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, 1998
[ ] 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 Puerto Rico Corporation - I.R.S. No. 66-0550881
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 1,875,322 shares of common stock, $.001 par value,
outstanding as of May 14, 1998.
Total Pages in Report:
Exhibit Index:
<PAGE>
MARGO NURSERY FARMS, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE FIRST QUARTER ENDED MARCH 31, 1998
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 1. LEGAL PROCEEDINGS 17
ITEM 2. CHANGES IN SECURITIES 17
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 17
ITEM 4. SUBMISSION OF MATTERS TO A VOTE 17
OF SECURITY HOLDERS
ITEM 5. OTHER INFORMATION 17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 17
SIGNATURES
2
<PAGE>
FORWARD LOOKING STATEMENTS
When used in this Form 10-Q or future filings by the Company with the Securities
and Exchange Commission, in the Company's press releases or other public or
shareholder communications, or in oral statements made with the approval of an
authorized executive officer, the words or phrases "would be", "will allow",
"intends to", "will likely result", "are expected to", "will continue", "is
anticipated", "believes", "estimate", "project", or similar expressions are
intended to identify "forward looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995.
The Company wishes to caution readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date made, and to advise
readers that various factors, including regional and national economic
conditions, natural disasters, competitive and regulatory factors and
legislative changes, could affect the Company's financial performance and could
cause the Company's actual results for future periods to differ materially from
those anticipated or projected.
The Company does not undertake, and specifically disclaims any obligation, to
update any forward-looking statements to reflect occurrences or unanticipated
events or circumstance after the date of such statements.
3
<PAGE>
MARGO NURSERY FARMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 1998 and December 31, 1997
ASSETS
<TABLE>
<CAPTION>
1998 1997
----------- -----------
(UNAUDITED) (AUDITED)
<S> <C> <C>
Current assets:
Cash and equivalents $ 1,153,174 $ 1,230,250
Short term investments 500,000 500,000
Accounts receivable, net 931,724 1,050,949
Inventories 2,419,724 2,438,128
Prepaid expenses and other current assets 116,291 101,792
----------- -----------
Total current assets 5,120,913 5,321,119
Property and equipment, net 2,360,983 2,419,595
Due from shareholder 282,636 291,481
Notes receivable 844,034 860,982
Other assets 50,600 58,911
----------- -----------
Total assets $ 8,659,166 $ 8,952,088
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt $ 80,815 $ 117,694
Notes payable 500,000 500,000
Accounts payable 296,726 388,318
Accrued expenses 137,456 163,213
----------- -----------
Total current liabilities 1,014,997 1,169,225
Long-term debt 252,883 252,883
----------- -----------
Total liabilities 1,267,880 1,422,108
----------- -----------
Commitments and contingencies - -
Shareholders' equity:
Preferred stock, $0.01 par value; 250,000
shares authorized, no shares issued - -
Common stock, $.001 par value; 10,000,000
shares authorized; 1,915,122 shares issued,
and 1,875,322 shares outstanding in 1998
(1,895,322 in 1997) 1,915 1,915
Additional paid-in capital 4,637,706 4,637,706
Retained earnings 2,847,953 2,939,147
Treasury stock, 39,800 common shares in 1998
(19,800 in 1997), at cost (96,288) (48,788)
---------- -----------
Total shareholders' equity 7,391,286 7,529,980
----------- -----------
Total liabilities and shareholders' equity $ 8,659,166 $ 8,952,088
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
MARGO NURSERY FARMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months ended March 31, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Net sales $1,309,465 $1,860,310
Cost of sales 875,671 1,255,938
---------- ----------
Gross profit 433,794 604,372
Selling, general and administrative expenses 549,322 565,372
---------- ----------
Income (loss) from operations (115,528) 39,000
---------- ----------
Other income (expense):
Interest income 30,823 19,288
Interest expense (16,619) (19,272)
Gain on sale of equipment 9,000 -
Miscellaneous income 1,130 1,240
---------- ----------
24,334 1,256
---------- ----------
Income (loss) before provision for income tax (91,194) 40,256
Provision for income tax - -
---------- ----------
Net income (loss) $ (91,194) $ 40,256
========== ==========
Net income (loss) per common share-basic $(0.05) $ 0.02
========== ==========
Weighted average number of common shares 1,888,211 1,895,322
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
MARGO NURSERY FARMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Three Months ended March 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
COMMON COMMON ADDITIONAL
STOCK STOCK PAID-IN RETAINED TREASURY
SHARES AMOUNT CAPITAL EARNINGS STOCK TOTAL
--------- --------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 1,895,322 $ 1,915 $ 4,637,706 $ 2,939,147 $ (48,788) $ 7,529,980
Acquisition of treasury stock,
at cost (20,000) -- -- -- (47,500) (47,500)
Net loss -- -- -- (91,194) -- (91,194)
