IOS BRANDS CORP, 10-K, 2000-09-19

IOS BRANDS CORP
10-K, 2000-09-19
BUSINESS SERVICES, NEC

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
------------------------

FORM 10-K
------------------------
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED JUNE 30, 2000

COMMISSION FILE NUMBER 000-21277

IOS BRANDS CORPORATION
(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C>
DELAWARE 13-3711271
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>

3113 WOODCREEK DRIVE
DOWNERS GROVE, IL 60515-5420
(Address of principal executive offices)

Registrant's telephone number, including area code: (630) 719-7800

Securities registered pursuant to Section 12(b) of the Act:

NONE

Securities registered pursuant to Section 12(g) of the Act:

CLASS A COMMON STOCK, $.01 PAR VALUE

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 [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

Because no established public trading market exists for shares of the
Registrant's voting stock, the aggregate market value of voting stock held by
non-affiliates of the Registrant cannot be determined.

As of August 31, 2000, there were outstanding 12,372,388 shares of the
Registrant's Class A Common Stock, par value $.01 per share, and 2,948,750
shares of the Registrant's Class B Common Stock, par value $.0005 per share.

DOCUMENTS INCORPORATED BY REFERENCE.

Portions of the Registrant's definitive information statement (to be filed
pursuant to Regulation 14C) for the 2000 Annual Meeting of Stockholders (the
"Information Statement") are incorporated by reference in Items 10, 11, 12 and
13 of Part III hereof.
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PART I

ITEM 1. BUSINESS

Overview

At the 1999 Annual Meeting of Stockholders of IOS BRANDS Corporation, a
Delaware corporation (the "Registrant" or the "Company"), held on November 17,
1999, a majority of IOS's stockholders voted in favor of amending the Company's
Restated Certificate of Incorporation to change the name of the Company from FTD
Corporation to IOS BRANDS Corporation and such amendment became effective on
November 18, 1999. Management believes that the name change ultimately will
enable the Company to build multi-brand name recognition and distinguish itself
from its primary operating subsidiary, Florists' Transworld Delivery, Inc. (the
"Operating Company" or "FTD"), a Michigan corporation and wholly owned
subsidiary of the Company. As used in this Report, the terms the "Company" or
"IOS" refer to IOS BRANDS Corporation together with FTD and its subsidiaries.
FTD's subsidiaries include Renaissance Greeting Cards, Inc. ("Renaissance") and
FTD Canada, Inc., both of which are wholly owned by FTD, and FTD.COM INC.
("FTD.COM"), which was formed in May 1999 and is a majority-owned subsidiary of
FTD. FTD.COM's Class A common stock, $.01 par value is quoted on the NASDAQ
National Market under the symbol "EFTD." Substantially all the operations of IOS
have been conducted through FTD and its subsidiaries.

FTD is a direct marketer of flowers and specialty gifts to consumers and a
floral services provider comprised of approximately 17,000 FTD member retail
florist shops located primarily in North America and, through affiliated or
related organizations, approximately 30,000 non-FTD member retail florist shops
located in over 140 countries outside of North America. Through FTD, consumers
are able to purchase high quality FTD branded products, FTD licensed products,
traditional non-branded floral arrangements and specialty gifts.

FTD promotes a worldwide brand based on the FTD Mercury Man logo. See
"-- Marketing and Advertising." A significant portion of FTD's revenues and
operating income is derived from FTD's Technology products and services business
segment, which includes Mercury equipment, Mercury Advantage and Mercury
Wings(TM) systems, the Mercury Network, Clearinghouse, Flowers After Hours,
Publications, Credit Card processing and Interflora, Inc. In addition to the
foregoing, FTD's operations include Marketplace and Other (products supporting
the retail floral and specialty gift industries) and the Direct to Consumer
(Internet and telephone marketing of flowers and specialty gifts through
FTD.COM) business segments.

THE ACQUISITION AND RELATIONSHIP WITH FTD ASSOCIATION

The Operating Company is the successor to a non-profit cooperative
association founded by a group of retail florists in the United States in 1910.
The Operating Company was the surviving corporation after the acquisition (the
"Acquisition") on December 19, 1994 by IOS of all of the outstanding equity of
Florists' Transworld Delivery Association, a Michigan non-profit cooperative
association (the "Old Association"), pursuant to an Agreement and Plan of
Merger, dated August 2, 1994 (the "Merger Agreement"), among IOS, FTD
Acquisition Corporation, a Delaware corporation, and the Old Association. Upon
consummation of the Acquisition, the Operating Company became a wholly-owned
subsidiary of IOS. Immediately following the Acquisition, the Old Association
was converted from a non-profit corporation to a for-profit corporation and
renamed "Florists' Transworld Delivery, Inc."

IOS, through the Operating Company, operates all of the businesses
conducted by the Old Association prior to the Acquisition except for certain
trade association activities which are being conducted by FTD Association, an
Ohio non-profit corporation organized in connection with the Acquisition and
structured as a member-owned trade association ("FTD Association"). Neither IOS
nor the Operating Company has any ownership interest in FTD Association;
however, as provided in the Merger Agreement, the Operating Company and FTD
Association entered into the Mutual Support Agreement, dated December 18, 1994
(the "Mutual Support Agreement") and a Trademark Membership License Agreement,
dated December 18, 1994 (the "Trademark Agreement"; both the Mutual Support
Agreement and the Trademark Agreement are herein after referred to as the
"Association Agreements"), which govern the relationship between the
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Operating Company and FTD Association. Pursuant to the Association Agreements,
among other things: (i) existing and future members have the exclusive right,
subject to execution of a Trademark Membership License Agreement with the
Operating Company, to use the FTD logo and other FTD trademarks in connection
with the operation of a retail florist shop; (ii) all members in good standing
are provided access to FTD's Clearinghouse, Mercury Network and certain other
FTD services and products; (iii) the Operating Company must pay FTD Association
an amount equal to a percentage of the value of every floral order cleared
through FTD's Clearinghouse; and (iv) the Operating Company and FTD Association
may designate up to 20% but not fewer than two individuals to be elected to the
other's board of directors. All references herein to "members" refer to the
members of FTD Association.

MARKETING AND ADVERTISING

FTD conducts extensive marketing and advertising programs on both a
national and local basis. FTD's national advertising (through television, radio,
magazines, newspaper supplements and high traffic Web sites) generally promotes
FTD florists, FTD branded products, 1-800-SEND-FTD and FTD.COM's Web site,
www.ftd.com. FTD.COM's direct marketing campaign includes relationships with
many companies such as United Airlines, Citibank and MBNA, that have a large
consumer databases. Through these relationships, FTD.COM is able to market to
the consumers listed in the large consumer databases using statement inserts
that often offer discounts or frequent flier mileage awards for purchases made
through FTD.COM. In addition, FTD has utilized football Hall-of-Famer and actor
Merlin Olsen as a spokesman since 1983. In addition, FTD also has an active
sponsorship campaign, that features a float in the annual Tournament of
Roses(TM) Parade and sponsorship of the Champions on Ice(TM) professional ice
skating tour.

FTD also coordinates advertising on a local basis with participating
florists. FTD florists are provided with advertising tools such as ad slicks for
newspaper print advertising, point-of-sale items, such as paper and static cling
posters and television tapes to be tagged with individual shop information. In
addition, through FTD, FTD florists can purchase customizable direct mail pieces
and the FTD Floral Selections Guide (the "FSG"), a counter display catalog
published by FTD featuring FTD products for all occasions.

FTD also offers Internet related programs to its member florists. Florists'
Online ("FOL") provides FTD florists with the opportunity to have their own
Internet home page located within FTD's Web site. Florist Internet site are
introductory Web sites that allow FTD florists to compete in today's growing
e-commerce marketplace. These sites are fully functional (secure ordering,
e-mail, etc.) and can be modified to suit an individual florist's needs.

FTD's marketing and advertising programs are designed to: (i) increase
consumer demand for FTD-branded floral arrangements and specialty gifts that FTD
florists or FTD's direct marketing business clear through FTD's Clearinghouse,
including Marketplace's FTD-branded hardgoods; (ii) feature the FTD Mercury Man
logo; and (iii) support FTD florists by encouraging consumers to associate FTD
professional florists with high-quality floral goods and outstanding customer
service.

OPERATIONS

For each transaction cleared by FTD, FTD's Clearinghouse operations
collects the billing information from either the Mercury Network or the florist
that fills the order locally (the "Receiving Florist") if the Mercury Network
has not been used, and allocates funds among FTD, the florist with whom a
customer places the delivery order (the "Sending Florist") and the Receiving
Florist. Generally, FTD provides same-day delivery of flowers to customers in
the United States if the order is received by 1:00 p.m. in the recipients' time
zone. Floral orders between FTD florists are transmitted primarily by FTD's
Mercury Network. For non-floral orders received by FTD.COM through
1-800-SEND-FTD and FTD.COM's Web site, www.ftd.com, that are not fulfilled by an
FTD florist, such as holiday gift baskets, the manufacturer or third party
distributor of the specialty gift order sends the specialty gift order to the
recipient through an express delivery service such as United Parcel Service or
Federal Express. These items typically arrive in one to two days depending on
the delivery method chosen.

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FTD was initially formed to encourage flowers-by-wire transactions between
member florists. Over time FTD has developed a number of additional services and
products that support and enhance the retail floral operations of FTD
professional florists and FTD's direct marketing business. Currently, FTD's
primary operations include its Technology products and services, Marketplace and
Other and Direct to Consumer business segments.

The following table illustrates the percentage of total revenue generated
by the Company's major operations as a percentage of total revenue for the three
fiscal years ended June 30, 2000, 1999 and 1998:

<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Revenue:
Technology products and services.................... 48.0% 53.6% 55.5%
Marketplace and Other............................... 19.3 25.1 27.8
Direct to Consumer.................................. 32.7 21.3 16.7
----- ----- -----
Total Revenue....................................... 100.0% 100.0% 100.0%
===== ===== =====
</TABLE>

Technology products and services. This includes the Company's Mercury
equipment, Mercury Advantage systems, Mercury Wings(TM) systems, Mercury
Network, Clearinghouse, Flowers After Hours, Publications, Credit Card
processing and Interflora, Inc.

Mercury equipment, Mercury Advantage systems and Mercury Wings(TM) systems
sales include both the sales and leasing of hardware and software designed for
the floral industry. Mercury equipment includes Mercury 2000 and Mercury 3000
terminals as well as the Mercury Interface Box. Mercury Advantage systems
include the Advantage computer software, which operates on the Mercury Network,
and is customized to fit virtually every aspect of successful floral shop
management. The Advantage software package provides florists with a
comprehensive range of payroll and accounting functions for the retail florist.
Mercury Wings(TM) is a Windows-based system developed for FTD florists to access
the Mercury Network and has automated features for easy order processing,
greater productivity and quick access to important business information. Mercury
Wings also provides optional software for billing, order-entry, and an interface
to various accounting software packages. The Mercury Network can also be
accessed by Mercury Direct, a new Internet-based method of sending and receiving
orders over the Mercury Network.

The Mercury Network is a proprietary telecommunications network linking
together FTD and approximately 75 percent of the FTD florists. FTD florists who
are linked by the Mercury Network are able to transmit orders cleared through
FTD or through competing clearinghouses and to send each other messages.

FTD's Clearinghouse provides billing and collection services to both the
sending and receiving florists in flowers-by-wire transactions. In fiscal 2000,
FTD cleared floral orders aggregating approximately $455 million in retail
sales. Revenue from FTD's Clearinghouse is generated by FTD retaining 7% of the
sales price of orders sent through the Clearinghouse. The remaining 93% is
allocated as follows: 20% to the Sending Florist and 73% to the Receiving
Florist. Revenue is also generated from the monthly access fee charged to FTD
member florists. In addition, IOS through the Operating Company pays FTD
Association an amount equal to one-eighth of one percent (.125%) of the value of
every floral order that is cleared or otherwise processed through FTD's
Clearinghouse. See "The Acquisition and Relationship with FTD Association."

Flowers After Hours is a call forwarding service whereby FTD receives
orders for participating florists when that florists' shop is closed or
otherwise unavailable. FTD receives a fee for each transaction processed.

FTD's Publications business consists of FTD's Directory & Toll Free
Listings (the "FTD Directory"), which is a directory of all current FTD
florists, their locations, product ordering information and minimum order
amounts. In a typical transaction, the Sending Florist is responsible for
selecting the Receiving Florist within the desired locale. Unless the Sending
Florist has already established a relationship with a particular florist in that
locale, the Sending Florist typically consults the FTD Directory to identify a
Receiving Florist. The FTD Directory is published quarterly on CD-ROM as well as
in a paper book format. Publications also include revenues attributable to the
set up and maintenance of florists' Web sites for FTD Florists' Online through
FTD.COM's Web site www.ftd.com.

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Credit Card processing is a service offered to participating florists
whereby FTD pools the credit card transactions of such florists to secure more
favorable terms on credit card transactions than each FTD florist could secure
on its own.

Interflora, Inc. is a joint venture between FTD, Fleurop-Interflora and the
Interflora British Unit. The joint venture provides a floral services
organization with non-FTD member florists that enables florists to transmit and
receive orders outside North America.

Marketplace and Other. Marketplace products include both FTD-branded and
non-branded holiday and everyday floral arrangement containers and products, as
well as packaging, promotional products and a wide variety of other
floral-related supplies including greeting cards and the FTD Floral Selections
Guide in addition to other miscellaneous income items. By capitalizing on FTD's
sourcing expertise and volume purchases, Marketplace is able to provide florists
with a broad selection of products at attractive prices.

Marketplace also enters into promotional arrangements to design, promote
and sell FTD-branded products. To date, FTD has participated in relationships
with companies such as The Walt Disney Company, M&M/Mars, Inc., Hickory Farms,
Inc., The Vermont Teddy Bear Company, Crabtree & Evelyn, Ltd. and Mattel, Inc.

Revenue derived from Renaissance is included as part of Marketplace.
Renaissance produces greeting cards for special occasions and holidays for sale
to FTD florists and general merchants.

Direct to Consumer. Direct to Consumer represents revenue derived from
FTD's direct marketing business. FTD.COM is an Internet and telephone marketer
of flowers and specialty gifts. This business segment includes consumer orders
generated by the 1-800-SEND-FTD toll-free telephone number and the www.ftd.com
Web site. FTD.COM's revenue includes the sales price of flowers and specialty
gifts as well as a service fee charged to the consumer.

SEASONALITY

FTD generated 19.21%, 25.26%, 26.12% and 29.41% of its total revenue in the
quarters ended September 30, December 31, March 31 and June 30 of fiscal 2000,
respectively. FTD's revenue typically exhibits a modest degree of seasonality as
demonstrated in fiscal 2000. FTD's operating income also fluctuates over the
course of the fiscal year. This seasonality is due, in part, to the fact that
the popular floral holiday of Easter sometimes falls within the quarter ending
March 31 and sometimes falls within the quarter ending June 30. In addition,
this seasonality is attributable to increased revenues in the quarter ended
March 31 relating to the increased floral orders and shipments of Mother's Day
holiday products. As a result, comparisons of results of operations from one
quarter to the immediately preceding quarter or the same quarter of the
preceding year may not be relevant when evaluating the Company's historical
financial performance and predicting the Company's future performance. FTD's
working capital, cash and short-term borrowings also fluctuate during the year
as a result of the factors set forth above.

TRADEMARKS

The FTD Mercury Man logo, which appears on the shop window or door of each
FTD florist, is a registered U.S. trademark, which distinguishes FTD's services
and products from those offered by others. FTD also owns the rights to a number
of other trademarks, including "FTD," "FTDA" and "Florists' Transworld
Delivery," and trademarks for certain floral products, including the "Chicken
Soup Bouquet," "Thanks a Bunch Bouquet," "Stay in Touch Bouquet," "Birthday
Party Bouquet," "Anniversary Bouquet", "Puzzle Fun Bouquet," "Sweet Dreams
Bouquet" and "Sweet Expressions Bouquet". FTD has licensed certain of its
trademarks, including the FTD Mercury Man logo, to FTD Association for use with
its trade association activities and to the FTD florists and FTD.COM.

COMPETITION

FTD competes in the extremely fragmented floral services industry with a
large number of wholesalers and service providers. FTD's primary competitors are
American Floral Services, Inc. and Teleflora LLC. Both
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of these competing services offer some products and services that are comparable
to those offered by FTD, and most FTD florists subscribe to at least one of
these competing services. The Company believes that it has a competitive
advantage in this segment due to its multi-faceted relationship with retail
florists, its depth of product line and its ability to offer discounted pricing
as a result of FTD's substantial volume purchases. The principal competitor for
FTD's direct marketing business, FTD.COM, is 1-800-FLOWERS.COM, Inc.

