UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

ý		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2003
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM to

ý		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

~~Commission~~FOR THE QUARTERLY PERIOD ENDED ~~File~~DECEMBER ~~Number~~31, 2004

~~000-21277~~¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM to

Commission File Number
333-113807

FTD, Inc.

(Exact Name of Registrant as Specified in Its Charter)

DELAWARE		13-3711271
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

3113 WOODCREEK DRIVE DOWNERS GROVE, IL 60515-5420

DOWNERS GROVE, IL 60515-5420

(Address of Principal Executive Offices)

(630) 719-7800

(Registrant’s Telephone Number, Including Area Code)

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 ý No o¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes o ¨ No ý

As of ~~November~~January 1125, ~~2003~~2005, there were ~~15,106,859 outstanding~~100 outstanding shares of the Registrant’s ~~Class A~~ common stock, par value $.01 per ~~share~~ ~~(the “Class A Common Stock”), and 1,275,357 outstanding shares of the Registrant’s Class B convertible common stock, par value $.0005 per~~ share ~~(the “Class B Convertible Common Stock” and, together with the Class A Common Stock, the “Common Stock”)~~.

FTD, ~~Inc~~INC.

INDEX TO FORM 10-Q

Part I.	Financial Information
			PAGE
	Item 1.	Financial Statements
Part I.	Financial Information
		Consolidated Balance Sheets
	Item 1.	Financial Statements
		Consolidated Statements of Operations and Comprehensive Income
		Consolidated Balance Sheets	2
		Consolidated Statements of Cash Flows
		Consolidated Statements of Operations and Comprehensive Income	3
		Notes to Consolidated Financial Statements
		Consolidated Statements of Cash Flows	4
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
		Notes to Consolidated Financial Statements	5
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
	Item 4.	Controls and Procedures
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	31
Part II.	Other Information
	Item 4.	Controls and Procedures	32
	Item 1.	Legal Proceedings
Part II.	Other Information
	Item 6.	Exhibits and Reports on Form 8-K
	Item 1.	Legal Proceedings	33
Signatures
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33
Index of Exhibits
	Item 6.	Exhibits	34
Signatures			35
Index of Exhibits

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

FTD, ~~Inc~~INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share amounts)

	September 30, 2003			June 30, 2003
	December 31, 2004			June 30, 2004
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	219,~~644~~482		$	12,~~921~~491
Accounts receivable, less allowance for doubtful accounts of $5,322 at September 30, 2003 and $5,284 at June 30, 2003	29,860			23,398
Restricted cash	7,261			7,261
Inventories, net	8,904			8,668
Accounts receivable, less allowance for doubtful accounts of $5,599 at December 31, 2004 and $5,067 at June 30, 2004	30,407			27,572
Deferred income taxes	4,740			4,740
Inventories, net	11,344			9,392
Prepaid expenses and other	4,837			4,224
Deferred income taxes	4,296			4,296
Total current assets	50,985			42,951
Prepaid expenses and other	7,383			10,312
Total current assets	80,173			61,324
Property and equipment:
Land and improvements	1,~~600~~380			1,~~600~~380
Building and improvements	814,~~881~~286			814,~~858~~196
Mercury consoles	4,230			4,233
Furniture and equipment	5,095			4,771
Furniture and equipment	19,142			19,131
Total	20,761			20,347
Total	33,853			33,822
Less accumulated depreciation	2,672			1,136
Less accumulated depreciation	21,422			20,648
Property and equipment, net	18,089			19,211
Property and equipment, net	12,431			13,174
Other assets:
Other noncurrent assets, net	1228,~~396~~583			1128,~~986~~907
Customer lists, less accumulated amortization of $1,257 at September 30, 2003 and $1,023 at June 30, 2003	3,419			3,653
Other intangible assets, less accumulated amortization of $2,093 at December 31, 2004 and $834 at June 30, 2004	18,680			11,673
Trademark, less accumulated amortization of $2,719	12,281			12,281
Trademark	121,577			121,577
Goodwill, less accumulated amortization of $17,286	120,326			120,326
Goodwill	337,414			337,196
Total other assets	~~148~~506,~~422~~254			~~148~~499,~~246~~353
Total assets	$	~~211~~604,~~838~~516		$	~~204~~579,~~371~~888
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES AND STOCKHOLDER’S EQUITY
Current liabilities:
Accounts payable	$	3152,~~042~~095		$	3741,~~729~~311
Customer deposits	5,~~907~~268			65,~~095~~441
Unearned income	12,~~788~~459			12,~~664~~059
Other accrued liabilities	2028,~~259~~722			1923,~~655~~217
Total current liabilities	58,996			65,143
Current maturities of long-term debt	850			850
Long-term debt	15,500			6,500
Total current liabilities	89,394			72,878
Post-retirement benefits and accrued pension obligations, less current portion	4,589			4,858
Long-term debt	258,513			258,938
Deferred income taxes	5,566			5,547
Post-retirement benefits and accrued pension obligations	2,591			2,717
Stockholders’ equity:
Deferred income taxes	57,814			57,814
Preferred stock: $0.01 par value, 5,000,000 shares authorized, no shares issued and outstanding	—			—
Stockholder’s equity:
Common stock:
Common stock: $0.01 par value, 1,000 shares authorized; 100 shares issued and outstanding	—			—
Class A, $0.01 par value, 300,000,000 shares authorized; 15,516,800 shares issued at September 30, 2003 and June 30, 2003	155			155
Paid-in capital	186,137			185,390
Class B convertible, $0.0005 par value, 20,000,000 shares authorized; 2,112,502 shares issued at September 30, 2003 and June 30, 2003	1			1
Retained earnings	9,924			2,192
Paid-in capital	148,825			148,840
Accumulated other comprehensive income (loss)	143			(41		)
Accumulated deficit	(2,278		)	(7,086		)
Total stockholder’s equity	196,204			187,541
Accumulated other comprehensive loss	(639		)	(621		)
Total liabilities and stockholder’s equity	$	604,516		$	579,888
Unamortized restricted stock	(193		)	(250		)
Treasury stock, at cost, 435,996 shares and 438,196 shares of Class A and 801,250 shares, respectively, of Class B convertible as of September 30, 2003 and June 30, 2003	(18,684		)	(18,716		)
Total stockholders’ equity	127,187			122,323
Total liabilities and stockholders’ equity	$	211,838		$	204,371

See accompanying Notes to Consolidated Financial Statements.

FTD, ~~Inc~~INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(Unaudited)

(in thousands~~, except per share amounts~~)

	Three Months Ended September 30,
	Three Months Ended								Six Months Ended
	2003			2002
	December 31,								December 31,
Revenues:
	2004				2003				2004			2003
Products	$	46,410		$	46,642
					Predecessor							Predecessor
Services	27,166			26,944
Revenues:
Total revenues	73,576			73,586
Products	$	62,848			$	64,730			$	111,972		$	111,140
Costs of goods sold and services provided:
Services	45,406				32,065				78,353			59,231
Products	34,827			33,498
Total revenues	108,254				96,795				190,325			170,371
Services	4,374			4,622
Costs of goods sold and services provided:
Total costs of goods sold and services provided	39,201			38,120
Products	54,621				49,074				95,009			83,901
Gross profit:
Services	5,069				5,131				9,751			9,505
Products	11,583			13,144
Total costs of goods sold and services provided	59,690				54,205				104,760			93,406
Services	22,792			22,322
Gross profit:
Total gross profit	34,375			35,466
Products	8,227				15,656				16,963			27,239
Operating expenses:
Services	40,337				26,934				68,602			49,726
Advertising and selling	14,307			13,398
Total gross profit	48,564				42,590				85,565			76,965
General and administrative	11,737			11,702
Operating expenses:
Total operating expenses	26,044			25,100
Advertising and selling	21,481				20,836				38,185			35,143
Income from operations	8,331			10,366
General and administrative	12,618				14,087				24,947			25,824
Other income and expenses:
Total operating expenses	34,099				34,923				63,132			60,967
Interest income	(6		)	(109		)
Income from operations	14,465				7,667				22,433			15,998
Interest expense	241			600
Other income and expenses:
Other (income) expense, net	65			(56		)
Interest income	(91			)	(7			)	(167		)	(13		)
Total other expenses, net	300			435
Interest expense	5,017				204				10,034			445
Income before income tax	8,031			9,931
Other (income) expense, net	(274			)	(1,534			)	(321		)	(1,469		)
Income tax expense	3,223			4,121
Total other expenses, net	4,652				(1,337			)	9,546			(1,037		)
Net income	$	4,808		$	5,810
Income before income tax	9,813				9,004				12,887			17,035
Other comprehensive loss:
Income tax expense	3,925				3,463				5,155			6,686
Foreign currency translation adjustments	18			50
Net income	$		5,888		$		5,541		$	7,732		$	10,349
Comprehensive income	$	4,790		$	5,760
Other comprehensive income:
Net income per common share - basic	$	0.29		$	0.35
Foreign currency translation adjustments	97				80				184			62
Net income per common share - diluted	$	0.29		$	0.35
Comprehensive income	$		5,985		$		5,621		$	7,916		$	10,411
Weighted average shares of common stock outstanding - basic	16,359			16,403
Weighted average shares of common stock outstanding - diluted	16,638			16,629

See accompanying Notes to Consolidated Financial Statements.

FTD, ~~Inc~~INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

	Three Months Ended September 30,
	Six Months Ended
	2003			2002
	December 31,
	2004			2003
				Predecessor
Cash flows from operating activities:
Net income	$	47,~~808~~732		$	510,~~810~~349
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	25,~~008~~615			14,~~829~~021
Deferred compensation expense	57—			~~420~~36
Amortization and write off of deferred financing costs and original issue discount	60			82
Amortization of deferred financing costs	669			121
Provision for doubtful accounts	~~787~~1,971			~~807~~1,562
Deferred income taxes	19			4,121
Increase (decrease) in cash due to change in assets and liabilities, net of acquisition:
Increase (decrease) in cash due to change in assets and liabilities, net of acquisitions:
Accounts receivable	(6,574		)	(7,301		)
Restricted cash	—			1,400
Inventories	(1,952		)	(420		)
Accounts receivable	(7,503		)	(14,662		)
Prepaid expenses and other	3,281			(3,158		)
Inventories	(236		)	(202		)
Other noncurrent assets	(257		)	106
Prepaid expenses and other	(613		)	(2,633		)
Accounts payable	10,696			12,616
Other noncurrent assets	(72		)	(1,099		)
Other accrued liabilities, unearned income, customer deposits and other	339			1,231
Accounts payable	(6,687		)	(4,944		)
Net cash provided by operating activities	21,520			19,163
Other accrued liabilities, unearned income, and customer deposits	275			(2,319		)
Net cash used in operating activities	(7,097		)	(11,390		)
Cash flows from investing activities:
Acquisitions	—			(4,703		)
Capital expenditures	(1,906		)	(3,389		)
Expenditures related to the 2002 Merger	—			(87		)
Acquisition (see Note 4)	(3,129		)	—
Capital expenditures	(1,179		)	(53		)
Net cash used in investing activities	(5,035		)	(3,389		)
Decrease in officer notes receivable	—			48
Net cash used in investing activities	(1,179		)	(4,795		)
Cash flows from financing activities:
Net proceeds from (repayments of) revolving credit facility	9,000			(7,650		)
Repayments of long-term debt	(425		)	—
Deferred financing costs	—			(188		)
Issuance of treasury stock	—			18
Proceeds from exercise of stock options	17			75
Capital contribution	747			—
Repurchase of treasury stock	—			(2,633		)
Net repayments of revolving credit facility	—			(6,500		)
Net cash provided by (used in) financing activities	~~9,017~~322			(106,~~396~~482		)
Effect of foreign exchange rate changes on cash	~~(18~~184		)	~~(50~~62		)
Net increase (decrease) in cash and cash equivalents	723			(26,631		)
Net increase in cash and cash equivalents	16,991			9,354
Cash and cash equivalents at beginning of period	12,~~921~~491			361,~~410~~921
Cash and cash equivalents at end of period	$	219,~~644~~482		$	911,~~779~~275
Supplemental disclosures of cash flow information
Cash paid for:
Interest	$	~~162~~9,075		$	~~554~~316
Income taxes	$	~~971~~21		$	~~650~~7,324

See accompanying Notes to Consolidated Financial Statements.

FTD, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

Note 1. Description of Business

FTD, Inc. (the ~~“Registrant”~~ ~~or the~~ “Company”) is a Delaware corporation that commenced operations in 1994. As used in the Notes to ~~the~~ Consolidated Financial Statements, the ~~terms~~term the “~~Registrant” or the “~~Company” ~~refer~~refers to FTD, Inc., including its wholly-owned subsidiary, Florists’ Transworld Delivery, Inc., a Michigan corporation (“FTD” or the “Operating Company”). The operations of FTD, the Company’s principal operating subsidiary, include those of its wholly-owned subsidiaries, FTD.COM INC. (“FTD.COM”) and Florists’ Transworld Delivery Association of Canada, Ltd., and its indirect wholly-owned subsidiary, Renaissance Greeting Cards, Inc. (“Renaissance”). Substantially all of the Company’s operations are conducted through FTD and its subsidiaries.

On February 24, 2004, the Company completed a going private transaction with an affiliate of Leonard Green & Partners, L.P. In the transaction, Nectar Merger Corporation, which was a wholly-owned subsidiary of FTD Group, Inc., formerly known as Mercury Man Holdings Corporation, merged with and into FTD, Inc. with FTD, Inc. continuing as the surviving corporation (the “2004 Going Private Transaction”). As a result of the 2004 Going Private Transaction, the Company ceased to have its equity publicly traded and became a wholly-owned subsidiary of FTD Group, Inc. (the “Parent”), an affiliate of Green Equity Investors IV, L.P., a private investment fund affiliated with Leonard Green & Partners, L.P. See Note 3 for further details. The results of operations presented herein for all periods prior to the 2004 Going Private Transaction are referred to as the results of operations of the “Predecessor.”

On November 23, 2004, the Parent filed a registration statement with the Securities and Exchange Commission, (the “SEC”) on Form S-1 (Registration No. 333-120723), which was amended on January 7, 2005, January 21, 2005 and January 27, 2005, relating to an initial public offering of the Parent’s common stock. The registration statement has not yet been declared effective by the SEC. See Note 13 for further details.

Note 2. Basis of Presentation

The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission, and do not contain all information included in the audited consolidated financial statements and notes thereto for the fiscal year ended June 30, ~~2003~~2004. The interim unaudited consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K, ~~as amended,~~ for the fiscal year ended June 30, ~~2003~~2004. The accompanying consolidated financial statements include the Predecessor’s operations prior to the 2004 Going Private Transaction. In the opinion of management, the information furnished herein reflects all adjustments (consisting only of normal, recurring adjustments) necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods presented.

~~Certain amounts in~~Note ~~the~~3. 2004 ~~consolidated~~Going ~~statement~~Private ~~of cash flows for the three-month period ended September 30, 2002 have been reclassified to conform to the current period presentation.~~Transaction

~~Note~~On 3February 24, 2004, the Company completed the 2004 Going Private Transaction with an affiliate of Leonard Green & Partners, L.P. for $422.0 million, which excludes $23.4 million of fees that were expensed by the Predecessor as a component of corporate general and administrative expenses. ~~Acquisitions~~Upon consummation of the 2004 Going Private Transaction, each issued and outstanding share of FTD, Inc. common stock, other than treasury shares and shares owned by the Parent, which were retired, was cancelled and converted automatically into the right to receive $24.85 per share in cash.

OnThe ~~July~~transaction was ~~18,~~financed ~~2002, FTD~~by a $145.~~COM~~4 ~~completed~~million investment in the ~~acquisition~~preferred stock of ~~substantially~~the Parent ~~all~~and a $40.0 million investment in the common stock of the ~~operating~~Parent ~~assets~~by ofGreen ~~Flowers~~Equity ~~Direct~~Investors IV, L.P., an affiliate of Leonard Green & Partners, L.P., ~~(“Flowers~~and ~~Direct”)~~certain ~~pursuant~~members toof the Company’s senior management at the time of the transaction, including $0.9 million in the form of an ~~asset~~exchange ~~purchase~~of a portion of ~~agreement~~management’s byownership ~~and~~in ~~among~~the ~~Flowers~~Predecessor’s ~~Direct~~common stock, ~~E-Service~~the ~~Holdings,~~proceeds ~~LLC,~~from ~~Express~~the ~~Worldwide~~issuance ~~Florist,~~of ~~Inc~~$175.0 ~~and~~million ~~FTD.COM~~in senior subordinated notes due 2014 (the “~~Flowers Direct Agreement~~Notes”)~~. Flowers~~ and ~~Direct~~borrowings ~~was~~under a ~~direct~~new ~~marketer~~$135.0 ofmillion senior secured credit facility, ~~flowers~~comprised ~~and~~of ~~specialty~~an ~~gifts~~$85.0 million

Pursuant to the terms of the Flowers Direct Agreement, the purchase price for the assets acquired was $4.7 million, which was funded from the Company’s existing cash balances. Additionally, the Company incurred acquisition costs of $0.2 million. The assets acquired primarily consisted of Flowers Direct’s customer list, valued at $0.2 million, and goodwill of $4.7 million.

On October 2, 2002, FTD.COM completed the acquisition of the outstanding stock of A.F.E. Inc. (doing business as Flowers USA) (“Flowers USA”), now known as Flowers USA, Inc., pursuant to an agreement and plan of merger by and among FTD.COM, A.F.E. Acquisition Corp., A.F.E. Inc. and David M. Adams, as sole shareholder of A.F.E. Inc. (the “Flowers USA Agreement”). Flowers USA was a direct marketer of flowers and specialty gifts.

Pursuant to the terms of the Flowers USA Agreement, the purchase price of the acquisition was $7.7 million. Initially, $8.0 million was funded from the Company’s existing cash balances, of which $0.3 million was later paid to the Company by the seller in connection with working capital adjustments under the Flowers USA Agreement. In addition, the Company incurred acquisition costs of $0.1 million. The assets acquired primarily consisted of Flowers USA’s customer list, valued at $0.4 million, and goodwill of $7.7 million, in addition to net liabilities assumed of $0.3 million.

The results of operations of Flowers Direct and Flowers USA since the respective transaction closing dates are

~~included~~senior insecured ~~the Company’s~~term ~~consolidated~~loan ~~financial~~facility ~~statements. The~~and ~~Company~~a ~~accounted~~$50.0 ~~for~~million revolving ~~these~~credit ~~acquisitions~~facility. The ~~using the purchase method~~revolving ofcredit ~~accounting;~~facility ~~accordingly,~~was ~~the~~undrawn ~~Company’s~~at ~~financial statements reflect~~ the ~~allocation~~ closing of the ~~total~~2004 ~~purchase~~Going ~~price~~Private ~~to the net tangible and intangible assets acquired, based on their respective fair values~~Transaction.

InThe ~~accordance with~~Company ~~the~~accounted ~~provisions~~for ~~of SFAS No. 142,~~ the ~~$4.7~~2004 ~~million~~Going ~~and~~Private ~~$7.7~~Transaction ~~million~~using ~~in goodwill acquired in~~ the ~~Flowers~~purchase ~~Direct~~method ~~and Flowers USA acquisitions, respectively, will~~of ~~not be amortized but will be tested for impairment at least annually~~accounting. ~~Additionally,~~The ~~the~~purchase ~~customer~~price ~~lists will be~~was ~~amortized~~allocated ~~over~~to ~~five years. For tax purposes,~~ the ~~goodwill~~assets ~~related~~acquired toand the ~~Flowers~~liabilities ~~Direct~~assumed ~~asset~~as ~~acquisition~~follows is(in ~~expected to be deductible. The pro forma impact of these acquisitions is not material to the Company’s consolidated financial~~ thousands):

statements included in this report.

Assets:
Cash	$	353
Accounts receivable	30,995
Inventories	9,957
Deferred income taxes	3,827
Prepaid expenses and other	10,916
Property and equipment	20,303
Other noncurrent assets	17,840
Customer list	12,507
Trademarks	121,577
Goodwill	337,196
Total assets acquired	$	565,471

Liabilities:
Accounts payable	$	58,942
Customer deposits	5,677
Unearned income	1,828
Other accrued liabilities	16,685
Post-retirement benefits and accrued pension obligations	2,721
Deferred tax liability	57,632
Total liabilities assumed	143,485
Net assets acquired	$	421,986

In addition, pursuant to the terms of the Settlement Agreement relating to the FTD.COM securities litigation (see Note 410), the Company is obligated to pay $7.3 million in cash, which payment is anticipated to be made later in fiscal year 2005. ~~Revenues~~Pursuant ~~from~~to ~~Sale~~the terms of ~~Floral~~the ~~Selections~~new senior ~~Guide~~credit facility, $7.3 million was placed into an escrow account at the consummation of the 2004 Going Private Transaction to fund this obligation and is not reflected in the allocation shown above.

AsIn aaccordance ~~condition of~~with ~~FTD~~the ~~affiliation,~~provisions ~~all~~of ~~FTD~~Statement ~~florists~~of ~~must~~Financial ~~purchase~~Accounting aStandards ~~Floral~~(“SFAS”) ~~Selections~~No. ~~Guide~~142, Goodwill and ~~related~~ ~~workbook~~Other ~~every~~Intangible ~~two years or upon initial membership. The purchase of the Floral Selections Guide~~Assets, ~~entitles~~ the ~~FTD~~$337.2 ~~florist~~million toin agoodwill ~~non-exclusive,~~recorded ~~non-transferable~~as ~~right~~part ~~for on-premise use~~ of the ~~Floral~~2004 ~~Selections~~Going ~~Guide~~Private ~~for as long as the purchaser~~Transaction ~~remains~~will annot ~~FTD~~be ~~florist~~amortized inand ~~good~~will ~~standing. There~~be ~~are~~tested nofor ~~refund~~impairment ~~provisions~~at ~~associated~~least ~~with~~annually. The ~~the~~goodwill ~~purchase~~is ofnot ~~the Floral~~deductible ~~Selections~~for ~~Guide~~tax purposes. ~~Historically,~~The ~~the Company~~primary ~~has~~reasons ~~provided~~for dethe 2004 ~~minimis~~Going ~~refunds~~Private inTransaction ~~isolated cases~~ and ~~has recorded revenue at~~ the ~~time~~primary offactors ~~shipment~~that ~~resulting~~contributed ~~in revenue related~~ to ~~the Floral~~a ~~Selections~~purchase ~~Guide~~price ~~during~~that ~~the~~resulted ~~three-month~~in ~~period~~recognition ~~ended September 30, 2002~~ of ~~$4.9 million.~~goodwill include:

~~Beginning in~~• The ~~fiscal~~Company’s ~~year~~brand ~~2004, new members are charged a monthly fee~~ and ~~beginning~~its ~~with~~prominent ~~the distribution~~market ofposition ~~the next biannual Floral Selections Guide~~ in ~~fiscal~~both ~~year 2005, all members will be charged a monthly fee for~~ the ~~use~~consumer ~~of the Floral Selections~~retail ~~Guide~~market ~~while~~and ~~they~~the ~~are~~floral anservice ~~active~~provider ~~member. As such~~market, ~~revenues~~which ~~are~~offer ~~recorded on~~ a ~~monthly basis consistent with the~~competitive ~~monthly~~advantage ~~fee~~in ~~charged. During~~obtaining ~~the three-month~~new ~~period ended September 30, 2003, there was $20,000 of revenue related to the Floral Selections Guide.~~customers;

~~Note~~• The Company’s 5.participation ~~Earnings~~and ~~Per~~extensive ~~Share~~membership base in the floral wire-service market, which has significant barriers to entry with respect to clearinghouse services, the largest component of Member Services revenues within the florist business segment; and

• The Company’s ~~computations~~diverse ofcustomer ~~basic~~base, ~~and~~which ~~diluted~~minimizes ~~earnings per share for~~ the ~~three-month~~potential ~~periods~~impact ~~ended~~of volatility ~~September~~from ~~30,~~any ~~2003~~one ~~and 2002 are as follows:~~customer.

