10-K

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, 2005
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.)
14051 NW 14th Street, Sunrise, Florida (Address of Principal Executive Offices)	33323 (Zip Code)

(954) 835-2233

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $0.001 per share

      Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x

      Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.

Yes o No x

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

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

      Indicate by check mark if the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b(2) of the Exchange Act. (Check one).

Large accelerated filer  o Accelerated filer  o Non-accelerated filer  x

      Indicate by check mark if the registrant is a shell company, in Rule 12b(2) of the Exchange Act. Yes o No x

      The aggregate market value of the voting stock held by non-affiliates of the registrant, based upon the closing price of its Common Stock on June 30, 2005 as reported by Nasdaq, was approximately $16,800,000 based on the closing price of our common stock of $5.10 per share. Shares of voting stock held by each officer and director and by each person who owns 10% or more of the outstanding voting stock as of such date have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

      As of March 29, 2006, 7,161,923 shares of the registrant’s Common Stock were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

      Part III incorporates certain information by reference from the definitive proxy statement for the registrant’s 2006 Annual Meeting of Stockholders which is expected to be filed not later than 120 days after the end of its fiscal year ended December 31, 2005.

ODIMO INCORPORATED

FORM 10-K — ANNUAL REPORT

For the Fiscal Year Ended December 31, 2005

Table of Contents

		Page
PART I
Forward-Looking Statements			1
Item 1	Business		1
Item 1A.	Risk Factors		10
Item 1B.	Unresolved Staff Comments		22
Item 2.	Properties		22
Item 3.	Legal Proceedings		22
Item 4.	Submission of Matters to a Vote of Security Holders		23
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		23
Item 6.	Selected Financial Data		25
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		27
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		38
Item 8.	Financial Statements and Supplementary Data		39
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosures		39
Item 9A.	Controls and Procedures		39
Item 9B.	Other Information		39
PART III
Item 10.	Directors and Executive Officers of the Registrant		40
Item 11.	Executive Compensation		40
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		40
Item 13.	Certain Relationships and Related Transactions		40
Item 14.	Principal Accounting Fees and Services		40
PART IV
Item 15.	Exhibits and Financial Statement Schedules		41
Signatures			44
Termination Agreement
Third Amendment to Loan & Security Agreement
Consent of Deloitte & Touche LLP
Consent of Rachlin Cohen & Holtz LLP
Section 302 Certification of CEO
Section 302 Certification of CFO
Section 906 Certification of CEO
Section 906 Certification of CFO

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 our ability to continue as a going concern, 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.

      Unless the context requires otherwise, in this report the terms “Odimo,” “we,” “us,” and “our” refer to Odimo Incorporated and our wholly-owned subsidiaries, Ashford.com, Inc., Diamond.com, Inc., Worldofwatches.com, Inc., D.I.A. Marketing, Inc., Millennium International Jewelers, Inc. and 1-888-watches, LLC, and their predecessors.

Item 1.  Business

Overview

      Odimo is an online retailer of high quality diamonds and fine jewelry, current season brand name watches and luxury goods. We focus on selling diamonds, jewelry and watches and, to a lesser extent, luxury goods which we believe are complementary to selling diamonds, jewelry and watches, such as sunglasses, fragrances, writing instruments and home accents. During the fourth quarter 2005, we began to transition out of offering brand name handbags and anticipate that, by the end of the second quarter 2006, we will no longer offer brand name handbags.

      Our websites collectively showcase more than 25,000 independently certified diamonds, a wide range of precious and semi-precious jewelry and over 2,000 watch styles from brands such as Tag Heuer, Omega and Movado. In addition, we offer an assortment of luxury goods, such as fragrances and sunglasses, from brands such as Prada, Gucci and Fendi. We sell diamonds and fine jewelry at competitive prices and brand name goods at discounts to suggested retail prices.

      We provide our customers with informative websites that are convenient and easy-to-navigate. Our websites feature informational resources such as a “Learning Center” and a “Glossary of Watch Terms” that provide detailed product information. These efforts are supplemented with a call center staffed by trained personnel who provide product support as well as information on payment options and shipping alternatives. We feature diamonds that are graded and certified by the Gemological Institute of America (GIA), the world’s preeminent diamond grading organization. We offer GIA certificates online for customers to review before a purchase decision is made. Customers can shop 24 hours a day, seven days a week on our websites and can use interactive search functions to find desired products quickly. Diamonds, watches and fine jewelry may be returned up to 30 days (and all other products we sell may be returned up to 15 days) from ship date for exchange or a full refund of the purchase price (exclusive of shipping and handling costs) provided the item is unworn, has not been sized or altered and is returned with all

original packaging, security tags and documentation. We also provide an in-house service center for our watches and fine jewelry.

      We operate the following three websites:

•  www.diamond.com features independently certified diamonds, fine jewelry and brand name watches, and accounted for approximately 45% and 39% of our net sales during the years ended December 31, 2005 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 32% and 39% of our net sales during the years ended December 31, 2005 and 2004, respectively.

•  www.worldofwatches.com features a large selection of brand name watches, and accounted for approximately 23% and 22% of our net sales during the years ended December 31, 2005 and 2004, respectively.

Our Websites

      Our websites offer the convenience and flexibility of being able to shop for brand name watches and luxury goods, diamonds and fine jewelry 24 hours a day, seven days a week. Our websites provide a secure, informative and enjoyable shopping experience in an easy-to-use online format. Each website has an interactive search capability that allows our customers to search for products by different criteria, obtain product information and recommendations and participate in promotions and discounts.

     www.diamond.com

      www.diamond.com is an online retailer of independently certified diamonds, precious and semi-precious jewelry and brand name watches. Although engagement diamonds and settings have historically been the website’s primary focus, www.diamond.com provides jewelry for all occasions. We promote customer education regarding key aspects of buying diamonds through a “Learning Center” and other user-friendly interactive areas. On www.diamond.com, customers can search for independently certified diamonds using criteria such as carat, clarity, color and cut, and can use the “Design Your Ring” feature to customize their purchase. Our “Engagement Ring Showcase” illustrates some of our diamonds in a variety of our most popular mountings and settings. During the years ended December 31, 2005 and 2004, net sales of products offered on www.diamond.comcomprised approximately 45% and 39%, respectively, of our total net sales.

     www.ashford.com

      www.ashford.com provides a comprehensive online selection of brand name luxury goods, including watches, jewelry, designer handbags and accessories, home accents, fragrances, sunglasses and fine writing instruments. We are transitioning out of offering brand name handbags and anticipate that by the end of the second quarter 2006, we will no longer offer brand name handbags. Our Ashford^® branded watches are available exclusively on www.ashford.com. These watches are consistent in style and quality with our other brand name watches we sell, but at lower prices. Our Ashford branded watches are assembled in Switzerland with Swiss movements and are delivered to customers in attractive packaging emphasizing the Ashford brand. During the years ended December 31, 2005 and 2004, net sales of products offered on www.ashford.com comprised approximately 32% and 39% respectively, of our total net sales.

     www.worldofwatches.com

      www.worldofwatches.com sells designer brand name watches such as Tag Heuer, Omega and Movado. This website provides detailed product information regarding automatic and quartz movements, water and scratch resistance, shock proofing, strap and case materials, warranties and maintenance. During the years

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ended December 31, 2005 and 2004, net sales of products offered on www.worldofwatches.com comprised approximately 23% and 22%, respectively, of our total net sales.

Supplier Relationships

     Diamonds and Fine Jewelry

      In March 2004, we entered into a supply agreement with SDG Marketing, Inc., an affiliate of The Steinmetz Diamond Group. The Steinmetz Diamond Group, an international diamond dealer includes several companies that purchase diamonds directly from DeBeers Group. Beny Steinmetz, Daniel Steinmetz and Nir Livnat, all beneficial holders of our common stock are the beneficiaries of several trusts and foundations which own several of the companies which comprise The Steinmetz Diamond Group, including, SDG Marketing, Inc. Under the Supply Agreement, SDG Marketing became obligated to provide us with replenishable inventory of independently certified diamonds with a value equal to $4.0 million, $5.0 million, and $6.0 million for each of the years ending November 30, 2004, 2005, and 2006, respectively. In addition, under the Supply Agreement, we granted SDG Marketing the right of first refusal to provide us with jewelry based on our projected purchase needs. For the year ended December 31, 2005, 18% of the diamonds we sold were supplied by SDG Marketing, Inc. The remainder of the diamonds sold during 2005 were supplied from various third party diamond suppliers and were not held in our inventory until the diamonds were ordered by a customer.

      Due to the decreasing percentage of our diamond sales being derived from diamonds supplied by SDG, and the comparably greater risks of holding and carrying inventory, during the first quarter of 2006, we commenced discussions to wind down our supply agreement with SDG Marketing with the objective of reducing the risks and costs of holding inventory. In March 2006, we entered into a Termination Agreement with SDG Marketing, Inc. whereby the Supply Agreement was terminated. In connection with the Termination Agreement, we (i) returned to SDG Marketing approximately $3.7 million of diamond inventory to satisfy a $3.7 million payable to SDG Marketing; and (ii) delivered to SDG Marketing approximately $700,000 of diamond inventory as payment in kind to satisfy a $700,000 payable to SDG Marketing.

      The termination of our Supply Agreement with SDG Marketing converts our sourcing strategy from a mix of an inventory and online model to a completely virtual, online model of offering diamonds from third party diamond suppliers, including SDG Marketing, without actually holding the inventory until the diamonds are ordered by our customers. It also allows us to offer a broad selection of diamonds without incurring the costs and risks of holding them in our inventory while still enabling us to bypass multiple layers of intermediaries traditionally associated with diamond sourcing. As a result of the termination of the Supply Agreement, we have less than $50,000 of diamond inventory on hand as of March 30, 2006 and now exclusively source diamonds from various third party suppliers who will generally ship the diamonds to us in one or two days. We then deliver the products to our customers through our normal fulfillment process.

      We currently acquire our fine jewelry directly from manufacturers on a worldwide basis. We identify manufacturers with high value products by capitalizing on our management’s extensive experience in jewelry retailing. We purchased approximately $1.9 million of jewelry from The Steinmetz Diamond Group in 2005 from its jewelry manufacturing facility in India which became fully operational in December 2004. These jewelry purchases from Steinmetz represented approximately 38%of the aggregate dollar value of all of our 2005 jewelry purchases.

     Brand Name Watches and Other Luxury Goods

      Parallel Market. We acquire the majority of our brand name watches and luxury goods through the parallel market, an alternative distribution channel outside the control of brand owners. This market, which is sometimes referred to as the grey market, can develop as a result of brand owners’ attempts to build and control brand image by authorizing a difference in the price or supply of a product either between countries or different regions within the United States. To enhance distribution of products, we believe

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many brand owners do not implement procedures to limit the ability of third parties to purchase and sell goods in the parallel market. As a result, the parallel market comprises numerous suppliers from across the world for many brands and products. We believe that our parallel market purchases and subsequent sales to consumers are in compliance with existing legal and regulatory requirements.

      Our access to the parallel markets enables us to acquire genuine, current season merchandise instead of closeout merchandise like some of our competitors. Through the parallel market, we are able to purchase this merchandise at prices lower than could be purchased through a brand owner’s authorized distribution channels. Because we are not constrained by the pricing guidelines that authorized retailers must follow, we offer products below suggested retail prices while maintaining attractive margins.

      During the years ended December 31, 2005 and 2004, 70% and 77%, respectively, of the aggregate dollar value of our brand name watches and luxury goods were purchased from suppliers in the parallel market and the remainder was purchased directly from brand owners and authorized distributors. Our suppliers in the parallel market are located in the United States, Canada, Europe and the Far East and are typically wholesalers who acquire products either directly or indirectly from brand owners or their authorized distributors. We have long standing relationships and experience with our parallel market suppliers developed through several years of watches and luxury goods retailing. We have met many of our suppliers at trade shows and referrals from other suppliers over the past ten years and our buying team has maintained these relationships. We use a variety of suppliers and do not source a material amount of the aggregate dollar volume of our purchases from any individual supplier. Our buying team seeks to continuously build and strengthen our supplier relationships by maintaining brand sensitivity and increasing our supplier sales volume. In selecting inventory on the parallel markets, our buying team identifies the type and style of products it wishes to acquire based on past sales history and trends in the market. Our suppliers on the parallel market are chosen based on their ability to provide the necessary quantities of the desired product as well as their terms and pricing for that product. After our buying team chooses the supplier, we submit a written purchase order for the merchandise. After delivery and inspection of the purchased products, we pay for the products in accordance with the terms of the purchase order. In certain circumstances we are required to pay all or a portion of the purchase price for goods prior to inspection.

      Our Policies and Procedures. Since we source most of our watches and luxury products from the parallel market, we attempt to minimize our risk of purchasing stolen or counterfeit goods by following strict product sourcing policies and procedures. Our product sourcing and quality control policies and procedures for watches and other luxury goods include (i) purchasing products only from suppliers with whom we have a pre-existing relationship or to whom we have been referred; (ii) performing background checks on new suppliers and their officers through recognized search firms and other vendors; and (iii) performing in-house product inspection upon receipt of products. By purchasing products only from suppliers with whom we have a pre-existing relationship and have never had a material dispute, we believe we minimize our exposure to stolen goods. Our background checks enable us to obtain publicly available information on suppliers and their principals including information related to (1) the suppliers’ litigation history and court records, (2) the other entities for which the supplier’s principals have served as officers and directors and (3) liens on the supplier’s property. In addition to performing background checks on new suppliers, we solicit information on the reliability of new suppliers from our existing suppliers and other vendors.

      Our in-house product inspection procedures include reviewing source documentation evidencing the purchase of the merchandise in bona fide transactions from brand owners, authorized distributors of brand owners or retailers for all of our products other than watches, ensuring that the merchandise and the packaging bear the brand name, logo or criteria of authenticity of the manufacturer as applicable by examining the look and placement of factory markings and emblems inspecting the workmanship of materials and fabrics to ensure it is consistent with the product’s reputation and that materials are without blemish or flaw, and determining whether the merchandise is damaged or has been tampered with.

      In addition, by purchasing each type and style of luxury good and watch on the parallel market in significant quantities, we minimize the risk of purchasing stolen goods. Theft of these types of products

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rarely occurs in such larger quantities and, when it does, information on such theft typically is quickly disseminated among purchasers of such goods on the parallel markets. Other than purchasing products in significant quantities and purchasing products only from suppliers with whom we have a pre-existing relationship or to whom we have been referred, we do not undertake additional inventory acquisition procedures to ensure that the watches we purchase on the parallel market are not stolen.

Marketing

      Our marketing strategy is designed to generate consumer traffic by increasing awareness of our websites. We seek to acquire customers efficiently, build upon our customer base and increase repeat purchases. Given our limited resources and significantly increased marketing costs, all three of our websites experienced a decrease in number of visitors from 2004 to 2005, as evidenced through data compiled by us through third party software, information received from our portal partners and measurement tools on our websites.

      The profile of our customer base on each of our websites is different. www.diamond.com appeals to the diamond and fine jewelry consumer and has a higher concentration of customers who are men over the age of 30. www.ashford.com appeals to the luxury goods consumer and has a higher concentration of customers who are women over the age of 35. www.worldofwatches.com appeals to a younger customer base.

      Our marketing and advertising efforts consist primarily of the following initiatives:

      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 and Yahoo/ Overture. 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 an agreement with Amazon.com to offer our products on Amazon.com’s marketplace expiring in September 2007. 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. Approximately 90% of our marketing expenses are for online advertising. Over the last twelve months, our online advertising costs, including banner advertisements and selected key words on search engines, has increased significantly and this significant increase in online advertising costs has adversely affected our business.

      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 and in 2005 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

      An important element of our sales strategy is to provide a high level of customer service and sales support. Our highly trained sales support staff provides detailed product information and guidance, which,

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together with the informative and educational aspects of our websites, promote customer confidence in their purchase decisions.

      We have a customer service and sales support center staffed by, depending on the time of year, approximately 30 to 100 representatives. This center utilizes automated email and phone systems to route traffic to our customer service and sales support representatives to provide personalized assistance. This center operates seven days a week during extended business hours. Each customer service representative completes a four to six-week training program that covers best practices to provide real time assistance in purchasing brand name watches, luxury goods, diamonds and fine jewelry as well as payment alternatives and shipping services. Our customer service representatives are also trained to track and document customer inquiries and feedback, allowing us to improve the overall quality of our products and service. We contact customers to measure customer satisfaction, and periodically utilize third parties to monitor the performance of our customer service and sales support representatives.

      We have a 30-day return policy on all of our brand name watches, diamonds and fine jewelry, and a 15-day return policy on all other merchandise. Most of the brand name watches that we offer do not include serial numbers, which invalidates the manufacturer’s warranty. To address potential consumer concerns, we offer our own warranty, which in many cases is of a longer duration than the manufacturer’s warranty. We also provide our watch customers with repair and battery replacement services. For our diamond customers, we provide independent certifications primarily from the Gemological Institute of America. On our websites, we display all our warranties, guarantees and policies relating to security, shipping, refunds, exchanges and special orders.

Fulfillment Operations

      Our goal is to fulfill orders timely, securely and accurately. When an order is received and accepted, the merchandise is sent to assembly for packaging. In the case of selected jewelry orders, our on-site personnel perform setting and sizing. We inspect and track each product at all stages of the receiving and order fulfillment process. Customer orders are typically delivered within one to three business days, depending on the shipping method and the extent of customization required.

      We ship nearly all products via nationally recognized carriers. All shipments of products for which the cost of goods shipped is over $150 are shipped at no cost to the customer and are fully insured by a third party in case of loss or theft. We assume the risk of loss or theft on shipments of products for which the cost of goods shipped is less than $100.

      Our fulfillment center in Sunrise, Florida has security controls and restricted access and has been designed for the prompt receipt, storage and shipment of our products.

Technology and Systems

      We have established site management, customer interaction and distribution services and systems to process customer orders and payments. These services and systems use a combination of proprietary and commercially available licensed technologies. These applications are used to:

•  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.

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      Our systems are based on industry-standard architectures and have been designed to reduce downtime in the event of outages or catastrophic occurrences. We have implemented load balancing systems for the day to day operations and redundant servers to provide fault tolerant service. Our system hardware is located at our facility in Sunrise, Florida, which has redundant communications lines and emergency power backup. We also have redundant systems at a location in Boca Raton, Florida.

Seasonality

      Our business has been highly seasonal, with peak sales occurring in late November and December during the holiday shopping season. The fourth quarter accounted for 35.9%, 41.2% and 43.8% of our net sales in 2005, 2004 and 2003, respectively. In anticipation of increased sales activity during the fourth quarter, we incur significant additional expenses, including customer support and jewelry assembly costs. In addition, we make merchandising and inventory decisions for the holiday season well in advance. We have also experienced relatively higher net sales in February and May relating to Valentine’s Day and Mother’s Day. Due to the seasonality of our sales, our quarterly results will fluctuate, perhaps significantly.

Competition

      We face competition from both traditional and online retailers of diamonds, jewelry and luxury goods with greater brand recognition and resources, which may adversely affect our business. We currently or potentially will compete with a variety of competitors, including the following:

•  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.

      We believe that the following are the principal competitive factors in our market:

•  product selection and availability;

•  price;

•  convenience;

•  website recognition;

•  site features and content;

•  functionality and ease of use;

•  order delivery performance; and

•  customer service.

      The primary bases on which we compete with online and traditional retailers in the market for brand name watches and luxury products, diamonds and fine jewelry are price, merchandise selection and customer service. We believe we offer current season luxury products, brand name watches and diamonds at prices that are competitive with or lower than many of our online competitors. In addition, we offer a broader product selection of current season luxury products, diamonds and watches than many of our online competitors. We believe we currently offer luxury products and watches at more attractive prices

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than many of our traditional store-based competitors. Also, due to extensive training of our customer service personnel, we believe we offer more responsive and informed customer service than many of our online and traditional store-based competitors. However, many of our current and potential competitors, particularly the traditional store-based retailers and the brand owners of products we sell, have longer operating histories, larger customer or user bases, greater brand recognition and significantly greater financial, marketing and other resources than we do. Many of these current and potential competitors can devote substantially more resources to website and systems development than we can. In addition, larger, well-established and well-financed entities may acquire, invest in or form joint ventures with online competitors.

      Our competitors may be able to secure products from vendors on more favorable terms, fulfill customer orders more efficiently and adopt more aggressive pricing than we can. Traditional store-based retailers also enable customers to see and feel products in a manner that is not possible over the Internet. Given our limited operating history, many of our competitors have significantly greater experience selling luxury products. Advances in technologies, such as price comparison programs that select specific items from a variety of websites may increase competition by directing customers to other online retailers.

Intellectual Property

      We rely on various intellectual property laws and contractual restrictions to protect our proprietary rights in products and services. The contractual restrictions include confidentiality and nondisclosure agreements with our employees, contractors, vendors and strategic partners. Despite these precautions, it may be possible for a third party to copy or otherwise obtain and use our intellectual property without our authorization. In addition, we pursue the registration of our trademarks and service marks in the U.S. and internationally. However, effective intellectual property protection may not be available in every country in which our products and services are made available online. We have registered the following domain names: www.diamond.com, www.ashford.com, www.worldofwatches.com, www.odimo.com, and www.diamonddepot.com. We have registered trademarks for WorldofWatches.com, diamonddepot.com, 1-888-Watches and 1-888-Diamond. Our website designs, features and images are subject to federal copyright protection. We are also developing proprietary product lines that are and will be protected by federal trademark and copyright protection.

      There can be no assurance that the steps we take to protect our proprietary rights will be adequate or that third parties will not infringe or misappropriate our proprietary rights. Any such infringement or misappropriation, should it occur, could have a material adverse effect on our business, result of operations and financial condition. Furthermore, there can be no assurance that our business activities will not infringe upon the proprietary rights of others, or that other parties will not assert infringement claims against us. For example, in August 2005, we settled for a nominal amount an action against us by Gucci America, Inc. seeking an injunction and unspecified damages alleging that we sold counterfeit goods. We expect that participants in our markets will be increasingly subject to infringement claims as the number of services and competitors in our industry segment grows. Any infringement claim, with or without merit, could be time-consuming, result in costly litigation, cause service upgrade delays or require us to enter into royalty or licensing agreements. These royalty or licensing agreements might not be available on terms acceptable to us or at all. As a result, any claim of infringement against us could have a material adverse effect upon our business.

Government Regulation

     Internet and E-Commerce

      We are not currently subject to direct federal, state or local regulation other than regulations applicable to businesses generally and directly applicable to online commerce, as well as the secondhand watch statutes enacted in several states, as discussed below. However, as Internet use increases, it is possible that a number of laws and regulations may be adopted with respect to the Internet. These laws may cover issues such as user privacy, freedom of expression, pricing, content and quality of products and

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services, taxation, advertising, intellectual property rights and information security. Furthermore, the growth of online commerce may prompt calls for more stringent consumer protection laws. Several states have proposed legislation to limit the uses of personal user information gathered online or require online services to establish privacy policies. The Federal Trade Commission has also initiated action against at least one online service regarding the manner in which personal information is collected from users and provided to third parties. We do not currently provide personal information regarding our users to third parties. However, the adoption of additional consumer protection laws could create uncertainty in web usage and reduce the demand for our products and services.

