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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, 2003
[ ] 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
------- -------
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act.)
YES NO X
------- -------
The registrant had 2,113,989 shares of common stock, $.001 par value,
outstanding as of August 14, 2003.
1
MARGO CARIBE, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE SECOND QUARTER ENDED JUNE 30, 2003
TABLE OF CONTENTS
PART I
------
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 19
-------------------------------------
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
----------------------------------------------
MARKET RISK 27
-----------
ITEM 4. CONTROL AND PROCEDURES 27
----------------------
PART II
-------
ITEM 1. LEGAL PROCEEDINGS 28
-----------------
ITEM 2. CHANGES IN SECURITIES 28
---------------------
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 28
-------------------------------
ITEM 4. SUBMISSION OF MATTERS TO A VOTE 28
-------------------------------
OF SECURITY HOLDERS
-------------------
ITEM 5. OTHER INFORMATION 29
-----------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 29
--------------------------------
SIGNATURES
----------
2
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, 2003 and December 31, 2002
(Unaudited)
ASSETS
------
2003 2002
----------- -----------
Current assets:
Cash and equivalents $ 737,928 $ 1,417,879
Accounts receivable, net 1,427,260 1,818,076
Inventories 3,312,209 3,378,779
Due from related entity 77,746 51,026
Prepaid expenses and other current assets 251,831 323,506
----------- -----------
Total current assets 5,806,974 6,989,266
Property and equipment, net 2,116,797 1,249,889
Land held for future development 1,105,627 1,105,627
Investment in unconsolidated subsidiary 598,219 417,296
Notes receivable 28,112 28,112
Other assets 26,024 6,016
----------- -----------
Total assets $ 9,681,753 $ 9,796,206
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current portion of long-term debt $ 132,571 $ 138,967
Notes payable 1,930,500 1,730,500
Accounts payable 541,546 829,382
Accrued expenses 333,375 332,305
----------- -----------
Total current liabilities 2,937,992 3,031,154
Deferred revenue 66,814 74,238
Long-term debt 286,372 244,425
----------- -----------
Total liabilities 3,291,178 3,349,817
----------- -----------
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; 2,130,609 and 2,119,609
shares issued, 2,090,889 and 2,079,889 shares
outstanding in 2003 and 2002, respectively 2,131 2,120
Additional paid-in capital 5,262,491 5,241,136
Retained earnings 1,222,241 1,299,421
Treasury stock, 39,800 common shares, at cost (96,288) (96,288)
----------- -----------
Total shareholders' equity 6,390,575 6,446,389
----------- -----------
Total liabilities and shareholders' equity $ 9,681,753 $ 9,796,206
=========== ===========
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, 2003 and 2002
(Unaudited)
Three Months ended June 30, Six Months ended June 30,
-------------------------- --------------------------
2003 2002 2003 2002
----------- ----------- ----------- -----------
Net sales $ 2,155,320 $ 2,489,009 $ 4,650,825 $ 4,808,712
Cost of sales 1,407,660 1,478,520 3,023,630 2,884,149
----------- ----------- ----------- -----------
Gross profit 747,660 1,010,489 1,627,195 1,924,563
Selling, general and administrative expenses 784,544 859,916 1,655,722 1,587,160
Costs related to consolidating nursery facilities 142,903 -- 142,903 --
----------- ----------- ----------- -----------
Income (loss)from operations (179,787) 150,573 (171,430) 337,403
----------- ----------- ----------- -----------
Other income (expense):
Interest income 2,224 289 5,716 3,757
Interest expense (16,151) (15,207) (32,390) (32,607)
Gain on collection of note receivable
previously written down -- -- 25,000 --
Equity in earnings of unconsolidated subsidiary 18,369 -- 20,923 --
Commissions and fees from unconsolidated
subsidiary 37,672 -- 50,877 --
Miscellaneous income 15,189 7,575 24,124 14,882
----------- ----------- ----------- -----------
57,303 (7,343) 94,250 (13,968)
----------- ----------- ----------- -----------
Income (loss) before provision for income tax (122,484) 143,230 (77,180) 323,435
Income tax provision -- -- -- --
----------- ----------- ----------- -----------
Net income (loss) $ (122,484) $ 143,230 $ (77,180) $ 323,435
=========== =========== =========== ===========
Basic income (loss) per common share $ (.06) $ .07 $ (.04) $ .16
=========== =========== =========== ===========
Diluted income (loss) per common share $ (.06) $ .07 $ (.04) $ .15
=========== =========== =========== ===========
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, 2003
(Unaudited)
Common Common Additional
stock stock paid-in Retained Treasury
shares amount capital earnings stock Total
----------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 2002 2,079,889 $ 2,120 $ 5,241,136 $ 1,299,421 $ (96,288) $ 6,446,389
Issuance of common stock from
conversion of stock options 11,000 11 21,355 -- -- 21,366
Net loss -- -- -- (77,180) -- (77,180)
----------- ----------- ----------- ----------- ----------- -----------
Balance at June 30, 2003 2,090,889 $ 2,131 $ 5,262,491 $ 1,222,241 $ (96,288) $ 6,390,575
=========== =========== =========== =========== =========== ===========
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, 2003 and 2002
(Unaudited)
2003 2002
----------- -----------
Cash flows from operating activities:
- -------------------------------------
Net income (loss) $ (77,180) $ 323,435
