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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
COMMISSION FILE NUMBER 0-26779
FTD.COM INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 36-4294509
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
3113 WOODCREEK DRIVE
DOWNERS GROVE, ILLINOIS 60515
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
Registrant's telephone number, including area code: (630) 724-6200
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 [ ] NO [ x ]
As of October 29, 1999, there were 6,379,614 outstanding shares of the
registrant's Class A Common Stock, par value $.01 per share, and 40,920,000
outstanding shares of the registrant's Class B Common Stock, par value $.01 per
share.
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INDEX
FTD.COM INC.
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page
<S> <C>
Item 1. Financial Statements ..................................................................
Balance Sheets at June 30, 1999 and September 30, 1999 ............................ 3
Statements of Operations for the three months ended September 30, 1998 and 1999 ... 4
Statements of Cash Flows for the three months ended September 30, 1998 and 1999 ... 5
Notes to Financial Statements ..................................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations ............................................................................ 11
Item 3. Quantitative and Qualitative Disclosures about Market Risk ............................. 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ...................................................................... 17
Item 2. Changes in Securities and Use of Proceeds .............................................. 17
Item 4. Submission of Matters to a Vote of Security Holders .................................... 17
Item 6. Exhibits and Reports on Form 8-K ....................................................... 17
SIGNATURES ...................................................................................... 19
</TABLE>
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
FTD.COM INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30,
June 30, 1999
ASSETS 1999 (Unaudited)
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<S> <C> <C>
(In thousands)
CURRENT ASSETS:
Cash and cash equivalents $ 8,205 $ 5,843
Receivable from underwriters - 33,480
Accounts receivable 233 653
Prepaid expenses 215 535
Deferred offering expenses 1,062 -
--------- ---------
Total current assets 9,715 40,511
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OTHER ASSETS:
Distribution agreements 1,707 1,569
Software development costs - 214
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Total other assets 1,707 1,783
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Total assets $ 11,422 $ 42,294
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LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $ 2,175 $ 5,265
Payable to FTDI 311 9
Unearned revenue 129 -
Accrued offering expenses 638 936
--------- ---------
Total current liabilities 3,253 6,210
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Series A 8% Cumulative Redeemable Convertible Preferred Stock, $.01 par
value; 90,000 shares issued and outstanding at June 30, 1999
and September 30, 1999 9,074 9,074
--------- ---------
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock, $.01 par value; 5,000,000 shares authorized; 90,000
shares of Series A 8% Cumulative Redeemable Preferred Stock issued
and outstanding at June 30, 1999 and September 30, 1999 - -
Class A common stock, $.01 par value; 250,000,000 shares authorized; no
shares issued and outstanding at June 30, 1999;
4,500,000 shares issuable at September 30, 1999 - 45
Class B common stock, $.01 par value; 100,000,000 shares authorized; 40,920,000
shares issued and outstanding at June 30, 1999 and September 30, 1999 409 409
Additional paid-in capital - 31,720
Retained deficit (1,314) (5,164)
--------- ---------
Total stockholders' equity (deficit) (905) 27,010
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Total liabilities and stockholders' equity (deficit) $ 11,422 $ 42,294
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</TABLE>
See accompanying notes to the financial statements.
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FTD.COM INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1998 1999
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(In thousands except per share data)
<S> <C> <C>
Revenues:
Order revenues and service fees, net of discounts $ 5,574 $ 10,776
Commissions from FTDI 530 969
Other, principally from FTDI 1 698
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Total revenues 6,105 12,443
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Fulfillment and processing service, including expenses from FTDI of $465
and $1,076 for the three months ended September 30, 1998
and 1999, respectively 4,860 8,960
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Gross profit 1,245 3,483
Operating Expenses:
Marketing and promotions, including expenses from FTDI of $424 and $0 for
the three months ended September 30, 1998
and 1999, respectively 1,585 4,128
Technology development, including expenses from FTDI of
$316 and $435 for the three months ended September 30, 1998
and 1999, respectively 473 1,647
General and administrative, including expenses from FTDI of
$415 and $593 for the three months ended September 30, 1998
and 1999, respectively 803 1,656
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Total operating expenses 2,861 7,431
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Loss from operations (1,616) (3,948)
Interest income - 98
Interest expense (30) -
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Loss before income taxes (1,646) (3,850)
Income tax benefit 658 -
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Net loss ($ 988) ($ 3,850)
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Basic and diluted net loss per share of common stock ($ 0.02)(a) ($ 0.09)
------------- -----------
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Weighted average common shares used in the calculation of
basic and diluted net loss per share 40,920(a) 41,018
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(a) Pro forma presentation. Shares used in the calculation of basic and diluted
net loss per share give pro forma effect to the common stock issued to FTDI in
connection with the formation of the Company on May 19, 1999.
