As filed with the Securities and Exchange Commission on May 11, 2000.
Registration Statement No. 333-93971
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------
Amendment No. 3 to
FORM SB-2
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
-----------------------------
eDiets.com, Inc.
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Delaware 65-0687110
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
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8980
(Primary Standard Industrial
Classification Code Number)
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3467 W. Hillsboro Boulevard
Deerfield Beach, Florida 33442
(954) 360-9022
(Address and Telephone Number
of Principal Executive Offices)
-----------------------------
David R. Humble, Chief Executive Officer
eDiets.com, Inc.
3467 W. Hillsboro Boulevard
Deerfield Beach, Florida 33442
(954) 360-9022
(Name, Address and Telephone Number of Agent for Service)
-----------------------------
COPIES OF COMMUNICATIONS TO:
Mark A. Pachman, Esquire
Nason, Yeager, Gerson, White & Lioce, P.A.
1645 Palm Beach Lakes Boulevard, Suite 1200
West Palm Beach, Florida 33401
(561) 686-3307
-------------------------
<PAGE>
Approximate Date of Commencement of Proposed Sale to the Public: As
soon as practicable after this Registration Statement becomes effective.
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
===================================================================================================================
Title of Each
Class of
Securities Proposed Proposed
Amount of Maximum Maximum
to be Amount Offering Aggregate Amount of
Registration to be Price Offering Registration
Registered Registered Per Unit Price Fee
===================================================================================================================
<S> <C> <C> <C> <C>
Common Stock (par value $.001 per share) 4,228,508(1) $ 2.00 $ 8,457,016 $2,232.65(6)
Warrants to purchase shares of common stock 1,215,625(2) -0- -0- -0-
Common Stock underlying the warrants 1,215,625(2)(5) $ 2.50 $3,039,062.50 $ 802.31(7)
Placement Agent's shares of common stock 150,000(3) $ 2.00 $ 300,000 $ 79.20(6)
Common Stock underlying warrants issued
to advertising agency 82,500(4)(5) $ 2.00 $ 165,000 $ 43.56(7)
===================================================================================================================
Total $ 3,157.72
===================================================================================================================
<FN>
(1) Includes the registration for resale of the following: (i) 3,064,895
shares of common stock issued in a private placement completed in
December 1999 (the "Private Placement"); (ii) 607,813 shares of common
stock which the Company has agreed to issue to investors in the Private
Placement in the event that this Registration Statement has not become
effective and the common stock listed for trading on the Nasdaq
SmallCap Market by May 17, 2000; and (iii) 555,800 shares of common
stock held by the Company's Chief Executive Officer.
<PAGE>
(2) Represents warrants to purchase shares of common stock at an exercise
price of $2.50 per share issued to investors in the Private Placement
and the shares of common stock underlying the warrants.
(3) Represents the registration for resale of 150,000 shares of common
stock issued to the Placement Agent in the Private Placement in
connection with the acquisition by the Company of eDiets, Inc.
(formerly eDiets.com, Inc.) in November 1999.
(4) Represents shares of common stock issuable upon exercise of warrants
issued to an advertising agency at an exercise price of $2.00 per
share.
(5) Pursuant to Rule 416, there are also being registered such
additional shares of common stock as may become issuable so as to
prevent dilution resulting from stock splits, stock dividends or
similar transactions in accordance with the provisions contained in the
warrants.
(6) As of the date of this filing there is no trading price for the
Company's shares of common stock. Therefore, the registration fee has
been calculated by using a price of $2.00, which was the price per
share paid by the investors in the Private Placement.
(7) This has been calculated by using the exercise price of the warrants.
</FN>
</TABLE>
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
<TABLE>
<CAPTION>
eDiets.com, Inc.
