SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
OR
[ ] 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 0-30559
eDiets.com, Inc.
(Exact name of small business issuer as specified in its charter)
Delaware 65-0687110
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3467 W. Hillsboro Boulevard
Deerfield Beach, Florida 33342
(Address of principal executive offices)
(954) 360-9022
(Issuer's telephone number, including area code)
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 [ ] No [X]
Indicate the number of shares outstanding of each issuer's classes of common
equity, as of the latest practicable date.
At June 12, 2000, there were 13,549,981 shares of common stock, par value $.001
per share, outstanding.
Transitional Small Business Disclosure Format (check one): [ ] Yes [X] No
INDEX TO ITEMS
PAGE
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheet as of March 31, 2000 3
Condensed Consolidated Statements of Income - Three months
ended March 31, 2000 and 1999 4
Condensed Consolidated Statements of Cash Flows - Three months
ended March 31, 2000 and 1999 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 7
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
Signature Page 11
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
EDIETS.COM, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 2000
(In thousands)
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 3,950
Accounts receivable, net 210
Prepaid advertising costs 1,841
Prepaid expenses and other current assets 151
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Total current assets 6,152
Restricted cash 19
Property and equipment, net 751
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Total assets $ 6,922
=======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 612
Accrued liabilities 774
Current portion of capital lease obligations 61
Deferred revenue 825
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Total current liabilities 2,272
Capital lease obligations, net of current portion 141
STOCKHOLDERS' EQUITY:
Common stock 13
Additional paid-in capital 7,130
Accumulated deficit (2,634)
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Total stockholders' equity 4,509
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Total liabilities and stockholders' equity $ 6,922
=======
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS.
3
EDIETS.COM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
THREE MONTHS ENDED MARCH 31,
---------------------
2000 1999
-------- --------
REVENUE $ 1,134 $ 198
COSTS AND EXPENSES:
Cost of revenue 283 30
Product development 43 23
Sales and marketing 1,450 188
General and administrative 618 153
Depreciation and amortization 58 27
-------- --------
Total costs and expenses 2,452 421
-------- --------
Loss from operations (1,318) (223)
Other income, net 74 --
-------- --------
Net loss $ (1,244) $ (223)
======== ========
LOSS PER COMMON SHARE - BASIC AND DILUTED $ (0.10) $ (0.03)
======== ========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 12,645 7,814
======== ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS.
4
EDIETS.COM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
THREE MONTHS
ENDED MARCH 31,
-------------------
2000 1999
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,244) $ (223)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Depreciation and amortization 58 27
Provision for bad debt 14 --
Non-cash compensation 57 52
Changes in operating assets and liabilities:
Accounts receivable (115) 18
Prepaid expenses and other current assets (1,597) (65)
Accounts payable and accrued liabilities 561 17
Deferred revenue 372 273
------- -------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (1,894) 99
CASH FLOWS FROM INVESTING ACTIVITY:
Purchases property and equipment (260) (40)
------- -------
NET CASH USED IN INVESTING ACTIVITY (260) (40)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance costs of common stock (169) --
Repayment from shareholder -- 7
Repayment of capital lease obligations (10) --
------- -------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (179) 7
------- -------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (2,333) 66
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 6,283 44
------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 3,950 $ 110
======= =======
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES
Equipment acquired under capital leases $ 55 $ --
======= =======
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS.
5
EDIETS.COM, INC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(Unaudited)
1. NATURE OF OPERATIONS
eDiets.com, Inc. (the Company) was incorporated in the State of Delaware on
March 18, 1996 for the purpose of developing and marketing an Internet-based
diet and nutrition program. In addition to a personalized and regularly updated
plan, subscribers to the Company's program can also purchase related items and
attend online motivational meetings. The Company markets its program primarily
through advertising and other promotional arrangements on the World Wide Web.
2. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements included
herein, have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and note disclosures
normally included in annual financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted pursuant
to those rules and regulations. The Company believes that the disclosures made
are adequate to make the information presented not misleading. It is suggested
that these financial statements be read in conjunction with the financial
statements and the notes thereto for the year ended December 31, 1999 included
in the Company's Registration Statement on Form SB-2.
All the adjustments which, in the opinion of management, are considered
necessary for a fair presentation of the results of operations for the periods
shown are of a normal recurring nature and have been reflected in the unaudited
condensed consolidated financial statements.