The Operating Company is subject to certain operating restrictions pursuant
to the Modified Final Judgment, dated November 13, 1990, of the United States
District Court for the Eastern District of Michigan in United States of America
v. Florists' Telegraph Delivery Association, Civ. No. 56-15748, and United
States of America v. Florists' Transworld Delivery Association, Civ. No.
66-28784 (collectively referred to as the "Consent Order"). Among its terms, the
Consent Order prohibits FTD from restricting FTD Association membership to
florists who are not subscribers of a competing clearinghouse. The Consent Order
expires on August 1, 2005.

EMPLOYEES

As of June 30, 2000, IOS employed approximately 626 full-time employees.
IOS considers its relations with its employees to be good. IOS employees are not
currently covered by any collective bargaining agreement.

ITEM 2. PROPERTIES

IOS's principal executive offices, consisting of approximately 120,000
square feet of office space, are owned by IOS and are located in Downers Grove,
Illinois. Renaissance leases office space in Sanford, Maine. IOS uses
independent warehouse and distribution facilities in Ohio and Ontario, Canada
for product distribution.

ITEM 3. LEGAL PROCEEDINGS

IOS is involved in various lawsuits and matters arising in the normal
course of business. In the opinion of the management of IOS, although the
outcomes of these claims and suits are uncertain, they should not have a
material adverse effect on IOS's financial position or results of operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS

No matters were submitted to a vote of the Company's security-holders
during the fourth quarter of fiscal 2000.

ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT

The information below is included in this report pursuant to instruction 3
to Item 401(b) of Regulation S-K:

<TABLE>
<CAPTION>
NAME AGE EXECUTIVE OFFICERS
---- --- ------------------
<S> <C> <C>
Robert L. Norton.......... 53 Chairman of the Board and President
Francis C. Piccirillo..... 50 Division President and General Manager
Timothy M. Rasmussen...... 40 Division President and General Manager
Michael J. Soenen......... 30 President and Chief Executive Officer of FTD.COM INC.
Randall L. Twyman......... 36 Vice President of Finance
</TABLE>

Mr. Norton was named Chairman of the Board of Directors in June 2000. Mr.
Norton retains his titles as President and Chief Executive Officer of the
Operating Company and President of IOS. Mr. Norton has been the President of IOS
since January 1997. Mr. Norton joined the Operating Company in October 1996 as
General Manager and became President and Chief Executive Officer in January
1997. From March 1993 until May 1996, Mr. Norton was Vice Chairman and Chief
Financial Officer of JoAnn Stores, Inc., a retail chain of fabric and craft
stores. Mr. Norton received a B.S. from Cleveland State University in 1973.

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Mr. Piccirillo was named Division President and General Manager in July
2000. Mr. Piccirillo joined IOS as Treasurer in August 1997. From August 1997 to
June 2000, Mr. Piccirillo served as Vice President and Chief Financial Officer
for the Operating Company. Prior to joining the staff in August 1997, Mr.
Piccirillo was Vice President/Treasurer of JoAnn Stores, Inc. for more than five
years. Mr. Piccirillo received a B.S. in Industrial Management in 1971 and a
M.B.A. in 1973 from Gannon University.

Mr. Rasmussen was named Division President and General Manager in July
2000. He previously had served as Vice President of Sales, prior to joining the
Operating Company in October 1998. Mr. Rasmussen was Vice President Sales for
American Floral Services, Inc., a floral services provider, from October 1995
until October 1998. Prior to that time, Mr. Rasmussen was a regional sales
manager for Scott Paper Company for more than five years. Mr. Rasmussen received
a B.S. from Northeastern University in 1983.

Mr. Soenen was named the President and Chief Executive Officer and a
Director of FTD.COM in May 1999. From September 1998 until April 1999, he served
as Vice President -- Marketing of the Operating Company. From January 1997 until
August 1998, he was Director of Sales Promotion for the Operating Company. Mr.
Soenen was an associate at Perry Corp. from August 1996 until December 1996.
From July 1993 to July 1996, Mr. Soenen worked for Salomon Brothers, Inc., an
investment banking firm. Mr. Soenen received a B.A. from Kalamazoo College in
1992.

Mr. Twyman was named as the Vice President of Finance in July 2000. He
previously served as the Controller of the Company. Prior to joining the Company
in November 1999, he was the Assistant Controller, and served in various other
capacities, at Jo-Ann Stores, Inc. for more than 5 years. Prior to that time,
Mr. Twyman worked in the corporate audit group of Arthur Andersen for 4 years.
Mr. Twyman received his B.S. in Accounting in 1987 from Kent State University of
Ohio and is a Certified Public Accountant.

Executive officers are selected by and serve at the discretion of the Board
of Directors.

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PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

No established public trading market exists for IOS's common equity. As of
August 31, there were approximately 2,000 holders of IOS Class A Common Stock,
par value $.01 per share, and four holders of IOS Class B Common Stock, par
value $.0005 per share.

IOS has not paid any cash dividends on its common equity since its
inception. Any future determination as to the payment of dividends will be at
the discretion of the Board of Directors of IOS, and will depend on the
Company's financial condition, results of operations, capital requirements,
compliance with charter and contractual restrictions and such other factors as
the Board of Directors deems relevant.

In addition, under the terms of its borrowings, the Company may not declare
or pay any dividend or make any distribution (other than dividends or
distributions payable solely in capital stock of the Company) on shares of its
common stock to holders of such common stock if at the time of such proposed
dividend, or immediately after giving effect thereto, certain financial
conditions are not satisfied. Notwithstanding the foregoing, the following,
among other things, are permitted: (1) payments by the Operating Company to IOS
to pay management fees in an amount not to exceed $2.0 million in any one fiscal
year pursuant to the Management Consulting Services Agreement (as hereinafter
defined); (2) payments by the Operating Company to IOS for the reimbursement of
reasonable out-of-pocket expenses permitted pursuant to the Management
Consulting Services Agreement; and (3) payments by the Operating Company to IOS
to repurchase shares of IOS Common Stock (subject to restrictions).

ITEM 6. SELECTED FINANCIAL DATA

The following table sets forth selected historical data of IOS BRANDS
Corporation for fiscal years ended June 30, 2000, 1999, 1998, 1997, and 1996.
The selected historical statement of operating data for the years ended June 30,
2000, 1999, 1998, 1997 and 1996 and the balance sheet data as of June 30, 2000,
1999, 1998, 1997 and 1996 were derived from the audited consolidated financial
statements of IOS. The information contained in this table should be read in
conjunction with Item 7 "-- Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the consolidated financial statements
of IOS for the years ended June 30, 2000, 1999 and 1998, including the notes
thereto, appearing elsewhere in this Form 10-K.

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CONSOLIDATED IOS BRANDS CORPORATION

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS EXCEPT FOR PER SHARE DATA AND RATIOS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue........................... $267,727 $213,433 $183,578 $181,120 $179,150
Cost of goods sold and services
provided............................. 134,089 95,399 86,649 87,133 87,302
Selling, general and administrative
expenses............................. 156,744 107,290 84,615 82,566 88,355
-------- -------- -------- -------- --------
Income (loss) from operations........... (23,106) 10,744 12,314 11,421 3,493
Other expense, net...................... 4,006 6,699 9,115 12,752 12,067
Income tax expense (benefit)............ (7,586) 3,192 2,102 416 (1,813)
Minority interest(1).................... (4,389) -- (1) (14) (33)
-------- -------- -------- -------- --------
Net income (loss) before extraordinary
item.................................... $(15,137) $ 853 $ 1,098 $ (1,733) $ (6,728)
======== ======== ======== ======== ========
Extraordinary item(2):
Loss on extinguishment of debt (net of
income tax benefit).................. -- (3,714) (835) -- --
-------- -------- -------- -------- --------
Net income (loss)....................... $(15,137) $ (2,861) $ 263 $ (1,733) $ (6,728)
======== ======== ======== ======== ========
Income (loss) per share
Basic and diluted before extraordinary
item................................. $ (0.99) $ 0.05 $ 0.07 $ ( 0.11) $ (0.50)
Extraordinary item...................... $ -- $ (0.24) $ (0.05) $ -- $ --
Basic and diluted....................... $ (0.99) $ (0.19) $ 0.02 $ (0.11) $ (0.50)
OTHER DATA:
Depreciation and amortization........... $ 8,628 $ 7,307 $ 9,570 $ 15,606 $ 14,231
Capital expenditures.................... 15,655 8,970 1,942 2,614 4,950
BALANCE SHEET DATA:
(at end of period)
Working capital (deficit)............... $ 778 $ (8,285) $ (4,148) $ 5,339 $ 2,718
Total assets............................ 171,466 144,697 154,486 181,724 196,082
Long-term debt, including current
portion.............................. 54,750 51,750 58,130 82,400 96,277
Total equity............................ $ 3,631 $ 23,778 $ 27,924 $ 27,172 $ 29,140
======== ======== ======== ======== ========
</TABLE>

-------------------------
(1) In fiscal 2000, represents the minority's interest in FTD.COM. In fiscal
1998, 1997, and 1996, represents the minority's interest in Renaissance,
which was purchased for cash by FTD in fiscal 1998.

(2) In November 1997, FTD entered into a new credit agreement with Bank One
Capital Markets, Inc. As a result of entering into the new credit agreement,
unamortized deferred financing costs associated with the then existing debt
were expensed net of the related income tax benefit of $0.5 million,
resulting in a net loss on extinguishment of debt of $0.8 million after the
related income tax benefit of $0.5 million. In December 1998, the Company
repaid the $60.0 million aggregate principal amount of 14% Senior
Subordinated Notes due December 15, 2001 (the "Notes"). The reacquisition
price totaled $64.2 million and consisted of the $60.0 million principal on
the Notes and a $4.2 million pre-payment penalty premium. As a result of the
reacquisition of the Notes, $1.7 million of unamortized discount and $1.2
million of deferred financing costs associated with the Notes were expensed
in December, 1998. Accordingly, the loss on the reacquisition of the Notes
totaled $7.1 million. The related income tax benefit attributable to the
reacquisition of the Notes was $3.4 million, for a tax-effected loss on
reacquisition of the Notes of $3.7 million. See Note 3 to the consolidated
financial statements.

9
<PAGE> 10

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

Effective November 18, 1999, FTD Corporation changed its name to IOS BRANDS
Corporation, which we believe will allow the Company to build on the multi-brand
name recognition and distinguish it from the operating subsidiary Florists'
Transworld Delivery, Inc.

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 that reflect the Company's
expectations regarding its future growth, results of operations, performance and
business prospects and opportunities. Words such as "anticipates," "believes,"
"plans," "expects," "estimates," and similar expressions have been used to
identify these forward looking statements, but are not the exclusive means of
identifying these statements. These statements reflect the Company's current
beliefs and are based on information currently available to the Company.
Accordingly, these statements are subject to known and unknown risks,
uncertainties, and other factors that could cause the Company's actual growth,
results, performance and business prospects and opportunities to differ from
those expressed in, or implied by, these statements. These risks, uncertainties,
and other factors include the Company's ability to develop and market existing
and acquired products, the Company's ability to maintain its advertising
presence, the Company's ability to adjust to changes in technology, customer
preferences, enhanced competition and new competitors in the floral services
industry, current exchange rate and interest rate fluctuations, collection of
receivables, and risks associated with general economic and business conditions,
which may reduce or delay customers' purchases of the Company's products and
services, as well as the risks associated with the ability of FTD.COM to
continue its growth and meet its liquidity requirements . The Company is not
obligated to update or revise these forward-looking statements to reflect new
events or circumstances.

RESULTS OF OPERATIONS

The following table illustrates the total revenue generated by IOS's major
operations and summarizes IOS's historical results of operations for the fiscal
years ended June 30, 2000, 1999 and 1998:

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------
2000 1999 1998
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
REVENUE:
Technology products and services............................ $128,604 $114,336 $101,912
Marketplace and Other....................................... 51,537 53,627 51,003
Direct to Consumer.......................................... 87,586 45,470 30,663
-------- -------- --------
Total revenue........................................ 267,727 213,433 183,578
COST OF GOODS SOLD AND SERVICES PROVIDED:
Technology products and services............................ 28,445 23,038 23,378
Marketplace and Other....................................... 37,272 36,949 36,588
Direct to Consumer.......................................... 68,372 35,412 26,683
-------- -------- --------
Total cost of goods sold and services provided......... 134,089 95,399 86,649
OPERATING EXPENSES:
Advertising and selling..................................... 102,870 64,992 54,926
General and administrative.................................. 53,874 42,298 29,689
-------- -------- --------
Total operating expenses............................... 156,744 107,290 84,615
-------- -------- --------
Income (loss) from operations............................... (23,106) 10,744 12,314
OTHER INCOME AND EXPENSES:
Interest income............................................. (1,905) (619) (1,079)
Interest expense............................................ 5,677 6,890 10,582
Foreign exchange gain (loss)................................ 235 628 (388)
Other Income................................................ (1) (200) --
-------- -------- --------
Total other expenses, net.............................. 4,006 6,699 9,115
</TABLE>

10
<PAGE> 11

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------
2000 1999 1998
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Income (loss) before income tax expense, minority interest,
and extraordinary item.................................... (27,112) 4,045 3,199
Income tax expense (benefit)................................ (7,586) 3,192 2,102
Minority interest in loss of subsidiary..................... (4,389) -- (1)
-------- -------- --------
Net income (loss) before extraordinary item................. (15,137) 853 1,098
Extraordinary item
Loss on early extinguishment of debt (net of income tax
benefit).................................................. -- (3,714) (835)
-------- -------- --------
Net income (loss)........................................... $(15,137) $ (2,861) $ 263
======== ======== ========
</TABLE>

The Company generates its revenue from three principal areas of operation.
These areas have been identified as Technology Products and Services,
Marketplace and Other, and Direct to Consumer.

Technology Products and Services consists primarily of:

- Mercury equipment, Mercury Advantage systems, and Mercury Wings(TM)
systems sales, which includes both sales and leases of hardware and
software to FTD florists.

- Mercury Network, which is FTD's proprietary telecommunications network
used by florists to transmit orders through FTD or through competing
clearinghouses.

- Clearinghouse, which provides order billing and collection services to
both the sending and receiving florists and for which FTD receives a
percentage of the sales price for the service.

- Flowers After Hours, which is FTD's call forwarding service whereby FTD
receives orders for participating florists when that florist's shop is
closed or otherwise unavailable. FTD charges a fee for each transaction
processed.

- Publications, which consists of the FTD Directory published on a
quarterly basis on CD-ROM as well as in paper book form. Publications
also include revenues attributable to the set up and maintenance of
florists' Web sites for FTD Florists' Online through FTD.COM's Web site,
www.ftd.com.

- Credit Card processing, which is a service offered to participating
florists whereby FTD pools the credit card transactions of such florists
to secure more favorable terms on credit card transactions than the FTD
florists could secure individually.

- Interflora, Inc., which is a joint venture between the Company,
Fleurop-Interflora, and the Interflora British Unit. The joint venture
provides a floral services organization with non-FTD member florists to
enable florists to transmit and receive orders outside North America.

The Marketplace and Other business segment primarily represents FTD's
wholesale distribution of floral related products to florists. This includes
both FTD-branded and non-branded holiday and everyday floral arrangement
containers and products, as well as packaging, promotional products, and a wide
variety of other floral-related supplies. It also includes greeting cards,
specialty gifts and the FSG in addition to other miscellaneous income items.

The Direct to Consumer business segment represents revenue derived from
FTD's majority owned subsidiary, FTD.COM. FTD.COM is an Internet and telephone
marketer of flowers and specialty gifts. This business segment includes consumer
orders generated by the 1-800-SEND-FTD toll-free telephone number and the
www.ftd.com Web site. FTD.COM records order revenue and costs for fulfillment
and processing services when an order is fulfilled. In addition, FTD.COM charges
the customer a service fee for all floral orders.

In view of the rapidly changing nature of the Company's Direct to Consumer
business and seasonal variations of the Company's other business segments, 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
11
<PAGE> 12

from quarter to quarter due to a number of factors, some of which are beyond the
Company's control. These fluctuations are primarily attributable to increased
sales and advertising expenditures during popular floral holiday seasons in the
fiscal quarters ended March 31, June 30 and December 31. In addition, this
seasonality is attributable to increased revenues in the quarter ended March 31
relating to the increased floral orders and shipments of Mother's Day holiday
products.

