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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, 2002
[ ] 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 2,072,189 shares of common stock, $.001 par value,
outstanding as of August 13, 2002.
MARGO CARIBE, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE SECOND QUARTER ENDED JUNE 30, 2002
TABLE OF CONTENTS
PART I
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Page
----
ITEM 1. FINANCIAL STATEMENTS (unaudited)
--------------------------------
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 20
-----------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 20
--------------------------------
SIGNATURES
----------
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
MARGO CARIBE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, 2002 and December 31, 2001
(Unaudited)
ASSETS
------
2002 2001
----------- -----------
Current assets:
Cash and equivalents $ 856,075 $ 838,921
Accounts receivable, net 2,148,084 1,798,251
Inventories 3,502,429 3,510,381
Current portion of note receivable -- 26,331
Prepaid expenses and other current assets 301,460 296,482
----------- -----------
Total current assets 6,808,048 6,470,366
Property and equipment, net 1,290,665 1,398,689
Land held for future development 1,083,535 1,053,406
Notes receivable 42,164 42,164
Other assets 50,230 44,396
----------- -----------
Total assets $ 9,274,642 $ 9,009,021
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current portion of long-term debt $ 74,655 $ 129,047
Notes payable 1,930,500 1,930,500
Accounts payable 609,582 868,071
Accrued expenses 343,319 194,294
----------- -----------
Total current liabilities 2,958,056 3,121,912
Deferred revenue 74,238 --
Long-term debt 339,378 307,528
----------- -----------
Total liabilities 3,371,672 3,429,440
----------- -----------
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; 2,111,909 and 1,923,622
shares issued, 2,072,189 and 1,883,822 shares
outstanding in 2002 and 2001, respectively 2,112 1,924
Additional paid-in capital 5,226,635 4,659,792
Retained earnings 770,511 1,014,153
Treasury stock 39,800 common shares, at cost (96,288) (96,288)
----------- -----------
Total shareholders' equity 5,902,970 5,579,581
----------- -----------
Total liabilities and shareholders' equity $ 9,274,642 $ 9,009,021
=========== ===========
See accompanying notes to condensed consolidated financial statements.
4
MARGO CARIBE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Periods ended June 30, 2002 and 2001
(Unaudited)
Three Months ended June 30, Six Months ended June 30,
--------------------------- -------------------------
2002 2001 2002 2001
---------- ---------- ---------- -----------
Net sales $2,489,009 $2,282,510 $4,808,712 $4,452,271
Cost of sales 1,478,520 1,427,781 2,884,149 2,817,214
---------- ---------- ---------- ----------
Gross profit 1,010,489 854,729 1,924,563 1,635,057
Selling, general and administrative expenses 859,916 742,158 1,587,160 1,434,812
---------- ---------- ---------- ----------
Income from operations 150,573 112,571 337,403 200,245
---------- ---------- ---------- ----------
Other income (expense):
Interest income 289 18,828 3,757 33,814
Interest expense (15,207) (25,885) (32,607) (72,540)
Miscellaneous income 7,575 4,376 14,882 19,716
---------- ---------- ---------- ----------
(7,343) (2,681) (13,968) (19,008)
---------- ---------- ---------- ----------
Income before provision for income tax 143,230 109,890 323,435 181,235
Income tax provision - - - -
---------- ---------- ---------- -----------
Net income $ 143,230 $ 109,890 $ 323,435 $ 181,235
========== ========== ========== ==========
Basic income per common share $ .07 $ .05 $ .16 $ .09
========== ========== ========== ==========
Diluted income per common share $ .07 $ .05 $ .15 $ .09
========== ========== ========== ==========
See accompanying notes to condensed consolidated financial statements.
5
MARGO CARIBE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Six Months ended June 30, 2002
(Unaudited)
Common Common Additional
stock stock paid-in Retained Treasury
shares amount capital earnings stock Total
----------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 2001 1,883,822 $ 1,924 $ 4,659,792 $ 1,014,153 $ (96,288) $ 5,579,581
Issuance of common stock from
10% stock dividend 188,367 188 566,843 (567,077) -- --
Net income -- -- -- 323,435 -- 323,435
----------- ----------- ----------- ----------- ----------- -----------
Balance at June 30, 2002 2,072,189 $ 2,112 $ 5,226,635 $ 770,511 $ (96,288) $ 5,902,970
=========== =========== =========== =========== =========== ===========
See accompanying notes to condensed consolidated financial statements.
