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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 JUNE 30, 1996
[ ] 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:
(787) 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 August 9, 1996.
Total Pages in Report:
Exhibit Index:
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MARGO NURSERY FARMS, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE SECOND QUARTER AND SIX MONTHS ENDED JUNE 30, 1996
TABLE OF CONTENTS
PART I
PAGE
----
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets 4
Consolidated Statements of Operations 5
Consolidated Statement of Shareholders'
Equity 6
Consolidated Statements of Cash Flows 7
Notes to Consolidated Financial Statements 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION 12
PART II
ITEM 3. LEGAL PROCEEDINGS 19
ITEM 4. DEFAULTS UPON SENIOR SECURITIES 19
ITEM 5. SUBMISSION OF MATTERS TO A VOTE
OF SECURITIES HOLDERS 20
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 20
2
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SIGNATURES
3
<PAGE>
<TABLE>
<CAPTION>
MARGO NURSERY FARMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, 1996 and December 31, 1995
(Unaudited)
ASSETS
1996 1995
----------- -----------
<S> <C> <C>
Current assets:
Cash and equivalents $ 1,622,620 $ 785,490
Short term investments 500,000 500,000
Restricted cash - 6,732,597
Accounts receivable, net 962,046 692,165
Inventories 2,491,741 2,340,373
Due from shareholder 200,385 -
Prepaid expenses and other current assets 118,890 166,947
----------- -----------
Total current assets 5,895,682 11,217,572
Property and equipment, net 3,888,616 3,587,982
Notes receivable 389,014 444,411
Other assets 72,167 150,617
----------- -----------
Total assets $10,245,479 $15,400,582
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt $ 34,374 $ 3,663,475
Notes payable 500,000 500,000
Accounts payable 367,042 372,025
Accrued expenses 180,653 1,555,187
Due to shareholder - 106,786
----------- -----------
Total current liabilities 1,082,069 6,197,473
Long-term debt 423,986 354,707
----------- -----------
Total liabilities 1,506,055 6,552,180
----------- -----------
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 4,157,917 4,266,895
Treasury stock, 19,800 common shares, at cost (48,788) (48,788)
Foreign currency translation loss (9,326) (9,326)
----------- -----------
Total shareholders' equity 8,739,424 8,848,402
----------- -----------
Total liabilities and shareholders' equity $10,245,479 $15,400,582
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
4
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<TABLE>
<CAPTION>
MARGO NURSERY FARMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Periods ended June 30, 1996 and 1995
(Unaudited)
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- -------------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales $1,742,806 $1,365,484 $3,138,932 $2,666,287
Cost of sales 1,060,931 838,723 1,880,757 1,537,747
---------- ---------- ---------- ----------
Gross profit 681,875 526,761 1,258,175 1,128,540
Selling, general and administrative expenses 523,618 478,738 1,025,168 949,608
---------- ---------- ---------- ----------
Income from operations 158,257 48,023 233,007 178,932
---------- ---------- ---------- ----------
Other income (expense):
Interest income 90,192 123,912 190,864 236,905
Interest expense (70,497) (112,228) (167,715) (223,019)
Litigation expenses (63,258) (91,970) (93,258) (175,786)
Litigation settlement (302,884) - (302,884) 120,000
Miscellaneous income 24,553 33,019 31,008 40,746
---------- ---------- ---------- ----------
(321,894) (47,267) (341,985) (1,154)
---------- ---------- ---------- ----------
Income (loss)before provision
for income tax (163,637) 756 (108,978) 177,778
Provision for income tax - - - -
---------- ---------- ---------- ----------
Net income (loss) $ (163,637) $ 756 $ (108,978) $ 177,778
========== ========== ========== ==========
Net income (loss) per common share $(0.09) $ 0.00 $(0.06) $ 0.09
========== ========== ========== ==========
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.
