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SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D. C. 20549

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FORM 10-K/A

(Amendment No. 2)

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 2001
COMMISSION FILE NUMBER 000-21277

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IOS BRANDS CORPORATION(Exact Name of Registrant as Specified in its Charter)

Delaware(State or Other Jurisdiction of
Incorporation or Organization)

13-3711271(I.R.S. Employer
Identification No.)


3113 Woodcreek Drive
Downers Grove, IL 60515-5420(Address of Principal Executive Offices)

Registrant's
Telephone Number, Including Area Code:(630) 719-7800

Securities Registered Pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Class A Common Stock, Par Value $0.01 Per Share

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the
past 90 days. YES ý NO o

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

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

As
of October 31, 2001, there were 12,377,388 outstanding shares of the Registrant's Class A common stock, par value $0.01 per share ("Class A Common Stock"), and
2,198,750 outstanding shares of the Registrant's Class B convertible common stock, par value $0.0005 per share ("Class B Convertible Common Stock" and, together with Class A
Common Stock, "Common Stock").

DOCUMENTS INCORPORATED BY REFERENCE.

Portions of the Registrant's definitive information statement (filed pursuant to Regulation 14C) for the 2001 Annual Meeting of Stockholders (the
"Information Statement") are incorporated by reference in Items 10, 11, 12 and 13 of Part III hereof.

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Explanatory Note

This Amendment No. 2 on Form 10-K/A to the Annual Report on Form 10-K of IOS BRANDS Corporation for the fiscal year ended June 30, 2001, originally filed
on August 6, 2001, amends and restates certain information. Changes made in Amendment No. 1 were necessary because the Company restated its consolidated balance sheets and consolidated
statements of stockholders' equity for the years ended June 30, 2001 and 2000 by reclassifying $44.2 million from minority interest in subsidiary to paid-in capital. The reclassification
related to the net proceeds of the September 28, 1999 FTD.COM IPO and related over allotment option exercise and the conversion of preferred stock of FTD.COM. Changes made in this Amendment
No. 2 were necessary because the Company has restated its consolidated financial statements for the year ended June 30, 2001 to reduce other income by $12.0 million and increase
paid-in capital. This change relates to a litigation settlement whereby one of the Company's shareholders, and former warrantholder, returned 750,000 shares of Class B common stock. As a
result of this settlement, the Company recorded $12.0 million of treasury stock and an increase in paid-in capital of $11.6 million (net of $0.4 million of income taxes) in the
quarter ended September 30, 2000. See Note 2 of the Notes to the Consolidated Financial Statements for further information regarding the restatements.

PART I

ITEM 1.    BUSINESS

Overview

IOS BRANDS Corporation (the "Registrant" or the "Company") is a Delaware corporation that was formed in 1994. As used in this Form 10-K/A, the terms the "Company"
or "IOS" refer to IOS BRANDS Corporation and its wholly owned subsidiaries, including Value Network Services, an Illinois corporation ("VNS"), and Florists' Transworld Delivery, Inc., a
Michigan corporation ("FTD" or "the
Operating Company"). The operations of FTD, the Company's principal operating subsidiary, include those of its indirect wholly owned subsidiaries Renaissance Greeting Cards, Inc.
("Renaissance") and FTD Canada, Inc., as well as its majority-owned subsidiary FTD.COM INC. ("FTD.COM"). FTD.COM's Class A common stock, par value $.01 per share, is quoted on the NASDAQ
National Market under the symbol "EFTD." As of June 30, 2001, FTD owned approximately 85% of FTD.COM's outstanding common shares. Substantially all the operations of IOS are conducted through
FTD and its subsidiaries.

The
Company is a direct marketer of flowers and specialty gifts to consumers and a floral services provider through approximately 14,000 FTD- and 10,000 VNS-member retail florist shops
located primarily in North America and through affiliated or related organizations, approximately 28,000 non-member retail florist shops located in over 150 countries outside of North America. Through
FTD, consumers are able to purchase high quality FTD-branded products, FTD-licensed products, traditional non-branded floral arrangements and specialty gifts. Membership in FTD, the Company's premium
floral service provider, declined from approximately 17,000 to 14,000 members, as of June 30 2000 and 2001, respectively. The Company believes that this decline in membership is primarily
attributable to the increase in monthly access fees charged to FTD florists. However, since its launch in January 2000, membership in VNS, the Company's economy floral service provider,
numbered over 10,000 members as of June 30, 2001. By the end of fiscal 2002, the Company expects to increase membership in both VNS and FTD, offering services to meet the needs of florists at
each end of the pricing spectrum.

FTD
promotes a worldwide brand utilizing the FTD Mercury Man logo. See "Marketing and Advertising." A significant portion of the Company's revenues and operating income are derived from
the Company's Member Services and Technology Products business segments. The Member Services segment includes Clearinghouse, Flowers After Hours, Publications, Credit Card processing and its
investment in Interflora, Inc. The Technology Products segment includes Mercury equipment, Mercury

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Advantage, Mercury Direct, and Mercury Wings systems, and the Mercury Network. In addition to the aforementioned, the Company's operations include Specialty Wholesaling (products supporting the
retail floral and specialty gift industries) and the Direct to Consumer (Internet and telephone marketing of flowers and specialty gifts through FTD.COM) business segments.

The Formation and Termination of Relationship With FTD Association

The Operating Company is the successor to a non-profit cooperative association founded by a group of retail florists in the United States in 1910. The Operating
Company was the surviving corporation following the acquisition (the "Acquisition") on December 19, 1994 by IOS of all of the outstanding equity of Florists' Transworld Delivery Association, a
Michigan non-profit cooperative association (the "Old Association"), pursuant to an Agreement and Plan of Merger dated August 2, 1994 (the "Merger Agreement"), among IOS, FTD Acquisition
Corporation, a Delaware corporation, and the Old Association. Upon consummation of the Acquisition, the Operating Company became a wholly owned subsidiary of IOS. Immediately following the
Acquisition, the Old Association was converted from a non-profit corporation to a for-profit corporation and renamed "Florists' Transworld Delivery, Inc." IOS, through the Operating Company,
operates all of the businesses conducted by the Old Association
prior to the Acquisition except for certain trade association activities which are being conducted by FTD Association, an Ohio non-profit corporation organized in connection with the Acquisition and
structured as a member-owned trade association (the "Association"). Neither IOS nor the Operating Company has any ownership interest in the Association.

On
April 30, 2001, FTD entered into a Termination Agreement with the Association, which became effective as of June 29, 2001. The Termination Agreement, which contains
limited two-year non-compete provisions, terminates both the Mutual Support Agreement, dated December 18, 1994 (the "Mutual Support Agreement"), and the Trademark License Agreement, dated
December 18, 1994 (the "Trademark Agreement" and together with the Mutual Support Agreement, the "Association Agreements"), which were entered into in connection with the Acquisition between
the Association and FTD. Pursuant to the Association Agreements, among other things: (i) existing and future members of the Association had the exclusive right, subject to execution of a
Trademark

Agreement
with the Operating Company, to use the FTD logo and other FTD trademarks in connection with the operation of a retail florist shop; (ii) all members of the Association
in good standing were provided access to FTD's Clearinghouse, Mercury Network and certain other FTD services and products; (iii) the Operating Company paid the Association an amount equal to a
percentage of the value of every floral order cleared through FTD's Clearinghouse; and (iv) the Operating Company and the Association were able to designate up to 20% but not fewer than two
individuals to be elected to the other's board of directors.

As
consideration for the dissolution of the contractual relationship between the Company and the Association pursuant to the Termination Agreement, FTD agreed to pay the Association
$14.0 million, $12.6 million which was paid on June 29, 2001 and $1.4 million of which is subject to a one-year escrow holdback. In fiscal 2001, the Company recorded $14.5 million of expenses
related to this transaction, including professional fees. The $1.4 million escrow holdback is reflected on the Company's balance sheet as restricted cash.

Operations

For each transaction cleared by its flowers-by-wire services, the Company's Clearinghouse operations collects the billing information from either the Mercury
Network or the florist that fills the order locally (the "Receiving Florist") if the Company's Mercury Network has not been used, and allocates funds among the Company, the florist with whom a
customer places the delivery order (the "Sending Florist") and the Receiving Florist. Generally, the Company provides same-day delivery of flowers to customers in the United States if the order is
received by 1:00 p.m. in the recipients' time

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zone. Floral orders between florists are transmitted primarily by FTD's Mercury Network. For non-floral orders received by FTD.COM through 1-800-SEND-FTD and FTD.COM'S Web site, www.ftd.com, that are
not filled by a florist, such as holiday gift baskets, the manufacturer or third party distributor of the specialty gift order sends the specialty gift order to the recipient through an
express delivery service. These items typically arrive in one to five days depending on the delivery method chosen.

FTD
was initially formed to encourage flowers-by-wire transactions between member florists. Over time FTD has developed a number of additional services and products that support and
enhance the retail floral operations of professional florists and FTD's direct marketing business. In January 2000, the Company launched VNS, a low cost, alternative wire service, which offers
separate clearinghouse, credit cards and publications services.

Currently,
the Company's primary operations include its Member Services, Technology Products, Specialty Wholesaling and Direct to Consumer business segments.

The
following table illustrates the percentage of the Company's total revenue generated by the Company's segments as a percentage of total revenue for the three fiscal years ended
June 30, 2001, 2000 and 1999:

2001

2000

1999Revenue:Member Services

32.9
%
35.3
%
38.0
%Technology Products

12.0

13.5

16.4Specialty Wholesaling

17.0

18.5

24.3Direct to Consumer

38.1

32.7

21.3Total Revenue

100.0
%
100.0
%
100.0
%


Member Services.The Member Services segment includes revenue associated with the Company's Clearinghouse, Flowers After
Hours, Publications and Credit Card processing operations and those attributable to its interest in Interflora, Inc.

The
Clearinghouse provides billing and collection services to both the sending and receiving florists in flowers-by-wire transactions. In fiscal 2001, the Company cleared floral orders
aggregating approximately $445 million in retail sales. Revenue from the Clearinghouse is generated by retaining a percentage of the sales price of orders sent through the Clearinghouse (7% for FTD
orders or 9% for VNS orders). The remainder is allocated as follows: 20% to the Sending Florist and 73% for FTD orders or 71% for VNS orders to the Receiving Florist. Revenue is also generated from
the monthly access fee charged to member florists. In addition, through June 30, 2001, FTD paid the Association an amount equal to one-eighth of one percent (.125%) of the value of every floral
order that was cleared or otherwise processed through FTD's Clearinghouse. Pursuant to the Termination Agreement, the Company will no longer pay the Association any fees for such orders.

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

The
Publications business consists of Directory & Toll Free Listings (the "Directory"), which is a directory of all current florists, their locations, product ordering information
and minimum order amounts. In a typical transaction, the Sending Florist is responsible for selecting the Receiving Florist within the desired locale. Unless the Sending Florist has already
established a relationship with a particular florist in that locale, the Sending Florist typically consults the Directory to identify a Receiving Florist. The Directory is published quarterly on
CD-ROM as well as in a paper book format.

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Publications also include revenues attributable to the set up and maintenance of florists' Web sites for FTD Florists' Online through FTD.COM's Web site www.ftd.com.

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

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

Technology Products.The Technology Products segment includes revenue associated with the Company's Mercury equipment,
Mercury Advantage systems, Mercury Direct systems, Mercury Wings systems and Mercury Network.

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

The
Mercury Network is a proprietary telecommunications network linking together the Company and approximately 55% of the Company's member florists. Florists who are linked by the
Mercury Network are able to transmit orders cleared through the Company or through competing clearinghouses and to send each other messages.

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

Specialty
Wholesaling also enters into promotional arrangements to design, promote and sell FTD-branded products. Some of the everyday-branded products include the FTD Big Hug Bouquet,
Anniversary Bouquet, Sweet Dreams Bouquet, and Birthday Party Bouquet. In addition, FTD has participated in relationships with companies such as The Walt Disney Company, M&M/Mars, Inc. and
Mattel, Inc. FTD has also entered into an arrangement with the Diana, Princess of Wales Memorial Fund.

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

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

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Marketing and Advertising

The Company provides extensive marketing and advertising programs on both national and local levels. FTD's national advertising (through television, radio,
magazines, newspaper supplements and Web sites) promotes FTD florists, FTD-Branded products and FTD.COM's Web site, www.ftd.com and toll-free telephone number, 1-800-SEND-FTD. FTD.COM's direct
marketing campaign includes relationships with many companies such as United Airlines, American Airlines, and American Express, which have large consumer databases. Through these relationships,
FTD.COM is able to market to the consumers in their databases using statement inserts that often offer discounts or frequent flyer mileage awards for purchases made through FTD.COM. In fiscal year
2000, FTD.COM had deployed an integrated marketing campaign focused on customer acquisition, utilizing a mix of offline, online, and direct marketing strategies. In fiscal year 2001, FTD.COM shifted
to a more balanced program focused on both customer acquisition and retention, resulting in a reduction of its marketing and promotions expenditures due to a decrease in offline advertising.

Sponsorships
are also a major part of the Company's marketing efforts. This includes a major sponsorship relationship with the Tournament of Roses® Association, which
generates significant exposure for FTD during the annual Rose Parade. In fiscal 2001, the Company partnered with the Academy of Television Arts and Sciences as the Official Floral Partner of the 52nd
Annual Primetime Emmy Awards. The Company provided all of the flowers for the event and ran the popular "Be A Hero" ads during the telecast that reached 21.6 million viewers around the country.

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

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

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

Seasonality

The Company generated 20.9%, 25.0%, 27.5% and 26.6% of its total revenue in the quarters ended September 30, December 31, March 31 and
June 30 of fiscal 2001, respectively. The Company's revenue typically exhibits a modest degree of seasonality as demonstrated in fiscal 2001. In addition, the Company's operating income also
fluctuates over the course of the fiscal year. For example, revenues and operating results tend to be lower for the quarter ending September 30 because none of the most popular floral holidays,
which include Valentine's Day, Easter, Mother's Day, Thanksgiving and Christmas, fall within that quarter. In addition, depending on the year, the popular floral holiday of Easter sometimes falls
within the quarter ending March 31 and sometimes falls within the quarter ending June 30. Also, this seasonality is attributable to increased revenues in the quarter ended
March 31 relating to the increased floral orders and shipments of Mother's Day holiday products. As a

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result, comparisons of results of operations from one quarter to the immediately preceding quarter or the same quarter of the proceeding year may not be relevant when evaluating the Company's
historical financial performance and predicting the Company's future performance. The Company's working capital, cash and short-term borrowings also fluctuate during the year as a result of the
factors set forth above.

Trademarks

The FTD Mercury Man logo, which appears on the shop window or door of each FTD florist, is a registered U.S. trademark, which distinguishes FTD's services and
products from those offered by others. FTD also owns the rights to a number of other trademarks, including "FTD," "FTDA," "Florists' Transworld Delivery," "Mercury," "Mercury Wings," "Mercury
Advantage" (pending), "Mercury Network," "VNS," "Value Network Services," "Renaissance," "Renaissance Greeting Cards," and trademarks for certain floral products, including the "Chicken Soup Bouquet,"
"Thanks a Bunch Bouquet," "Birthday Party Bouquet," "Anniversary Bouquet", "Sweet Dreams Bouquet" and "Sweet Expressions Bouquet". FTD has exclusive license of "INTERFLORA" in North America and South
America. FTD has licensed certain of its trademarks, including the FTD Mercury Man logo, to the FTD florists and FTD.COM.

Competition

The Company competes in the extremely fragmented floral services industry with a large number of wholesalers, service providers and direct marketers of flowers
and gifts. Teleflora LLC ("Teleflora"), FTD and VNS are the largest floral service providers in the nation based on membership, after giving effect to Teleflora's November 2000 acquisition of
American Floral Services, Inc. Teleflora offers some products and services that are comparable to those offered by the Company, and most florists subscribe to one or more of these competing
services. The Company believes that it has a competitive advantage in this segment due to its multi-faceted relationship with retail florists, its depth of product line and its ability to offer
discounted pricing as a result of substantial volume purchases. The principal competitor of FTD's direct marketing business, FTD.COM, is 1-800-FLOWERS.COM, Inc.

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

Employees

As of June 30, 2001, the Company employed approximately 638 full-time employees. The Company considers its relations with its employees to be good. None of
the Company's employees is currently covered by any collective bargaining agreement.

ITEM 2.    PROPERTIES

The Company's principal executive offices, consisting of approximately 120,000 square feet of office space, are owned by the Company and are located in Downers
Grove, Illinois. Renaissance leases office space in Sanford, Maine. In addition, the Company uses an independent warehouse and distribution facility in Cincinnati, Ohio for product distribution.

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ITEM 3.    LEGAL PROCEEDINGS

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

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

No matters were submitted to a vote of the Company's security holders during the fourth quarter of fiscal 2001.