6
MARGO CARIBE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30, 2002 and 2001
(Unaudited)
2002 2001
--------- ---------
Cash flows from operating activities:
- -------------------------------------
Net income $ 323,435 $ 181,235
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Depreciation and amortization 227,019 219,176
Provision for uncollectible accounts
receivable 18,000 31,533
Gain on disposition of equipment (6,287) (13,913)
Deferred revenue 74,238 --
Changes in assets and liabilities affecting
cash flows from operating activities:
Accounts receivable (367,833) (149,169)
Inventories 7,952 (363,983)
Prepaid expenses and other current assets (4,978) 16,309
Other assets (5,834) (55,469)
Accounts payable (258,489) (214,769)
Accrued expenses 149,025 31,272
--------- ---------
Net cash provided by (used in)
operating activities 156,248 (317,778)
--------- ---------
Cash flows from investing activities:
- -------------------------------------
Additions to property and equipment (56,358) (153,610)
Investment in land held for future development (30,129) --
Increase in notes receivable -- (5,000)
Repayment of notes receivable 26,331 --
Collection of amount due from shareholder -- 54,594
Proceeds from disposition of equipment -- 13,913
--------- ---------
Net cash used in investing activities (60,156) (90,103)
--------- ---------
Cash flows from financing activities:
- -------------------------------------
Proceeds from long-term debt -- 222,051
Repayment of long-term debt (78,892) (54,324)
Increase in notes payable -- 100,000
Repayment of notes payable -- (225,000)
Cash payment in lieu of issuing fractional shares
in stock dividend (46) --
--------- ---------
Net cash provided by (used in)
financing activities (78,938) 42,727
--------- ---------
Net increase (decrease) in cash 17,154 (365,154)
---------
Cash and equivalents at beginning of period 838,921 973,061
- ---------------------------------------------------- --------- ---------
Cash and equivalents at end of period $ 856,075 $ 607,907
- ---------------------------------------------------- ========= =========
See accompanying notes to condensed consolidated financial statements.
7
MARGO CARIBE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2002
(Unaudited)
Note 1 - Basis of Presentation
- ------------------------------
These interim condensed 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., Margo Flora,
Inc., Garrochales Construction and Development Corporation and Margo Development
Corporation.
These interim condensed consolidated financial statements are unaudited, but
include all adjustments (consisting only of normal accruals) that, in the
opinion of management, are necessary for a fair presentation 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 accounting principles
generally accepted in the United States of America.
The preparation of interim financial statements relies on estimates. Therefore,
the results of operations for the six months ended June 30, 2002 are not
necessarily indicative of the operating results to be expected for the year
ending December 31, 2002. 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, 2001.
Note 2 - Use of Estimates in the Preparation of Condensed Financial Statements
- ------------------------------------------------------------------------------
The preparation of condensed 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.
8
The allowance for doubtful accounts is an amount that management believes will
be adequate to absorb estimated losses on existing accounts receivable that
become uncollectible based on evaluations of collectibility of specific
customers and their 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.
Direct and indirect costs that are capitalized as part of inventory of plant
material which management estimates cannot be recovered from future sales of
plant inventory are charged to cost of sales. Management's determination of the
amount of capitalized costs that should be charged to cost of sales is based on
historical sales experience and its judgement with respect to the future
marketability of the inventory.
Note 3 - Inventories
- --------------------
At June 30, 2002 and December 31, 2001, inventories included the following:
Description 2002 2001
- --------------------------- ---------- -----------
Plant material $2,878,327 $2,813,920
Lawn and garden products 311,768 362,273
Raw materials and supplies 312,334 334,188
---------- ----------
$3,502,429 $3,510,381
========== ==========
Note 4 - Property and Equipment
- -------------------------------
At June 30, 2002 and December 31, 2001, property and equipment included the
following:
Description 2002 2001
- ----------------------------- ---------- -----------
Leasehold improvements $ 1,395,263 $1,364,949
Equipment and fixtures 1,604,774 1,585,675
Transportation equipment 513,410 460,232
Real estate property 224,327 224,327
--------- ----------
3,737,774 3,635,183
Less accumulated depreciation
and amortization (2,447,109) (2,236,494)
---------- ----------
$1,290,665 $1,398,689
========== ==========
Note 5 - 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 attributable 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.
