-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Rlxgj2bPo1PfSJyA2aQ+om+qRE5A/8anhvCXA940IIkokdxPnQxGH/p6gjC1ZVZI huND7JzQGMEs3wNaO32YDA== 0000950133-99-001278.txt : 19990413 0000950133-99-001278.hdr.sgml : 19990413 ACCESSION NUMBER: 0000950133-99-001278 CONFORMED SUBMISSION TYPE: 10QSB/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19981130 FILED AS OF DATE: 19990412 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FLORAFAX INTERNATIONAL INC CENTRAL INDEX KEY: 0000037525 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389] IRS NUMBER: 410719035 STATE OF INCORPORATION: DE FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10QSB/A SEC ACT: SEC FILE NUMBER: 000-05531 FILM NUMBER: 99591283 BUSINESS ADDRESS: STREET 1: 8075 20TH STREET CITY: VERO BEACH STATE: FL ZIP: 32966 BUSINESS PHONE: 5615630263 MAIL ADDRESS: STREET 1: 8075 20TH STREET CITY: VERO BEACH STATE: FL ZIP: 32966 FORMER COMPANY: FORMER CONFORMED NAME: SPOTTS FLORAFAX CORP DATE OF NAME CHANGE: 19740924 FORMER COMPANY: FORMER CONFORMED NAME: SPOTTS CORP DATE OF NAME CHANGE: 19671205 FORMER COMPANY: FORMER CONFORMED NAME: SPOTTS MAILING CORP DATE OF NAME CHANGE: 19671205 10QSB/A 1 FORM 10QSB/A AMENDMENT NO.1 FLORAFAX INT'L 1 United States Securities and Exchange Commission Washington, D.C. 20549 FORM 10-QSB/A AMENDMENT NO. 1 (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, 1998 [ ] 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 (I.R.S. Employer Identification No.) of incorporation or organization)
8075 20TH STREET, VERO BEACH, FLORIDA 32966 (Address of principal executive offices) (Zip Code)
Issuer's telephone number (561) 563-0263 (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 --- --- State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 8,085,106 as of December 29, 1998. Transitional Small Business Disclosure Format (Check one): Yes [_] No [X] 2 FLORAFAX INTERNATIONAL, INC. EXPLANATORY NOTE TO FORM 10-QSB/A This quarterly report on Form 10-QSB/A amends and supersedes, to the extent set forth herein, the Registrant's Quarterly Report on Form 10-QSB for the quarter ended November 30, 1998 previously filed on January 13, 1999. As more fully set forth below, the following financial and related information has been updated in connection with the filing of the restated financial statements included herein. The Items of Form 10-QSB affected by this Amendment No. 1 on Form 10-QSB/A are as follows: Part I -- Item 1. Financial Statements Consolidated Balance Sheets Consolidated Statements of Income Consolidated Statements of Changes in Stockholders' Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements Part I -- Item 2. Management's Discussion and Analysis or Plan of Operation Page numbers for the amended Items set forth in this Form 10-QSB/A correspond to the page numbering of the same Items in the original Form 10-QSB. 3 FLORAFAX INTERNATIONAL, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
NOVEMBER 30 AUGUST 31 1998 1998 ----------- --------- (UNAUDITED) (RESTATED (RESTATED SEE NOTE 6) SEE NOTE 6) ASSETS Current assets: Cash and cash equivalents................................. $ 3,164 $ 3,438 Restricted cash........................................... 109 106 Accounts receivable: Trade, less allowances of $462 at November 30, 1998 and $482 at August 31, 1998........................................ 1,697 1,421 Charge card issuers.................................... 212 211 Other.................................................. 168 110 ------- ------- 2077 1,742 Deferred tax asset, net of allowance........................ 103 301 Prepaid and other assets.................................... 398 165 ------- ------- Total current assets................................... 5,851 5,752 Property and equipment, at cost: Fixtures and equipment.................................... 1,662 1,594 Computer systems.......................................... 992 977 Communication systems..................................... 1,171 1,121 Land, building and leasehold improvements................. 1,292 1,282 ------- ------- 5,117 4,974 Accumulated depreciation and amortization................. 3,078 2,992 ------- ------- 2,039 1,982 Excess of cost over net assets of acquired business......... 1,995 1995 Deferred tax asset, net of allowance........................ 1,881 1,881 Marketing techniques........................................ 62 100 Other....................................................... 147 176 ------- ------- 4,085 4,152 ------- ------- Total assets........................................... $11,975 $11,886 ======= =======
See accompanying notes. 1 4 FLORAFAX INTERNATIONAL, INC. CONSOLIDATED BALANCE SHEETS -- (CONTINUED) (IN THOUSANDS)
