##### 



SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, DC 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
   o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   Odimo Incorporated
 (Exact name of registrant as specified in its charter)
 Delaware
    
    22-3607813(State or other jurisdiction of
incorporation or organization)
    
    (I.R.S. Employer Identification No.)14001 N.W. 4th Street, Sunrise, Florida
    
    33325(Address of principal executive offices)
    
    (Zip Code)
 (954) 835-2233
 (Registrants telephone number, including area code)
 x o
 o x




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##### 



ODIMO INCORPORATED
 TABLE OF CONTENTS
 PART I. FINANCIAL INFORMATION
    
    
    3ITEM 1. FINANCIAL STATEMENTS
    
    
    3ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    
    12ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    32ITEM 4. CONTROLS AND PROCEDURES
    
    
    33PART II. OTHER INFORMATION
    
    
    33ITEM 1. LEGAL PROCEEDINGS
    
    
    33ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
    
    
    34ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    34ITEM 6. EXHIBITS
    
    
    34SIGNATURES
    
    
    36
 2




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##### 



PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL INFORMATION
 ODIMO INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except par value)
(Unaudited)
 June 30,
    
    
    December 31,2005
    
    
    2004ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    3,849
    
    
    $
    1,663Deposits with credit card processing company
    
    
    900
    
    
    
    813Accounts receivable
    
    
    618
    
    
    
    476Inventories
    
    
    14,048
    
    
    
    14,321Deposits with vendors
    
    
    1,232
    
    
    
    660Prepaid expenses and other current assets
    
    
    1,107
    
    
    
    961Total current assets
    
    
    21,754
    
    
    
    18,894PROPERTY AND EQUIPMENT  net
    
    
    6,362
    
    
    
    5,320GOODWILL
    
    
    9,792
    
    
    
    9,792INTANGIBLE AND OTHER ASSETS  net
    
    
    2,978
    
    
    
    6,504TOTAL
    
    $
    40,886
    
    
    $
    40,510LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIES:Accounts payable
    
    $
    6,952
    
    
    $
    10,833Accounts payable to related parties
    
    
    4,109
    
    
    
    5,691Accrued liabilities
    
    
    993
    
    
    
    3,499Bank credit facility
    
    
    
    
    
    
    9,282Total liabilities
    
    
    12,054
    
    
    
    29,305COMMITMENTS AND CONTINGENCIES (Note 7)STOCKHOLDERS EQUITY:Preferred stock, $0.001 par value, 50,000 and 2,370 shares authorized; 0 and 2,370
shares issued and outstanding at June 30, 2005 and December 31, 2004 respectively
(liquidation value of $139,271 at December 31, 2004)
    
    
    
    
    
    
    3Common stock, $0.001 par value, 300,000 shares authorized at June 30, 2005 and 4,800
shares authorized at December 31, 2004; 7,162 and 629 shares issued and outstanding at
June 30, 2005 and December 31, 2004, respectively
    
    
    7
    
    
    
    1Additional paid-in capital
    
    
    103,705
    
    
    
    80,074Accumulated deficit
    
    
    (74,880
    )
    
    
    (68,873
    )Total stockholders equity
    
    
    28,832
    
    
    
    11,205TOTAL
    
    $
    40,886
    
    
    $
    40,510
  3




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##### 



ODIMO INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(Unaudited)
 Three months ended
    
    
    Six months endedJune 30,
    
    
    June 30,
    
    
    June 30,
    
    
    June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004NET SALES
    
    $
    11,451
    
    
    $
    10,290
    
    
    $
    24,235
    
    
    $
    20,734COST OF SALES
    
    
    8,638
    
    
    
    7,426
    
    
    
    18,170
    
    
    
    14,802Gross profit
    
    
    2,813
    
    
    
    2,864
    
    
    
    6,065
    
    
    
    5,932OPERATING EXPENSES:Fulfillment(1)
    
    
    805
    
    
    
    675
    
    
    
    1,693
    
    
    
    1,344Marketing(1)
    
    
    1,847
    
    
    
    1,315
    
    
    
    3,565
    
    
    
    2,428General and administrative(1)
    
    
    2,586
    
    
    
    2,003
    
    
    
    5,053
    
    
    
    8,670Depreciation and amortization
    
    
    858
    
    
    
    661
    
    
    
    1,710
    
    
    
    1,410Total operating expenses
    
    
    6,096
    
    
    
    4,654
    
    
    
    12,021
    
    
    
    13,852LOSS FROM OPERATIONS
    
    
    (3,283
    )
    
