The increasing pervasiveness of the Internet and broadband connections is driving growth in online shopping. International Data Corporation, or IDC, estimates that there were approximately 185 million Internet users in the United States in 2003 and expects that number to grow to 238 million Internet users in 2008. Over the same period, Jupiter Research estimates that households in the United States with broadband connections will increase from 22 million to 46 million.

According to IDC, business to consumer electronic commerce spending was $96.3 billion in 2003 and will grow to $250.8 billion in 2007, representing a compound annual growth rate of 27%. Jupiter Research estimates that women, who make up 51% of the online population, account for a majority of online retail spending. A major factor contributing to the overall growth of online shopping at home is the increasing use of broadband Internet services. According to comScore Networks, consumers with broadband connections are at least 50% more likely to make an online purchase than those with narrowband connections.

The Internet provides a number of advantages to online retailers, including the lower cost of managing and maintaining a website as opposed to physical storefronts, the ability to more efficiently reach and serve a large and geographically dispersed group of customers and the potential for personalized, low-cost customer interaction. Online retailers can more quickly react to changing consumer tastes and preferences by adjusting their featured selections, editorial content, shopping interfaces, pricing and visual presentations. In addition, online retailers generally do not incur the significant printing and mailing costs of catalog marketing. Finally, online retailers can more easily analyze customer shopping habits to increase opportunities for direct marketing and personalized services.

The Company prominently displays all of its guarantees and policies on its website to instill confidence in its customer base. The Company outsources its customer service center to Market Central in Jacksonville, North Carolina. Customer service representatives handle customer inquiries, answer their merchandise questions and place orders on their behalf. The Company monitors calls with its customers in order to assure that its customer service standards are met. Customer service representatives are available on weekdays from 9:00 a.m. to midnight eastern time and on weekends from 9:00 a.m. to 7:00 p.m. eastern time.

Orders placed on the Company’s website are fulfilled either by its outsourced warehouse or by its suppliers on a drop-ship basis. The Company outsources its warehouse and fulfillment operations to UPS Supply Chain Solutions, a subsidiary of UPS.

The Company charges a flat shipping fee of $6.95 for standard shipping of most products. The Company also offers various expedited shipping options for additional fees. Most orders are shipped within one to two business days after they are placed through the Company’s website. The Company currently ships only to addresses in the United States.

The Company uses a combination of proprietary and commercially available technologies to support its operations. The Company’s application architecture is based on Microsoft’s .NET platform for its web and application servers and on the UNIX operating system for its Oracle database servers. The Company utilizes a relational database solution that consists of two parallel Oracle databases to provide fault tolerance and redundancy. Each database has a dedicated Sun Microsystems SunFire 4800 server. Data is stored on an EMC dual fiber channel disk array with the capacity to hold up to two terabytes of data.

Security is provided at multiple levels in both the Company’s hardware and software. For transmission of confidential personal information between customers and its web server, the Company incorporates secure socket layer technology, or SSLT, such that all data is transmitted via a 128-bit encrypted session. All customer data is held behind appropriate firewalls. The Company’s site systems are operated 24 hours a day, seven days a week and have had historical system uptimes of more than 99.9%.

Gross profit increased 21.6% to $7.8 million in the quarter ended May 1, 2004 from $6.4 million in the quarter ended May 3, 2003.

Merchandising and marketing expenses increased 8.3% to $3.8 million in the quarter ended May 1, 2004 from $3.5 million in the quarter ended May 3, 2003.

Fulfillment and customer service expenses increased 27.2% to $3.2 million in the quarter ended May 1, 2004 from $2.5 million in the quarter ended May 3, 2003.

Interest income (expense), net decreased to ($26.0 thousand) in the quarter ended May 1, 2004 from ($9.0 thousand) in the quarter ended May 3, 2003.

Net loss increased 8.6% to $1.7 million in the quarter ended May 1, 2004 from $1.5 million in the quarter ended May 3, 2003.