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 211,646 227,019
Provision for uncollectible accounts receivable 24,500 18,000
Loss (gain) on disposition of property and
equipment 64,852 (6,287)
Deferred revenue -- 74,238
Amortization of deferred revenue (7,424) --
Equity in earnings of unconsolidated
subsidiary (20,923) --
Gain on collection of note receivable
previously written down (25,000)
Changes in assets and liabilities affecting
cash flows from operating activities:
Accounts receivable 366,316 (367,833)
Inventories 66,570 7,952
Prepaid expenses and other current assets 71,675 (4,978)
Advances to related entity (102,726) --
Collection of advances to related entity 76,006 --
Other assets (20,008) (5,834)
Accounts payable (287,836) (258,489)
Accrued expenses 1,070 149,025
----------- -----------
Net cash provided by operating activities 341,538 156,248
----------- -----------
Cash flows from investing activities:
- -------------------------------------
Additions to property and equipment (1,143,406) (56,358)
Investment in land held for future development -- (30,129)
Investment in unconsolidated subsidiary (160,000) --
Proceeds from collection of notes receivable 25,000 26,331
----------- -----------
Net cash used in investing activities (1,278,406) (60,156)
----------- -----------
Cash flows from financing activities:
- -------------------------------------
Proceeds from long-term debt 109,720 --
Repayment of long-term debt (74,169) (78,892)
Increase in notes payable 200,000 --
Cash payment in lieu of issuing fractional
shares in stock dividend (46)
Issuance of common stock from conversion
of stock options 21,366 --
----------- -----------
Net cash provided by (used in) financing
activities 256,917 (78,938)
----------- -----------
Net increase (decrease) in cash and cash
- ----------------------------------------
and cash equivalents (679,951) 17,154
--------------------
Cash and equivalents at beginning of period 1,417,879 838,921
- ------------------------------------------- ----------- -----------
Cash and equivalents at end of period $ 737,928 $ 856,075
- ------------------------------------- =========== ===========
See accompanying notes to condensed consolidated financial statements.
7
MARGO CARIBE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2003
(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, 2003 are not
necessarily indicative of the operating results to be expected for the year
ending December 31, 2003. These statements should be read in conjunction with
the Company's Consolidated Financial Statements and Notes thereto included in
its Annual Report on Form 10-K for the fiscal year ended December 31, 2002.
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.
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.
8
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.
The Company has a deferred tax asset of $673,612, which is partially offset by a
valuation allowance of $662,212. Realization of the deferred tax asset is
dependent on generating sufficient taxable income in the future. The amount of
the deferred tax asset considered realizable could change in the near term
depending on future levels of taxable income.
Note 3 - Accounting for Stock-Based Compensation Plans
- ------------------------------------------------------
Effective May 2,2003, The Company adopted the Margo Caribe, Inc. 2003 Restricted
Stock Plan (the "Restricted Stock Plan"). Under the terms of the Restricted
Stock Plan, the Compensation Committee of the Board of Directors is authorized
to grant up to 200,000 shares of common stock to officers and other key
employees of the Company. The restricted stock grants may be subject to
time-based or performance-based restrictions. As of June 30,2003, no awards had
been granted under the Restricted Stock Plan.
Effective April 1998, the Company adopted the 1998 Stock Option Plan (the "1998
Plan") to replace the Company's 1988 Stock Benefits Plan (the "1988 Plan").
Outstanding options granted under the previous plan, including all related
obligations and commitments, will continue to be honored by the Company.
Under the 1998 Plan, the Company's Board of Directors, through a committee, can
award options to purchase up to 220,000 shares of common stock (exclusive of
outstanding options under the previous plan) to eligible employees at 100% of
the fair market value at the time of the grant, except that options granted to
persons owning 10% or more of the outstanding common stock carry an exercise
price equal to 110% of the fair market value at the date of grant. The 1998 Plan
also provides for the automatic grant of options to purchase 2,750 shares of
common stock to each non-employee director on the first business day following
every annual meeting of shareholders.
Options vest ratably over a period of five years, become exercisable one year
from the date of grant and expire ten years after the date of grant.
The Company accounts for its stock-based compensation plans pursuant to the
provisions of Accounting Principles Board Opinion 25 and related interpretations
in measuring stock based compensation, including options, which generally
require that compensation cost be recognized to the extent the market price of
the related stock exceeds the exercise price at the measurement date.
Accordingly, no compensation expense has been recognized for options granted
under either stock option plan. However, SFAS No. 123, "Accounting for
Stock-Based Compensation", provides an alternative method for measuring
compensation cost by measuring the fair value of the option at the award date.
