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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 SEPTEMBER 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 November 12, 1996.
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<PAGE>
MARGO NURSERY FARMS, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE THIRD QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1996
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 15
ITEM 2. CHANGES IN SECURITIES 15
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE
OF SECURITIES HOLDERS 15
ITEM 5. OTHER INFORMATION 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 15
SIGNATURES
2
<PAGE>
<TABLE>
<CAPTION>
MARGO NURSERY FARMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 1996 and December 31, 1995
(Unaudited)
ASSETS
1996 1995
----------- -----------
<S> <C> <C>
Current assets:
Cash and equivalents $ 757,235 $ 785,490
Short term investments 1,000,000 500,000
Restricted cash - 6,732,597
Accounts receivable, net 1,073,762 692,165
Inventories 2,714,507 2,340,373
Due from shareholder 184,321 -
Prepaid expenses and other current assets 102,386 166,947
----------- -----------
Total current assets 5,832,211 11,217,572
Property and equipment, net 3,916,940 3,587,982
Notes receivable 387,182 444,411
Other assets 65,128 150,617
----------- -----------
Total assets $10,201,461 $15,400,582
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt $ 4,000 $ 3,663,475
Notes payable 500,000 500,000
Accounts payable 369,021 372,025
Accrued expenses 163,049 1,555,187
Due to shareholder - 106,786
----------- -----------
Total current liabilities 1,036,070 6,197,473
Long-term debt 425,080 354,707
----------- -----------
Total liabilities 1,461,150 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 4,158,579 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 8,740,311 8,848,402
----------- -----------
Total liabilities and shareholders' equity $10,201,461 $15,400,582
=========== ===========
</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, 1996 and 1995
(Unaudited)
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------- -------------------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales $1,457,491 $ 989,566 $4,596,423 $3,655,853
Cost of sales 909,879 606,318 2,790,636 2,144,065
---------- ---------- ---------- ----------
Gross profit 547,612 383,248 1,805,787 1,511,788
Selling, general and administrative expenses 558,597 513,820 1,583,765 1,463,428
---------- ---------- ---------- ----------
Income from operations (10,985) (130,572) 222,022 48,360
---------- ---------- ---------- ----------
Other income (expense):
Interest income 24,010 109,823 214,874 346,728
Interest expense (17,059) (101,930) (184,774) (324,949)
Litigation (expense) income 3,369 (22,918) (89,889) (198,704)
Litigation settlement - - (302,884) 120,000
Miscellaneous income 1,327 1,234 32,335 41,980
---------- ---------- ---------- ----------
11,647 (13,791) (330,338) (14,945)
---------- ---------- ---------- ----------
Income (loss)before provision
for income tax 662 (144,363) (108,316) 33,415
Provision for income tax - - - -
---------- ---------- ---------- -------
Net income (loss) $ 662 $ (144,363) $ (108,316) $ 33,415
========== ========== ========== ==========
Net income (loss) per common share $ .00 $ (0.08) $ (.06) $ 0.02
========== ========== ========== ==========
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, 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 - - - (108,316) - 225 (108,091)
--------- ------ ---------- ---------- --------- --------- ----------
Balance at September 30, 1996 1,895,322 $1,915 $4,637,706 $4,158,579 ($ 48,788) ($ 9,101) $8,740,311
========= ====== ========== ========== ======== ======== ==========
</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, 1996 and 1995
(Unaudited)
1996 1995
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (108,316) $ 33,415
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 341,603 209,163
Changes in assets and liabilities affecting
cash flows from operating activities:
Accounts receivable (381,597) (31,603)
Inventories (374,134) (558,069)
Prepaid expenses and other current assets 64,561 53,517
Increase in due to shareholder, net (357,613) -
Other assets 76,546 (2,314)
Accounts payable (3,004) (6,924)
Accrued expenses (1,392,138) 153,290
Income tax payable - (14,829)
---------- ----------
Net cash used in operating activities (2,134,092) (164,354)
---------- ----------
Cash flows from investing activities:
Decrease (increase) in short term investments (500,000) 210,359
Decrease (increase) in restricted cash 6,732,597 (272,072)
Additions to property, plant and equipment (449,761) (424,572)
Increase in notes receivable - (10,000)
Repayment of notes receivable (333) 14,256
---------- ----------
Net cash provided by (used in)
financing activities) 5,782,503 (482,029)
---------- ----------
Cash flows from financing activities:
Repayment of short-term borrowings - (700,000)
Proceeds from long-term debt - 78,000
Repayment of long-term debt (3,676,891) (56,508)
---------- ----------
Net cash used in financing activities (3,676,891) (678,508)
---------- ----------
Net decrease in cash (28,480) (1,324,891)
Effect of change in exchange rates on cash 225 (107)
Cash and equivalents at beginning of year 785,490 1,871,931
---------- ----------
Cash and equivalents at end of period $ 757,235 $ 546,933
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
MARGO NURSERY FARMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 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 nine months ended September 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 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
==========
7
<PAGE>
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 September
30, 1996, 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, 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.
