##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, DC 20549


Form 10-K


FOR ANNUAL AND TRANSITION REPORTS


PURSUANT TO SECTIONS 13 OR 15(d) OF THE


SECURITIES EXCHANGE ACT OF 1934


|           |  |                                                                                             
|---------- |  | --------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                             
|þ          |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934    
|          
|           |  | For the fiscal year ended December 31, 2004                                                 
|          
|or        
|          
|o          |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934
|          
|           |  | For the transition period
    from           to                                             

Commission file number: 000-51161


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(Address of Principal Executive Offices) |  | 33325(Zip Code)                         

(954) 835-2233


(Registrants Telephone Number, Including Area Code)


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


|                    |  |                                          
|------------------- |  | -----------------------------------------
|Title of Each Class |  | Name of Each Exchange on Which Registered
|                    |  |                                          
|None                |  | None                                     

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


Common Stock, par value $0.001 per share


o þ


þ


o þ






DOCUMENTS INCORPORATED BY REFERENCE












---










ODIMO INCORPORATED


FORM 10-K  ANNUAL REPORT


For the Fiscal Year Ended December 31, 2004


Table of Contents


|                                             |  |                                                                                                                      |    |      |    | 
|-------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------- | -- | ---- | -- | 
|                                             |  |                                                                                                                      |    | Page |   
|                                             |  |                                                                                                                      |    |      |   
|PART I                                      
|Item 1                                       |  | Business                                                                                                             |    |      | 1  | 
|Item 2                                       |  | Properties                                                                                                           |    |      | 26 | 
|Item 3                                       |  | Legal Proceedings                                                                                                    |    |      | 26 | 
|Item 4                                       |  | Submission of Matters to a Vote of Security
    Holders                                                              |    |      | 26 | 
|PART II                                     
|Item 5                                       |  | Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities |    |      | 26 | 
|Item 6                                       |  | Selected Consolidated Financial Data                                                                                 |    |      | 30 | 
|Item 7                                       |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations                            |    |      | 31 | 
|Item 7A                                      |  | Quantitative and Qualitative Disclosures
    About Market Risk                                                       |    |      | 41 | 
|Item 8                                       |  | Financial Statements and Supplementary
    Data                                                                      |    |      | 41 | 
|Item 9                                       |  | Changes in and Disagreements With
    Accountants on Accounting and Financial Disclosures                            |    |      | 41 | 
|Item 9A                                      |  | Controls and Procedures                                                                                              |    |      | 41 | 
|Item 9B                                      |  | Other Information                                                                                                    |    |      | 42 | 
|PART III                                    
|Item 10                                      |  | Directors and Executive Officers of the
    Registrant                                                               |    |      | 42 | 
|Item 11                                      |  | Executive Compensation                                                                                               |    |      | 42 | 
|Item 12                                      |  | Security Ownership of Certain Beneficial
    Owners and Management and Related Stockholder Matters                   |    |      | 42 | 
|Item 13                                      |  | Certain Relationships and Related
    Transactions                                                                   |    |      | 42 | 
|Item 14                                      |  | Principal Accounting Fees and Services                                                                               |    |      | 42 | 
|PART IV                                     
|Item 15                                      |  | Exhibits and Financial Statement
    Schedules                                                                       |    |      | 43 | 
|Signatures                                   |  |                                                                                                                      | 45 |     
|CODE OF BUSINESS CONDUCT                    
|CERTIFICATION OF CEO PURSUANT TO SECTION 302
|CERTIFICATION OF CFO PURSUANT TO SECTION 302
|CERTIFICATION OF CEO PURSUANT TO SECTION 906
|CERTIFICATION OF CFO PURSUANT TO SECTION 906





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PART I


Forward-Looking Statements


This report contains various forward-looking statements
regarding our business, financial condition, results of
operations and future plans and projects. Forward-looking
statements discuss matters that are not historical facts and can
be identified by the use of words such as believes,
expects, anticipates,
intends, estimates,
projects, can, could,
may, will, would or similar
expressions. In this report, for example, we make
forward-looking statements regarding, among other things, our
expectations about the rate of revenue growth in specific
business segments and the reasons for that growth and our
profitability.


Although these forward-looking statements reflect the good
faith judgment of our management, such statements can only be
based upon facts and factors currently known to us.
Forward-looking statements are inherently subject to risks and
uncertainties, many of which are beyond our control. As a
result, our actual results could differ materially from those
anticipated in these forward-looking statements as a result of
various factors, including those set forth below under the
caption Risk Factors. For these statements, we claim
the protection of the safe harbor for forward-looking statements
contained in the Private Securities Litigation Reform Act of
1995. You should not unduly rely on these forward-looking
statements, which speak only as of the date on which they were
made. They give our expectations regarding the future but are
not guarantees. We undertake no obligation to update publicly or
revise any forward-looking statements, whether as a result of
new information, future events or otherwise, unless required by
law.


Corporate Information









|        |         
|------- | --------
|Item 1. | Business

Overview










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| |   |                                                                                                                                                                                                                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | www.diamond.comfeatures independently certified
    diamonds, fine jewelry and brand name watches, and accounted for
    approximately 39% and 39% of our net sales during the years
    ended December 31, 2003 and 2004, respectively.                                                                                                     
|
| |  | www.ashford.com features brand name luxury products,
    including watches, fine jewelry, designer handbags and
    accessories, home accents, fragrances, sunglasses and fine
    writing instruments, and accounted for approximately 35% and 39%
    of our net sales during the years ended December 31, 2003
    and 2004, respectively.
|
| |  | www.worldofwatches.com features a large selection of
    brand name watches, and accounted for approximately 26% and 22%
    of our net sales during the years ended December 31, 2003
    and 2004, respectively.                                                                                                                           

www.diamonddepot.com. www.diamond.com www.worldofwatches.com, www.ashford.com. www.ashford.com www.ashford.com www.diamond.com


Industry Overview




| |                                           
| | ------------------------------------------
| | Growth of the Internet and Online Commerce

U.S. eCommerce Overview: 2004 to 2010,
Forrester Research, Inc.






| |                               
| | ------------------------------
| | The Luxury Goods Market  Size

Jewelers of
America 2003 Cost of Doing Business Survey


2



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| |                                                    
| | ---------------------------------------------------
| | The Luxury Goods Market  Distribution
    Channels







| |                                                        
| | -------------------------------------------------------
| | The Luxury Goods Market  Diamonds and Fine
    Jewelry








3



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Challenges Facing Traditional Retailers






| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Limited Product Selection. Shelf space limitations and
    inventory carrying costs restrict the variety of goods carried
    by any single store. Consumers often find it challenging to
    locate a desired product.                                                                                                                                                                                                                           
|
| |  | High Retail Prices. The high cost structure of operating
    stores, a result of factors such as rent, labor, taxes, and
    other store operating costs, often require traditional retailers
    to sell goods at a significant markup to wholesale prices.                                                                                                                                                                                      
|
| |  | Less Certainty Regarding Quality and Value. Based on
    managements in-store and online research, we have
    determined that many traditional jewelers do not provide
    independent certification for a majority of their diamonds from
    an independent, non-profit agency, such as the GIA. As a result,
    their customers may be less certain of the quality and,
    therefore, the fairness of prices for diamonds and fine jewelry.
|
| |  | Inability to Easily Compare Prices. Shopping in
    traditional retail locations is often inconvenient due to
    limited business hours and the time involved in traveling to
    multiple locations to compare prices.                                                                                                                                                                                                                          
|
| |  | Uncomfortable Environment. Commission-based sales
    personnel can make customers of traditional retailers feel
    pressured to make a purchase decision.                                                                                                                                                                                                                                                                                       

Our Value Proposition




Broad Product Selection.


Current Season Merchandise.


Attractive Prices.


4



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Product Quality Assurance.


Positive Shopping Experience. www.diamond.com 2004 Online Retail Study for
Customer Focused Excellence


Prompt Fulfillment and Responsive Customer Service.


Our Growth Strategy




Attract New Customers.


Create Lifetime Customers.


5



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Expand Diamond and Diamond Jewelry Sales.


Reduce Inventory Exposure.


Pursue Operating Efficiencies.


Build the Ashford Brand.


Our Websites






| |                
| | ---------------
| | www.diamond.com

www.diamond.com www.diamond.com www.diamond.com, www.diamond.com




| |                
| | ---------------
| | www.ashford.com

www.ashford.com www.ashford.com.


6



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www.ashford.com




| |                       
| | ----------------------
| | www.worldofwatches.com

www.worldofwatches.com www.worldofwatches.com


Supplier Relationships




| |                                          
| | -----------------------------------------
| | Brand Name Watches and Other Luxury Goods



| |                
| | ---------------
| | Parallel Market









| |                            
| | ---------------------------
| | Our Policies and Procedures



7



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| |                         
| | ------------------------
| | Ashford branded products





| |                          
| | -------------------------
| | Diamonds and Fine Jewelry



8



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Marketing




9



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www.ashford.com www.diamond.com www.worldofwatches.com






| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Portal and Targeted Website Advertising. We utilize
    banner advertisements and purchase selected keywords on search
    engines and product data feeds on websites with high traffic
    volumes. We currently maintain portal and advertising
    relationships with, among others, MSN, Google, Yahoo/ Overture
    and AOL. Search engines, portals and other advertisers are
    compensated by us on a fixed fee (cost is based on the provision
    of a specific set of marketing activities) or a
    pay-for-performance basis (costs are strictly tied to some
    measure, typically sales). We have also recently entered into a
    one year agreement with Amazon.com to offer our products on
    Amazon.coms marketplace. Under this agreement Amazon.com
    receives a percentage of the revenue generated from the sale of
    our products on its marketplace. This percentage is within the
    range of commissions generally paid by merchants who offer
    products on Amazon.coms marketplace. Amazon processes
    orders and we are responsible for fulfillment, customer service
    and merchandising.
|
| |  | Affiliate Program. We attract customers by participating
    in affiliate programs such as BeFree that extend the reach of
    our websites and draw customers from a variety of other
    websites. By joining our affiliate program, website publishers
    earn volume-based commissions by directing customers to our
    websites. Currently, we have over 5,000 affiliate websites
    enrolled that actively promote our websites. Affiliates are
    generally compensated on a pay-for-performance basis.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  | Direct Marketing. We utilize an electronic direct
    marketing program to encourage repeat purchases, customer
    retention, prospect activation and referral business. This
    program increased substantially in the latter part of 2004 due
    to expanded functionality and a wider range of personalized
    offers. We utilize permission-based e-mail marketing to visitors
    who indicate a desire to continue to receive product
    recommendations and promotional discounts. We also utilize
    referral incentives, financing options, wish lists,
    birthday/anniversary event marketing and other similar programs.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

Customer Service and Sales Support








10



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Fulfillment Operations








Technology and Systems






| |   |                                                                                                                               
| | - | ------------------------------------------------------------------------------------------------------------------------------
| |  | accept and validate customer orders;                                                                                          
|
| |  | enable customer service representatives to engage in real-time,
    online interaction with multiple customers simultaneously;
|
| |  | organize, place and manage orders with suppliers;                                                                             
|
| |  | receive product and assign it to customer orders;                                                                             
|
| |  | manage product shipments to customers based on various ordering
    criteria; and                                             
|
| |  | manage inventory for stock replenishment.                                                                                     



Seasonality




11



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Competition






| |   |                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------
| |  | independent and chain stores that sell jewelry, watches or other
    luxury goods, such as Tiffany & Co., Zales and Signet
    PLCs Kay Jewelers;
|
| |  | other online retailers that sell brand name watches and luxury
    goods, diamonds and fine jewelry, such as Amazon.com and Blue
    Nile;        
|
| |  | department stores;                                                                                                                                
|
| |  | boutiques and websites operated by brand owners;                                                                                                  
|
| |  | mass retailers that sell jewelry, watches and other luxury goods;                                                                                 
|
| |  | catalog and television shopping retailers; and                                                                                                    
|
| |  | online auction houses and closeout retailers.                                                                                                     





| |   |                                    
| | - | -----------------------------------
| |  | product selection and availability;
|
| |  | price;                             
|
| |  | convenience;                       
|
| |  | website recognition;               
|
| |  | site features and content;         
|
| |  | functionality and ease of use;     
|
| |  | order delivery performance; and    
|
| |  | customer service.                  





12



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Intellectual Property


www.diamond.com, www.ashford.com, www.worldofwatches.com,
www.odimo.com, and www.diamonddepot.com.




Government Regulation




| |                        
| | -----------------------
| | Internet and E-Commerce





13



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| |                
| | ---------------
| | Decoded Watches









Employees




14



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Available Information


www.odimo.com.


Risk Factors


You should carefully consider the risks and uncertainties
described below, together with all other information included in
this report, including the 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 may 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.                                                                                 





| |                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.



15



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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.





16



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| |                                                                                                                                                                                                               
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.







| |                                                                                                                                                                                                             
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.



17



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| |                                                                                                                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.





| |                                                                                                                                              
| | ---------------------------------------------------------------------------------------------------------------------------------------------
| | 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;                                                          

18



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| |   |                                               
| | - | ----------------------------------------------
| |  | 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.





| |                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------
| | If online advertising rates continue to rise, we may
    purchase less advertising and our sales could decrease.





| |                                                                                                                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.



19



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| |                                                                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.







| |                                                                                                                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.



20



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| |                                                                           
| | --------------------------------------------------------------------------
| | 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.



21



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| |                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------
| | Increased product returns and the failure to accurately
    predict product returns could reduce our gross margins and
    result in excess inventory.





| |                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------
| | 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.



22



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| |                                                                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Various legal rules and regulations related to privacy and
    the collection, dissemination and security of personal
    information may adversely affect our marketing efforts.





| |                                                                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.



23



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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;                                                                                                                
|
| |  | 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.







| |                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------
| | Our common stock has been publicly traded for a short time
    and an active trading market may not be sustained.



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| |                                                                                                                                                                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                          
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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.



