-----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, IzRCUwujSOlBvDKyns2gLPRFaOsksHsKOA/D33PhgwRzUjU/7y6Z1jjVCqZZH7sm qbltTg3X8MAMv072cPaICQ== 0001042910-00-000615.txt : 20000413 0001042910-00-000615.hdr.sgml : 20000413 ACCESSION NUMBER: 0001042910-00-000615 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20000229 FILED AS OF DATE: 20000412 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GERALD STEVENS INC/ CENTRAL INDEX KEY: 0000037525 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389] IRS NUMBER: 410719035 STATE OF INCORPORATION: FL FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-05531 FILM NUMBER: 599520 BUSINESS ADDRESS: STREET 1: 301 E LAS OLAS BLVD STREET 2: STE 300 CITY: FT LAUDERDALE STATE: FL ZIP: 33301 BUSINESS PHONE: 5615630263 MAIL ADDRESS: STREET 1: 301 EAST LAS OLAS BLVD STREET 2: SUITE 300 CITY: FT LAUDERDALE STATE: FL ZIP: 33301 FORMER COMPANY: FORMER CONFORMED NAME: FLORAFAX INTERNATIONAL INC DATE OF NAME CHANGE: 19920703 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 10-Q 1 QUARTERLY REPORT SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) |X| Quarterly Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 For the Quarterly Period Ended February 29, 2000 or |_| Transition Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 For the Transition Period from _________ to ___________ Commission File Number: 0-05531 Gerald Stevens, Inc. -------------------- (Exact Name of Registrant as Specified in its Charter) Florida 41-0719035 ------- ---------- (State of Incorporation) (IRS Employer Identification No.) 301 East Las Olas Boulevard, Suite 300 Ft. Lauderdale, Florida 33301 ----------------------- ----- (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number, Including Area Code: (954) 713-5000 (Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report) 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 (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 |_| On April 11, 2000 the registrant had 48,931,652 outstanding shares of common stock, par value $.01 per share. GERALD STEVENS, INC. INDEX PART I. FINANCIAL INFORMATION
Page No. Item 1. Financial Statements Condensed Consolidated Balance Sheets as of February 29, 2000 and August 31, 1999 1 Condensed Consolidated Statements of Operations for the Three and Six Months Ended February 29, 2000 and February 28, 1999 2 Condensed Consolidated Statement of Changes in Stockholders' Equity for the Six Months ended February 29, 2000 3 Condensed Consolidated Statements of Cash Flows for the Six Months ended February 29, 2000 and February 28, 1999 4 Notes to Condensed Consolidated Financial Statements 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 14 PART II. OTHER INFORMATION Item 1. Legal Proceedings 23 Item 4. Submission of Matters to a Vote of Security Holders 23 Item 6. Exhibits and Reports on Form 8-K 24 Signatures 25
PART 1. FINANCIAL INFORMATION GERALD STEVENS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share data)
February 29, August 31, 2000 1999 ------------- ---------- (Unaudited) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 2,956 $ 4,602 Accounts receivable, net 22,628 10,074 Inventories 12,915 8,454 Prepaid and other current assets 4,409 2,653 --------- --------- Total current assets 42,908 25,783 --------- --------- PROPERTY AND EQUIPMENT, net 26,044 15,953 --------- --------- OTHER ASSETS: Intangible assets, net 161,140 129,897 Other 1,826 1,390 --------- --------- Total other assets 162,966 131,287 --------- --------- Total assets $ 231,918 $ 173,023 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Notes payable $ 481 $ 2,009 Accounts payable 28,777 12,551 Accrued liabilities 18,553 15,567 Deferred revenue 3,226 2,164 --------- --------- Total current liabilities 51,037 32,291 --------- --------- LONG-TERM DEBT 31,900 4,340 --------- --------- OTHER 681 419 --------- --------- Total liabilities 83,618 37,050 --------- --------- COMMITMENTS AND CONTINGENCIES (Note 8) STOCKHOLDERS' EQUITY: Preferred stock, $10 par value, 600,000 shares authorized, none issued -- -- Common stock $0.01 par value, 250,000,000 shares authorized, 45,757,042 and 44,011,401 shares issued and outstanding on February 29, 2000 and August 31, 1999, respectively 457 440 Additional paid-in capital 168,553 155,224 Accumulated deficit (19,094) (18,075) Treasury stock, 519,975 shares at cost (1,616) (1,616) --------- --------- Total stockholders' equity 148,300 135,973 --------- --------- Total liabilities and stockholders' equity $ 231,918 $ 173,023 ========= =========
The accompanying notes are an integral part of these condensed consolidated statements. 1 GERALD STEVENS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands, except per share data)
Three Months Ended Six Months Ended ------------------------- -------------------------- February 29, February 28, February 29, February 28, 2000 1999 2000 1999 ---- ---- ---- ---- REVENUE: Product sales, net $ 63,186 $ 19,678 $ 100,643 $ 28,373 Service and other revenue 18,393 7,094 30,140 11,622 --------- --------- --------- --------- 81,579 26,772 130,783 39,995 --------- --------- --------- --------- OPERATING COSTS AND EXPENSES: Cost of product sales 22,545 8,896 36,552 12,744 Operating expenses 27,716 9,023 47,355 13,356 Selling, general and administrative expenses 27,353 8,901 46,814 14,260 Merger expenses -- 3,966 -- 4,051 --------- --------- --------- --------- 77,614 30,786 130,721 44,411 --------- --------- --------- --------- Operating income (loss) 3,965 (4,014) 62 (4,416) --------- --------- --------- --------- OTHER INCOME (EXPENSE): Interest expense (531) (115) (925) (183) Interest income 13 66 29 173 Other income 179 66 160 96 --------- --------- --------- --------- (339) 17 (736) 86 --------- --------- --------- --------- Income (loss) before provision for income taxes 3,626 (3,997) (674) (4,330) PROVISION FOR INCOME TAXES 345 2,127 345 2,127 --------- --------- --------- --------- Net income (loss) $ 3,281 $ (6,124) $ (1,019) $ (6,457) ========= ========= ========= ========= BASIC INCOME (LOSS) PER SHARE $ 0.07 $ (0.18) $ (0.02) $ (0.21) ========= ========= ========= ========= DILUTED INCOME (LOSS) PER SHARE $ 0.07 $ (0.18) $ (0.02) $ (0.21) ========= ========= ========= ========= WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING: Basic 45,323 33,532 44,844 31,198 ========= ========= ========= ========= Diluted 46,293 33,532 44,844 31,198 ========= ========= ========= =========
The accompanying notes are an integral part of these condensed consolidated statements. 2 GERALD STEVENS, INC. CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited) (In thousands)
Common Stock ----------------------- Additional Par Paid-In Accumulated Treasury Shares Value Capital Deficit Stock Total ------ ----- ------- ------- ----- ----- BALANCE, August 31, 1999 44,011 $ 440 $ 155,224 $ (18,075) $ (1,616) $ 135,973 Sale of common stock, net 328 3 948 -- -- 951 Common stock issued in acquisitions 1,418 14 12,381 -- -- 12,395 Net loss -- -- -- (1,019) -- (1,019) --------- --------- --------- --------- --------- --------- BALANCE, February 29, 2000 45,757 $ 457 $ 168,553 $ (19,094) $ (1,616) $ 148,300 ========= ========= ========= ========= ========= =========
The accompanying notes are an integral part of these condensed consolidated statements. 3 GERALD STEVENS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands)