ITEM 4A.    EXECUTIVE OFFICERS OF THE REGISTRANT

The information below is included in this Form 10-K/A pursuant to instruction 3 to Item 401(b) of Regulation S-K:

|Name                  |  | Age |  | Executive Officers                                  
|--------------------- |  | --- |  | ----------------------------------------------------
|Robert L. Norton      |  | 54  |  | Chairman of the Board and President                 
|Francis C. Piccirillo |  | 51  |  | Chief Administrative Officer                        
|Timothy M. Rasmussen  |  | 41  |  | Executive Vice President of Specialty Wholesaling   
|Michael J. Soenen     |  | 31  |  | President and Chief Executive Officer of FTD.COM INC
|Randall L. Twyman     |  | 37  |  | Vice President of Finance and Treasurer             
|Jon R. Burney         |  | 59  |  | Vice President, General Counsel and Secretary       

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

Mr. Piccirillo
has served as Chief Administrative Officer since March 2001. He previously served as Division President and General Manager since July 2000.
Mr. Piccirillo joined the Company as Treasurer in August 1997. From August 1997 to June 2000, Mr. Piccirillo served as Vice President and Chief Financial Officer for
the Operating Company. Prior to joining FTD in August 1997, Mr. Piccirillo was Vice President/Treasurer of JoAnn Stores, Inc. for more than five years. Mr. Piccirillo received a
B.S. in Industrial Management in 1971 and a M.B.A. in 1973 from Gannon University.

Mr. Rasmussen
has served as Executive Vice President of Specialty Wholesaling since June 2001. He previously served as Division President and General Manager since
July 2000. Mr. Rasmussen joined the Operating Company in October 1998 as Vice President of Sales. Prior to joining the Operating Company in October 1998,
Mr. Rasmussen was Vice President Sales for American Floral Services, Inc., a floral services provider, from October 1995 until October 1998. Prior to that time,
Mr. Rasmussen was a regional sales manager for Scott Paper Company for more than five years. Mr. Rasmussen received a B.S. from Northeastern University in 1983.

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

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Mr. Twyman
has served as the Vice President of Finance and Treasurer since October 2000. From July 2000 to October 2000 he was the Vice President of Finance
of the Company. From November 1999 to July 2000 he served as the Controller of the Company. Prior to joining the Company in November 1999, he was the Assistant Controller, and
served in various other capacities, at JoAnn Stores, Inc. for more than five years. Prior to that time, Mr. Twyman worked in the corporate audit group at Arthur Andersen LLP for four
years. Mr. Twyman received his B.S. in Accounting in 1987 from Kent State University and is a Certified Public Accountant.

Mr. Burney
has served as Vice President, General Counsel and Secretary for the Company and Assistant Secretary of FTD.COM since October 2000. From April 2000 to
October 2000 he was the Vice President and General Counsel of the Company. Prior to joining the Company, Mr. Burney was a member of the Ohio State Bar since 1968, and practiced law with
the firm of Burney and Herthneck in Cleveland, Ohio for 18 years. Prior to that he was Vice President and General Counsel for Apcoa Inc. and counsel for Apcoa division of ITT. Mr. Burney
received a B.A. from Denison University in 1964 and a J.D. from Ohio State University College of Law in 1967.

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

PART II

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

No established public trading market exists for the Company's Common Stock. As of June 30, 2001 there were approximately 2,000 holders of record of IOS
Class A Common Stock, par value $0.01 per share, and three holders of record of IOS Class B Common Stock, par value $0.0005 per share.

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

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

ITEM 6.    SELECTED FINANCIAL DATA

The following table sets forth selected historical data for the 1997 through 2001 fiscal years for the Company. The selected historical statement of operating
data for the 1997 through 2001 fiscal years was derived from the audited consolidated financial statements of IOS. The financial data is qualified by reference to, and should be read in conjunction
with the Company's consolidated financial statements and the notes to those statements and "Management's Discussion and Analysis of Financial Condition and Results of Operations" appearing elsewhere
in this Form 10-K/A.

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CONSOLIDATED IOS BRANDS CORPORATION

|                                            |                                                            | Year Ended June 30, |           
|------------------------------------------- | ---------------------------------------------------------- | ------------------- | ----------
|
|
|                                            |                                                            |                     | RESTATED(1
|Statement of operations data:               |                                                            |                     |           
|                                            | Total revenue                                              |                     | $         
|                                            | Cost of goods sold and services provided                   |                     |           
|                                            | Selling, general and administrative expenses               |                     |           
|                                            |                                                            |                     |           
|                                            | Income (loss) from operations                              |                     |           
|                                            | Other expense, net                                         |                     |           
|                                            | Income tax expense (benefit)                               |                     |           
|                                            | Minority interest(2)                                       |                     |           
|                                            |                                                            |                     |           
|Net income (loss) before extraordinary item |                                                            |                     | 1,321     
|                                            |                                                            |                     |           
|Extraordinary item(3):                      |                                                            |                     |           
|                                            | Loss on extinguishment of debt (net of income tax benefit) |                     |           
|                                            |                                                            |                     |           
|Net income (loss)                           |                                                            | $                   | 1,321     
|                                            |                                                            |                     |           
|Income (loss) per share:                    |                                                            |                     |           
|                                            | Basic before extraordinary item                            |                     | $         
|                                            | Diluted before extraordinary item                          |                     | $         
|                                            | Extraordinary item                                         |                     | $         
|                                            | Basic earnings (loss) per share                            |                     | $         
|                                            | Diluted earnings (loss) per share                          |                     | $         
|Other data:                                 |                                                            |                     |           
|                                            | Depreciation and amortization                              |                     | $         
|                                            | Capital expenditures                                       |                     | $         
|                                            |                                                            |                     | RESTATED(1
|Balance sheet data:(at end of period)       |                                                            |                     |           
|                                            | Working capital (deficit)                                  |                     | $         
|                                            | Total assets                                               |                     |           
|                                            | Long-term debt, including current portion                  |                     |           
|                                            | Total equity                                               |                     | $         

---

9

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

Except for the historical information contained in this report, certain statements made herein are "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995 that reflect the Company's expectations, assumptions, estimates and projections regarding its results of operations, cash flow, performance, revenue and
business prospects and opportunities. Words such as "anticipates," "believes," "plans," "expects," "estimates" and similar expressions have been used to identify these forward-looking statements, but
are not the exclusive means of identifying these statements. These forward-looking statements reflect the Company's current beliefs and expectations and are based on information currently available to
the Company. Accordingly, these statements are subject to known and unknown risks, uncertainties and other factors that could cause the Company's results of operations and performance to differ from
those expressed in, or implied by, these forward-looking statements. These risks, uncertainties and other factors include the Company's ability to develop and market existing and new products, the
Company's ability to maintain its advertising presence, the Company's ability to adjust to changes in technology, customer preferences, enhanced competition and new competitors in the floral services
industry, current exchange rate and interest rate
fluctuations, collection of receivables and risks associated with general economic and business conditions, which may reduce or delay customers' purchases of the Company's products and services. The
Company makes no commitment to disclose any revisions to any forward looking statements to reflect new events or circumstances after the date of this document that may bear upon any forward looking
statements made herein.

The Company has restated the previously issued financial statements. See Note 2 to the consolidated financial statements for information regarding the restatements. Accordingly,
certain amounts and explanations included in Management's Discussion and Analysis of Financial Condition and Results of Operations have been amended.

10

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Results of Operations

The following table illustrates the total revenue generated by IOS's operations and summarizes IOS's historical results of operations for the fiscal years ended
June 30, 2001, 2000 and 1999:

|                                          |                            | Year Ended June 30,                           
|----------------------------------------- | -------------------------- | ----------------------------------------------
|
|
|Revenue:                                  |                            |                                               
|                                          | Member Services            |                                               
|                                          | Technology Products        |                                               
|                                          | Specialty Wholesaling      |                                               
|                                          | Direct to Consumer         |                                               
|                                          |                            |                                               
|                                          |                            | Total revenue                                 
|Cost of goods sold and services provided: |                            |                                               
|                                          | Member Services            |                                               
|                                          | Technology Products        |                                               
|                                          | Specialty Wholesaling      |                                               
|                                          | Direct to Consumer         |                                               
|                                          |                            |                                               
|                                          |                            | Total cost of goods sold and services provided
|Operating expenses:                       |                            |                                               
|                                          | Advertising and selling    |                                               
|                                          | General and administrative |                                               
|                                          |                            |                                               
|                                          |                            | Total operating expenses                      
|                                          |                            |                                               
|Income (loss) from operations             |                            | $                                             
|                                          |                            |                                               

The
Company generates its revenue from four principal segments. These segments have been classified as Member Services, Technology Products, Specialty Wholesaling and Direct to Consumer.

Member
Services consists of floral services provided by both FTD and VNS consisting primarily of:



11

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Technology
Products consists primarily of:



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

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

In
view of the rapidly changing nature of the Company's Direct to Consumer business and seasonal variations in the revenues and operating results of all of the Company's business
segments, the Company believes that comparisons of its revenues and operating results for any period with those of the immediately preceding period or the same period of the preceding fiscal year may
be of limited relevance in evaluating the Company's historic financial performance and predicting the Company's future financial performance. For example, revenues and operating results tend to be
lower for the quarter ending September 30 because none of the most popular floral holidays, which include Valentine's Day, Easter, Mother's Day, Thanksgiving and Christmas, fall within that
quarter. In addition, depending on the year, the popular floral holiday of Easter sometimes falls within the quarter ending March 31 and sometimes falls within the quarter ending
June 30. Also, this seasonality is attributable to increased revenues in the quarter ended March 31 relating to the increased floral orders and shipments of Mother's Day holiday
products. As a result, comparisons of results of operations from one quarter to the immediately preceding quarter or the same quarter of the preceding year may not be relevant when evaluating the
Company's historical financial performance and predicting the Company's future performance. The Company's working capital, cash and short-term borrowings also fluctuate during the year as a result of
the factors set forth above.

Year ended June 30, 2001, compared to year ended June 30, 2000

Total revenue increased by $40.6 million, or 15.1%, to $308.3 million for the year ended June 30, 2001, compared to $267.7 million for the year ended June
30, 2000, for the reasons discussed below.

Member
Services segment revenue increased by $6.7 million, or 7.1%, to $101.3 million for the year ended June 30, 2001, compared to $94.6 million for the year ended
June 30, 2000. This increase was primarily due to an increase in the monthly access fees charged to florists and increased VNS member services revenue offset partially by decreased credit card
processing revenue. Membership in FTD, the Company's premium floral service provider, declined from approximately 17,000 to 14,000 members, as of June 30 2000 and 2001, respectively. The
Company believes that this decline in membership is primarily attributable to the increase in monthly access fees charged to FTD florists. However, since its launch in January 2000, membership
in VNS, the Company's economy floral service provider, numbered over 10,000 members as of June 30, 2001. By the end of fiscal 2002, the Company expects to increase membership in both VNS and
FTD, offering services to meet the needs of florists at each end of the pricing spectrum.

12

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Technology
Products segment revenue increased by $0.8 million, or 2.2%, to $36.9 million for the year ended June 30, 2001, compared to $36.1 million for the year ended
June 30, 2000. This increase was primarily due to an increase in Wings System sales and an increase in Mercury equipment support fees charged to Mercury equipment customers, partially offset by
a decrease in Advantage System sales. The Company expects to continue to encourage florists to upgrade from older Mercury equipment to Mercury Direct, Mercury Wings and Mercury Advantage systems,
which will tend to lower related revenues without significantly impacting earnings due to the elimination of related costs to support the older technology. The Company has agreements with certain
floral service providers that provide a guaranteed minimum order fee for orders processed over the Mercury Network. These agreements contain renewal options and begin to expire in the second half of
fiscal 2002.

Specialty Wholesaling segment revenue increased by $3.2 million, or 6.3%, to $52.6 million for the year ended June 30, 2001, compared to $49.4 million for the year ended
June 30, 2000. This increase was primarily the result of the increase in the revenue attributable to the FSG, as described in Note 17 of the Notes to Consolidated Financial Statements,
partially offset by a decrease in holiday and branded product sales. In fiscal 2002, the Company expects to reduce the number of inventoried items offered to florists, which is expected to lead to
lower sales and reductions in inventory without significantly impacting earnings as a result of improved gross margin because of a more attractive mix of products and lower carrying costs associated
with inventory.

Direct
to Consumer segment revenue increased by $29.9 million, or 34.2%, to $117.5 million for the year ended June 30, 2001, compared to $87.6 million for the year ended
June 30, 2000. This increase was primarily due to increases in the order volume and average order value placed by consumers through the www.ftd.com Web site and the 1-800-SEND-FTD toll-free
telephone number.

Total
cost of goods sold and services provided increased by $24.1 million, or 18.0%, to $158.2 million for the year ended June 30, 2001, compared to $134.1 million for the year
ended June 30, 2000. This increase was primarily attributable to increases in sales volume in the Direct to Consumer and Specialty Wholesaling segments. As a percentage of revenue, total costs
of goods sold and services provided increased to 51.3% for the year ended June 30, 2001, from 50.1% for the year ended June 30, 2000. This increase was primarily attributable to sales
mix related to revenue increases for the Direct to Consumer and Specialty Wholesaling segments, which have higher cost ratios.

Costs
of goods sold and services provided associated with the Member Services segment decreased by $1.6 million, or 11.0%, to $13.1 million for the year ended June 30, 2001,
compared to $14.7 million for the year ended June 30, 2000. This decrease was primarily the result of a decrease in credit card processing revenue. As a percent of revenue, costs of goods sold
and services provided decreased to 12.9% for the year ended June 30, 2001, from 15.6% for the year ended June 30, 2000, primarily due to an increase in the monthly access fees charged to
florists.

Costs
of goods sold and services provided associated with the Technology Products segment decreased by $1.7 million, or 12.0%, to $13.0 million for the year ended June 30, 2001,
compared to $14.7 million for the year ended June 30, 2000. This decrease was primarily the result of fewer unit sales of Advantage Systems and lower system support costs partially offset by
increased Wings System costs. As a percent of revenue, costs of goods sold and services provided decreased to 35.1% for the year ended June 30, 2001, from 40.7% for the year ended
June 30, 2000, primarily as a result of sales mix on relatively higher margin Mercury Wings compared to Advantage Systems, and an increase in Mercury equipment support fees charged to Mercury
equipment customers.

Costs
of goods sold and services provided associated with the Specialty Wholesaling segment increased by $5.8 million, or 16.2%, to $42.1 million for the year ended June 30, 2001,
compared to $36.3 million for the year ended June 30, 2000. This increase was primarily due to the costs of producing the FSG. As a percent of revenue, costs of goods sold and services provided
increased to 80.2% for the year ended June 30, 2001 from 73.4% for the year ended June 30, 2000, primarily as a

13

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result of sales of the lower margin FSG to affiliated florists and lower margins on Specialty Wholesaling products resulting from discounting related to inventory reduction efforts.

Costs
of goods sold and services provided associated with the Direct to Consumer segment increased by $21.6 million, or 31.6%, to $90.0 million for the year ended June 30, 2001,
compared to $68.4 million for the year ended June 30, 2000. This increase was primarily attributable to costs associated with processing and filling more consumer orders. As a percent of
revenue, costs of goods sold and services provided decreased to 76.6% for the year ended June 30, 2001, from 78.1% for the year ended June 30, 2000, primarily as a result of an increase
in higher margin specialty gift orders and reduction in order processing costs due to a decrease in the total number of phone orders.

Advertising
and selling costs decreased by $28.7 million, or 27.9%, to $74.2 million for the year ended June 30, 2001, compared to $102.9 million for the year ended
June 30, 2000. This decrease was primarily due to a reduction of marketing and promotions related to the Direct to Consumer business segment, with a shift from a marketing program primarily
focused on customer acquisition to a more balanced program focused on both customer acquisition and retention. FTD.COM's marketing and promotion costs were $15.1 million and $42.9 million,
respectively, for fiscal years 2001 and 2000.

General
and administrative costs decreased by $3.3 million, or 6.0%, to $50.6 million for the year ended June 30, 2001, compared to $53.9 million for the year ended
June 30, 2000. This was primarily due to FTD.COM's $4.4 million one-time charge in fiscal year 2000 associated with the write-off of development work related to an unlaunched version of its Web
site partially offset by an increase in stock-based compensation expense related to restricted stock grants made to certain employees of the Company and FTD.COM in prior years.

Interest
income remained relatively constant at $1.5 million for the year ended June 30, 2001, compared to $1.9 million for the year ended June 30, 2000. Interest expense
decreased by $0.5 million, or 8.5%, to $5.2 million for the year ended June 30, 2001, compared to $5.7 million for the year ended June 30, 2000. The decrease was primarily attributable
to a lower borrowing rate during fiscal year 2001.

Other expense for the year ended June 30, 2001 consists primarily of $14.5 million in expenses related to the Termination Agreement.

The provision for income taxes and the effective tax rates for the years ended June 30, 2001 and 2000, were an expense of $3.4 million and a rate of 51% and a benefit of $7.6
million and a rate of 28%, respectively. The change in effective tax rates was primarily due to the effect of non-deductible goodwill amortization and other items, which increases the Company's
effective tax rate when operating in a pre-tax profit position and reduces its tax benefit rate when operating in a pre-tax loss position.