NOVEMBER 30 AUGUST 31 1998 1998 ----------- --------- (UNAUDITED) (RESTATED (RESTATED SEE NOTE 6) SEE NOTE 6) LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt........................ $ 80 $ 80 Accounts payable............................................ 4,535 3,986 Accrued expenses............................................ 1,177 1,077 Member benefits............................................. 121 116 ------- ------- Total current liabilities.............................. 5,913 5,259 Long term debt, less current maturities..................... 1,000 2,018 Deferred revenue............................................ 85 -- Membership security deposits................................ 47 52 ------- ------- Total liabilities...................................... 7,045 7,329 Stockholders' equity Preferred stock ($10 par value, 600,000 shares Authorized at November 30, 1998 and August 31, 1998, none issued)....... -- -- Common stock ($.01 par value, 70,000,000 shares authorized, 8,523,577 and 8,449,198 shares issued at November 30, 1998 and August 31, 1998, respectively......................... 86 85 Additional paid-in capital.................................. 10,296 10,211 Treasury stock at cost...................................... (1,616) (1,616) Accumulated deficit......................................... (3,836) (4,123) ------- ------- Total stockholders' equity............................. 4,930 4,557 ------- ------- Total liabilities and stockholders' equity............. $11,975 $11,886 ======= =======
See accompanying notes. 2 5 FLORAFAX INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF INCOME AND ACCUMULATED DEFICIT (IN THOUSANDS EXCEPT SHARE DATA) (UNAUDITED)
THREE MONTHS ENDED NOVEMBER 30 ------------------------- 1998 1997 ----------- -------- (RESTATED SEE NOTE 6) Net revenues: Member dues and fees...................................... $ 700 $ 629 Floral and other order Processing......................... 1,882 1,814 Publication and advertising fees.......................... 679 360 Charge card processing.................................... 463 424 Other revenue............................................. 31 33 ------- ------- 3,755 3,260 Expenses: General and administrative................................ 1,431 1,336 Selling and advertising................................... 1,383 1,271 Publications.............................................. 179 91 Depreciation and amortization............................. 153 69 ------- ------- 3,146 2,767 ------- ------- Operating Income............................................ 609 493 Other income (expense): Interest expense.......................................... (26) (2) Other..................................................... (85) 2 Interest income........................................... 17 36 ------- ------- (94) 36 ------- ------- Income before taxes......................................... 515 529 Income tax expense.......................................... 228 191 ------- ------- Net Income.................................................. $ 287 $ 338 ======= ======= Net income.................................................. $ 287 $ 338 Accumulated deficit at beginning of period................ (4,123) (3,500) ------- ------- Accumulated deficit at end of period........................ $(3,836) $(3,162) ------- ------- Basic earnings per common share............................. $ .04 $ .04 ======= ======= Weighted average shares outstanding......................... 7,944 7,751 ======= ======= Fully diluted earnings per common share..................... $ .03 $ .04 ======= ======= Weighted average shares outstanding......................... 8,801 8,718 ======= =======
See accompanying notes. 3 6 FLORAFAX INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
THREE MONTHS ENDED NOVEMBER 30 ----------------------- 1998 1997 ----------- ------ (RESTATED SEE NOTE 6) OPERATING ACTIVITIES Net income................................................ $ 287 $ 338 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization.......................... 153 54 Provision for doubtful accounts........................ 37 38 Deferred income taxes.................................. 198 153 Increase (decrease) in cash flows due to changes in: Accounts receivable.................................. (372) (223) Prepaid and other assets............................. (233) (215) Other assets......................................... 15 Accounts payable..................................... 549 367 Deferred revenue..................................... 85 Accrued liabilities.................................. 105 290 Membership security deposits......................... (5) -- ------- ------ Net cash provided by operating activities................. 804 817 ------- ------ Investing activities Capital expenditures...................................... (143) (421) Purchase of common stock.................................. (100) (Increase) decrease in restricted cash.................... (3) (17) ------- ------ Net cash (used in) investing activities................... $ (146) $ (538) ======= ======
FINANCING ACTIVITIES Purchases of treasury stock............................... $ $ (178) Proceeds from issuing stock............................... 86 2 Payments of debt.......................................... (1,018) -- ------- ------ Net cash (used in) financing activities................... $ (932) (176) ------- ------ Net increase (decrease) in cash and cash equivalents...... $ (274) 103 Cash and cash equivalents at beginning of period.......... 3,438 4,170 ------- ------ Cash and cash equivalents at end of period................ $ 3,164 $4,273 ======= ====== Supplemental disclosures of cash flow information: Cash paid during the period for interest............... $ 18 $ -- Cash paid during the period for income tax............. 30 38
