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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 MARCH 31, 1999
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission File No. 0-15336
MARGO CARIBE, 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, 1999.
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<PAGE>
MARGO CARIBE, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE FIRST QUARTER ENDED MARCH 31, 1999
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 14
PART II
ITEM 1. LEGAL PROCEEDINGS 20
ITEM 2. CHANGES IN SECURITIES 20
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 20
ITEM 4. SUBMISSION OF MATTERS TO A VOTE 20
OF SECURITY HOLDERS
ITEM 5. OTHER INFORMATION 20
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 20
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 CARIBE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 1999 and December 31, 1998
ASSETS
<TABLE>
<CAPTION>
1999 1998
(UNAUDITED) (AUDITED)
----------- -----------
<S> <C> <C>
Current assets:
Cash and equivalents $ 781,351 $ 747,390
Short-term investments 500,000 500,000
Accounts receivable, net 1,013,646 1,228,572
Inventories 2,353,115 2,264,372
Prepaid expenses and other current assets 204,091 190,804
----------- -----------
Total current assets 4,852,203 4,931,138
Property and equipment, net 2,030,101 2,094,799
Due from shareholder 290,226 290,226
Notes receivable 620,413 620,413
Other assets 53,632 53,632
----------- -----------
Total assets $ 7,846,575 $ 7,990,208
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 121,070 $ 158,468
Notes payable 500,000 500,000
Accounts payable 538,667 665,140
Accrued expenses 167,893 211,077
----------- -----------
Total current liabilities 1,327,630 1,534,685
Long-term debt 85,880 85,880
----------- -----------
Total liabilities 1,413,510 1,620,565
----------- -----------
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 1,915 1,915
Additional paid-in capital 4,637,706 4,637,706
Retained earnings 1,889,732 1,826,310
Treasury stock, 39,800 common shares,at cost (96,288) (96,288)
----------- -----------
Total shareholders' equity 6,433,065 6,369,643
----------- -----------
Total liabilities and shareholders' equity $ 7,846,575 $ 7,990,208
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
MARGO CARIBE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months ended March 31, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Net sales $ 1,533,064 $ 1,309,465
Cost of sales 971,113 875,671
----------- -----------
Gross profit 561,951 433,794
Selling, general and administrative expenses 525,800 549,322
Income (loss) from operations 36,151 (115,528)
----------- -----------
Other income (expense):
Interest income 25,882 30,823
Interest expense (12,011) (16,619)
Hurricane Georges assistance proceeds 12,800 --
Gain on sale of equipment -- 9,000
Miscellaneous income 600 1,130
----------- -----------
27,271 24,334
Income (loss) before provision for income tax 63,422 (91,194)
Provision for income tax -- --
----------- -----------
Net income (loss) $ 63,422 $ (91,194)
=========== ===========
Basic income (loss) per common share $ 0.03 $ (0.05)
=========== ===========
Diluted income per common share $ 0.03 $ --
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
MARGO CARIBE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Three Months ended March 31, 1999
(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, 1998 1,875,322 $ 1,915 $4,637,706 $1,826,310 $ (96,288) $6,369,643
Net income -- -- -- 63,422 -- 63,422
---------- ---------- ---------- ---------- ---------- ----------
Balance at March 31, 1999 1,875,322 $ 1,915 $4,637,706 $1,889,732 $ (96,288) $6,433,065
========== ========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
MARGO CARIBE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 63,422 $ (91,194)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 109,210 122,545
Provision for uncollectible accounts receivable 6,000 8,237
Provision for inventory valuation allowance -- 10,000
Changes in assets and liabilities affecting cash flows from operating
activities:
Accounts receivable 208,926 110,988
Inventories (88,743) 8,404
Prepaid expenses and other current assets (13,287) (14,499)
Due from shareholder -- 8,845
Other assets -- 8,311
Accounts payable (126,473) (91,592)
Accrued expenses (43,184) (13,809)
----------- -----------
Net cash provided by operating activities 115,871 66,236
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (44,512) (63,933)
Collection of notes receivable -- 5,000
----------- -----------
Net cash used in investing activities (44,512) (58,933)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt (37,398) (36,879)
Acquisition of treasury stock -- (47,500)
----------- -----------
Net cash used in financing activities (37,398) (84,379)
----------- -----------
NET INCREASE (DECREASE) IN CASH 33,961 (77,076)
CASH AND EQUIVALENTS AT BEGINNING OF YEAR 747,390 1,230,250
----------- -----------
CASH AND EQUIVALENTS AT END OF PERIOD $ 781,351 $ 1,153,174
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE>
MARGO CARIBE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1999
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
These interim consolidated financial statements include the financial statements
of Margo Caribe, Inc. and its wholly-owned subsidiaries (collectively "the
Company"), Margo Nursery Farms, Inc., Margo Landscaping and Design, Inc., Margo
Garden Products, Inc., Rain Forest Products Group, Inc. and Margo Development
Corporation.
