UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended SEPTEMBER 30, 1995
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission File No. 0-15336
MARGO NURSERY FARMS, INC.
A Florida Corporation - I.R.S. No. 59-2807561
Address of Principal Executive Offices:
Road 690, Kilometer 5.8
Vega Alta, Puerto Rico 00692
Registrant's Telephone Number:
(809) 883-2570
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to the filing requirements for
the past 90 days.
YES X NO
The registrant had 1,895,322 shares of common stock, $.001 par value,
outstanding as of November 13, 1995.
Total Pages in Report: __
Exhibit Index: __
<PAGE>
MARGO NURSERY FARMS, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1995
TABLE OF CONTENTS
PART I
PAGE
----
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets 3
Consolidated Statements of Operations 4
Consolidated Statement of Shareholders'
Equity 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION 10
PART II
ITEM 1. LEGAL PROCEEDINGS 16
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 20
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 20
SIGNATURES
2
<PAGE>
<TABLE>
<CAPTION>
MARGO NURSERY FARMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 1995 and December 31, 1994
ASSETS
SEPTEMBER 30, 1995 DECEMBER 31, 1994
------------------ -----------------
(Unaudited) (Audited)
<S> <C> <C>
Current assets:
Cash and equivalents $ 546,933 $ 1,871,931
Short term investments 500,000 710,359
Restricted cash 6,647,919 6,375,847
Accounts receivable, net 761,714 730,111
Inventories 2,577,801 2,019,732
Prepaid expenses and other current assets 132,797 186,314
----------- -----------
Total current assets 11,167,164 11,894,294
Property and equipment, net 3,720,050 3,504,641
Notes receivable 444,534 448,790
Other assets 85,246 82,932
----------- ----------
Total assets $15,416,994 $15,930,657
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt $ 3,595,470 $ 3,647,353
Notes payable 500,000 1,200,000
Accounts payable 248,361 255,285
Accrued expenses 1,349,201 1,195,911
Income taxes payable - 14,829
----------- -----------
Total current liabilities 5,693,032 6,313,378
Long-term debt 445,799 372,424
----------- -----------
Total liabilities 6,138,831 6,685,802
----------- -----------
Commitments and contingencies - -
Shareholders' equity:
Common stock, $.001 par value; 10,000,000
shares authorized; 1,915,122 shares issued,
and 1,895,322 shares outstanding 1,915 1,915
Additional paid-in capital 4,637,706 4,637,706
Retained earnings 4,696,644 4,663,229
Treasury stock, 19,800 common shares, at cost (48,788) (48,788)
Foreign currency translation loss (9,314) (9,207)
----------- ----------
Total shareholders' equity 9,278,163 9,244,855
---------- ---------
Total liabilities and shareholders' equity $15,416,994 $15,930,657
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
MARGO NURSERY FARMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Periods ended September 30, 1995 and 1994
(Unaudited)
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------- -------------------------------
1995 1994 1995 1994
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales $ 989,566 $ 975,273 $3,655,853 $2,635,203
Cost of sales 606,318 565,604 2,144,065 1,560,127
---------- ---------- ---------- ----------
Gross profit 383,248 409,669 1,511,788 1,075,076
Selling, general and administrative expenses 513,820 418,594 1,463,428 1,254,144
---------- ---------- ---------- ----------
Income (loss) from operations (130,572) (8,925) 48,360 (179,068)
---------- ---------- ---------- ----------
Other income (expense):
Interest income 109,823 104,532 346,728 225,383
Interest expense (101,930) (99,308) (324,949) (277,281)
Litigation expenses (22,918) (175,142) (198,704) (347,679)
Litigation settlement - - 120,000 -
Gain from Hurricane Andrew, net - 10,331 - 897,049
Miscellaneous income 1,234 24,198 41,980 108,504
---------- ---------- ---------- ----------
(13,791) (135,389) (14,945) 605,976
---------- ---------- ---------- ----------
Income (loss) before provision for income tax (144,363) (144,314) 33,415 426,908
Provision for income tax (benefit) - (54,829) - 195,171
---------- ---------- ---------- ----------
Net income (loss) $ (144,363) $ (89,485) $ 33,415 $ 231,737
========== ========== ========== ==========
Net income (loss) per common share $(0.08) $(0.05) $ 0.02 $ 0.12
========== ========== ========== ==========
Weighted average number of common shares 1,895,322 1,895,322 1,895,322 1,895,322
========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
MARGO NURSERY FARMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Nine months ended September 30, 1995
(Unaudited)
COMMON COMMON ADDITIONAL CUMULATIVE
STOCK STOCK PAID-IN RETAINED TREASURY TRANSLATION
SHARES AMOUNT CAPITAL EARNINGS STOCK ADJUSTMENT TOTAL
--------- ------ ---------- ---------- ---------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1994 1,895,322 $1,915 $4,637,706 $4,663,229 ($ 48,788) ($ 9,207) $9,244,855
Net income - - - 33,415 - - 33,415
Foreign currency
translation gain - - - - - (107) (107)
--------- ------ ---------- ---------- -------- -------- ----------
Balance at September 30,
1995 1,895,322 $1,915 $4,637,706 $4,696,644 ($ 48,788) ($ 9,314) $9,278,163
========= ====== ========== ========== ======== ======== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
MARGO NURSERY FARMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended September 30, 1995 and 1994
(Unaudited)
1995 1994
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 33,415 $ 231,737
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 209,163 208,979
Decrease in deferred income taxes, net - 111,000
Changes in assets and liabilities affecting
cash flows from operating activities:
Accounts receivable (31,603) (384,665)
Inventories (558,069) (758,354)
Prepaid expenses and other current assets 53,517 (109,005)
Collection of advances to shareholder - 88,267
Other assets (2,314) (11,005)
Accounts payable (6,924) (184,159)
Accrued expenses 153,290 179,133
Income taxes payable (14,829) 34,054
---------- ----------
Net cash used in operating activities (164,354) (594,018)
---------- ----------
Cash flows from investing activities:
Decrease in short term investments 210,359 6,222
Increase in restricted cash (272,072) (189,762)
Additions to property, plant and equipment (424,572) (850,027)
Increase in notes receivable (10,000) -
Repayment of in notes receivable 14,256 (75,000)
---------- ----------
Net cash used in investing activities (482,029) (1,108,567)
---------- ----------
Cash flows from financing activities:
Proceeds from short-term borrowings - 910,000
Repayment of short-term borrowings (700,000) -
Proceeds from long-term debt 78,000 -
Repayment of long-term debt (56,508) (1,520)
---------- ----------
Net cash provided by (used in) financing activities (678,508) 908,480
---------- ----------
Net decrease in cash (1,324,891) (794,105)
Effect of change in exchange rates on cash (107) (104)
Cash at beginning of year 1,871,931 2,615,096
---------- ----------
Cash at end of period $ 546,933 $1,820,887
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
MARGO NURSERY FARMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1995
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
These interim consolidated financial statements include the
financial statements of Margo Nursery Farms, Inc. and its wholly
owned subsidiaries, Margo Landscaping and Design, Inc. ("Margo
Landscaping") and Margo Bay Farms, Inc. ("Bay Farms")
These interim consolidated financial statements are unaudited, but
include all adjustments that, in the opinion of management, are necessary for a
fair statement of the Company's financial position, results of operations and
cash flows for the periods covered. These statements have been prepared in
accordance with the United States Securities and Exchange Commission's
instructions to Form 10-Q, and therefore, do not include all information and
footnotes necessary for a complete presentation of financial statements in
conformity with generally accepted accounting principles.