9
Although the compensation cost measurement criteria is not required to be
adopted, SFAS No. 123, as amended by SFAS No. 148 "Accounting for Stock-Based
Compensation - Transition and Disclosure, an amendment of SFAS No. 123",
requires prominent disclosure of pro forma information regarding the effects of
the application of its compensation cost measurement criteria and of other
information.
Stock options outstanding as of June 30, 2003 and December 31, 2002 amounted to
238,150 and 249,700, respectively, at the end of each period. During the six
months ended June 30,2003 and 2002, options to acquire 11,000 and 16,500 shares
of common stock were issued at weighted exercise prices of $7.25 and $3.56 per
share, respectively.
As required under SFAS No. 123 and SFAS No. 148, the pro forma effects of
stock-based compensation on net income (loss) and and net income (loss) per
share have been estimated at the date of grant using the Black-Scholes
option-pricing model with the following assumptions:
Three Months Ended June 30, Six Months Ended June 30,
---------------------------- --------------------------
2003 2002 2003 2002
---- ---- ---- ----
Risk-free interest rate 5.36% 5.05% 5.36% 5.05%
Average life of options 10 yrs. 10 yrs. 10 yrs. 10 yrs.
Volatility 50% 15% 65% 22%
Dividend yield 0% 0% 0% 0%
The Black-Scholes option-pricing model was developed for use in estimating the
fair value of traded options that have no restrictions and are fully
transferable and negotiable in a free trading market. Black-Scholes does not
consider the employment, transfer or vesting restrictions that are inherent in
the Company's employee options. Use of an option valuation model, as required by
SFAS No. 123, includes highly subjective assumptions based on long-term
predictions, including the expected stock price volatility and average life of
each option grant. Because the Company's employee options have characteristics
significantly different from those of freely traded options, and because changes
in the subjective input assumptions can materially affect the Company's estimate
of the fair value of those options, in the Company's opinion, the existing
valuation models, including Black-Scholes, are not reliable single measures and
may misstate the fair value of the Company's employee options.
10
For purposes of pro forma disclosures, the estimated fair value of the options
is assumed to be amortized to expense over the options' vesting periods. The pro
forma effects of recognizing compensation expense under the fair value method on
net income (loss) and net income (loss) per share were as follows:
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
2003 2002 2003 2002
---------- --------- ---------- ---------
Net income (loss)
as reported $ (122,484) $ 143,230 $ (77,180) $ 323,435
Total stock based com-
pensation expense
determined under fair
value based method for
all awards (13,386) (5,062) (29,243) (9,519)
---------- --------- ------------ -----------
Pro forma net income(loss) $ (135,870) $ 138,168 $ (106,423) $ 313,916
========== ========= ============ ===========
Earnings per share:
Basic - as reported $ (.06) $ .07 $ (.04) $ .16
========== ========= ============ ===========
Basic - pro forma $ (.07) $ .07 $ (.05) $ .15
========== ========= ============ ===========
Diluted - as reported $ (.06) $ .07 $ (.04) $ .15
========== ========= ============ ===========
Diluted - pro forma $ (.07) $ .07 $ (.05) $ .15
========== ========= ============ ===========
Note 4 - Inventories
- --------------------
At June 30, 2003 and December 31, 2002, inventories included the following:
Description 2003 2002
- --------------------------- ---------- -----------
Plant material $2,755,758 $2,799,960
Lawn and garden products 306,048 251,438
Raw materials and supplies 250,403 327,381
---------- -----------
$3,312,209 $3,378,779
========== ===========
Note 5 - Property and Equipment
- -------------------------------
At June 30, 2003 and December 31, 2002, property and equipment included the
following:
Description 2003 2002
- -------------------------- ---------- -----------
Leasehold improvements $2,078,767 $1,456,960
Equipment and fixtures 1,623,955 1,599,948
Transportation equipment 809,206 600,344
Real estate property 224,327 224,327
--------- ----------
4,736,255 3,881,579
Less accumulated depreciation
and amortization (2,619,458) (2,631,690)
---------- ----------
$2,116,797 $1,249,889
========== ==========
Depreciation expense for the six months ended June 30, 2003 and 2002 amounted to
approximately $212,000 and $227,000, respectively.
11
Note 6 - Investment in Unconsolidated Equity Subsidiary
- -------------------------------------------------------
On October 14, 2002, the Company entered into an agreement with two other
unrelated parties to organize Salinas Holdings, Inc.("Salinas"), a Puerto Rico
corporation engaged in the growing of sod (turf), palms and trees grown in the
ground. The Company has a 33.33% equity interest in Salinas. The Company also
entered into a management agreement with Salinas. Under the Agreement, the
Company earns $2,000 per month for management services and a 15% or 17%
commission on the sales of its products. Salinas commenced operations on
November 1, 2002.
