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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended June 30, 2000
[ ] 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 1,882,322 shares of common stock, $.001 par value,
outstanding as of August 11, 2000.
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<PAGE>
MARGO CARIBE, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE SECOND QUARTER ENDED JUNE 30, 2000
TABLE OF CONTENTS
PART I
Page
----
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets 4
Condensed Consolidated Statements of
Operations 5
Condensed Consolidated Statement of
Shareholders' Equity 6
Condensed Consolidated Statements of
Cash Flows 7
Notes to Condensed Consolidated
Financial Statements 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION 14
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK 18
PART II
ITEM 1. LEGAL PROCEEDINGS 19
ITEM 2. CHANGES IN SECURITIES 19
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 19
ITEM 4. SUBMISSION OF MATTERS TO A VOTE 19
OF SECURITY HOLDERS
ITEM 5. OTHER INFORMATION 19
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 19
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
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MARGO CARIBE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, 2000 and December 31, 1999
(Unaudited)
ASSETS
2000 1999
(See Note 3)
----------- -----------
Cash and equivalents $ 862,853 $ 1,082,592
Net assets of discontinued operations (See Note 3) 4,012,147 5,159,184
----------- -----------
Total assets $ 4,875,000 $ 6,241,776
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
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; 1,922,122 shares issued,
(1,915,122 in 1999) and 1,882,322 shares
outstanding (1,875,322 in 1999) 1,922 1,915
Additional paid-in capital 4,657,544 4,637,706
Retained earnings 311,822 1,698,443
Treasury stock, 39,800 common shares,at cost (96,288) (96,288)
----------- -----------
Total shareholders' equity $ 4,875,000 $ 6,241,776
=========== ===========
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
MARGO CARIBE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Periods ended June 30, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
Three Months ended June 30, Six Months ended June 30,
--------------------------- ---------------------------
2000 1999 2000 1999
------------- ---------- ------------- ----------
<S> <C> <C> <C> <C>
Discontinued operations:
Income (loss) from discontinued operations $ (52,730) (13,509) $ (71,963) $ 49,913
Loss on disposition of discontinued
operations, including provision of
$125,000 for operating losses during
the period through the date of disposal (1,314,658) -- (1,314,658) --
------------- ---------- ------------- ----------
Net income (loss) $ (1,367,388) $ (13,509) $ (1,386,621) $ 49,913
============= ========== ============= ==========
Income (loss) per common share
Basic and diluted:
Income (loss) from discontinued
operations $ (.03) $ (.01) $ (.04) $ .03
Loss on disposition of discontinued
operations (.70) -- (.70) --
------------- ---------- ------------- ----------
Net income (loss) per common share $ (.73) $ (.01) $ (.74) $ .03
============= ========== ============= ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
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MARGO CARIBE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Six Months ended June 30, 2000
(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, 1999 1,875,322 $ 1,915 $ 4,637,706 $ 1,698,443 $ (96,288) $ 6,241,776
Issuance of common stock from
conversion of stock options 7,000 7 19,838 -- -- 19,845
Net loss -- -- -- (1,386,621) -- (1,386,621)
----------- ----------- ----------- ----------- ----------- -----------
Balance at June 30, 2000 1,882,322 $ 1,922 $ 4,657,544 $ 311,822 $ (96,288) $ 4,875,000
=========== =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
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MARGO CARIBE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30, 2000 and 1999
(Unaudited)
2000 1999
----------- -----------
Cash flows from operating activities:
Net income (loss) $(1,386,621) $ 49,913
Add (deduct) results of discontinued
operations 1,386,621 (49,913)
----------- -----------
Income from continuing operations
and net cash provided by continuing
operations -- --
Net cash used in discontinued operations (364,883) (22,958)
----------- -----------
Net cash used in operating activities (364,883) (22,958)
----------- -----------
Cash flows from investing activities:
Additions to property and equipment (92,677) (141,292)
Proceeds from sale of equipment -- 14,000
----------- -----------
Net cash used in investing activities (92,677) (127,292)
----------- -----------
Cash flows from financing activities:
Repayment of long-term debt (82,024) (112,880)
Increase in notes payable 300,000 200,000
Issuance of common stock from conversion
stock options 19,845 --
----------- -----------
Net cash provided by financing activities 237,821 87,120
----------- -----------
Net decrease in cash and equivalents
used in discontinued operations (219,739) (63,130)
Cash and equivalents at beginning of year 1,082,592 747,390
----------- -----------
Cash and equivalents at end of period $ 862,853 $ 684,260
=========== ===========
See accompanying notes to condensed consolidated financial statements.