      New laws or regulations may be enacted with respect to the Internet or existing laws may be applied or interpreted to apply to the Internet, which may decrease the use of the Internet or our websites or increase our costs of doing business. As use of the Internet continues to evolve, we expect that there will be an increasing number of laws and regulations pertaining to the Internet in the United States and throughout the world. Because our services are available over the Internet in multiple states and foreign countries, other jurisdictions may claim that we are required to qualify to do business in that state or foreign country. We are qualified to do business only in Florida. Our failure to qualify in a jurisdiction where we are required to do so could subject us to taxes and penalties. It could also hamper our ability to enforce contracts in these jurisdictions. The application of laws or regulations from jurisdictions whose laws do not currently apply to our business could have a material adverse effect on our business, results of operations and financial condition.

     Anti-Money Laundering Program

      Under the USA Patriot Act and other federal regulations, dealers in precious metals, stones and jewels are required to establish a compliance program which includes policies and procedures to detect and report suspicious transactions to the U.S. government, as well as ensure compliance with the USA Patriot Act. Dealers must also implement employee training programs, designate a special compliance officer and conduct independent audits of the effectiveness of the compliance program. To meet these requirements, we have developed and implemented a written anti-money laundering program reasonably designed to prevent Odimo from being used to facilitate money laundering or the financing of terrorist activities, designated Amerisa Kornblum, our Chief Financial Officer as our designated compliance officer, established an ongoing training program and implemented an independent testing program to ensure compliance with the regulations.

     Decoded Watches

      We acquire most of the brand name watches we sell in the parallel market. As a result, many of the brand name watches we sell have had their serial numbers removed (“decoded”). We have reviewed the laws of each of the 50 states, and have identified 41 states (in which net sales of decoded watches was approximately $4.6 million and $4.5 million during the years ended December 31, 2005 and 2004, respectively) that have criminal statutes that prohibit the sale or possession of certain products that have been decoded. Among these 41 states, only California, Georgia and South Dakota have statutes that specifically refer to decoded watches. Certain state statutes have exceptions for goods that are not stolen or if there is no intent to defraud, deceive or misrepresent. However, other states have statutes that do not contain these exceptions. We are not aware of any case in any jurisdiction that has convicted anyone under these statutes for the sale of decoded watches that were not stolen.

      Based on our review of such statutes in these 41 states, we have determined that it is unlikely that our sales of decoded watches violate the laws in these states. This determination is subject to uncertainty because there are few reported decisions of courts interpreting these statutes, none of which involve the sale of watches. We believe, however, that the intended purpose of all of these statutes is to prevent the sale of stolen merchandise. If a court were to determine that our sale of decoded watches violates a state law, we could be subject to claims for damages, fines or other criminal penalties and be unable to continue to sell decoded watches in that state.

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      We have developed and implemented policies and procedures to minimize the risk of acquiring stolen merchandise. To ensure that the luxury goods and watches we purchase on the parallel markets are not stolen, we only purchase products from suppliers with whom we have a pre-existing relationship or to whom we have been referred. We purchase decoded watches from either authorized distributors or their customers, and in each case these suppliers are permitted to sell watches to retailers, including Odimo. Serial numbers are removed from the watchcase of the decoded watches we sell but not from the watch movements. However, because we acquire most of our watches through the parallel market, there is a greater risk that we may inadvertently acquire stolen merchandise than would be the case if we acquired merchandise through brand owners’ authorized distribution channels. If we acquire and resell decoded watches that were stolen, there would be a greater risk of our sales violating these state laws.

      In addition to the statutes described above, seventeen states (in which net sales of decoded watches was approximately $3.6 million and $4.5 million during the years ended December 31, 2005 and 2004, respectively) have statutes that regulate the sale of decoded watches. These laws categorize decoded watches as “grey market” goods or “secondhand” watches and impose specific disclosure requirements. For example, laws in California and New York prohibit anyone from offering “grey market” goods without affixing to the product a label or tag disclosing, among other things, that the item is “secondhand” and is not covered by the manufacturer’s express written warranty, even though the item has never been used. We have implemented procedures, such as affixing a tag disclosing that the item is “secondhand”, and designed our websites to contain the requisite disclosure (i.e. no manufacturer’s warranty) to comply with the laws in these states that regulate the sale of decoded watches. However, if a court were to determine that we failed to comply with such laws in a particular state, we could be subject to claims for damages, fines or other penalties or prohibited from selling decoded watches in that state.

Employees

      As of March 10, 2006, we had 113 full-time employees. Of these employees, 28 were in fulfillment operations, 13 were in technology and development, 12 were in marketing, 7 were in merchandising, 35 were in customer service and 18 were general or administrative employees. We utilize part-time and temporary employees to respond to fluctuating seasonal demand around peak holiday periods. Our employees are not covered by a collective bargaining agreement and we consider our relations with our employees to be good.

Available Information

      We make available free of charge on or through our Internet website our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission. Our corporate Internet address is www.odimo.com. The information found on our website is not part of this or any other report filed with or furnished to the SEC. All of our filings with the SEC may be obtained at the SEC’s Public Reference Room. The SEC maintains an Internet site that contains reports, proxy and other information statements and other information regarding issuers that file electronically with the SEC at www.sec.gov.

Item 1A.  Risk Factors

      Some of the statements in this report and in particular, statements found in Management’s Discussion and Analysis of Financial Condition and Results of Operations, that are not historical in nature may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are often identified by the words “will,” “should,” “anticipate,” “believe,” “expect,” “intend,” “estimate,” “hope,” or similar expressions. These statements reflect management’s current views with respect to future events and are subject to risks and uncertainties. There are important factors that could cause actual results to differ materially from those in forward-looking statements, many of which are beyond our control. These factors, risks and uncertainties include, but are not limited to, the factors described below.

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      Our actual results, performance or achievement could differ materially from those expressed in, or implied by, these forward-looking statements, and accordingly, we can give no assurances that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do so, what impact they will have on our results of operations or financial condition. In view of these uncertainties, investors are cautioned not to place undue reliance on these forward-looking statements. We expressly disclaim any obligation to publicly revise any forward-looking statements that have been made to reflect the occurrence of events after the date hereof.

      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

There is substantial doubt about our ability to continue as a going concern due to our cash requirements which means that we may not be able to continue operations unless we obtain additional funding.

      Our independent registered public accounting firm’s report on our financial statements for the fiscal year ended December 31, 2005 includes an explanatory paragraph regarding our ability to continue as a going concern. Note 2 to the financial statements states that our ability to continue operations, meet our operational goals and pursue our long-term strategy is dependent upon our raising additional capital, which raises substantial doubt about our ability to continue as a going concern. Further, the registered public accounting firm’s report states that the financial statements do not include any adjustments that might result from the outcome of this uncertainty.

We have incurred operating losses since our inception and anticipate incurring operating losses at least through 2006. We need additional capital to meet our future cash requirements and execute our business strategy.

      We have incurred operating losses since our inception in 1998 and anticipate incurring operating losses at least through 2006. As of December 31, 2005, our accumulated deficit was $92.4 million, including a net loss of approximately $23.5 million and $12.5 million for the years ended December 31, 2005 and 2004, respectively. Our ability to become profitable depends on our ability to generate and sustain substantially higher net sales that exceed historical levels while maintaining reasonable expense levels. Since our inception, we have incurred significant operating expenses and capital expenditures for technology, website development, advertising, personnel and other operating costs. During the next 12 months, we expect to incur approximately $10 million of costs and capital expenditures related to:

•  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.

      We currently need additional capital to meet our future cash requirements and execute our business strategy. If we don’t raise funds on acceptable terms or complete an alternative transaction, we may not be able to continue our operations. Financing may not be available on acceptable terms, or at all. Additional financing, if available, may be dilutive to the holders of our common stock and involve significant cash payment obligations and covenants and/or financial ratios that restrict our ability to operate our business.

      Even if we do achieve profitability, we cannot be certain that we would be able to sustain or increase profitability on a quarterly or annual basis in the future or that we will meet our capital requirements. If we are unable to achieve or sustain profitability, or meet our capital requirements, we will continue to need

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additional capital, and may continue to be dependent upon debt or equity financing for funds to meet our cash requirements, and our stock price could suffer.

In order to decrease our losses, we must attract customers in a cost-effective manner.

      Our success depends upon our attracting customers in a cost-effective manner. We rely on relationships with, among others, online service providers, search engines, directories and other websites to direct traffic to our websites. The costs for these relationships has substantially increased over the last 12 months and the continued increase in such costs will lead us to not attract customers in a cost-effective manner which, in turn, will adversely impact our business.

Because we do not have a predictable or guaranteed supply of merchandise, we may lose customers and sales if we are unable to meet our customers’ demand for particular products.

      We do not have any written agreements or formal arrangements to acquire merchandise. As a result, we do not have a predictable or guaranteed supply of merchandise. The availability of these products depends on many factors, including consumer demand, brand owner pricing and distribution practices, manufacturer production and fashion trends. If we are unable to acquire a sufficient supply and selection of products in a timely manner at competitive prices, we may lose customers and our sales could decline.

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.

      Approximately 35% and 44% of our net sales (70% and 77% of our net sales excluding diamonds and fine jewelry) during the years ended December 31, 2005 and 2004, respectively, were generated from sales of merchandise that we did not acquire directly from the brand owners or their authorized distributors. These alternative distribution channels are commonly referred to as the “parallel market” or the “grey market.” Merchandise purchased from these alternative distribution channels includes authentic trademarked and copyrighted products that are intended for sale in foreign countries. In addition to our own compliance and quality testing procedures, we rely on assurances from our suppliers as to the authenticity of these products to ensure that products we receive are genuine. Our purchase of merchandise in the parallel market increases the risk that we will mistakenly purchase and sell counterfeit goods, stolen goods or merchandise which is physically materially different from merchandise acquired from channels authorized by the brand owners. We may have difficulty demonstrating that the merchandise we sell is authentic because many of the distributors and other intermediaries from whom we purchase merchandise may be unwilling to disclose their suppliers. If we sell goods that are counterfeit, stolen or are determined to be physically materially different, we may be subject to significant liability for infringement of trademarks, incur legal defense costs and suffer damage to our reputation and decreased sales.

      We have received in the past, and anticipate that we will receive in the future, communications from brand owners alleging that certain items sold through our websites infringe on such brand owners’ trademarks, patents, copyrights and other intellectual property rights. We may be subject to lawsuits by brand owners and their authorized distributors based on allegations that we sell physically materially different merchandise, counterfeit goods or stolen goods. For example, in August 2005, we settled for a nominal amount an action filed against us in U.S. District Court, Southern District of Florida, by Gucci America Inc. seeking an injunction and unspecified damages alleging that we sold counterfeit goods. Claims by brand owners, with or without merit, could be time consuming, result in costly litigation, generate bad publicity for us, or subject us to large claims for damages.

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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.

      Some brand owners such as Rolex and Raymond Weil have implemented, and are likely to continue to implement, procedures to limit the ability of third parties, including Odimo, to purchase products through the parallel market by designating an exclusive legal importer of their brands into the United States. In the event we acquire such products from distributors and other intermediaries who may not have complied with applicable laws and regulations, such goods may be subject to seizure from our inventory by the U.S. Customs Service, and the brand owner may have a civil action for damages against us. Such limitations or controls could affect our ability to obtain products at satisfactory prices, or at all. When we are aware of these policies we do not sell such brand names. However, we do not contact brand owners to determine whether such restrictions exist prior to purchasing these goods from our suppliers. If more brand owners adopt such a policy, the number of products we are able to sell will decrease. Brand owners may also decide to more closely monitor their distribution chain, to prevent their authorized distributors from selling goods in the parallel markets.

      Courts could find that we have tortiously interfered with contractual arrangements between a brand owner and its authorized wholesalers and retailers where those contractual arrangements restrict authorized wholesalers and retailers from selling to entities, such as Odimo, that will resell the products. In addition, United States copyright law may prohibit importation of genuine goods without the brand owner’s permission when the goods are packaged together with goods that are protected by a United States copyright such as the nonmechanical design features of watches, artistic features of home accessories and the package design of fragrances we sell.

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.

      Many of the brand name watches we sell have had their serial numbers removed (“decoded”). We have reviewed the laws of each of the 50 states, and have identified 41 states that have statutes that prohibit the sale or possession of certain products that have been decoded. Among the 41 states, only California, Georgia and South Dakota have statutes that specifically refer to decoded watches. In 11 states (in which our net sales of decoded watches were approximately $910,000 and $1.2 million during the years ended December 31, 2005 and 2004, respectively), the statutes contain exceptions for products that have not been stolen or if there was no intent to defraud, deceive or misrepresent. However, in 30 states (in which our aggregate net sales of decoded watches were approximately $3.5 million and $4.6 million during the years ended December 31, 2005 and 2004, respectively), including California, Georgia and South Dakota, the statutes do not contain these exceptions. As a result, there is uncertainty as to whether these laws apply to sales of decoded watches if the goods are not stolen or if there is no intent to defraud, deceive or misrepresent. In addition, if we inadvertently purchase stolen watches, we may be unable to rely on these exceptions. We do not engage in the same in-house compliance and quality testing procedures for watches as we do for our other merchandise. The only procedures we follow to ensure that the watches we purchase are not stolen are that we purchase in significant quantities and we purchase watches only from suppliers with whom we have a pre-existing relationship or to whom we have been referred. Accordingly, we face increased risk that the watches we buy may be stolen or counterfeit because we do not have access to source documentation for our watches. If a court were to determine that our sales of decoded watches violate the laws of any state, we would be subject to claims for damages, and fines or other penalties, and we would be unable to continue to sell decoded watches in that state. We derived approximately $5.0 million and $6.3 million of net sales from decoded watches during the years ended December 31, 2005 and 2004, respectively, which represented approximately 26% and 30% of our net sales of watches and approximately 10% and 12% of our total net sales during the years ended December 31, 2005 and 2004, respectively.

      In addition to the statutes described above, seventeen states (in which net sales of decoded watches was approximately $3.6 million and $4.5 million during the years ended December 31, 2005 and 2004,

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respectively) have statutes that regulate the sale of decoded watches. These laws categorize decoded watches as “grey market” goods or “secondhand” watches and impose specific disclosure requirements. For example, laws in California and New York prohibit anyone from offering “grey market” goods without affixing to the product a label or tag disclosing, among other things, that the item is “secondhand” and is not covered by the manufacturer’s express written warranty, even though the item has never been used. We have recently implemented procedures, such as affixing a tag disclosing that the item is “secondhand”, and designed our websites to contain the requisite disclosure (i.e. no manufacturer’s warranty) to comply with the laws in these states that regulate the sale of decoded watches. However, if a court were to determine that we failed to comply with such laws in a particular state, we could be subject to claims for damages, fines or other penalties or prohibited from selling decoded watches in that state.

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.

      The fashion industry is subject to rapidly changing trends and shifting consumer demand. Accordingly, our success depends on the priority that our target customers place on fashion and our ability to anticipate, identify and capitalize upon emerging fashion trends. Our failure to anticipate, identify or react appropriately to changes in styles or trends could lead to, among other things, excess inventories and markdowns, as well as decreased appeal of our merchandise.

Our net sales and operating results are volatile and difficult to predict, which may adversely affect the trading price of our common stock.

      Our net sales and operating results have historically fluctuated significantly from quarter to quarter and we expect they will continue to fluctuate significantly in the future. Because our net sales and operating results are volatile and difficult to predict, we believe that quarterly comparisons of our net sales and results of operations are not necessarily meaningful and you should not rely on the results of one quarter as an indication of our future performance.

Competition from traditional and online retail companies with greater brand recognition and resources may adversely affect our sales.

      The retail industry is intensely competitive, and we expect competition in the sale of brand name watches and luxury goods, diamonds and fine jewelry to increase in the future. Increased competition may result in decreased net sales, lower margins, loss of market share or increased marketing expenditures, any of which could substantially harm our business, financial condition and results of operations. Our competitors include:

•  independent and chain stores that sell jewelry, watches or other luxury products, such as Tiffany & Co., Zales and Signet PLC’s Kay Jewelers;

•  other online retailers that sell diamonds, fine jewelry, brand name watches and/or luxury products, such as Amazon.com and Blue Nile;

•  department stores;

•  boutiques and websites operated by brand owners;

•  mass retailers and warehouse clubs that sell jewelry, watches or other luxury products;

•  catalog and television shopping retailers; and

•  online auction houses and closeout retailers.

      Competition in the e-commerce market may intensify, because the Internet lowers the barriers to entry and facilitates comparison-shopping. In addition, manufacturers and brand owners may create their own websites to sell their own merchandise. Many of our current and potential competitors have greater brand recognition, longer operating histories, more extensive customer bases, broader product and service

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offerings and greater resources for marketing, research and product development, strategic acquisitions, alliances and joint ventures than we do. As a result, these competitors may be able to secure merchandise from suppliers on more favorable terms, and may be able to adopt more aggressive pricing policies.

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.

      Substantially all of our sales come from customers who link to our websites from websites operated by other online retailers or Internet portals with whom we advertise. Establishing and maintaining relationships with leading Internet portals and other online retailers through our affiliate program is competitive and expensive. During the years ended December 31, 2005 and 2004, we spent $7.6 million and $6.6 million, respectively, on online advertising, affiliate programs and public relations. We do not maintain long-term contracts or arrangements with Internet portals, and we may not successfully enter into additional relationships or renew existing ones beyond their current terms. We expect that we will have to pay increasing fees to maintain, expand or enter into new relationships of this type. In addition, traffic to our websites could decline if our Internet portal and online marketing programs become less effective or if the traffic to the website of an Internet portal on which we advertise decreases. Our business could be materially adversely affected if any of our online advertisers experience financial or operational difficulties or if they experience other corporate developments that adversely affect their performance. A failure to maintain, expand or enter into Internet portal relationships or to establish additional online advertising relationships that generate a significant amount of traffic from other websites could result in decreased sales or limit the growth of our business.

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

      Approximately 90% of our marketing expenses are for online advertising. Over the last 12 months, online advertising rates, including banner advertisements and selected key words on search engines, have significantly increased and our business has been adversely affected. Online advertising costs accounted for 14.7% and 12.7% of our net sales for the years ended December 31, 2005 and 2004, respectively. If the costs of online advertising continue to rise, our ability to purchase online advertising may be limited, which in turn could have an adverse effect on our sales.

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.

      We held approximately $6.1 million and $8.8 million of brand name watches, fine jewelry and luxury goods in inventory as of December 31, 2005 and 2004, respectively. If our sales levels increase, we will increase our inventory proportionately. Consumer tastes and preferences for luxury products can change rapidly, thus exposing us to significant inventory risks. The demand for specific products can change between the time the products are ordered and the date of receipt. We do not have return privileges with respect to all of our inventory (other than diamonds). As a result, if we do not accurately predict these trends or if we overstock unpopular products, we may be required to take significant inventory markdowns, which could reduce our net sales and gross margins. We are particularly exposed to this risk in the first quarter of each year because we derive a disproportionately large amount of our annual net sales in the fourth quarter, and maintain significantly increased inventory levels for the holiday selling season.

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 have experienced, and expect to continue to experience, seasonal fluctuations in our net sales, with a disproportionate amount of our net sales realized during the fourth quarter ending December 31, as a result of the holiday buying season. Over 35.9%, 41.2% and 43.8% of our net sales in the years ended December 31, 2005, 2004 and 2003, respectively, were generated during the fourth quarter. If we were to

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experience lower than expected net sales during any fourth quarter, it would have a disproportionately large impact on our operating results and financial condition for that year. Also, in anticipation of increased sales activity during the fourth quarter, we increase our inventories and staffing in our fulfillment and customer support operations and incur other additional expenses, which may have a negative effect on our cash flow.

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.

      Our performance is substantially dependent upon the services and performance of our senior management team: Alan Lipton, our Chief Executive Officer and President, Jeffrey Kornblum, our Chief Operating Officer, Amerisa Kornblum, our Chief Financial Officer, Secretary and Treasurer, and George Grous, our Chief Technology Officer. We have employment agreements with each of these four key employees, with terms through July 2007. All members of our management team may terminate their employment with us at any time. The loss of the services of any of our senior management team or certain of our key employees for any reason could adversely affect our operations or otherwise have a material adverse effect on 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.

      A key element of our strategy is to generate a high volume of traffic on our websites. Our servers and communication systems operate at between 20% and 90% of capacity, depending on the time of year and current promotions and advertising levels. Over the past year, we have experienced server and communication interruptions for periods of routine maintenance and systems upgrades. As traffic on our websites grows, we may not be able to accommodate all of the growth in user demand on our websites and in our customer service center. If we are unable to upgrade our existing technology or network infrastructure and the systems used to process customers’ orders and payments to accommodate increased sales volume, our potential customers may be dissatisfied and may purchase merchandise from our competitors. We may also fail to provide enough capacity in our customer service center to answer phones or provide adequate customer service. A failure to implement new systems and increase customer service center capacity effectively or within a reasonable period of time could adversely affect our sales.

      We also intend to introduce additional or enhanced features and services to retain current customers and attract new customers to our websites. If we introduce a feature or a service that is not favorably received, our current customers may not use our websites as frequently and we may not be successful in attracting new customers. We may also experience difficulties that could delay or prevent us from introducing new services and features. These new services or features may contain errors that are discovered only after they are introduced and we may need to significantly modify the design of these services or features to correct these errors. If customers encounter difficulty with or do not accept new services or features, they may decide to purchase instead from one of our competitors, decreasing our sales.

Our costs have increased because we are a public company.

      As a public company, we have incurred and will continue to incur significant legal, accounting and other expenses that we did not incur as a private company. In 2005, these expenses were approximately $1.5 million. We expect these expenses to be between $1.0 million and $2.0 million annually. We will incur costs associated with our public company reporting requirements. We also anticipate that we will incur costs associated with recently adopted corporate governance requirements, including requirements under the Sarbanes-Oxley Act of 2002, as well as new rules implemented by the SEC and Nasdaq National Market. We expect these rules and regulations to increase our legal and financial compliance costs and to make some activities more time-consuming and costly.

      In addition, we will have to hire additional personnel to assist us in complying with these requirements. If we are unable to attract and retain such personnel, we may have difficulty satisfying the

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periodic reporting and disclosure obligations of public companies. We also expect these new rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified individuals to serve on our board of directors or as executive officers. If we fail to comply with the requirements applicable to public companies, we may incur fines or penalties, and may be subject to enforcement action by the SEC or delisting from the Nasdaq National Market.

All of our operations are located at our Sunrise, Florida facility, and disruptions at this facility could prevent us from receiving orders or fulfilling orders for our customers in a timely manner.