The Company has accounted for its investment in Salinas using the equity method
of accounting. At June 30, 2003, and for the six month period then ended,
Salinas' unaudited condensed financial position and results of operations
information was as follows:
Assets Amount
----- ----------
Current assets $1,091,305
Property and equipment 856,043
----------
$1,947,348
==========
Liabilities and Shareholders' Equity
- ------------------------------------
Current liabilities $ 152,626
Shareholders' equity 1,794,722
----------
$1,947,348
==========
Results of Operations Amount
--------------------- ----------
Sales $ 239,069
Cost of sales 101,753
----------
Gross profit 137,316
General and administrative expenses 74,483
----------
Net income $ 62,833
=========
At June 30, 2003, the Company's investment in Salinas Holdings, Inc., was as
follows:
Description Amount
---------------------------- ---------
Balance at December 31, 2002 $417,296
Additional investment 160,000
Equity in earnings of
unconsolidated subsidiary 20,923
---------
Balance at June 30, 2003 $598,219
=========
12
Note 7 - 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.
Basic and diluted income (loss) per common share for the three and six month
periods ended June 30, 2003 and 2002 were determined as follows:
Three Months Six Months
ended June 30, ended June 30,
-------------------------- --------------------------
Basic income per common share: 2003 2002 2003 2002
- ----------------------------- ------------ ---------- ------------ ----------
Net income (loss) attributable to
common shareholders $ (122,484) $ 143,230 $ (77,180) $ 323,435
============ ========== ============ ==========
Weighted average number of common
shares outstanding 2,084,289 2,072,189 2,082,089 2,072,189
============ ========== ============ ==========
Basic income(loss)per common share $ (.06) $ .07 $ (.04) $ .16
============ ========== ============ ==========
Diluted income (loss) per common share:
- ---------------------------------------
Net income (loss) attributable to
common shareholders $ (122,484) $ 143,230 $ (77,180) $ 323,435
============ ========== ============ ==========
Weighted average number of common
shares outstanding 2,084,289 2,072,189 2,082,089 2,072,189
Plus incremental shares from assumed
exercise of stock options (1) -- 34,349 -- 45,481
------------ ---------- ------------ ----------
Adjusted weighted average shares 2,084,289 2,106,538 2,082,089 2,117,670
============ ========== ============ ==========
Diluted income (loss)
per common share $ (.06) $ .07 $ (.04) $ .15
============ ========== ============ ==========
- -------------------------------
(1)For the three and six month periods ended June 30,2003, the effect of the
assumed exercise of stock options determined by using the treasury stock method
was anti-dilutive; thus no incremental shares were added to the weighted average
number of common shares outstanding for the periods.
13
Note 8 - 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
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, 2003 and
2002, is as follows:
Three Months ended June 30, 2003
-------------------------------------------------------
Lawn & Garden
Plants Products Landscaping Totals
-------------------------------------------------------
Revenues from external customers $ 953,330 $ 916,521 $ 285,469 $ 2,155,320
Intersegment revenues 30,633 2,135 -- 32,768
Interest income 2,224 -- -- 2,224
Interest expense 16,151 -- -- 16,151
Depreciation and amortization 33,729 17,621 22,391 73,741
Segment income (loss) (98,707) 52,571 (76,348) (122,484)
14
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
The Company's segment information as of and for the six months ended June 30,
2003 and 2002, is as follows:
Six Months ended June 30, 2003
-------------------------------------------------------
Lawn & Garden
Plants Products Landscaping Totals
-------------------------------------------------------
Revenues from external customers $ 2,209,513 $ 1,751,864 $ 689,448 $ 4,650,825
Intersegment revenues 100,489 9,512 -- 110,001
Interest income 5,716 -- -- 5,716
Interest expense 32,390 -- -- 32,390
Depreciation and amortization 135,995 38,816 36,835 211,646
Segment income (loss) 11,882 82,462 (171,524) (77,180)
Segment assets 8,081,972 984,547 615,234 9,681,753
Expenditures for segment assets 988,732 -- 154,674 1,143,406
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
15
Note 9 - Supplemental Disclosures for the Consolidated Statements of Cash Flows
- -------------------------------------------------------------------------------
a) Non-Cash Investing Activities
-----------------------------
During the six months ended June 30, 2003, the Company purchased
various vehicles amounting to approximately $139,000 by assuming a
related debt for approximately $110,000.
During the six months ended June 30, 2002, the Company applied a
certificate of deposit amounting to $500,000 to pay off a note that was
secured by such certificate. Subsequently, during this same period, the
Company opened a certificate of deposit amounting to $500,000 with the
proceeds from a note payable to another financial institution. The
Company also traded in a vehicle with a cost of $31,500, receiving
$7,000 as trade-in value for the old vehicle, and assuming a related
debt of $24,500.
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, 2003 and
2002, include interest payments amounting to approximately $33,000 and
$34,000, respectively. There were no income tax payments for the six
months ended June 30, 2003 and 2002.
Note 10 - Major Customers
- -------------------------
During the six months ended June 30, 2003 and 2002, the Company's single largest
customer accounted for approximately 38% ($1,763,000) and 30% ($1,428,000),
respectively, of the Company's net sales. There were no other customers
accounting for 10% or more of the Company's net sales.
16
Note 11 - 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. The adoption of this statement
is not expected to have a material effect on the Company's financial condition
or results of operations.
