Exhibit 99.2

Table of Contents 

PersonalizationMall.com, LLC

Special Purpose Statement of Revenues and Direct Expenses

for the year ended February 29, 2020

 

 

		Pages
Independent Auditor’s Report		2
Financial Statement
Special Purpose Statement of Revenues and Direct Expenses			3
Notes to Special Purpose Statement of Revenues and Direct Expenses			4

 

 

 

 

Independent Auditor’s Report

 

1-800-FLOWERS.COM, Inc. and Subsidiaries

Carle Place, NY

 

Report on the Special Purpose Financial Statement

 

We have audited the accompanying special purpose statement of revenues and direct expenses of PersonalizationMall.com, LLC, a business of Bed Bath & Beyond, Inc., for the year ended February 29, 2020, and the related notes to the special purpose financial statement.

 

Management’s Responsibility for the Special Purpose Financial Statement

 

Management is responsible for the preparation and fair presentation of the special purpose financial statement in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of special purpose financial statement that is free from material misstatement, whether due to fraud or error.

 

Auditor’s Responsibility

 

Our responsibility is to express an opinion on the special purpose financial statement based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the special purpose financial statement is free from material misstatement.

 

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the special purpose financial statement. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the special purpose financial statement, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Company’s preparation and fair presentation of the special purpose financial statement in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the special purpose financial statement. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

 

Emphasis of Matter – Special Purpose Financial Statement

 

As discussed in Note 1 to the financial statement, the accompanying financial statement have been prepared for the purposes of presenting the revenues and direct expenses of PersonalizationMall.com, LLC, a business of Bed Bath & Beyond, Inc., and are not intended to be a complete presentation of the financial position, results of operations or cash flows of PersonalizationMall.com, LLC , a business of Bed Bath & Beyond, Inc. Our opinion is not modified with respect to this matter.

 

Opinion

 

In our opinion, the special purpose financial statement referred to above present fairly, in all material respects, the revenues and direct expenses of PersonalizationMall.com, LLC, a business of Bed Bath & Beyond, Inc., for the year ended February 29, 2020, in accordance with accounting principles generally accepted in the United States of America.

 

/s/ BDO USA, LLP

 

Melville, NY

October 29, 2020

 

 

 

PersonalizationMall.com, LLC

Special Purpose Statement of Revenues and Direct Expenses

for the year ended February 29, 2020

 

 

		Year Ended
		February 29, 2020
		(in thousands)
Net revenues		$	171,208
Cost of revenues			81,623
Gross profit			89,585
Direct expenses:
Marketing and sales			53,611
Technology and development			1,213
General and administrative			9,258
Depreciation and amortization			3,346
Total direct expenses			67,428
Revenues less direct expenses		$	22,157

 

The accompanying notes are an integral part of this financial statements.

 

 

 

Notes to Special Purpose Statement of Revenues and Direct Expenses

 

Note 1 – Description of Business and Basis of Presentation

 

Description of Business

 

PersonalizationMall.com, LLC (“The Company” or “PersonalizationMall”) is a leading ecommerce provider of personalized products. The Company’s product offerings include a wide variety of personalization processes such as sublimation, embroidery, digital printing, engraving and sandblasting, while providing an industry-leading customer experience based on a fully integrated business platform that includes a highly automated personalization process and rapid order fulfillment.

 

On February 14, 2020, 1-800-Flowers.com, Inc., 800-Flowers, Inc., a wholly-owned subsidiary of 1-800-Flowers.com, Inc. (the “Purchaser”), PersonalizationMall, and Bed Bath & Beyond Inc. (“Seller”), entered into an Equity Purchase Agreement (the “Purchase Agreement”) pursuant to which Seller agreed to sell to the Purchaser, and the Purchaser agreed to purchase from Seller, all of the issued and outstanding membership interests of PersonalizationMall for $252.0 million in cash (subject to certain working capital and other adjustments).  On July 20, 2020, Buyer, PersonalizationMall, and Seller entered into an amendment (the “Amendment”) to the Purchase Agreement to, among other things, amend the purchase price to $245 million (subject to certain working capital and other adjustments).  The transaction closed on August 3, 2020 (the “Acquisition Date”).

 

The Purchase Agreement and Amendment contain customary representations, warranties and covenants by the Purchaser, PersonalizationMall, and Seller, and an indemnity by Seller for certain specified matters and pre-closing taxes. The closing of the transaction was subject to customary closing conditions, including applicable regulatory approvals.  The Purchase Agreement includes covenants relating to the negotiation of a commercial selling agreement with respect to the ongoing provision of certain PersonalizationMall products and services to Seller, and, a transition services agreement whereby Seller would provide certain post-closing services to PersonalizationabMall for a limited time period.

 

Basis of Presentation

 

This special purpose financial statement of revenues and direct expenses has been prepared for the year ended February 29, 2020 (“financial statement”), and is provided in lieu of certain historical financial information of PersonalizationMall required by Rule 3-05 of Regulation S-X, in accordance with a request for relief granted by the Securities and Exchange Commission.