	Three Months Ended September 30,
	2003		2002
	(in thousands, except per share data)
Net income	$	4,808	$	5,810
Weighted average basic shares of Common Stock outstanding	16,359		16,403
Effect of dilutive securities:
Unvested restricted shares of Class A Common Stock	32		154
Options to purchase shares of Class A Common Stock	247		72
Weighted average diluted shares of Common Stock outstanding	16,638		16,629
Basic net income per share of Common Stock	$	0.29	$	0.35
Diluted net income per share of Common Stock	$	0.29	$	0.35

The unaudited pro forma results of operations data for the three- and six-month periods ended December 31, 2003, as if the 2004 Going Private Transaction had occurred on July 1, 2003, are as follows (in thousands):

Shares associated with options to purchase shares of Class A Common Stock that were not included in the calculation of diluted earnings per share because their inclusion would have been anti-dilutive consisted of 17,200 shares and 82,400 shares for the three-month periods ended September 30, 2003 and 2002, respectively.

	Three Months		Six Months
	Ended		Ended
	December 31,		December 31,
	2003		2003

Total revenues	$	96,795	$	170,371

Income from operations	$	8,215	$	15,774

Net income	$	3,653	$	5,340

The above results may not be representative of future periods.

Note 4. Acquisition

On December 19, 2004, FTD.COM completed the acquisition of certain assets of The Flower Concierge, Inc. (doing business as Florist.com) (“Flower Concierge”), pursuant to an asset purchase agreement by and among FTD.COM, Flower Concierge and Aron and Celina Benon (the “Flower Concierge Agreement”). Flower Concierge was a direct marketer of flowers and specialty gifts.

Pursuant to the terms of the Flower Concierge Agreement, the purchase price for the assets acquired was $8.5 million, including $0.2 million of acquisition costs, $5.3 million of which was funded through a promissory note, which accrued interest at 6.0% and was paid in full on January 3, 2005, with the remainder funded from existing cash balances. The assets acquired primarily consisted of Flower Concierge’s Web site, www.florist.com, valued at $7.8 million, a customer list, non-compete agreements and $0.2 million of goodwill.

The results of operations associated with the purchase of certain assets of Flower Concierge since the closing date are included in the consolidated financial statements and were accounted for using the purchase method of accounting. Accordingly, the financial statements reflect the allocation of the total purchase price to the net intangible assets acquired, based on their respective fair values. Pro forma financial information related to this acquisition has not been included herein as the operating results of Flower Concierge are not considered material to the Company’s operating results.

Note 5. Revenues from Sale of Floral Selections Guide

As a condition of FTD membership, all FTD florists must purchase a Floral Selections Guide and related workbook. Historically, the Company recognized revenue related to the sale of the Floral Selections Guide in the month that it was shipped to the florist, which had been every two years or upon initial membership. The purchase of the Floral Selections Guide entitles the FTD florist to a non-exclusive, non-transferable right for on-premise use of the Floral Selections Guide for as long as the purchaser remains an FTD florist in good standing. There are no refund provisions associated with the purchase of the Floral Selections Guide. Historically, the Company has provided de minimis refunds in isolated cases. Beginning in fiscal year 2004, new FTD members were charged a monthly fee, and beginning with the distribution of the Floral Selections Guide in fiscal year 2005, all FTD members are charged a monthly fee for the use of the Floral Selections Guide while an active FTD member. Revenue from the sales of the Floral Selections Guide during the three-month periods ended December 31, 2004 and 2003 was $0.8 million and $31,000, respectively. For the six-month periods ended December 31, 2004 and 2003, revenue from the sales of the Floral Selections Guide was $1.3 million and $51,000, respectively.

Note 6. Financing Arrangements

OnLong-term ~~September~~debt ~~27, 2002,~~consists ~~the Company and FTD entered into an Amended and Restated Credit Agreement with Harris Trust and Savings Bank, as Administrative Agent, which amended and restated the credit agreement dated as~~ of ~~September 27, 2001 by and among~~ the ~~Company,~~ ~~FTD~~following ~~and Harris Trust and Savings Bank, as Administrative Agent~~ (~~the~~in ~~“2001 Credit Agreement”~~thousands) and was amended as of July 31, 2003 (the “2002 Amended Credit Agreement”). The 2002 Amended Credit Agreement includes a revolving credit commitment of $75.0 million. Under the terms of the 2002 Amended Credit Agreement, borrowings are subject to a variable interest rate based on the prime commercial rate or the London Interbank Offered Rate (“LIBOR”).:

The 2002 Amended Credit Agreement includes covenants, which, among other things, require that the Company maintain a total funded debt to earnings before interest, taxes, depreciation and amortization (“EBITDA”) ratio at the end of any fiscal quarter of no greater than 2.5 to 1.0 and a fixed charge coverage ratio of not less than 2.0 to 1.0 if total funded debt is equal to or greater than $25.0 million and 1.75 to 1.0 if total funded debt is less than $25.0 million. In addition, the Company is required to maintain a minimum level of consolidated net worth of $90.0 million plus 50% of net income for each fiscal quarter of the Company beginning in the quarter ended September 30, 2002, for which net income is a positive amount, plus 100% of the net cash proceeds received from the Company’s and any of its subsidiaries’ issuances of equity securities. The Company was in compliance with all debt covenants as of September 30, 2003.

	As of			As of
	December 31,			June 30,
	2004			2004
7.75% senior subordinated notes	$	175,000		$	175,000
Senior secured credit facility:
Term loan	84,363			84,788
Revolving credit facility	—			—
Total debt	259,363			259,788
Less: current portion	(850		)	(850		)
Long-term debt	$	258,513		$	258,938

The 2002 Amended Credit Agreement imposes various restrictions on the Company, including restrictions that limit the Company’s and its subsidiaries’ ability to incur additional debt, make certain payments or investments, consummate asset sales, incur liens, merge, consolidate or dispose of substantial assets, among other restrictions$135. ~~The~~0 ~~2002~~million ~~Amended~~Senior ~~Credit~~Secured Agreement also includes restrictions that limit the ability of the Company’s subsidiaries to pay dividends. In addition, substantially all of the assets of the Company are pledged as security under the 2002 Amended Credit ~~Agreement.~~Facility

~~The~~In ~~outstanding~~connection ~~debt~~with the ~~balance~~consummation of ~~$15.5~~the ~~million~~2004 ~~at September~~Going 30Private Transaction, ~~2003~~the ~~was~~Company ~~classified~~terminated its asthen ~~long-term~~existing ~~debt. As~~senior secured credit facility and entered into a new senior secured credit facility (the “2004 Credit Agreement”) with a syndicate of financial ~~September~~institutions, 30including Credit Suisse First Boston, ~~2003~~acting through its Cayman Islands Branch, noas ~~repayments~~administrative ofagent, ~~the~~UBS ~~debt~~Securities ~~outstanding~~LLC, as syndication agent, and Wells Fargo Bank, N.A., as documentation agent. Borrowings under the ~~2002~~2004 ~~Amended~~ Credit Agreement are ~~required~~secured ~~prior~~by tofirst ~~December~~priority 31security interest in, ~~2005,~~ atand ~~which~~mortgages ~~time~~on, substantially ~~the~~all ~~outstanding~~of ~~balance~~the isCompany’s ~~due~~tangible inand ~~full~~intangible assets.

AsThe a2004 ~~result~~Credit Agreement ofprovides ~~entering~~for ~~into~~aggregate ~~the~~borrowings ~~2002~~of ~~Amended~~up ~~Credit Agreement~~to $135.0 million and consists ~~the~~of ~~2001~~a ~~Credit~~five-year ~~Agreement,~~$50.0 ~~the~~million ~~Company~~revolving ~~recorded~~credit facility and a seven-year $185.10 million ofterm loan. A ~~deferred~~portion ~~financing~~of ~~costs,~~the ~~which~~revolving ~~are~~credit ~~being~~facility ~~amortized~~is ~~straight~~available as a letter of credit sub-facility and as a swing-line ~~over~~facility. Borrowings under the revolving credit facility are used to finance ~~underlying~~working ~~term~~capital, capital expenditures, acquisitions, certain expenses associated with the bank credit facilities and letter of credit needs. At December 31, 2004, the ~~2002~~revolving ~~Amended~~credit facility ~~Credit~~included ~~Agreement~~$1.8 million in letters of credit outstanding and had availability of $48.2 million.

~~The~~Borrowings ~~Company~~under the is2004 ~~exposed~~Credit toAgreement ~~various~~generally ~~market~~bear ~~risks,~~interest ~~which primarily~~based ~~consist~~on ofa ~~interest~~margin ~~rate~~over, ~~risk.~~ at ~~The~~the Company’s ~~policy~~option, iseither tothe ~~utilize~~base ~~derivative~~rate ~~instruments~~(generally inthe anapplicable ~~effort~~prime tolending ~~hedge~~rate ~~its~~of ~~underlying~~Credit ~~economic~~Suisse ~~exposure~~First ~~and~~Boston, as announced from time to ~~manage~~time) ~~these~~or the ~~instruments~~London ~~with~~Interbank Offered Rate (“LIBOR”). The applicable margin for borrowings under the ~~objective~~2004 toCredit ~~reduce~~Agreement varies ~~its~~based ~~exposure~~upon tothe ~~changes~~Company’s Consolidated Leverage Ratio, as defined in ~~interest~~the 2004 ~~rates~~Credit Agreement, which was amended on November 15, 2004 to ~~the~~reduce ~~extent~~the ~~deemed~~margins ~~appropriate~~on bythe ~~management~~term loan. The 2004 Credit Agreement requires the Company ~~does~~to ~~not~~pay ~~use~~commitment ~~derivative~~fees ~~instruments~~on ~~for~~the ~~trading~~unused portion ~~purposes~~of the revolving credit facility, which vary based on the utilization of the revolving credit facility.

The ~~Company~~2004 ~~entered~~Credit Agreement ~~into~~includes ~~interest~~covenants ~~rate~~that, ~~cap~~among ~~agreements on~~other ~~December~~things, 5require that, ~~2001~~as toof December ~~reduce~~31, 2004, the ~~impact~~Company maintain a ratio of ~~potential~~consolidated ~~increases~~earnings onbefore interest, ~~floating~~taxes, depreciation and amortization (subject to certain adjustments) ~~rate~~to ~~debt. The~~consolidated interest ~~rate~~expense ~~caps provide~~of ~~the~~no ~~Company~~less ~~with~~than 2.10 to 1.00, a ~~cap~~fixed ~~rate~~charge coverage ratio of 5no less than 1.0%45 onto 1.00 and a ~~maximum~~consolidated ofleverage ~~$20~~ratio not to exceed 5.075 ~~million~~to as1.00. The ofCompany ~~September~~was ~~30,~~in ~~2003,~~compliance ~~and~~with ~~are~~all ~~effective~~debt ~~through~~covenants as of December 31, ~~2003. Due~~2004, after giving effect to ~~decreases~~a inwaiver ~~market~~received ~~value~~on January 20, 2005 related to the promissory note ~~carrying~~issued ~~value~~in atconnection ~~September~~with ~~30,~~the ~~2003~~acquisition ~~was~~of ~~zero~~certain assets of The Flower Concierge, ~~which~~Inc. Debt ~~approximates~~covenant ~~fair~~targets are ~~value~~adjusted quarterly in accordance with the terms of the 2004 Credit Agreement.

~~Note~~The ~~7. Related~~2004 ~~Party~~Credit ~~Transactions~~Agreement imposes various restrictions on the Company, including restrictions that limit the Company’s ability to incur liens or encumbrances, make investments or acquisitions, incur additional debt, enter into sale leaseback transactions, incur certain contingent liabilities, make certain restricted junior payments and other similar distributions, enter into mergers, consolidations and similar combinations, sell assets or engage in similar transfers, amend certain material agreements, including the indenture governing the Notes, make capital expenditures and engage in transactions with affiliates.

The Company incurred expenses of $0.5 million for the three-month periods ended September 30, 2003 and 2002, related to the payment for management, financial and other corporate advisory services and expenses to parties related to each of Perry Acquisition Partners, L.P., Bain Capital Investors LLC and Fleet Growth Resources III, Inc., which are stockholders or affiliates of the Company. The Company’s management consulting services agreement

that it entered into with these parties requires payments aggregating $2.0 million each fiscal year plus reimbursement of reasonable out-of-pocket expenses continuing through June 30, 2005.

At September 30, 2002, the Company had loans receivable from various current and former officers of the Company of $0.2 million with terms of four years, principal due at maturity in 2005, and interest rates ranging from 6.5% to 8.5% per annum. At September 30, 2003, there were no loans outstanding from current or former officers of the Company.

Note 8. Stock Awards and Incentive Plans

The Company’s 2002 Long-Term Equity Incentive Plan (the “2002 Equity Incentive Plan”) provides for the issuance of up to 1,250,000 shares of Class A Common Stock in connection with the granting of incentive or non-qualified stock options, stock appreciation rights (“SARs”), either alone or in tandem with options, restricted stock, performance awards, or any combination of the foregoing.

To date, the Company has not granted any SARs, limited stock appreciation rights, deferred shares, or performance awards under the 2002 Equity Incentive Plan.

Outstanding nonqualified stock options are exercisable during a ten-year period beginning one to five years after the date of grant. All currently outstanding options were granted with an exercise price equal to either the fair market value on the date of grant or the optionee’s first date of employment with the Company.

The Company would have recognized additional compensation expense, net of taxes, of $189,000 and $11,000 related to the Company’s options in the three-month periods ended September 30, 2003 and 2002, respectively, if the estimated costs of the outstanding granted stock options of the Company and FTD.COM had been recorded in the Company’s consolidated financial statements. As such, the Company’s net income and earnings per share would have been reduced to the pro forma amounts shown in the table below (the pro forma disclosures shown are not representative of the future effects on net income and earnings per share):

	Three Months Ended September 30,
	2003			2002
Net income, as reported	$	4,808		$	5,810
Add: stock-based employee compensation expense included in net income, as reported, net of related tax effects	9			9
Deduct: total stock-based employee compensation expense determined under fair value method for all awards, net of related tax effects	(198		)	(20		)
Pro forma net income	$	4,619		$	5,799
Net income per common share, as reported:
Basic	$	0.29		$	0.35
Diluted	$	0.29		$	0.35
Pro forma net income per common share:
Basic	$	0.28		$	0.35
Diluted	$	0.28		$	0.35

The Company’s options granted in fiscal year 2003 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.

The Company did not grant any restricted stock or stock options in the first quarter of fiscal year 2003 or 2002. The Company recognized compensation expense related to restricted stock and stock options in general and administrative expenses of $57,000 and $420,000 for the three-month periods ended September 30, 2003 and 2002, respectively.

No FTD, Inc. restricted shares were canceled during the first quarter of fiscal year 2004 or 2003.

~~Note~~There 9was $84.4 million ~~Capital~~of ~~Transactions~~outstanding debt at December 31, 2004 under the 2004 Credit Agreement. The Company is permitted to voluntarily repay principal amounts outstanding or reduce commitments under the 2004 Credit Agreement at any time, in whole or in part, without premium or penalty, upon the giving of proper notice and subject to minimum amount requirements. In addition, subject to certain exceptions, the Company is required to prepay outstanding amounts under the 2004 Credit Agreement with a portion of its excess cash flow, the net proceeds of certain asset dispositions, casualty insurance and condemnation recovery events and upon the issuance of certain equity securities or indebtedness. The term loan is due in annual installments of $850,000 per year with the remaining balance due at maturity.

~~During~~As ~~the three-month~~a ~~period~~result ~~ended~~of ~~September~~entering ~~30,~~into ~~2003,~~ the ~~Company~~2004 ~~did not repurchase any~~Credit ~~shares~~Agreement, ofas ~~Class~~amended, Athe ~~Common Stock into treasury. The~~ Company ~~repurchased~~recorded ~~into treasury 54,000 shares of Class A Common Stock at an approximate cost of~~ $04.72 million ~~during~~of ~~the~~deferred ~~three-month period~~financing ~~ended~~costs, ~~September~~which ~~30,~~have ~~2002. In~~been ~~addition~~allocated, ~~during~~ ~~the~~pro ~~three-month period ended September 30~~rata, ~~2002,~~to the ~~Company~~five-year ~~paid~~revolving ~~$2.0~~credit ~~million~~facility ~~related~~and tothe ~~certain~~seven-year ~~treasury~~term ~~stock~~loan ~~repurchases~~and ~~made~~are atbeing ~~the~~amortized ~~end~~straight-line, ~~of fiscal~~which ~~year~~approximates ~~2002~~the ~~that~~effective ~~were~~interest ~~payable~~method, asover ofthe ~~June~~respective ~~30, 2002~~terms.

$175.0 million 7.75% Senior Subordinated Notes due 2014

On February 6, 2004, Nectar Merger Corporation completed the issuance and sale of $175.0 million in aggregate principal amount of 7.75% senior subordinated notes. Upon consummation of the 2004 Going Private Transaction, the Company assumed Nectar Merger Corporation’s obligations under the Notes. The Notes mature on February 15, 2014, and interest is payable on February 15 and August 15 of each year. The proceeds from the issuance of the Notes were used to finance the 2004 Going Private Transaction.

The Notes are unsecured, senior subordinated obligations, ranking junior in right of payment to all of the Company’s existing and future senior indebtedness and equal in right of payment to all of the Company’s existing and future senior subordinated indebtedness. The Notes rank senior in right of payment to all of the Company’s existing and future senior subordinated indebtedness and are unconditionally guaranteed by the Company’s subsidiary guarantors on a senior subordinated basis.

The indenture governing the Notes provides for certain limitations on the Company’s ability to incur additional indebtedness, issue disqualified capital stock, make restricted payments, permit restrictions on dividends or other payment restrictions affecting subsidiaries, layer indebtedness, enter into liens securing indebtedness, enter into transactions with affiliates, enter into certain merger, sale or consolidation transactions and release guarantors.

As a result of issuing the Notes, the Company recorded $6.7 million of deferred financing costs, which are being amortized straight-line, which approximates the effective interest method, over the ten-year term of the Notes.

Note 7. Pension and Other Post Retirement Benefit Plans

Components of Net Periodic Benefit Cost

	Salaried Employees’ Pension Plan
	Three Months Ended						Six Months Ended
	December 31,						December 31,
	2004			2003			2004			2003
				Predecessor						Predecessor
				(in thousands)
Interest cost	$	31		$	32		$	63		$	64
Expected return on assets	(20		)	(23		)	(40		)	(46		)
Net periodic benefit cost	$	11		$	9		$	23		$	18

	Retiree Medical Plan
	Three Months Ended					Six Months Ended
	December 31,					December 31,
	2004		2003			2004		2003
			Predecessor					Predecessor
			(in thousands)
Interest cost	$	23	$	—		$	47	$	—
Amortization of gain	—		(48		)	—		(96		)
Net periodic benefit cost (income)	$	23	$	(48	)	$	47	$	(96	)

Note 8. Related Party Transactions

For the three- and six-month periods ended December 31, 2003, the Predecessor incurred expenses of $0.5 million and $1.0 million related to the payment for management, financial and other corporate advisory services and expenses to parties related to each of Perry Acquisition Partners, L.P., Bain Capital Investors LLC and Fleet Growth Resources III, Inc., which were stockholders or affiliates of the Predecessor. The Predecessor’s management consulting services agreement with these parties required payments aggregating $2.0 million each fiscal year plus reimbursement of reasonable out-of-pocket expenses. The management consulting services agreement with the above listed parties terminated upon the consummation of the 2004 Going Private Transaction.

In connection with the 2004 Going Private Transaction, the Company entered into a management services agreement (the “MSA”) with Leonard Green & Partners, L.P. Under the MSA, Leonard Green & Partners, L.P. provides management, consulting and financial planning services in exchange for an annual management fee of $2.0 million, payable in equal monthly installments commencing in March 2004. Payment of the management fees on any monthly payment date is contingent upon the Company achieving Consolidated EBITDA, as defined in the indenture governing the Notes, equal to or greater than $46.8 million for the last consecutive twelve-month period ended immediately prior to that payment date. In the event any portion of the management fee is not so paid, such amount will accrue and become due and payable in the next month when the targeted Consolidated EBITDA is obtained. The MSA has a ten-year term, which extends automatically on each anniversary of the agreement for one additional year unless either party gives prior notice that the term will not be extended. For the three- and six-month periods ended December 31, 2004, the Company incurred expenses of $0.5 million and $1.0 million related to the MSA with Leonard Green & Partners, L.P.

In addition, the MSA provides for the payment to Leonard Green & Partners, L.P. of customary fees for services provided in connection with major transactions, reimbursement for reasonable out-of-pocket expenses and a closing fee of $7.0 million, which was paid upon consummation of the 2004 Going Private Transaction. On November 23, 2004, the Parent filed a registration statement with the SEC, relating to the initial public offering of the Parent’s common stock. In the event of a public offering, the MSA will be terminated in consideration of a lump sum payment by the Company to Leonard Green & Partners, L.P. of $12.5 million in accordance with the MSA.

On September 30, 2004, the Parent sold 826,667 shares of class A common stock of the Parent to certain members of the Company’s management for cash consideration of $826,667, which represented fair market value on the date of purchase. The Parent contributed $0.7 million of the cash proceeds to the Company and used the balance of the proceeds to repay an inter-company payable to the Company.

Note 9. Stock Awards and Incentive Plans

The Parent’s Stock Option Plan was adopted and approved by the Board of Directors on September 30, 2004, and provides for the issuance of up to 6,578,333 shares of common stock of the Parent in connection with the granting of incentive or non-qualified stock options.

On September 30, 2004, the Parent granted 6,298,333 options to various employees of the Company. Outstanding non-qualified stock options are exercisable during a ten-year period beginning one to seven years after the date of grant. All stock options were granted with an exercise price equal to the fair market value on the date of grant.

The Predecessor’s 2002 Long-Term Equity Incentive Plan (the “2002 Equity Incentive Plan”) provided for the issuance of up to 1,250,000 shares of Class A common stock, par value $0.01 per share, in connection with the

granting of incentive or non-qualified stock options, stock appreciation rights (“SARs”), either alone or in tandem with options, restricted stock, performance awards, or any combination of the foregoing. The Predecessor did not grant any SARs, limited stock appreciation rights, deferred shares, or performance awards under the 2002 Equity Incentive Plan. The Predecessor recognized a net gain of $21,000, which related to the forfeiture of restricted stock, and $36,000 of compensation expense related to restricted stock and stock options in the three- and six-month periods ended December 31, 2003, respectively. The 2002 Equity Incentive Plan was terminated in connection with the 2004 Going Private Transaction.

Outstanding nonqualified stock options issued by the Predecessor were exercisable during a ten-year period beginning one to five years after the date of grant. All options were granted with an exercise price equal to either the fair market value on the date of grant or the fair market value on the optionee’s first date of employment.

The Company and the Predecessor would have recognized additional compensation expense, net of taxes, of $94,000 and $151,000 related to the Company’s and the Predecessor’s options in the three-month periods ended December 31, 2004 and 2003, respectively, and $95,000 and $340,000 for the six-month periods ended December 31, 2004 and 2003, respectively, if the estimated fair value, as determined in accordance with FAS 123, Accounting for Stock-Based Compensation, of the outstanding stock options of the Company and the Predecessor had been recorded in the Company’s and the Predecessor’s consolidated financial statements. As such, the Company’s and the Predecessor’s net income would have been reduced to the pro forma amounts shown in the table below (the pro forma disclosures shown are not representative of the future effects on net income):

	Three Months Ended						Six Months Ended
	December 31,						December 31,
	2004			2003			2004			2003
				Predecessor						Predecessor
	(in thousands)						(in thousands)
Net income, as reported	$	5,888		$	5,541		$	7,732		$	10,349

Total stock-based employee compensation expense determined under fair value method for all awards, net of related tax effects	(94		)	(160		)	(95		)	(358		)

Stock-based employee compensation expense included in net income, as reported, net of related tax effects	—			9			—			18
Pro forma net income	$	5,794		$	5,390		$	7,637		$	10,009

The Parent’s options granted during the current fiscal year either vest equally each year over a five-year period or vest in full after a seven-year period unless certain performance acceleration targets are met. If the performance targets are met, the options that vest in full after 7 years, will accelerate and vest in one-third installments on June 30, 2005, June 30, 2006 and June 30, 2007. The Predecessor’s options granted during fiscal year 2003 vested equally each year over a three-year period from the date of grant. As a result, the estimated cost indicated above reflected only a partial vesting of such options. If full vesting were assumed, the estimated pro forma costs would have been higher than indicated above.