    
    (1,790
    )
    
    
    (5,956
    )
    
    
    (7,920
    )INTEREST INCOME (EXPENSE), Net
    
    
    25
    
    
    
    (65
    )
    
    
    (51
    )
    
    
    (318
    )NET LOSS
    
    
    (3,258
    )
    
    
    (1,855
    )
    
    
    (6,007
    )
    
    
    (8,238
    )DIVIDENDS TO PREFERRED STOCKHOLDERS
    
    
    ( -
    )
    
    
    (4,811
    )
    
    
    (832
    )
    
    
    (12,278
    )NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS
    
    $
    (3,258
    )
    
    $
    (6,666
    )
    
    $
    (6,839
    )
    
    $
    (20,516
    )Net loss per common share attributable to common stockholders:Basic and diluted
    
    $
    (0.46
    )
    
    $
    (10.60
    )
    
    $
    (1.26
    )
    
    $
    (32.62
    )Weighted average number of shares:Basic and diluted
    
    
    7,162
    
    
    
    629
    
    
    
    5,429
    
    
    
    629
 
 (1)
    
    Non-cash stock-based compensation included in these amounts are as follows: Fulfillment
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Marketing
    
    
    
    
    
    
    
    
    
    
    General and administrative
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,689$
    
    
    
    $
    
    
    
    $
    
    
    
    $
    4,689
  4




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##### 



ODIMO INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(in thousands)
(Unaudited)
 Preferred Stock
    
    
    Common Stock
    
    
    Additional
    
    
    
    
    
    
    TotalPar
    
    
    
    
    
    
    Par
    
    
    Paid-in
    
    
    Accumulated
    
    
    StockholdersShares
    
    
    Value
    
    
    Shares
    
    
    Value
    
    
    Capital
    
    
    Deficit
    
    
    EquityBALANCE December 31, 2004
    
    
    2,370
    
    
    $
    3
    
    
    
    629
    
    
    $
    1
    
    
    $
    80,074
    
    
    $
    (68,873
    )
    
    $
    11,205Proceeds from exercise of warrants
    
    
    254
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,349
    
    
    
    
    
    
    
    1,349Conversion of convertible preferred stock to common stock
    
    
    (2,624
    )
    
    
    (3
    )
    
    
    3,408
    
    
    
    3
    
    
    
    
    
    
    
    Issuance of common stock, net of offering expenses
    
    
    
    
    
    
    
    
    
    
    3,125
    
    
    
    3
    
    
    
    22,282
    
    
    
    
    
    
    
    22,285Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,007
    )
    
    
    (6,007
    )BALANCE June 30, 2005
    
    
    
    
    
    $
    
    
    
    
    7,162
    
    
    $
    7
    
    
    $
    103,705
    
    
    $
    (74,880
    )
    
    $
    28,832
  5




---



##### 



ODIMO INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
 Six months endedJune 30,
    
    
    June 30,2005
    
    
    2004OPERATING ACTIVITIES:Net loss
    
    $
    (6,007
    )
    
    $
    (8,238
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization
    
    
    1,710
    
    
    
    1,410Stock-based compensation
    
    
    
    
    
    
    4,689Amortization of supply agreement
    
    
    72
    
    
    
    12Amortization of discount on stockholder notes
    
    
    
    
    
    
    87Changes in operating assets and liabilities:Increase in deposits with credit card processing company
    
    
    (87
    )
    
    
    (96
    )Increase in accounts receivable
    
    
    (142
    )
    
    
    (61
    )Decrease (increase) in inventories
    
    
    273
    
    
    
    (4,894
    )Increase in deposits with vendors
    
    
    (572
    )
    
    
    (59
    )Increase in prepaid expenses and other current assets
    
    
    (146
    )
    
    
    (1,085
    )Decrease in other assets
    
    
    2,557
    
    
    
    425Decrease in accounts payable
    
    
    (3,881
    )
    
    
    (2,150
    )(Decrease) increase in accounts payable to related parties
    
    
    (1,582
    )
    
    
    4,559Decrease in accrued liabilities
    
    
    (2,506
    )
    
    
    (2,389
    )Net cash used in operating activities
    
    
    (10,311
    )
    
    
    (7,790
    )INVESTING ACTIVITIES Purchase of property and equipment
    
    
    (1,855
    )
    
    
    (922
    )FINANCING ACTIVITIES:Payments on stockholder notes
    
    
    
    
    
    
    (450
    )Net(repayments of) borrowings under bank credit facility
    
    
    (9,282
    )
    