--------- --------- ----------- ----------- --------- ------------
Balance at March 31, 1998 1,875,322 $ 1,915 $ 4,637,706 $ 2,847,953 $ (96,288) $ 7,391,286
========= ========= =========== =========== ========= ============
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
MARGO NURSERY FARMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (91,194) $ 40,256
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 122,545 121,926
Provision for uncollectible accounts receivable 8,237 --
Provision for inventory valuation allowance 10,000 25,000
Changes in assets and liabilities affecting
cash flows from operating activities:
Accounts receivable 110,988 (194,324)
Inventories 8,404 (200,540)
Prepaid expenses and other current assets (14,499) (71,568)
Due from shareholder 8,845 --
Other assets 8,311 (1,007)
Accounts payable (91,592) (119,420)
Accrued expenses (13,809) (8,460)
Income tax payable -- (23,492)
----------- -----------
Net cash provided by (used in)
operating activities 66,236 (431,629)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease in short term investments -- 504,000
Additions to property, plant and equipment (63,933) (43,572)
Collection of notes receivable 5,000 --
----------- -----------
Net cash provided by (used in) investing
activities (58,933) 460,428
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt (36,879) (39,771)
Acquisition of treasury stock (47,500) --
----------- -----------
Net cash used in financing activities (84,379) (39,771)
----------- -----------
NET DECREASE IN CASH (77,076) (10,972)
CASH AND EQUIVALENTS AT BEGINNING OF YEAR 1,230,250 946,490
----------- -----------
CASH AND EQUIVALENTS AT END OF PERIOD $ 1,153,174 $ 935,518
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE>
MARGO NURSERY FARMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1998
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
For the three months ended March 31, 1998, 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") Margo Garden Products, Inc. ("Garden Products") and Rain Forest
Products Group, Inc. ("Rain Forest"). For the three months ended March 31, 1997,
these interim financial statements also include the financial statements of
Margo Bay Farms, Inc., a former wholly owned subsidiary which operated in South
Florida through September 30, 1997. See "PRINCIPAL OPERATIONS" under ITEM 2,
herein.
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, 1998 are not
necessarily indicative of the operating results to be expected for the year
ending December 31, 1998. 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, 1997.
NOTE 2 - USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
8
<PAGE>
The allowance for doubtful accounts is an amount that management believes will
be adequate to absorb possible losses on existing accounts receivable that may
become uncollectible based on evaluations of collectibility and prior credit
experience. Because of uncertainties inherent in the estimation process,
management's estimate of credit losses inherent in the existing accounts
receivable and related allowance may change in the near term.
The inventory valuation allowance is an estimate which is established through
charges to cost of goods sold. Management's judgement in determining the
adequacy of the allowance is based on several factors which include, but are not
limited to, costs of specific inventory items, sales histories of these items
and management's judgement with respect to future marketability of the
inventory. Based on the above, it is possible that the Company's estimate of the
inventory valuation allowance could change in the near term. The valuation
allowance at March 31, 1998 and December 31, 1997 was $310,000 and $300,000,
respectively.
Set forth below is the movement of the inventory valuation allowance for the
three months ended March 31, 1998:
DESCRIPTION AMOUNT
---------------------------------- --------
Beginning balance, January 1, 1998 $300,000
Provisions 10,000
--------
Ending balance, March 31, 1998 $310,000
========
NOTE 3 - COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted Financial Accounting Standards
No. 130 ("SFAS 130"), "Reporting Comprehensive Income". Comprehensive income is
any change in shareholders' equity during a period, arising from transactions,
events or circumstances through nonowner sources. SFAS 130 establishes standards
for disclosing the elements and amounts of comprehensive income. The adoption of
SFAS 130 did not have any effect on the accompanying consolidated financial
statements.
NOTE 4 - 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.
9
<PAGE>
From the inception of the note in March 1993, the Company received several
payments through December 1995. However, Altec has been unable to comply with
the terms of the note.
Due to the unfavorable collection experience as well as the 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.
On February 12, 1997, the Company obtained a second mortgage on Cariplant's
property and equipment and entered into an agreement with Altec to modify the
repayment terms of the unpaid principal balance of $996,962, with payments of
principal and interest commencing in the year 2000. Payment of interest on the
note was waived through January 1, 2000.