See accompanying notes. 4 7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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/A, filed on April 9, 1999 (See Note 6), for the year ended August 31, 1998. 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, 1998 and the consolidated results of operations and cash flows for the three months ended November 30, 1998. For the quarter ended November 30, 1997 certain income statement items have been reclassified to conform to current period presentation. 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 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. NOTE (2) YEAR 2000 ISSUE The Company operates three primary information technology computer systems, which are a main frame, a network based order entry system, and a telephone system. A year 2000 discussion of each of these systems is as follows. The Company operates a main frame computer system that processes floral orders, credit card transactions, and performs the Company's monthly billings to its member florists. The year 2000 software upgrade has been installed, tested, and is currently in use. The manufacturer of the software has provided the Company with the year 2000 upgrade at no charge. In addition, all internally developed software applications have been modified to be year 2000 compliant. At this time, these modifications are being tested and are expected to be operational by March 31, 1999. The cost to update these applications was less than $50,000. The Company operates a network based order entry system. The manufacturers operating system software is year 2000 compliant. However, not all internally developed software applications have been modified to be year 2000 compliant. The Company is in the process of modifying its internally developed software applications and expects to complete the modifications no later than June 30, 1999. These internal programs are being modified by current employees and, as a result, the cost of these modifications is not expected to be material. The Company operates a telephone system which is integrated with the order entry system discussed in the preceding paragraph. The Company recently learned that a primary component of this system will need to be upgraded or replaced to be year 2000 compliant. The company is in the process of evaluating whether to upgrade or replace this component. Regardless of which option is selected by the Company, this component is expected to be operational no later than, July 31, 1999, at a cost not to exceed $200,000. Currently the company does not operate any significant non-information technology systems. Management believes the most reasonably likely worst case year 2000 scenario would occur if the order entry system failed, which would prevent automated processing of floral orders. At this time, there is no indication that this will happen. However, should this occur, the Company would be forced to process incoming floral orders manually, until such time that the failure could be corrected. This could cause labor costs to double or triple during the time period while the system failure was being corrected. 5 8 The Company relies on two main vendors to operate the credit card portion of its business. Both of these vendors have represented that they are year 2000 compliant. One vendor has provided the Company written certification of their year 2000 readiness. The other vendor has provided the Company with limited written certification regarding a particular type of credit card terminal used by merchants who process transactions with the Company. Other significant vendors include certain third party service providers, such as those supplying electricity, water or telephone service. If these vendors experience year 2000 difficulties this could result in disruption of service to the Company, and a shutdown of the Company's facilities could occur for the duration of the disruption. None of these vendors have certified that their systems are year 2000 compliant. NOTE (3) CONTRACT MODIFICATION As a result of the Companies contract modification with Marketing Projects Inc. ("MPI") during 1998 the Company is required to make additional contingent payments to MPI, contingent upon the attainment of quarterly revenue targets. If made, these payments will be recorded as commission expense in the period in which they were earned. For the quarter ended November 30, 1998, the Company recorded $122,000 of commission expense related to these contingent payments. NOTE (4) RECENT PRONOUNCEMENTS For a discussion of recent accounting pronouncements please refer to the Company's 10-KSB for the year ended August 31, 1998. NOTE (5) SUBSEQUENT EVENTS On December 9, 1998 the Company entered into a definitive merger with privately held Gerald Stevens Inc., a Fort Lauderdale, Florida based retailer of flowers, floral-related merchandise and gifts. Under terms of the agreement, Gerald Stevens' shareholders will receive 1.25 to 1.35 common shares of the Company for each common share of Gerald