<PAGE> 1
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 MARCH 31, 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 May 13, 1995.
Total Pages in Report: 21 Exhibit Index: 19
<PAGE> 2
MARGO NURSERY FARMS, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE FIRST QUARTER ENDED MARCH 31, 1995
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I
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Page
----
<S> <C> <C>
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 19
-------------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 19
--------------------------------
SIGNATURES
----------
</TABLE>
2
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MARGO NURSERY FARMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 1995 and December 31, 1994
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
------
1995 1994
----------- -----------
<S> <C> <C>
Current Assets:
Cash and equivalents $ 1,584,501 $ 1,871,931
Short term investments 500,000 710,359
Restricted cash 6,458,103 6,375,847
Accounts receivable, net 869,276 730,111
Inventories 2,202,035 2,019,732
Prepaid expenses and other current assets 148,717 186,314
----------- -----------
Total current assets 11,762,632 11,894,294
Property and equipment, net 3,652,295 3,504,641
Notes receivable 435,671 448,790
Other assets 78,124 82,932
----------- -----------
Total assets $15,928,722 $15,930,657
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current portion of long-term debt $ 3,649,519 $ 3,647,353
Notes payable 1,000,000 1,200,000
Accounts payable 233,694 255,285
Accrued expenses 1,238,775 1,195,911
Income taxes payable 14,829 14,829
----------- -----------
Total current liabilities 6,136,817 6,313,378
Long-term debt 370,028 372,424
----------- -----------
Total liabilities 6,506,845 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 4,840,251 4,663,229
Treasury stock, 19,800 common shares, at cost (48,788) (48,788)
Foreign currency translation loss (9,207) (9,207)
----------- -----------
Total shareholders' equity 9,421,877 9,244,855
----------- -----------
Total liabilities and shareholders' equity $15,928,722 $15,930,657
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
MARGO NURSERY FARMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months ended March 31, 1995 and 1994
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Net sales $1,300,803 $ 835,903
Cost of sales 699,024 421,354
---------- ----------
Gross profit 601,779 414,549
Selling, general and administrative
expenses 470,870 414,767
---------- ----------
Income (loss) from operations 130,909 (218)
---------- ----------
Other income (expense):
Interest income 112,993 57,483
Interest expense (110,791) (85,801)
Litigation expenses (83,816) -
Litigation settlement 120,000 -
Gain relating to Hurricane Andrew
after insurance proceeds - 309,439
Miscellaneous income 7,727 52,555
---------- ---------
46,113 333,676
---------- ----------
Income before provision for income tax 177,022 333,458
Provision for income tax - 104,000
---------- ----------
Net income $ 177,022 $ 229,458
========== ==========
Net income per common share $ 0.09 $ 0.12
========== ==========
Weighted average number of common shares 1,895,322 1,895,322
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
MARGO NURSERY FARMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Three Months ended March 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
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 - - - 177,022 - - 177,022
--------- ------ ---------- ---------- ------- ------- ----------
Balance at March 31,1995 1,895,322 $1,915 $4,637,706 $4,840,251 ($48,788) ($9,207) $9,421,877
========= ====== ========== ========== ======= ======= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
MARGO NURSERY FARMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 1995 and 1994
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Cash flows used in operating activities:
Net income $ 177,022 $ 229,458
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 64,378 63,437
Decrease in deferred income taxes, net - 104,000
Gain relating to Hurricane Andrew after insurance
proceeds - (309,439)
Changes in assets and liabilities affecting
cash flows from operating activities:
Accounts receivable (139,165) (156,169)
Inventories (182,303) (490,115)
Prepaid expenses and other current assets 37,597 (23,532)
Collection of advances from shareholder - 88,267
Other assets 4,808 (143)
Accounts payable (21,591) 37,047
Accrued expenses 42,864 (26,520)
---------- ----------
Net cash used in operating activities (16,390) (483,709)
---------- ----------
Cash flows used in investing activities:
Proceeds on insurance claims from Hurricane Andrew - 309,439
Decrease (increase) in short term investments 210,359 (5,090)
Increase in restricted cash (82,256) (29,050)
Additions to property, plant and equipment (212,032) (439,489)
Collection of notes receivable 13,119 -
---------- ----------
Net cash used in investing activities (70,810) (164,190)
---------- ----------
Cash flows used in financing activities:
Repayment of short-term borrowings (200,000) -
Repayment of long-term debt (230) (637)
---------- ----------
Net cash used in financing activities (200,230) (637)
---------- ----------
Net decrease in cash (287,430) (648,536)
Effect of change in exchange rates on cash - (214)
Cash and cash equivalents at beginning of period 1,871,931 2,615,096
---------- ----------
Cash and cash equivalents at end of period $1,584,501 $1,966,346
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
6
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MARGO NURSERY FARMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 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 three months ended March 31, 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 March 31, 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 $4,362,438 $4,300,650
Proceeds from Hurricane Andrew,
including interest 2,095,665 2,075,197
---------- ----------
$6,458,103 $6,375,847
========== ==========
</TABLE>
7
<PAGE> 8
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 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 March 31, 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.