YEAR ENDED JUNE 30, 2000, COMPARED TO YEAR ENDED JUNE 30, 1999

Total revenues increased $54.3 million, or 25.4%, to $267.7 million for the
year ended June 30, 2000, compared to $213.4 million for the year ended June 30,
1999. This increase was primarily the result of an increase in revenues in the
Direct to Consumer and Technology Products and Services business segments,
offset in part by a decrease in revenues in the Marketplace and Other business
segment.

Technology products and services segment revenue increased $14.3 million,
or 12.5%, to $128.6 million for the year ended June 30, 2000, compared to $114.3
million for the year ended June 30, 1999. This increase is primarily due to
increases in Clearinghouse, Mercury Advantage and Mercury Wings(TM) systems
sales, Publications and Credit Cards. These increases were partially offset by
decreases in Mercury equipment rental revenues and Mercury network
transmissions. The increase relating to Clearinghouse is primarily attributable
to the increase in the monthly access fee charged to florists. The increase in
revenue relating to Mercury Advantage and Mercury Wings(TM) is due to an
increase in the number of systems sold over the prior year. The increase in
Publications is primarily attributable to an increase in listings and extra
advertisements in the FTD directory in comparison to the prior year. The
increase in revenue related to credit cards is due to the increase in the
commissions fee for bankcard processing and an increase in credit card volume.

Marketplace and Other segment revenue decreased $2.1 million, or 3.9%, to
$51.5 million for the year ended June 30, 2000, from $53.6 million for the year
ended June 30, 1999. The decrease was primarily the result of $2.8 million in
revenues for the FSG (see Note 16 of Notes to Consolidated Financial
Statements), recorded in the previous year versus no FSG revenues recorded in
the current year.

Direct to Consumer segment revenue increased $42.1 million, or 92.5%, to
$87.6 million for the year ended June 30, 2000, compared to $45.5 million for
the year ended June 30, 1999. The increase over the prior year was primarily due
to an increase in the number of orders placed by consumers through the
www.ftd.com Web site as well as an increase in the average order value.

Total cost of goods sold and services provided increased $38.7 million, or
40.6%, to $134.1 million for the year ended June 30, 2000, compared to $95.4
million for the year ended June 30, 1999. This increase was primarily
attributable to the costs associated with increases in revenues in the Direct to
Consumer and Technology Products and Services business segments. As a percent of
revenue, total cost of goods sold and services provided increased to 50.1% for
the year ended June 30, 2000, from 44.7% for the year ended June 30, 1999. This
was primarily due to the significant increase in sales volume in the Direct to
Consumer business segment, which has a higher relative cost of sales percentage
compared to other business segments.

Cost of goods sold and services provided associated with Technology
products and services increased $5.4 million, or 23.5% to $28.4 million for the
year ended June 30, 2000, compared to $23.0 million for the year ended June 30,
1999. This increase was primarily due to higher equipment and support costs
associated with increased sales of Mercury Advantage and Mercury Wings(TM)
Systems as well as increased costs associated with publications and an increase
in credit card volume.

Cost of goods sold and services provided associated with Marketplace and
Other increased by $0.4 million, or 1.1%, to $37.3 million for the year ended
June 30, 2000, compared to $36.9 million for the year ended June 30, 1999.
Increased costs associated with inventory reduction effects, were offset by
lower cost related to the FSG. Cost of goods sold in the previous year included
costs related to the FSG versus no FSG costs in the current year.

Cost of goods sold and services provided associated with Direct to Consumer
increased $33.0 million, or 93.2%, to $68.4 million for the year ended June 30,
2000 compared to $35.4 million for the year ended

12
<PAGE> 13

June 30, 1999. The increase was primarily attributable to costs associated with
processing and fulfilling more consumer orders.

Advertising and selling costs increased $37.9 million, or 58.3%, to $102.9
million for the year ended June 30, 2000, compared to $65.0 million for the year
ended June 30, 1999. This was primarily due to increased costs associated with
Internet marketing and national advertising. FTD.COM's marketing and promotion
costs were $42.9 million and $12.0 respectively for the fiscal years 2000 and
1999. In fiscal 2001, the Company intends to reduce its marketing and promotions
expenditures related to the Direct to Consumer business segment, with the use of
a campaign that is more focused on retention of customers.

General and administrative costs increased $11.6 million, or 27.4%, to
$53.9 million for the year ended June 30, 2000, from $42.3 million from the year
ended June 30, 1999. This was primarily due to the increased payroll and
administrative costs to support the growth of the Company.

Interest income increased $1.3 million over the prior year to $1.9 million
for the year ended June 30, 2000. This increase was primarily due to interest
earned on unused proceeds from the initial public offering ("IPO") of FTD.COM.
Interest expense decreased by $1.2 million from the prior year to $5.7 million
for the year ended June 30, 2000. The decrease was primarily attributable to a
lower borrowing rate during the current year as a result of extinguishing $60.0
million of 14% Senior Subordinated Notes on December 15, 1998, and utilizing
existing bank credit facilities which have a lower average borrowing rate.

The provision for income taxes and the effective tax rates for the years
ended June 30, 2000 and 1999, were a benefit of $7.6 million and 28% and a
provision of $3.2 million and 79%, respectively. The change in effective tax
rates was primarily due to the effect of non-deductible goodwill amortization
and other items, which reduces the Company's tax benefit rate when operating in
a pre-tax loss position and increases its effective tax rate when operating in a
pre-tax profit position.

The minority interest in loss of subsidiary of $4.4 million for the year
ended June 30, 2000, reflected on the consolidated statements of operations and
comprehensive income, represents the net loss attributable to the minority
shareholders for the period. The minority's interest was 17% as of June 30,
2000.

The net income/loss before extraordinary item was a loss of $15.1 million
for the year ended June 30, 2000, compared to income of $0.9 million for the
year ended June 30, 1999, an $16.0 million decrease from the prior year. The
decrease was primarily the result of increased advertising, selling, and
marketing expenses associated with the national advertising campaign for the
Company's majority owned subsidiary FTD.COM. The net loss for the year ended
June 30, 1999 includes an after-tax extraordinary loss of $3.7 million as a
result of the extinguishment of debt as noted above.

YEAR ENDED JUNE 30, 1999 COMPARED TO YEAR ENDED JUNE 30, 1998

Total revenue increased by $29.8 million, or 16.2%, to $213.4 million for
the year ended June 30, 1999 compared to $183.6 million for the year ended June
30, 1998. The increase in revenue was the result of the following increases in
the Company's business segments.

Technology products and services segment revenue increased by $12.4
million, or 12.2%, to $114.3 million for the year ended June 30, 1999, compared
to $101.9 million for the year ended June 30, 1998. This increase is primarily
due to increases in Clearinghouse, Mercury Advantage and Mercury Wings(TM)
systems sales, Publications and Credit Cards. The increase relating to
Clearinghouse is primarily attributable to the increase in the monthly access
fee charged to florists. The increase in revenue relating to Mercury Advantage
and Mercury Wings(TM) is due to an increase in the number of systems sold from
the prior year. The increase in Publications is primarily attributable to an
increase in listings and extra advertisements in the FTD directory in comparison
to the prior year. The increase in revenue attributable to credit cards is due
to the increase in the commissions fee for bankcard processing.

Marketplace and Other segment revenue increased by $2.6 million, or 5.1%,
to $53.6 million for the year ended June 30, 1999, compared to $51.0 million for
the year ended June 30, 1998. The increase from the prior year is primarily a
result of an increase in revenue from the sale of the newly published Floral
Selections

13
<PAGE> 14

Guide ("FSG"), a counter display book of floral arrangements for all occasions,
to all FTD florists in addition to an increase in the sale of Marketplace
products and Renaissance Greeting Cards.

Direct to Consumer segment revenue increased by $14.8 million, or 48.2%, to
$45.5 million for the year ended June 30, 1999, compared to $30.7 million for
the year ended June 30, 1998. The increase in revenue from the prior year was
attributable to a significant increase in the number of orders placed by
consumers through the www.ftd.com Web site.

Costs of goods sold and services provided associated with Technology
products and services decreased $0.4 million, or 1.7%, to $23.0 million for the
year ended June 30, 1999, compared to $23.4 million for the year ended June 30,
1998. This decrease is primarily due to a decrease in depreciation expense
associated with equipment which was fully depreciated as of December 31, 1997,
offset in part by increased costs associated with increased sales of Mercury
Advantage and Mercury Wings(TM) systems.

Costs of goods sold and services provided associated with Marketplace and
Other increased $0.3 million, or 0.8%, to $36.9 million for the year ended June
30, 1999, compared to $36.6 million for the year ended June 30, 1998. This
increase is primarily associated with the production costs associated with the
new FSG in addition to the increase in costs associated with the increase in
sales of Marketplace products.

Costs of goods sold and services provided associated with Direct to
Consumer increased $8.7 million, or 32.6%, to $35.4 million for the year ended
June 30, 1999, compared to $26.7 million for the year ended June 30, 1998. This
increase is primarily due to increased processing and fulfillment costs
associated with the increase in consumer orders placed through the www.ftd.com
Web site.

Advertising and selling costs increased $10.1 million, or 18.4%, to $65.0
million for the year ended June 30, 1999, from $54.9 million a year earlier.
This is primarily due to FTD's increased costs associated with the FTD(R)
Dollars and Scents(TM) cash rebate program (a program under which rebates are
paid to florists based on order volume), national advertising and public
relations.

General and administrative costs increased $12.6 million, or 42.4%, to
$42.3 million for the year ended June 30, 1999, from $29.7 million a year
earlier primarily due to increased payroll and administrative costs supporting
company growth.

Interest income for the year ended June 30, 1999 was $0.6 million as
compared to $1.1 million for the year ended June 30, 1998. The decrease of $0.5
million resulted from lower interest rates from the prior year. Interest expense
for the year ended June 30, 1999 was $6.9 million as compared to $10.6 million
for the year ended June 30, 1998. The decrease of $3.7 million resulted from
lower average debt outstanding. See "--Liquidity and Capital Resources."

Income taxes on income from continuing operations for the year ended June
30, 1999, reflect an expense of $3.2 million compared to an expense of $2.1
million for the year ended June 30, 1998. This increase is due to the increase
in taxable income.

As a result of the factors described above, a net profit before
extraordinary item of $0.9 million was achieved for the year ended June 30,
1999, a decrease of $0.2 million from a net profit before extraordinary item of
$1.1 million for the year ended June 30, 1998.

In December 1998, FTD repaid the $60.0 million aggregate principal amount
of 14% Senior Subordinated Notes due December 15, 2001 (the "Notes"). A
pre-payment penalty premium of $4.2 million as well as $1.7 million of
unamortized discount and $1.2 million of deferred financing costs associated
with the Notes were expensed in December 1998. The related income tax benefit
attributable to the reacquisition of the Notes was $3.4 million, resulting in a
tax effected loss on the reacquisition of the Notes of $3.7 million which is
shown as an extraordinary item in the consolidated statements of operations and
comprehensive income.

Net loss after the extraordinary item was $2.9 million, a decrease of $3.2
million from a net profit after extraordinary item of $0.3 million for the year
ended June 30, 1998.

14
<PAGE> 15

QUARTERLY FINANCIAL INFORMATION (UNAUDITED) (IN THOUSANDS, EXCEPT FOR PER SHARE
DATA):

<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
FISCAL 2000 QUARTER QUARTER QUARTER QUARTER
----------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Total revenue.......................................... $51,433 $ 67,618 $69,934 $78,742
Gross Profit........................................... 26,415 33,827 35,024 38,372
Loss from operations................................... (4,193) (10,355) (5,658) (2,900)
Net loss............................................... (3,774) (6,791) (3,756) (816)
Basic and diluted loss per share....................... $ (0.25) $ (0.44) $ (0.24) $ (0.06)
</TABLE>

<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
FISCAL 1999 QUARTER QUARTER QUARTER QUARTER
----------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Total revenue........................................... $44,593 $54,543 $58,493 $55,804
Gross Profit............................................ 24,236 31,971 31,341 30,486
Income from operations.................................. 539 5,028 2,895 2,282
Extraordinary item...................................... -- (3,714) -- --
Net income (loss)....................................... (845) (2,078) 969 (907)
Basic and diluted income (loss) per share*:
Net income (loss) per share before extraordinary
item............................................... $ (0.05) $ 0.11 $ 0.06 $ (0.07)
Extraordinary item.................................... $ -- $ (0.24) $ -- $ --
Net income (loss) per share........................... $ (0.05) $ (0.13) $ 0.06 $ (0.07)
</TABLE>

-------------------------
* Basic and diluted income (loss) per share is shown as one amount due to the
immaterial effect of dilutive common stock equivalents in the calculation of
diluted income (loss) per share.

LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents increased by $18.4 million to $20.8 million as of
June 30, 2000 from $2.5 million as of June 30, 1999. Cash used in operating
activities was $4.4 million for the year ended June 30, 2000 compared to cash
used in operating activities of $2.7 million for the year ended June 30, 1999.
The increase in cash used in operating activities is primarily attributable to
the net loss, the deferred tax asset, and the minority interest offset in part
by an increase in accounts payable and other accrued liabilities, unearned
income and customer deposits. In addition, for the year ended June 30, 2000,
FTD.COM made capital expenditures of $3.7 million related to software
development costs, of which $3.5 million were written-off as part of a one-time
charge associated with the development work related to a new version of its Web
site.

Cash used in investing activities was $15.7 million for the year ended June
30, 2000 compared to cash used in investing activities of $9.0 million for the
year ended June 30, 1999. Expenditures for depreciable fixed assets such as
furniture and equipment were $5.0 million for the year ended June 30, 2000
compared to $3.7 million for the year ended June 30, 1999. Expenditures for
amortizable intangibles such as costs relating to the development and
implementation of internal use software and other information technology costs
were $10.7 million and $5.3 million, respectively, for the years ended June 30,
2000 and June 30, 1999. The Company's anticipated capital expenditures for
fiscal 2001 are estimated to be approximately $5.0 to $7.0 million and will
primarily be used for developing new software and information technology
purchases.

Cash provided by financing activities was $38.5 million for the year ended
June 30, 2000, compared to cash provided by financing activities of $0.5 million
for the year ended June 30, 1999. The increase is primarily the result of the
net proceeds of $35.6 million generated from FTD.COM's IPO. The remainder of the
increase is the result of increased borrowings under the bank credit facilities.
The Company is using the net proceeds from the IPO of FTD.COM to fund FTD.COM's
working capital needs and anticipated capital expenditures.

The Company's principal sources of liquidity are cash from operations and
funds available for borrowing under the Company's Bank Credit Agreement dated
November 20, 1997 (the "Bank Credit Facilities"). The Bank Credit Facilities
consist of a $38.8 million Multiple Draw Term Loan Facility and a $50.0 million
Revolving Credit Facility and are used to finance working capital, acquisitions,
certain expenses associated
15
<PAGE> 16

with the Bank Credit Facilities and letter of credit needs. As of June 30, 2000,
the Company had $38.8 million outstanding under the Multiple Draw Term Loan
Facility, $16.0 million outstanding under the Revolving Credit Facility and $2.0
million outstanding under various letters of credit. The amount outstanding
under the Multiple Draw Term Loan Facility is scheduled to be permanently
reduced, over a period of 14 consecutive quarterly installments continuing until
the termination date of December 31, 2003, through cash flow from operations and
the use of the Revolving Credit Facility. The amounts outstanding under the
Revolving Credit Facility will mature on December 31, 2003. The Company's Bank
Credit Facilities include covenants, which, among other things require the
Company to maintain certain financial ratios and a minimum level of consolidated
net worth. As of June 30, 2000, the Company was in compliance with the covenants
contained in the Bank Credit Facilities.

In addition to its debt service obligations, the Company's remaining
liquidity requirements are primarily for capital expenditures, software
development costs and working capital needs. The Company believes, based on
current circumstances, that its existing and future cash flows from operations,
together with borrowings under the Revolving Credit Facility, will be sufficient
to fund its working capital needs, capital expenditures, potential acquisitions
and to make interest and principal payments as they become due under the terms
of the Bank Credit Facilities. The Company's Direct to Consumer business
segment, FTD.COM, may also have long-term liquidity needs that may require it to
raise additional capital. If FTD.COM needed to raise additional capital and was
not able to do so, FTD.COM could be required to significantly alter its
operating plan, which could have a material effect on the results of operations
and financial condition of FTD.COM and the Company.