Note 10. Commitment and Contingencies

~~The~~In ~~Company~~March 2002, the Predecessor, FTD, FTD.COM and the directors of the ~~Company~~Predecessor and FTD.COM ~~have~~were ~~been~~ named as defendants in five class action lawsuits filed in ~~the Court of Chancery for New~~ ~~Castle County in~~ Wilmington, Delaware, bywhich ~~individual~~were ~~stockholders~~consolidated ofunder ~~FTD.COM~~the ~~on behalf~~name of“In ~~all~~RE ~~former public stockholders of~~ FTD.COM: ~~Frances Howland v~~Inc. Shareholders ~~FTD~~Litigation.~~COM~~” The ~~et al., Civil Action No. 19458~~class ~~NC;~~action ~~Johnathon~~lawsuits ~~Anderson~~made v.several ~~Richard Perry et al.~~allegations, ~~Civil~~including ~~Action~~that ~~No.~~insufficient ~~19459~~stock ~~NC; Stephen~~of ~~Gluck~~the v.Predecessor ~~Richard~~was C.exchanged ~~Perry,~~for ~~Civil Action No~~FTD.COM ~~19461~~stock ~~NC; Geoff Mott v. IOS Brands Corp., Civil Action No. 19468 NC;~~ and ~~Highwood~~breach ~~Partners, L.P.~~of v.fiduciary ~~IOS Brands Corp., Civil Action No. 19556 NC. These lawsuits were filed beginning on March~~duties 5,by ~~2002, after~~ the ~~press release announcing the 2002 Merger was issued~~directors. ~~The complaints generally make essentially the same allegations, namely that:~~

~~• the~~On ~~offer~~behalf byof all defendants, the ~~Company~~Predecessor tosettled ~~exchange~~the 0consolidated class action lawsuits.26 Such ~~shares~~settlement ofwas approved ~~Class~~by Athe ~~Common~~court ~~Stock~~and ~~for~~included ~~each~~no ~~share~~finding of ~~FTD.COM~~wrongdoing ~~common~~on ~~stock~~the ispart ~~inadequate~~of any of the defendants, or any other finding that the claims alleged had merit.

• the individual defendants breached the fiduciary duties they owed in their capacity as directors by, among other things, failing to conduct an auction or otherwise check the market value of FTD.COM before voting to accept the merger proposal,11

• Pursuant to the ~~Company~~Settlement Agreement, the Predecessor agreed to issue shares of Class A common stock valued at $10.7 million in full and ~~its~~final ~~board~~settlement of ~~directors~~the ~~prevented~~case. In connection with the settlement, the Predecessor recorded an $11.0 million ~~FTD~~charge in the fourth quarter of fiscal year 2003 with respect to the settlement which included costs related to issuing and distributing the settlement shares.~~COM~~ In ~~board~~November 2003, pursuant to the court approved Settlement Agreement, the Predecessor, on behalf of ~~directors~~all defendants, ~~from~~distributed ~~conducting~~139,493 shares of Class A common stock valued at $3.4 million as payment for a ~~meaningful~~portion ~~review~~of the $10.7 million settlement liability. Pursuant to the terms of the ~~transaction~~Settlement Agreement, ~~and~~the Company is obligated to pay the remaining $7.3 million in cash, which payment is anticipated to be made later in fiscal year 2005. Pursuant to the terms of the 2004 Credit Agreement, the Company placed $7.3 million into an escrow account at the consummation of the 2004 Going Private Transaction to fund this obligation.

~~• the~~The ~~Company~~Predecessor pursued claims against two of its insurance carriers, one that provided coverage to FTD and its directors and officers, and another that provided coverage to FTD.COM and ~~certain~~its ~~individual~~directors and officers. In the second quarter of fiscal year 2004, ~~defendants~~the ~~timed~~Predecessor recorded a gain of $1.5 million as a result of a settlement with the ~~2002~~insurance ~~Merger~~carrier that maintained a policy covering FTD and its directors and officers. The insurance carrier that maintained the policy covering FTD.COM and its directors and officers initiated litigation seeking to deny ~~public~~coverage ~~stockholders~~for the ~~full potential~~shareholder ~~increase~~lawsuits, inwhich were settled pursuant to the Settlement Agreement. The Company believes that FTD.COM’s ~~stock~~and ~~price~~the individual ~~following~~defendants are entitled to coverage and has filed responsive pleadings to that effect. Both parties have filed their respective motions for summary judgment, which have been fully briefed and are before the ~~2002~~court ~~Merger~~for a ruling. Any further recoveries relating to the settlement will be recorded as Other Income in the period realized.

~~The~~On ~~Company~~December ~~has~~30, 2003, ~~reached~~Teleflora anLLC ~~agreement~~(“Teleflora”) tofiled ~~settle~~a complaint against FTD in the U.S. ~~consolidated~~District ~~shareholder~~Court ~~class~~for ~~actions~~the ~~pending~~Northern District of California in ~~the~~San ~~Court~~Jose. The ofcomplaint ~~Chancery~~included ~~for~~principal ~~New~~allegations ~~Castle~~of ~~County~~misappropriation inof ~~Wilmington~~trade secrets, ~~Delaware~~copyright infringement, ~~titled~~unfair competition, ~~“In~~intentional Reinterference ~~FTD.COM,~~with ~~Inc.~~contracts ~~Shareholders~~and various counts of ~~Litigation~~fraud through unauthorized access to Teleflora software by FTD.” ATeleflora ~~Stipulation~~sought compensatory damages as well as punitive damages and injunctive relief. ~~Agreement~~FTD ofanswered ~~Compromise~~the complaint, ~~Settlement~~asserted affirmative defenses and ~~Release~~brought counterclaims ~~relating~~against toTeleflora, ~~this~~including ~~matter~~antitrust ~~has been~~claims ~~executed~~for ~~(the~~attempting ~~“Stipulation~~to ~~and~~monopolize the ~~Settlement~~wire ~~Agreement”)~~service market.

~~The~~Pursuant ~~terms~~to ofa settlement ~~the~~agreement ~~Stipulation~~ and ~~Settlement~~mutual ~~Agreement include~~release, noTeleflora ~~finding~~and ofFTD ~~wrongdoing~~dismissed ontheir respective ~~the~~claims ~~part~~with ofprejudice ~~any~~on ofJanuary ~~the defendants~~12, ~~or any other finding that the claims alleged had merit~~2005. ~~The~~Under ~~Stipulation and Settlement Agreement was approved by~~ the ~~Court~~ ~~on November 13~~agreement, ~~2003. The~~FTD ~~Company and~~can ~~the~~continue ~~other~~to ~~defendants~~use its ~~have~~existing ~~denied,~~wire ~~and~~service ~~continue~~interface to(which ~~deny,~~obtains ~~that~~information ~~they~~from ~~have~~Teleflora’s ~~committed~~Dove ~~any~~Foreign ~~violation~~System ofInterface ~~federal~~module) ~~securities~~with orits ~~other~~existing ~~laws~~wire service interface customers.

~~Pursuant~~In toaddition, the ~~Stipulation and Settlement Agreement, the~~ Company ~~has~~is ~~agreed~~involved toin ~~issue~~various ~~shares~~claims and oflawsuits ~~FTD,~~and ~~Inc.~~other ~~Class~~matters Aarising ~~Common~~in ~~Stock valued at $10.7 million to~~ the ~~members~~normal course of ~~the class~~business. In ~~connection with~~ the ~~settlement,~~opinion ~~the~~of ~~Company~~management ~~recorded~~of anthe ~~$11.0 million~~Company, ~~charge~~although in the ~~fourth~~outcome ~~quarter~~ of ~~fiscal~~these ~~year~~claims ~~2003 with respect to the settlement~~ and ~~related~~suits ~~administrative~~are ~~costs. As of September 30~~uncertain, ~~2003,~~they ~~the~~should ~~distribution of the settlement and related~~not ~~administrative~~have ~~costs~~a ~~has~~material ~~not~~adverse ~~been~~effect ~~approved~~on by the ~~Court~~Company’s offinancial ~~Chancery for New Castle County in Wilmington~~condition, ~~Delaware, and the consolidated balance sheet~~liquidity ~~reflects~~or ~~$11.0~~results ~~million~~ of ~~other accrued liabilities related to the fourth quarter of fiscal year 2003 charge~~operations.

~~There are two insurance policies relating to these matters, one covering the Company and its directors and officers and another covering FTD.COM and its directors and officers.~~ The Company ~~intends to aggressively~~also ~~pursue~~has ~~its~~a ~~claims~~one-year ~~under~~commitment ~~both~~with ofa ~~these~~distribution ~~insurance~~center ~~policies. Both~~facility ofin ~~the insurance carriers have~~Cincinnati, ~~initiated~~Ohio ~~litigation~~where ~~seeking to deny coverage for the shareholder lawsuits that are the subject of the settlement, while the Company believes that~~ it, ~~FTD.COM~~ stores and ~~the~~distributes ~~individual~~products ~~defendants~~for ~~are~~its ~~entitled~~florist tobusiness ~~coverage~~segment. ~~Any recoveries from the insurance providers relating to the settlement will be recorded as other income in the period realized.~~

In addition, the Company is involved in various lawsuits and other matters arising in the normal course of business. In the opinion of management of the Company, although the outcome 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.

Note 11. Segment Information

Operating segments are components of the Company’s business for which separate ~~financial~~ financial information is available that is regularly reviewed by the ~~enterprise’s~~ chief operating decision maker to make decisions about resources to be allocated to each segment and to assess its performance.

For purposes of managing the Company, management reviews segment financial performance to the operating income level for each of its reportable business segments. ~~As such~~Accordingly, interest income, interest ~~expense~~ expense and tax expense are recorded on a consolidated corporate basis.

The florist business segment includes all products and services sold to FTD member florists and other retail locations offering floral products, encompassing clearinghouse services, publishing products and services, technology sales and leases and specialty wholesaling product sales. The consumer business segment encompasses floral and specialty gift items primarily sold to consumers through ~~FTD.COM’s~~ ~~Web~~the ~~site,~~ www.ftd.com, Web site or its toll-free ~~telephone number, 1-800-SEND-FTD.~~

Of the Company’s assets totaling $211.8 million at September 30, 2003, the assets of the Company’s consumer business totaled approximately $80.0 million, of which $53.7 million related primarily to goodwill from the 2002 Merger. The assets of the Company’s florist business segment and corporate headquarters constitute the remaining assets of approximately $131.8 million.

The Company’s accounting policies for segments are the same as those on a consolidated basis described in Note 1, Summary of Significant Accounting Policies, of the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2003.

The following tables detail the Company’s operating results by reportable business segment for the three-month periods ended September 30, 2003 and 2002:

	Three Months Ended September 30,
	2003									2002
	Gross Segment			Eliminations			Consolidated			Gross Segment			Eliminations			Consolidated
	(in thousands)
Revenues:
Florist business	$	41,617		$	75		$	41,692		$	45,964		$	(20	)	$	45,944
Consumer business	34,806			(2,922		)	31,884			30,407			(2,765		)	27,642
Total	76,423			(2,847		)	73,576			76,371			(2,785		)	73,586
Costs of Goods Sold and Services Provided:
Florist business	15,129			(608		)	14,521			16,531			(456		)	16,075
Consumer business	24,325			(275		)	24,050			21,819			(344		)	21,475
Corporate	630			—			630			570			—			570
Total	40,084			(883		)	39,201			38,920			(800		)	38,120
Gross Profit:
Florist business	26,488			683			27,171			29,433			436			29,869
Consumer business	10,481			(2,647		)	7,834			8,588			(2,421		)	6,167
Corporate	(630		)	—			(630		)	(570		)	—			(570		)
Total	36,339			(1,964		)	34,375			37,451			(1,985		)	35,466
Advertising and Selling:
Florist business	13,736			(1,955		)	11,781			13,438			(1,960		)	11,478
Consumer business	2,526			—			2,526			1,920			—			1,920
Total	16,262			(1,955		)	14,307			15,358			(1,960		)	13,398
General and Administrative:
Florist business	2,717			—			2,717			2,532			—			2,532
Consumer business	3,331			(336		)	2,995			2,846			(308		)	2,538
Corporate	5,698			327			6,025			6,349			283			6,632
Total	11,746			(9		)	11,737			11,727			(25		)	11,702
Operating Income (Loss) before Corporate Allocations:
Florist business	10,035			2,638			12,673			13,463			2,396			15,859
Consumer business	4,624			(2,311		)	2,313			3,822			(2,113		)	1,709
Corporate	(6,328		)	(327		)	(6,655		)	(6,919		)	(283		)	(7,202		)
Total	8,331			—			8,331			10,366			—			10,366
Corporate Allocations:
Florist business	3,097			—			3,097			2,879			—			2,879
Consumer business	739			—			739			756			—			756
Corporate	(3,836		)	—			(3,836		)	(3,635		)	—			(3,635		)
Total	—			—			—			—			—			—
Operating Income (Loss):
Florist business	6,938			2,638			9,576			10,584			2,396			12,980
Consumer business	3,885			(2,311		)	1,574			3,066			(2,113		)	953
Corporate	(2,492		)	(327		)	(2,819		)	(3,284		)	(283		)	(3,567		)
Total	$	8,331		$	—		$	8,331		$	10,366		$	—		$	10,366
Depreciation and
Amortization:
Florist business	$	629		$	—		$	629		$	653		$	—		$	653
Consumer business	333			—			333			79			—			79
Corporate	1,046			—			1,046			1,097			—			1,097
Total	$	2,008		$	—		$	2,008		$	1,829		$	—		$	1,829

Note 12. Subsequent Event

On October 5, 2003, the Company entered into a merger agreement pursuant to which the Company would be acquired by an affiliate of Leonard Green & Partners, L.P. Under the terms of the agreement, each of the Company’s stockholders would receive $24.85 per share in cash upon the closing of the merger. The closing of the transaction is subject to certain terms and conditions customary for transactions of this type, including stockholder approval, receipt of antitrust clearance and completion of the acquisition financing. Stockholder approval will be solicited by FTD by means of a proxy statement, which will be mailed to FTD stockholders upon the completion of the required Securities and Exchange Commission filing and review process. Subject to satisfaction or waiver of the closing conditions, the parties currently anticipate consummating the transaction in the first calendar quarter of 2004.

~~Item~~telephone ~~2. Management’s~~number, ~~Discussion and Analysis of Financial Condition and Results of Operations~~1-800-SEND-FTD.

~~The~~Of ~~following discussion should be read in conjunction with~~ the Company’s consolidated ~~financial~~assets ~~statements~~totaling ~~and notes to those statements that appear elsewhere in this Form 10-Q~~$604. ~~The following~~5 ~~discussion~~million ~~contains~~at ~~forward-looking~~December ~~statements~~31, ~~that~~2004, ~~reflect~~ the ~~Company’s~~ ~~plans,~~assets ~~estimates and beliefs.~~ of ~~The~~the Company’s ~~actual~~consumer ~~results~~business ~~could~~totaled ~~differ~~approximately ~~from~~$269.4 ~~those discussed in the forward-looking statements~~million. ~~Factors that~~The ~~could~~Company’s ~~cause~~florist orbusiness ~~contribute~~segment ~~to any differences include, but are not limited~~and ~~to,~~corporate ~~those~~headquarters ~~discussed~~constitute ~~under~~ the ~~caption~~remaining ~~“Forward-Looking~~assets ~~Information”~~of ~~and elsewhere~~approximately ~~in this Form 10-Q~~$335.1 million.

~~Operations~~The Company’s accounting policies for segments are the same as those on a consolidated basis described in Note 1, Summary of Significant Accounting Policies, of the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2004.

~~The~~Certain ~~Company~~amounts ~~generates its~~in ~~revenue~~the ~~from~~Predecessor’s ~~two~~operating ~~business~~results ~~segments,~~by ~~the~~reportable ~~florist~~ business segment ~~and~~for the ~~consumer~~three- ~~business~~and ~~segment~~six-month periods ended December 31, 2003 have been reclassified to conform to the current year presentation.

~~Florist business.~~ The ~~florist business~~following ~~segment~~tables ~~includes~~detail ~~revenue associated with~~ the ~~services~~Company’s and ~~products provided to FTD member florists, primarily comprised of~~ the ~~services and~~ ~~products~~Predecessor’s asoperating ~~described~~results ~~below. Membership as~~by ofreportable September 30, 2003 and 2002 was approximately 19,400 and 20,400 members, respectively. Average membership for the three-month periods ended September 30, 2003 and 2002 was 19,200 and 20,400 members, respectively. Within the florist business segment, ~~clearinghouse services, publications and other member services products and services revenue comprised 54% and 49% of the florist business revenue~~ for the three-~~month periods ended September 30, 2003 and 2002,~~ ~~respectively. Mercury network services~~ and ~~Mercury computer equipment products and services revenue comprised 15% and 17% of the florist business revenue for the three~~six-month periods ended ~~September 30,~~December ~~2003 and 2002, respectively. Specialty wholesaling products revenue comprised~~ 31~~% and 34% of the florist business revenue for the three-month periods ended September 30~~, ~~2003~~2004 and ~~2002, respectively.~~2003:

Clearinghouse services. Clearinghouse services primarily consist of billing and collection services provided to both the sending and receiving florists in flowers-by-wire transactions. Revenues from the clearinghouse are generated by charging a percentage of the sales price of orders sent through the clearinghouse and are recorded in the month the orders are filled. Revenue is also generated from the monthly membership fee charged to member florists and credit card processing services provided to member florists. Cash rebates, which are earned by florists under a customer incentive program, in conjunction with the credit card processing service offered by the Company, are classified as contra-revenue, in accordance with EITF Issue No. 01-9, Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor’s Products) (“EITF Issue No. 01-9”).13

Publications and other member services products and services. Publications products and other member services primarily consist of a telephone directory of FTD member florists that is published on a quarterly basis in both CD-ROM and paper book form. Revenues related to publications are recognized ratably over the period in which the publications are issued. The Company provides services related to the set-up and maintenance of FTD Florists’ Online Web sites hosted through FTD.COM’s www.ftd.com Web site. In addition, the Company provides a 24-hour telephone answering and floral order-taking service (“Flowers All Hours”). Revenue associated with FTD Florists’ Online Web sites and Flowers All Hours are recorded in the period the service is provided.

	Three Months Ended December 31,
	2004									2003
	Gross Segment			Eliminations			Consolidated			Gross Segment			Eliminations			Consolidated
													Predecessor
							(in thousands)
Revenues:
Florist business	$	46,157		$	(48	)	$	46,109		$	43,455		$	100		$	43,555
Consumer business	67,097			(4,952		)	62,145			57,450			(4,210		)	53,240
Total	113,254			(5,000		)	108,254			100,905			(4,110		)	96,795

Costs of Goods Sold and Services Provided:
Florist business	13,811			(804		)	13,007			14,400			(653		)	13,747
Consumer business	46,736			(635		)	46,101			40,218			(422		)	39,796
Corporate	582			—			582			662			—			662
Total	61,129			(1,439		)	59,690			55,280			(1,075		)	54,205

Gross Profit:
Florist business	32,346			756			33,102			29,055			753			29,808
Consumer business	20,361			(4,317		)	16,044			17,232			(3,788		)	13,444
Corporate	(582		)	—			(582		)	(662		)	—			(662		)
Total	52,125			(3,561		)	48,564			45,625			(3,035		)	42,590

Advertising and Selling:
Florist business	17,600			(3,560		)	14,040			17,587			(3,030		)	14,557
Consumer business	7,441			—			7,441			6,279			—			6,279
Total	25,041			(3,560		)	21,481			23,866			(3,030		)	20,836

General and Administrative:
Florist business	2,543			—			2,543			2,634			—			2,634
Consumer business	4,742			(615		)	4,127			4,489			(541		)	3,948
Corporate	5,334			614			5,948			6,969			536			7,505
Total	12,619			(1		)	12,618			14,092			(5		)	14,087

Operating Income before Corporate Allocations:
Florist business	12,203			4,316			16,519			8,834			3,783			12,617
Consumer business	8,178			(3,702		)	4,476			6,464			(3,247		)	3,217
Corporate	(5,916		)	(614		)	(6,530		)	(7,631		)	(536		)	(8,167		)
Total	14,465			—			14,465			7,667			—			7,667

Corporate Allocations:
Florist business	2,984			—			2,984			2,974			—			2,974
Consumer business	717			—			717			704			—			704
Corporate	(3,701		)	—			(3,701		)	(3,678		)	—			(3,678		)
Total	—			—			—			—			—			—

Operating Income:
Florist business	9,219			4,316			13,535			5,860			3,783			9,643
Consumer business	7,461			(3,702		)	3,759			5,760			(3,247		)	2,513
Corporate	(2,215		)	(614		)	(2,829		)	(3,953		)	(536		)	(4,489		)
Total	$	14,465		$	—		$	14,465		$	7,667		$	—		$	7,667

Depreciation and Amortization:
Florist business	$	1,102		$	—		$	1,102		$	1,248		$	—		$	1,248
Consumer business	598			—			598			560			—			560
Corporate	960			—			960			205			—			205
Total	$	2,660		$	—		$	2,660		$	2,013		$	—		$	2,013

Mercury Network services. The Company’s Mercury Network is a proprietary telecommunications network linking the Company and approximately 75% of the Company’s member florists at September 30, 2003 compared to approximately 56% at September 30, 2002. Florists who are linked by the Mercury Network are able to transmit orders and send each other messages for a per order or per message fee. Revenues for the services related to transmitting orders and messages are recorded in the period the service is provided.14

Mercury computer equipment products and services. Mercury computer equipment and software sales include both the sale and leasing of hardware and software designed for the floral industry. The software provides access to the Company’s Mercury Network to allow for sending and receiving orders, billing capabilities, order-entry capabilities, an interface to various accounting software packages and a comprehensive range of payroll and accounting functions. The Company follows the provisions of Statement of Position (“SOP”) 97-2, Software

	Six Months Ended December 31,
	2004									2003
	Gross Segment			Eliminations			Consolidated			Gross Segment			Eliminations			Consolidated
													Predecessor
							(in thousands)
Revenues:
Florist business	$	91,870		$	(60	)	$	91,810		$	85,072		$	175		$	85,247
Consumer business	106,817			(8,302		)	98,515			92,256			(7,132		)	85,124
Total	198,687			(8,362		)	190,325			177,328			(6,957		)	170,371

Costs of Goods Sold and Services Provided:
Florist business	31,653			(1,518		)	30,135			29,529			(1,261		)	28,268
Consumer business	74,457			(1,026		)	73,431			64,543			(697		)	63,846
Corporate	1,194			—			1,194			1,292			—			1,292
Total	107,304			(2,544		)	104,760			95,364			(1,958		)	93,406

Gross Profit:
Florist business	60,217			1,458			61,675			55,543			1,436			56,979
Consumer business	32,360			(7,276		)	25,084			27,713			(6,435		)	21,278
Corporate	(1,194		)	—			(1,194		)	(1,292		)	—			(1,292		)
Total	91,383			(5,818		)	85,565			81,964			(4,999		)	76,965

Advertising and Selling:
Florist business	33,110			(5,816		)	27,294			31,323			(4,985		)	26,338
Consumer business	10,891			—			10,891			8,805			—			8,805
Total	44,001			(5,816		)	38,185			40,128			(4,985		)	35,143

