<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 DECEMBER 31, 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 OF (I.R.S. EMPLOYER
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 [ x ] NO [ ]
As of January 28, 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>
Page
<S> <C>
PART I. FINANCIAL INFORMATION
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, December 31,
1999 1999
-------- ---------
(Unaudited)
<S> <C> <C>
ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents $ 8,205 $ 33,284
Accounts receivable 233 124
Prepaid expenses 215 1,426
Distribution agreements 1,707 881
Deferred offering expenses 1,062 -
-------- ---------
Total current assets 11,422 35,715
-------- ---------
OTHER ASSETS:
Software development costs - 2,509
-------- ---------
Total other assets - 2,509
-------- ---------
Total assets $ 11,422 $ 38,224
======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $ 2,021 $ 8,248
Payable to FTDI 311 740
Unearned revenue 129 74
Accrued offering expenses 638 364
Other accrued liabilities 154 678
-------- ---------
Total current liabilities 3,253 10,104
-------- ---------
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 December 31, 1999 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
December 31, 1999 - -
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
December 31, 1999 - 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 December 31, 1999 409 409
Additional paid-in capital - 44,119
Deferred compensation - (163)
Retained deficit (1,314) (16,309)
-------- ---------
Total stockholders' equity (deficit) (905) 28,120
-------- ---------
Total liabilities and stockholders' equity (deficit) $ 11,422 $ 38,224
======== =========
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
FTD.COM INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
--------------------------- ---------------------------
1998 1999 1998 1999
--------- --------- --------- ---------
(In thousands except per share data)
<S> <C> <C> <C> <C>
Revenues:
Order revenues and service fees, net of discounts $ 11,566 $ 20,947 $ 17,140 $ 31,723
Commissions from FTDI 1,056 1,714 1,586 2,683
Other, principally from FTDI 66 927 67 1,625
--------- --------- --------- ---------
Total revenues 12,688 23,588 18,793 36,031
Fulfillment and processing service 9,870 16,955 14,730 25,915
--------- --------- --------- ---------
Gross profit 2,818 6,633 4,063 10,116
Operating expenses:
Marketing and promotions 3,115 14,276 4,700 18,404
Technology development 396 1,571 869 3,218
General and administrative 1,087 2,605 1,890 4,261
--------- --------- --------- ---------
Total operating expenses 4,598 18,452 7,459 25,883
--------- --------- --------- ---------
Loss from operations (1,780) (11,819) (3,396) (15,767)
Interest income - 600 - 698
Interest expense (75) - (105) -
--------- --------- --------- ---------
Loss before income taxes (1,855) (11,219) (3,501) (15,069)
Income tax benefit 742 - 1,400 -
--------- --------- --------- ---------
Net loss $ (1,113) $ (11,219) $ (2,101) $ (15,069)
========= ========= ========= =========
Basic and diluted net loss per share of common stock $ (0.03)(a) $ (0.24) $ (0.05)(a) $ (0.34)
========= ========= ========= =========
Weighted average common shares used in the calculation of
basic and diluted net loss per share 40,920 (a) 47,234 40,920 (a) 44,127
========= ========= ========= =========
</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
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
December 31,
---------------------------
1998 1999
--------- ---------
(In thousands)
<S> <C> <C>
Net loss $ (2,101) $ (15,069)
Adjustments to reconcile net loss to net cash and cash equivalents
used in operating activities:
Changes in assets and liabilities:
Accounts receivable 69 109
Prepaid expenses (618) (1,211)
Distribution agreements 607 826
Accounts payable 713 6,227
Payable to FTDI (174) 266
Unearned revenue - (55)
Other accrued liabilities 486 524
--------- ---------
Net cash and cash equivalents used in operating activities (1,018) (8,383)
--------- ---------
Net cash and cash equivalents used in investing activities:
Software development costs - (2,509)
--------- ---------
Net cash and cash equivalents provided by financing activities:
Proceeds from the issuance of common stock - 35,183
Change in deferred offering expenses - 1,062
Change in accrued offering expenses - (274)
Contributions from FTDI 1,018 -
--------- ---------
Net cash and cash equivalents provided by financing activities 1,018 35,971
--------- ---------
Net increase in cash and cash equivalents - 25,079
Cash and cash equivalents, beginning of period - 8,205
--------- ---------
Cash and cash equivalents, end of period $ - $ 33,284
========= =========
</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 statement 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 six
month periods ended December 31, 1999 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 $12.5
million, including $5.7 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 acordance 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 six month periods ended December 31, 1999, the
Company recorded $3.1 million and $4.7 million of marketing and promotions
expense, respectively, related to these distribution agreements.