The
minority interest in earnings of subsidiary was an expense of $1.9 million for the year ended June 30, 2001, compared to a benefit of $4.4 million for the year ended
June 30, 2000 and fluctuated primarily as a result of an increase in the Direct to Consumer segment net income. The minority's interest was approximately 15% at June 30, 2001.

Net income increased by $16.4 million to $1.3 million for the year ended June 30, 2001, compared to a net loss of $15.1 million for the year ended June 30, 2000. This increase was
primarily the result of increased revenue coupled with decreased advertising and selling expenses associated with FTD.COM's advertising campaign.

Year ended June 30, 2000, compared to year ended June 30, 1999

Total revenue increased $54.3 million, or 25.4%, to $267.7 million for the year ended June 30, 2000, compared to $213.4 million for the year ended
June 30, 1999. This increase was primarily the

14

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result of an increase in revenue in the Direct to Consumer and Member Services business segments, offset in part by a decrease in revenue in the Specialty Wholesaling business segment.

Member
Services segment revenue increased $13.4 million, or 16.5%, to $94.6 million for the year ended June 30, 2000, compared to $81.2 million for the year ended June 30,
1999. This increase is primarily due to increases in Clearinghouse, Publications and Credit Cards revenue. The increase relating to Clearinghouse revenue is primarily attributable to the increase in
the monthly access fee charged to florists. The increase in Publications revenue is primarily attributable to an increase in listings and extra advertisements in the Directory in comparison to the
year ended June 30, 1999. The
increase in revenue related to credit card processing is due to the increase in the commissions fee for bankcard processing and an increase in credit card volume.

Technology
Products segment revenue increased $1.1 million, or 3.4%, to $36.1 million for the year ended June 30, 2000, compared to $35.0 million for the year ended
June 30, 1999. This increase is primarily due to increases in Mercury Advantage and Mercury Wings systems sales. These increases were partially offset by decreases in Mercury equipment rental
revenue and Mercury network transmissions. The increase in revenue relating to Mercury Advantage and Mercury Wings is due to an increase in the number of systems sold over the year ended
June 30, 1999.

Specialty Wholesaling segment revenue decreased $2.4 million, or 4.7%, to $49.4 million for the year ended June 30, 2000, from $51.8 million for the year ended June 30,
1999. The decrease was primarily the result of $2.8 million in revenue for the FSG (see Note 17 of Notes to Consolidated Financial Statements), recorded in fiscal year 1999 versus no FSG revenue
recorded in the year ended June 30, 2000.

Direct
to Consumer segment revenue increased $42.1 million, or 92.6%, to $87.6 million for the year ended June 30, 2000, compared to $45.5 million for the year ended
June 30, 1999. The increase over the year ended June 30, 1999 was primarily due to an increase in the number of orders placed by consumers through the www.ftd.com Web site as well as an
increase in the average order value.

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

Cost
of goods sold and services provided associated with Member Services increased $3.4 million, or 30.0%, to $14.7 million for the year ended June 30, 2000, compared to $11.3
million for the year ended June 30, 1999. This increase was primarily due to increased costs associated with publications and an increase in credit card volume. As a percent of revenue, costs
of goods sold and services provided increased to 15.6% for the year ended June 30, 2000, from 14.0% for the year ended June 30, 1999, primarily as a result of costs associated with
increased credit card revenue.

Cost
of goods sold and services provided associated with Technology Products increased $3.0 million, or 25.8%, to $14.7 million for the year ended June 30, 2000, compared to $11.7
million for the year ended June 30, 1999. This increase was primarily due to higher equipment and support costs associated with increased sales of Mercury Advantage and Mercury Wings systems.
As a percent of revenue, costs of goods sold and services provided increased to 40.7% for the year ended June 30, 2000, from 33.5% for
the year ended June 30, 1999, primarily as a result of costs associated with increased sales of Mercury Advantage and Mercury Wings systems.

Cost
of goods sold and services provided associated with Specialty Wholesaling decreased by $0.6 million, or 1.8%, to $36.3 million for the year ended June 30, 2000, compared to
$36.9 million for the

15

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year ended June 30, 1999. This decrease was due primarily to lower costs related to the FSG. Cost of goods sold in the year ended June 30, 1999 included costs related to the FSG versus
no FSG costs in the year ended June 30, 2000. As a percent of revenue, costs of goods sold and services provided increased to 73.4% for the year ended June 30, 2000, from 71.3% for the
year ended June 30, 1999, primarily as a result of selling lower margin branded products.

Cost
of goods sold and services provided associated with Direct to Consumer increased $33.0 million, or 93.1%, to $68.4 million for the year ended June 30, 2000 compared to $35.4
million for the year ended June 30, 1999. The increase was primarily attributable to costs associated with processing and filling more consumer orders. As a percentage of revenue, costs of
goods sold and services provided increased to 78.1% for the year ended June 30, 2000, from 77.9% for the year ended June 30, 1999, primarily as a result of increased other revenue, which
have no directly associated costs, and a change in the amount paid per order to filling florists.

Advertising
and selling costs increased $37.9 million, or 58.3%, to $102.9 million for the year ended June 30, 2000, compared to $65.0 million for the year ended June 30,
1999. This was primarily due to increased costs associated with Internet marketing and national advertising related to FTD.COM's marketing efforts. FTD.COM's marketing and promotion costs were $42.9
million and $12.0 million, respectively, for fiscal years 2000 and 1999.

General
and administrative costs increased $11.6 million, or 27.4%, to $53.9 million for the year ended June 30, 2000, from $42.3 million for the year ended June 30, 1999.
This was primarily due to the increased payroll and administrative costs to support the growth of the Company as well as FTD.COM's $4.4 million one-time charge associated with the write-off of
development work related to an unlaunched version of their Web site.

Interest
income increased $1.3 million over the year ended June 30, 1999 to $1.9 million for the year ended June 30, 2000. This increase was primarily due to interest
earned on unused proceeds from the initial public offering ("IPO") of FTD.COM. Interest expense decreased by $1.2 million from the year ended June 30, 1999 to $5.7 million for the year ended
June 30, 2000. The decrease was primarily attributable to a lower borrowing rate during the current year as a result of the repurchase of $60.0 million of the Notes on December 15, 1998,
and utilizing existing bank credit facilities which have a lower average borrowing rate.

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

The
minority interest in loss of subsidiary of $4.4 million for the year ended June 30, 2000, reflected on the consolidated statements of operations and comprehensive income,
represents the net loss attributable to the minority shareholders for the period. The minority's interest was approximately 13% as of June 30, 2000.

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

16

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Quarterly Financial Information (Unaudited) (in thousands, except for per share data):

|Fiscal 2001                        |  | First
Quarter
Restated(1) |        | Second
Quarter
Restated(1) |   | Third
Quarter
Restated(1) |  | Fourth
Quarter
Restated(1) |       
|---------------------------------- |  | ------------------------- | ------ | -------------------------- | - | ------------------------- |  | -------------------------- | ------
|Total revenue                      |  | $                         | 64,324 |                            | $ | 77,002                    |  | $                          | 84,718
|Gross profit                       |  |                           | 32,784 |                            |   | 38,712                    |  |                            | 38,000
|Income from operations             |  |                           | 2,974  |                            |   | 5,498                     |  |                            | 6,399 
|                                   |  |                           |        |                            |   |                           |  |                            |       
|Net income (loss)(2)               |  |                           | 928    |                            |   | 1,823                     |  |                            | 3,079 
|                                   |  |                           |        |                            |   |                           |  |                            |       
|Basic income (loss) per share(3)   |  | $                         | 0.06   |                            | $ | 0.13                      |  | $                          | 0.21  
|Diluted income (loss) per share(3) |  | $                         | 0.06   |                            | $ | 0.12                      |  | $                          | 0.21  

|Fiscal 2000                      |  | First
Quarter |        | Second
Quarter |   | Third
Quarter |   | Fourth
Quarter |       
|-------------------------------- |  | ------------- | ------ | -------------- | - | ------------- | - | -------------- | ------
|Total revenue                    |  | $             | 51,433 |                | $ | 67,618        |   | $              | 69,934
|Gross profit                     |  |               | 26,415 |                |   | 33,827        |   |                | 35,024
|Loss from operations             |  |               | (4,193 | )              |   | (10,355       | ) |                | (5,658
|                                 |  |               |        |                |   |               |   |                |       
|Net loss                         |  |               | (3,774 | )              |   | (6,791        | ) |                | (3,756
|                                 |  |               |        |                |   |               |   |                |       
|Basic and diluted loss per share |  | $             | (0.25  | )              | $ | (0.44         | ) | $              | (0.24 

---

Liquidity and Capital Resources

Cash and cash equivalents increased by $10.1 million to $30.9 million as of June 30, 2001 from $20.8 million as of June 30, 2000. Cash provided by
operating activities was $13.0 million for the year ended June 30, 2001 compared to cash used in operating activities of $8.8 million for the year ended June 30, 2000. The increase in
cash provided by operating activities is primarily attributable to the increase in net income and non-cash expenses related to depreciation and amortization and minority interest, offset in part by a
decrease in accounts payable.

17

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Cash used in investing activities was $5.9 million for the year ended June 30, 2001 compared to cash used in investing activities of $15.8 million for the year ended June 30,
2000. Expenditures for depreciable fixed assets such as furniture and equipment were $1.3 million for the year ended June 30, 2001 compared to $5.0 million for the year ended June 30,
2000. Expenditures for amortizable intangibles such as costs relating to the development and implementation of internal use software and other information technology costs were $2.7 million for the
year ended June 30, 2001 compared to $10.7 million for the year ended June 30, 2000. For the year ended June 30, 2000, $3.5 million of capitalized assets were written off as part
of a $4.4 million one-time charge associated with the development work related to an unlaunched version of FTD.COM's Web site. The Company's anticipated capital expenditures for fiscal 2002 are
estimated to be $5.0 to $7.0 million and will primarily be used for developing new software and information technology purchases.

Cash
provided by financing activities was $3.4 million for the year ended June 30, 2001, primarily attributable to book overdrafts of $3.5 million, related to checks issued but
not presented to banks, as discussed in Note 1 of the Notes to Consolidated Financial Statements. Net cash provided by financing activities was $43.0 million for the year ended June 30, 2000,
which included the net proceeds of $35.6 million generated from FTD.COM's Initial Public Offering in fiscal year 2000 and book overdrafts of $4.5 million.

The
Company's principal sources of liquidity are cash from operations and funds available for borrowing under the Company's Bank Credit Agreement, dated November 20, 1997 (the
"Bank Credit Facilities"). The Bank Credit Facilities consist of a $30.0 million Multiple Draw Term Loan Facility and a $50.0 million Revolving Credit Facility and are used to finance working capital,
acquisitions, capital expenditures, certain expenses associated with the Bank Credit Facilities and letter of credit needs. As of June 30, 2001, the Company had $30.0 million outstanding under
the Multiple Draw Term Loan Facility, $24.9 million outstanding under the Revolving Credit Facility and $1.9 million outstanding under various letters of credit. The amount outstanding under the
Multiple Draw Term Loan Facility is scheduled to be permanently reduced over a period of ten consecutive quarterly installments continuing until the Bank Credit Facilities' termination date of
December 31, 2003, through the use of cash flow from operations and borrowings under the Revolving Credit Facility. The amounts outstanding under the Revolving Credit Facility will mature on
December 31, 2003. The Company's Bank Credit Facilities include covenants, which, among other things require the Company to maintain certain financial ratios and a minimum level of consolidated
net worth. As of June 30, 2001, the Company was in compliance with the covenants contained in the Bank Credit Facilities, as amended.

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

On July 26, 2000, the Company settled an ongoing lawsuit whereby one of the Company's shareholders, and former warrantholder, returned 750,000 shares of Class B Convertible
Common Stock, which the Company subsequently recorded as treasury stock. The shareholder received these shares upon exercise of the Company's common stock warrants, which were originally issued to the
shareholder in conjunction with the acquisition of Florist Transworld Delivery Association by the Company in 1994. As a result of this settlement, the Company recorded $12.0 million of treasury
stock

18

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and an increase to paid-in capital of $11.6 million (net of $0.4 million of income taxes) in the year ended June 30, 2001.

On
April 30, 2001, FTD entered into a Termination Agreement with the Association, which became effective as of June 29, 2001. The Termination Agreement, which contains
limited two-year non-compete provisions, terminates both the Mutual Support Agreement, dated December 18, 1994 (the "Mutual Support Agreement"), and the Trademark License Agreement, dated
December 18, 1994 (the "Trademark Agreement" and together with the Mutual Support Agreement, the "Association Agreements"), which were entered into in connection with the Acquisition between
the Association and FTD. Pursuant to the Association Agreements, among other things: (i) existing and future members of the Association had the exclusive right, subject to execution of a
Trademark Agreement with the Operating Company, to use the FTD logo and other FTD trademarks in connection with the operation of a retail florist shop; (ii) all members of the Association in
good standing were provided access to FTD's Clearinghouse, Mercury Network and certain other FTD services and products; (iii) the Operating Company paid the Association an amount equal to a
percentage of the value of every floral order cleared through FTD's Clearinghouse; and (iv) the Operating Company and the Association were able to designate up to 20% but not fewer than two
individuals to be elected to the other's board of directors.

As
consideration for the dissolution of the contractual relationship between the Company and the Association pursuant to the Termination Agreement, FTD agreed to pay the Association
$14.0 million, $12.6 million which was paid on June 29, 2001 and $1.4 million of which is subject to a one-year escrow holdback. In fiscal 2001, the Company recorded $14.5 million of expenses
related to this transaction, including professional fees. The $1.4 million escrow holdback is reflected on the Company's balance sheet as restricted cash.

Recently Issued Accounting Pronouncements

In May 2000, the Emerging Issues Task Force ("EITF") issued EITF 00-14, Accounting for Certain Sales Incentives. EITF 00-14 addresses the recognition,
measurement and income statement classification of sales incentives offered by a vendor that can be used in a single exchange transaction. This EITF is effective for annual and interim financial
periods beginning after December 15, 2001. The Company does not expect the adoption of EITF 00-14 will have a significant impact on the Company's financial position or results of operations.

In
June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 141, "Business Combinations" ("SFAS 141") which supersedes APB Opinion No. 16, "Business
Combinations", and SFAS No. 38, "Accounting for Preacquisition Contingencies of Purchased Enterprises". SFAS 141 addresses financial accounting and reporting for business combinations and requires
that all business combinations within scope of SFAS 141 be accounted for using only the purchase method. SFAS 141 is required to be adopted for all business combinations initiated after
June 30, 2001. Management has assessed the impact of the adoption of SFAS 141 on its consolidated financial statements and believes the impact will not be material.

Also
in June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142") which supercedes APB Opinion No. 17, "Intangible Assets". SFAS 142 addresses
how intangible assets that are acquired individually or with a group of other assets (but not those acquired in a business combination) should be accounted for in financial statements upon their
acquisition. SFAS 142 also addresses how goodwill and other intangible assets should be accounted for after they have been initially recognized in the financial statements. The provisions of SFAS 142
are required to be applied starting with fiscal years beginning after December 15, 2001. SFAS 142 is required to be applied at the beginning of an entity's fiscal year and to be applied to all
goodwill and other intangible

19

---

assets recognized in its financial statements at that date. Management is currently evaluating the impact that adoption of SFAS 142 will have on its consolidated financial statements.

ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to various market risks, which primarily consist of interest rate risk. The Company currently does not use derivative instruments for
trading purposes or to reduce its exposure to changes in interest rates. The Company's exposure to interest rate risk is primarily the result of borrowings under the Bank Credit Facilities, which were
subject to interest rates ranging from 4.9375% to 7.0% at June 30, 2001. The Company believes that its exposure to interest rate fluctuations will be limited due to the Company's philosophy of
maintaining minimal cash balances, excluding the cash of FTD.COM, in an effort to effectively use any excess cash flows to reduce outstanding debt.

All
of the Company's outstanding debt, which totaled $54.9 million as of June 30, 2001, is subject to variable rates. An adverse change in interest rates during the time that this
portion of the debt is outstanding would cause an increase in the amount of interest paid. The Company may pay down the loan prior to expiration in December 2003. However, if the Company's
borrowings remain outstanding for the remaining term of the borrowing agreement, a 100 basis point increase in LIBOR would result in an increase of approximately $550,000 in the amount of annualized
interest paid on this portion of the debt and annualized interest expense recognized in the consolidated financial statements.

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

The
Company is also exposed to foreign currency exchange rate risk with respect to the Canadian dollar. The resulting Canadian exchange adjustments are included in the accumulated other
comprehensive income component on the Consolidated Statements of Operations and Comprehensive Income and did not have a material effect on other comprehensive income for the years ended
June 30, 2001, 2000 and 1999. The Company does not expect to be materially affected by foreign currency exchange rate fluctuations in the future, as the transactions denominated in Canadian
dollars are not material to the consolidated financial statements. The Company therefore does not currently enter into derivative financial instruments as hedges against foreign currency fluctuations
of the Canadian dollar.

ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The consolidated financial statements of the Registrant required by this item are set forth on pages F-1 through F-27 of this form 10-K/A and the related
schedule is set forth on page F-29 of this form 10-K/A.

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

Not applicable.

PART III

ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information regarding the directors of the Company will be set forth under the caption "Election of Directors" in the Company's information statement related to
the Company's 2001 annual meeting of stockholders (the "Information Statement") and is incorporated herein by reference. Information regarding executive officers of the Company is included as Item 4A
of Part 1 as permitted by Instruction 3 to Item 401(b) of Regulation S-K. Information required by Item 405 of Regulation S-K

20

---

will be set forth under the caption "Section 16(a) Beneficial Ownership Reporting Compliance" in the Information Statement and is incorporated herein by reference.

ITEM 11.    EXECUTIVE COMPENSATION

Information required by this item will be set forth under the caption "Executive Compensation" in the Information Statement and, except for the information under
the captions "Executive Compensation - Compensation Committee Report on Executive Compensation" and "Stockholder Return Comparison," is incorporated herein by reference.

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Information required by this item will be set forth under the captions "Security Ownership of Certain Beneficial Owners and Management" and "Principal
Stockholders" in the Information Statement and is incorporated herein by reference.

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information regarding any disclosable relationships and related transactions will be set forth under the caption "Relationship with Affiliates" in the Information
Statement and is incorporated herein by reference.

PART IV

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

(a)    Financial Statements, Schedules and Exhibits

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

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

(b)    Reports on Form 8-K

The Company filed no reports on Form 8-K during the fourth quarter of fiscal 2001.

(c)    Executive Compensation Plans and Arrangements

See accompanying Index to Exhibits.

21

---



SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.

| |  | IOS BRANDS CORPORATION
| |  | ----------------------
| |  | By:                   
| |  |                       
| |  |                       
| |  |                       

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

|Signature                         |  | Title                                                                              |  | Date        
|--------------------------------- |  | ---------------------------------------------------------------------------------- |  | ------------
|                                  |  |                                                                                    |  |             
|*Robert L. Norton                 |  | Chairman of the Board of Directors and President (Principal Executive Officer)     |  | May 28, 2002
|/s/CARRIE A. WOLFECarrie A. Wolfe |  | Chief Financial Officer and Treasurer (Principal Accounting and Financial Officer) |  | May 28, 2002
|*Habib Gorgi                      |  | Director                                                                           |  | May 28, 2002
|*Steve Pagliuca                   |  | Director                                                                           |  | May 28, 2002
|*Richard C. Perry                 |  | Director                                                                           |  | May 28, 2002
|*William Vernon                   |  | Director                                                                           |  | May 28, 2002



---

| |  | By: | /s/ROBERT L. NORTONRobert L. Norton
| |  | --- | -----------------------------------

22

---



INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE

|Independent Auditors' Report                                                                                               |  | F-2 
|-------------------------------------------------------------------------------------------------------------------------- |  | ----
|Consolidated Balance Sheets as of June 30, 2001 (restated) and 2000 (restated)                                             |  | F-3 
|Consolidated Statements of Operations and Comprehensive Income for the years ended June 30, 2001 (restated), 2000 and 1999 |  | F-4 
|Consolidated Statements of Stockholders' Equity for the years ended June 30, 2001 (restated), 2000 (restated) and 1999     |  | F-5 
|Consolidated Statements of Cash Flows for the years ended June 30, 2001 (restated), 2000 and 1999                          |  | F-6 
|Notes to Consolidated Financial Statements                                                                                 |  | F-7 
|Independent Auditors' Report on Financial Statement Schedule                                                               |  | F-28
|Schedule IIValuation and Qualifying Accounts                                                                              |  | F-29

F-1

---



INDEPENDENT AUDITORS' REPORT

The
Board of Directors
IOS BRANDS Corporation:

We
have audited the accompanying consolidated balance sheets of IOS BRANDS Corporation and subsidiaries as of June 30, 2001 and 2000, and the related consolidated statements of
operations and comprehensive income, stockholders' equity, and cash flows for each of the years in the three-year period ended June 30, 2001. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

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

In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of IOS BRANDS Corporation and subsidiaries as of
June 30, 2001 and 2000, and the results of their operations and their cash flows for each of the years in the three-year period ended June 30, 2001, in conformity with accounting
principles generally accepted in the United States of America.

The consolidated balance sheets as of June 30, 2001 and 2000, the consolidated statements of stockholders' equity for the years then ended, and the consolidated statements of
operations and



comprehensive income and cash flows for the year ended June 30, 2001 have been restated as discussed in Note 2.

/s/
KPMG LLP

Chicago, Illinois
July 23, 2001, except as to the first paragraph of Note 2
which is as of November 9, 2001,
and as to the second paragraph of Note 2 and Note 18,
which are as of May 28, 2002.

F-2

---



IOS BRANDS CORPORATION        CONSOLIDATED BALANCE SHEETS  AS OF JUNE 30, 2001 AND 2000

|                                                                               |                                                                                                                                                               | 2001
Restated                                                                                                                           |                                            | 2000
Restated |    
|------------------------------------------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------------- | ---
|
|ASSETS                                                                         |                                                                                                                                                              
|Current Assets:                                                                |                                                                                                                                                               |                                                                                                                                         |                                            |               |    
|                                                                               | Cash and cash equivalents                                                                                                                                     |                                                                                                                                         | $                                          | 30,890        |    
|                                                                               | Restricted cash                                                                                                                                               |                                                                                                                                         |                                            | 1,400         |    
|                                                                               | Accounts receivable, less allowance for doubtful accounts of $4,984 at June 30, 2001 and $3,596 at June 30, 2000                                              |                                                                                                                                         |                                            | 23,251        |    
|                                                                               | Inventories, net                                                                                                                                              |                                                                                                                                         |                                            | 12,469        |    
|                                                                               | Deferred income taxes                                                                                                                                         |                                                                                                                                         |                                            | 3,556         |    
|                                                                               | Prepaid expenses and other                                                                                                                                    |                                                                                                                                         |                                            | 2,851         |    
|                                                                               |                                                                                                                                                               |                                                                                                                                         |                                            |               |    
|                                                                               |                                                                                                                                                               |                                                                                                                                         | Total current assets                       |               |    
|Property and equipment:                                                        |                                                                                                                                                               |                                                                                                                                         |                                            |               |    
|                                                                               | Land and improvements                                                                                                                                         |                                                                                                                                         |                                            | 1,600         |    
|                                                                               | Building and improvements                                                                                                                                     |                                                                                                                                         |                                            | 8,883         |    
|                                                                               | Mercury consoles                                                                                                                                              |                                                                                                                                         |                                            | 8,331         |    
|                                                                               | Furniture and equipment                                                                                                                                       |                                                                                                                                         |                                            | 23,435        |    
|                                                                               |                                                                                                                                                               |                                                                                                                                         |                                            |               |    
|                                                                               |                                                                                                                                                               |                                                                                                                                         | Total                                      |               |    
|                                                                               | Less accumulated depreciation                                                                                                                                 |                                                                                                                                         |                                            | 26,592        |    
|                                                                               |                                                                                                                                                               |                                                                                                                                         |                                            |               |    
|                                                                               |                                                                                                                                                               |                                                                                                                                         | Property and equipment, net                |               |    
|Other assets:                                                                  |                                                                                                                                                               |                                                                                                                                         |                                            |               |    
|                                                                               | Deferred income taxes                                                                                                                                         |                                                                                                                                         |                                            | 5,942         |    
|                                                                               | Other noncurrent assets                                                                                                                                       |                                                                                                                                         |                                            | 13,301        |    
|                                                                               | Goodwill and other intangibles, less accumulated amortization of $19,350 at June 30, 2001 and $16,608 at June 30, 2000                                        |                                                                                                                                         |                                            | 66,034        |    
|                                                                               |                                                                                                                                                               |                                                                                                                                         |                                            |               |    
|                                                                               |                                                                                                                                                               |                                                                                                                                         | Total other assets                         |               |    
|                                                                               |                                                                                                                                                               |                                                                                                                                         |                                            |               |    
|                                                                               |                                                                                                                                                               |                                                                                                                                         | Total Assets                               |               | $  
|                                                                               |                                                                                                                                                               |                                                                                                                                         |                                            |               |    
|LIABILITIES AND STOCKHOLDERS' EQUITY                                           |                                                                                                                                                              
|Current liabilities:                                                           |                                                                                                                                                               |                                                                                                                                         |                                            |               |    
|                                                                               | Book overdrafts                                                                                                                                               |                                                                                                                                         | $                                          | 8,013         |    
|                                                                               | Accounts payable                                                                                                                                              |                                                                                                                                         |                                            | 32,974        |    
|                                                                               | Customer deposits                                                                                                                                             |                                                                                                                                         |                                            | 9,430         |    
|                                                                               | Unearned income                                                                                                                                               |                                                                                                                                         |                                            | 1,356         |    
|                                                                               | Other accrued liabilities                                                                                                                                     |                                                                                                                                         |                                            | 8,908         |    
|                                                                               |                                                                                                                                                               |                                                                                                                                         |                                            |               |    
|                                                                               |                                                                                                                                                               |                                                                                                                                         | Total current liabilities                  |               |    
|Long-term debt                                                                 |                                                                                                                                                               |                                                                                                                                         | 54,875                                     |               |    
|Post-retirement benefits and accrued pension obligations, less current portion |                                                                                                                                                               |                                                                                                                                         | 5,957                                      |               |    
|Minority interest in subsidiary                                                |                                                                                                                                                               |                                                                                                                                         | 2,699                                      |               |    
|Stockholders' equity:                                                          |                                                                                                                                                               |                                                                                                                                         |                                            |               |    
|                                                                               | Preferred stock: $0.01 par value, 1,000,000 shares authorized, no shares issued and outstanding                                                               |                                                                                                                                         |                                            |              |    
|                                                                               | Common stock:                                                                                                                                                 |                                                                                                                                         |                                            |               |    
|                                                                               |                                                                                                                                                               | Class A, $0.01 par value, 30,000,000 shares authorized; 12,598,227 and 12,593,227 shares issued at June 30, 2001 and 2000, respectively |                                            |               | 126
|                                                                               |                                                                                                                                                               | Class B Convertible, $0.0005 par value, 3,000,000 shares authorized; 3,000,000 shares issued at June 30, 2001 and 2000, respectively    |                                            |               | 2  
|                                                                               | Paid-in capital                                                                                                                                               |                                                                                                                                         |                                            | 93,856        |    
|                                                                               | Accumulated deficit                                                                                                                                           |                                                                                                                                         |                                            | (24,390       | )  
|                                                                               | Accumulated other comprehensive income (loss)                                                                                                                 |                                                                                                                                         |                                            | (564          | )  
|                                                                               | Unamortized restricted stock                                                                                                                                  |                                                                                                                                         |                                            | (3,778        | )  
|                                                                               | Treasury stock at cost, 220,839 and 220,839 shares of Class A and 801,250 and 51,250 shares of Class B convertible as of June 30, 2001 and 2000, respectively |                                                                                                                                         |                                            | (14,113       | )  
|                                                                               |                                                                                                                                                               |                                                                                                                                         |                                            |               |    
|                                                                               |                                                                                                                                                               |                                                                                                                                         | Total stockholders' equity                 |               |    
|                                                                               |                                                                                                                                                               |                                                                                                                                         |                                            |               |    
|                                                                               |                                                                                                                                                               |                                                                                                                                         | Total liabilities and stockholders' equity |               | $  
|                                                                               |                                                                                                                                                               |                                                                                                                                         |                                            |               |    

See Accompanying Notes to Consolidated Financial Statements.

F-3

---



IOS BRANDS CORPORATION        CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME  FOR THE YEARS ENDED JUNE 30, 2001, 2000 AND 1999

|                                            |                                                                           | 2001
Restated                                   |                                                                           | 2000                                    |         | 1999    |        
|------------------------------------------- | ------------------------------------------------------------------------- | ----------------------------------------------- | ------------------------------------------------------------------------- | --------------------------------------- | ------- | ------- | -------
|
|Revenues:                                   |                                                                           |                                                 |                                                                           |                                         |         |         |        
|                                            | Products                                                                  |                                                 | $                                                                         | 177,364                                 |         | $       | 143,122
|                                            | Services                                                                  |                                                 |                                                                           | 130,886                                 |         |         | 124,605
|                                            |                                                                           |                                                 |                                                                           |                                         |         |         |        
|                                            |                                                                           | Total revenues                                  |                                                                           |                                         | 308,250 |         |        
|Costs of goods sold and services provided:  |                                                                           |                                                 |                                                                           |                                         |         |         |        
|                                            | Products                                                                  |                                                 |                                                                           | 137,434                                 |         |         | 110,074
|                                            | Services                                                                  |                                                 |                                                                           | 20,725                                  |         |         | 24,015 
|                                            |                                                                           |                                                 |                                                                           |                                         |         |         |        
|                                            |                                                                           | Total costs of goods sold and services provided |                                                                           |                                         | 158,159 |         |        
|Gross profit:                               |                                                                           |                                                 |                                                                           |                                         |         |         |        
|                                            | Products                                                                  |                                                 |                                                                           | 39,930                                  |         |         | 33,048 
|                                            | Services                                                                  |                                                 |                                                                           | 110,161                                 |         |         | 100,590
|                                            |                                                                           |                                                 |                                                                           |                                         |         |         |        
|                                            |                                                                           | Total gross profit                              |                                                                           |                                         | 150,091 |         |        
|Operating Expenses:                         |                                                                           |                                                 |                                                                           |                                         |         |         |        
|                                            | Advertising and selling                                                   |                                                 |                                                                           | 74,165                                  |         |         | 102,870
|                                            | General and administrative                                                |                                                 |                                                                           | 50,636                                  |         |         | 53,874 
|                                            |                                                                           |                                                 |                                                                           |                                         |         |         |        
|                                            |                                                                           |                                                 | Total operating expenses                                                  |                                         |         | 124,801 |        
|                                            |                                                                           |                                                 | Income (loss) from operations                                             |                                         |         | 25,290  |        
|                                            |                                                                           |                                                 |                                                                           |                                         |         |         |        
|Other Income and Expenses:                  |                                                                           |                                                 |                                                                           |                                         |         |         |        
|                                            | Interest income                                                           |                                                 |                                                                           | (1,474                                  | )       |         | (1,905 
|                                            | Interest expense                                                          |                                                 |                                                                           | 5,195                                   |         |         | 5,677  
|                                            | Foreign exchange loss                                                     |                                                 |                                                                           | 433                                     |         |         | 235    
|                                            | Other income                                                              |                                                 |                                                                           | (29                                     | )       |         | (1     
|                                            | Other expense                                                             |                                                 |                                                                           | 14,535                                  |         |         |       
|                                            |                                                                           |                                                 |                                                                           |                                         |         |         |        
|                                            |                                                                           |                                                 | Total other income and expenses                                           |                                         |         | 18,660  |        
|                                            |                                                                           |                                                 |                                                                           |                                         |         |         |        
|                                            |                                                                           |                                                 | Income (loss) before income tax, minority interest and extraordinary item |                                         |         | 6,630   |        
|Income tax expense (benefit)                |                                                                           |                                                 | 3,401                                                                     |                                         |         | (7,586  | )      
|Minority interest                           |                                                                           |                                                 | 1,908                                                                     |                                         |         | (4,389  | )      
|                                            |                                                                           |                                                 |                                                                           |                                         |         |         |        
|                                            |                                                                           |                                                 | Net income (loss) before extraordinary item                               |                                         |         | 1,321   |        
|                                            |                                                                           |                                                 |                                                                           |                                         |         |         |        
|Extraordinary Item:                         |                                                                           |                                                 |                                                                           |                                         |         |         |        
|                                            | Loss on early extinguishment of debt, net of income tax benefit of $3,428 |                                                 |                                                                           |                                        |         |         |       
|                                            |                                                                           |                                                 |                                                                           |                                         |         |         |        
|                                            |                                                                           |                                                 | Net income (loss)                                                         |                                         |         | 1,321   |        
|                                            |                                                                           |                                                 |                                                                           |                                         |         |         |        
|                                            |                                                                           |                                                 |                                                                           | Dividends on subsidiary preferred stock |         |         |       
|                                            |                                                                           |                                                 |                                                                           |                                         |         |         |        
|                                            |                                                                           |                                                 | Net income (loss) available for common stockholders                       |                                         | $       | 1,321   |        
|                                            |                                                                           |                                                 |                                                                           |                                         |         |         |        
|Other Comprehensive Income (Loss):          |                                                                           |                                                 |                                                                           |                                         |         |         |        
|                                            | Foreign currency translation adjustments                                  |                                                 |                                                                           | (29                                     | )       |         | (10    
|                                            | Minimum pension liability adjustment, net of income tax expense of $252   |                                                 |                                                                           | (429                                    | )       |         |       
|                                            |                                                                           |                                                 |                                                                           |                                         |         |         |        
|                                            |                                                                           |                                                 | Comprehensive income (loss)                                               |                                         | $       | 863     |        
|                                            |                                                                           |                                                 |                                                                           |                                         |         |         |        
|Net Income (Loss) Per Common Sharebasic:   |                                                                           |                                                 |                                                                           |                                         |         |         |        
|                                            | Net income (loss) before extraordinary item                               |                                                 | $                                                                         | 0.09                                    |         | $       | (0.99  
|                                            | Extraordinary item                                                        |                                                 |                                                                           |                                        |         |         |       
|                                            |                                                                           |                                                 |                                                                           |                                         |         |         |        
|                                            | Net income (loss) per share                                               |                                                 | $                                                                         | 0.09                                    |         | $       | (0.99  
|                                            |                                                                           |                                                 |                                                                           |                                         |         |         |        
|Net Income (Loss) Per Common Sharediluted: |                                                                           |                                                 |                                                                           |                                         |         |         |        
|                                            | Net income (loss) before extraordinary item                               |                                                 | $                                                                         | 0.09                                    |         | $       | (0.99  
|                                            | Extraordinary item                                                        |                                                 |                                                                           |                                        |         |         |       
|                                            |                                                                           |                                                 |                                                                           |                                         |         |         |        
|                                            | Net income (loss) per share                                               |                                                 | $                                                                         | 0.09                                    |         | $       | (0.99  
|                                            |                                                                           |                                                 |                                                                           |                                         |         |         |        
|Weighted Average Common Shares Outstanding: |                                                                           |                                                 |                                                                           |                                         |         |         |        
|                                            | Basic                                                                     |                                                 |                                                                           | 14,655                                  |         |         | 15,328 
|                                            |                                                                           |                                                 |                                                                           |                                         |         |         |        
|                                            | Diluted                                                                   |                                                 |                                                                           | 14,903                                  |         |         | 15,328 
|                                            |                                                                           |                                                 |                                                                           |                                         |         |         |        

See
Accompanying Notes to Consolidated Financial Statements.

