<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 six months ended June 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 August 7, 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............................................ 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
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
KNOX NURSERY, INC.
BALANCE SHEET
June 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
2000
----------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 366,647
Trade accounts receivable, net 1,239,044
Inventories 894,019
Prepaid expenses 18,489
Note receivable 38,500
Deposits 11,858
----------
Total current assets 2,568,557
Investment in Cooperative Bank 7,645
Property, plant and equipment, net 6,378,405
Deferred loan cost, net of accumulated amortization 44,870
-----------
Total assets $ 8,999,477
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,148,564
Accounts expenses 118,265
Accrued income taxes 160,644
Current installments of long-term debt 656,600
-----------
Total current liabilities 2,084,073
-----------
Long-term debt, excluding current installments 3,793,750
Due to stockholders 537,000
Deferred income taxes 300,000
-----------
Total liabilities 6,714,823
Stockholders' equity:
Common stock 11,605
Additional paid-in capital 1,289,926
Retained earnings 995,588
Treasury stock (12,465)
-----------
Total stockholders' equity 2,284,654
-----------
Total liabilities and stockholders' equity $ 8,999,477
===========
</TABLE>
See accompanying notes to financial statements.
3
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KNOX NURSERY, INC.
Statements of Operations
For the three months ended June 30, 2000 and 1999
(Unaudited)
2000 1999
------------ ------------
Sales $ 2,450,079 $ 2,057,024
Cost of Sales 1,654,254 1,436,915
------------ ------------
Gross Profit 795,825 620,109
Operating expenses 483,418 488,385
------------ ------------
Operating income 312,407 131,724
Interest expense (92,743) (85,299)
Interest and dividend 104 97
Other (2,128) (3,001)
------------ ------------
Total other income (expense) (94,767) (88,203)
------------ ------------
Net income before income taxes 217,640 43,521
Income tax expense 76,174 15,232
------------ ------------
Net income $ 141,466 $ 28,289
Basic income per common share $ 0.012 0.002
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 Operations
For the six months ended June 30, 2000 and 1999
(Unaudited)
2000 1999
------------ -----------
Sales $ 4,655,800 3,992,838
Cost of Sales 3,014,043 2,550,524
------------ -----------
Gross Profit 1,641,757 1,442,314
Operating expenses 992,775 1,035,319
------------ -----------
Operating income 648,982 406,995
Interest expense (188,379) (171,355)
Interest and dividend 208 194
Other (1,828) (4,830)
------------ -----------
Total other income (expense) (189,999) (175,991)
------------ -----------
Net income before income taxes 458,983 231.004
Income tax expense 160,644 80,851
------------ -----------
Net income $ 298,339 150,153
Basic income per common share $ 0.025 0.013
Weighted average shares 11,605,000 11,605,000
outstanding
See accompanying notes to financial statements.
5
<PAGE> 6
KNOX NURSERY, INC.
Statements of Cash Flow
For the three months ended June 30, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
--------- ---------
<S> <C> <C>
Cash flows from operating activity:
Net income $ 141,466 $ 28,289
Adjustments to reconcile net income to cash
Provided by operating activities:
Depreciation and amortization 181,284 174,173
Cash provided by (used for) changes in:
Trade accounts receivable 106,699 633,111
Inventories 547,475 330,000
Prepaid expenses 4,419 4,876
Deposits -- (650)
Note receivable (38,500) --
Accounts payable (542,115) (438,971)
Accrued expenses and other liabilities 86,784 (17,890)
--------- ---------
Net cash provided by (used in) operating activities 487,512 712,938
Cash flows from investing activities:
Purchase of property and equipment (86,989) (134,180)
Investment in Cooperative Bank -- --
--------- ---------
Net cash used in investing activities (86,989) (134,180)
Cash flows from financing activities:
Repayment of long-term debt (381,936) (492,174)
Proceeds from long-term borrowings -- --
Proceeds from the sale of treasury stock -- --
Treasury stock issued -- --
Net increase (decrease) in due to stockholders 192,000 --
Loan issuance fees -- --
--------- ---------
Net cash provided by financing activities (189,936) (492,174)
--------- ---------
Net increase in cash and cash equivalents 210,587 86,584
Cash and cash equivalents at beginning of quarter 156,060 58,757
--------- ---------
Cash and cash equivalents at end of quarter $ 366,647 $ 145,341
</TABLE>
See accompanying notes to financial statements.
6
<PAGE> 7
KNOX NURSERY, INC.