      Our operations are located at a leased facility in Sunrise, Florida. Our ability to fulfill customer orders through our Sunrise facility in a timely manner, or at all, could be affected by a number of factors, including any disruption of our computer or communications systems, an employee strike or other labor stoppage, a disruption in the transportation infrastructure or hurricanes or other natural disasters. If we are unable to fulfill our customers’ orders through the Sunrise facility, we may not be able to quickly secure a replacement distribution facility on terms acceptable to us or at all. Our computer and communications systems are particularly vulnerable to power loss, telecommunications failure, general Internet failure or failures of Internet service providers, human error, computer viruses and physical or electronic break-ins. Any of these events could lead to system damage or interruptions, delays and loss of critical data, and make our websites or customer service center inaccessible to our customers or prevent us from efficiently fulfilling orders. For example, in October 2005, our computer and communication systems were impaired for 7 days as a result of Hurricane Wilma. Frequent or long service delays or interruptions in our service or disruptions during a peak holiday season will reduce our net sales and profits, and damage our reputation. Future net sales and profits will be harmed if our customers believe that our system is unreliable.

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.

      The supply and price of rough (uncut and unpolished) diamonds in the principal world markets have been and continue to be significantly influenced by a small number of diamond mining firms. As a result, any decisions made to restrict the supply of rough diamonds by these diamond mining firms to our suppliers could substantially impair our ability to acquire diamonds at reasonable prices. We do not currently have any direct supply relationships with these diamond mining firms, nor do we expect to pursue such a relationship. The availability and price of diamonds to our suppliers may fluctuate depending on the political situation in diamond-producing countries. Sustained interruption in the supply of rough diamonds, an overabundance of supply or a substantial change in the relationship between the major mining firms and our suppliers could adversely affect us. Our recent experience suggests that the price of rough diamonds is increasing. A failure to secure diamonds at reasonable commercial prices and in sufficient quantities would lower our revenues and adversely impact our results of operations. In addition, increases in the price of diamonds may adversely affect consumer demand, which could cause a decline in our net sales.

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.

      The jewelry industry in general is affected by fluctuations in the prices of precious metals and precious and semi-precious stones. The availability and prices of gold, silver and platinum and other precious metals and precious and semi-precious stones may be influenced by such factors as cartels, political instability in exporting countries, changes in global demand and inflation. Shortages of these

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materials or a rise in their price could result in reduced margins or increased prices causing reduced sales of such products.

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

      We offer our customers a 15- or 30-day return policy that allows our customers to return most products if they are not satisfied for any reason. We make allowances for product returns in our financial statements based on historical return rates. Actual merchandise returns are difficult to predict and may significantly exceed our allowances. Any significant increase in merchandise returns above our allowances would reduce our gross margins and could result in excess inventory or inventory write-downs. Once a product is purchased from the parallel market and has been inspected and accepted by us, we cannot return the product to our supplier.

If we attain specified levels of financial performance, we are obligated to make earn-out payments to one of our stockholders.

      If and to the extent that our net income before income taxes, interest income and expense, depreciation expense, amortization expense, and other non-cash expenses (as defined in the agreement with GSI Commerce, Inc.) is positive during the 2006 and 2007 fiscal years, we will be obligated to make a payment to GSI Commerce, Inc., the entity from which we purchased the www.ashford.com domain name in December 2002, equal to 10% of such amount for such year, up to a maximum aggregate amount of $2.0 million. This payment is tied to income derived from our entire business, not just from our www.ashford.com website.

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.

      Our Internet domain names are an important aspect of our business. Under current domain name registration practices, no one else can obtain an identical domain name, but they can obtain a similar name, or the identical name with a different suffix, such as “.net” or “.org”, or with a different country designation such as “jp” for Japan. For example, we do not own the domain name “www.diamonds.com” or “www.diamonds-usa.com.” As a result, third parties may use domain names that are similar to ours, which may result in confusion of potential customers, impairment of the value of our brands and lost sales.

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.

      We have never declared or paid any cash dividends on our common stock and do not intend to pay dividends on our common stock for the foreseeable future. We intend to invest our future earnings, if any, to fund our growth. Therefore, you likely will not receive any dividends from us on our common stock for the foreseeable future.

Legal claims against us could be costly and result in substantial liabilities or the loss of significant rights.

      We are currently a party to a proceeding with an uncertain outcome, which could result in significant judgments against us. In January 2006, we were served with a complaint which was a consolidation of two previously served complaints. The complaint names the Company, Alan Lipton, and Amerisa Kornblum as defendants and is pending in the Circuit Court of the 17th Judicial Circuit in and for Broward County, Florida on behalf of a purported class of purchasers of our common stock in or traceable to our initial public offering. The complaint generally alleges that we and the other defendants violated Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 due to allegedly false and misleading statements in public disclosures in connection with our initial public offering regarding the impact to our operations of advertising expenses. We believe that the lawsuits are without merit and intend to vigorously defend

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ourselves. We and the individual defendants have filed a motion to dismiss to the complaint which has not yet been heard. We are currently unable to predict the outcome of the actions or the length of time it will take to resolve the actions.

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.

      In accordance with current industry practice and our interpretation of current law, we do not currently collect sales and use taxes or other taxes with respect to shipments of goods into states other than Florida. However, one or more states or foreign countries may seek to impose sales or other tax collection obligations on us in the future. A successful assertion by one or more states or foreign countries that we should be collecting sales or other taxes on the sale of our products could result in substantial tax liabilities for past and future sales, discourage customers from purchasing products from us, decrease our ability to compete with traditional retailers or otherwise substantially harm our business, financial condition and results of operations.

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

      We are subject to increasing regulation at the federal, state and international levels relating to privacy and the use of personal user information, designed to protect the privacy of personally identifiable information as well as to protect against its misuse. These laws include the Federal Trade Commission Act, the CAN Spam Act, the Children’s Online Privacy Protection Act, the Fair Credit Reporting Act and related regulations as well as other legal provisions. Several states have proposed legislation that would limit the use of personal information gathered online or require online services to establish privacy policies. These regulations and other laws, rules and regulations enacted in the future, may adversely affect our ability to collect and disseminate or share demographic and personal information from users and our ability to email or telephone users, which could be costly and 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.

      The online market for brand name watches and luxury goods, diamonds and fine jewelry is significantly less developed than the online market for books, music, toys and other consumer products. Our success will depend in part on our ability to attract consumers who have historically purchased brand name watches and luxury goods, diamonds and fine jewelry through traditional retailers. We may have difficulty attracting additional consumers to purchase products on our websites for a variety of reasons, including:

•  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.

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If the Internet infrastructure fails to grow or deteriorates, our ability to grow our business will be impaired.

      Our success will depend on the continued growth and maintenance of the Internet infrastructure. This includes maintenance of a reliable network infrastructure with the necessary speed, data capacity and security for providing reliable Internet services. Viruses, worms and similar programs also harm the performance of the Internet. The Internet has experienced a variety of outages and other delays as a result of damage to portions of its infrastructure, and it could face outages and delays in the future. These outages and delays could reduce the level of Internet usage as well as our ability to provide our solutions.

Risks Related to the Securities Markets and Ownership of Our Common Stock

Our stock price has been and may continue to be volatile.

      The market price for our common stock has been and is likely to continue to be volatile. In addition, the market price of our common stock may fluctuate significantly in response to a number of factors, most of which we cannot control, including:

•  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.

      A small number of our current stockholders hold a substantial number of shares of our common stock. Shares held by our officers, directors and principal stockholders will be considered “restricted securities” within the meaning of Rule 144 under the Securities Act and, are eligible for resale subject to the volume, manner of sale, holding period and other limitations of Rule 144.

      Sales of a substantial number of shares, or the expectation that such sale may occur, could significantly reduce the market price of our common stock. Moreover, the holders of a substantial number of our shares of common stock have rights to require us to file registration statements to permit the resale of their shares in the public market or to include their shares in registration statements that we may file for ourselves or other stockholders. We also have registered all common stock that we may issue under our stock incentive plan. Accordingly, these shares, when registered, can be freely sold in the public market upon issuance, subject to restrictions under the securities laws. If any of these stockholders cause a large number of securities to be sold in the public market, the sales could reduce the trading price of our common stock. These sales also could impede our ability to raise future capital.

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

      Although we are currently listed for trading on the Nasdaq National Market, our stock has been thinly traded and an active trading market for our common stock may never be sustained. An inactive market may impair your ability to sell shares at the time you wish to sell them or at a price that you consider reasonable. Furthermore, an inactive market may impair our ability to raise capital by selling shares and may impair our ability to acquire other businesses, products and technologies by using our shares as consideration.

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 restated certificate of incorporation and restated bylaws contain provisions that may delay or prevent a change in control, discourage bids at a premium over the market price of our common stock and adversely affect the market price of our common stock and the voting and other rights of the holders of our common stock. These provisions include:

•  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.

      As a Delaware corporation, we are also subject to certain Delaware anti-takeover provisions. Under Delaware law, a corporation may not engage in a business combination with any holder of 15% or more of its capital stock unless the holder has held the stock for three years or, among other things, the board of directors has approved the transaction. Our board of directors could rely on Delaware law to prevent or delay an acquisition of us.

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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.

      Our officers, directors and holders of 5% or more of our outstanding common stock beneficially own the majority of our outstanding common stock. As a result, these stockholders, acting together, will be able to significantly influence all matters requiring approval by our stockholders, including the election of directors and the approval of mergers or other business combination transactions. The interests of this group of stockholders may not always coincide with our interests or the interests of other stockholders, and they may act in a manner that advances their best interests and not necessarily those of other stockholders. As a result of their actions or inactions our stock price may decline.

Item 1B.  Unresolved Staff Comments

      None.

Item 2.  Properties

      Our operations are located in Sunrise, Florida, where we lease approximately 34,000 square feet pursuant to a five year lease agreement through December 31, 2010. We pay approximately $43,000 per month for this office space. Our logistics and distribution operations have been operating out of this location since September 2005 and the remainder of our operations commenced operating out of this location in March 2006.

Item 3.  Legal Proceedings

      We are currently a party to a proceeding with an uncertain outcome, which could result in significant judgments against us. In January 2006, we were served with a complaint which was a consolidation of two previously served complaints. The consolidated complaint names the Company, Alan Lipton, our Chief Executive Officer and President and Chairman of the Board of Directors and Amerisa Kornblum, our Chief Financial Officer as defendants and is pending in the Circuit Court of the 17th Judicial Circuit in and for Broward County, Florida on behalf of a purported class of purchasers of our common stock in or traceable to our initial public offering. The complaint generally alleges that we and the other defendants violated Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 due to allegedly false and misleading statements in public disclosures in connection with our initial public offering regarding the impact to our operations of advertising expenses. We believe that the lawsuits are without merit and intend to vigorously defend ourselves. We and the individual defendants have filed a motion to dismiss the complaint which has not yet been heard. We are currently unable to predict the outcome of the actions or the length of time it will take to resolve the actions.

      From time to time, we are subject to legal proceedings and claims, including complaints from trademark owners objecting to our sales of their products below manufacturer’s retail pricing, and/or threatening litigation, in the ordinary course of business. Management currently believes, after considering a number of factors and the nature of the contingencies to which the Company is subject, that the ultimate disposition of these contingencies either cannot be determined at the present time or will not have, individually or in the aggregate, a material adverse effect on its financial position or results of operations.

      We acquire most of the brand name watches and luxury goods products we sell through the parallel market (products are not obtained directly from the brand owners or their authorized distributors). We have received in the past, and anticipate that we will receive in the future, communications from brand owners alleging that certain items sold through our websites infringe on such brand owners’ trademarks, patents, copyrights and other intellectual property rights. We are also subject to lawsuits by brand owners and their authorized distributors based on infringement claims.

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      Other than the immediately preceding discussion, we are not currently a party to any material legal or other proceedings.

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

      None.

PART II

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

Market Information

      Our common stock has been traded on the Nasdaq National Market since February 15, 2005 under the symbol ODMO. Prior to such time, there was no public market for our common stock. The following table sets forth the high and low closing sales prices for our common stock as reported on the Nasdaq National Market for the periods indicated.

	High		Low
First Quarter 2005 (from February 15, 2005)		8.96		6.10
Second Quarter 2005		6.75		3.76
Third Quarter 2005		5.50		1.45
Fourth Quarter 2005		2.18		1.26
First Quarter 2006 (through March 24, 2006)		2.05		1.25

      The approximate number of holders of record of our common stock as of March 24, 2006 is 38, inclusive of those brokerage firms and/or clearing houses holding shares of common stock for their clientele (with each such brokerage house and/or clearing house being considered as one holder).

Dividend Policy

      We have never declared or paid cash dividends on our capital stock. We currently intend to retain all available funds and any future earnings for use in the operation and expansion of our business and do not anticipate paying any cash dividends in the foreseeable future.

Equity Compensation Plan

      The following table details our equity compensation plan as of December 31, 2005:

2005 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		404,391	$	9.90		155,000
Equity compensation plans not approved by security holders		—		—		—
Total		404,391				155,000

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Recent Sales of Unregistered Securities

      During 2005, we sold or issued the following securities without registration under the Securities Act.

      1. On February 18, 2005, warrants to purchase an aggregate of 147,503 of our Series C Preferred Stock were exercised at an exercise price of $8.96 per share.

      2. On February 18, 2005, warrants to exercise an aggregate of 107,053 of our Series D Preferred Stock were exercised at an exercise price of $0.25 per share.

      3. On February 18, 2005, an aggregate of 186,667 shares of our Series A Preferred Stock were converted into 933,335 shares of our common stock.

      4. On February 18, 2005, an aggregate of 550,777 shares of our Series B Preferred Stock were converted into 550,777 shares of our common stock.

      5. On February 18, 2005, an aggregate of 1,045,667 shares of our Series C Preferred Stock were converted into 1,045,667 shares of our common stock.

      6. On February 18, 2005, an aggregate of 623,848 shares of our Series D Preferred Stock were converted into 623,848 shares of our common stock.

      We claimed exemption from registration under the Securities Act for the sale and issuance of securities in the transactions described above by virtue of Section 4(2) of the Securities Act and/or Regulation D promulgated thereunder as transactions not involving any public offering. We believe that the issuances were exempt from the registration requirements of the Securities Act on the basis that (a) the purchasers of securities for which we relied on Section 4(2) and/or Regulation D represented that they were accredited investors as defined under the Securities Act, (b) the purchasers in each case represented that they intended to acquire the securities for investment only and not with a view to the distribution thereof and that they received adequate information about us or had access, through employment or other relationships, to such information, and (c) appropriate legends were affixed to the stock certificates issued in such transactions. The recipients of securities in these transactions represented their intention to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the share certificates and instruments issued in such transactions. All recipients had adequate access to information about us through their employment or other relationships.

Use of Proceeds

      On February 14, 2005, our registration statement on Form S-1 (Registration No. 333-117400) was declared effective for our initial public offering, pursuant to which we registered 3,125,000 shares of common stock to be sold by us and an additional 468,750 shares were subject to the underwriters’ over-allotment option. The stock was offered at $9.00 per share or an aggregate of $28,125,000. Our common stock commenced trading on February 15, 2005. The offering closed on February 18, 2005 after the sale of 3,125,000 shares by us and as a result, we received net proceeds of approximately $22.4 million (after underwriters’ discounts of $1.9 million and the payment of offering expenses totaling approximately $3.8 million). The underwriters of the offering were CIBC World Markets Corp., Oppenheimer & Co. Inc. and Merriman Curran Ford & Co. No offering expenses were paid directly or indirectly to directors, officers (or their associates), or to persons owning 10% or more of any of our equity securities. Stanley Stern who became a member of our Board of Directors at the closing of our initial public offering, was at the time of the closing of our initial public offering and continues to be the head of investment banking at Oppenheimer & Co. Inc.

      We have used all of the $22.4 million of net proceeds from the offering for the repayment of $9.3 million of debt and general corporate purposes, including acquisition of inventory, upgrades of our websites and marketing activities.

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Repurchases of Equity Securities

      We did not repurchase any shares of our common stock during the year ended December 31, 2005.

Executive Officers of the Registrant

      Set forth below are the names, ages, positions held and business experience during the past five years of our executive officers as of March 24, 2006.

      Alan Lipton, 55, has been our Chief Executive Officer, President and a member of our board of directors since November 1999. He has been the Chairman of our board of directors since May 2004. From 1983 to 1994 Mr. Lipton was the Chief Executive Officer of Jan Bell Marketing, Inc., which was a publicly held watch and jewelry retailer and supplier to wholesale price clubs. After retiring from Jan Bell marketing in 1994, Mr. Lipton founded the Lipton Foundation, a philanthropic organization. From 1994 to the present, Mr. Lipton has been involved with the Lipton Foundation and in various real estate development projects in South Florida. Mr. Lipton is a director of Tucows, Inc., an Internet service and content provider.

      Jeff Kornblum, 43, has been our Chief Operating Officer since November 1999. From October 1997 to November 1999, Mr. Kornblum was President and Chief Executive Officer of Gold Coast Media, Inc., an infomercial and print media company. From 1996 to 1997, Mr. Kornblum was Chief Operating Officer for Danna Michaels, Inc., a mail order catalog company. From 1994 to 1996, Mr. Kornblum was a financial systems consultant for various catalog and retail companies. From 1988 to 1993, Mr. Kornblum was Director of Inventory Management and Sales Analysis for Jan Bell Marketing, Inc. From 1985 to 1989, Mr. Kornblum was a senior auditor with Deloitte & Touche LLP. Mr. Kornblum is married to Amerisa Kornblum, our Chief Financial Officer, Secretary and Treasurer.

      Amerisa Kornblum, 44, has been our Chief Financial Officer and Treasurer since November 1999 and our Secretary since November 2005. From October 1997 to November 1999, Ms. Kornblum served as Chief Financial Officer of Gold Coast Media, Inc. From 1994 through 1997, Ms. Kornblum was a financial systems consultant, for various catalog and retail companies. From 1988 to 1993, Ms. Kornblum worked for Jan Bell Marketing, Inc. in various capacities, including Controller, Director of Internal Audit, and Director of Investor Relations. From 1985 to 1988, Ms. Kornblum was a senior auditor for Deloitte & Touche LLP. Ms. Kornblum is a certified public accountant in the State of Florida. Ms. Kornblum is married to Jeff Kornblum, our Chief Operating Officer.

      George Grous, 42, has been our Chief Technology Officer since January 2000. From July 1998 to December 1999, Mr. Grous was a Senior Software Engineer for BroadLogic Inc., a spin-off of Adaptec Inc.’s Satellite Networking Group, a supplier of broadband services. From July 1996 to June 1998, Mr. Grous was a Senior Software Engineer at Adaptec, Inc., a public storage hardware company. Mr. Grous is the brother of Amerisa Kornblum, our Chief Financial Officer.

Item 6. Selected Financial Data.

      The selected financial data set forth below is derived from our audited consolidated financial statements and may not be indicative of future operating results. The following selected financial data should be read in conjunction with the Consolidated Financial Statements for Odimo Incorporated and

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notes thereto and Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere herein. Amounts are in thousands, except per share amounts.

			Year Ended December 31,
Consolidated Statement of Operations Data:			2005			2004			2003			2002			2001
			(In thousands, except per share data)
Net sales			$	51,841		$	52,244		$	41,694		$	27,520		$	24,207
Cost of sales				39,310			37,141			29,945			19,932			18,440
Gross profit				12,531			15,103			11,749			7,588			5,767
Operating expenses:
	Fulfillment			3,620			3,516			2,589			1,830			1,155
	Marketing			7,625			6,629			3,709			2,179			4,269
	General and administrative(1)			11,343			14,140			8,463			7,240			9,758
	Depreciation and amortization			3,576			2,749			3,024			2,529			4,753
	Goodwill impairment charge			9,792			—			—			—			—
	Termination expense			—			—			—			—			2,264
Total operating expenses				35,956			27,034			17,785			13,778			22,199
Loss from operations				(23,425	)		(11,931	)		(6,036	)		(6,190	)		(16,432	)
Interest (expense) income, net				(66	)		(585	)		(1,107	)		1			347
Net loss				(23,491	)		(12,516	)		(7,143	)		(6,189	)		(16,085	)
Dividends to preferred stockholders(2)				(832	)		(15,378	)		(4,519	)		(4,047	)		(4,025	)
Net loss attributable to common stockholders			$	(24,323	)	$	(27,894	)	$	(11,662	)	$	(10,236	)	$	(20,110	)
Net loss per common share:
		Basic and diluted	$	(3.86	)	$	(44.35	)	$	(18.54	)	$	(16.30	)	$	(32.18	)
Weighted average common shares outstanding:
		Basic and diluted		6,302			629			629			628			625
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:	2005		2004		2003		2002		2001
	(In thousands)
Cash and cash equivalents	$	3,831	$	1,663	$	5,135	$	6,501	$	8,180
Total assets		24,730		40,510		30,631		30,966		28,990
Bank credit facility		—		9,282		—		—		—
Stockholder notes (including current maturities)		—		—		5,426		6,154		—
Total liabilities		13,382		29,305		17,723		11,853		6,823
Total stockholders’ equity		11,348		11,205		12,908		19,113		22,167

(1)	Includes non-cash stock-based compensation of $0, $4.7 million, $2,000, $39,000 and $41,000 during the years ended December 31, 2005, 2004, 2003, 2002 and 2001, respectively.
(2)	For the years ended December 31, 2005, 2004, 2003, 2002 and 2001 dividends to preferred stockholders includes approximately $832,000, $5.7 million, $4.5 million, $4.0 million and $4.0 million of cumulative but undeclared dividends on our convertible preferred stock. During the year ended December 31, 2004, dividends to preferred stockholders also included approximately $9.7 million of deemed dividends related to the issuance of Series C preferred stock to existing 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

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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

      Odimo is an online retailer of high quality diamonds and fine jewelry, current season brand name watches and luxury goods. We focus on selling diamonds, jewelry and watches and, to a lesser extent, luxury goods which we believe are complementary to selling diamonds, jewelry and watches, such as sunglasses, fragrances, writing instruments and home accents. During the fourth quarter 2005 we began to transition out of offering brand name handbags and anticipate that by the end of the second quarter 2006 we will no longer offer brand name handbags.

      We commenced operations in 1998 by offering diamonds and a limited selection of jewelry products through the website www.diamonddepot.com. In early 2000, we began offering an expanded product line that included a large selection of brand name watches and a broader selection of diamonds and fine jewelry through two websites, www.diamond.com and www.worldofwatches.com. In December 2002, we purchased the domain name www.ashford.com. In January 2003, we re-launched the www.ashford.com website and began offering luxury goods such as brand name handbags and other fashion accessories, fine writing instruments, home accents, fragrances and sunglasses. We acquire most of these brand name watches and luxury goods products through the parallel market (products obtained from sources other than brand owners or their authorized distributors). We are transitioning out of offering brand name handbags and anticipate that by the end of the second quarter 2006, we will no longer offer brand name handbags. As discussed in “Risk Factors” and Note 1 to the consolidated financial statements included elsewhere in this report, our purchases in the parallel market may subject us to challenges from brand owners which might impact our supply of brand name watches and luxury goods. We have six subsidiaries through which we conduct our purchasing operations. Since 2003, we have focused and intend to continue to focus our marketing efforts primarily on the www.ashford.com and www.diamond.com websites.

      Due to our significant and continuous operating losses and our need for additional capital, we are considering a variety of possible business combinations, acquisitions and other transactions, including the acquisition of the Company or assets of the Company by other parties. During the first quarter of 2006, the Board authorized management to retain an investment banker to assist us in reviewing our alternatives. Although we continue to review our strategic alternatives and have, on a confidential basis, exchanged information with various business combination candidates, we have not entered into any definitive arrangements or understandings with regard to a business combination, acquisition or other transaction.