General and Administrative:
Florist business	5,117			—			5,117			5,351			—			5,351
Consumer business	8,468			(984		)	7,484			7,820			(877		)	6,943
Corporate	11,364			982			12,346			12,667			863			13,530
Total	24,949			(2		)	24,947			25,838			(14		)	25,824

Operating Income before Corporate Allocations:
Florist business	21,990			7,274			29,264			18,869			6,421			25,290
Consumer business	13,001			(6,292		)	6,709			11,088			(5,558		)	5,530
Corporate	(12,558		)	(982		)	(13,540		)	(13,959		)	(863		)	(14,822		)
Total	22,433			—			22,433			15,998			—			15,998

Corporate Allocations:
Florist business	6,009			—			6,009			6,071			—			6,071
Consumer business	1,494			—			1,494			1,443			—			1,443
Corporate	(7,503		)	—			(7,503		)	(7,514		)	—			(7,514		)
Total	—			—			—			—			—			—

Operating Income:
Florist business	15,981			7,274			23,255			12,798			6,421			19,219
Consumer business	11,507			(6,292		)	5,215			9,645			(5,558		)	4,087
Corporate	(5,055		)	(982		)	(6,037		)	(6,445		)	(863		)	(7,308		)
Total	$	22,433		$	—		$	22,433		$	15,998		$	—		$	15,998

Depreciation and Amortization:
Florist business	$	2,435		$	—		$	2,435		$	2,501		$	—		$	2,501
Consumer business	1,249			—			1,249			1,109			—			1,109
Corporate	1,931			—			1,931			411			—			411
Total	$	5,615		$	—		$	5,615		$	4,021		$	—		$	4,021

1315

Revenue Recognition,Note as amended by SOP 98-9, Software Revenue Recognition with Respect to Certain Arrangements, requiring revenue earned on software arrangements involving multiple elements (e12.g., softwareFinancial products,Statements upgrades/enhancements, post-contract customer support, installation and training) to be allocated to each element based on the relative fair values of the elements. The Company recognizes revenue related to hardware products which are sold, including specified upgrades/enhancements, at the time of shipment. The Company recognizes revenue related to software products which are sold ratably over the estimated useful life of the software. For systems that are being leased, the Company recognizes hardware and software revenue ratably over the period of the lease agreement. Support revenue is recognized over the period of the support agreement. Installation and training revenues are recognized at the time the service is provided.Guarantors

~~Specialty~~The ~~wholesaling~~accompanying consolidated balance sheets, ~~products. The~~statements ~~Company~~of operations and statements of cash flows presented herein ~~sells~~represent ~~both~~the ~~FTD-branded~~accounts of the Company and its Guarantor and non-~~branded~~Guarantor subsidiaries, ~~holiday~~as ~~and~~defined ~~everyday~~in ~~floral~~the ~~arrangement containers~~indenture ~~and~~governing ~~products~~the Notes. The ~~Company also~~Notes ~~sells~~are ~~packaging~~unconditionally guaranteed, ~~promotional~~on a ~~products~~joint and aseveral ~~wide~~basis, ~~variety~~by the Guarantor subsidiaries, including all domestic subsidiaries of ~~other~~FTD, Inc. ~~floral~~Non-~~related~~Guarantor ~~supplies,~~subsidiaries ~~including~~include ~~greeting~~Florists’ ~~cards~~Transworld Delivery Association of Canada, Ltd. and ~~the~~Florists’ ~~Floral~~Transworld ~~Selections Guide~~Delivery de Mexico, aboth of ~~counter~~which ~~display~~are ~~catalog~~insignificant ~~historically~~and ~~published~~are ~~bi-annually~~therefore bynot separately presented. As FTD, Inc., either directly or indirectly, ~~featuring~~owns ~~FTD~~100% ~~products~~of ~~for~~each ~~all~~of ~~occasions~~the Guarantor subsidiaries and, as FTD, Inc. does not have ~~Sales~~any ofsignificant ~~florist~~independent ~~shop~~assets ~~supplies~~or ~~are~~operations ~~recorded~~apart ~~when~~from the ~~products are~~Guarantor ~~shipped~~subsidiaries, separate subsidiary financial information has not been presented.

Consumer business. The consumerNote business is comprised of FTD13.COM, anParent InternetRegistration and telephone marketer of flowers and specialty gifts, which sells products directly to consumers through the 1-800-SEND-FTD toll-free telephone number and electronically to consumers through the www.ftd.com Web site. FTD.COM offers same-day delivery of floral orders and next-day delivery of specialty gift orders to nearly 100% of the U.S. population. FTD.COM offers over 400 floral arrangements and over 800 specialty gift items, including gourmet gifts, holiday gifts, bath and beauty products, dried flowers, gifts for the home and stuffed animals.Statement

~~Orders~~On ~~placed~~November 23, 2004, the Parent filed a registration ~~through~~statement ~~FTD.COM’s~~with ~~Web~~the ~~site~~SEC oron Form S-1 (Registration No. 333-~~800-SEND-FTD~~120723), ~~are~~which ~~typically~~was amended ~~paid~~on ~~for~~January ~~using~~7, a2005, January 21, 2005 and January 27, 2005, relating to ~~credit~~the ~~card~~initial public offering of the Parent’s common stock. ~~When~~The aregistration ~~customer~~statement ~~makes~~has anot yet been ~~purchase~~declared ~~that~~effective ~~will~~by bethe ~~fulfilled~~SEC. In bythe event anof ~~FTD~~a ~~florist~~public offering, ~~FTD~~the Parent intends to use the net proceeds to repurchase its outstanding preferred stock.~~COM~~ Proceeds ~~processes~~from the ~~order~~overallotment option, if any, will be used to redeem ~~charges~~or ~~the~~repurchase ~~customer’s~~Notes ~~credit~~at ~~card~~a redemption price of approximately 108% of principal amount, plus accrued and ~~transmits~~unpaid interest to the ~~order~~date of redemption. The Company has obtained a waiver to the ~~Mercury~~2004 ~~Network~~Credit orAgreement, ~~the~~which ~~specialty~~waives ~~gift~~the ~~order~~requirement tothat the ~~manufacturer~~Company oruse ~~third~~50% ~~party~~of the ~~distributor~~net ~~via~~proceeds afrom ~~proprietary~~the ~~technology~~offering ~~solution~~to pay down outstanding amounts under the 2004 Credit Agreement. ~~FTD.COM~~In ~~generally~~addition, ~~charges~~in the event ~~customer~~of a ~~service~~public ~~fee~~offering, ofthe ~~$9.99~~MSA ~~for~~with Leonard Green & Partners, L.P. ~~floral~~will ~~orders~~be ~~and~~terminated ~~for~~in ~~specialty~~consideration ~~gift~~of ~~items~~a ~~placed~~lump ~~through~~sum ~~its~~payment ~~Web~~by ~~site~~the orCompany to ~~through~~Leonard ~~1-800-SEND-FTD~~Green & Partners, L.P. of $12.5 million in accordance with the MSA.

Order revenue and service fees are reported net of discounts. FTD.COM recognizes 100% of the order value, including service fees and shipping and handling, as revenue and the associated costs of goods sold and services provided, including the costs incurred for shipping and handling, when the order is fulfilled.16

~~Operating expenses~~Item 2. ~~Selling expenses primarily include expenses related to the Company~~Management’s ~~florist~~Discussion ~~business sales force~~ and ~~rebates~~Analysis ~~offered to florists as incentive to increase order~~of ~~volumes~~Financial ~~sent~~Condition ~~utilizing the FTD clearinghouse. Advertising expense is related to the Company’s marketing~~ and ~~advertising programs~~Results onof ~~both national and local levels. FTD’s advertising promotes FTD member florists, FTD-branded products, the www.ftd.com Web site and the toll-free telephone number, 1-800-SEND-FTD.~~Operations

The ~~florist business~~following ~~segment~~discussion ~~promotes~~should ~~the~~be ~~FTD~~read ~~brand~~in ~~and~~conjunction with ~~its~~the ~~products~~consolidated ~~and~~financial ~~services~~statements ~~primarily through broadcast~~ and ~~cable~~notes ~~television~~to ~~advertisements,~~those ~~magazine~~statements ~~advertisements~~that ~~and~~appear ~~newspaper~~elsewhere ~~supplements~~in this Form 10-Q. ~~Sponsorships~~The ~~are~~following ~~also~~discussion acontains ~~major~~forward-looking ~~part~~statements ofthat ~~the~~reflect ~~florist business segment~~the Company’s ~~marketing efforts. In addition~~plans, ~~the~~estimates ~~florist~~and ~~business segment~~beliefs. ~~also~~The ~~supplies~~Company’s ~~advertising~~actual ~~and~~results ~~marketing~~could ~~tools~~differ onfrom athose ~~local~~discussed ~~basis~~in ~~for FTD florists to support~~ the ~~Company’s co~~ forward-~~branded~~looking ~~strategy~~statements. Factors that ~~FTD~~could ~~florists~~cause ~~are~~or ~~provided~~contribute ~~with~~to ~~advertising~~any ~~tools~~differences ~~such as advertisements for newspaper print~~include, ~~point-of-sale~~but ~~items,~~are ~~radio~~not ~~scripts~~limited ~~and television tapes~~ to, bethose ~~customized~~discussed ~~with~~under ~~individual~~the ~~shop~~caption ~~information. In~~“Forward-Looking ~~addition,~~Information” ~~FTD~~and elsewhere ~~florists~~in ~~can~~this ~~purchase~~Form ~~customizable direct mail pieces through FTD~~10-Q.

The consumer business segment’s marketing program utilizes a mix of offline, online, direct and customer loyalty marketing strategies, representing a balanced marketing program focused on both customer acquisition and retention. Offline advertising consists primarily of yellow pages advertising. Online advertising consists primarily of online advertisements and links on shopping and search-oriented Web sites. The direct marketing campaign focuses on the development of relationships with many companies that have large consumer databases. Statement inserts, e-mails, online placements, discount offers and mileage and point awards for purchases are utilized to market to these consumers. The cost associated with mileage and point award programs are classified as cost of goods sold, in accordance with EITF Issue No. 01-9. Customer loyalty marketing strategies focus on the utilization of theOverview

14FTD, Inc. (the “Company”) is a Delaware corporation that commenced operations in 1994. As used in this Form 10-Q, the term the “Company” refers to FTD, Inc., including its wholly-owned subsidiary, Florists’ Transworld Delivery, Inc., a Michigan corporation (“FTD” or the “Operating Company”). The operations of FTD, the Company’s principal operating subsidiary, include those of its wholly-owned subsidiaries, FTD.COM INC. (“FTD.COM”) and Florists’ Transworld Delivery Association of Canada, Ltd., and its indirect wholly-owned subsidiary, Renaissance Greeting Cards, Inc. (“Renaissance”). Substantially all of the Company’s operations are conducted through FTD and its subsidiaries.

On February 24, 2004, the Company’s completed a going private transaction with an affiliate of ~~extensive~~Leonard ~~database~~Green & Partners, L.P. In the transaction, Nectar Merger Corporation, which was a wholly-owned subsidiary of ~~customer~~FTD ~~information~~Group, Inc., formerly known as Mercury Man Holdings Corporation, merged with and into FTD, Inc., with FTD, Inc. continuing as the surviving corporation (the “2004 Going Private Transaction”). As a result of the 2004 Going Private Transaction, the Company ceased to have ~~enhance~~its ~~customer~~equity ~~retention~~publicly traded and became a wholly-owned subsidiary of FTD ~~efforts~~Group, Inc. (the “Parent”), an affiliate of Green Equity Investors IV, L.P., a private investment fund affiliated with Leonard Green & Partners, L.P. See Note 3 of the Consolidated Financial Statements included herein for further details. The results of operations presented herein for all periods prior to the 2004 Going Private Transaction are referred to as the results of operations of the “Predecessor.”

~~General~~The Company is a leading provider of floral-related products and services to consumers and ~~administrative~~retail ~~expenses~~florists ~~primarily~~in ~~consist~~the ofapproximately ~~direct~~$14 ~~corporate~~billion ~~expenses~~U.S. floral retail market. The Company’s business in supported by the highly recognized FTD brand, which was established in 1910 and ~~customer~~enjoys ~~service~~96% brand recognition among the Company’s principal target market of U.S. consumers between the ages of 25 and ~~technology~~64, ~~expenses~~as well as by the Mercury Man logo, which is displayed in ~~both~~approximately 50,000 floral shops globally. The Company generates its revenue from two business segments, the florist business segment and the consumer business segment.

~~Seasonality. In~~Through ~~view of seasonal variations in the~~its ~~revenues and operating results of the Company’s~~ florist ~~and consumer~~ business ~~segments~~, the Company ~~believes~~provides ~~that~~products ~~comparisons~~and ofservices, ~~its~~such ~~revenues and operating~~as ~~results~~clearinghouse ~~for~~services, ~~any~~technology ~~period~~products ~~with~~and ~~those~~services ofand ~~the~~floral ~~immediately preceding period or the~~shop ~~same~~supplies, ~~period~~to ofapproximately ~~the~~20,000 ~~preceding~~member ~~fiscal~~florists ~~year~~and ~~may~~other beretail oflocations offering ~~limited~~floral ~~relevance~~products in ~~evaluating~~ the ~~Company’s~~U.S. ~~historical~~and ~~financial~~Canada, ~~performance~~ and ~~predicting~~connects ~~the~~approximately ~~Company’s~~30,000 ~~future~~additional ~~financial~~florists ~~performance.~~through ~~The~~affiliated ~~Company’s~~or ~~working~~related ~~capital,~~organizations ~~cash~~in ~~and~~150 ~~short-term~~countries ~~borrowings~~outside ~~also fluctuate during the year as a result~~ of ~~the~~North ~~factors set forth below~~America.

~~Revenues~~The ~~and~~consumer ~~operating~~business ~~results~~segment ~~tend~~is tocomprised ~~be lower for the quarter ending September 30 because none~~ of ~~the~~FTD.COM, ~~most~~an ~~popular~~Internet ~~floral~~ and ~~gift~~telephone ~~holidays,~~marketer ~~which include Valentine’s~~of ~~Day,~~flowers ~~Easter, Mother’s Day, Thanksgiving~~ and ~~Christmas,~~specialty ~~fall within that quarter. In addition~~gifts, ~~depending~~which onsells ~~the year,~~products ~~Easter~~directly ~~sometimes falls within the quarter ending March 31 and sometimes falls within the quarter ending June 30. Seasonality is also attributable~~ to ~~increased revenues in the quarter~~consumers ~~ended~~primarily ~~March~~through ~~31 related to~~ the ~~increased floral orders and shipments of holiday products related to the popular floral holiday of Mother’s Day~~www. Inftd.com ~~addition,~~Web ~~historical~~site ~~total revenue~~ and ~~operating~~ ~~results will fluctuate in~~ the ~~first~~1-800-SEND-FTD ~~quarter of each fiscal year as a~~toll-free ~~result~~telephone ~~of revenue generated from the Floral Selections Guide, which is published bi-annually~~number.

~~Three~~Key Industry ~~months~~Trends. The Company ~~ended~~believes ~~September~~key 30trends in the floral retail market include the increasing role of floral direct marketers, ~~2003~~particularly those marketing floral products ~~compared~~over the Internet, which has resulted in increased orders for delivery to be placed through floral direct marketers versus traditional retail florists; the advent ~~three~~of ~~months~~retail ~~ended~~consumer ~~September~~companies 30that deliver unarranged boxed flowers via common courier with no involvement of retail florists; and the increased presence of supermarkets and mass merchants, ~~2002~~which has reduced the cash and carry floral business for the traditional retail florist. The Company is addressing each of these trends through the business strategies of the florist business segment and the consumer business segment.

	Three Months Ended September 30,
Revenues	2003		2002		% Change
	(in thousands)
Florist business	$	41,692	$	45,944	(9.3	)%
Consumer business	31,884		27,642		15.3	%
Total revenues	$	73,576	$	73,586	0.0	%

Business Strategy. The Company plans to expand the product and service offerings of its florist business segment, while simplifying its pricing strategies and improving its sales and service capabilities, with the objective of improving its product penetration and growing the number of FTD-member florists. Additionally, the Company is currently pursuing opportunities to expand its presence in a number of channels that have not historically represented

~~Total revenues for the three-month period ending September 30, 2003 of $73.6 million were almost unchanged as compared to the three-month period ended September 30, 2002.~~17

~~Florist~~a ~~business segment~~meaningful ~~revenue~~portion decreased by $4.2 million, or 9.3%, to $41.7 million for the three-month period ended September 30, 2003, compared to $45.9 million for the three-month period ended September 30, 2002. This decrease was primarily due to the bi-annual sale of ~~the~~its ~~Floral Selections Guide to member florists, which provided $4.9 million in~~ revenues ~~during the three-month period ended September 30~~, ~~2002,~~such ~~but~~as ~~did not occur in~~ the ~~three-month~~supermarket ~~period~~channel ~~ended September 30, 2003. Additionally, in an effort to increase penetration of the Company’s technology platforms~~ and toother ~~provide~~mass ~~a more consistent revenue stream,~~market the Company revised its mid-tier technology platform and began to lease this platform to customers in fiscal year 2004, rather than offer only a single sale of the equipment, as was the practice in past yearschannels. This change contributed to a reduction of revenues associated with mid-tier technology products of $1.9 million in the three-month period ended September 30, 2003 compared to the same period of the prior year. These decreases were partially offset by an increase in floral container sales to member florists in the three-month period ended September 30, 2003 compared to the three-month period ended September 30, 2002.

~~Consumer~~The ~~business~~Company ~~segment~~plans to ~~revenue~~continue ~~increased~~to bydirect ~~$4.3~~consumers to the Internet for their floral and specialty ~~million,~~gift orpurchasing ~~15.3%~~needs, toas ~~$31.9~~processing ~~million~~orders ~~for~~over the ~~three-month~~Internet ~~period~~is ~~ended~~a ~~September~~profitable ~~30,~~order ~~2003,~~generating ~~compared~~vehicle toand ~~$27.6~~an ~~million~~efficient ~~for~~and ~~the~~convenient ~~three-month~~ordering ~~period~~method ~~ended September~~for ~~30,~~the ~~2002~~consumer. ~~This~~The ~~increase~~Company ~~was~~also ~~due~~plans to pursue ~~both~~growth in additional specialty gift categories as the Company believes ~~higher~~its ~~order~~direct ~~volumes~~marketing expertise and ~~increased~~brand ~~average~~strength ~~order~~allows ~~value~~it ~~compared~~ to ~~the~~attract a wide ~~three-month~~range ~~period~~of ~~ended~~quality ~~September~~specialty ~~30,~~gift ~~2002~~manufacturers. ~~Total~~Additionally, ~~order~~the ~~volume~~Company ~~was~~plans ~~approximately~~to ~~500,000~~expand ~~orders~~its ~~for the three~~lower-~~month~~priced floral ~~period~~offerings. During ~~ended~~fiscal ~~September~~year ended June 30, 2003, ~~representing~~the aCompany ~~10.8%~~began ~~increase~~offering ~~over~~a ~~the~~lower-priced ~~prior fiscal~~rose ~~year~~assortment ~~order~~targeted ~~volume~~at everyday ofpurchasers ~~approximately~~and ~~451~~younger,~~000~~ less-affluent consumers. ~~This~~The ~~increase~~Company inbelieves ~~order~~this ~~volume~~is ~~was~~a ~~primarily~~growing segment ~~due~~of tothe ~~continued growth~~market inand ~~organic~~is ~~order~~expanding ~~volume~~its ~~due~~marketing toefforts ~~new~~ and ~~existing marketing initiatives~~product ~~and~~offerings ~~expanded~~targeting ~~product~~this ~~offerings~~segment. The ~~Additionally,~~network ~~the~~of ~~increase~~FTD-member inflorists ~~order~~enables ~~volume~~the ~~was~~Company ~~attributable~~ to ~~the acquisition~~offer same day delivery of ~~Flowers~~these ~~USA~~products, which ~~was~~it ~~acquired~~believes byis ~~the~~a ~~Company~~competitive advantage over its competitors in ~~October~~the low-priced floral market who primarily offer delivery on a next day basis through common courier.

15Operations

~~2002~~Florist business. ~~Internet~~ The ~~orders~~florist business ~~were~~segment 79includes revenue associated with the services and products provided to FTD member florists and other retail locations offering floral products and is primarily comprised of the services and products as described below.2% Membership as of ~~total~~December ~~orders~~31, 2004 and 2003 was approximately 20,000 and 19,700 members, respectively. Average membership for the three-~~month~~ ~~period~~and six-months ended ~~September~~December 3031, ~~2003~~2004 was 19,800 ~~compared~~and to20,000 ~~76.1%~~members, respectively, while average membership for the three-~~month~~ ~~period~~and six-months ended ~~September~~December 3031, ~~2002~~2003 was 19,500 and 19,400 members, respectively. The following table sets forth the percentage of revenue in each category of the florist business segment:

	Three Months Ended September 30,
	Three Months Ended				Six Months Ended
Costs of goods sold and services provided	2003			2002			% Change
	December 31,				December 31,
	(in thousands)
	2004		2003		2004		2003
Florist business	$	14,521		$	16,075		(9.7	)%
Clearinghouse services, publications and other member services products and services revenues	66	%	63	%	61	%	59	%
Consumer business	24,050			21,475			12.0	%
Mercury Network services and Mercury computer equipment products and services revenues	17	%	15	%	16	%	15	%
Corporate	630			570			10.5	%
Specialty wholesaling product revenue	17	%	22	%	23	%	26	%
Total costs of goods sold and services provided	$	39,201		$	38,120		2.8	%
Total Florist segment revenue	100	%	100	%	100	%	100	%

~~Total~~Clearinghouse ~~costs~~services. Clearinghouse ofservices ~~goods~~primarily ~~sold~~consist of billing and collection services provided to both the sending and receiving ~~increased~~florists in flowers-by-wire $1transactions.1 Revenues ~~million,~~from orthe ~~2.8%,~~clearinghouse toare ~~$39.2~~generated ~~million~~by ~~for~~charging a percentage of the ~~three-month~~sales ~~period ended~~price ~~September~~of ~~30,~~orders ~~2003,~~sent ~~compared~~through tothe ~~$38.1~~clearinghouse ~~million~~and ~~for~~are recorded in the ~~three-~~month ~~period ended~~the ~~September~~orders ~~30,~~are ~~2002~~filled. ~~Gross margin~~Revenue ~~decreased~~is toalso ~~46.7%~~generated ~~for~~from the ~~three-month~~monthly ~~period~~membership ~~ended~~fee ~~September~~charged ~~30,~~to ~~2003~~member ~~from~~florists ~~48.2%~~and ~~for~~from the ~~three-month~~credit ~~period~~card ~~ended~~processing ~~September~~services ~~30,~~provided ~~2002~~to member florists. Cash rebates, which isare ~~primarily~~earned by florists ~~due~~under toa customer incentive program, in conjunction with the ~~higher~~credit ~~mix~~card processing ofservice ~~sales~~offered inby the Company’s, ~~lower~~are ~~margin~~classified ~~consumer~~as ~~business~~contra-revenue, in accordance with Emerging Issues Task Force (“EITF”) Issue No. 01-9, Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor’s Products).