In August 2001, the FASB issued SFAS No. 144, "Accounting for Impairment or
Disposal of Long-Lived Assets", which addresses the financial accounting and
reporting for the impairment or disposal of long lived assets. The Statement
superseded SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of". SFAS No. 144 is effective for fiscal
years beginning after December 15, 2001. This statement did not have a
significant effect on the Company's results of operations or financial
condition.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB 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 an
extraordinary item, net of related income tax effect. As a result, the criteria
in Opinion No. 30 will now be used to classify those gains and losses. This
amendment is effective for 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 a significant
effect on the Company's financial condition or results of operations.
17
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
With Exit or Disposal Activities". SFAS No. 146 requires that a liability for a
cost associated with an exit or disposal activity be recognized and measured
initially at fair value only when the liability is incurred. SFAS also
establishes that fair value is the objective for initial measurement of the
liability. SFAS No. 146 applies to costs associated with an exit activity, but
does not involve an entity newly acquired in a business combination or with a
disposal activity covered by SFAS No. 144, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of". SFAS No. 146
does not apply to costs associated with a retirement of long-lived assets
covered by SFAS No. 143. The Company is required to implement SFAS No. 146 for
exit or disposal activities that are initiated after December 31, 2002. The
Company does not expect the adoption of this statement to have a significant
effect on its financial position or results of operations.
18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
-----------------------------------------------------------------
FINANCIAL CONDITION
-------------------
For a discussion regarding Margo Caribe Inc.'s critical accounting policies,
please refer to "Management's Discussion and Analysis of Financial Condition and
Results of Operations", under Item 7 of Margo Caribe, Inc.'s Annual Report on
Form 10-K for the year ended December 31, 2002.
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 seeking
the required permits for 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. This farm is leased from Michael
J. Spector and Margaret Spector, who are executive officers and principal
shareholders of the Company.
Through June 30, 2003, the Company also operated a 13 acre nursery in
Barranquitas, Puerto Rico. This nursery was leased from an unrelated third
party. During the fourth quarter of 2002, the Company entered into an agreement
with the lessor of the Barranquitas facility to terminate the lease and vacate
the facility by June 30, 2003. As a result, the Company has consolidated the
Barranquitas operation into its Vega Alta nursery farm (refer to FUTURE
OPERATIONS herein).
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.
19
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. Its customers include wholesalers, retailers, chain stores and
landscapers primarily located in Puerto Rico and the Caribbean. Prior to July 1,
2003, the Barranquitas nursery farm (operating as Margo Flora) produced orchids,
bromeliads, anthuriums, spathiphylum and poincettias. This operation was
consolidated into the Vega Alta nursery operation effective June 30, 2003.
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
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, 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 seeking development permits
on a new site for the development of a residential project in the Municipality
of Arecibo, Puerto Rico.
20
FUTURE OPERATIONS
- -----------------
The Company will continue to concentrate its economic and managerial resources
in expanding and improving its present operations in Puerto Rico. However, the
Board of Directors continues to explore new business opportunities inside and
outside of Puerto Rico.
On October 14, 2002, the Company, through its wholly-owned subsidiary, Nursery
Farms, entered into a joint venture to grow sod, palms and trees on a farm of
approximately 254 acres located in the Municipality of Salinas, Puerto Rico,
operated by Salinas Holdings, Inc. ("Salinas"). Salinas is a newly formed entity
in which Nursery Farms owns one-third of the outstanding voting stock. The
remaining two-thirds are owned in equal parts by Mr. Mark Greene, a former
director of the Company, and by Mr. Alberto Rubi. The Company has committed to
make equity cash contributions to the new entity of up to $775,000. As of June
30, 2003, the Company had invested $593,333.
The farm is leased by Salinas Holdings, Inc. from an entity controlled by Mr.
Rubi, for an initial 10-year term with renewal options for an additional 20-year
period.
Salinas has entered into a five year management agreement with Nursery Farms
(automatically renewable for additional five year terms unless otherwise elected
by either party) whereby Nursery Farms will provide certain management services
to the new entity and will be responsible for all sales and marketing activities
for the new entity. Under the terms of the management agreement, Nursery Farms
will receive a basic administrative fee of $2,000 per month, and a commission on
gross collected revenue varying from 15% to 17%. Commissions and fees earned for
services provided to Salinas for the six months ended June 30, 2003 were
$50,877. During the term of the management agreement, the Company has agreed not
to grow sod or to have more than 50 "cuerdas" (a "cuerda" equals approximately
0.97 of an acre) of palms or trees under cultivation on its facilities. The
Company is currently not engaged in the business of growing sod.
The investment in and results of operations of Salinas are not consolidated with
the financial statements of the Company, but instead are reported under the
equity method of accounting for investments. Accordingly, the Company's
financial statements reflect the Company's proportionate share (33.33%) of the
results of operations of Salinas.
