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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 10-Q



Mark One

|x | Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934
|- | ----------------------------------------------------------------------------------------



For the quarterly period ended March 31, 2004



or



| ̈ | 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: 0-20720



PROVIDE COMMERCE, INC.

(Exact Name of Registrant as Specified in its Charter)



|                                                              |  |                                    
|------------------------------------------------------------- |  | -----------------------------------
|Delaware                                                      |  | 84-1450019                         
|(State or Other Jurisdiction ofIncorporation or Organization) |  | (I.R.S. EmployerIdentification No.)
|                                                              | 
|5005 Wateridge Vista Drive, 2nd Floor San Diego, CA           |  | 92121                              
|(Address of Principal Executive Offices)                      |  | (Zip Code)                         



Registrants
Telephone Number, Including Area Code: (858) 638-4900



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 ̈No x



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



As of April 30, 2004, the registrant had 11,423,656 shares of common stock outstanding.



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PROVIDE COMMERCE, INC.

QUARTERLY REPORT



FORM 10-Q



TABLE OF CONTENTS



|                                                                                              |  |   
|--------------------------------------------------------------------------------------------- |  | --
|                                                                                              | 
|COVER PAGE                                                                                    |  | 1 
|                                                                                              | 
|TABLE OF CONTENTS                                                                             |  | 2 
|                                                                                              | 
|PART I. FINANCIAL INFORMATION                                                                 |  |   
|                                                                                              | 
|ITEM 1. Financial Statements (unaudited)                                                      |  |   
|                                                                                              | 
|Balance Sheets as of March 31, 2004 and June 30, 2003                                         |  | 4 
|                                                                                              | 
|Statements of Operations for the three and nine months ended March 31, 2004 and 2003          |  | 5 
|                                                                                              | 
|Statements of Cash Flows for the nine months ended March 31, 2004 and 2003                    |  | 6 
|                                                                                              | 
|Notes to Financial Statements                                                                 |  | 7 
|                                                                                              | 
|ITEM 2.
Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 11
|                                                                                              | 
|ITEM 3.
Quantitative and Qualitative Disclosures about Market Risk                            |  | 33
|                                                                                              | 
|ITEM 4.
Controls and Procedures                                                               |  | 33
|                                                                                              | 
|PART II. OTHER INFORMATION                                                                    |  |   
|                                                                                              | 
|ITEM 1.
Legal Proceedings *                                                                   |  | 34
|                                                                                              | 
|ITEM 2.
Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities      |  | 34
|                                                                                              | 
|ITEM 3.
Defaults upon Senior Securities *                                                     |  | 34
|                                                                                              | 
|ITEM 4.
Submission of Matters to a Vote of Security Holders *                                 |  | 34
|                                                                                              | 
|ITEM 5.
Other Information *                                                                   |  | 34
|                                                                                              | 
|ITEM 6.
Exhibits and Reports on Form 8-K                                                      |  | 34
|                                                                                              | 
|SIGNATURE                                                                                     |  | 35



|* | No information provided due to inapplicability of item.
|- | -------------------------------------------------------



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PROVIDE COMMERCE, INC.



FINANCIAL STATEMENTS



Index



PART I. FINANCIAL INFORMATION



ITEM 1.    Financial Statements (unaudited):



Balance Sheets - March 31, 2004 and June 30, 2003

Statements of Operations - Three and Nine months ended March 31, 2004 and 2003

Statements of Cash Flows - Three and Nine months ended March 31, 2004 and 2003

Notes to Financial Statements



3



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PROVIDE COMMERCE, INC.



BALANCE SHEETS

(Unaudited)

(in thousands, except share and per share data)



|                                                                                                                                                                                                                |  |                |         |   |               |   |         |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | ------- | - | ------------- | - | ------- | -
|                                                                                                                                                                                                                |  | March 31, 2004 |         |   | June 30, 2003 |  
|Assets                                                                                                                                                                                                          |  |                |         |   |               |   |         |  
|Current assets:                                                                                                                                                                                                 |  |                |         |   |               |   |         |  
|Cash and cash equivalents                                                                                                                                                                                       |  | $              | 51,784  |   |               | $ | 11,496  |  
|Accounts receivable, net of allowance for doubtful accounts of $149 and $163 at March 31, 2004 and June 30, 2003, respectively                                                                                  |  |                | 1,226   |   |               |   | 887     |  
|Inventory, net                                                                                                                                                                                                  |  |                | 1,949   |   |               |   | 1,142   |  
|Prepaid expenses and other current assets                                                                                                                                                                       |  |                | 1,334   |   |               |   | 453     |  
|Deferred tax asset                                                                                                                                                                                              |  |                | 296     |   |               |   |        |  
|                                                                                                                                                                                                                |  |                |         |   |               |   |         |  
|Total current assets                                                                                                                                                                                            |  |                | 56,589  |   |               |   | 13,978  |  
|Property and equipment, net                                                                                                                                                                                     |  |                | 4,307   |   |               |   | 3,161   |  
|Deferred tax asset                                                                                                                                                                                              |  |                | 12,130  |   |               |   |        |  
|Other assets                                                                                                                                                                                                    |  |                | 1,937   |   |               |   | 195     |  
|                                                                                                                                                                                                                |  |                |         |   |               |   |         |  
|Total assets                                                                                                                                                                                                    |  | $              | 74,963  |   |               | $ | 17,334  |  
|                                                                                                                                                                                                                |  |                |         |   |               |   |         |  
|                                                                                                                                                                                                                |  |               
|Liabilities and Stockholders Equity                                                                                                                                                                            |  |                |         |   |               |   |         |  
|Current liabilities:                                                                                                                                                                                            |  |                |         |   |               |   |         |  
|Accounts payable and other accrued liabilities                                                                                                                                                                  |  | $              | 14,799  |   |               | $ | 7,579   |  
|Accrued compensation                                                                                                                                                                                            |  |                | 1,884   |   |               |   | 1,958   |  
|Income taxes payable                                                                                                                                                                                            |  |                | 535     |   |               |   | 337     |  
|Deferred revenue                                                                                                                                                                                                |  |                | 378     |   |               |   | 190     |  
|Current portion of capital lease                                                                                                                                                                                |  |                | 80      |   |               |   | 125     |  
|                                                                                                                                                                                                                |  |                |         |   |               |   |         |  
|Total current liabilities                                                                                                                                                                                       |  |                | 17,676  |   |               |   | 10,189  |  
|Accrued pension costs                                                                                                                                                                                           |  |                | 311     |   |               |   |        |  
|Capital lease, less current portion                                                                                                                                                                             |  |                |        |   |               |   | 48      |  
|Stockholders equity:                                                                                                                                                                                           |  |                |         |   |               |   |         |  
|Preferred stock, $0.001 par value, 5,000,000 authorized, none issued and outstanding at March 31, 2004                                                                                                          |  |                |        |   |               |   |        |  
|Series A convertible preferred stock, $0.001 par value, none authorized, issued and outstanding at March 31, 2004; 300,000 shares authorized
and 221,715 shares issued and outstanding at June 30, 2003         |  |                |        |   |               |   |        |  
|Series B convertible preferred stock, $0.001 par value, none authorized, issued and outstanding at March 31, 2004; 7,000,000 shares authorized
and 5,816,285 shares issued and outstanding at June 30, 2003     |  |                |        |   |               |   | 6       |  
|Common stock, $0.001 par value, 50,000,000 shares authorized and 11,419,615 shares issued and outstanding at March 31, 2004; 40,000,000 shares
authorized and 5,750,900 issued and outstanding at June 30, 2003 |  |                | 11      |   |               |   | 6       |  
|Additional paid-in capital                                                                                                                                                                                      |  |                | 94,270  |   |               |   | 56,502  |  
|Deferred compensation                                                                                                                                                                                           |  |                | (2,175  | ) |               |   | (436    | )
|Accumulated deficit                                                                                                                                                                                             |  |                | (35,130 | ) |               |   | (48,981 | )
|                                                                                                                                                                                                                |  |                |         |   |               |   |         |  
|Total stockholders equity                                                                                                                                                                                      |  |                | 56,976  |   |               |   | 7,097   |  
|                                                                                                                                                                                                                |  |                |         |   |               |   |         |  
|Total liabilities and stockholders equity                                                                                                                                                                      |  | $              | 74,963  |   |               | $ | 17,334  |  
|                                                                                                                                                                                                                |  |                |         |   |               |   |         |  



See accompanying notes.



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PROVIDE COMMERCE, INC.



STATEMENTS OF OPERATIONS

(Unaudited)

(in thousands, except share and per share data)



|                                                      |  |                             |            |      |                            |            |      |  |   |            |   |  |   |           |  
|----------------------------------------------------- |  | --------------------------- | ---------- | ---- | -------------------------- | ---------- | ---- |  | - | ---------- | - |  | - | --------- | -
|                                                      |  | Three Months EndedMarch 31, |            |      | Nine Months EndedMarch 31, |           
|                                                      |  | 2004                        |            | 2003 |                            |            | 2004 |  |   | 2003       |  
|Net sales                                             |  | $                           | 40,689     |      | $                          | 28,758     |      |  | $ | 76,917     |   |  | $ | 54,445    |  
|Cost of sales                                         |  |                             | 21,794     |      |                            | 15,948     |      |  |   | 42,239     |   |  |   | 31,292    |  
|                                                      |  |                             |            |      |                            |            |      |  |   |            |   |  |   |           |  
|Gross profit                                          |  |                             | 18,895     |      |                            | 12,810     |      |  |   | 34,678     |   |  |   | 23,153    |  
|Operating expenses:                                   |  |                             |            |      |                            |            |      |  |   |            |   |  |   |           |  
|Selling and marketing                                 |  |                             | 8,845      |      |                            | 6,142      |      |  |   | 16,968     |   |  |   | 12,173    |  
|General and administrative                            |  |                             | 4,433      |      |                            | 3,131      |      |  |   | 10,109     |   |  |   | 7,907     |  
|Information technology systems                        |  |                             | 1,068      |      |                            | 921        |      |  |   | 2,900      |   |  |   | 2,536     |  
|Stock-based compensation                              |  |                             | 547        |      |                            | 56         |      |  |   | 1,304      |   |  |   | 311       |  
|                                                      |  |                             |            |      |                            |            |      |  |   |            |   |  |   |           |  
|Total operating expenses                              |  |                             | 14,893     |      |                            | 10,250     |      |  |   | 31,281     |   |  |   | 22,927    |  
|                                                      |  |                             |            |      |                            |            |      |  |   |            |   |  |   |           |  
|Operating income                                      |  |                             | 4,002      |      |                            | 2,560      |      |  |   | 3,397      |   |  |   | 226       |  
|Other income (expense), net                           |  |                             | 148        |      |                            | (50        | )    |  |   | 186        |   |  |   | (422      | )
|                                                      |  |                             |            |      |                            |            |      |  |   |            |   |  |   |           |  
|Income (loss) before income tax                       |  |                             | 4,150      |      |                            | 2,510      |      |  |   | 3,583      |   |  |   | (196      | )
|Income tax benefit                                    |  |                             | 11,768     |      |                            |           |      |  |   | 11,768     |   |  |   |          |  
|                                                      |  |                             |            |      |                            |            |      |  |   |            |   |  |   |           |  
|Net income (loss)                                     |  |                             | 15,918     |      |                            | 2,510      |      |  |   | 15,351     |   |  |   | (196      | )
|Preferred stock dividend                              |  |                             |           |      |                            |           |      |  |   | (1,500     | ) |  |   |          |  
|                                                      |  |                             |            |      |                            |            |      |  |   |            |   |  |   |           |  
|Net income (loss) attributable to common stockholders |  | $                           | 15,918     |      | $                          | 2,510      |      |  | $ | 13,851     |   |  | $ | (196      | )
|                                                      |  |                             |            |      |                            |            |      |  |   |            |   |  |   |           |  
|                                                      |  |                             |            |     
|Net income (loss) per common share:                   |  |                             |            |      |                            |            |      |  |   |            |   |  |   |           |  
|Basic                                                 |  | $                           | 1.40       |      | $                          | .44        |      |  | $ | 1.74       |   |  | $ | (0.03     | )
|Diluted                                               |  | $                           | 1.14       |      | $                          | .22        |      |  | $ | 1.16       |   |  | $ | (0.03     | )
|Weighted average common shares outstanding:           |  |                             |            |      |                            |            |      |  |   |            |   |  |   |           |  
|Basic                                                 |  |                             | 11,400,147 |      |                            | 5,718,778  |      |  |   | 7,967,690  |   |  |   | 5,695,123 |  
|Diluted                                               |  |                             | 13,918,972 |      |                            | 11,300,868 |      |  |   | 11,966,640 |   |  |   | 5,695,123 |  
|                                                      |  |                             |            |     
|Stock-based compensation is allocated as follows:     |  |                             |            |      |                            |            |      |  |   |            |   |  |   |           |  
|Cost of sales                                         |  | $                           |           |      | $                          |           |      |  | $ |           |   |  | $ | 3         |  
|Selling and marketing                                 |  |                             | 167        |      |                            | 18         |      |  |   | 489        |   |  |   | 54        |  
|General and administrative                            |  |                             | 345        |      |                            | 27         |      |  |   | 730        |   |  |   | 220       |  
|Information technology systems                        |  |                             | 35         |      |                            | 11         |      |  |   | 85         |   |  |   | 34        |  
|                                                      |  |                             |            |      |                            |            |      |  |   |            |   |  |   |           |  
|Total stock-based compensation                        |  | $                           | 547        |      | $                          | 56         |      |  | $ | 1,304      |   |  | $ | 311       |  
|                                                      |  |                             |            |      |                            |            |      |  |   |            |   |  |   |           |  



See accompanying notes.



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PROVIDE COMMERCE, INC.



STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands, except share and per share data)



|                                                                                         |  |                            |         |   |      |   |        |  
|---------------------------------------------------------------------------------------- |  | -------------------------- | ------- | - | ---- | - | ------ | -
|                                                                                         |  | Nine Months EndedMarch 31, |        
|                                                                                         |  | 2004                       |         |   | 2003 |  
|Operating activities:                                                                    |  |                            |         |   |      |   |        |  
|Net income (loss)                                                                        |  | $                          | 15,351  |   |      | $ | (196   | )
|Adjustments to reconcile net income (loss) to cash provided by operating activities:     |  |                            |         |   |      |   |        |  
|Depreciation and amortization                                                            |  |                            | 1,204   |   |      |   | 1,099  |  
|Stock-based compensation                                                                 |  |                            | 1,304   |   |      |   | 311    |  
|Non-cash interest expense in connection with issuance of warrants for line of credit     |  |                            | 24      |   |      |   | 380    |  
|Changes in operating assets and liabilities:                                             |  |                            |         |   |      |   |        |  
|Accounts receivable                                                                      |  |                            | (338    | ) |      |   | (416   | )
|Inventory                                                                                |  |                            | (808    | ) |      |   | (589   | )
|Prepaid expenses and other current assets                                                |  |                            | (905    | ) |      |   | (537   | )
|Accounts payable and other accrued liabilities                                           |  |                            | 7,221   |   |      |   | 1,490  |  
|Accrued compensation                                                                     |  |                            | (74     | ) |      |   | (84    | )
|Deferred revenue                                                                         |  |                            | 188     |   |      |   | 16     |  
|Accrued and deferred income taxes                                                        |  |                            | (12,229 | ) |      |   |       |  
|Other assets                                                                             |  |                            | (1,457  | ) |      |   | 454    |  
|                                                                                         |  |                            |         |   |      |   |        |  
|Net cash provided by operating activities                                                |  |                            | 9,481   |   |      |   | 1,928  |  
|                                                                                         |  |                           
|Investing activities:                                                                    |  |                            |         |   |      |   |        |  
|Purchase of property and equipment                                                       |  |                            | (2,351  | ) |      |   | (1,723 | )
|Proceeds from note receivable                                                            |  |                            | 27      |   |      |   |       |  
|                                                                                         |  |                            |         |   |      |   |        |  
|Net cash used in investing activities                                                    |  |                            | (2,324  | ) |      |   | (1,723 | )
|                                                                                         |  |                           
|Financing activities:                                                                    |  |                            |         |   |      |   |        |  
|Payment of long-term debt and capital lease obligations                                  |  |                            | (93     | ) |      |   | (22    | )
|Common stock issued in connection with initial public offering                           |  |                            | 34,592  |   |      |   |       |  
|Line of credit borrowings                                                                |  |                            |        |   |      |   | 700    |  
|Line of credit repayments                                                                |  |                            |        |   |      |   | (700   | )
|Dividend paid to preferred stockholders                                                  |  |                            | (1,500  | ) |      |   |       |  
|Proceeds from exercise of common stock options & warrants                                |  |                            | 132     |   |      |   | 16     |  
|                                                                                         |  |                            |         |   |      |   |        |  
|Net cash provided by (used in) financing activities                                      |  |                            | 33,131  |   |      |   | (6     | )
|                                                                                         |  |                            |         |   |      |   |        |  
|Net increase in cash and cash equivalents                                                |  |                            | 40,288  |   |      |   | 199    |  
|Cash and cash equivalents at beginning of the period                                     |  |                            | 11,496  |   |      |   | 4,923  |  
|                                                                                         |  |                            |         |   |      |   |        |  
|Cash and cash equivalents at end of the period                                           |  | $                          | 51,784  |   |      | $ | 5,122  |  
|                                                                                         |  |                            |         |   |      |   |        |  
|                                                                                         |  |                           
|Supplemental disclosures of cash flow information:                                       |  |                            |         |   |      |   |        |  
|Cash paid during the period for:                                                         |  |                            |         |   |      |   |        |  
|Interest                                                                                 |  | $                          | 5       |   |      | $ | 5      |  
|Income taxes                                                                             |  | $                          | 461     |   |      | $ | 1      |  
|                                                                                         |  |                           
|Non-cash financing activities:                                                           |  |                            |         |   |      |   |        |  
|Issuance of warrants for line of credit                                                  |  | $                          |        |   |      | $ | 26     |  
|Stock-based compensation associated with employee and consultant stock options           |  | $                          | 1,304   |   |      | $ | 311    |  
|Assets financed under capital leases                                                     |  | $                          |        |   |      | $ | 218    |  
|Conversion of preferred stock to common stock in connection with initial public offering |  | $                          | 6       |   |      | $ |       |  



See accompanying notes.



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PROVIDE COMMERCE, INC.



NOTES TO FINANCIAL STATEMENTS



(Unaudited)

(in thousands, except per share data)



|1. | Description of Business
|-- | -----------------------



Provide Commerce, Inc. (the Company) was incorporated in the State of Delaware and commenced operations on February 6, 1998. In September 2003, the Company
changed its name from Proflowers, Inc. to Provide Commerce, Inc. The accompanying financial statements reflect the name change. The Company operates an e-commerce marketplace for perishable goods, such as fresh-cut floral arrangements, potted
plants, high quality meats and fruits, and related merchandise. Products are purchased by customers and shipped directly from the growers/producers for overnight delivery.



|2. | Summary of Significant Accounting Policies
|-- | ------------------------------------------



Basis of Presentation and Interim Financial Information



The accompanying unaudited 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 financial statements and notes thereto. The interim unaudited
financial statements should be read in conjunction with the financial statements and notes thereto included in the Companys registration statement on Form S-1. 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.



In December 2003, the Company effected a 1-for-3.037716 reverse stock split of its common
stock. The accompanying financial statements give retroactive effect to the reverse stock split for all periods presented.



The balance sheet at June 30, 2003 has been derived from the audited financial statements at that date.



Certain amounts in the balance sheet as of June 30, 2003, and the statements of operations and cash flows for the three and nine month
periods ended March 31, 2004, have been reclassified to conform to the current period presentation.



Net Income (Loss) Per Share



Basic net income (loss) per common share is calculated by dividing net income (loss) for the period by the weighted average common shares outstanding during the period,
less shares subject to repurchase. Diluted income (loss) per share is calculated by dividing the net income for the period by the weighted average common shares outstanding, adjusted for all dilutive potential common shares, which includes shares
issuable upon the exercise of outstanding common stock options, convertible preferred stock and other contingent issuances of common stock to the extent these shares are dilutive. The Company incurred a loss for the nine months ended March 31, 2003,
and, accordingly, has excluded all convertible preferred stock, shares issuable upon exercise of common stock options, warrants and shares subject to repurchase from the calculation of diluted net loss per common share for that period as follows:



|                                                                         |  |                             |        |   |                            |   |        |      |  |   |        |   |  |   |       |  
|------------------------------------------------------------------------ |  | --------------------------- | ------ | - | -------------------------- | - | ------ | ---- |  | - | ------ | - |  | - | ----- | -
|                                                                         |  | Three months endedMarch 31, |        |   | Nine months endedMarch 31, |  
|                                                                         |  | 2004                        |        |   | 2003                       |   |        | 2004 |  |   | 2003   |  
|Numerator                                                                |  |                             |        |   |                            |   |        |      |  |   |        |   |  |   |       |  
|Net income (loss)                                                        |  | $                           | 15,918 |   |                            | $ | 2,510  |      |  | $ | 15,351 |   |  | $ | (196  | )
|Preferred stock dividends                                                |  |                             |       |   |                            |   |       |      |  |   | (1,500 | ) |  |   |      |  
|                                                                         |  |                             |        |   |                            |   |        |      |  |   |        |   |  |   |       |  
|Net income (loss) attributable to common stockholders                    |  | $                           | 15,918 |   |                            | $ | 2,510  |      |  | $ | 13,851 |   |  | $ | (196  | )
|                                                                         |  |                             |        |   |                            |   |        |      |  |   |        |   |  |   |       |  
|Denominator                                                              |  |                             |        |   |                            |   |        |      |  |   |        |   |  |   |       |  
|Basic:                                                                   |  |                             |        |   |                            |   |        |      |  |   |        |   |  |   |       |  
|Weighted average common shares outstanding                               |  |                             | 11,408 |   |                            |   | 5,739  |      |  |   | 7,979  |   |  |   | 5,737 |  
|Less: Weighted average shares subject to repurchase                      |  |                             | (8     | ) |                            |   | (21    | )    |  |   | (11    | ) |  |   | (41   | )
|                                                                         |  |                             |        |   |                            |   |        |      |  |   |        |   |  |   |       |  
|Denominator on basic calculation                                         |  |                             | 11,400 |   |                            |   | 5,718  |      |  |   | 7,968  |   |  |   | 5,695 |  
|                                                                         |  |                             |        |   |                            |   |        |      |  |   |        |   |  |   |       |  
|Basic net income (loss) per share                                        |  | $                           | 1.40   |   |                            | $ | 0.44   |      |  | $ | 1.74   |   |  | $ | (0.03 | )
|                                                                         |  |                             |        |   |                            |   |        |      |  |   |        |   |  |   |       |  
|Diluted:                                                                 |  |                             |        |   |                            |   |        |      |  |   |        |   |  |   |       |  
|Weighted average common shares outstanding                               |  |                             | 11,400 |   |                            |   | 5,718  |      |  |   | 7,968  |   |  |   | 5,695 |  
|Weighted average dilutive effect of convertible Series A preferred stock |  |                             |       |   |                            |   | 760    |      |  |   | 467    |   |  |   |      |  
|Weighted average dilutive effect of convertible Series B preferred stock |  |                             |       |   |                            |   | 2,039  |      |  |   | 1,253  |   |  |   |      |  
|Weighted average dilutive effect of warrants                             |  |                             | 770    |   |                            |   | 975    |      |  |   | 701    |   |  |   |      |  
|Weighted average dilutive effect of common stock options                 |  |                             | 1,748  |   |                            |   | 1,809  |      |  |   | 1,578  |   |  |   |      |  
|                                                                         |  |                             |        |   |                            |   |        |      |  |   |        |   |  |   |       |  
|Denominator on diluted calculation                                       |  |                             | 13,919 |   |                            |   | 11,301 |      |  |   | 11,967 |   |  |   | 5,695 |  
|                                                                         |  |                             |        |   |                            |   |        |      |  |   |        |   |  |   |       |  
|Diluted net income (loss) per share                                      |  | $                           | 1.14   |   |                            | $ | 0.22   |      |  | $ | 1.16   |   |  | $ | (0.03 | )
|                                                                         |  |                             |        |   |                            |   |        |      |  |   |        |   |  |   |       |  



7



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##### Table of Contents

The following table summarizes potential common shares that are not included in the denominator used in net loss per
common share for the nine months ended March 31, 2003, because to do so would be anti-dilutive for the periods presented:



|                                     |  |                                
|------------------------------------ |  | -------------------------------
|                                     |  | Nine months endedMarch 31, 2003
|Options to purchase common stock     |  | 2,164                          
|Series A convertible preferred stock |  | 760                            
|Series B convertible preferred stock |  | 2,036                          
|Warrants to purchase common stock    |  | 975                            
|                                     |  |                                
|Total                                |  | 5,935                          
|                                     |  |                                



Stock-based
Compensation



Effective July 1, 2002, the Company adopted the fair value
recognition provisions of Statement of Financial Accounting Standards (SFAS) No. 123,Accounting for Stock-Based Compensation (SFAS 123). The Company selected the prospective method, which is one of the three
transition methods allowed by SFAS No. 148,Accounting for Stock-based CompensationTransition and Disclosure, to transition to the fair value method of measuring stock-based compensation expense. Under the prospective method, the
Company expensed only those employee stock options that were granted or modified after July 1, 2002. The majority of awards under the Companys plans vest over a period of four years. The expense associated with stock compensation is amortized
over the vesting period of the individual award using an accelerated method of amortization consistent with the method described in FASB Interpretation No. 28.



The following table illustrates the effect on net income (loss) and earnings per common share had the Company applied the fair value recognition provisions of SFAS No.
123 to stock-based employee compensation (in thousands, except per share amounts) to all outstanding and unvested awards in each period.



|                                                         |  |                             |        |   |                            |   |       |      |  |   |        |   |  |   |       |  
|-------------------------------------------------------- |  | --------------------------- | ------ | - | -------------------------- | - | ----- | ---- |  | - | ------ | - |  | - | ----- | -
|                                                         |  | Three months endedMarch 31, |        |   | Nine months endedMarch 31, |  
|                                                         |  | 2004                        |        |   | 2003                       |   |       | 2004 |  |   | 2003   |  
|Net income (loss) attributable to common stockholders:   |  |                             |        |   |                            |   |       |      |  |   |        |   |  |   |       |  
|As reported                                              |  | $                           | 15,918 |   |                            | $ | 2,510 |      |  | $ | 13,851 |   |  | $ | (196  | )
|Employee stock compensation expenses based on APB No. 25 |  |                             | 4      |   |                            |   | 13    |      |  |   | 14     |   |  |   | 61    |  
|Employee stock compensation expenses based on FAS 123    |  |                             | (18    | ) |                            |   | (22   | )    |  |   | (56    | ) |  |   | (68   | )
|                                                         |  |                             |        |   |                            |   |       |      |  |   |        |   |  |   |       |  
|Pro forma                                                |  | $                           | 15,904 |   |                            | $ | 2,501 |      |  | $ | 13,809 |   |  | $ | (203  | )
|                                                         |  |                             |        |   |                            |   |       |      |  |   |        |   |  |   |       |  
|                                                         |  |                             |        |  
|Net income (loss) per common shareBasic:                |  |                             |        |   |                            |   |       |      |  |   |        |   |  |   |       |  
|BasicAs reported                                        |  | $                           | 1.40   |   |                            | $ | 0.44  |      |  | $ | 1.74   |   |  | $ | (0.03 | )
|Employee stock compensation expenses based on APB No. 25 |  |                             |       |   |                            |   |      |      |  |   |       |   |  |   | 0.01  |  
|Employee stock compensation expenses based on FAS 123    |  |                             |       |   |                            |   |      |      |  |   | (0.01  | ) |  |   | (0.02 | )
|                                                         |  |                             |        |   |                            |   |       |      |  |   |        |   |  |   |       |  
|Pro forma                                                |  | $                           | 1.40   |   |                            | $ | 0.44  |      |  | $ | 1.73   |   |  | $ | (0.04 | )
|                                                         |  |                             |        |   |                            |   |       |      |  |   |        |   |  |   |       |  
|Net income (loss) per common shareDiluted:              |  |                             |        |   |                            |   |       |      |  |   |        |   |  |   |       |  
|DilutedAs reported                                      |  | $                           | 1.14   |   |                            | $ | 0.22  |      |  | $ | 1.16   |   |  | $ | (0.03 | )
|Employee stock compensation expenses based on APB No. 25 |  |                             |       |   |                            |   |      |      |  |   |       |   |  |   | 0.01  |  
|Employee stock compensation expenses based on FAS 123    |  |                             |       |   |                            |   |      |      |  |   | (0.01  | ) |  |   | (0.02 | )
|                                                         |  |                             |        |   |                            |   |       |      |  |   |        |   |  |   |       |  
|Pro forma                                                |  | $                           | 1.14   |   |                            | $ | 0.22  |      |  | $ | 1.15   |   |  | $ | (0.04 | )
|                                                         |  |                             |        |   |                            |   |       |      |  |   |        |   |  |   |       |  



The fair value of each option granted
was estimated on the date of grant using the Black-Scholes option pricing model. As the Black-Scholes option valuation model requires the input of subjective assumptions, the resulting pro forma compensation cost may not be representative of that to
be expected in future periods. The Company used the minimum value method to determine the fair value of options granted prior to its initial filing in September 2003 of a registration statement under the Securities Act of 1933 relating to an initial
public offering of the Companys common stock.



Recently Issued Accounting Standards



Financial Accounting
Standards Board (FASB) Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities, was issued in January 2003, and a revised interpretation of FIN 46 (FIN 46-R) was issued in December 2003. FIN 46 requires certain variable
interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to
finance its activities without additional subordinated financial support from other parties. The Companys adoption of FIN 46 and related guidance did not have a material effect on the Companys financial statements.



In December 2003, the FASB issued Statement of Financial Accounting Standards No. 132
(revised 2003), Employers Disclosures about Pensions and Other Postretirement Benefits. The standard requires that companies provide more details about their plan assets, benefit obligations, cash flows, benefit costs and other relevant
information. The statement provides for expanded pension disclosures regarding the components of plan assets by category, such as equity, debt and real estate. A description of investment policies and strategies and target



8



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##### Table of Contents

allocation percentages, or target ranges, for these asset categories also are required in financial statements. Cash flows disclosures will include
projections of future benefit payments and an estimate of contributions to be made in the next year to fund pension and other postretirement benefit plans. In addition to expanded annual disclosures, companies are required to report the various
elements of pension and other postretirement benefit costs on a quarterly basis. The statement is effective for fiscal years ending after December 15, 2003, and for quarters beginning after December 15, 2003, which for the Company will be the
quarter ending March 31, 2004. Because the revisions to the standard only relate to new disclosures they had no impact on the Companys financial position or results of operations.



|3. | Long-term Obligations
|-- | ---------------------



Long-term Debt



In January 2002, the Company entered into a business line of credit agreement with a bank which was guaranteed by certain members of the Board of Directors. As of June
30, 2003 the balance of the revolving line of credit was zero. In October 2003, the business line of credit was terminated.



|4. | Stockholders Equity
|-- | --------------------



Common Stock



In September 2003, the Companys Board of Directors approved an amendment to the certificate of incorporation and increased the authorized common stock to 50,000
shares, which became effective December 22, 2003.



In September 2003, the
Companys Board of Directors adopted an Employee Stock Purchase Plan under which the first offering period will commence in June 2004. Under the plan, employees of the Company who elect to participate may purchase common stock at 85% of the
lower of the fair market value of the common stock on the commencement date or the ending date of each offering period. The plan permits an enrolled employee to make contributions by having withheld from his or her salary an amount between 1.0% and
10.0% of compensation to purchase shares of common stock. The Company initially reserved 200 shares of common stock for issuance under the plan. The number of shares of common stock reserved for issuance under the plan will automatically be
increased on the first day in January of each calendar year, beginning in calendar year 2004, by an amount equal to the lesser of (i) 3% of the total number of shares of the Companys common stock outstanding on the last trading day in December
of the preceding year or (ii) the lesser of 40 shares of the Companys common stock or such amount as determined by the Companys Board of Directors. On March 31, 2004, the 2003 plans reserve was 240 shares.



