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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 September 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 2,140,389 shares of common stock, $.001 par value,
outstanding as of November 10, 2003.
MARGO CARIBE, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE THIRD QUARTER ENDED SEPTEMBER 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 30
----------
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
September 30, 2003 and December 31, 2002
(Unaudited)
ASSETS
------
2003 2002
----------- -----------
Current assets:
Cash and equivalents $ 861,305 $ 1,417,879
Accounts receivable, net 1,272,481 1,818,076
Inventories 3,582,376 3,378,779
Due from related entity 130,651 51,026
Prepaid expenses and other current assets 319,994 323,506
----------- -----------
Total current assets 6,166,807 6,989,266
Property and equipment, net 2,248,502 1,249,889
Land held for future development 1,105,627 1,105,627
Investment in unconsolidated subsidiary 227,523 417,296
Notes receivable 28,112 28,112
Distribution rights 100,000 --
Other assets 32,920 6,016
----------- -----------
Total assets $ 9,909,491 $ 9,796,206
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current portion of long-term liabilities $ 138,967 $ 138,967
Notes payable 2,080,500 1,730,500
Accounts payable 958,510 829,382
Accrued expenses 217,560 332,305
----------- -----------
Total current liabilities 3,395,537 3,031,154
Other liabilities 66,813 74,238
Long-term debt 229,920 244,425
----------- -----------
Total liabilities 3,692,270 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; 2,179,009 and 2,119,609
shares issued,2,139,289 and 2,079,889 shares
outstanding in 2003 and 2002, respectively 2,179 2,120
Additional paid-in capital 5,391,809 5,241,136
Retained earnings 919,521 1,299,421
Treasury stock, 39,800 common shares, at cost (96,288) (96,288)
----------- -----------
Total shareholders' equity 6,217,221 6,446,389
----------- -----------
Total liabilities and shareholders' equity $ 9,909,491 $ 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 September 30, 2003 and 2002
(Unaudited)
Three Months ended September 30, Nine Months ended September 30,
-------------------------------- -------------------------------
2003 2002 2003 2002
----------- ----------- ----------- -----------
Net sales $ 1,872,773 $ 2,310,942 $ 6,523,598 $ 7,119,654
Cost of sales 1,250,132 1,292,015 4,273,763 4,176,164
----------- ----------- ----------- -----------
Gross profit 622,641 1,018,927 2,249,835 2,943,490
Selling, general and administrative expenses 976,809 910,947 2,620,530 2,498,107
Costs related to consolidating nursery facilities -- -- 142,903 --
----------- ----------- ----------- -----------
Income (loss)from operations (354,168) 107,980 (513,598) 445,383
----------- ----------- ----------- -----------
Other income (expense):
Interest income 1,642 7,689 7,357 11,446
Interest expense (22,320) (15,569) (54,710) (48,176)
Gain on collection of note receivable
previously written down -- -- 25,000 --
Equity in earnings of unconsolidated subsidiary 29,303 -- 50,227 --
Commissions from unconsolidated subsidiary 37,940 -- 76,817 --
Miscellaneous income 4,883 1,354 29,007 16,236
----------- ----------- ----------- -----------
51,448 (6,526) 133,698 (20,494)
----------- ----------- ----------- -----------
Income (loss) before provision for income tax (302,720) 101,454 (379,900) 424,889
Income tax provision -- -- -- --
----------- ----------- ----------- -----------
Net income (loss) $ (302,720) $ 101,454 $ (379,900) $ 424,889
=========== =========== =========== ===========
Basic income (loss) per common share $ (.14) $ .05 $ (.18) $ .21
=========== =========== =========== ===========
Diluted income (loss) per common share $ (.14) $ .05 $ (.18) $ .20
=========== =========== =========== ===========
See accompanying notes to condensed consolidated financial statements.
5
MARGO CARIBE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Nine Months ended September 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 59,400 59 150,673 -- -- 150,732
Net loss -- -- -- (379,900) -- (379,900)
----------- ----------- ----------- ----------- ----------- -----------
Balance at September 30, 2003 2,139,289 $ 2,179 $ 5,391,809 $ 919,521 $ (96,288) $ 6,217,221
=========== =========== =========== =========== =========== ===========
See accompanying notes to condensed consolidated financial statements.