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, 1999 are not
necessarily indicative of the operating results to be expected for the year
ending December 31, 1999. 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, 1998.
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 sales. 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, 1999 and December 31, 1998 was $200,000.
NOTE 3 - INVENTORIES
At March 31, 1999 and December 31, 1998, inventories comprised the following:
DESCRIPTION 1999 1998
- -------------------------- ----------- -----------
Plant material $ 2,053,545 $ 1,900,250
Lawn and garden products 330,693 347,637
Raw materials and supplies 168,877 216,485
----------- -----------
2,553,115 2,464,372
Less valuation allowance (200,000) (200,000)
----------- -----------
$ 2,353,115 $ 2,264,372
=========== ===========
NOTE 4 - NOTES RECEIVABLE
The Company owns 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 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 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.
9
<PAGE>
On February 12, 1997, the Company obtained a junior lien 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.
On September 23, 1998, the Dominican Republic was struck by Hurricane Georges
severely damaging Cariplant's facilities. As a result of the damages caused by
the hurricane, the Company wrote down the carrying value of the note to
$100,000. The write down, amounting to $201,621 was included as an other expense
in the consolidated statements of operations for the year ended December 31,
1998.
At March 31, 1999 and December 31, 1998, notes receivable included the
following:
DESCRIPTION 1999 1998
- -------------------------------------- -------- --------
Note receivable from Altec $100,000 $100,000
8% mortgage note, collateralized by
land in South Florida, with interest
payments due monthly and principal
due in a balloon payment on November
28, 2000 475,000 475,000
10% note, collateralized by real
property 26,331 26,331
8% notes, due on demand, personally
guaranteed by Company personnel 19,082 19,082
-------- --------
$620,413 $620,413
======== ========
NOTE 5 - PROPERTY AND EQUIPMENT
At March 31, 1999 and December 31, 1998 property and equipment consisted of the
following:
DESCRIPTION 1999 1998
--------------------------------- ----------- -----------
Leasehold improvements $ 1,600,978 $ 1,590,145
Equipment and fixtures 1,627,916 1,618,312
Transportation equipment 431,341 407,266
Real estate property 224,327 224,327
----------- -----------
3,884,562 3,840,050
Less accumulated depreciation and
amortization (1,854,461) (1,745,251)
----------- -----------
$ 2,030,101 $ 2,094,799
=========== ===========
10
<PAGE>
NOTE 6 - NET INCOME (LOSS) PER COMMON SHARE
In 1997, the Company adopted Financial Accounting Standards Board Statement No.
128, Earnings Per Share ("SFAS 128"). SFAS 128 establishes standards for
computing and presenting earnings per share ("EPS"). It replaces the
presentation of primary EPS with basic EPS, and requires dual presentation of
basic and diluted EPS on the face of the statement of operations. Basic EPS is
computed by dividing income available to common stockholders by the weighted
average number of common shares outstanding for the period. Diluted EPS reflects
the potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock.
Basic and diluted income (loss) per common share at March 31, 1999 and 1998 were
computed as follows:
1999 1998
----------- -----------
BASIC INCOME (LOSS) PER COMMON SHARE:
Net income (loss) available to
common shareholders $ 63,422 $ (91,194)
=========== ===========
Weighted average number of common
shares outstanding 1,875,322 1,888,211
=========== ===========
Basic income (loss) per common share $ 0.03 $ (0.05)
=========== ===========
DILUTED INCOME PER COMMON SHARE:
Net income (loss) available to
common shareholders $ 63,422 $ (91,194)
=========== ===========
Weighted average number of common
shares outstanding 1,875,322 1,888,211
Plus incremental shares from assumed
conversions of stock options 142,000 --
----------- -----------
Adjusted weighted average shares 2,017,322 1,888,211
=========== ===========
Diluted income (loss) per common
share $ 0.03 $ (0.05)
=========== ===========
The effect of the conversion of stock options determined by using the
if-converted method was antidilutive, thus basic and dilutive loss per common
share were the same in 1998.