</TABLE>
See accompanying notes to the financial statements.
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FTD.COM INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1998 1999
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<S> <C> <C>
(In thousands)
Net loss $ (988) $ (3,850)
Adjustments to reconcile net loss to net cash and cash equivalents
used in operating activities:
Changes in assets and liabilities:
Accounts receivable 14 (420)
Prepaid expenses (13) (320)
Accounts payable 488 3,090
Payable to FTDI 190 (302)
Unearned revenue - (129)
Accrued liabilities 80 -
Accrued offering expenses - (354)
--------- ----------
Net cash and cash equivalents used in operating activities (229) (2,285)
--------- ----------
Net cash and cash equivalents (used in) provided by investing activities:
Distribution agreements 312 137
Software development costs - (214)
--------- ----------
Net cash and cash equivalents (used in) provided by investing activities 312 (77)
--------- ----------
Net cash and cash equivalents used in financing activities:
Contributions from FTDI (83) -
--------- ----------
Net decrease in cash and cash equivalents - (2,362)
Cash and cash equivalents, beginning of period - 8,205
--------- ----------
Cash and cash equivalents, end of period $ - $ 5,843
--------- ----------
--------- ----------
Supplemental disclosures of non-cash transactions:
Receivable from underwriters $ - $ 33,480
</TABLE>
See accompanying notes to the financial statements.
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FTD.COM INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1. DESCRIPTION OF BUSINESS
FTD.COM INC. (the "Company") operates the www.FTD.COM Web site and the
1-800-SEND-FTD toll-free telephone number, both of which provide consumers with
the ability to order floral and other specialty gift products.
The Company is a subsidiary of Florists' Transworld Delivery, Inc.
("FTDI"), which is a wholly owned subsidiary of FTD Corporation ("FTD"). The
Company was incorporated as a Delaware corporation on May 19, 1999 and at such
time began to retain its own earnings. In consideration for the receipt of
40,920,000 shares of Class B common stock (as adjusted to reflect a 12-for-1
stock split on July 30, 1999) FTDI contributed to the Company the assets and
liabilities relating to the consumer floral order and specialty gift product
business.
NOTE 2. BASIS OF PRESENTATION
The unuadited financial statements of the Company as of and for the
three month period ended September 30, 1999 have been prepared in accordance
with generally accepted accounting principles for interim financial information
pursuant to the rules and regulations of the Securities and Exchange Commission
and do not contain all information included in the audited financial statements
and notes for the year ended June 30, 1999. The interim statements should be
read in conjunction with the financial statements and notes thereto included in
the Company's Registration Statement on Form S-1 (File No. 333-78857). In the
opinion of the Company's management, all adjustments necessary for a fair
presentation of the financial position, results of operations and cash flows
have been included (and any such adjustments are of a normal and recurring
nature). Due to seasonal variations, in the Company's business, operating
results for the three month period ended September 30, 1999 are not necessarily
indicative of the results that might be expected for the year ended June 30,
2000.
NOTE 3. UNEARNED REVENUE
The Company sold gift certificates that the Company was required to
repurchase if the gift certificates were not redeemed by July 31, 1999. Revenue
was only recognized with respect to those gift certificates which were actually
redeemed. The unearned revenue associated with the unredeemed gift certificates
was offset against the cash refund when the unreedemed gift cerficates were
repurchased.
