ProFlowers S-1: Read the Full IPO Prospectus (2003)

Prospectus Summary

PROSPECTUS SUMMARY This summary highlights the information contained elsewhere in this prospectus. This summary may not contain all of the information that you should consider before investing in our common shares. Before you decide to invest in our common stock, you should read the entire prospectus carefully, including the “Risk Factors” and consolidated financial statements and related notes included in this prospectus.

The Company

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

Our marketplace is a collection of our own branded websites and websites that we operate for other retailers, each offering high-quality perishable products shipped directly from the supplier to the customer. By using our market platform to eliminate multiple intermediaries from the traditional product supply chain, we are able to purchase products directly from suppliers at lower prices and reduce or eliminate many of the typical costs associated with traditional retail businesses, including inventory, capital expenditures, labor and administrative expenses. We believe this allows us to achieve higher operating margins than many of our competitors. We have designed our technology infrastructure to be highly scalable and adaptable to different categories of time-sensitive shipments, including perishable products.

We initially launched our marketplace in 1998 to sell and deliver flowers, one of the most difficult perishable products to ship, under our Proflowers brand at www.proflowers.com. Our flowers are generally seven or more days fresher than flowers delivered via the traditional floral supply chain. We guarantee that our flowers will reach their destination on the requested delivery date. We believe our global network of growers, proprietary technology and integrated relationship with Federal Express Corporation, or FedEx, provide us with competitive advantages in the online floral market. Our price points start at $29.99, and in most instances are significantly lower than other online floral merchants for comparable items, yet we believe we offer a higher quality and fresher product at higher margins.

To date, we have derived our revenues primarily from the sale of flowers, plants and gifts on our proflowers.com website. For the nine months ended March 31, 2004, we reported net sales of $76.9 million, an increase of 41.3% from the nine months ended March 31, 2003, and net income of $15.4 million as compared to a net loss of ($0.2) million in the same period in the prior year. During the nine months ended March 31, 2004, we reassessed the valuation allowance previously established against our net deferred tax assets and released the remaining allowance of approximately $12.2 million, resulting in the recognition of a tax benefit of $11.8 million. For the fiscal year ended June 30, 2003, we reported net sales of $88.7 million, an increase of 26.2% from the prior year, and net income of $4.3 million. Since our inception, we have incurred significant losses. As of March 31, 2004, we have an accumulated deficit of $35.1 million. Our database of customers has grown from approximately 69,000 as of June 30, 1999 to approximately 2.7 million as of March 31, 2004. In the nine months ended March 31, 2004, 54.3% of our total orders placed came from repeat customers. In the fiscal year ended June 30, 2003, 53.1% of our total orders placed came from repeat customers.

We have designed our e-commerce marketplace specifically around the way consumers shop for time-sensitive and perishable products. Our branded websites are designed to streamline the order process by minimizing the time and number of web pages a customer views when searching for or placing an order. In contrast to many other e-commerce shopping experiences, our order process begins with the selection of a specific delivery time window. Our marketplace automatically considers supplier inventory levels before displaying any product or shipping date to prevent “out of stock” or back-order scenarios and to allow us to provide our customers with greater assurance that the package will arrive for the intended occasion. Our customers receive three automatically generated confirmation emails—one each at the time of order, product shipment and package delivery.

We plan to assess and target additional categories based on our market platform’s ability to add value by streamlining the supply chain for the benefit of customers and suppliers. We have identified premium meat and fresh fruit as initial categories where we believe we can leverage our customer base, marketing and distribution relationships and infrastructure. In October 2003, we launched and are now operating Uptown Prime at www.uptownprime.com, offering premium meats, and Cherry Moon Farms at www.cherrymoonfarms.com, offering fresh premium fruits. In addition, in March 2004, we began testing a premium seafood merchandising extension within Uptown Prime, called Uptown Catch. To support the launch of additional categories and merchandising extensions, we have engineered our system to support peak loads in excess of 50 times our current average daily volumes and have managed peak shipment days of over 185,000 orders.

We believe our market platform can be tailored for use by any business desiring to offer high-quality, perishable products to its customers. To validate this belief, we have entered into multi-year agreements with two Fortune 100 retailers and a company that creates content and domestic merchandise for homemakers and other consumers to use our market platform to sell products under their brand names. Under these arrangements, we design and host a dedicated website for selling perishable goods, handling all order processing and fulfillment and providing customer service. We are not dependent on these arrangements and they represent an immaterial percentage of our net sales in fiscal 2003 and for the nine months ended March 31, 2004. We are pursuing similar relationships with other retailers.