~~Costs~~Publications ofand other ~~goods~~member ~~sold~~services products and services. Publications ~~provided~~products ~~associated with~~and ~~the~~other ~~florist~~member services ~~business~~products ~~segment~~and ~~decreased~~services byprimarily ~~$1.6~~consist ~~million,~~of ora ~~9.7%,~~telephone todirectory ~~$14.5~~of ~~million~~FTD ~~for~~member ~~the~~florists ~~three-month~~that ~~period~~is ~~ended~~published ~~September~~on ~~30,~~a ~~2003,~~quarterly ~~compared~~basis toin ~~$16~~both paper book and CD-ROM formats.1 Revenues and costs ~~million~~relating ~~for~~to ~~the~~these ~~three-month~~publications are recognized ratably over the period ~~ended~~in ~~September~~which the ~~30,~~publications ~~2002,~~are ~~primarily~~issued. The ~~due~~Company provides services related to the biset-~~annual~~up ~~sale~~and maintenance of ~~the~~FTD ~~Floral~~Florists’ ~~Selections~~Online Web ~~Guide~~sites, ~~and~~which ~~the~~are ~~shift~~accessible todirectly ~~leasing~~and ofare also accessible through ~~the~~FTD.COM’s ~~mid-tier~~www.ftd.com ~~technology~~Web ~~platform~~site. ~~Gross~~In ~~margin~~addition, ~~for~~ the ~~florist~~Company ~~business~~provides ~~increased~~a ~~slightly~~24-hour totelephone 65answering and floral order-taking service (“Flowers All Hours”).2% Revenues ~~for~~associated ~~the~~with ~~three-month~~FTD Florists’ Online Web sites and Flowers All ~~period~~Hours ~~ended~~are ~~September~~recorded ~~30,~~in ~~2003~~the ~~from~~period 65the service is provided.0% Revenue ~~for~~is ~~the~~also ~~three-month~~generated ~~period~~from ~~ended~~the monthly ~~September~~Floral ~~30,~~Selections ~~2002,~~Guide ~~partially~~fee ~~due~~charged to ~~the~~member ~~prior~~florists ~~year~~for ~~sale~~use of the Floral Selections Guide, ~~which~~a iscounter adisplay ~~lower~~published ~~gross~~by ~~profit~~FTD ~~margin~~featuring ~~product~~FTD products for all occasions.

~~Cost~~Mercury ~~of goods sold and services provided associated~~Network ~~with the consumer business segment increased by $2~~services.6 million, or 12.0%, to $24.1 million for the three-month period ended September 30, 2003, compared to $21.5 million for the three-month period ended September 30, 2002, primarily due to an increase in order volume. Gross margin for the consumer business increased to 24.6% for the three-month period ended September 30, 2003 from 22.3% for the three-month period ended September 30, 2002 partially due to growth in specialty gift sales, which typically have higher gross margins. ~~Specialty~~The ~~gift sales were 20.5% of total orders for the~~Company’s ~~three-month~~Mercury ~~period~~Network ~~ended~~is ~~September~~a ~~30,~~proprietary ~~2003,~~telecommunications ~~compared to 15.6% of total orders for the same period of the prior fiscal year.~~network

Cost of goods sold and services provided associated with corporate activities remained almost unchanged at $0.6 million for the three-month period ended September 30, 2003 compared to the three-month period ended September 30, 2002.18

	Three Months Ended September 30,
Advertising and selling costs	2003		2002		% Change
	(in thousands)
Florist business	$	11,781	$	11,478	2.6	%
Consumer business	2,526		1,920		31.6	%
Total advertising and selling costs	$	14,307	$	13,398	6.8	%

linking the Company to FTD member florists. Florists who are linked by the Mercury Network are able to transmit orders and send each other messages for a per order or per message fee. Revenues related to transmitting orders and messages are recorded in the period the transmission occurs.

~~Advertising~~Mercury computer equipment products and ~~selling~~services. Mercury ~~costs~~Technology ~~increased~~computer byequipment $0and software sales include both the sales and leasing of hardware and software designed for the floral industry.9 The ~~million~~software provides access to the Company’s Mercury Network to allow for sending and receiving orders, orbilling 6capabilities, order-entry capabilities, an interface to various accounting software packages and a comprehensive range of payroll and accounting functions.8% The Company follows the provisions of Statement of Position (“SOP”) 97-2, Software Revenue Recognition, as amended by SOP 98-9, Software Revenue Recognition with Respect to ~~$14~~Certain Arrangements, requiring revenue earned on software arrangements involving multiple elements (e.3g., software ~~million~~products, ~~for~~upgrades/enhancements, post-contract customer support, installation and training) to be allocated to each element based on the relative ~~three-month~~fair ~~period~~values ~~ended~~of ~~September~~the elements. 30The Company recognizes revenue related to hardware products that are sold, ~~2003~~including specified upgrades/enhancements, ~~compared~~at the time of shipment. The Company recognizes revenue related to software ~~$13~~products that are sold ratably over the estimated useful life of the software.4 For ~~million~~systems ~~for~~that are being leased, the ~~three-month~~Company recognizes hardware and software revenue ratably over the period ~~ended~~of ~~September~~the lease agreement. Support ~~30,~~revenue ~~2002~~is recognized over the period of the support agreement. Installation and training revenues are recognized at the time the service is provided.

~~Advertising~~Specialty wholesaling ~~and~~products. The ~~selling~~Company ~~costs~~sells ~~associated~~both ~~with~~FTD-branded ~~the~~and non-branded holiday and everyday ~~florist~~floral ~~business~~arrangement ~~increased~~containers byand $0products.3 The ~~million~~Company also sells packaging, orpromotional ~~2.6%~~products and a wide variety of other floral-related supplies, toincluding ~~$11~~greeting cards.8 Sales ~~million~~of specialty wholesaling products are recorded when the products are shipped. Amounts charged to the customer for the product and for shipping and handling are ~~three-month~~recorded ~~period~~as revenue and the costs of the product and the shipping and handling are recorded as costs of goods sold and services provided.

16Consumer business. The consumer business segment is comprised of FTD.COM, an Internet and telephone marketer of flowers and specialty gifts, which sells products directly to consumers primarily through the www.ftd.com Web site and the 1-800-SEND-FTD toll-free telephone number. FTD.COM offers same day delivery of floral orders to nearly 100% of the U.S. and Canadian populations. The majority of orders are fulfilled by the network of 20,000 FTD-member florists who adhere to FTD.COM’s quality and service standards. FTD.COM offers over 400 floral arrangements and over 800 specialty gift items, including plants, gourmet gifts, holiday gifts, bath and beauty products, dried flowers, gifts for the home and stuffed animals.

~~ended~~Orders ~~September~~placed through ~~30,~~FTD.COM’s ~~2003,~~Web site or ~~compared~~1-800-SEND-FTD totypically ~~$11.5~~are ~~million~~paid for ~~the~~using ~~three-month~~a ~~period~~credit ~~ended~~card. When ~~September~~a 30customer makes a purchase that will be fulfilled by an FTD florist, ~~2002~~FTD.COM processes the order, charges the customer’s ~~partially~~credit ~~due~~card and transmits the order to the ~~expansion~~Mercury ofNetwork. The Mercury Network then transmits the ~~technology~~order to ~~sales~~the ~~department,~~fulfilling ~~partially~~florist. FTD.COM ~~offset~~typically bycharges athe ~~decrease~~customer ina ~~volume-based~~service ~~rebates~~fee ~~associated~~for ~~with~~floral orders ~~sent~~and certain specialty gift orders placed through ~~the~~its ~~FTD~~Web ~~clearinghouse~~site or through 1-800-SEND-FTD.

~~Advertising and selling costs associated with the consumer business increased by $0.6 million~~Generally, ~~or 31.6%, to $2.5 million for the~~orders ~~three-month~~from ~~period ended September 30, 2003, compared to $1~~FTD.9COM’s ~~million~~specialty ~~for~~gift ~~the three-month~~selection ~~period~~are ~~ended~~fulfilled ~~September~~by ~~30,~~a ~~2002,~~manufacturer ~~primarily~~or ~~due to an increase in~~a ~~online~~third ~~advertising~~party ~~expenses~~distributor and ~~direct~~are ~~marketing~~based ~~expenses,~~on ~~partially offset by~~ a ~~decrease~~pre-negotiated ~~in offline advertising expenses due to the expiration of flat fee yellow pages advertising related to the acquisition of certain assets of National Flora in November 2001~~price. ~~The increase~~FTD.COM intypically ~~online~~charges ~~advertising expense is primarily~~ the ~~result of an increase~~customer inshipping ~~order volume~~ and ~~the~~handling ~~cost~~fees ~~per~~for ~~order~~these ~~associated~~specialty ~~with~~gift ~~online~~product ~~marketing partnerships related to online advertising placements~~orders. ~~Certain~~Amounts ofcharged ~~these~~to ~~online agreements contain terms that include both fixed and variable payment elements,~~ the ~~variable portion~~customer offor ~~which is based upon~~ the ~~number of orders generated from these third~~ ~~party~~product ~~Web~~and ~~sites~~shipping inand ~~excess~~handling ofare arecorded ~~threshold~~ as ~~defined~~revenue inand the ~~related agreements. The Company records expenses related to~~ ~~these~~pre-negotiated ~~agreements~~price ~~based~~of onthe anproduct ~~estimated~~and ~~per order cost, taking into consideration~~ the ~~most~~costs ~~likely~~incurred ~~number~~for ofshipping ~~orders to be generated under each such~~and ~~agreement. The~~handling ~~increase~~are inrecorded ~~direct marketing~~as ~~expense~~costs ~~is primarily the result~~ of angoods ~~increase~~sold ~~in orders~~ and ~~new programs~~services ~~with higher commission rates~~provided.

	Three Months Ended September 30,
General and administrative costs	2003		2002		% Change
	(in thousands)
Florist business	$	2,717	$	2,532	7.3	%
Consumer business	2,995		2,538		18.0	%
Corporate	6,025		6,632		(9.2	)%
Total general and administrative costs	$	11,737	$	11,702	0.3	%

Order revenue and service fees are reported net of discounts. FTD.COM recognizes 100% of the order value as revenue and the associated costs of goods sold and services provided when the order is fulfilled.

~~General~~Operating expenses. Selling expenses primarily include expenses related to the Company’s florist business sales force and ~~administrative~~rebates ~~costs~~offered ~~remained~~to ~~almost~~florists as incentive to increase order ~~unchanged~~volumes atprocessed ~~$11~~through the FTD clearinghouse.7 Advertising ~~million~~expenses ~~for~~are primarily related to the ~~three-month~~Company’s ~~period~~marketing ~~ended~~and ~~September~~advertising ~~30,~~programs ~~2003~~on both national and local ~~compared~~levels. FTD’s toadvertising ~~the~~promotes ~~three~~FTD member florists, FTD-~~month~~branded ~~period~~products, ~~ended~~the ~~September~~www.ftd.com 30Web site and the toll-free telephone number, ~~2002~~1-800-SEND-FTD.

~~General~~The ~~and administrative costs for the~~ florist business ~~increased~~segment bypromotes ~~$0.2 million, or 7.3%, to $2.7 million for~~ the ~~three-month~~ ~~period~~FTD ~~ended~~brand ~~September~~and ~~30,~~its ~~2003~~products ~~compared~~and toservices ~~$2.5 million for the~~primarily ~~three-month~~through ~~period ended September 30, 2002. This increase was partially attributable to additional technology headcount.~~network

General and administrative costs for the consumer business increased by $0.5 million, or 18.0%, to $3.0 million for the three-month period ended September 30, 2003 compared to $2.5 million for the three-month period ended September 30, 2002, primarily due to increased depreciation expense and increased Web hosting costs and call center expenses resulting from order growth.19

~~Corporate general~~ and ~~administrative costs decreased~~cable ~~$0.6~~television ~~million~~advertisements, ormagazine ~~9.2%~~advertisements, tonewspaper $6supplements and radio.0 Sponsorships ~~million~~are ~~for~~also a part of the ~~three-month~~florist ~~period~~business ~~ended September~~segment’s 30marketing efforts. Additionally, ~~2003~~the ~~compared~~florist tobusiness ~~$6.6~~segment offers ~~million~~advertising ~~for~~opportunities ~~the~~and ~~three-month~~supplies ~~period~~advertising ~~ended~~and marketing tools, ~~September~~such 30as advertisements for newspaper print, ~~2002~~point-of-sale items, ~~primarily~~radio ~~due~~scripts and television tapes to abe ~~decrease~~customized inwith ~~deferred~~individual ~~compensation~~shop ~~expenses resulting~~information, ~~from~~on ~~the~~a local ~~full~~basis ~~vesting~~for ofFTD ~~restricted~~florists ~~stock~~to ~~during~~support the ~~prior~~Company’s ~~fiscal~~co-branding ~~year~~strategy. FTD ~~and~~florists acan ~~decrease~~also inpurchase customizable ~~salary~~direct ~~expense~~mail pieces through FTD.

	Three Months Ended September 30,
Other income and expenses	2003			2002			% Change
	(in thousands)
Interest income	$	(6	)	$	(109	)	(94.5	)%
Interest expense	241			600			(59.8	)%
Other (income) expense, net	65			(56		)	n/a
Total other income and expenses	$	300		$	435		(31.0	)%

The consumer business segment’s marketing program utilizes a mix of online advertising, direct marketing, customer loyalty marketing strategies and offline advertising, representing a balanced marketing program focused on both customer acquisition and retention. Online advertising consists primarily of online advertisements and links on shopping and search-oriented Web sites. The direct marketing campaign focuses on the development of relationships with companies that have large consumer databases. Statement inserts, e-mails, online placements, discount offers and mileage and point award programs are utilized to market to these consumers. The cost associated with mileage and point award programs are classified as cost of goods sold, in accordance with EITF Issue No. 01-9. Customer loyalty marketing strategies focus on the utilization of the Company’s extensive database of customer information to enhance customer retention efforts. Offline advertising consists primarily of yellow pages advertising.

17General and administrative expenses primarily consist of direct corporate expenses and customer service and technology expenses in both business segments.

~~Interest~~Seasonality. In ~~income~~view ~~decreased~~of toseasonal ~~$6,000~~variations ~~for~~in the ~~three-month~~revenues ~~period~~and ~~ended~~operating ~~September~~results 30of the Company’s florist and consumer business segments, ~~2003~~the ~~compared~~Company tobelieves ~~$0.1~~that ~~million~~comparisons of its revenues and operating results for any period with those of the immediately preceding period or the ~~three-month~~same period ~~ended~~of ~~September~~the ~~30,~~preceding ~~2002.~~ fiscal year may be of limited relevance in ~~This~~evaluating ~~decrease~~the isCompany’s ~~primarily~~historical ~~due~~performance toand apredicting ~~decrease~~the inCompany’s future ~~cash~~financial ~~balances~~performance. The Company’s working capital, cash and ashort-term borrowings also fluctuate during ~~reduction~~the inyear ~~interest~~as ~~rates~~a result of the factors set forth below.

~~Interest~~Revenues ~~expense~~and operating ~~decreased~~results ~~$0.4~~tend ~~million~~ to ~~$0.2 million~~be lower for the ~~three-month~~quarter ~~period~~ending ~~ended~~ September 30 because none of the most popular floral and gift holidays, ~~2003~~which ~~compared~~include toValentine’s Day, $0Easter, Mother’s Day, Thanksgiving and Christmas, fall within that quarter.6 In addition, depending on the ~~million~~year, ~~for~~the popular floral holiday of Easter sometimes falls within the ~~three-month~~quarter ending ~~period~~March ~~ended~~31 ~~September~~and ~~30,~~sometimes ~~2002~~falls within the quarter ending June 30. ~~The~~In ~~decrease~~addition, ishistorical ~~primarily~~revenues ~~due~~and operating toresults fluctuated in the first quarter of each fiscal year as a result ~~decrease~~of revenue generated from the Floral Selections Guide, which has been inpublished ~~long~~bi-~~term~~annually, ~~debt~~ and ahad ~~reduction~~historically been charged to florists in ~~interest~~the month ~~rates~~shipped.

~~Other~~Three ~~(income)~~months ~~expense, net was $0.1 million of expense for the three-month period~~ ended ~~September~~December 3031, ~~2003~~2004 compared to ~~$0.1~~ ~~million of income for~~ the three~~-month~~ ~~period~~months ended ~~September~~December 3031, ~~2002, primarily due to fluctuations in foreign currency.~~2003

Liquidity and Capital Resources

	Three Months Ended
	December 31,
Revenues	2004			2003			% Change
				Predecessor
	(in thousands)
Florist business	$		46,109	$	43,555		5.9	%
Consumer business	62,145			53,240			16.7	%
Total revenues	$	108,254		$		96,795	11.8	%

~~Cash~~Total ~~and~~revenues increased ~~cash~~by ~~equivalents~~$11.5 ~~increased~~million, or 11.8%, to $2108.63 million atfor the three-month ~~September~~period 30ended December 31, ~~2003~~2004, ~~from~~compared to $196.98 million atfor ~~June~~the 30three-month period ended December 31, 2003. There were no revenues related to corporate activities.

~~Cash~~Management believes ~~used~~a ~~in operating~~key ~~activities~~metric ~~was~~in ~~$7.1~~driving ~~million~~revenues for the ~~three-month~~florist ~~period~~business ~~ended~~segment is ~~September~~the ~~30,~~number ~~2003,~~of ~~which~~members ~~primarily~~that ~~consisted~~use ofor anpurchase ~~increase~~services inand ~~accounts~~products provided by ~~receivable~~the ~~due~~florist tobusiness asegment, ~~decrease~~which inis ~~rebates~~partially todriven ~~florists~~by ~~and~~membership. Membership aas ~~decrease~~of inDecember ~~accounts payable~~31, ~~partially~~2004 ~~offset~~and ~~by net income.~~ 2003 ~~Cash~~was ~~used~~approximately in20,000 ~~operating~~and ~~activities~~19,700 ~~was~~members, ~~$11~~respectively.4 Average ~~million~~membership for the three-month ~~period~~periods ended ~~September~~December 3031, ~~2002,~~2004 ~~which~~and ~~primarily~~2003 ~~consisted~~was ofapproximately an19,800 ~~increase~~and in19,500 ~~accounts receivable~~members, ~~due~~respectively. Revenue infor ~~part to~~ the ~~bi-annual sale of the Floral Selections~~ ~~Guide~~florist ~~and~~business ~~timing~~segment ofincreased ~~credit card receivables from member florists and a decrease in accounts payable, offset in part~~ by ~~net income.~~

Cash used in investing activities was $1.2 million for the three-month period ended September 30, 2003, which consisted of capital expenditures. For the three-month period ended September 30, 2002, cash used in investing activities was $4.8 million, which primarily consisted of $4.7 million used to purchase the Flowers Direct business in July 2002.20

~~Cash~~$2.5 ~~provided~~million, byor ~~financing~~5.9%, ~~activities~~to ~~was~~ $946.01 million for the three-month period ended December 31, 2004 compared to $43.6 million for the three-month period ended ~~September~~December 3031, 2003,. This ~~which~~increase was primarily ~~consisted~~related to increased revenues from directory ofpublications, ~~$9.0~~an ~~million~~increase ofin ~~net~~clearinghouse ~~proceeds~~revenue ~~from~~and ~~the~~transmission ~~revolving~~revenue primarily ~~credit~~related ~~facility. Cash~~to ~~used~~an increase in ~~financing~~orders ~~activities~~sent ~~was~~through ~~$10.4~~the clearinghouse and ~~million~~an ~~for~~increase in revenue related to the ~~three-month~~monthly ~~period~~billing ~~ended~~for ~~September~~the ~~30,~~Floral ~~2002~~Selections Guide, which ~~primarily~~shipped during the current year period and for which all members ~~consisted~~are ofnow ~~$7.7~~charged ~~million~~a ofmonthly ~~net~~fee, ~~repayments~~partially ofoffset ~~debt~~by ~~under~~a ~~the~~decrease ~~revolving~~in ~~credit~~specialty ~~facility~~wholesaling ~~and~~product ~~$2.6~~revenue ~~million~~primarily ~~used~~related to ~~repurchase~~the ~~common~~timing ~~stock~~of ~~into~~shipments ~~treasury~~of product for the Valentine’s Day holiday.

~~The~~Management ~~Company’s~~believes ~~principal~~a ~~sources~~key ofmetric ~~liquidity~~in ~~are~~driving ~~cash~~revenues ~~from~~in ~~operations~~the ~~and~~consumer ~~funds~~business ~~available~~segment ~~for~~is ~~borrowing~~order ~~under the 2002 Amended Credit Agreement~~volume. The ~~2002~~growth ~~Amended~~in ~~Credit Agreement~~order ~~provides~~volume ~~maximum~~was ~~availability~~the ofprimary factor ~~$75.0~~for ~~million. Borrowings under~~ the ~~2002~~increase ~~Amended~~in ~~Credit Agreement~~revenue ~~are~~for ~~used~~the toconsumer ~~finance~~business ~~working~~segment ~~capital,~~of ~~acquisitions~~$8.9 million, ~~certain~~or ~~expenses associated~~16.7%, ~~with~~to ~~the~~$62.1 ~~bank~~million ~~credit~~for ~~facilities~~the ~~and~~three-month ~~letter~~period ofended ~~credit needs. At September 30~~December 31, ~~2003,~~2004 ~~the~~compared ~~Company~~to ~~had~~ $1553.5 2 million ~~outstanding~~for ~~under~~ the ~~revolving~~three-month ~~credit~~period ~~facility~~ended December 31, ~~and $2~~2003.0 Order ~~million~~volume ~~outstanding~~increased ~~under~~16.2% ~~various~~to ~~letters~~1.0 ofmillion ~~credit. Borrowings~~orders ~~under~~for the ~~revolving~~three-month ~~credit~~period ~~facility~~ended ~~will mature on~~ December 31, ~~2005~~2004, from 0. ~~The~~9 ~~2002~~million ~~Amended~~orders ~~Credit~~for ~~Agreement includes~~the ~~covenants,~~three-month ~~which,~~period ~~among~~ended ~~other~~December ~~things~~31, 2003. Partially ~~require~~contributing ~~that~~to the ~~Company~~ ~~maintain~~increase ain ~~total~~order ~~funded~~volume ~~debt~~were tosales ~~EBITDA ratio at the end~~ of ~~any~~specialty ~~fiscal~~gift ~~quarter of~~products, nowhich ~~greater than 2~~comprised 30.54% toof ~~1.0~~total ~~and~~order avolume ~~fixed~~for ~~charge~~the ~~coverage~~three-month ~~ratio~~period ofended ~~not~~December ~~less~~31, 2004, ~~than~~compared ~~2.0~~ to 130.0% iffor ~~total~~the ~~funded~~three-month ~~debt~~period isended ~~equal~~December to31, ~~or greater than $25~~2003.0 Internet ~~million and~~orders ~~1.75~~were ~~to 1~~85.0% ifof total ~~funded~~orders for ~~debt~~the isthree-month ~~less~~period ~~than~~ended ~~$25.0~~December ~~million. In~~31, ~~addition~~2004, ~~the~~compared ~~Company~~to is81.1% ~~required~~for tothe ~~maintain~~three-month aperiod ~~minimum~~ended ~~level~~December of31, ~~consolidated~~2003. The ~~net~~consumer ~~worth~~business ofsegment ~~$90~~had 2.04 million ~~plus~~active ~~50%~~customers of(which is ~~net~~defined ~~income~~as ~~for~~customers ~~each~~that ~~fiscal~~have ~~quarter~~purchased offrom the ~~Company~~consumer ~~beginning~~business inwithin the ~~quarter~~ ~~ended~~last ~~September~~twelve ~~30,~~months) ~~2002,~~at ~~for~~December ~~which~~31, ~~net~~2004 ~~income~~and isan aaverage ~~positive~~repeat ~~amount,~~purchase ~~plus~~rate ~~100%~~ of 1.6 (which is defined as the ~~net~~number ~~cash~~of ~~proceeds~~times ~~received~~a customer purchased from ~~certain~~the consumer ~~issuances~~business ofduring ~~equity~~the ~~securities other~~last ~~than~~twelve ~~pursuant~~months) tofor the ~~exercise~~twelve-month ofperiod ended ~~employee~~December 31, ~~stock options~~2004. AtThe consumer ~~September~~business ~~30,~~segment ~~2003,~~had ~~the~~2.0 ~~Company~~million ~~was~~active incustomers at December 31,2003 ~~compliance~~and ~~with~~an ~~the~~average ~~covenants~~repeat ~~contained~~purchase inrate of 1.6 for the ~~2002~~twelve-month ~~Amended~~period ~~Credit~~ended December ~~Agreement~~31, 2003.