On July 26, 2000, the Company settled an ongoing lawsuit whereby one of
IOS's shareholders, and former warrantholder, agreed to return 750,000 shares of
IOS's Class B common stock, which IOS will treat as treasury stock. The
warrants, underlying the ownership of these shares of stock, were issued in
conjunction with the acquisition of Florist Transworld Delivery Association, by
the Company in 1994. As a result of this settlement, the Company expects to
recognize other income of approximately $12.0 million, on a pretax basis, in the
quarter ended September 30, 2000.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard (SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities, which was amended by SFAS No. 137 and SFAS
No. 138, and is effective for all fiscal years beginning after June 15, 2000.
SFAS No. 133 establishes a comprehensive standard for the recognition and
measurement of derivative instruments and hedging activities. The Company does
not expect the adoption of SFAS No. 133 to have a significant impact on the
Company's financial position or results of operations.

In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) 101, Revenue Recognition in Financial Statements, as
amended, which summarizes the staff's views in applying generally accepted
accounting principles to revenue recognition in financial statements. SAB 101 is
effective no later than the fourth quarter for fiscal years beginning after
December 15, 1999. The Company currently records revenue in accordance with SAB
101.

In May 2000, the Emerging Issues Task Force (EITF) issued EITF 00-14,
Accounting for Certain Sales Incentives. EITF 00-14 addresses the recognition,
measurement and income statement classification of sales incentives offered by a
vendor that can be used in a single exchange transaction. This EITF is effective
for fiscal quarters beginning after December 15, 1999. The Company does not
expect the adoption of EITF 00-14 to have a significant impact on the Company's
financial position or results of operations.

In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44 (FIN 44), Accounting for Certain Transactions Involving
Stock Compensation, an interpretation of Accounting Principles Board Opinion
(APB) No. 25. FIN 44 which is effective for financial statements beginning after
July 1, 2000. Certain provisions of APB Opinion No. 25 are applicable for
transactions dating back to December 15, 1998. FIN 44 clarifies the application
of APB Opinion No. 25 for certain issues, including the definition of an
employee, the treatment of the acceleration of stock options and accounting
treatment for options assumed in
16
<PAGE> 17

business combinations. The Company does not expect the adoption of FIN 44 to
have a significant impact on the Company's financial position or results of
operations.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to market risk, which primarily includes interest
rate risk. The Company's policy is to enter into certain derivative instruments
in an effort to hedge its underlying economic exposure and to manage these
instruments with the objective to reduce its exposure to changes in interest
rates. The Company currently does not use derivative instruments for trading
purposes.

The Company's exposure to interest rate risk is primarily the result of
borrowings under the Bank Credit Facilities, which are subject to interest rates
ranging from 8.0625% to 9.75% at June 30, 2000. The Company entered into an
interest rate swap agreement at a fixed rate of 5.74% plus a variable spread
until December 31, 2000 in order to limit its exposure to interest rate
fluctuations. At June 30, 2000, the variable spread was 0.54% and the notional
amount was $21.6 million. The Company believes that its exposure to interest
rate fluctuations will also be limited due to the Company's philosophy of
maintaining a minimal cash balance in an effort to effectively use any excess
cash flows to reduce outstanding debt. The Company believes that the continued
decrease in the balance of outstanding debt in addition to the terms of the
interest rate swap agreement are sufficient precautions to limit the Company's
exposure to changing interest rates.

At June 30, 2000, $54.8 million of debt was outstanding under the Bank
Credit Facilities. Since the interest rate for the portion of the debt that is
covered by the interest rate swap agreement is effectively fixed, changes in
interest rates would have no impact on future interest expense for that portion
of the debt. Therefore there is no earnings or liquidity risk associated with
either the interest rate swap agreement or that portion of the debt to which the
swap agreement relates. The fair market value of the interest rate swap at June
30, 2000 was a gain of approximately $56,000 and was calculated based on future
quarterly interest payments using the interest rate effective at June 30, 2000.
At June 30, 2000, a 100 basis point decrease in interest rates would result in
an approximate cost of $47 thousand to terminate this swap agreement.

A portion of the Company's outstanding variable rate debt, which totaled
$33.2 million as of June 30, 2000, is not covered by an interest rate swap
agreement. An adverse change in interest rates during the time that this portion
of the debt is outstanding would cause an increase in the amount of interest
paid. The Company may pay down the loan prior to expiration in December 2003.
However, if this portion of the Company's borrowings were to remain outstanding
for the remaining term of the borrowing agreement, a 100 basis point increase in
LIBOR during the year ended June 30, 2000 would result in an increase of
$332,000 in the amount of annualized interest paid on this portion of the debt
and annualized interest expense recognized in the consolidated financial
statements.

The Company will continue to monitor changing economic conditions, and
based on current circumstances, does not expect to incur a substantial loss in
future earnings or cash flows as a result of changing interest rates.

The Company is also exposed to foreign currency exchange rate risk with
respect to the Canadian dollar. The resulting Canadian exchange adjustments are
included in the accumulated other comprehensive income component on the
consolidated statements of operations and did not have a material effect on
other comprehensive income for the years ended June 30, 2000, 1999 and 1998. The
Company does not expect to be materially affected by foreign currency exchange
rate fluctuations in the future, as the transactions denominated in Canadian
dollars are not material to the consolidated financial statements. The Company
therefore does not currently enter into derivative financial instruments as
hedges against foreign currency fluctuations of the Canadian dollar.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The consolidated financial statements of the Registrant required by this
item are set forth on pages F-1 through F-27 and the related schedule is set
forth on page F-29.

17
<PAGE> 18

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES

Not applicable.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information with respect to the directors of the Company is hereby
incorporated herein by reference to the section, "Election of Directors" to be
contained in the Company's Information Statement. See also Item 4-A, "Executive
Officers of the Registrant" in Part I of this Annual Report on Form 10-K.

ITEM 11. EXECUTIVE COMPENSATION

Information with respect to executive compensation is hereby incorporated
herein by reference to the sections, "Management -- Executive Compensation,"
"Summary Compensation Table," "Option Grants in Last Fiscal Year," "Fiscal
Year-End Option Values" and "Director Compensation for the Last Fiscal Year" to
be contained in the Company's Information Statement. The sections, "Board of
Directors Report on Executive Compensation" and "Stockholder Return Comparison,"
in the Company's Information Statement are not incorporated by reference herein.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Information with respect to security ownership of certain beneficial owners
and management is hereby incorporated herein by reference to the sections,
"Security Ownership of Certain Beneficial Owners and Management" and "Principal
Stockholders," to be contained in the Company's Information Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information with respect to certain relationships and related transactions
is hereby incorporated herein by reference to the section, "Relationship with
Affiliates," to be contained in the Company's Information Statement.

18
<PAGE> 19

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(A) FINANCIAL STATEMENTS, SCHEDULES AND EXHIBITS

(1) & (2) The consolidated financial statements and schedule which are
filed with this Form 10-K are set forth in the Index to Consolidated Financial
Statements and Schedule at Page F-1 which immediately precedes such documents.

(3) See accompanying Index to Exhibits. The Company will furnish to any
stockholder, upon written request, any exhibit listed in the accompanying Index
to Exhibits upon payment by such stockholders of the Company's reasonable
expenses in furnishing any such exhibits. Such exhibits, as indicated in the
index, either are filed herewith or have heretofore been filed with the
Securities and Exchange Commission under the Securities Act and are referred to
and incorporated herein by reference to such filings.

(B) REPORTS ON FORM 8-K

No reports on Form 8-K were filed by the Company during the fourth quarter
of fiscal 2000.

See accompanying Index to Exhibits.

19
<PAGE> 20

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.
IOS BRANDS Corporation

By: /s/ ROBERT L. NORTON
------------------------------------
Name: Robert L. Norton
Title: Chairman of the Board of
Directors and President
Date: September 19, 2000

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities and on
the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>

/s/ ROBERT L. NORTON Chairman of the Board of Directors September 19, 2000
------------------------------------------ and President (Principal Executive
Robert L. Norton Officer)

/s/ RANDALL L. TWYMAN Vice President of Finance (Principal September 19, 2000
------------------------------------------ Accounting and Financial Officer)
Randall L. Twyman

/s/ HABIB GORGI Director September 19, 2000
------------------------------------------
Habib Gorgi

/s/ VERONICA K. HO Director September 19, 2000
------------------------------------------
Veronica K. Ho

/s/ STEVE PAGLIUCA Director September 19, 2000
------------------------------------------
Steve Pagliuca

/s/ RICHARD C. PERRY Director September 19, 2000
------------------------------------------
Richard C. Perry

/s/ GARY K. SILBERBERG Director September 19, 2000
------------------------------------------
Gary K. Silberberg
</TABLE>

20
<PAGE> 21

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE

<TABLE>
<S> <C>
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets as of June 30, 2000 and 1999.... F-3
Consolidated Statements of Operations and Comprehensive
Income for the years ended June 30, 2000, 1999 and
1998...................................................... F-4
Consolidated Statements of Stockholders' Equity for the
years ended June 30, 2000, 1999 and 1998.................. F-5
Consolidated Statements of Cash Flows for the years ended
June 30, 2000, 1999 and 1998.............................. F-6
Notes to Consolidated Financial Statements.................. F-7
Independent Auditors' Report on Financial Statement
Schedule.................................................. F-28
Schedule II -- Valuation and Qualifying Accounts............ F-29
</TABLE>

F-1
<PAGE> 22

[KPMG LOGO]

INDEPENDENT AUDITORS' REPORT

The Board of Directors
IOS BRANDS Corporation:

We have audited the accompanying consolidated balance sheets of IOS BRANDS
Corporation and subsidiaries (formerly known as FTD Corporation), as of June 30,
2000 and 1999, and the related consolidated statements of operations and
comprehensive income, stockholders' equity, and cash flows for each of the years
in the three-year period ended June 30, 2000. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of IOS BRANDS
Corporation and subsidiaries as of June 30, 2000 and 1999, and the results of
their operations and their cash flows for each of the years in the three-year
period ended June 30, 2000, in conformity with accounting principles generally
accepted in the United States of America.

/s/ KPMG LLP

Chicago, Illinois
August 4, 2000

F-2
<PAGE> 23

IOS BRANDS CORPORATION

CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2000 AND 1999

<TABLE>
<CAPTION>
2000 1999
---- ----
(IN THOUSANDS,
EXCEPT SHARE AMOUNTS)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................... $ 20,825 $ 2,468
Accounts receivable, less allowance for doubtful accounts of
$3,596 at June 30, 2000 and $1,681 at June 30, 1999....... 22,893 22,813
Inventories, net............................................ 14,201 13,641
Deferred income taxes....................................... 2,901 3,045
Prepaid expenses............................................ 2,302 4,088
-------- --------
Total current assets.................................... 63,122 46,055
PROPERTY AND EQUIPMENT:
Land and improvements....................................... 1,600 1,600
Building and improvements................................... 8,697 8,549
Mercury consoles............................................ 21,850 21,862
Furniture and equipment..................................... 22,333 17,477
-------- --------
Total................................................... 54,480 49,488
Less accumulated depreciation............................... 37,013 33,504
-------- --------
Property and equipment, net................................. 17,467 15,984
OTHER ASSETS:
Deferred financing costs, less accumulated amortization of
$725 at June 30, 2000 and $445 at June 30, 1999........... 829 1,059
Deferred income taxes....................................... 9,359 1,418
Other noncurrent assets..................................... 11,913 8,451
Goodwill and other intangibles, less accumulated
amortization of $16,608 at June 30, 2000 and $13,654 at
June 30, 1999............................................. 68,776 71,730
-------- --------
Total other assets...................................... 90,877 82,658
-------- --------
Total Assets............................................ $171,466 $144,697
======== ========

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable............................................ $ 41,706 $ 32,425
Accrued customer incentive programs......................... 1,490 6,173
Customer deposits........................................... 10,463 9,578
Unearned income............................................. 1,097 663
Other accrued liabilities................................... 7,588 5,501
-------- --------
Total current liabilities............................... 62,344 54,340
Long-term debt.............................................. 54,750 51,750
Post-retirement benefits and accrued pension obligations,
less current portion...................................... 5,517 5,755
Preferred stockholders' equity in a subsidiary company
Series A 8% Cumulative Redeemable Convertible Preferred
Stock, $.01 par value; no shares issued and outstanding at
June 30, 2000; 90,000 shares issued and outstanding at
June 30, 1999............................................. -- 9,074
Minority interest in subsidiary............................. 45,224 --
STOCKHOLDER'S EQUITY:
Preferred stock: $0.01 par value, 1,000,000 shares
authorized, no shares issued.............................. -- --
Common stock:
Class A, $0.01 par value, 30,000,000 shares authorized;
12,593,227 shares issued and 12,372,388 shares
outstanding at June 30, 2000; 12,598,227 shares issued
and 12,380,270 outstanding at June 30, 1999............. 123 123
Class B, $0.0005 par value, 3,000,000 shares authorized;
3,000,000 shares issued and 2,948,750 shares outstanding
at June 30, 2000 and June 30, 1999...................... 2 2
Paid-in capital............................................. 37,170 37,170
Accumulated deficit......................................... (25,711) (10,648)
Accumulated other comprehensive income -- cumulative
translation adjustment.................................... (106) (96)
Unamortized restricted stock................................ (5,902) (913)
Treasury stock.............................................. (1,945) (1,860)
-------- --------
Total stockholders' equity.............................. 3,631 23,778
-------- --------
Total liabilities and stockholders' equity.............. $171,466 $144,697
======== ========
</TABLE>

See accompanying notes to consolidated financial statements.

F-3
<PAGE> 24

IOS BRANDS CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
FOR THE YEARS ENDED JUNE 30, 2000, 1999 AND 1998

<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
(IN THOUSANDS EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C> <C>
REVENUES:
Technology products and services.......................... $128,604 $114,336 $101,912
Marketplace and Other..................................... 51,537 53,627 51,003
Direct to Consumer........................................ 87,586 45,470 30,663
-------- -------- --------
Total revenues......................................... 267,727 213,433 183,578
-------- -------- --------
COSTS OF GOODS SOLD AND SERVICES PROVIDED:
Technology products and services.......................... 28,445 23,038 23,378
Marketplace and Other..................................... 37,272 36,949 36,588
Direct to Consumer........................................ 68,372 35,412 26,683
-------- -------- --------
Total costs of goods sold and services provided........ 134,089 95,399 86,649
-------- -------- --------
OPERATING EXPENSES:
Advertising and selling................................... 102,870 64,992 54,926
General and administrative................................ 53,874 42,298 29,689
-------- -------- --------
Total operating expenses............................... 156,744 107,290 84,615
Income (loss) from operations.......................... (23,106) 10,744 12,314
-------- -------- --------
OTHER INCOME AND EXPENSES:
Interest income........................................... (1,905) (619) (1,079)
Interest expense.......................................... 5,677 6,890 10,582
Foreign exchange gain (loss).............................. 235 628 (388)
Other income.............................................. (1) (200) --
-------- -------- --------
Total other income and expenses........................ 4,006 6,699 9,115
-------- -------- --------
Income (loss) before income tax expense, minority
interest and extraordinary item...................... (27,112) 4,045 3,199
Income tax expense (benefit)................................ (7,586) 3,192 2,102
Minority interest in loss of subsidiary..................... (4,389) -- (1)
-------- -------- --------
Net income (loss) before extraordinary item............ (15,137) 853 1,098
-------- -------- --------
EXTRAORDINARY ITEM:
Loss on early extinguishment of debt, net of income tax
benefit of $3,428 in 1999 and $490 in 1998............. -- (3,714) (835)
-------- -------- --------
Net income (loss)...................................... (15,137) (2,861) 263
Dividends on subsidiary preferred stock................... -- (74) --
-------- -------- --------
Net income (loss) available for common stockholders.... $(15,137) $ (2,935) $ 263
======== ======== ========
OTHER COMPREHENSIVE INCOME (LOSS):
Foreign currency translation adjustments.................. (10) 3 (62)
-------- -------- --------
Comprehensive income (loss)............................ $(15,147) $ (2,858) $ 201
======== ======== ========
INCOME (LOSS) PER SHARE:
Basic and diluted before extraordinary item............... $ (0.99) $ 0.05 $ 0.07
Extraordinary item........................................ -- $ (0.24) $ (0.05)
-------- -------- --------
Basic and diluted......................................... $ (0.99) $ (0.19) $ 0.02
======== ======== ========
Common shares used in the calculation of basic and diluted
income (loss) per share................................ 15,328 15,355 15,358
======== ======== ========
</TABLE>

See accompanying notes to consolidated financial statements.