    
    1,600Proceeds from issuance of convertible preferred stock and warrants
    
    
    
    
    
    
    2,750Proceeds from exercise of warrants
    
    
    1,349Proceeds from issuance of common stock, net of offering expenses
    
    
    22,285Net cash provided by financing activities
    
    
    14,352
    
    
    
    3,900INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    2,186
    
    
    
    (4,812
    )CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
    
    
    1,663
    
    
    
    5,135CASH AND CASH EQUIVALENTS, END OF PERIOD
    
    $
    3,849
    
    
    $
    323SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:Interest paid
    
    $
    76
    
    
    $
    131SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:Exchange of stockholder notes (including accrued interest of $211) for
convertible preferred stock and warrants
    
    
    
    
    
    $
    2,996Fair value of supply agreement
    
    
    
    
    
    $
    433Conversion
of preferred stock into common stock
    
    $
    3
  6




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##### 



ODIMO INCORPORATED AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 1. GENERAL
 Business www.diamond.com, www.ashford.com www.worldofwatches.com.
 Operating Losses and Liquidity
 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Basis of Presentation
 Use of Estimates
 Stock-based Compensation Accounting for Stock Issued to Employees Accounting for Certain
Transactions involving Stock Compensation, an interpretation of APB Opinion No. 25
 Accounting for Stock-Based Compensation
 7
        Three months
    
    Three months
    
    Six months
    
    Six monthsended
    
    ended
    
    ended
    
    endedJune 30,
    
    June 30,
    
    June 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004Net loss attributable to common stockholders, as reported
    
    $
    (3,258
    )
    
    $
    (6,666
    )
    
    $
    (6,839
    )
    
    $
    (20,516
    )Add: Stock-based compensation expense, as reported
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,689Deduct: Stock-based employee compensation expense determined
under fair-value-based method
    
    
    (3
    )
    
    
    (3
    )
    
    
    (6
    )
    
    
    (5,618
    )Pro forma net loss
    
    $
    ( 3,261
    )
    
    $
    (6,669
    )
    
    $
    (6,845
    )
    
    $
    (21,445
    )Net loss per share:Basic and diluted  as reported
    
    $
    (0.46
    )
    
    $
    (10.60
    )
    
    $
    ( 1.26
    )
    
    $
    (32.62
    )Basic and diluted  pro forma
    
    $
    (0.46
    )
    
    $
    (10.60
    )
    
    $
    (1.26
    )
    
    $
    (34.09
    )
  Share-Based
Payment.
  Loss Per Share
    8      Reclassification
 3. INVENTORIES
  June 30,
    
    
    December 31,2005
    
    
    2004Diamonds
    
    $
    6,220
    
    
    $
    5,488Fine jewelry
    
    
    2,827
    
    
    
    2,967Watches
    
    
    3,000
    
    
    
    3,344Luxury goods
    
    
    2,001
    
    
    
    2,522Total inventories
    
    $
    14,048
    
    
    $
    14,321
  4. PROPERTY AND EQUIPMENT
  EstimatedUseful Lives
    
    June 30,
    
    December 31,(in Years)
    
    2005
    
    2004Computers, software and equipment
    
    
    3
    
    
    $
    10,947
    
    
    $
    9,049Leasehold improvements
    
    
    4
    
    
    
    1,153
    
    
    
    1,066Furniture and fixtures
    
    
    5
    
    
    
    593
    
    
    
    59812,693
    
    
    
    10,713Less: accumulated depreciation
    
    
    
    
    
    
    (7,550
    )
    
    
    (6,737
    )5,143
    
    
    
    3,976Software development in process
    
    
    
    
    
    
    1,219
    
    
    
    1,344Property and equipment  net
    
    
    
    
    
    $
    6,362
    
    
    $
    5,320
   5. BANK CREDIT FACILITY
  9
       6. INITIAL PUBLIC OFFERING
  7. COMMITMENTS AND CONTINGENCIES
   8. RELATED PARTY TRANSACTIONS
 Stock Purchase and Supply Agreement
  Diamond Purchases and Sales
 Other Inventory Purchases www.worldofwatches.com.
 Use of Jet Aircraft 10
       