Six Months Ended ---------------------------------------- February 29, 2000 February 28, 1999 ----------------- ----------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (1,019) $ (6,457) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Deferred income tax expense -- 25 Depreciation and amortization 4,389 1,078 Compensation expense under stock option plan -- 1,373 Provision for doubtful accounts 133 76 Changes in assets and liabilities, net of acquisitions: Accounts receivable (10,751) (3,868) Inventories (1,669) 219 Prepaid, other current and current deferred tax assets (1,505) 213 Other assets and deferred tax assets (718) 1,908 Accounts payable 11,237 1,985 Accrued liabilities 699 2,920 Other long-term liabilities 262 43 -------- -------- Net cash provided by (used in) operating activities 1,058 (485) -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (10,970) (1,359) Collection of amounts due from former owners of acquired subsidiary -- 1,300 Advance to subsequently acquired company -- (113) Payments for acquisitions, net of cash acquired (17,088) (25,638) -------- -------- Net cash used in investing activities (28,058) (25,810) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock, net 951 25,523 Payments on long-term debt (3,007) (1,304) Payment of commitment fee on credit facility -- (304) Proceeds from credit facility 83,280 16,900 Payment of credit facility (55,870) (16,900) -------- -------- Net cash provided by financing activities 25,354 23,915 -------- -------- Net decrease in cash and cash equivalents (1,646) (2,380) CASH AND CASH EQUIVALENTS, beginning of period 4,602 7,148 -------- -------- CASH AND CASH EQUIVALENTS, end of period $ 2,956 $ 4,768 ======== ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for interest $ 843 $ 74 ======== ======== Cash paid during the period for income taxes $ -- $ 320 ======== ======== SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES: Common stock issued in acquisitions $ 12,395 $ 22,980 ======== ========
The accompanying notes are an integral part of these condensed consolidated statements. 4 GERALD STEVENS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (ALL AMOUNTS AND RELATED DISCLOSURES APPLICABLE TO THE THREE AND SIX MONTHS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999 ARE UNAUDITED) 1. General and Summary of Significant Accounting Policies Organization and Operations Gerald Stevens, Inc. ("Gerald Stevens", the "Company" or "We") is a leading integrated retailer and marketer of flowers, plants and complementary gifts and decorative accessories. We operate the largest company-owned network of floral specialty retail stores, with locations in 35 markets in the United States and Canada as of February 29, 2000. We are building a national brand and transforming the retail floral industry by integrating our operations throughout the floral supply chain, from product sourcing to delivery, and by managing every interaction with the customer, from order generation to order fulfillment. We own and operate our own import operation and have relationships with leading growers around the world. Our national sales and marketing division permits us, through multiple distribution channels, including the Internet, dial-up numbers and direct mail, to serve customers who do not visit or phone our retail stores. Basis of Presentation The accompanying condensed consolidated financial statements of the Company have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC"). Certain information and footnote disclosures normally included in financial statements in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations. The information in this report should be read in conjunction with the Company's audited consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1999, as amended (the "Form 10-K"). The unaudited condensed consolidated financial statements included herein reflect all adjustments (consisting only of normal, recurring adjustments) which are, in the opinion of the Company's management, necessary for a fair presentation of the information for the periods presented. The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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 consolidated financial statements and the reported amounts of revenue and expenses 5 during the reporting period. Actual results could differ from those estimates. Interim results of operations for the three and six months ended February 29, 2000 and February 28, 1999 are not necessarily indicative of operating results for the full fiscal years or for any future periods. Previously reported amounts have been reclassified to make them consistent with the current presentation. Intangible Assets Intangible assets consisted of the following: February 29, August 31, 2000 1999 ---- ---- (In thousands) Goodwill $ 160,255 $ 126,999 Other 5,158 4,926 --------- --------- 165,413 131,925 Less: Accumulated amortization (4,273) (2,028) --------- --------- $ 161,140 $ 129,897 ========= ========= Goodwill consists of the excess of purchase price over the fair value of assets and liabilities acquired in acquisitions accounted for under the purchase method of accounting. (See Note 2.) Included in goodwill for both periods is $2.0 million from an acquisition prior to October 31, 1970 which is not required to be amortized. Otherwise, goodwill is amortized over periods ranging from 20 to 40 years, which management believes is a reasonable life in light of the characteristics present in the floral industry, such as the significant number of years that the industry has been in existence, the continued trends by consumers in purchasing flowers for many different occasions and the stable nature of the customer base. Other intangible assets consist primarily of customer lists, telephone numbers and contractual rights related to yellow page advertisements that were acquired by the Company from floral businesses that have discontinued their operations. Other intangible assets are amortized over periods ranging from 5 to 10 years. Amortization expense related to goodwill and other intangible assets was $1.3 million and $2.2 million for the three and six months ended February 29, 2000, respectively, as compared to $0.2 million and $0.4 million for the three and six months ended February 28, 1999, respectively. In accordance with Statement of Financial Accounting Standards ("SFAS") No. 121, Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of, the Company periodically analyzes the carrying value of its goodwill and other intangible assets to assess recoverability from future operations using an 6 undiscounted projected cash flow approach. Impairments are recognized in operating results to the extent that carrying value exceeds fair value. Income Taxes The Company has significant operating loss carryforwards available to offset future federal taxable income. Because of the uncertainty of future period income, the Company has provided a full valuation allowance against its related net deferred tax asset accounts. Accordingly, the Company has recorded no federal income tax provision or benefit for the three and six months ended February 29, 2000. However, the Company currently pays income tax in certain states and as a result, recorded a provision of $0.3 million for the three and six month periods ended February 29, 2000. Gerald Stevens' future effective tax rate will depend on various factors, including the mix between state taxable income or losses, amounts of nondeductible goodwill, and the timing of adjustments to the valuation allowance on our net deferred tax assets. Seasonality The floral industry has historically been seasonal, with higher revenue and net income generated during holidays such as Thanksgiving, Christmas, Valentine's Day, Easter and Mother's Day. Conversely, during the summer months, floral retailers tend to experience a decline in revenue and net income. In addition, the floral industry in general may be affected by economic conditions and other factors, including floral promotions, competition and the weather conditions in key flower-growing regions. Comprehensive Income The Company has no components of comprehensive income. Accordingly, net income (loss) equals comprehensive net income (loss) for all periods presented. Impact of Recently Issued Accounting Standards In June 1999, the Financial Accounting Standards Board ("FASB") issued SFAS No. 137, Accounting for Derivative Instruments and Hedging Activities-Deferral of Effective Date of FASB Statement No. 133. SFAS No. 137 defers for one year the effective date of SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133 will now apply to all fiscal quarters of all fiscal years beginning after June 15, 2000. SFAS No. 133 will require the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. The Company will adopt SFAS No. 133 as required for its first quarterly filing of fiscal year 2001. We believe the adoption of this Statement will not have a material effect on the earnings and financial position of the Company. 