<PAGE>
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 MARCH 31, 2000
COMMISSION FILE NUMBER 0-26779
FTD.COM INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S><C>
DELAWARE 36-4294509
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
</TABLE>
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 [ x ] NO [ ]
As of April 27, 2000, 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.
<PAGE>
INDEX
FTD.COM INC.
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page
<S> <C>
Item 1. Financial Statements
Balance Sheets 3
Statements of Operations 4
Statements of Cash Flows 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures about Market Risk 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities and Use of Proceeds 14
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
FTD.COM INC.
BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
June 30, March 31,
ASSETS 1999 2000
- ------ -------- ---------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 8,205 $ 26,540
Accounts receivable 233 286
Prepaid expenses 215 1,176
Distribution agreements 1,707 913
Deferred offering expenses 1,062 -
-------- ---------
Total current assets 11,422 28,915
-------- ---------
OTHER ASSETS:
Software development costs - 3,187
Other long term assets - 294
-------- ---------
Total other assets - 3,481
-------- ---------
Total assets $ 11,422 $ 32,396
======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
- ----------------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 2,021 $ 8,794
Payable to FTDI 311 2,328
Unearned revenue 129 403
Accrued offering expenses 638 -
Other accrued liabilities 154 1,230
-------- --------
Total current liabilities 3,253 12,755
-------- --------
Series A 8% Cumulative Redeemable Convertible Preferred Stock, $.01 par
value; 90,000 shares issued and outstanding at June 30, 1999; no shares
issued and outstanding at March 31, 2000 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; no shares issued and outstanding at March 31, 2000 - -
Class A common stock, $.01 par value; 250,000,000 shares authorized; no shares issued and
outstanding at June 30,1999; 6,379,614 shares issued and outstanding at March 31, 2000 - 64
Class B common stock, $.01 par value; 100,000,000 shares authorized; 40,920,000
shares issued and outstanding at June 30, 1999 and March 31, 2000 409 409
Additional paid-in capital - 44,119
Deferred compensation - (149)
Retained deficit (1,314) (24,802)
--------- ---------
Total stockholders' equity (deficit) (905) 19,641
--------- ---------
Total liabilities and stockholders' equity (deficit) $ 11,422 $ 32,396
========= =========
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
FTD.COM INC.
STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
--------------------------- -----------------------------
1999 2000 1999 2000
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
Revenues:
Order revenues and service fees, net of discounts $ 11,380 $ 23,870 $ 28,520 $ 55,593
Commissions from FTDI 1,010 1,852 2,596 4,535
Other, principally from FTDI - 828 67 2,453
-------- -------- -------- --------
Total revenues 12,390 26,550 31,183 62,581
Fulfillment and processing service 9,789 18,891 24,519 44,806
-------- -------- -------- --------
Gross profit 2,601 7,659 6,664 17,775
Operating expenses:
Marketing and promotions 3,097 11,528 7,797 29,932
Technology development 573 2,073 1,442 5,291
General and administrative 1,290 3,026 3,180 7,287
-------- -------- -------- --------
Total operating expenses 4,960 16,627 12,419 42,510
-------- -------- -------- ---------
Loss from operations (2,359) (8,968) (5,755) (24,735)
Interest income - 475 - 1,173
Interest expense (26) - (131) -
--------- -------- -------- ---------
Loss before income taxes (2,385) (8,493) (5,886) (23,562)
Income tax benefit 954 - 2,354 -
--------- -------- -------- ---------
Net loss $ (1,431) $ (8,493) $ (3,532) $(23,562)
========= ======== ======== =========
Basic and diluted net loss per share of common stock $ (0.03) (a) $ (0.18) $ (0.09) (a) $ (0.52)
========= ======== ======== =========
Weighted average common shares used in the calculation of
basic and diluted net loss per share 40,920 (a) 47,300 40,920 (a) 45,184
========= ======== ======== =========
</TABLE>
(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.
See accompanying notes to financial statements.
4
<PAGE>
FTD.COM INC.
STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
--------------------------
1999 2000
--------- ----------
<S> <C> <C>
Net loss $ (3,532) $ (23,562)
Adjustments to reconcile net loss to net cash and cash equivalents
used in operating activities:
Deferred compensation expense - 26
Changes in assets and liabilities:
Accounts receivable 166 (53)
Prepaid expenses (109) (961)
Distribution agreements 443 794
Other long term assets - (294)
Accounts payable 420 6,773
Payable to FTDI (129) 1,842
Unearned revenue 136 274
Other accrued liabilities 290 1,076
--------- -----------
Net cash and cash equivalents used in operating activities (2,315) (14,085)
--------- -----------
Net cash and cash equivalents used in investing activities:
Software development costs - (3,187)
--------- -----------
Net cash and cash equivalents provided by financing activities:
Deferred offering expenses - 1,062
Accrued offering expenses - (638)
Contributions from FTDI 2,315 -
Proceeds from the issuance of common stock - 35,183
--------- -----------
Net cash and cash equivalents provided by financing activities 2,315 35,607
--------- -----------
Net increase in cash and cash equivalents - 18,335
Cash and cash equivalents, beginning of period - 8,205
--------- -----------
Cash and cash equivalents, end of period $ - $ 26,540
========= ===========
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
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 majority-owned subsidiary of Florists' Transworld
Delivery, Inc. ("FTDI"), which is a wholly-owned subsidiary of IOS Brands
Corporation ("IOS"). 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 accompanying unaudited financial statements of the Company 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 unaudited financial 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
management, the information furnished herein reflects all adjustments
(consisting only of normal, recurring adjustments) necessary for a fair
presentation of the results of operations, financial position and cash flows for
the interim periods presented. Due to seasonal variations in the Company's
business, operating results for the three and nine month periods ended March 31,
2000 are not indicative of the results that might be expected for the year ended
June 30, 2000. Certain prior year amounts have been reclassified to conform to
current year presentation.
NOTE 3. UNEARNED REVENUE
The Company sells gift certificates for co-sponsored marketing
programs. Revenue is only recognized with respect to those gift certificates
which are actually redeemed during the fiscal period specified. During fiscal
year 1999, the Company sold gift certificates that the Company was required to
repurchase if the gift certificates were not redeemed by July 31, 1999. The
unearned revenue associated with the unredeemed gift certificates was offset
against the cash refund when the unreedemed gift cerficates were repurchased.
NOTE 4. DISTRIBUTION AGREEMENTS
The Company has entered into Internet distribution agreements whereby
the Company will receive various services including advertising space on high
traffic shopping and search oriented Web sites, portal links to the Company's
Web site and co-branded online flower sites. Pursuant to terms of these
agreements, the Company is required to pay total fixed fees of $11.6 million,
including $4.8 million due in the fourth quarter of 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 these Internet distribution agreements.
The Company records expenses related to the agreements ratably over the contract
term. During the three and nine month periods ended March 31, 2000, the Company
recorded $3.2 million and $7.9 million of marketing and promotions expense,
respectively, related to these distribution agreements.
6
<PAGE>
NOTE 5. INCOME TAXES
The tax benefit of $1.0 million and $2.4 million for the three and nine
month periods ended March 31, 1999, respectively, 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, IOS 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 and nine months ended March 31, 2000, the Company
incurred a loss that provided a tax benefit of $3.4 million and $9.4 million,
respectively, at an effective rate of 40% for both periods. The Company expects
to incur 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.
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 $31.5 million after deducting the
underwriting discounts and commissions of $2.5 million and other offering
expenses of $2.0 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.
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.
7
<PAGE>
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. For the nine months
ended March 31, 2000, the Company has capitalized $3.2 million of software
development costs, which will be amortized over a two year period commencing on
the date the new version of the Web site becomes operational.
NOTE 9. INTERCOMPANY AGREEMENTS
In connection with the IPO, the Company and FTDI entered into certain
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.
The Statements of Operations include the following expense transactions
with FTDI:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
------------------------------- --------------------------------
1999 2000 1999 2000
---------------- ------------ ---------------- --------------
(In thousands and unaudited)
<S> <C> <C> <C> <C>
Fulfillment and processing service $ 740 $433 $1,844 $1,084
Marketing and promotions 1,152 - 2,561 -
Technology development 347 126 983 964
General and administrative 552 568 1,595 1,777
</TABLE>
8
<PAGE>
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
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. ACTUAL GROWTH, RESULTS, PERFORMANCE AND
BUSINESS PROSPECTS AND LIQUIDITY COULD DIFFER MATERIALLY FROM THOSE EXPRESSED
IN, OR IMPLIED BY, THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF THE
SUCCESS OF FTD.COM'S MARKETING CAMPAIGN; COMPETITION FROM EXISTING AND
POTENTIAL NEW COMPETITORS; LEVELS OF DISCRETIONARY CONSUMER PURCHASES OF
FLOWERS AND SPECIALTY GIFTS; THE AVAILABILITY OF FINANCING DUE TO MARKET
CONSTRAINTS, LIQUIDITY CONSTRAINTS OF THE COMPANY'S PARENT AND GENERAL
ECONOMIC CONDITIONS; LOWER GROWTH RATES FOR THE MARKETS IN WHICH THE COMPANY
COMPETES COMPARED TO ESTIMATED GROWTH RATES; THE COMPANY'S ABILITY TO
INCREASE CAPACITY AND INTRODUCE ENHANCEMENTS TO ITS WEB SITE; AND THE
EXISTENCE OF SYSTEM FAILURES. ADDITIONAL 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 majority-owned subsidiary of Florists' Transworld
Delivery, Inc. ("FTDI"), which is a wholly-owned subsidiary of IOS Brands
Corporation ("IOS"). 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
a 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. Such fluctuations are primarily
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.