5
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<TABLE>
<CAPTION>
MARGO NURSERY FARMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Six Months ended June 30, 1996
(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, 1995 1,895,322 $1,915 $4,637,706 $4,266,895 ($ 48,788) ($ 9,326) $8,848,402
Net loss - - - (108,978) - - (108,978)
--------- ------ ---------- ---------- --------- --------- ----------
Balance at June 30, 1996 1,895,322 $1,915 $4,637,706 $4,157,917 ($ 48,788) ($ 9,326) $8,739,424
========= ====== ========== ========== ========= ========= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
6
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<TABLE>
<CAPTION>
MARGO NURSERY FARMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months ended June 30, 1996 and 1995
(Unaudited)
1996 1995
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (108,978) $ 177,778
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 221,137 128,249
Changes in assets and liabilities affecting
cash flows from operating activities:
Accounts receivable (269,881) (207,579)
Inventories (151,368) (220,584)
Prepaid expenses and other current assets 48,057 73,400
Increase in due to shareholder, net (373,677) -
Other assets 69,507 2,049
Accounts payable (4,983) (68,426)
Accrued expenses (1,374,534) 69,681
Income tax payable - (14,829)
---------- ----------
Net cash used in operating activities (1,944,720) (60,261)
---------- ----------
Cash flows from investing activities:
Decrease in short term investments - 210,359
Decrease (increase) in restricted cash 6,732,597 (181,183)
Additions to property, plant and equipment (300,971) (321,812)
Collection of (increase in) notes receivable (2,165) 14,378
---------- ----------
Net cash provided by (used in)
financing activities) 6,429,461 (278,258)
---------- ----------
Cash flows from financing activities:
Repayment of short-term borrowings - (100,000)
Repayment of long-term debt (3,647,611) (33,690)
---------- ----------
Net cash used in financing activities (3,647,611) (133,690)
---------- ----------
Net increase (decrease) in cash 837,130 (472,209)
Effect of change in exchange rates on cash - 952
Cash and equivalents at beginning of year 785,490 1,871,931
---------- ----------
Cash and equivalents at end of period $1,622,620 $1,400,674
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
7
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MARGO NURSERY FARMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996
(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") Rain Forest Products Group,
Inc. ("Rain Forest"), 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 six months ended June 30, 1996 are not
necessarily indicative of the operating results to be expected for the year
ending December 31, 1996. 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, 1995.
NOTE 2 - RESTRICTED CASH AND RELATED DEBT
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 in
1992, 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 (also in 1992), the
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Company was required to deposit $1,970,435 (less court costs of $19,677) with
the court. At December 31, 1995, these amounts were as follows:
DESCRIPTION AMOUNT
----------- ------
Proceeds from the settlement of tort
claim, including interest income $4,544,795
Proceeds from Hurricane Andrew,
including interest income 2,187,802
----------
$6,732,597
==========
At December 31, 1995, the principal balance of debt subject to litigation
amounted to $3,592,241 and related accrued interest amounted to approximately
$1,307,000.
On May 29, 1996, the Company reached a settlement agreement with its principal
lender. Under the settlement agreement, the Company paid $5,285,000 to settle
all claims brought by its lender against the Company, as well as all
counterclaims brought by the Company against its lender. At the time of
settlement, the Company's principal balance and accrued interest on the loans
subject to litigation amounted to $5,003,537. As a result of the settlement, the
Company recognized a loss of $302,884 as of May 31, 1996, which included $21,421
in related expenses. (refer to "ITEM 3. Legal Proceedings").
NOTE 3 - NOTES RECEIVABLE
At December 31, 1993, the Company had a note receivable with an outstanding
principal balance of $996,962, from the sale of Cariplant S.A. (a former
Dominican Republic 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 collateralized by the common stock and personal guarantee of the
major shareholder of Cariplant.
From the inception of the note in March 1993, the Company received several
payments. However, Altec has been unable to meet its obligation. As of June 30,
1996, the Company is in process of
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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, as well as the current
difficulties of operating in the Dominican Republic, in 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 an other expense in the consolidated
statements of operations for the year ended December 31, 1994. At June 30, 1996
and December 31, 1995, notes receivable included the following:
DESCRIPTION 1996 1995
----------- -------- --------
Note receivable from Altec $301,621 $301,621
10% note, due October 1996,
collateralized by real property 26,083 23,918
8% notes, due on demand, personally
guaranteed by various Company personnel
(no collections are expected in 1996) 61,310 118,872
-------- --------
$389,014 $444,411
======== ========
NOTE 4 - PROPERTY AND EQUIPMENT
At June 30, 1996 and December 31, 1995 property and equipment consisted of the
following:
DESCRIPTION 1996 1995
----------- ---------- ----------
Land and land improvements $ 859,380 $ 859,380
Buildings 447,057 219,404
Equipment and fixtures 1,373,693 1,187,716
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Transportation equipment 605,499 571,736
Stock Plants 97,277 97,277
Leasehold improvements 1,831,051 1,675,605
Construction in progress - 81,068
--------- ---------
5,213,957 4,692,186
Less accumulated depreciation and
amortization (1,325,341) (1,104,204)
$3,888,616 $3,587,982
========== ==========
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
a) NON-CASH INVESTING AND FINANCING ACTIVITIES
During the six months ended June 30, 1996, the Company acquired a
residence (previously leased by the Company) from a partnership, whose
partners included among others, the Company's Chairman of the Board,
Chief Executive Officer and major shareholder and his spouse. The
purchase price of the residence, determined by an independent certified
real estate appraiser, amounted to $220,800. Regarding the acquisition,
the Company assumed a commercial loan amounting to $87,789, owed by the
partnership, recorded an account payable to the Company's major
shareholders amounting to $66,506, and applied $57,562 and $8,943 to
the principal and interest, respectively, of a note receivable owed by
a consultant to the Company (who was also a shareholder in the
partnership).
