ImproveNet Reports Second Quarter 2001 Results; Gross Profits and Service Revenues Increase;...

Business Editors

REDWOOD CITY, Calif.--(BUSINESS WIRE)--Aug. 2, 2001

ImproveNet Inc. (OTCBB:IMPV), a leading Web-based home improvement services company, announced financial results for the second quarter ended June 30, 2001.

Total net revenues for the second quarter

Pro forma operating loss, which excludes stock-based compensation charges, interest income and one-time charges related to restructuring was $5,515,000, or $0.31 loss per share, for the second quarter 2001 compared with a pro forma operating loss of $8,806,000, or $0.50 loss per share, for the first quarter of 2001 and a pro forma operating loss of $16,606,000, or $1.02 loss per share, for the second quarter 2000.

Net loss on a US GAAP basis for the quarter was $6,664,000, or $0.38 loss per share, as compared with a net loss of $11,791,000, or $0.67 loss per share, for the first quarter 2001 and net loss of $17,526,000, or $1.08 loss per share, for the second quarter 2000.

Key Financial Metrics

Service revenues, generated primarily from lead and win fees charged to ImproveNet's network of contractors, totaled $1,827,000 in the second quarter 2001, an increase of 61 percent compared with service revenues of $1,138,000 in the first quarter 2001 and an increase of 44 percent over service revenues of $1,273,000 for the second quarter of 2000.

Marketing revenues, generated primarily from marketing and advertising services provided to home improvement manufacturers, retailers and related suppliers totaled $372,000 for the second quarter 2001, a 21 percent decrease from marketing revenues of $473,000 for the first quarter 2001, and a 50 percent decrease from marketing revenues of $746,000 for the second quarter of 2000. The decline in marketing revenues reflects the overall softening of the market for online advertising and marketing services due to current economic conditions.

Gross profit for the second quarter of 2001 was $998,000, or 45 percent of revenues, compared with $198,000, or 12 percent of revenues, for the first quarter 2001 and compared with $582,000 or 29 percent of revenues, for the second quarter of 2000.

Cash balance at the end of the second quarter 2001 was $17.0 million, compared with a year-end balance of $31.6 million.

Key Operating Metrics (numbers in 000s)
                    Q2-01     Q1-01   Q2-00  Q2-01vQ1-01  Q2-01vQ2-00

No. Jobs (000)      31.3      35.4    35.1     (4.1)       (3.8)
No. Matches (000)   20.5      23.8    27.0     (3.3)       (6.5)
No. Wins (000)       3.2       2.5     3.4     (0.7)       (0.2)
Match Rate (000)     65%        67%    77%     (2.0)% pts  (12.0)% pts
Win Rate (000)      10.3%        7%    9.7%     3.3% pts     0.6% pts

Key Execution Milestones

-- Expanded Installed Sales pilot program in California and Illinois based upon
strong performance to date in Southern California. The Installed Sales program
supports kitchen and bathroom remodeling jobs through home improvement
retailers.

-- Completed 90-day Managed Repair Program pilot for a top-20 insurance company
in partnership with Marshall Swift/Boeckh in New York and New Jersey. Over 120
jobs have been completed to date exceeding all client benchmarks. Discussions
currently underway to expand the pilot with the existing client, as well as
other insurance and financial services companies.

-- Launched the "Pro Partners" contractor marketing program, in which
ImproveNet provides sales and marketing services on behalf of manufacturers and
retailers to ImproveNet's network of contractors. ImproveNet is paid a
percentage fee based upon the purchases made. To date, ImproveNet has signed
over 20 manufacturers and retailers and over 1,000 of its member contractors to
participate in the program.

-- Launched a Project Performance Guarantee pilot in Midwest markets
guaranteeing that projects managed through ImproveNet and completed by an
ImproveNet member contractor would be completed to contract specifications.
Based upon the success of the pilot in increasing win rate and customer
satisfaction, national rollout will begin August 6.

-- Re-designed ImproveNet's consumer Web site, organizing the site's 70,000+
pages into new channels and improving the ease of submitting jobs to
ImproveNet.

-- Continued to increase the number of strategic relationships to offer
ImproveNet's content and services, including agreements with Renex, Inc.,
Canada-based operators of www.renovationexperts.com and www.roofingexperts; CU
Realty (Credit Union Realty), a real estate and home services site for credit
union members in the Phoenix/Scottsdale metro region; Get Home Advice, a home
services portal; MyHomeKey, a home repair and maintenance scheduling site, with
strong presence within the utility industry; and Relocation Essentials, an
Internet site targeting corporate relocations and company intranets,
www.relocationessentials.com.

Also closed agreements to offer home improvement financing

through ImproveNet's Find-A-Lender channel with Champion

Mortgage, a regional lender serving Massachusetts, Rhode

Island, and Virginia; and American Home Mortgage, a leading

independent retail originator of residential mortgage loans in

12 states.

For ImproveNet member contractors, reached agreements with

InsuranceNoodle and HealthInsurance.com to provide access to

competitive health and business insurance programs for member

contractors.

As reported on July 2, ImproveNet was delisted from the Nasdaq National Market effective June 29, 2001, because the Company failed to meet the Nasdaq National Market's minimum trading price requirements set forth in Nasdaq Marketplace Rules 4450(a)(5) and 4310(c)(8)(B). ImproveNet's stock is now traded on the Nasdaq over-the-counter system. Due to the legal restrictions associated with trading over the counter, ImproveNet has suspended its stock repurchase plan.