Stevens share owned. The exchange rate will be determined based on the average closing sales price of Florafax common stock for the 45 consecutive trading days prior to the third trading day before the merger is completed. Depending on the conversion ratio, Gerald Stevens' shareholders will own approximately 75% of the Company's common stock after the merger. The parties expect the transaction to be treated as a pooling-of-interests for accounting purposes and anticipate that the merger will be completed by the end of March 1999. Merger related expenses during the quarter ended November 30, 1998 amounted to $85,000. Upon consummation of the merger the Company will incur additional significant merger related expenses, including accounting, legal and investment banking fees. These expenses are expected to result in the Company reporting a net loss for that quarter. Certain options granted by the Company in 1997 created a variable stock compensation plan. As a result, the Company is required to recognize non-cash compensation expense when the price of the Company's common stock reaches certain prices for a specified number of trading days. The current rise in the price of the Company's common stock will cause the Company to record non-cash compensation expense, in addition to ordinary salaries and wages, of approximately $1,373,000 for the quarter ended February 28, 1999. NOTE (6) RESTATEMENT Effective May 1, 1998 the Company entered into a contract modification agreement with Marketing Projects Inc. At that time, the contract was accounted for as a business combination, however, subsequent to the original accounting of the transaction, the Company had several discussions with the Securities and Exchange Commission. As a result of these conversations, the Company re-evaluated the facts and circumstances surrounding the MPI transaction and concluded that the transaction should be accounted for as a contract modification rather than a business combination. Consequently, the Company has restated its financial statements to account for the transaction as a contract modification. 6 9 The following tables reflect the more significant effects of the restatements on certain components of operations: EFFECTS ON OPERATIONS Operating income, as previously reported.................... $ 723 Adjustment related to: Adjustment to amortization expense........................ 8 Contingent commission expense............................. (122) ------ Restated operating income................................... 609 ====== Net income, as previously reported.......................... $ 391 Adjustment related to: Adjustment to amortization expense........................ 8 Contingent commission expense............................. (122) Income tax effects of adjustments......................... 10 ------ Restated net income......................................... 287 ====== Basic income, per share, as previously reported............. $ 0.05 Adjustment related to: Adjustment to amortization expense........................ -- Contingent commission expense............................. (0.01) Income tax effects of adjustments......................... -- ------ Restated basic income (loss) per share...................... 0.04 ====== Diluted income, per share, as previously reported........... $ 0.04 Adjustment related to: Adjustment to amortization expense........................ -- Contingent commission expense............................. (0.01) Income tax effects of adjustments......................... -- ------ Restated diluted income (loss) per share.................... 0.03 ======
7 10 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION LIQUIDITY AND CAPITAL RESOURCES The Company continues to generate adequate operational cash flows. Cash provided by operating activities was $804,000 for the three months ended November 30, 1998 compared to $817,000 for the three months ended November 30, 1997. 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. 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 generally has a positive impact on 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 a significant portion of the proceeds from these orders within days after processing the transaction. On December 10, 1998 the Company announced that it will merge with privately held Gerald Stevens Inc., a Fort Lauderdale, Florida based retailer of flowers, floral-related merchandise and gifts. Under terms of the agreement, Gerald Stevens' shareholders will receive 1.25 to 1.35 common shares of the Company for each common share of Gerald Stevens share owned. The exchange rate will be determined based on the average closing sales price of Florafax common stock for the 45 consecutive trading days prior to the third trading day before the merger is completed. Depending on the conversion ratio, Gerald Stevens' shareholders will own approximately 75% of the Company's common stock after the merger. The parties expect the transaction to be treated as a pooling-of-interests for accounting purposes and anticipate that the merger will be completed by the end of March 1999. Merger related expenses during the quarter ended November 30, 1998 amounted to $85,000. Upon