11
<PAGE>
NOTE 7 - SEGMENT INFORMATION
In June 1997, the Financial Accounting Standards Board issued Statement No. 131,
Disclosures about Segments of an Enterprise and Related Information ("SFAS
131"). SFAS 131 establishes standards for the way an enterprise reports
information about operating segments in annual financial statements and requires
that enterprises report selected information about operating segments in interim
financial reports issued to shareholders. Operating segments are components of
an enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker in deciding how to
allocate resources and in assessing performance. The Statement requires a
reconciliation of total segment revenue and expense items and segment assets to
the amounts in the enterprise's financial statements. SFAS 131 also requires a
descriptive report on how the operating segments were determined, the products
and services provided by the operating segments, and any measurement differences
used for segment reporting and financial statement reporting.
The Company's management monitors and manages the financial performance of three
primary business segments: the production and distribution of plants, sales of
lawn and garden products and landscaping services. The accounting policies of
the segments are the same as those described in the summary of significant
accounting policies. The Company evaluates performance based on net income or
loss.
The financial information presented below was derived from the internal
management accounting system and are based on internal management accounting
policies. The information presented does not necessarily represent each
segments's financial condition and results of operations as if they were
independent entities.
The Company's segment information as of and for the three months ended March 31,
1999 and 1998, is as follows:
<TABLE>
<CAPTION>
1999
-----------------------------------------------------------
LAWN & GARDEN
PLANTS PRODUCTS LANDSCAPING TOTALS
---------- ------------- ----------- ----------
<S> <C> <C> <C> <C>
Revenues from external customers $ 881,968 $ 247,911 $ 403,185 $1,533,064
Intersegment revenues 58,607 34,064 -- 92,671
Interest income 25,882 -- -- 25,882
Interest expense 12,011 -- -- 12,011
Depreciation and amortization 87,355 7,539 14,316 109,210
Segment income (loss) 86,316 (25,441) 2,547 63,422
Segment assets 6,512,442 764,444 569,689 7,846,575
Expenditures for segment assets 44,512 -- -- 44,512
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
1998
----------------------------------------------------------------
LAWN & GARDEN
PLANTS PRODUCTS LANDSCAPING TOTALS
----------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues from external customers $ 761,315 $ 249,368 $ 298,782 $ 1,309,465
Intersegment revenues 74,109 11,089 -- 85,198
Interest income 30,823 -- -- 30,823
Interest expense 16,619 -- -- 16,619
Depreciation and amortization 102,448 5,378 14,719 122,545
Segment income (loss) 31,608 (95,620) (27,182) (91,194)
Segment assets 7,315,190 812,307 564,253 8,691,750
Expenditures for segment assets 63,933 -- -- 63,933
</TABLE>
NOTE 8 - SUPPLEMENTAL DISCLOSURES FOR THE CONSOLIDATED STATEMENTS OF CASH FLOWS
Other cash flow transactions for the three months ended March 31, 1999 and 1998,
include interest payments amounting to approximately $12,000 and $17,000,
respectively. There were no income tax payments for the three months ended March
31, 1999 and 1998.
13
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Margo Caribe, 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. During 1999 and 1998, the Company has also been engaged
in seeking sites for the development of residential housing projects.
PRINCIPAL OPERATIONS
The Company's operations are focused in the Commonwealth of Puerto Rico ("Puerto
Rico") and the Caribbean.
These operations are conducted at a 117 acre nursery farm in Vega Alta, Puerto
Rico, approximately 25 miles west of San Juan, and a 13 acre nursery in the
Municipality of Barranquitas, Puerto Rico. The 117 acre farm is leased from
Michael J. Spector and Margaret Spector, who are directors, officers and
principal shareholders of the Company. The 13 acre facility in the Municipality
of Barranquitas is leased from Cali Orchids, Inc., an unrelated third party.
The Company's operations include Margo Caribe, Inc. (the holding company), Margo
Nursery Farms, Inc. ("Nursery Farms"), Margo Landscaping & Design, Inc.