The preparation of interim financial statements relies on estimates.
Therefore, the results of operations for the nine months ended September 30,
1995 are not necessarily indicative of the operating results to be expected for
the year ending December 31, 1995. These statements should be read in
conjunction with the Company's Consolidated Financial Statements and Notes
thereto included in the Annual Report on Form 10-K for the fiscal year ended
December 31, 1994.
NOTE 2 - RESTRICTED CASH
During 1991, one of the Company's principal lenders commenced
litigation against the Company due to the Company's non-compliance with several
covenants under a modified loan agreement. In connection with the settlement of
a tort claim, the Company was required to place $4,000,000 of the settlement
proceeds in an escrow account. In connection with the settlement of the
Company's insurance claims arising from Hurricane Andrew, the Company was
required to deposit $1,970,435 (less court costs of $19,677) with the court. At
September 30, 1995 and December 31, 1994, these amounts are as follows:
<TABLE>
<CAPTION>
DESCRIPTION 1995 1994
- ------------------------------- ---------- -------
<S> <C> <C>
Proceeds from the settlement of
tort claim, including interest $4,488,097 $4,300,650
Proceeds from Hurricane Andrew,
including interest 2,159,822 2,075,197
---------- ----------
$6,647,919 $6,375,847
========== ==========
</TABLE>
7
<PAGE>
NOTE 3 - NOTES RECEIVABLE
During 1994, the Company had a note receivable with an outstanding
principal balance of $996,962, from the sale in March of 1993, of Cariplant (a
former subsidiary) to Altec International, C. por A. ("Altec"), another
Dominican Republic company. The note was originally due in 180 equal monthly
installments of $9,638, including interest at 8%, through April 2008. The note
is secured by the common stock and personal guarantee of the major shareholder
of Cariplant.
From the inception of the note, the Company received six payments
through October 1993. Since then, Altec has been unable to meet its obligation.
As of September 30, 1995, the Company is in process of obtaining a mortgage on
Cariplant's property and equipment, as well as negotiating a modification of the
repayment terms of the outstanding unpaid principal balance of $996,962.
Company management anticipates that Altec will accept the modification,
however, due to the unfavorable collection experience since October 1993, as
well as the current difficulties of operating in the Dominican Republic, at
December 31, 1994 Company management wrote down the carrying amount of the note
to $316,000, representing the estimated value of Cariplant's land and related
improvements, including buildings, shadehouses, and fixed and installed
equipment. The write-down, amounting to $680,962 was included as other expense
in the consolidated statements of operations for the year ended December 31,
1994.
As of September 30, 1995, the Company applied approximately $14,400 to
the principal balance of the note, representing payments received from Altec
during the nine month period.
At September 30, 1995 and December 31, 1994, notes receivable included
the following:
<TABLE>
<CAPTION>
DESCRIPTION 1995 1994
- --------------------------------------- -------- ------
<S> <C> <C>
Note receivable from Altec $301,622 $316,000
10% note, due October 1996,
collateralized by real property 23,918 23,918
8% notes, due on demand, personally
guaranteed by various Company personnel
(no collections are expected in 1995) 118,994 108,872
-------- --------
$444,534 $448,790
======== ========
</TABLE>
8
<PAGE>
NOTE 4 - PROPERTY AND EQUIPMENT
At September 30, 1995 and December 31, 1994 property and
equipment consisted of the following:
<TABLE>
<CAPTION>
DESCRIPTION 1995 1994
--------------------------------- ---------- ----------
<S> <C> <C>
Land and land improvements $ 859,380 $ 859,380
Buildings 219,404 196,877
Equipment and fixtures 1,228,004 1,105,629
Transportation equipment 571,265 531,439
Stock Plants 97,277 97,277
Leasehold improvements 1,339,314 1,068,793
Construction in progress 379,822 409,959
---------- ----------
4,693,926 4,269,354
Less accumulated depreciation and
amortization (973,876) (764,713)
---------- ----------
$3,720,050 $3,504,641
========== ==========
</TABLE>
NOTE 5 - NET INCOME PER COMMON SHARE
Net income (loss) per share of common stock is computed by dividing the
net income or loss by the weighted average number of shares of common stock
outstanding during the relevant periods.
NOTE 6 - SUPPLEMENTAL DISCLOSURES FOR THE CONSOLIDATED STATEMENTS
OF CASH FLOWS
Other cash flow transactions for the nine months ended September 30,
1995 include interest payments of approximately $92,000. Income tax payments for
the nine months ended September 30, 1995, amounted to $15,000.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
Margo Nursery Farms, Inc. and its subsidiaries, Margo Landscaping &
Design, Inc. ("Margo Landscaping") and Margo Bay Farms, Inc. ("Bay Farms"), are
primarily engaged in the business of growing, distributing and installing
tropical plants and trees. The Company has historically sold its products to
wholesalers, retailers, interiorscapers, landscapers, builders, plant leasing
companies and other growers located throughout the United States, the Caribbean,
Canada and Europe. The Company is also engaged in sales of lawn and garden
products (principally plastic pots, terracotta pottery and potting soils, peat
moss, mulches and other lawn and garden products) and also provides landscaping
design and installation services.
PRESENT OPERATIONS
The Company conducts operations in Puerto Rico and South
Florida. These operations are described below:
PUERTO RICO OPERATIONS
The Company's operation in Puerto Rico is conducted at a 119 acre
nursery farm in Vega Alta, Puerto Rico, approximately 25 miles west of San Juan.
This farm is leased from Michael J. Spector and Margaret Spector, who are
directors, officers and principal shareholders of the Company. The Company's
products are primarily utilized for the interior and exterior landscaping of
office buildings, shopping malls, hotels and other commercial sites, as well as
private residences. The Company produces various types of palms, flowering and
ornamental plants, trees, shrubs and ground covers. Its customers are primarily
located in Puerto Rico and the Caribbean.
As a bona fide agricultural enterprise, under Puerto Rico law, the
Company enjoys a 90% tax deduction from income derived from its production for
sales in Puerto Rico. It has also been granted a 90% tax exemption for income
derived from its export sales. The Company also receives credits for certain
federal income taxes under Section 936 of the Internal Revenue Code.