      Our independent registered public accounting firm’s report on our financial statements for the fiscal year ended December 31, 2005 includes an explanatory paragraph regarding our ability to continue as a going concern. Note 2 to the financial statements states that our ability to continue operations, meet our operational goals and pursue our long-term strategy is dependent upon our raising additional capital, which raises substantial doubt about our ability to continue as a going concern. We are implementing a strategy to reduce costs, including considering a reduction in our workforce. The independent registered public accounting firm’s report states that the financial statements do not include any adjustments that might result from the outcome of this uncertainty.

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Key Business Metrics

      We periodically review certain key business metrics to evaluate the effectiveness of our operational strategies and the financial performance of our business. These key metrics include the following:

Number of Orders

      This represents the total number of orders shipped in a specified period. We analyze the number of orders to evaluate the effectiveness of our merchandising and advertising strategies as well as to monitor our inventory management.

Average Order Value

      Average order value is the ratio of gross sales divided by the number of orders generated within a given time period. We analyze average order value primarily to monitor fulfillment costs and other operating expenses.

Product Mix

      Product mix represents the revenue contribution of the primary products that we feature by category. We review product mix to determine customer preferences and manage our inventory. Product mix is a primary determinant of our gross margin. Gross margin is gross profit as a percentage of net sales.

		Year Ended December 31,
Measure		2005			2004			2003
Number of orders			151,700			155,840			116,440
Average order value		$	387		$	374		$	402
Product Mix:
	Watches		38.0	%		40.5	%		50.1	%
	Diamonds		30.8			26.7			25.4
	Jewelry		19.9			16.7			15.7
	Luxury goods		11.3			16.1			8.8
Total			100.0	%		100.0	%		100.0	%

      In addition to these key metrics, we also periodically review customer repeat rates and customer acquisition costs to evaluate our operations.

Basis of Presentation

      Net sales consists of revenue from the sale of our products, net of estimated returns by customers, promotional discounts and, to a much lesser extent, revenue from upgrades to our standard free shipping.

      Gross profit is calculated by subtracting the cost of sales from net sales. Our cost of sales consists of the cost of the products we sell, including inbound freight costs and assembly costs. Our gross profit fluctuates based on several factors, including product acquisition costs, product mix and pricing decisions. Due to the seasonality of our business, our gross profit as a percentage of net sales is typically greater in the fourth quarter. In general, we realize higher gross profit on the sale of our luxury goods, jewelry and watches in comparison to diamonds.

      Fulfillment expenses include outbound freight costs paid by us, commissions paid to sales associates, credit card processing fees and packaging and other shipping supplies. Commissions are paid based on a percentage of the price of the goods sold and are expensed when the goods are sold.

      Marketing expenses consist primarily of online advertising expenses, affiliate program fees and commissions, public relations costs and other marketing expenses.

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      General and administrative expenses include payroll and related employee benefits, costs to maintain our websites, professional fees, insurance, rent, travel and other general corporate expenses.

Results of Operations

      The following table sets forth information for years ended December 31, 2005, 2004 and 2003 about our net sales, cost of sales, gross profit, operating expenses, losses from operations, net interest income (expense), and net losses both in dollars and as a percentage of net sales:

		Year Ended December 31,
					% of Net						% of Net						% of Net
		2005			Sales			2004			Sales			2003			Sales
		(In thousands, except percentage data)
Net sales		$	51,841			100.0	%	$	52,244			100.0	%	$	41,694			100.0	%
Cost of sales			39,310			75.8			37,141			71.1			29,945			71.8
Gross profit			12,531			24.2			15,103			28.9			11,749			28.2
Operating expenses:
	Fulfillment		3,620			7.0			3,516			6.7			2,589			6.2
	Marketing		7,625			14.7			6,629			12.7			3,709			8.9
	General and administrative(1)		11,343			21.8			14,140			27.1			8,463			20.3
	Depreciation and amortization		3,576			6.9			2,749			5.3			3,024			7.3
	Goodwill impairment charge		9,792			18.9			—			—			—			—
Total operating expenses			35,956			69.3			27,034			52.3			17,785			42.7
Loss from operations			(23,425	)		(45.2	)		(11,931	)		(22.8	)		(6,036	)		(14.5	)
Interest income (expense), net			(66	)		(0.1	)		(585	)		(1.1	)		(1,107	)		(2.7	)
Net loss		$	(23,491	)		(45.3	)%	$	(12,516	)		(24.0	)%	$	(7,143	)		(17.1	)%

(1)  Includes non-cash stock-based compensation of $0, $4.7 million and $2,000 during the years ended December 31, 2005, 2004 and 2003, respectively.

     Comparison of Year Ended December 31, 2005 to Year Ended December 31, 2004

      Net Sales. Net sales for the year ended December 31, 2005 decreased slightly to $51.8 million from $52.2 million for the year ended December 31, 2004.

      The number of orders for the year ended December 31, 2005 decreased 2.7% to 151,700 from 155,840 for the year ended December 31, 2004. However, for the year ended December 31, 2005, our average order value increased 3.4% to $387 from $374 for the year ended December 31, 2004. In the aggregate, however, across our three websites, we experienced a 24.7% decrease in visitors to our websites during the year ended December 31, 2005 as compared to the year ended December 31, 2004.

      This increase in average order value is due to our increased sales of diamonds and jewelry in 2005 which have greater average order values than watches and luxury goods. In connection with our decision to transition out of offering brand name handbags, during the fourth quarter 2005, we offered promotions and discounts which resulted in sales of brand name handbags at reduced prices resulting in an offset to our increase in average order value in 2005.

      Gross Profit. Gross profit for the year ended December 31, 2005 decreased 17.0% to $12.5 million from $15.1 million for the year ended December 31, 2004 due to discounts and promotions offered on the sale of luxury goods in 2005. Our gross profit as a percentage of net sales decreased to 24.2% for the year ended December 31, 2005 compared to 28.9% during the year ended December 31, 2004. The decrease in gross profit as a percentage of net sales for the year ended December 31, 2005 was primarily the result of

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an increased proportion of net sales being derived from diamonds which have a lower margin than luxury goods and the sale of luxury goods discounted through promotions and offers on www.ashford.com.

      Fulfillment. Fulfillment expenses for the year ended December 31, 2005 increased slightly to $3.6 million from $3.5 million for the year ended December 31, 2004. As a percentage of net sales, fulfillment expenses for the year ended December 31, 2005 increased slightly to 7.0% compared to 6.7% for the year ended December 31, 2004. This was primarily driven by a shift in our product mix towards diamonds and fine jewelry which have higher shipping costs per order.

      Marketing. Marketing expenses for the year ended December 31, 2005 increased 15.0% to $7.6 million from $6.6 million for the year ended December 31, 2004. The increase was primarily due to significantly increased online advertising costs. As a percentage of net sales, marketing expenses for the year ended December 31, 2005 increased to 14.7% compared to 12.7% for the year ended December 31, 2004.

      General and Administrative. General and administrative expenses for the year ended December 31, 2005 decreased 19.8% to $11.3 million from $14.1 million for the year ended December 31, 2004. The general and administrative expense for the year ended 2004 includes $4.7 million of stock-based compensation expense due to the granting of immediately vested options to purchase 290,000 shares of common stock to employees. No stock based compensation expense was incurred for the year ended December 31, 2005. Excluding the $4.7 million of stock-based compensation expense in 2004, our general and administrative expense increased by approximately $1.8 million for the year ended December 31, 2005 compared to the year ended December 31, 2004. This increase was due to an increase in insurance expenses, professional fees and public company costs.

      As a percentage of net sales, general and administrative expenses for the year ended December 31, 2005 decreased to 21.8% compared to 27.1% for the year ended December 31, 2004. Excluding the stock-based compensation expense of $4.7 million incurred for year ended December 31, 2004, general and administrative expenses as a percentage of net sales for the year ended December 31, 2004 would have been 18.1%. We expect general and administrative expenses to continue to increase in absolute dollars in the future as a result of continued expansion of our administrative infrastructure and increased expenses associated with being a public company.

      Depreciation and Amortization. Depreciation and amortization expense for the year ended December 31, 2005 increased 33.4% to $3.6 million from $2.7 million for the year ended December 31, 2004. This increase is attributable to the addition of computer equipment and software development costs placed in service during the year ended December 31, 2005.

      Goodwill Impairment. For the year ended December 31, 2005 we recorded an impairment charge of $9.8 million related to the impairment of goodwill.

      Interest Expense, Net. Interest expense, net, for the year ended December 31, 2005 decreased 89.0% to $66,000 from $585,000 for the year ended December 31, 2004. This decrease is due to a decrease in borrowed capital for the year ended December 31, 2005.

      Net Loss. Net loss for the year ended December 31, 2005 was $23.5 million as compared to $12.5 million for the year ended December 31, 2004. The increase was primarily attributable to a decrease in gross profit and an increase in online marketing costs for the year ended December 31, 2005 compared to the year ended December 31, 2004. In addition, net loss for the year ended December 31, 2005 includes a non-cash charge of $9.8 million related to the impairment of goodwill. Excluding non-cash charges incurred during the years ended December 31, 2005 and December 31, 2004, our net loss increased by $5.0 million for the year ended December 31, 2005 compared to the year ended December 31, 2004.

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

      Net Sales. Net sales for the year ended December 31, 2004 increased 25.3% to $52.2 million from $41.7 million for the year ended December 31, 2003. Approximately $4.7 million or 45.0% of this increase

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resulted from higher sales of luxury goods, which were primarily sold through www.ashford.com. The balance of the increase resulted from a $3.4 million increase in sales of diamonds and a $2.2 million increase in sales of jewelry.

      Number of orders for the year ended December 31, 2004, increased 33.8% to 155,840 from 116,440 for the year ended December 31, 2003. This growth was a result of an increase in new customers as well as increased sales to existing customers across our expanded product categories. However, for the year ended December 31, 2004, our average order value decreased 7.0% to $374 from $402 for the year ended December 31, 2003. This increase in orders and decrease in average order value is due to our introducing luxury goods as a new product category which tends to have smaller average order values than diamonds and fine jewelry.

      Gross Profit. Gross profit for the year ended December 31, 2004 increased 28.5% to $15.1 million from $11.7 million for the year ended December 31, 2003 due to increases in sales volume. Our gross profit as a percentage of net sales increased to 28.9% for the year ended December 31, 2004 compared to 28.2% during the year ended December 31, 2003. The increase in gross profit as a percentage of net sales during the year ended December 31, 2004 was primarily the result of an increased proportion of net sales being derived from higher margin luxury goods.

      Fulfillment. Fulfillment expenses for the year ended December 31, 2004 increased 35.8% to $3.5 million from $2.6 million for the year ended December 31, 2003. This was primarily due to a 33.8% increase in orders and resulting increases in credit card processing fees and shipping costs. As a percentage of net sales, fulfillment expenses for the year ended December 31, 2004 increased to 6.7% compared to 6.2% for the year ended December 31, 2003. The increase was primarily driven by a shift in our product mix towards luxury goods which tend to have higher shipping costs per order.

      Marketing. Marketing expenses for the year ended December 31, 2004 increased 78.7% to $6.6 million from $3.7 million for the year ended December 31, 2003. The increase was primarily due to increased online advertising costs. As a percentage of net sales, marketing expenses for the year ended December 31, 2004 increased to 12.7% compared to 8.9% for the year ended December 31, 2003, primarily due to a decrease in average order value partially offset by increased sales to repeat customers.

      General and Administrative. General and administrative expenses for the year ended December 31, 2004 increased 67.1% to $14.1 million from $8.5 million for the year ended December 31, 2003. The increase was primarily due to $4.7 million of stock-based compensation expense in the year ended December 31, 2004 due to the granting of immediately vested options to purchase 290,000 shares of common stock to employees. The remaining $0.9 million increase was due to an increase in salaries and related payroll benefits resulting from the employment of additional personnel to accommodate our increased sales volume and due to legal and professional fees. As a percentage of net sales, general and administrative expenses for the year ended December 31, 2004 increased to 27.1% compared to 20.3% for the year ended December 31, 2003. The increase was primarily due to stock-based compensation noted above offset by an increase in our net sales, which outpaced our growth in general and administrative expenses. Excluding the stock-based compensation expense of $4.7 million, general and administrative expenses as a percentage of net sales would have decreased to 18.1% for the year ended December 31, 2004 compared to 20.3% for the year ended December 31, 2003.

      Depreciation and Amortization. Depreciation and amortization expense for the year ended December 31, 2004 decreased 9.1% to $2.7 million from $3.0 million for the year ended December 31, 2003. This decrease is attributable to the fact that the depreciation on a portion of our property and equipment was completed during 2003.

      Interest Expense, Net. Interest expense, net, for the year ended December 31, 2004 decreased 47.2% to $0.6 million from $1.1 million for the year ended December 31, 2003. This decrease is attributable to decreased interest expense on stockholder notes in 2004 as compared to 2003 of $208,000, decreased interest expense of $165,000 on a note payable to GSI Commerce, Inc. which we issued as partial consideration for the purchase of the domain name www. Ashford.com and related assets in December

31

2002, decreased amortization of discount on notes payable to stockholders in connection with warrants issued of $435,000, offset by an increase in interest expense incurred in connection with our bank credit facilities in 2004 of $262,000 for which there was no corresponding interest expense in 2003.

      Net Loss. Net loss for the year ended December 31, 2004 was $12.5 million as compared to $7.1 million for the year ended December 31, 2003. The increase was primarily attributable to a substantial increase in online marketing costs during 2004 compared to 2003 and the $4.7 million of stock-based compensation expense in the year ended December 31, 2004 due to the granting of immediately vested options to purchase 290,000 shares of common stock to employees. There was $2,000 of stock-based compensation in the year ended December 31, 2003.

     Quarterly Operations Data

      The following tables set forth quarterly consolidated statements of operations data for each of the eight quarters ended December 31, 2005, including amounts expressed as a percentage of net sales. This quarterly information is unaudited, but has been prepared on the same basis as the annual consolidated financial statements and, in the opinion of our management, reflects all adjustments necessary for a fair presentation of the information for the periods presented. This quarterly statement of operations data should be read in conjunction with our audited consolidated financial statements and the related notes included elsewhere in this report. Operating results for any quarter are not necessarily indicative of results for any future period.

      Our net sales are highly seasonal, with increased sales around the major gift-giving holidays. A large percentage of our net sales is generated during the December holiday season and to a lesser extent in February and May due to Valentine’s Day and Mother’s Day. During the fourth quarter, our fulfillment costs typically increase as a percentage of net sales primarily as a result of shipping upgrades. Our general and administrative expenses are also seasonal as we increase our staffing in anticipation of increased sales activity. The growth of our net sales over the periods presented may obscure the seasonality of our overall results and cause quarter to quarter and year to year comparisons of our operating results to not be meaningful.

		Three Months Ended
		Dec 31,			Sep 30,			Jun 30,			Mar 31,			Dec 31,			Sep 30,			Jun 30,			Mar 31,
		2005			2005			2005			2005			2004			2004			2004			2004
		(in thousands)
		(unaudited)
Net sales		$	18,474		$	9,132		$	11,451		$	12,784		$	21,504		$	10,006		$	10,290		$	10,444
Cost of sales			14,050			7,091			8,638			9,532			15,131			7,208			7,426			7,376
Gross profit			4,424			2,041			2,813			3,252			6,373			2,798			2,864			3,068
Operating expenses:
	Fulfillment		1,347			580			805			888			1,512			660			675			669
	Marketing		2,968			1,092			1,847			1,718			2,845			1,356			1,315			1,113
	General and administrative(1)		3,336			2,954			2,586			2,467			2,962			2,508			2,003			6,667
	Depreciation and amortization		910			956			858			852			764			575			661			749
	Goodwill Impairment Charge		9,792			—			—			—			—			—			—			—
Total operating expenses			18,353			5,582			6,096			5,925			8,083			5,099			4,654			9,198
Loss from operations			(13,929	)		(3,541	)		(3,283	)		(2,673	)		(1,710	)		(2,301	)		(1,790	)		(6,130	)
Interest income (expense), net			(24	)		10			25			(76	)		(162	)		(105	)		(65	)		(253	)
Net loss		$	(13,953	)	$	(3,531	)	$	(3,258	)	$	(2,749	)	$	(1,872	)	$	(2,406	)	$	(1,855	)	$	(6,383	)

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		Three Months Ended
		Dec 31,			Sep 30,			Jun 30,			Mar 31,			Dec 31,			Sep 30,			Jun 30,			Mar 31,
		2005			2005			2005			2005			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			76.1			77.7			75.4			74.6			70.4			72.0			72.2			70.6
Gross profit			23.9			22.3			24.6			25.4			29.6			28.0			27.8			29.4
Operating expenses:
	Fulfillment		7.3			6.4			7.0			6.9			7.0			6.6			6.6			6.4
	Marketing		16.1			12.0			16.1			13.4			13.2			13.6			12.8			10.7
	General and administrative		18.1			32.3			22.6			19.3			13.8			25.1			19.5			63.8(1	)
	Depreciation and amortization		4.9			10.5			7.5			6.7			3.6			5.7			6.4			7.2
	Goodwill Impairment Charge		53.0			—			—			—			—			—			—			—
Total operating expenses			99.4			61.1			53.2			46.3			37.6			51.0			45.2			88.1
Loss from operations			(75.4	)		(38.8	)		(28.7	)		(20.9	)		(7.9	)		(23.0	)		(17.4	)		(58.7	)
Interest income (expense), net			(0.1	)		(0.1	)		0.2			(0.6	)		(0.8	)		(1.0	)		(0.6	)		(2.4	)
Net loss			(75.5	)%		(38.7	)%		(28.4	)%		(21.5	)%		(8.7	)%		(24.0	)%		(18.0	)%		(61.1	)%

(1)  Includes non-cash stock-based compensation expense of $4.7 million in March 2004.

Liquidity and Capital Resources

      We have funded our operations primarily through private placements of securities, with borrowings under our bank credit facility, from the net proceeds of $22.4 million from the initial public offering of our common stock in February 2005, and approximately $1.4 million from the exercise of warrants prior to the closing of our initial public offering.

     Discussion of Cash Flows

      Net cash used in operating activities for the year ended December 31, 2005 was $11.4 million compared to net cash used in operating activities for the year ended December 31, 2004 of $8.9 million. Included in the net cash used in operating activities for the year ended December 31, 2005 is a $6.7 million reduction in accounts payable and accrued liabilities offset by a $4.0 million decrease in inventory. Net cash provided by operating activities for the year ended December 31, 2003 was $728,000.

      Net cash used in investing activities in the year ended December 31, 2005 was $3.4 million compared to $3.7 million in the year ended December 31, 2004. Since our inception, our investing activities have consisted primarily of purchases of fixed assets and capital expenditures for our technology systems and software development. Net cash used in investing activities in 2003 was $1.7 million. We currently anticipate that we will expend approximately $2 million for technology and systems upgrades over the next twelve months.

      Net cash provided by financing activities in the year ended December 31, 2005 was $16.9 million as compared to $9.2 million of net cash used in financing activities during the year ended December 31, 2004. This change was the result of $24.8 million in net proceeds from our public offering (which when netted with initial public offering costs of $2.4 million incurred in 2004 results in net proceeds from our initial public offering of $22.4 million) and $1.3 million in proceeds from the exercise of warrants in February 2005 offset by repayment of our bank credit facility of $9.3 million. Net cash used in financing activities in 2003 was $0.4 million.

      As a public company, we have and expect to incur legal, accounting and other additional expenses between $1.0 million and $2.0 million annually for, among other things, compliance with recently adopted

33

corporate governance requirements, including requirements under the Sarbanes-Oxley Act of 2002, as well as rules implemented by the SEC and Nasdaq.

      If and to the extent that our net income before income taxes, interest income and expense, depreciation expense, amortization expense, and other non-cash expenses (as defined in the agreement with GSI) is positive during 2006 and 2007, we will be obligated to make a payment to GSI Commerce, Inc., the entity from which we purchased the www.ashford.com domain name in December 2002, equal to 10% of such amount for such year, up to a maximum aggregate amount of $2.0 million. To the extent that we are required to make any such payments, our cash flow will be reduced accordingly.

     Liquidity Sources

      Our principal sources of short-term liquidity consist of cash and cash equivalents, borrowings available under our bank credit facility and cash generated from operations.

      As of December 31, 2005, we had $3.8 million of cash and cash equivalents (and $755,000 of deposits with a credit card processing company) compared to $1.7 million of cash and cash equivalents (and $813,000 of deposits with a credit card processing company) as of December 31, 2004. Until required for other purposes, our cash and cash equivalents are maintained in deposit accounts or highly liquid investments with original maturities of 90 days or less at the time of purchase.

      We completed an initial public offering of 3,125,000 shares of common stock at $9.00 per share on February 18, 2005, which generated net proceeds of approximately $22.4 million (after underwriter’s discounts of approximately $1.9 million and offering expenses of approximately $3.8 million). At the closing of the initial public offering, holders of warrants to purchase preferred stock holders of warrants to purchase 147,000 and 107,000 shares of Series C and Series D Preferred Stock, respectively exercised in full their warrants for an aggregate purchase price of $1.3 million.

      Our secured revolving credit facility expires and all principal and unpaid interest thereunder is due in July 2006. Our repayment obligations under the credit facility are secured by a first lien on our assets and are guaranteed by entities affiliated with Softbank Capital Partners, one of our principal stockholders. As of March 29, 2006, we had $1 million of indebtedness outstanding under our credit facility. Through the expiration of the credit facility in July 2006, the credit facility allows us to borrow up to a maximum amount of $5 million; or (ii) 75% of the value of our inventory. Softbank Capital, the guarantor of our obligations under the secured revolving credit facility, has advised us that Softbank Capital prefers that the indebtedness outstanding under the credit facility not exceed $2 million in light of the current financial condition and business prospects of the Company. Amounts borrowed under this credit facility bear interest at a variable annual rate equal to the greater of the current prime rate plus 0.5% or 7.75% at December 31, 2005 and 8.25% as of March 30, 2006. During the term of the credit facility, we are obligated to pay interest amounts owed monthly. In March 2006 we entered into an amendment to our secured revolving credit facility which provided for a waiver of any default arising in connection with our failure to deliver financial statements without a “going concern” qualification for fiscal year 2005.

      We have incurred significant losses since inception and have not generated and do not anticipate generating positive net cash flows from operations through at least 2006. We do not expect to generate sufficient cash flows to meet our cash flow and working capital needs. In order to continue our operations and achieve our longer-term growth and operational goals, we will require additional financing. We are currently exploring financing alternatives, which may not be available on acceptable terms, or at all. Additional equity financing may be dilutive to the holders of our common stock and debt financing, if available, may involve significant cash payment obligations and covenants and/or financial ratios that restrict our ability to operate our business. Due to our significant and continuous operating losses and our need for additional capital, we are also considering a variety of possible business combinations, acquisitions and other transactions, including the acquisition of the Company or assets of the Company by other parties. During the first quarter of 2006, the Board authorized management to retain an investment banker to assist us in reviewing our alternatives. Although we continue to review our strategic alternatives and have, on a confidential basis, exchanged information with various business combination candidates, we

34

have not entered into any definitive arrangements or understandings with regard to a business combination, acquisition or other transaction.