b) OTHER CASH FLOW TRANSACTIONS
Other cash flow transactions for the six months ended June 30, 1996 and
1995, include interest payments amounting to approximately $1,474,447
(of which $1,411,296 represents the accrued interest portion in
connection with a settlement agreement with the Company's former
principal lender) and
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$43,300, respectively. Income tax payments for the six months
ended June 30, 1995 amounted to $15,000.
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") Rain Forest Products Group, Inc. ("Rain Forest") 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, potting soils, chemicals and fertilizers) and also provides
landscaping design and installation services.
PRINCIPAL OPERATIONS
The Company's business is currently conducted at two locations, one in Puerto
Rico and another in 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 D. 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, flowing 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
from income derived from its production for sales in
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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. During the fourth quarter of 1995, Margo Landscaping became a
wholesaler for Monsanto Corporation's Solaris Group, which includes the Ortho,
Roundup and Greensweeep product lines (chemicals and pesticides).
In August 1995, the Company formed another wholly-owned Puerto Rico subsidiary,
Rain Forest Products Group, Inc. ("Rain Forest"). Rain Forest commenced
operations in April 1996, and is engaged in the manufacturing and distribution
of potting soils, mulch, professional growing mixes, river rock and gravels
throughout Puerto Rico and the Caribbean. The Company has requested a tax
exemption grant from the Government of the Commonwealth of Puerto Rico for the
operations of Rain Forest.
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. During 1993 and 1994, the Company rebuilt a
portion of its facilities. Approximately 20 acres are currently in production.
During 1994, Bay Farms resumed limited sales.
FUTURE OPERATIONS
The Company will continue to concentrate its economic and managerial resources
in expanding its operations in Puerto Rico. The Company's Board of Directors has
concluded that these operations present attractive opportunities for the future.
The Board believes that the Company should continue to capitalize its advantage
as one of the largest, full service nurseries in the region.
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The Company has achieved a history of good margins in Puerto Rico because of the
variety and quality of its inventory. The Company believes that it can increase
its sales and margins by investing in a larger and more sophisticated facility
and by increasing the size and variety of its inventory. During January 1994,
the Company leased approximately 27 more acres adjacent to its nursery
facilities in Vega Alta, Puerto Rico. The Company also began production and
sales of bedding plants and annuals during late 1993 which provided increased
sales during 1994 and 1995 and should continue to provide increased sales in the
future.
During the second quarter of 1996, the Company entered into a contract with the
Commonwealth of Puerto Rico's Department of Transportation for $820,000 to
provide palms, trees, and flowering shrubs for the planting and beautification
of Puerto Rico Highway Num. 3, from the city of Carolina to the city of Fajardo.
In January 1993, the Company formed a new wholly-owned subsidiary, Margo
Landscaping and Design, Inc. ("Margo Landscaping") to perform the Company's
landscaping business in Puerto Rico. Among various landscaping projects that
Margo Landscaping has obtained is a contract with a local construction company
to landscape a new U.S. Coast Guard Housing Project located in Bayamon, Puerto
Rico for approximately $645,000. This project is scheduled for commencement
during the third quarter of 1996.
Margo Landscaping also has two other significant projects scheduled for
commencement during the third quarter of 1996. The first is the landscaping of
the new campus premises of the Interamerican University, also in Bayamon, for
approximately $300,000. The second project is the landscaping of a new
cross-taxi-way at Luis Munoz Marin International Airport in San Juan, also for
approximately $300,000.
During the third quarter of 1993, Margo Landscaping commenced with the sale of
garden products (principally Italian terracotta pottery). During 1994, the
Company began to sell plastic pottery manufactured by Duraco Products. 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.
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In addition, the Company became the exclusive distributor for Sunniland
Corporation's fertilizer and pesticide products for Puerto Rico and the
Caribbean. 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.
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.
In August 1995, the Company formed another wholly-owned Puerto Rico subsidiary,
Rain Forest. Commencing in April 1996, Rain Forest is engaged in the
manufacturing and distribution of its own line of potting soils, mulch,
professional growing mix, river rock and gravels throughout Puerto Rico and the
Caribbean. The Company has requested a tax exemption grant from the government
of the Commonwealth of Puerto Rico for the operations of Rain Forest.