-------------------------
Cross Reference Sheet
Pursuant to Item 501 of Regulation SB
Form SB-2 Item No. and Caption Caption or Location
in Prospectus
- ----------------------------------------------- ---------------------------------
<S> <C> <C>
1. Front of the Registration Statement and Outside Outside Front Cover Page of
Front Cover of Prospectus Prospectus
2. Inside Front and Outside Back Cover Pages of Inside Front and Outside Back
Prospectus Cover Pages of Prospectus
3. Summary Information and Risk Factors Prospectus Summary; Risk Factors
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Not Applicable
6. Dilution Not Applicable
7. Selling Security Holders Selling Security Holders
8. Plan of Distribution Plan of Distribution
9. Legal Proceedings Business
10. Directors, Executive Officers, Promoters and Management
Control Persons
11. Security Ownership of Certain Beneficial Owners Principal Stockholders
and Management
12. Description of Securities Description of Securities
13. Interest of Named Experts and Counsel Not Applicable
14. Disclosure of Commission Position on Management
Indemnification for Securities Act Liabilities
15. Organization within Last Five Years Business
16. Description of Business Business
17. Management's Discussion and Analysis and Plan of Management's Discussion and
Operation Analysis of Financial Condition
and Results of Operations
18. Description of Property Business - Properties
19. Certain Relationships and Related Transactions Management - Certain Transactions
20. Market for Common Equity and Related Stockholder Market for Common Stock and
Matters Related Stock Matters
21. Executive Compensation Management - Executive
Compensation and Employment
Agreements
22. Financial Statements Financial Statements
23. Changes in and Disagreements with Accountants on Not Applicable
Accounting and Financial Disclosure
</TABLE>
<PAGE>
Subject To Completion Dated May 11, 2000
PROSPECTUS
eDiets.com, Inc.
5,676,633 shares of common stock
1,215,625 warrants to purchase common stock
The selling stockholders identified in this prospectus are offering for
sale up to 5,676,633 shares of our common stock. In addition, the warrant
holders identified in this prospectus are offering for sale up to 1,215,625
warrants to purchase shares of our common stock.
There is no current public trading market for our shares.
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 4 TO READ ABOUT FACTORS YOU SHOULD
CONSIDER BEFORE BUYING OUR SHARES OR OUR WARRANTS.
------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
-------------------------
The date of this prospectus is ________, 2000.
1
<PAGE>
TABLE OF CONTENTS
PAGE
Prospectus Summary 3
Risk Factors 4
Forward-Looking Statements 8
Use of Proceeds 8
Market for Common Stock and Related Stockholder Matters 8
Capitalization 9
Selected Financial Data 10
Management's Discussion and Analysis of Financial Condition and Results of
Operations 10
Business 16
Management 29
Principal Stockholders 37
Certain Transactions 39
Selling Security Holders 40
Plan of Distribution 44
Description of Securities 46
Legal Matters 48
Experts 48
Where You Can Find More Information 49
Historical Financial Statements F-1
Pro Forma Condensed Financial Statements F-32
2
<PAGE>
PROSPECTUS SUMMARY
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 1,213,000 consumers 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.
We are a Delaware corporation with our executive offices located at
3467 W. Hillsboro Boulevard, Deerfield Beach, Florida 33442. Our telephone
number is (954) 360-9022, and our Internet address is www.ediets.com.
THE OFFERING
<TABLE>
<S> <C>
/bullet/ Shares outstanding before the offering 12,645,296
/bullet/ Shares offered by selling security holders 5,676,633, including 1,298,125 shares issuable upon
the exercise of warrants and stock options
/bullet/ Shares to be outstanding after the offering,
assuming exercise of all of the selling
security holders' warrants 13,943,421
/bullet/ Use of proceeds If all of the warrants included in this registration
statement are exercised, we will receive
gross proceeds of $3,204,062.50. We intend
to use the net proceeds we receive upon the
exercise of the warrants primarily to expand
our marketing and advertising programs. We
will use the balance of the proceeds for
working capital and general corporate
purposes.
</TABLE>
3
<PAGE>
RISK FACTORS
OUR BUSINESS IS DIFFICULT TO EVALUATE BECAUSE WE HAVE A LIMITED OPERATING
HISTORY. WE ALSO ANTICIPATE CONTINUING LOSSES.
We only commenced our current business in early 1997, when we began to
market our weight-loss programs on the Internet. As a result of our limited
operating history, it is difficult to evaluate our prospects. An investor should
also consider the uncertainties and difficulties frequently encountered by
companies, such as ours, in their early stages of development, particularly
companies doing business in the rapidly evolving Internet market.
We have incurred operating losses since we commenced our business. As
of December 31, 1999, the end of our most recent fiscal year, we had an
acccumulated deficit of $1,389,000. We are using the proceeds of our recently
completed private placement to aggressively expand our marketing and advertising
efforts. We do not expect that we will generate sufficient revenues to cover
these expenses in the near future. Therefore, we anticipate a period of
continuing losses.