 Stockholder Notes 
  11      ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 The following discussion should be read in conjunction with Odimo Incorporateds (Odimo, the
Company, we, our, us,) Condensed Consolidated Financial Statements and the related Notes
contained elsewhere in this quarterly report on Form 10-Q . All statements in the following
discussion that are not reports of historical information or descriptions of current accounting
policy are forward-looking statements. Please consider our forward-looking statements in light of
the factors that may affect operating results set forth herein.
 OVERVIEW
 www.diamond.com,
www.ashford.com www.worldofwatches.com.
 www.diamonddepot.com. www.diamond.com www.worldofwatches.com. www.ashford.com. www.ashford.com www.ashford.com www.diamond.com
  Key Business Metrics
  Number of Orders
  12
      Average Order Value
  Product Mix
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,Measure
    
    2004
    
    
    2005
    
    
    2004
    
    
    2005Number of orders
    
    
    29,210
    
    
    
    32,780
    
    
    
    62,352
    
    
    
    68,861Average order value
    
    $
    404
    
    
    $
    405
    
    
    $
    379
    
    
    $
    403Product Mix:Watches
    
    
    41.0
    %
    
    
    36.8
    %
    
    
    42.0
    %
    
    
    35.3
    %Diamonds
    
    
    29.7
    %
    
    
    32.5
    %
    
    
    26.4
    %
    
    
    33.4
    %Jewelry
    
    
    14.2
    %
    
    
    18.6
    %
    
    
    15.5
    %
    
    
    18.8
    %Luxury goods
    
    
    15.1
    %
    
    
    12.1
    %
    
    
    16.1
    %
    
    
    12.5
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
  Basis of Presentation
      13
      RESULTS OF OPERATIONS
  Three Months Ended June 30,
    
    Six Months Ended June 30,(in thousands, except percentage data)
    
    (in thousands, except percentage data)2004
    
    % of Net Sales
    
    2005
    
    % of Net Sales
    
    2004
    
    % of Net Sales
    
    2005
    
    % of Net SalesNet sales
    
    $
    10,290
    
    
    
    100.0
    %
    
    $
    11,451
    
    
    
    100.0
    %
    
    $
    20,734
    
    
    
    100.0
    %
    
    $
    24,235
    
    
    
    100.0Cost of sales
    
    
    7,426
    
    
    
    72.2
    
    
    
    8,638
    
    
    
    75.4
    
    
    
    14,802
    
    
    
    71.4
    
    
    
    18,170
    
    
    
    75.0Gross profit
    
    
    2,864
    
    
    
    27.8
    
    
    
    2,813
    
    
    
    24.6
    
    
    
    5,932
    
    
    
    28.6
    
    
    
    6,065
    
    
    
    25.0Operating expenses:Fulfillment
    
    
    675
    
    
    
    6.6
    
    
    
    805
    
    
    
    7.0
    
    
    
    1,344
    
    
    
    6.5
    
    
    
    1,693
    
    
    
    7.0Marketing
    
    
    1,315
    
    
    
    12.8
    
    
    
    1,847
    
    
    
    16.1
    
    
    
    2,428
    
    
    
    11.7
    
    
    
    3,565
    
    
    
    14.7General and
administrative(1)
    
    
    2,003
    
    
    
    19.5
    
    
    
    2,586
    
    
    
    22.6
    
    
    
    8,670
    
    
    
    41.8
    
    
    
    5,053
    
    
    
    20.9Depreciation and
amortization
    
    
    661
    
    
    
    6.4
    
    
    
    858
    
    
    
    7.5
    
    
    
    1,410
    
    
    
    6.8
    
    
    
    1,710
    
    
    
    7.1Total operating
expenses
    
    
    4,654
    
    
    
    45.2
    
    
    
    6,096
    
    
    
    53.2
    
    
    
    13,852
    
    
    
    66.8
    
    
    
    12,021
    
    
    
    49.6Loss from operations
    
    
    (1,790
    )
    
    
    (17.4
    )
    
    
    (3,283
    )
    
    
    (28.7
    )
    
    
    (7,920
    )
    
    
    (38.2
    )
    
    
    (5,956
    )
    
    
    (24.6
    )Interest (expense)
income, net
    
    
    (65
    )
    
    
    (0.6
    )
    
    
    25
    
    
    
    0.2
    
    
    
    (318
    )
    
    
    (1.5
    )
    
    
    (51
    )
    
    
    (0.2
    )Net loss
    
    $
    (1,855
    )
    
    
    (18.0
    )%
    
    $
    (3,258
    )
    
    
    (28.5
    )%
    
    $
    (8,238
    )
    
    
    (39.7
    )%
    
    $
    (6,007
    )
    
    
    (24.8
    )%
 
 (1)
    