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NOTE 4. DISTRIBUTION AGREEMENTS
The Company has entered into Internet distribution agreements whereby
the Company will receive various services including advertising space on
Internet browsers, portal links to the Company's Web site and a co-branded
online flower site. Pursuant to terms of these agreements, the Company is
required to pay total fixed fees of $12.9 million, including $6.8 million due in
fiscal 2000. In addition, the Company is required to pay variable fees based on
a percentage of net revenue. A portion of the fixed fees are refundable in
accordance with contractual calculations in the event that the Company does not
receive the specified number of impressions through the portal links. The
Company records expenses related to the agreements ratably over the contract
term. During the three months ended September 30, 1999, the Company recorded
$1.6 million of expense related to these distribution agreements.
NOTE 5. INCOME TAXES
The tax benefit of $0.7 million for the three months ended September
30, 1998, represents a tax asset which was settled through stockholders' net
deficit prior to the Company's formation on May 19, 1999. Subsequent to the
Company's formation, taxes are recognized pusuant to the terms of the amended
Tax Sharing Agreement among FTDI, FTD and the Company, which provides that the
Company's tax position should be computed as if it were filing a separate
return.
For the three months ended September 30, 1999, the Company incurred a
loss that provided a tax benefit of $1.5 million at an effective rate of 40%.
The Company foresees incurring significant losses in the foreseable future and
believes these tax assets may not be realized in the time period during which
they are deductible and therefore maintains a valuation allowance to offset
these deferred tax assets.
NOTE 6. BASIC AND DILUTED LOSS PER SHARE
The Company computes net loss per share in accordance with the
provisions of Statement of Financial Accounting Standards ("SFAS") No. 128,
EARNINGS PER SHARE. Under the provisions of SFAS No. 128, basic and diluted net
loss per share is computed by dividing the net loss for the period by the
weighted average number of common shares outstanding for the period.
Dilutive securities have not been included in the weighted average
shares used for the calculation of earnings per share in periods of net loss
because the effect of such securities would be anti-dilutive. At September 30,
1999, potentially dilutive securities consisted of 1,384,614 shares of Class A
common stock issuable upon the conversion of 90,000 shares of Series A preferred
stock into Class A common stock. These shares of Series A preferred stock were
automatically converted into 1,384,614 shares of Class A common stock upon the
closing of the IPO discussed in Notes 7 and 9.
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NOTE 7. CAPITAL TRANSACTIONS
On July 30, 1999, the Company's Board of Directors approved a 12-for-1
stock split of the Company's outstanding Class B common stock. All share and per
share information in the accompanying financial statements has been
retroactively restated to reflect the effect of the stock split.
On September 28, 1999, the Company agreed to issue and sell
4,500,000 shares of its Class A common stock in an Initial Public Offering
(IPO) transaction at a price of $8.00 per share. The gross proceeds from the
offering were $36.0 million. The net proceeds were $31.8 million after
deducting the underwriting discounts and commissions of $2.5 million and
other offering expenses of $1.7 million. The deferred offering expenses of
$1.1 million at June 30, 1999 incurred in connection with the IPO were
charged against additional paid in capital upon the pricing of the IPO. The
IPO closed on October 4, 1999, at which time the Company collected the $33.5
million receivable from the underwriters.
NOTE 8. SOFTWARE DEVELOPMENT COSTS
On March 4, 1998, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants ("AICPA") issued Statement of
Positition ("SOP") 98-1, ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE DEVELOPED
OR OBTAINED FOR INTERNAL USE. This SOP applies to all non-governmental entities
and became effective for financial statements for fiscal years beginning after
December 15, 1998. The Company has adopted this SOP effective July 1, 1999. In
accordance with SOP 98-1, internal and external costs incurred to develop
internal-use computer software are expensed during the preliminary project stage
and capitalized during the application development stage. Capitalized software
development costs are amortized over two years.
NOTE 9. SUBSEQUENT EVENTS
Upon the closing of the IPO on October 4, 1999, the 90,000 outstanding
shares of Series A preferred stock were automatically converted into 1,384,614
shares of Class A common stock. Upon conversion, accrued and unpaid dividends of
$74,301 on the Series A preferred stock were offset against retained earnings.
