<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 SEPTEMBER 30, 2000
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 IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION)
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 October 24, 2000, there were 8,239,614 outstanding shares of the
Registrant's Class A Common Stock, par value $.01 per share, and 40,395,000
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 8
Item 3. Quantitative and Qualitative Disclosures about Market Risk 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities and Use of Proceeds 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
FTD.COM INC.
BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
September 30, June 30,
ASSETS 2000 2000
------ ------------------ -----------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 16,057 $ 17,961
Accounts receivable 154 417
Prepaid expenses 530 297
Distribution agreements 503 142
------------------ -----------------
Total current assets 17,244 18,817
------------------ -----------------
OTHER ASSETS:
Software development costs 150 150
Other long term assets 210 252
------------------ -----------------
Total other assets 360 402
------------------ -----------------
Total assets $ 17,604 $ 19,219
================== =================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 4,266 $ 7,281
Payable to FTDI 3,044 1,866
Unearned revenue 206 221
Other accrued liabilities 733 1,079
------------------ -----------------
Total current liabilities 8,249 10,447
------------------ -----------------
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 5,000,000 shares
authorized; no shares issued and outstanding at September 30,
2000 and June 30, 2000 - -
Class A common stock, $.01 par value; 250,000,000
shares authorized; 8,239,614 shares issued and
outstanding at September 30, 2000; 8,259,614
shares issued and outstanding at June 30, 2000 82 83
Class B common stock, $.01 par value; 100,000,000
shares authorized; 40,395,000 shares issued and
outstanding at September 30, 2000 and June 30, 2000 404 404
Additional paid-in capital 47,937 47,994
Deferred compensation (3,479) (3,867)
Retained deficit (35,589) (35,842)
------------------ -----------------
Total stockholders' equity 9,355 8,772
------------------ -----------------
Total liabilities and stockholders' equity
$ 17,604 $ 19,219
================== =================
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
FTD.COM INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
------------------------------------------
2000 1999
------------------ -------------------
(In thousands, except per share data)
<S> <C> <C>
Revenues:
Order revenues and service fees, net of discounts $ 16,242 $ 10,776
Commissions from FTDI 1,286 969
Other, principally from FTDI 716 698
------------------ -------------------
Total revenues 18,244 12,443
Fulfillment and processing service 12,745 8,960
------------------ -------------------
Gross profit 5,499 3,483
Operating expenses:
Marketing and promotions 2,394 4,242
Technology development 859 1,691
General and administrative 2,272 1,498
------------------ -------------------
Total operating expenses 5,525 7,431
------------------ -------------------
Loss from operations (26) (3,948)
Interest income 279 98
------------------ -------------------
Income/(loss) before income taxes 253 (3,850)
Income tax expense/(benefit) - -
------------------ -------------------
Net income/(loss) $ 253 $ (3,850)
================== ===================
Basic net income/(loss) per share of common stock $ 0.01 $ (0.09)
================== ===================
Diluted net income/(loss) per share of common stock $ 0.01 $ (0.09)
================== ===================
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
FTD.COM INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
---------------------------------------
2000 1999
----------------- -----------------
(In thousands)
<S> <C> <C>
Net income/(loss) $ 253 $ (3,850)
Adjustments to reconcile net income/(loss) to net cash and cash equivalents
used in operating activities:
Deferred compensation expense 330 -
Changes in assets and liabilities:
Accounts receivable 263 (420)
Prepaid expenses (233) (320)
Distribution agreements (361) 137
Other long term assets 42 -
Accounts payable (3,015) 3,090
Payable to FTDI 1,178 (302)
Unearned revenue (15) (129)
Other accrued liabilities (346) -
Accrued offering expenses - (354)
----------------- -----------------
Net cash and cash equivalents used in operating activities (1,904) (2,148)
----------------- -----------------
Net cash and cash equivalents used in investing activities:
Software development costs - (214)
----------------- -----------------
Net cash and cash equivalents provided by/(used in) financing activities - -
----------------- -----------------
Net decrease in cash and cash equivalents (1,904) (2,362)
Cash and cash equivalents, beginning of period 17,961 8,205
----------------- -----------------
Cash and cash equivalents, end of period $ 16,057 $ 5,843
================= =================
</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" or "FTD.COM") is an Internet and telephone
marketer of flowers and specialty gifts that began selling products directly to
consumers through the 1-800-SEND-FTD toll-free telephone number in 1993 and
electronically to consumers through the www.ftd.com Web site in 1994. The
Company offers same-day delivery of floral orders to nearly 100% of the U.S.