9
On May 14, 2002, the Company's Board of Directors declared a 10% stock dividend
on the Company's common stock. The stock dividend was issued on June 28, 2002 to
shareholders of record as of June 14, 2002. The stock dividend resulted in
188,367 additional shares issued. Accordingly, the weighted average number of
shares outstanding (and stock options) for the periods ended June 30, 2002 have
been adjusted to reflect the effect of the stock dividend. The weighted average
number of shares outstanding (and stock options) for the periods ended June 30,
2001 were also restated to reflect the effect of the stock dividend.
Basic and diluted income per common share for the periods ended June 30, 2002
and 2001 were determined as follows:
Three Months Six Months
ended June 30, ended June 30,
----------------------- -----------------------
Basic income per common share: 2002 2001 2002 2001
- ----------------------------- ---------- ---------- ---------- ----------
Net income attributable to
common shareholders $ 143,230 $ 109,890 $ 323,435 $ 181,235
========== ========== ========== ==========
Weighted average number of common
shares outstanding 2,072,189 2,070,539 2,072,189 2,070,539
========== ========== ========== ===========
Basic income per common share $ .07 $ .05 $ .16 $ .09
========== ========== ========== ===========
Diluted income per common share:
- -------------------------------
Net income attributable to
common shareholders $ 143,230 $ 109,890 $ 323,435 $ 181,235
========== ========== ========== ==========
Weighted average number of common
shares outstanding 2,072,189 2,070,539 2,072,189 2,070,539
Plus incremental shares from assumed
exercise of stock options 34,349 21,720 45,481 15,964
---------- ---------- ---------- -----------
Adjusted weighted average shares 2,106,538 2,092,259 2,117,670 2,086,503
========== ========== ========== ============
Diluted income per common
share $ .07 $ .05 $ .15 $ .09
========== ========== ========== ============
Note 6 - Segment Information
- ----------------------------
The Company reports its segment information pursuant to Financial Accounting
Standards Board 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
10
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 Company's
accounting system and is 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 for the three months ended June 30, 2002 and
2001, is as follows:
Three Months ended June 30, 2002
-------------------------------------------------
Lawn & Garden
Plants Products Landscaping Totals
-------------------------------------------------
Revenues from external customers $1,136,160 $ 722,806 $ 630,043 $2,489,009
Intersegment revenues 110,447 12,773 -- 123,220
Interest income 289 -- -- 289
Interest expense 15,207 -- -- 15,207
Depreciation and amortization 66,914 22,055 17,033 106,002
Segment income 89,203 18,833 35,194 143,230
11
Three Months ended June 30, 2001
--------------------------------------------------
Lawn & Garden
Plants Products Landscaping Totals
--------------------------------------------------
Revenues from external customers $ 953,723 $ 839,243 $ 489,544 $2,282,510
Intersegment revenues 46,496 18,323 -- 64,819
Interest income 18,828 -- -- 18,828
Interest expense 25,885 -- -- 25,885
Depreciation and amortization 81,900 13,411 5,421 100,732
Segment income (loss) 112,306 28,291 (30,707) 109,890
The Company's segment information as of and for the six months ended June 30,
2002 and 2001, is as follows:
Six Months ended June 30, 2002
-------------------------------------------------
Lawn & Garden
Plants Products Landscaping Totals
-------------------------------------------------
Revenues from external customers $2,046,116 $1,439,031 $1,323,565 $4,808,712
Intersegment revenues 229,696 34,761 -- 264,457
Interest income 3,757 -- -- 3,757
Interest expense 32,607 -- -- 32,607
Depreciation and amortization 172,751 32,114 22,154 227,019
Segment income 126,433 68,987 128,015 323,435
Segment assets 6,993,658 1,145,453 1,135,531 9,274,642
Expenditures for segment assets 56,358 -- -- 56,358
Six Months June 30, 2001
-----------------------------------------------------
Lawn & Garden
Plants Products Landscaping Totals
-----------------------------------------------------
Revenues from external customers $2,032,272 $1,502,479 $ 917,520 $4,452,271
Intersegment revenues 79,390 35,132 -- 114,522
Interest income 33,814 -- -- 33,814
Interest expense 72,540 -- -- 72,540
Depreciation and amortization 184,706 23,382 11,086 219,176
Segment income (loss) 180,472 56,890 (56,127) 181,235
Segment assets 7,594,271 1,235,725 585,865 9,415,861
Expenditures for segment assets 153,610 -- -- 153,610
12
Note 7 - Supplemental Disclosures for the Condensed Consolidated Statements of
- --------------------------------------------------------------------------------
Cash Flows
- ----------
a) Non-Cash Investing Activities
-----------------------------
During the six months ended June 30, 2002, the Company applied a
certificate of deposit amounting to $500,000 to pay off a related note
payable. Subsequently, on two separate occasions, the Company purchased a
certificate of deposit amounting to $500,000 by signing a related note
payable. The Company also traded-in a vehicle with a cost of $31,500,
receiving $7,000 as a trade-in value for the old vehicle, and assuming a
related debt of $24,500. The Company also purchased another vehicle for
$31,850 by assuming the related debt.