F-4

---



IOS BRANDS CORPORATION        CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY  FOR THE YEARS ENDED JUNE 30, 2001, 2000 AND 1999

|                                              |                              | 2001                                                  |        | 2000    |         | 1999   |        
|--------------------------------------------- | ---------------------------- | ----------------------------------------------------- | ------ | ------- | ------- | ------ | -------
|
|
|Common stock at stated value                  |                              |                                                       |        |         |         |        |        
|                                              | Balance at beginning of year |                                                       | $      | 125     |         | $      | 125    
|                                              |                              | Adjustment made to Class A shares                     |        |         | 3       |        |        
|                                              |                              | Cancellation of shares issued in 1998 Stock Offering  |        |         |        |        |        
|                                              |                              |                                                       |        |         |         |        |        
|                                              | Balance at end of year       |                                                       | $      | 128     |         | $      | 125    
|                                              |                              |                                                       |        |         |         |        |        
|Paid-in Capital                               |                              |                                                       |        |         |         |        |        
|                                              | Balance at beginning of year |                                                       | $      | 81,388  |         | $      | 37,170 
|                                              |                              | Adjustment for subsidiary stock issuance (see Note 2) |        |         |        |        |        
|                                              |                              | Cancellation of shares issued in 1998 Stock Offering  |        |         |        |        |        
|                                              |                              | Settlement of lawsuit (see Notes 2 and 18)            |        |         | 11,630  |        |        
|                                              |                              | Adjustment made to Class A shares                     |        |         | (3      | )      |        
|                                              |                              | Issuance of stock, previously held in treasury        |        |         | 42      |        |        
|                                              |                              | Tax benefit of restricted stock vesting               |        |         | 799     |        |        
|                                              |                              | Issuance of common stock to officers                  |        |         |        |        |        
|                                              |                              |                                                       |        |         |         |        |        
|                                              | Balance at end of year       |                                                       | $      | 93,856  |         | $      | 81,388 
|                                              |                              |                                                       |        |         |         |        |        
|Accumulated Deficit                           |                              |                                                       |        |         |         |        |        
|                                              | Balance at beginning of year |                                                       | $      | (25,711 | )       | $      | (10,648
|                                              |                              | Net income (loss)                                     |        |         | 1,321   |        |        
|                                              |                              | Dividends on Series A preferred stock of subsidiary   |        |         |        |        |        
|                                              |                              |                                                       |        |         |         |        |        
|                                              | Balance at end of year       |                                                       | $      | (24,390 | )       | $      | (25,711
|                                              |                              |                                                       |        |         |         |        |        
|Accumulated Other Comprehensive Income (Loss) |                              |                                                       |        |         |         |        |        
|                                              | Balance at beginning of year |                                                       | $      | (106    | )       | $      | (96    
|                                              |                              | Foreign currency translation adjustment               |        |         | (29     | )      |        
|                                              |                              | Minimum pension liability adjustment                  |        |         | (429    | )      |        
|                                              |                              |                                                       |        |         |         |        |        
|                                              | Balance at end of year       |                                                       | $      | (564    | )       | $      | (106   
|                                              |                              |                                                       |        |         |         |        |        
|Unamortized Restricted Stock                  |                              |                                                       |        |         |         |        |        
|                                              | Balance at beginning of year |                                                       | $      | (5,902  | )       | $      | (913   
|                                              |                              | Cancellation of restricted stock                      |        |         | 101     |        |        
|                                              |                              | Issuance of restricted stock                          |        |         |        |        |        
|                                              |                              | Amortization of restricted stock                      |        |         | 2,023   |        |        
|                                              |                              |                                                       |        |         |         |        |        
|                                              | Balance at end of year       |                                                       | $      | (3,778  | )       | $      | (5,902 
|                                              |                              |                                                       |        |         |         |        |        
|Treasury Stock                                |                              |                                                       |        |         |         |        |        
|                                              | Balance at beginning of year |                                                       | $      | (1,945  | )       | $      | (1,860 
|                                              |                              | Settlement of lawsuit (see Note 18)                   |        |         | (12,000 | )      |        
|                                              |                              | Issuance of stock, previously held in treasury        |        |         | 33      |        |        
|                                              |                              | Repurchase of common stock                            |        |         | (201    | )      |        
|                                              |                              | Issuance of common stock to officers                  |        |         |        |        |        
|                                              |                              |                                                       |        |         |         |        |        
|                                              | Balance at end of year       |                                                       | $      | (14,113 | )       | $      | (1,945 
|                                              |                              |                                                       |        |         |         |        |        
|Total Stockholders' Equity                    |                              | $                                                     | 51,139 |         | $       | 47,849 |        
|                                              |                              |                                                       |        |         |         |        |        

See Accompanying Notes to Consolidated Financial Statements.

F-5

---



IOS BRANDS CORPORATION        CONSOLIDATED STATEMENTS OF CASH FLOWS  FOR THE YEARS ENDED JUNE 30, 2001, 2000 AND 1999

|                                                     |                                                                                                    | 2001
Restated                                                        |                                     | 2000                                                |       | 1999   |        
|---------------------------------------------------- | -------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------- | ----------------------------------- | --------------------------------------------------- | ----- | ------ | -------
|
|Cash flows from operating activities:                |                                                                                                    |                                                                      |                                     |                                                     |       |        |        
|                                                     | Net income (loss)                                                                                  |                                                                      | $                                   | 1,321                                               |       | $      | (15,137
|                                                     | Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |                                                                      |                                     |                                                     |       |        |        
|                                                     |                                                                                                    | Depreciation and amortization                                        |                                     |                                                     | 9,487 |        |        
|                                                     |                                                                                                    | Amortization of deferred financing costs and original issue discount |                                     |                                                     | 281   |        |        
|                                                     |                                                                                                    | Deferred compensation expense                                        |                                     |                                                     | 2,064 |        |        
|                                                     |                                                                                                    | Web site development charge (gain)                                   |                                     |                                                     | (524  | )      |        
|                                                     |                                                                                                    | Provision for doubtful accounts                                      |                                     |                                                     | 3,134 |        |        
|                                                     |                                                                                                    | Deferred income taxes                                                |                                     |                                                     | 3,561 |        |        
|                                                     |                                                                                                    | Minority interest in gain (loss) of subsidiary                       |                                     |                                                     | 1,908 |        |        
|                                                     |                                                                                                    | Increase (decrease) in cash due to change in:                        |                                     |                                                     |       |        |        
|                                                     |                                                                                                    |                                                                      | Restricted cash                     |                                                     |       | (1,400 | )      
|                                                     |                                                                                                    |                                                                      | Accounts receivable                 |                                                     |       | (3,492 | )      
|                                                     |                                                                                                    |                                                                      | Inventories                         |                                                     |       | 1,732  |        
|                                                     |                                                                                                    |                                                                      | Prepaid expenses                    |                                                     |       | (691   | )      
|                                                     |                                                                                                    |                                                                      | Other noncurrent assets             |                                                     |       | 297    |        
|                                                     |                                                                                                    |                                                                      | Accounts payable                    |                                                     |       | (3,726 | )      
|                                                     |                                                                                                    |                                                                      | Accrued customer incentive programs |                                                     |       | (365   | )      
|                                                     |                                                                                                    |                                                                      | Other                               |                                                     |       | (622   | )      
|                                                     |                                                                                                    |                                                                      |                                     |                                                     |       |        |        
|                                                     |                                                                                                    |                                                                      |                                     | Net cash provided by (used in) operating activities |       |        | 12,965 
|                                                     |                                                                                                    |                                                                      |                                     |                                                     |       |        |        
|Cash flows from investing activities:                |                                                                                                    |                                                                      |                                     |                                                     |       |        |        
|                                                     | Capital expenditures                                                                               |                                                                      |                                     | (3,952                                              | )     |        | (15,655
|                                                     | Officer notes receivable                                                                           |                                                                      |                                     | (1,928                                              | )     |        | (149   
|                                                     |                                                                                                    |                                                                      |                                     |                                                     |       |        |        
|                                                     |                                                                                                    |                                                                      |                                     | Net cash used in investing activities               |       |        | (5,880 
|                                                     |                                                                                                    |                                                                      |                                     |                                                     |       |        |        
|Cash flows from financing activities:                |                                                                                                    |                                                                      |                                     |                                                     |       |        |        
|                                                     | Net proceeds of revolving credit borrowings                                                        |                                                                      |                                     | 91,325                                              |       |        | 68,875 
|                                                     | Repayments of long-term debt                                                                       |                                                                      |                                     | (91,250                                             | )     |        | (65,925
|                                                     | Proceeds from the issuance of Series A 8% redeemable convertible preferred stock by subsidiary     |                                                                      |                                     |                                                    |       |        |       
|                                                     | Cancellation of common stock                                                                       |                                                                      |                                     |                                                    |       |        |       
|                                                     | Issuance of subsidiary common stock                                                                |                                                                      |                                     |                                                    |       |        | 35,604 
|                                                     | Book overdrafts                                                                                    |                                                                      |                                     | 3,531                                               |       |        | 4,482  
|                                                     | Repurchase of common stock                                                                         |                                                                      |                                     | (168                                                | )     |        | (85    
|                                                     |                                                                                                    |                                                                      |                                     |                                                     |       |        |        
|                                                     |                                                                                                    |                                                                      |                                     | Net cash provided by financing activities           |       |        | 3,438  
|                                                     |                                                                                                    |                                                                      |                                     |                                                     |       |        |        
|                                                     | Effect of foreign exchange rate changes on cash                                                    |                                                                      |                                     | (29                                                 | )     |        | (10    
|                                                     | Minimum pension liability adjustment                                                               |                                                                      |                                     | (429                                                | )     |        |       
|                                                     |                                                                                                    |                                                                      |                                     |                                                     |       |        |        
|Net increase (decrease) in cash and cash equivalents |                                                                                                    |                                                                      | 10,065                              |                                                     |       | 18,357 |        
|Cash and cash equivalents at beginning of period     |                                                                                                    |                                                                      | 20,825                              |                                                     |       | 2,468  |        
|                                                     |                                                                                                    |                                                                      |                                     |                                                     |       |        |        
|Cash and cash equivalents at end of period           |                                                                                                    | $                                                                    | 30,890                              |                                                     | $     | 20,825 |        
|                                                     |                                                                                                    |                                                                      |                                     |                                                     |       |        |        
|Supplemental disclosures of cash flow information    |                                                                                                    |                                                                      |                                     |                                                     |       |        |        
|Cash paid for:                                       |                                                                                                    |                                                                      |                                     |                                                     |       |        |        
|                                                     |                                                                                                    | Interest                                                             |                                     | $                                                   | 4,989 |        | $      
|                                                     |                                                                                                    |                                                                      |                                     |                                                     |       |        |        
|                                                     |                                                                                                    | Income taxes                                                         |                                     | $                                                   | 259   |        | $      
|                                                     |                                                                                                    |                                                                      |                                     |                                                     |       |        |        

See Accompanying Notes to Consolidated Financial Statements.

F-6

---



IOS BRANDS CORPORATION        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  JUNE 30, 2001 AND 2000

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of The Business

IOS BRANDS Corporation (the "Registrant" or the "Company") is a Delaware corporation that was formed in 1994. As used in this Form 10-K/A, the terms the
"Company" or "IOS" refer to IOS BRANDS Corporation and its wholly owned subsidiaries, including Value Network Services, an Illinois corporation ("VNS"), and Florists' Transworld Delivery, Inc.,
a Michigan corporation ("FTD" or "the Operating Company"). The operations of FTD, the Company's principal operating subsidiary, include those of its indirect wholly owned subsidiaries Renaissance
Greeting Cards, Inc. ("Renaissance") and FTD Canada, Inc., as well as its majority-owned subsidiary FTD.COM INC. ("FTD.COM"). FTD.COM's Class A common stock, par value $.01 per
share, is quoted on the NASDAQ National Market under the symbol "EFTD." As of June 30, 2001, FTD owned approximately 85% of FTD.COM's outstanding common shares. Substantially all the operations
of IOS are conducted through FTD and its subsidiaries.

Principles of Consolidation

The consolidated financial statements of the Company include the accounts of IOS and its wholly-owned subsidiaries, including its primary operating subsidiaries
FTD and Value Network Services, Inc. ("VNS"). The accounts of FTD include its wholly owned subsidiaries, Renaissance Greeting Cards, Inc.
and FTD Canada, Inc., as well as its majority-owned subsidiary FTD.COM Inc. ("FTD.COM"). All significant intercompany accounts and transactions have been eliminated in consolidation.

Cash and Cash Equivalents

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

Fair Value of Financial Instruments

Financial instruments consist primarily of accounts receivable, accounts payable, customer deposits, unearned income, other accrued liabilities and long-term
debt. At June 30, 2001, because of the short maturity of those instruments other than long-term debt, the fair value of these financial instruments approximates the carrying amount. The fair
value of long-term debt is disclosed in Note 4.

Book Overdrafts

Under the Company's cash management system, checks issued but not presented to banks frequently result in overdraft balances for accounting purposes and are
classified as "book overdrafts" on the balance sheet.

Inventories

Inventory consists of finished goods and is stated at the lower of cost or market value. Prior to July 1, 1998, cost was determined on a First-In,
First-Out (FIFO) basis. On April 1, 1999, the Company began to determine cost on a weighted average basis given management's determination that this method provides a better matching of
revenues and expenses associated with its inventory, which is mainly comprised of seasonal purchases. The change in costing methods had no material effect on the consolidated statements of operations
and comprehensive income for fiscal year 1999.

F-7

---

Property and Equipment

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

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

Software to Be Sold, Leased, Or Marketed

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

Internal Use Software

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

Intangibles

Goodwill is being amortized using the straight-line method over 30 years. Other intangibles consist of trademarks and acquired software and are being amortized
over 40 and five years, respectively, using the straight-line method.

The
Company periodically evaluates whether events and circumstances that have occurred indicate that the remaining balance of goodwill and other intangibles may not be recoverable or
that the remaining estimated useful lives may warrant revision. When such factors indicate that goodwill and other intangibles should be evaluated for possible impairment, the Company would use an
estimate of undiscounted future cash flows to measure whether the goodwill and other intangibles is recoverable, and over what period. If estimated undiscounted future cash flows are less than the
carrying amount of the asset, the asset is considered impaired and an expense is recorded in an amount required to reduce the carrying amount of the asset to its then fair value.