consummation of the merger the Company will incur additional significant merger related expenses, including accounting, legal and investment banking fees. These expenses are expected to result in the Company reporting a net loss for that quarter. Certain options granted by the Company in 1997 created a variable stock compensation plan. As a result, the Company is required to recognize non cash compensation expense when the price of the Company's common stock reaches certain prices for a specified number of trading days. The current rise in the price of the Company's common stock will cause the Company to record non-cash compensation expense, in addition to ordinary salaries and wages, of approximately $1,373,000 for the quarter ended February 28, 1999. RESULTS OF OPERATIONS GENERAL COMMENTS Revenues are up in every major category for the quarter ended November 30, 1998 when compared to the same period in the previous year. Aggregate net revenues were up 15% for the quarter ended November 30, 1998 when compared to the same quarter in the prior year. Operating income increased by 24% for the quarter when compared to the same period in the prior year. NET REVENUES Revenue from member dues and fees has increased for the quarter ended November 30, 1998 when compared to the same period in the prior year. This increase is primarily attributable to an increase in member florists and a minor increase in dues. Floral order revenue increased moderately for the quarter ended November 30, 1998 when compared to the same period last year. This is attributable primarily to an increase in Flower Club revenues as well as an increase in shop to shop revenues. 8 11 Net revenues from credit card operations increased for the quarter ended November 30, 1998 when compared to the same period in the prior year. This is primarily attributable to an increase in gross dollars processed by the Company's merchants and a non recurring credit to income in the amount of $25,000 during the quarter ended November 30, 1998. Advertising and publication fees increased significantly for the quarter ended November 30, 1998 when compared to the same period in the prior year. This is due to the publication of new selection guides in the quarter ended November 30, 1998. Selection guides are recipe books and sales materials used by member florists when producing the various flower arrangements that the Company advertises throughout the country. New selection guides are published approximately every three years. EXPENSES General and administrative expenses increased by 7% for the quarter ended November 30, 1998 when compared to the same period in the prior year. There was no primary expense item that caused the increase. Certain expenses related to payroll, postage, insurance, legal fees and supplies all increased for the quarter while other expenses such as travel, lodging and consulting fees declined for the quarter. In addition, the quarter ended November 30, 1997 included a credit from the Company's long distance telephone provider in the approximate amount of $45,000, with no similar credit in the quarter ended November 30, 1998. Selling and advertising expenses increased by nine percent for the quarter ended November 30, 1998 when compared to the same period in the prior year. There were several components that changed within the selling and advertising expense category, as follows. For the quarter ended November 30, 1998 the Company eliminated commission expenses paid to MPI, as this marketing function is now performed internally by a newly formed marketing department. These decreased commissions were offset somewhat by expenses related to the new marketing department, as well as contingent commissions related to the MPI contract modification (see Note 6). The Company also experienced an increase in amounts paid to Flower Club corporate partners as a result of increased order volume and due to several new contracts that call for additional commissions to these partners. The Company also experienced an increase in salaries and commissions to sales persons, but experienced a decline in advertising and tradeshow expenses. Depreciation and amortization increased during the quarter ended November 30, 1998 when compared to the quarter ended November 30, 1997. During 1998 the Company expanded its facilities as well as purchased new computer and telephone equipment, thereby causing an increase in depreciation. In addition, the contract modification agreement with Marketing Projects, Inc. during 1998 caused the Company to record certain intangible assets. The amortization of these intangible assets increased amortization expense for the quarter ended November 30, 1998. OTHER INCOME (EXPENSE) Other expense for the quarter ended November 30, 1998 consisted of legal and accounting fees related to the merger between the Company and Gerald Stevens, Inc. YEAR 2000 ISSUE The Company operates three primary information technology computer systems, which are a main frame, a network based order entry system, and a telephone system. A year 2000 discussion of each of these systems is as follows. The Company operates a main frame computer system that processes floral orders, credit card transactions, and performs the Company's monthly billings to its member florists. The year 2000 software upgrade has been installed, tested, and is currently in use. The manufacturer of the software has provided the Company with the year 2000 upgrade at no charge. In addition, all internally developed software applications have been modified to be year 2000 compliant. At this time, these modifications are being tested and are expected to be operational by March 31, 1999. The cost to update these applications was less than $50,000. 