25



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##### Table of Contents








|        |           
|------- | ----------
|Item 2. | Properties








|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings












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






PART II







|        |                                                                                                                     
|------- | --------------------------------------------------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Equity, Related
    Stockholder Matters and Issuer Purchases of Equity
    Securities

Market Information




|                                                                  |  |      |      |  |     |  |      | 
|----------------------------------------------------------------- |  | ---- | ---- |  | --- |  | ---- | 
|                                                                  |  | High |      |  | Low | 
|                                                                  |  |      |      |  |     | 
|First Quarter 2005 (February 15, 2005 through
    March 28, 2005) |  |      | 8.96 |  |     |  | 6.40 | 



Dividend Policy




26



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##### Table of Contents



Equity Compensation Plan




2004


Equity Compensation Plan Information


|                                                           |  |                   |         |  |                   |            |                     |                      |  |  |         | 
|---------------------------------------------------------- |  | ----------------- | ------- |  | ----------------- | ---------- | ------------------- | -------------------- |  |  | ------- | 
|                                                           |  | (a)               |         |  | (b)               |            |                     | (c)                  | 
|                                                           |  |                   |         |  |                   |            |                     |                      | 
|                                                           |  |                   |         |  |                   | Number of  |                    
|                                                           |  |                   |         |  |                   | Securities |                    
|                                                           |  | Number of         |         |  |                   |            | Remaining Available |                     
|                                                           |  | Securities to be  |         |  |                   |            | for Future Issuance |                     
|                                                           |  | Issued Upon       |         |  | Weighted-Average  |            |                     | Under Equity         | 
|                                                           |  | Exercise of       |         |  | Exercise Price of |            |                     | Compensation Plan    | 
|                                                           |  | Outstanding       |         |  | Outstanding       |            |                     | (Excluding           | 
|                                                           |  | Options, Warrants |         |  | Options, Warrants |            |                     | Securities Reflected | 
|Plan Category                                              |  | and Rights        |         |  | and Rights        |            |                     | in Column(a))        | 
|                                                           |  |                   |         |  |                   |            |                     |                      | 
|Equity compensation plans approved by security holders     |  |                   | 446,428 |  |                   |            | 10.83               |                      |  |  | 112,963 | 
|Equity compensation plans not approved by security holders |  |                   |        |  |                   |            |                    |                      |  |  |        | 
|Total                                                      |  |                   | 446,428 |  |                   |            | 10.83               |                      |  |  | 112,963 | 

Recent Sales of Unregistered Securities
















27



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28



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Use of Proceeds








Repurchases of Equity Securities




29



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|        |                                      
|------- | -------------------------------------
|Item 6. | Selected Consolidated Financial Data.



|                                                                                |                               |                                       |         |        |        |   |         |       |        |   |         |       |        |      |         |       |        |   |         |        |        |  
|------------------------------------------------------------------------------- | ----------------------------- | ------------------------------------- | ------- | ------ | ------ | - | ------- | ----- | ------ | - | ------- | ----- | ------ | ---- | ------- | ----- | ------ | - | ------- | ------ | ------ | -
|                                                                                |                               | Year Ended December 31,               |        
|                                                                                |                               |                                       |        
|Consolidated Statement of Operations Data:                                      |                               | 2000                                  |         |        | 2001   |   |         | 2002  |        |   | 2003    |       |        | 2004 |        
|                                                                                |                               |                                       |         |        |        |   |         |       |        |   |         |       |        |      |        
|                                                                                |                               | (In thousands, except per share data) |        
|Net sales                                                                       |                               | $                                     | 17,114  |        |        | $ | 24,207  |       |        | $ | 27,520  |       |        | $    | 41,694  |       |        | $ | 52,244  |       
|Cost of sales                                                                   |                               |                                       | 14,218  |        |        |   | 18,440  |       |        |   | 19,932  |       |        |      | 29,945  |       |        |   | 37,141  |       
|                                                                                |                               |                                       |         |        |        |   |         |       |        |   |         |       |        |      |        
|Gross profit                                                                    |                               |                                       | 2,896   |        |        |   | 5,767   |       |        |   | 7,588   |       |        |      | 11,749  |       |        |   | 15,103  |       
|                                                                                |                               |                                       |         |        |        |   |         |       |        |   |         |       |        |      |        
|Operating expenses:                                                             |                               |                                       |         |        |        |   |         |       |        |   |         |       |        |      |         |       |        |   |         |       
|                                                                                | Fulfillment                   |                                       |         | 654    |        |   |         | 1,155 |        |   |         | 1,830 |        |      |         | 2,589 |        |   |         | 3,516  |       
|                                                                                | Marketing                     |                                       |         | 12,433 |        |   |         | 4,269 |        |   |         | 2,179 |        |      |         | 3,709 |        |   |         | 6,629  |       
|                                                                                | General and administrative(1) |                                       |         | 13,716 |        |   |         | 9,758 |        |   |         | 7,240 |        |      |         | 8,463 |        |   |         | 14,140 |       
|                                                                                | Depreciation and amortization |                                       |         | 2,781  |        |   |         | 4,753 |        |   |         | 2,529 |        |      |         | 3,024 |        |   |         | 2,749  |       
|                                                                                | Termination Expense           |                                       |         |       |        |   |         | 2,264 |        |   |         |      |        |      |         |      |        |   |         |       |       
|                                                                                |                               |                                       |         |        |        |   |         |       |        |   |         |       |        |      |        
|Total operating expenses                                                        |                               |                                       | 29,584  |        |        |   | 22,199  |       |        |   | 13,778  |       |        |      | 17,785  |       |        |   | 27,034  |       
|                                                                                |                               |                                       |         |        |        |   |         |       |        |   |         |       |        |      |        
|Loss from operations                                                            |                               |                                       | (26,688 | )      |        |   | (16,432 | )     |        |   | (6,190  | )     |        |      | (6,036  | )     |        |   | (11,931 | )     
|Interest income (expense), net                                                  |                               |                                       | 1,281   |        |        |   | 347     |       |        |   | 1       |       |        |      | (1,107  | )     |        |   | (585    | )     
|                                                                                |                               |                                       |         |        |        |   |         |       |        |   |         |       |        |      |        
|Net loss                                                                        |                               |                                       | (25,407 | )      |        |   | (16,085 | )     |        |   | (6,189  | )     |        |      | (7,143  | )     |        |   | (12,516 | )     
|Dividends to preferred stockholders(2)                                          |                               |                                       | (2,785  | )      |        |   | (4,025  | )     |        |   | (4,047  | )     |        |      | (4,519  | )     |        |   | (15,378 | )     
|                                                                                |                               |                                       |         |        |        |   |         |       |        |   |         |       |        |      |        
|Net loss attributable to common stockholders                                    |                               | $                                     | (28,192 | )      |        | $ | (20,110 | )     |        | $ | (10,236 | )     |        | $    | (11,662 | )     |        | $ | (27,894 | )     
|                                                                                |                               |                                       |         |        |        |   |         |       |        |   |         |       |        |      |        
|Net loss per common share:                                                      |                               |                                       |         |        |        |   |         |       |        |   |         |       |        |      |         |       |        |   |         |       
|                                                                                |                               | Basic and diluted                     |         | $      | (49.20 | ) |         | $     | (32.18 | ) |         | $     | (16.30 | )    |         | $     | (18.54 | ) |         | $      | (44.35 | )
|                                                                                |                               |                                       |         |        |        |   |         |       |        |   |         |       |        |      |        
|Weighted average common shares outstanding:                                     |                               |                                       |         |        |        |   |         |       |        |   |         |       |        |      |         |       |        |   |         |       
|                                                                                |                               | Basic and diluted                     |         |        | 573    |   |         |       | 625    |   |         |       | 628    |      |         |       | 629    |   |         |        | 629    |  
|                                                                                |                               |                                       |         |        |        |   |         |       |        |   |         |       |        |      |        
|Pro forma net loss per common share attributable to common
    stockholders(3): |                               |                                       |         |        |        |   |         |       |        |   |         |       |        |      |         |       |        |   |         |       
|                                                                                |                               | Basic and diluted                     |         |        |        |   |         |       |        |   |         |       |        |      |         |       |        |   |         | $      | (5.50  | )
|Pro forma weighted average common shares outstanding(3):                        |                               |                                       |         |        |        |   |         |       |        |   |         |       |        |      |         |       |        |   |         |       
|                                                                                |                               | Basic and diluted                     |         |        |        |   |         |       |        |   |         |       |        |      |         |       |        |   |         |        | 4,037  |  

|                                                 |  |                    |        |  |      |   |        |      |  |   |        |  |  |      |        |  |  |   |        | 
|------------------------------------------------ |  | ------------------ | ------ |  | ---- | - | ------ | ---- |  | - | ------ |  |  | ---- | ------ |  |  | - | ------ | 
|                                                 |  | As of December 31, |       
|                                                 |  |                    |       
|Consolidated Balance Sheet Data:                 |  | 2000               |        |  | 2001 |   |        | 2002 |  |   | 2003   |  |  | 2004 |       
|                                                 |  |                    |        |  |      |   |        |      |  |   |        |  |  |      |       
|                                                 |  | (In thousands)     |       
|Cash and cash equivalents                        |  | $                  | 15,205 |  |      | $ | 8,180  |      |  | $ | 6,501  |  |  | $    | 5,135  |  |  | $ | 1,663  | 
|Total assets                                     |  |                    | 42,816 |  |      |   | 28,990 |      |  |   | 30,966 |  |  |      | 30,631 |  |  |   | 40,510 | 
|Bank credit facility                             |  |                    |       |  |      |   |       |      |  |   |       |  |  |      |       |  |  |   | 9,282  | 
|Stockholder notes (including current maturities) |  |                    |       |  |      |   |       |      |  |   | 6,154  |  |  |      | 5,426  |  |  |   |       | 
|Total liabilities                                |  |                    | 6,869  |  |      |   | 6,823  |      |  |   | 11,853 |  |  |      | 17,723 |  |  |   | 29,305 | 
|Total stockholders equity                       |  |                    | 35,947 |  |      |   | 22,167 |      |  |   | 19,113 |  |  |      | 12,908 |  |  |   | 11,205 | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes non-cash stock-based compensation of $118,000, $41,000,
    $39,000, $2,000 and $4.7 million during the years ended
    December 31, 2000, 2001, 2002, 2003 and 2004, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                        
|   
|(2) | For the years ended December 31, 2000, 2001, 2002, 2003 and
    2004 dividends to preferred stockholders includes approximately
    $2.8 million, $4.0 million, $4.0 million,
    $4.5 million, and $5.7 million of cumulative but
    undeclared dividends on our convertible preferred stock. The
    cumulative undeclared dividends as of December 31, 2004
    totaled $21.1 million. During the year ended
    December 31, 2004, dividends to preferred stockholders also
    includes approximately $9.7 million of deemed dividends
    related to the issuance of Series C preferred stock to
    existing

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|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | stockholders. This amount represents the excess of the estimated
    fair value of the Series C preferred stock over the
    consideration received by the Company.                                                                                                                                                                                                                                                                                       
|   
|(3) | The pro forma net loss per share assumes that all shares of
    convertible preferred stock outstanding as of December 31,
    2004 were converted into approximately 3,154,000 shares of
    common stock on January 1, 2004 and all warrants to
    purchase shares of convertible preferred stock outstanding as of
    December 31, 2004 were exercised and converted into
    approximately 254,000 shares of common stock as of
    January 1, 2004.






|        |                                                                                           
|------- | ------------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis of Financial
    Condition and Results of Operations.

The following discussion contains forward-looking statements,
which involve risks and uncertainties. Our actual results could
differ materially from those anticipated in these
forward-looking statements as a result of various factors,
including those set forth previously under the caption
Risk Factors. This Managements Discussion and
Analysis of Financial Condition and Results of Operations should
be read in conjunction with our consolidated financial
statements and related notes included elsewhere in this
report.


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




31



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Key Business Metrics






| |                 
| | ----------------
| | Number of Orders





| |                    
| | -------------------
| | Average Order Value





| |            
| | -----------
| | Product Mix



|                    |              |                         |        |      |      |   |         |      |   |   |         |      |  
|------------------- | ------------ | ----------------------- | ------ | ---- | ---- | - | ------- | ---- | - | - | ------- | ---- | -
|                    |              | Year Ended December 31, |       
|                    |              |                         |       
|Measure             |              | 2002                    |        |      | 2003 |   |         | 2004 |  
|                    |              |                         |        |      |      |   |         |      |  
|Number of orders    |              |                         | 65,157 |      |      |   | 116,440 |      |   |   | 155,840 |     
|Average order value |              | $                       | 471    |      |      | $ | 402     |      |   | $ | 374     |     
|Product Mix:        |              |                         |        |      |      |   |         |      |   |   |         |     
|                    | Watches      |                         |        | 63.3 | %    |   |         | 50.1 | % |   |         | 40.5 | %
|                    | Diamonds     |                         |        | 20.9 |      |   |         | 25.4 |   |   |         | 26.7 |  
|                    | Jewelry      |                         |        | 15.8 |      |   |         | 15.7 |   |   |         | 16.7 |  
|                    | Luxury goods |                         |        |     |      |   |         | 8.8  |   |   |         | 16.1 |  
|                    |              |                         |        |      |      |   |         |      |  
|Total               |              |                         | 100.0  | %    |      |   | 100.0   | %    |   |   | 100.0   | %   
|                    |              |                         |        |      |      |   |         |      |  



Basis of Presentation










32



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Results of Operations




|                               |                               |                                        |        |          |       |  |       |      |          |   |        |       |  |          |       |      |       |   |         |        |  |  |       |      | 
|------------------------------ | ----------------------------- | -------------------------------------- | ------ | -------- | ----- |  | ----- | ---- | -------- | - | ------ | ----- |  | -------- | ----- | ---- | ----- | - | ------- | ------ |  |  | ----- | ---- | 
|                               |                               | Year Ended December 31,                |       
|                               |                               |                                        |       
|                               |                               |                                        |        | % of Net |       |  |       |      | % of Net |   |        |       |  | % of Net |      
|                               |                               | 2002                                   |        |          | Sales |  |       | 2003 |          |   | Sales  |       |  | 2004     |       |      | Sales |  
|                               |                               |                                        |        |          |       |  |       |      |          |   |        |       |  |          |       |      |       |  
|                               |                               | (In thousands, except percentage data) |       
|Net sales                      |                               | $                                      | 27,520 |          |       |  | 100.0 | %    |          | $ | 41,694 |       |  |          | 100.0 | %    |       | $ | 52,244  |        |  |  | 100.0 | %   
|Cost of sales                  |                               |                                        | 19,932 |          |       |  | 72.4  |      |          |   | 29,945 |       |  |          | 71.8  |      |       |   | 37,141  |        |  |  | 71.1  |     
|                               |                               |                                        |        |          |       |  |       |      |          |   |        |       |  |          |       |      |       |  
|Gross profit                   |                               |                                        | 7,588  |          |       |  | 27.6  |      |          |   | 11,749 |       |  |          | 28.2  |      |       |   | 15,103  |        |  |  | 28.9  |     
|                               |                               |                                        |        |          |       |  |       |      |          |   |        |       |  |          |       |      |       |  
|Operating expenses:            |                               |                                        |        |          |       |  |       |      |          |   |        |       |  |          |       |      |       |   |         |        |  |  |       |     
|                               | Fulfillment                   |                                        |        | 1,830    |       |  |       | 6.6  |          |   |        | 2,589 |  |          |       | 6.2  |       |   |         | 3,516  |  |  |       | 6.7  | 
|                               | Marketing                     |                                        |        | 2,179    |       |  |       | 7.9  |          |   |        | 3,709 |  |          |       | 8.9  |       |   |         | 6,629  |  |  |       | 12.7 | 
|                               | General and administrative(1) |                                        |        | 7,240    |       |  |       | 26.3 |          |   |        | 8,463 |  |          |       | 20.3 |       |   |         | 14,140 |  |  |       | 27.1 | 
|                               | Depreciation and amortization |                                        |        | 2,529    |       |  |       | 9.2  |          |   |        | 3,024 |  |          |       | 7.3  |       |   |         | 2,749  |  |  |       | 5.3  | 
|                               |                               |                                        |        |          |       |  |       |      |          |   |        |       |  |          |       |      |       |  
|Total operating expenses       |                               |                                        | 13,778 |          |       |  | 50.1  |      |          |   | 17,785 |       |  |          | 42.7  |      |       |   | 27,034  |        |  |  | 52.3  |     
|                               |                               |                                        |        |          |       |  |       |      |          |   |        |       |  |          |       |      |       |  
|Loss from operations           |                               |                                        | (6,190 | )        |       |  | (22.5 | )    |          |   | (6,036 | )     |  |          | (14.5 | )    |       |   | (11,931 | )      |  |  | (22.8 | )   
|Interest income (expense), net |                               |                                        | 1      |          |       |  | 0.0   |      |          |   | (1,107 | )     |  |          | (2.7  | )    |       |   | (585    | )      |  |  | (1.1  | )   
|                               |                               |                                        |        |          |       |  |       |      |          |   |        |       |  |          |       |      |       |  
|Net loss                       |                               | $                                      | (6,189 | )        |       |  | (22.5 | )%   |          | $ | (7,143 | )     |  |          | (17.1 | )%   |       | $ | (12,516 | )      |  |  | (24.0 | )%  
|                               |                               |                                        |        |          |       |  |       |      |          |   |        |       |  |          |       |      |       |  






|    |                                                                                                                                                               
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes non-cash stock-based compensation of $39,000, $2,000,
    and $4.7 million during the years ended December 31,
    2002, 2003 and 2004, respectively.



| |                                                                               
| | ------------------------------------------------------------------------------
| | Comparison of Year Ended December 31, 2004 to Year
    Ended December 31, 2003

Net Sales. www.ashford.com.