Statements of Cash Flow
For the six months ended June 30, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
--------- ---------
<S> <C> <C>
Cash flows from operating activity:
Net income $ 298,339 $ 150,153
Adjustments to reconcile net income to cash Provided by operating
activities:
Depreciation and amortization 362,568 348,347
Cash provided by (used for) changes in:
Trade accounts receivable (825,577) (113,280)
Inventories 472,488 200,000
Prepaid expenses (3,759) 8,885
Deposits -- (1,650)
Note receivable (38,500) --
Accounts payable 73,549 (229,510)
Accrued expenses and other liabilities 232,670 123,650
--------- ---------
Net cash provided by operating activities 571,778 486,595
Cash flows from investing activities:
Purchase of property and equipment (262,000) (155,668)
Investment in Cooperative Bank 2,833 3,113
--------- ---------
Net cash used in investing activities (259,167) (152,555)
Cash flows from financing activities:
Repayment of long-term debt (468,499) (239,957)
Proceeds from long-term borrowings -- --
Proceeds from the sale of treasury stock 37,500 --
Treasury stock issued 69,756 --
Net increase (decrease) in due to stockholders 242,000 (50,000)
Loan issuance fees -- (22,087)
--------- ---------
Net cash provided by (used in) financing activities (119,243) (312,044)
--------- ---------
Net decrease in cash and cash equivalents 193,368 21,996
Cash and cash equivalents at beginning of year 173,279 123,345
--------- ---------
Cash and cash equivalents at end of quarter $ 366,647 $ 145,341
</TABLE>
See accompanying notes to financial statements.
7
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KNOX NURSERY, INC.
Notes to Financial Statements
June 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 six-month and three
month periods ended June 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 six months ended June
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) INVENTORIES
Inventories at June 30, 2000 consisted of:
2000
--------
Work in process $698,636
Materials and supplies 195,383
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Total Inventory $894,019
========
(3) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at June 30, 2000 consisted of the
following:
2000
------------
Land $ 272,169
Buildings and improvements 6,873,311
Machinery and equipment 1,811,132
Automotive equipment 308,794
Office furniture and equipment 176,307
Construction in process 817,565
------------
10,259,278
Less accumulated depreciation (3,880,873)
------------
Net property, plant and
equipment $ 6,378,405
============
9
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KNOX NURSERY, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999
(4) LONG-TERM DEBT
Long-term debt consists of the following at June 30, 2000:
<TABLE>
<CAPTION>
2000
----------
<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. $3,828,615
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. 300,000
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. 28,177
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. 258,475
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. 35,083
----------
4,450,350
Less current installments 656,600
----------
Long-term debt, excluding current installments $3,793,750
==========
</TABLE>
(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.
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 six months ended June 30, 2000, revenue was $4,655,800, an increase of
$662,962, or 17% from the $3,992,838 posted for the six months ended June 30,
1999. Plug Division revenue amounted to $3,542,741 an increase of $902,060 or
34%, over the $2,640,681 achieved in 1999. Finished Products sales decreased
$239,098 to $1,113,059 for the first half of 2000, as compared to $1,352,157 in
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 decrease was partially offset by $200,000 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 six months ended June 30, 2000, cost of sales was $3,014,043 an
increase of $463,519, or 18% from the $2,550,524 posted for the six months
ended June 30, 1999. Gross profit margin fell to 35% for the first six months
of 2000, compared to 36% for the same period in 1999. The decline is attributed
primarily to the Finished Products Division, with a 24% gross margin for the
first six months of 2000, compared to 33% in 1999, caused by the previously
mentioned decline in revenue. Operating expenses for the first six months of
2000 amounted to $992,775, a decrease of $42,544, or 4% from the $1,035,319
recorded in the first half of 1999.Within operating expenses, advertising costs
experienced the largest change, from $129,105 in 1999 to $15,352 in 2000, an
$113,753 decrease. 1999's figure included the cost of a national print
advertisement which was not repeated in 2000. Interest expense rose from
$171,355 for the first six months of 1999 to $188,379 in 2000, an increase of
$17,024 or 10%. The increase is attributed to higher outstanding credit line
balances.
11
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The Company recorded net income in the six months ended June 30, 2000 of
$298,339 compared to net income of $150,153 at June 30, 1999, an improvement of
$148,186, a 98% increase. Non-cash charges for depreciation and amortization
were $362,568 for the six months ended June 30, 2000, and $348,347 for the same
period in 1999.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2000, the Company had a working capital surplus of $484,484,
compared to a $583,034 surplus at June 30, 1999. The decrease in working
capital was substantially due to larger period-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 and existing cash balances. If
necessary, borrowing is available from an existing line of credit.
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 ( for SEC use only)
(a) Not applicable.
(b) No reports on Form 8-K were filed during the six months ended
June 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: August 11, 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 August 11, 2000
---------------------- Director
Bruce R. Knox
/s/ James M. Knox, III Vice President August 11, 2000
---------------------- Director
James M. Knox, III
/s/ M. Nadine Knox Director August 11, 2000
----------------------
M. Nadine Knox
13