In September 2003, the Companys Board of Directors approved the 2003 Stock Incentive
Plan for issuance of stock options and stock purchase rights to employees, directors, and consultants, which became effective in December, 2003. Upon effectiveness of the 2003 plan, the options under the predecessor 1998 and 1999 plans were
transferred to the 2003 plan, and no further options will be granted under the predecessor plans. In addition, the Company has reserved an aggregate of 3,902 shares of common stock for issuance under the 2003 plan which includes the number of shares
to be carried over from the predecessor plans. The number of shares of common stock reserved for issuance under the 2003 plan will automatically be increased on the first day in January each calendar year, beginning in calendar year 2004, by an
amount equal to the lesser of (i) 3% of the total number of shares of the Companys common stock outstanding on the last trading day in December of the preceding year or (ii) the lesser of 625 shares of the Companys common stock or such
amount as determined by the Companys Board of Directors. On March 31, 2004, the 2003 plans reserve was 4,244 shares.



In December 2003, the Company effected a 1-for-3.037716 reverse stock split of its common stock. The accompanying financial statements give retroactive effect to the
reverse stock split for all periods presented.



In December 2003, the Company
completed an initial public offering whereby 4,334 shares of the Companys common stock were sold at an offering price of $15 per share. Of the 4,334 shares sold, 2,668 were sold by the Company and an aggregate of 1,667 shares were sold by
selling shareholders. The Company received net proceeds of approximately $34.6 million in connection with the offering.



Preferred Stock



In August 2003, the Company declared and paid a cash dividend to the holders of the then issued and outstanding Series A and Series B preferred stock in the aggregate
amount of $1,500.



In September 2003, the Companys Board of Directors
approved an amendment to the certificate of incorporation setting the authorized preferred stock to 5,000 shares which became effective December 22, 2003. The preferred stock is blank check preferred, which can be created and issued by
the Board of Directors without stockholder approval, with rights senior to those of common stock. Prior to December 22, 2003, the Companys Board of Directors was authorized to issue 7,300 shares of preferred stock and had designated 300 shares
of the Companys preferred stock as Series A preferred stock and 7,000 shares as Series B preferred stock.



On December 22, 2003 the Series A preferred stock outstanding of 222 shares was converted into 760 shares of common stock. In addition, on December 22, 2003 the Series B
preferred stock outstanding of 5,816 shares was converted into 2,105 shares of common stock.



|5. | Deferred Compensation Plan
|-- | --------------------------



In November 2003, the compensation committee of the Board of Directors approved a Deferred Compensation Plan which became effective in January 2004. The deferred
compensation plan is an unfunded non-qualified plan for the benefit of non-employee directors and highly compensated employees of the Company. The plan permits participants to defer receipt of certain compensation, as well as certain income for
stock option exercises. In addition, the Company may elect to make a matching contribution to any or all of the participants in an amount of fifty percent (50%) of the participants deferred annual base salary or annual bonus, but in no event shall
the matching contributions exceed ten percent (10%) of the participants annual base salary or ten percent (10%) of the participants annual bonus. As of March 31, 2004, the Company had deferred compensation of $67 related to the deferred
compensation plan.



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##### Table of Contents

|6. | Supplemental Executive Retirement Plan
|-- | --------------------------------------



In November 2003, the compensation committee of the Board of Directors approved a Supplemental Executive Retirement Plan (the SERP) which became effective in
January 2004. The SERP is an unfunded non-qualified plan for the benefit of certain designated management and highly compensated employees of the Company. Participants under the SERP will be due a benefit upon early or normal retirement, disability,
death or other termination of employment based on the number of years of service to the Company and the participants final average compensation and reduced by amounts paid under the Deferred Compensation Plan. Amounts due under the SERP will
be paid in equal installments over 15 years commencing at normal retirement (age 65). If an ordinary benefit commences prior to normal retirement, the participant will receive the actuarial equivalent of his or her vested benefit at normal
retirement, generally to be paid over 15 years. The following is a summary of our net periodic benefit cost included the following components for the three and nine months ended March 31:



|                                   |  |                             |    |                            |   |      |  |      |    |  |   |  
|---------------------------------- |  | --------------------------- | -- | -------------------------- | - | ---- |  | ---- | -- |  | - | -
|                                   |  | Three months endedMarch 31, |    | Nine months endedMarch 31,
|                                   |  | 2004                        |    | 2003                       |   | 2004 |  | 2003
|Service cost                       |  | $                           | 52 |                            | $ |     |  | $    | 52 |  | $ | 
|Interest cost                      |  |                             | 10 |                            |   |     |  |      | 10 |  |   | 
|Amortization of prior service cost |  |                             | 6  |                            |   |     |  |      | 6  |  |   | 
|                                   |  |                             |    |                            |   |      |  |      |    |  |   |  
|Net periodic benefit cost          |  | $                           | 68 |                            | $ |     |  | $    | 68 |  | $ | 
|                                   |  |                             |    |                            |   |      |  |      |    |  |   |  



The SERP is an unfunded obligation of
the Company in which earned plan benefits will be paid out of general operating funds as they come due. To offset the cost of the plan, the Company has purchased life insurance policies on all of the participants within the plan. The Company is the
sole beneficiary on these policies. Using this structure and professional actuarial guidance, the Company anticipates that there will be no net cost over the full life of the plan.



|7. | Income Tax
|-- | ----------



During the three months ended March 31, 2004, management reassessed the valuation allowance previously established against net deferred tax assets. Factors considered by management included: the Companys
earnings history, projected earnings based on current operations, and projected future taxable income. Based on this evidence, management concluded that it is more likely than not that the deferred tax assets would be realized. Accordingly, the
Company released the remaining valuation allowance of approximately $12.2 million against its deferred tax assets which consist primarily of net operating loss carryforwards.



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##### Table of Contents

|ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- | -------------------------------------------------------------------------------------



Caution: You should read the following discussion of our financial condition and results of operations in conjunction with the
financial statements and the related notes to those statements included elsewhere in this filing. This discussion and analysis may contain predictions, estimates and other forward-looking statements that involve a number of risks and uncertainties,
including those discussed at Risks and Uncertainties below. This outlook represents our current judgment on the future direction of our business. Such risks and uncertainties could cause actual results to differ materially from any
future performance suggested. We undertake no obligation to release publicly the results of any revisions to these forward-looking statements to reflect events or circumstances arising after the date of this quarterly report. This caution is made
under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.



Provide Commerce, Proflowers®, Uptown
Prime, Cherry Moon Farms and Freshness Factor® are trademarks of Provide Commerce, Inc. We have trademark rights in these
marks in the U.S. and have registrations issued and pending in the U.S. We also have registrations issued or pending for the trademark Proflowers® in Australia, Brazil, Canada, the European Union, Japan, Mexico, New Zealand and Switzerland. This prospectus also refers to brand names, trademarks,
service marks and trade names of other companies and organizations, and these brand names, trademarks, service marks and trade names are the property of their respective holders.



Overview



We operate an e-commerce marketplace of websites for perishable goods that consistently delivers fresh, high-quality products direct from the supplier to the customer at
competitive prices. We combine an online storefront, proprietary supply chain management technology, established supplier relationships and an integrated logistical relationship with FedEx to create a market platform that bypasses traditional supply
chains of wholesalers, distributors and retailers. The benefits to our customers include freshness, quality, price and selection, all with a guaranteed delivery date. The benefits to our suppliers include enhanced margins, broader customer reach and
better inventory management. We believe our business model is highly scalable with low capital investment requirements beyond our existing technology and systems and minimal inventory carrying costs.



We plan to assess and target additional categories based on our market platforms
ability to add value by streamlining the supply chain for the benefit of customers and suppliers. We have identified premium meat and fresh fruit as initial categories where we believe we can leverage our customer base, marketing and distribution
relationships and infrastructure. In October 2003, we launched and are now operating Uptown Prime at www.uptownprime.com, offering premium meats, and Cherry Moon Farms at www.cherrymoonfarms.com, offering fresh premium fruits.



We were incorporated in February 1998 and officially launched our website,
www.proflowers.com, in August 1998. Since inception, we have focused on developing our supply chain management technology, refining our relationship with FedEx, generating flower sales, establishing and promoting our brands, pursuing relationships
with other retailers, and preparing to launch websites featuring additional product offerings.



In December 2003, we completed an initial public offering whereby 4,334,000 shares of our common stock were sold at an offering price of $15 per share. Of the 4,334,000 shares sold, 2,667,667 were sold by us and an
aggregate of 1,667,333 shares were sold by selling stockholders. In January 2004, the underwriters over-allotment option was exercised whereby 316,100 shares of our common stock were sold at an offering price of $15 per share; all of said
shares were sold by selling stockholders. We received net proceeds of approximately $34.6 million in connection with the offering. In addition, 221,715 shares of outstanding Series A preferred stock were converted into 760,383 shares of common stock
and 5,816,285 shares of outstanding Series B preferred stock were converted into 2,104,853 shares of common stock.



To date, we have derived our revenues primarily from the sale of flowers, plants and gifts from our www.proflowers.com website. For the three months ended March 31, 2004,
we reported net sales of $40.7 million, an increase of 41.3% from $28.8 million for the three months ended March 31, 2003, and net income of $15.9 million as compared to net income of $2.5 million for the same quarter in the prior year. For the nine
months ended March 31, 2004, we reported net sales of $76.9 million, an increase of 41.4% from $54.4 million for the nine months ended March 31, 2003, and net income of $15.4 million as compared to a net loss of $(0.2) million for the same period in
the prior year.





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##### Table of Contents

Results of Operations



The following table sets forth our results of operations expressed as a percentage of net sales for the three- and nine month periods ended March 31, 2004, and 2003:



|                                |  |                           |   |  |                          |   |  |       |   |  |       |   
|------------------------------- |  | ------------------------- | - |  | ------------------------ | - |  | ----- | - |  | ----- | --
|                                |  | Three MonthsEnded Mar 31, |   |  | Nine MonthsEnded Mar 31, |  
|                                |  | 2004                      |   |  | 2003                     |   |  | 2004  |   |  | 2003  |   
|Statement of Operations Data:   |  |                           |   |  |                          |   |  |       |   |  |       |   
|Net sales                       |  | 100.0                     | % |  | 100.0                    | % |  | 100.0 | % |  | 100.0 | % 
|Cost of sales                   |  | 53.6                      |   |  | 55.5                     |   |  | 54.9  |   |  | 57.5  |   
|                                |  |                           |   |  |                          |   |  |       |   |  |       |   
|Gross profit                    |  | 46.4                      |   |  | 44.5                     |   |  | 45.1  |   |  | 42.5  |   
|                                |  |                           |   | 
|Operating expenses:             |  |                           |   |  |                          |   |  |       |   |  |       |   
|Selling and marketing           |  | 21.7                      |   |  | 21.3                     |   |  | 22.1  |   |  | 22.3  |   
|General and administrative      |  | 10.9                      |   |  | 10.9                     |   |  | 13.1  |   |  | 14.5  |   
|Information technology systems  |  | 2.6                       |   |  | 3.2                      |   |  | 3.8   |   |  | 4.7   |   
|Stock-based compensation        |  | 1.4                       |   |  | 0.2                      |   |  | 1.7   |   |  | 0.6   |   
|                                |  |                           |   |  |                          |   |  |       |   |  |       |   
|Total operating expenses        |  | 36.6                      |   |  | 35.6                     |   |  | 40.7  |   |  | 42.1  |   
|                                |  |                           |   |  |                          |   |  |       |   |  |       |   
|Operating income                |  | 9.8                       |   |  | 8.9                      |   |  | 4.4   |   |  | 0.4   |   
|Other income (expense), net     |  | 0.4                       |   |  | (0.2                     | ) |  | 0.3   |   |  | (0.8  | ) 
|                                |  |                           |   |  |                          |   |  |       |   |  |       |   
|Income (loss) before income tax |  | 10.2                      |   |  | 8.7                      |   |  | 4.7   |   |  | (0.4  | ) 
|Income tax benefit              |  | 28.9                      |   |  |                         |   |  | 15.3  |   |  |      |   
|                                |  |                           |   |  |                          |   |  |       |   |  |       |   
|Net income (loss)               |  | 39.1                      | % |  | 8.7                      | % |  | 20.0  | % |  | (0.4  | %)
|                                |  |                           |   |  |                          |   |  |       |   |  |       |   



Net Sales



|          |  |                                   |      |      |                             |                      |  |      |      |  |      |      |                      |   |      |  |      |  
|--------- |  | --------------------------------- | ---- | ---- | --------------------------- | -------------------- |  | ---- | ---- |  | ---- | ---- | -------------------- | - | ---- |  | ---- | -
|          |  | Three Months Ended March 31,      |      |      | Nine Months Ended March 31, |                     
|          |  | 2004                              |      | 2003 |                             | % Increase(Decrease) |  |      | 2004 |  | 2003 |      | % Increase(Decrease) |  
|          |  | (In millions, except percentages) |     
|Net sales |  | $                                 | 40.7 |      | $                           | 28.8                 |  | 41.3 | %    |  | $    | 76.9 |                      | $ | 54.4 |  | 41.4 | %



Our net sales are derived primarily
from the sale of flowers, plants and gifts from our www.proflowers.com website. We also generate net sales from fees that we receive from retailers for whom we design and operate websites to sell perishable products under their own brands.



The increase in sales for the quarter and nine months ended March 31, 2004,
compared to the same periods last year resulted primarily from an increase in the number of orders by new and existing customers, as shown below.



|                                    |  |                              |              |      |                             |                      |  |      |      |  |      |              |                      |   |              |  |      |  
|----------------------------------- |  | ---------------------------- | ------------ | ---- | --------------------------- | -------------------- |  | ---- | ---- |  | ---- | ------------ | -------------------- | - | ------------ |  | ---- | -
|                                    |  | Three Months Ended March 31, |              |      | Nine Months Ended March 31, |                     
|                                    |  | 2004                         |              | 2003 |                             | % Increase(Decrease) |  |      | 2004 |  | 2003 |              | % Increase(Decrease) |  
|Database of customers at period end |  |                              | 2,700,000    |      |                             | 1,900,000            |  | 42.1 | %    |  |      | 2,700,000    |                      |   | 1,900,000    |  | 42.1 | %
|Orders placed by existing customers |  |                              | 362,000      |      |                             | 227,000              |  | 59.5 | %    |  |      | 804,000      |                      |   | 561,000      |  | 43.3 | %
|Revenue from repeat orders          |  | $                            | 19.1 million |      | $                           | 12.8 million         |  | 49.2 | %    |  | $    | 40.7 million |                      | $ | 28.8 million |  | 41.3 | %
|New customers                       |  |                              | 330,000      |      |                             | 242,000              |  | 36.4 | %    |  |      | 583,000      |                      |   | 414,000      |  | 40.8 | %
|Average order value                 |  | $                            | 53.27        |      | $                           | 53.00                |  | 0.5  | %    |  | $    | 49.24        |                      | $ | 48.83        |  | .8   | %



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Growth in the number of new customers for both the three and nine months ended March 31, 2004 is a result of our
advertising and marketing campaigns which are designed to attract and maintain customers. We believe continued strength in repeat orders is a result of our strong customer satisfaction and our retention marketing efforts.



In October 2003, we launched and are now operating Uptown Prime at www.uptownprime.com,
offering premium meats, and Cherry Moon Farms at www.cherrymoonfarms.com, offering fresh premium fruits. We expect premium meat and fresh premium fruit net sales to grow in significance to our business as we develop and deploy our premium meat and
fresh premium fruit websites. We expect that approximately 1.5% of our revenues will be derived from premium meats and fresh premium fruits in fiscal 2004. You must consider our prospects for expanding our premium meat and fresh premium fruit
revenues during fiscal 2004 and beyond in light of the risks associated with expanding into new product categories and the other risks outlined in Risks and Uncertainties below.



