<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period ended November 30, 1995
-----------------
[ ] Transition Report Under Section 13 or 15(d) of the Exchange Act
For the transition period from to
------------ -------------
Commission File Number: 0-5531
FLORAFAX INTERNATIONAL, INC.
------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 41-0719035
- ------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8075 20th Street, Vero Beach, Florida 32966
- --------------------------------------------------------------------------------
(Address of principal executive offices)
407-563-0263
------------
(Issuer's telephone number)
--------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
YES X NO
--- ---
The registrant had 5,922,973 shares of common stock, $0.01 par value,
outstanding at November 30, 1995.
Transitional Small Business Disclosure Format (Check one): Yes ; No X
----- -----
<PAGE> 2
INDEX
PART I FINANCIAL INFORMATION Page No.
Item 1. Financial Statements (Unaudited):
Consolidated Balance Sheets
November 30, 1995 and August 31, 1995 1 - 2
Consolidated Statements of Income and
Accumulated Deficit
Three Months Ended November 30, 1995
and November 30, 1994 3
Consolidated Statements of Cash Flows
Three Months Ended November 30, 1995
and November 30, 1994 4 - 5
Notes to Consolidated Financial Statements 6 -7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8 - 10
PART II OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 2. Changes in Securities 11
Item 3. Defaults Upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security
Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11 - 12
Signatures 13
<PAGE> 3
FLORAFAX INTERNATIONAL, INC.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
(In Thousands)
Assets November 30 August 31
1995 1995
----------- ---------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $2,206 $1,972
Restricted cash and investments 577 566
Accounts receivable:
Members, less allowances of $631 at
November 30, 1995 and $706 at
August 31, 1995 1,613 1,289
Charge card issuers 235 225
Other 34
------ ------
1,848 1,548
Prepaid and other assets 153 31
------ ------
Total current assets 4,784 4,117
Property and equipment, at cost:
Fixtures and equipment 1,352 1,347
Computer systems 1,138 1,114
Communication systems 1,515 1,516
Leasehold improvements 323 311
------ ------
4,328 4,288
Accumulated depreciation
and amortization 3,994 3,919
------ ------
334 369
Other assets:
Excess of cost over net assets
of acquired business 1,995 1,995
Other 343 371
------ ------
2,338 2,366
------ ------
Total assets $7,456 $6,852
====== ======
</TABLE>
See accompanying notes.
1
<PAGE> 4
FLORAFAX INTERNATIONAL, INC.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
(In Thousands)
Liabilities and stockholders' net capital deficiency November 30 August 31
1995 1995
----------- ---------
(Unaudited)
<S> <C> <C>
Current Liabilities:
Current maturities of long-term debt 2,957 466
Accounts payable 4,290 3,919
Accrued liabilities:
Member benefits 156 150
Other 1,086 980
------- -------
Total current liabilities 8,489 5,515
Long-term debt, less current maturities:
9 1/2% convertible subordinated notes 2,567
Other 426 467
------- -------
426 3,034
Membership security deposits 49 59
Unearned directory income 86
------- -------
Total liabilities 9,050 8,608
Stockholders' net capital deficiency:
Preferred stock (par value $10, 600,000
shares authorized, none issued)
Common stock - ( par value $.01,
18,000,000 shares authorized, 5,945,973 and 5,793,874
issued at November 30, 1995 and August 31, 1995, respectively,
5,922,973 and 5,770,874 outstanding at November 30, 1995
and August 31, 1995 59 58
Additional paid-in capital 7,385 7,381
Accumulated deficit (9,038) (9,195)
------- -------
Total stockholders' net capital
deficiency (1,594) (1,756)
------- -------
Total liabilities and stockholders' net
capital deficiency $ 7,456 $ 6,852
======= =======
</TABLE>
See accompanying notes.
2
<PAGE> 5
FLORAFAX INTERNATIONAL, INC.