6
MARGO CARIBE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 2003 and 2002
(Unaudited)
Cash flows from operating activities: 2003 2002
- ------------------------------------ ------------ -----------
Net (loss) income $ (379,900) $ 424,889
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 357,371 314,270
Provision for uncollectible accounts receivable 49,595 67,859
Loss (gain) on disposition of property and
equipment -- (6,287)
Deferred revenue -- 74,238
Equity in earnings of unconsolidated
subsidiary (50,227) --
Gain on collection of note receivable
previously written down (25,000) --
Changes in assets and liabilities affecting
cash flows from operating activities:
Accounts receivable 496,000 (313,074)
Inventories (203,597) (120,509)
Prepaid expenses and other current assets 3,512 19,357
Advances to related entity, net (79,625) --
Distribution rights (100,000) --
Other assets (26,904) (119,695)
Accounts payable 129,128 (205,099)
Accrued expenses (114,745) 33,051
Other liabilities (7,425) --
----------- -----------
Net cash provided by operating activities 48,183 169,000
----------- -----------
Cash flows from investing activities:
- -------------------------------------
Additions to property and equipment (1,355,984) (98,452)
Investment in land held for future development -- (52,221)
Increase in notes receivable -- (10,590)
Distribution from investment in unconsolidated subsidiary 400,000 --
Additional investment in unconsolidated subsidiary (160,000) --
Proceeds from collection of notes receivable 25,000 30,973
----------- -----------
Net cash used in investing activities (1,090,984) (130,290)
----------- -----------
Cash flows from financing activities:
- -------------------------------------
Proceeds from long-term debt 109,458 --
Repayment of long-term debt (123,963) (94,189)
Increase in notes payable 350,000 100,000
Cash payment in lieu of issuing fractional
shares in stock dividend -- (46)
Issuance of common stock from conversion
of stock options 150,732 4,305
----------- -----------
Net cash provided by financing
- ------------------------------
activities 486,227 10,070
---------- ----------- -----------
Net increase (decrease) in cash and cash
- ----------------------------------------
and cash equivalents (556,574) 48,780
-------------------- ----------- -----------
Cash and equivalents at beginning of period 1,417,879 838,921
- ------------------------------------------- ----------- -----------
Cash and equivalents at end of period $ 861,305 $ 887,701
- ------------------------------------- =========== ===========
See accompanying notes to condensed consolidated financial statements.
7
MARGO CARIBE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 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 nine months ended September 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. In addition, the Company evaluates
the prior years experience of the allowance as a whole.
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 $ 673,600, which is partially offset by
a valuation allowance of $ 662,200. 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 September 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.
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 September 30, 2003 and December 31, 2002
amounted to 127,050 and 249,700, respectively, at the end of each period. During
the nine months ended September 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:
9
Three Months Ended September 30, Nine Months Ended September 30,
--------------------------------- --------------------------------
2003 2002 2003 2002
---- ---- ---- ----
Risk-free interest rate 5.28% 4.63% 5.28% 4.63%
Average life of options 10 yrs. 10 yrs. 10 yrs. 10 yrs.
Volatility 15.44% 24.06% 65.82% 32.60%
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 September 30, Nine Months Ended September 30,
-------------------------------- --------------------------------
2003 2002 2003 2002
----------- ----------- ----------- -----------
Net income (loss)
as reported $ (302,720) $ 101,454 $ (379,900) $ 424,889
Total stock based com-
pensation expense
determined under fair
value based method for
all awards (5,507) (10,251) (29,995) (25,178)
----------- ----------- ----------- -----------
Pro forma net income(loss) $ (308,227) $ 91,203 $ (409,895) $ 399,711
=========== =========== =========== ===========
Earnings per share:
Basic - as reported $ (0.14) $ .05 $ (0.18) $ .21
=========== =========== =========== ===========
Basic - pro forma $ (0.14) $ .04 $ (0.19) $ .19
=========== =========== =========== ===========
Diluted - as reported $ (0.14) $ .05 $ (0.18) $ .20
=========== =========== =========== ===========
Diluted - pro forma $ (0.14) $ .04 $ (0.18) $ .19
=========== =========== =========== ===========
Note 4 - Inventories
- --------------------
At September 30, 2003 and December 31, 2002, inventories included the following:
Description 2003 2002
- --------------------------- ---------- ----------
Plant material $2,714,776 $2,799,960
Lawn and garden products 331,552 251,438
Raw materials and supplies 536,048 327,381
---------- -----------
$3,582,376 $3,378,779
========== ===========
Note 5 - Property and Equipment
- -------------------------------
At September 30, 2003 and December 31, 2002, property and equipment included the
following:
Description 2003 2002
- ----------------------------- ---------- -----------
Leasehold improvements $2,271,089 $1,456,960
Equipment and fixtures 1,652,945 1,599,948
Transportation equipment 809,207 600,344
Real estate property 224,327 224,327
---------- ---------
4,957,568 3,881,579
Less accumulated depreciation
and amortization (2,709,066) (2,631,690)
----------- ----------
$2,248,502 $1,249,889
========== ===========
Depreciation expense for the nine months ended September 30, 2003 and 2002
amounted to approximately $ 357,000 and $ 314,000, 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 from 15% to 17%
commission on the sales of Salinas' products. Salinas commenced operations on
November 1, 2002.