      Our independent registered public accounting firm’s report on our financial statements for the fiscal year ended December 31, 2005 includes an explanatory paragraph regarding our ability to continue as a going concern. Note 2 to the financial statements states that our ability to continue operations, meet our operational goals and pursue our long-term strategy is dependent upon our raising additional capital, which raises substantial doubt about our ability to continue as a going concern. Further, the registered public accounting firm’s report states that the financial statements do not include any adjustments that might result from the outcome of this uncertainty.

     Contractual Obligations

      Future payments due under contractual obligations as of December 31, 2005 are listed below:

			Payments Due by Period
			Less Than
	Total		1 Year		1-3 Years		3-5 Years
			(In thousands)
Bank Credit Facility(1)		—		—		—		—
Operating lease obligations		1,215		243		486		486
Total		1,215		243		486		486

(1)  Does not include any repayments to be made under our credit facility anticipated to be made during the next 12 months.

Off Balance Sheet Arrangements

      We do not have any off balance sheet arrangements.

Outstanding Stock Options

      As of December 31, 2005, we had outstanding vested options to purchase approximately 404,391 shares of common stock, at a weighted average exercise price of $9.90 per share. We have no outstanding unvested options. The per share value of each share of common stock underlying the vested options, based on the difference between the weighted average exercise price per option and the estimated fair market value of the shares at the dates of the grant of the options (also referred to as intrinsic value), ranges from $0 to $16.25 per share.

      The fair market values of the shares at the dates of grant were originally estimated by our board of directors, with input from management. We did not obtain contemporaneous valuations by an unrelated valuation specialist because we based these valuations on preliminary, informal discussions with the investment banks in our initial public offering. Determining the fair value of our stock requires making complex and subjective judgments. We used two separate valuation approaches for our valuations. These approaches were the Comparable Company Analysis (or Market Multiple) Approach and the Discounted Cash Flow Approach. Using these approaches we calculated an enterprise value range.

      Under the Market Multiple Approach, we utilized external market pricing evidence for companies involved in lines of business similar to us. Pricing multiples, in particular enterprise value to revenue, were calculated using publicly available information. We selected multiples based on a risk assessment of Odimo relative to companies deemed comparable to us. Under the Discounted Cash Analysis Approach, we utilized our projected financial statements and estimates of working capital to estimate free cash flows. The free cash flows (on a debt-free basis) were discounted at a rate that reflected the uncertainty associated with achievement of such cash flows. A value was calculated assuming a sale of Odimo in year two (2005) and this amount was discounted to the present at the same risk-adjusted rate utilized for the

35

cash flows. The results of each approach were weighted (the Market Multiple was weighted 75% and the Discounted Cash Flow was weighted 25%).

Critical Accounting Policies and Estimates

      Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make significant estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses and related disclosures of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to allowances for sales returns, inventories, intangible assets, income taxes, and contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

      While our significant accounting policies are described in more detail in Note 1 to our consolidated financial statements included in this report, we believe the policies discussed below are the most critical to understanding our financial position and results of operations.

     Revenue Recognition

      We recognize revenue from product sales or services rendered when the following four revenue recognition criteria are met: (1) persuasive evidence of an arrangement exists, (2) delivery has occurred or services have been rendered, (3) the selling price is fixed or determinable and (4) collectibility is reasonably assured.

      Product sales, net of promotional discounts, rebates, and return allowances, are recorded when the products are delivered and title passes to customers. We require payment before shipping products, so we estimate receipt of delivery by our customers based on shipping time data provided by our carriers. Retail items sold to customers are made pursuant to a sales contract that provides for transfer of both title and risk of loss upon delivery to the customer. Return allowances, which reduce product revenue by our best estimate of expected product returns, are estimated using historical experience.

     Inventories

      Inventories, consisting of products available for sale, are accounted for using the first-in first-out method, and are valued at the lower of cost or market value. This valuation requires us to make judgments, based on currently-available information, about the likely method of disposition, such as through sales to individual customers, returns to product vendors or liquidations, and expected recoverable values of each disposition category. Based on this evaluation, we record a valuation write-down, when needed, to adjust the carrying amount of our inventories to lower of cost or market value.

     Goodwill and Other Long-Lived Assets

      Our long-lived assets include goodwill and other intangible assets. Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (“SFAS 142”) requires that goodwill be tested for impairment on an annual basis and between annual tests in certain circumstances. Application of the goodwill impairment test requires significant judgment to estimate the fair value, including estimating future cash flows, determining appropriate discount rates and other assumptions. Changes in these estimates and assumptions could materially affect the determination of fair value. For 2005 and 2004, we have determined that we have one reporting unit. For the year ended December 31, 2005, we recorded an impairment charge of $9.8 million related to the impairment of goodwill.

      Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (“SFAS 144”), requires that we record an impairment charge on finite-lived intangibles

36

or long-lived assets to be held and used when we determine that the carrying value of intangible assets and long-lived assets may not be recoverable. Based on the existence of one or more indicators of impairment, we measure any impairment of intangibles or long-lived assets based on a projected discounted cash flow method using a discount rate determined by our management to be commensurate with the risk inherent in our business model. Our estimates of cash flows require significant judgment based on our historical results and anticipated results and are subject to many factors.

     Income Taxes

      We use the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized by applying statutory tax rates in effect in the years in which the differences between the financial reporting and tax filing bases of existing assets and liabilities are expected to reverse. We have considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for a valuation allowance against our deferred tax assets. We have recorded a full valuation allowance against our deferred tax assets since we have determined that it is more likely than not that we may not be able to realize our deferred tax asset in the future.

     Stock-Based Compensation

      We account for our employee compensation plans under the recognition and measurement provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. We amortize stock-based compensation using the straight-line method over the vesting period of the related options, which is generally four years.

      We have recorded deferred stock-based compensation representing the difference between the option exercise price and the deemed fair value of our common stock on the grant date for financial reporting purposes. We determined the deemed fair value of our common stock based upon several factors, including independent third party valuations. Had different assumptions or criteria been used to determine the deemed fair value of our common stock, different amounts of stock-based compensation would have been reported.

      Pro forma information regarding net loss and net loss per share is required in order to show our net loss as if we had accounted for employee stock options under the fair value method of SFAS No. 123, Accounting for Stock-Based Compensation, as amended by SFAS No. 148, Accounting for Stock-Based Compensation — Transition Disclosure. This information is contained in Note 1 to our consolidated financial statements. The fair values of options and shares issued pursuant to our option plan at each grant date were estimated using the Black-Scholes option pricing model.

      In December 2004, the FASB issued SFAS No. 123 (Revised 2004) (“SFAS No. 123^®”), Share-Based Payment. SFAS No. 123^® requires companies to expense the estimated fair value of stock options and similar equity instruments issued to employees. Currently, companies are required to calculate the estimated fair value of these share-based payments and can elect to either include the estimated cost in earnings or disclose the pro forma effect in the footnotes to their financial statements. As discussed above, the Company has chosen to disclose the pro forma effect. The fair value concepts were not changed significantly in SFAS No. 123^®; however, in adopting SFAS No. 123^®, companies must choose among alternative valuation models and amortization assumptions. The Company does not expect the adoption of this standard to have a material impact on its results of operations.

      The valuation model and amortization assumption used by the Company continues to be available, however, the Company has not yet completed its assessment of the alternatives. SFAS No. 123^® will be effective for the Company beginning with the quarter ending March 31, 2006. Transition options allow companies to choose whether to adopt prospectively, or retrospectively based on amounts that have been included in the footnotes. The Company has not yet concluded on which transition option it will select. See above for the pro forma effect for the each of the periods presented, using our existing valuation and amortization assumptions.

37

Recently Issued Accounting Standards

      In May 2005, the FASB issued SFAS No. 154, “Accounting for Changes and Error Corrections, a Replacement of APB Opinion No. 20 and FASB Statement No. 3.” SFAS 154 applies to all voluntary changes in accounting principle and requires retrospective application to prior periods’ financial statements of changes in accounting principle. This statement also requires that a change in depreciation, amortization, or depletion method for long-lived, non-financial assets be accounted for as a change in accounting estimate affected by a change in accounting principle. SFAS 154 carries forward without change the guidance contained in APB Opinion No. 20 for reporting the correction of an error in previously issued financial statements and a change in accounting estimate. This statement is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Company does not expect the adoption of this standard to have a material impact on its financial condition, results of operations, or liquidity.

      In March 2005, the FASB issued FASB Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations, an Interpretation of FASB Statement No. 143.” This Interpretation clarifies that the term conditional asset retirement obligation refers to a legal obligation to perform an asset retirement activity in which the timing and (or) method of settlement are conditional on a future event that may or may not be within the control of the entity. Accordingly, an entity is required to recognize a liability for the fair value of a conditional asset retirement obligation if the fair value can be reasonably estimated. FIN 47 also clarifies when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation. The effective date of this interpretation is no later than the end of fiscal years ending after December 15, 2005. The Company does not expect the adoption of this standard to have a material impact on its financial condition, results of operations, or liquidity.

      In December 2004, the FASB issued SFAS No. 153, “Exchanges on Nonmonetary Assets — An Amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions” (SFAS 153) SFAS 153 eliminates the exception from fair value measurement for nonmonetary exchanges of similar productive assets in paragraph 21(b) of APB Opinion No. 29, “Accounting for Nonmonetary Transactions,” and replaces it with an exception for exchanges that do not have commercial substance. SFAS 153 specifies that a nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS 153 is effective for fiscal periods beginning after June 15, 2005. The Company does not expect the adoption of this statement to have a material impact on its financial condition, results of operations, or liquidity.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

      Our exposure to market risk due to changes in interest rates relates primarily to the increase or decrease in the amount of interest income we can earn on our investment portfolio and the amount of interest expense we incur for borrowed capital under our credit facility. Under our current policies, we do not use interest rate derivative instruments to manage exposure to interest rate changes. We attempt to increase the safety and preservation of our invested principal funds by limiting default risk, market risk and reinvestment risk. We mitigate default risk by investing in investment grade securities. A hypothetical 100 basis point adverse move in interest rates along the entire interest rate yield curve would not materially affect the fair value of our interest sensitive financial instruments due to their relatively short term nature. Declines in interest rates over time will, however, reduce our interest income as well as the costs we incur for borrowed capital under our credit facility while increases in interest rates over time will increase our interest income as well as the costs we incur for borrowed capital under our credit facility.

38

Item 8. Financial Statements and Supplementary Data

      See the list of financial statements filed with this report under Item 15 below.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures

      On August 31, 2005, we were notified by Deloitte & Touche LLP (“Deloitte”) that effective August 31, 2005 Deloitte had resigned as our independent registered public accounting firm.

      The audit report of Deloitte on Odimo’s financial statements for the fiscal year ended December 31, 2004 did not contain an adverse opinion or disclaimer of opinion, nor was it qualified or modified as to uncertainty, audit scope, or accounting principles. The audit report of Deloitte on Odimo’s financial statements for the fiscal year ending December 31, 2003 contained an explanatory paragraph for the restatement of the financial statements.

      During the two most recent fiscal years and the subsequent interim period through the date of Deloitte’s resignation, Odimo had no disagreements with Deloitte on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreement, if not resolved to their satisfaction, would have caused Deloitte to make reference to the subject matter of the disagreement in connection with their reports. In addition, during that time there were no reportable events (as defined in Item 304(a)(1)(iv) of Regulation S-K).

      Odimo provided Deloitte with a copy of the disclosures, and requested Deloitte to furnish Odimo with a letter addressed to the Securities and Exchange Commission stating whether Deloitte agreed with the statements made by Odimo. The letter was attached to Odimo’s Report on Form 8-K filed on September 2, 2005, as Exhibit 16.1 thereto.

      Effective September 2, 2005, we retained Rachlin Cohen & Holtz LLP as our independent registered public accounting firm.

Item 9A. Controls and Procedures

      We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

      As required by Securities and Exchange Commission Rule 13a-15(b), we carried out an evaluation, under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on the foregoing, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level.

      There has been no change in our internal controls over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

Item 9B. Other Information

      None

39

PART III

Item 10.  Directors and Executive Officers of the Registrant

      The information required by this item will be contained in our definitive proxy statement to be filed with the Securities and Exchange Commission in connection with the Annual Meeting of our Stockholders (the “Proxy Statement”), which is expected to be filed not later than 120 days after the end of our fiscal year ended December 31, 2005, and is incorporated in this report by reference. However, the information concerning executive officers required by Item 10 in contained in the discussion entitled Executive Officers of the Registrant in Part I hereof.

Item 11. Executive Compensation

      The information required by this item will be set forth in the Proxy Statement and is incorporated in this report by reference.

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

      The information required by this item will be set forth in the Proxy Statement and is incorporated in this report by reference.

Item 13.  Certain Relationships and Related Transactions

      The information required by this item will be set forth in the Proxy Statement and is incorporated in this report by reference.

Item 14.  Principal Accounting Fees and Services

      The information required by this item will be set forth in the Proxy Statement and is incorporated in this report by reference.

40

PART IV

Item 15.  Exhibits and Financial Statement Schedules

      (a) Documents filed as part of this report.

      1. The following financial statements of Odimo Incorporated and Reports of Rachlin Cohen & Holtz LLP and Deloitte & Touche LLP, independent registered public accounting firms, are included in this report:

	Page
Reports of Independent Registered Public Accounting Firms		F-2
Consolidated Balance Sheets		F-4
Consolidated Statements of Operations		F-5
Consolidated Statements of Stockholders’ Equity		F-6
Consolidated Statements of Cash Flows		F-7
Notes to Consolidated Financial Statements		F-8

      2. Financial statement schedule:

Schedule II — Valuation and Qualifying Accounts

      Schedules not filed herewith are either not applicable, the required information is not material, or the required information is set forth in the consolidated financial statements or footnotes thereto.

      3. List of exhibits required by Item 601 of Regulation S-K. See part (b) below.

      (b) Exhibits. The following exhibits are filed as a part of this report:

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

41

Exhibit
Number			Description
	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
	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.
	10	.17(4)	Termination Agreement dated March 29, 2006 by and between the registrant and SDG Marketing, Inc.
	10	.18(4)	Third Amendment to Loan and Security Agreement dated March 30, 2006 by and among Silicon Valley Bank the registrant and its subsidiaries Ashford.com, Inc. and D.I.A. Marketing, Inc.
	14	.1(2)	Code of Business Conduct and Ethics
	16	.1(3)	Letter of Deloitte & Touche LLP dated September 2, 2005
	16	.2(3)	Letter of Rachlin Cohen & Holtz LLP dated September 2, 2005
	21	.1(1)	Subsidiaries of Odimo Incorporated
	23	.1(4)	Consent of Deloitte & Touche LLP
	23	.2(4)	Consent of Rachlin Cohen & Holtz LLP

42

Exhibit
Number			Description
	31	.1(4)	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(4)	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(4)	Certification of Chief Executive Officer pursuant to Section 906 of t he Sarbanes-Oxley Act of 2002
	32	.2(4)	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)	This exhibit was previously filed as an exhibit to the Annual Report on Form 10-K for the year ended December 31, 2004 filed with the Securities and Exchange Commission on March 31, 2005 and is incorporated herein by reference.
(3)	This exhibit was previously filed as an exhibit to the Form 8-K dated August 31, 2005 filed with the Securities and Exchange Commission on September 2, 2005 and is incorporated herein by reference.
(4)	Filed herewith.

43

SIGNATURES

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

ODIMO INCORPORATED

By:  /s/ Alan Lipton

Name: Alan Lipton

Title:   President and Chief Executive Officer

Dated: March 30, 2006

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

Name	Title	Date
/s/ Alan Lipton Alan Lipton	President, Chief Executive Officer and Chairman of the Board of Directors (Principal Executive Officer)	March 30, 2006
/s/ Amerisa Kornblum Amerisa Kornblum	Chief Financial Officer (Principal Financial and Accounting Officer)	March 30, 2006
/s/ Sidney Feltenstein Sidney Feltenstein	Director	March 30, 2006
/s/ Eric Hippeau Eric Hippeau	Director	March 30, 2006
/s/ Lior Levin Lior Levin	Director	March 30, 2006
/s/ Stanley Stern Stanley Stern	Director	March 30, 2006
/s/ Steven Tishman Steven Tishman	Director	March 30, 2006
/s/ Robert Voss Robert Voss	Director	March 30, 2006

44

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	Page
Financial Statements:
Report of Independent Registered Public Accounting Firm		F-2
Consolidated Balance Sheets at December 31, 2005 and 2004		F-4
Consolidated Statements of Operations for each of the three years in the period ended December 31, 2005		F-5
Consolidated Statements of Stockholders’ Equity for each of the three years in the period ended December 31, 2005		F-6
Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 2005		F-7
Notes to Consolidated Financial Statements		F-8
Financial Statement Schedule:
Schedule II — Valuation and Qualifying Accounts		F-28

      Schedules not filed herewith are either not applicable, the required information is not material, or the required information is set forth in the consolidated financial statements or footnotes thereto.

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders

Odimo Incorporated

Fort Lauderdale, Florida

We have audited the accompanying consolidated balance sheet of Odimo Incorporated and Subsidiaries as of December 31, 2005, and the related consolidated statements of operations, stockholders’ equity and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing 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 over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Odimo Incorporated and Subsidiaries as of December 31, 2005, and the consolidated results of their operations and their cash flows for the year then ended, in conformity with U.S generally accepted accounting principles.

The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has suffered recurring losses from operations, and has not generated positive net cash flows from operations, which conditions raise substantial doubt about its ability to continue as a going concern. Management’s plans regarding those matters also are described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

We have also audited the financial statement Schedule II for the year ended December 31, 2005. In our opinion, this schedule presents fairly, in all material respects, the information required to be set forth therein.

RACHLIN COHEN & HOLTZ LLP

Fort Lauderdale, Florida

March 9, 2006, except for paragraph 3 of Note 8 and paragraphs 6 and 7 of Note 14

as to which the date is March 30, 2006

F-2

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Odimo Incorporated:

We have audited the accompanying consolidated balance sheet of Odimo Incorporated and subsidiaries (the “Company”) as of December 31, 2004 and the related consolidated statements of operations, stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2004. Our audits also included the financial statement schedule for each of the two years in the period ended December 31, 2004 listed in the accompanying Index at Item 15. These financial statements and the financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and the financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing 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 over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2004 and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2004 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule for each of the two years in the period ended December 31, 2004, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

Deloitte & Touche LLP

Certified Public Accountants

Miami, Florida

March 29, 2005

F-3

ODIMO INCORPORATED AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

			December 31,
			2005			2004
			(In thousands, except par
			value)
ASSETS
CURRENT ASSETS:
	Cash and cash equivalents		$	3,831		$	1,663
	Deposits with credit card processing company			755			813
	Accounts receivable			308			476
	Inventories			10,244			14,321
	Deposits with vendors			—			660
	Prepaid expenses and other current assets			657			961
		Total current assets		15,795			18,894
PROPERTY AND EQUIPMENT — net				6,927			5,320
GOODWILL				—			9,792
INTANGIBLE AND OTHER ASSETS — net				2,008			6,504
TOTAL			$	24,730		$	40,510
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
	Accounts payable		$	7,883		$	10,833
	Accounts payable to related parties			3,329			5,691
	Accrued liabilities			2,170			3,499
	Bank credit facility			—			9,282
		Total current liabilities		13,382			29,305
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ EQUITY:
	Convertible preferred stock, $0.001 par value, 50,000 and 2,370 shares authorized, 0 and 2,370 shares issued and outstanding at December 31, 2005 and 2004, respectively (liquidation value of $0 and $139,271 at December 31, 2005 and 2004, respectively)			—			3
	Common stock, $0.001 par value, 300,000 and 4,800 shares authorized at December 31, 2005 and December 31, 2004; 7,162 and 629 shares issued and outstanding at December 31, 2005 and 2004, respectively			7			1
	Additional paid-in capital			103,705			80,074
	Accumulated deficit			(92,364	)		(68,873	)
		Total stockholders’ equity		11,348			11,205
TOTAL			$	24,730		$	40,510

See notes to the consolidated financial statements

F-4

ODIMO INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

		Year Ended December 31,
		2005			2004			2003
		(In thousands, except per share data)
NET SALES		$	51,841		$	52,244		$	41,694
COST OF SALES			39,310			37,141			29,945
	Gross profit		12,531			15,103			11,749
OPERATING EXPENSES:
	Fulfillment		3,620			3,516			2,589
	Marketing		7,625			6,629			3,709
	General and administrative(1)		11,343			14,140			8,463
	Depreciation and amortization		3,576			2,749			3,024
	Goodwill impairment charge		9,792			—			—
Total operating expenses			35,956			27,034			17,785
LOSS FROM OPERATIONS			(23,425	)		(11,931	)		(6,036	)
INTEREST EXPENSE, Net			66			585			1,107
NET LOSS			(23,491	)		(12,516	)		(7,143	)
DIVIDENDS TO PREFERRED STOCKHOLDERS			(832	)		(15,378	)		(4,519	)
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS		$	(24,323	)	$	(27,894	)	$	(11,662	)
Net loss per common share attributable to common stockholders:
	Basic and diluted	$	(3.86	)	$	(44.35	)	$	(18.54	)
Weighted average number of shares:
	Basic and diluted		6,302			629			629

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

See notes to consolidated financial statements

F-5

ODIMO INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

		Preferred Stocks						Common Stock
												Additional									Total
					Par					Par		Paid-In			Stock-Based			Accumulated			Stockholders’
		Shares			Value			Shares		Value		Capital			Compensation			Deficit			Equity
		(In thousands)
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
	Issuance of common stock in public offering, net of offering costs		—			—			3,125		3		22,282			—			—			22,285
	Conversion of preferred stock to common stock		(2,370	)		(3	)		3,154		3					—
	Proceeds from exercise of warrants		—			—			255		—		1,349			—			—			1,349
	Net loss		—			—			—		—		—			—			(23,491	)		(23,491	)
BALANCE — December 31, 2005		$	—		$	—			7,163	$	7	$	103,705		$	—		$	(92,364	)	$	11,348

See notes to consolidated financial statements

F-6

ODIMO INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

				Years Ended December 31,
				2005			2004			2003
				(In thousands)
OPERATING ACTIVITIES:
	Net loss			$	(23,491	)	$	(12,516	)	$	(7,143	)
	Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
		Depreciation and amortization			3,576			2,749			3,024
		Goodwill impairment charge			9,792			—			—
		(Gain) loss on disposal of property and equipment			—			(3	)		12
		Stock-based compensation			—			4,689			2
		Amortization of supply agreement			144			84			61
		Amortization of discount on stockholder notes			—			174			608
	Changes in operating assets and liabilities:
		(Increase) Decrease in operating assets:
		Deposits with credit card processing company			58			(168	)		(235	)
		Accounts receivable			169			(104	)		(285	)
		Inventories			4,077			(8,315	)		(1,548	)
		Deposits with vendors			660			(434	)		(181	)
		Prepaid expenses and other current assets			304			(192	)		(184	)
		Other assets			—			(2,625	)		(1	)
	Increase (Decrease) in operating liabilities:
		Accounts payable			(2,950	)		2,909			4,517
		Accounts payable to related parties			(2,362	)		4,636			453
		Accrued liabilities			(1,327	)		180			1,628
Net cash (used in) provided by operating activities					(11,350	)		(8,936	)		728
INVESTING ACTIVITIES  —
	Purchase of property and equipment				(3,387	)		(3,698	)		(1,694	)
FINANCING ACTIVITIES:
	Proceeds from stockholder notes				—			—			3,000
	Payments on stockholder notes				—			(2,870	)		(3,900	)
	Net (repayments) borrowings under bank credit facility				(9,282	)		9,282			—
	Proceeds from issuance of convertible preferred stock and warrants				—			2,750			500
	Proceeds from exercise of warrants				1,349			—			—
	Proceeds from issuance of common stock, net of offering costs				24,838			—			—
			Net cash provided by (used in) financing activities		16,905			9,162			(400	)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS					2,168			(3,472	)		(1,366	)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR					1,663			5,135			6,501
CASH AND CASH EQUIVALENTS, END OF YEAR				$	3,831		$	1,663		$	5,135
SUPPLEMENTAL SCHEDULE OF NON-CASH ACTIVITIES:
	Interest paid			$	101		$	372		$	379
	SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
	Offering costs recorded as other assets during 2004 reclassed and netted against IPO proceeds during 2005			$	2,556		$	—		$	—
	Issuance of warrants to purchase convertible preferred stock			$	—		$	—		$	436
	Exchange of stockholder notes (including accrued interest of $211) for convertible preferred stock and warrants			$	—		$	2,996		$	—
	Fair value of supply agreement			$	—		$	433		$	—

See notes to consolidated financial statements

F-7

ODIMO INCORPORATED AND SUBSIDIARIES

Notes to Consolidated Financial Statements

1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      Business — Odimo Incorporated and subsidiaries (the “Company”) is an online retailer of brand name watches, luxury goods, high quality diamonds and fine jewelry. The Company was incorporated in January 1998 and is based in Sunrise, Florida. The Company currently operates three web sites, www.diamond.com, www.ashford.com, and www.worldofwatches.com.