population. The majority of floral orders are fulfilled by a group of
independent FTD florists who adhere to FTD.COM's quality guarantee and service
standards. Throughout the year, the Company offers over 400 floral arrangements
and over 600 specialty gift items including gourmet gift baskets, holiday gift
sets, bath and beauty products, garden products and stuffed animals for holidays
and everyday occasions. Product offerings are available at prices ranging from
$17.99 to over $200.00.
The Company is a majority-owned subsidiary of Florists' Transworld
Delivery, Inc. ("FTDI"). FTDI is a wholly-owned subsidiary of IOS BRANDS
Corporation ("IOS"), formerly known as FTD Corporation. 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 floral and specialty gift consumer 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 thereto for the fiscal year ended
June 30, 2000. The interim unaudited financial statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2000. 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 month period ended September
30, 2000 are not necessarily indicative of the results that might be expected
for the fiscal year ended June 30, 2001. In addition, certain prior year amounts
have been reclassified to conform to current year presentation.
NOTE 3. UNEARNED REVENUE
Unearned revenue represents order revenues associated with floral and
specialty gift orders that were placed on or prior to the period end date and
will be delivered after the period end date. This revenue will be recognized,
together with the related cost of goods sold, when the order is fulfilled.
NOTE 4. DISTRIBUTION AGREEMENTS
The Company has entered into Internet distribution agreements whereby
the Company will receive various services including advertising space on
shopping and search-oriented Web sites, portal links to the Company's Web site
and co-branded online floral sites. Pursuant to the terms of these agreements,
at September 30, 2000, the Company has future commitments to pay total fixed
fees of $3.1 million, including $3.0 million due in the remainder of fiscal year
2001. In addition, the Company is required to pay variable fees based on a
percentage of net order revenues as defined in the various agreements generated
as a result of the Internet distribution agreements. The Company records
expenses related to the agreements ratably over the contract term. During the
three month periods ended September 30, 2000 and 1999, the Company recorded $1.7
million and $1.6 million of marketing and promotions expenses, respectively,
related to these distribution agreements.
6
<PAGE>
NOTE 5. INCOME TAXES
For the three months ended September 30, 2000, the Company reported
pretax income of $253,000, resulting in income taxes of $101,000 at an effective
rate of 40%. The Company reduced its valuation allowance by the amount of the
income taxes recorded in the three months ended September 30, 2000, thereby
realizing a portion of the tax assets that had been recorded by the Company in
the prior fiscal years. The Company believes the remaining tax assets may not be
realized in the time period during which they are deductible and therefore
maintains a valuation allowance to offset the remaining deferred tax assets.
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 recorded a valuation allowance for the entire tax benefit amount of
$1.5 million for the related period.
NOTE 6. BASIC AND DILUTED NET INCOME/(LOSS) PER SHARE
The Company computes net income/(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, the computation of
basic and diluted net income/(loss) per share for the periods ended September
30, 2000 and 1999 are as follows:
<TABLE>
<CAPTION>
Three Months Ended
September 30,
--------------------------------------
2000 1999
----------------- ----------------
(in thousands, except per share data)
<S> <C> <C>
Net income/(loss) $ 253 $ (3,850)
================= ================
Weighted average basic common shares outstanding 47,300 41,018
Effect of dilutive securities - unvested restricted shares 1,351 -
----------------- ----------------
Weighted average diluted common shares outstanding 48,651 41,018
================= ================
Basic net income/(loss) per share of common stock $ 0.01 $ (0.09)
================ ================
Diluted net income/(loss) per share of common stock $ 0.01 $ (0.09)
================ ================
</TABLE>
During the first quarter of fiscal year 2001, options to purchase 113,000
shares of common stock at prices ranging from $2.88 to $8.00 per share were
not included in the computation of diluted net income per share of common
stock because the options' exercise price was greater than the average market
price for the respective period of the Company's Class A common stock,
therefore their effect was anti-dilutive.