Gross Profit.


33



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Fulfillment.


Marketing.


General and Administrative.


Depreciation and Amortization.


Interest Expense, Net.


Net Loss.




| |                                                                               
| | ------------------------------------------------------------------------------
| | Comparison of Year Ended December 31, 2003 to Year
    Ended December 31, 2002

Net Sales. www.diamond.com,


34



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www.ashford.com. www.diamond.com.


www.ashford.com,


Gross Profit.


Fulfillment.


Marketing. www.ashford.com


General and Administrative.


Depreciation and Amortization. www.ashford.com www.diamond.com


Interest Expense, Net. www.ashford.com


Net Loss.




| |                          
| | -------------------------
| | Quarterly Operations Data



35



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|                               |                               |                    |        |       |         |   |        |         |  |   |         |       |  |         |        |       |         |   |        |         |  |   |         |       |  |   |        |       |  |   |        |       | 
|------------------------------ | ----------------------------- | ------------------ | ------ | ----- | ------- | - | ------ | ------- |  | - | ------- | ----- |  | ------- | ------ | ----- | ------- | - | ------ | ------- |  | - | ------- | ----- |  | - | ------ | ----- |  | - | ------ | ----- | 
|                               |                               | Three Months Ended |       
|                               |                               |                    |       
|                               |                               | Mar 31,            |        |       | Jun 30, |   |        | Sep 30, |  |   | Dec 31, |       |  | Mar 31, |        |       | Jun 30, |   |        | Sep 30, |  |   | Dec 31, |      
|                               |                               | 2003               |        |       | 2003    |   |        | 2003    |  |   | 2003    |       |  | 2004    |        |       | 2004    |   |        | 2004    |  |   | 2004    |      
|                               |                               |                    |        |       |         |   |        |         |  |   |         |       |  |         |        |       |         |   |        |         |  |   |         |      
|                               |                               | (In thousands)     |       
|                               |                               | (Unaudited)        |       
|Net sales                      |                               | $                  | 7,612  |       |         | $ | 8,275  |         |  | $ | 7,538   |       |  | $       | 18,269 |       |         | $ | 10,444 |         |  | $ | 10,290  |       |  | $ | 10,006 |       |  | $ | 21,504 |      
|Cost of sales                  |                               |                    | 5,528  |       |         |   | 6,079  |         |  |   | 5,518   |       |  |         | 12,820 |       |         |   | 7,376  |         |  |   | 7,426   |       |  |   | 7,208  |       |  |   | 15,131 |      
|                               |                               |                    |        |       |         |   |        |         |  |   |         |       |  |         |        |       |         |   |        |         |  |   |         |      
|Gross profit                   |                               |                    | 2,084  |       |         |   | 2,196  |         |  |   | 2,020   |       |  |         | 5,449  |       |         |   | 3,068  |         |  |   | 2,864   |       |  |   | 2,798  |       |  |   | 6,373  |      
|                               |                               |                    |        |       |         |   |        |         |  |   |         |       |  |         |        |       |         |   |        |         |  |   |         |      
|Operating expenses:            |                               |                    |        |       |         |   |        |         |  |   |         |       |  |         |        |       |         |   |        |         |  |   |         |       |  |   |        |       |  |   |        |      
|                               | Fulfillment                   |                    |        | 389   |         |   |        | 526     |  |   |         | 345   |  |         |        | 1,329 |         |   |        | 669     |  |   |         | 675   |  |   |        | 660   |  |   |        | 1,512 | 
|                               | Marketing                     |                    |        | 695   |         |   |        | 642     |  |   |         | 547   |  |         |        | 1,825 |         |   |        | 1,113   |  |   |         | 1,315 |  |   |        | 1,356 |  |   |        | 2,845 | 
|                               | General and administrative(1) |                    |        | 1,828 |         |   |        | 1,795   |  |   |         | 1,885 |  |         |        | 2,955 |         |   |        | 6,667   |  |   |         | 2,003 |  |   |        | 2,508 |  |   |        | 2,962 | 
|                               | Depreciation and amortization |                    |        | 667   |         |   |        | 694     |  |   |         | 694   |  |         |        | 969   |         |   |        | 749     |  |   |         | 661   |  |   |        | 575   |  |   |        | 764   | 
|                               |                               |                    |        |       |         |   |        |         |  |   |         |       |  |         |        |       |         |   |        |         |  |   |         |      
|Total operating expenses       |                               |                    | 3,579  |       |         |   | 3,657  |         |  |   | 3,471   |       |  |         | 7,078  |       |         |   | 9,198  |         |  |   | 4,654   |       |  |   | 5,099  |       |  |   | 8,083  |      
|                               |                               |                    |        |       |         |   |        |         |  |   |         |       |  |         |        |       |         |   |        |         |  |   |         |      
|Loss from operations           |                               |                    | (1,495 | )     |         |   | (1,461 | )       |  |   | (1,451  | )     |  |         | (1,629 | )     |         |   | (6,130 | )       |  |   | (1,790  | )     |  |   | (2,301 | )     |  |   | (1,710 | )    
|Interest income (expense), net |                               |                    | (152   | )     |         |   | (104   | )       |  |   | (110    | )     |  |         | (741   | )     |         |   | (253   | )       |  |   | (65     | )     |  |   | (105   | )     |  |   | (162   | )    
|                               |                               |                    |        |       |         |   |        |         |  |   |         |       |  |         |        |       |         |   |        |         |  |   |         |      
|Net loss                       |                               | $                  | (1,647 | )     |         | $ | (1,565 | )       |  | $ | (1,561  | )     |  | $       | (2,370 | )     |         | $ | (6,383 | )       |  | $ | (1,855  | )     |  | $ | (2,406 | )     |  | $ | (1,872 | )    
|                               |                               |                    |        |       |         |   |        |         |  |   |         |       |  |         |        |       |         |   |        |         |  |   |         |      

|                               |                               |                    |       |      |         |  |       |         |  |  |         |      |  |         |       |      |         |  |       |         |  |  |         |      |  |  |       |      |  |  |       |      | 
|------------------------------ | ----------------------------- | ------------------ | ----- | ---- | ------- |  | ----- | ------- |  |  | ------- | ---- |  | ------- | ----- | ---- | ------- |  | ----- | ------- |  |  | ------- | ---- |  |  | ----- | ---- |  |  | ----- | ---- | 
|                               |                               | Three Months Ended |      
|                               |                               |                    |      
|                               |                               | Mar 31,            |       |      | Jun 30, |  |       | Sep 30, |  |  | Dec 31, |      |  | Mar 31, |       |      | Jun 30, |  |       | Sep 30, |  |  | Dec 31, |     
|                               |                               | 2003               |       |      | 2003    |  |       | 2003    |  |  | 2003    |      |  | 2004    |       |      | 2004    |  |       | 2004    |  |  | 2004    |     
|                               |                               |                    |       |      |         |  |       |         |  |  |         |      |  |         |       |      |         |  |       |         |  |  |         |     
|                               |                               | (Unaudited)        |      
|Net sales                      |                               |                    | 100.0 | %    |         |  | 100.0 | %       |  |  | 100.0   | %    |  |         | 100.0 | %    |         |  | 100.0 | %       |  |  | 100.0   | %    |  |  | 100.0 | %    |  |  | 100.0 | %   
|Cost of sales                  |                               |                    | 72.6  |      |         |  | 73.5  |         |  |  | 73.2    |      |  |         | 70.2  |      |         |  | 70.6  |         |  |  | 72.2    |      |  |  | 72.0  |      |  |  | 70.4  |     
|                               |                               |                    |       |      |         |  |       |         |  |  |         |      |  |         |       |      |         |  |       |         |  |  |         |     
|Gross profit                   |                               |                    | 27.4  |      |         |  | 26.5  |         |  |  | 26.8    |      |  |         | 29.8  |      |         |  | 29.4  |         |  |  | 27.8    |      |  |  | 28.0  |      |  |  | 29.6  |     
|                               |                               |                    |       |      |         |  |       |         |  |  |         |      |  |         |       |      |         |  |       |         |  |  |         |     
|Operating expenses:            |                               |                    |       |      |         |  |       |         |  |  |         |      |  |         |       |      |         |  |       |         |  |  |         |      |  |  |       |      |  |  |       |     
|                               | Fulfillment                   |                    |       | 5.1  |         |  |       | 6.4     |  |  |         | 4.6  |  |         |       | 7.3  |         |  |       | 6.4     |  |  |         | 6.6  |  |  |       | 6.6  |  |  |       | 7.0  | 
|                               | Marketing                     |                    |       | 9.1  |         |  |       | 7.8     |  |  |         | 7.3  |  |         |       | 10.0 |         |  |       | 10.7    |  |  |         | 12.8 |  |  |       | 13.6 |  |  |       | 13.2 | 
|                               | General and administrative(1) |                    |       | 24.0 |         |  |       | 21.7    |  |  |         | 25.0 |  |         |       | 16.2 |         |  |       | 63.8    |  |  |         | 19.5 |  |  |       | 25.1 |  |  |       | 13.8 | 
|                               | Depreciation and amortization |                    |       | 8.8  |         |  |       | 8.4     |  |  |         | 9.2  |  |         |       | 5.3  |         |  |       | 7.2     |  |  |         | 6.4  |  |  |       | 5.7  |  |  |       | 3.6  | 
|                               |                               |                    |       |      |         |  |       |         |  |  |         |      |  |         |       |      |         |  |       |         |  |  |         |     
|Total operating expenses       |                               |                    | 47.0  |      |         |  | 44.2  |         |  |  | 46.0    |      |  |         | 38.7  |      |         |  | 88.1  |         |  |  | 45.2    |      |  |  | 51.0  |      |  |  | 37.6  |     
|                               |                               |                    |       |      |         |  |       |         |  |  |         |      |  |         |       |      |         |  |       |         |  |  |         |     
|Loss from operations           |                               |                    | (19.6 | )    |         |  | (17.7 | )       |  |  | (19.2   | )    |  |         | (8.9  | )    |         |  | (58.7 | )       |  |  | (17.4   | )    |  |  | (23.0 | )    |  |  | (7.9  | )   
|Interest income (expense), net |                               |                    | (2.0  | )    |         |  | (1.3  | )       |  |  | (1.5    | )    |  |         | (4.1  | )    |         |  | (2.4  | )       |  |  | (0.6    | )    |  |  | (1.0  | )    |  |  | (0.8  | )   
|                               |                               |                    |       |      |         |  |       |         |  |  |         |      |  |         |       |      |         |  |       |         |  |  |         |     
|Net loss                       |                               |                    | (21.6 | )%   |         |  | (18.9 | )%      |  |  | (20.7   | )%   |  |         | (13.0 | )%   |         |  | (61.1 | )%      |  |  | (18.0   | )%   |  |  | (24.0 | )%   |  |  | (8.7  | )%  
|                               |                               |                    |       |      |         |  |       |         |  |  |         |      |  |         |       |      |         |  |       |         |  |  |         |     






|    |                                                                                                                                                   
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes non-cash stock-based compensation expense of $0, $0,
    $2,000, $0, $4.7 million, $0 and $0 for each period
    presented, respectively.

36



---



##### Table of Contents



Liquidity and Capital Resources






| |                         
| | ------------------------
| | Discussion of Cash Flows









www.ashford.com




| |                  
| | -----------------
| | Liquidity Sources





37



---



##### Table of Contents











| |                        
| | -----------------------
| | Contractual Obligations



|                            |  |       |        |                        |        |   |       |           |  |   |           |  |  |   |     | 
|--------------------------- |  | ----- | ------ | ---------------------- | ------ | - | ----- | --------- |  | - | --------- |  |  | - | --- | 
|                            |  |       |        | Payments Due by Period |       
|                            |  |       |        |                        |       
|                            |  |       |        | Less Than              |        |   |      
|                            |  | Total |        |                        | 1 Year |   |       | 1-3 Years |  |   | 3-5 Years | 
|                            |  |       |        |                        |        |   |       |           |  |   |           | 
|                            |  |       |        | (In thousands)         |        |   |      
|Bank Credit Facility        |  | $     | 9,282  |                        |        | $ | 9,282 |           |  | $ |          |  |  | $ |    | 
|Operating lease obligations |  |       | 1,506  |                        |        |   | 289   |           |  |   | 486       |  |  |   | 731 | 
|                            |  |       |        |                        |        |   |       |           |  |   |           | 
|Total                       |  | $     | 10,788 |                        |        | $ | 9,571 |           |  | $ | 486       |  |  | $ | 731 | 
|                            |  |       |        |                        |        |   |       |           |  |   |           | 

Off Balance Sheet Arrangements




Outstanding Stock Options




38



---



##### Table of Contents







Critical Accounting Policies and Estimates








| |                    
| | -------------------
| | Revenue Recognition







| |            
| | -----------
| | Inventories



39



---



##### Table of Contents







| |                                     
| | ------------------------------------
| | Goodwill and Other Long-Lived Assets

Goodwill and Other Intangible Assets


Accounting for the Impairment or Disposal of Long-Lived
Assets




| |             
| | ------------
| | Income Taxes





| |                         
| | ------------------------
| | Stock-Based Compensation

Accounting for Stock Issued to
Employees,




Accounting for Stock-Based
Compensation, Accounting for Stock-Based Compensation 
Transition Disclosure.


Share-Based Payment.