9
<PAGE>
RESULTS OF OPERATIONS
The following is a discussion of changes in the Company's financial
condition and results of operations for the three and nine month periods ended
March 31, 2000, compared with the same periods of 1999.
TOTAL REVENUES
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
---------------------- % ---------------------- %
1999 2000 Change 1999 2000 Change
---------- ----------- ---------- ----------- ---------- ----------
(in thousands) (in thousands)
<S> <C> <C> <C> <C> <C> <C>
Order revenues and service fees,
net of discounts $11,380 $23,870 110% $28,520 $55,593 95%
Commissions from FTDI 1,010 1,852 83% 2,596 4,535 75%
Other, principally from FTDI - 828 N/M 67 2,453 N/M
---------- ----------- ----------- ----------
Total revenues $12,390 $26,550 114% $31,183 $62,581 101%
========== =========== =========== ==========
</TABLE>
Total revenues consist of order revenues and service fees, net of
discounts, commision revenue and other revenue. Total revenues increased by
$14.2 million and $31.4 million for the three and nine month periods ended March
31, 2000, respectively, compared to the prior fiscal year periods. The increase
in total revenues was primarily attributable to an increase in order volume and
average order value.
Order revenues and service fees, net of discounts, increased $12.5
million and $27.1 million for the three and nine month periods ended March 31,
2000, respectively, compared to the corresponding prior fiscal year periods.
Total order volume was 405,364 and 986,983, respectively, for the three and nine
months ended March 31, 2000, representing a 94% and 83% increase, respectively,
over the prior fiscal year periods. The increase was primarily a result of an
increase in internet orders of 166% and 179%, respectively, during the same
periods, partially offset by a decrease in telephone orders.
Commission revenue increased by $0.8 million and $1.9 million for the
three and nine months ended March 31, 2000, respectively, compared to the
corresponding periods of the prior fiscal year. The increase in commission
revenues paid by FTDI to the Company is due to the increase in order volume
during these same periods. Pursuant to the commission agreements in effect since
July 1998, FTDI will pay a $5.00 commission on every order that the Company
clears through the FTD Clearinghouse. Commission revenue represented 8.3% and
7.2% of total revenues for the nine months ended March 31, 1999 and 2000,
respectively.
Total other revenues for the three and nine months ended March 31, 2000
increased by $0.8 million and $2.4 million, respectively, over the corresponding
periods of the prior fiscal year. Other revenue consists primarily of fees paid
by FTDI to the Company pursuant to an agreement dated July 1, 1999, relating to
the hosting of florists' Web sites through the www.FTD.COM Internet Web site.
10
<PAGE>
COST OF FULFILLMENT AND PROCESSING SERVICE
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
---------------------- % ---------------------- %
1999 2000 Change 1999 2000 Change
---------- ----------- ---------- ----------- --------- ---------
(in thousands) (in thousands)
<S> <C> <C> <C> <C> <C> <C>
Fulfillment and processing service $9,789 $18,891 93% $24,519 $44,806 83%
</TABLE>
The increase in fulfillment services was primarily due to the
increase in order volume as well as increased average order value. Cost of
fulfillment and processing services increased $9.1 million, or 93%, and $20.3
million, or 83%, for the three and nine months ended March 31, 2000,
respectively, compared to the same periods of the prior fiscal year. Gross
profit margins increased to 28.8% for the three months ended March 31, 2000
and 28.4% for the nine months ended March 31, 2000, compared to 21.0% and
21.4%, respectively, for the corresponding periods of the prior fiscal year.
The increase in the gross margin percentage is primarily due to the increase
in other revenues and a decrease in the amount paid per order to fulfilling
florists. The amount paid to florists was decreased to bring the Company in
line with industry standards.