We intend to grow our existing flower and new meat, fruit and other product categories via
arrangements with other branded retailers and direct marketers. We offer a variety of arrangements for branded retailers or direct marketers that want to use our market platform to offer perishable products, including a co-branded website, a private
label website or a hybrid of the two. The arrangements are currently structured to involve a combination of revenue sharing and fee-based agreements. For revenue sharing agreements, we pay the retailer a portion of the revenues generated from its
website. Fee-based retailer arrangements involve a combination of up-front development costs and per-transaction fees paid to us by the retailer. Currently, our branded retailer arrangements regardless of the payment structure represent an
immaterial percentage of our net sales for the three and nine months ended March 31, 2004. You must consider our prospects for expanding through relationships with other branded retailers and direct marketers in light of the risks outlined in
Risks and Uncertainties below.



Gross Profit



|                        |  |                                   |      |   |                             |   |      |                      |  |      |      |  |   |      |   |  |                      |      |   |  |      |  
|----------------------- |  | --------------------------------- | ---- | - | --------------------------- | - | ---- | -------------------- |  | ---- | ---- |  | - | ---- | - |  | -------------------- | ---- | - |  | ---- | -
|                        |  | Three Months Ended March 31,      |      |   | Nine Months Ended March 31, |  
|                        |  | 2004                              |      |   | 2003                        |   |      | % Increase(Decrease) |  |      | 2004 |  |   | 2003 |   |  | % Increase(Decrease) |     
|                        |  | (In millions, except percentages) |     
|Gross profit            |  | $                                 | 18.9 |   |                             | $ | 12.8 |                      |  | 47.7 | %    |  | $ | 34.7 |   |  | $                    | 23.2 |   |  | 49.6 | %
|Gross profit percentage |  |                                   | 46.4 | % |                             |   | 44.5 | %                    |  | 4.3  | %    |  |   | 45.1 | % |  |                      | 42.5 | % |  | 6.1  | %



Our gross profit consists of net sales
less cost of sales. Our cost of sales consists primarily of flower and other product costs and shipping charges. Other costs included in cost of sales are grower and delivery supply costs, distribution facility labor costs and the cost of
replacement products.



The increase in the gross margin in absolute dollars for
the three months ended March 31, 2004 compared to the same period last year is a result of increased revenues combined with essentially no increase in per unit cost of our products and accessories and a more profitable mix of product lines and
products. These benefits were partially offset by an increase in the cost and number of replacement products shipped during the quarter as a result of the Saturday surcharge for delivery on Valentines day and late deliveries.



The increase in the gross margin in absolute dollars for the first nine months of the year
compared to the same period last year is a result of the strong growth in revenues. In addition, we experienced a more profitable mix of product lines and products, a decline in the cost of our accessories due to renegotiating certain costs, very
low growth in the per unit cost of our products and a reduced sales tax expense due to collecting a higher percentage of remitted sales taxes from our customers.



The increase in the gross profit percentage for the three months ended March 31, 2004 compared to the same period last year was a result of
focused marketing to more profitable product lines and productsparticularly within our



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business-to-business sales activities, and a reduction in the cost of accessories, combined with maintained costs of product and other costs. The increase in
the gross profit percentage year-to-date compared to the same period last year was also a result of focused marketing to more profitable product lines and productsparticularly within our business-to-business sales activities and costs savings
in product and accessory costs along with a reduction in sales tax expense due to improved collections.



We expect that our gross profit will fluctuate in the future as we expand into new product categories based upon our product mix, average order value, product costs, shipping costs, product return and refund rates and
handling and packaging costs for the various products.



Selling and Marketing



|                          |  |                                   |      |   |                             |   |      |                      |  |      |      |  |   |      |   |  |                      |      |   |  |      |   
|------------------------- |  | --------------------------------- | ---- | - | --------------------------- | - | ---- | -------------------- |  | ---- | ---- |  | - | ---- | - |  | -------------------- | ---- | - |  | ---- | --
|                          |  | Three Months Ended March 31,      |      |   | Nine Months Ended March 31, |  
|                          |  | 2004                              |      |   | 2003                        |   |      | % Increase(Decrease) |  |      | 2004 |  |   | 2003 |   |  | % Increase(Decrease) |     
|                          |  | (In millions, except percentages) |     
|Selling and marketing     |  | $                                 | 8.8  |   |                             | $ | 6.1  |                      |  | 44.3 | %    |  | $ | 17.0 |   |  | $                    | 12.2 |   |  | 39.3 | % 
|As a percent of net sales |  |                                   | 21.7 | % |                             |   | 21.4 | %                    |  | 1.4  | %    |  |   | 22.1 | % |  |                      | 22.4 | % |  | (1.3 | )%



Our selling and marketing expenses
consist primarily of advertising costs, wages and related payroll benefits for our category development and marketing and customer service staff, affiliate fees and commissions, focus groups and other research expenses. Advertising expenses are
generally expensed as incurred. For advertising contracts which cover an extended period of time, the costs are expensed over the life of the contract based on the specifics of the contract, such as orders placed, radio spots run or Internet
advertisements placed. Our advertising efforts target the acquisition of new customers and repeat orders from existing customers.



The increase in absolute marketing costs for the three months ended March 31, 2004 compared to the same period last year is primarily due to increased variable costs as a
result of increased sales volume. Specifically, there was an increase in on-line advertising and radio advertising which both grew at a rate faster than our growth in revenue. In addition, we experienced an increase in catalog production and
distribution costs for the quarter. Costs related to our spring catalog are completely incremental since we did not have a spring catalog last year. The increase was also affected by an increase in temporary help associated with customer service
during the Valentines Day holiday period.



The increase in the marketing
for the nine months ended March 31, 2004 compared to the same period in fiscal 2003 is primarily due to an increase in on-line and off-line advertising and promotional costs which grew faster than our revenue as a result of increased marketing
activities in order to generate additional revenue. This includes increased activity in direct on-line advertising and radio advertising. In addition, we had an increase in wages and wage related expenses as our marketing staff headcount has
increased in order to drive increases in revenue.



The increase in marketing
costs for the three months ended March 31, 2004 as a percentage of sales compared to the same period last year is primarily a result of increased costs related to online advertising and the production of our catalog. These costs were partially
offset by a reduction in our television advertising expenses and a reduction in payroll and related expenses as a percentage of revenue. The decrease in marketing costs for the nine months ended March 31, 2004 as a percentage of net sales compared
to the same period last year was caused primarily by a decrease in payroll costs as a percentage of sales, as revenue increased faster than payroll costs and a decrease in our outside public relations costs as the work was brought in-house. These
cost savings were partially offset by an increase in the cost of on-line and off-line advertising.



We expect selling and marketing expenses to continue to increase in absolute dollars in the future as a result of continued expansion of our sales and marketing infrastructure in support of a broader product
portfolio. While we currently expect selling and marketing expenses to increase in absolute dollars, we expect them to remain generally comparable as a percentage of net sales throughout fiscal 2004.



General and Administrative



|                           |  |                                   |      |   |                             |   |      |                      |  |      |      |  |   |      |   |  |                      |      |   |  |      |   
|-------------------------- |  | --------------------------------- | ---- | - | --------------------------- | - | ---- | -------------------- |  | ---- | ---- |  | - | ---- | - |  | -------------------- | ---- | - |  | ---- | --
|                           |  | Three Months Ended March 31,      |      |   | Nine Months Ended March 31, |  
|                           |  | 2004                              |      |   | 2003                        |   |      | % Increase(Decrease) |  |      | 2004 |  |   | 2003 |   |  | % Increase(Decrease) |     
|                           |  | (In millions, except percentages) |     
|General and administrative |  | $                                 | 4.4  |   |                             | $ | 3.1  |                      |  | 41.9 | %    |  | $ | 10.1 |   |  | $                    | 7.9  |   |  | 27.8 | % 
|As a percent of net sales  |  |                                   | 10.9 | % |                             |   | 10.9 | %                    |  |     | %    |  |   | 13.1 | % |  |                      | 14.5 | % |  | (9.7 | )%



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Our general and administrative expenses consist primarily of wages and related payroll benefits for our employees, except
those associated with fulfillment, customer service, technology and sales and marketing employees. These expenses also include credit card fees, facilities costs (other than facilities costs associated with cost of goods sold), bad debt expense,
travel, legal and accounting professional fees, insurance, phone, utilities, other facility-related expenses and other general corporate expenses.



The increase in absolute general and administrative expenses for the quarter ended March 31, 2004 compared to the same quarter last year is primarily due to an increase
in bad debts due to chargebacks on credit cards, an increase in salaries and related payroll benefits and an increase in insurance costs as a result of being a public company. After Valentines day, we implemented the requirement that credit
card users supply the cards security code in order to place an order on the website. We anticipate that this will help us control our bad debt expense due to chargebacks going forward.



The increase in absolute general and administrative expenses for the nine months ended March
31, 2004 compared to the same period last year is primarily due to an increase in bad debts due to chargebacks on credit cards, an increase in salaries and related payroll benefits and an increase in insurance costs as a result of becoming a public
company. The decline as a percentage of net sales was caused primarily by our rapid revenue growth, which outpaced our growth in general and administrative expenses.



We expect general and administrative expenses to continue to increase in absolute dollars in the future as a result of continued expansion
of our administrative infrastructure in support of a broader technology and product portfolio and increased expenses associated with being a public company. However, we also anticipate that general and administrative expenses will continue to
decrease as a percentage of net sales as a result of net sales growing faster than general and administrative expenses.



Information Technology Systems



|                          |  |                                   |     |   |                             |   |     |                      |  |       |      |  |   |      |   |  |                      |     |   |  |       |   
|------------------------- |  | --------------------------------- | --- | - | --------------------------- | - | --- | -------------------- |  | ----- | ---- |  | - | ---- | - |  | -------------------- | --- | - |  | ----- | --
|                          |  | Three Months EndedMarch 31,       |     |   | Nine Months Ended March 31, |  
|                          |  | 2004                              |     |   | 2003                        |   |     | % Increase(Decrease) |  |       | 2004 |  |   | 2003 |   |  | % Increase(Decrease) |    
|                          |  | (In millions, except percentages) |    
|Information technology    |  | $                                 | 1.1 |   |                             | $ | 0.9 |                      |  | 22.2  | %    |  | $ | 2.9  |   |  | $                    | 2.5 |   |  | 16.0  | % 
|As a percent of net sales |  |                                   | 2.6 | % |                             |   | 3.2 | %                    |  | (18.8 | )%   |  |   | 3.8  | % |  |                      | 4.7 | % |  | (19.1 | )%



Our information technology system
expenses consist primarily of wages and related payroll benefits for information technology personnel, engineering consulting expenses, quality assurance and testing costs and outside services, including hosting of our Internet servers. Information
technology system expenses are expensed as incurred. Information technology system expenses are net of software capitalization of major site and product development efforts under Statement of Position 98-1, Accounting for Costs of Computer
Software Developed or Obtained for Internal Use.



The increase in
information technology costs in absolute dollars for the quarter compared to the same quarter last year is a result of a an increase in payroll and related benefits, an increase in the cost of maintaining our servers, and an increase in temporary
contract labor. These increases are necessary to support the infrastructure necessary for continued growth of revenues.



The increase in information technology costs in absolute dollars for the first nine months of the year compared to the same period last year is a result of an increase in
payroll and related benefits and an increase in the use of contract labor for software development. The payroll and contract labor increases are necessary to support the infrastructure necessary for continued growth of revenues.



The decline as a percentage of net sales for the three and nine months ended March 31, 2004
as compared to the same periods in the previous year was caused primarily by our rapid revenue growth, which outpaced our growth in information technology system expenses combined with capitalized information technology expenditures.



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We expect information technology system expenses to increase in absolute dollars in fiscal 2004 compared to fiscal 2003
and to continue to decrease as a percentage of net sales as a result of net sales growing faster than information technology system expenses.



Stock-based Compensation



|                          |  |                                   |      |   |                             |   |      |                      |  |       |      |  |   |      |   |  |                      |      |   |  |       |  
|------------------------- |  | --------------------------------- | ---- | - | --------------------------- | - | ---- | -------------------- |  | ----- | ---- |  | - | ---- | - |  | -------------------- | ---- | - |  | ----- | -
|                          |  | Three Months Ended March 31,      |      |   | Nine Months Ended March 31, |  
|                          |  | 2004                              |      |   | 2003                        |   |      | % Increase(Decrease) |  |       | 2004 |  |   | 2003 |   |  | % Increase(Decrease) |     
|                          |  | (In millions, except percentages) |     
|Stock-based compensation  |  | $                                 | 0.55 |   |                             | $ | 0.06 |                      |  | 816.7 | %    |  | $ | 1.3  |   |  | $                    | 0.31 |   |  | 319.4 | %
|As a percent of net sales |  |                                   | 1.3  | % |                             |   | 0.2  | %                    |  | 550.0 | %    |  |   | 1.7  | % |  |                      | 0.6  | % |  | 183.3 | %



Stock-based compensation increased
during the quarter as compared to last year due the amortization of compensation expense related to options granted in connection with the retention of key employees and hiring of new employees as outlined in filings with the SEC. The increase is
due to both an increase in the number of options issued and a higher cost per option as a result of the increase in the market price of our common stock. Stock-based compensation for the first nine months of the year also increased as a result of
the amortization of expense related to the grant of options prior to the initial public offering, as discussed above. Prior to fiscal 2003, we accounted for stock-based employee compensation arrangements under the recognition and measurement
provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. Effective July 1, 2002, we adopted the fair value recognition provisions of SFAS No. 123. We selected the prospective method of adoption
described in SFAS No. 148, Accounting for Stock-Based CompensationTransition and Disclosure. This method applies fair value accounting to all new grants and modification or settlement of old grants after the beginning of the year of
adoption. All grants prior to our adoption of SFAS No. 123 will continue to be accounted for under the intrinsic value provision of APB No. 25.



Other Income (Expense), Net



|                            |  |                                   |      |                             |      |   |       |                      |  |      |  |   |       |   |  |                      |       |    |  |    
|--------------------------- |  | --------------------------------- | ---- | --------------------------- | ---- | - | ----- | -------------------- |  | ---- |  | - | ----- | - |  | -------------------- | ----- | -- |  | ---
|                            |  | Three Months Ended March 31,      |      | Nine Months Ended March 31,
|                            |  | 2004                              |      |                             | 2003 |   |       | % Increase(Decrease) |  | 2004 |  |   | 2003  |   |  | % Increase(Decrease)
|                            |  | (In millions, except percentages)
|Other income (expense), net |  | $                                 | 0.15 |                             |      | $ | (0.05 | )                    |  | N/A  |  | $ | 0.186 |   |  | $                    | (0.42 | )  |  | N/A
|As a percent of net sales   |  |                                   | 0.4  | %                           |      |   | (0.2  | )%                   |  | N/A  |  |   | 0.2   | % |  |                      | (0.8  | )% |  | N/A



Other income (expense), net included
in the statements of operations primarily consists of interest income and interest expense.



The improvement in other income for the quarter and year-to-date compared to the same periods last year was a result of a reduction in interest expense related to warrants issued in connection with our bank line of
credit which was terminated in October 2003. In addition, interest income was higher than last year as a result of an increased cash balance throughout the quarter and as a result of our initial public offering in December 2003 and cash generated
from operations.



Income Tax Benefit



|                   |  |                                   |      |                             |   |                      |  |      |  |      |      |                      |   |   |  |    
|------------------ |  | --------------------------------- | ---- | --------------------------- | - | -------------------- |  | ---- |  | ---- | ---- | -------------------- | - | - |  | ---
|                   |  | Three Months Ended March 31,      |      | Nine Months Ended March 31,
|                   |  | 2004                              |      | 2003                        |   | % Increase(Decrease) |  | 2004 |  | 2003 |      | % Increase(Decrease)
|                   |  | (In millions, except percentages)
|Income tax benefit |  | $                                 | 11.8 |                             | $ |                     |  | N/A  |  | $    | 11.8 |                      | $ |  |  | N/A



The income tax benefit reflects a
benefit of $12.2 million from the removal of the valuation allowance, net of income tax expense on operations in the amount of $(0.4) million for the current quarter.