NOTE 7. INTERCOMPANY AGREEMENTS
The Company engages in various transactions with FTDI in the normal
course of its business. Effective as of July 1, 1999, the Company began to
record revenues related to fees paid by FTDI to the Company for the hosting of
florists' Web sites through the www.ftd.com Internet site. In addition, FTDI
pays the Company commission revenues for floral orders that are cleared through
the FTD Clearinghouse.
For orders processed through the FTD Clearinghouse, FTDI charges the
Company customary clearing fees. The Company also utilizes FTDI's credit card
processing services. FTDI charges the Company a percentage of the order value to
utilize these credit card processing services. Costs for clearing services and
credit card processing expenses are included in fulfillment and processing
services expenses and are covered by the Intercompany Services Agreement between
FTDI and the Company.
7
<PAGE>
Effective as of June 1, 1999, the Company and FTDI entered into an
Intercompany Services Agreement, which covers the technical and administrative
services, facilities and occupancy, Internet/telecom usage and other services
that are provided to the Company by FTDI. Technical and administrative services
include employee and other departmental costs for the technical, human
resources, accounting, administrative and legal departments. In consideration
for these services, FTDI has allocated a portion of its departmental costs
related to the services it provides to the Company. The allocations were
estimated using proportional cost allocation methods, plus an additional general
and administrative charge of 5% of the value of the services utilized. These
costs are classified as technology development expenses and general and
administrative expenses, as appropriate.
The Company does not maintain separate physical facilities. It uses
space of FTDI and is charged rent based upon a market rate estimate. The Company
is also charged a pro-rata share, based on square footage used by the Company,
for utilities, property taxes and other occupancy costs. Internet/telecom usage
costs include an allocation of monthly depreciation for all hardware and
software based on usage by the Company, as well as monthly rates for
telecommunications expenses of the Company. These costs are classified as
general and administrative expenses.
The Company uses FTDI's trademarks in connection with the sale of
floral and specialty gift products through its Web site and toll-free telephone
number. The Company entered into an agreement with FTDI that includes provisions
for royalty payments of 1% of order revenues and service fees, a 99-year term
and termination, at FTDI's option, in the event that ownership of 20% or more of
the Company is acquired by an organization not affiliated with FTDI. Royalty
expense associated with FTDI's trademarks has been included in general and
administrative expenses.
The Statements of Operations include the following expense transactions
with FTDI (in thousands):
<TABLE>
<CAPTION>
Three months ended
September 30,
---------------------------------------------
2000 1999
--------------------- --------------------
<S> <C> <C>
Fulfillment and processing service $ 259 $213
Technology development 108 435
General and administrative 644 593
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FTD.COM INC. (the "Company" or "FTD.COM") is an Internet and telephone
marketer of flowers and specialty gifts that began selling products directly to
consumers through the 1-800-SEND-FTD toll-free telephone number in 1993 and
electronically to consumers through the www.ftd.com Web site in 1994. The
Company offers same-day delivery of floral orders to nearly 100% of the U.S.
population. The majority of floral orders are fulfilled by a group of
independent FTD florists who adhere to FTD.COM's quality guarantee and service
standards. Throughout the year, the Company offers over 400 floral arrangements
and over 600 specialty gift items including gourmet gift baskets, holiday gift
sets, bath and beauty products, garden products and stuffed animals for holidays
and everyday occasions. Product offerings are available at prices ranging from
$17.99 to over $200.00.
The Company is a majority-owned subsidiary of Florists' Transworld
Delivery, Inc. ("FTDI"). FTDI is a wholly-owned subsidiary of IOS BRANDS
Corporation ("IOS"), formerly known as FTD Corporation. 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 floral and specialty gift consumer business.
In view of the rapidly changing nature of the Company's business, the
limited operating history and the seasonality of its business, the Company
believes that comparisons of operating results for any period with those of the
preceding period or the same period of the preceding year are not necessarily
meaningful and should not be relied upon as an indication of future performance.