In December 2001, the Company entered into interest rate cap agreements with members of its participating bank group to reduce the impact of potential increases on floating rate debt. The interest rate caps provide the Company with a cap rate of 5.0% on a maximum of $20.0 million, effective through December 31, 2003. The Company accounts for the interest rate cap as a cash flow hedge whereby the fair value of the interest rate cap is reflected in other noncurrent assets in the accompanying consolidated balance sheet and is being amortized to

	Three Months Ended
	December 31,
Costs of goods sold and services provided	2004		2003		% Change
			Predecessor
	(in thousands)
Florist business	$	13,007	$	13,747	(5.4	)%
Consumer business	46,101		39,796		15.8	%
Corporate	582		662		(12.1	)%
Total costs of goods sold and services provided	$	59,690	$	54,205	10.1	%

18Costs of goods sold and services provided increased by $5.5 million, or 10.1%, to $59.7 million for the three-month period ended December 31, 2004 compared to $54.2 million for the three-month period ended December 31, 2003. Total gross margin increased to 44.9% for the three-month period ended December 31, 2004 from 44.0% for the three-month period ended December 31, 2003.

~~interest~~Costs ~~expense~~of ~~over~~goods ~~its~~sold and services provided associated ~~term. The~~with ~~interest~~the ~~rate~~florist ~~cap~~business ~~cost~~segment ~~was~~ decreased by $0.17 million, or 5. ~~Due~~4%, to ~~decreases in~~$13.0 ~~market~~million ~~value~~for the three-month period ended December 31, 2004, compared to $13.7 million for the ~~carrying~~three-month ~~value~~period atended ~~September~~December 3031, 2003. Gross ~~was~~margin ~~zero~~for the florist business increased to 71.8% for the three-month period ended December 31, ~~which~~2004, from ~~approximates~~68.4% ~~fair~~for ~~value~~the three-month period ended December 31, 2003. The decrease in costs of goods sold and the increase in gross margin are primarily due to a shift in sales mix related to an increase in revenue from the Company’s higher margin product lines such as directory publications and clearinghouse services and a decrease in specialty wholesaling product revenue.

InCosts ~~addition~~of togoods ~~its~~sold ~~debt~~and ~~service~~services ~~obligations,~~provided ~~the~~associated ~~Company’s~~with ~~remaining~~the ~~liquidity~~consumer ~~requirements~~business ~~are~~segment ~~primarily~~increased ~~for~~by ~~capital expenditures~~$6.3 million, ~~software~~or ~~development~~15.8%, ~~costs~~to $46.1 ~~and~~million ~~working~~for ~~capital~~the ~~needs. The~~three-month ~~Company~~period ~~believes~~ended December 31, ~~based~~2004, oncompared ~~current~~to ~~circumstances,~~$39.8 ~~that~~million ~~its~~for ~~existing~~the ~~and~~three-month ~~future~~period ~~cash~~ended ~~flows~~December ~~from~~31, ~~operations~~2003, primarily due ~~together~~to ~~with~~an ~~borrowings~~increase ~~under~~in revenues. Gross margin for the ~~2002~~consumer ~~Amended~~business ~~Credit~~increased ~~Agreement,~~to ~~will~~25.8% ~~be sufficient~~for tothe ~~fund~~three-month ~~its~~period ~~working~~ended December ~~capital~~31, ~~needs~~2004, ~~capital~~from ~~expenditures,~~25.3% ~~software~~for the three-month period ended December 31, ~~development~~2003, ~~costs~~primarily ~~and~~due to ~~make~~an ~~interest~~increase ~~and~~in ~~principal~~revenue ~~payments~~related asto ~~they~~service ~~become~~fees as well ~~due~~as ~~under~~a ~~the~~decrease ~~terms~~in ofdiscounted ~~the~~orders, ~~2002~~partially ~~Amended~~offset ~~Credit~~by ~~Agreement~~an ~~for~~increase ~~the~~in ~~foreseeable~~shipping ~~future~~costs related to specialty gift product orders.

~~Income Taxes~~21

~~The~~Costs ~~provision~~of ~~for~~goods ~~income~~sold ~~taxes~~and ~~for~~services ~~the~~provided ~~three-month~~related to ~~periods~~corporate ~~ended~~activities ~~September~~decreased ~~30,~~by ~~2003~~$0.1 ~~and~~million, ~~2002~~or ~~was~~12.1% to $30.26 million, ~~reflecting an~~for ~~effective~~the ~~rate~~three-month ofperiod ~~40.1%~~ended December 31, ~~and~~2004 compared to $40.17 million, ~~reflecting~~for anthe three-month ~~effective~~period ~~rate~~ended ~~of 41.5%~~December 31, ~~respectively~~2003.

At September 30, 2003, the net current deferred tax asset was $4.7 million and the net long-term deferred tax liability was $5.6 million. Management believes that based on its estimation of taxable income in future years, including the reversal of deferred tax liabilities, that no valuation allowance is necessary for deferred tax assets.

	Three Months Ended
	December 31,
Advertising and selling costs	2004		2003		% Change
			Predecessor
	(in thousands)
Florist business	$	14,040	$	14,557	(3.6	)%
Consumer business	7,441		6,279		18.5	%
Total advertising and selling costs	$	21,481	$	20,836	3.1	%

~~Critical~~Advertising ~~Accounting~~and ~~Policies~~selling costs increased by $0.7 million, or 3.1%, to $21.5 million for the three-month period ended December 31, 2004 compared to $20.8 million for the three-month period ended December 31, 2003. There were no advertising and selling ~~Estimates~~costs related to corporate activities.

~~The~~Advertising ~~Company’s~~and selling ~~consolidated~~costs ~~financial~~associated ~~statements~~with ~~have been~~the ~~prepared~~florist inbusiness ~~accordance~~decreased ~~with~~by ~~accounting~~$0.6 ~~principles~~million, or ~~generally~~3.6%, ~~accepted~~to in $14.0 million for the ~~United~~three-month ~~States~~period ofended ~~America. The preparation~~December of31, ~~these~~2004 compared ~~financial~~to ~~statements~~$14.6 ~~requires~~million ~~management~~for tothe ~~make~~three-month ~~estimates and~~period ~~assumptions~~ended ~~that~~December ~~affect~~31, ~~the~~2003, primarily ~~reported~~due ~~amounts~~to ofreduced ~~assets~~advertising and ~~liabilities~~cost ~~and~~savings strategies implemented during the ~~disclosure~~current offiscal ~~contingent~~year, ~~assets~~such ~~and~~as ~~liabilities~~a atreduction ~~the~~in ~~date~~headcount ofin the ~~financial~~specialty ~~statements~~wholesaling ~~and~~selling ~~the~~area, ~~reported~~partially ~~amounts~~offset ofby ~~revenues~~an ~~and~~increase ~~expenses during~~in volume-based rebates associated with orders sent through the ~~reporting~~FTD ~~period~~clearinghouse.

OnAdvertising anand ~~on-going~~selling ~~basis,~~costs ~~management~~associated ~~evaluates~~with ~~its~~the ~~estimates~~consumer ~~and~~business ~~judgments,~~increased ~~including~~by ~~those~~$1.1 ~~related~~million, or 18.5%, to ~~revenue~~$7.4 ~~recognition,~~million for the ~~distribution~~three-month ~~agreements~~period ~~and~~ended December 31, 2004 compared to $6.3 million for the three-month ~~valuation~~period ofended ~~accounts~~December ~~receivable~~31, ~~inventory~~2003, ~~long-lived~~ ~~assets~~primarily ~~and~~due ~~deferred~~to ~~income~~an ~~taxes~~increase in online advertising expenses. The ~~Management~~increase ~~bases~~in ~~its~~online ~~estimates~~advertising ~~and~~expense ~~judgments~~is onprimarily ~~historical~~the ~~experience~~result of an increase ~~and~~in onorder ~~various~~volume ~~other~~associated ~~factors~~with ~~that~~online ~~are~~advertising ~~believed~~placements. Certain toof bethese ~~reasonable~~online ~~under~~agreements ~~the~~contain ~~circumstances~~terms that include both fixed and variable payment elements, the ~~results~~variable portion of which ~~form~~is ~~the~~based ~~basis~~upon ~~for~~the ~~making~~number ~~judgments~~of ~~about the~~orders ~~carrying~~generated ~~values~~from ofthese ~~assets~~third party ~~and~~Web ~~liabilities. Actual~~sites ~~results~~in ~~may~~excess ~~differ~~of ~~from~~a ~~these~~threshold ~~estimates~~as ~~under~~defined ~~different assumptions~~in orthe ~~conditions~~related agreements. ~~Management~~The Company records expenses ~~believes~~related ~~the~~to ~~following~~these ~~critical~~agreements ~~accounting~~based ~~policies,~~on ~~among~~an ~~others~~estimated per order cost, ~~affect~~taking ~~its~~into ~~more~~consideration ~~significant~~the ~~judgments~~most ~~and~~likely ~~estimates~~number ~~used~~of inorders ~~preparation~~to ofbe ~~its consolidated~~generated ~~financial~~under ~~statements~~each such agreement.

Revenue Recognition

	Three Months Ended
	December 31,
General and administrative costs	2004		2003		% Change
			Predecessor
	(in thousands)
Florist business	$	2,543	$	2,634	(3.5	)%
Consumer business	4,127		3,948		4.5	%
Corporate	5,948		7,505		(20.7	)%
Total general and administrative costs	$	12,618	$	14,087	(10.4	)%

~~Revenues~~Total ~~generated~~general by the florist business segment of the Company for processing floral orders through the clearinghouse are recorded in the month the orders are delivered. Revenues for other services related to the processing of such orders (including equipment rentals and ~~transmission~~administrative ~~charges)~~costs ~~are~~decreased ~~recorded in the period the service is provided~~$1. ~~Sales~~5 ofmillion ~~florist~~or ~~shop supplies are recorded when the products are shipped~~10. ~~Revenues~~4% ~~relating~~ to ~~publications are recognized ratably over the period in which the publications are issued~~$12. ~~Revenues~~6 ~~associated~~million ~~with~~for ~~FTD Florists’ Online Web site hosting and Flowers All hours are recorded in~~ the three-month period ~~the service~~ended isDecember ~~provided. Revenue associated~~31, ~~with~~2004 ~~Flowers~~compared ~~All~~to ~~Hours is recorded in the period the service is provided~~$14. ~~Cash~~1 ~~rebates~~million ~~which~~for ~~are earned by florists under a customer incentive program in conjunction with a credit card clearing service offered by~~ the ~~Company~~three-month ~~are~~period ~~classified~~ended asDecember ~~contra-revenue~~31, ~~in accordance~~ ~~with EITF Issue No~~2003. ~~01-9.~~

InGeneral ~~addition, the~~and ~~Company~~administrative ~~also~~costs ~~sells~~for ~~computer equipment and software to member florists. The Company follows~~ the ~~provisions~~florist ofbusiness ~~SOP 97-2, as~~decreased ~~amended~~ by ~~SOP 98-9~~$0. ~~SOP~~1 ~~97-2~~million, ~~requires revenue earned~~or ~~on software arrangements involving multiple elements (e~~3.g.5%, ~~software products, upgrades/enhancements, post-contract customer support, installation and training)~~ to ~~be allocated to each element based on the relative fair values of the elements~~$2. ~~The~~5 ~~Company~~million ~~recognizes revenue from hardware products (including specified upgrades/enhancements) at the time of shipment~~ for ~~systems sold. The Company recognizes revenue from software products which are sold ratably over~~ the ~~estimated~~three-month ~~useful~~period ~~life~~ended ofDecember ~~the software. For systems that are being leased~~31, ~~the~~2004 ~~Company~~compared ~~recognizes~~to ~~hardware and software revenue ratably over the period of the lease agreement~~$2. ~~Support~~6 ~~revenue~~million ~~is recognized~~for ~~over~~ the three-month period ofended ~~the~~December ~~support~~31, ~~agreement~~2003. ~~Installation and training revenues are recognized at the time of occurrence.~~

19General and administrative costs for the consumer business increased by $0.2 million, or 4.5%, to $4.1 million for the three-month period ended December 31, 2004 compared to $3.9 million for the three-month period ended

The Company’s consumer business segment recognizes 100% of the order value as revenue and recognizes the associated costs of good sold and services provided when the order is fulfilled. FTD.COM recognizes revenue on a gross basis, as opposed to a net basis similar to a commission arrangement, because it bears the risks and benefits associated with the revenue-generating activities by: (1) acting as a principal in the transaction; (2) establishing prices; (3) being responsible for fulfillment of the order; (4) taking the risk of loss for collection, delivery and returns; and (5) marketing its products, among other things. If the relative amounts of risks and rewards borne by FTD.COM associated with processing floral and specialty gift orders were to change in the future, FTD.COM’s reporting policy related to revenue recognition and costs of goods sold and services provided could change.22

~~Distribution~~December 31, 2003, ~~Agreements~~primarily due to increased customer service costs related to an increase in order volume.

~~FTD.COM~~Corporate ~~has~~general ~~entered~~and ~~into~~administrative ~~Internet~~costs ~~distribution~~decreased ~~agreements~~$1.6 ~~pursuant~~million, to ~~which FTD~~$5.~~COM~~9 ~~receives~~million ~~various~~for ~~services,~~the ~~including advertising~~three-month ~~space~~period onended ~~shopping~~December ~~and search-oriented Web sites~~31, 2004 ~~portal~~compared ~~links~~ to ~~FTD~~ $7.~~COM’s~~5 ~~Web~~million ~~site~~for ~~and~~the ~~marketing~~three-month ofperiod ~~FTD.COM’s~~ended ~~product~~December ~~offerings~~31, ~~through~~2003, ~~co-branded~~primarily ~~Web~~due ~~sites. Certain~~to ofthe ~~these agreements~~current ~~contain~~year ~~terms~~reimbursement ~~that~~of ~~include~~defense ~~both~~costs ~~fixed~~from ~~and variable payment elements,~~ the Company’s ~~variable~~insurance ~~portion~~carrier ofrelated ~~which~~to ~~is based upon~~ the ~~number~~Teleflora oflawsuit, ~~orders~~partially ~~generated from~~offset ~~these~~by ~~third~~an ~~party~~increase ~~Web sites~~ in ~~excess~~amortization ofexpense arelated ~~threshold~~to asthe ~~defined~~increase in ~~the~~book ~~related agreements. FTD.COM~~basis ~~records expenses~~of ~~related~~internal tosoftware ~~these~~and ~~agreements~~a ~~based~~customer onlist anas ~~estimated~~a ~~per~~result ~~order~~of ~~cost, taking into consideration~~ the ~~most~~revaluation ~~likely number~~ of ~~orders to be generated under each such~~the ~~agreement~~Company’s ~~calculated~~assets in ~~accordance~~conjunction with the ~~process~~2004 ~~described~~Going inPrivate ~~Concepts Statement~~Transaction, ~~No. 7 issued by~~ while the ~~Financial~~prior ~~Accounting~~year ~~Standards~~included ~~Board~~$1. ~~The~~3 ~~number~~million of ~~orders~~costs ~~generated~~incurred isrelated ~~impacted by a variety of factors, including but not limited~~ to, the ~~volume of traffic~~2004 ~~experienced~~Going onPrivate ~~the~~Transaction ~~third party’s Web sites, existence of other advertisements on the third party’s Web site~~ and ~~advertisement~~costs ~~placement~~associated onwith the ~~third~~Chief ~~party’s Web~~Operating ~~site. Many of these factors are~~Officer ~~outside~~position, ofwhich ~~FTD.COM’s~~was ~~control. If~~eliminated ~~a change~~ in ~~estimate~~conjunction ~~were~~with ~~to occur,~~ the ~~cumulative~~2004 ~~effect~~Going onPrivate ~~reported expenses would be recognized in the period during which the change occurs~~Transaction.

Accounts Receivable

	Three Months Ended
	December 31,
Other income and expenses	2004			2003			% Change
				Predecessor
	(in thousands)
Interest income	$	(91	)	$	(7	)	nm
Interest expense	5,017			204			nm
Other (income) expense, net	(274		)	(1,534		)	(82.1	)%
Total other income and expenses	$	4,652		$	(1,337	)	nm

~~The~~Interest ~~Company’s~~income ~~management~~increased ~~must~~to ~~make estimates of accounts receivable that will not be collected~~$0. ~~The~~1 ~~Company~~million ~~performs~~for ~~ongoing credit evaluations of its customers~~the ~~and~~three-month ~~adjusts~~period ~~credit~~ended ~~limits~~December ~~based~~31, ~~upon~~2004 ~~payment~~compared ~~history~~to ~~and~~$7,000 ~~the~~for ~~customer’s~~the ~~credit~~three-~~worthiness,~~month asperiod ~~determined~~ended byDecember ~~the~~31, ~~Company’s review of their current credit information~~2003. ~~The Company~~ ~~continuously~~This ~~monitors~~increase ~~collections~~is ~~and~~primarily ~~payments~~due ~~from~~to ~~its~~interest ~~customers~~earned ~~and~~on ~~maintains a~~funds ~~provision~~held ~~for~~by ~~estimated losses based upon historical experience and specific~~the ~~customer~~paying ~~collection~~agent ~~issues~~related ~~that~~to itthe ~~has~~2004 ~~identified. While~~Going ~~such~~Private ~~credit~~Transaction ~~losses have historically been within management’s expectations~~ and ~~the~~interest ~~provisions established, there can be no~~earned ~~assurance~~on ~~that~~funds ~~the~~held ~~Company~~in ~~will~~escrow ~~continue~~related to ~~experience~~ the ~~same~~settlement ~~credit loss rates as in the past. If the financial condition~~ of the ~~Company’s~~class ~~customers~~action ~~were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances for doubtful accounts may be required~~lawsuit.

~~Inventory~~Interest expense increased $4.8 million to $5.0 million for the three-month period ended December 31, 2004 compared to $0.2 million for the three-month period ended December 31, 2003. The increase is due to interest expense related to the indebtedness incurred to finance the 2004 Going Private Transaction.

~~The~~Other ~~Company’s~~income ~~inventory~~decreased ~~consists~~$1.2 ofmillion ~~finished~~to ~~goods and is stated at the lower of cost or market value~~$0. ~~The~~3 ~~Company’s management regularly reviews inventory quantities~~million ~~on hand and records a provision~~ for ~~excess~~the ~~and~~three-month ~~obsolete~~period ~~inventory~~ended ~~based primarily~~December ~~on recent selling prices~~31, ~~the~~2004 ~~age~~compared ofto ~~inventory and forecasts of product demand by aging category~~$1. A5 ~~significant decrease~~million ~~in demand could result in an increase in the amount of excess~~for ~~inventory quantities on hand. In addition,~~ the ~~Company’s~~three-month ~~estimates~~period ofended ~~future~~December ~~product demand may prove to be inaccurate~~31, ~~in which case it may have understated or overstated the provision required for excess and obsolete inventory~~2003. ~~Product~~This ~~demand~~decrease is ~~impacted~~primarily byrelated ~~promotional~~to ~~incentives~~a ~~offered by the Company and customer preferences, among other things~~$1. In5 ~~the~~million ~~future,~~gain ifrecognized in the ~~Company’s~~prior ~~inventory~~year isfor ~~determined to be overvalued, it would be required to recognize such costs in cost of goods sold at~~ the ~~time~~receipt of ~~such~~insurance ~~determination. Therefore,~~proceeds ~~although~~related ~~the Company’s management seeks~~ to ~~ensure~~ the ~~accuracy~~consolidated ofshareholder ~~forecasts~~class ofaction ~~future~~litigation ~~product~~associated ~~demand,~~with ~~any significant unanticipated changes in demand could have a significant impact on~~ the ~~value of inventory and the~~ Company’s 2002 ~~reported~~merger ~~operating~~with ~~results~~FTD.COM.

~~Long-lived~~Six ~~Assets~~months ended December 31, 2004 compared to the six months ended December 31, 2003

	Six Months Ended
	December 31,
Revenues	2004		2003		% Change
			Predecessor
	(in thousands)
Florist business	$	91,810	$	85,247	7.7	%
Consumer business	98,515		85,124		15.7	%
Total revenues	$	190,325	$	170,371	11.7	%

20Total revenues increased by $19.9 million, or 11.7%, to $190.3 million for the six-month period ended December 31, 2004, compared to $170.4 million for the six-month period ended December 31, 2003. There were no revenues associated with corporate activities.

~~values. The~~Management believes ~~subsequent~~a ~~accounting~~key metric in driving revenues for ~~intangible~~the florist business segment is ~~assets~~the ~~depends~~number onof ~~whether~~members ~~its~~that ~~useful~~use ~~life~~or purchase services and products provided by the florist business segment, which is ~~indefinite~~partially ordriven ~~finite~~by membership. Average membership for the six-month period ended December 31, 2004 and 2003 was

An intangible asset with a determinable finite useful life is amortized evenly over that useful life, however, the Company re-evaluates whether an intangible asset has an indefinite or finite useful life during each reporting period. In addition, the Company assesses the impairment if events or changes in circumstances indicate that the carrying value may not be recoverable.23

Anapproximately ~~intangible asset~~20,000 ~~with an indefinite useful life is not amortized~~ and is19,400 ~~reviewed annually~~members, respectively. Revenue for ~~impairment~~the ~~and~~florist business ~~more~~segment ~~frequently~~increased ifby ~~events~~$6.6 million, or ~~circumstances~~7.7%, ~~indicate~~to ~~that~~$91.8 ~~the asset~~million ~~may~~for ~~be impaired. The Company~~the ~~determines~~six-month ifperiod anended ~~impairment~~December ~~exists~~31, by2004 ~~comparing~~compared ~~the~~to ~~fair~~$85.2 ~~value~~million offor the ~~intangible~~six-month ~~asset~~period ~~with~~ended ~~its~~December ~~carrying~~31, ~~value~~2003. ~~For~~This ~~goodwill,~~increase ~~the~~was ~~Company~~primarily ~~compares~~related ~~the~~to ~~fair~~increased ~~value~~revenues offrom ~~the~~directory publications, ~~reporting~~an ~~unit with~~increase ~~its~~in ~~carrying~~orders ~~value. Any~~sent ~~excess~~through ~~of carrying~~the ~~value~~FTD ~~over~~clearinghouse, ~~fair~~the Floral ~~value~~Selections isGuide, ~~recognized~~which asshipped anduring ~~impairment~~the ~~loss~~current ~~in continuing~~year ~~operations. In~~period ~~addition,~~and iffor anwhich ~~indefinite~~all ~~lived~~members ~~intangible~~are ~~asset~~now ischarged ~~subsequently~~a ~~determined~~monthly tofee, ~~have~~and ~~a finite~~an ~~useful~~increase ~~life,~~in ~~the~~sales ~~intangible~~of mid-tier ~~asset~~technology isplatforms, ~~written~~partially ~~down~~offset toby ~~the~~a ~~lower~~decrease ofin ~~its~~specialty ~~fair~~wholesaling ~~value~~products orprimarily ~~carrying~~related ~~amount~~to ~~and~~the ~~then~~timing ~~amortized~~of ~~prospectively,~~shipments ~~based~~for on the ~~remaining~~Valentine’s ~~useful~~day ~~life of the intangible asset~~holiday.

~~Deferred~~Management ~~Income~~believes a key metric in driving revenues ~~Taxes~~in the consumer business segment is order volume. The growth in order volume was the primary factor for the increase in revenue for the consumer business segment of $13.4 million, or 15.7%, to $98.5 million for the six-month period ended December 31, 2004 compared to $85.1 million for the six-month period ended December 31, 2003. Order volume increased 17.1% to 1.6 million orders for the six-month period ended December 31, 2004, from 1.4 million orders for the six-month period ended December 31, 2003. Partially contributing to the increase in order volume were sales of specialty gift products, which comprised 28.0% of total order volume for the six-month period ended December 31, 2004, compared to 26.6% for the six-month period ended December 31, 2003. Internet orders were 84.9% of total orders for the six-month period ended December 31, 2004, compared to 80.4% for the six-month period ended December 31, 2003.