At March 31, 1995 and December 31, 1994, notes receivable included the
following:
<TABLE>
<CAPTION>
Description 1995 1994
- - ----------------------------------- -------- --------
<S> <C> <C>
Note receivable from Altec $302,881 $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) 108,872 108,872
-------- --------
$435,671 $448,790
======== ========
</TABLE>
8
<PAGE> 9
Note 4 - Property and Equipment
At March 31, 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 198,646 196,877
Equipment and fixtures 1,139,753 1,105,629
Transportation equipment 571,490 531,439
Stock Plants 97,277 97,277
Leasehold improvements 1,314,366 1,068,793
Construction in progress 300,474 409,959
---------- ----------
4,481,386 4,269,354
Less accumulated depreciation and
amortization (829,091) (764,713)
---------- ----------
$3,652,295 $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 three months ended March 31, 1995
include interest payments of approximately $23,300. No income tax payments
have been made for the three months ended March 31, 1995.
9
<PAGE> 10
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) 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 the 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, the Company enjoys a 90% tax
deduction for Puerto Rico income taxes from income derived from its production
for sales in Puerto Rico. It has also been granted a 90% tax exemption from
Puerto Rico income taxes 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.
In January 1993, the Company formed a new wholly-owned subsidiary,
Margo Landscaping and Design, Inc. to continue its landscaping business. 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> 11
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.
This farm is owned by Bay Farms. 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.
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 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 March 31, 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 during 1995 and 1996. The Company is also a
supplier for Builders Square which has five stores and announced plans to open
one more store during 1995.
Among various landscaping projects that Margo Landscaping obtained for
1994, was a contract with Calzadilla Construction Corporation ("Calzadilla") to
landscape a new U.S. Coast Guard Housing Project located in Bayamon, Puerto
Rico for approximately
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$550,000. During December 1994, the U.S. Coast Guard determined that Calzadilla
would not be able to perform under the terms of their contract, and terminated
Calzadilla as general contractor. The U.S. Coast Guard turned to Calzadilla's
surety to fulfill its obligations under the performance and payment bonds
issued for the project. Calzadilla's surety is currently in process of
awarding the remainder of the project to another contractor. Despite the
change in general contractor, Company management anticipates that Margo
Landscaping may still have an opportunity to subcontract the landscaping for
this project, however it is uncertain at this time.
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. Management anticipates that sales of hard goods may
significantly increase the Company's sales volume for 1995.
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 saran house, a 20,000 square foot
propagation house, and has completed construction of a 16 acre parcel for plant
production. During 1994, the South Florida operation resumed sales on a
limited basis. 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 FIRST QUARTERS OF 1995 AND 1994
During the first three months of 1995, the Company had net income of
approximately $177,000, or $.09 per share, compared to $229,000 for the same
period in 1994, or $.12 per share.