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 is
primarily attributable to increased marketing and promotions expenditures during
the popular floral holiday seasons in the fiscal quarters ending March 31, June
30 and December 31.
8
<PAGE>
RESULTS OF OPERATIONS
The following is a discussion of changes in the Company's financial
condition and results of operations for the three month period ended September
30, 2000, compared to the same period of the prior fiscal year.
TOTAL REVENUES
<TABLE>
<CAPTION>
Three Months Ended
September 30,
------------------------------------ %
2000 1999 Change
---------------- ---------------- ----------------
(in thousands)
<S> <C> <C> <C>
Order revenues and service fees,
net of discounts $16,242 $10,776 51%
Commissions from FTDI 1,286 969 33%
Other, principally from FTDI 716 698 3%
---------------- ----------------
Total revenues $18,244 $12,443 47%
================ ================
</TABLE>
Total revenues increased $5.8 million, or 47%, for the three months
ended September 30, 2000 compared to the same period of the prior fiscal year.
The increase was primarily attributable to increases in order volume and average
order value.
Order revenues and service fees, net of discounts, increased $5.4
million, or 51%, for the three months ended September 30, 2000 compared to the
same period of the prior fiscal year. Total order volume was 275,079 for the
three months ended September 30, 2000, representing a 39% increase over the same
period of the prior fiscal year order volume of 197,992. The increase was
primarily a result of an increase in Internet orders of 68% over the same period
of the prior fiscal year, partially offset by a decrease in telephone orders.
The decrease in telephone orders is partially attributable to the conversion of
phone customers to Internet customers. Internet orders were 84% of total orders
for the three months ended September 30, 2000 compared to 69% for the same
period of the prior fiscal year. Average order value increased 8.5% for the
three months ended September 30, 2000 to $59.04 per order from $54.42 per order
in the same period of the prior fiscal year.
Commission revenues increased $0.3 million, or 33%, for the three
months ended September 30, 2000 compared to the same period of the prior fiscal
year. The increase in commission revenues paid by FTDI to the Company was due to
the increase in order volume. Pursuant to an incentive program in effect from
July 1998 through September 1999 and a commission agreement in effect since
October 1999, FTDI pays the Company a $5.00 commission for every floral order
that the Company clears through the FTD Clearinghouse. Commission revenues
represented 7% and 8% of total revenues for the three month periods ended
September 30, 2000 and 1999, respectively.
Other revenues remained consistent with the same period of the prior
fiscal year. Other revenues consist primarily of fees paid by FTDI to the
Company, beginning as of July 1, 1999, for the hosting of florists' Web sites
through the www.ftd.com Internet Web site.
COST OF FULFILLMENT AND PROCESSING SERVICE
<TABLE>
<CAPTION>
Three Months Ended
September 30,
--------------------------------- %
2000 1999 Change
-------------- -------------- ----------------
(in thousands)
<S> <C> <C> <C>
Fulfillment and processing service $12,745 $8,960 42%
</TABLE>
Cost of fulfillment and processing services increased $3.7 million, or
42%, for the three months ended September 30, 2000 compared to the same period
of the prior fiscal year. This increase was due to the increase in order
revenues, both of which were primarily a result of increases in order volume and
average order value. Gross profit margin increased to 30% for the three months
ended September 30, 2000 compared to 28% for the same period of the prior fiscal
year primarily as the result of improvements in order processing.
9
<PAGE>
MARKETING AND PROMOTIONS
<TABLE>
<CAPTION>
Three Months Ended
September 30,
--------------------------------- %
2000 1999 Change
-------------- -------------- ----------------
(in thousands)
<S> <C> <C> <C>
Marketing and promotions $2,394 $4,242 (44%)
</TABLE>
Marketing and promotions expenses decreased $1.8 million for the three
months ended September 30, 2000 compared to the same period of the prior fiscal
year. The decrease was primarily due to a decrease in offline advertising
expenses, which resulted from the Company's shift from a marketing program
primarily focused on customer acquisition to a more balanced program of customer
acquisition and retention. The Company's current marketing program has an
increased effort on corporate accounts, online and direct marketing
partnerships.