We have developed rigorous quality assurance procedures in our flower business which we believe we can apply to other perishable products. In the floral category, we work closely with our global network of growers and distribution facilities to ensure that our quality assurance standards are implemented throughout cultivation, harvesting, packing, inspection and transportation. In addition to systematic inspections, lab testing, training manuals and on-site quality assurance personnel, our quality initiatives rely on detailed product tracking that allows us to trace any issue resulting in customer dissatisfaction back to the supplier, specific product and time of shipment for correction of the cause.

Provide Commerce’s objective is to become our customers’ preferred e-commerce marketplace for the delivery of perishable products direct from the supplier. Our long-term strategy is to deploy this market platform across multiple products and brands through our own websites and websites that we design and operate for other retailers. We believe this will result in increased operating leverage by allowing us to use our common customer base, marketing and distribution relationships and infrastructure across the entire marketplace. We plan to attain this goal through the following key strategies:

Jared Schutz Polis, Dr. Stephen Schutz and Jordanna Schutz and persons affiliated with each of them will hold approximately 32.1% of our outstanding stock upon the closing of this offering, assuming exercise of the underwriters’ over-allotment option in full and the sale by Mr. Polis and persons affiliated with him of 1,400,000 shares in this offering. Mr. Polis, Dr. Schutz and Ms. Schutz and these affiliated persons will have the ability to exert significant influence over our management.

Recent Developments

Since our initial public offering in December 2003, we have accomplished the following:

Accelerated our revenue and pre-tax income growth over comparable periods. For the nine months ended March 31, 2004, revenues increased 41.3% to $76.9 million, from $54.4 million during the same period of fiscal 2003 and pre-tax income increased to $3.6 million from a loss of $0.2 million during the same period of fiscal 2004.

Exhibited strong performance during core holiday seasons. On May 11, 2004, we reported record shipments for the Mother’s Day shopping period defined as shipments from the beginning of May through the Saturday of Mother’s Day weekend. During this period, shipments for our core consumer floral business were more than 550,000, compared to approximately 380,000 shipments in the Mother’s Day period a year ago. On February 17, 2004, we reported record shipments for the Valentine’s Day shopping period defined as February 8th through February 14th. During the period, shipments for our core consumer floral business were more than 400,000, compared to approximately 304,000 in the Valentine’s period a year ago.

Achieved strong results in our new product categories. The launch of our Uptown Prime and Cherry Moon Farms websites was the first application of our business model to product categories outside of floral products. Since the launch, we have grown sales in both websites. These new business initiatives are currently an immaterial part of our business. We expect them to account for approximately 1.5% of revenues for the fiscal year ending June 30, 2004. In addition, in March 2004, we began testing a premium seafood merchandising extension within Uptown Prime, called Uptown Catch.

Improved and utilized new marketing initiatives. We have introduced new targeted online and offline marketing initiatives including the more frequent distribution of catalogs and an increased focus on our non-seasonal business. We believe this has allowed us to retain existing customers, demonstrated by the increase of 43.3% of the number of orders placed by existing customers from 561,000 to 804,000 in the nine months ended March 31, 2004. We have also continued to focus on the acquisition of new customers, demonstrated by the increase of 40.8% of the number of new customers purchasing products from 414,000 to 583,000.

Continued to seek ways to optimize and refine our distribution and delivery methods. We continually evaluate our distribution and delivery methods to improve cost effectiveness and efficiency, including the introduction of the use of FedEx Ground in early 2004. We also look to expand and diversify our delivery methods and relationships over time to improve customer satisfaction.

The Offering

The number of shares of common stock to be outstanding after this offering is based on 11,419,615 shares of common stock issued and outstanding as of March 31, 2004. Except where we state otherwise, the common stock information we present in this prospectus:

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

This prospectus contains market data and industry forecasts that were obtained from independent industry and government publications.

Summary Consolidated Financial Data

(in thousands, except share and per share data)

The following tables summarize our consolidated financial data for the periods presented. You should read the following financial information together with the information under “Selected Consolidated Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes appearing elsewhere in this prospectus.

The table above summarizes our balance sheet at March 31, 2004:

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