The Company believes that the addition of the Sunniland and Solaris product
lines together with increased sales of the Rain Forest line and other products
will result in lawn and garden products representing an increasing proportion of
the Company's overall 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
connection, during 1993 the Company built a 3.9 acre saran house and prepared 16
acres of sun growing area for new 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.
RESULTS OF OPERATIONS FOR THE SECOND QUARTERS AND SIX MONTHS ENDED JUNE 30,
1996 AND 1995
During the first six months of 1996, the Company incurred a net loss of
approximately $109,000, or $.06 per share, compared to net income of $178,000
for the same period in 1995, or $.09 per share.
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For the quarter ended June 30, 1996, the Company incurred a net loss of
approximately $164,000, or $0.09 per share, compared to net income of $1,000 for
the same period in 1995 or $0.00 per share.
The net loss incurred for the first six months, as well as the second quarter of
1996, when compared to the same periods in 1995 is principally due to the
settlement of litigation with the Company's former principal lender. The
settlement resulted in a charge to other expenses of approximately $303,000, as
discussed below.
Income from operations for the first six months of 1996 increased to
approximately $233,000 from $179,000 for the same period in 1995, or 30%.
Income from operations for the second quarter of 1996 also increased to
approximately $158,000 from $48,000 for the same period in 1995, or 229%.
Income from operations for both the six months and second quarter of 1996 was
offset by other expenses (net) of approximately $342,000 and $322,000,
respectively, both of which included a $303,000 charge from the settlement of
litigation with the Company's former principal lender.
SALES
The Company's consolidated net sales for the first six months of 1996 were
approximately $3,139,000, compared to $2,666,000 for the same period in 1995, or
an increase of approximately 18%. The increase in sales for 1996 when compared
to 1995, is due to a significant increase in sales of lawn and garden products,
coupled with other increases in sales of plants as well as landscaping services.
Sales for the second quarter of 1996 were approximately $1,743,000, compared to
$1,365,000 for the same period in 1995, or an increase of 28%. The increase in
sales for the second quarter of 1996 when compared to the same period in 1995 is
also due to increased sales of lawn and garden products, as well as sales of
plants and landscaping services.
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GROSS PROFITS
The Company's gross profit for the first six months of 1996 was 40.1% compared
to 42.3% for 1995, or a decrease of 2.2%. This decrease in gross profit is due
to the significant increase in sales of lawn and garden products during 1996,
which result in a lower gross profit than sales of plants.
Gross profit for the second quarter of 1996 was 39.1% compared to 38.6% for the
same period in 1995, or an increase of 1/2%, also indicative of continued
increased sales of lawn and garden products, which result in a lower gross
profit than sales of plants.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses (SG&A) were approximately
$1,025,000 and $950,000 for the first six months of 1996 and 1995, respectively,
or an increase of 7.9%. This increase for 1996 is principally due to an increase
in general and administrative expenses, as a result of additional administrative
personnel and an increase in depreciation expense. Notwithstanding the increase,
SG&A as a percentage of sales decreased to 33% in 1996 compared to 36% for the
comparable period of 1995.
SG&A expenses for the second quarter of 1996 were approximately $524,000
compared to $479,000 for the same period in 1995, or an increase of 9.3%, also
as a result of increases in personnel and depreciation expenses. SG&A as a
percentage of sales decreased to 30% for the second quarter of 1996, compared to
35% for the same period in 1995.
OTHER INCOME AND EXPENSES
Interest income and interest expense for the first six months as well as the
second quarter of 1996 decreased significantly when compared to the same periods
in 1995. This decrease is principally due to the settlement of litigation with
the Company's former principal lender on May 29, 1996 (refer to "ITEM 3. Legal
Proceedings"). The decrease in interest income as well as interest expense
results from the application of restricted cash (formerly in escrow accounts)
used for the payment of principal and accrued interest on the outstanding loans
subject of the litigation. The
17
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decrease in both interest income and interest expense represent approximately
one month's interest.
Litigation expenses represent legal fees incurred regarding the litigation and
settlement with the Company's former principal lender. For the first six months
as well as the second quarter of 1996, litigation expenses decreased by
approximately $83,000 and $29,000, respectively, when compared to the same
periods in 1995. As of June 30, 1996, management believes that it has recognized
all legal expenses incurred in connection with the litigation and settlement
agreement with its former principal lender.
Litigation settlement income of $120,000 for the first six months of 1995
represents a settlement agreement received from a claim with the Puerto Rico
Department of Agriculture relating to a case dating back to 1991.