At March 31, 1998 and December 31, 1997, notes receivable included the
following:
DESCRIPTION 1998 1997
- --------------------------------------- -------- ----------
Note receivable from Altec $301,621 $301,621
8% mortgage note, collateralized by
land in South Florida, with interest
payments due monthly and principal
due in balloon payment on November
28, 2000. See "PRINCIPAL OPERATIONS"
under ITEM 2, herein. 475,000 475,000
10% note, collateralized by real
property 26,331 26,331
8% notes, due on demand, personally
guaranteed by present and former
Company personnel 41,082 58,030
-------- --------
$844,034 $860,982
======== ========
10
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NOTE 5 - PROPERTY AND EQUIPMENT
At March 31, 1998 and December 31, 1997 property and equipment consisted of the
following:
DESCRIPTION 1998 1997
---------------------------------- ---------- -----------
Leasehold improvements $1,862,400 $1,860,754
Equipment and fixtures 1,504,103 1,504,103
Transportation equipment 809,467 747,180
Buildings 224,327 224,327
---------- ----------
4,400,297 4,336,364
Less accumulated depreciation and
amortization (2,039,314) (1,916,769)
---------- ----------
$2,360,983 $2,419,595
========== ==========
NOTE 6 - NET INCOME (LOSS) PER COMMON SHARE
Net income (loss) per share of common stock is computed by dividing net income
(loss) by the weighted average number of shares of common stock outstanding
during the relevant periods. For the three months ended March 31, 1998 and 1997,
weighted average number of common shares outstanding were 1,888,211 and
1,895,322, respectively.
NOTE 7 - SUPPLEMENTAL DISCLOSURES FOR THE CONSOLIDATED STATEMENTS OF CASH FLOWS
a) NON-CASH INVESTING ACTIVITIES
During the three months ended March 31, 1998, accrued bonuses amounting
to $11,948 were applied to outstanding notes receivable owed by Company
personnel.
b) OTHER CASH FLOW TRANSACTIONS
Other cash flow transactions for the three months ended March 31, 1998
and 1997, include interest payments amounting to approximately $17,000
for each period. There were no income tax payments for the three months
ended March 31, 1998 and 1997.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
Margo Nursery Farms, Inc. and its subsidiaries, (collectively, the "Company")
are primarily engaged in the business of growing, distributing and installing
tropical plants and trees. The Company is also engaged in the manufacturing and
distribution of its own line ("Rain Forest") of planting media and aggregates,
sales of lawn and garden products and also provides landscaping design and
installation services.
CORPORATE REORGANIZATION
Effective December 31, 1997, after obtaining shareholder approval, the Company
changed its jurisdiction of incorporation from Florida to the Commonwealth of
Puerto Rico. The reincorporation was accomplished by means of the merger of
Margo Nursery Farms, Inc., a Florida corporation ("Old Margo") into a newly
created Puerto Rico corporation, Margo Transition Inc. ("New Margo") with New
Margo being the surviving corporation of such merger. As part of the merger, New
Margo then changed its name to Margo Nursery Farms, Inc., and continued to
operate the business previously operated by Old Margo with the same officers and
directors.
Prior to the consummation of the above reincorporation, Margo Bay Farms, Inc., a
wholly-owned subsidiary operating in South Florida, was merged with and into Old
Margo. Prior to this merger, the Company had closed its South Florida operations
due to its lack of profitability, and sold the two nursery farms which comprised
its operation (see "South Florida Operations" under "Principal Operations"
herein).
PRINCIPAL OPERATIONS
For the three months ended March 31, 1998, the Company's business was conducted
at two locations in Puerto Rico. For the three months ended March 31, 1997, the
Company also operated at another location in South Florida. These operations are
described below:
PUERTO RICO OPERATIONS
The Company's operations include Margo Nursery Farms, Inc. (the parent company),
Margo Landscaping & Design, Inc. ("Landscaping"), Margo Garden Products, Inc.
("Garden Products"), and Rain Forest Products Group, Inc. ("Rain Forest"), all
Puerto Rico corporations.
The Company's principal operation in Puerto Rico is conducted at a 117 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.