7 2. Acquisitions From September 1, 1999 through February 29, 2000, we acquired 60 retail florist businesses located in existing markets, six new markets in the United States and one new market in Canada for aggregate consideration of $28.8 million, consisting of $16.4 million in cash and 1,417,928 shares of our common stock valued at share prices ranging from $5.72 to $11.53 per share. All of the acquisitions were accounted for as business combinations under the purchase method of accounting, and accordingly, are included in our condensed consolidated financial statements from the date of acquisition. During the six months ended February 29, 2000, we also acquired certain intangible assets related to floral businesses that discontinued their operations. The acquired intangible assets consisted principally of customer lists, telephone numbers and yellow page advertising contractual rights. Aggregate consideration paid for all such intangible asset acquisitions was $0.2 million in cash. Our strategic plan contemplates the closing or relocation of a number of our acquired retail stores within each of our targeted market areas. An assessment of which retail stores to close or relocate for all acquisitions consummated prior to May 31, 1999, as well as some acquisitions consummated in the fourth quarter of fiscal 1999, has been completed. As a result of such assessment, additional purchase liabilities of approximately $2.8 million for costs associated with the shut down and consolidation of certain acquired retail stores were recorded (considering existing contractual lease obligations and management's estimate of future operating lease costs). For all remaining acquisitions consummated after May 31, 1999, we are in the process of completing such assessment. We expect to complete our assessment of retail store closures and relocations for all acquisitions consummated through August 31, 1999 by May 2000. Once we finalize our assessment of the remaining retail stores to be closed or relocated, additional purchase liabilities are expected to be recognized. During the six months ended February 29, 2000, $80,000 was paid and charged against the established liability. The following table summarizes the closed store liability activity for the six months ended February 29, 2000: (In thousands) -------------- Balance at August 31, 1999 $ 1,632 Additional purchase liability for the six months ended February 29 2000 1,217 Cash payments for the six months ended February 29, 2000 (80) ------------ Balance at February 29, 2000 $ 2,769 ============ 8 The preliminary purchase price allocation for businesses acquired during the six months ended February 29, 2000 under the purchase method of accounting is as follows: (In thousands) Tangible assets (includes cash acquired of $767) $ 7,160 Intangible assets 29,624 Liabilities (8,008) ----------- $ 28,776 =========== The Company's pro forma results of operations, assuming each of the acquisitions described above and each of the fiscal year 1999 acquisitions were consummated as of the beginning of the periods presented, are as follows: For the Six Months Ended February 29, 2000 February 28, 1999 (In thousands, except per share data) Revenue $ 145,780 $ 137,304 ========= ========= Net income (loss) $ 46 $ (2,749) ========= ========= Diluted net income (loss) per share $ 0.00 $ (0.06) ========= ========= 3. Property and Equipment, Net Property and equipment consisted of the following:
February 29, August 31, 2000 1999 ---- ---- (In thousands) Land, building and leasehold improvements $ 11,031 $ 8,502 Furniture, fixtures and equipment 5,721 3,497 Computer hardware and software 12,132 6,036 Communication systems 2,166 1,526 Vehicles 1,467 925 -------- -------- 32,517 20,486 Less: Accumulated depreciation and amortization (6,473) (4,533) -------- -------- $ 26,044 $ 15,953 ======== ========
9 4. Accrued Liabilities Accrued liabilities consisted of the following:
February 29, August 31, 2000 1999 ---- ---- (In thousands) Salaries and benefits $ 4,510 $ 3,787 Wire Service 2,021 3,104 Store closure costs 2,769 1,632 Taxes-non payroll 1,952 669 Insurance 1,237 448 Acquired business consideration 672 1,459 Other 5,392 4,468 ------- ------- $18,553 $15,567 ======= =======
5. Debt Notes Payable Notes payable at February 29, 2000 and August 31, 1999 were $0.5 million and $2.0 million, respectively. The effective interest rates associated with these notes range from 7.00% to 10.12%. Notes payable for both periods consist principally of mortgage notes and installment notes for vehicles, equipment, and leasehold improvements assumed by the Company in connection with acquisitions completed during the latter part of each fiscal quarter. The Company substantially pays all these notes in full periodically, following the close of acquisitions. Long-Term Debt At February 29, 2000, outstanding borrowings under the Company's $40 million credit facility were $31.9 million. The effective Eurodollar borrowing rate and base rate as of February 29, 2000 were 7.89% and 9.25%, respectively. 6. Stockholders' Equity From September 1, 1999 to February 29, 2000, the Company issued 1,417,928 shares of its common stock with an aggregate value of $12.4 million to fund the non-cash portion of the total consideration for acquisitions completed during the period. Additionally, a total of 327,713 shares of common stock were issued for total consideration of $1.0 million in connection with stock options and warrants exercised during this same period. 10 7. Earnings Per Share Basic and diluted earnings per share in the accompanying condensed consolidated statements of operations are based upon the weighted average shares outstanding during the applicable period. The impact of common stock equivalents has not been included for the loss periods presented as they are anti-dilutive. The components of basic and diluted earnings per share are as follows:
For the Three Months For the Six Months Ended Ended February 29, February 28, February 29, February 28, 2000 1999 2000 1999 ---- ---- ---- ---- (In thousands) (In thousands) Basic Average Shares Outstanding 45,323 33,532 44,844 31,198 Common Stock Equivalents 970 -- -- -- ------ ------ ------ ------ Diluted Average Shares Outstanding 46,293 33,532 44,844 31,198 ====== ====== ====== ====== Common stock equivalents not included in the calculation of diluted earnings per share because their impact is antidilutive 265 2,542 2,098 2,542 ====== ====== ====== ======