    Includes non-cash stock-based compensation of $4.7 million during the
six months ended June 30, 2004. Comparison of Three Months Ended June 30, 2005 to Three Months Ended June 30, 2004
 Net Sales. www.diamond.com
  Gross Profit.
 14
      Fulfillment.
 Marketing.
 General and Administrative Expenses.
 Depreciation and Amortization.
 Interest Expense, Net.
 Net Loss.
 Comparison of Six Months Ended June 30, 2005 to Six Months Ended June 30, 2004
 Net Sales. www.diamond.com
  15
      Gross Profit.
 Fulfillment.
 Marketing.
 General and Administrative Expenses.
 Depreciation and Amortization.
 Interest Expense, Net.
 Net Loss.
 16
      LIQUIDITY AND CAPITAL RESOURCES
  Discussion of Cash Flows
     www.ashford.com
 Liquidity Sources
    17
      Contractual Obligations
  Payments Due by Period(in thousands)Less thanTotal
    
    
    1 Year
    
    
    1-3 Years
    
    
    3-5 YearsBank Credit Facility
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Operating lease obligations
    
    
    1,362
    
    
    
    145
    
    
    
    486
    
    
    
    731Total
    
    $
    1,362
    
    
    $
    145
    
    
    $
    486
    
    
    $
    731
 Off Balance Sheet Arrangements
  Critical Accounting Policies and Estimates
  18
      Revenue Recognition
   Inventories
  Goodwill and Other Long-Lived Assets
 Goodwill and Other Intangible Assets
 Accounting for the Impairment or Disposal
of Long-Lived Assets
 Income Taxes
  19
      Stock-Based Compensation
 Accounting for Stock Issued to Employees,
  Accounting for Stock-Based Compensation, Accounting for
Stock-Based Compensation  Transition Disclosure.
 Share-Based
Payment.
  CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
  20
      FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
 You should carefully consider the risks and uncertainties described below, together with all
other information included in this report, including the condensed consolidated financial
statements and the related notes herein, as well as in our other public filings, before making any
investment decision regarding our stock. If any of the following risks actually occurs, our
business, financial condition, results of operations and future prospects would likely be
materially and adversely affected. In that event, the market price of our stock could decline and
you could lose all or part of your investment.
 Risks Related to Our Business and Industry
 We have incurred operating losses since our inception. If we do not achieve operating
profitability, we will need additional capital, and our stock price could suffer.
  
    
    marketing, advertising and other promotional activities;
    
    the expansion of our fulfillment operations, which includes supply
procurement, inventory management, order receipt, packaging and shipment; and
    
    the continued development of our websites and our computer network.
  21
      Because we do not have a predictable or guaranteed supply of brand name watches and luxury goods,
we may lose customers and sales if we are unable to meet our customers demand for particular
products.
  We acquire most of the brand name watches and luxury goods we sell through the parallel market, or
grey market as it is also called, which increases the risk that we may inadvertently sell
counterfeit or stolen goods or merchandise which is physically materially different from
merchandise acquired from channels authorized by the brand owners, which could expose us to
liability for intellectual property infringement claims and damage our reputation.
   If brand owners take action to limit or prevent us from acquiring their products in the parallel
market, we may not be able to find alternative sources of supply for such products at satisfactory
prices or at all, which would result in reduced sales.
  22
      If it is determined that our sales of decoded watches violate state laws, we would be subject to
claims for damages, fines or other penalties or be unable to sell decoded watches in such states.
   23
      Our supply contract with The Steinmetz Diamond Group expires in November 2006. If we fail to renew
it, we may have to purchase diamonds from other suppliers at less favorable prices and terms.
  If we fail to identify and rapidly respond to fashion trends, we may be forced to absorb excess
inventory or lower the sales prices for our goods.
  If our new product offerings are not successful, we may have difficulty achieving growth in sales.
 www.ashford.com
 Our net sales and operating results are volatile and difficult to predict, which may adversely
affect the trading price of our common stock.
  24
      Competition from traditional and online retail companies with greater brand recognition and
resources may adversely affect our sales.
  