      Basis of Presentation — The consolidated financial statements reflect the financial position and results of operations of Odimo Incorporated and its wholly-owned subsidiaries on a consolidated basis. Intercompany balances and transactions have been eliminated in consolidation.

      Use of Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“generally accepted accounting principles”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Some of the more significant estimates include the reserve for sales returns, the carrying value of inventories and other long-lived assets, the deferred tax asset valuation reserve, and the estimated fair value of stock based compensation. Actual results could differ from those estimates.

      Concentration of Risk — The Company maintains the majority of its cash and cash equivalents in accounts with one high quality financial institution in the United States of America, in the form of demand deposits and money market accounts. Deposits in this bank may exceed the amounts of insurance provided on such deposits. The Company has not experienced any losses on its deposits of cash and cash equivalents.

      During the years ended December 31, 2005, 2004 and 2003, the Company purchased a significant portion of its diamonds from several affiliated diamond suppliers. In addition, the Company purchases watches, jewelry and luxury goods from unaffiliated vendors with whom the Company does not maintain a contractual relationship. During the years ended December 31, 2005, 2004 and 2003, the Company did not purchase goods from any unaffiliated vendor that represented more than 10% of the Company’s total purchases from unaffiliated vendors.

      Other Risks — The Company is subject to certain risks which include, but are not limited to: brand owners’ objections to the Company’s pricing on sales of merchandise purchased in the parallel markets, non-guaranteed supply of watches and luxury goods, the sale of decoded watches in certain states, susceptibility to general economic downturns, competition from traditional retailers, dependence on third-party carriers, dependence on the Internet and related security risks, and the uncertain ability to protect proprietary intellectual property.

      Cash and Cash Equivalents — The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.

      Accounts Receivable — Accounts receivable are carried at amounts management deems collectible. Accordingly, an allowance is provided in the event an account is considered uncollectible. As of December 31, 2005 and 2004, no such allowances have been provided as management believes all accounts receivable at such dates are fully collectible.

      Inventories — Inventories, which consist of brand name watches, luxury goods, diamonds, and diamond-related and fine jewelry are stated at the lower of cost (using the first-in, first-out method) or market. The Company records a write-down, as needed, to adjust the carrying amount of the specific inventory item to lower of cost or market. During the years ended December 31, 2005 and 2004, the Company recorded approximately $49,000 and $40,000 of inventory write-downs. No inventory write-downs were recorded during the year ended December 31, 2003. The Company also maintains consigned

F-8

ODIMO INCORPORATED AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

inventories, consisting primarily of diamonds and watches, of approximately $1.2 million and $1.5 million as of December 31, 2005 and 2004, respectively, which are displayed on the Company’s websites. The consigned diamonds (through March 2004) were under certain exclusive supply agreements with related parties (see Note 14). The cost of these consigned inventories and the related contingent obligation are not included in the Company’s consolidated balance sheets. At the time consigned inventories are sold and the sale is recorded, the Company also records the cost of the merchandise purchased in accounts payable and in cost of sales.

      Deposits with Vendors  — Deposits with vendors represent amounts paid to suppliers for merchandise purchase orders. Such deposits are applied to orders as they are received.

      Property and Equipment — Property and equipment are stated at cost less accumulated depreciation. Maintenance costs are expensed as incurred. Depreciation is calculated on a straight-line basis over the estimated useful lives of the related assets. Leasehold improvements are amortized by the straight-line method over the remaining term of the applicable lease or their useful lives, whichever is shorter. The cost and related accumulated depreciation or amortization of assets sold or otherwise disposed of is removed from the accounts and the related gain or loss is reported in the consolidated statement of operations.

      Software and Website Development Costs — The Company capitalizes internally developed software and website development costs in accordance with Statement of Position 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use and Emerging Issues Task Force Issue 00-2, Accounting for Web Site Development Costs. Capitalized costs are amortized on a straight-line basis over the estimated useful life of the software once it is available for use. The ongoing assessment of recoverability of capitalized software development costs requires considerable judgment by management with respect to estimated economic life and changes in software and hardware technologies.

      Long-Lived Assets — Long-lived assets, including property and equipment and intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Recoverability of assets is initially estimated by comparison of the carrying amount of the asset to the net future undiscounted cash flows expected to be generated by the asset. To the extent future undiscounted cash flows are less than the carrying amount, an impairment loss would be recognized.

      Goodwill — Goodwill represented the excess of the purchase price and related costs over the value assigned to net tangible and identifiable intangible assets of a business acquired in 2000 and accounted for under the purchase method.

      Effective January 1, 2002, the Company adopted the provisions of Statement of Financial Accounting Standard No. 142, Goodwill and Other Intangible Assets (“SFAS No. 142”). With the adoption of SFAS No. 142, goodwill is no longer subject to amortization. Rather, goodwill is subject to at least an annual assessment for impairment by applying a fair-value based test. The Company completed its annual assessment as of December 31, 2004 and determined that there was no impairment of goodwill. As of December 31, 2005, the Company performed its annual impairment analysis and determined that the goodwill was fully impaired and as a result recorded a $9.8 million impairment charge in the accompanying consolidated statement of operations (see Note 6).

      Intangible Assets — Intangible assets are recorded at amortized cost and consist primarily of marketing-related intangible assets (trademarks, trade-names and Internet domain names). Intangible assets are amortized on a straight-line basis over their estimated useful life which range from 4 to 5 years.

      Warranty Costs — The Company records an accrual for costs that it estimates will be needed to cover future product warranty obligations for watches sold. This estimate is based upon the Company’s historical experience as well as current sales levels.

F-9

ODIMO INCORPORATED AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

      Fair Value of Financial Instruments — The carrying amounts of the Company’s cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities and debt approximate their carrying fair values due to their short-term nature as of December 31, 2005 and 2004.

      Revenue Recognition — Net sales consist of revenue from the sale of the Company’s products and upgrades to the Company’s standard free shipping, net of estimated returns and promotional discounts. The Company recognizes revenues when all of the following have occurred: persuasive evidence of an agreement with the customer exists; products are shipped and the customer takes delivery and assumes the risk of loss; the selling price is fixed or determinable; and collectibility of the selling price is reasonably assured. The Company has evaluated Emerging Issues Task Force Issue 99-19, Reporting Revenue Gross as a Principal versus Net as an Agent, and has determined it does not function as an agent or broker for its suppliers; therefore, the Company has recorded the gross amount of product sales and related costs instead of a net amount earned.

      The Company requires payment at the point of sale. Any amounts received prior to delivery of goods to customers are recorded as deferred revenue. As of December 31, 2005 and 2004, the Company had deferred revenue of approximately $169,000 and $93,000, respectively, which is included in accrued liabilities in the accompanying consolidated balance sheets. The Company offers a return policy of generally 15 to 30 days and provides a reserve for sales returns during the period in which the sales are made. At December 31, 2005 and 2004, the reserve for sales returns was approximately $312,000 and $333,000, respectively, and was recorded as an accrued liability in the accompanying consolidated balance sheets. Net sales and cost of sales reported in the consolidated statement of operations are reduced to reflect estimated returns.

      Cost of Sales — Cost of sales includes the cost of products sold to customers, including inbound shipping costs and assembly costs. Cost of sales also includes amortization of the inventory-related intangible asset (see Note 7). For the years ended December 31, 2005, 2004 and 2003, the Company recorded amortization of approximately $144,000, $84,000, and $61,000, respectively, related to the inventory-related intangible asset, which is included in cost of sales in the accompanying consolidated statements of operations.

      Fulfillment Expenses — Fulfillment expenses include outbound freight paid by the Company (approximately $1.9 million, $2.0 million, and $1.4 million for each of the years ended December 31, 2005, 2004 and 2003, respectively), commissions paid to sales associates, credit card processing fees and packaging and other shipping supplies. Commissions are paid based on a percentage of the price of goods sold and are expensed when the goods are sold.

      Marketing Expenses — Marketing expenses consist primarily of online advertising costs, affiliate program fees and commissions, public relations costs and other marketing expenses. Advertising costs are expensed as incurred. Costs of advertising associated with print and other media are expensed when such services are used. Costs associated with web portal advertising contracts are amortized over the period such advertising is expected to be used. Advertising expense was approximately $3.6 million, $4.0 million, and $2.1 million for each of the years ended December 31, 2005, 2004 and 2003, respectively.

      General and Administrative Expenses — General and administrative expenses include payroll and related employee benefits (including employee stock-based compensation), costs to maintain the Company’s websites, professional fees, insurance, rent, travel and other general corporate expenses.

      Stock-Based Compensation — The Company accounts for stock-based compensation paid to employees using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25 (“APB Opinion 25”), Accounting for Stock Issued to Employees and related interpretations including Financial Accounting Standards Board (“FASB”) Interpretation No. 44, Accounting for Certain Transactions involving Stock Compensation, an interpretation of APB Opinion No. 25 (“FIN 44”). Compensation for

F-10

ODIMO INCORPORATED AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

stock options granted to employees (including members of the board of directors), if any, is measured as the excess of the market price of the Company’s stock at the date of grant over the amount the employee must pay to purchase the stock. Any compensation expense related to such grants are deferred and amortized to expense over the vesting period of the related options.

      Compensation expense related to options granted to non-employees is calculated using the fair-value based method of accounting prescribed by Statement of Financial Accounting Standards No. 123 Accounting for Stock-Based Compensation (“SFAS No. 123”). SFAS No. 123 established accounting and disclosure requirements using a fair-value based method of accounting for stock-based employee compensation plans. The Company has elected to account for stock options granted to employees, as prescribed by APB Opinion 25, and has adopted the disclosure-only requirements of SFAS No. 123.

      Had compensation cost for the Company’s stock options been determined based on the fair value of the options at the date of grant, the Company’s pro forma net loss attributable to common stockholders and net loss per share would have been as shown below (in thousands, except per share data):

		Year Ended December 31,
		2005			2004			2003
Net loss attributable to common stockholders, as reported		$	(24,323	)	$	(27,894	)	$	(11,662	)
Add: Stock-based compensation expense, as reported			—			4,689			2
Deduct: Stock-based employee compensation expense determined under fair-value-based method			(14	)		(5,615	)		(76	)
Pro forma net loss		$	(24,337	)	$	(28,820	)	$	(11,736	)
Net loss per share:
	Basic and diluted — as reported	$	(3.86	)	$	(44.35	)	$	(18.54	)
	Basic and diluted — pro forma	$	(3.87	)	$	(45.82	)	$	(18.66	)

      The fair value of each option grant under the Company’s stock incentive plan is estimated on the date of grant using the Black-Scholes option-pricing model. The weighted-average fair value of stock options granted during each of the years ended December 31, 2004 and 2003 was $5.25, and $2.75, respectively. There were no options granted in 2005. The following weighted average assumptions were used for grants for each of the years ended December 31, 2004 and 2003, respectively:

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

      In December 2004, the FASB issued SFAS No. 123 (Revised 2004) (“SFAS No. 123(R)”), Share-Based Payment. SFAS No. 123(R) requires companies to expense the estimated fair value of stock options and similar equity instruments issued to employees. Currently, companies are required to calculate the estimated fair value of these share-based payments and can elect to either include the estimated cost in earnings or disclose the pro forma effect in the footnotes to their financial statements. As discussed above, the Company has chosen to disclose the pro forma effect. The fair value concepts were not changed significantly in SFAS No. 123(R); however, in adopting SFAS No. 123(R), companies must choose among alternative valuation models and amortization assumptions.

F-11

ODIMO INCORPORATED AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

      The valuation model and amortization assumption used by the Company continues to be available; however, the Company has not yet completed its assessment of the alternatives. SFAS No. 123(R) will be effective for the Company beginning with the quarter ending March 31, 2006. Transition options allow companies to choose whether to adopt prospectively or retrospectively, based on the amounts that have been included in the footnotes. The Company has not yet concluded on which transition option it will select. See above for the pro forma effect for the each of the periods presented herein, using the Company’s existing valuation and amortization assumptions. The Company does not expect the adoption of this standard to have a material impact on its results of operations.

      Income Taxes — The Company accounts for income taxes in accordance with the provisions of SFAS No. 109, Accounting for Income Taxes. SFAS No. 109 requires an asset and liability approach. Under this method, a deferred tax asset or liability is recognized with respect to all temporary differences between the financial statement carrying amounts and the tax bases of assets and liabilities and with respect to the benefit from utilizing tax loss carryforwards. Deferred tax assets and liabilities are reflected at currently enacted income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before the Company is able to realize their benefit, or that future deductibility is prohibited or uncertain.

      Loss Per Share — Basic loss per share is computed based on the average number of common shares outstanding and diluted earnings per share is computed based on the average number of common and potential common shares outstanding under the treasury stock method. The calculation of diluted loss per share was the same as the basic loss per share for each period presented since the inclusion of potential common stock in the computation would be antidilutive.

      All of the Company’s outstanding convertible preferred stock, preferred stock warrants and stock options during the respective periods have been excluded from the calculations because the effect on net loss per share would have been antidilutive.

      For the years ended December 31, 2005, 2004 and 2003, dividends to preferred stockholders includes approximately $832,000, $5.7 million, and $4.5 million of undeclared dividends on the Company’s convertible preferred stock. For the year ended December 31, 2004 dividends to preferred stockholders also includes approximately $9.7 million related to the issuance of Series C convertible preferred stock to existing stockholders (see Notes 9 and 14). This amount represents the excess of the estimated fair value of the Series C preferred stock over the consideration received by the Company.

      Reclassification — The Company has presented amounts withheld by its credit card processing company for credit card charge-backs as Deposits with Credit Card Processing Company in the accompanying consolidated balance sheet as of December 31, 2005. These amounts were previously presented as Restricted Cash as of December 31, 2004. As such, the Company has changed the presentation in the consolidated balance sheet as of December 31, 2004 to be consistent.

      Segments — The Company has one operating segment, online retail of brand name watches, other luxury goods, diamonds, and fine jewelry. No foreign country or geographic area accounted for more than 10% of net sales in any of the periods presented and the Company does not have any long-lived assets located in foreign countries.

      Stock Splits — On January 24, 2005, the Company effected a 1 for 25 reverse split of its common stock and convertible preferred stock. All references to the number of shares, per share amounts and any other references to shares in the accompanying consolidated financial statements and the notes, unless otherwise indicated, have been adjusted to reflect the reverse stock splits on a retroactive basis. Previously

F-12

ODIMO INCORPORATED AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

awarded stock options and preferred stock warrants have been retroactively adjusted to reflect the reverse stock splits.

      New Accounting Pronouncements — In May 2005, the FASB issued SFAS No. 154, “Accounting for Changes and Error Corrections, a Replacement of APB Opinion No. 20 and FASB Statement No. 3.” SFAS 154 applies to all voluntary changes in accounting principle and requires retrospective application to prior periods’ financial statements of changes in accounting principle. This statement also requires that a change in depreciation, amortization, or depletion method for long-lived, non-financial assets be accounted for as a change in accounting estimate affected by a change in accounting principle. SFAS 154 carries forward without change the guidance contained in APB Opinion No. 20 for reporting the correction of an error in previously issued financial statements and a change in accounting estimate. This statement is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Company does not expect the adoption of this standard to have a material impact on its financial condition, results of operations, or liquidity.

      In March 2005, the FASB issued FASB Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations, an Interpretation of FASB Statement No. 143.” This Interpretation clarifies that the term conditional asset retirement obligation refers to a legal obligation to perform an asset retirement activity in which the timing and (or) method of settlement are conditional on a future event that may or may not be within the control of the entity. Accordingly, an entity is required to recognize a liability for the fair value of a conditional asset retirement obligation if the fair value can be reasonably estimated. FIN 47 also clarifies when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation. The effective date of this interpretation is no later than the end of fiscal years ending after December 15, 2005. The Company does not expect the adoption of this standard to have a material impact on its financial condition, results of operations, or liquidity.

      In December 2004, the FASB issued SFAS No. 153, “Exchanges on Nonmonetary Assets — An Amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions” (SFAS 153) SFAS 153 eliminates the exception from fair value measurement for nonmonetary exchanges of similar productive assets in paragraph 21(b) of APB Opinion No. 29, “Accounting for Nonmonetary Transactions,” and replaces it with an exception for exchanges that do not have commercial substance. SFAS 153 specifies that a nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS 153 is effective for fiscal periods beginning after June 15, 2005. The Company does not expect the adoption of this statement to have a material impact on its financial condition, results of operations, or liquidity.

2.  GOING CONCERN CONSIDERATIONS

      The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As shown in the accompanying financial statements, the Company has incurred recurring losses from operations during the year ended December 31, 2005 and has not generated positive net cash flows from operations. There can be no assurance that the Company will generate sufficient cash flows to meet its cash flow and working capital needs. The Company requires additional financing to continue operations, meet its operational goals and to pursue its long term strategy. The Company is currently (i) attempting to implement a program to reduce costs, (ii) seeking equity and debt financing, and (iii) exploring the sale of the Company or certain assets.

      There is no assurance, however, that the Company will be able to raise equity or debt financing on commercially reasonable terms, if at all, or that the Company will be able to meet its future contractual obligations. The failure to raise equity or debt financing will negatively impact the Company and its growth plans and its financial condition and results of operations. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

F-13

ODIMO INCORPORATED AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

3.  ASSET PURCHASE

      In December 2002, the Company executed an asset purchase agreement (the “Agreement”) with Ashford.com Inc. (“Ashford”), a wholly-owned subsidiary of GSI Commerce, Inc. (“GSI”), setting forth the terms and conditions of the asset purchase. Pursuant to the Agreement, the Company purchased the www.ashford.comdomain name and related trademarks and tradenames, incomplete individual customer information (e.g., e-mail addresses with no physical address, e-mail addresses with no additional corresponding customer information, names and addresses with no e-mail address, etc.) for customers who had placed orders through the www.ashford.com website during the nine months that GSI operated it (which did not include any customers prior to GSI’s acquisition of Ashford) (the “Purchased Assets”), and limited items of pre-selected remaining inventory (the “Pre-Selected Inventory”).

      In consideration for the Purchased Assets, the Company issued GSI a $4.5 million secured subordinated note payable over five years and approximately 624,000 shares (and warrants to purchase approximately 107,000 shares) of the Company’s Series D Convertible Preferred Stock (the “Series D”) with an estimated fair value of approximately $2.7 million, for a total consideration of approximately $7.2 million. The Company has assigned the value of the total consideration given to a marketing related intangible asset with an estimated useful life of four years (see Note 6). None of the consideration given was assigned to a customer related intangible asset as the Company was able to subsequently determine that net sales to customers included as part of the incomplete individual customer information obtained was not significant compared to the Company’s total 2003 net sales.

      To accommodate the purchase, the Company also purchased the Pre-Selected Inventory for approximately $1.1 million in cash.

      In addition, per the Agreement, GSI has a right to receive 10% of the Company’s annual consolidated EBITDA, if positive, as defined in the Agreement (the “EBITDA Payment”), from 2003 through 2007 up to a maximum aggregate amount of $2.0 million. As of December 31, 2002, the Company could not determine if the conditions requiring the EBITDA Payment would be met and therefore did not record a liability as of December 31, 2002. The Company will record the EBITDA Payment when the conditions are met and the EBITDA Payment becomes due. The conditions requiring payment have not been met and therefore no amounts were recorded as of December 31, 2005 and 2004.

4.  INVENTORIES

      Inventories consist of the following (in thousands) as of:

	December 31,
	2005		2004
Diamonds	$	4,148	$	5,488
Fine jewelry		2,422		2,967
Watches		2,592		3,344
Luxury goods		1,082		2,522
Total inventories	$	10,244	$	14,321

F-14

ODIMO INCORPORATED AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

5.  PROPERTY AND EQUIPMENT

      Property and equipment consists of the following (in thousands) as of:

	Estimated		December 31,
	Useful Lives
	(in Years)		2005			2004
Computers, software and equipment		3	$	12,846		$	9,049
Leasehold improvements		4		1,196			1,066
Furniture and fixtures		5		596			598
Automobiles		4		43			—
				14,681			10,713
Less: accumulated depreciation				(8,516	)		(6,737	)
				6,165			3,976
Software development in process				762			1,344
Property and equipment — net			$	6,927		$	5,320

      Depreciation expense amounted to approximately $1.8 million, $1.0 million, and, $1.2 million for each of the years ended December 31, 2005, 2004 and 2003, respectively.

      Capitalized software costs include external direct costs and internal direct labor and related employee benefits costs. Amortization begins in the period in which the software is ready for its intended use.

6.  GOODWILL

      The changes in the carrying amount of goodwill for the year ended December 31, 2005, are as follows:

Balance as of December 31, 2004	$	9,792
Impairment loss		(9,792	)
Balance as of December 31, 2005	$	—

      The Company tested its goodwill for impairment under SFAS 142. Under step one, the overall enterprise value of the Company was assessed and was compared to the overall carrying value of the enterprise. Based on the results of this analysis, it was determined that the goodwill was fully impaired. Accordingly, a goodwill impairment loss of $9.8 million has been recognized.