8. Commitments and Contingencies Supply Agreement On October 1, 1998, the Company entered into a five-year supply agreement with certain flower farms (the "Farms"). The agreement requires that the Farms provide to the Company a certain percentage of their flowers on a consignment basis. The Farms must produce and deliver a minimum number of stems for the Company during the growing year commencing on October 1. Each July, during the term of the agreement, the parties will meet to establish the minimum stem obligation for each flower type for the upcoming growing year. The Company has no obligation to pay for any flowers it receives from the Farms unless and until such flowers are sold by the Company. Business Combinations The Company may be required to make additional payments of up to $0.9 million to the sellers of three of the businesses that it acquired. Because the outcome of the contingencies underlying these payments are not yet determinable, the payments have not been recorded as a component of the cost of these acquisitions at February 29, 2000. Litigation There are various claims, lawsuits, and pending actions against Gerald Stevens incident to the operations of its businesses. It is the opinion of management, after consultation with counsel, that the ultimate resolution of such claims, lawsuits and 11 pending actions will not have a material adverse effect on the Company's consolidated financial position, results of operations or liquidity. 9. Business Segments Gerald Stevens operates in two principal business segments: retail and order generation. The Company's reportable segments are strategic business units that offer different products and services. The Company evaluates the performance of its segments based on revenue and operating income. The Company's retail segment consists of the retail florists acquired as well as its import business. The Company's order generation business consists primarily of Florafax, National Flora, Calyx & Corolla and on-line businesses. There is no material inter-segment revenue. The following table presents financial information regarding the Company's different business segments as of and for the six months ended on the dates set forth below:
February 29, February 28, 2000 1999 ---- ---- (In thousands) Net revenue: Retail $ 102,470 $ 31,109 Order generation 28,313 8,886 --------- --------- $ 130,783 $ 39,995 ========= ========= Operating income (loss): Retail $ 8,676 $ 2,390 Order generation 1,034 1,534 Corporate (9,648) (8,340) --------- --------- $ 62 $ (4,416) ========= ========= Identifiable assets: Retail $ 168,042 $ 58,505 Order generation 52,080 11,973 Corporate 11,796 1,067 --------- --------- $ 231,918 $ 71,545 ========= =========
10. SUBSEQUENT EVENTS Business Combinations From March 1, 2000 through April 10, 2000, we acquired 19 retail florist businesses for total consideration of $5.1 million, consisting of $2.2 million in cash and 12 437,585 shares of our common stock valued at prices ranging from $6.20 to $7.27 per share. Private Placement In March 2000, Gerald Stevens completed a private placement in which 3,257,000 shares of its common stock were sold to institutional investors at $7.00 per share. Proceeds received from the offering, net of expenses, were approximately $22.0 million and will be used for general corporate purposes. 13 Item 2. Management's Discussion And Analysis ------------------------------------ Of Financial Condition And Results Of Operations ------------------------------------------------ General Gerald Stevens, Inc. ("Gerald Stevens," the "Company" or "We"), formerly known as Florafax International, Inc., is a leading integrated retailer and marketer of flowers, plants, and complementary gifts and decorative accessories. The Company operates the largest company-owned network of floral specialty retail stores with locations in 35 markets in the United States and Canada as of February 29, 2000. We are building a national brand and transforming the retail floral industry by integrating our operations throughout the floral supply chain, from product sourcing to delivery, and by managing every interaction with the customer, from order generation to order fulfillment. The Company owns and operates its own import operation and has relationships with leading growers around the world. Our national sales and marketing division permits us, through multiple distribution channels including the Internet, dial-up numbers and direct mail, to serve customers who do not visit or phone our retail stores. On April 30, 1999, Gerald Stevens and Gerald Stevens Retail, Inc. ("Gerald Stevens Retail"), completed a merger accounted for as a pooling of interests. This Management's Discussion and Analysis of Financial Condition and Results of Operations gives retroactive effect to the merger, and should be read in conjunction with our accompanying unaudited condensed consolidated financial statements. In the merger, we issued approximately 28.1 million shares of our common stock to the stockholders of Gerald Stevens Retail, resulting in the former Gerald Stevens Retail stockholders owning approximately 77.5% of the shares of our common stock immediately following the merger. Forward-Looking Statements This Quarterly Report on Form 10-Q, as well as our other reports filed with the SEC and our press releases and other communications, contain forward-looking statements which reflect the Company's current views with respect to future events and financial performance. Forward-looking statements include all statements regarding our expected financial position, results of operations, cash flows, dividends, financing plans, strategy, budgets, capital and other expenditures, competitive positions, growth opportunities, benefits from new technology, plans and objectives of management, and markets for stock. In addition to general economic, business and market conditions, we are subject to risks and uncertainties that could cause such forward-looking statements to prove incorrect, including those stated in the "Risk Factors" section of the Annual Report on Form 10-K for the fiscal year ended August 31, 1999 as amended on Form 10-K/A, and the following: 14 o Our ability to accomplish our anticipated growth strategies and to integrate acquired businesses. o Our need to improve our information systems. o Unexpected liabilities incurred in our acquisitions. o Our dependence on additional capital for growth. o A decline in customer discretionary spending. o Weather, governmental regulations, transportation problems or other factors that could prevent us from obtaining sufficient products when needed. o Our ability to maintain business relationships within the industry, including relationships with wire services, wholesalers, growers, importers and other florist shops. o Our ability to develop relationships with supermarkets, mass merchants, department stores and other businesses to expand our store-in-store operations. o Our ability to develop a profitable Internet business. Acquisitions In October 1998, we entered the retail distribution segment of the floral industry. From October 1, 1998 through August 31, 1999 we acquired 69 retail florist businesses located in 28 markets throughout the United States for total aggregate consideration of $98.7 million, consisting of $66.8 million in cash and 7,060,934 shares of our common stock valued at share prices ranging from $3.52 per share to $15.30 per share. Additionally, in October 1998, we acquired AGA Flowers, Inc., a floral import business, for total consideration of $2.9 million, consisting of $1.5 million in cash and 417,078 shares of our common stock valued at $3.52 per share. During the six-month period ended February 29, 2000, we acquired an additional 60 retail florist businesses located in existing markets and seven new markets for total consideration of $28.8 million, consisting of $16.4 million in cash and 1,417,928 shares of our common stock valued at prices ranging from $5.72 to $11.53 per share. In March 1999, we acquired National Flora, a floral order generation business, for total consideration of $19.7 million, consisting of $10.0 million in cash and 1,552,500 shares of our common stock valued at $6.30 per share. In July 1999, we acquired Calyx & Corolla, Inc., a catalog and Internet-based floral order generation business for total consideration of $11.6 million, consisting of 15 approximately $.1 million in cash, 934,435 shares of our common stock valued at $10.80 per share, and the assumption of stock option and warrant obligations which converted into rights to acquire 152,081 shares of our common stock at exercise prices ranging from $0.36 to $9.44 per share. All of the acquisitions discussed in the preceding paragraphs were accounted for as business combinations under the purchase method of accounting and have been included in