A valuation allowance was originally recorded against our net deferred tax assets, which primarily consist of net operating loss
carryforwards. The valuation allowance was originally established because we had not reached certain financial thresholds to be able to determine that it was more likely than not that we would generate future income to offset the net operation loss
carryforwards.



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During the three months ended March 31, 2004, management reassessed the valuation allowance previously established
against net deferred tax assets. Factors considered by management included: the Companys earnings history, projected earnings based on current operations, and projected future taxable income. Based on this evidence, management concluded that
it is more likely than not that the deferred tax assets would be realized. Accordingly, the Company released the remaining valuation allowance of approximately $12.2 million against its deferred tax assets which consist primarily of net operating
loss carryforwards.



The reversal of the valuation allowance recognized our
deferred tax assets, and resulted in the recognition of a tax benefit in the three months ended March 31, 2004. The favorable impact of the tax benefit has distorted the trends in our net income and will impact the comparability of our net income
with other periods.



Net Income (Loss)



|                          |  |                                   |      |   |                            |   |     |                      |  |       |      |  |   |      |   |  |                      |      |    |  |    
|------------------------- |  | --------------------------------- | ---- | - | -------------------------- | - | --- | -------------------- |  | ----- | ---- |  | - | ---- | - |  | -------------------- | ---- | -- |  | ---
|                          |  | Three Months EndedMarch 31,       |      |   | Nine Months EndedMarch 31,
|                          |  | 2004                              |      |   | 2003                       |   |     | % Increase(Decrease) |  |       | 2004 |  |   | 2003 |   |  | % Increase(Decrease)
|                          |  | (In millions, except percentages)
|Net income (loss)         |  | $                                 | 15.9 |   |                            | $ | 2.5 |                      |  | 536.0 | %    |  | $ | 15.4 |   |  | $                    | (0.2 | )  |  | N/A
|As a percent of net sales |  |                                   | 39.1 | % |                            |   | 8.7 | %                    |  | 348.0 | %    |  |   | 20.0 | % |  |                      | (0.4 | )% |  | N/A



The change in net income (loss) is a
result of the changes in revenues and expenses as previously discussed.



Liquidity and Capital Resources



|                |  |                                   |      |              |   |                      |  |       |  
|--------------- |  | --------------------------------- | ---- | ------------ | - | -------------------- |  | ----- | -
|                |  | March 31,2004                     |      | June 30,2003 |   | % Increase(Decrease) | 
|                |  | (In millions, except percentages) |     
|Working capital |  | $                                 | 38.9 |              | $ | 3.8                  |  | 923.7 | %
|Cash balance    |  | $                                 | 51.8 |              | $ | 11.5                 |  | 350.4 | %



Since our inception, we have financed
our operations through sales of stock, and, more recently, internally generated cash flows from operations. The increases in working capital and cash at March 31, 2004 over June 30, 2003 resulted primarily from the receipt of the net proceeds of
$34.6 million from our initial public offering, completed in December 2003.



Net cash provided by operating activities was $9.5 million for the nine months ended March 31, 2004. The generation of cash from operations during the nine months ended March 31, 2004 is primarily a result of an increase in current
liabilities in combination with cash flow from revenues, less expensenet of non-cash expenses such as depreciation and stock-based compensation. The increase in accounts payable and other accrued liabilities is primarily due to the increase in
costs associated to increased sales activity during the second half of the year. The majority of the accounts payable and accrued liabilities at March 31, 2004 will be paid in the fourth quarter of fiscal 2004.



We use cash in investing activities primarily to purchase computer hardware and software,
office equipment and furniture. Cash provided by (used in) investing activities totaled $(2.3) million in the nine months ended March 31, 2004.



Net cash provided by financing activities was $33.1 million for the nine months ended March 31, 2004. Cash provided by financing activities for the nine months ended
March 31, 2004 consists primarily of proceeds from our initial public offering net of associated costs in our second fiscal quarter offset by a cash dividend to preferred shareholders in the first fiscal quarter. Upon completion of the initial
public offering, the preferred stock outstanding was converted to common stock. We currently intend to retain all available funds to support our operations and to finance the growth and development of our business.



Effective October 2003, we terminated our bank line of credit due to our improved cash
position.



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We believe that our available cash and cash flows from operations will be sufficient to satisfy our working capital and
capital expenditure requirements for at least the next 12 months. Changes in our operating plans, lower than anticipated revenues, increased expenses or other events, including those described in Risk and Uncertainties below, may cause
us to seek additional debt or equity financing in the future. Financing may not be available on acceptable terms, or at all, and our failure to raise capital when needed could negatively impact our growth plans and our financial condition and
results of operations. Additional equity financing may be dilutive to the holders of our common stock and debt financing, if available, may involve significant cash payment obligations and covenants and/or financial ratios that restrict our ability
to operate our business.



Critical Accounting Policies



Certain of our accounting policies require the application of management
judgment in making estimates and assumptions that affect the amounts reported in the financial statements and disclosures made in the accompanying notes. Those estimates and assumptions are based on historical experience and various other factors
deemed to be applicable and reasonable under the circumstances. The use of judgment in determining such estimates and assumptions is by nature, subject to a degree of uncertainty. Accordingly, actual results could differ from the estimates made.
Management believes there have been no material changes during the nine month period ended March 31, 2004 to the critical accounting policies reported in the Managements Discussion and Analysis section of our prospectus dated December 17,
2003, as filed with the Securities and Exchange Commission.



Recently Issued
Accounting Standards



Financial Accounting Standards Board (FASB)
Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities, was issued in January 2003, and a revised interpretation of FIN 46 (FIN 46-R) was issued in December 2003. FIN 46 requires certain variable interest entities to be
consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. The Companys adoption of FIN 46 and related guidance did not have a material effect on the Companys financial statements.



In December 2003, the FASB issued Statement of Financial Accounting Standards No. 132
(revised 2003), Employers Disclosures about Pensions and Other Postretirement Benefits. The standard requires that companies provide more details about their plan assets, benefit obligations, cash flows, benefit costs and other relevant
information. The statement provides for expanded pension disclosures regarding the components of plan assets by category, such as equity, debt and real estate. A description of investment policies and strategies and target allocation percentages, or
target ranges, for these asset categories also are required in financial statements. Cash flows disclosures will include projections of future benefit payments and an estimate of contributions to be made in the next year to fund pension and other
postretirement benefit plans. In addition to expanded annual disclosures, companies are required to report the various elements of pension and other postretirement benefit costs on a quarterly basis. The statement is effective for fiscal years
ending after December 15, 2003, and for quarters beginning after December 15, 2003, which for the Company will be the quarter ending March 31, 2004. Because the revisions to the standard only relate to new disclosures they had no impact on the
Companys financial position or results of operations.



Risks and
Uncertainties



The following is a summary description of some of the
many risks we face in our business. You should carefully review these risks in evaluating our business. You should also consider the other information described in this report.



Our quarterly operating results may fluctuate significantly. You should not rely on them as an indication of our future results.



Our future revenues and results of operations may fluctuate
significantly from quarter to quarter due to a combination of factors, many of which are outside of our control. The most important of these factors include:



| |  | seasonality;
| | - | ------------



| |  | the timing and effectiveness of marketing programs;
| | - | ---------------------------------------------------



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| |  | our ability to enter into and renew key corporate and strategic partnerships;
| | - | -----------------------------------------------------------------------------



| |  | our ability to enter into or renew key marketing arrangements;
| | - | --------------------------------------------------------------



| |  | our ability to compete with traditional and Internet retailers;
| | - | ---------------------------------------------------------------



| |  | the ability of us and our competitors to deliver high-quality perishable products to customers in a timely manner;
| | - | ------------------------------------------------------------------------------------------------------------------



| |  | the condition of the retail economy; and
| | - | ----------------------------------------



| |  | the timing and effectiveness of capital expenditures.
| | - | -----------------------------------------------------



We may be unable to adjust spending quickly enough to offset any unexpected revenue shortfall resulting from any of these or other factors. If we have a shortfall in
revenue in relation to our expenses, our operating results will suffer. Our operating results for any particular period may not be indicative of future operating results. You should not rely on quarter-to-quarter comparisons of results of operations
as an indication of our future performance. In future periods, it is possible that our results of operations may be below the expectations of public market analysts and investors. This could cause the trading price of our common stock to fall.



We achieved annual net income for the first time during our fiscal 2003,
and we cannot assure you we will continue to operate profitably.



We
achieved annual net income for the first time in our corporate history during fiscal 2003. We may not be able to continue to achieve positive net income in our current or future fiscal years, especially as we introduce new product categories. We
expect our operating expenses to increase in the future, as we, among other things:



| |  | expand into new product categories and accessories for our existing product lines;
| | - | ----------------------------------------------------------------------------------



| |  | continue with our marketing efforts to build our brand names;
| | - | -------------------------------------------------------------



| |  | expand our customer base;
| | - | -------------------------



| |  | establish research and development efforts to advance our proprietary supply chain technology and develop new technology;
| | - | -------------------------------------------------------------------------------------------------------------------------



| |  | upgrade our operational and financial systems, procedures and controls;
| | - | -----------------------------------------------------------------------



| |  | assume the responsibilities of being a public company; and
| | - | ----------------------------------------------------------



| |  | retain existing personnel and hire additional personnel.
| | - | --------------------------------------------------------



After investment in items including those described above, we expect to maintain profitability for fiscal 2004 and for the foreseeable future, although no assurances can
be made that we will be profitable. In order to maintain profitability as we expand into new product categories, we will need to generate revenues exceeding historical levels and/or reduce relative operating expenditures. We do not have experience
offering product categories other than flowers. We may not be able to generate the required revenues from flowers and other perishable products or reduce operating expenses sufficiently to sustain or increase operating profitability. If we have a
shortfall in revenue without a corresponding reduction to our expenses, our operating results may suffer. It is possible that results of operations may be below the expectations of public market analysts and investors, which could cause the trading
price of our common stock to fall.



We have operated our flower category
for approximately five years and our premium meat and fresh fruit categories for less than seven months. This limited operating history makes evaluating our business and its prospects difficult.



We have a limited operating history on which an investor can evaluate our business. We were
incorporated in February 1998 and officially launched our website, www.proflowers.com, in August 1998. We have generated substantially all of our revenues during the past five years from the sale of flowers. We began selling premium meat and fresh
fruit in October 2003. An investor in our common stock must consider the risks, uncertainties and difficulties frequently encountered by companies in new and rapidly evolving online retail markets such as these we have targeted. If we do not
successfully manage these risks or successfully execute our business strategy, our business, results of operations and financial condition will be adversely affected.



Utilization of our deferred tax assets is dependent on future taxable income.



We have a federal tax net operating loss carryforwards at March 31, 2004 of approximately
$36 million, which represents a substantial amount of our deferred tax assets. In calculating our tax provision, and assessing the likelihood that we will be able to utilize the deferred tax assets, we have considered and weighed all of the
evidence, both positive and negative, and both objective and subjective. We have factored in the inherent risk of forecasting revenue and



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expenses over an extended period of time. We have also considered the potential risks associated with our business, as outlined in other risk factors in this
prospectus, and have taken into account material permanent differences in the treatment of revenue and expenses for purposes of financial reporting and tax accounting, such as the treatment of stock options, limitation on meals and entertainment and
stock based compensation.



Based on current information, and sufficient
positive evidence, particularly the fact that we have reported taxable income for the past two fiscal years, generated taxable income through the first nine months of this fiscal year, and forecasted future book and tax income, we have reversed the
valuation allowance during the three and nine months ended March 31, 2004. Although we anticipate generating future taxable income, we cannot guarantee that we will generate sufficient taxable income to fully utilize our deferred tax assets.



If our customers do not find our expanded product categories appealing
or if we are unable to successfully leverage our business strategy into our new product categories, our business may suffer.



We are planning to expand our product lines into other categories of perishable goods. For example, in October 2003 we launched and are now operating Uptown Prime
offering premium meats and Cherry Moon Farms offering fresh fruits. In expanding our categories, we intend to leverage our e-commerce platform, marketing and shipping relationships and customer base to develop these perishable product opportunities
for us and other retailers using our platform to offer perishable products. While our market platform has been incorporated into and tested in the online floral retail market, we cannot predict whether it can be successfully applied to other
perishable product categories. In addition, expansion of our business strategy into new product categories will require us to incur significant marketing expenses, develop relationships with new suppliers and comply with new regulations. These
requirements could strain our management, financial and operational resources. Additional challenges that may affect our ability to expand into new product categories include our ability to:



| |  | establish or increase awareness of our new brands and product categories;
| | - | -------------------------------------------------------------------------



| |  | acquire, attract and retain customers at a reasonable cost;
| | - | -----------------------------------------------------------



| |  | achieve and maintain a critical mass of customers and orders across all of our product categories;
| | - | --------------------------------------------------------------------------------------------------



| |  | maintain or improve our gross margins and fulfillment costs;
| | - | ------------------------------------------------------------



| |  | compete effectively in highly competitive markets for the sale of perishable goods online;
| | - | ------------------------------------------------------------------------------------------



| |  | attract and retain suppliers to provide our expanded line of perishable products to our customers on terms that are acceptable to us; and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------



| |  | establish ourselves as an important participant in the market for perishable products, such as premium meat and fresh fruit.
| | - | ----------------------------------------------------------------------------------------------------------------------------



We cannot be certain that we will be able to successfully address any or all of these
challenges in a manner that will enable us to expand our business into new product categories in a cost-effective or timely manner. If our new product categories are not received favorably by consumers, our reputation and the value of the applicable
new brand and our other brands could be damaged. The lack of market acceptance of our new product categories or our inability to generate satisfactory revenues from any expanded product categories to offset their cost could harm our business.



We depend on a single third-party carrier, and the failure of this
carrier to deliver our product offerings in a timely or accurate manner could harm our business.



We currently rely exclusively on a single third-party carrier, FedEx, for shipments of our products to customers. We are therefore subject to the risks, including capacity and volume constraints, security concerns,
employee strikes or other labor stoppages, inclement weather, equipment failures or other delays and fluctuations in fuel costs, associated with FedExs ability to provide timely and cost-effective order fulfillment and delivery services to
meet our distribution and shipping needs. Under our contract with FedEx, we have agreed to waive specified refunds and guarantees for service failures and for commitment times during our seasonal peak periods in exchange for favorable pricing on our
shipments with FedEx. Failure to deliver products to our customers in a timely and accurate manner would harm our reputation, our brands and our results of operations.



Our contract with FedEx provides us with negotiated shipment rates for all FedEx services other than FedEx Ground, FedEx First Overnight and
FedExs freight services. Our contract with FedEx provides for annual renewal and annual pricing adjustments, based upon FedExs guideline rates, and permits either FedEx or us to terminate the agreement



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upon 60 days prior notice. We re-negotiate various provisions of our agreement with FedEx on an annual basis. If in the future we fail to negotiate rates or
other terms as favorable to us as the existing terms of our agreement, such failure will adversely affect our business and results of operations. In addition, if for any reason FedEx is unable or unwilling to deliver products to our customers in a
timely manner or on acceptable terms, we may not be able to secure alternative shipping partners on acceptable terms in a timely manner, or at all.



We depend on three suppliers for approximately 43% of our flower products, and the loss of any of these suppliers could harm our business.



We depended upon three suppliers for 42.7% of our flower products for the nine months ended
March 31, 2004 and 45.4% of our flower products for fiscal year 2003. If any one of these three flower suppliers were to become unable or unwilling to continue to supply flowers to our customers, our business could be harmed. Our arrangements with
our flower suppliers for order fulfillment may be discontinued by the suppliers at any time. If a flower supplier discontinues its relationship with us, we will be required to obtain a suitable replacement, which may cause delays in delivery or a
decline in product quality, leading to customer dissatisfaction and loss of customers. We expect to encounter similar risks as we develop our premium meat and fruit and other perishable product supplier relationships.