Consolidated Statements of Income and Accumulated Deficit
(In Thousands Except per Share Data)
<TABLE>
<CAPTION>
Three Months Ended
November 30 November 30
1995 1994
----------- -----------
(Unaudited)
<S> <C>
Net revenues:
Member dues and fees $470 $476
Floral and other order
processing 584 366
Directory and advertising fees 295 292
Charge card processing 309 394
Other revenue 24 10
------- -------
1,682 1,538
Expenses:
Member support, general
and administrative 1,127 1,109
Selling, advertising and promotion 156 150
Directory publishing 77 78
Depreciation, amortization
and retirements 103 110
------- -------
1,463 1,447
------- -------
Operating income 219 91
Other income (expense):
Interest expense (77) (76)
Interest income 20
Other 1 5
------- -------
(56) (71)
------- -------
Net income before income taxes 163 20
Federal income tax 6
------- -------
Net income 157 20
Accumulated deficit at beginning of year (9,195) (9,902)
------- -------
Accumulated deficit at end of quarter ($9,038) ($9,882)
======= =======
Weighted average shares
outstanding 5,806 5,549
Primary and fully diluted earnings
per share $0.03 $0.00
</TABLE>
See accompanying notes.
3
<PAGE> 6
FLORAFAX INTERNATIONAL, INC.
Consolidated Statements of Cash Flows
(In Thousands)
<TABLE>
<CAPTION>
Three months ended
November 30
1995 1994
---- ----
(Unaudited)
<S> <C> <C>
Operating activities
Net income $157 $20
Adjustments to reconcile net income
to net cash provided by operating activities
Depreciation, amortization, and retirements 75 110
Provision for doubtful accounts 40 55
Increase (decrease) in cash
flows due to changes in:
Accounts receivable (340) 167
Prepaid and other assets (122) (13)
Other assets 28 25
Accounts payable 371 160
Accrued liabilities 112 (47)
Unearned directory income 86 86
Membership security deposits (10) (2)
----- -----
Net cash provided by
operating activities 397 561
Investing activities
Capital expenditures (40) (91)
Deposit of restricted cash (11)
----- -----
Net cash used in
investing activities ($51) ($91)
</TABLE>
(Continued)
4
<PAGE> 7
FLORAFAX INTERNATIONAL, INC.
Consolidated Statements of Cash Flows
(In Thousands)
<TABLE>
<CAPTION>
Three months ended
November 30
1995 1994
------- -------
(Unaudited)
<S> <C> <C>
Financing activities
Proceeds from issuing debt --- $ 63
Proceeds from issuing stock 5
Reduction in bank overdraft --- (976)
Payments of debt (117) (12)
----- -----
Net cash used in
financing activities (112) (925)
----- -----
Net increase (decrease) in
cash and cash equivalents 234 (455)
Cash and cash equivalents
at beginning of year 1,972 558
----- -----
Cash and cash equivalents
at end of period $2,206 $ 103
===== =====
Supplemental disclosures of
cash flow information:
Cash paid during the period for interest $ 14 $ 6
Cash paid during the period for income tax $ 6 ---
===== =====
</TABLE>
See accompanying notes.
5
<PAGE> 8
FLORAFAX INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
Three Months Ended November 30, 1995
Note (1) Management's Opinion and Accounting Policies
The accompanying interim financial statements should be read in conjunction
with the Florafax International, Inc. (the Company's) Form 10-KSB for the year
ended August 31, 1995.
In the opinion of Management the unaudited consolidated financial statements
contain all adjustments (consisting of only normal recurring adjustments)
necessary to present fairly the Company's consolidated financial position as of
November 30, 1995 and the consolidated results of operations and cash flows for
the three months ended November 30, 1995.