Income Taxes

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

F-8

---

are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under SFAS No. 109, the
effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

Foreign Currency Translation

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

Earnings Per Share

The Company computes net income (loss) per share in accordance with the provisions of SFAS No. 128, Earnings per Share. Under the provisions of SFAS
No. 128, the computation of basic and diluted net income (loss) per share for the fiscal years ended June 30, 2001, 2000 and 1999 is as follows:

Year Ended June 30,2001
Restated

2000

1999(In thousands, except per share data)Net income (loss)

$
1,321

$
(15,137
)
$
(2,935
)Weighted average basic shares of Common Stock outstanding


14,655


15,328


15,355Effect of dilutive securities:Unvested restricted shares of Class A Common Stock


90





Options to purchase shares of Class A Common Stock


158





Weighted average diluted shares of Common Stock outstanding


14,903


15,328


15,355Basic net income (loss) per share of Common Stock

$
0.09

$
(0.99
)
$
(0.19
)Diluted net income (loss) per share of Common Stock

$
0.09

$
(0.99
)
$
(0.19
)


Shares
associated with stock options that were not included in the calculation of diluted earnings per share because their effect was anti-dilutive consisted of
approximately 47,000 shares, 355,000 shares and 137,000 shares for the years ended June 30, 2001, 2000 and 1999, respectively.

Revenues

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

F-9

---

Revenues
earned by FTD.COM are recorded when the order is fulfilled. Generally, when a customer makes a purchase that will be fulfilled by a florist, FTD.COM receives the order, charges
the customers' credit card, and transmits the order to Mercury Network, which is owned by FTD. The Mercury Network then transmits the order to the filling florist. FTD.COM recognizes 100% of the order
value as revenue. In addition, FTD.COM receives service fees for processing floral orders. The service fee for orders placed over the Internet is $7.99 and the service fee for orders placed over the
telephone is $9.99. Orders that are not fulfilled by a florist, such as holiday gift baskets, are fulfilled by a manufacturer or third party distributor. From time to time, discounts are offered in
connection with product promotions or holiday promotions to selected customer groups. Order revenues and service fees are reported net of discounts.

The
Company follows the provisions of SOP 97-2, Software Revenue Recognition as amended by SOP 98-9, Software Revenue Recognition with Respect to Certain Arrangements. SOP 97-2 requires
revenue earned on software arrangements involving multiple elements (i.e., software products, upgrades/enhancements, postcontract customer support, installation, training, etc.) to be allocated to
each element based on the relative fair values of the elements. The Company recognizes revenue from software products (including specified upgrades/enhancements) at the time of shipment for systems
sold. For systems that are being leased, the Company recognizes revenue ratably over the period of the lease agreement. Support revenue is recognized over the period of the support agreement.
Installation and training are recognized at the time of occurrence. The Company currently records revenue in accordance with Staff Accounting Bulletin No. 101, Revenue Recognition in Financial
Statements (SAB 101). The adoption of SAB 101 did not have an effect on the Company's consolidated financial position or results of operations.

Stock-Based Compensation

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

Advertising and Sales Promotion Costs

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

In
the years ended June 30, 2001, 2000 and 1999, advertising and sales promotion expense was $52 million, $82 million, and $52 million, respectively.

Use of Estimates

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

F-10

---

Reclassifications

Certain amounts in the Company's fiscal 2000 and 1999 financial statements have been reclassified to conform to the current year presentation.

Accounting Standards not yet Adopted

In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 141, "Business Combinations" ("SFAS 141") which supersedes APB
Opinion No. 16, "Business Combinations", and SFAS No. 38, "Accounting for Preacquisition Contingencies of Purchased Enterprises". SFAS 141 addresses financial accounting and
reporting for business combinations and requires that all business combinations within scope of SFAS 141 be accounted for using only the purchase method. SFAS 141 is required to be
adopted for all business combinations initiated after June 30, 2001. Management has assessed the impact of the adoption of SFAS 141 on its consolidated financial statements and believes
the impact will not be material.

Also
in June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142") which supercedes APB Opinion No. 17, "Intangible Assets".
SFAS 142 addresses how intangible assets that are acquired individually or with a group of other assets (but not those acquired in a business combination) should be accounted for in financial
statements upon their acquisition. SFAS 142 also
addresses how goodwill and other intangible assets should be accounted for after they have been initially recognized in the financial statements. The provisions of SFAS 142 are required to be
applied starting with fiscal years beginning after December 15, 2001. SFAS 142 is required to be applied at the beginning of an entity's fiscal year and to be applied to all goodwill and
other intangible assets recognized in its financial statements at that date. Management is currently evaluating the impact that adoption of SFAS 142 will have on its consolidated financial
statements.

(2) RESTATEMENTS

The Company has restated its consolidated balance sheets as of June 30, 2001 and 2000, and its consolidated statements of stockholders' equity for the
years then ended, by reclassifying $44.2 million from minority interest in subsidiary to paid-in capital related to the net proceeds of the September 28, 1999 IPO and over allotment
option and the conversion of preferred stock of FTD.COM (see Note 15).

Additionally, the Company has restated its consolidated financial statements as of and for the year ended June 30, 2001 by restating $12.0 million from other income to
paid-in capital, net of the related taxes, related to the settlement of an ongoing lawsuit whereby one of the Company's shareholders, and former warrantholder, returned 750,000 shares of
Class B Common Stock which the Company recorded as an equity transaction (see Note 18).

The following table sets forth balances as originally reported and as restated (in thousands except per share amounts):

June 30, 2001

June 30, 2000As Reported

As Restated

As Reported

As RestatedMinority interest in subsidiary

$
46,917

$
2,699

$
45,224

$
1,006Paid-in capital

$
38,008

$
93,856

$
37,170

$
81,388Accumulated deficit

$
(12,760
)
$
(24,390
)Other income

$
(12,029
)
$
(29
)Income tax expense (benefit)

$
3,771

$
3,401Net income

$
12,951

$
1,321Net income per common share:Basic

$
0.88

$
0.09Diluted

$
0.87

$
0.09


F-11

---

(3) INTANGIBLES

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

The
Company accounted for the merger under the purchase method of accounting, and accordingly, the Company's consolidated financial statements reflect the allocation of the total
purchase price to the tangible and intangible assets acquired and liabilities assumed of the Acquired Company as of December 19, 1994, based on their respective estimated fair values. At
June 30, 2001, the $2.0 million of purchase price allocated to software was fully amortized.

At
June 30, 2001 and 2000, goodwill and other intangible assets relating to the merger consisted of the following:

2001

2000(In thousands)Goodwill

$
68,384

$
68,384Trademarks


15,000


15,000Software


2,000


2,000Total intangibles


85,384


85,384Less accumulated amortization


19,350


16,608Net intangibles total

$
66,034

$
68,776


(4) FINANCING ARRANGEMENTS

In November 1997 IOS entered into a credit agreement with Bank One Capital Markets, Inc. who arranged a financing package (the "Bank Credit
Facilities") with Bank One, NA acting as Administrative Agent. The Bank Credit Facilities consist of a $30.0 million Multiple Draw Term Loan Facility and a $50 million Revolving Credit
Facility, both maturing on December 31, 2003. Borrowings under both the Multiple Draw Term Loan Facility and the Revolving Credit Facility are subject to variable interest rates based on the
London Interbank Offered Rate ("LIBOR"). The original proceeds of the Revolving Credit Facility were used to provide funds for the refinancing of the then existing debt totaling $24.6 million.

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

F-12

---

The
Company's credit agreements include covenants which, among other things, require that the Company maintain certain financial ratios and a minimum level of consolidated net worth. The
Company is in compliance with all debt covenants at June 30, 2001. The Company's debt agreements also include restrictions on the declaration and payment of dividends.

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

Interest
on borrowings made under the Bank Credit Facilities is calculated using LIBOR (5.25% at June 30, 2001 for the Multiple Draw Term Loan and 6.36% for the Revolving Credit
Facility). The Bank Credit Facilities provide a maximum commitment for letters of credit of $15 million. In addition, a quarterly commitment fee is required on the unused portion of the
Revolving Credit Facility at the then applicable commitment fee percentage. The applicable commitment fee percentage shall be determined by the Company's leverage ratio on the last day of each fiscal
quarter. As of June 30, 2001, the Company has unused trade letters of credit of approximately $13.1 million outstanding under the terms of the Revolving Credit Facility.

As
of June 30, 2001, $30.0 million is outstanding under the Multiple Draw Term Loan Facility and is scheduled to be permanently reduced, over a period of 10 consecutive
unequal quarterly installments continuing until the termination date of December 31, 2003 through the use of the Revolving Credit Facility. The borrowings outstanding under the Revolving Credit
Facility will mature on December 31, 2003.

Long-Term Debt

At June 30, 2001 and 2000 long-term debt consisted of the following:

2001

2000(In thousands)Multiple Draw Term Loan Facility

$
30,000

$
38,750Revolving Credit Facility


24,875


16,000Total long-term debt

$
54,875

$
54,750


The
Company estimated the fair value of long-term debt based on interest rates that are currently available to the Company for issuance of debt with similar terms and remaining maturity
dates. The fair value approximates the carrying value of long-term debt as of June 30, 2001 and June 30, 2000.

Aggregate
maturities of debt at June 30, 2001 were as follows:

Fiscal Year

Payment Amount(In thousands)2002

$
11,2502003


13,7502004


29,875Total

$
54,875


F-13

---

The
outstanding debt balance of $54,875 was classified as long-term debt at June 30, 2001 as the Company intends to refinance the current portion of the Multiple Draw Term Loan
Facility with borrowings under its Revolving Credit Facility, which is due on December 31, 2003.

(5) LEASES

As Lessor

The Company leases Mercury consoles and Mercury Wings systems to customers through leases classified as operating leases for accounting purposes. During fiscal
year 2001, a portion of the Mercury consoles held in storage were disposed of and written off primarily due to the introduction of Mercury Wings, Advantage and Direct Systems. The Company did not
recognize a loss on the disposal of the equipment. The net investment in equipment leased to customers under operating leases, including equipment used for maintenance purposes, was as follows at
June 30, 2001 and 2000:

Description

2001

2000(In thousands)Mercury consoles

$
8,331

$
21,850Mercury Wings systems


2,000


2,000Total


10,331


23,850Less: accumulated depreciation


8,942


21,960Net investment

$
1,389

$
1,890


The
total minimum future rentals on non-cancelable leases of Mercury Wings systems are as follows:

Year

Amount(In thousands)2002

$
2,7002003


1,4472004


99Total

$
4,246


As Lessee

The Company has entered into operating leases for certain hardware components of the Mercury Wings systems and corporate facilities and equipment. Rental expense
relating to these leases totaled $1.7 million, $1.7 million and $1.0 million for fiscal 2001, 2000 and 1999, respectively. The minimum aggregate annual operating lease obligations
are as follows:

Year

Amount(In thousands)2002

$
1,2862003


5112004


115Thereafter


57Total

$
1,969


The
total minimum lease payments have not been reduced by minimum sublease rentals of $4.2 million due in the future under non-cancelable subleases of Mercury Wings systems and
corporate facilities.

F-14

---

(6) INCOME TAXES

The Company's net operating loss carryforwards at June 30, 2001 were $31.0 million and are available to offset future taxable income. The net
operating loss carryforwards expire in varying amounts as follows: $4.7 million in 2019 and $26.3 million in 2020.

The
provision for income taxes on income before extraordinary item consists of the following components:

2001
Restated

2000

1999(In thousands)CurrentU.S

$


$


$
CurrentForeign





211


172DeferredFederal (benefit)


2,968


(6,839
)

2,775DeferredState (benefit)


433


(958
)

245Income tax expense (benefit)

$
3,401

$
(7,586
)
$
3,192


The
provision for income taxes for the years ended June 30, 2001, 2000 and 1999, differs from the amount computed by applying the U.S. federal income tax rate (34%) to pretax
income because of the effect of the following items:

2001
Restated

2000

1999(In thousands)Tax expense (benefit) at U.S. federal income tax rate

$
2,254

$
(9,218
)
$
1,375State income taxes (benefit), net of federal income tax effect


276


(632
)

162Change in valuation allowance





1,000


Amortization of purchased goodwill


775


775


798Foreign income taxes





16


172Other items, net


96


473


685Income tax expense (benefit)

$
3,401

$
(7,586
)
$
3,192


F-15

---

At
June 30, 2001 and 2000, the Company's deferred tax assets and liabilities consisted of the following:

2001

2000(In thousands)Current deferred tax assets:Allowance for doubtful accounts

$
1,844

$
1,331Unearned income


501


406Inventory


701


940Accrued vacation


221


191Other


289


33Current deferred tax assets


3,556


2,901Noncurrent deferred tax assets:Net operating loss carryforwards


11,479


14,823Postretirement benefit obligations


1,800


1,890Accrued pension


404


152Other


175


362Noncurrent deferred tax assets


13,858


17,227Noncurrent deferred tax liabilitiestax over book depreciation and difference in basis


5,416


5,368Noncurrent deferred tax assets before valuation


8,442


11,859Deferred tax assetsvaluation allowance


(2,500
)

(2,500
)Net noncurrent deferred tax assets


5,942


9,359Net deferred tax assets

$
9,498

$
12,260


In
assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion or the entire deferred tax asset will be realized. The
ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which these temporary differences are deductible. This assessment was
performed considering expected taxable income in future years and tax planning strategies available to the Company. The Company has determined that it is more likely than not that $9.5 million of
deferred tax assets will be realized. The valuation allowance of $2.5 million is provided against deferred tax assets that the Company has determined to be more likely than not, not realizable as of
June 30, 2001. The subsequent recognition of $1.0 million of this tax benefit will be applied to goodwill, as it was generated from the August 2, 1994 merger between IOS and the Florists'
Transworld Delivery Association.

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

The costs associated with the development of the Mercury Wings and other computer software are capitalized in accordance with SFAS No. 86 and are recorded in
other noncurrent assets on the Consolidated Balance Sheet at June 30, 2001 and 2000. As of June 30, 2001, 2000 and 1999, capitalized computer software costs were $4.4 million, $2.7 million and
$1.4 million, respectively. During the years ended June 30, 2001, 2000 and 1999, $1.0 million, $0.7 million and $0.2 million, respectively, were charged to expense for amortization of
capitalized computer software costs. In accordance with SFAS No. 86, at June 30, 2001, the unamortized capitalized cost of the computer software was compared to the net realizable value of the
product to determine whether any necessary write-downs should be made. The net realizable value is the estimated future gross revenues reduced by the estimated future cost of completing and disposing
of the product. As of June 30, 2001 no write-down was necessary.

F-16

---

(8) INTERNAL USE SOFTWARE

Certain costs incurred in the planning and development stage of internal-use computer software, including Web site development costs, are expensed as incurred.
During fiscal year 2000, the Company capitalized $3.7 million of Web site development costs. During fiscal year 2000, the Company wrote-off $3.5 million of the previously capitalized Web site
development costs as part of the $4.4 million one-time charge associated with the development work related to an unlaunched version of FTD.COM's Web site.

Capitalized
software costs are amortized over the expected economic life of five years using the straight-line method. At June 30, 2001, 2000 and 1999, the capitalized software
costs were $10.5 million, $9.6 million and $4.1 million, respectively, and are included in other noncurrent assets on the Consolidated Balance Sheet at June 30, 2001 and 2000. During the years
ended June 30, 2001, 2000 and 1999, amortization expense was $2.1 million, $1.4 million and $0.2 million, respectively.

(9) POSTRETIREMENT BENEFITS OTHER THAN PENSIONS

The Company previously provided postretirement health care benefits to qualifying retirees under the terms of the Company's qualified retirement plan. The plan
retirees are required to share in the cost of these benefits. The Company no longer provides such benefits to employees. As a result of eliminating active employees from the plan, the Company created
an unrecognized net gain that is being amortized over the average retiree life expectancy of 15.6 years.

In
accordance with the disclosure requirements of SFAS No. 132, Employers Disclosures about Pensions and Other Postretirement Benefits, the following tables provide a reconciliation of
the benefit obligation and funded status as of June 30, 2001 and 2000, as well as the components of net periodic postretirement benefit costs for the years ended June 30, 2001, 2000 and
1999:

2001

2000(In thousands)Benefit obligation at beginning of year

$
2,019

$
2,480Interest cost


154


166Benefits paid


(194
)

(225
)Actuarial (gain) loss


90


(402
)Benefit obligation at end of year

$
2,069

$
2,019Funded status

$
(2,069
)
$
(2,019
)Unrecognized net (gain) loss


(3,053
)

(3,345
)Accrued benefit cost

$
(5,122
)
$
(5,364
)


2001

2000

1999(In thousands)Service cost

$


$


$
Interest cost


154


166


175Recognized net actuarial gain


(201
)

(180
)

(175
)Total net periodic postretirement benefit cost

$
(47
)
$
(14
)
$



The
discount rates used in determining the accumulated postretirement benefit obligation (the "APBO") were 7.5% at and for the year ended June 30, 2001, 8.0% at and for the year
ended June 30, 2000 and 7.00% at and for the year ended June 30, 1999. For measurement purposes an 8.23% annual rate of increase in the per capita cost of covered health care benefits
was assumed for 2001. The rate was assumed to decrease to 5.75% in 2007 and remain at that level thereafter. Assumed health care

F-17

---

cost trend rates have a significant effect on the amounts reported for the health care plans. If the current health care cost trend rate assumption was increased by one percent, the APBO as of
June 30, 2001, would have increased approximately $220,000, or 10.6%, while the net periodic cost for the fiscal year ended June 30, 2001, would have increased approximately $17,000, or
11.2%. If the current health care cost trend rate assumptions were decreased by one percent, the APBO as of June 30, 2001, would have decreased approximately $191,000, or 9.2%, while the
periodic cost for the fiscal year ended June 30, 2001, would have decreased $15,000, or 9.7%.