During the six months ended June 30, 2001, 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.
b) Non-Cash Financing Activities
-----------------------------
During the six months ended June 30, 2002, the Company issued a 10% stock
dividend, resulting in the capitalization of 188,367 common shares at a
market price of $3.01 as of June 28, 2002.
c) Other Cash Flow Transactions
----------------------------
Other cash flow transactions for the six months ended June 30, 2002 and
2001, include interest payments amounting to approximately $34,000 and
$107,700, respectively. There were no income tax payments for the six
months ended June 30, 2002 and 2001.
Note 8 - New Accounting Pronouncements
- --------------------------------------
In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 143, "Accounting for Asset
Retirement Obligations". SFAS No. 143 addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. This statement is effective
for fiscal years beginning after June 15, 2002. Adoption of this statement is
not expected to have a material effect on the Company's financial condition or
results of operations.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No.
4, 44 and 64, Amendment of SFAS No. 13, and Technical Corrections". SFAS No. 145
rescinds SFAS No. 4, "Reporting Gains and Losses from Extinguishment of Debt -
an amendment of APB Opinion No. 30", which required all gains and losses from
extinguishment of debt to be aggregated and, if material, classified as
extraordinary item, net of related income tax effect. As a result, the criteria
for Opinion No. 30 will now be used to classify those gains and losses. This
amendment is effective fiscal years beginning after May 15, 2002.
SFAS No. 145 also amends SFAS No. 13, "Accounting for Leases", which requires
that certain lease modifications that have economic effects similar to
sale-leaseback transactions be accounted for in the same manner as
sale-leaseback transactions. This amendment became effective for transactions
occurring after May 15, 2002. SFAS No. 145 is not expected to have significant
effect on the Company's financial condition or result of operations.
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
-------------------------------------------------------------------
FINANCIAL CONDITION
-------------------
Margo Caribe, Inc. and its subsidiaries, (collectively, the "Company") are 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, the distribution of lawn
and garden products and also provides landscaping design and installation
services. The Company's real estate development division is currently permitting
and designing an affordable housing project in the Municipality of Arecibo,
Puerto Rico.
PRINCIPAL OPERATIONS
- --------------------
The Company's operations are focused in the Commonwealth of Puerto Rico ("Puerto
Rico").
These operations are conducted at a 92 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 92 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 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"), Margo Flora, Inc., Garrochales
Construction and Development Corporation 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 (operating as Margo Flora) 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, both
Nursery Farms and Margo Flora enjoy a 90% tax exemption under Puerto Rico law
from income derived from its nursery business in Puerto Rico.
Landscaping provides landscaping, maintenance and design 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 (for Puerto Rico and the Caribbean) of
Sunniland Corporation's fertilizer and pesticide products, Colorite garden
hoses, Greenes Fence Company, Fiskars Consumer Product Division, State Line Bark
& Mulch, L.R. Nelson Consumer Products, Tel-Com decorative pottery, Crysalia
14
plastic pottery, and DEROMA Italian terracotta pottery. Garden Products also
markets and merchandises Ortho and Round-up brand products for the Scotts
Company at all Home Depot stores operating in Puerto Rico.
Rain Forest is engaged in the manufacturing of potting soils, mulch,
professional growing mixes, river rock, gravels and related aggregates. 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 and Garrochales Construction and Development
Corporation are presently engaged in designing and obtaining development permits
on a new site for the development of a residential project in the Municipality
of Arecibo, 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 and the
Caribbean. However, the Company will also explore attractive business
oportunities in the mainland United States.