F-15

ODIMO INCORPORATED AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

7.  INTANGIBLE AND OTHER ASSETS

      Intangible and other assets consist of the following (in thousands) as of:

		December 31,
		2005			2004
Marketing-related:
	www.diamond.com domain name	$	2,137		$	2,137
	www.ashford.com domain name		7,186			7,186
	Affinity phone number		288			288
Inventory-related:
	2004 Supply Agreement		433			433
			10,044			10,044
Less: accumulated amortization			(8,192	)		(6,252	)
Intangibles — net			1,852			3,792
Other assets			156			2,712
Total		$	2,008		$	6,504

      Other assets consist primarily of deposits as of December 31, 2005 and deposits and deferred offering costs as of December 31, 2004. During February 2005, approximately $2.6 million of deferred offering costs was netted in equity against the proceeds received from the initial public offering (IPO). Amortization expense for marketing-related intangible assets amounted to approximately $1.8 million for each of the years ended December 31, 2005, 2004 and 2003. Amortization expense for inventory-related intangible assets is included in cost of sales (see Note 1).

      The www.diamond.com domain name and the affinity phone number assets are fully amortized. During December 31, 2004, the 2000 Supply Agreement became fully amortized and was written-off due to the related agreements being terminated (see Note 14).

      During June 2004, the Company entered into an amended supply agreement with SDG Marketing, Inc. (“SDG”), which is affiliated with a stockholder, to supply diamond inventory (see Note 14). In connection with this transaction, the Company recorded an inventory-related intangible asset of approximately $0.4 million in June 2004, based on the estimated fair value of the supply agreement.

      The future amortization expense of the intangible assets as of December 31, 2005 is as follows (in thousands):

	Marketing		Inventory
Year	Related		Related		Total
2006	$	1,649	$	145	$	1,794
2007		—		58		58
	$	1,649	$	203	$	1,852

8.  BANK CREDIT FACILITY

      In March 2004, the Company obtained a bank credit facility with a local financial institution that allowed the Company to borrow up to $3.0 million. The outstanding advances were charged interest at the bank’s floating base rate. The bank credit facility was guaranteed by certain stockholders, including the Company’s chief executive officer and president. The guarantor stockholders had agreed to indemnify each

F-16

ODIMO INCORPORATED AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

other against losses resulting from their guarantees for amounts in excess of a certain amount calculated based on their pro rata ownership of the Company. The Company repaid and terminated this bank credit facility in 2004 with an advance under a new secured credit facility described below.

      In July 2004, the Company entered into a new secured credit facility with a national financial institution. Under the new secured credit facility, the Company was able to borrow up to either $7.0 million or $12.0 million depending on the time of the year and subject to the Company’s inventory levels. Outstanding advances were to be charged interest at the greater of the lender’s prime rate plus 0.5% or 4% (7.75% at December 31, 2005). The new secured credit facility was to mature in August 2006 and was secured by a first lien on the Company’s assets. In November 2004, the availability under the new secured credit facility was increased to $15 million through December 31, 2004. One of the Company’s stockholders had guaranteed the Company’s repayment obligation under the new secured credit facility. The Company also repaid the outstanding stockholder notes described in Note 9 with the proceeds from the new credit facility. As of December 31, 2004, the amount outstanding under this facility was $9.3 million. On January 7, 2005, the credit facility was amended further and allowed the Company to borrow up to either $10.0 million or $12.0 million depending on the time of year and subject to the Company’s inventory levels.

      The Company repaid the amount outstanding during February 2005 with the proceeds from its IPO. The Company’s borrowing capacity decreased to either $5.0 million or $8.0 million depending on the time of year and subject to the Company’s inventory levels. There were no amounts outstanding as of December 31, 2005. The Company currently has $5 million available under the current bank credit facility which expires in July 2006. Softbank Capital, the guarantor of the Company’s obligations under the secured credit facility has advised the Company that Softbank Capital prefers that the indebtedness outstanding under the secured credit facility not exceed $2 million in light of the current financial condition and business prospects of the Company. As of March 29, 2006, the Company had $1,000,000 outstanding under the bank credit facility. The secured credit facility contains a covenant that requires the Company to deliver to the lender an unqualified opinion on its financial statements. Because the Company’s independent registered public accounting firm’s report on its financial statements for fiscal year ended 2005 contains a “going concern” qualification, the Company was deemed to be in violation of this covenant. The Company requested and received from its lender in March 2006, a waiver of any default arising in connection with its failure to deliver financial statements without a “going concern” qualification for fiscal year ended 2005.

9.  STOCKHOLDER NOTES

      As discussed in Note 3, during December 2002, the Company issued a five year $4.5 million secured subordinated note as part of the purchase price of the Purchased Assets. The secured subordinated note bears interest at 7% per annum, and required quarterly principal payments of $225,000 which commenced in March 2003 and were to conclude in December 2007. Interest was payable quarterly in arrears at the same time the quarterly principal payments are required. The secured subordinated note was collateralized by a lien on substantially all of the Company’s assets and was subordinate to any indebtedness to fund the Company’s working capital requirements.

      During October 2002, the Company issued to existing stockholders $2.0 million of secured subordinated notes with warrants to purchase approximately 43,000 shares of Series C convertible preferred stock (Series C). The secured subordinated notes bear interest at 8% per annum, and were scheduled to mature on December 31, 2002. In December 2002, the notes were subsequently amended and restated whereby the maturity date was extended to December 31, 2004. No other terms of the notes were amended or restated. The notes were secured by a first priority security interest in all of the Company’s right, title and interest in and to all of the assets of the Company. The warrants were valued at

F-17

ODIMO INCORPORATED AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

approximately $375,000 (see Note 12) and were recorded as a discount on the notes. The Company recognized interest expense related to the amortization of the discount on the notes of approximately $174,000 and $172,000 during each of the years ended December 31, 2004 and 2003, respectively.

      In March 2004, $2.0 million of stockholder notes and accrued interest of approximately $211,000 were exchanged for approximately 223,000 shares of Series C, with warrants to purchase approximately 34,000 shares of Series C at approximately $9.00 per share. The Series C and warrants were valued at approximately $6.4 million based on the estimated fair value of the Company’s Series C with consideration given to the anticipated initial public offering. The warrants are exercisable effective March 20, 2004 and expire March 20, 2014. The difference of approximately $4.1 million between the estimated fair value of the Series C and warrants and the approximately $2.3 million carrying value (including approximately $211,000 of accrued interest) of the stockholder notes was recorded as a preferred dividend to the Series C stockholders.

      In April 2004, $730,000 of stockholder notes were exchanged for approximately 82,000 shares of Series C, with warrants to purchase approximately 12,000 shares of Series C at approximately $9.00 per share. The Series C and warrants were valued at approximately $2.4 million based on the estimated fair value of the Company’s Series C with consideration given to the anticipated initial public offering. The warrants are exercisable effective April 28, 2004 and expire April 28, 2014. The difference of approximately $1.6 million between the estimated fair value of the Series C and warrants and the $730,000 carrying value of the stockholder notes was recorded as a preferred dividend to the Series C stockholder.

      In August 2004, the balance of the stockholder notes were repaid with proceeds from the new bank credit facility discussed in Note 8. In February 2005, all warrants were exercised immediately prior to the completion of the Company’s initial public offering. See Note 15.

10.  INCOME TAXES

      A reconciliation of the statutory Federal income tax rate to the effective income tax rate for the year ended December 31 is as follows (in thousands, except tax rates):

		2005						2004						2003
		Amount			Rate			Amount			Rate			Amount			Rate
Income taxes at statutory rate		$	(7,987	)		34.0	%		(4,255	)		34.0	%	$	(2,429	)		34.0	%
State income taxes, net of federal benefit			(466	)		2.0			(454	)		3.6			(259	)		3.6
Increase in taxes:
	Penalties and fines		3			0.0			1			0.0			1			0.0
	Meals and entertainment		14			(0.1	)		29			(0.2	)		9			(0.1	)
	Stock-based compensation		—			—			1,594			(12.7	)		—			—
	Goodwill impairment		3,329			(14.2	)		—			0.0			—			0.0
	Intangible amortization		277			(1.2	)		258			(2.1	)		293			(4.1	)
	Adjustment of beginning deferred balance		760			(3.2	)		—			0.0			—			0.0
	Other		(3	)		0.0			199			(1.6	)		(32	)		0.4
	Valuation allowance		4,073			(17.3	)		2,628			(21.0	)		2,417			(33.8	)
		$	—			—	%	$	—			—	%	$	—			—	%

F-18

ODIMO INCORPORATED AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

      Deferred income taxes reflect the net tax effect of temporary differences between amounts recorded for financial reporting purposes and amounts used for tax purposes. The major components of deferred tax assets are as follows (in thousands) as of:

			December 31,
			2005			2004
Deferred tax assets (liabilities):
	Noncurrent:
		Net operating loss carryforwards	$	24,198		$	18,715
		Property and equipment		(834	)		(141	)
		Intangible assets		1,617			2,334
Gross deferred tax assets				24,981			20,908
Valuation allowance				(24,981	)		(20,908	)
Net deferred tax assets			$	—		$	—

      The Company has net operating loss carryforwards of approximately $64.3 million as of December 31, 2005. The Company’s net operating loss carryforwards will expire beginning in 2019 through 2025. Because it is not more likely than not that sufficient tax earnings will be generated to utilize the net operating loss carryforwards and other deferred tax assets, a corresponding valuation allowance of approximately $24.9 million and $20.9 million was established as of December 31, 2005, and 2004 respectively. Additionally, under the Tax Reform Act of 1986, the amounts of, and benefits from, net operating losses may be limited in certain circumstances, including a change in control.

11.  COMMITMENTS AND CONTINGENCIES

      Leases  — The Company was obligated under a non-cancelable operating lease agreement relating to the Company’s offices and warehouse facilities, which expired in December 2005. During July 2004, the Company entered into a new non-cancelable operating lease for an additional warehouse facility and distribution center that expires in 2010. The Company moved its corporate offices to this facility in March 2006. The following is a schedule of the approximate future minimum rental payments under non-cancelable operating leases as of December 31, (in thousands):

Year	Amount
2006	$	243
2007		243
2008		243
2009		243
2010		243
Total minimum payments	$	1,215

      Rent expense under these operating leases totaled approximately $590,000, $485,000, and $455,000 for the years ended December 31, 2005, 2004, and 2003, respectively, and includes payments for operating expenses, such as sales and property taxes and insurance.

      Litigation — From time to time, the Company is subject to legal proceedings and claims, including complaints from trademark owners objecting to the Company’s sales of their products below manufacturer’s retail pricing, and/or threatening litigation, in the ordinary course of business. Management currently believes, after considering a number of factors and the nature of the contingencies to which the

F-19

ODIMO INCORPORATED AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

Company is subject, that the ultimate disposition of these contingencies either cannot be determined at the present time or will not have, individually or in the aggregate, a material adverse effect on its financial position or results of operations.

      The Company is currently a party to a proceeding with an uncertain outcome, which could result in significant judgments against the Company. In January 2006, the Company was served with a complaint which was a consolidation of two previously served complaints. The consolidated complaint names the Company, its Chief Executive Officer and President and Chairman of the Board of Directors and its Chief Financial Officer as defendants and is pending in the Circuit Court of the 17th Judicial Circuit in and for Broward County, Florida on behalf of a purported class of purchasers of the Company’s common stock in or traceable to its initial public offering. The complaint generally alleges that the Company and the other defendants violated Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 due to allegedly false and misleading statements in public disclosures in connection with its initial public offering regarding the impact to its operations of advertising expenses. The Company believes that the lawsuits are without merit and intend to vigorously defend itself. The Company and the individual defendants have filed a response to the complaint. The Company is currently unable to predict the outcome of the actions or the length of time it will take to resolve the actions.

      The Company acquires most of the brand name watches and luxury goods products it sells through the parallel market (products are not obtained directly from the brand owners or their authorized distributors). The Company has received in the past, and anticipates that it will receive in the future, communications from brand owners alleging that certain items sold through the Company’s websites infringe on such brand owners’ trademarks, patents, copyrights and other intellectual property rights. The Company is also subject to lawsuits by brand owners and their authorized distributors based on infringement claims.

      In August 2005, the Company was sued by Gucci America, Inc. in the U.S. District Court Southern District of Florida. Gucci alleged in their complaint that the Company violated federal trademark law and state law on unfair competition through the offer and sale of counterfeit Gucci branded products. Gucci was seeking a permanent injunction prohibiting, among other things, the Company’s sale of all Gucci-branded products, as well as money damages (including treble damages for willful infringement).

      In August 2005, the Company settled the Gucci lawsuit for a nominal amount.

      Employment Agreements — In July 2004 (and as amended in August 2004), the Company entered into employment agreements with four of its executives which provide for an initial term of three years with successive one year extensions unless the Company or the employee provides notice of the intent not to renew the agreement. Under such agreements, the base salaries of these executives collectively amount to $910,000 per year, plus discretionary annual cash bonuses determined by the Company’s board of directors. The agreements also contain certain “non-compete” and “change of control” provisions.

12.  CONVERTIBLE PREFERRED STOCK

      The Company has authorized 50,000,000 shares of convertible preferred stock as of December 31, 2005. No shares were outstanding as of December 31, 2005. The Company had authorized and outstanding approximately 2,370,000 shares of convertible preferred stock as of December 31, 2004. Shares of convertible preferred stock may be issued from time to time in one or more series, with designations, preferences, and limitations established by the Company’s board of directors. The Company has designated four series of convertible preferred stock: Series A, B, C and D. All series of convertible preferred stock are at $0.001 par value.

F-20

ODIMO INCORPORATED AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

      Amounts of convertible preferred stock at December 31, 2004 is as follows (in thousands):

	December 31, 2004
									Common
									Shares
							Additional		Issuable
	Authorized		Shares				Paid-In		Upon		Liquidation
	Shares		Outstanding		Par 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

      The liquidation preferences at December 31, 2004 is as follows (in thousands):

	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

      The following table summarizes information about convertible preferred stock for the years ended December 31 (in thousands):

	Series A						Series B						Series C						Series D
	Shares			Amount			Shares			Amount			Shares			Amount			Shares			Amount
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
Conversion of preferred stock to common stock		(186	)		(6,678	)		(514	)		(36,251	)		(1,046	)		(29,719	)		(624	)		(1,757	)
Balance, December 31, 2005		—		$	—			—		$	—			—		$	—			—		$	—

      Issuances — During September 2003, the Company sold 56,000 shares of Series C and warrants to purchase approximately 8,000 shares of Series C to an existing stockholder for $500,000 in cash.

      Conversion and Dividend Features — Each share of Series A, B, C and D is convertible, at the option of the holder, into shares of the Company’s common stock at any time. Additionally, the shares are mandatorily convertible into common stock upon the Company completing an IPO which results in net proceeds to the Company of at least $30 million and the value of the Company immediately prior to such IPO is at least $150 million. The Company entered into a warrant exercise and preferred stock conversion agreement which amended the mandatory conversion feature of the Preferred Stock to provide that the Preferred Shares are mandatorily convertible into common stock upon the Company completing an IPO closing (the “Conversion Agreement”, see Note 15).

F-21

ODIMO INCORPORATED AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

      The holders of Series D convertible preferred stock are entitled to receive dividends at a rate of 8% per annum of the original Series D issue price prior to any dividend distributions being made by the Company to any of its other stockholders. Subject to the prior rights of Series D, the holders of Series C, and subject to the prior rights of Series D and C, the holders of Series B, and subject to the prior rights of Series D, C and B, the holders of Series A are also entitled to receive dividends at a rate of 8% per annum. Dividends will be payable when and if declared by the board of directors and shall be cumulative, except for Series A. To date, the board of directors has not declared any such dividends.

      Common shares issuable upon conversion for Series B in the tables above include approximately 37,000 shares issuable to Series B holders as a result of anti-dilution adjustment provisions of the Series B.

      Liquidation Preferences  — In the event of any liquidation, dissolution or winding up of the Company or upon any event which constitutes a deemed liquidation event, either voluntary or involuntary, any payments or distributions to be received by the stockholders of the Company shall be made in the order of priority as follows:

•  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. 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 — In 2002, in connection with the issuance of $2.0 million in stockholder notes (see Note 9), the Company issued warrants to purchase approximately 43,000 shares of Series C at

F-22

ODIMO INCORPORATED AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

$9.00 per share. The warrants were valued at approximately $375,000 as determined using the Black-Scholes option-pricing model and were recorded as a discount on the notes. The warrants are exercisable effective December 31, 2002 and expire December 31, 2012.

      Additionally, in 2002, in connection with the issuance of Series D (see Note 3), the Company issued warrants to purchase 107,000 shares of Series D at $0.25 per share. The warrants were valued at approximately $384,000, as determined using the Black-Scholes option-pricing model and taking into effect the liquidation preferences. The warrants are exercisable effective December 6, 2002 and expire December 6, 2012.

      In connection with the September 2003 issuance of Series C discussed above, the Company issued warrants to purchase approximately 8,000 shares of Series C at approximately $9.00 per share. The warrants were valued at approximately $73,000 as determined using the Black-Scholes option-pricing model. The warrants are exercisable effective September 15, 2003 and expire September 14, 2013.

Additionally, in 2003, in connection with the issuance of $3.0 million of stockholder notes, the Company issued warrants to purchase approximately 50,000 shares of Series C at approximately $9.00 per share. The warrants were valued at approximately $436,000 as determined using the Black-Scholes option-pricing model and were recorded as a discount on the notes and amortized to interest expense. In December 2003, the $3.0 million of stockholder notes were repaid by the Company. The warrants are exercisable effective September 15, 2003 and expire September 14, 2013.

      During March 2004 and April 2004, the Company issued warrants to purchase approximately 34,000 shares and 12,000 shares, respectively, of Series C (see Note 9).

      The following table summarizes information about warrants outstanding to acquire convertible preferred stock (amounts in thousands, except exercise price) as of:

	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

      The fair value of the warrants issued during 2004 and 2003 were estimated using the following assumptions:

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

      As of December 31, 2004, the Company had approximately 3,268,000 shares of common stock reserved for future conversions of convertible preferred stock and warrants. All shares of convertible preferred stock and warrants were converted immediately prior to the Company’s IPO in February 2005. ( See Note 15).

13.  STOCK OPTION PLAN

      The Company adopted its employee stock option plan in 1999. The Plan was amended in April 2004 and renamed the Odimo Incorporated Amended and Restated Stock Incentive Plan (the “Plan”) and reserved for issuance an aggregate of 559,391 shares under the Plan. The Plan is administered by the compensation committee of the board of directors, which has discretion over who will receive awards, the type of the awards, the number of shares awarded, and the vesting terms of the awards.

F-23

ODIMO INCORPORATED AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

      Options granted under the Plan generally vest ratably over the vesting period, which is generally 3 years. Vested options expire 2 to 10 years after vesting. Once vested, the options become exercisable upon the occurrence of a “realization” event (i.e., an IPO, merger, etc.) as defined in the Plan. Upon either an involuntary or voluntary termination of employment, vested options are not forfeited, and must be exercised within three months after a “realization” event. Options granted under the Plan are generally granted at fair value on the date of the grant. The Company has historically determined the fair value of its shares through the consideration of previous sales of shares to third parties and independent appraisals.

      As discussed in Note 1, the Company accounts for stock-based employee compensation arrangements in accordance with APB Opinion 25 and FIN 44. Under APB Opinion 25, compensation expense is recognized as the difference between the fair value of the Company’s stock on the date of grant and the exercise price. During the year ended December 31, 2003, the Company issued options to certain employees under the Plan with exercise prices at or above the estimated fair market value of the Company’s common stock at the date of the grant; therefore no deferred stock-based compensation was recorded during the year ended December 31, 2003. Deferred stock-based compensation is amortized over the vesting period of the awards, generally three years. During the year ended December 31, 2003, the Company recorded compensation expense of approximately $2,000 related to the amortization of deferred stock-based compensation.

      During 2004 the Company granted employees options to purchase approximately 290,000 shares of common stock at an exercise price of $8.75 per share, of which approximately 1,000 shares vest over 3 years and the remaining shares vested immediately. Two-thirds of the shares issuable under these options are subject to contractual restrictions on transfer: one-third of the shares issuable upon exercise of the options may only be transferred after the first anniversary of the grant date, and one-third may only be transferred after the second anniversary grant date. The Company recorded approximately $4.7 million of stock-based compensation expense, based on the estimated fair value of the Company’s common stock, with consideration given to the anticipated initial public offering.

      The Company accounts for equity instruments issued to non-employees in accordance with the provisions of SFAS No. 123 and EITF Issue No. 96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services (“EITF 96-18”). EITF 96-18 requires such equity instruments be recorded at estimated fair value on the measurement date. During the years ended December 31, 2004 and 2003, the Company recorded expenses of approximately $7,000 and $26,000 related to the issuance of stock options to non-employees which is included in general and administrative expenses in the accompanying consolidated statements of operations. There were no stock options granted to non-employees during 2005.

      The stock option transactions related to the Plan are summarized as follows (in thousands, except weighted average exercise price) for the years ended December 31 2005, 2004 and 2003:

		2005					2004					2003
					Weighted					Weighted					Weighted
					Average					Average					Average
					Exercise					Exercise					Exercise
		Options			Price		Options			Price		Options			Price
Outstanding at beginning of year			446		$	10.75		184		$	16.25		209		$	17.00
	Granted		—			—		290			8.75		11			37.75
	Exercised		—			—		—			—		—			—
	Canceled		(42	)		21.47		(28	)		24.75		(36	)		27.00
Outstanding at end of year			404		$	9.90		446		$	10.75		184		$	16.25

F-24

ODIMO INCORPORATED AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

      The following table summarizes information regarding outstanding stock options at December 31, 2005:

			Weighted Average
			Contractual		Exercise		Options		Exercise
Exercise Prices	Options		Life		Price		Exercisable		Price
	(in thousands)
$7.25 — $12.50		391		6	$	8.33		391	$	8.33
$34.25		4		5		34.25		4		34.25
$37.75 — $38.00		1		6		37.80		1		37.80
$70.50		8		8		70.50		8		70.50
		404		6	$	9.90		404	$	9.90

14.  RELATED PARTY TRANSACTIONS

      Diamond and Jewelry Purchases and Sales — The Company purchases certain of its diamonds from SDG, and certain other entities (collectively, the “Suppliers”) affiliated with certain stockholders and directors of the Company. During each of the years ended December 31, 2005, 2004 and 2003, purchases from the Suppliers totaled approximately $8.7 million, $9.4 million, and $2.9 million, respectively. In addition, the Company purchased approximately $1.9 million of jewelry from SDG in 2005. As of December 31, 2005 and 2004, the total amount payable to the Suppliers was approximately $3.3 million and $5.7 million, respectively. During 2004 the Company sold approximately $0.3 million of diamonds to entities affiliated with certain stockholders. These diamonds were purchased from unaffiliated parties.

      Supply Agreement — Certain of the purchases described above were made under exclusive supply agreements that were entered into with these entities in January 2000. Pursuant to the terms of these agreements, the Suppliers would supply the Company on consignment an inventory of diamonds to be held at the Company’s offices and a list of certain Suppliers’ inventory to be available for advertisement and display on the Company’s web site.