MARKETING AND PROMOTIONS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
---------------------- % ---------------------- %
1999 2000 Change 1999 2000 Change
---------- ----------- ---------- ----------- --------- ---------
(in thousands) (in thousands)
<S> <C> <C> <C> <C> <C> <C>
Marketing and promotions $3,097 $11,528 272% $7,797 $29,932 284%
</TABLE>
Marketing and promotions expense consists primarily of TV, radio and
outdoor media purchases. During the three and nine months ended March 31,
2000, marketing and promotions expense increased $8.4 million and $22.1
million, respectively, compared to the prior fiscal year periods. As a result
of the marketing and promotional spending, the total customer base (defined
as anyone who has purchased at least once through the www.FTD.COM Web site or
the 1-800-SEND-FTD telephone number) increased by 15.1%, or 271,292
customers, to 2,066,849 customers as of March 31, 2000 from 1,795,557
customers as of December 31, 1999. The total customer base had increased by
10.6%, to 1,285,111 customers as of March 31, 1999, from 1,162,187 customers
as of December 31, 1998.
TECHNOLOGY DEVELOPMENT
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
---------------------- % ---------------------- %
1999 2000 Change 1999 2000 Change
---------- ----------- ---------- ----------- --------- ---------
(in thousands) (in thousands)
<S> <C> <C> <C> <C> <C> <C>
Technology development $573 $2,073 262% $1,442 $5,291 267%
</TABLE>
Technology expenses consist primarily of Web site redesign expenses and
various costs related to hosting the Web site. Technology expenses increased by
$1.5 million and $3.8 million for the three and nine months ended March 31,
2000, respectively, compared to the same periods of the prior fiscal year. The
increase was primarily due to increased costs related to the Web site redesign,
expected to be released in the fourth quarter of fiscal 2000, and increased
expenditures related to the enhancement of the Web site's volume capacity and
Internet order processing speed.
11
<PAGE>
GENERAL AND ADMINISTRATIVE
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
---------------------- % ---------------------- %
1999 2000 Change 1999 2000 Change
---------- ----------- ---------- ----------- --------- ---------
(in thousands) (in thousands)
<S> <C> <C> <C> <C> <C> <C>
General and administrative $1,290 $3,026 135% $3,180 $7,287 129%
</TABLE>
General and administrative expenses increased by $4.1 million from
$3.2 million for the nine months ended March 31, 1999, to $7.3 million for
the nine months ended March 31, 2000. The increase was primarily due to
increased expenses related to the hiring of additional employees in the
marketing, technology and business development areas, in addition to
increased total costs for customer service due to the 83% growth in order
volumes for the nine month period ended March 31, 2000, over the prior fiscal
year period.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2000, the Company had cash and cash equivalents of
$26.5 million, compared to $8.2 million at June 30, 1999. The Company's
liquidity requirements consist primarily of capital expenditures for software
development costs and working capital needs, including substantially
increased marketing and promotions expenses. For the nine months ended March
31, 2000 the Company made capital expeditures of $3.2 million related to
software development costs. The Company did not make any capital expenditures
for the nine months ended March 31, 1999. The Company has future commitments
for capital expenditures of $0.4 million related to the redesign of its Web
site. In addition, the Company has commitments of $11.6 million related to
Internet distribution agreements, as described in Note 4 of the Notes to the
Financial Statements set forth in Item 1 of this report, and $2.5 million
related to a netsourcing agreement that expires in May 2002.
Net cash used in operating activities was $14.1 million and $2.3
million for the nine months ended March 31, 2000 and 1999 respectively. Net
operating cash flows were primarily attributable to net losses which were
partially offset by increases in accounts payable.
Net cash used in investing activities was $3.2 million for the nine
months ended March 31, 2000. The cash used in investing activities consisted
of software development costs which have been capitalized in accordance with
SOP 98-1, ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE DEVELOPED OR OBTAINED
FOR INTERNAL USE.
Net cash provided by financing activities was $35.6 million and $2.3
million for the nine months ended March 31, 2000 and 1999, respectively. The
cash provided by financing activities in the nine months ended March 31,
2000, was the result of the net proceeds from the IPO, including amounts
attributable to the exercise of the underwriters' over-allotment option.
During the nine months ended March 31, 1999, cash provided by financing
activities reflects contributions from FTDI.
The Company intends to continue to build brand awareness and
increase its customer base and purchasing frequency through advertising,
direct marketing/affinity and retention marketing programs. Additionally, the
Company plans to continue to invest in expanding its product offerings and
improving its Web site and the infrastructure supporting customer service.