F-4
<PAGE> 25

IOS BRANDS CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 2000, 1999 AND 1998

<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Common stock at stated value
Balance at beginning of year.............................. $ 125 $ 128 $ 127
Issuance of common stock............................... -- -- 1
Cancellation of shares issued in 1998 Stock Offering... -- (3) --
-------- -------- -------
Balance at end of year.................................... $ 125 $ 125 $ 128
======== ======== =======
Paid-in Capital
Balance at beginning of year.............................. $ 37,170 $ 36,893 $35,727
Issuance of common stock............................... -- -- 593
Cancellation of shares issued in 1998 Stock Offering... -- (26) --
Issuance of common stock to officers................... -- 303 573
-------- -------- -------
Balance at end of year.................................... $ 37,170 $ 37,170 $36,893
======== ======== =======
Accumulated Deficit
Balance at beginning of year.............................. $(10,648) $ (7,713) $(7,976)
Net income (loss)...................................... (15,137) (2,861) 263
Dividends on Series A preferred stock of subsidiary.... 74 (74) --
-------- -------- -------
Balance at end of year.................................... $(25,711) $(10,648) $(7,713)
======== ======== =======
Accumulated Other Comprehensive Income
Balance at beginning of year.............................. $ (96) $ (99) $ (37)
Foreign currency translation adjustment................ (10) 3 (62)
-------- -------- -------
Balance at end of year.................................... $ (106) $ (96) $ (99)
======== ======== =======
Unamortized Restricted Stock
Balance at beginning of year.............................. $ (913) $ (511) $ (32)
Payment of restricted stock............................ -- -- 32
Issuance of restricted stock........................... (5,432) (630) (620)
Amortization of restricted stock....................... 443 228 109
-------- -------- -------
Balance at end of year.................................... $ (5,902) $ (913) $ (511)
======== ======== =======
Treasury Stock
Balance at beginning of year.............................. $ (1,860) $ (774) $ (637)
Repurchase of common stock............................. (85) (1,382) (252)
Issuance of common stock to officers................... -- 296 115
-------- -------- -------
Balance at end of year.................................... $ (1,945) $ (1,860) $ (774)
======== ======== =======
Total Stockholders' Equity.................................. $ 3,631 $ 23,778 $27,924
======== ======== =======
</TABLE>

See accompanying notes to consolidated financial statements.

F-5
<PAGE> 26

IOS BRANDS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 2000, 1999 AND 1998

<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................................... $(15,137) $ (2,861) $ 263
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization............................. 8,628 7,307 9,570
Amortization of deferred financing costs and original
issue discount......................................... 280 2,323 2,519
Deferred compensation expense............................. 443 228 109
Web site one-time charge.................................. 3,561 -- --
Provision for doubtful accounts........................... 1,931 442 511
Deferred income taxes..................................... (7,775) (431) 1,423
Post-retirement benefits and pensions..................... (238) (314) (1,384)
Minority interest in loss of subsidiary................... (4,389) -- (1)
Increase (decrease) in cash due to change in:
Accounts receivable.................................... (2,010) 849 364
Inventories............................................ (560) (380) 1,731
Prepaid expenses....................................... 866 (3,231) 1,177
Other noncurrent assets................................ 1,313 209 (1,979)
Accounts payable....................................... 9,280 2,562 626
Accrued customer incentive programs.................... (4,683) (7,874) 231
Other accrued liabilities, unearned income, and
customer deposits.................................... 4,043 (1,547) (2,068)
-------- -------- --------
Net cash provided by (used in) operating
activities........................................ (4,447) (2,718) 13,092
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures........................................ (15,655) (8,970) (1,942)
Purchase of minority interest in Renaissance................ -- -- (103)
-------- -------- --------
Net cash provided by (used in) investing
activities........................................ (15,655) (8,970) (2,045)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds of revolving credit borrowings................. 68,875 62,000 28,546
Repayments of long-term debt................................ (65,925) (69,051) (54,652)
Proceeds from the issuance of Series A 8% redeemable
convertible preferred stock by subsidiary................. -- 9,000 --
Issuance of common stock.................................... -- -- 547
Cancellation of common stock................................ -- (29) --
Issuance of subsidiary common stock......................... 35,604 -- --
Repurchase of common stock.................................. (85) (1,382) (137)
Payments received from stockholders......................... -- -- 32
-------- -------- --------
Net cash provided by (used in) financing
activities........................................ 38,469 538 (25,664)
-------- -------- --------
Effect of foreign exchange rate changes on cash............. (10) 3 (62)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents........ 18,357 (11,147) (14,679)
Cash and cash equivalents at beginning of period............ 2,468 13,615 28,294
-------- -------- --------
Cash and cash equivalents at end of period.................. $ 20,825 $ 2,468 $ 13,615
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
CASH PAID FOR:
Interest.................................................... $ 4,958 $ 6,103 $ 5,283
======== ======== ========
Income taxes................................................ $ 119 $ 403 $ 110
======== ======== ========
</TABLE>

See accompanying notes to consolidated financial statements.

F-6
<PAGE> 27

IOS BRANDS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF THE BUSINESS

IOS BRANDS Corporation ("the Company" or "IOS") is a supplier of technology
products and services including the sale and leasing of hardware and software to
florists, floral order clearing and processing, publications and credit card
authorization and processing services. The Company is also a supplier of non-
perishable hardgoods, including greeting cards, and offers marketing support and
other services to the retail floral industry. In addition, the Company, through
a subsidiary of Florists' Transworld Delivery, Inc., 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 directly order floral and other specialty
gift products.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements of the Company at June 30, 2000, 1999
and 1998 include the accounts of IOS BRANDS Corporation and its wholly-owned
subsidiaries, including its principal operating subsidiary Florists' Transworld
Delivery, Inc. ("FTD"). FTD includes its wholly owned subsidiaries, Renaissance
Greeting Cards, Inc. and FTD Canada, Inc., as well as its majority owned
subsidiary FTD.COM INC. ("FTD.COM"). All significant intercompany accounts and
transactions have been eliminated in consolidation.

CASH AND CASH EQUIVALENTS

The Company considers all investments purchased with maturities of three
months or less at the date of purchase to be cash equivalents.

FAIR VALUE OF FINANCIAL INSTRUMENTS

Financial instruments consist primarily of accounts receivable, accounts
payable, accrued customer incentive programs, customer deposits, unearned
income, other accrued liabilities and long-term debt. At June 30, 2000, because
of the short maturity of those instruments other than long-term debt, the fair
value of these financial instruments approximates the carrying amount. The fair
value of long-term debt and off balance sheet financial instruments is disclosed
in Note 3.

DERIVATIVES

The Company utilizes a derivative financial instrument to reduce its
exposure to market risks from changes in interest rates. This derivative
financial instrument, an interest rate swap agreement, is an off-balance sheet
instrument and therefore has no carrying value. The purpose of the swap is to
fix the interest rate on variable rate debt and reduce certain exposures to
interest rate fluctuations.

INVENTORIES

Inventory consists of finished goods and is stated at the lower of cost or
market value. Prior to July 1, 1998, cost was determined on a First In First Out
(FIFO) basis. On April 1, 1999, the Company began to determine cost on a
weighted average basis given management's determination that this method
provides a better matching of revenues and expenses associated with its
inventory, which is mainly comprised of seasonal purchases. The difference in
costing methods resulted in an immaterial effect on the consolidated statements
of operations and comprehensive income in the fourth quarter of fiscal year 1999
and an immaterial cumulative effect on the consolidated statements of operations
and comprehensive income in the first quarter of fiscal year 1999.

F-7
<PAGE> 28
IOS BRANDS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
JUNE 30, 2000 AND 1999

(1)SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
PROPERTY AND EQUIPMENT

Property and equipment are recorded at cost and are depreciated over their
estimated useful lives using the straight-line method. The useful lives are 10
to 31.5 years for building and improvements, 5 years for Mercury consoles, and 5
to 10 years for furniture and equipment.

Upon sale or retirement of property and equipment, the cost and related
accumulated depreciation are eliminated from the respective accounts, and any
gain or loss incurred in the ordinary course of business is included as a
non-operating expense in the accompanying consolidated statements of operations
and comprehensive income. Maintenance and repairs are charged to expense as
incurred. Expenditures, that improve or extend the life of existing property and
equipment, are capitalized.

SOFTWARE TO BE SOLD, LEASED, OR MARKETED

The Company follows the provisions of Statement of Financial Accounting
Standards (SFAS) No. 86, Accounting for the Costs of Computer Software to Be
Sold, Leased, or Otherwise Marketed. SFAS No. 86 requires that all costs
relating to the purchase or internal development and production of a computer
software product to be sold, leased, or otherwise marketed be expensed in the
period incurred unless the requirements for technological feasibility have been
established. The Company capitalizes all eligible computer software costs
incurred once technological feasibility is established. The Company amortizes
these costs using the greater of the straight-line method over a period of three
to five years or the revenue method prescribed by SFAS No. 86.

INTERNAL USE SOFTWARE

The Company has adopted the provisions of Statement of Position ("SOP")
98-1, Accounting for the Costs of Software Developed or Obtained for Internal
Use and Emerging Issues Task Force No. 00-02, Accounting for Web Site
Development Costs. Accordingly, certain costs incurred in the planning and
development stage of internal-use computer software, including Web site
development costs, are expensed as incurred. Costs incurred during the
application development stage are capitalized.

INTANGIBLES

Deferred financing costs are being amortized over the life of the related
financing using the straight-line method. Goodwill is being amortized using the
straight-line method over 30 years. Other intangibles consist of trademarks and
acquired software and are being amortized over 40 and 5 years, respectively,
using the straight-line method.

The Company periodically evaluates whether events and circumstances that
have occurred indicate that the remaining balance of goodwill and other
intangibles may not be recoverable or that the remaining estimated useful lives
may warrant revision. When such factors would indicate that goodwill and other
intangibles should be evaluated for possible impairment, the Company would use
an estimate of undiscounted future cash flows to measure whether the goodwill
and other intangibles is recoverable, and over what period.

INCOME TAXES

The Company follows the provisions of SFAS No. 109, Accounting for Income
Taxes. SFAS No. 109 requires the asset and liability method of accounting for
income taxes in which deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss

F-8
<PAGE> 29
IOS BRANDS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
JUNE 30, 2000 AND 1999

(1)SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
and tax credit carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. Under
SFAS No. 109, the effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes the enactment
date.

FOREIGN CURRENCY TRANSLATION

In accordance with SFAS No. 52, Foreign Currency Translation, balance sheet
accounts of the Company's foreign operations are translated from Canadian
currency into U.S. dollars at the year-end rate of exchange, while income and
expenses are translated at the weighted average rates of exchange for the year.
Translation gains or losses related to net assets located outside the United
States are included in stockholders' equity. Gains and losses resulting from
foreign currency transactions are included in net income (loss).

EARNINGS PER SHARE

In accordance with SFAS No. 128, Earnings Per Share, basic earnings per
share is calculated by dividing net income by the weighted average number of
common shares outstanding and excludes the dilutive effect of unexercised common
stock equivalents. Diluted earnings per share is calculated by dividing net
income by the weighted average number of common shares outstanding and includes
the dilutive effect of unexercised common stock equivalents to the extent that
they are not anti-dilutive. Basic and diluted earnings per common share for the
years ended June 30, 2000, 1999, and 1998 were computed based on the weighted
average number of common shares outstanding of approximately 15,328,000 shares,
15,355,000 shares and 15,358,000 shares respectively.

Shares associated with stock options which were not included in the
calculation of diluted earnings per share because their effect was anti-dilutive
consisted of approximately 103,000 shares, 98,000 shares, and 150,000 shares for
the years ended June 30, 2000, 1999, and 1998, respectively.

REVENUES

Revenues earned by the Company for processing floral and gift orders are
recorded in the month the orders are reported to the Company as filled. Revenues
for other services related to the processing of such orders (including equipment
rentals and transmission charges) are recorded in the period the service is
provided. Sales of products are recorded when the products are shipped. Revenues
relating to publications are recognized in the periods in which the publications
are issued. Unearned revenue for Florists On-line Web site hosting is recognized
ratably over the one-year life of the agreement.

Revenues earned by FTD.COM are recorded when the order is fulfilled.
Generally, when a customer makes a purchase that will be fulfilled by an FTD
florist, FTD.COM receives the order, charges the customers' credit card, and
transmits the order to the Operating Company. The Operating Company then
transmits the order to the fulfilling florist. FTD.COM recognizes 100% of the
order value as revenue. Orders that are not fulfilled by an FTD florist, such as
holiday gift baskets, are fulfilled by a manufacturer or third party
distributor. In addition, FTD.COM receives service fees for processing all
orders. The service fee for orders placed over the Internet is $6.99, and the
service fee for orders placed over the telephone is $9.99. From time to time,
discounts are offered in connection with product promotions or holiday
promotions to selected customer groups. Order revenues and service fees are
reported net of discounts.

The Company follows the provisions of SOP 97-2, Software Revenue
Recognition. SOP 97-2 requires revenue earned on software arrangements involving
multiple elements (i.e., software products, upgrades/enhancements, postcontract
customer support, installation, training, etc.) to be allocated to each
F-9
<PAGE> 30
IOS BRANDS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
JUNE 30, 2000 AND 1999

(1)SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
element based on the relative fair values of the elements. The Company
recognizes revenue from software products (including specified
upgrades/enhancements) ratably over the period of the support agreement or lease
agreement, given vendor-specific objective evidence of fair value of the
elements cannot be established. Installation and training are recognized at the
time of occurrence.

STOCK-BASED COMPENSATION

The Company follows the provisions of SFAS No. 123, Accounting for
Stock-Based Compensation. SFAS No. 123 allows entities to continue to apply the
provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees, and
provide pro forma net income and pro forma earnings per share disclosures for
employee stock option grants as if the fair value-based method defined in SFAS
No. 123 had been applied. The Company has elected to continue to apply the
provisions of APB Opinion No. 25.

ADVERTISING AND SALES PROMOTION COSTS

The Company expenses advertising time and space costs and related residual
rights and contracts at the time the advertising is first broadcast or
displayed. Production and promotion costs are charged to expense when incurred.
Cash rebates earned by FTD customers under the Company's customer incentive
program are charged to expense when earned.

In the years ended June 30, 2000, 1999 and 1998, advertising and sales
promotion expense was $82 million, $52 million, and $38 million, respectively.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results may differ from those estimates.

RECLASSIFICATIONS

Certain amounts in the Company's Consolidated Balance Sheets, Statements of
Operations and Comprehensive Income, Stockholders' Equity, Cash Flows have been
reclassified to conform to the current period presentation. This includes the
reclassification of certain revenues generated from Direct to Consumer
activities, which prior to the period ended June 30, 1999 were reported net of
costs relating to processing and fulfillment and are now recorded on a gross
basis. The corresponding costs representing the amounts paid for processing and
fulfillment have been reclassified as Direct to Consumer costs of goods sold and
services provided. The Company also made other reclassifications of costs of
goods sold and services provided and selling, general and administrative
expenses in order to conform to the current period presentation.

(2) INTANGIBLES

On December 19, 1994 (the "Merger Date"), IOS completed an acquisition of
all of the outstanding equity of Florists' Transworld Delivery Association, a
Michigan nonprofit cooperative association (the "Acquired Company"), pursuant to
the terms of an Agreement and Plan of Merger (the "Merger Agreement") dated
August 2, 1994. Concurrent with the Merger, the Acquired Company was converted
from a nonprofit cooperative association to a for-profit corporation.

F-10
<PAGE> 31
IOS BRANDS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
JUNE 30, 2000 AND 1999

(2) INTANGIBLES -- CONTINUED
The Company accounted for the Merger under the purchase method of
accounting, and accordingly, the Company's consolidated financial statements
reflect the allocation of the total purchase price to the tangible and
intangible assets acquired and liabilities assumed of the Acquired Company as of
December 19, 1994, based on their respective estimated fair values. At June 30,
2000 the $2.0 million of purchase price allocated to software was fully
amortized.

At June 30, 2000 and 1999 goodwill and other intangible assets relating to
the Acquisition consisted of the following (in thousands):

<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Goodwill.................................................... $68,384 $68,384
Trademarks.................................................. 15,000 15,000
Software.................................................... 2,000 2,000
------- -------
85,384 85,384
Less accumulated amortization............................... 16,608 13,654
------- -------
Total....................................................... $68,776 $71,730
======= =======
</TABLE>

(3) FINANCING ARRANGEMENTS

In November 1997 IOS entered into a credit agreement with Banc One Capital
Markets, Inc. who arranged a financing package (the "Bank Credit Facilities")
with Bank One, NA acting as Administrative Agent. The Bank Credit Facilities
consist of a $38.8 million Multiple Draw Term Loan Facility and a $50 million
Revolving Credit Facility, both maturing on December 31, 2003. The original
proceeds of the Revolving Credit Facility were used to provide funds for the
refinancing of the then existing debt totaling $24.6 million. As a result of
entering into the Bank Credit Facilities, $1.3 million of unamortized deferred
financing costs associated with the then existing debt were expensed in November
1997. The related income tax benefit attributable to the extinguishment of the
then existing debt was $0.5 million, resulting in a tax effected loss on
extinguishment of debt of $0.8 million which is reflected as an extraordinary
item in the accompanying consolidated statements of operations and comprehensive
income for the year ended June 30, 1998.