our consolidated financial statements from the date of acquisition. During the year ended August 31, 1999 and the six months ended February 29, 2000, we also acquired certain intangible assets related to floral businesses that discontinued their operations. The acquired intangible assets consisted principally of customer lists, telephone numbers and yellow page advertising contractual rights. Aggregate consideration paid for all such intangible asset acquisitions during the year ended August 31, 1999 was $4.5 million, consisting of $2.8 million in cash and 159,823 shares of our common stock at a price of $10.14 per share. Aggregate consideration paid for intangible asset acquisitions during the six months ended February 29, 2000 was $0.2 million in cash. Results of Operations Upon consummation of our merger with Gerald Stevens Retail, we redefined the manner in which we evaluate and report the operating results of our newly combined business for internal purposes. In this regard, we have chosen to break down our component businesses into two segments: (1) Retail and (2) Order Generation. The Retail segment consists of all retail and import businesses and operations while the Order Generation segment consists of all non-retail order generation and fulfillment businesses and operations. The tables below present the results of operations through operating income (loss) of Gerald Stevens' Retail and Order Generation segments and Corporate for the three and six month periods ended February 29, 2000 and February 28, 1999. The Retail segment 2000 results include the operating results of the 69 retail florist businesses and one import business acquired during the year ended August 31, 1999 and the post-acquisition operating results of the 60 retail florist businesses acquired during the six months ended February 29, 2000. The Retail segment 1999 results include only the post-acquisition operating results of the initial 17 retail florist businesses and one import business acquired by the Company from October 1, 1998 to February 28, 1999. The Order Generation segment 2000 and 1999 results include the operating results of the Company's wire service, credit and charge card processing and The Flower Club business units, in addition to the activities of Gerald Stevens' recently formed Internet-based order generation business. The Order Generation segment 2000 results additionally include the operating results of National Flora and Calyx & Corolla. Prior to the acquisition of its initial retail florist and import businesses on October 1, 1998, the Company operated only in the Order Generation segment. 16 The tables below present the results of operations through operating income (loss) of the Company's Retail and Order Generation segments and Corporate for the three and six month periods ended February 29, 2000 and February 28, 1999, respectively.
Unaudited Three Months Ended February 29, 2000 ------------------------------------ (dollars in thousands) Order Corporate Retail Generation Overhead Total ------ ---------- -------- ----- Revenue: Product sales, net $ 56,349 $ 6,837 $ -- $ 63,186 Service and other revenue 6,984 11,409 -- 18,393 ------------------------------------------------------------- 63,333 18,246 -- 81,579 Operating costs and expenses: Cost of Product Sales 20,269 2,276 -- 22,545 Operating 27,716 -- -- 27,716 Selling, general and administrative 7,877 14,667 4,809 27,353 Merger expenses -- -- -- -- ------------------------------------------------------------- 55,862 16,943 4,809 77,614 ------------------------------------------------------------- Operating income (loss) $ 7,471 $ 1,303 ($ 4,809) $ 3,965 =============================================================
[RESTUBBED TABLE]
Unaudited Three Months Ended February 28, 1999 ------------------------------------ (dollars in thousands) Order Corporate Retail Generation Overhead Total ------ ---------- -------- ----- Revenue: Product sales, net $ 19,678 $ -- $ -- $ 19,678 Service and other revenue 1,964 5,130 -- 7,094 --------------------------------------------------------------- 21,642 5,130 -- 26,772 Operating costs and expenses: Cost of Product Sales 8,896 -- -- 8,896 Operating 9,023 -- -- 9,023 Selling, general and administrative 1,872 4,330 2,699 8,901 Merger expenses -- -- 3,966 3,966 --------------------------------------------------------------- 19,791 4,330 6,665 30,786 --------------------------------------------------------------- Operating income (loss) $ 1,851 $ 800 ($ 6,665) ($ 4,014) ===============================================================
Six Months Ended February 29, 2000 ---------------------------------- (dollars in thousands) Order Corporate Retail Generation Overhead Total ------ ---------- -------- ----- Revenue: Product sales, net $ 91,533 $ 9,110 $ -- $ 100,643 Service and other revenue 10,937 19,203 -- 30,140 ---------------------------------------------------------------- 102,470 28,313 -- 130,783 Operating costs and expenses: Cost of Product Sales 33,443 3,109 -- 36,552 Operating 47,355 -- -- 47,355 Selling, general and administrative 12,996 24,170 9,648 46,814 Merger expenses -- -- -- -- ---------------------------------------------------------------- 93,794 27,279 9,648 130,721 ---------------------------------------------------------------- Operating income (loss) $ 8,676 $ 1,034 ($ 9,648) $ 62 ================================================================
[RESTUBBED TABLE]
Six Months Ended February 28, 1999 ---------------------------------- (dollars in thousands) Order Corporate Retail Generation Overhead Total ------ ---------- -------- ----- Revenue: Product sales, net $ 28,373 $ -- $ -- $ 28,373 Service and other revenue 2,736 8,886 -- 11,622 --------------------------------------------------------------- 31,109 8,886 -- 39,995 Operating costs and expenses: Cost of Product Sales 12,744 -- -- 12,744 Operating 13,356 -- -- 13,356 Selling, general and administrative 2,619 7,352 4,289 14,260 Merger expenses -- -- 4,051 4,051 --------------------------------------------------------------- 28,719 7,352 8,340 44,411 --------------------------------------------------------------- Operating income (loss) $ 2,390 $ 1,534 ($ 8,340) ($ 4,416) ===============================================================
Retail Segment. Product sales within the Retail segment include sales of floral and gift products at retail businesses and sales of floral product by the Company's import business. Service and other revenue within the Retail segment is generated at the Company's retail businesses and consists of delivery and other service fees charged to customers and commissions on orders transmitted to and fulfilled by other retail florists. Total Retail segment revenue for the three and six months ended February 29, 2000 increased by $41.7 million to $63.3 million and by $71.4 million to $102.5 million, respectively, compared to the same periods in the prior year due principally to revenue generated at newly acquired businesses. Cost of product sales within the Retail segment includes the cost of products sold at retail businesses and at the Company's import business. Cost of product sales for the three and six months ended February 29, 2000 increased by $11.4 million to $20.3 million and by $20.7 million to $33.4 million, respectively, compared to the same periods in the prior year due principally to cost of goods sold incurred by newly acquired businesses. 