Results of operations for the three months ended March 31, 2000 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2000.
Advertising production costs which benefit periods within the fiscal year beyond
the interim period in which the expenditure is incurred are deferred and
amortized over the interim periods benefited.
3. LOSS PER SHARE AMOUNTS
Loss per common share is computed using the weighted average number of common
shares outstanding during the period. Common equivalent shares consist of the
incremental common shares issuable upon exercise of stock options and warrants
(using the treasury stock method). These options and warrants have not been
included in the computation of diluted earnings per share because such
instruments would have been antidilutive for all periods presented.
4. SUBSEQUENT EVENTS
In connection with the Company's 1999 Private Placement, the Company agreed to
issue to investors in the Private Placement an aggregate of 904,688 shares of
common stock in the event that the Registration Statement on Form SB-2 had not
become effective and its common stock listed for trading on the Nasdaq Small Cap
Market by May 17, 2000. The Company issued those shares in June 2000 since the
common stock was not yet listed on the Nasdaq Small Cap Market.
6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Certain statements made herein that use the words "estimate", "project",
"intend", "expect", "believe" and similar expressions are intended to identify
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. These forward-looking statements involve known
and unknown risks and uncertainties which could cause the actual results,
performance or achievements of the Company to be materially different from those
which may be expressed or implied by such statements. These risks and
uncertainties include, among others, changes in general economic and business
conditions, changes in product acceptance by consumers, effectiveness of sales
and marketing efforts, loss of market share and pressure on prices resulting
from competition, and inability to obtain sufficient financing. For additional
information regarding these and other risks and uncertainties associated with
eDiets.com business, reference is made to the prospectus in the Registration
Statement on Form SB-2 and other reports filed from time to time with the
Securities and Exchange Commission. The Company undertakes no obligation to
publicly release the result of any revisions to these forward-looking
statements, which may be made to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events. The following
discussion also should be read in conjunction with the Company's Condensed
Consolidated Financial Statements and Notes thereto included elsewhere in this
report.
OUR BUSINESS
We are one of the original marketers of customized fee-based diet programs
exclusively online. We have developed a proprietary software engine that enables
us to create a diet program that is unique to each individual and then deliver
it directly to the individual's home or office via the Internet.
We also publish NEWS@eDIETS.COM, a newsletter that is an online diet information
resource. We currently email our newsletter twice a week to a community of over
1.4 million subscribers who have completed our questionnaire, received a
personal profile and have provided us with an email address. Our web site also
includes our Diet Store where we advertise a variety of health, fitness and
nutrition products which our users can purchase from third-party vendors.
RESULTS OF OPERATIONS
The following table sets forth the results of operations for the Company
expressed as a percentage of total revenue:
THREE MONTHS ENDED MARCH 31,
2000 1999
----------------------------
Revenue 100% 100%
Cost of revenue 25 15
Product development 4 12
Sales and marketing 128 94
General and administrative 55 77
Depreciation and amortization 5 14
Other income, net 7 -
Net loss (110) (112)
7
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2000 TO MARCH 31, 1999
Revenue increased 473% to $1,134,000 for the three months ended March 31, 2000
compared to $198,000 for the three months ended March 31, 1999. The increase in
revenue was primarily due to increased member subscriptions, which increased
430%, and was primarily the result of the Company's expansion of its online
advertising combined with a lower priced membership compared to that of the
prior year.
Opt-in email revenue of $111,000, or 10% of total revenue, was recorded in the
three months ended March 31, 2000 from the sale of email addresses of visitors
to our web site who have authorized us to allow third party solicitations. No
opt-in email was recorded in the comparable period in 1999.
Advertising revenue of $46,000, or 4% of total revenue, was recorded in the
three months ended March 31, 2000 from the sale of advertising on the Company's
web site and is included in total revenues. No advertising revenue was recorded
in the comparable period for 1999.
As of March 31, 2000, the Company had deferred revenue of $825,000 relating to
membership payments for which services had not yet been provided.
Cost of revenues consist primarily of Internet access and service charges,
revenue sharing costs, and salary payments to the Company's nutritional staff.
Cost of revenues increased to $283,000 or 25% of revenues for the three months
ended March 31, 2000 from $30,000 or 15% of revenues for the three months ended
March 31, 1999. The dollar increase was primarily attributable to increased
revenue sharing costs and additional personnel costs incurred for the Company's
nutritional staff.