Historically, the Company's flowers-by-wire operation is seasonal in that its
member florists send a much larger volume of orders during Thanksgiving, the
Christmas season, Valentine's Day, Easter and Mother's Day. Therefore, the
results of operations of an interim period may not necessarily be indicative of
the results expected for a full year. In an effort to increase orders to member
florists the Company continues to engage in non traditional campaigns through
it's wholly owned subsidiary, The Flower Club. The Flower Club, Inc. was formed
to generate additional orders by pursuing relationships with nationally
recognized corporations. The Company engages in joint marketing campaigns with
these corporations not only during holidays, but also during non seasonal
periods in an effort to provide member florists with orders during slow periods
of the year. Floral orders and handling fees generated through The Flower Club
have become significant, representing 57% of gross floral order revenue for
the quarter ended November 30, 1995 compared to 42% for the quarter ended
November 30, 1994. Management expects the upward trend in orders generated by
The Flower Club to continue.
The Company continues to focus on its basic core business, which is primarily
flowers by wire and processing credit cards.
Note (2) Contingencies
Florafax International, Inc. vs. Bellerose Floral Inc. and GTE Market Resources
Inc., et al.
In October 1989, Bellerose Floral, Inc. (Bellerose) of Bayside, N.Y., an
affiliate of 800-FLOWERS, Inc. became a Florafax member florist, and Florafax
agreed to provide certain telecommunication services to Bellerose for a fee.
GTE Market Resources, Inc. (GTE/MR) was engaged by Florafax to provide
order-entry services for Florafax and to customers of Florafax, including
Bellerose.
6
<PAGE> 9
FLORAFAX INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
Three Months Ended November 30, 1995
In 1990 certain disputes arose among Florafax, Bellerose and GTE/MR regarding
the services to be performed by GTE/MR. As a result, in 1990, Florafax filed
an action in Tulsa County (Oklahoma) District Court against GTE/MR and
Bellerose. Bellerose then filed an action in New York Federal Court against
Florafax. Subsequently, Florafax and Bellerose settled their claims against
each other. Florafax pursued its claim against GTE/MR for damages suffered as
a result of GTE/MR's breach of the telecommunications service agreement. On
November 23, 1993 a jury awarded Florafax $1,481,000 in net damages against
GTE/MR.
GTE/MR appealed this case and posted bond with the Court in order to do so. On
December 22, 1994 this case was assigned to the Oklahoma Court of Appeals by
the Oklahoma Supreme Court. On April 4, 1995 the Court of Appeals of the State
of Oklahoma released for publication its decision on the appeal filed by
GTE/MR. The award to the Company of $743,117 for consequential damages was
affirmed. To the extent that the Company was awarded lost profits for two
years in the amount of $750,000, the judgment was reversed and remanded for a
determination of lost profits as limited by Oklahoma law. The award to GTE/MR
of a set-off amount of $88,750 for unpaid invoices was affirmed, a contractual
rate of 18% per annum applied for prejudgment interest was applied and the case
remanded for a determination of an award of GTE's reasonable attorney's fees,
expenses and other collection costs incurred in recovering the unpaid invoice
amounts, but not their fees or expenses in defending against the claims of the
Company or in pursuing other unsuccessful aspects of GTE/MR's counterclaim.
The denial of the Company's request for attorney's fees was affirmed. The
Company and GTE/MR have each petitioned the Oklahoma Supreme Court for writ of
certiorari to review the portions of the Oklahoma Court of Appeals decision
adverse to their respective interests, and both of the parties appeals have
been granted. There are no assurances that the Company will obtain a favorable
ruling from the Oklahoma Supreme Court.
The Company's legal counsel has tried this case on a contingency fee basis and,
accordingly, the Company has incurred minimal expenses related to this
litigation. However, the agreement between the Company and its legal counsel
stipulates that the Company's attorneys are to receive 40% of the net proceeds
now that the case has reached the appellate court. Consequently, the Company
is to receive 60% of the ultimate proceeds. Recognition of any of these
amounts will not be reflected in the financial statements until ultimate
resolution.
Other
The Company is involved in various disputes involving routine business matters,
the resolution of all of which in management's opinion will not have a material
adverse effect upon the Company.
7
<PAGE> 10
FLORAFAX INTERNATIONAL, INC.