40



---



##### Table of Contents







Recently Issued Accounting Standard


Consolidation of Variable Interest Entities







|         |                                                               
|-------- | --------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures About Market
    Risk








|        |                                            
|------- | -------------------------------------------
|Item 8. | Financial Statements and Supplementary Data








|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 9. | Changes in and Disagreements With Accountants on
    Accounting and Financial Disclosures








|         |                        
|-------- | -----------------------
|Item 9A. | Controls and Procedures



41



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##### Table of Contents














|        |                  
|------- | -----------------
|Item 9B | Other Information

None





PART III







|         |                                                   
|-------- | --------------------------------------------------
|Item 10. | Directors and Executive Officers of the Registrant








|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation








|         |                                                                                                   
|-------- | --------------------------------------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial Owners and
    Management and Related Stockholder Matters








|         |                                               
|-------- | ----------------------------------------------
|Item 13. | Certain Relationships and Related Transactions








|         |                                       
|-------- | --------------------------------------
|Item 14. | Principal Accounting Fees and Services



42



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##### Table of Contents






PART IV







|         |                                           
|-------- | ------------------------------------------
|Item 15. | Exhibits and Financial Statement Schedules

Documents filed as part of this report.




|                                                        |  |      |     | 
|------------------------------------------------------- |  | ---- | --- | 
|                                                        |  | Page |    
|                                                        |  |      |    
|Report of Independent Registered Public Accounting Firm |  |      | F-2 | 
|Consolidated Balance Sheets                             |  |      | F-3 | 
|Consolidated Statements of Operations                   |  |      | F-4 | 
|Consolidated Statements of Stockholders Equity         |  |      | F-5 | 
|Consolidated Statements of Cash Flows                   |  |      | F-6 | 
|Notes to Consolidated Financial Statements              |  |      | F-7 | 



|                                                |  |  |      | 
|----------------------------------------------- |  |  | ---- | 
|Schedule II  Valuation and Qualifying Accounts |  |  | F-26 | 





Exhibits.


|        |    |             |  |                                                                                                                                                                     
|------- | -- | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 2  | .1(1)       |  | Asset Purchase Agreement among registrant and Ashford.com, Inc.
    dated December 6, 2002.                                                                         
|       
|        | 3  | .1(1)       |  | Amended and Restated Certificate of Incorporation.                                                                                                                  
|       
|        | 3  | .2(1)       |  | Amended and Restated Bylaws.                                                                                                                                        
|       
|        | 4  | .1(1)       |  | Form of Specimen Stock Certificate.                                                                                                                                 
|       
|        | 4  | .2.1(1)     |  | Investors Rights Agreement dated November 18, 1999 by
    and between the registrant and certain holders of the
    registrants capital stock.                    
|       
|        | 4  | .2.2(1)     |  | Amended and Restated Registration Rights Agreement dated
    March 30, 2004 by and between the registrant and certain
    holders of the registrants capital stock.
|       
|        | 10 | .1.1(1)     |  | Odimo Incorporated Amended and Restated Stock Incentive Plan.                                                                                                       
|       
|        | 10 | .1.2(1)     |  | Form of Stock Option Agreement pursuant to the Odimo
    Incorporated Stock Incentive Plan.                                                                         
|       
|        | 10 | .2(1)       |  | Amended and Restated Series C Convertible Preferred Stock
    Purchase Agreement dated as of March 30, 2004 between the
    registrant and SDG Marketing, Inc.      
|       
|        | 10 | .3.1(1)     |  | Promissory Note dated December 6, 2002 by the registrant in
    favor of GSI Commerce Solutions, Inc.                                                               
|       
|        | 10 | .3.2(1)     |  | Security Agreement dated December 6, 2002 between the
    registrant and GSI Commerce Solutions, Inc., as assignee.                                                 
|       
|        | 10 | .3.3(1)     |  | Patents, Trademarks, Copyrights and Licenses Security Agreement
    dated December 6, 2002 between the registrant and GSI
    Commerce Solutions, Inc., as assignee.
|       
|        | 10 | .4.1(1)     |  | Lease Agreement dated December 14, 1999 between the
    registrant and MDR Fitness Corp.                                                                            
|       
|        | 10 | .4.2(1)     |  | Lease Amendment and Extension Agreement dated January 8,
    2003 between the registrant and MDR Fitness Corp.                                                      
|       
|        | 10 | .5.1(1)     |  | Employment Agreement dated July 12, 2004 between the
    registrant and Alan Lipton.                                                                                
|       
|        | 10 | .5.2(1)     |  | Employment Agreement dated July 12, 2004 between the
    registrant and Jeff Kornblum.                                                                              
|       
|        | 10 | .5.3(1)     |  | Employment Agreement dated July 12, 2004 between the
    registrant and Amerisa Kornblum.                                                                           
|       
|        | 10 | .5.4(1)     |  | Employment Agreement dated July 12, 2004 between the
    registrant and George Grous.                                                                               

43



---



##### Table of Contents



|        |    |          |             |                                                                                                                                                                                           
|------- | -- | -------- | ----------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |          |            
|Number  |    |          | Description
|        |    |          |            
|       
|        | 10 | .5.5(1)  |             | Lock-up Agreement dated July 12, 2004, between the
    registrant and Alan Lipton.                                                                                                        
|       
|        | 10 | .5.6(1)  |             | Lock-up Agreement dated July 12, 2004, between the
    registrant and Jeff Kornblum.                                                                                                      
|       
|        | 10 | .5.7(1)  |             | Lock-up Agreement dated July 12, 2004, between the
    registrant and Amerisa Kornblum.                                                                                                   
|       
|        | 10 | .5.8(1)  |             | Lock-up Agreement dated July 12, 2004, between the
    registrant and George Grous.                                                                                                       
|       
|        | 10 | .5.9(1)  |             | Lock-up Agreement dated July 12, 2004, between the
    registrant and Michael DellArciprete.                                                                                             
|       
|        | 10 | .5.10(1) |             | Amended and Restated Employment Agreement dated August 27,
    2004 between the registrant and Alan Lipton.                                                                               
|       
|        | 10 | .6(1)    |             | Form of Indemnification Agreement between the registrant and
    each of its directors and executive officers.                                                                            
|       
|        | 10 | .7(1)    |             | Supply Agreement dated March 30, 2004 between the
    registrant and SDG Marketing, Inc.                                                                                                  
|       
|        | 10 | .8.1(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.          
|       
|        | 10 | .8.2(1)  |             | 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.          
|       
|        | 10 | .8.3(1)  |             | 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.                              
|       
|        | 10 | .8.4(1)  |             | Unconditional Guaranties dated as of July 31, 2004 of
    Softbank Capital LP, Softbank Capital Partners LP and Softbank
    Capital Advisors Fund LP.                                    
|       
|        | 10 | .9(1)    |             | Commercial Lease dated as of January 1, 2006 between the
    registrant and IBB Realty, LLC.                                                                                              
|       
|        | 10 | .10(1)   |             | 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.
|       
|        | 10 | .11(1)   |             | 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. 
|       
|        | 10 | .12(1)   |             | 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.               
|       
|        | 10 | .13(1)   |             | 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. 
|       
|        | 10 | .14(1)   |             | 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. 
|       
|        | 10 | .15(1)   |             | 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.        
|       
|        | 10 | .16(1)   |             | Confirmation letter dated January 7, 2005 from Softbank
    Capital Partners LP, regarding financial support.                                                                             
|       
|        | 14 | .1(2)    |             | Code of Business Conduct and Ethics.                                                                                                                                                      
|       
|        | 21 | .1(1)    |             | Subsidiaries of Odimo Incorporated.                                                                                                                                                       
|       
|        | 31 | .1(2)    |             | Certification of Chief Executive Officer pursuant to
    Rules 13a-14(a) and 15d-14(a) promulgated pursuant to the
    Securities Exchange Act of 1934, as amended.                       
|       
|        | 31 | .2(2)    |             | Certification of Chief Financial Officer pursuant to
    Rules 13a-14(a) and 15d-14(a) promulgated pursuant to the
    Securities Exchange Act of 1934, as amended.                       
|       
|        | 32 | .1(2)    |             | Certification of Chief Executive Officer pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                   
|       
|        | 32 | .2(2)    |             | Certification of Chief Financial Officer pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                   






|    |                                                                                                                                                                                                                                                                               
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | This exhibit was previously filed as an exhibit to the
    Registration Statement on Form S-1 (File
    No. 333-117400) originally filed with the Securities and
    Exchange Commission on July 16, 2004, as amended
    thereafter, and is incorporated herein by reference.
|   
|(2) | Filed herewith.                                                                                                                                                                                                                                                               

44



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##### Table of Contents






SIGNATURES






| |                   
| | ------------------
| | ODIMO INCORPORATED



| |     |                
| | --- | ---------------
| | By: | /s/ Alan Lipton

| |                                                   
| | --------------------------------------------------
| |                                                   
| | Name: Alan Lipton                                 
| | Title:   President and Chief Executive
    Officer





|                                             |  |                                                                                                             |  |                |  | 
|-------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------- |  | -------------- |  | 
|Name                                         |  | Title                                                                                                       |  | Date          
|                                             |  |                                                                                                             |  |               
|                                            
|/s/ Alan LiptonAlan
    Lipton               |  | President, Chief Executive Officer and Chairman of the Board of
    Directors (Principal Executive Officer) |  | March 30, 2005
|                                            
|/s/ Amerisa KornblumAmerisa
    Kornblum     |  | Chief Financial Officer (Principal Financial and Accounting
    Officer)                                    |  | March 30, 2005
|                                            
|/s/ Sidney FeltensteinSidney
    Feltenstein |  | Director                                                                                                    |  | March 30, 2005
|                                            
|/s/ Eric HippeauEric
    Hippeau             |  | Director                                                                                                    |  | March 30, 2005
|                                            
|/s/ Lior LevinLior
    Levin                 |  | Director                                                                                                    |  | March 30, 2005
|                                            
|/s/ Stanley SternStanley
    Stern           |  | Director                                                                                                    |  | March 30, 2005
|                                            
|/s/ Steven TishmanSteven
    Tishman         |  | Director                                                                                                    |  | March 30, 2005
|                                            
|/s/ Robert VossRobert
    Voss               |  | Director                                                                                                    |  | March 30, 2005

45



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##### Table of Contents



INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


|                                                                                                                          |  |      |      | 
|------------------------------------------------------------------------------------------------------------------------- |  | ---- | ---- | 
|                                                                                                                          |  | Page |     
|                                                                                                                          |  |      |     
|Financial Statements:                                                                                                     |  |      |      | 
|Report of Independent Registered Public
    Accounting Firm                                                               |  |      | F-2  | 
|Consolidated Balance Sheets at
    December 31, 2003 and 2004                                                             |  |      | F-3  | 
|Consolidated Statements of Operations for
    each of the three years in the period ended December 31,
    2004           |  |      | F-4  | 
|Consolidated Statements of
    Stockholders Equity for each of the three years in the
    period ended December 31, 2004 |  |      | F-5  | 
|Consolidated Statements of Cash Flows for
    each of the three years in the period ended December 31,
    2004           |  |      | F-6  | 
|Notes to Consolidated Financial
    Statements                                                                            |  |      | F-7  | 
|Financial Statement Schedule:                                                                                             |  |      |      | 
|Schedule II  Valuation and Qualifying Accounts                                                                           |  |      | F-26 | 



F-1



---



##### Table of Contents






REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM




















F-2



---



##### Table of Contents



ODIMO INCORPORATED AND SUBSIDIARIES





CONSOLIDATED BALANCE SHEETS


|                                          |                                                                                                                                                                                                                                                              |                            |        |         |        |   |        |         |        | 
|----------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | -------------------------- | ------ | ------- | ------ | - | ------ | ------- | ------ | 
|                                          |                                                                                                                                                                                                                                                              | December 31,               |       
|                                          |                                                                                                                                                                                                                                                              |                            |       
|                                          |                                                                                                                                                                                                                                                              | 2004                       |        |         | 2003   |  
|                                          |                                                                                                                                                                                                                                                              |                            |        |         |        |  
|                                          |                                                                                                                                                                                                                                                              | (In thousands, except par  |       
|                                          |                                                                                                                                                                                                                                                              | value)                     |       
|ASSETS                                   
|CURRENT ASSETS:                           |                                                                                                                                                                                                                                                              |                            |        |         |        |   |        |        
|                                          | Cash and cash equivalents                                                                                                                                                                                                                                    |                            | $      | 1,663   |        |   | $      | 5,135   |       
|                                          | Restricted cash                                                                                                                                                                                                                                              |                            |        | 813     |        |   |        | 645     |       
|                                          | Accounts receivable                                                                                                                                                                                                                                          |                            |        | 476     |        |   |        | 372     |       
|                                          | Inventories                                                                                                                                                                                                                                                  |                            |        | 14,321  |        |   |        | 6,006   |       
|                                          | Deposits with vendors                                                                                                                                                                                                                                        |                            |        | 660     |        |   |        | 226     |       
|                                          | Prepaid expenses and other current assets                                                                                                                                                                                                                    |                            |        | 961     |        |   |        | 593     |       
|                                          |                                                                                                                                                                                                                                                              |                            |        |         |        |  
|                                          |                                                                                                                                                                                                                                                              | Total current assets       |        |         | 18,894 |   |        |         | 12,977 | 
|PROPERTY AND EQUIPMENT  net              |                                                                                                                                                                                                                                                              |                            | 5,320  |         |        |   | 2,537  |        
|GOODWILL                                  |                                                                                                                                                                                                                                                              |                            | 9,792  |         |        |   | 9,792  |        
|INTANGIBLE AND OTHER ASSETS  net         |                                                                                                                                                                                                                                                              |                            | 6,504  |         |        |   | 5,325  |        
|                                          |                                                                                                                                                                                                                                                              |                            |        |         |        |  
|TOTAL                                     |                                                                                                                                                                                                                                                              | $                          | 40,510 |         |        | $ | 30,631 |        
|                                          |                                                                                                                                                                                                                                                              |                            |        |         |        |  
|LIABILITIES AND STOCKHOLDERS EQUITY     
|CURRENT LIABILITIES:                      |                                                                                                                                                                                                                                                              |                            |        |         |        |   |        |        
|                                          | Accounts payable                                                                                                                                                                                                                                             |                            | $      | 10,833  |        |   | $      | 7,923   |       
|                                          | Accounts payable to related parties                                                                                                                                                                                                                          |                            |        | 5,691   |        |   |        | 1,055   |       
|                                          | Accrued liabilities                                                                                                                                                                                                                                          |                            |        | 3,499   |        |   |        | 3,319   |       
|                                          | Current portion of stockholder notes                                                                                                                                                                                                                         |                            |        |        |        |   |        | 2,726   |       
|                                          | Bank credit facility                                                                                                                                                                                                                                         |                            |        | 9,282   |        |   |        |        |       
|                                          |                                                                                                                                                                                                                                                              |                            |        |         |        |  
|                                          |                                                                                                                                                                                                                                                              | Total current liabilities  |        |         | 29,305 |   |        |         | 15,023 | 
|STOCKHOLDER NOTES, net of current portion |                                                                                                                                                                                                                                                              |                            |       |         |        |   | 2,700  |        
|                                          |                                                                                                                                                                                                                                                              |                            |        |         |        |  
|                                          |                                                                                                                                                                                                                                                              | Total liabilities          |        |         | 29,305 |   |        |         | 17,723 | 
|                                          |                                                                                                                                                                                                                                                              |                            |        |         |        |  
|COMMITMENTS AND CONTINGENCIES (Note 10)   |                                                                                                                                                                                                                                                              |                            |        |         |        |   |        |        
|STOCKHOLDERS EQUITY:                     |                                                                                                                                                                                                                                                              |                            |        |         |        |   |        |        
|                                          | Convertible preferred stock, $0.001 par value, 2,370 and
    1,796 shares authorized, issued and outstanding at
    December 31, 2004 and 2003, respectively (liquidation value
    of $139,271 and $93,560 at December 31, 2004 and 2003,
    respectively) |                            |        | 3       |        |   |        | 2       |       
|                                          | Common stock, $0.001 par value, 4,800 shares
    authorized at December 31, 2004 and 4,000 shares
    authorized at December 31, 2003; 629 shares issued and
    outstanding at December 31, 2004 and 2003                                                   |                            |        | 1       |        |   |        | 1       |       
|                                          | Additional paid-in capital                                                                                                                                                                                                                                   |                            |        | 80,074  |        |   |        | 69,262  |       
|                                          | Accumulated deficit                                                                                                                                                                                                                                          |                            |        | (68,873 | )      |   |        | (56,357 | )     
|                                          |                                                                                                                                                                                                                                                              |                            |        |         |        |  
|                                          |                                                                                                                                                                                                                                                              | Total stockholders equity |        |         | 11,205 |   |        |         | 12,908 | 
|                                          |                                                                                                                                                                                                                                                              |                            |        |         |        |  
|TOTAL                                     |                                                                                                                                                                                                                                                              | $                          | 40,510 |         |        | $ | 30,631 |        
|                                          |                                                                                                                                                                                                                                                              |                            |        |         |        |  