21
In order to increase the production capacity at its Vega Alta nursery and
consolidate Barranquitas' production, the Company is currently in the process of
completing a 112,000 square feet shadehouse and a new 124,000 square feet
greenhouse. These structures are being constructed with fabricated steel, and
include sophisticated irrigation systems. The Company is also constructing a new
shipping/receiving area. Upon completion, the loading docks in the new
shipping/receiving area will have a capacity to hand 14 trailer-containers at
one time.
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
eight stores in Puerto Rico and plans to open a new store in St. Thomas, U.S.
Virgin Islands during the fourth quarter of 2003.
The Company also supplies live goods (plant material) and lawn and garden
products to Costco Wholesale, which has two stores in Puerto Rico.
The Company continues to supply live goods as well as lawn and garden products
to Wal*Mart International, which presently has eleven stores (including two
"super centers") throughout Puerto Rico and plans to open two more super centers
during the remainder of 2003. The Company also supplies plant material and lawn
and garden products to six Sam's Club, a division of Wal*Mart International.
The Company also supplies Kmart Corporation in Puerto Rico. Kmart has 24 stores
in Puerto Rico and four stores in the U.S. Virgin Islands. Kmart promotes its
garden centers' sales with the Company's plant material as well as with lawn and
garden products.
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 seeking the required permits for the
development of this site. The Company 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. However, the
Company cannot give any assurance as to how long it will take to obtain the
necessary permits to develop the project or whether said permits will in fact be
obtained.
22
RESULTS OF OPERATIONS FOR THE SIX MONTHS AND SECOND QUARTERS ENDED JUNE 30, 2003
- --------------------------------------------------------------------------------
AND 2002
- --------
During the six months ended June 30, 2003, the Company had a net loss of
approximately $77,000, or $.04 per share (diluted), compared to net income of
approximately $323,000 for the same period in 2002, or $.15 per share (diluted).
For the quarter ended June 30, 2003, the Company had a net loss of approximately
$122,000 or $.06 per share (diluted), compared to net income of approximately
$143,000 or $.07 per share (diluted) for the same period in 2002.
The net loss for the six months and the quarter ended June 30, 2003, when
compared to the same periods in 2002 is principally due to a decrease in income
from operations, offset in part, by an increase in other income. The decrease in
income from operations for the period results from a decrease in revenues (and
related gross profit) from sales of landscaping services. Gross revenues from
landscaping services were approximately $689,000 for the six months ended June
30, 2003 compared to $1,324,000 for the same period in 2002. The decrease in
income from operations for the six months and quarter ended June 30, 2003 also
results from the incurrence of approximately $143,000 of costs associated with
closing the Barranquitas nursery operation in connection with the consolidation
of the Company's nursery facilities at its Vega Alta facility. The increase in
other income for the six months ended June 30, 2003 is principally due to the
collection of a note receivable, the value of which had been written down in
prior years and to the commissions, fees and equity in earnings of
unconsolidated subsidiary.
Sales
- -----
The Company's consolidated net sales for the six months ended June 30, 2003 were
approximately $4,651,000, compared to $4,809,000 for the same period in 2002,
representing an overall decrease of approximately 3%.
The Company's consolidated net sales for the quarter ended June 30, 2003 were
approximately $2,155,000, compared to $2,489,000 for the same period in 2002,
representing an overall decrease of approximately 13%. The decrease in sales was
principally the result of a reduction in sales of landscaping services of 54%
and a smaller decrease in plant material sales associated with the decrease of
new residential and commercial real estate projects in Puerto Rico during this
period. While there was an overall decrease in plant material sales, sales of
plant material to major chain stores remained strong.
23
The 3% decrease in consolidated net sales for the six months ended June 30, 2003
was due to a decrease of approximately 48% in revenues from landscaping services
when compared to the same period in 2002. Sales of plant material increased by
8% for the six months ended June 30, 2003 as well as sales of lawn and garden
products, which increased by approximately 22% during the six month period ended
June 30, 2003.
Gross Profits
- -------------
The Company's consolidated gross profit for the six months ended June 30, 2003
was approximately 35%, compared to 40% for the same period in 2002, or a
decrease of 5%. Consolidated gross profit for the second quarter of 2003 was
approximately 35%, compared to 41% for the same period in 2002, or a decrease of
6%.
The 5% decrease in gross profit for the six months ended June 30, 2003 when
compared to the same period in 2002 was the result of a decrease in gross profit
from revenues of landscaping services (which accounted for approximately 15% of
consolidated net sales for the six months ended June 30, 2003), and an increase
of approximately 1% in gross profit from sales of lawn and garden products
(which accounted for approximately 37% of consolidated net sales for the six
months ended June 30, 2003).
The 6% decrease in gross profit for the second quarter ended June 30, 2003 when
compared to the same period in 2002 was also due to a decrease in gross profit
from revenues of landscaping services (which accounted for approximately 13% of
consolidated net sales for the quarter ended June 30, 2003).
Selling, General and Administrative Expenses
- --------------------------------------------
Selling, general and administrative expenses (SG&A) were approximately
$1,656,000 and $1,587,000 for the six months ended June 30, 2003 and 2002,
respectively. This represented a 4% increase in dollar terms and a 3% increase
as a percentage of sales.