Product development costs consist primarily of salary payments to the Company's
development staff and related expenditures for technology, and software
development. Product development expenses increased to $43,000 or 4% of revenues
for the three months ended March 31, 2000 from $23,000 or 12% of revenues for
the three months ended March 31, 1999. The dollar increase was primarily due to
additional personnel costs related to creating and testing new design concepts
and tools to be used throughout the Company's web site.
Sales and marketing expenses consist primarily of Internet advertising expenses
and are generally incurred prior to the recognition of revenues from sales
generated from those efforts. Sales and marketing expenses increased to
$1,450,000 or 128% of revenues, for the three months ended March 31, 2000 from
$188,000 or 94% of revenues for the three months ended March 31, 1999. The
increase in sales and marketing expenses was primarily due to the Company's more
aggressive advertising placements with major Internet portals, including
American Online, Yahoo and iVillage. At March 31, 2000, the Company had
approximately $1,841,000 of prepaid advertising primarily representing future
radio and print communication costs.
General and administrative expenses consist primarily of salaries, overhead and
related costs for general corporate functions, including professional fees.
General and administrative expenses increased to $618,000 or 55% of revenues,
for the three months ended March 31, 2000, from $153,000 or 77% of revenues for
the three months ended March 31, 1999. The dollar increase was primarily due to
the increases in personnel costs and general overhead.
Depreciation and amortization expenses increased to $58,000 or 5% of revenues,
for the three months ended March 31, 2000, from $27,000 or 14% of revenues, for
the three months ended March 31, 1999. The dollar increase was primarily
attributable to a greater amount of property and equipment subject to
depreciation and amortization as compared to the same period in the prior year.
8
Other income, net, which consist primarily of interest income, increased to
$74,000 in the current quarter from $0 in the prior year's comparable quarter.
The increase was primarily due to the investment of proceeds raised in the
fourth quarter of 1999 in connection with the Company's private placement
financing.
As a result of the factors discussed above, the Company's net loss increased to
$1,244,000 for the three months ended March 31, 2000 compared to $223,000 for
the three months ended March 31, 1999.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2000, the Company had cash and cash equivalents of $3,950,000.
For the three months ended March 31, 2000, cash used in operating activities was
$1,894,000 and was primarily due to an increase in prepaid advertising costs.
Net cash used in investing activities was $260,000 and was used for purchases of
computer equipment. Net cash used in financing activities was $179,000 and
consisted primarily of costs incurred in connection with the Company's private
placement offering. Issuance costs have been treated as a reduction of proceeds
from the transaction and charged directly to equity.
As of March 31, 2000, the Company had no commitments for capital expenditures.
Management believes that cash and cash equivalents will be sufficient to fund
its working capital for at least the next twelve months. However, the Company
expects to continue to incur significant operating losses for at least the next
12 months. To the extent the Company requires additional funds to support its
operations or the expansion of its business, the Company may seek to undertake
additional equity financing. There can be no assurance that additional
financing, if required, will be available to the Company in amounts or on terms
acceptable to the Company.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). SFAS 133 establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded on the
balance sheet as either an asset or liability measured at its fair value. SFAS
133 requires that changes in the derivative's fair value be recognized currently
in earnings unless specific hedge accounting criteria are met. SFAS 133 cannot
be applied retroactively and was amended by SFAS 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of SFAS
133." The Company will adopt SFAS 133 beginning January 1, 2001. Adoption of
this statement is not expected to have a material impact on the Company's
consolidated financial position or results of operations.
9
PART II. OTHER INFORMATION
Items 1, 2, 3, 4 and 5 are omitted as they are either not applicable or have
been included in Part I.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27 - Financial Data Schedule
(b) During the three months ended March 31, 2000, the Company did not file any
reports on Form 8-K.
10
SIGNATURE
Pursuant to the requirements 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.
eDiets.com, Inc.
/s/ DAVID R. HUMBLE
--------------------------------
DAVID R. HUMBLE
Chief Executive Officer
(Principal Executive Officer)
/s/ ROBERT T. HAMILTON
-------------------------------
ROBERT T. HAMILTON
Chief Financial Officer
(Principal Financial Officer)
DATE: June 15, 2000
11
EXHIBIT INDEX
EXHIBIT DESCRIPTION
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27 Financial Data Schedule