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
Sources of cash to meet future requirements are existing cash balances and
internally generated funds. Management is currently pursuing options that may
give the Company access to additional working capital.
In addition, as discussed in Note 2, the Company is hopeful that they will
reach a settlement with GTE/MR during the current year, which could provide an
additional source of working capital. However, there is no guaranty that the
Company will receive any funds as a result of the GTE/MR judgment.
The Company continues to generate positive cash flow from operations. Cash
provided by operations for the Quarter ended November 30, 1995 was $397,000
compared to $561,000 for the quarter ended November 30, 1994. For the quarter
ended November 30, 1995 the Company reported a total increase in cash of
$234,000 compared to an overall cash decrease of ($455,000) for the quarter
ended November 30, 1994.
Operating cash flows historically have been generated primarily from processing
floral orders and charge card transactions for the Company's member florists,
as well as collecting dues, fees and directory advertising from the members.
Floral order processing may require settlement with the fulfilling florist
before collection of funds from the sending florist. The terms of the
Company's receivables are 30 days, which management believes are consistent
within the industry. Charge card processing, however, generally allows the
Company to collect funds from the charge card issuer prior to settlement with
the merchant. Since in both types of transactions the Company is both
collecting and settling funds, the timing of these cash flows has a significant
impact on the Company's liquidity.
As discussed in Note 1 to the consolidated financial statements the Company
continues to engage in non traditional campaigns through it's wholly owned
subsidiary, The Flower Club. This has helped to improve the Company's cash
flow as the majority of orders generated through The Flower Club are paid for
by credit cards. This allows the Company to receive its funds within days after
processing the transaction. For the quarter ended November 30, 1995 floral
orders and handling fees generated through The Flower Club amounted to
approximately $2,667,000 compared to $1,392,000 for the quarter ended November
30, 1994, an increase of 92%.
8
<PAGE> 11
FLORAFAX INTERNATIONAL, INC.
Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
General Comments
The Company's return to profitability during fiscal 1995 appears to be
continuing in fiscal 1996, as net income for the quarter ended November 30,
1995 was $157,000 compared to $20,000 for the quarter ended November 30, 1994.
In addition, total revenues increased by 9% during the quarter ended November
30, 1995 when compared to the same period in the prior year while operating
expenses increased by only 1%.
Net Revenues
Revenues from member dues and fees remained relatively constant during the
quarter ended November 30, 1995 when compared to the same period in the prior
year. Management believes that the number of orders that the Company is now
providing to it's members has allowed the Company to maintain it's membership
base.
Floral order revenue increased by 60% for the quarter ended November 30, 1995
when compared to the same period in the previous year. This increase is
primarily a result of orders generated by The Flower Club. Orders generated by
The Flower Club increased by 92% during the quarter ended November 30, 1995
when compared to the same period in the previous year. Management expects the
upward trend in orders generated by The Flower Club to continue.
Net revenues from credit card operations decreased by 22% for the quarter ended
November 30, 1995 when compared to the same quarter in the previous year. The
gross dollar amount of credit cards processed actually increased by 27%,
however there were four primary factors that caused a decrease in net revenues,
as follows. First, the Company lowered it's discount rate to be more
competitive in certain markets. Second, the Company experienced an increase in
the cost to clear credit card transactions as well as an increase in data
capture and authorization fees. Third, certain credit card companies began
settling credit card transactions directly with a segment of the Company's
merchants, which eliminated the Companies ability to charge a discount rate on
these transactions. Fourth, the Company no longer processes the credit card
transactions for the Oklahoma State Treasurers office.
Expenses
Member support, general and administrative expenses increased slightly (2%) for
the quarter ended November 30, 1995 when compared to the same quarter in the
previous year. Certain
9
<PAGE> 12
FLORAFAX INTERNATIONAL, INC.
Management's Discussion and Analysis of Financial Condition and
Results of Operations
expenses such as salaries and telephone expense experienced an increase. A
portion of these increases were due to orders generated by The Flower Club as
each order has two associated long distance phone calls as well as the need for
an operator to take the order and often times to place the order. Other costs
such as consulting fees, bank service charges, and bad debt expense declined.