The Company has accounted for its investment in Salinas using the equity method
of accounting. At September 30, 2003, and for the nine month period then ended,
Salinas' unaudited condensed financial position and results of operations
information was as follows:
Assets Amount
------ ---------
Current assets $1,358,956
Property and equipment 921,414
----------
$2,280,370
==========
Liabilities and Shareholders' Equity
-----------------------------------
Current liabilities $ 730,983
Long-term liabilities 866,667
----------
Total liabilities $1,597,650
Shareholders' equity 682,720
----------
$2,280,370
==========
Results of Operations Amount
--------------------- ------
Sales $ 487,767
Cost of sales 184,466
----------
Gross profit $ 303,301
General and administrative expenses $ 152,470
----------
Net income $ 150,831
==========
At September 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
Withdrawal of capital (400,000)
Equity in earnings of
unconsolidated subsidiary 50,227
--------
Balance at September 30, 2003 $227,523
========
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 nine month
periods ended September 30, 2003 and 2002 were determined as follows:
Three Months Nine Months
ended September 30, ended September 30,
Basic income (loss) per common share 2003 2002 2003 2002
- ------------------------------------ ------------- ---------- ------------- -----------
Net income (loss) attributable to
common shareholders $ (302,720) $ 101,454 $ (379,900) $ 424,889
============= ========== ============= ==========
Weighted average number of common
shares outstanding 2,131,894 2,073,239 2,098,833 2,072,539
============= ========== ============= ==========
Basic income(loss)per common share $ (.14) $ .05 $ (.18) $ .21
============= ========== ============= ==========
Diluted income (loss) per common share:
- ---------------------------------------
Net income (loss) attributable to
common shareholders $ (302,720) $ 101,454 $ (379,900) $ 424,889
============= ========== ============= ==========
Weighted average number of common
shares outstanding 2,131,894 2,073,239 2,098,833 2,072,539
Plus incremental shares from assumed
exercise of stock options (1) -- 36,480 -- 49,900
------------- ---------- ------------- ----------
Adjusted weighted average shares 2,131,894 2,109,719 2,098,833 2,122,439
============= ========== ============= ==========
Diluted income (loss)
per common share $ (.14) $ .05 $ (.18) $ .20
============= ========== ============= ==========
- ---------------------------------------------------------------------------------------------------
(1)For the three and nine month periods ended September 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
executive 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' financial
condition and results of operations as if they were independent entities.