Further complementing the Company's current marketing program are the
independent, though closely aligned, marketing efforts of FTD.COM's parent
company, FTDI, which also promotes FTD.COM in the majority of its marketing
efforts. This marketing synergy eliminates the need for FTD.COM to separately
promote the FTD brand and has allowed FTD.COM to focus its marketing efforts on
customer acquisition and retention.
In connection with the marketing and promotional efforts of the Company
and its parent, the total customer base (defined as all persons who have
purchased at least once through the www.ftd.com Web site or the 1-800-SEND-FTD
telephone number) increased by 6%, or 139,027 customers, to 2,568,560 customers
as of September 30, 2000 from 2,429,533 customers as of June 30, 2000. For the
same period of the prior fiscal year, the total customer base increased 8%, or
117,425 customers, to 1,582,887 customers as of September 30, 1999 from
1,465,462 customers as of June 30, 1999.
TECHNOLOGY DEVELOPMENT
<TABLE>
<CAPTION>
Three Months Ended
September 30,
--------------------------------- %
2000 1999 Change
-------------- -------------- ----------------
(in thousands)
<S> <C> <C> <C>
Technology development $859 $1,691 (49%)
</TABLE>
Technology development expenses decreased $0.8 million for the three
months ended September 30, 2000 compared to the same period of the prior fiscal
year. The decrease was primarily related to a higher level of prior year
expenses associated with costs that were not capitalized related to an
unlaunched version of the Company's Web site. The decrease was partially offset
by an increase in current year costs related to the hosting of the Company's Web
site due to increased order volume, as well as an increase in current year costs
related to the hiring of additional employees in the technology area. These
additional employees were primarily hired in the third quarter of fiscal year
2000.
GENERAL AND ADMINISTRATIVE
<TABLE>
<CAPTION>
Three Months Ended
September 30,
--------------------------------- %
2000 1999 Change
-------------- -------------- ----------------
(in thousands)
<S> <C> <C> <C>
General and administrative $2,272 $1,498 52%
</TABLE>
General and administrative expenses increased $0.8 million, or 52%, for
the three months ended September 30, 2000 compared to the same period of the
prior fiscal year. The increase was primarily due to increased expenses related
to the hiring of additional employees in the executive, administrative and
business development areas. These additional employees were primarily hired in
the second and third quarters of fiscal year 2000. In addition, customer service
costs and royalty expenses increased due to the 39% growth in order volume for
the three months ended September 30, 2000 compared to the same period of the
prior fiscal year.
10
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2000, the Company had cash and cash equivalents of
$16.1 million, compared to $5.8 million at September 30, 1999. The Company's
future liquidity requirements are expected to consist primarily of working
capital needs, including marketing and promotions expenses and capital
expenditures for software development costs. The Company has future commitments
of $3.1 million related to Internet distribution agreements, as described in
Note 4 of the notes to the financial statements.
Net cash used in operating activities was $1.9 million and $2.1 million
for the three month periods ended September 30, 2000 and 1999, respectively. Net
cash used in operating activities for the three months ended September 30, 2000
was primarily attributable to a decrease in accounts payable. The higher level
of net cash used in operating activities for the three months ended September
30, 1999 was primarily attributable to the net loss reported for the respective
period, which was partially offset by an increase in accounts payable.
The Company did not make any capital expenditures for the three months
ended September 30, 2000, and, therefore, had no cash used in investing
activities for the first quarter of fiscal 2001. Net cash used in investing
activities was $0.2 million for the three months ended September 30, 1999. The
cash used in investing activities consisted of software development costs which
were capitalized in accordance with SOP 98-1, ACCOUNTING FOR THE COSTS OF
COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE and EITF 00-02,
ACCOUNTING FOR WEB SITE DEVELOPMENT COSTS. Subsequent to capitalization, the
capitalized assets were written-off as part of the one-time charge in the fourth
quarter of fiscal 2000, associated with the development work related to an
unlaunched version of the Company's Web site.
The Company had no net cash provided by or used in financing activities
for the three month periods ended September 30, 2000 and 1999.
In the remainder of fiscal year 2001, the Company intends to continue
to reduce its marketing and promotions expenditures compared to the prior year
as it continues to shift from a marketing program primarily focused on customer
acquisition to a more balanced program of customer acquisition and retention.
