EX-99.2 4 margo8ka050505ex99-2.txt Exhibit 99.2 UNAUDITED PRO FORMA FINANCIAL INFORMATION The following unaudited pro forma consolidated statement of income for the year ended December 31, 2004 as well as the unaudited pro forma consolidated balance sheet as of December 31, 2004 were prepared to reflect the estimated effects of the acquisition of State Line Bark and Mulch, Inc. ("SL") by Margo Caribe, Inc. ("Margo"), through it's wholly owned subsidiary, Margo State Line, Inc. Thus, the pro forma balance sheet assumes that SL assets and liabilities are finally consolidated into Margo Caribe, Inc., the ultimate holding company, as required by generally accepted accounting principles, and that this acquisition occurred on December 31, 2004. Certain adjustments were made to reflect the fair value of the assets acquired as of the acquisition date. The unaudited pro forma consolidated statement of income assumes that this acquisition occurred at January 1, 2004. The unaudited pro forma consolidated balance sheet was also prepared to reflect the funds borrowed from a major stockholder of Margo in February 14, 2005 for the acquisition. Based on all of the above, actual results may defer from those presented in the attached pro forma consolidated unaudited financial statements. Under the purchase method of accounting, the total purchase price, as further described in Note 1 to these unaudited pro forma consolidated financial statements, is allocated to SL identifiable tangible and intangible assets acquired, based on their estimated fair values as of the acquisition date. Differences may arise based on the amount of net assets acquired as of December 31, 2004, the date of these pro forma financial statements, and February 16, 2005, the date of this acquisition. The related adjustments are presented in the column of adjustments and eliminations. The unaudited pro forma financial information presented is derived from the audited financial statements of SL as of and for the year ended December 31, 2004. The unaudited pro forma financial information should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements of Margo, including the notes thereto, appearing on Form 10-KSB for the year ended December 31, 2004. The unaudited pro forma financial information does not purport to be indicative of the results of operations or financial condition that would have been reported had the events occurred on the dates indicated, nor does it purport to be indicative of the results of operations, or financial condition that may be achieved in the future.

MARGO CARIBE, INC. AND SUBSIDIARIES PRO FORMA CONSOLIDATED BALANCE SHEET (Unaudited) As of December 31, 2004 -------------------------------------------------------------------- (a) (a) Adjustments Margo Caribe, Inc. State Line Bark and Pro and Subsidiaries and Mulch, Inc. Eliminations Forma ----------------- --------------- ------------ ------------ ASSETS ------ Current Assets: Cash and equivalents $ 234,872 $ -- $ 400,000 (b) $ 1,134,872 Restricted cash 500,000 -- (c) Accounts receivable, net 2,128,901 271,121 (67,210)(d) 2,332,812 Inventories 2,777,044 304,077 43,475 3,124,596 Due from related entity 42,479 -- -- 42,479 Deferred tax asset 11,400 -- -- 11,400 Property held for sale, net 156,455 -- -- 156,455 Prepaid expenses and other current assets 353,610 51 -- 353,661 ------------ ------------ ------------ ------------ Total current assets 6,204,761 575,249 376,265 7,156,275 Property and equipment, net 2,143,178 495,164 804,295 (e) 3,442,637 Land held for future development 1,131,127 -- -- 1,131,127 Investment in unconsolidated subsidiary 535,099 -- -- 535,099 Covenant not to compete -- -- 200,000 (f) 200,000 Goodwill -- -- 1,100,211 (g) 1,100,211 Other assets 126,513 -- -- 126,513 ------------ ------------ ------------ ------------ Total assets $ 10,140,678 $ 1,070,413 $ 2,480,771 $ 13,691,862 ============ ============ ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ Current liabilities: Bank overdraft $ -- $ 18,251 $ (18,251)(h) $ -- Current portion of long-term debt 114,503 -- -- 114,503 Notes payable 2,886,967 233,388 1,618 (i) 3,121,973 Accounts payable 1,129,067 89,928 52,238 (c) 1,271,233 Accrued expenses 213,922 581 1,062 (i) 215,565 ------------ ------------ ------------ ------------ Total current liabilities 4,344,459 342,148 36,667 4,723,274 Other liabilities 66,813 -- -- 66,813 Long-term debt, net of current portion 67,492 301,996 -- 369,488 Note payable to major stockholder 1,000,000 -- 2,600,000 (b) 3,600,000 ------------ ------------ ------------ ------------ Total liabilities 5,478,764 644,144 2,636,667 8,759,575 ------------ ------------ ------------ ------------ 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, 2,263,109 and 2,198,709 shares issued, 2,223,389 and 2,158,989 shares outstanding in 2004 and 2003, respectively 2,263 10,000 (10,000)(j) 2,263 Additional paid-in capital 5,706,907 -- -- 5,706,906 Retained earnings (deficit) (809,043) 416,269 (145,896)(f),(j) (538,669) Deferred stock compensation (141,925) -- -- (141,925) Treasury stock, 39,800 common shares, at cost (96,288) -- -- (96,288) ------------ ------------ ------------ ------------ Total shareholders' equity 4,661,914 426,269 (155,896) 4,932,287 ------------ ------------ ------------ ------------ Total liabilities and shareholders' equity $ 10,140,678 $ 1,070,413 2,480,771 $ 13,691,862 ============ ============ ============ ============ See accompanying note 3 to unaudited pro forma consolidated balance sheet.

MARGO CARIBE, INC. AND SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited) Year ended December 31, 2004 -------------------------------------------------------------- (a) (a) Margo Caribe, State Line Adjustments Inc. and Bark and and Pro Subsidiaries Mulch, Inc. Eliminations Forma ------------ ------------ ------------ ----------- Net sales $ 8,422,531 $ 3,232,673 $ (228,942) (b) $11,426,262 Cost of sales 5,859,617 1,520,297 (228,942) (b) 7,150,972 ------------ ------------ ------------ ----------- Gross profit 2,562,914 1,712,376 -- 4,275,290 Selling, general and administrative expenses 3,326,703 1,342,113 -- 4,668,816 ------------ ------------ ------------ ----------- (Loss) income from operations (763,789) 370,263 -- (393,526) ------------ ------------ ------------ ----------- Other income (expense): Interest income 8,062 110 -- 8,172 Interest expense (114,151) -- -- (114,151) Equity in earnings (losses) of unconsolidated subsidiary 110,942 -- -- 110,942 Commissions from unconsolidated subsidiary 201,080 -- -- 201,080 Loss from damages caused by Tropical Storm Jeanne, net (78,020) -- -- (78,020) Amortization of covenant not to compete -- -- (100,000) (c) (100,000) Miscellaneous income 19,279 -- -- 19,279 ------------ ------------ ------------ ----------- Total other income, net 147,192 110 (100,000) 47,302 ------------ ------------ ------------ ----------- (Loss) income before deferred income tax benefit (616,597) 370,373 (100,000) (346,224) ------------ ------------ ------------ ----------- Deferred income tax benefit -- -- -- -- ------------ ------------ ------------ ----------- Net (loss) income $ (616,597) $ 370,373 $ (100,000) $ (346,224) ============ ============ ============ ============ Basic (loss) income per common share $ (0.28) $ (0.16) ============ ============ Diluted (loss) income per common share $ (0.28) $ (0.16) ============ ============ Weighted average shares outstanding Basic 2,186,717 2,186,717 ============ ============ Diluted 2,186,717 2,186,717 ============ ============ See accompanying note 4 to unaudited pro forma consolidated statement of operations.

NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS Note 1 - Basis of Pro Forma Presentation: On February 16, 2005, Margo State Line, Inc. ("MSL"), a wholly owned subsidiary of Margo Caribe, Inc., ("Margo") completed the acquisition of State Line Bark and Mulch, Inc., a privately held Georgia corporation ("SL"), pursuant to the terms and conditions of an Asset Purchase Agreement dated February 16, 2005 (the "Agreement"). Pursuant to the agreement, MSL acquired substantially all of the assets of SL for an aggregate consideration of approximately $2.6 million in cash and assumed liabilities amounting to approximately $690,000. The parties have also agreed that $740,000 of the purchase price will be held in two (2) escrow accounts by independent escrow agents, $640,000 of which is being held pending transfer of the real estate and $100,000 as security for indemnification of any claim MSL may have under the agreement. Additionally, $300,000 of the total purchase price was allocated to a non-competition agreement for a three-year period which disallows former SL owners to conduct a similar business, subject to certain conditions, as further discussed in the agreement. Under the purchase method of accounting, the total purchase price was allocated as shown in the following table to the estimated fair values (in thousands) of the assets acquired and liabilities assumed at the date of acquisition. Differences arise based on the amount of net assets acquired as of the purchase date (February 16, 2005), the date of these pro forma financial statements, and December 31, 2004. These differences arise due to the results of SL's operations during the period between December 31, 2004 and February 16, 2005, as well as certain working capital adjustments, the repayment of long term debts, and new accounts payable that arose during the period from December 31, 2004 and the acquisition date. Also, the pro forma unaudited balance sheet presents certain adjustments to the assets and liabilities to present them as their estimated fair value as of the acquisition date, since such values were not readily available as of December 31, 2004. All such adjustments were presented in the "Eliminations and Adjustments" column in the pro forma unaudited balance sheet. (Unaudited) February 16, 2005 Trade receivables $ 242,913 Inventories 347,552 Land 450,000 Other current assets 51 Property and equipment, net 849,459 Non-competition agreement 300,000 Goodwill 1,100,211 ----------- Total assets acquired $ 3,290,186 Accounts payable (181,168) Accrued expenses (871) Notes Payable (508,147) ----------- Total purchase price $ 2,600,000 =========== The actual results of SL will be included in Margo consolidated financial statements beginning February 17, 2005, the day following the date of the acquisition. Note 2 - Pro Forma Adjustments and Eliminations: Pro forma adjustments are necessary to reflect the purchase price, to adjust the amounts related to SL's net tangible and intangible assets to the fair value as determined as of the acquisition date, and to reflect the amortization expense related to the non-competition agreement. Intercompany balances and transactions between Margo and SL have been also eliminated. Note 3 - Notes to Unaudited Pro Forma Consolidated Balance Sheet: a) These columns reflect the audited balance sheets of the representative companies as of December 31, 2004. b) Adjustment reflects the cash received from a major stockholder of Margo for the total consideration paid ($2,600,000) to acquire the SL business plus $400,000 deposited in the new cash account created upon the acquisition. c) Adjustment reflects the elimination of accounts receivable and accounts payable between the respective companies, primarily related to the normal course of operations ($39,002) and an adjustment to adjust SL's accounts receivables ($28,208) and accounts payable ($91,240) to the balances as of the acquisition date. d) Adjustment to reflect the inventory book balance as of the acquisition date. e) Adjustment to reflect fixed assets balance at its fair value as of the acquisition date. f) Adjustment to record the non-competition agreement resulting from the Asset Purchase Agreement of $300,000, net of the pro forma amortization during the year ended December 31, 2004 for $100,000. g) Adjustment to record the goodwill resulting from the difference between the total consideration paid and the assumed liabilities; and the fair value of assets acquired as of the acquisition date. h) Adjustment to eliminate the bank overdraft in SL financial statements as of December 31, 2004 covered by former owners before the acquisition date. i) Adjustments to reflect balances as of acquisition date. j) Adjustment to reflect the elimination of the equity of SL as of December 31, 2004. Note 4 - Notes to Unaudited Pro Forma Consolidated Statement of Income: a) These columns reflect the audited income statements of the representative companies. Certain reclassifications have been made to the historical financial statements to conform them to the presentation used for this pro forma unaudited consolidated statement of operations. b) Adjustment to eliminate the revenues and cost of sales related to sales SL made to Margo during the year ended December 31, 2004. c) Adjustment reflects the amortization of the non-competition agreement, as shown in Note 1, for the year ended December 31, 2004.