F-3



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##### Table of Contents



ODIMO INCORPORATED AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF OPERATIONS


|                                                               |                               |                                       |         |        |      |   |         |        |   |   |         |        |  
|-------------------------------------------------------------- | ----------------------------- | ------------------------------------- | ------- | ------ | ---- | - | ------- | ------ | - | - | ------- | ------ | -
|                                                               |                               | Year Ended December 31,               |        
|                                                               |                               |                                       |        
|                                                               |                               | 2004                                  |         |        | 2003 |   |         | 2002   |  
|                                                               |                               |                                       |         |        |      |   |         |        |  
|                                                               |                               | (In thousands, except per share data) |        
|NET SALES                                                      |                               | $                                     | 52,244  |        |      | $ | 41,694  |        |   | $ | 27,520  |       
|COST OF SALES                                                  |                               |                                       | 37,141  |        |      |   | 29,945  |        |   |   | 19,932  |       
|                                                               |                               |                                       |         |        |      |   |         |        |  
|                                                               | Gross profit                  |                                       |         | 15,103 |      |   |         | 11,749 |   |   |         | 7,588  |  
|                                                               |                               |                                       |         |        |      |   |         |        |  
|OPERATING EXPENSES:                                            |                               |                                       |         |        |      |   |         |        |   |   |         |       
|                                                               | Fulfillment(1)                |                                       |         | 3,516  |      |   |         | 2,589  |   |   |         | 1,830  |  
|                                                               | Marketing(1)                  |                                       |         | 6,629  |      |   |         | 3,709  |   |   |         | 2,179  |  
|                                                               | General and administrative(1) |                                       |         | 14,140 |      |   |         | 8,463  |   |   |         | 7,240  |  
|                                                               | Depreciation and amortization |                                       |         | 2,749  |      |   |         | 3,024  |   |   |         | 2,529  |  
|                                                               |                               |                                       |         |        |      |   |         |        |  
|Total operating expenses                                       |                               |                                       | 27,034  |        |      |   | 17,785  |        |   |   | 13,778  |       
|                                                               |                               |                                       |         |        |      |   |         |        |  
|LOSS FROM OPERATIONS                                           |                               |                                       | (11,931 | )      |      |   | (6,036  | )      |   |   | (6,190  | )     
|INTEREST INCOME (EXPENSE), Net                                 |                               |                                       | (585    | )      |      |   | (1,107  | )      |   |   | 1       |       
|                                                               |                               |                                       |         |        |      |   |         |        |  
|NET LOSS                                                       |                               |                                       | (12,516 | )      |      |   | (7,143  | )      |   |   | (6,189  | )     
|DIVIDENDS TO PREFERRED STOCKHOLDERS                            |                               |                                       | (15,378 | )      |      |   | (4,519  | )      |   |   | (4,047  | )     
|                                                               |                               |                                       |         |        |      |   |         |        |  
|NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS                   |                               | $                                     | (27,894 | )      |      | $ | (11,662 | )      |   | $ | (10,236 | )     
|                                                               |                               |                                       |         |        |      |   |         |        |  
|Net loss per common share attributable to common stockholders: |                               |                                       |         |        |      |   |         |        |   |   |         |       
|                                                               | Basic and diluted             |                                       | $       | (44.35 | )    |   | $       | (18.54 | ) |   | $       | (16.30 | )
|                                                               |                               |                                       |         |        |      |   |         |        |  
|Weighted average number of shares:                             |                               |                                       |         |        |      |   |         |        |   |   |         |       
|                                                               | Basic and diluted             |                                       |         | 629    |      |   |         | 629    |   |   |         | 628    |  
|                                                               |                               |                                       |         |        |      |   |         |        |  






|    |                                                                                
|--- | -------------------------------------------------------------------------------
|(1) | Non-cash stock-based compensation included in these amounts are
    as follows:

|                           |  |   |       |  |  |   |   |  |  |   |    | 
|-------------------------- |  | - | ----- |  |  | - | - |  |  | - | -- | 
|Fulfillment                |  | $ |      |  |  | $ |  |  |  | $ |   | 
|Marketing                  |  |   |      |  |  |   |  |  |  |   |   | 
|General and administrative |  |   | 4,689 |  |  |   | 2 |  |  |   | 39 | 
|                           |  |   |       |  |  |   |   |  | 
|                           |  | $ | 4,689 |  |  | $ | 2 |  |  | $ | 39 | 
|                           |  |   |       |  |  |   |   |  | 



F-4



---



##### Table of Contents



ODIMO INCORPORATED AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY


|                            |                                                                                              |                |       |     |        |   |   |            |     |  |          |         |  |         |             |       |              |             |        |         |               |   |        |    |  |   |         |         |   |   |        |         |  
|--------------------------- | -------------------------------------------------------------------------------------------- | -------------- | ----- | --- | ------ | - | - | ---------- | --- |  | -------- | ------- |  | ------- | ----------- | ----- | ------------ | ----------- | ------ | ------- | ------------- | - | ------ | -- |  | - | ------- | ------- | - | - | ------ | ------- | -
|                            |                                                                                              | Preferred      |       |     | Common |   |   |            |     |  |          |         |  |        
|                            |                                                                                              | Stocks         |       |     | Stock  |   |   |            |     |  |          |         |  |        
|                            |                                                                                              |                |       |     |        |   |   | Additional |     |  | Deferred |         |  |         |             | Total |             
|                            |                                                                                              |                |       | Par |        |   |   |            | Par |  |          | Paid-In |  |         | Stock-Based |       |              | Accumulated |        |         | Stockholders |  
|                            |                                                                                              | Shares         |       |     | Value  |   |   | Shares     |     |  | Value    |         |  | Capital |             |       | Compensation |             |        | Deficit |               |   | Equity |   
|                            |                                                                                              |                |       |     |        |   |   |            |     |  |          |         |  |         |             |       |              |             |        |         |               |   |        |   
|                            |                                                                                              | (In thousands) |      
|BALANCE  December 31, 2001 |                                                                                              |                | 1,116 |     |        | $ | 1 |            |     |  | 625      |         |  | $       | 1           |       |              | $           | 65,231 |         |               | $ | (41    | )  |  | $ | (43,025 | )       |   | $ | 22,167 |        
|                            | Amortization of deferred stock-based compensation                                            |                |       |     |        |   |   |            |     |  |          |         |  |         |             |       |              |             |        |         |               |   |        | 39 |  |   |         |         |   |   |        | 39      |  
|                            | Issuance of warrants                                                                         |                |       |     |        |   |   |            |     |  |          |         |  |         |             |       |              |             |        | 375     |               |   |        |    |  |   |         |         |   |   |        | 375     |  
|                            | Issuance of common stock                                                                     |                |       |     |        |   |   |            |     |  |          | 4       |  |         |             |       |              |             |        | 35      |               |   |        |    |  |   |         |         |   |   |        | 35      |  
|                            | Issuance of convertible preferred stock and warrants                                         |                |       | 624 |        |   |   | 1          |     |  |          |         |  |         |             |       |              |             |        | 2,685   |               |   |        |    |  |   |         |         |   |   |        | 2,686   |  
|                            | Net loss                                                                                     |                |       |     |        |   |   |            |     |  |          |         |  |         |             |       |              |             |        |         |               |   |        |    |  |   |         | (6,189  | ) |   |        | (6,189  | )
|                            |                                                                                              |                |       |     |        |   |   |            |     |  |          |         |  |         |             |       |              |             |        |         |               |   |        |   
|BALANCE  December 31, 2002 |                                                                                              |                | 1,740 |     |        |   | 2 |            |     |  | 629      |         |  |         | 1           |       |              |             | 68,326 |         |               |   | (2     | )  |  |   | (49,214 | )       |   |   | 19,113 |        
|                            | Amortization of deferred stock-based compensation                                            |                |       |     |        |   |   |            |     |  |          |         |  |         |             |       |              |             |        |         |               |   |        | 2  |  |   |         |         |   |   |        | 2       |  
|                            | Issuance of convertible preferred stock and warrants                                         |                |       | 56  |        |   |   |            |     |  |          |         |  |         |             |       |              |             |        | 500     |               |   |        |    |  |   |         |         |   |   |        | 500     |  
|                            | Issuance of warrants                                                                         |                |       |     |        |   |   |            |     |  |          |         |  |         |             |       |              |             |        | 436     |               |   |        |    |  |   |         |         |   |   |        | 436     |  
|                            | Net loss                                                                                     |                |       |     |        |   |   |            |     |  |          |         |  |         |             |       |              |             |        |         |               |   |        |    |  |   |         | (7,143  | ) |   |        | (7,143  | )
|                            |                                                                                              |                |       |     |        |   |   |            |     |  |          |         |  |         |             |       |              |             |        |         |               |   |        |   
|BALANCE  December 31, 2003 |                                                                                              |                | 1,796 |     |        |   | 2 |            |     |  | 629      |         |  |         | 1           |       |              |             | 69,262 |         |               |   |       |    |  |   | (56,357 | )       |   |   | 12,908 |        
|                            | Issuance of stock options to employees                                                       |                |       |     |        |   |   |            |     |  |          |         |  |         |             |       |              |             |        | 4,689   |               |   |        |    |  |   |         |         |   |   |        | 4,689   |  
|                            | Issuance of convertible preferred stock                                                      |                |       | 269 |        |   |   |            |     |  |          |         |  |         |             |       |              |             |        | 7,030   |               |   |        |    |  |   |         |         |   |   |        | 7,030   |  
|                            | Issuance of convertible preferred stock and warrants in
    connection with exchange of debt |                |       | 305 |        |   |   | 1          |     |  |          |         |  |         |             |       |              |             |        | 8,785   |               |   |        |    |  |   |         |         |   |   |        | 8,786   |  
|                            | Dividends to preferred stockholders                                                          |                |       |     |        |   |   |            |     |  |          |         |  |         |             |       |              |             |        | (9,692  | )             |   |        |    |  |   |         |         |   |   |        | (9,692  | )
|                            | Net loss                                                                                     |                |       |     |        |   |   |            |     |  |          |         |  |         |             |       |              |             |        |         |               |   |        |    |  |   |         | (12,516 | ) |   |        | (12,516 | )
|                            |                                                                                              |                |       |     |        |   |   |            |     |  |          |         |  |         |             |       |              |             |        |         |               |   |        |   
|BALANCE December 31, 2004   |                                                                                              |                | 2,370 |     |        | $ | 3 |            |     |  | 629      |         |  | $       | 1           |       |              | $           | 80,074 |         |               | $ |       |    |  | $ | (68,873 | )       |   | $ | 11,205 |        
|                            |                                                                                              |                |       |     |        |   |   |            |     |  |          |         |  |         |             |       |              |             |        |         |               |   |        |   



F-5



---



##### Table of Contents



ODIMO INCORPORATED AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF CASH FLOWS