On October 6, 1999, the underwriters exercised their one time option to
purchase 495,000 additional shares of Class A common stock at the IPO price of
$8.00 per share, representing a portion of the over-allotment option granted to
the underwriters in connection with the IPO. The net proceeds to the Company
from this issuance and sale of 495,000 shares of Class A common stock were $3.7
million after deducting underwriting discounts and commissions.
The following disclosure of the Company's capitalization gives pro
forma effect to the conversion of the 90,000 shares of Series A preferred stock
into shares of Class A common stock
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and the issuance and sale of 495,000 shares of Class A common stock to the
underwriters pursuant to the underwriters' exercise of their over-allotment
option as of the pricing of the IPO on September 28, 1999.
<TABLE>
<CAPTION>
September 30, 1999
--------------------------
Actual Pro Forma
--------- ----------
<S> <C> <C>
(In thousands except per
share data)
Series A 8% Cumulative Redeemable Convertible Preferred Stock, $.01 par value;
90,000 shares issued and outstanding actual; no shares issued
and outstanding pro forma ............................................................. $ 9,074 $ -
--------- ----------
Stockholders' equity:
Preferred stock, $.01 par value; 5,000,000 shares authorized; 90,000 shares
issued and outstanding as Series A 8% Cumulative Redeemable Convertible
Preferred Stock actual; no shares issued and oustanding pro forma ..................... - -
Class A common stock, $.01 par value; 250,000,000 shares authorized; 4,500,000
shares issuable actual; 6,379,614
shares issued and outstanding pro forma ............................................... 45 64
Class B common stock, $.01 par value; 100,000,000 shares authorized; 40,920,000
shares issued outstanding actual and pro forma ........................................ 409 409
Additional paid-in-capital ............................................................ 31,720 44,384
Retained deficit ...................................................................... (5,164) (5,090)
--------- ----------
Total stockholders' equity ................................................ 27,010 39,767
--------- ----------
Total capitalization .......................................... $ 36,084 $ 39,767
--------- ----------
--------- ----------
Basic and diluted net loss per share of common stock ................................. $ (0.09) $ (0.09)
---------- ----------
---------- ----------
Weighted average common shares used in the calculation of basic and
diluted net loss per share ........................................................... 41,018 41,128
--------- ---------
--------- ---------
</TABLE>
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Upon the closing of the IPO, the Company and FTDI entered into certain
agreements (the "Intercompany Agreements") governing various interim and ongoing
relationships, including a commission agreement, indemnification agreement,
trademark license agreement, a registration rights agreement and a Web site
hosting agreement. Under the Web site hosting agreement, the Company will
provide FTDA member florists with listings in an Internet directory and the
ability to operate Web sites within this directory for a fee.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED IN THIS REPORT,
CERTAIN STATEMENTS MADE HEREIN ARE "FORWARD-LOOKING STATEMENTS" WITHIN THE
MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. THESE
FORWARD-LOOKING STATEMENTS REFLECT THE COMPANY'S EXPECTATIONS REGARDING ITS
FUTURE GROWTH, RESULTS OF OPERATIONS, PERFORMANCE AND BUSINESS PROSPECTS AND
OPPORTUNITIES. WORDS SUCH AS "ANTICIPATES," "BELIEVES," "PLANS," "EXPECTS,"
"ESTIMATES," AND SIMILAR EXPRESSIONS HAVE BEEN USED TO IDENTIFY THESE
FORWARD-LOOKING STATEMENTS, BUT ARE NOT THE EXCLUSIVE MEANS OF IDENTIFYING
THESE STATEMENTS. THESE STATEMENTS REFLECT THE COMPANY'S CURRENT BELIEFS AND
ARE BASED ON INFORMATION CURRENTLY AVAILABLE TO THE COMPANY. ACCORDINGLY,
THESE STATEMENTS ARE SUBJECT TO KNOWN AND UNKNOWN RISKS, UNCERTAINTIES, AND
OTHER FACTORS THAT COULD CAUSE THE COMPANY'S ACTUAL GROWTH, RESULTS,
PERFORMANCE AND BUSINESS PROSPECTS AND LIQUIDITY TO DIFFER FROM THOSE
EXPRESSED IN, OR IMPLIED BY, THESE FORWARD-LOOKING STATEMENTS. THESE RISKS,
UNCERTAINTIES AND OTHER FACTORS ARE DESCRIBED IN THE COMPANY'S REGISTRATION
STATEMENT ON FORM S-1, AS AMENDED (FILE NO. 333-78857), UNDER THE CAPTION
"RISK FACTORS". THE COMPANY IS NOT OBLIGATED TO UPDATE OR REVISE THESE
FORWARD-LOOKING STATEMENTS TO REFLECT NEW EVENTS OR CIRCUMSTANCES.