(10) PENSION PLANS

Approximately 150 employees and former employees participate under the defined benefit plan, including 8 currently retired employees. Benefits under the pension
plan, which has been frozen since January 1, 1997, were based on the employee's age, years of service and the highest consecutive five-year average compensation.

In
accordance with the disclosure requirements of SFAS No. 132, the following tables provide a reconciliation of the benefit obligation and plan assets, as well as the funded status, of
the pension plan as of June 30, 2001 and 2000:

2001

2000(In thousands)Projected benefit obligation at beginning of year

$
1,632

$
1,934Interest cost


147


132Benefits paid


(248
)

(251
)Actuarial (gain) loss


432


(183
)Projected benefit obligation at end of year

$
1,963

$
1,632Fair value of plan assets at beginning of year

$
1,241

$
1,492Actual return on plan assets


(164
)

Benefits paid


(248
)

(251
)Fair value of plan assets at end of year

$
829

$
1,241Funded Status

$
(1,134
)
$
(391
)Unrecognized net (gain) loss


571


(86
)Accrued pension cost

$
(563
)
$
(477
)


During
the fiscal years ending June 30, 2001, 2000 and 1999 pension expense of $85,000, $2,000 and $86,000, respectively, were recognized in relation to the pension plan.

Plan
assets for the defined benefit plan consist of investments in common stock, real estate properties, fixed income securities and short-term investments. The table below provides the
necessary disclosures
in accordance with SFAS No. 132 of the components of pension expense for the defined benefit plan for the years ended June 30, 2001, 2000 and 1999:

2001

2000

1999(In thousands)Interest cost

$
147

$
132

$
178Expected return on assets


(107
)

(130
)

(92
)Net periodic pension cost

$
40

$
2

$
86Settlement loss


45





Total pension cost

$
85

$
2

$
86


F-18

---

The
discount rate used to calculate the projected benefit obligation was 7.5%, 8.0%, and 7.0% at June 30, 2001, 2000, and 1999 respectively. For fiscal 2001, 2000 and 1999, the
rate of increase in future compensation levels was 5.0% and the expected long-term rate of return on assets was 9.0%.

The
Company sponsors a 401(k) savings plan for all of its eligible employees. All eligible employees may contribute between 1% and 15% of their gross annual salary on a pre-tax basis.
The Company matches an amount equal to 50% of each participant's pre-tax contribution up to 6% of the participant's compensation. Company contributions to the 401(k) plan for fiscal 2001 and 2000 were
$135,786 and $279,358, respectively.

(11) RELATED PARTY TRANSACTIONS

The Company incurred expenses of $2.0 million for each of the years ended June 30, 2001, 2000 and 1999 related to the payment for management consulting
services to certain investors of the Company.

The
Company loaned various officers of the Company, cumulatively $2.3 million, with terms ranging from four to five years, due dates ranging from 2002 to 2005, accrued interest ranging
from 6.5% to 8.5% per annum and principal due at maturity.

On July 26, 2000, the Company settled an ongoing lawsuit whereby one of the Company's shareholders, and former warrantholder, returned 750,000 shares of Class B
common stock. As a result of this settlement, the Company recorded $12.0 million of treasury stock and an increase to paid-in capital of $11.6 million (net of $0.4 million of
income taxes) in the quarter ended September 30, 2000. See Note 18 for further information regarding this settlement.

(12) STOCK AWARDS AND INCENTIVE PLANS

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

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

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

During
the year ended June 30, 2001, employees were granted options to purchase 102,300 shares of the Company's Common Stock at an exercise price of $16.00 per share. These
options vest and become exercisable in five equal installments.

F-19

---

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

During
the year ended June 30, 1999, employees were granted options to purchase 162,100 shares of the Company's Common Stock at an exercise price of $10.50 per share. These
options vest and become exercisable in five equal installments.

As
of June 30, 2001, 2000 and 1999 options covering 641,100, 613,300 and 580,700 shares, respectively, of Class A Common Stock were outstanding, of which 413,070, 298,030
and 174,000 shares were vested, respectively. There were 12,550 and 19,000 options exercised during fiscal year 2001 and 1999, respectively, and no options were exercised during fiscal 2000. In
addition, 61,950, 55,800 and 81,400 options were canceled during the years ended June 30, 2001, 2000 and 1999, respectively.

During
June 2000, the Company granted 525,000 restricted shares of FTD.COM Class B Common Stock to employees of the Company in the form of restricted shares, which
automatically converted into shares of FTD.COM Class A Common Stock. The employees will earn the restricted shares in exchange for future services to be provided to the Company over a
three-year period. The Company recorded deferred compensation in the amount of $5.4 million, equal to the market value of the restricted shares at the date of grant. During the year ended
June 30, 1999, employees were granted 70,000 shares of restricted stock with a weighted average fair value of $10.50 per share and a vesting period of five unequal annual installments. Also,
during year ended June 30, 1999, 10,000 restricted shares previously granted were canceled. No restricted stock was granted in fiscal year 2001. The Company recognized compensation expense in
general and administrative expenses of $0.5 million and $26,000 in fiscal years 2001 and 2000, respectively, related to grants of FTD.COM restricted stock.

The
Company did not grant any IOS restricted stock for fiscal years 2001 and 2000. The Company granted 70,000 shares of restricted stock in fiscal year 1999 and cancelled 10,000
restricted shares previously granted. The Company recognized compensation expense in general and administrative expenses of $0.2 million in each of the fiscal years ended 2001, 2000 and 1999, related
to grants of IOS restricted stock.

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

Pro Forma Results

|                                                                  |         | 2001
As Reported
Restated |       | 2001
Pro Forma
Restated |   | 2000
As Reported |      | 2000
Pro Forma |         | 1999
As Reported |   | 1999
Pro Forma |      
|----------------------------------------------------------------- | ------- | ------------------------- | ----- | ----------------------- | - | ---------------- | ---- | -------------- | ------- | ---------------- | - | -------------- | -----
|Net income (loss) available to common stockholders (in thousands) |         | $                         | 1,321 |                         | $ | 1,056            |      | $              | (15,137 | )                | $ | (15,369        | )    
|Earnings per share:                                               |         |                           |       |                         |   |                  |      |                |         |                  |   |                |      
|                                                                  | Basic   |                           | $     | 0.09                    |   | $                | 0.07 |                | $       | (0.99            | ) | $              | (1.00
|                                                                  | Diluted |                           | $     | 0.09                    |   | $                | 0.07 |                | $       | (0.99            | ) | $              | (1.00

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

The
fair values of the options granted under the Plan during fiscal 2001, 2000 and 1999 were determined at the grant date using the Black-Scholes single option reduced term pricing
model. The

F-20

---

significant assumptions used to calculate the fair value of option grants were: risk-free interest rates ranging from 4.27% to 6.00%, expected volatility ranging from 0% to 50%, expected lives of 3.5
to 3.83 years, price per share ranging from $10.50 to $25.00 and no expected dividends for the shares.

Summary Stock Option Activity

Class A
Common Stock
Number of Options

Weighted Average
Exercise Price

Weighted Average
Fair Value of
Options GrantedOutstanding at June 30, 1998

519,000

8.79Granted

162,100

10.50

1.75Exercised

(19,000
)
3.75Canceled

(81,400
)
9.15Outstanding at June 30, 1999

580,700

9.38Granted

88,400

25.00

7.96Canceled

(55,800
)
13.31Outstanding at June 30, 2000

613,300

11.28Granted

102,300

16.00

5.08Exercised

(12,550
)
6.03Canceled

(61,950
)
19.08Outstanding at June 30, 2001

641,100

11.38Exercisable at June 30, 2001

413,070

9.11Exercisable at June 30, 2000

298,030

8.88Exercisable at June 30, 1999

174,000

8.45


Stock Options Outstanding

|             |  | Options Outstanding |  | Options Exercisable
|------------ |  | ------------------- |  | -------------------
|
|
|$3.75        |  | 128,000             |  | 5.92               
|$7.75-10.50  |  | 199,300             |  | 6.80               
|$12.50       |  | 100,000             |  | 5.93               
|$15.00-16.00 |  | 167,000             |  | 7.68               
|$25.00       |  | 46,800              |  | 8.25               

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

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

F-21

---

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

|                       |                          | Options Outstanding
|---------------------- | ------------------------ | -------------------
|
|Balance, June 30, 1999 |                          |                   
|                       | Granted                  |                    
|                       | Exercised                |                    
|                       | Recaptured or terminated |                    
|                       |                          |                    
|Balance, June 30, 2000 |                          | 148,000            
|                       | Granted                  |                    
|                       | Exercised                |                    
|                       | Recaptured or terminated |                    
|                       |                          |                    
|Balance, June 30, 2001 |                          | 260,000            
|                       |                          |                    

There
were 25,000 stock options exercisable, with a weighted average exercise price of $5.70, at June 30, 2001. There were no options exercisable at June 30, 2000. The
following table summarizes information regarding stock options outstanding at June 30, 2001.

|Range of Exercise Prices |  | Options
Outstanding |  | Weighted-Average
Remaining Life
(in years) |  | Weighted-Average
Exercise Price
|------------------------ |  | ------------------- |  | ------------------------------------------ |  | -------------------------------
|$1.94-$2.91              |  | 205,000             |  | 9.41                                       |  | $                              
|$8.00                    |  | 55,000              |  | 8.47                                       |  |                                
|                         |  |                     |  |                                            |  |                                
|Total Options            |  | 260,000             |  | 9.21                                       |  | $                              
|                         |  |                     |  |                                            |  |                                

Using
the Black-Scholes single option pricing model and the following assumptions, the average estimated fair value, at the dates of grant of options in fiscal year 2001 and 2000, was
$1.21 and $0.98 per share of FTD.COM Class A Common Stock, respectively.

2001

2000Risk-free interest rate

4.8
%
6.2
%Expected dividend yield

0
%
0
%Expected volatility

75
%
75
%Estimated lives of options (in years)

4.0

4.0


Based
on the above assumptions, FTD.COM would have recognized an additional $45,000 and $9,000 of compensation expense in fiscal years 2001 and 2000, respectively, if the estimated costs
of the outstanding granted stock options had been recorded in the financial statements.

Options
granted throughout fiscal years 2001 and 2000 vest equally each year over a four-year period from the date of grant. As a result, the estimated cost indicated above reflects only
a partial vesting of such options. If full vesting were assumed, the estimated pro forma costs for the year would have been higher than indicated above.

FTD.COM
granted 1,355,000 restricted shares of Class A Common Stock at a weighted-average fair value, at the dates of grant, of $2.87 in fiscal year 2000 to key members of
FTD.COM's management. No restricted shares were granted in fiscal year 2001 or prior to fiscal year 2000. FTD.COM recognized compensation -related general and administrative expenses of $1.3 million
and

F-22

---

$0.2 million in fiscal year 2001 and 2000, respectively, related to the grants of restricted stock. The restricted stock vests equally each year over a three-year period from the date of grant.

(13) COMMITMENTS AND CONTINGENCIES

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

(14) CAPITAL STOCK TRANSACTIONS

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

The
Company repurchased into treasury 12,550, 7,882 and 66,183 shares of Class A Common Stock at an approximate cost of $201,000, $85,000 and $844,000 during fiscal 2001, 2000 and
1999, respectively. During fiscal 2001, the Company settled an ongoing lawsuit whereby one of the Company shareholders, and former warrantholder, agreed to return 750,000 of the Company's
Class B Common Stock, which the Company treated as treasury stock. During fiscal 1999, the Company repurchased 51,250 shares of Class B Common Stock at a cost of approximately $538,000.

|                       |                             | 2001                         |                                          | 2000   |       | 1999   |      
|---------------------- | --------------------------- | ---------------------------- | ---------------------------------------- | ------ | ----- | ------ | -----
|
|Common Stock:          |                             |                              |                                          |        |       |        |      
|                       | Class A, shares outstanding |                              |                                          |        |       |        |      
|                       |                             | Balance at beginning of year |                                          | 12,593 |       | 12,593 |      
|                       |                             |                              | Cancellation of shares issued            |        |      |        |     
|                       |                             |                              | Adjustment made to Class A shares        |        | 5     |        |     
|                       |                             |                              | Sale of common stock to officers         |        |      |        |     
|                       |                             |                              |                                          |        |       |        |      
|                       |                             | Balance at end of year       |                                          | 12,598 |       | 12,593 |      
|                       |                             |                              |                                          |        |       |        |      
|                       | Class B, shares outstanding |                              | 3,000                                    |        | 3,000 |        | 3,000
|                       |                             |                              |                                          |        |       |        |      
|Treasury Shares:       |                             |                              |                                          |        |       |        |      
|                       | Class A shares              |                              |                                          |        |       |        |      
|                       |                             | Balance at beginning of year |                                          | 221    |       | 213    |      
|                       |                             |                              | Issuance of treasury stock               |        | (13   | )      |     
|                       |                             |                              | Repurchase of treasury stock             |        | 13    |        | 8    
|                       |                             |                              |                                          |        |       |        |      
|                       |                             | Balance at end of year       |                                          | 221    |       | 221    |      
|                       |                             |                              |                                          |        |       |        |      
|                       | Class B shares              |                              |                                          |        |       |        |      
|                       |                             | Balance at beginning of year |                                          | 51     |       | 51     |      
|                       |                             |                              | Repurchase of treasury stock             |        |      |        |     
|                       |                             |                              | Shares received in settlement of lawsuit |        | 750   |        |     
|                       |                             |                              |                                          |        |       |        |      
|Balance at end of year |                             | 801                          |                                          | 51     |       | 51     |      
|                       |                             |                              |                                          |        |       |        |      

(15) SUBSIDIARY CAPITAL STOCK TRANSACTIONS

On May 19, 1999, the Operating Company incorporated a new subsidiary, FTD.COM, as a Delaware corporation in connection with the filing of a registration
statement and amendments thereto

F-23

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

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

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

On
September 28, 1999, FTD.COM agreed to issue and sell 4,500,000 shares of its Class A common stock to the public in an IPO transaction at a price of $8.00 per share,
resulting in gross proceeds from the offering of $36.0 million. The IPO closed on October 4, 1999, at which time FTD.COM collected the gross proceeds of $36.0 million less underwriting
discounts of $2.5 million. In addition, the $33.5 million net cash received from the underwriters was reduced by other offering expenses of $2.0 million. The net proceeds of $31.5 million were
recorded as paid-in capital. Prior to the IPO, FTD owned 100% of the outstanding common stock of FTD.COM. There was no gain recorded by the Company upon the sale of FTD.COM's stock. The Company's
accounting policy is to account for a subsidiary direct sale of unissued shares as a capital transaction.

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

On
October 6, 1999, the underwriters of the IPO exercised their one time option to purchase 495,000 additional shares of FTD.COM Class A common stock at the IPO price of
$8.00 per share, representing a portion of the over-allotment option granted to the underwriters in connection with the IPO. The net proceeds to FTD.COM from this issuance and sale of 495,000 shares
of Class A common stock were $3.7 million after deducting underwriting discounts and commissions and were recorded as paid-in capital.

During
May 2000, FTD.COM granted 1,355,000 shares of FTD.COM Class A common stock to employees of FTD.COM in the form of restricted shares. During June 2000, the Company
granted 525,000 shares of FTD.COM Class B common stock to employees of the Company in the form of restricted shares. There were no restricted shares granted by FTD.COM or the Company in fiscal
year 2001. Upon completion of the above events, FTD owned approximately 87% of the outstanding common stock of FTD.COM through its ownership of 40,395,000 shares of Class B common stock.

(16) MINORITY INTEREST IN SUBSIDIARY

The Company's consolidated financial statements for the years ended June 30, 2001 and 2000 reflect the minority interest in FTD's subsidiary, FTD.COM. The
minority interest in such subsidiary was approximately 15% as of June 30, 2001 and approximately 13% as of June 30, 2000. The minority

F-24

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interest in FTD.COM's income was $1.9 million and in FTD.COM's loss was $4.4 for the years ended June 30, 2001 and 2000 respectively.

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

As a condition of FTD affiliation, all FTD florists must purchase a FSG and related workbook every two years. The Company recognizes revenue related to the FSG
when it is purchased by the florist. The purchase of such FSG entitles the FTD florist to a non-exclusive, non-transferable right for on premise use of the FSG for as long as the purchaser remains an
FTD florist in good standing. There are no refund provisions associated with the purchase of the FSG. Historically, the Company has provided de minimis refunds in isolated cases. For the year ended
June 30, 2000, FTD did not recognize any FSG revenue. Revenue from sales of the FSG during the years ended June 30, 2001 and 1999 was $3.9 million and $2.8 million, respectively.