On October 31, 1996, the Company entered into an agreement with Cali Orchids,
Inc. ("Cali"), a Puerto Rico based grower of orchids,
12
<PAGE>
bromeliads, anthuriums, 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 purchase price was approximately $190,000
and the transaction was closed on January 1, 1997. The agreement also provided
for the leasing of Cali's facilities in the town of Barranquitas (13 acres) and
equipment for a five year term (subject to two additional five year renewals)
and the hiring of Cali's President as a general manager for the Company's new
location.
Margo Nursery Farms, Inc., which operates under the trade name of Margo Farms
del Caribe, is engaged in the production and distribution of tropical and
flowering plants. Its 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, bedding plants
and ground covers. Its customers include wholesalers, retailers, chain stores
and landscapers primarily located in Puerto Rico and the Caribbean. As a bona
fide agricultural enterprise, the Company enjoys a 90% tax exemption under
Puerto Rico law from income derived from its nursery business in Puerto Rico.
Landscaping provides landscaping services to customers in Puerto Rico and the
Caribbean, including commercial as well as residential landscape design and
landscaping.
Garden Products is engaged in sales of lawn and garden products, including
plastic and terracotta pottery, planting media (soil, peat moss, etc.) and
mulch. Among the various lawn and garden product lines it distributes, Garden
Products is the exclusive distributor of Sunniland Corporation's fertilizer and
pesticide products for Puerto Rico and the Caribbean.
Rain Forest commenced operations in April 1996. It is engaged in the
manufacturing of potting soils, mulch, professional growing mixes, river rock
and gravels. Rain Forest's products are marketed by Garden Products. The Company
enjoys a tax exemption grant from the Government of Puerto Rico for the
manufacturing operations of Rain Forest.
SOUTH FLORIDA OPERATIONS
Effective September 30, 1997, the Company's South Florida operation (Margo Bay
Farms, Inc.) was closed due to the strong competition, inadequate sales levels
and continued lack of profitability. On September 29 and November 28, 1997, the
Company sold two nursery farms (a 54 acre and a 20 acre tract) which comprised
the Company's South Florida operation. On December 12, 1997, Margo Bay Farms,
Inc. was merged with and into its parent company, Margo Nursery Farms, Inc.,
prior to the reincorporation of the parent company. In connection with the sale
of one of the properties, the Company received a $475,000 mortgage note from the
buyer as part of the sales price.
13
<PAGE>
FUTURE OPERATIONS
The Company will continue to concentrate its economic and managerial resources
in expanding and improving its present operations in Puerto Rico. The Company's
Board of Directors has determined that these operations present the Company's
most attractive opportunities for the near future. The Board believes that the
Company should continue to capitalize its advantage as one of the largest, full
service nurseries in the region.
The Company is also exploring the possibility of diversifying into other
activities within Puerto Rico, including but not limited to, real estate
development. In this regard, during January 1998, the Company incorporated a new
subsidiary, Margo Development Corporation. During the remainder of 1998, the
Company will be seeking to acquire options to purchase and/or purchase real
estate sites for the development of residential projects in Puerto Rico.
14
<PAGE>
RESULTS OF OPERATIONS FOR THE FIRST QUARTERS OF 1998 AND 1997
During the first three months of 1998, the Company incurred a net loss of
approximately $91,000, or $.05 per share, compared to net income of $40,000 for
the same period in 1997, or $.02 per share.
The net loss incurred during the three months ended March 31, 1998, when
compared to net income for the same period in 1997, is principally due to a
sharp decrease in sales volume of approximately $551,000. This decrease in sales
precluded additional gross profit to cover operating expenses. Of the decrease
in sales, the discontinued South Florida operation accounted for approximately
$134,000.
SALES
The Company's consolidated net sales for the first three months of 1998 were
approximately $1,309,000, compared to $1,860,000 for the same period in 1997, or
a decrease of approximately 30%. During the first three months of 1998, sales
decreased in all lines of business when compared to the same period in 1997. The
most significant decreases were sales of landscaping services ($299,000 in 1998
vs. $506,000 in 1997) and hard goods ($260,000 in 1998 vs. $394,000 in 1997)
which decreased by 41% and 34%, respectively. The decrease in sales of
landscaping services was due to a decrease in the amount of contracts in
progress during 1998, when compared to the same period in 1997. The decrease in
sales of hard goods was due to a reduction in sales to one of the Company's
major customers. Sales at the discontinued South Florida operation for the first
three months of 1997 were approximately $134,000.
GROSS PROFITS
The Company's gross profit for the first three months of 1998 was 33.1%,
compared to 32.5% for the same period in 1997, or an increase of .6%.