    
    independent and chain stores that sell jewelry, watches or other luxury
products, such as Tiffany & Co., Zales and Signet PLCs Kay Jewelers;
    
    other online retailers that sell diamonds, fine jewelry, brand name
watches and/or luxury products, such as Amazon.com and Blue Nile;
    
    department stores;
    
    boutiques and websites operated by brand owners;
    
    mass retailers and warehouse clubs that sell jewelry, watches or other luxury products;
    
    catalog and television shopping retailers; and
    
    online auction houses and closeout retailers.
  If our advertising relationships with Internet portals and other websites fail to create consumer
awareness of our websites and product offerings, our sales may suffer.
  25
      If online advertising rates continue to rise, we may purchase less advertising and our sales could
decrease.
 six
 Because we carry almost all of our brand name watches, jewelry and luxury goods in inventory, if we
are unable to accurately predict and plan for changes in consumer demand, our net sales and gross
margins may decrease.
  Our operating results are subject to seasonal fluctuations, and adverse results in our fourth
quarter will have a disproportionate impact on our results of operations for the year.
  We are dependent on Alan Lipton, our Chief Executive Officer and President, and other members of
our management team. The loss of any of them could harm our business.
  We may not be able to increase capacity or respond to rapid technological changes in a timely
manner or without service interruptions, which may cause customer dissatisfaction.
  26
      Our costs will increase because we are a public company.
   All of our operations are located at our Sunrise, Florida facilities, and disruptions at these
facilities could prevent us from receiving orders or fulfilling orders for our customers in a
timely manner.
  27
      Our planned move to a new facility in 2005 may disrupt our operations.
  The availability and price of diamonds are significantly influenced by a small number of diamond
mining firms as well as the political situation in diamond-producing countries. A decrease in the
availability or an increase in the price of diamonds may make it difficult for us to procure enough
diamonds at competitive prices to supply our customers.
  Increases in the cost of precious metals and precious and semi-precious stones would increase the
cost of our jewelry products, which could result in reduced margins or increased prices and reduced
sales of such products.
  Increased product returns and the failure to accurately predict product returns could reduce our
gross margins and result in excess inventory.
  28
      If we attain specified levels of financial performance, we are obligated to make earn-out payments
to one of our stockholders.
 www.ashford.com www.ashford.com
 Other online retailers may use domain names that are similar to ours. If customers associate these
websites with us, our brands may be harmed and we may lose sales.
 www.diamonds.com www.diamonds-usa.com.
 We do not intend to pay dividends on our common stock, and, consequently, your only opportunity to
achieve a return on your investment is if the price of our common stock appreciates.
  Risks Relating to Doing Business on the Internet
 If we are required to collect sales and use taxes on the products we sell in jurisdictions outside
of Florida, we may be subject to liability for past sales and our future sales may decrease.
  Various legal rules and regulations related to privacy and the collection, dissemination and
security of personal information may adversely affect our marketing efforts.
  29
      Consumers may prefer to purchase brand name watches and luxury goods, diamonds and fine jewelry
from traditional retailers, which would adversely affect our sales.
  
    
    concerns about buying expensive products without a physical
storefront, face-to-face interaction with sales personnel and the ability to
physically handle and examine products;
    
    concerns over counterfeit or substandard goods;
    
    delivery times associated with Internet orders;
    
    product offerings that do not reflect consumer tastes and preferences;
    
    pricing that does not meet consumer expectations;
    
    concerns about the security of online transactions and the privacy of
personal information;
    
    delayed shipments, theft or shipments of incorrect or damaged products; and
    
    inconvenience associated with returning or exchanging purchased items.
 If the Internet infrastructure fails to grow or deteriorates, our ability to grow our business will
be impaired.
  Risks Related to the Securities Markets and Ownership of Our Common Stock
 Our stock price may be volatile.
  
    
    actual or anticipated fluctuations in our results of operations;
    
    variance in our financial performance from the expectations of market analysts;
    
    developments with respect to intellectual property rights;
 30
      
    
    announcements by us or our competitors of new product and service
offerings, significant contracts, acquisitions or strategic relationships;
    
    our involvement in litigation;
    
    our sale of common stock or other securities in the future;
    
    market conditions in our industry;
    
    recruitment or departure of key personnel;
    
    changes in market valuation or earnings of our competitors;
    
    the trading volume of our common stock;
    
    changes in the estimation of the future size and growth rate of our markets; and
    
    general economic or market conditions and other factors, including
factors unrelated to our operating performance or the operating performance of our
competitors.
 Future sales of our common stock may cause our stock price to decline.
 August 15,
  Our common stock has been publicly traded for a short time and an active trading market may not be
sustained.
  Anti-takeover provisions in our organizational documents and Delaware law may discourage or prevent
a change in control, even if an acquisition would be beneficial to our stockholders, which could
affect our stock price adversely and prevent attempts by our stockholders to replace or remove our
current management.
  31
      
    
    Our board of directors has the exclusive right to elect directors to fill
a vacancy created by the expansion of the board of directors or the resignation, death
or removal of a director, which prevents stockholders from being able to fill vacancies
on our board of directors.
    