The Company recognizes deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the tax bases of assets and liabilities. The Company regularly reviews its deferred tax assets for recoverability and establishes a valuation allowance based on historical taxable income, projected future taxable income and the expected timing of the reversals of existing temporary differences to reduce its deferred tax assets to the amount that it believes is more likely than not to be realized. While the Company has considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance, in the event the Company were to determine that it would not be able to realize all or part of its deferred tax assets in the future, an adjustment to the deferred tax assets would be charged to income in the period such determination was made. The Company has determined that it is more likely than not that its deferred tax assets will be realized.

	Six Months Ended
	December 31,
Costs of goods sold and services provided	2004			2003			% Change
				Predecessor
	(in thousands)
Florist business	$		30,135	$	28,268		6.6	%
Consumer business	73,431			63,846			15.0	%
Corporate	1,194			1,292			(7.6	)%
Total costs of goods sold and services provided	$	104,760		$		93,406	12.2	%

~~Related~~Costs ~~Party~~of ~~Transactions~~goods sold and services provided increased by $11.4 million, or 12.2%, to $104.8 million for the six-month period ended December 31, 2004, compared to $93.4 million for the six-month period ended December 31, 2003. Total gross margin decreased to 45.0% for the six-month period ended December 31, 2004 from 45.2% for the six-month period ended December 31, 2003, primarily attributable to the higher percentage of total sales in the Company’s lower margin consumer business segment.

~~The~~Costs ~~Company~~of ~~incurred~~goods ~~expenses~~sold ofand services provided associated with the florist business segment increased by $01.58 million, ~~for~~or ~~each~~6.6%, ofto $30.1 million for the ~~three~~six-month ~~periods~~period ended ~~September~~December 3031, ~~2003 and 2002~~2004, ~~related~~compared to ~~the~~$28.3 ~~payment~~million for ~~management,~~the ~~financial~~six-month ~~and~~period ~~other~~ended ~~corporate~~December ~~advisory~~31, ~~services~~2003, ~~and expenses~~primarily todue ~~parties related~~ to ~~each~~the increased level of ~~Perry Acquisition Partners, L~~sales.~~P.,~~ Gross ~~Bain~~margin ~~Capital~~for ~~Investors~~the ~~LLC~~florist ~~and~~business ~~Fleet~~increased ~~Growth~~to ~~Resources III, Inc~~67.,2% ~~which~~for ~~are stockholders~~the orsix-month ~~affiliates~~period ofended December ~~stockholders~~31, of2004, ~~the~~from ~~Company~~66. ~~The~~8% ~~Company’s~~for ~~management~~the ~~consulting~~six-month ~~services agreement~~period ~~that~~ended itDecember ~~entered~~31, ~~into~~2003, which ~~with~~is ~~these~~primarily ~~parties~~related ~~requires~~to ~~payments~~an ofincrease ~~$2.0 million~~in ~~each~~sales ~~fiscal~~in ~~year~~the ~~plus~~Company’s ~~reimbursement~~higher margin ofproduct ~~reasonable~~lines ~~out-of-pocket expenses~~such ~~continuing~~as ~~through~~directory ~~June~~publications ~~30,~~and ~~2005~~clearinghouse services.

AtCosts ~~September~~of ~~30,~~goods ~~2002,~~sold ~~the~~and ~~Company~~services ~~had~~provided ~~loans~~associated ~~receivable~~with ~~from~~the ~~various~~consumer ~~current~~business ~~and~~segment ~~former~~increased ~~officers~~by of$9.6 ~~the~~million, ~~Company~~or of15.0%, to $073.24 million for the six-month period ended December 31, 2004, compared to $63.8 million ~~with~~for ~~terms~~the ofsix-month ~~four~~period ~~years~~ended December 31, ~~principal~~2003, primarily due to atan ~~maturity~~increase in ~~2005,~~revenues. Gross ~~and~~margin ~~interest~~for ~~rates~~the ~~ranging~~consumer ~~from~~business ~~6.5%~~increased to 825.5% ~~per~~for ~~annum~~the six-month period ended December 31, 2004, from 25. At0% ~~September~~for 30the six-month period ended December 31, 2003, primarily ~~there~~due ~~were~~to noan ~~loans~~increase ~~outstanding~~in ~~from~~revenue ~~current~~related to service fees as well as a ordecrease ~~former~~in ~~officers~~discounted oforders, ~~the~~partially ~~Company~~offset by an increase in shipping costs related to specialty gift product orders.

~~Forward~~Costs of goods sold and services provided related to corporate activities decreased by $0.1 million, or 7.6% to $1.2 million for the six-~~Looking~~month ~~Information~~period ended December 31, 2004, compared to $1.3 million for the six-month period ended December 31, 2003.

This quarterly report on Form 10-Q contains various “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 regarding the Company’s outlook, including: statements regarding the proposed transaction with Leonard Green & Partners, L.P. (“Leonard Green”); statements regarding anticipated revenue growth and profitability, including the anticipated effect of charges and gains that are not expected to reoccur, expectations regarding the benefits of investment in new products, programs and offerings; and statements regarding opportunities and trends within both the Consumer and Florist Business segments, including opportunities to expand these businesses and capitalize on growth opportunities or increase penetration of service offerings. These forward-looking statements are based on management’s current expectations, assumptions, estimates and projections about the Company and its industry. Investors are cautioned that actual results could differ from those anticipated by the forward-looking statements as a result of: the failure to satisfy various closing conditions contained in the definitive merger agreement governing the proposed transaction with Leonard Green, including, without limitation, the failure to obtain the necessary stockholder approval, antitrust clearance or the financing required to complete the24

	Six Months Ended
	December 31,
Advertising and selling costs	2004		2003		% Change
			Predecessor
	(in thousands)
Florist business	$	27,294	$	26,338	3.6	%
Consumer business	10,891		8,805		23.7	%
Total advertising and selling costs	$	38,185	$	35,143	8.7	%

~~merger~~Advertising ~~in a timely manner, or at all; the Company’s ability to acquire~~ and ~~retain~~selling ~~FTD~~costs ~~member florists~~increased ~~and continued recognition~~ by ~~members of the value of the Company’s~~$3.1 ~~products~~million, ~~and services; the acceptance by members of the new~~ or ~~modified~~8.7%, ~~service offerings recently introduced; the Company’s ability~~ to ~~sell~~$38.2 ~~additional products~~million ~~and~~for ~~services to member florists;~~ the ~~Company’s~~six-month ~~ability~~period toended ~~expand existing~~December ~~marketing partnerships and secure new marketing partners within the~~31, ~~Consumer~~2004 ~~Business~~compared ~~segment; the success of the Company’s marketing campaigns; the ability~~ to ~~retain~~$35.1 ~~customers~~million and increase average order value within the Consumer Business segment; the existence of failures in the Mercury Network or the Company’s Consumer Business segment systems; competition from existing and potential new competitors; levels of discretionary consumer purchases of flowers and specialty gifts; the Company’s ability to manage or reduce its level of expenses within both the Consumer and Florist Business segments; actual growth rates for the ~~markets~~six-month inperiod ~~which~~ended ~~the~~December Company competes compared with forecasted growth rates; the Company’s ability to increase capacity and introduce enhancements to its Web sites; the Company’s ability to integrate additional partners or acquisitions31, ~~if any are identified; and the resolution~~ ~~of pending or threatened litigation~~2003. ~~These~~ There ~~factors,~~were ~~along~~no ~~with~~advertising ~~other potential risks~~ and ~~uncertainties, are~~ ~~discussed~~selling incosts ~~the~~related ~~Company’s~~to ~~reports~~corporate ~~and other documents filed with the Securities and Exchange Commission~~activities.

~~Item~~Advertising and selling costs associated with the florist business increased by $1.0 million, or 3.6%, ~~Quantitative~~to $27.3 million for the six-month period ended December 31, 2004 compared to $26.3 million for the six-month period ended December 31, 2003, primarily due to an increase in volume based rebates associated with orders sent through the FTD clearinghouse and ~~Qualitative~~an ~~Disclosures~~increase ~~about~~in ~~Market~~costs ~~Risk~~related to the expansion of the sales force, primarily related to an increase in headcount, partially offset by a decrease in specialty wholesaling selling costs related to a decrease in headcount.

~~The~~Advertising ~~Company’s~~and ~~exposure~~selling tocosts ~~interest~~associated ~~rate~~with ~~risk is~~the ~~primarily~~consumer ~~the~~business ~~result~~increased ofby ~~borrowings~~$2.1 ~~under~~million, ~~its~~or ~~bank~~23.7%, ~~credit~~to ~~facilities~~$10. In9 ~~order~~million tofor ~~limit~~the six-month ~~its~~period ~~exposure~~ended December 31, 2004 compared to ~~interest rate~~$8.8 ~~fluctuations,~~million for the six-month ~~Company~~period ~~entered~~ended ~~into~~December ~~interest~~31, ~~rate~~2003, ~~cap~~primarily ~~agreements~~due ~~with members~~to ofan ~~its~~increase ~~participating~~in online ~~bank~~advertising ~~group~~expenses. The increase ~~interest~~in ~~rate~~online ~~caps~~advertising ~~provide~~expense is primarily the ~~Company~~result ~~with~~of aan ~~cap~~increase in ~~rate~~order ofvolume ~~5.0%~~associated onwith ~~a maximum~~online ofadvertising ~~$20~~placements.0 Certain ~~million,~~of ~~effective~~these ~~through~~online ~~December~~agreements ~~31,~~contain terms ~~2003,~~that ~~under~~include ~~which~~both ~~the financing~~fixed ~~party~~and ~~agrees~~variable topayment ~~pay~~elements, the ~~Company a~~ variable portion ~~rate~~of ifwhich ~~the~~is ~~rate~~based onupon the ~~floating~~ ~~rate~~number ~~debt~~of ~~exceeds~~orders ~~the~~generated ~~cap~~from ~~rate.~~ these third ~~During~~party ~~the~~Web ~~three-month~~sites ~~period~~in ~~ended~~excess ~~September~~of ~~30,~~a ~~2003,~~threshold as defined in the ~~variable~~related ~~interest~~agreements. The ~~rate~~Company ~~did~~records ~~not~~expenses related ~~exceed~~to ~~the~~these ~~5.0%~~agreements ~~cap~~based ~~rate. Accordingly,~~on ~~the~~an ~~Company~~estimated ~~did~~per ~~not~~order ~~receive~~cost, ~~any~~taking ~~payments~~into consideration ~~under~~the ~~these agreements~~most ~~during~~likely ~~the~~number ~~three-month~~of ~~period~~orders ~~ended~~to ~~September~~be ~~30,~~generated ~~2003~~under each such agreement.

At September 30, 2003, $15.5 million of debt was outstanding under the 2002 Amended Credit Agreement, all of which is covered by interest rate cap agreements. An adverse change in interest rates would cause an increase in the amount of interest paid. If the Company’s borrowings were to remain outstanding for the remaining term of the 2002 Amended Credit Agreement, a 100 basis point increase in LIBOR, up until the rate exceeds 5.0%, would result in an increase of $155,000 in the amount of annualized interest paid and annualized interest expense recognized in the consolidated financial statements.

	Six Months Ended
	December 31,
General and administrative costs	2004		2003			% Change
			Predecessor
	(in thousands)
Florist business	$	5,117	$		5,351	(4.4	)%
Consumer business	7,484		6,943			7.8	%
Corporate	12,346		13,530			(8.8	)%
Total general and administrative costs	$	24,947	$	25,824		(3.4	)%

~~The~~Total ~~Company~~general ~~will~~and ~~continue~~administrative tocosts ~~monitor~~decreased ~~changing economic conditions~~$0. ~~Based on current~~9 ~~circumstances,~~million ~~the~~or ~~Company~~3.4% ~~does~~to ~~not~~$24.9 ~~expect~~million tofor ~~incur~~the asix-month ~~substantial~~period ~~increase~~ended inDecember 31, ~~costs~~2004, orcompared ato ~~material~~$25.8 ~~adverse~~million ~~effect~~for onthe ~~cash~~six-month ~~flows~~period asended aDecember ~~result of changing~~31, ~~interest rates~~2003.

~~The~~General ~~Company is also exposed to foreign currency~~and ~~exchange~~administrative ~~rate~~costs ~~risk~~for ~~with respect to~~ the ~~Canadian~~florist ~~dollar~~business ~~and~~decreased ~~the~~by ~~Swiss Franc~~$0. ~~The~~3 ~~resulting~~million, ~~foreign currency~~or ~~exchange~~4.4%, ~~adjustments~~to ~~are~~$5.1 ~~included~~million infor the ~~other~~six-month ~~comprehensive~~period ~~(income)~~ended ~~loss caption~~December on31, ~~the~~2004 ~~consolidated~~compared to ~~statements~~$5.4 ofmillion ~~operations and were not material~~ for the ~~three~~six-month ~~periods~~period ended ~~September~~December 3031, 2003 ~~and 2002~~. ~~The~~This ~~Company~~decrease ~~does~~is ~~not~~due ~~expect~~ to bea ~~materially affected~~reduction ~~by foreign currency exchange rate fluctuations~~ in ~~the future, as the~~depreciation ~~transactions~~expense denominated in Canadian dollars and Swiss Francs are not material to the Company’s consolidated financial statements. Therefore, the Company does not currently enter into derivative financial instruments as ~~hedges~~certain ~~against~~assets ~~foreign currency fluctuations~~ of the ~~Canadian~~ ~~dollar~~florist orbusiness ~~the~~became ~~Swiss~~fully ~~Franc~~depreciated.

~~Item~~General 4and administrative costs for the consumer business increased by $0.6 ~~Controls~~million, ~~and~~or ~~Procedures~~7.8%, to $7.5 million for the six-month period ended December 31, 2004 compared to $6.9 million for the six-month period ended December 31, 2003, primarily due to increased customer service costs primarily related to an increase in order

22volume and an increase in headcount related to the expansion of the technology department.

~~Subsequent~~Corporate general and administrative costs decreased $1.2 million, to $12.3 million for the ~~date~~six-month ofperiod ~~their~~ended ~~most~~December ~~recent evaluation~~31, ~~there~~2004 compared ~~have~~to ~~been~~$13.5 nomillion ~~significant~~for ~~changes~~the insix-month ~~the~~period ~~Company’s~~ended ~~internal~~December 31, 2003 ~~controls~~primarily ordue into ~~other~~$1.3 ~~factors~~million ~~that~~of ~~could~~costs ~~significantly~~incurred ~~affect~~during ~~these~~the ~~controls~~prior year related to the 2004 Going Private Transaction.

	Six Months Ended
	December 31,
Other income and expenses	2004			2003			% Change
				Predecessor
	(in thousands)
Interest income	$	(167	)	$	(13	)	nm
Interest expense	10,034			445			nm
Other (income) expense, net	(321		)	(1,469		)	(78.1	)%
Total other income and expenses	$	9,546		$	(1,037	)	nm

~~PART~~Interest IIincome increased to $0.2 million for the six-month period ended December 31, 2004 compared to $13,000 for the six-month period ended December 31, 2003. ~~OTHER~~This ~~INFORMATION~~increase is primarily due to interest earned on funds held by the paying agent related to the 2004 Going Private Transaction and interest earned on funds held in escrow related to the settlement of the class action lawsuit.

~~Item~~Interest expense increased $9.6 million to $10.0 1million for the six-month period ended December 31, 2004 compared to $0.4 million for the six-month period ended December 31, 2003. ~~Legal~~The ~~Proceedings~~increase is due to interest expense related to the indebtedness incurred to finance the 2004 Going Private Transaction.

~~The~~Other ~~Company,~~income ~~FTD,~~decreased ~~FTD~~$1.~~COM~~2 ~~and~~million ~~the~~to ~~directors of the Company and FTD~~$0.~~COM~~3 ~~have been named as defendants in five class action lawsuits~~million ~~filed~~for in the ~~Court~~six-month ofperiod ~~Chancery~~ended ~~for~~December ~~New Castle County in Wilmington~~31, ~~Delaware~~2004 ~~by individual~~compared ~~stockholders~~to ~~of FTD~~$1.~~COM~~5 onmillion ~~behalf of all public stockholders of~~for ~~FTD.COM: Frances~~the ~~Howland~~six-month v.period ~~FTD.COM~~ended etDecember ~~al.~~31, ~~Civil Action No~~2003. ~~19458~~ ~~NC;~~This ~~Johnathon~~decrease ~~Anderson~~is v.primarily ~~Richard~~related ~~Perry~~to ~~et al.,~~a ~~Civil Action No~~$1.5 ~~19459~~million ~~NC;~~gain ~~Stephen Gluck~~recognized ~~v. Richard C. Perry, Civil Action No. 19461 NC; Geoff Mott v. IOS Brands Corp., Civil~~in ~~Action~~the ~~No.~~prior ~~19468~~year ~~NC;~~for ~~and~~the ~~Highwood~~receipt ~~Partners, L.P.~~of v.insurance ~~IOS~~proceeds ~~Brands~~related ~~Corp.,~~to ~~Civil Action No. 19556 NC. These lawsuits were filed beginning on March~~the 5,consolidated ~~2002,~~shareholder ~~after~~class ~~the~~action ~~press~~litigation ~~release~~associated ~~announcing~~with the Company’s 2002 ~~Merger~~merger ~~was~~with ~~issued~~FTD. ~~The complaints generally make essentially the same allegations, namely that:~~COM.

~~• the offer~~Liquidity byand ~~the~~Capital ~~Company to exchange 0.26 shares of Class A Common Stock for each share of FTD.COM common stock is inadequate;~~Resources

~~• the individual~~Cash ~~defendants~~and ~~breached~~cash ~~the~~equivalents ~~fiduciary~~increased ~~duties~~to ~~they~~$19.5 ~~owed in their capacity~~million asat ~~directors~~December by31, ~~among other things~~2004, ~~failing~~from ~~to conduct an auction or otherwise check the market value of FTD~~$2.~~COM~~5 ~~before~~million ~~voting~~at toJune ~~accept~~30, ~~the 2002 Merger proposal;~~2004.

• Cash provided by operating activities was $21.5 million and $19.2 million for the six-month ~~Company~~periods ended December 31, 2004 and ~~its~~December ~~board~~31, 2003, respectively, which primarily consisted of ~~directors~~net ~~prevented~~income, ~~the~~after ~~FTD.COM~~adding ~~board~~back ofnon-cash ~~directors~~items such as ~~from~~depreciation, ~~conducting~~amortization aand ~~meaningful~~the ~~review~~provision offor ~~the~~doubtful ~~transaction;~~accounts and changes in working capital related to the Christmas holiday.

~~• the~~Cash used in investing activities was $5.0 million for ~~Company~~the six-month period ended December 31, ~~FTD.COM~~2004, ~~and~~which ~~certain~~consisted ~~individual~~of ~~defendants~~$3.1 ~~timed~~million related to the ~~2002~~acquisition ~~Merger~~of tocertain assets of The Flower Concierge, Inc., ~~deny~~which ~~public~~was ~~stockholders~~purchased ~~the~~for ~~full~~a ~~potential~~total ~~increase~~of in$8.5 ~~FTD~~million, $5.~~COM’s~~4 ~~stock~~million ~~price~~of which was ~~following~~payable ~~the~~as ~~2002~~of ~~Merger~~December 31, 2004, and capital expenditures of $1.9 million, which were primarily related to technology improvements.

~~The~~Cash ~~Company~~used ~~has~~in ~~reached~~investing anactivities ~~agreement~~was to$3.4 ~~settle~~million ~~the~~for ~~consolidated shareholder class actions pending in~~ the ~~Court~~six-month ofperiod ~~Chancery~~ended ~~for~~December ~~the New Castle County in Wilmington~~31, ~~Delaware~~2003, ~~titled~~which ~~“In~~was Rerelated ~~FTD.COM, Inc. Shareholders Litigation.” A Stipulation and Agreement of Compromise, Settlement and Release relating~~ to ~~this matter has~~capital ~~been~~expenditures ~~executed~~primarily ~~(the~~for ~~“Stipulation~~technology ~~and Settlement Agreement”)~~improvements.

~~The~~Cash ~~terms~~provided ofby ~~the~~financing ~~Stipulation~~activities ~~and~~was ~~Settlement~~$0.3 ~~Agreement~~million ~~include~~for nothe ~~finding~~six-month ofperiod ~~wrongdoing~~ended onDecember ~~the~~31, ~~part~~2004, ofwhich ~~any~~consisted of ~~the~~a ~~defendants, or any~~capital ~~other~~contribution ~~finding~~of ~~that the claims alleged had merit~~$0. ~~The~~7 ~~Stipulation~~million ~~and~~offset ~~Settlement Agreement was approved~~ by ~~the Court~~scheduled repayments on ~~Novermber 13, 2003. The Company and~~ the ~~other defendants have denied, and continue to deny, that they~~senior ~~have~~secured ~~committed~~credit ~~any~~facility ~~violation~~ of ~~federal~~$0.4 ~~securities or other laws~~million.

~~Pursuant~~Cash toused ~~the~~in ~~Stipulation~~financing ~~and~~activities ~~Settlement~~was ~~Agreement, the Company has agreed to issue shares of FTD, Inc. Class A common stock valued at~~ $106.75 million to for the ~~members~~six-month ofperiod ~~the~~ended ~~class. In~~December ~~connection~~31, ~~with the settlement~~2003, ~~the~~which ~~Company~~primarily ~~recorded~~consisted anof ~~$11.0 million~~net ~~charge~~repayments inof the ~~fourth~~revolving ~~quarter~~credit ~~of fiscal year 2003 as other expense, including related administrative costs~~facility. ~~This charge will not be deductible for income tax purposes.~~

There are two insurance policies relating to these matters, one covering the Company and its directors and officers and another covering FTD.COM and its directors and officers. The Company intends to aggressively pursue its claims under both of these insurance policies. Both of the insurance carriers have initiated litigation seeking to deny coverage for the shareholder lawsuits that are the subject of the settlement, while the Company believes that it, FTD.COM and the individual defendants are entitled to coverage. Any recoveries from the insurance providers relating to the settlement will be recorded as other income in the period realized.26

InThe ~~addition, the~~ Company’s principal issources ~~involved~~of inliquidity ~~various~~are ~~lawsuits~~cash from operations and ~~other~~funds ~~matters~~available ~~arising~~for borrowing inunder the ~~normal~~2004 Credit Agreement. ~~course~~The 2004 Credit Agreement provides for aggregate borrowings of ~~business~~up to $135. In0 ~~the~~million ~~opinion~~and consists of a five-year $50.0 million revolving credit ~~management~~facility ofand ~~the~~a ~~Company~~seven-year $85.0 million term loan, ~~although~~which was used in financing the ~~outcome~~2004 Going Private Transaction. A portion of ~~these~~the ~~claims~~revolving credit facility is available as a letter of credit sub-facility and ~~suits~~as a swing-line facility. Borrowings under the revolving credit facility are used to finance ~~uncertain~~working capital, ~~they~~capital ~~should~~expenditures, ~~not~~acquisitions, ~~have~~certain aexpenses associated ~~material~~with ~~adverse~~the ~~effect~~2004 onCredit ~~the~~Agreement ~~Company’s~~and letter of credit needs. The revolving credit facility included $1.8 ~~financial~~million ~~condition,~~in ~~liquidity~~letters orof ~~results~~credit outstanding and had availability of $48.2 million at December 31, 2004. The Company plans to utilize the revolving credit facility and cash generated from operations to fund working capital requirements and capital expenditure needs. Capital expenditures are expected to be between $5 and $7 million for fiscal year 2005.