("Landscaping"), Margo Garden Products, Inc. ("Garden Products"), Rain Forest
Products Group, Inc. ("Rain Forest"), and Margo Development Corporation, all
Puerto Rico corporations.
Nursery Farms, 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. In Vega Alta, Nursery Farms produces various types of palms,
flowering and ornamental plants, trees, shrubs, bedding plants and ground
covers. In Barranquitas, Nursery Farms produces orchids, bromeliads, anthuriums,
spathiphylum and poincettias. Its customers include wholesalers, retailers,
chain stores and landscapers primarily located in Puerto Rico and the Caribbean.
As a bona fide agricultural enterprise, Nursery Farms 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.
14
<PAGE>
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 as well as DEROMA Italian terracotta pottery for Puerto Rico
and the Caribbean.
Rain Forest 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.
Margo Development Corporation has been engaged in seeking real estate sites for
the development of residential projects in Puerto Rico.
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 a supplier of plants and lawn and garden products for The Home
Depot Puerto Rico ("Home Depot"), the largest mainland retailer of lawn and
garden products according to NURSERY RETAILER magazine. Home Depot entered the
Puerto Rico market with one store opening in September 1998, and has announced
plans to open eight additional stores in Puerto Rico over the next three years.
During March 1999, the Company leased two additional parcels of land
(approximately 320 acres) from the Puerto Rico Land Authority. The Company
intends to eventually relocate its existing Vega Alta facilities and corporate
offices to this property. The Company also intends to use this additional land
to increase the Company's volume of field grown material and to diversify within
the nursery business by growing turf (sod).
The Company was recently awarded a contract for approximately $668,000 by the
Municipality of San Juan for the purchase of trees in connection with an ongoing
reforestation program, in progress during 1999.
The Company was also awarded a landscaping project for the Puerto Rico Art
Museum. This landscaping project is scheduled for commencement during 1999 at an
approximate contract price of $650,000.
15
<PAGE>
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 1999, 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. As of May 14, 1999, the
Company was in process of formalizing an option agreement for the purchase of
approximately 20 acres of land near the Municipality of Loiza, Puerto Rico for
future real estate development.
16
<PAGE>
RESULTS OF OPERATIONS FOR THE FIRST QUARTERS ENDED MARCH 31, 1999 AND 1998
During the first three months of 1999, the Company had net income of
approximately $63,000, or $.03 per share, compared to a net loss of $91,000 for
the same period in 1998, or $.05 per share.
Net income generated during the three months ended March 31, 1999, when compared
to the net loss incurred for the same period in 1998, is due to an increase in
the Company's net sales, an increase in gross profit, and a decrease in selling,
general and administrative expenses experienced during the first quarter of
1999.
SALES
The Company's consolidated net sales for the first three months of 1999 were
approximately $1,533,000, compared to $1,309,000 for the same period in 1998, or
an increase of approximately 17%. The increase in sales for the first three
months of 1999 when compared to the same period in 1998 is due to a higher
demand for the Company's plant material as well as an increase in the volume of
landscaping services. These increases in sales include, but are not limited to,
the increased demand by large retail chains and the rebuilding effort within
Puerto Rico, both as a result of the damages caused by Hurricane Georges during
September 1998.
GROSS PROFITS
The Company's gross profit for the first three months of 1998 was 37%, compared
to 33% for the same period in 1998, or an increase of approximately 4%.
Increase in gross profit of 4% for the first three months of 1999 when compared
to the same period in 1998 is principally due to improved efficiency in
landscaping services (gross profit of 31% on services of $403,000 in 1999 vs.
gross profit of 12% on services of $299,000 in 1998) during the first quarter of
1999.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses (SG&A) were approximately $526,000
and $549,000 for the first three months of 1999 and 1998, respectively,
resulting in a decrease of 4%.
The decrease in SG&A for the first three months of 1999 when compared to the
same period in 1998 is due, among other things, to decreases in repairs and
maintenance expenses of landscaping equipment as well as decreases in other
maintenance expenses.
17
<PAGE>
As a result of the increase in sales and the decrease in operating expenses,
SG&A as a percentage of sales decreased to 34% for the first three months of
1999, compared to 42% for the same period in 1998.