Margo Landscaping provides landscaping services to customers in Puerto
Rico and the Caribbean, including landscape design and installation. Margo
Landscaping is also engaged in sales of plastic and terracotta pottery, as well
as lawn and garden products.
10
<PAGE>
SOUTH FLORIDA OPERATIONS
The South Florida operation, conducted through Bay Farms consists of a
71 acre nursery farm located approximately 20 miles south of Miami, Florida. In
August 1992, substantially all of the Company's facilities in South Florida were
destroyed by Hurricane Andrew. Prior to Hurricane Andrew, this farm produced a
large variety of palms, ficus, dracaena, aglonema and scheffelera. These plants
were sold to wholesalers, retailers and other customers located throughout the
United States, Canada and Western Europe. The Company's products were primarily
utilized for interior and exterior landscaping of office buildings, shopping
malls, hotels, other commercial sites and private residences. During 1993 and
1994, the Company rebuilt a portion of its facilities. Approximately 20 acres
are now back in production. During 1994, South Florida resumed sales, on a
limited basis. During the nine months ended September 30, 1995, sales from the
South Florida operation have continued to improve.
FUTURE OPERATIONS
The Company's main focus continues in Puerto Rico. The Board has
concluded that the Company should concentrate its economic and managerial
resources in expanding its operations in Puerto Rico, and in rebuilding a
portion of its operations in South Florida. The Board concluded that these
operations present attractive opportunities for the future. In Puerto Rico, the
Board believes that the Company should continue to obtain a greater share of the
market and exploit its advantage as one of the largest, full service nurseries
in the region. In South Florida, the Board believes that demand for the
Company's products may continue to increase (on a limited basis) depending on
market conditions and competition.
In Puerto Rico, the Company has achieved a history of good margins
because of the variety and quality of its inventory. The Company believes that
it can increase its sales and margins by continued investment in a larger and
more sophisticated facility and by increasing the size and variety of its
inventory. Based on the foregoing, during 1994, the Company substantially
expanded its growing facilities in Puerto Rico by leasing approximately 27 more
acres adjacent to its nursery facilities. As of September 30, 1995, the Company
is in the process of completing this tract of land for additional production.
The Company is also engaged in production and sales of bedding plants and
annuals which will continue to provide increased sales. The Company has become a
supplier to Wal-Mart Stores, which entered the Puerto Rico market in 1992 with
two stores. Wal-Mart presently has five stores and has announced plans to open
ten additional stores in Puerto Rico during 1995 and 1996. The Company is also a
supplier for Builders Square which presently has six stores in Puerto Rico.
11
<PAGE>
During the third quarter of 1993, Margo Landscaping commenced with
sales of hard goods, principally Italian terracotta pottery. During 1994, sales
of plastic pottery proved to have a high demand. During the first quarter of
1995, Margo Landscaping became involved in the sale of planting media which
includes bagged potting soil, peat moss, cypress mulch, pine bark nuggets, etc.
During the second quarter of 1995, the Company was named the exclusive
distributor for Sunniland Corporation's fertilizer and pesticide products for
Puerto Rico. Sunniland Corporation, based in Sanford, Florida, is a leading
manufacturer of fertilizer and pesticide products for mass merchandisers, retail
chains, garden centers, supermarkets and landscapers. Sales of these products
commenced during the third quarter of 1995.
On September 28, 1995, the Company entered into a wholesale agreement
with Monsanto Puerto Rico, a division of Monsanto Company, to become a
wholesaler of the Solaris product line, which includes Roundup, Ortho and
Greensweep, in Puerto Rico and certain other locations in the Caribbean. The
Company is already marketing the Solaris product line in Puerto Rico, the U.S.
Virgin Islands, the Netherlands Antilles and the British West Indies.
The Company expects that the addition of the Sunniland and Solaris
product lines will have a favorable impact on the Company's future sales.
In South Florida, the Board decided to rebuild a portion of the
Company's facilities and resume limited production and marketing of plants. In
this regard the Company has a 3.9 acre siran house, a 20,000 square foot
propagation house, and has completed construction of a 16 acre parcel for plant
production. The Company intends to carefully monitor the viability of the South
Florida operation, particularly in light of the difficulties in obtaining low
cost labor in South Florida and rising insurance costs. The Company is
optimistic that demand for tropical plants will remain strong in South Florida
and that the Company will be able to increase its sales to its former customers.
If the demand for the Company's plants is sufficient, the Company will continue
to rebuild its nursery farm and expand production in Florida.
RESULTS OF OPERATIONS FOR THE QUARTERS AND NINE MONTHS ENDED
SEPTEMBER 30, 1995 AND 1994
During the nine months ended September 30, 1995, net income was
approximately $33,000, or $.02 per share, compared to $232,000 for the same
period in 1994, or $.12 per share.
For the quarter ended September 30, 1995, the Company had a net loss of
approximately $144,000, or $0.08 per share, compared to a loss of $89,000 for
the same period in 1994, or $0.05 per share.
12
<PAGE>
The decrease in net income for the nine month period, as well as the
increase in net loss for the third quarter of 1995 when compared to the same
periods in 1994, is the result of significant changes in income (loss) from
operations, as well as components of other income (expense), as discussed below.
Income from operations for the nine months ended September 30, 1995 was
approximately $48,000, which was reduced by other expenses (net) of $15,000. The
nine months ended September 30, 1994 resulted in a loss from operations of
$179,000, which was increased by other income (net) of $606,000, principally as
a result of insurance proceeds arising from damage caused by Hurricane Andrew of
$897,000, reduced by a provision for income tax of $195,000.
Loss from operations for the third quarter of 1995 was approximately
$131,000, which was increased by other expenses (net) of $14,000. The third
quarter of 1994 resulted in a loss from operations of $9,000, which was
increased by other expenses (net) of $135,000, as a result of increased
litigation expenses, reduced by an income tax benefit of $55,000.
SALES
The Company's consolidated net sales for the nine months ended
September 30, 1995 were approximately $3,656,000, compared to $2,635,000 for the
same period in 1994, or an increase of approximately 39%. The increase in sales
for 1995 when compared to 1994, is due to increased sales, (in both Puerto Rico
and South Florida) of ornamental plants, plastic and terracotta pottery,
landscaping services as well as sales of lawn and garden products whose related
sales commenced during 1995.
Sales for the third quarter of 1995 were approximately $990,000,
compared to $975,000 in 1994, representing an increase of 1%. The Increase in
sales for the third quarter of 1995 when compared to 1994 was lower than the
percentage increase experienced during the nine month period due to Hurricanes
Luis and Marilyn which affected Puerto Rico and the Northeast Caribbean during
the month of September 1995. Although Puerto Rico did not receive a direct
strike from both hurricanes, tropical storm winds and gusts were experienced,
resulting in a loss of sales for half of the month of September 1995.