4
<PAGE>
WE DEPEND ON SEVERAL MAJOR INTERNET PORTALS TO ATTRACT USERS TO OUR WEB SITE AND
OUR BUSINESS COULD SUFFER IF THERE IS A DISCONTINUANCE OF OUR ADVERTISING ON
THESE PORTALS.
A significant portion of our online traffic has come from our
advertising arrangements with America Online and iVillage. During 1999,
approximately 15% of our revenues came from visitors who reached our web site
through America Online and approximately 12% came from visitors arriving from
iVillage. We have also recently entered into a significant advertising agreement
with Yahoo and anticipate that an increasing portion of our revenues will come
from visitors who reach our web site through Yahoo.
Our agreements with iVillage and Yahoo end on December 31, 2000. Our
agreement with America Online ends on March 31, 2001. iVillage, Yahoo and
America Online have no obligation to renew the agreements when they expire. Our
agreements with these advertisers also do not prohibit them from carrying online
sites or developing and providing content that compete with our site. If there
is a discontinuance of our advertising for any reason on iVillage, Yahoo or
America Online, our business could suffer.
5
<PAGE>
WE DEPEND ON DAVID R. HUMBLE, OUR CHIEF EXECUTIVE OFFICER AND CHAIRMAN OF THE
BOARD, AND OUR OTHER KEY MANAGEMENT PERSONNEL AND THE LOSS OF THEIR SERVICES
COULD HARM OUR BUSINESS. AS OUR MAJORITY SHAREHOLDER, MR. HUMBLE ALSO CONTROLS
OUR BUSINESS AND THIS WEAKENS THE EFFECT OF OTHER STOCKHOLDERS' VOTES.
Our business is dependent on David R. Humble, our Chief Executive
Officer and Chairman of the Board, and other key management personnel. Although
we have an employment agreement with Mr. Humble, our business would suffer if we
were to lose his services. Under our employment agreement, Mr. Humble receives a
base salary of $150,000 per year and a bonus to be determined by our
compensation committee based on income before taxes. The employment agreement
contains a non-compete provision for the term of employment and two years after
it is over, as well as a non-disclosure provision. He does devote some time to
other interests, including various inventions and patents. We have "key-man"
life insurance in the amount of $2 million covering Mr. Humble.
The success of our business will also depend on our ability to hire and
retain additional qualified key executive management personnel particularly in
the marketing, administrative and financial areas. Competition for qualified
personnel in the Internet industry is intense. If we are unable to attract and
retain additional qualified personnel, our business could suffer.
Mr. Humble owns approximately 62% of our common stock. Therefore, he is
able to determine the outcome of all matters requiring approval by our
stockholders, including the election of directors and the approval of mergers or
other business combination transactions. Accordingly, our other stockholders
will have little say in the outcome of these matters.
WE CAN'T BE CERTAIN THAT ADDITIONAL FINANCING WILL BE AVAILABLE TO US ON
ACCEPTABLE TERMS IF WE NEED IT.
We believe that the proceeds from our recently completed private
placement, together with our funds from operations, will be sufficient to meet
our anticipated capital needs through at least the next 12 months. However, due
to unforeseen circumstances, unanticipated changes in our plans or other factors
beyond our control, we may require financing sooner. Our business could suffer
if financing is not available when we may require it.
6
<PAGE>
THE NUMBER OF SHARES ELIGIBLE FOR FUTURE SALE COULD DEPRESS THE MARKET FOR OUR
COMMON STOCK.
The timing and amount of sales of shares covered by this registration
statement could have a depressive effect on the market price of our common
stock. Furthermore, the possibility that a substantial number of other shares of
our common stock may become tradable in the public market may also adversely
affect prevailing market prices for the common stock and could impair our
ability to raise capital through the sale of equity securities. Apart from the
shares covered by this registration statement, the following shares will be
eligible for sale in the public market pursuant to Rule 144 under the Securities
Act at the following times, subject to certain volume and other restrictions
under Rule 144 and to agreements with the placement agent in our private
placement restricting their sale:
/bullet/ 1,050,000 of the shares are currently eligible for sale; and
/bullet/ 6,814,065 shares will be eligible for sale beginning in November 2000.
We can't predict the effect, if any, that sales of these shares or the
availability of these shares for sale will have on the market prices prevailing
from time to time.
