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 September 30, 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 56-0952883
(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 [X] No [ ]
Indicate the number of shares outstanding of each issuer's classes of common
equity, as of the latest practicable date.
At October 10, 2000, there were 13,553,104 shares of common stock, par value
$.001 per share, outstanding.
Transitional Small Business Disclosure Format (check one): [ ] Yes [X] No
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Index to Items
Page
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Part I - Financial Information
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheet as of September 30, 2000 3
Condensed Consolidated Statements of Operations -
Three months and nine months ended September 30, 2000 and 1999 4
Condensed Consolidated Statements of Cash Flows -
Nine months ended September 30, 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
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
EDIETS.COM, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
September 30, 2000
(In thousands)
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,422
Accounts receivable, net 510
Prepaid advertising costs 554
Prepaid expenses and other current assets 38
-------
Total current assets 3,524
Restricted cash 19
Property and equipment, net 775
-------
Total assets $ 4,318
=======
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable $ 1,142
Accrued liabilities 1,587
Current portion of capital lease obligations 63
Deferred revenue 1,772
-------
Total current liabilities 4,564
Capital lease obligations, net of current portion 110
STOCKHOLDERS' DEFICIT:
Common stock 14
Additional paid-in capital 7,115
Unearned compensation (9)
Accumulated deficit (7,476)
-------
Total stockholders' deficit (356)
-------
Total liabilities and stockholders' deficit $ 4,318
=======
The accompanying notes are an integral part of these condensed
consolidated financial statements.
3
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EDIETS.COM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
2000 1999 2000 1999
------- ------ ------- ------
REVENUE $ 3,765 $ 778 $ 7,165 $1,414
COSTS AND EXPENSES:
Cost of revenue 121 82 331 236
Product development 56 22 164 67
Sales and marketing 4,045 139 10,195 562
General and administrative 1,047 352 2,473 627
Depreciation and amortization 84 26 224 80
------- ------ ------- ------
Total costs and expenses 5,353 621 13,387 1,572
------- ------ ------- ------
(Loss) income from operations (1,588) 157 (6,222) (158)
Other income, net 23 -- 134 --
------- ------ ------- ------
Net (loss) income $(1,565) $ 157 $(6,088) $ (158)
======= ====== ======= ======
(LOSS) INCOME PER COMMON SHARE-
BASIC AND DILUTED $ (0.12) $ 0.02 $ (0.46) $(0.02)
======= ====== ======= ======
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING
BASIC 13,553 7,814 13,101 7,814
======= ====== ======= ======
DILUTED 13,553 8,471 13,101 7,814
======= ====== ======= ======
The accompanying notes are an integral part of these condensed
consolidated financial statements.
4
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EDIETS.COM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended
September 30,
-----------------
2000 1999
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(6,088) $ (158)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Depreciation and amortization 224 80
Provision for bad debt 151 --
Non-cash compensation 185 245
Changes in operating assets and liabilities:
Accounts receivable (534) (37)
Prepaid expenses and other current assets (291) (21)
Accounts payable and accrued liabilities 1,808 169
Deferred revenue 1,319 330
------- -------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (3,226) 608
CASH FLOWS FROM INVESTING ACTIVITY:
Purchases property and equipment (449) (163)
------- -------
NET CASH USED IN INVESTING ACTIVITY (449) (163)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance costs of common stock (147) (256)
Repayment from shareholder -- (107)
Repayment of capital lease obligations (39) --
------- -------
NET CASH USED IN FINANCING ACTIVITIES (186) (363)
------- -------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (3,861) 82
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 6,283 44
------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,422 $ 126
======= =======
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES
Equipment acquired under capital leases $ 55 $ --
======= =======
Receivable from stockholder charged to equity $ 93 $ --
======= =======
The accompanying notes are an integral part of these condensed
consolidated financial statements.
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EDIETS.COM, INC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 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. 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.
Certain reclassifications have been made for consistent presentation.
