, the Leading Online Education Store, Increases Q2 2000 Net Sales 422% Over Q2 1999 Company Makes Major Advances Towards Leadership in E-Learning Sector

July 27, 2000

NEEDHAM, Mass.–(BUSINESS WIRE)–July 26, 2000– (NASDAQ:SKDS), the leading online education store and resource

for parents, today announced that net sales for its second quarter 2000 were $1.53 million, an increase of 422% over second quarter 1999 net sales of $293,000.

Key Metrics for Q2 2000:

— Total net sales for the second quarter increased 422% over the second quarter

of 1999.

— Cumulative customers increased 10% during the second quarter to 229,000,

up from 206,000 in the first quarter of 2000.

— The number of children’s learning profiles registered at the site increased

12% during the second quarter to 140,000, up from 125,000 at the end of the

first quarter of 2000.

— Repeat customers accounted for 47% of total revenues during the second

quarter, up from 43% in the first quarter of 2000.

— Pro forma net loss, excluding stock compensation costs, for the second

quarter was $7.75 million, or $0.38 per share, compared to a pro forma net loss

of $4.22 million, or $2.54 per share for the same quarter one year ago.

David Blohm, president and chief executive officer of commented,

“’s goal is to be a leading e-learning and educational e-commerce

company. Over the last 2 1/2 years, we have made significant investments to

allow us to deliver on this goal. Our commerce and content capabilities receive

top rankings, helping build customer loyalty. Our product recommendation abilities

are unique and highly effective, and our team of teachers adds significant value

to our customers. During the second quarter, we made further progress toward

this goal by establishing powerful, new strategic alliances in e-learning, online

tutoring, and the education market. We dramatically increased site functionality,

won new customer satisfaction accolades, and launched a state-of-the-art fulfillment

center, while improving our metrics.”

Mr. Blohm concluded, “Looking ahead, our focus is on building shareholder

value by cost-effectively growing revenue, adding e-learning capabilities to

further enable us to address a child’s specific needs, and establishing key

alliances to add functionality for parents and teachers.”


Throughout the second quarter, accomplished significant gains

in the following key areas.

— Established strategic alliances to advance’s e-learning

strategy, focusing on each child’s specific education needs.

— partnered with ChildU, a leading provider of Internet-based

distance learning for K-12 education, to offer ChildU’s “Learning Odyssey” distance-learning

curriculum to hundreds of thousands of customers, creating a new source of revenue

for both partners. Through this partnership, will also recommend

products to complement the ChildU learning program.

— selected Real Time Learning, a San Francisco based online

tutoring service, to offer these services for children in grades 3 through 12. will also host a co-authored fee-based Parent Partners Program,

providing one-to-one consultations to help parents with specific issues related

to their children.

— formed an alliance with Education World, the Internet’s

largest and most widely recognized education- specific search engine and reference

site. Through one of the most trusted online resources, has

gained access to more than 500,000 educators. Education World will prominently

position as a key supplemental product provider on its “Marketplace”

and “School Fundraising” channels.

—, the foremost online resource connecting people seeking

information with experts on any topic, selected as a strategic

partner.’s on-staff educators are’s exclusive

educational resource, offering insight and advice to help parents.

— Greatly increased site functionality to effectively integrate content and

commerce, expand child profiling, increase profitability and offer a full range

of teacher- evaluated products.

— The Company launched its next-generation site design based on extensive

customer research. Already one of the most personalized sites in e-commerce,

the new design enhances ease-of-use, personalization, and the integration of

commerce and content.

— launched an Infant Store, offering hundreds of developmental

toys, games and books for children aged 0- 18 months. All of these items are

evaluated, selected, and reviewed by the Company’s early childhood experts to

ensure they are developmentally appropriate, stimulating, and fun.

— introduced the Web’s first “Early Development Checklists,”

the most comprehensive online tools for parents who wish to gauge their child’s

early development and find educational products uniquely suited for their child’s

level. Checklists cover five developmental areas for children from birth through

5 years of age.

— launched two new product categories: music/video and construction

toys. Offerings in these categories include popular brands such as: Barney,

Disney, Madeline, BRIO, K’Nex, LEGO Dacta, and Lincoln Logs.

— Received additional accolades for superior customer satisfaction, reinforcing’s leadership in e- commerce.

— Based on extensive survey research, Harris Interactive (NASDAQ:HPOL) named as the #1 toy e-tailer from which customers are “most likely

to repurchase” and “most likely to recommend.” Harris also recognized the Company

for offering the best customer service.

— Forrester PowerRankings(TM) found to be “the easiest-to-use

site, stocked with helpful information, like the suitability of a given toy

for a child.” Forrester ranked it #2 in the toys and games category, second

only to (NASDAQ:AMZN).

— was recognized as the #1 toy site for educational toy buyers

and best on-site resource by Gomez Advisors. Gomez reported “The Educational

Toy Buyer has found a destination. For the third quarter in a row,

proves its worth to this growing demographic of buyers, earning top ranking

for the Educational Toy Buyer and for the On-Site Resources category.” replaced in the latter category.

— Launched a new distribution facility helping to ensure efficiency, scalability,

and continued superior customer experience.