Commenting on the second quarter results, Ron Cooper, chairman and CEO of ImproveNet, said, "We are extremely pleased with our overall business results and the progress in our key initiatives this quarter. The successful launch of our three growth initiatives -- Installed Sales, Managed Repair and Pro Partners -- is very encouraging, particularly in light of a softer economy. We have achieved enormous productivity, allowing us to provide our services at much lower costs."

Updated Guidance For 2001

Consistent with guidance previously released in April, ImproveNet expects to report net revenues in the range of $3.0 million to $3.5 million in the third quarter and from $4.0 million to $4.5 million in the fourth quarter. The Company expects to report net revenues for the total year 2001 ranging from $10 million to $12 million.

ImproveNet maintains its expectations that pro forma operating loss (before excluding stock based compensation, interest income and restructuring charges) will range from $4.0 million to $4.5 million in the third quarter and from $3.0 million to $3.5 million in the fourth quarter. The company expects to report a total year 2001 pro forma operating loss ranging from $21 million to $22 million. ImproveNet expects to report positive pro forma operating income in the second quarter 2002.

Cooper concluded, "We continue to be the primary source of Internet-based help for home improvement, leveraging our strong personal relationship with homeowners, contractors and home improvement suppliers. We are still a long way from realizing our vision of being a premier home improvement services company, but we are excited about our progress to date and our future potential."

About ImproveNet

ImproveNet Inc., a national home improvement service since 1997, leverages personalized service and Internet technology to provide successful home improvement projects on behalf of homeowners, contractors, architects, designers, manufacturers, lenders and real estate professionals.

ImproveNet content and services are provided on more than 390 partner and affiliate sites, including GE Appliances, DuPont Corian, Owens Corning, Dow, Yahoo!, Ask Jeeves, Knight-Ridder and Cox Interactive. For more information, visit www.ImproveNet.com, www.ImproveNetPRO.com, or call 800-437-0473.

Forward-Looking Statements

Certain statements contained herein, including without limitations, statements addressing the beliefs, objectives, estimates or expectations of the Company or future results or events constitute `forward-looking statements' within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known or unknown risks, including, but not limited to, general economic and business conditions, accumulation of losses and failure to achieve profitability, matters relating to multi-year commercial contracts, the Company's dependence on availability of qualified service providers, the acceptance and use of the Internet, the company's new and unproven business model, development of brand recognition, dependence on third-party relationships to attract visitors to the Web site, receipt of win fees, and conditions in the home improvement industry including seasonality. There can be no assurance that the actual future results, performance, or achievements expressed or implied by such forward-looking statements will actually occur. Users of forward-looking statements are encouraged to review the Company's Form 10-K, dated April 6, 2001, and other federal securities law filings for a description of important factors that may affect the Company's businesses, results of operations and financial condition.

                           ImproveNet, Inc.
                     Summary of Operating Results
                              (Unaudited)
                 (In thousands, except per share data)

                                            Three months ended June 30
                                                  2001          2000
Revenues
   Service revenues                            $  1,827      $  1,273
   Marketing revenues                               372           746
       Total revenues                             2,199         2,019

Cost of revenues
   Cost of service revenues                       1,111         1,309
   Cost of marketing revenues                        90           128
       Total cost of revenues                     1,201         1,437

Gross Profit                                        998           582

Operating expenses
   Marketing                                      4,514        12,496
   Product development                              939         1,904
   General and administrative                     1,060         2,788
   Stock-based compensation                       1,199         1,750
   Restructure                                      181           --
       Total operating expenses                   7,893        18,938

Operating loss                                   (6,895)      (18,356)
Interest income                                     231           830

Net Loss                                       $ (6,664)     $(17,526)

Basic and net loss per common share            ($  0.38)     ($  1.08)

Weighted average number of common
 shares outstanding - basic and diluted          17,585        16,284


           Supplemental Pro Forma Financial Information (a)

                                           Three months ended June 30
                                                2001        2000

Reported net loss                            $ (6,664)   $(17,526)
   Stock-based compensation                     1,199       1,750
   Restructure                                    181         --
   Reported interest income                      (231)       (830)

    Pro forma net loss                       $ (5,515)   $(16,606)

Weighted average number of common shares
 outstanding - basic and diluted               17,585      16,284

    Pro forma net loss per share                (0.31)      (1.02)

(a) The accompanying supplemental information is presented for
    informational purposes only and should not be considered as a
    substitute for the historical financial information presented in
    accordance with generally accepted accounting principles.


                           ImproveNet, Inc.
                  Summary of Selected Operations and
                          Balance Sheet Data
                              (Unaudited)
                            (In thousands)

                                            Three months ended June 30
                                                    2001        2000
Total Revenues Data:
  Service revenues                              $  1,827    $  1,273

    Amounts invoiced under marketing and
     multi-year commercial contracts                 846       1,465
    Amounts invoiced and accrued under
     multi-year commercial contracts with
     related parties                                (390)       (635)
       Amortization of warrant stock-based comp      (84)        (84)
Total marketing revenues                             372         746
Total net revenues                              $  2,199    $  2,019

                                                June 30,  December 31,
                                                    2001        2000
Balance Sheet Data:
  Cash and equivalents                          $ 16,954    $ 31,565
  Working capital                               $ 14,731    $ 29,148
  Total assets                                  $ 24,892    $ 41,716
  Long-term liabilities                         $    116    $     99
  Stockholders' equity                          $ 18,945    $ 34,602