 

This financial statement has been derived from the historical accounting records of the Company. The financial statement does not represent revenues and direct expenses as if the Company had operated as a separate, stand-alone entity during the period presented. In addition, the financial statement is not meant to be indicative of results of operations of the Company going forward as a result of future changes in its operations and the omission of various operating expenses.

 

All significant intracompany balances and transactions have been eliminated.

 

The revenues included in the accompanying financial statement represent revenues directly attributable to the Company. The costs and expenses included in the accompanying financial statement were incurred by the Company and include direct and allocated costs and expenses related to PersonalizationMall. The allocated costs and expenses (including, among other items, outbound shipping expenses, employee benefits, utilities and insurance costs) were allocated to PersonalizationMall by Seller based on direct usage or benefit where identifiable, with the remainder allocated on a pro rata basis of relevant measures. The Company considers the expense allocation methodology and results to be reasonable for the period presented.

 

The financial statement does not include expenses not directly associated with the Company’s business, such as corporate overhead expenses (legal, treasury and certain other back-office functions), interest expense and income taxes

 

Note 2 - Summary of Significant Accounting Policies

 

Use of Estimates

 

The preparation of the financial statement in accordance with GAAP requires management to make estimates and assumptions that may affect the reported amounts of revenues, direct expenses and related disclosures during the period being presented. Management bases its estimates on historical experience and various other assumptions it believes to be reasonable. Components of this financial statement particularly subject to estimation include the allocation of certain direct expenses. Actual results may differ from management’s estimates.

Revenue Recognition

 

Net revenue is measured based on the amount of consideration that we expect to receive, reduced by discounts and estimates for credits and returns (calculated based upon previous experience and management’s evaluation). Service and outbound shipping charged to customers are recognized at the time the related merchandise revenues are recognized and are included in net revenues. Inbound and outbound shipping and delivery costs are included in cost of revenues. Net revenues exclude sales and other similar taxes collected from customers.

 

Our revenue generating activities consist primarily of E-commerce revenues derived from consumer products sold through our online and telephonic channels. Revenue is recognized when control of the merchandise is transferred to the customer, which generally occurs upon shipment. Payment is typically due prior to the date of shipment.

 

Concentration of Credit Risk

 

Concentration of credit risk, with respect to accounts receivable is limited due to the Company’s large number of customers and their dispersion throughout the United States, and the fact that a substantial portion of receivables are related to balances owed by major credit card companies.

 

Cost of Revenues

 

Cost of revenues consists primarily of the cost of merchandise sold from inventory or through third parties, and associated costs, including inbound and outbound shipping charges. Additionally, cost of revenues includes labor and facility costs related to manufacturing and production operations.

 

 

Marketing and Sales

 

Marketing and sales expense consists primarily of advertising expenses, online portal and search expenses, and customer service center expenses, as well as the operating expenses of the Company’s departments engaged in marketing, selling and merchandising activities.

 

The Company expenses all advertising costs at the time the advertisement is first shown.

 

Technology and Development

 

Technology and development expense consists primarily of payroll and operating expenses of the Company’s information technology group, costs associated with its websites, including hosting, content development and maintenance and support costs related to the Company’s order entry, customer service, fulfillment and database systems. Costs associated with the acquisition or development of software for internal use are capitalized if the software is expected to have a useful life beyond one year and amortized over the software’s useful life, typically three to seven years. Costs associated with repair maintenance or the development of website content are expensed as incurred, as the useful lives of such software modifications are less than one year.

 

Lease expense

 

During the twelve months ending February 29, 2020, the Company leased two primary facility locations which were used for production, warehouse and administrative purposes, with terms through fiscal 2031. These lease agreements contain renewal options and rent escalation clauses and require the Company to pay real estate taxes, insurance, common area maintenance and operating expenses applicable to the leased properties. The Company accounts for its leases in accordance with ASC 842. At contract inception, the Company determines whether a contract is, or contains, a lease by determining whether it conveys the right to control the use of the identified asset for a period of time, by assessing whether we have the right to obtain substantially all of the economic benefits from use of the identified asset, and the right to direct the use of the identified asset.

The Company recognizes expense for its operating leases on a straight-line basis over the lease term.

 

Depreciation expense

 

Depreciation expense is computed using the straight-line method over the assets’ estimated useful lives. Amortization of leasehold improvements is computed using the straight-line method over the shorter of the estimated useful lives and the initial lease terms. The Company capitalizes certain internal and external costs incurred to acquire or develop internal-use software. Capitalized software costs are amortized on a straight-line basis over the estimated useful life of the software. Estimated useful lives are periodically reviewed, and where appropriate, changes are made prospectively.

 

The Company’s property, plant and equipment are depreciated using the following estimated lives:

 

		Estimated useful lives
		(in years)
Leasehold improvements			8-12
Production equipment			3-20
Furniture and fixtures			7
Computer and telecommunication equipment			5
Software			5

 

Property, plant and equipment are reviewed for impairment whenever changes in circumstances or events may indicate that the carrying amounts are not recoverable. There were no impairments recorded during the period.