6
<PAGE>
NOTE 5. INCOME TAXES
The tax benefit of $0.7 million and $1.4 million for the three and
six month periods ended December 31, 1998, 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 six months ended December 31, 1999, the Company
incurred a loss that provided a tax benefit of $4.5 million and $6.0 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. The
IPO closed on October 4, 1999, at which time the Company collected the $33.5
million receivable from the underwriters.
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 six months ended December 31, 1999,
the Company has capitalized $2.5 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 Six Months Ended
December 31, December 31,
----------------- ------------------
1998 1999 1998 1999
------ ----- ------- ------
(In thousands and unaudited)
<S> <C> <C> <C> <C>
Fulfillment and processing service $ 738 $ 438 $ 1,104 $ 651
Marketing and promotions 985 - 1,409 -
Technology development 320 403 636 838
General and administrative 628 616 1,043 1,209
</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. 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 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 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.
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 six month
periods ended December 31, 1999, compared with the same periods of 1998.
TOTAL REVENUES
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
------------------- % ------------------- %
1998 1999 Change 1998 1999 Change
------- ------- -------- ------- ------- --------
(in thousands) (in thousands)
<S> <C> <C> <C> <C> <C> <C>
Order revenues and service fees,
net of discounts $11,566 $20,947 81% $17,140 $31,723 85%
Commissions from FTDI 1,056 1,714 62% 1,586 2,683 69%
Other, principally from FTDI 66 927 N/M 67 1,625 N/M
------- ------- ------- -------
Total revenues $12,688 $23,588 86% $18,793 $36,031 92%
======= ======= ======= =======
</TABLE>
Total revenues consist of order revenues and service fees, net of
discounts, commision revenue and other revenue. Total revenues increased by
$10.9 million, or 86%, and $17.2 million, or 92%, for the three and six month
periods ended December 31, 1999, respectively, compared to the corresponding
prior year periods. The increase in total revenues was attributable to
increased order volume which totaled 383,627 and 581,619 for the three and
six month periods ended December 31, 1999, respectively, reflecting a 73.0%
and 76.6% increase over the prior year periods. Revenues were also positively
affected by an increase in the average order value.
Order revenues and service fees, net of discounts, increased by
$9.4 million, or 81%, and $14.6 million, or 85%, for the three and six month
periods ended December 31, 1999, respectively, compared to the corresponding
prior year periods. The increase from the corresponding periods of the prior
year was the result of an increase in Internet order volume, offset partially
by a decline in telephone orders. During the three and six month periods
ended December 31, 1999, Internet orders were 73.6% and 72.1% of total
orders, respectively, compared to 42.2% and 43.8% of total orders during the
same periods of the prior year.
Commission revenue increased by $0.7 million and $1.1 million for
the three and six month periods ended December 31, 1999, respectively,
compared to the corresponding prior year periods. The increase from the
corresponding periods 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 8.4% and 7.4% of total revenues for the six months
ended December 31, 1998 and 1999, respectively.
Other revenue increased by $0.9 million and $1.6 million for the
three and six month periods ended December 31, 1999, compared to the
corresponding prior year periods. The increase from the comparable periods of
the prior year is attributable to 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.