17 Retail segment gross margins as a percentage of total revenue for the three and six months ended February 29, 2000 increased by 9.1% to 68.0% and by 8.4% to 67.4%, respectively, compared to the same periods in the prior year. A substantial portion of the gross margin percentage increase is related to changes in the mix between revenue at the Company's retail stores and revenue at its import business. As a result of acquisitions, higher margin retail store revenue has increased significantly more than lower margin import revenue over the past year. To a lesser extent, gross margins have improved due to the recent implementation of various national product purchasing programs at the Company's retail stores, including the sourcing of floral product from the Company's import business, and to the acquisition of retail businesses during the past year that have higher average gross margins than the average gross margins generated by the Company's initial acquired businesses. Retail segment operating expenses for the three and six months ended February 29, 2000 increased by $18.7 million to $27.7 million and by $34.0 million to $47.4 million, respectively, compared to the same periods in the prior year due principally to operating expenses incurred by newly acquired businesses. Retail segment operating expenses as a percentage of total revenue for the three and six months ended February 29, 2000 increased by 2.1% to 43.8% and by 3.3% to 46.2%, respectively, compared to the same periods in the prior year. The majority of the percentage increase is related to the aforementioned period-to-period change in mix between the Company's retail store and import businesses and the fact that operating expenses as a percentage of revenue are significantly higher at the Company's retail stores compared to its import business. Retail segment selling, general and administrative expenses for the three and six months ended February 29, 2000 increased by $6.0 million to $7.9 million and by $10.4 million to $13.0 million, respectively, compared to the same periods in the prior year due principally to expenses incurred by newly acquired businesses. Retail segment selling, general and administrative expenses as a percentage of total revenue for the three and six months ended February 29, 2000 increased by 3.8% to 12.4% and by 4.3% to 12.7%, respectively, compared to the same periods in the prior year due principally to increases in wire commission, advertising and insurance expenses. Order Generation Segment. Product sales within the Order Generation segment for the three and six months ended February 29, 2000 reflect $6.8 million and $9.1 million, respectively, of sales made by Calyx & Corolla. Service and other revenue within the Order Generation segment consists of order generation commissions and processing fees, wire service dues and fees, and credit card processing fees. Total Order Generation segment service and other revenue for the three and six months ended February 29, 2000 increased by $6.3 million to $11.4 million and by $10.3 million to $19.2 million, respectively, compared to the same periods in the prior year. This significant increase in revenue is due primarily to our acquisition of National Flora, which generated $3.9 million and $6.9 million in revenue during the three and six months ended February 29, 2000, respectively. Additionally, continued increases in The Flower Club revenue, revenue from the Company's recently formed Internet-based order 18 generation business unit, and other revenue generated at Calyx & Corolla also contributed to the current periods' service and other revenue increase. Cost of goods sold within the Order Generation segment for the three and six months ended February 29, 2000 reflect $2.3 million and $3.1 million, respectively, of costs incurred at Calyx & Corolla. Calyx & Corolla gross margins as a percentage of product sales revenue for the three and six months ended February 29, 2000 were 66.7% and 65.9%, respectively. Total Order Generation segment selling, general and administrative expenses for the three and six months ended February 29, 2000 increased by $10.3 million to $14.7 million and by $16.8 million to $24.2 million, respectively, compared to the same periods in the prior year. Selling, general and administrative expenses incurred by National Flora and Calyx & Corolla during the current three and six-month periods totaled $8.2 million and $12.7 million, respectively, representing a significant portion of the current periods' expense increase. Additionally, costs incurred in connection with the Company's Internet-based order generation business unit were $1.0 million and $2.1 million for the three and six months ended February 29, 2000. To a lesser extent, expense increases related to the expansion of The Flower Club business unit and expenses related to our acquired Flowerlink website also contributed to the higher current period expense levels. Corporate. Total Corporate selling, general and administrative expenses for the three and six months ended February 29, 2000 increased by $2.1 million to $4.8 million and by $5.4 million to $9.6 million, respectively, compared to the same periods in the prior year, excluding $4.0 million and $4.1 million in merger expenses incurred during the three and six months ended February 28, 1999, respectively. These increases were due primarily to expenses incurred at Gerald Stevens' expanded corporate headquarters in Ft. Lauderdale, Florida and to the significant expansion of the Company into retail and other related segments of the floral industry. We plan to significantly expand our business over the next several years, largely through the acquisition of retail florist businesses. We also expect Corporate expenses to increase over this time period, due principally to integration costs planned to be incurred in connection with the development and implementation of centralized operational and financial systems and the establishment of the Gerald Stevens brand name. Interest. Interest expense for the three and six months ended February 29, 2000 increased by $0.4 million to $0.5 million and by $0.7 million to $0.9 million, respectively, compared to the same periods in the prior year. The increase in interest expense during the current period is due primarily to increased borrowings under the Company's revolving credit facility to finance the expansion of its business activities and, to a lesser extent, increases in interest rates. Income Taxes. The Company has significant operating loss carryforwards available to offset future federal taxable income. Because of the uncertainty of future period income, the Company has provided a full valuation allowance against its related net deferred tax asset accounts. Accordingly, the Company has recorded no federal 19 income tax provision or benefit for the three and six months ended February 29, 2000. However, the Company currently pays income tax in certain states and as a result, recorded a provision of $0.3 million for the three and six month periods ended February 29, 2000. Gerald Stevens' future effective tax rate will depend on various factors, including the mix between state taxable income or losses, amounts of nondeductible goodwill, and the timing of adjustments to the valuation allowance on our net deferred tax assets. Liquidity and Capital Resources We had cash and cash equivalents of $3.0 million and $4.8 million as of February 29, 2000 and February 28, 1999, respectively. Cash and cash equivalents decreased by $1.6 million and $2.4 million during the six months ended February 29, 2000 and February 28, 1999, respectively. The major components of these changes are discussed below. Cash provided by operating activities for the six months ended February 29, 2000 was $1.1 million compared to cash used in operating activities of $.5 million for the same period last year. Cash provided by (used in) operating activities improved during the current period as the result of increased operating cash flows offset by higher working capital investments compared to the prior year period. The cash portion of the purchase prices for all acquisitions completed by the Company, net of cash acquired, during the six months ended February 29, 2000 and February 28, 1999 aggregated $17.1 million and $25.6 million, respectively, as more fully described in the preceding section entitled "Acquisitions." Capital expenditures during the six months