GROSS PROFITS
The Company's gross profit for the nine months ended September 30, 1995
and 1994 was 41%. Although gross profits for both periods are comparable,
management understands it is not representative of its operations due to various
factors described below.
From the commencement of the second quarter of 1994 through the first
quarter of 1995, Puerto Rico and the northeast Caribbean suffered a severe
drought. This drought reduced the Company's product turnover, causing plants to
absorb increased overhead
13
<PAGE>
costs. The result was a significant reduction in gross profit throughout 1994,
as well as the first quarter and a portion of the second quarter of 1995.
To a lesser extent, the Company's production costs have also increased
since late 1994. Among the various costs which have increased are rent for the
Company's facilities, chemicals and fertilizers and various payroll taxes.
Notwithstanding the increase in production costs, Company management determined
not to increase selling prices through the end of the second quarter of 1995 in
order to continue to obtain a greater share of the market. Effective July 1,
1995 selling prices of several high demand products were increased together with
reductions in volume discounts to various customers.
Company management believes that the conclusion of the drought as well
as the price increases and reductions in volume discounts will provide for
increased gross profits during the fourth quarter of 1995 and beyond.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses (SG&A) were approximately
$1,463,000 for the nine months ended September 30, 1995, compared to $1,254,000
for the same period in 1994, or an increase of 17%. The increase for 1995 is
principally due to increases in shipping and warehousing expenses when compared
to the same period in 1994. As a result of increased sales during the nine
months ended September 30, 1995, SG&A as a percentage of sales decreased to 40%
when compared to 48% for the same period in 1994.
For the third quarter of 1995, SG&A amounted to approximately $514,000
compared to $419,000 for the same period in 1994, or an increase of 23%. In
addition, the increase for 1995 results from increased shipping and warehousing
expenses when compared to 1994. And as previously explained, during September
1995, Puerto Rico was affected by Hurricanes Luis and Marilyn, resulting in a
loss of sales for approximately two weeks. As a result SG&A as a percentage of
sales increased to 52% when compared to 43% for the same period in 1994.
OTHER INCOME AND EXPENSES
Interest income for the nine months and third quarter ended September
30, 1995 increased due to higher yields obtained from amounts invested
(principally restricted cash) when compared to the same periods in 1994.
Interest expense for the nine months and third quarter ended September
30, 1995 increased as a result of higher outstanding debt balances when compared
to the same periods in 1994.
14
<PAGE>
Litigation expenses represent legal fees incurred in connection with
ongoing litigation and will vary depending on developments on each particular
case and the time incurred by the Company's legal counsel in handling such
cases.
Litigation settlement of $120,000 (net of related expenses) for the
nine months ended September 30, 1995 represents a settlement agreement to be
received from the Puerto Rico Department of Agriculture whose case dates to
1991.
During the quarter and nine months ended September 30, 1994, the
Company received $10,000 and $897,000, respectively, from its insurers as a
result of losses sustained at the Company's South Florida facilities from
Hurricane Andrew in August 1992. At September 30, 1995, the Company did not have
any pending claims arising from Hurricane Andrew.
FINANCIAL CONDITION
The Company's financial condition at September 30, 1995 remains
comparable with December 31, 1994. The Company's current ratio continues to be
strong, with a ratio of 1.9 to 1 at September 30, 1995, and at December 31,
1994. The Company believes it has adequate resources to meet its current
liquidity and capital requirements, including its principal liability of
$4,821,000 (including accrued interest of $1,228,000 computed at a rate which
approximates the annual borrowing rate) in debt currently subject to litigation
with its principal lender, First Union National Bank of Florida. See "Part II -
Item 1. LEGAL PROCEEDINGS" herein.
For the nine months ended September 30, 1995, the Company invested
approximately $425,000 to improve and acquire additional plant and equipment in
Puerto Rico and to a lesser extent, in South Florida. This is in line with the
Board's continued intent to become the largest grower and distributor of
tropical and flowering plants in the Caribbean.
Despite the fact that the additional 27 acres were not all in
production during the first six months of 1995, the Company increased its
production inventory by $558,000 in order to meet the increased demand it
anticipates for the fourth quarter of 1995and during 1996 with the additional
openings of national chain stores at various sites in Puerto Rico.
The Company's liabilities at September 30, 1995 remain comparable with
that at December 31, 1994, with bank debt subject to litigation representing
approximately 78% and 69% of total liabilities, respectively.
Stockholders' equity at September 30, 1995 increased due to results of
operations for the first quarter. There were no dividends declared nor issuances
of capital stock.
15
<PAGE>
CURRENT LIQUIDITY AND CAPITAL RESOURCES
The Company is presently current on all its obligations except certain
bank debt in litigation. See "Part II - Item 1. LEGAL PROCEEDINGS" herein.
Excess funds have been invested in short-term bank instruments. The Company
believes it has adequate resources to meet its anticipated liquidity and capital
requirements.
PART II
ITEM 1. LEGAL PROCEEDINGS
FIRST UNION NATIONAL BANK
On November 17, 1988, the Company obtained a $4,300,000 term loan and a
revolving credit facility (the "Facility") with an institutional lender. The
Facility consisted of two term loans in the aggregate amount of $2,800,000 and a
revolving term line of credit in the amount of $1,500,000. The Facility was
modified on March 16, 1990 and May 31, 1991.
The first term loan was originally payable in equal monthly principal
payments of $12,500 plus interest commencing on January 2, 1989, with a final
payment of $1,512,500 due on December 2, 1993. The second term loan was payable
in equal monthly principal payments of $3,055 plus interest commencing on
September 2, 1989, with a final payment of $394,167 due on December 2, 1993. The
amounts available under the revolving credit line were originally scheduled to
be reduced to $700,000 on July 2, 1991 and $300,000 on July 2, 1992, with a
final maturity on June 2, 1993.
On May 31, 1991, the Company entered into a modification to its loan
agreement (the "Modification"), under which the Company's lender waived the
Company's violations of the loan agreement as of December 31, 1990. The
Modification also established new covenants and required the Company to repay
the Facility as follows: (a) past due interest of $231,328 through April 15,
1991 was payable in seven equal monthly installments of $33,047 commencing on
May 15, 1991; (b) accrued interest after April 15, 1991 was payable monthly,
commencing on June 15, 1991; (c) the principal balance of $2,492,327 under the
term loans was payable in monthly installments of $15,555 commencing on December
15, 1991, with a final installment of $2,134,562 due December 2, 1993; (d) the
principal balance of $1,099,914 under the revolving credit line was payable on
May 31, 1992 (with the option to postpone $550,000 until December 2, 1993 if the
Company was not in default under the Facility).