The Company's segment information for the three months ended September 30, 2003
and 2002, is as follows:
Three Months ended September 30, 2003
------------------------------------------------------------
Lawn & Garden
Plants Products Landscaping Totals
------------------------------------------------------------
Revenues from external customers $ 648,302 $ 821,239 $ 403,232 $1,872,773
Intersegment revenues 34,003 3,402 -- 37,405
Interest income 1,642 -- -- 1,642
Interest expense 22,320 -- -- 22,320
Depreciation and amortization 29,957 4,780 20,724 55,461
Segment loss 48,610 34,151 219,959 302,720
14
Three Months ended September 30, 2002
------------------------------------------------------------
Lawn & Garden
Plants Products Landscaping Totals
------------------------------------------------------------
Revenues from external customers $ 994,580 $ 727,456 $ 588,906 $2,310,942
Intersegment revenues 87,563 5,270 -- 92,833
Interest income 7,689 -- -- 7,689
Interest expense 15,569 -- -- 15,569
Depreciation and amortization 64,568 12,690 9,993 87,251
Segment income (loss) 160,462 (38,415) (20,593) 101,454
The Company's segment information as of and for the nine months ended September
30, 2003 and 2002, is as follows:
Nine Months ended September 30, 2003
------------------------------------------------------------
Lawn & Garden
Plants Products Landscaping Totals
------------------------------------------------------------
Revenues from external customers $2,848,304 $ 2,582,614 $ 1,092,680 $6,523,598
Intersegment revenues 134,492 12,913 -- 147,405
Interest income 7,357 -- -- 7,357
Interest expense 54,710 -- -- 54,710
Depreciation and amortization 229,648 65,542 62,181 357,371
Segment loss 36,728 7,986 335,186 379,900
Segment assets 8,249,522 1,036,004 623,965 9,909,491
Expenditures for segment assets 1,202,086 -- 154,675 1,356,761
Nine Months ended September 30, 2002
------------------------------------------------------------
Lawn & Garden
Plants Products Landscaping Totals
------------------------------------------------------------
Revenues from external customers $3,040,696 $2,166,487 $1,912,471 $7,119,654
Intersegment revenues 317,259 40,031 -- 357,290
Interest income 11,446 -- -- 11,446
Interest expense 48,176 -- -- 48,176
Depreciation and amortization 237,319 44,804 32,147 314,270
Segment income 286,895 30,572 107,422 424,889
Segment assets 7,329,901 995,245 1,077,374 9,402,520
Expenditures for segment assets 98,452 -- -- 98,452
15
Note 9 - Supplemental Disclosures for the Consolidated Statements of Cash Flows
- -------------------------------------------------------------------------------
a) Non-Cash Investing Activities
-----------------------------
During the nine months ended September 30, 2003, the Company purchased
various vehicles amounting to approximately $139,000 by assuming a
related debt for approximately $110,000.
During the nine months ended September 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. The Company also purchased another vehicle for $31,850
by assuming the related debt.
b) Non-Cash Financing Activities
-----------------------------
During the nine months ended September 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 nine months ended September 30,
2003 and 2002, include interest payments amounting to approximately
$50,000 and $41,000, respectively. There were no income tax payments
for the nine months ended September 30, 2003 and 2002.
Note 10 - Major Customers
- -------------------------
During the nine months ended September 30, 2003 and 2002, the Company's single
largest customer accounted for approximately 39% ($2,546,000) and 28%
($2,022,000), 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
OVERVIEW
- --------
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.
In addition, the Company is acts as sales representative consumer goods brands
in Puerto Rico. 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.
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.
Margo 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 its Vega Alta facility, 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 pointsethias. This
operation was consolidated into the Vega Alta nursery operation effective June
30, 2003.
As bona fide agricultural enterprises, both Nursery Farms and Margo Flora enjoy
a 90% tax exemption under Puerto Rico law from income derived from their nursery
business in Puerto Rico.
Margo Landscaping & Design provides landscaping, maintenance and design services
to customers in Puerto Rico and the Caribbean, including commercial as well as
residential landscape design and landscaping.
Margo 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.
19
Rain Forest is engaged in the manufacturing of potting soils, professional
growing mixes, river rock, gravel 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.
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.
Until 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).
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"). The farm is leased by Salinas
Holdings, Inc. from an entity controlled by Mr. Alberto Rubi, for an initial
10-year term with renewal options for an additional 20-year period.
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. During the month of September each shareholder received $400,000 as
capital returns. As of September 30, 2003, the Company had invested $193,333,
net of returns.
Salinas has entered into a five year management agreement with Nursery Farms
(automatically renewable for an additional five year term 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 nine months ending
September 30, 2003 totaled $95,000. 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 production capacity at its Vega Alta nursery and
consolidate Barranquitas' production, the Company has recently completed the
construction of 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 are will have a capacity to manage 14 trailer-containers at
one time.