SG&A for the second quarter of 2003 were approximately $785,000 compared to
$860,000 for the same period in 2002. This represented a 9% decrease in dollar
terms and a 1% increase as a percentage of sales.
The increase in SG&A for the six months ended June 30, 2003 when compared to the
same period in 2002 is principally due to increases in professional services
that included, among others, the outsourcing of payroll processing and the
design of a new operating and administrative procedures manual. The decrease in
SG&A for the second quarter ended June 30, 2003 compared to same period in 2002
is principally due to a decrease in salaries, advertising, vehicle repairs and
depreciation.
24
Costs Related to Consolidating Nursery Facilities
- -------------------------------------------------
Through June 30, 2003, the Company also operated a 13 acre nursery in
Barranquitas, Puerto Rico. This nursery was leased from an unrelated third
party. During the fourth quarter of 2002, the Company entered into an agreement
with the lessor of the Barranquitas facility to terminate the lease and vacated
the facility by June 30, 2003. As a result, the Company has consolidated the
Barranquitas operation into its Vega Alta nursery farm.
Costs associated with closing the Barranquitas nursery operation in connection
with the consolidation of the Company's nursery facilities at its Vega Alta
facility amounted to approximately $143,000 during the six months and the
quarter ended June 30, 2003.
Other Income and Expenses
- -------------------------
Interest income and expense for the six months and the quarter ended June 30,
2003 remain comparable to those of 2002.
Other income for the six months ended June 30, 2003 also includes several income
sources not present in 2002. Among these were the following:
1) Gain of $25,000 from the collection of a note receivable previously written
down in prior years. This represents the remaining portion of a note partially
collected in the fourth quarter of 2002 (refer to Note 5 in the Notes to
Consolidated Financial Statements for the year ended December 31, 2002).
2) Equity in earnings of unconsolidated subsidiary of approximately $20,900 and
related commissions and fees of $50,900. The $20,900 represents the Company's
33.33% equity interest in Salinas Holdings Inc.'s net income for the six months
ended June 30, 2003. The commissions and fees of $50,900 represent the Company's
commissions and fees for the six months then ended under the terms of the
management agreement with Salinas Holdings, Inc.
25
FINANCIAL CONDITION
- -------------------
The Company's financial condition at June 30, 2003 remains comparable with that
of December 31, 2002. The Company's current ratio changed to 2.0 to 1 at June
30, 2003, compared to 2.3 to 1 at December 31, 2002. The .3 decrease in the
current ratio is principally due to cash outflows used in investing activities
and to the increase in short-term borrowings under the credit facility.
At June 30, 2003, the Company had cash of approximately $738,000, compared to
cash of $1,418,000 at December 31, 2002. The decrease in cash at June 30, 2003
is principally due to cash outflows used in investing activities.
Shareholders' equity at June 30, 2003 decreased due to the net loss for the six
months period then ended, partially offset by the conversion of stock options.
No dividends were declared during the six months ended June 30, 2003.
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 short-term credit facilities with a local commercial bank. As
of August 19, 2003, the Company had available a short-term credit facility of
$2.35 million, of which approximately $420,000 was available as of such date.
This credit facility is secured by the Company's trade accounts receivable and
inventories.
26
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
-----------------------
Disclosure Control and Procedures
- ---------------------------------
Within the 90-day period preceding the filing of this Quarterly Report on Form
10-Q, an evaluation was performed under the supervision of and with the
participation of the Company's management, including the Chief Executive Officer
(CEO) and Principal Financial Officer (PFO), of the effectiveness of the design
and operation of the Company's disclosure controls and procedures. Based on that
evaluation, the Company's management, including the CEO and PFO, concluded that
the design and operation of the Company's disclosure controls and procedures
were effective. There have been no significant changes in the Company's internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of their evaluation.
Internal Control over Financial Reporting
- -----------------------------------------
There have not been any changes in the Company's internal control over financial
reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f)under the
Exchange Act) during the fiscal quarter to which this report relates that have
materially affected, or reasonably likely to materially affect, the Company's
internal control over financial reporting, other than the development of a new
manual for the assessment of internal controls and procedures.
27
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 30, 2003. At this
meeting, shareholders were asked to vote on three proposals: the election of six
directors, the approval of The Margo Caribe, Inc. 2003 Restricted Stock Plan,
and the ratification of the Company's independent auditors. Quorum at the
meeting consisted of 1,668,391 shares, or approximately 80% of 2,079,899 total
outstanding commons shares. The proposals, together with voting results, were as
follows:
PROPOSAL 1 FOR WITHHELD
----------------------------- --------- --------
1. Election of seven directors
Michael J. Spector 1,668,391 0
Blas R. Ferraiuoli 1,668,391 0
Michael A. Rubin 1,668,391 0
Ramon L. Dominguez 1,668,391 0
Jairo Estrada 1,668,391 0
J. Fernando Rodriguez 1,668,391 0
PROPOSAL 2 FOR AGAINST ABSTAIN
------------------------------- --------- ------- -------
2. Approval of The Margo Caribe,
Inc. 2003 Restricted Stock
Plan 1,668,171 0 220
PROPOSAL 3 FOR AGAINST ABSTAIN
------------------------------ --------- ------- -------
3. Ratification of Deloitte &
Touche, LLP as independent
auditors 1,668,391 0 0
There were no broker non-votes on either proposal.