7
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MARGO CARIBE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000
(Unaudited)
Note 1 - Basis of Presentation
These interim condensed consolidated financial statements include the accounts
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 condensed consolidated financial statements are unaudited, but
include all adjustments that, in the opinion of management, are necessary for a
fair statement of the Company's financial position, results of operations and
cash flows for the periods covered. These statements have been prepared in
accordance with the United States Securities and Exchange Commission's
instructions to Form 10-Q, and therefore, do not include all information and
footnotes necessary for a complete presentation of financial statements in
conformity with generally accepted accounting principles.
The preparation of interim financial statements relies on estimates. Therefore,
the results of operations for the six months ended June 30, 2000 are not
necessarily indicative of the operating results to be expected for the year
ending December 31, 2000. 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, 1999.
The Company has executed an Agreement and Plan of Merger (the "Agreement") with
iTract, LLC, a developmental stage internet company. To the extent the
transactions contemplated in the Agreement are consumated, the Company will
cease being engaged in the current nursery and related businesses and would be
engaged in providing internet based marketing services (see Note 3).
Note 2 - Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America 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.
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Note 3 - Discontinued Operations
On April 11, 2000, the Company ("Margo") entered into the Agreement to merge
with iTract, LLC ("iTract"), a privately held developmental stage internet
company building a communication tool that is designed to allow its users to
deliver rapidly a targeted marketing campaign using e-mail, fax and postal mail.
To date, iTract has not earned any revenues.
Under the Agreement, Margo would first reincorporate as a Delaware corporation
pursuant to a merger (the "Reincorporation Merger") with a newly formed Delaware
corporation, with the common stockholders of Margo receiving one share of the
new corporation for each share of common stock of Margo held immediately prior
to the Reincorporation Merger. A subsidiary of the new Delaware corporation
would then merge with iTract (the "iTract Merger" and together with the
Reincorporation Merger hereinafter referred to as the "Transaction"). As a
result of the iTract Merger, the holders of iTract securities will be issued
shares of common stock of the new Delaware corporation representing
approximately 86.8% of the outstanding shares of the new corporation (on a fully
diluted basis assuming exercise of all outstanding stock options). Thus,
following the iTract Merger, Margo shareholders, on a fully diluted basis would
hold 13.2% of the new Delaware corporation. Prior to the effective time of the
merger, pursuant to the original terms of the stock option plans, all
outstanding stock options held by officers, directors and employees of Margo
will vest and become immediately exercisable. The Board of Directors of the
merged company will be composed of designees of iTract, and iTract's management
will manage the merged company.
It is a condition precedent to the consummation of the iTract Merger that Margo
sell its nursery and other operating businesses. In addition, as of the
effective time of the iTract Merger, Margo must have at least $5 million in cash
and cash equivalents and not be subject to liabilities exceeding $10,000 in the
aggregate. On June 30, 2000, Margo executed a stock purchase agreement with
Empresas Margo, Inc.(an entity wholly owned by the current President and Chief
Executive Officer of Margo) which provides for the sale of all of the
outstanding shares of common stock owned by Margo in its subsidiaries for a
price of $5,000,000 plus the assumption of existing debt.
The Transaction is expected to close during the fourth quarter of 2000, subject
to the satisfaction of various other conditions, including the approval of the
Transaction by the majority of Margo's shareholders, the qualification of the
iTract Merger as a tax-free exchange for federal income tax purposes, the
qualification of the Reincorporation Merger as a tax-free reorganization for
Puerto Rico income tax purposes, the registration of the shares to be issued in
the iTract Merger, listing of the shares of the new Delaware corporation on the
NASDAQ Small Cap Market, and various other customary conditions. Concurrently
with the execution of the merger agreement, Michael J. Spector (Margo's major
shareholder and chief executive officer)
9
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agreed to vote his Margo shares, representing approximately 66% of Margo's
outstanding common stock in favor of the Transaction. No assurance can be given
that the parties will be able to satisfy the conditions to the consummation of
the Transaction.
For financial reporting purposes, the assets, liabilities, results of operations
and cash flows of the business to be sold (all of the Company's operating
businesses) have been presented as discontinued operations effective June 30,
2000, the date the Company executed a stock purchase agreement for the sale of
Margo's subsidiaries (a condition precedent to the merger with iTract, LLC). The
financial statements of prior periods have been reclassified to reflect this
presentation.