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 currently has
seven stores in Puerto Rico and plans to open one more store during 2002.
The Company is also a supplier of live goods (plant material) to Wal*Mart
International, which has ten stores throughout Puerto Rico. The Company also
supplies lawn and garden products to six Sam's Club stores, a division of
Wal*Mart International.
During the fourth quarter of 2001, the Company became a supplier to Costco
Wholesale, which opened two stores in Puerto Rico and plans to open two
additional stores during 2002.
During December 2000, the Company purchased approximately 109 acres of land in
the Municipality of Arecibo, Puerto Rico, for the development of a residential
housing project. The Company paid approximately $950,000 plus incidental
expenses for this land. The Company is currently in the process of designing a
master development plan, as well as obtaining permits for the development of
this site. The Company recently received an endorsement from the Puerto Rico
Housing Bank, which will enable prospective buyers to qualify for government
assistance in purchasing homes from this project.
RESULTS OF OPERATIONS FOR THE SIX MONTHS AND SECOND QUARTERS ENDED JUNE 30, 2002
- --------------------------------------------------------------------------------
AND 2001
- --------
During the six months ended June 30, 2002, the Company had net income of
approximately $323,000, or $.15 per share (diluted), compared to approximately
$181,000 for the same period in 2001, or $.09 per share.
15
For the quarter ended June 30, 2002, the Company had net income of approximately
$143,000 or $.07 per share, compared to approximately 110,000, or $.05 per share
for the same period in 2001.
The increases in net income for the six months and the quarter ended June 30,
2002 when compared to the same periods in 2001 is principally due to higher
revenues and gross profits obtained in the landscaping business segment.
Sales
- -----
The Company's consolidated net sales for the six months ended June 30, 2002 were
approximately $4,809,000, compared to $4,452,000 for the same period in 2001,
representing an increase of 8%.
The Company's consolidated net sales for the quarter ended June 30, 2002 were
approximately $2,489,000, compared to $2,283,000 for the same period in 2001,
representing an increase of 9%.
The 8% increase in consolidated net sales for the six months ended June 30, 2002
was due to an increase of approximately 44% in revenues from landscaping
services when compared to the same period in 2001. Sales of plant material
remained comparable, while sales of lawn and garden products decreased by
approximately 4% during the six month period ended June 30, 2002.
The 9% increase in consolidated net sales for the quarter ended June 30, 2002
was due to an increase of 29% in revenues from landscaping services and an
increase of 19% in sales of plant material that were partly offset by a decrease
in sales of lawn and garden products of 14%.
Decrease in sales of lawn and garden products during the six months ended June
30, 2002 was due to a reduction in sales to Wal*Mart International.
Gross Profits
- -------------
The Company's consolidated gross profit for the six months ended June 30, 2002
was approximately 41%, compared to 37% for the same period in 2001, or an
increase of 4%. Consolidated gross profit for the second quarter of 2002 was
approximately 40%, compared to 37% for the same period in 2001, or an increase
of 3%.
The increase in gross profit for the six months ended June 30, 2002 when
compared to the same period in 2001 was the result of an increase of
approximately 5% in gross profit from sales of lawn and garden products (which
accounts for 30% of consolidated net sales in the first half of 2002), and an
increase of approximately 11% in gross profit from revenues of landscaping
services (which accounts for approximately 28% of consolidated net sales in the
first half of 2002). Gross profit on sales of plant material remained comparable
during both periods.
16
The increase in gross profit for the second quarter ended June 30, 2002 when
compared to the same period in 2001 was the result of an increase of
approximately 5% in gross profit from sales of lawn and garden products (which
accounts for 29% of consolidated net sales in the second quarter of 2002), and
an increase of approximately 9% in gross profit from revenues of landscaping
services (which accounts for approximately 25% of consolidated net sales in the
second quarter of 2002). Gross profit on sales of plant material remained
comparable during both periods.
Selling, General and Administrative Expenses
- --------------------------------------------
Selling, general and administrative expenses (SG&A) were approximately
$1,587,000 and $1,435,000 for the six months ended June 30, 2002 and 2001,
respectively. This represented an 11% increase in dollar terms and a 1% increase
as a percentage of sales. The increase in SG&A for the six months ended June 30,
2002, when compared to the same period in 2001 is principally due to increases
in various administrative expenses.