10
<PAGE>
COST OF FULFILLMENT AND PROCESSING SERVICE
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
------------------- % ------------------- %
1998 1999 Change 1998 1999 Change
------- ------- ------ ------- ------- ------
(in thousands) (in thousands)
<S> <C> <C> <C> <C> <C> <C>
Fulfillment and processing service $ 9,870 $16,955 72% $14,730 $25,915 76%
</TABLE>
Cost of fulfillment and processing services increased by $7.1
million, or 72%, and $11.2 million, or 76%, for the three and six month
periods ended December 31, 1999, respectively, compared to the same periods
of the prior year. This increase correlates with the increase in order
volume, which was primarily attributable to the increase in Internet sales,
as discussed above. As a percentage of total revenues, cost of fulfillment
and processing services decreased to 71.9% for the six month period ended
December 31, 1999, from 78.4% for the same period of the prior year. This
decrease was primarily due to the increase in commission revenue and other
revenue in the six months ended December 31, 1999 compared with the
corresponding period of the prior year. Additionally, the Company reduced the
amount paid per order to fulfilling florists in the current fiscal year
compared to the prior fiscal year, to bring the Company in line with industry
standards.
MARKETING AND PROMOTIONS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
------------------- % ------------------- %
1998 1999 Change 1998 1999 Change
------- ------- ------ ------- ------- ------
(in thousands) (in thousands)
<S> <C> <C> <C> <C> <C> <C>
Marketing and promotions $ 3,115 $14,276 358% $ 4,700 $18,404 292%
</TABLE>
Marketing and promotion expenses increased by $13.7 million for
the six months ended December 31, 1999, compared to the same periods of the
prior year. The increase was primarily due to an increase in the amount of
TV, radio and outdoor media purchased. The Company's customer base (defined
as anyone who has purchased at least once through FTD.COM's Web site or 800
phone number) increased by 17.5%, or 173,389 customers, to 1,162,187
customers as of December 31, 1998, from 988,798 customers as of June 30,
1998. The Company's customer base increased by 22.5%, or 330,095 customers,
to 1,795,557 customers as of December 31, 1999, from 1,465,462 customers as
of June 30, 1999.
TECHNOLOGY DEVELOPMENT
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
------------------- % ------------------- %
1998 1999 Change 1998 1999 Change
------- ------- ------ ------- ------- ------
(in thousands) (in thousands)
<S> <C> <C> <C> <C> <C> <C>
Technology development $ 396 $ 1,571 297% $ 869 $3,218 270%
</TABLE>
Technology development expenses increased by $2.3 million from $0.9 million
for the six months ended December 31, 1998 to $3.2 million for the six months
ended December 31, 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 Internet
order processing.
11
<PAGE>
GENERAL AND ADMINISTRATIVE
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
------------------- % ------------------- %
1998 1999 Change 1998 1999 Change
------- ------- ------ ------- ------- ------
(in thousands) (in thousands)
<S> <C> <C> <C> <C> <C> <C>
General and administrative $ 1,087 $ 2,605 140% $ 1,890 $ 4,261 125%
</TABLE>
General and administrative expenses increased by $2.4 million from
$1.9 million for the six months ended December 31, 1998, to $4.3 million for
the six months ended December 31, 1999. The increase was primarily due to
increased expenses related to the hiring of additional personnel, including
additional members of the Company's senior management team, as well as,
additional employees in the marketing and finance areas.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1999, the Company had cash and cash equivalents of
$33.3 million, compared to $8.2 million at June 30, 1999. The Company's
liquidity requirements primarily are for capital expenditures and working
capital needs, including substantially increased advertising, promotion and
other marketing expenses.
Cash used in operating activities was $8.4 million for the six
months ended December 31, 1999 compared to cash used in operating activities
of $1.0 million for the six months ended December 31, 1998. The increase in
cash used in operating activities is primarily a result of the increase in
the net loss offset in part by the increase in accounts payable.
Cash used in investing activities was $2.5 million for the six
months ended December 31, 1999. During the six months ended December 31,
1999, 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.