    Our stockholders may not act by written consent. As a result, a holder or
holders controlling a majority of our capital stock would be able to take certain
actions only at a stockholders meeting.
    
    No stockholder may call a special meeting of stockholders. This may make
it more difficult for stockholders to take certain actions.
    
    Our stockholders may not remove a director without cause, and our
certificate of incorporation provides for a classified board of directors with
staggered, three-year terms. As a result, it could take up to three years for
stockholders to replace the entire board.
    
    Our certificate of incorporation does not provide for cumulative voting in
the election of directors. This limits the ability of minority stockholders to elect
director candidates.
    
    Stockholders must provide advance notice to nominate individuals for
election to the board of directors or to propose matters that can be acted upon at a
stockholders meeting. These provisions may discourage or deter a potential acquirer
from conducting a solicitation of proxies to elect the acquirers own slate of
directors or otherwise attempting to obtain control of our company.
    
    Our board of directors may issue, without stockholder approval, shares of
undesignated preferred stock. The ability to authorize undesignated preferred stock
makes it possible for our board of directors to issue preferred stock with voting or
other rights or preferences that could impede the success of any attempt to acquire us.
  If our officers, directors and principal stockholders choose to act together, they may be able to
control our management and operations, acting in their best interests and not in the best interests
of other stockholders.
  
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  32
      ITEM 4. CONTROLS AND PROCEDURES
    
 PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
    33
      ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
 ITEM 6. EXHIBITS
 (a) Exhibits
 Exhibit No.
    
    Description2.1
    
    Asset Purchase Agreement among registrant and Ashford.com, Inc. dated December 6, 2002.
(1)3.1
    
    Amended and Restated Certificate of Incorporation. (1)3.2
    
    Amended and Restated Bylaws. (1)4.1
    
    Form of Specimen Stock Certificate. (1)4.2.1
    
    Investors Rights Agreement dated November 18, 1999 by and between the registrant and
certain holders of the registrants capital stock. (1)4.2.2
    
    Amended and Restated Registration Rights Agreement dated March 30, 2004 by and between
the registrant and certain holders of the registrants capital stock. (1)10.1.1
    
    Odimo Incorporated Amended and Restated Stock Incentive Plan. (1)10.1.2
    
    Form of Stock Option Agreement pursuant to the Odimo Incorporated Stock Incentive Plan.
(1)10.2
    
    Amended and Restated Series C Convertible Preferred Stock Purchase Agreement dated as
of March 30, 2004 between the registrant and SDG Marketing, Inc. (1)10.3.1
    
    Promissory Note dated December 6, 2002 by the registrant in favor of GSI Commerce
Solutions, Inc. (1)10.3.2
    
    Security Agreement dated December 6, 2002 between the registrant and GSI Commerce
Solutions, Inc., as assignee. (1)10.3.3
    
    Patents, Trademarks, Copyrights and Licenses Security Agreement dated December 6, 2002
between the registrant and GSI Commerce Solutions, Inc., as assignee. (1)10.4.1
    
    Lease Agreement dated December 14, 1999 between the registrant and MDR Fitness Corp. (1)
 34
      10.4.2
    
    Lease Amendment and Extension Agreement dated January 8, 2003 between the registrant
and MDR Fitness Corp. (1)10.5.1
    
    Employment Agreement dated July 12, 2004 between the registrant and Alan Lipton. (1)10.5.2
    
    Employment Agreement dated July 12, 2004 between the registrant and Jeff Kornblum. (1)10.5.3
    
    Employment Agreement dated July 12, 2004 between the registrant and Amerisa Kornblum.
(1)10.5.4
    
    Employment Agreement dated July 12, 2004 between the registrant and George Grous. (1)10.5.5
    
    Lock-up Agreement dated July 12, 2004, between the registrant and Alan Lipton. (1)10.5.6
    
    Lock-up Agreement dated July 12, 2004, between the registrant and Jeff Kornblum. (1)10.5.7
    
    Lock-up Agreement dated July 12, 2004, between the registrant and Amerisa Kornblum. (1)10.5.8
    
    Lock-up Agreement dated July 12, 2004, between the registrant and George Grous. (1)10.5.9
    
    Lock-up Agreement dated July 12, 2004, between the registrant and Michael
DellArciprete. (1)10.5.10
    
    Amended and Restated Employment Agreement dated August 27, 2004 between the registrant
and Alan Lipton. (1)10.6
    
    Form of Indemnification Agreement between the registrant and each of its directors and
executive officers. (1)10.7
    