Results of operations for the periods presented 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. Income (Loss) Per Share Amounts
Income (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). Diluted income per common share for
the three months ended September 30, 1999 reflect the weighted-average effect of
common equivalent shares outstanding during the period. Common equivalents
outstanding have not been included in the computation of diluted loss per share
for all other periods reported, as their effect is anti-dilutive.
4. Stockholders' Deficit
In connection with a private placement financing in the fourth quarter of 1999,
the Company agreed to issue to investors in the private placement an aggregate
of 907,813 shares of common stock in the event that the Company's 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.
During the third quarter of 2000, the Company forgave a note receivable from the
majority shareholder of approximately $93,000. The forgiveness of the note,
which represented advances made to the shareholder in 1999, has been charged to
additional paid-in capital.
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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 Company's
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 [email protected], a newsletter that is an online diet information
resource. We currently email our newsletter twice a week to a community of over
2.9 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 Nine Months Ended
September 30, September 30,
------------------- -----------------
2000 1999 2000 1999
---- ---- ---- ----
Revenue 100% 100% 100% 100%
Cost of revenue 3 11 5 17
Product development 1 3 2 5
Sales and marketing 107 18 142 40
General and administrative 29 45 35 43
Depreciation and amortization 2 3 3 6
Other income, net * -- 2 --
Net (loss) income (42) 20 (85) (11)
------------
* less than 1%
7
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THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AS COMPARED TO THREE AND
NINE MONTHS ENDED SEPTEMBER 30, 1999
Revenue increased 384% for the three months ended September 30, 2000 compared to
the three months ended September 30, 1999 and 407% to $7,165,000 for the nine
months ended September 30, 2000 compared to $1,414,000 for the same period in
1999. The increase in revenue for the three and nine months ended September 30,
2000 was primarily due to increased member subscriptions, which increased 760%
and 661%, respectively, and was principally the result of the Company's
expansion of its online and offline advertising combined with a lower priced
membership compared to that of the prior year. At September 30, 2000 the Company
had approximately 150,000 paying members.
Opt-in email revenue of $6,000 and $274,000 was recorded in the three and nine
months ended September 30, 2000, respectively, from the sale of email addresses
of visitors to our web site who have authorized us to allow third party
solicitations and is included in total revenues. In the third quarter the
Company switched third party email management services providers and minimal
opt-in email revenue was recorded during this transition period. The Company
expects to increase levels of opt-in email revenue in the fourth quarter. No
opt-in email was recorded in the comparable periods of 1999.
Advertising revenue of $371,000 and $447,000 was recorded in the three and nine
months ended September 30, 2000, respectively, 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 periods of 1999.
As of September 30, 2000, the Company had deferred revenue of $1,772,000
relating to membership payments for which services had not yet been provided.
Cost of revenue consists primarily of Internet access and service charges,
revenue sharing costs, and salary payments to the Company's nutritional staff.
The dollar increase for the three and nine months ended September 30, 2000 as
compared to the corresponding periods in the prior year 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. The dollar increase for the three and nine months ended September
30, 2000 as compared to the same periods in the prior year were 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 and offline
advertising expenses and are generally incurred prior to the recognition of
revenues from sales generated from those efforts. Sales and marketing expenses
increased by $3,906,000 and $9,633,000 for the three and nine months ended
September 30, 2000, respectively, compared to the same periods in the prior
year. 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, iVillage and Women.com and an offline
advertising campaign that ran during the second quarter and part of the third
quarter. At September 30, 2000, the Company had approximately $554,000 of
prepaid advertising with these Internet portals. Online advertising expense in
the fourth quarter is expected to be less than the costs incurred in the third
quarter as the Company terminates certain advertising agreements that have
proved to be ineffective. An increase in online advertising is anticipated
during the first quarter of 2001.