At September 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 25,713 23,918
8% notes, due on demand, personally
guaranteed by various Company personnel
(no collections are expected in 1996) 59,848 118,872
-------- --------
$387,182 $444,411
======== ========
8
<PAGE>
NOTE 4 - PROPERTY AND EQUIPMENT
At September 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 1,435,550 1,187,716
Transportation equipment 680,156 571,736
Stock Plants 97,277 97,277
Leasehold improvements 1,843,327 1,675,605
Construction in progress - 81,068
---------- ----------
5,362,747 4,692,186
Less accumulated depreciation and
amortization (1,445,807) (1,104,204)
---------- ----------
$3,916,940 $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 nine months ended September 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 nine months ended
September 30, 1996 and 1995, include interest payments
9
<PAGE>
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 $43,300, respectively. Income tax payments for the
nine months ended September 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, 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
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
10
<PAGE>
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. During 1994, Bay Farms resumed limited sales.
Approximately 20 acres are currently in production.
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.
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.
Among various landscaping projects that Margo Landscaping has in process 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 commenced during the third quarter of 1996.
Margo Landscaping is also engaged in the landscaping of a new campus facility in
Bayamon, Puerto Rico, for the Interamerican University, for approximately
$300,000. During the fourth quarter of 1996 and early 1997, Margo Landscaping
will be engaged in the landscaping of a new cross-taxi-way at Luis Munoz Marin
International Airport in San Juan, also for approximately $300,000.
11
<PAGE>
On October 31, 1996, the Company entered into an agreement with Cali Orchids,
Inc. ("Cali"), a Puerto Rico based grower of orchids, bromelias, authuriums,
poincettas and ornamental foliage, to purchase certain assets of Cali, including
its live goods inventory and inventory of pots, peat, soil, chemical and
fertilizers. The transaction is scheduled to close on January 1, 1997. The
purchase price will be subject to negotiation based on an inventory of the
assets to be acquired to be conducted on or about December 14, 1996.
The transaction also provides for the leasing of Cali's facilities for a five
year term (subject to additional five year renewals) and the hiring of Cali's
President as a general manager for the Company's new operation.
The Company believes that the purchase of Cali will allow it to supply its
current customers with a more complete product mix of indoor and outdoor plants.
RESULTS OF OPERATIONS FOR THE THIRD QUARTERS AND NINE MONTHS ENDED
SEPTEMBER 30, 1996 AND 1995
During the nine months ended September 30, 1996, the Company incurred a net loss
of approximately $108,000, or $.06 per share, compared to net income of $33,000
for the same period in 1995, or $.02 per share.
The net loss incurred for the nine months ended September 30, 1996, when
compared to the same period in 1995 is principally due to the settlement of
litigation with the Company's former principal lender. The settlement of this
litigation on May 29, 1996, resulted in a charge to other expenses of
approximately $303,000.
For the quarter ended September 30, 1996, the Company had net income of
approximately $1,000, or $0.00 per share, compared to net a loss of $144,000 for
the same period in 1995 or $0.08 per share.
Income from operations for the nine months ended September 30, 1996 increased to
approximately $222,000 from $48,000 for the same period in 1995, or 359%.
Loss from operations for the third quarter of 1996 decreased to approximately
$11,000 from $131,000 for the same period in 1995, or 92%.
Income from operations for the nine months ended September 30, 1996 was offset
by other expenses (net) of approximately $330,000 which included a $303,000
charge from the settlement of litigation with the Company's former principal
lender. Income from operations for the nine months ended September 30, 1995, was
offset by other expenses (net) of $15,000.
12
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Loss from operations for the quarter ended September 30, 1996 was offset by
other income (net) of approximately $12,000. Loss from operations for the
quarter ended September 30, 1995 was increased by other expenses (net) of
approximately $14,000.