 

Amortization of intangible assets

Definite-lived intangible assets were fully amortized prior to the beginning of the fiscal year, and as such, there was no amortization during the year ended February 29, 2020. There were no goodwill and intangible asset impairments recorded during the period.

 

Recently Issued Accounting Pronouncements – Not Yet Adopted

  

Financial Instruments – Measurement of Credit Losses. In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 introduces a new forward-looking “expected loss” approach, to estimate credit losses on most financial assets and certain other instruments, including trade receivables. The estimate of expected credit losses will require entities to incorporate considerations of historical information, current information and reasonable and supportable forecasts. This ASU also expands the disclosure requirements to enable users of financial statements to understand the entity’s assumptions, models and methods for estimating expected credit losses. The Company does not expect the adoption of this guidance to have a material effect on its financial statement.

 

Goodwill – Impairment Test. In January 2017, the FASB issued ASU No. 2017-04, "Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment," which eliminates Step 2 from the goodwill impairment test. Under ASU 2017-04, an entity should recognize an impairment charge for the amount by which the carrying amount of a reporting unit exceeds its fair value up to the amount of goodwill allocated to that reporting unit. The Company does not expect the standard to have a material impact on its  financial statements.

 

Note 3 - Employee Retirement Plans

 

Subsequent to the Acquisition Date, the Company’s employees were eligible to participate in the 401(k) Profit Sharing Plan of a subsidiary of 1-800-Flowers.com, Inc. All employees who have attained the age of 21 are eligible to participate upon completion of one month of service. Participants may elect to make voluntary contributions to the 401(k) plan in amounts not exceeding federal guidelines. Prior to the Date of Acquisition, employees of the Company participated in a 401(k) plan sponsored by the Seller. The Company contributed approximately $0.2 million during the year ended February 29, 2020.

 

 

Note 4 - Commitments and Contingencies

 

Litigation

 

There are various claims, lawsuits, and pending actions against the Company incident to the operations of its business. It is the opinion of management, after consultation with counsel, that the final resolution of such claims, lawsuits and pending actions will not have a material adverse effect on the Company's financial position, results of operations or liquidity.

 

 

Note 5 - Subsequent Events

 

Management has evaluated subsequent events through October 29, 2020, the date the financial statement was available to be issued. No events, other than the ones described in this financial statement, were identified requiring additional disclosure.

 

COVID-19 

 

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was signed into law. The CARES Act provides a substantial stimulus and assistance package intended to address the impact of the pandemic of the novel strain of coronavirus (“COVID-19”), including tax relief and government loans, grants and investments. The CARES Act did not have a material impact on the Company’s financial statement as of August 3, 2020.

 

In response to the global pandemic, the Company has taken actions to ensure employee safety and business continuity, informed by the guidelines set forth by local, state and federal government and health officials. As of the Acquisition Date, PersonalizationMall has followed 1-800-Flowers.com, Inc.’s “Pandemic Preparedness and Response Plan,” which established an internal “nerve center” to allow for communication and coordination, including workstream teams to promote workforce protection and supply chain management, and dedicating resources to support our customers and vendors.

 

The COVID-19 pandemic has affected, and will continue to affect, the Company’s operations and financial results for the foreseeable future. As a result of governmental and regulatory requirements, the Company closed its facilities and temporarily ceased production and fulfillment operations between March 21, 2020 and May 4, 2020. Facilities were re-opened on a limited basis on May 5, 2020, operating at approximately 25% of capacity, as the Company implemented required social distancing and related employee protection measures. Operations were able to return to full capacity, in compliance with applicable safety protocols, by June 8, 2020. Sales were negatively impacted during the closure period and continuing through June 20, 2020, by which time the Company was able to fulfill its order backlog and resume marketing activities. Subsequent to June 20, 2020 the Company has been seeing strong e-commerce demand as customers increasingly turn to the brand’s product offerings to help them remain connected and express themselves during a very difficult time.

 

The Company is closely monitoring the impact of COVID-19 on its business, including how it will affect its customers, workforce, suppliers, vendors, and production and distribution channels, as well as its financial statements. The extent to which COVID-19 impacts the Company’s business and financial results will depend on numerous evolving factors, including, but not limited to: the magnitude and duration of COVID-19, the extent to which it will impact macroeconomic conditions, including interest rates, employment rates and consumer confidence, the speed of the anticipated recovery, and governmental, business and individual consumer reactions to the pandemic. The Company assessed certain accounting matters that generally require consideration of forecasted financial information in context with the information reasonably available to the Company and the unknown future impacts of COVID-19 as of August 3, 2020 and through the date of this report. The accounting matters assessed included, but were not limited to, the Company’s allowance for doubtful accounts and credit losses, inventory and related reserves and the carrying value of goodwill and other long-lived assets. While there was not a material impact to the Company’s financial statement as of August 3, 2020, the Company’s future assessment of these factors and the evolving factors described above, could result in material impacts to the Company’s financial statements in future reporting periods.