Under the provisions of the term loans and revolving credit line, the
Company's future borrowings were restricted and it was required, among other
things, to maintain certain liquidity and other financial ratios. During 1991,
the Company violated some of these covenants primarily due to losses suffered by
the Company as a result of the Company's use and application of Benlate DF 50, a
fungicide manufactured by E.I. DuPont de Nemours & Co. ("DuPont").
16
<PAGE>
The Company wrote down its inventories after experts determined that the
Company's inventories were contaminated.
In September 1991 First Union National Bank of Florida ("First Union")
acquired the Company's loans from the Federal Deposit Insurance Corporation
("FDIC"). In December 1991, First Union filed a complaint against the Company,
Margo Imports, Tropiflower, Inc. and Michael J. Spector, the Company's President
and principal shareholder, in the Circuit Court for Dade County, Florida. In its
complaint, First Union alleged that the Company was in default under its loan
agreement. As of September 30, 1995, the principal balance of the loan was
approximately $3,600,000. The loan was guaranteed by Margo Farms del Caribe,
Inc. (now Margo Nursery Farms, Inc.), Margo Imports, and Tropiflower, Inc.,
another of the Company's subsidiaries. Mr. Spector also guaranteed $500,000 of
the loan.
The Facility bears interest at 45 basis points over the prime rate.
After default, the Facility calls for the interest rate to increase by 5% per
annum. At September 30, 1995, the annual borrowing rate was 8.75% and the
default rate was 13.75%. The Company is continuing to accrue interest at a rate
that approximates the annual borrowing rate. Accrued interest on the Facility,
included in the accompanying consolidated financial statements amounted to
approximately $1,228,000 at September 30, 1995. Accrued interest at September
30, 1995, calculated at the default rate is approximately $1,850,000. This
latter sum is the approximate amount First Union is claiming it is owed interest
through September 30, 1995.
First Union's complaint also seeks an award of First Union's attorneys'
fees and costs. First Union has advised the Company that First Union's
attorneys' fees and collection costs through September 30, 1995 are in excess of
$2,000,000. The additional interest and attorneys' fees claimed by First Union
are not reflected in the accompanying consolidated financial statements. The
Company believes that the amounts sought by First Union are unreasonable and
that there is significant uncertainty as to First Union's entitlement to these
amounts.
In early 1992, First Union amended its complaint to foreclose its
mortgage on the Company's nursery farm in Dade County, Florida. First Union also
brought an action in Puerto Rico against the Company. The Company has filed
counterclaims against First Union, alleging that the bank tortiously interfered
with the Company's negotiations with DuPont and breached its fiduciary duties to
the Company. In connection with its counterclaims, the Company has filed a
motion to permit the Company to seek punitive damages from First Union. While
the Florida court has heard argument on such motion, no ruling has been received
as of this date.
In 1992, the Florida court denied several of First Union's motions,
including motions to strike or dismiss the Company's counterclaims, and for
partial summary judgement on the Company's counterclaim. In addition, the United
States District Court in Puerto Rico denied First Union's motions to remand the
case to
17
<PAGE>
Puerto Rico state court, dismiss the Company's counterclaim, and strike the
Company's prayers for punitive damages (in the amount of 10% of First Union's
net worth).
In March 1993, First Union filed a second amended complaint in the
Florida action against the Company and its subsidiaries, Michael Spector and
DuPont. In this complaint, First Union restated most of its prior allegations,
including those made against the Company in Puerto Rico. In addition, First
Union brought a claim for restitution seeking a constructive trust on the
proceeds from the Company's settlement of its tort claims against DuPont, a
claim for restitution arising from the insurance payments received by the
Company as a result of Hurricane Andrew (which seeks a constructive trust on
such funds), a claim for defamation against the Company and Michael Spector
based upon statements made by Mr. Spector regarding First Union and its dealings
with the Company, a claim against Mr. Spector, the Company and DuPont for
conversion and destruction of collateral (arising from the damages caused by
Benlate), a claim for strict liability against DuPont, a claim for negligence
and a claim against the Company for an alleged fraudulent conveyance. First
Union has also filed a motion requesting permission to seek punitive damages in
connection with its defamation claim.
The Company has answered First Union's new claims and has reasserted
its counterclaims. The Company has also moved for summary judgment on some of
First Union's new claims. No date for the argument of such motion has been set.
Shortly after First Union filed its new complaint, DuPont moved to
dismiss First Union's claims against it. After a hearing on DuPont's motion, the
court granted DuPont's motion. Thus far, First Union has not refiled its claims
against DuPont.
In late 1993, First Union moved for partial summary judgement against
the Company on First Union's claims on the promissory notes executed by the
Company, as well as the guaranty executed by the Company in Puerto Rico. As part
of its motion, First Union again sought the entry of judgment against the
Company on its counterclaims. Following the Company's vigorous opposition of
First Union's motion, the court denied First Union's motion in its entirety.
Notwithstanding this ruling, First Union recently filed another summary
judgement motion, which the Company has once again opposed. No date for the
argument of such motion has been set yet.
Moreover, First Union has convinced the United States District Court in
Puerto Rico to stay the case in Puerto Rico. Accordingly, the Company does not
expect there to be any activity in the Puerto Rico case in the near future.
The Company has been engaged in settlement discussions with First Union
over the last several months. If a settlement of the litigation cannot be
consummated, the Company will continue to vigorously defend against the claims
brought by First Union and pursue its counterclaims against First Union.
However, there currently is no set date in which this action will be tried.
18
<PAGE>
At the time of the Company's September 1992 settlement with DuPont,
DuPont required the Company to deposit $4,000,000 of the settlement amount with
a third party escrow agent to cover the amounts First Union is seeking under the
loan agreement. First Union has sought to garnish these funds and the Company
has opposed First Union's garnishment motion. Additionally, as of September 30,
1995, the Company had on deposit over $2,100,000 of insurance payments
(including interest) received as a result of Hurricane Andrew damage with the
Clerk of the Court of Dade County pending the outcome of the litigation. These
amounts are reflected on the Company's balance sheet as restricted cash.
As part of the Company's settlement with DuPont, the Company agreed to
indemnify DuPont from liability to First Union that might arise out of the
payment by DuPont to the Company in settlement of the Benlate claims. The
Company does not expect that it will be required to indemnify DuPont from the
claims made by First Union. Nevertheless, DuPont has demanded indemnity from the
Company for DuPont's having been sued by First Union. At this point, the Company
has denied DuPont's request for indemnity. However, this issue has not been
conclusively determined and DuPont has not filed suit against the Company on
this issue.
CLASS ACTION COMPLAINT BY SHAREHOLDER
In June 1992, a shareholder claiming to represent a group of
shareholders filed a class action complaint against the Company and certain of
its directors and officers in the United States District Court for the Southern
District of Florida. The complaint was later amended to add a second plaintiff.
The complaint alleged that the Company misrepresented and failed to
disclose certain information related to the Company's inventories. The
plaintiffs sought certification of the proposed class.