      During 2000, in connection with the exclusive supply agreements, the Company issued approximately 49,000 shares of common stock at a price of $15.00 per share to the Suppliers or their affiliates. The Company received cash proceeds of approximately $740,000 from the sale of this common stock. Management estimated the fair value of the Company’s common stock at such date was $47.75 per share. As such, the Company recorded a deferred charge related to these issuances in the amount of approximately $1,616,000. This deferred charge, which is included in intangible assets as the “2000 Supply Agreement” (see Note 7), was being amortized to cost of sales (see Note 1) based on the total amount of estimated purchases under the terms of the agreement. In connection with the 2004 Supply Agreement entered into in March 2004 (as described below), which will decrease the Company’s emphasis on consigned inventory, the Company terminated the exclusive supply agreements that were entered into in January 2000.

      Stock Purchase and Supply Agreement — In March 2004, the Company entered into an agreement with SDG, pursuant to which SDG was to provide the Company with $4.0 million of independently certified diamonds through April 2007 at cash market prices with extended payment terms. The Company sold to SDG approximately 129,000 shares of Series C at $9.75 per share in March 2004 and extended a right to this affiliate to acquire an additional approximately 73,000 shares at $10.25 per share in the first quarter of 2005 and approximately 67,000 shares at $11.25 per share in the first quarter of 2006. In order to purchase the second installment of shares, SDG was to maintain a $4.0 million supply of available inventory during 2004. In order to purchase the third installment of shares, SDG was to maintain $5.0 million of available inventory during 2005. If SDG purchased the third installment, it was to supply

F-25

ODIMO INCORPORATED AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

the Company with $6.0 million of diamond inventory shortly thereafter. In addition, the Company granted SDG the right of first refusal to provide the Company diamonds and fine jewelry based on the Company’s projected purchase needs.

      During June 2004, the Company amended the stock purchase agreement whereby SDG was no longer required to maintain the indicated level of inventory in order to obtain the right to purchase the remaining shares under the terms of the original agreement. Upon execution of the amended agreement, SDG exercised its right to purchase the remaining shares, for which the Company received $1.5 million during June 2004. In addition, during June 2004 the Company entered into a separate supply agreement which obligated SDG to supply inventory that included similar terms related to the supply of available inventory through 2006 as described above. In connection with this transaction, the Company recorded preferred dividends of approximately $2.2 million and $1.7 million during March 2004 and June 2004, respectively, based on the excess of the estimated fair value of the Company’s Series C (with consideration given to the anticipated initial public offering) over the consideration received by the Company.

      Due to the decreasing percentage of the Company’s diamond sales being derived from diamonds supplied by SDG, and the comparably greater risks of holding and carrying inventory, during the first quarter of 2006, the Company commenced discussions to wind down the supply agreement with SDG Marketing with the objective of reducing the risks and carrying costs of holding inventory. In March 2006, the Company entered into a Termination Agreement with SDG Marketing, Inc. whereby the Supply Agreement was terminated. As part of the termination of the Supply Agreement, in March 2006 the Company returned approximately $3.7 million of diamond inventory against a related party payable to SDG Marketing and approximately $700,000 of diamond inventory as payment in kind to satisfy a $700,000 payable.

      The termination of the Supply Agreement with SDG Marketing converts the Company’s sourcing strategy from a mix of an inventory and online model to a completely virtual, online model of offering diamonds from third party diamond suppliers without actually holding the inventory until the diamonds are ordered by customers. It also allows the Company to offer a broad selection of diamonds without incurring the carrying costs and risks of holding them in inventory while still enabling the Company to bypass multiple layers of intermediaries traditionally associated with diamond sourcing. As a result of the termination of the Supply Agreement, the Company has less than $50,000 of diamond inventory on hand as of March 29, 2006 and now exclusively sources diamonds from various third party suppliers who will generally ship the diamonds to the Company in one or two days. The Company will then deliver the products to its customers through the normal fulfillment process.

      Other Inventory Purchases — The Company purchases watches from an entity controlled by a stockholder who formerly owned and controlled www.worldofwatches.com. During each of the years ended December 31, 2005, 2004 and 2003, the Company had purchases from the entity controlled by the stockholder of approximately $1.2 million, $2.9 million, and $3.2 million, respectively. As of December 31, 2005 and 2004, there were no amounts payable to the entity controlled by the stockholder.

      Use of Jet Aircraft — From time to time, the Company reimburses Mey-Al Corporation, an entity owned and controlled by the Company’s President and CEO, for the use of an aircraft by the executive officers of the Company for business-related purposes. For the years ended December 31, 2005, 2004 and 2003 the Company paid Mey-Al Corporation an aggregate amount of approximately $84,000, $84,000, and $57,000, respectively, for the use of the aircraft.

15.  INITIAL PUBLIC OFFERING

      The Company completed an initial public offering of 3,125,000 shares of common stock at $9.00 per share on February 15, 2005 (closed on February 18, 2005), which generated net proceeds of approximately

F-26

ODIMO INCORPORATED AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

$22.4 million. On the same date, in accordance with the Conversion Agreement described in Note 12, holders of the Company’s preferred stock warrants, exercised their warrants into approximately 147,000 and 107,000 shares of Series C and Series D, respectively. These exercises generated proceeds of approximately $1.4 million for the Company. In addition, all holders of the Company’s Series A, B, C and D (including the shares from the exercise of warrants) converted these shares into approximately 3,408,000 shares of common stock.

16.  SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

      Selected financial information for the quarterly periods in 2005 and 2004 is presented below:

	Quarter Ended
	Mar. 31,			Jun. 30,			Sept. 30,			Dec. 31,			Mar. 31,			Jun. 30,			Sept. 30,			Dec.
	2005			2005			2005			2005			2004			2004			2004			31,  2004
	(In thousands)
	(Unaudited)
Net sales	$	12,784		$	11,451		$	9,132		$	18,474		$	10,444		$	10,290		$	10,006		$	21,504
Gross profit		3,252			2,813			2,041			4,424			3,068			2,864			2,798			6,373
Loss from operations(1)		(2,673	)		(3,283	)		(3,541	)		(13,928	)		(6,130	)		(1,790	)		(2,301	)		(1,710	)
Net loss(1)	$	(2,749	)	$	(3,258	)	$	(3,531	)	$	(13,953	)	$	(6,383	)	$	(1,855	)	$	(2,406	)	$	(1,872	)
Net loss attributable to common stockholders	$	(3,581	)	$	(3,258	)	$	(3,531	)	$	(13,953	)	$	(7,540	)	$	(12,976	)	$	(3,956	)	$	(3,422	)
Net loss per share, basic and diluted	$	(0.97	)	$	(0.46	)	$	(0.50	)	$	(1.95	)	$	(11.99	)	$	(20.63	)	$	(6.29	)	$	(5.44	)

(1)  During the fourth quarter of 2005, the Company recorded an impairment charge of $9,792 related to its goodwill.

F-27

ODIMO INCORPORATED AND SUBSIDIARIES

SCHEDULE II

VALUATION AND QUALIFYING ACCOUNTS

					Charged to
					Revenue,				Balance
			Beginning		Costs or				at End of
Description			of Period		Expenses		Deductions(1)		Period
Reserve deducted from asset to which it applies:
	Year Ended December 31, 2005 Reserve for deferred income tax assets		$	20,908	$	4,073	$	—	$	24,981
	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
Reserves recorded as accrued liabilities:
	Year Ended December 31, 2005 Reserve for sales returns		$	333	$	7,411	$	7,432	$	312
		Reserve for warranty costs	$	15	$	—	$	—	$	15
	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

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

F-28 EX-10.17 2 g00345exv10w17.htm TERMINATION AGREEMENT

EXHIBIT 10.17

TERMINATION AGREEMENT

     THIS TERMINATION AGREEMENT (the “Agreement”) is entered into this 29^th day of March 2006 by and between Odimo Incorporated, a Delaware corporation (the “Company”), and SDG Marketing, Inc., a British Virgin Island corporation (“SDG”).

RECITALS

     WHEREAS, the Company and SDG are parties to that certain Supply Agreement dated as of March 30, 2004 (the “Supply Agreement”) pursuant to which SDG agreed to sell diamonds and jewelry to the Company upon the terms and conditions contained therein; and

     WHEREAS, the Company and SDG desire to terminate the Supply Agreement upon the terms and subject to the conditions contained in this Agreement.

     NOW THEREFORE, in consideration of the mutual promises and undertakings set forth in this Agreement, the parties, intending to be legally bound, agree as follows:

1. TERMINATION OF SUPPLY AGREEMENT. Effective as of the date hereof, the Supply Agreement and the respective rights and obligations of the parties thereunder are hereby terminated, cancelled and of no further force or effect.

2. RETURN OF INVENTORY; RISK OF LOSS ON RETURNED INVENTORY; RELEASE

     2.1 Return of Inventory. Immediately upon execution of this Agreement, the Company shall return to SDG the Loose Diamonds previously delivered to the Company by SDG and such other diamonds listed on Exhibit A hereto. For purposes of this Agreement, “Loose Diamonds” shall mean loose stone diamonds accompanied by a GIA certificate and supplied by SDG.

     2.2 Risk of Loss. Risk of loss to the Loose Diamonds shall pass to SDG upon delivery thereof to SDG, except such loss or damage resulting from any negligent act of the Company or its agents. If requested by SDG, the Company shall provide SDG with a certificate of insurance naming SDG as loss payee on any insurance policy covering the Loose Diamonds whereby any losses shall be paid to SDG and the Company as their interest may appear.

     2.3 Release.

          (a) In consideration of each party’s mutual release and the performance of all duties and obligations imposed hereunder, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, SDG, its predecessors, successors, officers, directors, current and former employees, agents, representatives, heirs, attorneys, and assigns, and the Company, its predecessors, successors, officers, directors, current and former employees, agents, representatives, heirs, attorneys, and assigns, hereby completely release and forever discharge each other and each party’s past, present, and future officers, directors, shareholders, employees, attorneys, principals, agents, servants, representatives, subsidiaries, parents, related entities, affiliates, partners, predecessors, successors-in-interest, heirs, assigns, and all other persons, corporations, or other entities with whom any of the parties’ have now or may hereafter be affiliated, of and from any and all claims, demands, obligations, actions, causes of actions, orders, judgments, rights, damages, costs, attorneys’ fees, losses of services, expenses, profits, or compensation, whether based on a tort, contract, contribution, indemnification, or any other theory of recovery, and whether for compensatory, statutory, punitive, or other damages, which either

party now has or may have against the other party relating to any claim, obligation, or right in any way relating to, in whole or in part, the Supply Agreement, but excluding any claims under this Agreement and any claims relating to amounts owed by the Company to SDG or its affiliates under the Supply Agreement or this Agreement. This mutual release by each party shall be a binding and complete settlement, to be conducted in accordance with the executory provisions of this Agreement.

          (b) Each party hereto hereby irrevocably covenants to refrain from, directly or indirectly, asserting any claim or demand, or commencing, instituting or causing to be commenced, any proceeding of any kind against the other released party, based upon any matter purported to be released hereby.

3. NEW SUPPLY ARRANGEMENT. From time to time, subject to the agreement of the parties, the Company will post diamonds from SDG’s inventory on its websites for sale to consumers.

4. REPRESENTATIONS & WARRANTIES. The Company and SDG each represents and warrants to the other that such party has the full power and authority to enter into this Agreement without the joinder or approval of any other person or entity and that the person executing this Agreement on behalf of such party was duly authorized to do so.

5. MISCELLANEOUS.

     4.1 Governing Law. This Agreement shall be governed in all respects by the laws of the State of New York without regard to principles of conflict of laws.

     4.2 Severability. If any provision of this Agreement is held invalid or unenforceable by any court of competent jurisdiction, the other provisions of this Agreement will remain in full force and effect. Any provision of this Agreement held invalid or unenforceable only in part or degree will remain in full force and effect to the extent not held invalid or unenforceable.

     4.3 Amendment. This Agreement may not be changed except in a writing signed by the parties hereto.

     4.4 Gender. All words used in this Agreement will be construed to be of such gender or number, as the circumstances require.

     4.5 Notices. All notices required or permitted hereunder shall be in writing and shall be deemed effectively given: (i) upon personal delivery to the party to be notified; (ii) when sent by confirmed telex or facsimile if sent during normal business hours of the recipient, if not, then on the next business day; (iii) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid; or (iv) one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent to the parties at the address set forth on the signature page hereto or at such other address as the parties may designate.

     4.6 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument.

2

     4.7 Expenses. The Company and SDG shall each pay its respective costs and expenses that they incur with respect to the negotiation, execution, delivery and performance of this Agreement and all of the transactions contemplated herein.

     4.8 Specific Enforcement. Any party shall be entitled to specific enforcement of its rights under this Agreement. Each party acknowledges that money damages would be an inadequate remedy for its breach of this Agreement and consents to an action for specific performance or other injunctive relief in the event of any such breach.

     4.9 Further Assurances. The parties agree to perform any acts and/or execute any documents, including without limitation, executing, amending or supplementing any instrument to be executed hereunder, as may be reasonable requested by the other party in order to effect the purposes of this Agreement.

     4.10 Attorneys’ Fees. If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys’ fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled.

     4.11 Entire Agreement. This Agreement (including the exhibits hereto) constitutes the entire agreement between the parties with respect to the subject matter hereof, and supercedes all prior negotiations, understandings, agreements, correspondence and statements, both oral and written, including without limitation, the Supply Agreement.

3

     IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date set forth in the first paragraph hereof.

ODIMO INCORPORATED,	SDG MARKETING, INC.
a Delaware corporation	a British Virgin Islands corporation
By: /s/ Alan Lipton	By: /s/ Pavlo Protopapa
Name: Alan Lipton	Name: Pavlo Protopapa
Title: President	Title: Attorney in Fact

4

EX-10.17

Termination Agreement

EX-10.18

Exhibit 10.18

THIRD AMENDMENT
TO
LOAN AND SECURITY AGREEMENT

     THIS THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT (this “Amendment”) is entered into this 30th day of March, 2006, by and among SILICON VALLEY BANK (“Bank”) and ODIMO INCORPORATED, a Delaware corporation (“Company”), ASHFORD.COM, INC., a Delaware corporation, and D.I.A. MARKETING, INC., a Florida corporation (together with the Company, individually and collectively “Borrower”), each of whose address is 14051 NW 14^th St., Bay No. 6, Sunrise, Florida 33323.

Recitals

     A. Bank and Borrower have entered into that certain Loan and Security Agreement dated as of July 31, 2004, as amended by that certain First Loan Modification Agreement by and between Bank and Borrower dated as of November 13, 2004, and as further amended by that certain Second Loan Modification Agreement by and between Bank and Borrower dated as of January 1, 2005 (as the same may from time to time be further amended, modified, supplemented or restated, the “Loan Agreement”).

     B. Bank has extended credit to Borrower for the purposes permitted in the Loan Agreement.

     C. Borrower has failed to comply with the covenant set forth in Section 6.2(a)(iii) of the Loan Agreement for the fiscal year 2005, which failure, if not cured or waived by Bank, would constitute an Event of Default.

     D. Borrower has requested that Bank waive compliance with such covenant and Bank has agreed to so waive such covenant, in accordance with the terms, subject to the conditions and in reliance upon the representations and warranties set forth below.

Agreement

     Now, Therefore, in consideration of the foregoing recitals and other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, and intending to be legally bound, the parties hereto agree as follows:

     1. Definitions. Capitalized terms used but not defined in this Amendment shall have the meanings given to them in the Loan Agreement.

     2. Waiver of Potential Default. Borrower hereby acknowledges and agrees that it will not be able to deliver an unqualified opinion on its financial statements from an independent certified public accounting firm, as required by Section 6.2(a)(iii) of the Loan Agreement for the fiscal year 2005 (the “Potential Default”). Borrower further acknowledges and agrees that unless the foregoing Potential Default is waived by Bank, such Potential Default would constitute an Event of Default under the Loan Documents. Bank hereby waives the Potential Default, and agrees to accept a qualified opinion on Borrower’s annual financial statements for fiscal year 2005, consistent with Exhibit A attached hereto. Bank’s agreement to waive the Potential

Default shall in no way obligate Bank to make any modifications to the Loan Agreement or to waive Borrower’s compliance with any other terms of the Loan Documents, and shall not limit or impair Bank’s right to demand strict performance of all other terms and covenants as of any date.

     3. Limitation of Amendments.

          3.1 The amendment set forth herein, is effective for the purposes set forth herein and shall be limited precisely as written and shall not be deemed to (a) be a consent to any amendment, waiver or modification of any other term or condition of any Loan Document, or (b) otherwise prejudice any right or remedy which Bank may now have or may have in the future under or in connection with any Loan Document.

          3.2 This Amendment shall be construed in connection with and as part of the Loan Documents and all terms, conditions, representations, warranties, covenants and agreements set forth in the Loan Documents, except as herein amended, are hereby ratified and confirmed and shall remain in full force and effect.

     4. Representations and Warranties. To induce Bank to enter into this Amendment, Borrower hereby represents and warrants to Bank as follows:

          4.1 Immediately after giving effect to this Amendment (a) the representations and warranties contained in the Loan Documents are true, accurate and complete in all material respects as of the date hereof (except to the extent such representations and warranties relate to an earlier date, in which case they are true and correct as of such date), and (b) no Event of Default has occurred and is continuing;

          4.2 Borrower has the power and authority to execute and deliver this Amendment and to perform its obligations under the Loan Agreement, as amended by this Amendment;

          4.3 The organizational documents of Borrower delivered to Bank on July 31, 2005 remain true, accurate and complete and have not been amended, supplemented or restated and are and continue to be in full force and effect;

          4.4 The execution and delivery by Borrower of this Amendment and the performance by Borrower of its obligations under the Loan Agreement, as amended by this Amendment, have been duly authorized;

          4.5 The execution and delivery by Borrower of this Amendment and the performance by Borrower of its obligations under the Loan Agreement, as amended by this Amendment, do not and will not contravene (a) any law or regulation binding on or affecting Borrower, (b) any contractual restriction with a Person binding on Borrower, (c) any order, judgment or decree of any court or other governmental or public body or authority, or subdivision thereof, binding on Borrower, or (d) the organizational documents of Borrower;

2

          4.6 The execution and delivery by Borrower of this Amendment and the performance by Borrower of its obligations under the Loan Agreement, as amended by this Amendment, do not require any order, consent, approval, license, authorization or validation of, or filing, recording or registration with, or exemption by any governmental or public body or authority, or subdivision thereof, binding on Borrower, except as already has been obtained or made; and

          4.7 This Amendment has been duly executed and delivered by Borrower and is the binding obligation of Borrower, enforceable against Borrower in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, liquidation, moratorium or other similar laws of general application and equitable principles relating to or affecting creditors’ rights.

     5. Counterparts. This Amendment may be executed in any number of counterparts and all of such counterparts taken together shall be deemed to constitute one and the same instrument.

     6. Effectiveness. This Amendment shall be deemed effective upon (a) the due execution and delivery to Bank of this Amendment by each party hereto, (b) Borrower’s payment of an amendment fee in an amount equal to One Thousand Dollars ($1,000), and (c) payment of Bank’s legal fees and expenses in connection with the negotiation and preparation of this Amendment.

[Signature page follows.]

3

     In Witness Whereof, the parties hereto have caused this Amendment to be duly executed and delivered as of the date first written above.

BORROWER	BANK
ODIMO INCORPORATED	SILICON VALLEY BANK
By: /s/ Alan Lipton Name: Alan Lipton Title: President	By: /s/ Thomas Armstrong Name: Thomas Armstrong Title: Vice President
ASHFORD.COM, INC
By: /s/ Alan Lipton Name: Alan Lipton Title: President
D.I.A. MARKETING, INC
By: /s/ Alan Lipton Name: Alan Lipton Title: President

4

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statement No. 333-124165 on Form S-8 of our report dated March 29, 2005, relating to the financial statements and financial statement schedule of Odimo Incorporated appearing in this Annual Report on Form 10-K of Odimo Incorporated for the year ended December 31, 2005.

DELOITTE & TOUCHE LLP
Miami, Florida
March 31, 2006

EX-23.2

Exhibit 23.2

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (File No. 333-124165) of Odimo Incorporated and Subsidiaries of our report dated March 9, 2006 with respect to the consolidated financial statements and schedule of Odimo Incorporated and Subsidiaries which appears in the Annual Report on Form 10-K of Odimo Incorporated and Subsidiaries for the year ended December 31, 2005. The report included an explanatory paragraph regarding the Company’s ability to continue as a going concern as of and for the year ended December 31, 2005.

RACHLIN COHEN & HOLTZ LLP

Fort Lauderdale, Florida
March 29, 2006

EX-31.1

EXHIBIT 31.1

CERTIFICATION OF

PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

I, Alan Lipton, certify that:

      1. I have reviewed this annual report on Form 10-K of Odimo Incorporated;

      2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

      3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

      4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

      a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

      b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

      c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

      5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

      a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

      b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ ALAN LIPTON

Alan Lipton

President and Chief Executive Officer

(Principal Executive Officer)

March 30, 2006

EX-31.2

EXHIBIT 31.2

CERTIFICATION OF

PRINCIPAL FINANCIAL OFFICER

PURSUANT TO SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

I, Amerisa Kornblum, certify that:

      1. I have reviewed this annual report on Form 10-K of Odimo Incorporated;

      2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

      3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

      4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

      a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

      b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

      c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

      5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

      a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

      b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ AMERISA KORNBLUM

Amerisa Kornblum

Chief Financial Officer

(Principal Financial Officer)

March 30, 2006

EX-32.1

EXHIBIT 32.1

CERTIFICATION OF

PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350

(SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002)

      In connection with the accompanying Annual Report on Form 10-K of Odimo Incorporated for the fiscal year ended December 31, 2005, I, Alan Lipton, Chief Executive Officer of Odimo Incorporated, hereby certify pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

      (1) such Annual Report on Form 10-K of Odimo Incorporated for the fiscal year ended December 31, 2005, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

      (2) the information contained in such Annual Report on Form 10-K of Odimo Incorporated for the fiscal year ended December 31, 2005, fairly presents, in all material respects, the financial condition and results of operations of Odimo Incorporated at the dates and for the periods indicated.

      This certification has not been, and shall not be deemed, “filed” with the Securities and Exchange Commission.

/s/ Alan Lipton

Alan Lipton

President and Chief Executive Officer

(Principal Executive Officer)

March 30, 2006

EX-32.2

EXHIBIT 32.2

CERTIFICATION OF

PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350

(SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002)

      In connection with the accompanying Annual Report on Form 10-K of Odimo Incorporated for the fiscal year ended December 31, 2005, I, Amerisa Kornblum, Chief Financial Officer of Odimo Incorporated, hereby certify pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

      (1) such Annual Report on Form 10-K of Odimo Incorporated for the fiscal year ended December 31, 2005, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

      (2) the information contained in such Annual Report on Form 10-K of Odimo Incorporated for the fiscal year ended December 31, 2005, fairly presents, in all material respects, the financial condition and results of operations of Odimo Incorporated at the dates and for the periods indicated.

      This certification has not been, and shall not be deemed, “filed” with the

Securities and Exchange Commission.

/s/ Amerisa Kornblum

Amerisa Kornblum

Chief Financial Officer

(Principal Financial Officer)

March 30, 2006