OTHER INCOME AND EXPENSES
The decrease in interest income for the first three months of 1999 when compared
to the same period in 1998, is due to lower yields obtained during 1999 with
similar investments. The decrease in interest expense for 1999 compared to 1998
is the result of reductions in the outstanding principal balances of long-term
debt.
FINANCIAL CONDITION
The Company's financial condition at March 31, 1999 remains comparable with that
of December 31, 1998. The Company's current ratio continues to be strong, with a
ratio of 3.6 to 1 at March 31, 1999, compared to 3.2 to 1 at December 31, 1998.
At March 31, 1999, the Company had cash of approximately $781,000 and short term
investments of $500,000, compared to cash of $747,000 and short term investments
of $500,000 at December 31, 1998. The increase in cash at March 31, 1999 is
principally due to cash flows provided by operations ($116,000), offset by cash
outflows resulting from additions to property and equipment ($45,000) and
repayment of long-term debt ($37,000).
Due to favorable results of operations for the quarter ended March 31, 1999, and
decreases in accounts payable and accrued expenses, as well as repayment of
long-term debt at March 31, 1999, the Company's debt to equity ratio improved to
22% compared to 25% at December 31, 1998.
Stockholders' equity at March 31, 1999 increased due to results of operations
for the first quarter. There were no dividends declared nor issuance of capital
stock during the first quarter of 1999.
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.
YEAR 2000 ISSUE
The inability of computer hardware and software to recognize and properly
process data fields using a four-digit year to define the applicable year is
commonly referred to as the "Year 2000 Issue". As the year 2000 approaches,
computer systems using a two-digit year data field may be unable to accurately
process certain information.
18
<PAGE>
The Company has completed a review and evaluation of its hardware and software
programs and applications and is in the process of modifying and testing its
software and operating systems for Year 2000 compliance. The Company expects
such testing to be complete by September 30, 1999. The testing for the Company's
operating hardware has been completed and is Year 2000 compliant. All test
results are being verified by an external consultant.
While the Company has not initiated formal communications with its suppliers,
management also anticipates there will not be any major Year 2000 compliance
issues with them due to the nature of the Company's operations and due to the
fact that the Company does not order or communicate with its suppliers using any
computer based information system.
The Company estimates that the total cost of being Year 2000 compliant will not
exceed $75,000, of which approximately $30,000 had been incurred as of March 31,
1999. The cost of being Year 2000 compliant will be funded through operating
cash flows. The Company anticipates being Year 2000 compliant by late September
1999. The costs of and completion date on which the Company believes it will be
year 2000 compliant are based on management's best estimates. However, there can
be no guarantee that these estimates will be achieved and actual results could
differ materially from those anticipated.
While the Company is taking steps to ensure that its systems are Year 2000
compliant, Year 2000 problems sufferred by third parties, including providers of
basic services, such as telephone, water and electricity, could have an adverse
impact on the daily operations of the Company. The Company does not have a
formal contingency plan to deal with disruptions that may be caused by Year 2000
problems. In the event of any such disruptions, the Company intends to perform
most operational functions manually.
19
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In the opinion of the Company's management, any 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
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
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, 1999:
None
20
<PAGE>
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, 1999 BY: /s/ MICHAEL J. SPECTOR
------------- ----------------------------
Michael J. Spector,
President and Chief
Executive Officer
Date: MAY 14, 1999 BY: /s/ ALFONSO ORTEGA
------------- ----------------------------
Alfonso Ortega,
Vice President, Treasurer,
Principal Financial and
Accounting Officer
21
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1999
<CASH> 1,281,351
<SECURITIES> 0
<RECEIVABLES> 1,106,096
<ALLOWANCES> (92,450)
<INVENTORY> 2,353,115
<CURRENT-ASSETS> 4,852,203
<PP&E> 3,884,562
<DEPRECIATION> (1,854,461)
<TOTAL-ASSETS> 7,846,575
<CURRENT-LIABILITIES> 1,327,630
<BONDS> 85,880
1,915
0
<COMMON> 0
<OTHER-SE> 6,431,150
<TOTAL-LIABILITY-AND-EQUITY> 7,846,575
<SALES> 1,533,064
<TOTAL-REVENUES> 1,572,346
<CGS> 971,113
<TOTAL-COSTS> 1,496,913
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,011
<INCOME-PRETAX> 63,422
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 63,422
<EPS-PRIMARY> 0.03
<EPS-DILUTED> 0.03
</TABLE>