Following class discovery the Court denied the plaintiff's motion for
class certification at a December 1994 hearing. Thereafter, this case was
settled in August 1995. Under the settlement, plaintiff was paid a total of
$30,000.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The Company is in default of certain provisions of its loan agreements
with its principal lender (see Item 1, Legal Proceedings). At September 30,
1995, the principal amount in default was approximately $3,600,000. The
provisions in default included the Company's failure to maintain certain levels
of liquidity, capital, insurance, and financial ratios. Due to the Company's
improved financial condition, the Company is now in compliance with many of
these provisions. Long term debt in default is classified as a current liability
in the Consolidated Balance Sheets.
19
<PAGE>
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
-10(a) Wholesale Agreement, dated September 28, 1995,
between Monsanto Puerto Rico, a division of Searle & Co. and the
Company.
-27- Financial Data Schedule (for SEC use only)
(b) REPORTS ON FORM 8-K. The Company filed the following
Reports on Form 8-K during the quarter ended June 30,
1995:
None
20
<PAGE>
SIGNATURES
Pursuant to the requirements Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
MARGO NURSERY FARMS, INC.
Date: NOVEMBER 13, 1995 BY: /S/ MICHAEL J. SPECTOR
----------------- --------------------------
Michael J. Spector,
President and Chief
Executive Officer
Date: NOVEMBER 13, 1995 BY: /S/ ALFONSO ORTEGA
----------------- ----------------------
Alfonso Ortega,
Vice President, Treasurer,
Principal Financial and
Accounting Officer
21
EXHIBIT 10(a)
WHOLESALE AGREEMENT
THIS AGREEMENT, made this 28 day of September 1995, between MONSANTO
PUERTO RICO A DIVISION OF SEARLE & CO. ("MONSANTO") a division of Searle
Company, and MARGO NURSERY FARMS INC., ("MARGO").
WHEREAS, MONSANTO is the distributor and seller and has, for various
years promoted, marketed and sold the Solaris product line including Roundup,
Ortho and Greensweep (hereinafter the "Products"), directly or through others,
having thus developed the good name, goodwill, and acceptance of the Products in
the United States, the Commonwealth of Puerto Rico, the United States Virgin
Islands, the Caribbean and other countries.
WHEREAS, MARGO recognizes that MONSANTO has had, and will continue to
have, at its effective charge the distribution, promotion and marketing of the
Products in the Territory.
WHEREAS, it is not the intention of MONSANTO to grant MARGO the
distribution, promotion and marketing of the Products in the Territory.
WHEREAS, MARGO desires to become a wholesaler of the Products and
MONSANTO wishes to appoint MARGO as one of its wholesalers for the Products,
subject to the terms and conditions set forth below;
NOW, THEREFORE, in consideration of the covenants contained in this
Agreement, it is mutually agreed as follows:
1. DESIGNATION.
MONSANTO hereby designates MARGO as one of its wholesalers for
the Products in the Commonwealth of Puerto Rico, St. Thomas, St. John, St.
Croix, Grenada, Tortola, Virgen Gorda,
<PAGE>
2
Anegada, Jost Van Dyke Island, Cooper Island, Guana Island, Great Camenoe
Island, Beek Island, Peter Island, Salt Island, Mosquito Island, Necker Island,
Prickly Pear Island, Norman Island, Finger Island, Aruba, Bonaire, Curacao,
Saint Maarten, Saint Estatius, Saba, Monserrat, St. Kitts, Nevis, Anguilla,
Antigua, St. Lucia, Grand Cayman Island, Little Cayman, Cayman Brac, Turks and
Caicos Islands, St. Vincent & the Grenadines and Dominica (hereinafter the
"Territory"). MARGO recognizes that MONSANTO sells the Products within the
Territory directly and though other wholesalers.
2. PROHIBITION AGAINST DIVERSION OF PRODUCTS.
Any efforts by MARGO to knowingly divest, sell or cause the
diversion or the sale of the Products outside the Territory, without the written
authorization of MONSANTO, will be a breach of this Agreement and will cause
this Agreement to be terminated forthwith at MONSANTO's option.
3. TERM.
ORIGINAL TERM. The term of this Agreement shall be three (3)
years from the date herewith. Following the initial term of this Agreement, it
shall renew automatically in two (2) year periods. This Agreement may be
terminated by either party, at its option, at the end of the initial term or at
the end of any renewal period by giving at least six (6) months written notice.
4. PRICING.
MONSANTO will sell to MARGO the Products at the prices set
forth in the price list annexed hereto. MONSANTO agrees not to sell the products
to other wholesalers in the Territory at a price less that those charged to
MARGO. Excise, sales taxes and other governmental charges will be added where
applicable. MONSANTO
<PAGE>
3
reserves the right to change its prices, at any time, after giving at least
sixty (60) days written notice to MARGO.
5. CREDIT AND PAYMENT.
TERMS WILL BE NET 60 DAYS. MARGO agrees to pay a late payment
charge of prime plus 3 per annum (based on the prime rate published in the WALL
STREET JOURNAL in effect at the due date) on the unpaid past due principal
balance.
6. ACCEPTANCE OF ORDERS.
All orders for the Products will be subject to product
availability from MONSANTO. The order may be refused by MONSANTO in the event
that MARGO has not complied with the payment terms and has past due invoices.
MONSANTO shall have no obligation or liability to MARGO, or any other party, for
refusal to accept any order for the above reasons, provided no other wholesaler
in the Territory receives priority treatment for products available.
7. RELATIONSHIP.
The relationship between MONSANTO and MARGO is that of a
vendor and vendee. MARGO shall not be deemed to be an agent or representative of
MONSANTO. MARGO shall have no authority, whether express or implied, to assume
or create any obligation on behalf of MONSANTO. MARGO acknowledges that it is
not a sales representative or a distributor of MONSANTO. The parties further
acknowledge that their intention when entering into this Agreement was that
MARGO would not be a distributor under the Puerto Rico Dealer's Act, Act No. 75
of June 24, 1964, as amended, 10 L.P.R.A. ss.278, et seq. (hereinafter "Act 75")
nor a sales representative under the Puerto Rico Sales Representative's Act, Act
No. 21 of December 5, 1990, 10 L.P.R.A. ss.279, et seq. (hereinafter "Act 21").