FTD.COM INC. (the "Company") operates the www.FTD.COM Web site and the
1-800-SEND-FTD toll free telephone number, both of which provide consumers with
the ability to order floral and other specialty gift products.
The Company is a subsidiary of Florists' Transworld Delivery, Inc.
("FTDI"), which is a wholly owned subsidiary of FTD Corporation ("FTD"). The
Company began selling products directly to consumers through the 1-800-SEND-FTD
toll-free telephone number in 1993 and through the www.FTD.COM Web site in 1994.
Prior to May 19, 1999, our business was conducted through a business unit of
FTDI.
In view of the rapidly changing nature of the Company's business, its
limited operating history and the seasonality of its business, the Company
believes that comparisons of its operating results for any period with those of
the preceding period are not necessarily meaningful and should not be relied
upon as an indication of future performance. The Company's revenues and
operating results may vary from quarter to quarter due to a number of factors,
some of which are beyond the Company's control. This fluctuation primarily is
attributable to increased sales and advertising expenditures during the popular
floral holiday seasons in the fiscal quarters ending March 31, June 30 and
December 31.
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THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 1999.
The following is a discussion of changes in the Company's financial
condition and results of operations for the three months ended September 30,
1998, compared with the three months ended September 30, 1999.
Total revenues increased by $6.3 million, or 103%, from $6.1 million
for the three months ended September 30, 1998 to $12.4 million for the three
months ended September 30, 1999. The increase in total revenues was attributable
to an 84% increase in the number of orders from 107,642 for the three month
period ended September 30, 1998 to 197,992 for the three months ended September
30, 1999, as well as an increase in average order value.
Order revenues and service fees, net of discounts, increased by $5.2
million, or 92.9%, from $5.6 million for the three months ended September 30,
1998 to $10.8 million for the three months ended September 30, 1999. The
increase from the corresponding period of the prior year was primarily the
result of an increase in Internet order volume. During the three months ended
September 30, 1998 and 1999, Internet orders were 47% and 69% of total orders,
respectively.
Commission revenue increased by $0.5 million from $0.5 million for the
three months ended September 30, 1998 to $1.0 million for the three months ended
September 30, 1999. The increase from the corresponding period of the prior year
was a result of an increase in the number of orders gathered on which FTDI pays
the Company a commission. Commission revenue was 8.2% and 8.1% of total revenues
for the three months ended September 30, 1998 and 1999, respectively.
Other revenue increased by $0.7 million from $1,000 for the three
months ended September 30, 1998 to $0.7 million for the three months ended
September 30, 1999. The increase from the comparable period of the prior year is
attributable to the commencement of fees relating to the hosting of florists'
Web sites through the www.FTD.COM Internet site pursuant to an arrangement with
FTDI that began on July 1, 1999.
Cost of fulfillment and processing services increased by $4.1 million,
or 83.7%, from $4.9 million for the three months ended September 30, 1998, to
$9.0 million for the three months ended September 30, 1999. This was the result
of increased order volume, which was primarily attributable to the increase in
Internet sales discussed above. As a percentage of total revenues, cost of
fulfillment and processing services decreased from 80.3% for the three months
ended September 30, 1998 to 72.6% for the three months ended September 30, 1999.
This decrease was primarily due to the increase in commission revenue in the
three months ended September 30, 1999 compared with the corresponding period of
the prior year. In addition, the Company reduced the amount paid per order to
fulfilling florists in order to bring the Company in line with industry
standards.