On December 15, 1998, the Company repaid the $60.0 million aggregate
principal amount of 14% Senior Subordinated Notes due December 15, 2001, (the
"Notes"), registered under the Securities Act of 1933. The reacquisition price
totaled $64.2 million and consisted of the $60.0 million principal on the Notes
and a $4.2 million pre-payment penalty premium. The funds for the reacquisition
of the Notes consisted of $50.0 million from the Multiple Draw Term Loan
Facility, $12.0 million from the Revolving Credit Facility and $2.2 million from
cash on hand. As a result of the reacquisition of the Notes, $1.7 million of
unamortized original issuance discount and $1.2 million of unamortized deferred
financing costs associated with the Notes were expensed in December, 1998.
Accordingly, the loss on the reacquisition of the Notes totaled $7.1 million.
The related income tax benefit attributable to the reacquisition of the Notes
was $3.4 million, for a tax effected loss on reacquisition of the Notes of $3.7
million which is reflected as an extraordinary item in the accompanying
consolidated statements of operations and comprehensive income for the year
ended June 30, 1999.

Borrowings under both the Multiple Draw Term Loan Facility and the
Revolving Credit Facility are subject to variable interest rates based on the
London Interbank Offered Rate ("LIBOR"). At June 30, 2000, the Company had an
interest rate swap agreement with a notional amount of $21.6 million and
variable rate debt outstanding of $54.8 million. Under the interest rate swap
agreement, the Company will pay the

F-11
<PAGE> 32
IOS BRANDS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
JUNE 30, 2000 AND 1999

(3) FINANCING ARRANGEMENTS -- CONTINUED
counterparty interest at a fixed rate of 5.74% plus the applicable spread and
the counter-party will pay the Company at a variable rate based on LIBOR. The
variable rate applicable to the swap agreement was 6.28% as of June 30, 2000.
The fair value of the interest rate swap at June 30, 2000 was a gain of
approximately $56 thousand, which was based on future quarterly interest
payments using the interest rate in effect at June 30, 2000. The Company was not
required to collateralize this agreement. The Company does not believe there is
a material credit risk related to the inability of the counterparty to honor
their portion of the agreement.

The Company's credit agreements include covenants which, among other
things, require that the Company maintain certain financial ratios and a minimum
level of consolidated net worth. The Company is in compliance with all debt
covenants at June 30, 2000. The Company's debt agreements also include
restrictions on the declaration and payment of dividends.

The Company's credit agreement imposes various restrictions on the Company
and the Operating Company, including restrictions that limit the Company's
ability to incur additional debt, pay dividends or make other payments or
investments, consummate asset sales, incur liens, merge, consolidate, or dispose
of substantial assets, among other restrictions. In addition, substantially all
of the assets of the Company and the Operating Company, are pledged as security
under the credit agreement. In connection with the capitalization of FTD.COM,
the credit agreement has been amended to exclude FTD.COM from these terms and
restrictions in exchange for the Operating Company's pledge of its shares in
FTD.COM and other monetary consideration.

Interest on borrowings made under the Bank Credit Facilities is calculated
using LIBOR. The Bank Credit Facilities provide a maximum commitment for letters
of credit of $15 million. In addition, a quarterly commitment fee is required on
the unused portion of the Revolving Credit Facility at the then applicable
commitment fee percentage. The applicable commitment fee percentage shall be
determined by the Company's leverage ratio on the last day of each fiscal
quarter. As of June 30, 2000, the Company has unused trade letters of credit of
approximately $13.0 million outstanding under the terms of the Revolving Credit
Facility.

As of June 30, 2000, $38.8 million is outstanding under the Multiple Draw
Term Loan Facility and is scheduled to be permanently reduced, over a period of
14 consecutive unequal quarterly installments continuing until the termination
date of December 31, 2003 through the use of the Revolving Credit Facility. The
borrowings outstanding under the Revolving Credit Facility will mature on
December 31, 2003.

LONG-TERM DEBT (IN THOUSANDS)

At June 30, 2000 and 1999 long-term debt consisted of the following:

<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Multiple Draw Term Loan Facility payable in 14 consecutive
unequal quarterly installments at an approximate rate of
8.5% at June 30, 2000..................................... $38,750 $47,500
Revolving Credit Facility, due December 31, 2003 at an
approximate rate of 9.8% at June 30, 2000................. 16,000 4,250
------- -------
Total long-term debt.............................. $54,750 $51,750
======= =======
</TABLE>

F-12
<PAGE> 33
IOS BRANDS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
JUNE 30, 2000 AND 1999

(3) FINANCING ARRANGEMENTS -- CONTINUED
The Company estimated the fair value of long-term debt based on interest
rates that are currently available to the Company for issuance of debt with
similar terms and remaining maturity dates. The fair value approximates the
carrying value of long-term debt as of June 30, 2000 and June 30, 1999.

Aggregate maturities of debt at June 30, 2000 were as follows:

<TABLE>
<CAPTION>
PAYMENT
FISCAL YEAR AMOUNT
----------- -------
<S> <C>
2001.................................................. $ 8,218
2002.................................................. 10,568
2003.................................................. 12,918
2004.................................................. 23,046
-------
Total....................................... $54,750
=======
</TABLE>

The outstanding debt balance of $54,750 was classified as long-term debt at
June 30, 2000 as the Company intends to refinance the current portion of the
Multiple Draw Term Loan Facility through the use of its Revolving Credit
Facility which is due on December 31, 2003.

(4) LEASES

AS LESSOR

The Company leases Mercury consoles and Mercury Wings(TM) systems to
customers through leases classified as operating leases for accounting purposes.
The net investment in equipment leased to customers under operating leases,
including equipment used for maintenance purposes, was as follows at June 30,
2000 and 1999 (in thousands):

<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Mercury consoles............................................ $21,850 $21,862
Mercury Wings systems....................................... 2,000 --
------- -------
23,850 21,862
------- -------
Less: Accumulated Depreciation.............................. $21,960 $21,272
------- -------
Net Investment.............................................. $ 1,890 $ 590
======= =======
</TABLE>

The total minimum future rentals on non-cancelable leases of Mercury
Wings(TM) systems are as follows (in thousands):

<TABLE>
<S> <C>
2001................................................... $ 935
2002................................................... 935
2003................................................... 429
------
Total........................................ $2,299
======
</TABLE>

AS LESSEE

The Company has entered into operating leases for certain hardware
components of the Mercury Wings(TM) systems and corporate facilities and
equipment. Rental expense relating to these leases totaled

F-13
<PAGE> 34
IOS BRANDS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
JUNE 30, 2000 AND 1999

(4) LEASES -- CONTINUED
$1,661,000, $1,030,000, and $1,121,000 for fiscal 2000, 1999 and 1998,
respectively. The minimum aggregate annual operating lease obligations are as
follows (in thousands):

<TABLE>
<S> <C>
2001................................................... $1,644
2002................................................... 1,168
2003................................................... 316
Thereafter............................................. 83
------
Total........................................ $3,211
======
</TABLE>

The total minimum lease payments have not been reduced by minimum sublease
rentals of $2,725,000 due in the future under non-cancelable subleases of
Mercury Wings(TM) systems and corporate facilities.

(5) INCOME TAXES

At June 30, 2000 and 1999, the Company's deferred tax assets and
liabilities consisted of the following (in thousands):

<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Current deferred tax assets:
Accrued customer incentive obligations.................... $ -- $ 871
Allowance for doubtful accounts........................... 1,331 661
Unearned income........................................... 406 245
Inventory................................................. 940 971
Accrued vacation.......................................... 191 189
Other..................................................... 33 108
------- -------
Current deferred tax assets................................. 2,901 3,045
------- -------
Noncurrent deferred tax assets:
Net operating loss carryforwards.......................... 14,823 6,394
Postretirement benefit obligations........................ 1,890 1,978
Accrued pension........................................... 152 152
Other..................................................... 362 252
------- -------
Noncurrent deferred tax assets.............................. 17,227 8,776
Noncurrent deferred tax liabilities -- tax over book
depreciation and difference in basis...................... 5,368 5,858
------- -------
Net noncurrent deferred tax assets.......................... 11,859 2,918
------- -------
Deferred tax assets -- valuation allowance.................. (2,500) (1,500)
------- -------
Net deferred tax assets..................................... 12,260 $ 4,463
======= =======
</TABLE>

In assessing the realizability of deferred tax assets, the Company
considers whether it is more likely than not that some portion or all of the
deferred tax asset will be realized. The ultimate realization of deferred tax
assets is dependent upon the generation of future taxable income during the
periods in which these temporary differences are deductible. This assessment was
performed considering expected taxable income in future years and tax planning
strategies available to the Company. The Company has determined that it is more
likely than not that $12.3 million of deferred tax assets will be realized. The
valuation allowance of $2.5 million is provided against deferred tax assets,
that the Company determined not likely to be realizable as

F-14
<PAGE> 35
IOS BRANDS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
JUNE 30, 2000 AND 1999

(5) INCOME TAXES -- CONTINUED
of June 30, 2000. This valuation allowance will be reviewed on a regular basis
and adjustments will be made as appropriate.

The Company's net operating loss carryforwards at June 30, 2000 were $40.0
million and are available to offset future taxable income. The net operating
loss carryforwards expire in varying amounts as follows: $2.4 million in 2007;
$2.3 million in 2008; $0.8 million in 2009; $5.2 million in 2010 and $29.3
million in 2019.

The provision for income taxes on income before extraordinary item consists
of the following components (in thousands):

<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Current -- U.S....................................... $ -- $ -- $ --
Current -- Foreign................................... 211 172 190
Deferred (benefit)................................... (7,797) 3,020 1,912
------- ------ ------
Income tax expense (benefit)......................... $(7,586) $3,192 $2,102
======= ====== ======
</TABLE>

The provision for income taxes for the years ended June 30, 2000, 1999 and
1998, differs from the amount computed by applying the U.S. federal income tax
rate (34 %) to pretax income because of the effect of the following items (in
thousands):

<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Tax expense (benefit) at U.S. federal income tax
rate............................................... $(9,218) $1,375 $1,088
State income taxes (benefit), net of federal income
tax effect......................................... (632) 162 64
Change in valuation allowance........................ 1,000 -- --
Amortization of purchased goodwill................... 775 798 803
Foreign income taxes................................. 16 172 190
Other items, net..................................... 473 685 (43)
------- ------ ------
Reported income tax (benefit) expense................ $(7,586) $3,192 $2,102
======= ====== ======
</TABLE>

(6) SOFTWARE TO BE SOLD, LEASED, OR MARKETED

The costs associated with the development of the Mercury WingsTM and other
computer software are capitalized in accordance with SFAS No. 86. As of June 30,
2000 and 1999, capitalized computer software costs were $2.7 million and $1.4
million, respectively. During the years ended June 30, 2000 and 1999, $0.7
million and $0.2 million, respectively, were charged to expense for amortization
of capitalized computer software costs. No amount was charged to expense for
amortization of capitalized computer software during the year ended June 30,
1998. In accordance with SFAS 86, at June 30, 2000, the unamortized capitalized
cost of the computer software was compared to the net realizable value of the
product to determine whether any necessary write-downs should be made. The net
realizable value is the estimated future gross revenues reduced by the estimated
future cost of completing and disposing of the product. As of June 30, 2000 no
write-down was necessary.

(7) INTERNAL USE SOFTWARE

Certain costs incurred in the planning and development stage of
internal-use computer software, including Web site development costs, are
expensed as incurred. During fiscal 2000, the Company capitalized $3.7 million
of Web site development costs related to FTD.COM's new Web site and $5.5 million
of other

F-15
<PAGE> 36
IOS BRANDS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
JUNE 30, 2000 AND 1999

(7) INTERNAL USE SOFTWARE -- CONTINUED
internal use software costs that were incurred subsequent to the planning and
development stage. During the fourth quarter of fiscal 2000, The Company
wrote-off $3.5 million of the previously capitalized Web site development costs
as its decision to discontinue the development of its new Web site.

Capitalized software costs are amortized over the expected economic life of
five years using the straight-line method. At June 30, 2000 and 1999, the
capitalized software costs were $9.6 million and $4.1 million, respectively.
During the years ended June 30, 2000 and 1999, amortization expense was $1.4 and
$0.2 million respectively. No amount was charged to amortization expense during
the year ended June 30, 1998.

(8) POSTRETIREMENT BENEFITS OTHER THAN PENSIONS

The Company provides certain postretirement health care benefits to
qualifying retirees under the terms of the Company's qualified retirement plan.
The plan retirees are required to share in the cost of the benefit. During 1997,
the consolidation of corporate staff and operations into one facility, together
with other factors, resulted in the termination of numerous employees which
significantly reduced the expected years of future service of those employees
and the Company's corresponding liability for certain postretirement benefits.
These terminations caused a decrease in the Company's postretirement obligation
and generated a pretax curtailment gain of $0.9 million which was recorded as a
reduction in general and administrative expenses in the fiscal year ended June
30, 1998. The Company no longer provides such benefits to employees. As a result
of eliminating active employees from the plan, the unrecognized net gain is
being amortized over the average retiree life expectancy of sixteen years.

In accordance with the disclosure requirements of SFAS No. 132, "Employers
Disclosures about Pensions and Other Postretirement Benefits", the following
tables provide a reconciliation of the benefit obligation and funded status as
of June 30, 2000 and 1999 as well as the components of net periodic
postretirement benefit costs for the years ended June 30, 2000, 1999 and 1998
(in thousands):

<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Benefit obligation at beginning of year.................... $ 2,480 $ 2,807
Interest cost.............................................. 166 175
Benefits paid.............................................. (225) (227)
Actuarial gain............................................. (402) (275)
------- -------
Benefit obligation at end of year.......................... $ 2,019 $ 2,480
======= =======
Funded status.............................................. $(2,019) $(2,480)
Unrecognized net gain...................................... (3,345) (3,122)
------- -------
Accrued benefit cost....................................... $(5,364) $(5,602)
======= =======
</TABLE>

<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Service cost........................................... $ -- $ -- $ 72
Interest cost.......................................... 166 175 232
Recognized net actuarial gain.......................... (180) (175) (276)
----- ----- -----
Net periodic benefit cost.............................. (14) -- 28
Curtailment gain....................................... -- -- (902)
----- ----- -----
Total postretirement benefit income............. $ (14) $ -- $(874)
===== ===== =====
</TABLE>

F-16
<PAGE> 37
IOS BRANDS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
JUNE 30, 2000 AND 1999

(8) POSTRETIREMENT BENEFITS OTHER THAN PENSIONS -- CONTINUED
The discount rates used in determining the accumulated postretirement
benefit obligation ("APBO") were 8.0% at and for the year ended June 30, 2000,
7.00% at and for the year ended June 30, 1999 and 6.75% at and for the year
ended June 30, 1998. For measurement purposes an 8.60% annual rate of increase
in the per capita cost of covered health care benefits was assumed for 2000. The
rate was assumed to decrease to 5.75% in 2007, and remain at that level
thereafter. Assumed health care cost trend rates have a significant effect on
the amounts reported for the health care plans. If the current health care cost
trend rate assumption was increased by one percent, the APBO as of June 30,
2000, would increase approximately $198,000, or 9.8%, while the periodic cost
for the fiscal year ended June 30, 2000, would have increased approximately
$17,000, or 10.3%. If the current health care cost trend rate assumptions were
decreased by one percent, the APBO as of June 30, 2000, would have decreased
approximately $170,000, or 8.4%, while the periodic cost for the fiscal year
ended June 30, 2000, would have decreased $15,000, or 8.9%.

(9) PENSION PLANS

Prior to January 1, 1997, the Company had both a defined benefit and a
defined contribution plan (the "Pension Plans") which covered substantially all
domestic employees. The Company's funding policy was to contribute annually to
the defined benefit plan the amount deductible for income tax purposes. In
fiscal 1999, the Company contributed $1.1 million to the defined benefit plan.
No contributions were made in 2000 and 1998 to the defined benefit plan. The
Company's matching contributions to the defined contribution plan are determined
at the discretion of its Board of Directors. No matching contributions were made
in 2000, 1999 or 1998 to the defined contribution plan.