7
<PAGE>
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements based on our
current expectations, assumptions, estimates and projections about our business
and our industry. These forward-looking statements involve risks and
uncertainties. Our actual results could differ materially from those anticipated
in these forward-looking statements as a result of certain factors described in
this prospectus. You should not place undue reliance on the forward-looking
statements in this prospectus, which speak only as of the date the statement is
made.
USE OF PROCEEDS
We will not receive any proceeds from the sale of the shares of common
stock or warrants by the selling security holders. If all of the warrants
included in this registration statement are exercised, we will receive estimated
gross proceeds of $3,204,062.50. We intend to use the proceeds primarily to
expand our marketing and advertising programs. We will use the balance for
working capital and general corporate purposes. We offer no assurance that any
of the warrants will be exercised.
MARKET FOR COMMON STOCK
AND RELATED STOCKHOLDER MATTERS
NO CURRENT TRADING MARKET
Although the shares of our common stock are publicly held, there has
been no trading market for the shares for several years. The placement agent in
our private placement has filed an application to initiate quotations in our
freely tradable shares of common stock in the "pink sheets" published by the
National Quotation Bureau, Inc. Upon acceptance by the NASD, it is anticipated
that a limited trading market will commence.
8
<PAGE>
OUTSTANDING SHARES AND NUMBER OF HOLDERS
As of April 6, 2000, we had 12,645,296 shares of common stock
outstanding and approximately 204 stockholders of record.
DIVIDEND POLICY
We have never declared or paid cash dividends on our capital stock. We
currently intend to retain all available funds and any future earnings for use
in the operation and expansion of our business and do not anticipate paying any
cash dividends in the foreseeable future.
CAPITALIZATION
The following table shows our capitalization as of December 31, 1999,
in thousands.
Long-term debt $ -0-
Stockholders' equity:
Preferred stock, $.01 par value
1,000,000 shares authorized, no shares issued
and outstanding -0-
Common stock $.001 par value
20,000,000 shares authorized; 12,645,296 shares
issued and outstanding 13
Additional paid-in capital 7,195
Unearned compensation (1) (7)
Accumulated deficit (1,389)
--------
Total stockholders' equity $ 5,812
--------
Total capitalization $ 5,812
========
(1) Represents deferred compensation expenses in connection with unvested stock
options we granted at an exercise price lower than the fair market value at the
date of grant.
9
<PAGE>
SELECTED FINANCIAL DATA
You should read the selected financial information below in conjunction
with the historical financial statements and related notes in this prospectus.
STATEMENT OF OPERATIONS DATA (IN THOUSANDS, EXCEPT PER SHARE DATA):
Year ended December 31,
--------------------------------
1999 1998
---------- ----------
Revenues $ 2,385 $478
Cost of revenues 313 76
Sales and marketing 1,216 436
General and administrative 1,231 404
Depreciation and amortization 120 62
Interest income 33 -
Net loss (462) (500)
Loss per common
share-basic and diluted $(0.06) $(0.06)
BALANCE SHEET DATA (IN THOUSANDS):
December 31,
1999
-----------------
Working capital $ 5,323
Total assets 7,337
Total liabilities 1,525
Stockholders' equity 5,812
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
10
<PAGE>
OVERVIEW
We were originally formed in 1992 to acquire a predecessor company that
was formed in 1970. Our original business was the design, manufacture and
marketing of top-weight fabrics for use in the production of sportswear,
swimwear and activewear. In 1995, we sold substantially all of our operating
assets and until recently have not had an operating business.
In November 1999, we acquired eDiets.com, Inc., a Delaware corporation
through the merger of a newly created subsidiary into eDiets.com, Inc. Upon the
merger, eDiets.com, Inc. became our wholly-owned subsidiary and we changed our
name to eDiets.com, Inc. We changed our subsidiary's name to eDiets, Inc.
eDiets, Inc. was incorporated in March 1996. By the end of 1997,
we had:
/bullet/ completed development of our original personalized diet
program software;
/bullet/ conducted a proof-of-concept test;
/bullet/ established price points;
/bullet/ created an internet direct marketing campaign; and
/bullet/ begun to generate revenues.
In January 1998, we became the first company to market customized
fee-based diet programs exclusively on the Internet.
Thus far, we have derived our revenues almost exclusively from the sale
of our customized diet programs. Beginning in the third quarter of 1999, we
began to generate some revenues from the sale of email addresses of visitors to
our web site who have authorized us to allow third party solicitations. During
the year, we also began to generate a small amount of advertising revenues in
addition to commission revenue from the sale of third-party vendor products
advertised on our web site.