The scope of these programs and investments is expected to be affected in the
near term by the amount, if any, of additional financing the Company is able
to attain. The Company believes that its existing cash and future cash flows
from operations will be sufficient to meet its liquidity needs through the
fiscal year ending June 30, 2000. However, any projections of future cash
inflows and outflows are subject to substantial uncertainty. In addition, the
Company, from time to time, considers acquisitions of or investments in
complementary businesses, products, services and technologies, which may
impact the Company's liquidity requirements or cause the Company to seek to
issue additional equity or debt. Beyond fiscal 2000, the Company may need to
raise additional capital to meet its long-term liquidity needs. If the
12
<PAGE>
Company determines that it needs to raise this additional capital, the
Company may seek to sell additional equity or raise debt from third party
sources or its parent. The sale of additional equity or convertible debt
securities could result in dilution to the Company's stockholders. In
addition, any debt financing, if available, could involve restrictive
covenants, which could adversely affect the Company's operations. There can
be no assurance that any of these financing alternatives, including raising
additional capital from its parent, will be available in amounts or on terms
acceptable to the Company, if at all. If the Company is unable to raise any
needed additional capital, the Company could be required to significantly
alter its operating plan, which could have a material adverse effect on the
Company's business, financial condition and results of operations.
DEFERRED TAX ASSET
The tax benefit of $1.0 million and $2.4 million for the three and
nine month periods ended March 31, 1999, respectively, 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, IOS 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 and nine months ended March 31, 2000, the Company
incurred a loss that provided a tax benefit of $3.4 million and $9.4 million,
respectively, at an effective rate of 40% for both periods. The Company
expects to incur 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of March 31, 2000, the Company was not party to any significant
financing arrangements. The Company maintains a portfolio of highly liquid
investments in U.S. government securities, which are classified as cash
equivalents. Given the short-term nature of these investments, the Company
believes it is not subject to any significant interest rate risk.
13
<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 ("IPO") 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 IPO price of $8.00 per share. The IPO resulted in gross
proceeds of appoximately $40.0 million, of which approximately $2.8 million was
applied to the underwriting discount and approximately $2.0 million of which was
applied to related expenses. As a result, net proceeds of the offering to the
Company were approximately $35.2 million.
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.
From the date of the closing of the IPO through March 31, 2000, the
Company has utilized the proceeds as follows:
* $25.8 million to fund advertising, promotion and other marketing
activities; and
* $3.2 million for capital expenditures, including technology and physical
infrastructure.
Unused proceeds of the offering are currently invested in a highly
liquid portfolio of U.S. securities.
As of March 31, 2000, the Company had commitments for future
expenditures for the remaining net proceeds of the IPO related to Internet
distribution agreements and a netsourcing agreement. The Company has not made
any other specific expenditure plans with respect to the remaining proceeds of
this offering. While the Company cannot specify with certainty the particular
uses for such proceeds, the Company currently intends to use the remaining
proceeds over time:
* to fund additional advertising, promotion and other marketing activities;
* to enhance its infrastructure;
* to enter into strategic relationships;
* to expand its product offerings; and
* for other general corporate purposes.
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<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT NO DESCRIPTION
----------- -----------
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the three month
period ended March 31, 2000.
15
<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 27th day of April, 2000.
FTD.COM INC.
By: /s/ Michael J. Soenen
----------------------
Michael J. Soenen
Chief Executive Officer
(Principal Financial Officer)
16
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
27 Financial Data Schedule
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FTD.COM
INC.'S FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> JUN-30-2000 JUN-30-2000
<PERIOD-END> MAR-31-2000 MAR-31-1999
<CASH> 26,540 0
<SECURITIES> 0 0
<RECEIVABLES> 286 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 28,915 0
<PP&E> 0 0
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 32,396 0
<CURRENT-LIABILITIES> 12,755 0
<BONDS> 0 0
0 0
0 0
<COMMON> 44,592 0
<OTHER-SE> (24,951) 0
<TOTAL-LIABILITY-AND-EQUITY> 32,396 0
<SALES> 55,593 28,520
<TOTAL-REVENUES> 62,581 31,183
<CGS> 44,806 24,519
<TOTAL-COSTS> 87,316 36,938
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 131
<INCOME-PRETAX> (23,562) (5,886)
<INCOME-TAX> 0 (2,354)
<INCOME-CONTINUING> (23,562) (3,532)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (23,562) (3,532)
<EPS-BASIC> (0.52) (0.09)
<EPS-DILUTED> (0.52) (0.09)
</TABLE>