SG&A for the second quarter of 2002 were approximately $860,000 compared to
$742,000 for the same period in 2001. This represented a 16% increase in dollar
terms and a 2% increase as a percentage of sales. The increase in SG&A for the
second quarter of 2002 when compared to the same period in 2001 is also
principally due to increases in various administrative expenses.
Other Income and Expenses
- -------------------------
The decrease in interest income for the six months as well as the second quarter
ended June 30, 2002, when compared to the same periods in 2001, is due to a
reduction of funds invested as well as lower yields obtained during 2002.
The decrease in interest expense for the six months and second quarter ended
June 30, 2002, when compared to the same periods in 2001, is the result of a
lower average outstanding balance of notes payable during the periods, and lower
interest rates experienced.
FINANCIAL CONDITION
- -------------------
The Company's financial condition at June 30, 2002 remains comparable with that
of December 31, 2001. The Company's current ratio did not change significantly,
with a ratio of 2.3 to 1 at June 30, 2002, compared to 2.1 to 1 at December 31,
2001.
At June 30, 2002, the Company had cash of approximately $856,000, compared to
cash of $839,000 at December 31, 2001. The increase in cash at June 30, 2002 is
principally due to cash flows from operations of $156,000, that were partially
offset by cash outflows from additions to property and equipment ($56,000) and
repayment of long-term debt ($79,000).
17
Shareholders' equity at June 30, 2002 increased due to net income for the six
month period. On June 28, 2002, the Company issued a 10% stock dividend. No
other dividends were declared nor shares of stock issued during the six months
ended June 30, 2002.
Current Liquidity and Capital Resources
- ---------------------------------------
The nursery industry requires producers to maintain large quantities of stock
plants and inventory to meet customer demand and to assure a new source of
products in the future. The Company believes it has adequate resources to meet
its current and anticipated liquidity and capital requirements. The Company
finances its working capital needs from cash flows from operations as well as
borrowings under two short-term credit facilities with a local commercial bank.
As of August 13, 2002, the Company had available short-term credit facilities
aggregating $3.0 million, of which approximately $1,070,000 were available as of
such date. Of the $3.0 million credit facility, $2.5 million is secured by the
Company's trade accounts receivable and inventories.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
Not applicable.
18
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
-----------------------------------------------------
The Company held its annual meeting of shareholders on May 24, 2002. At this
meeting, shareholders were asked to vote on two proposals: the election of seven
directors and the ratification of the Company's independent auditors. Quorum at
the meeting consisted of 1,769,967 shares, or approximately 94% of 1,883,822
total outstanding commons shares. The proposals, together with voting results,
were as follows:
PROPOSAL FOR WITHHELD
--------------------------- --------- --------
1. Election of seven directors
Michael J. Spector 1,761,467 8,500
Margaret D. Spector 1,761,467 8,500
Blas R. Ferraiuoli 1,769,967 0
Michael A. Rubin 1,769,967 0
Ramon L. Dominguez 1,769,967 0
Mark H. Greene 1,769,967 0
John A. Wing 1,769,967 0
J. Fernando Rodriguez 1,761,467 8,500
2. Ratification of Deloitte &
Touche, LLP as independent
auditors FOR AGAINST ABSTAIN
------------ -------------- -------
1,769,732 35 200
There were no broker non-votes on either proposal.
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ITEM 5. OTHER INFORMATION
-----------------
On May 14, 2002, the Company's Board of Directors declared a 10% stock dividend
on the Company's common stock. The stock dividend was issued on June 28, 2002 to
shareholders of record as of June 14, 2002. The stock dividend resulted in
188,367 additional shares issued.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits
--------
None.
(b) Reports on Form 8-K.
-------------------
The Company did not file any Reports on Form 8-K during the
quarter ended June 30, 2002.
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 CARIBE, INC.
Date: August 13, 2002 By: /s/ Michael J. Spector
---------------- ----------------------------
Michael J. Spector,
Chairman of the Board and
Chief Executive Officer
Date: August 13, 2002 By: /s/ J. Fernando Rodriguez
--------------- -----------------------------
J. Fernando Rodriguez
President and Chief
Operating Officer
Date: August 13,2002 By: /s/ Alfonso Ortega
--------------- -----------------------
Alfonso Ortega,
Vice President, Treasurer,
Principal Financial and
Accounting Officer
20