Expenses
December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
----------- ----------
<S> <C> <C>
Advertising product $ 179,979 17,525
Bad debt expense 3,184 20,000
Computer support 12,881 8,666
Consultant fees 12,934 14,688
Depreciation and amortization 685,455 697,386
Employee benefits 36,738 29,984
Equipment lease 124,913 124,913
Gas and oil 30,344 20,279
Insurance 134,688 167,013
Legal and accounting 37,457 42,603
Miscellaneous 12,593 7,450
Office supplies and postage 19,725 17,894
Payroll taxes 162,373 142,321
Propane and natural gas 22,899 24,688
Salaries and wages 219,005 231,548
Taxes and licenses 59,779 84,488
Telephone 55,766 53,740
Trash removal 20,223 11,759
Travel and entertainment 19,622 19,284
Utilities 71,399 63,690
----------- ----------
Total operating expenses $ 1,921,957 1,799,919
=========== ==========
</TABLE>
F-16
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 173,279
<SECURITIES> 0
<RECEIVABLES> 438,467
<ALLOWANCES> 25,000
<INVENTORY> 1,366,507
<CURRENT-ASSETS> 1,979,841
<PP&E> 9,977,278
<DEPRECIATION> 3,529,873
<TOTAL-ASSETS> 8,514,161
<CURRENT-LIABILITIES> 2,075,549
<BONDS> 0
0
0
<COMMON> 11,605
<OTHER-SE> 1,867,454
<TOTAL-LIABILITY-AND-EQUITY> 8,514,161
<SALES> 5,927,125
<TOTAL-REVENUES> 6,068,763
<CGS> 3,995,471
<TOTAL-COSTS> 5,914,244
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 3,184
<INTEREST-EXPENSE> 370,388
<INCOME-PRETAX> (219,053)
<INCOME-TAX> 64,753
<INCOME-CONTINUING> (154,300)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (154,300)
<EPS-BASIC> (.013)
<EPS-DILUTED> (.013)
</TABLE>