The discontinued operations components of amounts reflected in the financial
statements are as follows:
Consolidated Balance Sheet Data
June 30, 2000 December 31, 1999
------------- -----------------
Investments $ 500,000 $ 500,000
Accounts receivable, net 1,380,565 1,101,722
Inventories 3,451,728 3,108,408
Prepaid expenses and
other current assets 194,344 263,447
Property and equipment, net 1,726,140 1,902,863
Due from shareholder 387,318 290,226
Notes receivable 542,915 542,915
Other assets 172,934 124,808
Notes payable (1,400,000) (1,100,000)
Accounts payable and
accrued expenses (2,557,568) (995,067)
Deferred revenues -- (111,885)
Long-term debt (386,229) (468,253)
----------- -----------
Net assets of discontinued
operations $ 4,012,147 $ 5,159,184
=========== ===========
Consolidated Statement of Operations Data
Three Months ended June 30, Six Months ended June 30,
--------------------------- -------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
Net sales $2,368,720 $1,464,463 $4,476,276 $2,997,527
========== ========== ========== ==========
10
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A) Inventories
At June 30, 2000 and December 31, 1999, inventories included the following:
Description 2000 1999
-------------------------- ---------- ----------
Plant material $2,708,750 $2,417,102
Lawn and garden products 423,283 485,017
Raw materials and supplies 319,695 206,289
---------- ----------
$3,451,728 $3,108,408
========== ==========
B) 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.
Since the inception of the note, the Company received various sporadic payments.
On February 12, 1997, the Company obtained a junior lien on Cariplant's property
and equipment and modified the repayment terms of the unpaid principal balance,
with payments of principal and interest commencing in the year 2000.
Altec is now in default with the modified repayment terms. As a result of the
unfavorable collection experience, as well as the difficulties of operating in
the Dominican Republic, the Company wrote down the carrying value of the note to
$20,000.
At June 30, 2000 and December 31, 1999, notes receivable included the following:
Description 2000 1999
-------------------------------- --------- --------
Note receivable from Altec $ 20,000 $ 20,000
8% mortgage note, collateralized
by land in South Florida, with
interest payments due monthly
and principal due in ballon
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 21,584 21,584
-------- --------
$542,915 $542,915
======== ========
11
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C) Property and Equipment
At June 30, 2000 and December 31, 1999, property and equipment included the
following:
Description 2000 1999
------------------------------ ----------- -----------
Leasehold improvements $ 1,301,865 $ 1,609,137
Equipment and fixtures 1,375,119 1,534,280
Transportation equipment 387,256 326,422
Real estate property 224,327 224,327
----------- -----------
3,288,567 3,694,166
Less accumulated depreciation
and amortization (1,562,427) (1,791,303)
----------- -----------
$ 1,726,140 $ 1,902,863
=========== ===========
Note 4 - Income (loss) per Common Share
The Company reports its earnings per share (EPS) using Financial Accounting
Standards Board Statement No. 128, Earnings Per Share ("SFAS 128"). SFAS 128
requires dual presentation of basic and diluted EPS. Basic EPS is computed by
dividing income available to common shareholders 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.
The amounts used in calculating earnings (loss) per share data are as follows:
<TABLE>
<CAPTION>
Three Months ended June 30, Six Months ended June 30,
---------------------------- ----------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net income (loss) and
income (loss) from
discontinued operations $(1,367,388) $ (13,509) $(1,386,621) $ 49,913
=========== =========== =========== ===========
Weighted average shares
outstanding:
Basic 1,882,322 1,875,322 1,882,322 1,875,322
=========== =========== =========== ===========
Plus incremental shares
from assumed exercise
of stock options -- -- -- 7,714
----------- ----------- ----------- -----------
Diluted 1,882,322 1,875,322 1,882,322 1,883,036
=========== =========== =========== ===========
</TABLE>
For the three months ended June 30, 2000 and 1999, and the six months ended June
30, 2000, the effect of the assumed exercise of stock options determined by
using the treasury stock method was antidilutive; thus no incremental shares
were added to the weighted average number of common shares outstanding.
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<PAGE>
Note 5 - Supplemental Disclosures for the Condensed Consolidated Statements of
Cash Flows
a) Non-Cash Investing Activities
During the six months ended June 30, 2000, fully depreciated equipment
amounting to $166,820 was written off. The Company also transferred
unamortized leasehold improvements with a cost of $331,456 and a book
value of $45,384 as an amount due from shareholder, in connection with
a commitment made by the shareholder regarding the termination of a
lease agreement of a 27 acre parcel of land previously leased to the
Company.
During the six months ended June 30, 1999, fully depreciated equipment
amounting to $429,964 was written off, and equipment with a cost of
$32,593 and a book value of $11,254 was sold at a gain of $2,746.
b) Other Cash Flow Transactions
Other cash flow transactions for the six months ended June 30, 2000 and
1999, include interest payments of approximately $55,700 and $20,600,
respectively. There were no income tax payments for the six months
ended June 30, 2000 and 1999.