FINANCIAL CONDITION
At June 30, 1996 the Company's financial condition improved substantially when
compared with that of December 31, 1995. Although the Company's total assets and
liabilities decreased by approximately $5.0 million as a result of the
settlement of litigation with the Company's former principal lender when
compared to December 31, 1995, the Company's current ratio increased to 5.5 to 1
at June 30, 1996, compared to 1.8 to 1 at December 31, 1995. Accordingly, the
Company believes it has adequate resources to meet its current liquidity and
capital requirements.
For the first six months of 1996, the Company had invested approximately
$301,000 for additional equipment at the Puerto Rico operation. This investment
has been made in order to increase production as demand for the Company's
products continues to grow.
The Company's liabilities at June 30, 1996 include trade accounts with its
suppliers, accounting accruals, as well as small loan balances collateralized
with farm and transportation equipment.
Stockholders' equity at June 30, 1996 decreased due to results of operations for
the first six months, principally from the settlement of litigation with the
Company's former principal
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lender. There were no dividends declared nor issuance of capital stock.
CURRENT LIQUIDITY AND CAPITAL RESOURCES
The Company is presently current on all its obligations. 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.
ITEM 3. LEGAL PROCEEDINGS
FIRST UNION NATIONAL BANK
On May 29, 1996, Margo Nursery Farms, Inc. (including all related entities) and
Michael J. Spector, the Chairman of the Board , Chief Executive Officer and the
principal stockholder of the Company entered into a Settlement Agreement with
First Union National Bank of Florida ("First Union"). The Settlement Agreement
covered all claims brought by First Union against the Company and related
entities (the "Margo Entities") related to a loan facility obtained by the Margo
Entities from Southeast Bank, N.A. in 1988 and later acquired by First Union.
The Settlement Agreement also settled all counterclaims brought by the Margo
Entities against First Union related to First Union's efforts to collect such
loan.
The Settlement Agreement provided for a payment to First Union of $5,625,000, of
which $5,285,000 corresponded to the Company and $340,000 corresponded to Mr.
Spector. The settlement payment made by the Company resulted in a charge of
approximately $302,884, which included $21,421 in related expenses. The charge
was recognized in the second quarter of 1996, after the application of existing
reserves of $5,003,537 (for outstanding principal and interest) allocated to
this matter.
ITEM 4. DEFAULTS UPON SENIOR SECURITIES
Prior to the settlement discussed in Item 3 above, the Company was in default of
certain provisions of its loan agreements with its principal lender. As a result
of the settlement, the Company is no
19
<PAGE>
longer in default with any provision of its past or present
agreements.
ITEM 5. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
The Company held its annual meeting of shareholders on August 9, 1996. At this
meeting, shareholders were asked to vote on the election of directors and the
appointment of Kaufman, Rossin & Company as auditors of the Company. The
directors of the Company were reelected for an additional one-year term. Quorum
at the meeting consisted of shares, or % of 1,895,322 total outstanding common
shares. The results of the meeting were as follows:
1. ELECTION OF DIRECTORS
NOMINEES FOR AGAINST ABSTAIN
- -------- --- ------- -------
Blas R. Ferraiouli 1,885,076 300 0
Frederick Moss 1,885,076 300 0
Michael A. Rubin 1,885,076 300 0
Margaret D. Spector 1,885,076 300 0
Michael J. Spector 1,885,076 300 0
2. APPOINTMENT OF KAUFMAN, ROSSIN & COMPANY AS AUDITORS
FOR AGAINST ABSTAIN
--- ------- -------
1,885,076 300 0
There were no broker non-votes with respect to any of the two
proposals.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) EXHIBITS
-27- Financial Data Schedule (for SEC use only)
20
<PAGE>
b) REPORTS ON FORM 8-K The Company filed the following
Reports on Form 8-K during the quarter ended June 30,
1996:
(1) Form 8-K, dated May 20, 1996, reporting
under Item 5 "Other Events" the execution of an
agreement with the Puerto Rico Department of
Transportation.
(2) Form 8-K, dated May 30, 1996, reporting
under Item 5 "Other Events" the settlement of pending
litigation with First Union National Bank of Florida.
21
<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: AUGUST 12, 1996 BY: /S/ MICHAEL J. SPECTOR
---------------- --------------------------
Michael J. Spector,
President and Chief
Executive Officer
Date: AUGUST 12, 1996 BY: /S/ ALFONSO ORTEGA
---------------- ----------------------
Alfonso Ortega,
Vice President, Treasurer,
Principal Financial and
Accounting Officer
22
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<LEGEND>
QUARTERLY6 REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED JUNE 30, 1996
</LEGEND>
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<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1996
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