We recognize revenues from customer subscriptions to our program on a
straight-line basis over the term of the subscription. Our present subscription
term is three months. We currently offer, and have in the past offered,
subscribers various payment options, including periodic payments over the term
of the subscription. Because revenues from customer subscription are recognized
over the term of the subscription, we may incur the related marketing expenses
in a quarterly term prior to the recognition of the corresponding revenue.
11
<PAGE>
Since commencing our Internet business we have incurred operating
losses. Because we intend to aggressively expand our marketing and advertising
efforts, we anticipate that we will incur losses in the near future.
RESULTS OF OPERATIONS
The following table shows our results of operations expressed as a
percentage of total revenues:
Year Ended
December 31,
----------------------------
1999 1998
---- ----
Revenue 100% 100%
==== ====
Cost of revenue 13% 16%
Sales and marketing 51 91
General and administrative 51 85
Depreciation and amortization 5 13
Interest income 1 -
Net loss (19) (105)
COMPARISON OF YEARS ENDED DECEMBER 31, 1999 AND DECEMBER 31, 1998
Our revenue for the year ended December 31, 1999 was $2,385,000 as
compared to $478,000 for the year ended December 31, 1998. The increase in
revenue was primarily due to the increase in the number of subscribers to our
diet program. The principal reason for increase in the number of our members was
the expansion of our advertising efforts in 1999. While all of our revenues in
1998 came from member subscriptions, approximately 8% of our revenues in 1999
came from two new additional sources of revenue:
/bullet/ opt-in email revenue of $155,000 which we derive from the sale
of email addresses of visitors to our web site who have
authorized us to allow third-party solicitations;
/bullet/ advertising and commission revenue of $41,000 derived from the
sale of third-party vendor products and the sale of
advertising on our web site;
As of December 31, 1999, we had deferred revenue of $453,000 relating
to membership payments for which services had not yet been provided.
12
<PAGE>
Our cost of revenue includes:
/bullet/ Internet access and service charges;
/bullet/ revenue sharing costs;
/bullet/ salary payments to our nutritional staff; and
/bullet/ compensation expense recognized for the excess of fair market
value of our common stock over the exercise price of options
granted to our dietitian.
Cost of revenues increased to $313,000 or 13% of revenues for the year
ended December 31, 1999 from $76,000 or 16% revenues for the year ended December
31, 1998. We attribute the dollar increase primarily to increased Internet
access and service charges and revenue sharing costs incurred in connection with
the expansion of our operations, and increased compensation payments to our
dietitian.
Sales and marketing expenses consist primarily of Internet advertising
expenses which we generally incur prior to the recognition of revenues from
sales generated from those efforts. These expenses increased to $1,216,000 or
51% of revenues for the year ended December 31, 1999 from $436,000 or 91% of
revenues for the year ended December 31, 1998. The dollar increases in sales and
marketing expenses were primarily due to our more aggressive advertising
placements commencing during the second half of 1998 and continuing into 1999
with several major Internet portals, including several of the America Online web
sites, Yahoo and iVillage. Sales and marketing expenses, as a percentage of
revenues, decreased primarily due to a significantly higher customer base and
related revenue compared to the prior year.
General and administrative expenses consist primarily of salaries,
overhead and related costs for general corporate functions, including
professional fees. These expenses also include compensation expense for stock
options granted with an exercise price below the fair market value of the common
stock. General and administrative expenses increased to $1,231,000 or 51% of
revenues for the year ended December 31, 1999 from $404,000 or 85% of revenues
for the year ended December 31, 1998. The dollar increase was primarily due to
the increases in salaries, general overhead and compensation expense related to
stock option grants and increases in professional fees. General and
administrative expenses, as a percentage of revenues, decreased primarily due to
a significantly higher customer base and related revenue compared to the prior
year.
Depreciation and amortization expenses increased to $120,000 or 5% of
revenues for the year ended December 31, 1999 from $62,000 or 13% of revenues
for the year ended December 31, 1998. The dollar increase was primarily
attributable to the purchase of additional computer equipment.
13
<PAGE>
We had interest income of $33,000 in the current year because we
invested the proceeds of our private placement financing which we completed in
the fourth quarter of 1999.