13
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
GENERAL
Margo Caribe, Inc. and its subsidiaries, (collectively, the "Company") have
historically been engaged in the business of growing, distributing and
installing tropical plants and trees. The Company has also been 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.
The Company's operations have been focused in the Commonwealth of Puerto Rico
("Puerto Rico") and the Caribbean.
These operations are conducted at a 90 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 90 acre farm is leased from
Michael J. Spector and Margaret Spector, who are directors, officers and
principal shareholders of the Company. The 13 acre nursery in Barranquitas is
leased from Cali Orchids, Inc., an unrelated third party.
PROPOSED CHANGE OF BUSINESS
On April 11, 2000, the Company ("Margo") entered into an agreement to merge with
iTract, LLC ("iTract"), a privately held developmental stage internet company
building a communication tool that is designed to allow its users to deliver
rapidly a targeted marketing campaign using e-mail, fax and postal mail. To
date, iTract has not earned any revenues.
iTract will seek to address the needs of businesses that desire more efficient,
expedient and cost-effective ways to promote and communicate products and
services to their target audiences. iTract will target small to medium sized
businesses that want to reach potential customers at a lower cost than
traditional direct marketing. iTract's system is designed to allow users to send
out faxes, e-mails and postal mail in volume from the same document directly off
the computer at the same time. iTract is also building a permission-based fax
and e-mail list that is demographically organized and can be custom configured
to meet the client's marketing needs.
Under the merger agreement, Margo would first reincorporate as a Delaware
corporation pursuant to a merger (the "Reincorporation Merger") with a newly
formed Delaware corporation, with the common stockholders of Margo receiving one
share of the new corporation for each share of common stock of Margo held
immediately prior to the Reincorporation Merger. A subsidiary of the new
Delaware
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corporation would then merge with iTract (the "iTract Merger" and together with
the Reincorporation Merger hereinafter referred to as the "Transaction"). As a
result of the iTract Merger, the holders of iTract securities will be issued
shares of common stock of the new Delaware corporation representing
approximately 86.8% of the outstanding shares of the new corporation (on a fully
diluted basis assuming exercise of all outstanding stock options). Thus,
following the iTract Merger, Margo shareholders, on a fully diluted basis would
hold 13.2% of the new Delaware corporation. Prior to the effective time of the
merger, all outstanding stock options held by officers, directors and employees
of Margo will vest and become immediately exercisable. The Board of Directors of
the merged company will be composed of designees of iTract, and iTract's
management will manage the merged company. The merger agreement does not provide
for any break-up fee, other than reimbursement of certain expenses. The exchange
of Margo shares for shares of common stock in the new Delaware corporation as
part of the Reincorporation Merger will be a taxable transaction for U.S.
shareholders for federal income tax purposes.
It is a condition to the consummation of the iTract Merger that Margo sell its
nursery and other operating businesses prior to the iTract Merger. In addition,
as of the effective time of the iTract Merger, Margo must have at least $5
million in cash and cash equivalents and not be subject to liabilities exceeding
$10,000 in the aggregate. On June 30, 2000, Margo executed a stock purchase
agreement with Empresas Margo, Inc. (an entity wholly-owned by the current
President and Chief Executive Officer of Margo) which provides for the sale of
all of the outstanding shares of common stock owned by Margo in its subsidiaries
for a price of $5,000,000.
The Transaction is expected to close during the fourth quarter of 2000, subject
to the satisfaction of various other conditions, including the approval of the
Transaction by the majority of Margo's shareholders, the qualification of the
iTract Merger as a tax-free exchange for federal income tax purposes, the
qualification of the Reincorporation Merger as a tax-free reorganization for
Puerto Rico income tax purposes, the registration of the shares to be issued in
the iTract Merger, listing of the shares of the new Delaware corporation on the
NASDAQ Small Cap Market, and various other customary conditions. Concurrently
with the execution of the merger agreement, Michael J. Spector, agreed to vote
his Margo shares, representing approximately 66% of Margo's outstanding common
stock in favor of the Transaction. No assurance can be given that the parties
will be able to satisfy the conditions to the consummation of the Transaction.
To the extent the Transaction as decribed above is consumated, the Company will
cease being engaged in its current nursery and related businesses and would be
engaged in providing internet based marketing services.