<PAGE>
4
8. LIABILITY AND INDEMNIFICATION.
a. MONSANTO warrants to MARGO that the Products conform to the
applicable MONSANTO product label. EXCEPT AS STATED ON SUCH LABEL, MONSANTO
MAKES NO WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED (INCLUDING
MERCHANTABILITY AND FITNESS FOR ANY PARTICULAR PURPOSE.) Margo is not authorized
and shall not hold itself out as authorized to make on behalf of MONSANTO any
oral or written warranty or representation regarding material furnished to MARGO
by MONSANTO.
b. MARGO shall not relabel any of the Products. MARGO shall
not sell or offer for sale any Product that, to Margo's knowledge, has been
diluted, contaminated, adulterated or substituted or for which the indicated
measure or any other information on the label is false, misleading or
inadequate, within the specific knowledge of MARGO.
c. MONSANTO hereby agrees to defend, indemnify and hold
harmless MARGO and any employee, officer or director of MARGO, from any and all
claims, liabilities, judgments, settlements, lawsuits, damages, expenses,
attorneys' fees and other costs arising out of or otherwise attributable to a
failure or alleged failure of the Products to conform with the statements on the
Products' label, product liability claims related to the Products or their use
including, but not limited to, claims based on negligent design or manufacture
or failure to properly warn) and from and against all costs, attorneys fees,
expenses and liabilities incurred in the defense of any such claims, actions or
proceedings brought thereon UNLESS such claim was caused by MARGO's negligence,
willful misconduct, misuse, relabeling, substitution, adulteration or dilution
by MARGO.
Notwithstanding the foregoing, MARGO agrees that any
damages for loss of goodwill and/or good name, prospective profits
<PAGE>
5
on sales or anticipated sales, contingent, remote or consequential damages,
shall not exceed the amount of five thousand dollars ($5,000).
d. MARGO shall indemnify MONSANTO against and hold MONSANTO
harmless from all liabilities, damages, costs and expenses, including attorneys'
fees which, to the extent such liabilities, damages, costs or expenses, have
resulted from:
(1) a relabeling by MARGO or written
representation or written statement made by MARGO which is inconsistent with or
additional to what is stated on the applicable MONSANTO product label or in
other written materials furnished by MONSANTO;
(2) improper transportation of the Products by
MARGO or its agent or contractor; or
(3) careless, negligent and/or faulty storage
and handling of the Products and/or storage and handling of the Products in
storage areas utilized by MARGO in a manner contrary to written instructions
provided by MONSANTO;
(4) MARGO's negligence or its willful
misconduct.
This indemnity agreement will be in addition to any liability
which either party may otherwise have under applicable law and shall survive the
termination of this Agreement.
In the event a third party asserts any claim with respect to
any matter to which the foregoing indemnities apply, the party against whom the
claim is asserted (the "Indemnified Party" being it be MONSANTO, MARGO, and/or
any of their employees, officers or directors) shall give prompt notice to the
other party (the "Indemnifying Party"), and the Indemnifying Party shall have
the
<PAGE>
6
right, at its election, to take over the defense or settlement of such claim
at its own expense by giving prompt notice to the Indemnified Party, including
the retaining of counsel reasonably acceptable to the Indemnified Party and the
payment of counsel's fees and all other expenses related to such defense. The
Indemnified Party may retain separate counsel in any such action and participate
in the defense thereof at their expense unless the retention of such separate
counsel was specifically authorized by the Indemnifying Party. Any objection to
the appointment of a particular counsel by the Indemnifying Party shall be made
by the Indemnified Party presenting such objection in writing detailing with
particularity the reasons for such objections.
If the Indemnifying Party does not give notice to take over
the defense or settlement of such third party claim and does not proceed
diligently to defend the claim within 30 days after receipt of such notice of
the claim, the Indemnifying Party shall be bound by any defense or settlement
that the Indemnified Party may make as to such claim and shall reimburse the
Indemnified Party for its costs and expenses (including, without limitation,
costs of defense, settlement, payment of judgment and reasonable attorneys'
fees) resulting therefrom. The parties shall cooperate in defending any such
third party's claim and the defending party shall have reasonable access to
records, information and personnel in the possession or control of the other
party which are pertinent to the defense.
9. TRADEMARK.
MARGO acknowledges that MONSANTO is the exclusive owner of the
trademarks, trade names, packages and designs used in the sale of the Products
as well as of the "Registro de Plaguisidos y depositivos" ("Industrial
Property"). MARGO shall not use MONSANTO's Industrial Property as part of its
corporate or other
<PAGE>
7
trading name and/or for any reason whatsoever except with the written consent of
or by written agreement with MONSANTO.
10. TERMINATION.
This Agreement may be terminated by either party as stated at
Section 3 above. In addition, the parties expressly agree that either can
terminate in writing forthwith this Agreement, if the other party's acts or
omissions adversely affect the sale of the Products. Without limiting the
generality of the foregoing, it shall be cause to terminate the Agreement if:
(1) MARGO fails to comply with the obligations contained in
paragraphs 2, 5, 7, 8, 9, 13 and 17.
(2) MARGO ceases to function as a going business;
(3) MONSANTO ceases to function as a going business, ceases to
market the Products, or decides in its sole discretion that it will not continue
to sell the Products in the Territory;
(4) The suspension, liquidation, dissolution or bulk sale, or
notice thereof, of either party's usual business without the prior written
consent of the other, or in the event of the calling of a meeting of either
party's creditors, an assignment by either party for the benefit of creditors,
the insolvency of any kind of either party, or in the event of the filing of any
attachment, distraint, levy, execution or judgment against either party, any
filing of a voluntary or involuntary petition under the provisions of the
Federal Bankruptcy Act or amendments thereto, or any application for or
appointment of a receiver for the property of either party, the filing of which
remains unsatisfied and discharged at the end of thirty (30) days after the
occurrence of such event;
<PAGE>
8
(5) either party commits, in the good faith opinion of the
other, an act of fraud, deceit, dishonesty or any criminal conduct.
Upon termination, all catalogues, samples and price lists
issued by MONSANTO and in the possession of MARGO are to be promptly returned to
MONSANTO. All other records pertaining to prices, quotations, specifications and
customers shall be treated as if they were confidential property of MONSANTO.
MARGO further acknowledges that no compensation whatsoever
will be due to MARGO for the expiration, cancellation or termination of this
Agreement.
Should it be determined that, notwithstanding the parties'
intention to the contrary, this relationship is covered under either Act 75 or
Act 21, and that MONSANTO terminated this Agreement, without just cause as
defined in Paragraph 10(1) above, then MARGO shall be entitled to damages
equivalent to one percent (1%) of the gross sales of the Products during the
period of twelve (12) months prior to the effective date of the termination. No
additional damages shall be payable to MARGO, including damages for present or
prospective profits on sales or anticipated sales, or expenditures or
commitments made in connection therewith or on goodwill, it being understood
that the MONSANTO reputation and goodwill has been previously established and
additional markets and customers obtained will be the result of a joint effort
between the parties.