Cash provided by financing activities was $36.0 million for the
six months ended December 31, 1999 compared to cash provided by financing
activities of $1.0 million for the six months ended December 31, 1998. The
cash provided by financing activities in the six months ended December 31,
1999, was primarily the result of the net proceeds from the IPO, including
amounts attributable to the exercise of the underwriters' over-allotment
option. During the six months ended December 31, 1998, 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 our 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 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
Company determines that it needs to raise this additional capital, the
Company may seek to sell additional equity or raise debt. 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 its
operations. There can be no assurance that any of these financing
alternatives will be available in amounts or on terms acceptable to the
Company, if at all. If the Company needed to raise additional capital and
was unable to do so, the Company would be required to alter its operating
plan significantly, which could have a material adverse effect on the
Company's business, financial condition and results of operations.
12
<PAGE>
DEFERRED TAX ASSET
The tax benefit of $0.7 million and $1.4 million for the three and
six month periods ended December 31, 1998, 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 pursuant 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 six months ended December 31, 1999, the Company
incurred a loss that provided a tax benefit of $4.5 million and $6.0 million,
respectively, at an effective rate of 40% for both periods. The Company
expects to incur significant losses in the forseeable 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.
YEAR 2000 ISSUES
The Company did not experience any significant malfunctions or
errors in its operating or business systems when the date changed from 1999
to 2000. Based on its operations since January 1, 2000, the Company does not
expect any significant impact to its on-going business as a result of the
"Year 2000 issue". However, it is possible that the full impact of the date
change, which was of concern due to computer programs that use two digits
instead of four digits to define years, has not been fully recognized. For
example, it is possible that Year 2000 or similar issues, such as leap-year
related problems, may occur with billing, payroll or financial closings at
month, quarter or year end. The Company believes that any such problems are
likely to be minor and correctable. In addition, the Company could still be
negatively impacted if its customers or suppliers are adversely affected by
the Year 2000 or similar issues. The Company currently is not aware of any
significant Year 2000 or similar problems that have arised for its customers
or suppliers.
The Company did not incur, directly or through intercompany
allocation from FTDI, any material expenditures in connection with Year 2000
compliance.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of December 31, 1999, 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 initial public
offering resulted in gross proceeds of $40.0 million, of which $2.8 million
was applied to the underwriting discount and $2.0 million of which was
applied to related expenses. As a result, net proceeds of the offering to the
Company were $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 December 31, 1999,
the Company has utilized the proceeds as follows:
- - $14.3 million to fund advertising, promotion and other marketing
activities; and
- - $2.5 million for capital expenditures, including technology and physical
infrastructure.
Unused proceeds of the offering are currently invested in money
market funds with portfolios of U.S. government securities.
As of December 31, 1999, the Company had commitments for future
expenditures of the net proceeds of the IPO of $12.5 million related to
Internet distribution agreements and $2.8 million related to 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 with Internet companies;
- - to expand its product offerings; and
- - for other general corporate purposes.
14
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the three
month period ended December 31, 1999.
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 28th day of January, 2000.
FTD.COM INC.
By: /s/ Peter K. Poli
-------------------------------
Peter K. Poli
Vice President and Chief
Financial Officer
16
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
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>
<CIK> 0001086759
<NAME> FTD.COM INC.
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> JUN-30-2000 JUN-30-1999
<PERIOD-START> JUL-01-1999 JUL-01-1998
<PERIOD-END> DEC-31-1999 DEC-31-1998
<CASH> 33,284 0
<SECURITIES> 0 0
<RECEIVABLES> 124 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 35,715 0
<PP&E> 0 0
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 38,224 0
<CURRENT-LIABILITIES> 10,104 0
<BONDS> 0 0
0 0
0 0
<COMMON> 44,592 0
<OTHER-SE> (16,472) 0
<TOTAL-LIABILITY-AND-EQUITY> 38,224 0
<SALES> 31,723 17,140
<TOTAL-REVENUES> 36,031 18,793
<CGS> 25,915 14,730
<TOTAL-COSTS> 25,883 7,459
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 105
<INCOME-PRETAX> (15,069) (3,501)
<INCOME-TAX> 0 (1,400)
<INCOME-CONTINUING> (15,069) (2,101)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (15,069) (2,101)
<EPS-BASIC> (0.34) (0.05)
<EPS-DILUTED> (0.34) (0.05)
</TABLE>