|                                                                          |                                                                                                                     |                                                       |                                                     |         |        |        |        |        |        |      |        |        |        |        |  
|------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------- | --------------------------------------------------- | ------- | ------ | ------ | ------ | ------ | ------ | ---- | ------ | ------ | ------ | ------ | -
|                                                                          |                                                                                                                     | Years Ended December 31,                              |                                                    
|                                                                          |                                                                                                                     |                                                       |                                                    
|                                                                          |                                                                                                                     | 2004                                                  |                                                     |         | 2003   |        |        | 2002   |       
|                                                                          |                                                                                                                     |                                                       |                                                     |         |        |        |        |        |       
|                                                                          |                                                                                                                     | (In thousands)                                        |                                                    
|OPERATING ACTIVITIES:                                                     |                                                                                                                     |                                                       |                                                     |         |        |        |        |        |        |      |        |       
|                                                                          | Net loss                                                                                                            |                                                       | $                                                   | (12,516 | )      |        | $      | (7,143 | )      |      | $      | (6,189 | )     
|                                                                          | Adjustments to reconcile net loss to net cash (used in) provided
    by operating activities:                       |                                                       |                                                     |         |        |        |        |        |        |      |        |        |       
|                                                                          |                                                                                                                     | Depreciation and amortization                         |                                                     |         | 2,749  |        |        |        | 3,024  |      |        |        | 2,529  |       
|                                                                          |                                                                                                                     | (Gain) loss on disposal of property and equipment     |                                                     |         | (3     | )      |        |        | 12     |      |        |        |        |       
|                                                                          |                                                                                                                     | Stock-based compensation                              |                                                     |         | 4,689  |        |        |        | 2      |      |        |        | 39     |       
|                                                                          |                                                                                                                     | Amortization of supply agreement                      |                                                     |         | 84     |        |        |        | 61     |      |        |        | 162    |       
|                                                                          |                                                                                                                     | Amortization of discount on stockholder notes         |                                                     |         | 174    |        |        |        | 608    |      |        |        | 29     |       
|                                                                          | Changes in operating assets and liabilities:                                                                        |                                                       |                                                     |         |        |        |        |        |        |      |        |        |       
|                                                                          |                                                                                                                     | Increase in restricted cash                           |                                                     |         | (168   | )      |        |        | (235   | )    |        |        | (42    | )     
|                                                                          |                                                                                                                     | (Increase) decrease in accounts receivable            |                                                     |         | (104   | )      |        |        | (285   | )    |        |        | 247    |       
|                                                                          |                                                                                                                     | (Increase) decrease in inventories                    |                                                     |         | (8,315 | )      |        |        | (1,548 | )    |        |        | 1,623  |       
|                                                                          |                                                                                                                     | Increase in deposits with vendors                     |                                                     |         | (434   | )      |        |        | (181   | )    |        |        | (45    | )     
|                                                                          |                                                                                                                     | Increase in prepaid expenses and other current assets |                                                     |         | (192   | )      |        |        | (184   | )    |        |        | (233   | )     
|                                                                          |                                                                                                                     | (Decrease) increase in other assets                   |                                                     |         | (2,625 | )      |        |        | (1     | )    |        |        | 15     |       
|                                                                          |                                                                                                                     | Increase (decrease) in accounts payable               |                                                     |         | 2,909  |        |        |        | 4,517  |      |        |        | (1,889 | )     
|                                                                          |                                                                                                                     | Increase in accounts payable to related parties       |                                                     |         | 4,636  |        |        |        | 453    |      |        |        | 602    |       
|                                                                          |                                                                                                                     | Increase in accrued liabilities                       |                                                     |         | 180    |        |        |        | 1,628  |      |        |        | 161    |       
|                                                                          |                                                                                                                     |                                                       |                                                     |         |        |        |        |        |       
|                                                                          |                                                                                                                     |                                                       | Net cash (used in) provided by operating activities |         |        | (8,936 | )      |        |        | 728  |        |        |        | (2,991 | )
|                                                                          |                                                                                                                     |                                                       |                                                     |         |        |        |        |        |       
|INVESTING ACTIVITIES                                                     |                                                                                                                     |                                                       |                                                     |         |        |        |        |        |        |      |        |       
|                                                                          | Purchase of property and equipment                                                                                  |                                                       |                                                     | (3,698  | )      |        |        | (1,694 | )      |      |        | (723   | )     
|                                                                          |                                                                                                                     |                                                       |                                                     |         |        |        |        |        |       
|FINANCING ACTIVITIES:                                                     |                                                                                                                     |                                                       |                                                     |         |        |        |        |        |        |      |        |       
|                                                                          | Proceeds from stockholder notes                                                                                     |                                                       |                                                     |         |        |        |        | 3,000  |        |      |        | 2,000  |       
|                                                                          | Payments on stockholder notes                                                                                       |                                                       |                                                     | (2,870  | )      |        |        | (3,900 | )      |      |        |        |       
|                                                                          | Net borrowings under bank credit facility                                                                           |                                                       |                                                     | 9,282   |        |        |        |        |        |      |        |        |       
|                                                                          | Proceeds from issuance of convertible preferred stock and
    warrants                                              |                                                       |                                                     | 2,750   |        |        |        | 500    |        |      |        |        |       
|                                                                          | Proceeds from issuance of common stock                                                                              |                                                       |                                                     |         |        |        |        |        |        |      |        | 35     |       
|                                                                          |                                                                                                                     |                                                       |                                                     |         |        |        |        |        |       
|                                                                          |                                                                                                                     |                                                       | Net cash provided by (used in) financing activities |         |        | 9,162  |        |        |        | (400 | )      |        |        | 2,035  |  
|                                                                          |                                                                                                                     |                                                       |                                                     |         |        |        |        |        |       
|DECREASE IN CASH AND CASH EQUIVALENTS                                     |                                                                                                                     |                                                       | (3,472                                              | )       |        |        | (1,366 | )      |        |      | (1,679 | )     
|CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                              |                                                                                                                     |                                                       | 5,135                                               |         |        |        | 6,501  |        |        |      | 8,180  |       
|                                                                          |                                                                                                                     |                                                       |                                                     |         |        |        |        |        |       
|CASH AND CASH EQUIVALENTS, END OF YEAR                                    |                                                                                                                     | $                                                     | 1,663                                               |         |        | $      | 5,135  |        |        | $    | 6,501  |       
|                                                                          |                                                                                                                     |                                                       |                                                     |         |        |        |        |        |       
|SUPPLEMENTAL SCHEDULE OF NON-CASH ACTIVITIES:                             |                                                                                                                     |                                                       |                                                     |         |        |        |        |        |        |      |        |       
|                                                                          | Interest paid                                                                                                       |                                                       | $                                                   | 372     |        |        | $      | 379    |        |      | $      |       |       
|                                                                          |                                                                                                                     |                                                       |                                                     |         |        |        |        |        |       
|SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING
    ACTIVITIES: |                                                                                                                     |                                                       |                                                     |         |        |        |        |        |        |      |        |       
|                                                                          | Issuance of convertible preferred stock and warrants in asset
    purchase                                          |                                                       |                                                     |         |        |        |        |        |        |      | $      | 2,686  |       
|                                                                          |                                                                                                                     |                                                       |                                                     |         |        |        |        |        |       
|                                                                          | Issuance of notes in asset purchase                                                                                 |                                                       |                                                     |         |        |        |        |        |        |      | $      | 4,500  |       
|                                                                          |                                                                                                                     |                                                       |                                                     |         |        |        |        |        |       
|                                                                          | Issuance of warrants to purchase convertible preferred stock                                                        |                                                       |                                                     |         |        |        | $      | 436    |        |      | $      | 375    |       
|                                                                          |                                                                                                                     |                                                       |                                                     |         |        |        |        |        |       
|                                                                          | Exchange of stockholder notes (including accrued interest of
    $211) for convertible preferred stock and warrants |                                                       | $                                                   | 2,996   |        |        |        |        |        |      |        |        |       
|                                                                          |                                                                                                                     |                                                       |                                                     |         |        |        |        |        |       
|                                                                          | Fair value of supply agreement                                                                                      |                                                       | $                                                   | 433     |        |        |        |        |        |      |        |        |       
|                                                                          |                                                                                                                     |                                                       |                                                     |         |        |        |        |        |       



F-6



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##### Table of Contents



ODIMO INCORPORATED AND SUBSIDIARIES





Notes to Consolidated Financial Statements




|   |        
|-- | -------
|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


Concentration of Risk




Other Risks


Cash and Cash Equivalents


F-7



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##### Table of Contents



ODIMO INCORPORATED AND SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)


Restricted Cash


Accounts Receivable


Inventories


Deposits with Vendors


Property and Equipment


Software and Website Development Costs Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use Accounting for Web Site Development Costs.


Long-Lived Assets


Goodwill


Goodwill and Other Intangible
Assets


F-8



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##### Table of Contents



ODIMO INCORPORATED AND SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)




Intangible Assets


Warranty Costs


Fair Value of Financial Instruments


Revenue Recognition Reporting Revenue Gross as a Principal versus Net as
an Agent,




Cost of Sales


Fulfillment Expenses


Marketing Expenses


F-9



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##### Table of Contents



ODIMO INCORPORATED AND SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)




General and Administrative Expenses


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




|                                                                                               |                                 |                         |         |        |      |   |         |        |   |   |         |        |  
|---------------------------------------------------------------------------------------------- | ------------------------------- | ----------------------- | ------- | ------ | ---- | - | ------- | ------ | - | - | ------- | ------ | -
|                                                                                               |                                 | Year Ended December 31, |        
|                                                                                               |                                 |                         |        
|                                                                                               |                                 | 2004                    |         |        | 2003 |   |         | 2002   |  
|                                                                                               |                                 |                         |         |        |      |   |         |        |  
|Net loss attributable to common stockholders, as reported                                      |                                 | $                       | (27,894 | )      |      | $ | (11,662 | )      |   | $ | (10,236 | )     
|Add: Stock-based compensation expense, as reported                                             |                                 |                         | 4,689   |        |      |   | 2       |        |   |   | 39      |       
|Deduct: Stock-based employee compensation expense determined
    under fair-value-based method |                                 |                         | (5,615  | )      |      |   | (76     | )      |   |   | (406    | )     
|                                                                                               |                                 |                         |         |        |      |   |         |        |  
|Pro forma net loss                                                                             |                                 | $                       | (28,820 | )      |      | $ | (11,736 | )      |   | $ | (10,603 | )     
|                                                                                               |                                 |                         |         |        |      |   |         |        |  
|Net loss per share:                                                                            |                                 |                         |         |        |      |   |         |        |   |   |         |       
|                                                                                               | Basic and diluted  as reported |                         | $       | (44.35 | )    |   | $       | (18.54 | ) |   | $       | (16.30 | )
|                                                                                               |                                 |                         |         |        |      |   |         |        |  
|                                                                                               | Basic and diluted  pro forma   |                         | $       | (45.82 | )    |   | $       | (18.66 | ) |   | $       | (16.88 | )
|                                                                                               |                                 |                         |         |        |      |   |         |        |  

F-10



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##### Table of Contents



ODIMO INCORPORATED AND SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)




|                        |  |              |      |   |      |  |      |      |  |  |      |  
|----------------------- |  | ------------ | ---- | - | ---- |  | ---- | ---- |  |  | ---- | -
|                        |  | Year Ended   |     
|                        |  | December 31, |     
|                        |  |              |     
|                        |  | 2004         |      |   | 2003 |  |      | 2002 | 
|                        |  |              |      |   |      |  |      |      | 
|Dividend yields         |  |              | 0    | % |      |  | 0    | %    |  |  | 0    | %
|Volatility              |  |              | 70   | % |      |  | 70   | %    |  |  | 70   | %
|Risk-free interest rate |  |              | 3.69 | % |      |  | 2.87 | %    |  |  | 3.03 | %
|Expected life (years)   |  |              | 5    |   |      |  | 5    |      |  |  | 5    |  

Share-Based Payment.




Income Taxes Accounting for Income Taxes.


Loss Per Share




F-11



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##### Table of Contents



ODIMO INCORPORATED AND SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)




Segments


Stock Splits


New Accounting Pronouncement Consolidation of Variable Interest Entities




|   |               
|-- | --------------
|3. | ASSET PURCHASE

www.ashford.com e.g., www.ashford.com




F-12



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##### Table of Contents



ODIMO INCORPORATED AND SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)








|   |            
|-- | -----------
|4. | INVENTORIES



|                  |  |              |        |  |      |   |       | 
|----------------- |  | ------------ | ------ |  | ---- | - | ----- | 
|                  |  | December 31, |       
|                  |  |              |       
|                  |  | 2004         |        |  | 2003 |  
|                  |  |              |        |  |      |  
|Diamonds          |  | $            | 5,488  |  |      | $ | 621   | 
|Fine jewelry      |  |              | 2,967  |  |      |   | 1,465 | 
|Watches           |  |              | 3,344  |  |      |   | 2,759 | 
|Luxury goods      |  |              | 2,522  |  |      |   | 1,161 | 
|                  |  |              |        |  |      |  
|Total inventories |  | $            | 14,321 |  |      | $ | 6,006 | 
|                  |  |              |        |  |      |  



|   |                       
|-- | ----------------------
|5. | PROPERTY AND EQUIPMENT



|                                  |  |              |   |  |              |   |        |      |  |   |        |  
|--------------------------------- |  | ------------ | - |  | ------------ | - | ------ | ---- |  | - | ------ | -
|                                  |  | Estimated    |   |  | December 31, |  
|                                  |  | Useful Lives |   |  |              |  
|                                  |  | (In Years)   |   |  | 2004         |   |        | 2003 | 
|                                  |  |              |   |  |              |   |        |      | 
|Computers, software and equipment |  |              | 3 |  |              | $ | 9,049  |      |  | $ | 6,671  |  
|Leasehold improvements            |  |              | 4 |  |              |   | 1,066  |      |  |   | 813    |  
|Furniture and fixtures            |  |              | 5 |  |              |   | 598    |      |  |   | 497    |  
|Automobiles                       |  |              | 4 |  |              |   |       |      |  |   | 50     |  
|                                  |  |              |   |  |              |   |        |      | 
|                                  |  |              |   |  |              |   | 10,713 |      |  |   | 8,031  |  
|Less: accumulated depreciation    |  |              |   |  |              |   | (6,737 | )    |  |   | (5,824 | )
|                                  |  |              |   |  |              |   |        |      | 
|                                  |  |              |   |  |              |   | 3,976  |      |  |   | 2,207  |  
|Software development in process   |  |              |   |  |              |   | 1,344  |      |  |   | 330    |  
|                                  |  |              |   |  |              |   |        |      | 
|Property and equipment  net      |  |              |   |  |              | $ | 5,320  |      |  | $ | 2,537  |  
|                                  |  |              |   |  |              |   |        |      | 





F-13



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##### Table of Contents



ODIMO INCORPORATED AND SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)




|   |                            
|-- | ---------------------------
|6. | INTANGIBLE AND OTHER ASSETS



|                               |                            |              |        |       |      |   |        |       | 
|------------------------------ | -------------------------- | ------------ | ------ | ----- | ---- | - | ------ | ----- | 
|                               |                            | December 31, |       
|                               |                            |              |       
|                               |                            | 2004         |        |       | 2003 |  
|                               |                            |              |        |       |      |  
|Marketing-related:             |                            |              |        |       |      |   |        |      
|                               | www.diamond.comdomain name |              | $      | 2,137 |      |   | $      | 2,137 | 
|                               | www.ashford.comdomain name |              |        | 7,186 |      |   |        | 7,186 | 
|                               | Affinity phone number      |              |        | 288   |      |   |        | 288   | 
|Inventory-related:             |                            |              |        |       |      |   |        |      
|                               | 2000 Supply Agreement      |              |        |      |      |   |        | 1,616 | 
|                               | 2004 Supply Agreement      |              |        | 433   |      |   |        |      | 
|                               |                            |              |        |       |      |  
|                               |                            |              | 10,044 |       |      |   | 11,227 |      
|Less: accumulated amortization |                            |              | (6,252 | )     |      |   | (5,983 | )    
|                               |                            |              |        |       |      |  
|Intangibles  net              |                            |              | 3,792  |       |      |   | 5,244  |      
|Other assets                   |                            |              | 2,712  |       |      |   | 81     |      
|                               |                            |              |        |       |      |  
|Total                          |                            | $            | 6,504  |       |      | $ | 5,325  |      
|                               |                            |              |        |       |      |  



www.diamond.com






|     |  |           |       |  |           |   |     |       |  |   |       | 
|---- |  | --------- | ----- |  | --------- | - | --- | ----- |  | - | ----- | 
|     |  | Marketing |       |  | Inventory |   |     |      
|Year |  | Related   |       |  | Related   |   |     | Total | 
|     |  |           |       |  |           |   |     |       | 
|2005 |  | $         | 1,796 |  |           | $ | 145 |       |  | $ | 1,941 | 
|2006 |  |           | 1,648 |  |           |   | 145 |       |  |   | 1,793 | 
|2007 |  |           |      |  |           |   | 58  |       |  |   | 58    | 
|     |  |           |       |  |           |   |     |       | 
|     |  | $         | 3,444 |  |           | $ | 348 |       |  | $ | 3,792 | 
|     |  |           |       |  |           |   |     |       | 