On August 5, 2003 the Company acquired the rights of a sole proprietorship doing
business as Global Associates to represent various lines of consumer goods
brands for $100,000 in cash and 10,000 shares of common stock in the Company. As
part of the transaction, the Company contracted into a one year employment
agreement with Tulio Figueroa, the former President of Global Associates; to
serve as Senior Vice president of Margo Caribe, Inc
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 three 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 three
"super centers") throughout Puerto Rico and plans to open one more super center
during the fourth quarter of 2003. The Company also supplies plant material and
lawn and garden products to six Sam's Club stores, 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 when purchasing homes at 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 NINE MONTHS AND THIRD QUARTERS ENDED SEPTEMBER 30,
- --------------------------------------------------------------------------------
2003 AND 2002
- -------------
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.
NET INCOME/LOSS
- ---------------
During the nine months ended September 30, 2003, the Company had a net loss of
approximately $380,000, or $(.18) per share (diluted), compared to a net income
of approximately $425,000 for the same period in 2002, or $.20 per share
(diluted). For the quarter ended September 30, 2003, the Company had a net loss
of approximately $303,000 or $(.14) per share (diluted), compared to net income
of approximately $101,000 or $.05 per share (diluted) for the same period in
2002.
The net loss for the nine months and the quarter ended September 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 mainly resulted from losses incurred in
the landscaping segment. The landscaping segment operational loss was $335,000
for the period ended September 30, 2003 compared to net income of $107,000 for
the period ended September 30, 2002. The loss from the landscaping segment is
due to a decrease in revenues (and related gross profit) and an increase in bad
debt expense of approximately $100,000. Gross revenues from landscaping services
were approximately $1,093,000 for the nine months ended September 30, 2003
compared to $1,912,000 for the same period in 2002. Also, the decrease in income
from operations for the nine months ended September 30, 2003 reflects
approximately $143,000 of costs associated with closing the Barranquitas nursery
operation and the associated consolidation of the Company's nursery facilities
at its Vega Alta facility.
The increase in other income for the nine months ended September 30, 2003 is
principally due to the collection of $25,000 from a note receivable, which had
been written down in prior years and, the commissions and equity in earnings
from an unconsolidated subsidiary (Salinas Holdings) in the amount of $127,000.
Sales
- -----
The Company's consolidated net sales for the nine months ended September 30,
2003 were approximately $6,524,000, compared to $7,120,000 for the same period
in 2002, representing an overall decrease of approximately 8%. The Company's
consolidated net sales for the quarter ended September 30, 2003 were
approximately $1,873,000, compared to $2,311,000 for the same period in 2002,
representing an overall decrease of approximately 19%.
The decrease in sales for the period ended September 30, 2003 was principally
the result of a reduction in sales of landscaping services of 43% resulting from
a decrease in large landscaping projects. Landscaping sales for the nine months
ended September 30, 2002 were favorably impacted by three major projects
aggregating $619,000. On the other hand, the sales of plant material for the
nine months ended September 30, 2003 reflect a slight increase of $14,000
compared to the nine months ended September 30, 2002.
23
The 19% decrease in consolidated net sales for the quarter ended September 30,
2003 was due to a decrease in revenues of approximately 32% and 34% from
landscaping segment and nursery segment, respectively. This decrease in sales is
associated with the slow development of new residential and commercial real
estate projects in Puerto Rico during this period. Although there was an overall
decrease in plant material sales, sales of plant material to major chain stores
remained strong.
Gross Profits
- -------------
The Company's consolidated gross profit for the nine months ended September 30,
2003 was approximately 34%, compared to 41% for the same period in 2002.
Consolidated gross profit for the third quarter of 2003 was approximately 33%,
compared to 44% for the same period in 2002.
The decrease in gross profit for the nine months ended September 30, 2003 and
for the third quarter of 2003 when compared to the same periods in 2002 was the
result of a decrease in gross profit from revenues of the landscaping segment.
As of September 30, 2003, the gross profit for the landscaping segment was 18%
compared to 37% as of September 30, 2002. For the third quarter of 2003, the
gross profit for the landscaping segment was 24% compared to 38% for the third
quarter of the prior year.
Selling, General and Administrative Expenses
- --------------------------------------------
Selling, general and administrative expenses (SG&A) were approximately
$2,621,000 and $2,498,000 for the nine months ended September 30, 2003 and 2002,
respectively. This represents a 5% increase in dollar terms and a 5% increase as
a percentage of sales. SG&A for the third quarter of 2003 were approximately
$977,000 compared to $911,000 for the same period in 2002. This represented an
7% increase in dollar terms and a 13% increase as a percentage of sales.