— completed, and transferred all fulfillment operations to

its new state-of-the-art distribution center. The leased 140,000 square-foot

warehouse and shipping facility optimizes the potential of digital technology

and space design to ensure customer satisfaction and streamline fulfillment


About, Inc., Inc. (NASDAQ:SKDS), the leading educational store on the

Web, is dedicated to helping parents help their children learn, discover, and

grow. The site offers the Internet’s most personalized shopping experience,

matching a child’s learning style and needs with teacher-reviewed toys, games,

books, software, music, and videos. The company features specialty centers for

special needs and gifted children, the Grade Expectations! guide to education

standards, and thousands of educational products and services for children ages

infant through 15. Together with its partners, ChildU, Education World,,

Lightspan (NASDAQ:LSPN), National Computer Systems (NASDAQ:NLCS), and Real Time

Learning, offers leading educational resources and exceptional

online tutoring services to parents, children, and educators.

was rated the #1 educational toy site according to Gomez Advisors and was found

by Forrester’s PowerRankings(TM) to be the easiest-to-use site in the Toys and

Games category. is headquartered in Needham, Mass. More information

on the Company can be found at

Forward-looking statements in this release are made pursuant to the safe harbor

provisions of Section 21E of the Securities and Exchange Act of 1934. Investors

are cautioned that statements in this press release which are not strictly historical

statements, including, without limitation, statements regarding current or future

financial performance, management’s plans and objectives for future operations,

product offerings and services, management’s assessment of market factors, as

well as statements regarding the strategy and plans of the Company and its partners,

constitute forward-looking statements which involve risks and uncertainties.

Actual results could differ materially from the forward-looking statements.

Risks and uncertainties which could cause actual results to differ include,

without limitation, risks and uncertainties associated with a limited operating

history under a new business model, the ability to achieve profitability, the

funding of ongoing operations, the fluctuation of operating results, the ability

to meet consumer demand, securing quality merchandise on acceptable commercial

terms, management of growth, introduction and market acceptance of new product

offerings and services, and reliance on only two delivery service providers,

United Parcel Service and the United States Postal Service, competition, dependence

on proprietary technology, downturns in economic conditions generally and in

the market for online retail products, development of the Internet infrastructure

and legal uncertainties concerning the Internet. For a more detailed description

of the risk factors associated with the Company, please refer to the Company’s

Annual Report or Form 10K dated March 30, 2000 on file with the Securities and

Exchange Commission. -0-

                    SMARTERKIDS.COM, INC.

                   STATEMENT OF OPERATIONS

       (Unaudited-In Thousands except per share data)

                         Quarter    Quarter   Six Months  Six Months

                          Ended      Ended      Ended       Ended

                         June 30,   June 30,   June 30,    June 30,

                           2000       1999       2000       1999

Net revenues         $      1,528  $    293   $   2,997  $      387

Cost of revenues            1,149       210       2,250         279

Gross profit                  379        83         747         108

Operating expenses:

 Marketing and sales        7,144     3,690      14,444       5,713

 Development                  821       396       1,786         763

 General and

  administrative              816       244       1,722         399

 Stock compensation           336       196         514         580

Total operating

 expenses                   9,117     4,526      18,466       7,455

Loss from operations       (8,738)   (4,443)    (17,719)     (7,347)

Interest income

 (expense), net               654        28       1,482          52

Net loss               $   (8,084)  $(4,415)   $(16,237)  $  (7,295)

Basic and diluted

 net loss per common

  share                $    (0.39)  $ (2.66)   $  (0.80)  $   (4.43)

Weighted average shares

 used in computing basic

  and diluted net loss

   per common share        20,504     1,661      20,406       1,646

Pro Forma results (Note 1)

Pro forma net loss,

 excluding stock

  compensation costs   $   (7,748) $ (4,221)  $ (15,722)  $  (6,717)

Pro forma basic and

 diluted net loss per

  common share, excluding

   stock compensation

    costs              $    (0.38)  $ (2.54)  $   (0.77)  $   (4.08)

Note 1: Pro forma results shown above are presented for informational purposes

only and are not prepared in accordance with generally accepted accounting principles.

These results present the operating results of, excluding charges

of $336,000, $196,000, $514,000, and $580,000 for the three months ended June

30, 2000 and 1999 and the six months ended June 30, 2000 and 1999, respectively,

related to stock compensation.

                         SMARTERKIDS.COM, INC.

                             BALANCE SHEET

                       (Unaudited-In Thousands)

                                              June 30,  December 31,

ASSETS                                          2000       1999

Current assets:

 Cash and short term investments              $ 41,500      $ 67,356

 Inventory                                       6,624         8,902

 Other current assets                            2,354         2,535

Total current assets                            50,478        78,793

Property and equipment, net                      5,310         2,421

Other assets                                     1,447         1,121

                                              $ 57,235      $ 82,335


Current liabilities:

 Accounts payable                             $  4,246    $   10,996

 Accrued expenses                                3,382         6,699

 Deferred revenue and other current

  liabilities                                      884           972

Total current liabilities                        8,512        18,667

 Capital lease obligations, net of

  current portion                                  946            34

Total liabilities                                9,458        18,701

Stockholders' equity:

 Common stock and additional paid-in capital   112,084       113,110

 Deferred stock compensation                   (4,974)       (6,286)

 Accumulated deficit                          (59,333)      (43,190)

Total stockholders' equity                      47,777        63,634

                                              $ 57,235      $ 82,335

Contact:, Needham

Bill Shelton

Director of Investor Relations

(781) 292-7030


Morgen-Walke Associates, New York

Stacey Bibi/Shannon Moody/

Natasha Boyden

(212) 850-5600