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Marketing and promotion expenses increased by $2.5 million from $1.6
million for the three months ended September 30, 1998 to $4.1 million for the
three months ended September 30, 1999. The increase was primarily due to an
increase in Internet advertising and other expenses relating to agency fees
and media marketing. As of September 30, 1998, the Company's customer base
increased by 6.3%, or 61,990 customers to 1,050,788 customers from 988,798
customers as of June 30, 1998. As of September 30, 1999, the Company's
customer base increased by 8.0%, or 117,425 customers to 1,582,887 customers
from 1,465,462 customers as of June 30, 1999.
Technology development expenses increased by $1.1 million from $0.5
million for the three months ended September 30, 1998 to $1.6 million for the
three months ended September 30, 1999. The increase was primarily due to costs
related to the redesign of the Company's Web site expected to be released in the
third quarter of fiscal 2000 as well as enhancements required to handle the
increased volume on the Company's Web site and improve the speed of order
processing.
General and administrative expenses increased by $0.9 million from $0.8
million for the three months ended September 30, 1998, to $1.7 million for the
three months ended September 30, 1999. The increase was primarily due to our
increased expenses relating to the hiring of some members of the Company's
senior management team.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity requirements primarily are for capital expenditures
and working capital needs, including substantially increased advertising,
promotion and other marketing expenses. The Company believes that the net
proceeds from the IPO and cash flow from operations will be sufficient to fund
anticipated capital expenditures and working capital needs through December 31,
2000.
Cash used in operating activities was $0.2 million for the three months
ended September 30, 1998 compared to cash used in operating activities of $2.3
million for the three months ended September 30, 1999. The increase in cash used
in operating activities for the three months ended September 30, 1999, is
primarily a result of the increase in the net loss offset in part by the
increase accounts payable.
Cash provided by investing activities was $0.3 million for the three months
ended September 30, 1998 compared to cash used in investing activities of $0.1
million for the three months ended September 30, 1999. During the three months
ended September 30, 1998, cash provided by investing activities primarily
relates to distribution agreements while the cash used in investing activities
during the three months ended September 30, 1999 relates primarily to software
development costs.
Cash used in financing activities was $0.1 million for the three months
ended September 30, 1998. During the three months ended September 30, 1998, cash
used in financing activities
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reflects contributions from FTDI. At September 30, 1999, the net proceeds from
the IPO are recorded as a non-cash financing activity as the Company did not
collect the proceeds until October 4, 1999.
YEAR 2000 ISSUES
Most of the Company's information technology (IT) functions are
performed by FTDI pursuant to the Intercompany Agreements. To date, the
Company has not incurred any material costs or expenses related to Year 2000
issues. Accordingly, the Company has relied on FTDI to assist in assessing
Year 2000 issues related to both the Company and FTDI. The information
supplied with respect to these matters has been provided by FTDI. FTDI
conducted a review of the Company's computer systems, as well as those of
FTDI, and identified the systems (IT systems, as well as non-IT systems) that
could be affected by the "Year 2000" issue. The Year 2000 issue is the result
of computer programs being written using two digits rather than four to
define the applicable year. Any of the computer programs used by the Company
and FTDI that have time-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in a major system
failure or miscalculation. The Year 2000 issue is believed to affect
virtually all companies and organizations, which would include the Company
and FTDI, as well as systems and applications of the Company's and FTDI's
vendors or customers. FTDI identified various IT systems, such as those
internal systems that reside on FTDI's mainframe, that are considered
"mission critical" and has developed a plan for converting these computer
systems for Year 2000 compliance.
FTDI has contracted with an outside consulting firm, which has assisted
the Company and FTDI in the evaluation and selection of a compatible software
package based on the Company's IT system requirements and those of FTDI. FTDI
is currently in the implementation and training process for this new software
package. There are three phases to the software implementation process. Phase
1 consists of the software implementation for the general ledger and accounts
payable systems. Phase 2 consists of the software implementation for FTD
Marketplace distribution, floral order processing and accounts receivable.
Phase 3 consists of the software implementation for credit card processing
and directory publications. Phase 1 and Phase 2 have been completed and
tested. Phase 3 of the project is estimated to be completed and tested by
November 15, 1999.