Complementing these initiatives are the independent, though closely aligned,
marketing efforts of FTDI, which also promotes the Company in the majority of
its marketing efforts. In addition, 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 of future
cash flows from operations. The Company believes that its existing cash and
future cash flows from operations will be sufficient to execute its current
business plan. 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 June 30,
2001, the Company may need to raise additional capital to meet its long-term
liquidity needs. If the Company determines that it needs to raise 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
For the three months ended September 30, 2000, the Company reported
pretax income of $253,000, resulting in income taxes of $101,000 at an effective
rate of 40%. The Company reduced its valuation allowance by the amount of the
income taxes recorded in the three months ended September 30, 2000, thereby
realizing a portion of the tax assets that had been recorded by the Company in
the prior fiscal years. The Company believes the remaining tax assets may not be
realized in the time period during which they are deductible and therefore
maintains a valuation allowance to offset the remaining deferred tax assets.
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 recorded a valuation allowance for the entire tax benefit amount of
$1.5 million for the related period.
11
<PAGE>
FORWARD-LOOKING INFORMATION
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 results of
operations, cash flow, profitability, revenue growth and business prospects,
marketing activities and liquidity requirements. 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. The forward-looking statements reflect
the Company's current beliefs and expectations and are based on information
currently available to the Company. Accordingly, these statements are subject to
various risks, uncertainties and other factors that could cause the Company's
actual results of operations, cash flow, profitability, revenue growth and
business prospects, marketing activities and liquidity requirements to differ
from those expressed in, or implied by, these forward-looking statements. Actual
results of operations, financial performance and business prospects, marketing
activities and liquidity requirements could differ materially from those
expressed in, or implied by, these forward-looking statements as a result of the
success of FTD.COM's and its parent's marketing campaigns; FTD.COM's ability to
retain customers and increase average order value; acceptance of newly
introduced products; competition from existing and potential new competitors;
levels of discretionary consumer purchases of flowers and specialty gifts; the
Company's ability to manage or reduce its level of expenses; actual growth rates
for the markets in which the Company competes compared with forecasted growth
rates; the Company's ability to execute its current business plan without
additional capital infusions; the availability of additional liquidity, if
needed; 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 reports and other
documents that the Company has filed and will file with the Securities and
Exchange Commission. The Company is not obligated to update or revise these
forward-looking statements to reflect new events or circumstances.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of September 30, 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.
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<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 of the
underwriters' over-allotment option. In connection with the offering, the
Company registered the Class A common stock under the Securities Exchange Act
of 1934.
The IPO resulted in gross proceeds of approximately $40.0 million,
of which approximately $2.8 million was applied to the underwriting discount
and approximately $2.0 million 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, 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 September 30, 2000,
the Company has utilized the proceeds as follows:
- $28.8 million to fund advertising, promotion and other marketing
activities; and
- $3.7 million for capital expenditures, including technology and physical
infrastructure, of which $3.5 million was subsequently written-off as part
of the $4.4 million one-time charge recorded in the fourth quarter of
fiscal year 2000 associated with the development work related to an
unlaunched version of the Company's Web site.
As of September 30, 2000, the Company has commitments for future
expenditures for the remaining net proceeds of the IPO related to its Internet
distribution agreements. Unused proceeds of the offering are currently invested
in a highly liquid portfolio of U.S. government securities.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
10.1 Secured Promissory Note between FTDI and Michael J.
Soenen, dated as of August 22, 2000.
27.1 Financial Data Schedules.
</TABLE>
(b) Reports on Form 8-K
FTD.COM filed a report on 8-K on July 21, 2000 related to the fourth
quarter of fiscal year 2000 write-off of development work associated
with an unlaunched version of its Web site.
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<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 26th day of October, 2000.
FTD.COM INC.
By: /s/ Carrie A. Wolfe
--------------------------------------
Carrie A. Wolfe
Vice President, Finance and Accounting
(Principal Financial and Accounting
Officer)
14
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
10.1 Secured Promissory Note between FTDI and Michael J. Soenen,
dated as of August 22, 2000.
27.1 Financial Data Schedules.
</TABLE>
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