Selling and advertising expenses increased by 4% for the quarter ended November
30, 1995 when compared to the same quarter in the previous year. The main
component of this increase was an increase in advertising costs. Now that the
Company is operating at a profit management has begun to focus on increasing
membership which required expenditures for advertising. The Company may
continue to incur advertising costs in an effort to increase membership.
Other income (expense)
The Company is reporting interest income of $20,000 for the quarter ended
November 30, 1995 compared to no interest income for the quarter ended November
30, 1994. The current year interest income is a result of the Companies
improved cash position when compared to the same period last year.
10
<PAGE> 13
PART II OTHER INFORMATION
Item 1. Legal Proceedings
For a summary of legal proceedings, reference is made to Item 3, Legal
Proceedings, included in the Company's annual report on Form 10-KSB for the
year ended August 31, 1995 and to Note 2 of the Notes to Consolidated Financial
Statements included in this filing.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. The Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
The following items have been included as exhibits in filings by the Company in
a previous year and, accordingly, are incorporated here by reference except for
Exhibit 27.
Exhibit Reference
(10) Material Contracts
(a) Convertible subordinated notes due to Clark Estates
maturing June 30, 1996.
(b) Subordinated debentures maturing in 1998.
11
<PAGE> 14
(c) Agreement dated December 3 1993, Addendum, Second
Addendum, Third Addendum, Fourth Addendum and
Fifth Addendum thereto by and between the
Registrant and Citizens Fidelity Bank and
Trust Company (now PNC Bank, Kentucky, Inc.).
(d) Purchase Agreement for certain assets formerly owned by
Savannah Floral Services, Inc. dated March
10, 1994.
(e) Note Payable to Andrew Williams dated March 10, 1994.
(f) Promissory Note to Citrus Bank dated November 9, 1993.
(g) Promissory Note to Citrus Bank dated November 17, 1993.
(h) Promissory Note to Citrus Bank dated January 25, 1994.
(i) Loan to James H. West, Director, President and Chief
Financial Officer, dated August 28, 1994.
(j) Consulting agreement with David Harper of Ventura County
California dated December 10, 1993.
(k) Promissory Note to Citrus Bank dated August 31, 1995.
(l) Operating lease agreement between Registrant and Alvin
Wunderlich dated April 1995.
(22) Subsidiaries of the Registrant
(27) Financial Data Schecule (for SEC use only)
(3) Articles of incorporation and Bylaws of the Registrant, as
amended.
Reports on Form 8-K
No reports on Form 8-K were filed during the first quarter of fiscal 1996.
12
<PAGE> 15
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.
Florafax International, Inc.
Date: January 11, 1996 James H. West
---------------- -------------
James H. West
President and Chief
Financial Officer
13
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-START> SEP-01-1995
<PERIOD-END> NOV-30-1995
<CASH> 2,783,000
<SECURITIES> 0
<RECEIVABLES> 2,479,000
<ALLOWANCES> 631,000
<INVENTORY> 0
<CURRENT-ASSETS> 4,784,000
<PP&E> 4,328,000
<DEPRECIATION> 3,994,000
<TOTAL-ASSETS> 7,456,000
<CURRENT-LIABILITIES> 8,489,000
<BONDS> 426,000
0
0
<COMMON> 59,000
<OTHER-SE> (1,653,000)
<TOTAL-LIABILITY-AND-EQUITY> 7,546,000
<SALES> 0
<TOTAL-REVENUES> 1,682,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,463,000
<LOSS-PROVISION> 40,000
<INTEREST-EXPENSE> 77,000
<INCOME-PRETAX> 163,000
<INCOME-TAX> 6,000
<INCOME-CONTINUING> 157,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 157,000
<EPS-PRIMARY> 0.03
<EPS-DILUTED> 0.03
</TABLE>