9 12 The Company operates a network based order entry system. The manufacturers operating system software is year 2000 compliant. However, not all internally developed software applications have been modified to be year 2000 compliant. The Company is in the process of modifying its internally developed software applications and expects to complete the modifications no later than June 30, 1999. These internal programs are being modified by current employees and, as a result, the cost of these modifications is not expected to be material. The Company operates a telephone system which is integrated with the order entry system discussed in the preceding paragraph. The Company recently learned that a primary component of this system will need to be upgraded or replaced to be year 2000 compliant. The company is in the process of evaluating whether to upgrade or replace this component. Regardless of which option is selected by the Company, this component is expected to be operational no later than, July 31, 1999, at a cost not to exceed $200,000. Currently the company does not operate any significant non-information technology systems. Management believes the most reasonably likely worst case year 2000 scenario would occur if the order entry system failed, which would prevent automated processing of floral orders. At this time, there is no indication that this will happen. However, should this occur, the Company would be forced to process incoming floral orders manually, until such time that the failure could be corrected. This could cause labor costs to double or triple during the time period while the system failure was being corrected. The Company relies on two main vendors to operate the credit card portion of its business. Both of these vendors have represented that they are year 2000 compliant. One vendor has provided the Company written certification of their year 2000 readiness. The other vendor has provided the Company limited written certification regarding a particular type of credit card terminal used by merchants who process transactions with the Company. Other significant vendors include certain third party service providers, such as those supplying electricity, water or telephone service. If these vendors experience year 2000 difficulties this could result in disruption of service to the Company, and a shutdown of the Company's facilities could occur for the duration of the disruption. None of these vendors have certified that their systems are year 2000 compliant. FORWARD-LOOKING STATEMENTS When used in this report, the words "plan(s)", "intends(s)", "expect(s)", "feel(s)", "will", "may", "believe(s)", "anticipate(s)", and similar expressions are intended to identify forward-looking statements. The events described in such statements are subject to certain risks and uncertainties which could cause actual results to differ materially from those projected. Readers are cautioned not to place undue reliance on these forward-looking statements which speak only as of the date hereof. The Company undertakes no obligation to republish revised forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Readers are also urged to carefully review and consider the various disclosures made by the Company which attempt to advise interested parties of the factors which affect the Company's business, including the disclosures made under the caption "Management's Discussion and Analysis or Plan of Operation" in the report, as well as the Company's periodic reports of Form 10-KSB, 10-QSB and 8-K filed with the Securities and Exchange Commission. The events described in such statements, and the success of the management strategies described by those statements, are subject to certain risks and uncertainties which could cause actual results to differ from those discussed; among those risks and uncertainties which are particular to the Company are: continued consumer spending on discretionary items such as flowers and gifts, the success of the Company in maintaining relations with corporate marketing partners, the success of the Company in maintaining a strong membership base, the continued use of credit cards as a preferred method of payment by customers of members, increased labor costs, constant competition, and the health of the retail flower and gift industry as a whole. 10 13 SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. FLORAFAX INTERNATIONAL, INC. -------------------------------------- (Registrant) Date: April 8, 1999 /s/ JAMES H. WEST ----------------------------------------------------- James H. West President and Chief Financial Officer
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