|   |                     
|-- | --------------------
|7. | BANK CREDIT FACILITY



F-14



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##### Table of Contents



ODIMO INCORPORATED AND SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)












|   |                  
|-- | -----------------
|8. | STOCKHOLDER NOTES





F-15



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##### Table of Contents



ODIMO INCORPORATED AND SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)




|                           |       |   |        |       | 
|-------------------------- | ----- | - | ------ | ----- | 
|Stockholder notes          |       | $ | 5,600  |      
|Less: Unamortized discount |       |   | (174   | )    
|                           |       |   |       
|                           |       |   | 5,426  |      
|Less: Current portion      |       |   | (2,726 | )    
|                           |       |   |       
|                           | Total |   | $      | 2,700 | 
|                           |       |   |       









|   |             
|-- | ------------
|9. | INCOME TAXES



|                               |                          |        |        |       |      |  |       |        |  |   |        |       |  |        |       |      |      |   |        |       |  |  |       |      | 
|------------------------------ | ------------------------ | ------ | ------ | ----- | ---- |  | ----- | ------ |  | - | ------ | ----- |  | ------ | ----- | ---- | ---- | - | ------ | ----- |  |  | ----- | ---- | 
|                               |                          | 2004   |        |       | 2003 |  |       | 2002   | 
|                               |                          |        |        |       |      |  |       |        | 
|                               |                          | Amount |        |       | Rate |  |       | Amount |  |   | Rate   |       |  | Amount |       |      | Rate |  
|                               |                          |        |        |       |      |  |       |        |  |   |        |       |  |        |       |      |      |  
|Income taxes at statutory rate |                          |        | (4,255 | )     |      |  | (34.0 | )%     |  | $ | (2,429 | )     |  |        | (34.0 | )%   |      | $ | (2,104 | )     |  |  | (34.0 | )%  
|Increase in taxes:             |                          |        |        |       |      |  |       |        |  |   |        |       |  |        |       |      |      |   |        |       |  |  |       |     
|                               | Penalties and fines      |        |        | 1     |      |  |       | 0.0    |  |   |        | 1     |  |        |       | 0.0  |      |   |        | 118   |  |  |       | 1.9  | 
|                               | Meals and entertainment  |        |        | 29    |      |  |       | 0.2    |  |   |        | 9     |  |        |       | 0.1  |      |   |        | 11    |  |  |       | 0.2  | 
|                               | Stock-based compensation |        |        | 1,594 |      |  |       | 12.7   |  |   |        |      |  |        |       |     |      |   |        |      |  |  |       |     | 
|                               | Other                    |        |        | 3     |      |  |       | 0.0    |  |   |        | 2     |  |        |       | 0.0  |      |   |        | 1     |  |  |       | 0.0  | 
|                               | Valuation allowance      |        |        | 2,628 |      |  |       | 21.1   |  |   |        | 2,417 |  |        |       | 33.9 |      |   |        | 1,974 |  |  |       | 31.9 | 
|                               |                          |        |        |       |      |  |       |        |  |   |        |       |  |        |       |      |      |  
|                               |                          | $      |       |       |      |  |      | %      |  | $ |       |       |  |        |      | %    |      | $ |       |       |  |  |      | %   
|                               |                          |        |        |       |      |  |       |        |  |   |        |       |  |        |       |      |      |  

F-16



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##### Table of Contents



ODIMO INCORPORATED AND SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)




|                                   |             |                                  |         |   |        |   |         |   |        | 
|---------------------------------- | ----------- | -------------------------------- | ------- | - | ------ | - | ------- | - | ------ | 
|                                   |             | December 31,                     |        
|                                   |             |                                  |        
|                                   |             | 2004                             |         |   | 2003   |  
|                                   |             |                                  |         |   |        |  
|Deferred tax assets (liabilities): |             |                                  |         |   |        |   |         |  
|                                   | Noncurrent: |                                  |         |   |        |   |         |   |       
|                                   |             | Net operating loss carryforwards |         | $ | 18,715 |   |         | $ | 16,293 | 
|                                   |             | Property and equipment           |         |   | (141   | ) |         |   | 231    | 
|                                   |             | Intangible assets                |         |   | 2,334  |   |         |   | 1,771  | 
|                                   |             |                                  |         |   |        |  
|Gross deferred tax assets          |             |                                  | 20,908  |   |        |   | 18,295  |  
|Valuation allowance                |             |                                  | (20,908 | ) |        |   | (18,295 | )
|                                   |             |                                  |         |   |        |  
|Net deferred tax assets            |             | $                                |        |   |        | $ |        |  
|                                   |             |                                  |         |   |        |  





|    |                              
|--- | -----------------------------
|10. | COMMITMENTS AND CONTINGENCIES

Leases


|                       |  |        |       | 
|---------------------- |  | ------ | ----- | 
|Year                   |  | Amount |      
|                       |  |        |      
|2005                   |  | $      | 289   | 
|2006                   |  |        | 243   | 
|2007                   |  |        | 243   | 
|2008                   |  |        | 243   | 
|2009 and thereafter    |  |        | 488   | 
|                       |  |        |      
|Total minimum payments |  | $      | 1,506 | 
|                       |  |        |      



Litigation


F-17



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##### Table of Contents



ODIMO INCORPORATED AND SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)






Employment Agreements




|    |                            
|--- | ---------------------------
|11. | CONVERTIBLE PREFERRED STOCK





|         |  |                   |       |            |             |  |          |       |  |   |         |  |  |            |        |  |             |  |       |  |  |   |         | 
|-------- |  | ----------------- | ----- | ---------- | ----------- |  | -------- | ----- |  | - | ------- |  |  | ---------- | ------ |  | ----------- |  | ----- |  |  | - | ------- | 
|         |  | December 31, 2004 |      
|         |  |                   |      
|         |  |                   |       | Common     |             |  |         
|         |  |                   |       | Shares     |             |  |         
|         |  |                   |       | Additional |             |  | Issuable |       |  |  
|         |  | Authorized        |       |            | Shares      |  |          | Par   |  |   | Paid-In |  |  | Upon       |        |  | Liquidation | 
|         |  | Shares            |       |            | Outstanding |  |          | Value |  |   | Capital |  |  | Conversion |        |  | Value       | 
|         |  |                   |       |            |             |  |          |       |  |   |         |  |  |            |        |  |             | 
|Series A |  |                   | 186   |            |             |  | 186      |       |  | $ |        |  |  | $          | 6,678  |  |             |  | 933   |  |  | $ | 6,700   | 
|Series B |  |                   | 514   |            |             |  | 514      |       |  |   | 1       |  |  |            | 36,250 |  |             |  | 551   |  |  |   | 50,441  | 
|Series C |  |                   | 1,046 |            |             |  | 1,046    |       |  |   | 1       |  |  |            | 29,718 |  |             |  | 1,046 |  |  |   | 77,843  | 
|Series D |  |                   | 624   |            |             |  | 624      |       |  |   | 1       |  |  |            | 1,756  |  |             |  | 624   |  |  |   | 4,287   | 
|         |  |                   |       |            |             |  |          |       |  |   |         |  |  |            |        |  |             | 
|         |  |                   | 2,370 |            |             |  | 2,370    |       |  | $ | 3       |  |  | $          | 74,402 |  |             |  | 3,154 |  |  | $ | 139,271 | 
|         |  |                   |       |            |             |  |          |       |  |   |         |  |  |            |        |  |             | 

F-18



---



##### Table of Contents



ODIMO INCORPORATED AND SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)


|         |  |                   |       |            |             |  |          |       |  |   |         |  |  |            |        |  |             |  |       |  |  |   |        | 
|-------- |  | ----------------- | ----- | ---------- | ----------- |  | -------- | ----- |  | - | ------- |  |  | ---------- | ------ |  | ----------- |  | ----- |  |  | - | ------ | 
|         |  | December 31, 2003 |      
|         |  |                   |      
|         |  |                   |       | Common     |             |  |         
|         |  |                   |       | Shares     |             |  |         
|         |  |                   |       | Additional |             |  | Issuable |       |  |  
|         |  | Authorized        |       |            | Shares      |  |          | Par   |  |   | Paid-In |  |  | Upon       |        |  | Liquidation | 
|         |  | Shares            |       |            | Outstanding |  |          | Value |  |   | Capital |  |  | Conversion |        |  | Value       | 
|         |  |                   |       |            |             |  |          |       |  |   |         |  |  |            |        |  |             | 
|Series A |  |                   | 186   |            |             |  | 186      |       |  | $ |        |  |  | $          | 6,678  |  |             |  | 933   |  |  | $ | 6,700  | 
|Series B |  |                   | 514   |            |             |  | 514      |       |  |   | 1       |  |  |            | 36,250 |  |             |  | 551   |  |  |   | 47,541 | 
|Series C |  |                   | 472   |            |             |  | 472      |       |  |   |        |  |  |            | 14,692 |  |             |  | 472   |  |  |   | 36,065 | 
|Series D |  |                   | 624   |            |             |  | 624      |       |  |   | 1       |  |  |            | 1,756  |  |             |  | 624   |  |  |   | 3,254  | 
|         |  |                   |       |            |             |  |          |       |  |   |         |  |  |            |        |  |             | 
|         |  |                   | 1,796 |            |             |  | 1,796    |       |  | $ | 2       |  |  | $          | 59,376 |  |             |  | 2,580 |  |  | $ | 93,560 | 
|         |  |                   |       |            |             |  |          |       |  |   |         |  |  |            |        |  |             | 



|         |  |                   |         |  |            |   |        |             |  |   |         | 
|-------- |  | ----------------- | ------- |  | ---------- | - | ------ | ----------- |  | - | ------- | 
|         |  | December 31, 2004 |        
|         |  |                   |        
|         |  | Liquidation       |         |  | Cumulative |   |        | Liquidation | 
|         |  | Preference        |         |  | Dividends  |   |        | Value       | 
|         |  |                   |         |  |            |   |        |             | 
|Series A |  | $                 | 6,700   |  |            | $ |       |             |  | $ | 6,700   | 
|Series B |  |                   | 36,251  |  |            |   | 14,190 |             |  |   | 50,441  | 
|Series C |  |                   | 71,842  |  |            |   | 6,001  |             |  |   | 77,843  | 
|Series D |  |                   | 3,416   |  |            |   | 871    |             |  |   | 4,287   | 
|         |  |                   |         |  |            |   |        |             | 
|         |  | $                 | 118,209 |  |            | $ | 21,062 |             |  | $ | 139,271 | 
|         |  |                   |         |  |            |   |        |             | 

|         |  |                   |        |  |            |   |        |             |  |   |        | 
|-------- |  | ----------------- | ------ |  | ---------- | - | ------ | ----------- |  | - | ------ | 
|         |  | December 31, 2003 |       
|         |  |                   |       
|         |  | Liquidation       |        |  | Cumulative |   |        | Liquidation | 
|         |  | Preference        |        |  | Dividends  |   |        | Value       | 
|         |  |                   |        |  |            |   |        |             | 
|Series A |  | $                 | 6,700  |  |            | $ |       |             |  | $ | 6,700  | 
|Series B |  |                   | 36,251 |  |            |   | 11,290 |             |  |   | 47,541 | 
|Series C |  |                   | 32,418 |  |            |   | 3,647  |             |  |   | 36,065 | 
|Series D |  |                   | 2,815  |  |            |   | 439    |             |  |   | 3,254  | 
|         |  |                   |        |  |            |   |        |             | 
|         |  | $                 | 78,184 |  |            | $ | 15,376 |             |  | $ | 93,560 | 
|         |  |                   |        |  |            |   |        |             | 



|                                          |  |          |     |  |          |   |       |          |  |  |          |  |  |        |        |  |        |  |       |        |  |   |        |  |  |  |     |  |  |   |       | 
|----------------------------------------- |  | -------- | --- |  | -------- | - | ----- | -------- |  |  | -------- |  |  | ------ | ------ |  | ------ |  | ----- | ------ |  | - | ------ |  |  |  | --- |  |  | - | ----- | 
|                                          |  | Series A |     |  | Series B |   |       | Series C |  |  | Series D | 
|                                          |  |          |     |  |          |   |       |          |  |  |          | 
|                                          |  | Shares   |     |  | Amount   |   |       | Shares   |  |  | Amount   |  |  | Shares |        |  | Amount |  |       | Shares |  |   | Amount | 
|                                          |  |          |     |  |          |   |       |          |  |  |          |  |  |        |        |  |        |  |       |        |  |   |        | 
|Balance, December 31, 2001                |  |          | 186 |  |          | $ | 6,678 |          |  |  | 514      |  |  | $      | 36,251 |  |        |  | 416   |        |  | $ | 14,265 |  |  |  |     |  |  | $ |      | 
|Issuance of Series D (see Note 3)         |  |          |     |  |          |   |       |          |  |  |          |  |  |        |        |  |        |  |       |        |  |   |        |  |  |  | 624 |  |  |   | 1,757 | 
|                                          |  |          |     |  |          |   |       |          |  |  |          |  |  |        |        |  |        |  |       |        |  |   |        | 
|Balance, December 31, 2002                |  |          | 186 |  |          |   | 6,678 |          |  |  | 514      |  |  |        | 36,251 |  |        |  | 416   |        |  |   | 14,265 |  |  |  | 624 |  |  |   | 1,757 | 
|Issuance of Series C                      |  |          |     |  |          |   |       |          |  |  |          |  |  |        |        |  |        |  | 56    |        |  |   | 427    |  |  |  |     |  |  |   |       | 
|                                          |  |          |     |  |          |   |       |          |  |  |          |  |  |        |        |  |        |  |       |        |  |   |        | 
|Balance, December 31, 2003                |  |          | 186 |  |          |   | 6,678 |          |  |  | 514      |  |  |        | 36,251 |  |        |  | 472   |        |  |   | 14,692 |  |  |  | 624 |  |  |   | 1,757 | 
|Issuance of Series C (see Notes 8 and 13) |  |          |     |  |          |   |       |          |  |  |          |  |  |        |        |  |        |  | 574   |        |  |   | 15,027 |  |  |  |     |  |  |   |       | 
|                                          |  |          |     |  |          |   |       |          |  |  |          |  |  |        |        |  |        |  |       |        |  |   |        | 
|Balance, December 31, 2004                |  |          | 186 |  |          | $ | 6,678 |          |  |  | 514      |  |  | $      | 36,251 |  |        |  | 1,046 |        |  | $ | 29,719 |  |  |  | 624 |  |  | $ | 1,757 | 
|                                          |  |          |     |  |          |   |       |          |  |  |          |  |  |        |        |  |        |  |       |        |  |   |        | 

F-19



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##### Table of Contents



ODIMO INCORPORATED AND SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)


Issuances


Conversion and Dividend Features






Liquidation Preferences




| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Holders of Series D preferred stock are entitled to
    receive, prior and in preference to any distribution of any of
    the assets of the Company to the other stockholders including
    holders of any other series of convertible preferred stock, by
    reason of their ownership thereof, in cash, an amount per share
    equal to (a) if the valuation of the Company in connection
    with a liquidation event is $70 million or less, then 10%
    of such valuation amount, plus any accrued but unpaid dividends,
    or (b) if the valuation amount is more than
    $70 million, then $7 million plus 20% of the valuation
    amount in excess of $70 million, plus any accrued but
    unpaid dividends. If the assets are insufficient to permit
    payment of the Series D liquidation amount in full to all
    holders of Series D, the assets will be distributed ratably
    to the holders of Series D in proportion to the amount each
    such holder would otherwise be entitled to receive.
|
| |  | After payment of the Series D liquidation amount to the
    holders of Series D to the extent there are additional
    assets available for distribution to stockholders, the holders
    of Series C are entitled to receive, prior and in
    preference to any distribution of any of the assets of the
    Company to the holders of Series A, Series B and
    common stockholders, by reason of their ownership thereof, in
    cash, an amount per share equal to two times the original
    Series C issue price, plus any accrued but unpaid
    dividends. If the assets are insufficient to permit payment of
    the Series C liquidation amount in full to all holders of
    Series C, the assets will be distributed ratably to the
    holders of Series C in proportion to the amount each such
    holder would otherwise be entitled to receive.                                                                                                                                                        
|
| |  | After payment of the Series C liquidation amount to the
    holders of Series C to the extent there are additional
    assets available for distribution to stockholders, the holders
    of Series B are entitled to receive, prior and in
    preference to any distribution of any of the assets of the
    Company to the holders of Series A and common stockholders,
    by reason of their ownership thereof, in cash, an amount per
    share equal to the original Series B issue price, plus any
    accrued but unpaid dividends.                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

F-20



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##### Table of Contents



ODIMO INCORPORATED AND SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)




| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | If the assets are insufficient to permit payment of the
    Series B liquidation amount in full to all holders of
    Series B, the assets will be distributed ratably to the
    holders of Series B in proportion to the amount each such
    holder would otherwise be entitled to receive.                                                                                                                                                                                                                  
|
| |  | After payment of the Series B liquidation amount to the
    holders of Series B to the extent there are additional
    assets available for distribution to stockholders, the holders
    of Series A are entitled to receive, prior and in
    preference to any distribution of any of the assets of the
    Company to the common stockholders, by reason of their ownership
    thereof, in cash, an amount per share equal to the original
    Series A issue price, plus any accrued but unpaid dividends.