Sales
The Company's consolidated net sales for the first three months of
1995 were approximately $1,301,000, compared to $836,000 for the same period in
1994, or an increase of approximately 57%. Sales for the first quarters of
1995 and 1994 represent sales made by the Puerto Rico and South Florida. The
increase in sales for 1995 when compared to 1994, is due to increased sales of
ornamental and bedding plants, plastic and terracotta pottery as well as lawn
and garden products whose related sales commenced during 1995.
12
<PAGE> 13
Gross Profits
The Company's gross profit for the first quarter of 1995 was 46.3%
compared to 49.6% for 1994, or a decrease of 3.3%. This decrease in gross
profit is due to the effect of a drought that affected Puerto Rico and the
northeast Caribbean from April through September of 1994. Potted ornamental
plants receive monthly allocations of chemicals and fertilizers, direct labor
and overhead costs as part of their maintenance. When turnover is reduced,
plants absorb more costs resulting in reduced gross profit. During the three
months ended March 31, 1995, the Company's sales included potted plants from
the drought period which had higher maintenance costs, and thus diluted the
more favorable gross profit of newer plants sold during the period. Although
the drought eased temporarily, rain has continued to fall at below normal
rates, and water rationing has been resumed in large parts of Puerto Rico,
including the San Juan Metropolitan area. If heavy rains do not begin soon,
water rationing which could further negatively impact margins and gross
profits.
Selling, General and Administrative Expenses
Selling, general and administrative expenses (SG&A) were approximately
$471,000 and $415,000 for the first quarters of 1995 and 1994, respectively or
an increase of 13.5%. The increase for 1995 is principally due to increases in
selling, shipping and warehousing expenses when compared to the first three
months of 1994 (in order to provide increased sales). As a result of increased
sales during the first three months of 1995, SG&A as a percentage of sales
decreased to 36% when compared to 50% for the same period in 1994.
Other Income and Expenses
The Company earned interest income of $113,000 for the first three
months of 1995, compared to $57,000 in 1994. The 98% increase in interest
income for 1995 is due to higher yields obtained from amounts invested
(principally restricted cash) during the first three months of 1995.
Interest expense for the first three months of 1995 was $111,000
compared to $86,000 for the same period in 1994. The 29% increase is the
result of increased outstanding short term borrowings during the first three
months of 1995, together with increased borrowings rates when compared to the
same period in 1994.
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.
Litigation settlement of $120,000, net of expenses, for the first
three months of 1995 represents amounts to be received from
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<PAGE> 14
the Puerto Rico Department of Agriculture under a Settlement Agreement dated
May 1, 1995 relating to litigation dating to 1991.
During the three months ended March 31, 1994, the Company received
$309,439 from its insurers as a result of losses sustained at the Company's
South Florida facilities from Hurricane Andrew in August 1992. At March 31,
1995, the Company did not have any pending claims arising from Hurricane
Andrew.
FINANCIAL CONDITION
The Company's financial condition at March 31, 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 March 31, 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 $4,664,000
(including accrued interest of $1,071,000 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.
For the first three months of 1995, the Company has invested
approximately $212,000 to improve and acquire additional plant and equipment in
Puerto Rico and South Florida (on a smaller scale). This is on 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 at the Puerto Rico
facility were not all in production during the first quarter of 1995, the
Company increased its production inventory by $182,000 in order to meet the
increased demand it will have during 1995 with the additional openings of
national chain stores at various sites in Puerto Rico.
The Company's liabilities at March 31, 1995 remain comparable with
that at December 31, 1994, with bank debt subject to litigation representing
approximately 72% and 69% of total liabilities, respectively.
Stockholders' equity at March 31, 1995 increased due to results of
operations for the first quarter. There were no dividends declared nor
issuance of capital stock.
Current Liquidity and Capital Resources
The Company is presently current on all its obligations except certain
bank debt in litigation. See "Item 1. LEGAL PROCEEDINGS -- First Union
National Bank" 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.