ended February 29, 2000 totaled $11.0 million compared to capital expenditures of $1.4 million in the same period of the prior year. Capital expenditures primarily include computer hardware, software and communication system expenditures related to the expansion of our retail and order generation businesses. During the six months ended February 29, 2000, the Company issued a total of 327,713 shares of common stock for total consideration of $1.0 million in connection with the exercise of stock options and warrants. During the six months ended February 28, 1999 we issued 6,217,537 shares of common stock in private placement transactions for total consideration of $21.1 million, net of placement fees and expenses, 224,000 shares of common stock for total consideration of $0.3 million in connection with the exercise of stock options and warrants, and we also collected a $4.2 million stock subscription receivable balance related to the initial capitalization of Gerald Stevens Retail. During the six months ended February 29, 2000, the Company borrowed a net amount of $27.4 million on its existing revolving credit facility and repaid $3.0 million of debt incurred in connection with certain retail florist acquisitions. A total of $1.3 million of debt primarily related to a prior revolving credit facility, which was terminated in June 1999, was repaid during the six months ended February 28, 1999. 20 The outstanding balance on the Company's revolving credit facility at February 29, 2000 was $31.9 million. We are currently in discussions with our primary lending bank regarding a proposed syndication of our bank credit facility. In this regard, we intend to increase the borrowing limits under our credit facility from $40.0 million to approximately $50.0 to $75.0 million. However, there can be no assurance that we will be successful in increasing such borrowing limits, or that any such increase can be made on terms comparable to our current credit facility. In March 2000, Gerald Stevens completed a private placement in which 3,257,000 shares of its common stock were sold to institutional investors at $7.00 per share. Proceeds received from the offering, net of expenses, were approximately $22.0 million and will be used for general corporate purposes. The Company is also currently in discussion with a number of third parties regarding different debt or equity investments in Gerald Stevens. There can be no assurance that any of these discussions will result in additional capital for the Company. We believe that cash flows from operating activities, in addition to borrowings from our current credit facilities, will provide adequate funds to meet the ongoing cash requirements of our existing business over the next 12 months. However, failure to increase our current bank borrowing limits or otherwise raise additional capital could limit our ability to acquire new businesses or otherwise expand our existing business in accordance with our current operating plan. Further, unplanned events, including temporary or long-term adverse changes in global capital markets, could interrupt or curtail our short-term or long-term growth plans. Year 2000 Issue The Company had successfully completed all Year 2000 remediation, replacement, and testing prior to January 1, 2000. Through April 10, 2000, the Company has experienced no Year 2000 problems that affected business operations. The Company's business partners have reported no Year 2000 problems. At this time, the Company does not expect any future problems related to Year 2000 to materialize. However, the Company will continue to monitor the systems for potential issues over the next six months through normal operational and support processes. Impact of Recently Issued Accounting Standards In June 1999, The Financial Accounting Standards Board ("FASB") issued SFAS No. 137, Accounting for Derivative Instruments and Hedging Activities-Deferral of Effective Date of FASB Statement No. 133. Statement No. 137 defers for one year the effective date of SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133 will now apply to all fiscal quarters of all fiscal years beginning after June 15, 2000. SFAS Statement No. 133 will require the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not 21 hedges must be adjusted to fair value through income. The Company will adopt SFAS No. 133 as required for its first quarterly filing of fiscal year 2001. We believe the adoption of this Statement will not have a material effect on the earnings and financial position of the Company. 22 PART II - OTHER INFORMATION Item 1. Legal Proceedings. - --------------------------- In Item 3, "Legal Proceedings" of our Annual Report on Form 10-K for the year ended August 31, 1999, filed November 24, 1999, as amended on Form 10-K/A, filed on December 28, 1999, we provided information concerning a civil lawsuit entitled Harvey Seslowsky v. Gerald Stevens, Inc., et al. In January 2000, the parties settled this lawsuit; the payment that we made under the settlement was immaterial. Item 4. Submission of Matters to a Vote of Security Holders. - ------------------------------------------------------------- On February 29, 2000, Gerald Stevens, Inc. held its annual meeting of stockholders. At the annual meeting, stockholders voted on: (a) The election of directors. (b) The reincorporation of Gerald Stevens, Inc. in the State of Florida. (c) The approval and adoption of the Gerald Stevens, Inc. 2000 Stock Option Plan. (d) The approval of the selection of our independent accountants for the 2000 fiscal year. All of the matters were approved by the stockholders. 23 The following sets forth the results of voting at the annual meeting:
Votes ------------------------------------------------------------- Broker Matter For Against Abstentions Non-Votes - ------ --- ------- ----------- --------- Election of Directors: Steven R. Berrard 35,875,102 58,472 Gerald R. Geddis 35,874,802 58,772 Robert L. Johnson 35,872,872 60,702 Ruth M. Owades 35,463,198 470,376 Adam D. Phillips 35,874,802 58,772 Kenneth G. Puttick 35,465,422 468,152 Kenneth Royer 35,732,012 201,562 Andrew W. Williams 35,912,548 21,026 Reincorporation in Florida: 28,692,548 478,047 22,968 6,740,011 2000 Stock Option Plan: 28,845,755 194,178 153,630 6,740,011 Approval of Accountants: 35,831,867 51,919 49,788
Item 6. Exhibits and Reports on Form 8-K. - ------------------------------------------- (a) Exhibits. The following are being filed as exhibits to this Report: -- Restated Articles of Incorporation -- Form of stock option agreements -- financial data schedule (b) Reports on Form 8-K. We filed no Reports on Form 8-K during the quarter ended February 29, 2000. To date in the following quarter, we have filed the following Report on Form 8-K: Date of Filing Disclosure(s) - -------------- ------------- April 6, 2000 Announcement of private placement. 