Effective January 1, 1997, amendments to the Company's defined benefit
Pension Plans were adopted, including the elimination of the accrual of future
benefits under the plans. As a result of these amendments, and the corresponding
remeasurement of the accumulated and projected benefit obligations under the
plans, a pre-tax pension settlement gain of $0.4 million was recognized in
income as a reduction in general and administrative costs during the fiscal year
ended June 30, 1998.

Benefits under the Pension Plan are based on the employee's age, years of
service, and the highest consecutive five-year average compensation.

F-17
<PAGE> 38
IOS BRANDS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
JUNE 30, 2000 AND 1999

(9) PENSION PLANS -- CONTINUED
In accordance with the disclosure requirements of SFAS No. 132, the
following tables provide a reconciliation of the benefit obligation and plan
assets as well as the funded status of the pension plan as of June 30, 2000 and
1999 (in thousands):

<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Projected benefit obligation at beginning of year........... $1,934 $2,334
Interest cost............................................... 132 178
Benefits paid............................................... (251) (575)
Actuarial gain.............................................. (183) (3)
------ ------
Projected benefit obligation at end of year................. $1,632 $1,934
====== ======
Fair value of plan assets at beginning of year.............. $1,492 $1,047
Actual return on plan assets................................ -- (69)
Employer contributions...................................... -- 1,089
Benefits paid............................................... (251) (575)
------ ------
Fair value of plan assets at end of year.................... $1,241 $1,492
====== ======
Funded Status............................................... $ (391) $ (442)
Unrecognized net gain....................................... (86) (33)
------ ------
Accrued pension cost........................................ $ (477) $ (475)
====== ======
</TABLE>

During the fiscal years ending June 30, 2000, 1999, and 1998, pension
expense of $2,000, $86,000 and $9,000, respectively, were recognized in relation
to the Pension Plans.

Plan assets for the defined benefit plan consist of investments in common
stock, real estate properties, fixed income securities, and short-term
investments. The table below provides the necessary disclosures in accordance
with SFAS No. 132 of the components of pension expense for the defined benefit
plan for the years ended June 30, 2000, 1999 and 1998 (in thousands):

<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Interest cost........................................... 132 178 187
Expected return on assets............................... (130) (92) (141)
Recognized net actuarial gain........................... -- -- (55)
----- ---- -----
Net periodic pension cost/(income)...................... $ 2 $ 86 $ (9)
===== ==== =====
Settlement gain......................................... -- -- (366)
----- ---- -----
Total pension cost/(income)............................. $ 2 $ 86 $(375)
===== ==== =====
</TABLE>

The discount rate used to calculate the projected benefit obligation at
June 30, 2000 was 8.00%. The discount rate used to calculate the projected
benefit obligation at June 30, 1999, was 7.0%. The discount rate used to
calculate the projected benefit obligation at June 30, 1998 was 6.75%. For
fiscal 2000, 1999 and 1998, the rate of increase in future compensation levels
was 5.0% and the expected long-term rate of return on assets was 9.0%.

Effective January 1, 1997, the Company established a 401(k) savings plan
for all of its eligible employees to replace the Pension Plan. Company
contributions to the 401(k) plan for fiscal 2000 and 1999 were $279,358 and
$214,519 respectively.

F-18
<PAGE> 39
IOS BRANDS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
JUNE 30, 2000 AND 1999

(10) RELATED PARTY TRANSACTIONS

The Company incurred expenses of $2.0 million for each of the years ended
June 30, 2000, 1999 and 1998 related to the payment for management consulting
services to certain investors of the Company.

The Company loaned an Officer of the Company $108,000 pursuant to a four
year interest bearing note dated October 29, 1999, with accrued interest at 7%
per annum and principal due at maturity.

The Company loaned an Officer of the Company $200,000 pursuant to a five
year interest bearing note dated October 12, 1998, with accrued interest at 7%
per annum and principal due at maturity.

The Company owed FTD Association $1.2 million as of June 30, 2000 for
amounts billed through FTD's Clearinghouse on behalf of FTD Association.

(11) STOCK AWARDS AND INCENTIVE PLANS

The Company's 1994 Stock Award and Incentive Plan (the "Plan") was adopted
by the Board of Directors of the Company and approved by the Company's
stockholders on December 19, 1994, and amended on June 12, 1995. The maximum
number of shares of Common Stock authorized for issuance under the Plan is equal
to 15% of the initial equity capital of the Company upon the consummation of the
Merger.

The Plan provides for the granting of incentive stock options ("ISOs");
options which do not qualify as ISO's, known as nonqualified stock options
("NSOs"); or a combination of both ISOs and NSOs ("Options"), provided, however,
that ISOs may only be granted to employees of the Company and its subsidiaries.
Options granted under the Plan may be accompanied by stock appreciation rights
("SARs") or limited stock appreciation rights ("LSARs"), or both ("Rights"). The
Plan also provides for the granting of restricted stock, deferred stock, and
performance shares (together, referred to as "Restricted Awards"). The Plan is
not subject to any provisions of the Employee Retirement Income Security Act of
1974, as amended, nor is the Plan a qualified plan within the meaning of section
401 (a) of the Internal Revenue Code of 1986, as amended.

During fiscal 1999, the Board of Directors approved changes to the vesting
schedules of Stock Option Agreements granted prior to fiscal 1999. Stock Option
Agreements with an original vesting schedule for the options to become
exercisable in four 25% installments commencing after two years will now
commence after only one year, still at a rate of 25% per year. This plan
modification did not result in any change from the intrinsic value of the
options granted as measured pursuant to the requirements of APB 25. As such, no
compensation expense was required to be recognized.

During the year ended June 30, 2000, employees were granted options to
purchase 88,400 shares of the Company's Common Stock at an exercise price of
$25.00 per share. These options vest and become exercisable in five equal
installments.

During the year ended June 30, 1999, employees were granted options to
purchase 162,100 shares of the Company's Common Stock at an exercise price of
$10.50 per share. These options vest and become exercisable in five equal
installments. In addition, during the year ended June 30, 1999, employees were
granted 70,000 shares of restricted stock with a weighted average fair value of
$10.50 per share and a vesting period of five unequal annual installments. Also,
during the year ended June 30, 1999, 10,000 restricted shares previously granted
were canceled.

As of June 30, 2000 and 1999, options covering 613,300 and 580,700 shares,
respectively, of Class A Common Stock were outstanding of which 298,030 and
174,000 shares were vested, respectively. In addition, 0 and 19,000 shares were
exercised and 55,800 and 81,400 options were canceled during the years ended
June 30, 2000 and 1999, respectively.

F-19
<PAGE> 40
IOS BRANDS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
JUNE 30, 2000 AND 1999

(11) STOCK AWARDS AND INCENTIVE PLANS -- CONTINUED
The Company applies APB Opinion No. 25 and related interpretations in
accounting for the Plan and accordingly, no compensation cost has been
recognized for options granted under the Plan since the option price was equal
to or greater than the market price at the date of the grant. Had compensation
cost for the Plan been determined based on the fair value at the grant dates for
options under the Plan consistent with SFAS No. 123, the Company's net income
(loss) and earnings (loss) per share would have been reduced to the Pro-Forma
amounts shown in the table below:

PRO FORMA RESULTS

<TABLE>
<CAPTION>
2000 2000 1999 1999 1998 1998
AS REPORTED PRO FORMA AS REPORTED PRO FORMA AS REPORTED PRO FORMA
----------- --------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net income (loss)
available to common
stockholders (in
thousands).............. $(15,137) $(15,369) $(2,935) $(3,067) $ 263 $ 156
Earnings per share:
Basic................... $ (0.99) $ (1.00) $ (0.19) $ (0.20) $0.02 $0.01
Diluted................. $ (0.99) $ (1.00) $ (0.19) $ (0.20) $0.02 $0.01
</TABLE>

The pro forma disclosures shown are not representative of the future
effects on net income and earnings per share.

The fair values of the options granted under the Plan during fiscal 2000,
1999 and 1998 were determined at the grant date using the Black-Scholes single
option reduced term pricing model. The significant assumptions used to calculate
the fair value of option grants were: risk-free interest rates ranging from
4.27% to 6.00%, expected volatility ranging from 0% to 50%, expected lives of
3.5 to 3.83 years and no expected dividends for the shares.

SUMMARY STOCK OPTION ACTIVITY

<TABLE>
<CAPTION>
CLASS A NUMBER WEIGHTED AVERAGE
OF OPTIONS EXERCISE PRICE
-------------- ----------------
<S> <C> <C>
Outstanding at June 30, 1997................................ 434,000 6.98
Granted................................................... 207,000 10.90
Exercised................................................. 7,500 2.68
Canceled.................................................. 114,500 6.12
-------- -----
Outstanding at June 30, 1998................................ 519,000 8.79
Granted................................................... 162,100 10.50
Exercised................................................. 19,000 3.75
Canceled.................................................. 81,400 9.15
-------- -----
Outstanding at June 30, 1999................................ 580,700 9.38
Granted................................................... 88,400 25.00
Canceled.................................................. 55,800 13.31
-------- -----
Outstanding at June 30, 2000................................ 613,300 11.28
======== =====
Exercisable at June 30, 2000.............................. 298,030 8.88
Weighted average fair value of options granted in Fiscal
2000................................................... $ 7.96
Weighted average fair value of options granted in Fiscal
1999................................................... $ 1.75
</TABLE>

F-20
<PAGE> 41
IOS BRANDS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
JUNE 30, 2000 AND 1999

(11) STOCK AWARDS AND INCENTIVE PLANS -- CONTINUED
STOCK OPTIONS OUTSTANDING

<TABLE>
<CAPTION>
WEIGHTED AVERAGE
CLASS A OPTIONS EXERCISE WEIGHTED AVERAGE REMAINING
OUTSTANDING PRICE (RANGE) EXERCISE PRICE CONTRACTUAL LIFE
--------------- ------------- ---------------- ----------------
<S> <C> <C> <C>
136,000 $ 3.75 $ 3.75 6.91
213,400 7.75-10.50 9.18 7.82
190,000 12.50-15.00 13.68 7.12
73,900 25.00 25.00 9.25
------- ------------ ------ ----
613,300 $ 3.75-25.00 $11.28 7.57
======= ============ ====== ====
</TABLE>

The FTD.COM INC. 1999 Equity Incentive Plan (the "Plan") provides for the
issuance of up to 4,500,000 shares of Class A common stock in connection with
the granting of option rights, stock appreciation rights (SARs), restricted
shares, deferred shares, performance awards or any combination of the foregoing
pursuant to the Plan. In addition, the plan provides that the aggregate number
of shares of Class A common stock actually issued or transferred by FTD.COM upon
the exercise of incentive stock options shall not exceed 1,000,000 shares of
Class A common stock; no plan participant shall be granted option rights and
appreciation rights, in the aggregate, for more than 1,000,000 shares of Class A
common stock during any period of one year; the number of shares issued as
restricted shares shall not in the aggregate exceed 2,500,000 shares of Class A
common stock; and no Non-Employee Director shall be granted option rights,
appreciation rights and restricted shares, in the aggregate, for more than
100,000 shares of Class A common stock during any fiscal year of FTD.COM.

To date, FTD.COM has not granted any SARs, deferred shares or performance
awards.

Outstanding nonqualified stock options are exercisable during a ten-year
period beginning one to four years after the date of grant. All currently
outstanding options were granted with an exercise price equal to either the fair
market value on (a) the date of grant or (b) the optionee's first date of
employment with FTD.COM. Changes in options outstanding are summarized as
follows:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
RANGE OF WEIGHTED-AVERAGE
OPTIONS EXERCISE PRICES EXERCISE PRICE
------- ------------------- ----------------
<S> <C> <C> <C>
Balance, June 30, 1999............ -- -- --
Granted......................... 2,449,300 $2.88-16.00 $10.04
Exercised....................... -- -- --
Recaptured or terminated........ (2,351,300) 4.72-16.00 10.34
---------- ----------- ------
Balance, June 30, 2000............ 148,000 $2.88-$8.00 $ 5.20
========== =========== ======
</TABLE>

F-21
<PAGE> 42
IOS BRANDS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
JUNE 30, 2000 AND 1999

(11) STOCK AWARDS AND INCENTIVE PLANS -- CONTINUED
There were no options exercisable at June 30, 2000. The following table
summarizes information regarding stock options outstanding at June 30, 2000.

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
WEIGHTED-AVERAGE WEIGHTED-
RANGE OF OPTIONS REMAINING LIFE AVERAGE EXERCISE
EXERCISE OPTIONS OUTSTANDING (IN YEARS) PRICE
---------------- ----------- ------------------- ----------------
<S> <C> <C> <C>
$2.88 -- $2.91...................... 70,000 9.82 $2.89
$4.00 -- $6.00...................... 18,000 9.61 4.96
$7.75 -- $8.00...................... 60,000 9.46 7.98
------- ---- -----
Total Options....................... 148,000 9.65 $5.20
======= ==== =====
</TABLE>

Using the Black-Scholes single option pricing model and the following
assumptions, the average estimated fair value, at the dates of grant of options
in fiscal year 2000, was $0.98 per option.

<TABLE>
<CAPTION>
2000
----
<S> <C>
Risk-free interest rate..................................... 6.2%
Expected dividend yield..................................... 0%
Expected volatility......................................... 75%
Estimated lives of options (in years)....................... 4.0
</TABLE>

Based on the above assumptions, FTD.COM would have recognized an additional
$9,000 of compensation expense in fiscal year 2000 if the estimated costs of the
outstanding granted stock options had been recorded in the financial statements.

Options granted throughout fiscal year 2000 vest equally each year over a
four-year period from the date of grant. As a result, the estimated cost
indicated above reflects only a partial vesting of such options. If full vesting
were assumed, the estimated pro forma costs for the year would have been higher
than indicated above.

(12) COMMITMENTS AND CONTINGENCIES

The Company is involved in various lawsuits and other matters arising in
the normal course of business. In the opinion of the management of the Company,
although the outcomes of these claims and suits are uncertain, they should not
have a material adverse effect on the Company's financial condition, liquidity,
or results of operations.

(13) CAPITAL STOCK TRANSACTIONS

Class A and non-voting class B Common Stock rank equally and, except with
respect to voting power, are substantially identical in all material respects.
Class B Common Stock is convertible into Class A Common Stock on a one-to-one
basis. The Company is authorized to establish and designate one or more series
of preferred stock.

F-22
<PAGE> 43
IOS BRANDS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
JUNE 30, 2000 AND 1999

(13) CAPITAL STOCK TRANSACTIONS -- CONTINUED
The Company repurchased into treasury 7,882 shares and 66,183 shares of
Class A Common Stock at an approximate cost of $85,000 and $844,000 during
fiscal 2000 and 1999, respectively. During fiscal 1999, the Company repurchased
51,250 shares of Class B Common Stock at a cost of approximately $538,000.

<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Class A, shares outstanding
Balance at beginning of year.............................. 12,380 12,396 12,280
1998 stock offering.................................... -- -- 97
Cancellation of shares issued in 1998 Stock Offering... -- (3) --
Repurchase of common stock............................. (8) (66) (79)
Sale of common stock to officers....................... -- 53 98
------ ------ ------
Balance at end of year.................................... 12,372 12,380 12,396
====== ====== ======
Class B, shares outstanding
Balance at beginning of year.............................. 2,949 3,000 3,000
Repurchase of common stock............................. -- (51) --
------ ------ ------
Balance at end of year.................................... 2,949 2,949 3,000
====== ====== ======
</TABLE>

(14) SUBSIDIARY CAPITAL STOCK TRANSACTIONS

On May 19, 1999, the Operating Company incorporated a new subsidiary,
FTD.COM, as a Delaware corporation in connection with the filing of a
registration statement and amendments thereto with the Securities and Exchange
Commission covering the sale of shares of FTD.COM Class A common stock to the
public. FTD.COM was capitalized through the authorization of 250,000,000 shares
of Class A common stock and 100,000,000 shares of Class B common stock and the
issuance of 40,920,000 shares of Class B common stock, retroactively adjusted by
a 12 for 1 stock split to the Operating Company. In consideration for the
receipt of 40,920,000 shares of Class B common stock, the Operating Company
contributed to FTD.COM the assets and liabilities relating to the consumer
floral order and specialty gift product business. In addition, in connection
with the incorporation of FTD.COM, 5,000,000 shares of preferred stock were
authorized.

On May 19, 1999, FTD.COM designated 90,000 shares of its preferred stock as
Series A 8% Cumulative Redeemable Convertible Preferred Stock ("Series A
preferred stock"). On May 20, 1999, 30,000 shares of the Series A preferred
stock were issued and sold to an investor for consideration of $3.0 million. On
May 25, 1999, 60,000 shares of the Series A preferred stock were issued and sold
to an investor for consideration of $6.0 million.