11. PURCHASE OF INVENTORY.
Upon the expiration or termination of this Agreement, MONSANTO
shall have the option, exercisable by written notice to MARGO within fifteen
(15) days after the expiration of Agreement or
<PAGE>
9
notice of termination has been received, to purchase from MARGO all salable
stocks of the Products listed in current MONSANTO's Products price lists which
are in full case lots and which were originally purchased by MARGO from
MONSANTO. If such option is exercised, such purchases by MONSANTO shall be at
MARGO's cost (net of any discounts, incentives, etc.) and exclusive of any
additional expenses incurred by MARGO (such as warehousing or handling costs)
and MARGO shall pay any freight costs in shipping such Products to MONSANTO.
MARGO shall establish its cost by producing copies of invoices or other records
regularly maintained in the course of its business. Upon request by MONSANTO,
during the 15-day option period, MARGO shall withdraw its entire stock of the
Products from sale. If such option is not exercised by MONSANTO, then MARGO
shall have the option, exercisable by written notice to MONSANTO within
forty-five (45) days after this Agreement has expired or been terminated
pursuant to the provisions of Section 10 above to sell to MONSANTO all salable
stocks of Products listed in current MONSANTO's Products price lists which are
in full case lots and which were originally purchased and paid for by MARGO from
MONSANTO at MARGO's cost, established in the manner set forth above.
12. INTUITAE PERSONAE.
This Agreement is personal to Mr. Michael Spector and is
executed in consideration of Mr. Spector's presence and control of MARGO. Any
change in this managerial or ownership arrangement may give rise to termination
of the Agreement by giving at least sixty (60) days notice by MONSANTO.
13. CONFIDENTIALITY.
a. MARGO agrees always to regard and preserve as confidential
and not to disclose to any third party, either during the term of this Agreement
or thereafter, any "Proprietary
<PAGE>
10
Information" (as defined hereinafter) of MONSANTO that it has obtained as well
as the terms and conditions included in this Agreement. The term "Proprietary
Information" shall include (a) any information concerning formulations or
manufacturing processes for products and (b) any information concerning
MONSANTO's business including, without limitation, business plans, projections,
marketing and sales strategies and reports, costs, profits, pricing information,
customer or prospect. Notwithstanding the foregoing, MARGO may disclose the
terms and conditions of this Agreement as may be required by law. MARGO shall
institute adequate procedures and safeguards with respect to its employees and
agents maintain confidentiality of the Proprietary Information and this
Agreement.
b. MARGO agrees that the obligations imposed by this section
shall remain in full force and effect following the termination or the
expiration of this Agreement. Within ten (10) days after this Agreement has
expired by its terms or notice of termination has been received, MARGO shall
return to MONSANTO all Proprietary Information in whatever form, whether
originals, copies or extracts in its possession. MARGO shall never use for its
own benefit or purposes any Proprietary Information except in furtherance of
this Agreement or with the written consent of MONSANTO.
14. NON-WAIVER.
The failure to terminate this Agreement for the breach of any
condition or covenant herein should not affect MONSANTO's right to terminate
this Agreement for subsequent breaches of the same of other covenants.
MONSANTO's failure to enforce, at any time, any of the provisions of this
Agreement shall not be construed as a waiver or modification of such provisions.
<PAGE>
11
15. GOVERNING LAW.
This Agreement shall be governed by the laws of the State of
Florida. No modification or waiver of any provision of this Agreement shall in
any event be effective unless the same shall be in writing, and then such waiver
or consent shall be effective only in the specific instance and for the purpose
for which given.
16. ARBITRATION.
Any controversy or claim arising out of or relating to this
Agreement (including, without limitation, the interpretation of contract
language, the applicable law, the breach, termination or renewal thereof) shall
be settled by arbitration pursuant to the Federal Arbitration Act, 9 U.S.C. Sec.
1 et seq., in accordance with the Commercial Arbitration Rules of the American
Arbitration Association. The parties further agree that the arbitrator is not
authorized to award any punitive damages in connection with any controversy or
claim settled by arbitration. The decision of the arbitrator shall be final and
binding upon the parties and judgment upon the award may be entered in any court
having jurisdiction thereof. The arbitration shall take place in Miami. Unless
costs are awarded in the arbitration proceeding, all expenses, costs, and legal
fees individually incurred by the parties in connection with such arbitration
shall be borne by the party incurring them. The filing fee required by the
Commercial Arbitration Rules shall be shared equally by the parties hereto.
17. ASSIGNABILITY.
MARGO shall not assign its rights and responsibilities under
this Agreement, or any portion thereof, without the prior written consent of
MONSANTO. For purposes of this Agreement, the transfer by MARGO of all or
substantially all of its assets will be deemed to be an assignment of this
Agreement. Therefore, MARGO
<PAGE>
12
must obtain the MONSANTO's written approval prior to any such transfer.
18. SEVERABILITY.
If any provision of this Agreement shall be held invalid or
unenforceable, such provision shall be deemed deleted from this Agreement and
replaced by a valid and enforceable provision which, so far as possible,
achieves the same economic and other benefits for the parties as the severed
provision was intended to achieve, and the remaining provisions of this
Agreement shall continue in full force and effect.
19. ENTIRE AGREEMENT.
This Agreement contains the entire understanding of the
parties and supersedes all previous verbal and written Agreement; no other
Agreements, representations, or warranties not set forth herein except as
incorporated by reference.
20. NOTICES.
All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given if sent by certified mail,
Federal Express or facsimile. Unless otherwise changed by written notice to the
other party, the addresses of the parties are:
MONSANTO PUERTO RICO
Attn: General Manager
PO Box 192319
San Juan, Puerto Rico 00919
MARGO NURSERY FARMS INC.
690 Street KM. 5.8
Vega Alta, Puerto Rico 00762
<PAGE>
13
IN WITNESS WHEREOF, the parties have executed this Agreement on this
28th day of September 1995.
/s/ Michael Spector /s/ Felipe Osorio
- ------------------------------- -------------------------------
MARGO NURSERY FARMS INC. MONSANTO PUERTO RICO, a
Division of Searle & Co.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 546,933<F1>
<SECURITIES> 0
<RECEIVABLES> 1,342,352
<ALLOWANCES> 136,104
<INVENTORY> 2,577,801
<CURRENT-ASSETS> 11,167,164
<PP&E> 4,693,926
<DEPRECIATION> 973,876
<TOTAL-ASSETS> 15,416,994
<CURRENT-LIABILITIES> 5,693,032
<BONDS> 445,799
<COMMON> 1,915
0
0
<OTHER-SE> 9,276,248
<TOTAL-LIABILITY-AND-EQUITY> 15,416,994
<SALES> 3,655,853
<TOTAL-REVENUES> 4,164,561
<CGS> 2,144,065
<TOTAL-COSTS> 3,806,197
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 324,949
<INCOME-PRETAX> 33,415
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 33,415
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
<FN>
<F1>Cash does not include short term investment in certificate of deposit of
$500,000, as well as restricted cash, also in certificates of deposit, for
$6,647,919 (in escrow), pending resolution of litigation with financial
institution.
</FN>
</TABLE>