If our marketing efforts are not effective, our brands may not achieve the broad
recognition necessary to succeed.



We believe that broader recognition
and a favorable consumer perception of our brands, including our Provide Commerce, Proflowers, Uptown Prime and Cherry Moon Farms brands, are essential to our future success. Accordingly, we intend to pursue an aggressive brand-enhancement strategy
through a variety of online and offline marketing and promotional techniques, involving the Internet, print, radio, email, direct mail, public relations and television. These initiatives will involve significant expense. If our brand enhancement
strategy is unsuccessful, these expenses may never be recovered and we may be unable to increase future revenues. Successful positioning of the Provide Commerce, Proflowers, Uptown Prime and Cherry Moon Farms brands will largely depend on:



| |  | the success of our advertising and promotional efforts;
| | - | -------------------------------------------------------



| |  | our ability to provide a consistent, high-quality customer experience; and
| | - | --------------------------------------------------------------------------



| |  | our ability to continue to provide high-quality products to our customers in a timely manner.
| | - | ---------------------------------------------------------------------------------------------



Due to the change in our corporate name in September 2003 and expansion of our product categories in October 2003, our Proflowers brand is
our only brand that has received broader recognition by customers who associate it with our www.proflowers.com website and the sale of flowers and floral products. To increase awareness of our new corporate name and brands and our other proposed
brands and product offerings, we will need to continue to spend significant amounts on advertising and promotions. These expenditures may not result in a sufficient increase in revenues to cover such advertising and promotional expenses. In
addition, even if brand recognition increases, the number of new customers or the number of transactions on our branded websites may not increase. Also, even if the number of new customers increases, those customers may not purchase products through
our branded websites on a regular basis.



We have historically
experienced seasonality in our business, which we expect to continue and which could cause our operating results to fluctuate.



We have historically experienced seasonality in our Proflowers business due to the nature of our products, and we expect this seasonality to continue. Our revenues and
earnings are generally lowest in the third calendar quarter, our first fiscal quarter. Sales of our products are highly concentrated in the first calendar quarter, due to Valentines Day, the second calendar quarter, due to Mothers Day
and Easter, and the fourth calendar quarter, due to the Thanksgiving and end-of-year holidays. In anticipation of increased sales activity during these periods, we hire a significant number of temporary employees to supplement our permanent staff.
We also increase our inventory levels at our distribution facilities. If revenues during these periods do not meet our expectations, we may not generate sufficient revenues to offset these increased costs and our operating results may suffer.



The launch of our new branded websites targeting premium meat and fresh fruit
makes it difficult for us to assess the impact of seasonal factors on our business in the future. We expect that our new product categories will also be subject to seasonal fluctuations, reflecting a combination of seasonality trends for the
products and services offered by our new branded websites and seasonality patterns affecting Internet use generally. For example, demand for our current and new product offerings is likely to increase during holiday periods, such as Fathers
Day and Christmas, while Internet use in



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general may decline during the summer months. Our results may also be affected by seasonal fluctuations in the products made available to us for sale by
participating suppliers. Cyclical variations for new products we plan to offer may either smooth or increase our existing seasonality. Unanticipated fluctuations in seasonality could adversely affect our operating results and cause us to miss our
internal and third-party earnings projections, which could cause our stock price to decline.



We face intense competition from both traditional and online retail companies with greater brand recognition and resources, which may adversely affect our business.



The e-commerce market segments in which we currently compete are intensely competitive, and
we have many competitors in different industries. The products we offer can be purchased at supermarkets and warehouse stores as well as specialty markets. Our floral competitors include traditional florists, catalog and online floral providers and
floral wire services such as FTD, 1-800-FLOWERS and Teleflora. In the premium meat category, we believe our competitors include specialty butchers, mail order companies and other online premium meat providers, such as Omaha Steaks Company. We
believe competitors in the fresh fruit category include local farmers markets and specialty catalog companies, such as Harry & David. Additionally, we compete with specialty food companies and general gift companies.



Competition in the e-commerce channel may intensify, especially as we expand into product
categories in addition to flowers. The nature of the Internet as an electronic marketplace facilitates competitive entry and comparison shopping and renders it inherently more competitive than conventional retailing formats. This increased
competition may reduce our ability to expand our business, and thus reduce our sales and operating profits, or both.



Many of our current and potential competitors enjoy substantial competitive advantages, including:



| |  | greater name recognition;
| | - | -------------------------



| |  | a longer operating history;
| | - | ---------------------------



| |  | a more extensive customer base;
| | - | -------------------------------



| |  | broader product and service offerings; and
| | - | ------------------------------------------



| |  | greater resources for competitive activities, such as sales and marketing, research and development, strategic acquisitions, alliances and joint ventures.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------



As a result, these current and potential competitors may be able to secure merchandise
from suppliers on more favorable terms, and may be able to adopt more aggressive pricing policies. Other companies in the retail and e-commerce service industries may enter into business combinations or alliances that strengthen their competitive
positions. These business combinations or alliances might prevent them from also entering into relationships with us or prevent us from taking advantage of such combinations or alliances. They also may be able to respond more quickly and effectively
than we can to new or changing opportunities, technologies, standards or customer requirements. Intense competition may lead to:



| |  | price reductions, decreased revenues and lower profit margins;
| | - | --------------------------------------------------------------



| |  | loss of market share; or
| | - | ------------------------



| |  | increased marketing expenditures.
| | - | ---------------------------------



Failure to provide our customers with high-quality products and customer service may harm our brand and cause our revenues to decline.



We believe that our success in promoting and enhancing our brands will depend on our success
in providing our customers high-quality products and a high level of customer service. Product orders placed by our customers are fulfilled by our third-party suppliers. We work with our suppliers to develop best practices for quality assurance;
however, we do not directly or constantly control any of our suppliers. If our suppliers do not fulfill orders to our customers satisfaction, our customers may not shop with us again. In addition, because we do not have constant, direct
control over these third-party suppliers, interruptions or delays in the products they supply may be difficult to remedy in a timely fashion. If any of our suppliers is incapable of or unwilling to fulfill our product orders, we will attempt to ship
the products from another source to guarantee right-day delivery; however, we may not be able to ship the products from an alternate source in a timely manner or at all. Furthermore, we depend on our customer service department to respond to our
customers should they have questions or problems with their orders. During peak periods, we also rely on temporary employees and outsourced staff to respond to customer inquiries. Temporary employees and outsourced staff



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may not have the same level of commitment to our customers as our full-time employees. If our customers are dissatisfied with the quality of the products or
the customer service they receive, or if we are unable to deliver products to our customers in a timely manner or at all, our customers may stop purchasing products in the related category from us. Also, they may choose not to purchase products from
another of our product categories, which could adversely affect our business and results of operations.



We are dependent on our strategic relationships to help promote our branded websites and expand our product offerings; if we fail to maintain or enhance these relationships, our development could be hindered.



We believe that our strategic relationships with leading Internet
portal companies, other online retailers, radio advertisers and direct marketers are critical to attract customers, facilitate broad market acceptance of our products and brands and enhance our sales and marketing capabilities. For example, 29.1% of
our total customer orders placed in fiscal 2003 were generated from customers who linked to our website from websites operated by other retailers or Internet portal companies with whom we have a strategic relationship. A failure to maintain existing
and to establish additional strategic online relationships that generate a significant amount of traffic from other websites could limit the growth of our business. Establishing and maintaining relationships with leading Internet portal companies,
other online retailers, radio advertisers and direct marketers is competitive and expensive. We may not successfully enter into additional relationships or renew existing ones beyond their current terms. We may also be required to pay significant
fees to maintain and expand existing relationships. Further, many Internet portal companies, other online retailers, radio advertisers and direct marketers that we may approach to establish an advertising presence or with whom we already have an
existing relationship may also provide advertising services for our competitors. As a result, these companies may be reluctant to enter into, maintain or expand a relationship with us. Our revenues may suffer if we fail to enter into new
relationships or maintain or expand existing relationships, or if these relationships do not result in traffic sufficient to justify their costs.



In addition, we are subject to many risks beyond our control that influence the success or failure of our strategic partners. For example, traffic to our branded websites
could decrease if the traffic to the website of an Internet portal company on which we advertise decreases. Our business could be harmed if any of our strategic partners experience financial or operational difficulties or if they experience other
corporate developments that adversely affect their performance under our agreements.



We are dependent on other retailers using our marketplace to sell perishable products to their customers. Any failure by us to recruit additional retailers to use our marketplace, or any loss of our current users, could harm our
business.



We intend to grow a portion of our business and product
categories through relationships with other branded retailers and direct marketers that use our platform to sell under their brands. We currently have arrangements with Martha Stewart Living Omnimedia, Albertsons, Inc., another Fortune 100
retailer, and other retailers. Under our agreement with Martha Stewart Living Omnimedia, we use our platform to operate the floral website of Martha Stewart Living Omnimedia. Our agreement with Martha Stewart Living Omnimedia may be terminated by
either party upon 120 days prior notice. Under our agreement with Albertsons, we provide our market platform and products for Albertsons online floral business. Our agreement with Albertsons is for a three-year term, automatically
renewable for additional one-year periods, unless prior notice is given. Our agreement with Albertsons may be terminated by either party for specified reasons, including bankruptcy or cessation of business by the other party. It may also be
terminated by the non-breaching party 60 days after notification of an uncured breach of the agreement. While we are not dependent on these agreements and while these agreements represent an immaterial percentage of our net sales in fiscal 2003 and
for the nine months ended March 31, 2004, any termination of these agreements, or failure to enter into similar agreements, could adversely affect this aspect of our business model.



If the supply of flowers or any other perishable product we offer for sale becomes limited, the price of these products could rise or
these products may be unavailable and our revenues and gross margins could decline.



Many factors, such as weather conditions, agricultural limitations and restrictions relating to the management of pests and disease, affect the supply of flowers and the price of our floral products. If the supply of
flowers available for sale is limited, prices for flowers could rise, which could cause customer demand for our floral products to be reduced and our revenues and gross margins to decline. Alternatively, we may not be able to obtain high-quality
flowers in an amount sufficient to meet customer demand. Even if available, flowers from alternate sources may be of lesser quality and/or



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may be more expensive than those currently offered by us. We expect that we will encounter similar risks with premium meat, fresh fruit and other perishable
products as we expand our e-commerce platform into these product categories.



In fiscal 2003, 54.0% of the flowers we sold were grown by farmers located abroad, primarily in Colombia, Ecuador and Holland, and we expect that this will continue in the future. We also may purchase premium meat, fresh fruit and other
perishable products from suppliers in foreign countries. The availability and price of these products could be affected by a number of other factors affecting foreign suppliers, including:



| |  | import duties and quotas;
| | - | -------------------------



| |  | time-consuming import regulations or controls at airports;
| | - | ----------------------------------------------------------



| |  | changes in trading status;
| | - | --------------------------



| |  | economic uncertainties and currency fluctuations;
| | - | -------------------------------------------------



| |  | foreign government regulations with respect to diseases such as mad cow;
| | - | ------------------------------------------------------------------------



| |  | political unrest;
| | - | -----------------



| |  | governmental bans or quarantines; or
| | - | ------------------------------------



| |  | trade restrictions, including U.S. retaliation against foreign trade practices.
| | - | -------------------------------------------------------------------------------



If the number of customers using our satisfaction guarantee increases, our net income could decrease.



We guarantee that all of our flowers will last at least seven days and our plants at least
14 days. We offer our customers a 100% satisfaction guarantee on our floral, meat and fruit products during the relevant periods. We expect to offer a similar 100% satisfaction guarantee on our other products. If customers are not satisfied with the
products they receive, we either send them a replacement product or issue a refund. If a significant number of customers request replacement products or refunds, our net income could decrease and our reputation as a provider of high-quality products
could be harmed.



System interruptions, natural disasters and other
unexpected problems could prevent us from fulfilling orders for our customers.



Our computer and telecommunications systems and operations are vulnerable to damage or interruption from fire, flood, power loss, telecommunications failure, failure in the Internet backbone service providers or Internet service providers,
earthquakes, acts of war or terrorism, acts of God, human error, computer viruses, physical or electronic break-ins and similar events. Any of these events could lead to system interruptions, delays and loss of critical data, and make our websites
or toll-free customer service centers inaccessible to our customers or prevent us from efficiently fulfilling orders or providing services to other retailers who rely on our market platform to assist them in operating their online businesses. For
instance, in January 2004, a router failure at our Internet service provider caused a two hour website outage. This effect would be magnified if interruptions were to occur during one of our peak selling periods, such as Valentines Day or
Mothers Day. In response to the incident in January 2004, we engineered and deployed, in April 2004, a solution that will protect us in the future from the sort of failure we experienced. We do not have fully redundant systems in different
geographical areas or a formally tested disaster recovery plan. Our business interruption insurance may be inadequate to compensate for all losses that may occur.



Despite any precautions we may take, the occurrence of a natural disaster, the closure of a hosting facility we are using without adequate
notice for financial reasons or other unanticipated problems could result in lengthy interruptions in our services. In addition, the failure by our hosting facilities to provide our required data communications capacity could result in interruptions
in our service. Any slowdown, damage to or failure of our systems could result in interruptions in our service. We cannot assure you that we will adequately, and in a timely manner, implement systems to improve the speed, security and availability
of our Internet and telecommunications systems. Frequent or long service delays or interruptions in our service or disruptions during a peak holiday season will reduce our revenues and profits, and our reputation and future revenues and profits will
be harmed if our customers believe that our system is unreliable.



We may
not be able to increase capacity or introduce enhancements to our branded websites in a timely manner or without service interruptions.



A key element of our strategy is to generate a high volume of traffic on our branded websites. As traffic on our branded websites grows, we may not be able to accommodate
all of the growth in user demand on our branded websites and in our toll-free customer service center. Our inability to add additional hardware and software to upgrade our existing



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technology or network infrastructure to accommodate in a timely manner increased traffic on our branded websites, in our toll-free customer service centers
and increased sales volume, may cause decreased levels of customer service and satisfaction. Failure to implement new systems effectively or within a reasonable period of time could adversely affect our business, results of operations and financial
condition.



We also intend to introduce additional or enhanced features and
services to retain current customers and attract new customers to our branded websites. If we introduce a feature or a service that is not favorably received, our current customers may not use our branded websites as frequently, and we may not be
successful in attracting new customers. We may also experience difficulties that could delay or prevent us from introducing new services and features. Furthermore, these new services or features may contain errors that are discovered only after they
are introduced. We may need to significantly modify the design of these services or features to correct errors. If customers encounter difficulty with or do not accept new services or features, our business, results of operations and financial
condition could be adversely affected.



We fulfill a significant portion
of our flower orders through our Miami distribution facility.



We
fulfilled 20.8% of our flower orders in the nine months ended March 31, 2004 and 22.8% of our flower orders in fiscal year 2003 through our Miami distribution facility. In the future, we may be unable to fulfill our customers orders through
the Miami distribution facility in a timely manner, or at all, due to a number of factors, including:



| |  | a failure to maintain or renew our existing lease agreement for our Miami distribution facility;
| | - | ------------------------------------------------------------------------------------------------



| |  | a prolonged power or equipment failure;
| | - | ---------------------------------------



| |  | an employee strike or other labor stoppage;
| | - | -------------------------------------------



| |  | a disruption in the transportation infrastructure including bridges and roads;
| | - | ------------------------------------------------------------------------------



| |  | a refrigeration failure; or
| | - | ---------------------------



| |  | a fire, flood, hurricane or other disaster.
| | - | -------------------------------------------



In the event that we are unable to fulfill our customers orders through the Miami distribution facility, we will attempt to re-ship the orders from another source
to ensure timely delivery. However, we cannot guarantee that our other suppliers and distribution facilities will have the capacity or the variety of flowers to fulfill all orders from the Miami distribution facility or that we will be able to
deliver the affected orders in a timely manner. In addition, if operations from our Miami distribution facility become permanently disrupted due to any of the above or other factors, we may not be able to secure a replacement distribution facility
in a location on terms acceptable to us or at all. Our business and results of operations could be materially and adversely affected if we experience temporary or permanent disruptions at our Miami distribution facility.