    Supply Agreement dated March 30, 2004 between the registrant and SDG Marketing, Inc. (1)10.8.1
    
    Loan and Security Agreement dated as of July 31, 2004 by and among Silicon Valley Bank,
the registrant and its subsidiaries Ashford.com, Inc. and D.I.A. Marketing, Inc. (1)10.8.2
    
    Revolving Promissory Note dated as of July 31, 2004 in favor of Silicon Valley Bank, by
the registrant and its subsidiaries Ashford.com, Inc. and D.I.A. Marketing, Inc. (1)10.8.3
    
    Intellectual Property Security Agreements dated as of July 31, 2004 in favor of Silicon
Valley Bank, by each of the registrant and Ashford.com, Inc. (1)10.8.4
    
    Unconditional Guaranties dated as of July 31, 2004 of Softbank Capital LP, Softbank
Capital Partners LP and Softbank Capital Advisors Fund LP. (1)10.9
    
    Commercial Lease dated as of January 1, 2006 between the registrant and IBB Realty,
LLC. (1)10.10
    
    First Loan Modification Agreement dated as of November 13, 2004 by and among Silicon
Valley Bank, the registrant and its subsidiaries Ashford.com, Inc. and D.I.A.
Marketing, Inc. (1)10.11
    
    First Amended and Restated Note dated as of November 13, 2004 in favor of Silicon
Valley Bank by the registrant and its subsidiaries Ashford.com, Inc. and D.I.A.
Marketing, Inc. (1)10.12
    
    Amendment and Reaffirmation of Guaranty dated as of November 13, 2004 of Softbank
Capital, LP, Softbank Capital Partners, LP and Softbank Capital Advisors Fund LP. (1)10.13
    
    Second Loan Modification Agreement dated as of January 7, 2005 by and among Silicon
Valley Bank, the registrant and its subsidiaries Ashford.com, Inc. and D.I.A.
Marketing, Inc. (1)10.14
    
    Second Amended and Restated Note dated as of January 7, 2005 in favor of Silicon Valley
Bank, by the registrant and its subsidiaries Ashford.com, Inc. and D.I.A. Marketing,
Inc. (1)10.15
    
    Second Amendment and Reaffirmation of Guaranty dated as of January 7, 2005 of Softbank
Capital, L.P., Softbank Capital Partners, LP and Softbank Capital Advisors Fund LP. (1)10.16
    
    Confirmation letter dated January 7, 2005 from Softbank Capital Partners LP, regarding
financial support. (1)14.1
    
    Code of Business Conduct and Ethics. (2)21.1
    
    Subsidiaries of Odimo Incorporated. (1)31.1
    
    Certification of Chief Executive Officer Required Under Rule 13a-14(a) or Rule
15d-14(a) of the Securities Exchange Act of 1934, as amended.31.2
    
    Certification of Principal Financial Officer Required Under Rule 13a-14(a) or Rule
15d-14(a) of the Securities Exchange Act of 1934, as amended.32.1*
    
    Certification of Chief Executive Officer Required Under Rule 13a-14(b) or Rule
15d-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section
1350.32.2*
    
    Certification of Principal Financial Officer Required Under Rule 13a-14(b) or Rule
15d-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section
1350.
 
 (1)
    
    Previously filed as an exhibit to Odimo Incorporateds Registration Statement on Form S-1
(File No. 333-117400) originally filed with the SEC on July 16, 2004, as amended thereafter, and
incorporated herein by reference.(2)
    
    Previously filed as an exhibit to Odimo Incorporated's Annual Report on Form 10-K filed with the SEC on March 31, 2005,
and incorporated herein by reference.*
    
    The certifications attached as Exhibits 32.1 and 32.2 accompanies this
Quarterly Report on Form 10-Q pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed "filed" by Odimo Incorporated for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. 35
      SIGNATURES
  ODIMO INCORPORATED
RegistrantDate: August 11, 2005
    /s/ Amerisa KornblumAmerisa KornblumChief Financial Officer
(Principal Financial Officer and Duly
Authorized Officer) 36
      EXHIBIT INDEX
 31.1
    
    Certification of Chief Executive Officer Required Under Rule
13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of
1934, as amended.31.2
    
    Certification of Principal Financial Officer Required Under Rule
13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of
1934, as amended.32.1
    
    Certification of Chief Executive Officer Required Under Rule
13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of
1934, as amended, and 18 U.S.C. Section 1350.32.2
    
    Certification of Principal Financial Officer Required Under Rule
13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of
1934, as amended, and 18 U.S.C. Section 1350.