In addition to the computer systems and software the Company uses directly,
the Company's operations also depend on the performance of computer systems and
software used by the Company's significant service providers, including
providers of financial, telecommunications and product delivery services. There
is no assurance that the Company's service providers have, or will have,
operating software and systems that are Year 2000 compliant.
As part of the Company's Year 2000 compliance efforts with FTDI, the
Company's plan includes contacting suppliers and other third parties whose
business interruption could have a significant impact on the Company's business.
The Company and FTDI have not completed the
14
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assessment of the Year 2000 issue as it relates to these third party vendors
and suppliers. However, it should be noted that there are over 19,000 FTD
florists generally available to fulfill orders, none of which individually
fulfills a material portion of the Company's orders. With respect to vendors
and suppliers, FTDI has begun contacting key third parties in order to secure
appropriate representation of Year 2000 compliance and to address the
compatibility of systems. These vendors and suppliers include financial
institutions and communication and transportation providers with whom the
Company and FTDI do business. FTDI's business is not significantly dependent
on any one vendor or supplier. As of September 30, 1999, FTDI has received
representation of Year 2000 compliance from approximately 75% of the vendors
and suppliers that the Company and FTDI use. The Company and FTDI intend to
establish alternative sources or strategies in the event that a vendor or
supplier is unable to provide appropriate representations of Year 2000
compliance.
In addition, the vast majority of purchases of merchandise from the Company
are made with credit cards, and the Company's business, results of operations
and financial condition may be adversely affected to the extent that customers
are unable to use their credit cards due to Year 2000 issues that are not
rectified by the customers' credit card vendors or third party credit card
transaction processors.
FTDI has indicated that it has included in its Year 2000 compliance efforts
FTDI products such as Mercury 2000, 3000 and 4000 terminals, Mercury Interface
Box, Mercury Wings and Mercury Advantage (Solaris and SCO) computer systems.
These products are sold and leased by FTDI to FTD florists as elements of the
Mercury Network that links FTDI and FTD florists. FTDI has advised the Company
that FTDI completed its efforts to test these systems as of October 31, 1999. In
the event that appropriate Year 2000 readiness is not achieved for a service or
product identified by the Company or FTDI as Year 2000 compliant, FTDI will use
commercially reasonable efforts to repair the affected portion of the service or
product.
FTDI has undertaken a review of the non-IT systems that both the Company
and FTDI use which rely on embedded computer technology and consist primarily of
those systems relating to the building and facilities. FTDI has received
appropriate Year 2000 representation from the suppliers of such systems and, at
this time, FTDI believes these systems will not have a material effect on the
operations of the Company or FTDI.
Although the Company expects its Year 2000 compliance costs to be
immaterial, the Company expects that any Year 2000 compliance costs incurred
will be funded from operating cash flow. The Year 2000 budget has not required
the diversion of funds from or the postponement of the implementation of other
planned IT projects. If the Company and FTDI are unsuccessful in implementing
the software or if the software does not function as it is expected to, the
related potential effect is expected to adversely affect both the Company's and
FTDI's business, financial condition and results of operations. All scheduled
implementation dates have been met and the Company and FTDI intend to develop by
December 15, 1999 and implement, if necessary, appropriate contingency plans to
mitigate, to the extent possible, any significant Year 2000
15
<PAGE>
areas of noncompliance. The Company and FTDI have assessed the scope of Year
2000 issues relating to the Company's Web site and, as of October 31, 1999,
the Company and FTDI are testing changes made by the Web site operator to
bring the site in compliance and believe this testing will be completed by
November 15, 1999. The Company will implement, if necessary, appropriate
contingency plans to mitigate any significant Year 2000 areas of
noncompliance.
The economy in general may be adversely affected by risks associated with
the Year 2000 issue. The Company's business, financial condition and results of
operations could be adversely affected if systems on which the Company relies,
including systems that are operated by other parties with whom the Company does
business, are not Year 2000 compliant in time. There can be no assurance that
these third party systems will continue to properly function and interface and
will otherwise be Year 2000 compliant. Although the Company is not aware of any
threatened claims related to the Year 2000, the Company may be subject to
litigation arising from such claims and, depending on the outcome, such
litigation could adversely affect the Company's business, financial condiation
and results of operations.