These shares of Series A Preferred Stock had a liquidation preference of
$100 per share and accrued dividends at an annual rate of 8% of the liquidation
preference. Accrued dividends were payable at the discretion of the Board of
Directors of FTD.COM and were mandatorily payable upon liquidation or
redemption.

On September 28, 1999, FTD.COM agreed to issue and sell 4,500,000 shares of
its Class A common stock to the public in an IPO transaction at a price of $8.00
per share, resulting in gross proceeds from the offering of $36.0 million. The
IPO closed on October 4, 1999, at which time FTD.COM collected the gross
proceeds of $36.0 million less underwriting discounts of $2.5 million. In
addition, the $33.5 million net cash received from the underwriters was reduced
by other offering expenses of $2.0 million. The net proceeds of $31.5 million
were recorded as minority interest in subsidiary. Prior to the IPO, FTD owned
100% of the outstanding common stock of FTD.COM. There was no gain recorded by
the Company upon the sale of
F-23
<PAGE> 44
IOS BRANDS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
JUNE 30, 2000 AND 1999

(14) SUBSIDIARY CAPITAL STOCK TRANSACTIONS -- CONTINUED
FTD.COM's stock. The Company's accounting policy is to account for a subsidiary
direct sale of unissued shares as a capital transaction.

Upon the closing of the IPO of FTD.COM on October 4, 1999, the 90,000
shares of FTD.COM's Series A 8% Cumulative Redeemable Convertible Preferred
Stock were automatically converted into 1,384,614 shares of FTD.COM Class A
common stock. Upon conversion, the Company reclassified the preferred
stockholders' equity in a subsidiary of $9.0 million to minority interest in
subsidiary and the accrued dividends of $74,301 were offset against the retained
earnings of FTD.COM.

On October 6, 1999, the underwriters of the IPO exercised their one time
option to purchase 495,000 additional shares of FTD.COM 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 FTD.COM from this issuance and sale of 495,000 shares of Class A common stock
were $3.7 million after deducting underwriting discounts and commissions and
were recorded as minority interest in subsidiary.

During May 2000, FTD.COM granted 1,355,000 shares of FTD.COM Class A common
stock to employees of FTD.COM in the form of restricted shares. During June
2000, the Company granted 525,000 shares of FTD.COM Class B common stock to
employees of the Company in the form of restricted shares. The FTD.COM Class B
shares were subsequently exchanged into shares of FTD.COM Class A common stock.
The employees will earn the restricted shares in exchange for future services to
be provided to the Company over a three-year period. The Company recorded
deferred compensation in the amount of $5.4 million, equal to the market value
of the restricted shares at the date of grant.

Upon completion of the above events, FTD owned approximately 83% of the
outstanding common stock of FTD.COM through its ownership of 40,395,000 shares
of Class B common stock. In addition, the minority interest of 17% was
represented by the 4,995,000 shares of Class A common stock sold to the public,
the 1,384,614 shares from the conversion of the Series A preferred stock into
shares of Class A common stock, 525,000 restricted shares of Class A common
stock granted to employees of the Company, and 1,355,000 restricted shares of
Class A Common stock granted to employees of FTD.COM.

(15) MINORITY INTEREST IN SUBSIDIARY

The Company's consolidated financial statements for the year ended June 30,
2000, reflect the minority interest in FTD's subsidiary FTD.COM.

The $45.2 million minority interest in subsidiary, reflected on the
consolidated balance sheet as of June 30, 2000, consists of the $31.5 million
net proceeds from the closing of the IPO, the $9.0 million from the
reclassification of the preferred stockholders' equity in a subsidiary, the $3.7
million net proceeds from the underwriters exercise of their over-allotment
option, and the restricted stock issue of $5.4 million, offset by the minority
interest in loss of subsidiary of $4.4 million.

(16) REVENUES FROM THE SALE OF THE FLORAL SELECTIONS GUIDE ("FSG")

Effective with the 1999 fiscal year, as a condition of FTD affiliation, all
FTD florists must purchase a FSG and related workbook. The Company recognizes
revenue related to the FSG when it is purchased by the florist. The purchase of
such FSG entitles the FTD florist to a non-exclusive, non-transferable right for
on premise use of the FSG for as long as the purchaser remains an FTD florist in
good standing. In prior years,
F-24
<PAGE> 45
IOS BRANDS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
JUNE 30, 2000 AND 1999

(16) REVENUES FROM THE SALE OF THE FLORAL SELECTIONS GUIDE ("FSG") -- CONTINUED
FTD offered a product guide for sale to its members on an optional basis. This
predecessor guide was published on a two-year cycle, with updates throughout the
cycle. Accordingly such revenue was previously recognized ratably over the
two-year cycle. For the year ended June 30, 2000, FTD did not recognize any FSG
revenue. Revenue from the FSG during the years ended June 30, 1999 and 1998 was
$2.8 million and $1.3 million, respectively.

(17) SEGMENT INFORMATION

The FASB issued SFAS No. 131, Disclosures about Segments of an Enterprise
and Related Information in February 1998. SFAS No. 131 establishes standards for
the way that public business enterprises report information about operating
segments in annual financial statements.

As a result of adopting SFAS No. 131, the Company has identified three
reportable business segments based on the nature of its products and services
and financial reports which are evaluated regularly by management in deciding
how to allocate resources and assess performance. For purposes of managing the
Company, the chief operating decision maker reviews segment financial
performance to the gross margin level.

These business segments include Technology products and services,
Marketplace and Other and Direct to Consumer. Technology products and services
consists of technology based products and services offered to the Company's
customers. This includes the Company's Mercury equipment, Mercury Advantage
systems, Mercury Wings TM systems, Mercury Network, Clearinghouse, Flowers After
Hours, Publications, Credit Card processing and Interflora, Inc. Marketplace and
Other consists of floral related products, specialty gift products and greeting
cards offered to our customers for resale as well as other miscellaneous income
items. Direct to Consumer includes floral and specialty gift order capabilities
offered directly to the consumer through the 1-800-SEND-FTD toll-free telephone
number and the www.ftd.com Web site.

F-25
<PAGE> 46
IOS BRANDS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
JUNE 30, 2000 AND 1999

(17) SEGMENT INFORMATION -- CONTINUED
The following table details the Company's operating results by reportable
business segment for the years ended June 30, 2000 and June 30, 1999. Given the
Company's change in accounting systems during fiscal 1999, it is not practical
to disclose similar information for fiscal 1998.

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------------------------------------------------------
2000 1999
---------------------------------------- ----------------------------------------
GROSS GROSS
SEGMENT ELIMINATIONS CONSOLIDATED SEGMENT ELIMINATIONS CONSOLIDATED
------- ------------ ------------ ------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Technology Products and
Services................. $130,157 $(1,553) $128,604 $115,899 $(1,563) $114,336
Marketplace and Other...... 51,537 -- 51,537 53,627 -- 53,627
Direct to Consumer......... 98,205 (10,619) 87,586 49,618 (4,148) 45,470
-------- ------- -------- -------- ------- --------
Total revenues........ 279,899 (12,172) 267,727 219,144 (5,711) 213,433
======== ======= ======== ======== ======= ========
COSTS OF GOODS SOLD AND
SERVICES PROVIDED:
Technology Products and
Services................. 30,712 (2,267) 28,445 23,038 -- 23,038
Marketplace and Other...... 37,272 -- 37,272 37,381 (432) 36,949
Direct to Consumer......... 69,925 (1,553) 68,372 38,848 (3,436) 35,412
-------- ------- -------- -------- ------- --------
Total costs of goods
sold and services
provided............ 137,909 (3,820) 134,089 99,267 (3,868) 95,399
-------- ------- -------- -------- ------- --------
OPERATING EXPENSES:
Technology and
Marketplace.............. 100,604 (4,654) 95,950 90,003 5,613 95,616
Direct to Consumer......... 64,492 (3,698) 60,794 19,130 (7,456) 11,674
-------- ------- -------- -------- ------- --------
Total operating
expenses............ 165,096 (8,352) 156,744 109,133 (1,843) 107,290
-------- ------- -------- -------- ------- --------
OPERATING INCOME (LOSS).... $(23,106) $ -- $(23,106) $ 10,744 $ -- $ 10,744
======== ======= ======== ======== ======= ========
GROSS MARGIN BY SEGMENT:
Technology Products and
Services................. $ 99,445 $ 714 $100,159 $ 92,861 $(1,563) $ 91,298
Marketplace and Other...... 14,265 -- 14,265 16,246 432 16,678
Direct to Consumer......... 28,280 (9,066) 19,214 10,770 (712) 10,058
-------- ------- -------- -------- ------- --------
Total................. $141,990 $(8,352) $133,638 $119,877 $(1,843) $118,034
======== ======= ======== ======== ======= ========
</TABLE>

The Company's accounting policies for segments are the same as those
described in Note 1, Summary of Significant Accounting Policies. The Company
evaluates segment profit or loss on the basis of gross profit.

The Company does not measure total assets by reportable business segment
for purposes of assessing performance and making operating decisions.

F-26
<PAGE> 47
IOS BRANDS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
JUNE 30, 2000 AND 1999

(18) SUBSEQUENT EVENT

On July 26, 2000, the Company settled an ongoing lawsuit whereby one of the
Company shareholders, and former warrantholder, agreed to return 750,000 of the
Company's Class B common shares, which the Company will treat as treasury stock.
The warrants, underlying the ownership of these shares of stock, were issued in
conjunction with the acquisition of Florist Transworld Delivery Association, by
the Company in 1994. As a result of this settlement, the Company expects to
recognize other income of approximately $12.0 million, on a pretax basis, in the
quarter ended September 30, 2000.

F-27
<PAGE> 48

[KPMG LOGO]

INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULE

The Board of Directors
IOS BRANDS Corporation:

Under date of August 4, 2000, we reported on the consolidated balance
sheets of IOS BRANDS Corporation and subsidiaries (formerly known as FTD
Corporation) as of June 30, 2000 and 1999, and the related consolidated
statements of operations and comprehensive income, stockholders' equity, and
cash flows for each of the years in the three-year period ended June 30, 2000.
In connection with our audits of the aforementioned consolidated financial
statements, we also audited the related consolidated financial statement
schedule of valuation of qualifying accounts. This consolidated financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion on this consolidated financial statement
schedule based on our audits.

In our opinion, such consolidated financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.

/s/ KPMG LLP

Chicago, Illinois
August 4, 2000

F-28
<PAGE> 49

IOS BRANDS CORPORATION

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
ADDITIONS
-------------------------- COLLECTION UNCOLLECTIBLE
BALANCE CHARGED TO OF ACCOUNTS ACCOUNTS AND BALANCE AT
BEGINNING OF COST AND PREVIOUSLY INVENTORY END OF
PERIOD EXPENSES WRITTEN OFF WRITE OFFS PERIOD
------------ ---------- ----------- ------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
YEAR 2000
Allowance for doubtful accounts (shown
as deduction from Accounts
Receivable in the consolidated
balance sheet)...................... $1,681 $1,931 $15 $ 31 $3,596
Inventory valuation reserve (included
in Inventories, net in the
consolidated balance sheet)......... $1,188 $ -- $-- $171 $1,017
YEAR 1999
Allowance for doubtful accounts (shown
as deduction from Accounts
Receivable in the consolidated
balance sheet)...................... $1,854 $ 442 $53 $668 $1,681
Inventory valuation reserve (included
in Inventories, net in the
consolidated balance sheet)......... $1,675 $ -- $-- $486 $1,188
YEAR 1998
Allowance for doubtful accounts (shown
as deduction from Accounts
Receivable in the consolidated
balance sheet)...................... $2,211 $ 511 $47 $915 $1,854
Inventory valuation reserve (included
in Inventories, net in the
consolidated balance sheet)......... $1,705 $ -- $-- $ 30 $1,675
</TABLE>

F-29
<PAGE> 50

INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<S> <C>
3.1 Restated Certificate of Incorporation of the Registrant.
(Incorporated by reference to Exhibit 3.1 of the
Registrant's Annual Report on Form 10-K for the fiscal year
ended June 30, 1997 (the "1997 Form 10-K").)
3.2 Bylaws of the Registrant. (Incorporated by reference to
Exhibit 3.2 of the 1997 Form 10-K.) reference to Exhibit 4.3
of the FTD S-1.)
4.1 Form of Subscription Agreement among FTD and certain
stockholders of FTD. (Incorporated by reference to Exhibit
4.3 of Post-Effective Amendment No. 1 to the Registrant's
Registration Statement on Form S-1 (File No. 33-91582) (the
"1995 FTD S-1").)
4.2 Form of Subscription Agreement among FTD and Participating
Members. (Incorporated by reference to Exhibit 4.4 of
Amendment No. 1 to the Registrant's Registration Statement
on Form S-1 (File No. 333-37303) (the "1997 FTD S-1").)
10.1 Credit Agreement, dated as of November 20, 1997, among the
Registrant, Florists' Transworld Delivery, Inc., the various
lending institutions party thereto and The First National
Bank of Chicago, as Agent. (Incorporated by reference to
Exhibit 10.1 of the 1997 FTD S-1.)
10.2 Amendment No. 1 to Credit Agreement, dated as of December
19, 1997, among the Registrant, Florists' Transworld
Delivery, Inc., the various lending institutions party
thereto and the First National Bank of Chicago, as Agent.
10.3 Amendment No. 2 to Credit Agreement, dated as of May 24,
1999, among the Registrant, Florists' Transworld Delivery,
Inc., the various lending institutions party thereto and the
First National Bank of Chicago, as Agent.
10.4 Pledge Agreement, dated May 24, 1999, by and among the
Registrant, Florists' Transworld Delivery, Inc., and the
First National Bank of Chicago, as Agent.
10.5 Security Agreement, dated November 20, 1997, by and among
the Registrant, Florists' Transworld Delivery, Inc., and the
First National Bank of Chicago as Agent. (Incorporated by
reference to Exhibit 10.3 of the 1997 FTD S-1.)
10.6 Mutual Support Agreement, dated as of December 18, 1994, by
and between Florists' Transworld Delivery, Inc. and FTD
Association. (Incorporated by reference to Exhibit 10.9 of
the FTDI S-1.)
10.7 Supplement to Mutual Support Agreement, dated as of January
11, 1996, by and between Florists' Transworld Delivery, Inc.
and FTD Association. (Incorporated by reference to Exhibit
10.9 of the 1997 Form 10-K.)
10.8 Trademark License Agreement, dated as of December 18, 1994,
by and between Florists' Transworld Delivery, Inc. and FTD
Association. (Incorporated by reference to Exhibit 10.10 of
the FTDI S-1.)
10.9 Securityholders' and Registration Rights Agreement, dated as
of December 19, 1994, among the Registrant, Florists'
Transworld Delivery, Inc., BT Securities Corporation and
Montgomery Securities. (Incorporated by reference to Exhibit
10.11 of the 1995 FTD S-1.)
10.10 Tax Sharing Agreement, dated as of December 19, 1994,
between the Registrant and Florists' Transworld Delivery,
Inc. (Incorporated by reference to Exhibit 10.12 of the FTDI
S-1.)
10.11 First Amendment to Tax Sharing Agreement, dated as of May
19, 1999 among the Registrant Florists' Transworld Delivery,
Inc. and FTD.COM INC.
10.12 Stockholders' Agreement, dated as of December 19, 1994,
among the Registrant and certain stockholders of the
Registrant. (Incorporated by reference to Exhibit 10.13 of
the 1995 FTD S-1.)
</TABLE>
<PAGE> 51

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<S> <C>
10.13* FTD Corporation 1994 Stock Award and Incentive Plan
(Incorporated by reference to Exhibit 10.14 of the 1995 FTD
S-1).
10.14* Letter dated August 18, 1998 regarding Norton employment
arrangements.
10.15* Form of Secured Promissory Note to be made by Robert Norton.
10.16* Description of Key Management Incentive Plan (Incorporated
by reference to Exhibit 10.b of the Florists' Transworld
Delivery, Inc. Form 10-Q, filed March 31, 1997.)
10.17* Restricted Shares Agreement, dated as of June 12, 2000,
between FTDI and Robert L. Norton
10.18* Restricted Shares Agreement, dated as of June 12, 2000,
between FTDI and Frances C. Piccirillo
10.19* Restricted Shares Agreement, dated as of June 12, 2000,
between FTDI and Timothy R. Rasmussen
21.1 Subsidiaries of the Registrant. (Incorporated by reference
to Exhibit 21.1 of the FTD S-1.);
27.1 Financial Data Schedule
</TABLE>

-------------------------
* Management contract or compensatory plan required to be filed as an Exhibit to
the Form 10-K