8
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Included in sales and marketing costs for the three months ended September 30,
2000 is $486,000 expended as part of a $3.0 million offline advertising campaign
that began in the second quarter. This campaign, which was the first offline
advertising campaign for the Company, consisted of radio commercials and print
advertisements in magazines targeted to potential members. New members from the
campaign were less than expected and as a result the Company terminated its
agreement with its advertising agency and halted any future offline advertising
spending not already committed. The Company does not anticipate incurring any
costs for offline advertising in the fourth quarter.
General and administrative expenses consist primarily of salaries, overhead and
related costs for general corporate functions, including professional fees.
Included in the general and administrative expenses during the three months
ended September 30, 2000 is a $120,000 charge related to uncollected email
revenue from the Company's previous third-party email management services
provider. The dollar increases for the three and nine months ended September 30,
2000 were primarily due to the increases in personnel costs and general overhead
and the charge discussed above.
Depreciation and amortization expense increases for the three and nine months
ended September 30, 2000 were primarily attributable to a greater amount of
property and equipment subject to depreciation and amortization as compared to
the same periods in the prior year.
Other income, net, which consists primarily of interest income, increased in the
current year periods 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
$1,565,000 and $6,088,000 for the three and nine months ended September 30,
2000, respectively, compared to a net income of $157,000 and a net loss of
$158,000 in the same periods in the prior year.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2000, the Company had cash and cash equivalents of
$2,422,000. For the nine months ended September 30, 2000, cash used in operating
activities of $3,226,000 related primarily to a net loss of $6,088,000 offset by
a $1,808,000 increase in accounts payable and accrued expenses primarily due to
internet and offline advertising costs and a $1,319,000 increase in deferred
revenue due to the increase in member subscriptions. Net cash used in investing
activities was $449,000 and was used for purchases of computer equipment. Net
cash used in financing activities was $186,000 and consisted primarily of costs
incurred in connection with the Company's private placement offering and
subsequent registration statement filed with the Securities and Exchange
Commission. Issuance costs have been treated as a reduction of proceeds from the
transaction and charged directly to equity.
As of September 30, 2000, the Company had no commitments for capital
expenditures. The Company has online advertising commitments with major Internet
portals totaling approximately $10 million over the next two years, of which
approximately $6.3 million is payable over the next twelve months. Management
believes that cash and cash equivalents and cash generated from operations will
be sufficient to fund its working capital for at least the next twelve 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.
9
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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.
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) 10.1 Employment Agreement dated August 21, 2000 between the Company
and David S. Schofield
10.2 Amendment No. 1 to eDiets.com, Inc. Stock Option Plan, dated August
9, 2000
10.3 Amendment No. 2 to eDiets.com, Inc. Stock Option Plan dated
September 18, 2000
10.4 Agreement dated May 22, 2000 between the Company and Women.com
10.5 Agreement dated July 1, 2000 between the Company and iVillage.com
Exhibit 27 - Financial Data Schedule
(b) 1. A report on Form 8-K was filed with the Securities and Exchange
Commission on July 24, 2000 with respect to:
Item 5 - Other Events. To disclose the co-branded "Diet Center" with
Women.com.
2. A report on Form 8-K was filed with the Securities and Exchange
Commission on September 21, 2000 with respect to:
Item 5 - Other Events. To disclose David J. Schofield as the new
President and CEO.
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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/ ROBERT T. HAMILTON
----------------------------
ROBERT T. HAMILTON
Chief Financial Officer
(Principal Financial Officer)
DATE: October 30, 2000
11
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EXHIBIT INDEX
Exhibit No. Description
----------- -----------
10.1 Employment Agreement dated August 21, 2000 between the Company
and David S. Schofield
10.2 Amendment No. 1 to eDiets.com, Inc. Stock Option Plan, dated
August 9, 2000
10.3 Amendment No. 2 to eDiets.com, Inc. Stock Option Plan dated
September 18, 2000
10.4 Agreement dated May 22, 2000 between the Company and Women.com
10.5 Agreement dated July 1, 2000 between the Company
and iVillage.com
27 Financial Data Schedule
