Prospectus Summary
This summary highlights selected information contained elsewhere in this prospectus. This summary does not contain all of the information that you should consider before investing in our common stock. You should read the entire prospectus carefully, including "Risk Factors" and our financial statements and the notes to those financial statements, before making an investment decision.
SmarterKids.com
SmarterKids.com is a leading online retailer focused on children's educational books, toys and games, and software. We offer a unique assortment of fun and educationally relevant products, a trusted brand, competitive prices and an easy-to-use online shopping environment. We provide extensive educational content and help parents and gift givers find quality products and make informed purchase decisions tailored to a child's individual developmental needs and learning goals.
We launched our website in November 1998. In a survey of the top 40 Web retailers, SmarterKids.com was the 16th most visited shopping website in July 1999, with almost one million visitors, as estimated by PC Data, an independent Internet research firm.
With thousands of educational products to choose from and few reliable information sources, it is difficult for parents to identify and buy quality products and services that fit the particular needs of their children. Parents need a resource where they can access reliable product information and trusted educational content to help them make informed purchase decisions and buy products conveniently. Traditional retailers of educational products, including mass market retailers, typically lack a focus on education, do not have an in- depth understanding of educational products and may not understand the developmental needs of individual children. In addition, these retailers often have a narrow product selection, high facilities and staffing costs, offer limited service, and lack merchandising flexibility and shopping convenience. Because of the limitations of the traditional retail channel, the Internet has emerged as an increasingly popular way to shop.
SmarterKids.com integrates carefully selected products, helpful content and interactive tools with an intuitive and easy-to-use interface to create a compelling and unique online shopping experience. Our dedicated team of teachers carefully selects and then reviews only those products that meet our high quality standards. Our rapidly growing collection of competitively priced educational products includes over 1,800 books, toys and games, and software titles from over 300 suppliers. Because we are focused on education, many of our products, particularly toys and games, are often not found on many of the other popular e-commerce websites. The MySmarterKids personalization area on our website allows parents to build a confidential educational profile of their child that can include information about the child's age and grade, learning styles, learning goals and performance on standardized tests. Our SmartPicks technology uses this profile to make tailored product recommendations from among our distinctive assortment of products.
Key elements of our strategy to be the leading online provider of children's educational products, services and resources for parents include:
. continuing to enhance our customers' experience to build a trusted brand . aggressively building brand awareness and expanding our customer base . pursuing additional revenue opportunities . leveraging the power of our customer database . maintaining scalable and efficient fulfillment operations to ensure customer satisfaction J.L. Hammett Co., a leading national distributor of educational products, currently supplies our inventory and performs distribution services for us. Our relationship with J.L. Hammett Co. provides us with industry and supplier relationships, favorable credit and price terms from vendors, and the ability to scale our warehouse operations.
SmarterKids.com, Inc. was incorporated in Delaware in 1994. Our principal offices are located at 200 Highland Avenue, Needham, Massachusetts 02494, and our telephone number is 781-449-7567. Our website is located at www.smarterkids.com. The information contained in our website is not part of this prospectus.
The Offering
Common stock offered by SmarterKids.com... shares Common stock to be outstanding after this offering.................................. shares Use of proceeds........................... For general corporate purposes, including advertising and other marketing expenses to promote and enhance our website, purchasing inventory, expanding our fulfillment capabilities, upgrading our computer systems and other general purposes, including possible acquisitions. Proposed Nasdaq National Market symbol.... SKDS The number of shares of our common stock that will be outstanding after this offering, unless otherwise indicated, is based on the number outstanding on September 7, 1999 with a pro forma adjustment to include an aggregate of 8,488,591 shares of common stock to be issued upon the consummation of this offering as a result of conversion of all outstanding shares of preferred stock, including shares of series C preferred stock issued in July 1999. It excludes:
. 1,879,434 shares subject to outstanding options at a weighted-average exercise price of $0.41 per share and 1,733,332 additional shares available for issuance under stock plans that will be in effect following this offering; and . warrants to purchase 408,727 shares of common stock at a weighted- average exercise price of $2.83 per share that are currently outstanding or that we are obligated to issue subject to certain conditions, 270,727 of which are currently exercisable, and 218,727 of which must be exercised prior to the closing of this offering.
Unless otherwise indicated, all information in this prospectus assumes that the underwriters' over-allotment option will not be exercised and does not reflect a stock split of our outstanding shares of common stock anticipated to occur immediately prior to this offering. The term "SmarterKids.com," "we," "us" and "our" refer to SmarterKids.com, Inc., a Delaware corporation.
Summary Financial Data (in thousands, except share and per share data) The following summary financial data are derived from the financial statements of SmarterKids.com. The pro forma as adjusted balance sheet data give effect to the conversion of all outstanding shares of preferred stock, including the shares of series C preferred stock issued in July 1999 for net proceeds of $25.3 million, into an aggregate of 8,488,591 shares of common stock upon the closing of this offering. The pro forma as adjusted balance sheet data also reflect our receipt of the net proceeds of $ million from the sale of shares of common stock in this offering, at an assumed initial public offering price of $ per share, after deducting the estimated underwriting discounts and commissions and offering expenses.
Year Ended Six Months Ended
December 31, June 30,
1994 1995 1996 1997 1998 1998 1999
Statement of Operations Data: Net revenues: Online retail.......... $ -- $ -- $ -- $ -- $ 22 $ -- $ 387 Proprietary CD-ROM(1).. 219 401 1,240 1,416 2,278 1,152 -- Total net revenues.... 219 401 1,240 1,416 2,300 1,152 387 Cost of revenues: Online retail.......... -- -- -- -- 20 -- 279 Proprietary CD-ROM..... 28 319 407 491 908 401 -- Total cost of revenues............. 28 319 407 491 928 401 279 Gross profit............ $ 191 $ 82 $ 833 $ 925 $ 1,372 $ 751 $ 108 Operating expenses...... $ 668 $ 1,553 $ 2,533 $ 1,992 $ 4,733 $ 1,607 $ 7,455 Net loss................ (477) (1,470) (1,649) (1,014) (3,342) (871) (7,295) Net loss attributable to common stockholders.... (477) (1,470) (1,649) (1,081) (3,596) (933) (7,295) Basic and diluted net loss per common share.. $ (0.48) $ (1.47) $ (1.65) $ (1.08) $ (3.52) $ (0.93) $ (6.64) Shares used to compute basic and diluted net loss per common share.. 1,000,000 1,000,000 1,000,404 1,001,432 1,022,349 1,005,071 1,097,932 Pro forma basic and diluted net loss per common share........... $ (0.64) $ (1.38) Shares used to compute pro forma basic and diluted net loss per common share........... 5,227,349 5,302,932
(1) From our incorporation in 1994 until November 1998, our business focused on the development, marketing and sale of our proprietary educational and entertainment CD-ROM software.
June 30, 1999 Pro Forma Actual As Adjusted
Balance Sheet Data: Cash and cash equivalents............................... $ 687 Working capital (deficit)............................... (3,605) Total assets............................................ 1,759 Redeemable preferred stock.............................. 10,287 Stockholders' equity (deficit).......................... (13,770)