15
<PAGE>
The Company expects to mail a proxy statement/prospectus to its shareholders
containing information about the Transaction. On July 3, 2000, the new Delaware
corporation filed a Registration Statement on SEC Form S-4 in connection
therewith with the Securities and Exchange Commission (the "SEC"), but the
Registration Statement has not yet become effective. Investors and security
holders are advised to read the Registration Statement and the proxy
statement/prospectus regarding the Transaction when it becomes available,
because they will contain important information about iTract, the Company, the
Transaction and related matters. Investors and security holders may obtain a
free copy of the Registration Statement and the proxy statement/prospectus (when
available) and other documents filed by the Company at the Securities and
Exchange Commission's web site at http://www.sec.gov. Free copies of the proxy
statement/prospectus and such other documents may also be obtained from the
Company by directing such requests to the address on the front cover of this
Quarterly Report on Form 10-Q.
16
<PAGE>
RESULTS OF OPERATIONS FOR THE SECOND QUARTERS AND SIX MONTHS ENDED JUNE 30, 2000
AND 1999
As described above, effective June 30, 2000, the Company executed a stock
purchase agreement with Empresas Margo, Inc. for the sale of its existing
nursery operations (a condition precedent to the merger with iTract, LLC). As a
result, the Company is now presenting its results of operations as discontinued
operations. The financial statement presentation for discontinued operations
varies from the traditional presentation, since the reporting entity will be
engaged in a different operating business in the near future. Therefore, results
of operations are summarized for the discontinued portion of the business to be
disposed of, which in the Company's case are all of its operations.
For the quarter ended June 30, 2000, the Company incurred a net loss of
approximately $1,367,000 or $.73 per share, compared to a net loss of
approximately $14,000, or $.01 per share for the same period in 1999.
During the first six months of 2000, the Company incurred a net loss of
approximately $1,387,000, or $.74 per share, compared to net income of
approximately $50,000 for the same period in 1999, or $.03 per share.
The Company's net loss for the three months ended June 30, 2000 has two
components; i) loss from discontinued operations of approximately $53,000, or
$.03 per share, and ii) the loss on disposition of the discontinued operations
of approximately $1,315,000, or $.70 per share. The loss from discontinued
operations of $53,000 represents actual results of operations for the three
months ended June 30, 2000, and includes the effect of merger related expenses
of approximately $224,000 for the period. For the same three month period in
1999, the Company incurred a net loss from discontinued operations of
approximately $14,000. The loss on the disposition of discontinued operations
includes a provision for loss on the sale of the operating businesses of
approximately $1,190,000 and a provision for operating losses of $125,000 during
the period through the date of disposal.
The Company's net loss for the six months ended June 30, 2000 also has two
components; i) loss from discontinued operations of approximately $72,000, or
$.04 per share, and ii) the loss on disposition of the discontinued operations
of approximately $1,315,000, or $.70 per share. The loss from discontinued
operations of $72,000 represents actual results of operations for the six months
ended June 30, 2000, and includes the effect of merger related expenses of
approximately $381,000 for the period. For the same six month period in 1999 the
Company had net income from discontinued operations of approximately $50,000.
For more information on the components of discontinued operations, refer to Note
3 to the consolidated financial statements herein.
17
<PAGE>
FINANCIAL CONDITION
The Company's financial condition at June 30, 2000 shows a decrease in total
assets of approximately $1,367,000 when compared to December 31, 1999. This
decrease in total assets is the direct result of the loss on the disposition of
discontinued operations of $1,315,000 included as part of net assets of
discontinued oprations.
Stockholders' equity at June 30, 2000 decreased due to results of discontinued
operations for the six month period. There were no dividends declared during the
first six months of 2000. During the six months ended June 30, 2000, the Company
issued 7,000 shares of common stock in connection with the exercise of stock
options.
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
18
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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
(10.1) Stock Purchase Agreement dated as of June 30, 2000 between
the Company and Empresas Margo, Inc. (incorporated by reference from
the same exhibit number of the Company's Current Report on Form 8-K,
dated June 30, 2000.
(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 June 30, 2000:
(i) Current Report on Form 8-K dated June 30, 2000, reporting
under Item 5 execution of a Stock Purchase Agreement with
Empresas Margo, Inc. to sell all the assets of the Company.
19
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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: August 18, 2000 By: /s/ Michael J. Spector
---------------- --------------------------
Michael J. Spector,
President and Chief
Executive Officer
Date: August 18, 2000 By: /s/ Alfonso Ortega
---------------- ----------------------
Alfonso Ortega,
Vice President, Treasurer,
Principal Financial and
Accounting Officer
20
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EXHIBIT INDEX
EXHIBIT DESCRIPTION
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27.1 Financial Data Schedule