24On November 23, 2004, the Parent filed a registration statement with the SEC on Form S-1 (Registration No. 333-120723), which was amended on January 7, 2005, January 21, 2005 and January 27, 2005, relating to the initial public offering of the Parent’s common stock. The registration statement has not yet been declared effective by the SEC. In the event of a public offering, the Parent intends to use the net proceeds to repurchase its outstanding preferred stock. Proceeds from the overallotment option, if any, will be used to redeem or repurchase Notes at a redemption price of approximately 108% of principal amount, plus accrued and unpaid interest to the date of redemption.

~~Item~~The 6Company has obtained a waiver to the 2004 Credit Agreement, which waives the requirement that the Company use 50% of the net proceeds from the offering to pay down outstanding amounts under the 2004 Credit Agreement. In ~~Exhibits~~addition, ~~and~~in ~~Reports~~the onevent ~~Form~~of ~~8-K~~a public offering, the Management Services Agreement (the “MSA”) with Leonard Green & Partners, L.P. will be terminated in consideration of a lump sum payment by the Company to Leonard Green & Partners, L.P. of $12.5 million in accordance with the MSA. There can be no assurance that the contemplated initial public offering of the Parent’s common stock will be consummated.

(The 2004 Credit Agreement includes covenants, that, among other things, required that as of December 31, 2004, the Company maintain a specific ratio of consolidated earnings before interest, taxes, depreciation and amortization (subject to certain adjustments) ~~Exhibits~~ to consolidated interest expense, a fixed charge coverage ratio and a leverage ratio. The Company was in compliance with all debt covenants as of December 31, 2004, after giving effect to waiver received related to the promissory note issued in connection with the acquisition of certain assets of The Flower Concierge, Inc. The debt covenant ratios are detailed below:

The Exhibits to this quarterly report on Form 10-Q are listed in the Exhibit Index contained elsewhere in this quarterly report.

	Actual Ratio	Required Ratio
Interest Expense Coverage	3.03	2.10 minimum
Fixed Charge Coverage	2.66	1.45 minimum
Leverage	4.42	5.75 maximum

~~(b) Reports~~Debt covenant ontargets ~~Form~~are ~~8-K~~adjusted quarterly in accordance with the terms of the 2004 Credit Agreement.

OnIn ~~August~~addition 5,to ~~2003~~its debt service obligations, the Company’s ~~filed~~remaining aliquidity ~~Current~~requirements ~~Report~~are primarily for working capital needs and capital expenditures. The Company believes, based on ~~Form~~current ~~8-K~~circumstances, that its existing and future cash flows from operations, together with borrowings under ~~Item~~the 52004 ~~(Other~~Credit Agreement, ~~Events)~~will ~~disclosing~~be sufficient to fund its working capital needs, capital expenditures and to make interest and principal payments as they become due under the ~~issuance~~terms of athe ~~press~~2004 Credit Agreement and to make interest payments on ~~release~~the ~~announcing~~7.75% aSenior ~~settlement~~Subordinated ofNotes ~~shareholder~~for ~~lawsuits~~the foreseeable future.

OnIncome August 5, 2003, the Company furnished a Current Report on Form 8-K under Items 7 (Financial Statements, Pro Forma Financial Information and Exhibits), 9 (Regulation FD Disclosure) and 12 (Results of Operations and Financial Condition) disclosing the issuance of a press release, dated August 5, 2003, announcing its financial results for the fourth quarter and fiscal year ended June 30, 2003.Taxes

OnThe ~~September~~provision ~~12,~~for ~~2003,~~income ~~the~~taxes ~~Company~~for ~~furnished~~the ~~a Current~~six-month ~~Report~~period onended ~~Form~~December ~~8-K under Items 7 (Financial Statements~~31, ~~Pro~~2004 ~~Forma~~was ~~Financial Information~~$5.2 ~~and Exhibits)~~million, 9reflecting ~~(Regulation~~an FDeffective ~~Disclosure)~~rate of ~~and~~40.0%. The 12provision ~~(Results~~for ofincome taxes ~~Operations~~for ~~and~~the ~~Financial~~six-month ~~Condition)~~period ~~disclosing~~ended aDecember ~~corrected press release~~31, ~~dated August 5,~~ 2003, ~~announcing~~was ~~its~~$6.7 ~~financial~~million, ~~results for the fourth quarter and~~reflecting ~~fiscal~~an ~~year~~effective ~~ended~~rate ~~June~~of ~~30, 2003~~39.2%.

25At December 31, 2004, the net current deferred tax asset was $4.3 million and the net long-term deferred tax liability was $57.8 million. Management believes that based on its estimation of taxable income in future years,

~~SIGNATURES~~27

~~Pursuant~~including to the reversal ~~requirements~~ of ~~the~~deferred ~~Securities Exchange~~tax ~~Act of 1934~~liabilities, ~~the~~that ~~registrant~~no ~~has~~valuation ~~duly~~allowance ~~caused~~is ~~this report to be signed~~necessary onfor ~~its behalf by~~ the ~~undersigned~~deferred ~~thereunto~~tax ~~duly authorized~~assets.

		FTD, Inc.
Date: November 13, 2003	By:	/S/ CARRIE A. WOLFE
		Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer)

Critical Accounting Policies and Estimates

26The Company’s consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

~~INDEX~~On TOan ~~EXHIBITS~~on-going basis, management evaluates its estimates and judgments, including those related to revenue recognition, distribution agreements and the valuation of accounts receivable, inventory, long-lived assets and deferred income taxes. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions. Management believes the following critical accounting policies, among others, affect its more significant judgments and estimates used in preparation of its consolidated financial statements.

Exhibit Number		Description of Document
2.1		Agreement and Plan of Merger, dated as of October 5, 2003, among the Company, Mercury Man Holdings Corporation and Nectar Merger Corporation (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on October 7, 2003 (the “October 7, 2003 8-K”)).
4.1		Voting Agreement, dated as of October 5, 2003, by and between Mercury Man Holdings Corporation and certain stockholders of the Company identified on the signature page(s) thereof (incorporated by reference to Exhibit 4.1 to the October 7, 2003 8-K).
4.2		Voting Agreement, dated as of October 5, 2003, by and between Mercury Man Holdings Corporation and certain stockholders of the Company identified on the signature page(s) thereof (incorporated by reference to Exhibit 4.2 to the October 7, 2003 8-K).
4.3		Voting Agreement, dated as of October 5, 2003, by and between Mercury Man Holdings Corporation and certain stockholders of the Company, identified on the signature page(s) thereof (incorporated by reference to Exhibit 4.3 to the October 7, 2003 8-K).
10.1+		Second Amendment to Letter Agreement, dated as of October 5, 2003, by and between FTD and Robert Norton.
10.2+		Form of Amendment to Employment Agreement, dated as of October 5, 2003, by and between FTD and each of Jon Burney, Ann Hofferberth, Larry Johnson, George Kanganis, Daniel Smith, William Van Cleave and Carrie Wolfe.
31.1+		Rule 13(a) – 14(a)/15(d) – 14(a) Certification (Principal Executive Officer).
31.2+		Rule 13(a) – 14(a)/15(d) – 14(a) Certification (Principal Financial Officer).
32+		Section 1350 Certifications.

Revenue Recognition

~~+ Filed~~Revenues generated by the florist business segment of asthe anCompany ~~exhibit~~for processing floral and specialty gift orders through the clearinghouse are recorded in the month the orders are delivered. Revenues for other services related to ~~this~~the processing ~~quarterly~~of ~~report~~such onorders ~~Form~~are 10recorded in the period the service is provided. Sales of florist shop supplies are recorded when the products are shipped. Revenues relating to publications are recognized ratably over the period for which the publications are issued. Revenues associated with FTD Florists’ Online Web site hosting and Flowers All Hours are recorded in the period the service is provided. Cash rebates which are earned by florists under a customer incentive program in conjunction with a credit card clearing service offered by the Company are classified as contra-Qrevenue, in accordance with EITF Issue No. 01-9.

In addition, the Company sells computer equipment and software to member florists. The Company follows the provisions of SOP 97-2, as amended by SOP 98-9. SOP 97-2 requires revenue earned on software arrangements involving multiple elements (e.g., software products, upgrades/enhancements, post-contract customer support, installation and training) to be allocated to each element based on the relative fair values of the elements. The Company recognizes revenue from hardware products (including specified upgrades/enhancements) at the time of shipment for systems that are sold. The Company recognizes revenue from software products which are sold ratably over the estimated useful life of the software. For systems that are being leased, the Company recognizes hardware and software revenue ratably over the period of the lease agreement. Support revenue is recognized over the period of the support agreement. Installation and training revenues are recognized at the time of occurrence.

Distribution Agreements

FTD.COM has entered into Internet distribution agreements pursuant to which FTD.COM receives various services, including advertising space on shopping and search-oriented Web sites, portal links to FTD.COM’s Web site and marketing of FTD.COM’s product offerings through co-branded Web sites. Certain of these agreements contain terms that include both fixed and variable payment elements, the variable portion of which is based upon the number of orders generated from these third party Web sites in excess of a threshold as defined in the related agreements. FTD.COM records expenses related to these agreements based on an estimated per order cost, taking

into consideration the anticipated number of orders to be generated under each such agreement calculated in accordance with the process described in Concepts Statement No. 7 issued by the Financial Accounting Standards Board. The number of orders generated is impacted by a variety of factors, including but not limited to, the volume of traffic experienced on the third party’s Web sites, existence of other advertisements on the third party’s Web site and advertisement placement on the third party’s Web site. Many of these factors are outside of FTD.COM’s control. The order volume estimates used to record expense on a monthly basis are adjusted to actual order volumes by the end of the term of the contract. If a change in estimate were to occur, the cumulative effect on reported expenses would be recognized in the period during which the change occurs.

Accounts Receivable

Accounts receivable consist primarily of amounts due to the Company from normal business activities. The Company’s management must make estimates of accounts receivable that will not be collected. The Company performs ongoing credit evaluations of its customers and adjusts credit limits based upon payment history and the customer’s credit-worthiness, as determined by the Company’s review of their current credit information. The Company continuously monitors collections and payments from its customers and maintains a provision for estimated losses based upon historical experience and specific customer collection issues that it has identified. Trade receivables are written off when all reasonable collection efforts have been exhausted, including, but not limited to, external third party collection efforts and litigation. While such credit losses have historically been within management’s expectations and the provisions established, there can be no assurance that the Company will continue to experience the same credit loss rates as in the past. If the financial condition of the Company’s customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances for doubtful accounts may be required.

Inventory

The Company’s inventory consists of finished goods and is stated at the lower of cost or market value. The Company’s management regularly reviews inventory quantities on hand and records a provision for excess and obsolete inventory based primarily on recent selling prices, the age of inventory and forecasts of product demand. A significant decrease in demand could result in an increase in the amount of excess inventory quantities on hand. In addition, the Company’s estimates of future product demand may prove to be inaccurate, in which case it may have understated or overstated the provision required for excess and obsolete inventory. Product demand is impacted by promotional incentives offered by the Company and customer preferences, among other things. In the future, if the Company’s inventory is determined to be overvalued, it would be required to recognize such costs in cost of goods sold at the time of such determination. Therefore, although the Company’s management seeks to ensure the accuracy of forecasts of future product demand, any significant unanticipated changes in demand could have a significant impact on the value of inventory and the Company’s reported operating results.

Long-lived Assets

The Company recognizes intangible assets at fair value, whether acquired individually or as a part of a group of assets where the entire cost of the group of assets is allocated to the individual assets based on their relative fair values. The subsequent accounting for intangible assets depends on whether its useful life is indefinite or finite.

An intangible asset with a determinable finite useful life is amortized evenly over that useful life, however, the Company re-evaluates whether an intangible asset has an indefinite or finite useful life during each reporting period. In addition, the Company assesses these assets for impairment if events or changes in circumstances indicate that the carrying value may not be recoverable.

An intangible asset with an indefinite useful life is not amortized and is reviewed annually for impairment or more frequently if events or circumstances indicate that the asset may be impaired. The Company determines if an impairment exists by comparing the fair value of the intangible asset with its carrying value. For goodwill, the Company compares the fair value of the reporting unit with its carrying value. Any excess of carrying value of goodwill over its fair value is recognized as an impairment loss in continuing operations. In addition, if an indefinite lived intangible asset is subsequently determined to have a finite useful life, the intangible asset is written down to the lower of its fair value or carrying amount and then amortized prospectively, based on the remaining useful life.

Deferred Income Taxes

The Company recognizes deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the tax bases of assets and liabilities. The Company regularly reviews its deferred tax assets for recoverability and establishes a valuation allowance based on historical taxable income, projected future taxable income and the expected timing of the reversals of existing temporary differences to reduce its deferred tax assets to the amount that it believes is more likely than not to be realized. While the Company has considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance, in the event the Company was to determine that it would not be able to realize all or part of its deferred tax assets in the future, an adjustment to the deferred tax assets would be charged to income in the period such determination was made. The Company has determined that it is more likely than not that its deferred tax assets will be realized.

Recently Issued Accounting Pronouncements

On December 16, 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 123 (revised 2004), Share-Based Payments (“SFAS 123(R)”). SFAS 123(R) replaces FASB Statement No. 123, Accounting for Stock-Based Compensation, and supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees. The FASB has concluded that companies could adopt the new standard in one of two ways: the modified prospective transition method and the modified retrospective transition method.

Using the modified prospective transition method, a company would recognize share-based employee compensation cost from the beginning of the fiscal period in which the recognition provisions are first applied as if the fair-value-based accounting method had been used to account for all employee awards granted, modified, or settled after the effective date and to any awards that were not fully vested as of the effective date.

Using the modified retrospective method, a company would recognize employee compensation cost for periods presented prior to the adoption of the proposed standard in accordance with the original provisions of SFAS No. 123; that is, an entity would recognize employee compensation cost in the amounts reported in the pro forma disclosures provided in accordance with SFAS No. 123. A company would not be permitted to make any changes to those amounts upon adoption of the standard unless those changes represent a correction of an error (and are disclosed accordingly).

For periods after the date of adoption of the standard, the modified prospective transition method described above would be applied. The Company will adopt SFAS No. 123(R) effective July 1, 2005, which will result in an increase in general and administrative expense. The Company is still evaluating the impact of the adoption of this standard.

Related Party Transactions

For the three- and six-month periods ended December 31, 2003, the Predecessor incurred expenses of $0.5 million and $1.0 million, respectively, related to the payment for management, financial and other corporate advisory services and expenses to parties related to each of Perry Acquisition Partners, L.P., Bain Capital Investors LLC and Fleet Growth Resources III, Inc., which were stockholders or affiliates of the Predecessor. The Predecessor’s management consulting services agreement with these parties required payments aggregating $2.0 million each fiscal year plus reimbursement of reasonable out-of-pocket expenses. The management consulting services agreement with the above listed parties terminated upon the consummation of the 2004 Going Private Transaction.

In connection with the 2004 Going Private Transaction, the Company entered into a management services agreement with Leonard Green & Partners, L.P. Under the management services agreement, Leonard Green & Partners, L.P. provides management, consulting and financial planning services in exchange for an annual management fee of $2.0 million, payable in equal monthly installments commencing in March 2004. Payment of the management fees on any monthly payment date is contingent upon the Company achieving Consolidated EBITDA, as defined in the indenture governing the Notes, equal to or greater than $46.8 million for the last consecutive twelve-month period ended immediately prior to that payment date. In the event any portion of the management fee is not so paid, such amount

will accrue and become due and payable in the next month when the targeted Consolidated EBITDA is obtained. The management services agreement has a ten-year term, which extends automatically on each anniversary of the agreement for one additional year unless either party gives prior notice that the term will not be extended. For the three- and six-month periods ended December 31, 2004, the Company incurred expenses of $0.5 million and $1.0 million, respectively, related to the management services agreement with Leonard Green & Partners, L.P.

In addition, the management services agreement provides for the payment to Leonard Green & Partners, L.P. of customary fees for services provided in connection with major transactions, reimbursement for reasonable out-of-pocket expenses and a closing fee of $7.0 million, which was paid upon consummation of the 2004 Going Private Transaction.

On September 30, 2004, the Parent sold 826,667 shares of common stock to certain members of the Company’s management for cash consideration of $826,667, which represented the fair market value of the common stock on the date of purchase. The Parent contributed $0.7 million of the cash proceeds to the Company and used the balance of the proceeds to repay an inter-company payable to the Company.

Forward-Looking Information

This quarterly report on Form 10-Q contains various “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 regarding the Company’s outlook, anticipated revenue growth and profitability; the anticipated benefits of investments in new products, programs and offerings; and opportunities and trends within both the consumer and florist business segments, including opportunities to expand these businesses and capitalize on growth opportunities or increase penetration of service offerings. These forward-looking statements are based on management’s current expectations, assumptions, estimates and projections about the Company and its industry. Investors are cautioned that actual results could differ from those anticipated by the forward-looking statements as a result of: the Company’s ability to acquire and retain FTD member florists and continued recognition by members of the value of the Company’s products and services; the acceptance by members of the new or modified service offerings recently introduced; the Company’s ability to sell additional products and services to member florists; the Company’s ability to expand existing marketing partnerships and secure new marketing partners within the consumer business segment; the success of the Company’s marketing campaigns; the ability to retain customers and increase average order value within the consumer business segment; the existence of failures in the Mercury Network or the Company’s consumer business segment systems; competition from existing and potential new competitors; levels of discretionary consumer purchases of flowers and specialty gifts; the Company’s ability to manage or reduce its level of expenses within both the consumer and florist business segments; actual growth rates for the markets in which the Company competes compared with forecasted growth rates; the Company’s ability to increase capacity and introduce enhancements to its Web sites; and the Company’s ability to integrate additional partners or acquisitions, if any are identified. These factors, along with other potential risks and uncertainties, are discussed in the Company’s reports and other documents filed with the Securities and Exchange Commission.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

The Company’s exposure to interest rate risk is primarily the result of borrowings under its existing bank credit facilities. At December 31, 2004, $84.4 million was outstanding under the 2004 Credit Agreement. Borrowings under the 2004 Credit Agreement are secured by first priority security interests in, and mortgages on, substantially all of the Company’s tangible and intangible assets. The Company’s results of operations are affected by changes in market interest rates on these borrowings. A 1% increase in the interest rate would result in additional annual interest expense of $0.8 million.

The Company will continue to monitor changing economic conditions. Based on current circumstances, the Company does not expect to incur a substantial increase in costs or a material adverse effect on 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 and the Euro. The resulting foreign currency exchange adjustments are included in the other comprehensive (income) loss caption on the consolidated statements of operations and were not material for the six-month periods ended December 31, 2004 and 2003. 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 and Euros are not material to the Company’s consolidated financial statements. Therefore, the Company does not currently enter into derivative financial instruments as hedges against foreign currency fluctuations of the Canadian dollar or Euro.

Item 4. Controls and Procedures

The Company maintains a set of disclosure controls and procedures designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply judgment in evaluating the cost-benefit relationship of possible controls and procedures. As of December 31, 2004, an evaluation was carried out under the supervision and with the participation of the Company’s management, including the CEO and CFO. Based on this evaluation, the CEO and CFO have concluded that the Company’s disclosure controls and procedures were effective at the reasonable assurance level.

There have been no significant changes in the Company’s internal controls over financial reporting during the Company’s most recent fiscal quarter that have materially affected, or is reasonably likely to materially affect, the Company’s internal controls over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

In March 2002, the Predecessor, FTD, FTD.COM and the directors of the Predecessor and FTD.COM were named as defendants in five class action lawsuits filed in Wilmington, Delaware, which were consolidated under the name “In RE FTD.COM Inc. Shareholders Litigation.” The class action lawsuits made several allegations, including that insufficient stock of the Predecessor was exchanged for FTD.COM stock and breach of fiduciary duties by the directors.

On behalf of all defendants, the Predecessor settled the consolidated class action lawsuits. Such settlement was approved by the court and included no finding of wrongdoing on the part of any of the defendants, or any other finding that the claims alleged had merit.

Pursuant to the Settlement Agreement, the Predecessor agreed to issue shares of Class A common stock valued at $10.7 million in full and final settlement of the case. In connection with the settlement, the Predecessor recorded an $11.0 million charge in the fourth quarter of fiscal year 2003 with respect to the settlement which included costs related to issuing and distributing the settlement shares. In November 2003, pursuant to the court approved Settlement Agreement, the Predecessor, on behalf of all defendants, distributed 139,493 shares of Class A common stock valued at $3.4 million as payment for a portion of the $10.7 million settlement liability. Pursuant to the terms of the Settlement Agreement, the Company is obligated to pay the remaining $7.3 million in cash, which payment is anticipated to be made later in fiscal year 2005. Pursuant to the terms of the 2004 Credit Agreement, the Company placed $7.3 million into an escrow account at the consummation of the 2004 Going Private Transaction to fund this obligation.

The Predecessor pursued claims against two of its insurance carriers, one that provided coverage to FTD and its directors and officers, and another that provided coverage to FTD.COM and its directors and officers. In the second quarter of fiscal year 2004, the Predecessor recorded a gain of $1.5 million as a result of a settlement with the insurance carrier that maintained a policy covering FTD and its directors and officers. The insurance carrier that maintained the policy covering FTD.COM and its directors and officers initiated litigation seeking to deny coverage for the shareholder lawsuits, which were settled pursuant to the Settlement Agreement. The Company believes that FTD.COM and the individual defendants are entitled to coverage and has filed responsive pleadings to that effect. Both parties have filed their respective motions for summary judgment, which have been fully briefed and are before the court for a ruling. Any further recoveries relating to the settlement will be recorded as Other Income in the period realized.

On December 30, 2003, Teleflora LLC (“Teleflora”) filed a complaint against FTD in the U.S. District Court for the Northern District of California in San Jose. The complaint included principal allegations of misappropriation of trade secrets, copyright infringement, unfair competition, intentional interference with contracts and various counts of fraud through unauthorized access to Teleflora software by FTD. Teleflora sought compensatory damages as well as punitive damages and injunctive relief. FTD answered the complaint, asserted affirmative defenses and brought counterclaims against Teleflora, including antitrust claims for attempting to monopolize the wire service market.

Pursuant to a settlement agreement and mutual release, both Teleflora and FTD have dismissed their respective claims with prejudice on January 12, 2005. Under the agreement, FTD can continue to use its existing wire service interface (which obtains information from Teleflora’s Dove Foreign System Interface module) with its existing wire service interface customers.

In addition, the Company is involved in various claims and lawsuits and other matters arising in the normal course of business. In the opinion of management of the Company, although the outcome 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.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On September 30, 2004, the Parent sold 826,667 shares of class A common stock to certain members of the

Company’s management for cash consideration of $826,667, which represented the fair market value of the common stock on the date of purchase. The Parent contributed $0.7 million of the cash proceeds to the Company and used the balance of the proceeds to repay an inter-company payable to the Company. In addition, the Parent granted 6,298,333 options to various employees of the Company. Outstanding non-qualified stock options are exercisable during a ten-year period beginning one to seven years after the date of grant. All stock options were granted with an exercise price equal to the fair market value on the date of grant.

Item 6. Exhibits

10.1		First Amendment to the Credit Agreement, dated as of November 15, 2004, by and among FTD, Inc., the Guarantors, as set forth on the signature pages thereto, and CSFB.

31.1		Rule 13(a) – 14(a)/15(d) – 14(a) Certification (Principal Executive Officer).

31.2		Rule 13(a) – 14(a)/15(d) – 14(a) Certification (Principal Financial Officer).

32		Section 1350 Certifications.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1933, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		FTD, Inc.

Date: January 28, 2005	By:	/S/ CARRIE A. WOLFE
		Chief Financial Officer (Principal Financial and Accounting Officer)

EXHIBIT INDEX

Exhibit Number		Description of Document

10.1		First Amendment to the Credit Agreement, dated as of November 15, 2004, by and among FTD, Inc., the Guarantors, as set forth on the signature pages thereto, and CSFB.

31.1		Rule 13(a) – 14(a)/15(d) – 14(a) Certification (Principal Executive Officer).

31.2		Rule 13(a) – 14(a)/15(d) – 14(a) Certification (Principal Financial Officer).

32		Section 1350 Certifications.

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