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<PAGE> 15
ITEM 3. 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"). 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
15
<PAGE> 16
under its loan agreement. As of March 31, 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 March 31, 1995, the annual borrowing rate was 9% and the default
rate was 14%. 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 $1,071,000 at March 31, 1995. Accrued interest at March 31,
1995, calculated at the default rate is approximately $1,550,000. This latter
sum is the amount First Union is claiming it is owed interest through March 31,
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 March 31, 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 for the District of Puerto Rico denied First
Union's motions to remand the case to 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
16
<PAGE> 17
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. Moreover, First Union has recently 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. The Company anticipates that the court will hear
argument on the Company's summary judgement motion in the near future.
In addition, DuPont moved to dismiss First Union's claims against it
and the court granted DuPont's motion. Thus far, First Union has not refiled
its claims against DuPont.
Moreover, First Union has sought to have the Puerto Rico action
stayed. While the Company opposed this motion, the United States District
Court for the District of Puerto Rico granted First Union the relief it sought.
Accordingly, the Company does not expect there to be any activity in the Puerto
Rico case in the near future.
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 judgement against the
Company on its counterclaims. The Company vigorously opposed First Union's
motion on numerous grounds and 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.
The Company intends to continue to vigorously defend against the
claims brought by First Union and pursue its counterclaims against First Union.
In Miami, the Court has recently removed the Florida action from the court's
April 24th trial calendar. No new trial date has been scheduled as of this
time.
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
17
<PAGE> 18
First Union's garnishment motion. Additionally, as of March 31, 1995, the
Company had on deposit $2,096,000 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 amended to add a second plaintiff. The
complaint alleges that the Company misrepresented and failed to disclose
certain information related to the Company's inventories in its 1990 quarterly
reports filed with the Securities and Exchange Commission. The plaintiffs
sought certification of the class and damages.
In response to the Company's motion to dismiss, the Plaintiffs' claims
for fraud and negligent misrepresentation were dismissed. The remaining claims
have been answered by the Company as well as its officers and directors. In
addition, one of the plaintiffs has withdrawn as a proposed class
representative.
The Company has opposed the motion to certify this case as a class
action. While no written ruling has been received, the Court advised the
parties during a December 1994 hearing that the Court was denying the
plaintiff's motion for class certification. The Company and its directors and
officers believe the complaint is without merit and are vigorously defending
their position. This case is currently scheduled to be tried on August 14,
1995.
18
<PAGE> 19
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" herein. At March
31, 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.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-k
(a) Exhibits
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 March 31, 1995:
None
19
<PAGE> 20
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: May 13, 1995 By: /s/ Michael J. Spector
------------- ----------------------------
Michael J. Spector,
President and Chief
Executive Officer
Date: May 13, 1995 By: /s/ Alfonso Ortega
------------- ----------------------------
Alfonso Ortega,
Vice President, Treasurer,
Principal Financial and
Accounting Officer
20
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF MARGO NURSERY FARMS, INC. FOR THE QUARTER ENDED MARCH
31, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 1,584,501<F1>
<SECURITIES> 0
<RECEIVABLES> 1,441,051
<ALLOWANCES> 136,104
<INVENTORY> 2,202,035
<CURRENT-ASSETS> 11,762,632
<PP&E> 4,481,386
<DEPRECIATION> 829,091
<TOTAL-ASSETS> 15,928,722
<CURRENT-LIABILITIES> 6,136,817
<BONDS> 370,028
<COMMON> 1,915
0
0
<OTHER-SE> 9,419,962
<TOTAL-LIABILITY-AND-EQUITY> 15,928,722
<SALES> 1,300,803
<TOTAL-REVENUES> 1,541,523
<CGS> 699,024
<TOTAL-COSTS> 1,253,710
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 110,791
<INCOME-PRETAX> 177,022
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 177,022
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
<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
$6,458,103 (in escrow) pending resolution of litigation with financial
institution.
</FN>
</TABLE>