SALES
The Company's consolidated net sales for the nine months ended September 30,
1996 were approximately $4,596,000, compared to $3,656,000 for the same period
in 1995, or an increase of approximately 26%. 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 third quarter of 1996 were approximately $1,457,000, compared to
$990,000 for the same period in 1995, or an increase of 47%. The increase in
sales for the third 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.
However, sales for the third quarters of both 1996 and 1995 reflect the effects
of Hurricane Hortense, which struck Puerto Rico during September 1996, and
Hurricanes Luis and Marilyn which affected Puerto Rico during September 1995. As
a result of the hurricanes, the Company lost sales of two to three weeks during
both of these periods.
GROSS PROFITS
The Company's gross profit for the nine months ended September 30, 1996 was
39.3% compared to 41.3% for 1995, or a decrease of 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 third quarter of 1996 was 37.6% compared to 38.7% for the
same period in 1995, or an decrease of 1.1%, 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
$1,584,000 and $1,463,000 for the nine months ended September 30, 1996 and 1995,
respectively, or an increase of 8.2%. 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 34% in
1996 compared to 40% for the comparable period in 1995.
SG&A expenses for the third quarter of 1996 were approximately $559,000 compared
to $514,000 for the same period in 1995, or an increase of 8.7%, also as a
result of increases in personnel and depreciation expenses. SG&A as a percentage
of sales decreased to
13
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38% for the second quarter of 1996, compared to 52% for the same period in 1995.
OTHER INCOME AND EXPENSES
Interest income and interest expense for the nine months ended September 30,
1996 as well as the third 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 Note 2 to the Company's Financial Statements included herein). 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
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 nine months ended
September 30, 1996 as well as the third quarter of 1996, litigation expenses
decreased by approximately $109,000 and $26,000, respectively, when compared to
the same periods in 1995. As of September 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 nine months ended September 30,
1995 represents proceeds from settlement agreement received in connection with a
claim with the Puerto Rico Department of Agriculture relating to a case dating
back to 1991.
FINANCIAL CONDITION
At September 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 principally 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 5.6 to 1 at September 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 nine months ended September 30, 1996, the Company invested approximately
$450,000 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 September 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 September 30, 1996 decreased due to results of
operations for the nine month period, principally from the settlement of
litigation with the Company's former principal
14
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lender. There were no dividends declared nor issuance of capital stock during
the nine months ended September 30, 1996.
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.
PART II - 0THER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In the opinion of the Company's management, the pending or threatened legal
proceedings of which management is aware will not have a material adverse effect
on the financial condition of the Company.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its annual meeting of shareholders on August 9, 1996. At this
meeting, shareholders approved the election of directors and the appointment of
Kaufman, Rossin & Company as auditors of the Company. The results of the voting
were previously disclosed in the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1996, and are incorporated herein by reference.
ITEM 5. OTHER INFORMATION
Not applicable.
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 - Not applicable.
15
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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 14, 1996 BY: /S/ MICHAEL J. SPECTOR
------------------ ---------------------------
Michael J. Spector,
President and Chief
Executive Officer
Date: NOVEMBER 14, 1996 BY: /S/ ALFONSO ORTEGA
------------------ -----------------------
Alfonso Ortega,
Vice President, Treasurer,
Principal Financial and
Accounting Officer
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
MARGO NURSERY FARMS, INC. QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED
SEPTEMBER 30, 1996
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1996
<CASH> 757,235<F1>
<SECURITIES> 0
<RECEIVABLES> 1,140,744
<ALLOWANCES> 66,982
<INVENTORY> 2,714,507
<CURRENT-ASSETS> 5,832,211
<PP&E> 5,362,747
<DEPRECIATION> 1,445,807
<TOTAL-ASSETS> 10,201,461
<CURRENT-LIABILITIES> 1,036,070
<BONDS> 425,080
0
0
<COMMON> 1,915
<OTHER-SE> 8,738,396
<TOTAL-LIABILITY-AND-EQUITY> 10,201,461
<SALES> 4,596,423
<TOTAL-REVENUES> 4,843,632
<CGS> 2,790,636
<TOTAL-COSTS> 4,767,174
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 184,774
<INCOME-PRETAX> (108,316)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (108,316)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> (0.06)
<FN>
<F1>Cash does not include short term investment in certificates of deposit of
$1,000,000.
</FN>
</TABLE>