(18) LITIGATION SETTLEMENT

A financial advisor received warrants for 750,000 shares of Class B Common Stock in partial payment for its services related to the original acquisition of
Florists' Transworld Delivery Association ("FTDA"), a Michigan non-profit corporation, which was converted following that acquisition into Florists' Transworld Delivery Inc., a Michigan for-profit
corporation. Subsequently, the warrants and cash representing the exercise price of the warrants were exchanged for 750,000 shares of Class B Common Stock of the Company.

The Company disputed the financial advisor's claim for compensation and filed suit for breach of fiduciary duty and other claims. On July 26, 2000, the Company settled the lawsuit
whereby the financial advisor returned the 750,000 shares of Class B Common Stock, which the Company subsequently recorded as treasury stock. As a result of this settlement, the Company
recorded $12.0 million of treasury stock and an increase to paid-in capital of $11.6 million (net of $0.4 million of income taxes) based on an independent third party valuation to
determine the fair market value of the stock received in the settlement.

(19) FTD ASSOCIATION TERMINATION AGREEMENT

On April 30, 2001, FTD entered into a Termination Agreement with the Association, which became effective as of June 29, 2001. The Termination
Agreement, which contains limited two-year non-compete provisions, terminates both the Mutual Support Agreement, dated December 18, 1994 (the "Mutual Support Agreement"), and the Trademark
License Agreement, dated December 18, 1994 (the "Trademark Agreement" and together with the Mutual Support Agreement, the "Association Agreements"), which were entered into in connection with
the Acquisition between the Association and FTD. Pursuant to the Association Agreements, among other things: (i) existing and future members of the Association had the exclusive right, subject
to execution of a Trademark Agreement with the Operating Company, to use the FTD logo and other FTD trademarks in connection with the operation of a retail florist shop; (ii) all members of the
Association in good standing were provided access to FTD's Clearinghouse, Mercury Network and certain other FTD services and products; (iii) the Operating Company paid the Association an amount
equal to a percentage of the value of every floral order cleared through FTD's Clearinghouse; and (iv) the Operating Company and the Association were able to designate up to 20% but not fewer than two
individuals to be elected to the other's board of directors.

As
consideration for the dissolution of the contractual relationship between the Company and the Association pursuant to the Termination Agreement, FTD agreed to pay the Association
$14.0 million, $12.6 million which was paid on June 29, 2001 and $1.4 million of which is subject to a one-year escrow holdback. In fiscal 2001, the Company recorded $14.5 million of expenses
related to this transaction,

F-25

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including professional fees. The $1.4 million escrow holdback is reflected on the Company's balance sheet as restricted cash.

(20) SEGMENT INFORMATION

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

As
a result of adopting SFAS No. 131, the Company has identified four reportable business segments based on the nature of its products and services and financial reports which are
evaluated regularly by management in deciding how to allocate resources and assess performance. For purposes of managing the Company, management reviews segment financial performance to the operating
income level for the Direct to Consumer business segment, which consists solely of FTD.COM's operations, and to the gross margin level for the Company's remaining business segments.

These
business segments include Member Services, Technology Products, Specialty Wholesaling and Direct to Consumer. The Member Services segment includes Clearinghouse, Flowers After
Hours, Publications, Credit Card processing and its investment in Interflora, Inc. The Technology Products segment includes Mercury equipment, Mercury Advantage, Mercury Direct, and Mercury
Wings systems, and the Mercury Network. In addition to the aforementioned, the Company's operations include Specialty Wholesaling (products supporting the retail floral and specialty gift industries)
and the Direct to Consumer (Internet and telephone marketing of flowers and specialty gifts through FTD.COM) business segments.

These
segments are evaluated regularly by management in deciding how to allocate resources and assess performance. For purposes of managing the Company, management reviews segment
financial performance to the operating income level for the Direct to Consumer business segment, which consists solely of FTD.COM's operations, and to the gross margin level for the Company's
remaining business segments. Of the Company's assets totaling approximately $175 million as of June 30, 2001, the assets of FTD.COM totaled $27 million, of which $26 million was cash and cash
equivalents. The assets of the Company's other three operating business segments share the majority of the remaining assets of $148 million. The Company does not measure total assets by reportable
business segment for purposes of assessing performance and making operating decisions, except for the Direct to Consumer segment, which has funded its operations since June 1999.

The
Company's accounting policies for segments are the same as those on a consolidated basis described in Note 1 of Notes to Consolidated Financial Statements. The Operating Company and
FTD.COM have entered into certain intercompany agreements governing various interim and ongoing relationships, including a commission agreement, an indemnification agreement, a trademark license
agreement, a registration rights agreement, a tax sharing agreement, an intercompany services agreement and a Florists Online hosting agreement.

F-26

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The
following table details the Company's operating results by reportable business segment for the years ended June 30, 2001, 2000 and June 30, 1999.

|                                           |                                                                 | Year Ended June 30,                            
|------------------------------------------ | --------------------------------------------------------------- | -----------------------------------------------
|
|
|Revenues:                                  |                                                                 |                                                
|                                           | Member Services                                                 |                                                
|                                           | Technology Products                                             |                                                
|                                           | Specialty Wholesaling                                           |                                                
|                                           | Direct to Consumer                                              |                                                
|                                           |                                                                 |                                                
|                                           |                                                                 | Total revenues                                 
|                                           |                                                                 |                                                
|Costs of goods sold and services provided: |                                                                 |                                                
|                                           | Member Services                                                 |                                                
|                                           | Technology Products                                             |                                                
|                                           | Specialty Wholesaling                                           |                                                
|                                           | Direct to Consumer                                              |                                                
|                                           |                                                                 |                                                
|                                           |                                                                 | Total costs of goods sold and services provided
|                                           |                                                                 |                                                
|Gross margin by segment:                   |                                                                 |                                                
|                                           | Member Services                                                 |                                                
|                                           | Technology Products                                             |                                                
|                                           | Specialty Wholesaling                                           |                                                
|                                           | Direct to Consumer                                              |                                                
|                                           |                                                                 |                                                
|                                           |                                                                 | Total                                          
|                                           |                                                                 |                                                
|Operating expenses:                        |                                                                 |                                                
|                                           | Member Services, Technology Products, and Specialty Wholesaling |                                                
|                                           | Direct to Consumer                                              |                                                
|                                           |                                                                 |                                                
|                                           |                                                                 | Total operating expenses                       
|                                           |                                                                 |                                                
|Operating income (loss)                    |                                                                 | $                                              
|                                           |                                                                 |                                                

F-27

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INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULE

The
Board of Directors
IOS BRANDS Corporation:

Under date of July 23, 2001, except as to the first paragraph of Note 2, which is as of November 9, 2001, and as to the second paragraph of Note 2 and
Note 18, which are as of May 28, 2002, we reported on the consolidated balance sheets of IOS BRANDS Corporation and subsidiaries as of June 30, 2001 and 2000, and the related
consolidated statements of operations and comprehensive income, stockholders' equity, and cash flows for each of the years in the three-year period ended June 30, 2001. In connection with our
audits of the aforementioned consolidated financial statements, we also audited the related consolidated financial statement schedule of valuation of qualifying accounts. This consolidated financial
statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this consolidated financial statement schedule based on our audits.

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

/s/
KPMG LLP

Chicago,
Illinois
July 23, 2001

F-28

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IOS BRANDS CORPORATION        SCHEDULE IIVALUATION AND QUALIFYING ACCOUNTS

|                                                                                                                |  | Additions |       |  |   |       |  |  
|--------------------------------------------------------------------------------------------------------------- |  | --------- | ----- |  | - | ----- |  | -
|
|
|
|Year 2001                                                                                                       |  |           |       |  |   |       |  |  
|Allowance for doubtful accounts (shown As deduction from Accounts Receivable in the consolidated balance sheet) |  | $         | 3,596 |  | $ | 3,134 |  | $
|Inventory valuation reserve (included in Inventories, net in the consolidated balance sheet)                    |  | $         | 1,017 |  | $ | 513   |  | $
|Year 2000                                                                                                       |  |           |       |  |   |       |  |  
|Allowance for doubtful accounts (shown as deduction from Accounts Receivable in the consolidated balance sheet) |  | $         | 1,681 |  | $ | 1,931 |  | $
|Inventory valuation reserve (included in Inventories, net in the consolidated balance sheet)                    |  | $         | 1,188 |  | $ |      |  | $
|Year 1999                                                                                                       |  |           |       |  |   |       |  |  
|Allowance for doubtful accounts (shown as deduction from Accounts Receivable in the consolidated balance sheet) |  | $         | 1,854 |  | $ | 442   |  | $
|Inventory valuation reserve (included in Inventories, net in the consolidated balance sheet)                    |  | $         | 1,675 |  | $ |      |  | $

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INDEX TO EXHIBITS

|Exhibit
Number |  | Description of Document                                                                                                                                                                                                                                                                                                                                                                                                                               
|-------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1            |  | Restated Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 of the Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1997 (the "1997
Form 10-K")).                                                                                                                                                                                                                                     
|3.2            |  | Bylaws of the Registrant (incorporated by reference to Exhibit 3.2 of the 1997 Form 10-K).                                                                                                                                                                                                                                                                                                                                                            
|4.1            |  | Form of Subscription Agreement among FTD Corporation and certain stockholders of FTD Corporation (incorporated by reference to Exhibit 4.3 of Post-Effective Amendment No. to the Registrant's Registration Statement on Form S-1 (the "1995
FTD S-1")).                                                                                                                                                                                              
|4.2            |  | Form of Subscription Agreement among FTD Corporation and Participating Members (incorporated by reference to Exhibit 4.4 of Amendment No. 1 to the Registrant's Registration Statement on Form S-1 (the "1997 FTD S-1")).                                                                                                                                                                                                                             
|10.1           |  | Credit Agreement, dated as of November 20, 1997, among the Registrant, Florists' Transworld Delivery, Inc. ("FTDI"), the various lending institutions party thereto (the "Lenders") and The First National Bank of Chicago, as Agent (the
"Agent") (incorporated by reference to Exhibit 10.1 of the 1997 FTD S-1).                                                                                                                                   
|10.2           |  | Amendment No. 1 to Credit Agreement, dated as of December 19, 1997, among the Registrant, FTDI, the Lenders and the Agent (incorporated by reference to Exhibit 10.2 of the Registrant's Annual Report on Form 10-K for the fiscal
year ended June 30, 1999 (the "1999 Form 10-K")).                                                                                                                                                                  
|10.3           |  | Amendment No. 2 to Credit Agreement, dated as of May 24, 1999, among the Registrant, FTDI, the Lenders and the Agent (incorporated by reference to Exhibit 10.3 of the 1999 Form 10-K).                                                                                                                                                                                                                                                               
|10.4           |  | Amendment No. 3 to Credit Agreement, dated as of July 7, 2000, among the Registrant, FTDI, the Lenders and Bank One, NA (as successor to the First National Bank of Chicago), as Agent (incorporated by reference to Exhibit 10.20 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended December 31, 2000 (the "December 31, 2000 10-Q").                                                                                          
|10.5           |  | Amendment No. 4, Waiver, Consent and Release to Credit Agreement, dated as of December 21, 2000, among the Registrant, FTDI, the Lenders and the Agent (incorporated by reference to Exhibit 10.21 to the December 31, 2000
10-Q).                                                                                                                                                                                                                    
|10.6           |  | Pledge Agreement, dated May 24, 1999, by and among the Registrant, FTDI and the Agent (incorporated by reference to Exhibit 10.4 of the 1999 Form 10-K).                                                                                                                                                                                                                                                                                              
|10.7           |  | Security Agreement, dated November 20, 1997, by and among the Registrant, FTDI and the Agent (incorporated by reference to Exhibit 10.3 of the 1997 FTD S-1).                                                                                                                                                                                                                                                                                         
|10.8           |  | Securityholders' and Registration Rights Agreement, dated as of December 19, 1994, among the Registrant, FTDI, BT Securities Corporation and Montgomery Securities (incorporated by reference to Exhibit 10.11 of the 1995
FTD S-1).                                                                                                                                                                                                                  
|10.9           |  | Tax Sharing Agreement, dated as of December 19, 1994, between the Registrant and FTDI (incorporated by reference to Exhibit 10.12 of the 1995 FTD S-1).                                                                                                                                                                                                                                                                                               
|10.10          |  | First Amendment to Tax Sharing Agreement, dated as of May 19, 1999 among the Registrant, FTDI and FTD.COM INC. ("FTD.COM") (incorporated by reference to Exhibit 10.6 to FTD.COM's Registration Statement on Form S-1, as amended (the
"FTD.COM S-1"). 10.11 Stockholders' Agreement, dated as of December 19, 1994, among the Registrant and certain stockholders of the Registrant (incorporated by reference to Exhibit 10.13 of the 1995 FTD S-1).
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                       

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|10.12* |  | FTD Corporation Stock Award and Incentive Plan (incorporated by reference to Exhibit 10.14 of the 1995 FTD S-1).                                                                                                                                    
|------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.13* |  | Letter dated August 18, 1998 regarding Robert L. Norton employment arrangements (incorporated by reference to Exhibit 10.12 of the 1997 Form 10-K).                                                                                                 
|10.14* |  | Form of Secured Promissory Note to be made by Robert L. Norton (incorporated by reference to Exhibit 10.13 of the 1997 Form 10-K).                                                                                                                  
|10.15* |  | Description of Key Management Incentive Plan (incorporated by reference to Exhibit 10.b of the FTDI Quarterly Report on Form 10-Q for the quarter ended March 31, 1997).                                                                            
|10.16* |  | Restricted Shares Agreement, dated as of June 12, 2000, between FTDI and Robert L. Norton (incorporated by reference to Exhibit 10.17 of the Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 2000 (the
"2000 Form 10-K").
|10.17* |  | Restricted Shares Agreement, dated as of June 12, 2000, between FTDI and Frances C. Piccirillo (incorporated by reference to Exhibit 10.18 of the 2000 Form 10-K).                                                                                  
|10.18* |  | Restricted Shares Agreement, dated as of June 12, 2000, between FTDI and Timothy R. Rasmussen (incorporated by reference to Exhibit 10.10 of the 2000 Form 10-K).                                                                                   
|10.19* |  | Secured Promissory Note between FTDI and Frederick K. Johnson dated as of October 30, 2000 (incorporated by reference to Exhibit 10.22 of the December 31, 2000 10-Q).                                                                              
|10.20* |  | Secured Promissory Note between FTDI and Robert L. Norton dated as of October 30, 2000 (incorporated by reference to Exhibit 10.23 of the December 31, 2000 10-Q).                                                                                  
|10.21* |  | Secured Promissory Note between FTDI and Francis C. Piccirillo dated as of October 30, 2000 (incorporated by reference to Exhibit 10.24 of the December 31, 2000 10-Q).                                                                             
|10.22  |  | Termination Agreement, dated as of April 30, 2001, among FTDI and FTD Association (the "Association") (incorporated by reference to Exhibit 10.25 of the March 31, 2001 10-Q).                                                                      
|10.23* |  | Secured Promissory Note between FTDI and Robert L. Norton dated as of June 12, 2001.                                                                                                                                                                
|10.24* |  | Secured Promissory Note between FTDI and Francis C. Piccirillo dated as of June 12, 2001.                                                                                                                                                           
|10.25* |  | Secured Promissory Note between FTDI and Timothy R. Rasmussen dated as of June 12, 2001.                                                                                                                                                            
|10.26  |  | Escrow Agreement, dated as of June 29, 2001, among FTDI, the Association, and Bank One Trust Company, National Association.                                                                                                                         
|10.27* |  | Letter dated April 12, 2001 regarding Robert L. Norton employment arrangements.                                                                                                                                                                     
|10.28  |  | Form of Intercompany Services Agreement between FTDI and FTD.COM (incorporated by reference to Exhibit 10.2 of FTD.COM's S-1).                                                                                                                      
|10.29  |  | Form of Trademark License Agreement between FTDI and FTD.COM (incorporated by reference to Exhibit 10.3 of the FTD.COM S-1).                                                                                                                        
|10.30  |  | Form of Intercompany Indemnification Agreement between FTD Corporation, FTDI and FTD.COM (incorporated by reference to Exhibit 10.4 of the FTD.COM S-1).                                                                                            
|10.31  |  | Form of Registration Rights Agreement between FTDI and FTD.COM (incorporated by reference to Exhibit 4.4 of the FTD.COM S-1).                                                                                                                       
|10.32  |  | Form of Florists Online Hosting Agreement between FTDI and FTD.COM (incorporated by reference to Exhibit 10.7 of the FTD.COM S-1).                                                                                                                  
|10.33  |  | Form of Commission Agreement between FTDI and FTD.COM (incorporated by reference to Exhibit 10.8 of the FTD.COM S-1).                                                                                                                               
|       |  |                                                                                                                                                                                                                                                     

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|21.1 |  | Subsidiaries of the Registrant (incorporated by reference to Exhibit 21.1 of the FTD S-1).
|---- |  | ------------------------------------------------------------------------------------------
|24.1 |  | Powers of Attorney (contained in the signature page of this Form 10-K).                   

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