The increase in SG&A in dollars term for the nine months ended September 30,
2003 and for the quarter ended September 30, 2003, when compared to the same
periods in 2002, is principally due to an increase in the bad debt expense
account for the landscaping segment of approximately $100,000.
The increase in SG&A as a percentage of sales for the nine months ended
September 30, 2003 and for the quarter ended September 30, 2003 was also
impacted by the decrease in net sales.
24
Costs Related to Consolidating Nursery Facilities
- -------------------------------------------------
Until 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 in its Vega Alta
nursery operation amounted to approximately $143,000 during the nine month
ending September 30, 2003.
Other Income and Expenses
- -------------------------
Interest income and expense for the nine months and the quarter ended September
30, 2003 reflects an increase of $154,000 and $58,000 comparable to those of
2002.
Other income for the nine months ended September 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 the
Company's Consolidated Financial Statements for the year ended December 31,
2002).
2) Equity in earnings of unconsolidated subsidiary of approximately $50,000 and
related commissions of $77,000. The $50,000 represents the Company's 33.33%
equity interest in Salinas Holdings Inc.'s net income for the nine months ended
September 30, 2003. The commissions of $77,000 represents the Company's
commissions for the nine months then ended under the terms of the agreement with
Salinas Holdings, Inc.
25
FINANCIAL CONDITION
- -------------------
The Company's financial condition as of September 30, 2003 remains comparable
with that of December 31, 2002. The Company's current ratio changed to 1.8 to 1
on September 30, 2003, compared to 2.3 to 1 on December 31, 2002. The .50
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.
On September 30, 2003, the Company had cash of approximately $861,000, compared
to cash of $1,418,000 on December 31, 2002. The decrease in cash on September
30, 2003 is principally due to cash outflows used in investing activities, which
were primarily related to capital improvements made at the Vega Alta facility.
On August 5, 2003, the Company acquired the rights to act as a local sales
representative from a local representative, Global Associates,for $100,000.
Shareholders' equity on September 30, 2003 decreased due to the net loss for the
nine month period then ended, partially offset by the conversion of stock
options. No dividends were declared during the nine months ended September 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 flow from operations as well as
borrowings under short-term credit facilities with a local commercial bank. As
of November 7, 2003, the Company had available a short-term credit facility of
$2.5 million, of which approximately $327,000 was available as of such date.
This credit facility is secured by the Company's trade accounts receivables and
inventories.
26
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
-----------------------
Disclosure Control and Procedures
- ---------------------------------
As of September 30, 2003, an evaluation was performed under the supervision of
and with the participation of the Company's management, including the Chief
Executive Officer (CEO) and Chief Financial Officer (CFO), 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 CFO,
concluded that the design and operation of the Company's disclosure controls and
procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934). were effective.
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.
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
-----------------------------------------------------
Not applicable.
28
ITEM 5. OTHER INFORMATION
-----------------
On August 29, 2003, the Company dismissed Mr. Fernando Rodriguez as President
and Chief Operating Officer of Margo. The Company does not anticipate replacing
Mr. Rodriguez in the immediate future. Instead, Mr. Michael J. Spector, the
Chairman of the Board and Chief Executive Officer of the Company will retain the
title of President and assume the duties of that office.
On November 13, 2003, the Board of Directors of Margo appointed Mr. Juan B.
Medina as the new Chief Financial Officer and Leida Rivera as the new Controller
of the Company. Mr. Medina and Ms. Rivera commenced working with the Company on
September 2, 2003 and October 16, 2003, respectively. Mr. Medina has more than
17 years of professional experience and previously worked as Executive Vice
President, Chief Financial Officer, member of the Board of Directors and various
committees delegated by the Board with PRAICO Life, a locally based life
insurance company. Ms. Rivera has more than 10 years of professional experience
and was previously employed as audit manager with Ernst & Young,LLP.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits
Exhibit 10 (a) Employment Agreement, dated as of August 4, 2003,
between the Company and Tulio Figueroa.
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 did not file any reports on
Form 8-K during the quarter ended September 30, 2003.
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: November 14, 2003 By: /s/ Michael J. Spector
----------------- ----------------------------
Michael J. Spector,
Chairman of the Board and
Chief Executive Officer
Date: November 14, 2003 By: /s/ Juan B. Medina
----------------- -----------------------
Juan B. Medina,
Chief Financial Officer
30