Preferred Stock Warrants












|                                         |  |           |     |  |          |   |      |           |  |  |          |  |  |   |      | 
|---------------------------------------- |  | --------- | --- |  | -------- | - | ---- | --------- |  |  | -------- |  |  | - | ---- | 
|                                         |  | Series C  |     |  | Series D |  
|                                         |  |           |     |  |          |  
|                                         |  | Number of |     |  | Exercise |   |      | Number of |  |  | Exercise | 
|                                         |  | Warrants  |     |  | Price    |   |      | Warrants  |  |  | Price    | 
|                                         |  |           |     |  |          |   |      |           |  |  |          | 
|Warrants outstanding  December 31, 2004 |  |           | 147 |  |          | $ | 9.00 |           |  |  | 107      |  |  | $ | 0.25 | 
|Warrants outstanding December 31, 2003   |  |           | 102 |  |          | $ | 9.00 |           |  |  | 107      |  |  | $ | 0.25 | 



|                          |  |  |       |  
|------------------------- |  |  | ----- | -
|Dividend rate             |  |  | 8.00  | %
|Expected volatility       |  |  | 70.00 | %
|Risk-free interest rate   |  |  | 3.93  | %
|Contract lives (in years) |  |  | 10    |  

F-21



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##### Table of Contents



ODIMO INCORPORATED AND SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)






|    |                  
|--- | -----------------
|12. | STOCK OPTION PLAN



i.e.,






Accounting for Equity Instruments That Are Issued to Other
Than Employees for Acquiring, or in Conjunction with Selling,
Goods or Services


F-22



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##### Table of Contents



ODIMO INCORPORATED AND SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)




|                                 |           |         |     |          |       |   |       |         |          |  |       |     |   |          |       |       |       |  |     |    |   |   |       |       | 
|-------------------------------- | --------- | ------- | --- | -------- | ----- | - | ----- | ------- | -------- |  | ----- | --- | - | -------- | ----- | ----- | ----- |  | --- | -- | - | - | ----- | ----- | 
|                                 |           | 2004    |     |          | 2003  |   |       | 2002    |         
|                                 |           |         |     |          |       |   |       |         |         
|                                 |           |         |     | Weighted |       |   |       |         | Weighted |  |       |     |   | Weighted |      
|                                 |           |         |     | Average  |       |   |       |         | Average  |  |       |     |   | Average  |      
|                                 |           |         |     | Exercise |       |   |       |         | Exercise |  |       |     |   | Exercise |      
|                                 |           | Options |     |          | Price |   |       | Options |          |  | Price |     |   | Options  |       |       | Price | 
|                                 |           |         |     |          |       |   |       |         |          |  |       |     |   |          |       |       |       | 
|Outstanding at beginning of year |           |         | 184 |          |       | $ | 16.25 |         |          |  | 209   |     |   | $        | 17.00 |       |       |  | 212 |    |   | $ | 17.00 |      
|                                 | Granted   |         |     | 290      |       |   |       | 8.75    |          |  |       | 11  |   |          |       | 37.75 |       |  |     | 3  |   |   |       | 34.25 | 
|                                 | Exercised |         |     |         |       |   |       |        |          |  |       |    |   |          |       |      |       |  |     |   |   |   |       |      | 
|                                 | Canceled  |         |     | (28      | )     |   |       | 24.75   |          |  |       | (36 | ) |          |       | 27.00 |       |  |     | (6 | ) |   |       | 28.00 | 
|                                 |           |         |     |          |       |   |       |         |          |  |       |     |   |          |       |       |       | 
|Outstanding at end of year       |           |         | 446 |          |       | $ | 10.83 |         |          |  | 184   |     |   | $        | 16.25 |       |       |  | 209 |    |   | $ | 17.00 |      
|                                 |           |         |     |          |       |   |       |         |          |  |       |     |   |          |       |       |       | 



|                |  |                |     |                  |      |  |          |       |  |         |             |  |          |       |     |  |  |   |       | 
|--------------- |  | -------------- | --- | ---------------- | ---- |  | -------- | ----- |  | ------- | ----------- |  | -------- | ----- | --- |  |  | - | ----- | 
|                |  |                |     | Weighted Average |      |  |          |       | 
|                |  |                |     |                  |      |  |          |       | 
|                |  |                |     | Contractual      |      |  | Exercise |       |  | Options |             |  | Exercise |      
|Exercise Prices |  | Options        |     |                  | Life |  |          | Price |  |         | Exercisable |  |          | Price |    
|                |  |                |     |                  |      |  |          |       |  |         |             |  |          |       |    
|                |  | (In thousands) |    
|$ 7.25  $12.50 |  |                | 418 |                  |      |  | 6        |       |  | $       | 8.30        |  |          |       | 416 |  |  | $ | 8.30  | 
|$34.25          |  |                | 13  |                  |      |  | 5        |       |  |         | 34.25       |  |          |       | 6   |  |  |   | 34.25 | 
|$37.75  $38.00 |  |                | 5   |                  |      |  | 6        |       |  |         | 37.80       |  |          |       | 5   |  |  |   | 37.80 | 
|$70.50          |  |                | 10  |                  |      |  | 8        |       |  |         | 70.50       |  |          |       | 9   |  |  |   | 70.50 | 
|                |  |                |     |                  |      |  |          |       |  |         |             |  |          |       |    
|                |  |                | 446 |                  |      |  | 6        |       |  | $       | 10.83       |  |          |       | 436 |  |  | $ | 10.33 | 
|                |  |                |     |                  |      |  |          |       |  |         |             |  |          |       |    



|    |                           
|--- | --------------------------
|13. | RELATED PARTY TRANSACTIONS

Diamond Purchases and Sales


Supply Agreement




F-23



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##### Table of Contents



ODIMO INCORPORATED AND SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)




Stock Purchase and Supply Agreement




Other Inventory Purchases www.worldofwatches.com.


Use of Jet Aircraft




|    |                        
|--- | -----------------------
|14. | INITIAL PUBLIC OFFERING



F-24



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##### Table of Contents



ODIMO INCORPORATED AND SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)




|    |                                                     
|--- | ----------------------------------------------------
|15. | SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)



|                                             |  |                |        |   |          |   |         |           |  |   |          |   |  |          |        |   |          |   |        |           |  |   |          |   |  |   |        |   |  |   |        |  
|-------------------------------------------- |  | -------------- | ------ | - | -------- | - | ------- | --------- |  | - | -------- | - |  | -------- | ------ | - | -------- | - | ------ | --------- |  | - | -------- | - |  | - | ------ | - |  | - | ------ | -
|                                             |  | Quarter Ended  |       
|                                             |  |                |       
|                                             |  | Mar. 31,       |        |   | Jun. 30, |   |         | Sept. 30, |  |   | Dec. 31, |   |  | Mar. 31, |        |   | Jun. 30, |   |        | Sept. 30, |  |   | Dec. 31, |  
|                                             |  | 2004           |        |   | 2004     |   |         | 2004      |  |   | 2004     |   |  | 2003     |        |   | 2003     |   |        | 2003      |  |   | 2003     |  
|                                             |  |                |        |   |          |   |         |           |  |   |          |   |  |          |        |   |          |   |        |           |  |   |          |  
|                                             |  | (In thousands) |       
|                                             |  | (Unaudited)    |       
|Net sales                                    |  | $              | 10,444 |   |          | $ | 10,290  |           |  | $ | 10,006   |   |  | $        | 21,504 |   |          | $ | 7,612  |           |  | $ | 8,275    |   |  | $ | 7,538  |   |  | $ | 18,269 |  
|                                             |  |                |        |   |          |   |         |           |  |   |          |   |  |          |        |   |          |   |        |           |  |   |          |  
|Gross profit                                 |  |                | 3,068  |   |          |   | 2,864   |           |  |   | 2,798    |   |  |          | 6,373  |   |          |   | 2,084  |           |  |   | 2,196    |   |  |   | 2,020  |   |  |   | 5,449  |  
|                                             |  |                |        |   |          |   |         |           |  |   |          |   |  |          |        |   |          |   |        |           |  |   |          |  
|Loss from operations                         |  |                | (6,130 | ) |          |   | (1,790  | )         |  |   | (2,301   | ) |  |          | (1,710 | ) |          |   | (1,495 | )         |  |   | (1,461   | ) |  |   | (1,451 | ) |  |   | (1,629 | )
|                                             |  |                |        |   |          |   |         |           |  |   |          |   |  |          |        |   |          |   |        |           |  |   |          |  
|Net loss                                     |  | $              | (6,383 | ) |          | $ | (1,855  | )         |  | $ | (2,406   | ) |  | $        | (1,872 | ) |          | $ | (1,647 | )         |  | $ | (1,565   | ) |  | $ | (1,561 | ) |  | $ | (2,370 | )
|                                             |  |                |        |   |          |   |         |           |  |   |          |   |  |          |        |   |          |   |        |           |  |   |          |  
|Net loss attributable to common stockholders |  | $              | (7,540 | ) |          | $ | (12,976 | )         |  | $ | (3,956   | ) |  | $        | (3,422 | ) |          | $ | (2,777 | )         |  | $ | (2,695   | ) |  | $ | (2,690 | ) |  | $ | (3,500 | )
|                                             |  |                |        |   |          |   |         |           |  |   |          |   |  |          |        |   |          |   |        |           |  |   |          |  
|Net loss per share                           |  |                |        |   |          |   |         |           |  |   |          |   |  |          |        |   |          |   |        |           |  |   |          |   |  |   |        |   |  |   |        |  
|Basic and diluted:                           |  | $              | (11.99 | ) |          | $ | (20.63  | )         |  | $ | (6.29    | ) |  | $        | (5.44  | ) |          | $ | (4.41  | )         |  | $ | (4.28    | ) |  | $ | (4.28  | ) |  | $ | (5.56  | )
|                                             |  |                |        |   |          |   |         |           |  |   |          |   |  |          |        |   |          |   |        |           |  |   |          |  

F-25



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##### Table of Contents



ODIMO INCORPORATED AND SUBSIDIARIES


SCHEDULE II


VALUATION AND QUALIFYING ACCOUNTS


|                                                 |                                                                         |                            |   |            |          |  |   |               |    |         |           |       |   |  |   |        |    | 
|------------------------------------------------ | ----------------------------------------------------------------------- | -------------------------- | - | ---------- | -------- |  | - | ------------- | -- | ------- | --------- | ----- | - |  | - | ------ | -- | 
|                                                 |                                                                         |                            |   | Charged to |          |  |   |               |   
|                                                 |                                                                         |                            |   | Revenue,   |          |  |   |               |   
|                                                 |                                                                         | Beginning                  |   |            | Costs or |  |   |               |    | Balance |          
|Description                                      |                                                                         | of Period                  |   |            | Expenses |  |   | Deductions(1) |    |         | at End of |      
|                                                 |                                                                         |                            |   |            |          |  |   |               |    |         |           |      
|Reserve deducted from asset to which it applies: |                                                                         |                            |   |            |          |  |   |               |    |         |           |       |   |  |   |       
|                                                 | Year Ended December 31, 2004
    Reserve for deferred income tax assets |                            | $ | 18,295     |          |  | $ | 2,613         |    |         | $         |      |   |  | $ | 20,908 |   
|                                                 | Year Ended December 31, 2003
    Reserve for deferred income tax assets |                            | $ | 15,878     |          |  | $ | 2,417         |    |         | $         |      |   |  | $ | 18,295 |   
|                                                 | Year Ended December 31, 2002
    Reserve for deferred income tax assets |                            | $ | 13,904     |          |  | $ | 1,974         |    |         | $         |      |   |  | $ | 15,878 |   
|Reserves recorded as accrued liabilities:        |                                                                         |                            |   |            |          |  |   |               |    |         |           |       |   |  |   |       
|                                                 | Year Ended December 31, 2004
    Reserve for sales returns              |                            | $ | 355        |          |  | $ | 7,491         |    |         | $         | 7,513 |   |  | $ | 333    |   
|                                                 |                                                                         | Reserve for warranty costs |   | $          | 15       |  |   | $             |   |         |           | $     |  |  |   | $      | 15 | 
|                                                 | Year Ended December 31, 2003
    Reserve for sales returns              |                            | $ | 175        |          |  | $ | 5,620         |    |         | $         | 5,440 |   |  | $ | 355    |   
|                                                 |                                                                         | Reserve for warranty costs |   | $          | 15       |  |   | $             |   |         |           | $     |  |  |   | $      | 15 | 
|                                                 | Year Ended December 31, 2002
    Reserve for sales returns              |                            | $ | 70         |          |  | $ | 3,745         |    |         | $         | 3,640 |   |  | $ | 175    |   
|                                                 |                                                                         | Reserve for warranty costs |   | $          |         |  |   | $             | 15 |         |           | $     |  |  |   | $      | 15 | 






|    |                                                 
|--- | ------------------------------------------------
|(1) | Consists of actual sales returns in each period.

F-26