Based on the reviews and analysis done to date by the Company and FTDI, the
Company believes that the reasonably likely worst-case scenario with respect to
the Year 2000 issues could result in difficulty for customers placing orders
should the Year 2000 problem disrupt power or communication facilities. Although
these events could have an adverse affect on the Company's business in the
short-term, the Company does not believe that Year 2000 issues will materially
and adversely affect the Company's business, financial condition and results of
operations over the long-term. No assurances can be given that the Company's
expectations will be realized.
The expected costs and completion dates for the Year 2000 project and the
Company's expectations regarding likely outcomes are forward-looking statements
based on management's best estimates and were derived using numerous assumptions
of future events, including the continued availability of resources, third party
modification plans and other factors. Actual results could differ from these
estimates as a result of factors that include the availability and cost of
trained personnel, the ability to locate and correct all relevant computer
codes, and similar uncertainties.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of September 30, 1999, the Company was not party to any financing
arrangements and therefore is not currently exposed to market risk. The Company
believes the net proceeds from the IPO and cash flow from operations will be
sufficient to fund anticipated working capital needs through December 31, 2000
and does not intend to enter into any financing arrangements prior to such time.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
16
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not involved in any legal proceeding that management
believes would adversely affect the Company's business, financial condition or
results of operations.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On September 28, 1999, the Securities and Exchange Commission
declared effective the Company's Registration Statement on Form S-1, as
amended (File No. 333-78857), relating to the Company's initial public
offering of 4,995,000 shares of Class A common stock, 495,000 shares of which
were issued on October 8, 1999 upon the exercise on October 6, 1999 of an
option to purchase additional shares that the Company granted to the
underwriters of the offering. The managing underwriters for the offering were
Bear, Stearns & Co. Inc., Thomas Weisel Partners LLC, Volpe Brown Whelan &
Company, LLC and E* OFFERING Corp. In connection with the offering, the
Company registered the Class A common stock under the Securities Exchange Act
of 1934.
The offering commenced on September 29, 1999 and was completed on
October 8, 1999 at an initial public offering price of $8.00 per share. The
initial public offering resulted in gross proceeds of $39,960,000, of which
$2,797,200 was applied to the underwriting discount and $1,715,000 of which
was applied to related expenses. As a result, net proceeds of the offering to
the Company were approximately $35,447,800. As of September 30, 1999, the
Company had not received any of the net proceeds from the offering.
The Company did not make, in connection with the offering and sale of
the Class A common stock registered, any direct or indirect payments to
directors or officers of the Company or, to the Company's knowledge, their
associates; persons owning 10% or more of any class of equity securities of the
Company; or affiliates of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Effective as of September 16, 1999, FTDI, the holder of all of the
shares of the Company's common stock that were outstanding as of that date, and
the holders of all of the outstanding shares of the Company's Series A 8%
Cumulative Redeemable Convertible Preferred Stock consented to certain
amendments to the terms of such Series A preferred stock.
Effective as of August 2, 1999, FTDI, the sole stockholder of the
Company with voting rights with respect to the matter submitted to the
Company's stockholders, consented to the adoption of the FTD.COM INC. 1999
Equity Incentive Plan.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Description
------------ -------------
27 Financial Data Schedule
17
<PAGE>
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the three month
period ended September 30, 1999.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized on the 2nd day of November, 1999.
FTD.COM INC.
By: /s/ Peter K. Poli
---------------------------------
Peter K. Poli
Vice President and Chief Financial
Officer
19
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
20
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FTD.COM INC
THREE MONTH PERIOD ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 5,843
<SECURITIES> 0
<RECEIVABLES> 34,133
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 40,511
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 42,294
<CURRENT-LIABILITIES> 6,210
<BONDS> 0
9,074
0
<COMMON> 454
<OTHER-SE> 26,556
<TOTAL-LIABILITY-AND-EQUITY> 42,294
<SALES> 10,776
<TOTAL-REVENUES> 12,443
<CGS> 8,960
<TOTAL-COSTS> 7,431
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3,850)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,850)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,850)
<EPS-BASIC> ($.09)
<EPS-DILUTED> ($.09)
</TABLE>