24 SIGNATURE --------- 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. GERALD STEVENS, INC. -------------------- (Registrant) Date: April 12, 2000 By /s/ Albert J. Detz ------------------------- Albert J. Detz Senior Vice President and Chief Financial Officer 25 Gerald Stevens, Inc. Quarterly Report on Form 10-Q For the quarter ended February 29, 2000 EXHIBIT INDEX Exhibit No. Description - ----------- ----------- 3.1 Restated Articles of Incorporation 10.1 Form of stock option agreements 27 Financial Data Schedule EX-3.1 2 RESTATED ARTICLES OF INCORPORATION RESTATED ARTICLES OF INCORPORATION OF GERALD STEVENS, INC. ------- The undersigned does hereby act as incorporator in adopting the following Articles of Incorporation for the purpose of organizing a corporation for profit, pursuant to the provisions of the Florida Business Corporation Act. FIRST: The name of the corporation is GERALD STEVENS, INC. SECOND: The street address of the principal office of the Corporation is 301 East Las Olas Boulevard, Suite 300, Fort Lauderdale, Florida 33301. THIRD: The total number of shares that the Corporation is authorized to issue is Two Hundred Fifty Million (250,000,000) shares of Common Stock, par value $0.01 per share, and Six Hundred Thousand (600,000) shares of Preferred Stock, par value $10.00 per share. The Preferred Stock shall be issued in one or more series. The Board of Directors is hereby expressly authorized to issue the shares of Preferred Stock in such series and to fix from time to time before issuance the number of shares to be included in any series and the designation, relative rights, preferences and limitations of all shares of such series. The authority of the Board of Directors with respect to each series shall include, without limitation thereto, the determination of any or all of the following and the shares of each series may vary from the shares of any other series in the following respects: (a) The number of shares constituting such series and the designation thereof to distinguish the shares of such series from the shares of all other series; (b) The annual dividend rate on the shares of that series and whether such dividends shall be cumulative and, if cumulative, the date from which dividends shall accumulate; (c) The redemption price or prices for the particular series, if redeemable, and the terms and conditions of such redemption; (d) The preference, if any, of shares of such series in the event of any voluntary or involuntary liquidation, dissolution or winding-up of the Corporation; (e) The voting rights, if any, in addition to the voting rights prescribed by law and the terms of exercise of such voting rights; (f) The right, if any, of shares of such series to be converted into shares of any other series or class and the terms and conditions of such conversion; and (g) Any other relative rights, preferences and limitations of that series. FOURTH: The amount of the authorized stock of the Corporation of any class or classes may be increased or decreased by the affirmative vote of the holders of a majority of the stock of the Corporation entitled to vote. FIFTH: The street address of the initial registered office of the Corporation in the State of Florida is c/o Corporation Service Company, 1201 Hays Street, Tallahassee, Florida 32301. The name of the initial registered agent of the Corporation at the said registered office is Corporation Service Company. The written acceptance of the said initial registered agent, as required by the provisions of Section 607.0501(3) of the Florida Business Corporation Act, is set forth following the signature of the incorporator and is made a part of these Articles of Incorporation. SIXTH: The name and the address of the incorporator are: NAME ADDRESS ---- ------- Jeffrey M. Mattson 301 East Las Olas Boulevard, Suite 300 Fort Lauderdale, Florida 33301 SEVENTH: The purposes for which the Corporation is organized are as follows: To engage in any lawful business for which corporations may be organized under the Florida Business Corporation Act. EIGHTH: The duration of the Corporation shall be perpetual. NINTH: No contract or transaction between the Corporation and one or more of its directors or officers or between the Corporation and any other corporation, partnership, association or other organization in which one or more of its directors or officers are directors or officers or have a financial interest, shall be void or voidable solely for this reason, or solely because the directors or officers are present at or participate in the meeting of the board or committee thereof which authorizes the contract or transaction, or solely because the directors or officers or their votes are counted for such purpose. TENTH: In furtherance and not in limitation of the power conferred upon the Board of Directors by law, the Board of Directors shall have power to make, adopt, alter, amend and repeal from time to time Bylaws of the Corporation, subject to the right of the stockholders to alter and repeal Bylaws made by the Board of Directors. ELEVENTH: To the maximum extent permitted by the Florida Business Corporation Act as the same exists or may hereafter be amended, no director of this Corporation shall be liable to the Corporation or its shareholders for monetary damages arising by reason of actions or omissions constituting a breach of fiduciary duty as a director. TWELFTH: The Corporation expressly elects not to be governed by Section 607.0901 of the Florida Business Corporation Act. THIRTEENTH: The Corporation expressly elects not to be governed by Section 607.0902 of the Florida Business Corporation Act. Signed on March 22, 2000. /s/ Jeffrey M. Mattson -------------------------------- Jeffrey M. Mattson, Incorporator Having been named as registered agent and to accept service of process for the above-named corporation at the place designated in these Articles of Incorporation, I hereby accept the appointment as registered agent and agree to act in this capacity. I further agree to comply with the provisions of all statutes relating to the proper and complete performance of my duties, and I am familiar with and accept the obligations of my position as registered agent. CORPORATION SERVICE COMPANY By: ---------------------------------- Date: -------------------------------- EX-10.1 3 OPTION TO ACQUIRE SHARES EXHIBIT 10.1 [Date] - -------------- - -------------- - -------------- Dear -------------- In order to give you a stake in the future growth and prosperity of Gerald Stevens, Inc. (the "Company") and to encourage you to provide outstanding services to the Company and its subsidiaries, the Board of Directors has awarded you, effective ___________, options to acquire ____ shares of the Company's Common Stock, par value $.01 per share (the "Common Stock"), at an exercise price of $_____ per share. The options granted to you are subject to the Gerald Stevens, Inc. 2000 Stock Option Plan (the "Stock Option Plan"), a copy of which is attached. Options granted under the Stock Option Plan typically vest over a four year period, with 25% of the shares vesting on the first, second, third and fourth anniversary of the grant. This year, the Board of Directors has decided to give a special reward to all option recipients by accelerating the vesting schedule by one year. This means that 25% of the shares are immediately vested, 25% will vest on the first anniversary, 25% on the second anniversary and 25% on the third anniversary. The Board wanted to give you some current value to this grant in appreciation of your efforts and dedication. We hope however, that you will see the long-term potential in being an option holder of Gerald Stevens and will continue to accumulate your shares in anticipation of their future growth and value. The options have a term of ten years. Options may be exercised at any time after they vest (until their expiration on ________) provided you remain an employee of the Company. If you leave the Company's employ, all options whether vested and exercisable or not vested and exercisable on the date of termination, will expire and be forfeited as of that date. This letter will serve as evidence of your grant of options. Please indicate your receipt of this letter by signing and returning it to Gerald Stevens, Inc., P. O. Box 350526, Ft. Lauderdale, Florida 33335-0526, Attention: Barbara Ann Bohlman. Sign the other copy and keep it with your Stock Option Plan materials. On behalf of the Company and the Board of Directors, we appreciate your contribution to the Company's success. Very truly yours, /s/ Art Sanders --------------- Art Sanders Vice President, Human Resources - -------------------------------- Accepted EX-27 4 FDS --
5 6-MOS AUG-31-2000 SEP-01-1999 FEB-29-2000 2,956 0 25,200 (2,572) 12,915 42,908 32,581 (6,537) 231,918 50,839 0 0 0 457 147,843 231,918 130,783 130,783 36,552 36,552 94,169 0 925 (674) 345 (1,019) 0 0 0 (1,019) (0.02) (0.02)
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