If we fail to protect our intellectual property rights, our ability to compete could be
harmed.



Protection of our intellectual property is critical to our
success. Patent, trademark, copyright and trade secret laws and confidentiality and other contractual provisions afford only limited protection and may not adequately protect our rights or permit us to gain or keep any competitive advantage. We face
numerous risks in protecting our intellectual property rights, including the following:



| |  | our pending patent applications, copyrights, trademarks, trade secrets and other intellectual property rights may be challenged or invalidated by our competitors;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | we only have three U.S. patent applications pending in the United States Patent and Trademark Office and none of the patent applications have yet to issue;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | our pending patent applications may not issue, or, if issued, may not provide meaningful protection for related products or proprietary rights;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------



| |  | in the event one or more of our pending patent applications issue into a patent, there may be prior art in existence that the United States Patent and Trademark Office has not
considered which may invalidate one or more patent claims;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | we may not be able to prevent the unauthorized disclosure or use of our technical knowledge or other trade secrets by employees, consultants or advisors;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | the laws of foreign countries, including Australia, Brazil, Canada, the European Union, Japan, Mexico, New Zealand and Switzerland where we have issued or pending
trademarks, may not protect our intellectual
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | property rights to the same extent as the laws of the U.S., and mechanisms for enforcement of intellectual property rights may be inadequate in foreign
countries;
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | our competitors may lawfully develop proprietary software or other technology that competes with our proprietary supply chain technology; and
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------



| |  | we may be unable to successfully identify or prosecute unauthorized uses of our proprietary technology.
| | - | -------------------------------------------------------------------------------------------------------



As a result, our means of protecting our intellectual property rights and brands may not be adequate. Furthermore, despite our efforts,
third parties may have violated and may in the future violate, or attempt to violate, our intellectual property rights. Infringement claims and lawsuits would likely be expensive to resolve and would require substantial management time and
resources. In addition, we have not sought, and do not intend to seek, trademark, patent and other intellectual property protections in most foreign countries. In countries where we do not have such protection, businesses may use our trademarks to
sell products or to develop a distribution method that incorporates our patented technology.



We may be sued by third parties for alleged infringement of their proprietary rights.



Companies that participate in the e-commerce and supply chain management industries or others may hold a large number of patents, patent applications, trademarks and
copyrights. Participants in these industries are involved in litigation based on allegations of patent infringement or other violations of intellectual property rights. Intellectual property disputes frequently involve highly complex and costly
technical or scientific matters, and each party generally has the right to seek a trial by jury which adds additional costs and uncertainty. Accordingly, intellectual property contests, with or without merit, could be costly and time-consuming to
litigate or settle, and could divert managements attention from executing our business plan. In addition, our distribution technology may not be able to withstand any third-party claims against its use. If we were unable to obtain any
necessary license following a determination of infringement or an adverse determination in litigation or in interference or other administrative proceedings, we may need to redesign some of our distribution technology to avoid infringing a
third-partys patent and could be required to temporarily or permanently discontinue using the related aspect of our technology.



Current and future governmental and industry regulations may significantly limit our business opportunities.



New laws or regulations may be enacted with respect to the Internet or existing laws may be
applied or interpreted to apply to the Internet, which may decrease the growth in the use of the Internet or our branded websites. As use of the Internet continues to evolve, we expect that there will be an increasing number of laws and regulations
pertaining to the Internet in the U.S. and throughout the world. These laws and regulations may relate to liability for information received from or transmitted over the Internet, online content regulation, user privacy, taxation and quality of
products and services sold over the Internet. Moreover, the applicability to the Internet of existing laws governing intellectual property ownership and infringement, copyright, trademark, trade secret, obscenity, libel, employment, personal privacy
and other issues is uncertain and developing. Further, the growth and development of online commerce may prompt calls for more stringent consumer protection laws, both in the U.S. and abroad. We also may be subject to regulation not specifically
related to the Internet, including laws affecting direct marketers and advertisers. The adoption of or modification of laws applicable to the Internet could affect our ability to market our products, decrease the demand for our products, increase
our costs or otherwise adversely affect our business.



We are affected by
regulations applicable to the importation of flowers and the sale and handling of food items.



Our importation of certain flower offerings and our sale and handling of premium meat and fresh fruit offerings subject us to various federal, state and local government regulations, including regulations imposed by
the United States Food & Drug Administration, or FDA, the United States Department of Labor, Occupational Safety and Health Administration, or OSHA, the United States Department of Agriculture, or USDA, and Animal and Plant Health Inspection
Service, or APHIS. We have designed our importation procedures and our food handling operations to comply with such regulations. However, the FDA, OSHA, USDA, APHIS or another federal, state or local food regulatory authority may require changes to
our importation procedures and food sales and handling operations. We may not be able to make the requested governmental changes or obtain any required permits, licenses or approvals in a timely manner, or at all. Failure to make requested changes
or to obtain or maintain a required permit, license or approval could cause us to incur substantial compliance costs and delay the availability of, or cancel, certain product offerings. In addition, any inquiry or investigation from a regulatory
authority could have a negative impact on our reputation. Any of these events would harm our business and adversely affect our results of operations.



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Various legal rules and regulations related to the collection, dissemination and security of personal information
may affect our ability to solicit our customers and potential customers with emails or telephone calls and to collect or disseminate personal data about our customers.



A growing body of laws designed to protect the privacy of personally identifiable information as well as to protect against its misuse may
adversely affect the growth of our business and our marketing efforts. These laws include the Federal Trade Commission Act, the Childrens Online Privacy Protection Act and Federal Trade Commission, or FTC, regulations implementing that act,
the Fair Credit Reporting Act, the Gramm Leach Bliley Act and related regulations as well as other legal provisions. The FTC has the authority to protect against the misuse of consumer information by targeting companies that collect, disseminate or
maintain personal information in an unfair or deceptive manner, as well as companies that fail to notify parents and obtain parental consent before collecting information from children. The FTC has conducted dozens of investigations into the privacy
and security practices of companies that collect information on the Internet. The evolving nature of the FTCs and other governmental bodies enforcement efforts, and the possibility of new laws in this area, may adversely affect our
ability to collect and disseminate or share demographic and personal information from users and our ability to email or telephone users, all of which could adversely affect our marketing efforts and business.



Our branded websites use various cookies without the customers knowledge or
consent. These cookies may or may not be saved on customers hard drives. We use cookies for a variety of reasons, including the collection of data derived from the customers Internet activity. Most currently available web browsers allow
users to remove cookies at any time or to prevent cookies from being stored on their hard drive. Some commentators, privacy advocates and governmental bodies have suggested limiting or eliminating the use of cookies or other data collecting tools.
Any reduction or limitation in the use of cookies or other data collecting tools could limit the effectiveness of our sales and marketing efforts. We could incur expenses if new regulations concerning the use of personal information are introduced
or if our privacy practices are investigated.



We depend on continued use
of the Internet and growth of the online perishables retail market.



Our revenues may not grow if the Internet does not continue to grow as an accepted medium for commerce in flowers and other perishable product categories. Consumer use of the Internet as a medium for commerce, and especially commerce in
perishable products, is a recent phenomenon that is subject to a level of uncertainty. A number of factors may inhibit Internet usage, including:



| |  | inadequate network infrastructure;
| | - | ----------------------------------



| |  | consumer concerns for Internet privacy and security;
| | - | ----------------------------------------------------



| |  | inconsistent quality of service;
| | - | --------------------------------



| |  | lack of availability of cost-effective, high-speed service; and
| | - | ---------------------------------------------------------------



| |  | consumer concerns over purchasing perishable goods over the Internet.
| | - | ---------------------------------------------------------------------



If use of the Internet as a medium for commerce in perishable products does not continue to grow, or grows at a slower rate than we anticipate, our sales will be lower
than expected and our business will be harmed.



Our accounting and
financial system is not integrated with our transaction processing system.



We use an internally developed system for substantially all aspects of transaction processing, including order management, credit card processing and shipping. Our accounting and financial system is purchased from a third-party. Because our
current transaction processing system, which provides frequent operational reports, is not integrated with our accounting and financial system, we must manually input data in order to prepare information for accounting and financial reporting. This
manual input of data may make it more difficult for management to obtain accurate financial statements and reporting information on a timely basis. We intend to integrate our transaction processing and accounting systems. We cannot guarantee that we
will complete this integration in a fast and effective manner. Any inability to do so may have a material adverse effect on our business, financial condition and results of operations.



Online security breaches could harm our business.



The secure transmission of confidential information over the Internet is essential in maintaining consumer confidence in our branded
websites. Even occasional security breaches of our system or other Internet-based systems could



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significantly harm our business and damage our reputation. Any penetration of our network security or other misappropriation of our customers personal
information could subject us to potential liability. We may be subject to claims based on unauthorized purchases with credit card information, or aiding and abetting identity theft or other similar fraud claims. Claims could also be based on other
misuses of personal information, such as for unauthorized marketing purposes. These claims could result in litigation and financial liability. We rely on licensed encryption and authentication technology to effect the secure transmission of
confidential information, including credit card numbers. It is possible that advances in computer capabilities, new discoveries or other developments could result in a compromise or breach of the technology that we use to protect customer
transaction data.



We may incur substantial expense to protect against and
remedy security breaches and their consequences. A party that is able to circumvent our security systems could steal proprietary information or cause interruptions in our operations. Our insurance policies limits may not be adequate to
reimburse us for losses caused by security breaches. We cannot guarantee that our security measures will prevent security breaches.



Consumer spending on flowers and other perishable products we sell or intend to sell may vary with general economic conditions in the U.S.



Negative trends in the general economy, including trends resulting from actual or threatened
military action by the U.S. and threats of terrorist attacks on the U.S. and abroad, could cause a decrease in consumer spending on flowers, premium meats, fresh fruits and perishable products in general. Also, any reduction in consumer confidence
or disposable income in general may affect the demand for our products. If general economic conditions do not improve or deteriorate further and our customers have less disposable income, consumers may spend less on our products and our quarterly
operating results may suffer.



We may not successfully address problems
encountered in connection with any future acquisitions.



In December
1999, we purchased Flower Farm Direct, Inc. Subsequently, we amortized and wrote off approximately $9.0 million of goodwill related to the acquisition. We expect to continue to consider opportunities to acquire or make investments in other
technologies, products and businesses that could enhance our technical capabilities, complement our current products and services or expand the breadth of our markets or customer base. We have limited experience in acquiring other businesses and
technologies. Potential and completed acquisitions and strategic investments involve numerous risks, including:



| |  | problems assimilating the purchased technologies, products or business operations;
| | - | ----------------------------------------------------------------------------------



| |  | problems maintaining uniform standards, procedures, controls and policies;
| | - | --------------------------------------------------------------------------



| |  | unanticipated costs associated with the acquisition, including accounting charges and transaction expenses;
| | - | -----------------------------------------------------------------------------------------------------------



| |  | diversion of managements attention from our core business;
| | - | -----------------------------------------------------------



| |  | adverse effects on existing business relationships with suppliers and customers;
| | - | --------------------------------------------------------------------------------



| |  | risks associated with entering markets in which we have no or limited prior experience; and
| | - | -------------------------------------------------------------------------------------------



| |  | potential loss of key employees of acquired organizations.
| | - | ----------------------------------------------------------



If we fail to properly evaluate and execute acquisitions and strategic investments, our management team may be distracted from our day-to-day operations, our business may
be disrupted, and our operating results may suffer. In addition, if we finance acquisitions by issuing equity or convertible debt securities, our existing stockholders would be diluted.



We may have difficulty managing any growth that we might experience.



We expect to continue to experience growth in the scope of our operations and the number of
our employees. If this growth continues, it will place a significant strain on our management team and on our operational and financial systems, procedures and controls. Our future success will depend in part on the ability of our management team to
manage any growth effectively. This will require our management to:



| |  | maintain our cost structure at an appropriate level based on the revenues we generate;
| | - | --------------------------------------------------------------------------------------



| |  | manage multiple, concurrent development projects;
| | - | -------------------------------------------------



| |  | hire and train additional personnel;
| | - | ------------------------------------



| |  | implement and improve our operational and financial systems, procedures and controls; and
| | - | -----------------------------------------------------------------------------------------



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| |  | manage operations in multiple time zones.
| | - | -----------------------------------------



Any failure to successfully manage our growth could distract managements attention, and result in our failure to execute our business plan.



If we are required to collect sales and use taxes on the products we sell in additional
jurisdictions, we may be subject to liability for past sales and our future sales may decrease.



In accordance with current industry practice and our interpretation of current law, we do not currently collect sales and use taxes or other such taxes with respect to shipments of goods into states other than
California, Florida, Indiana, Mississippi, New Jersey, Ohio, Pennsylvania, Texas and Washington. The operation of our distribution facilities, the operations of any future distribution facilities and other aspects of our evolving business may,
however, result in increased sales and use tax obligations. Some states have sought or are now seeking to impose sales or other tax collection obligations on companies that engage in electronic commerce as we do. Federal legislation limits the
imposition of U.S. state and local taxes on Internet-related sales. In 1998, Congress passed the Internet Tax Freedom Act, which placed a moratorium on state and local taxes on Internet access, unless such tax was already imposed prior to October 1,
1998, and on discriminatory taxes on electronic commerce. This moratorium expired in November 2003. Congress is currently debating several proposals to retain the moratorium. If no moratorium proposals are adopted, state and local governments may be
free to impose new taxes on electronically purchased goods. Congress could also pass alternative proposals allowing state and local governments to impose taxes on electronic commerce. In either event, we could be required to pay past and collect
future sales and use taxes in states other than those in which we already collect such taxes.



We are dependent on our management team and key employees, and the loss of any of them could harm our business.



Our success depends, in part, upon the continued availability and contributions of our senior management team, particularly William Strauss, our chief executive
officer, and Abraham Wynperle, our president and chief operating officer. Important factors that could cause the loss of key personnel include:



| |  | members of our management team may terminate their employment with us at any time;
| | - | ----------------------------------------------------------------------------------



| |  | we do not maintain key-man life insurance on any of our employees;
| | - | ------------------------------------------------------------------



| |  | significant portions of the stock options held by the members of our management team are vested; and
| | - | ----------------------------------------------------------------------------------------------------



| |  | many of the stock options held by our executive officers provide for accelerated vesting in the event of a sale or change of control of our company.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------



The loss of key personnel or an inability to attract qualified personnel in a timely manner
could slow our technology and product development and harm our ability to execute our business plan.



If third parties acquire rights to use similar domain names or phone numbers or if we lose the right to use our domain names or phone numbers, our brands may be damaged and we may lose sales.



Our Internet domain names are an important aspect of our brand recognition. We cannot
practically acquire rights to all domain names similar to www.providecommerce.com, www.proflowers.com, www.uptownprime.com or www.cherrymoonfarms.com. If third parties obtain rights to similar domain names, these third parties may confuse our
customers and cause our customers to inadvertently place orders with these third parties, which would result in lost sales for us and could damage our brand.



The phone number that spells 1-888-FRESHEST is also important to our brand and business. While we have obtained the right to use the phone numbers 1-888-FRESHEST,
1-877-FRESHEST and 1-800-PROFLOW, as well as common toll-free FRESHEST and PROFLOW misdials, we may not be able to obtain rights to use the FRESHEST and PROFLOW phone numbers as new toll-free prefixes are issued, or the
rights to all similar and potentially confusing numbers. If third parties obtain the phone number which spells FRESHEST or PROFLOW with a different prefix, these parties may also confuse our customers and impede our customer
service efforts, causing lost sales and potential damage to our brands. In addition, under applicable Federal Communication, or FCC, rules, ownership rights to phone numbers cannot be acquired. Accordingly, the FCC may rescind our right to use any
of its phone numbers, including 1-888-FRESHEST and 1-800-PROFLOW.



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If our third-party technology providers do not adequately maintain our telephone service, we may experience system
failures and our business may suffer.