28
ITEM 5. OTHER INFORMATION
-----------------
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits
Exhibit 31 (a) CEO Certification pursuant to section 302 of the
Sarbanes-Oxley Act
Exhibit 31 (b) CFO Certification pursuant to section 302 of the
Sarbanes-Oxley Act
Exhibit 32 (a) CEO Certification pursuant to section 906 of the
Sarbanes-Oxley Act.
Exhibit 32 (b) CFO Certification pursuant to section 906 of the
Sarbanes-Oxley Act.
(b) Reports on Form 8-K. The Company filed the following
--------------------
Report on Form 8-K:
(i) Report on Form 8-K, dated May 15, 2003, reporting under
Item 9 issuance of press release announcing unaudited earnings
for the quarter ended March 31, 2003
(ii) Report on Form 8-K, dated March 31, 2003, reporting under
Item 9 the filing of the CEO and CFO certifications required
by Section 906 of the Sarbanes-Oxley Act related to the Form
10-K for the year ended December 31, 2002.
29
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 19, 2003 By: /s/ Michael J. Spector
--------------- ----------------------------
Michael J. Spector,
Chairman of the Board and
Chief Executive Officer
Date: August 19, 2003 By: /s/ Olga Falcon
--------------- -----------------------
Olga Falcon,
Controller
(Principal Financial
Officer)
30
Exhibit 31(a)
I, Michael J. Spector, Chairman of the Board and Chief Executive Officer of
Margo Caribe, Inc. certify that:
1. I have reviewed this Form 10-Q of Margo Caribe, Inc.
2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report.
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report.
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant's most recent
fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial
reporting; and
31
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: August 19, 2003 By: /s/Michael J. Spector
------------------------
Michael J. Spector
Chief Executive Officer
32
Exhibit 31(b)
I, Olga Falcon, Controller (Principal Financial Officer) of Margo Caribe, Inc.
certify that:
1. I have reviewed this Form 10-Q of Margo Caribe, Inc.
2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report.
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report.
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant's most recent
fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial
reporting; and
33
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: August 19, 2003 By: /s/ Olga Falcon
--------------- -----------------
Olga Falcon
Controller
(Principal Financial
Officer)
34
Exhibit 32(a)
CERTIFICATION
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a)and(b)
of Section 1350, Chapter 63 Title 18, United States Code)
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and
(b) of section 1350, chapter 63 of title 18, United States Code), the
undersigned officer of Margo Caribe, Inc., a Puerto Rico corporation (the
"Company"), does hereby certify, to such officers' knowledge, that:
The Quarterly Report on Form 10-Q for the quarter ended June 30, 2003 (the "Form
10-Q") of the Company fully complies with the requirements of section 13(a)or
15(d) of the Securities Exchange Act of 1934 and information contained in the
Form 10-Q fairly presents, in all material respects, the financial condition and
results of operations of the Company.
Dated : August 19, 2003 By: /s/ Michael J. Spector
--------------- ----------------------
Michael J. Spector
Chief Executive Officer
The foregoing certification is being furnished solely pursuant to section 906 of
the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter
63 of title 18, United States Code)and shall not, except to the extent required
by the Sarbanes-Oxley Act of 2002, be deemed "Filed" for purposes of the
Securities Exchange Act of 1934, as amended, or otherwise subject to liability
of that Section.
A signed original of this written statement required by Section 906 has been
provided to and will be retained by, the Company and furnished to the Securities
Exchange Commission or its staff upon request.
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CERTIFICATION
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a)and(b)
of Section 1350, Chapter 63 Title 18, United States Code)
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and
(b) of section 1350, chapter 63 of title 18, United States Code), the
undersigned officer of Margo Caribe, Inc., a Puerto Rico corporation (the
"Company"), does hereby certify, to such officers' knowledge, that:
The Quarterly Report on Form 10-Q for the quarter ended June 30, 2003 (the "Form
10-Q") of the Company fully complies with the requirements of section 13(a)or
15(d) of the Securities Exchange Act of 1934 and information contained in the
Form 10-Q fairly presents, in all material respects, the financial condition and
results of operations of the Company.
Dated : August 13, 2003 By:/s/ Olga Falcon
--------------- ---------------
Olga Falcon
Controller
(Principal Financial
Officer)
The foregoing certification is being furnished solely pursuant to section 906 of
the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter
63 of title 18, United States Code)and shall not, except to the extent required
by the Sarbanes-Oxley Act of 2002, be deemed "Filed" for purposes of the
Securities Exchange Act of 1934, as amended, or otherwise subject to liability
of that Section.
A signed original of this written statement required by Section 906 has been
provided to and will be retained by, the Company and furnished to the Securities
Exchange Commission or its staff upon request.
36