Gross profit for the first three months of 1998 continues to reflect the trend
experienced during the same period in 1997, arising from increased storage and
maintenance costs associated with slow moving inventory.
In addition, gross profit from landscaping services decreased to 12% for the
first three months of 1998, compared to 30% for the same period in 1997. This
decrease in gross profit resulted from cost overruns in various projects. The
gross profit from the discontinued South Florida operation for the first three
months of 1997 was 5%.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses (SG&A) were approximately $549,000
and $565,000 for the first three months of 1998 and 1997, respectively,
resulting in a decrease of 3%. The decrease for 1998 is principally due to the
closing of the South
15
<PAGE>
Florida operation, which incurred approximately $26,000 in SG&A for the three
months ended March 31, 1997. As a result of the decrease in the Company's sales
volume, SG&A as a percentage of sales increased to 42% for the first three
months of 1998, compared to 30% for the same period in 1997.
OTHER INCOME AND EXPENSES
The increase in interest income for the first three months of 1998 when compared
to the same period in 1997, is due to higher yields obtained during 1998 with
similar investments. The decrease in interest expense for 1998 compared to 1997
is the result of reductions in the outstanding principal balances of long-term
debt.
FINANCIAL CONDITION
The Company's financial condition at March 31, 1998 remains comparable with that
of December 31, 1997. The Company's current ratio continues to be strong, with a
ratio of 5.0 to 1 at March 31, 1998, compared to 4.6 to 1 at December 31, 1997.
At March 31, 1998, the Company had cash of approximately $1,153,000 and short
term investments of $500,000, compared to cash of $1,230,000 and short term
investments of $500,000 at December 31, 1997. The decrease in cash at March 31,
1998 is principally due to cash flows provided by operations ($66,000), offset
by cash outflows resulting from additions to property and equipment ($64,000),
repayment of long-term debt ($37,000) and acquisition of treasury stock
($47,500).
As a result of decreases in trade payables and long-term debt at March 31, 1998,
the Company's debt to equity ratio improved to 17.1% compared to 18.9% at
December 31, 1997.
Stockholders' equity at March 31, 1998 decreased due to results of operations
for the first quarter. Stockholders' equity also decreased by $47,500 from the
acquisition of treasury stock as a result of the exercise of statutory
dissenters rights by shareholders in connection with the reorganization of the
Company. There were no dividends declared nor issuance of capital stock during
the first quarter of 1998.
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 current and anticipated liquidity and capital
requirements.
16
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PART II - OTHER 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 SECURITIES HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
On May 29, 1998, the Company will hold its Annual Meeting of Stockholders. Among
the various proposals that stockholders will be asked to vote upon is a proposed
corporate restructuring to create a holding company structure.
The Board of Directors and management of Margo Nursery Farms, Inc. ("Margo")
believe that the adoption by Margo of a holding company structure may facilitate
future expansion or diversification of its business activities and thereby
contribute to the future long range financial strength of the present
enterprise. A holding company structure may afford and additional financial and
operational flexibility. It will also reflect the fact that Margo and certain of
its subsidiaries are in different businesses or industry segments with different
regulatory and business requirements.
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, 1998:
(i) Form 8-K, dated December 31, 1997, reporting under Item 5
the successful completion of the Company's reincorporation
as a Puerto Rico corporation.
17
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SIGNATURES
Pursuant to the requirements 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 14, 1998 By: /s/ MICHAEL J. SPECTOR
--------------------------
Michael J. Spector,
President and Chief
Executive Officer
Date: MAY 14, 1998 By: /s/ ALFONSO ORTEGA
----------------------
Alfonso Ortega,
Vice President, Treasurer,
Principal Financial and
Accounting Officer
18
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------ -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1998
<CASH> 1,653,174
<SECURITIES> 0
<RECEIVABLES> 1,007,724
<ALLOWANCES> (76,000)
<INVENTORY> 2,419,724
<CURRENT-ASSETS> 5,120,913
<PP&E> 4,400,297
<DEPRECIATION> (2,039,314)
<TOTAL-ASSETS> 8,659,166
<CURRENT-LIABILITIES> 1,014,997
<BONDS> 252,883
0
0
<COMMON> 1,915
<OTHER-SE> 7,389,371
<TOTAL-LIABILITY-AND-EQUITY> 8,659,166
<SALES> 1,309,465
<TOTAL-REVENUES> 1,350,418
<CGS> 875,671
<TOTAL-COSTS> 1,424,993
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,619
<INCOME-PRETAX> (91,194)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (91,194)
<EPS-PRIMARY> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