We are largely dependent on
AT&T and SBC Pacific Bell to provide telephone service to our customer service centers. If AT&T or SBC Pacific Bell experience system failures or fail to adequately maintain our systems, we would experience interruptions and our customers
might not continue to utilize our services. Frequent or long system failures or interruptions in our service or disruptions during a peak holiday season could materially harm our business and results of operations.



If we lose our telephone service, we will be unable to operate a significant portion of our
customer service. Our future success depends upon these third-party relationships because we do not have the resources to maintain telephone services without these or other third parties. Failure to maintain these relationships or replace them on
financially attractive terms may disrupt our operations or require us to incur significant unanticipated costs.



Our business would be injured by extensive credit card fraud.



Our general and administrative expense would increase if we experience significant credit card fraud or fraud with respect to our bill-me-later functionality, a third
party payment option similar to traditional credit cards. A failure to adequately control fraudulent credit card transactions or bill-me-later transactions would increase our general and administrative expense because we do not carry insurance
against this risk. We have developed technology to help detect the fraudulent use of credit card information. Nonetheless, to date, we have suffered losses as a result of orders placed with fraudulent credit card data even though the associated
financial institution or bill-me-later service provider approved payment of the orders. Under current credit card practices, we are liable for fraudulent credit card transactions if we do not obtain a cardholders signature.



Product liability claims may subject us to increased costs.



Several of the products we sell and intend to sell, including perishable food products, may
expose us to product liability claims in the event that the use or consumption of these products results in personal injury. We may incur significant costs in defense of product liability claims. Product liability claims often create negative
publicity, which could materially damage our reputation and our brands. Although we maintain insurance against product liability claims, our coverage may be inadequate to cover any liabilities we may incur.



Health concerns relating to the consumption of beef, fruit or other food products could
have a negative impact on our premium meat, fruit and related product offerings and could negatively impact our results of operations.



The success of our premium meat website and other planned perishable product offerings could be affected by health concerns related to the consumption of beef or fruit or
negative publicity concerning food quality, illness and injury generally, such as negative publicity concerning e-coli, mad cow or foot-and-mouth disease. This negative publicity may adversely affect demand for our premium
meat or fruit products which could materially harm our business and results of operations.



An active trading market for our common stock may not develop.



Prior to our initial public offering in December 2003, there was no public market for our common stock. An active trading market may not be sustained. The lack of an active market may impair your ability to sell your
shares at the time you wish to sell them or at a price that you consider reasonable. The lack of an active market may also reduce the fair market value of your shares. An inactive market may also impair our ability to raise capital by selling shares
of capital stock and may impair our ability to acquire other companies or technologies by using our shares as consideration.



We expect that the price of our common stock will fluctuate substantially.



The market price of our common stock has been, and is likely to continue to be, highly volatile. The market price may fluctuate
substantially due to many factors, including:



| |  | actual or anticipated fluctuations in our results of operations;
| | - | ----------------------------------------------------------------



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| |  | changes in securities analysts expectations or our failures to meet those expectations;
| | - | ----------------------------------------------------------------------------------------



| |  | announcements of significant contracts by us or our competitors;
| | - | ----------------------------------------------------------------



| |  | changes in our pricing policies or the pricing policies of our competitors;
| | - | ---------------------------------------------------------------------------



| |  | inability to maintain our current relationship with our delivery carrier, FedEx;
| | - | --------------------------------------------------------------------------------



| |  | developments with respect to intellectual property rights;
| | - | ----------------------------------------------------------



| |  | the introduction of new products or product enhancements by us or our competitors;
| | - | ----------------------------------------------------------------------------------



| |  | the commencement of or our involvement in litigation;
| | - | -----------------------------------------------------



| |  | our sale of common stock or other securities in the future;
| | - | -----------------------------------------------------------



| |  | conditions and trends in the e-commerce industry;
| | - | -------------------------------------------------



| |  | changes in market valuation or earnings of our competitors;
| | - | -----------------------------------------------------------



| |  | the trading volume of our common stock;
| | - | ---------------------------------------



| |  | changes in the estimation of the future size and growth rate of our markets; and
| | - | --------------------------------------------------------------------------------



| |  | general economic conditions.
| | - | ----------------------------



In addition, the stock market in general, and the Nasdaq National Market and the market for technology companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or
disproportionate to the operating performance of those companies. Further, the market prices of securities of e-commerce companies have been particularly volatile. These broad market and industry factors may materially harm the market price of our
common stock, regardless of our operating performance. In the past, following periods of volatility in the market price of a companys securities, securities class-action litigation has often been instituted against that company. Such
litigation, if instituted against us, could result in substantial costs and a diversion of managements attention and resources.



Because of the significant stock ownership of our majority stockholder, our majority stockholder will be able to exert significant influence over us and our
significant corporate decisions.



As of the date of this report, one
of our stockholders and affiliated persons beneficially owns approximately 39.1% of our outstanding capital stock. In addition, our executive officers, directors and other stockholders holding more than 5% of our outstanding capital stock and their
affiliates, in the aggregate, beneficially own approximately 58.1% of our outstanding common stock. These persons, acting together, will have the ability to control our management and affairs. These stockholders will have the ability to exert
significant influence over the outcome of all matters submitted to our stockholders for approval, including the election and removal of directors and any merger, consolidation or sale of all or substantially all of our assets. This concentration of
ownership may harm the market price of our common stock by, among other things:



| |  | delaying, deferring or preventing a change in control of our company;
| | - | ---------------------------------------------------------------------



| |  | impeding a merger, consolidation, takeover or other business combination involving our company;
| | - | -----------------------------------------------------------------------------------------------



| |  | causing us to enter into transactions or agreements that are not in the best interests of all stockholders; or
| | - | --------------------------------------------------------------------------------------------------------------



| |  | discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of our company.
| | - | ----------------------------------------------------------------------------------------------------------------------



Future sales of our common stock may depress our stock price.



As of April 30, 2004 we had 11,423,656 shares of common stock outstanding, of which
6,769,881 shares are not currently available for sale in the public market. After June 14, 2004, 6,769,881 shares of our common stock will be available for sale, subject to compliance with applicable securities laws. If our common stockholders sell
substantial amounts of common stock in the public market, or if the market perceives that these sales may occur, the market price of our common stock may decline.



The holders of approximately 7,498,240 shares of common stock, assuming exercise of such holders outstanding options and warrants,
will have rights, subject to some conditions, to require us to file registration statements covering the resale of their shares or to include their shares in registration statements that we may file for ourselves or other stockholders. These
registration rights of our stockholders could impair our ability to raise capital by depressing the price at which we could sell our common stock.



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Our future capital needs are uncertain and we may need to raise additional funds in the future, and such funds may
not be available on acceptable terms or at all.



Our
capital requirements will depend on many factors, including:



| |  | changes in our operating plan;
| | - | ------------------------------



| |  | lower than anticipated revenues;
| | - | --------------------------------



| |  | increased expenses in new technology and research and development projects;
| | - | ---------------------------------------------------------------------------



| |  | the number and timing of acquisitions and other strategic transactions; and
| | - | ---------------------------------------------------------------------------



| |  | the costs associated with our expansion, if any.
| | - | ------------------------------------------------



Our existing sources of cash and cash flows may not be sufficient to fund our activities. As a result, we may need to raise additional funds, and such funds may not be
available on favorable terms, or at all. Furthermore, if we issue equity or debt securities to raise additional funds, our existing stockholders may experience dilution, and the new equity or debt securities may have rights, preferences and
privileges senior to those of our existing stockholders. If we cannot raise funds on acceptable terms, we may not be able to develop or enhance our products and execute our business plan, take advantage of future opportunities, or respond to
competitive pressures or unanticipated customer requirements. This may materially harm our business, results of operations and financial condition.



Anti-takeover provisions under our charter documents and Delaware law could delay or prevent a change of control and could also limit the market price of our stock.



Our amended and restated certificate of incorporation and restated
bylaws contain provisions that could delay or prevent a change of control of our company or changes in our Board of Directors that our stockholders might consider favorable. Some of these provisions:



| |  | authorize the issuance of preferred stock which can be created and issued by the Board of Directors without prior stockholder approval, with rights senior to those of our common
stock;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | prohibit stockholders from removing directors without cause, calling special stockholder meetings or taking action by written consent;
| | - | --------------------------------------------------------------------------------------------------------------------------------------



| |  | limit stockholders from filling board vacancies; and
| | - | ----------------------------------------------------



| |  | require advance written notice of stockholder proposals and director nominations.
| | - | ---------------------------------------------------------------------------------



In addition, we are governed by the provisions of Section 203 of the Delaware General Corporate Law, which may prohibit certain business
combinations with stockholders owning 15% or more of our outstanding voting stock. These and other provisions in our amended and restated certificate of incorporation, restated bylaws and Delaware law could make it more difficult for stockholders or
potential acquirers to obtain control of our Board of Directors or initiate actions that are opposed by the then-current Board of Directors, including to delay or impede a merger, tender offer, or proxy contest involving our company. Any delay or
prevention of a change of control transaction or changes in our Board of Directors could cause the market price of our common stock to decline.



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|ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|------- | ----------------------------------------------------------



Market risk represents the risk of loss arising from adverse changes in market rates and foreign exchange rates. At March 31, 2004, we did not have any balances
outstanding under our bank line of credit arrangement (which we terminated in October 2003); however, the amount of outstanding debt at any time may fluctuate and we may from time to time be subject to refinancing risk. We do not believe that a
change of 100 basis points in interest rates would have a material effect on our results of operations or financial condition. We derive substantially all of our revenues from sales within the U.S. We have business relationships with foreign growers
and other vendors. Approximately $118,000 or 49.3% of total payments to these foreign growers and vendors for the nine months ended March 31, 2004 was made in U.S. dollars. Although transactions in foreign currencies represent approximately 50.7% of
total payments to foreign vendors, the amount is less than 1% of total payments to all vendors and suppliers. Since transactions in foreign currencies are immaterial to the Company as a whole, we do not consider it necessary to hedge against
currency risk.



|ITEM 4. | CONTROLS AND PROCEDURES
|------- | -----------------------



We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed,
summarized and reported within the time periods specified in the SECs rules and forms and that such information is accumulated and communicated to our management, including our chief executive officer and principal financial officer, 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 its judgment in evaluating the cost-benefit relationship of possible controls and procedures.



As required by SEC Rule 13a-15(b), we carried out an evaluation, under the supervision and
with the participation of our management, including our chief executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the quarter covered by this
report. Based on their evaluation, our chief executive officer and principal financial officer concluded that our disclosure controls and procedures were (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) effective at the
reasonable assurance level to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms and that such information
is accumulated and communicated to our management, including our chief executive officer and principal financial officer, as appropriate, to allow for timely decisions regarding required disclosure.



There have been no changes in our internal controls over financial reporting (as defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.



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PART II. OTHER INFORMATION



|ITEM 1. | Legal Proceedings
|------- | -----------------



None.



|ITEM 2. | Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities
|------- | --------------------------------------------------------------------------------



(c) During the quarter ended March 31, 2004, we issued the following
securities to certain of holders of the previously issued warrants to purchase shares of our common stock:



On January 29, 2004, we issued 4,116 shares of our common stock upon the cashless exercise of previously issued warrants to purchase
shares of our common stock.



On February 20,
2004, we issued 2,592 shares of our common stock upon the cashless exercise of a previously issued warrant to purchase shares of our common stock.



On March 24, 2004, we issued 841 shares of our common stock upon the cashless exercise of a previously issued warrant to purchase shares
of our common stock.



On March 26, 2004, we
issued 1,296 shares of our common stock upon the cashless exercise of a previously issued warrant to purchase shares of our common stock.



These transactions did not involve a public offering. Appropriate legends were affixed to the stock certificates, as applicable in such transactions. The
shares of our common stock identified above were issued under a claim of exemption under Regulation D promulgated by the SEC, or, alternatively, under Section 4(2) of the Securities Act. We believe each transferee had adequate access to information
about us to make an informed investment and each transferee is an accredited investor within the meaning of Rule 501 of Regulation D.



|ITEM 3. | Defaults Upon Senior Securities
|------- | -------------------------------



None.



|ITEM 4. | Submission of Matters to a Vote of Security Holders
|------- | ---------------------------------------------------



None.



|ITEM 5. | Other Information
|------- | -----------------



None.



|ITEM 6. | (A) EXHIBITS
|------- | ------------



|                |  |                                                                                                                                                                                
|--------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                | 
|Exhibit 3.1 (1) |  | Amended and Restated Certificate of Incorporation of the Company (Filed as Exhibit 3.4).                                                                                       
|                | 
|Exhibit 3.2 (1) |  | Bylaws of the Company, as amended (Filed as Exhibit 3.6).                                                                                                                      
|                | 
|Exhibit 4.1 (1) |  | Specimen stock certificate for shares of Common Stock of the Company (Filed as Exhibit 4.2).                                                                                   
|                | 
|Exhibit 4.2 (1) |  | Investors Rights Agreement, dated December 29, 1999 by and among us and the parties named therein (Filed as Exhibit 10.3).                                                    
|                | 
|Exhibit 4.3(1)  |  | Amended and Restated Stockholders Agreement, dated December 29, 1999, by and among us and parties named therein (Filed as Exhibit 10.4).                                       
|                | 
|Exhibit 4.4(1)  |  | Amendment Number One to the Investors Rights Agreement, dated March 31, 2000, by and among us and parties named therein (Filed as Exhibit 10.5).                              
|                | 
|Exhibit 4.5(1)  |  | Amendment No. 1 to the Investors Rights Agreement, dated May 18, 2000 by and among us and parties named therein (Filed as Exhibit 10.6).                                      
|                | 
|Exhibit 4.6(1)  |  | Amendment Number One to the Amended and Restated Stockholders Agreement, dated March 31, 2000, by and among us and parties named therein (Filed as Exhibit 10.7).              
|                | 
|Exhibit 4.7(1)  |  | Amendment Number Two to the Amended and Restated Stockholders Agreement, dated August 11, 2000, by and among us and parties named therein (Filed as Exhibit 10.8).             
|                | 
|Exhibit 4.8(1)  |  | Amendment Number Three to the Amended and Restated Stockholders Agreement, dated June 25, 2000, by and among us and parties named therein (Filed as Exhibit 10.8).             
|                | 
|Exhibit 10.1    |  | Executive Employment Agreement, dated March 15, 2004, between us and Blake Bilstad.                                                                                            
|                | 
|Exhibit 31.1    |  | Certification of Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                      
|                | 
|Exhibit 31.2    |  | Certification of Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                      
|                | 
|Exhibit 32*     |  | Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.

---

|(1) | This exhibit was previously filed as part of, and is hereby incorporated by reference to the numbered exhibit filed with the Companys Registration Statement on Form S-1 (No.
333-109009) filed on September 22, 2003, as amended thereafter.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|* | These certifications are being furnished solely to accompany this quarterly report pursuant to 18 U.S.C. Section 1350, and are not being filed for purposes of Section 18 of the
Securities Exchange Act of 1934 and are not to be incorporated by reference into any filing of Provide Commerce, Inc., whether made before or after the date hereof, regardless of any general incorporation language in such filing.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|ITEM 6. | (B) REPORTS ON FORM 8-K
|------- | -----------------------



During the quarter ended March 31, 2004 we furnished a report on Form 8-K filed on February 4, 2004 under Items 7 and 12, Disclosure of Results of
Operations and Financial Conditions, announcing our record fiscal second quarter results.



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PROVIDE COMMERCE, INC.



March 31, 2004



SIGNATURE



Pursuant to the requirements of the
Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



|      |  |              |  |  |  |                        |  |                                                 
|----- |  | ------------ |  |  |  | ---------------------- |  | ------------------------------------------------
|      |  |              |  |  |  | Provide Commerce, Inc.
|      |  |              |  | 
|Date: |  | May 17, 2004 |  |  |  | By:                    |  | /s/    Rex Bosen                                
|      |  |              |  |  |  |                        |  |                                                 
|      |  |              |  |  |  |                        |  | Rex Bosen Vice President, Finance and Accounting



35