LIQUIDITY AND CAPITAL RESOURCES
Through the end of 1997, we financed our cash requirements primarily
through advances from David R. Humble, our Chief Executive Officer and sole
shareholder. From 1998, as we began to generate more meaningful revenues, we
financed our operations primarily through operating cash flow. During 1999, we
repaid approximately $53,000 to Mr. Humble, and an additional $110,000 was
forgiven by Mr. Humble and treated as an additional equity investment.
During the second half of 1999, we also advanced approximately $88,000
to Mr. Humble. He has agreed to repay the advances, with interest at an annual
rate of 7%, by March 1, 2001.
As of December 31, 1999, we had cash and cash equivalents of
$6,283,000. For the year ended December 31, 1999, operating activities provided
cash of $297,000, primarily due to increases in accounts payable and accrued
liabilities, partially offset by increases in accounts receivable, prepaid
expenses and other current assets. Net cash used in investing activities was
$310,000 and related to our purchases of property and equipment. Financing
activities provided cash of $6,252,000 for the period and reflects $6,043,000 of
net proceeds we raised during November and December 1999 in our private
placement financing and assets received in our merger, partially offset by
repayments of borrowings and advances to Mr. Humble.
By utilizing the proceeds of the private placement, we intend to
dramatically expand our Internet marketing campaign. We have recently entered
into advertising arrangements which require substantial up-front capital
expenditures, and plan on entering into additional similar advertising
arrangements. In addition, we plan to add to our operating systems and our
facilities and equipment in anticipation of our expanded customer base and
offerings of new programs.
We currently anticipate that the net proceeds of the private placement,
together with funds from our operations, will be sufficient to meet our
anticipated needs for working capital and capital expenditures through at least
the next 12 months.
YEAR 2000 READINESS
Many currently installed computer systems and software products are
coded to accept or recognize only 2-digit entries in the date code field. These
systems and software products will need to accept 4-digit entries to distinguish
21st century dates from 20th century dates. As a result, computer systems and/or
software used by many companies and governmental agencies may need to be
upgraded to comply with such
14
<PAGE>
Year 2000 requirements or risk system failure or miscalculations causing
disruptions of normal business activities. As of the date of this prospectus, we
have not experienced any year 2000 problems.
STATE OF READINESS
We have made an assessment of the Year 2000 readiness of our operating
and administrative systems. Our assessment plan consisted of testing of our
internally-developed information and computing systems with special attention to
their representation and manipulation of calendar dates. We have confirmed that
our internally-developed software avoids Year 2000 concerns by either using a
full 4-digit date or using a binary value which is calculated using the year
1970 as a base, which methods will adjust for new centuries as well as leap
years. In addition, in our assessment plan, we contacted third-party vendors of
software, hardware and services that are related to the delivery of the services
to our users and the vendors have indicated that the products and services used
by us are currently Year 2000 compliant. Since January 1, 2000, we have had no
problems with our internal systems or with third-parties.
COSTS
We have not incurred any material costs in identifying or evaluating Year 2000
compliance issues. Most of our expenses have related to, and are expected to
continue to relate to, the operating costs associated with time spent by
employees in the evaluation process and Year 2000 compliance matters generally.
We do not presently anticipate that such expenditures will be material.
RISKS AND CONTINGENCY PLAN
Based on our assessment and our experience since January 1, 2000, we
believe that our internal systems are Year 2000 compliant and will not produce
erroneous results, fail to function or interrupt performance. Nevertheless, our
systems may contain undetectable errors or defects associated with Year 2000 and
operational difficulties may result. In addition, while vendors of our material
software, hardware and services have indicated that they are in compliance, and
we have experienced no problems with third-parties to date, we can't assure you
that third-party software, hardware or services incorporated into our systems
upon which we are reliant will not need to be revised or replaced, which could
be time consuming and expensive. Furthermore, we can't assure you that
governmental agencies, utility companies, Internet access companies, third-party
service providers and others outside of our control will be Year 2000 compliant.
The likely worse-case Year 2000 scenario is a systematic failure beyond
our control, such as a prolonged Internet, telecommunications or electrical
failure. Such a failure could prevent us from operating our business, prevent
visitors from accessing
15
<PAGE>
our web site, or change the behavior of consumers accessing our web site. We
believe that the primary business risks, in the event of such a failure, would
include lost revenue, increased operating costs, loss of visitors to our web
site, or other business interruptions of a material nature, as well as claims of
mismanagement, misrepresentation or breach of contract, any of which could have
a material adverse effect on our business, results of operations and financial
condition.
We have not made any contingency plans to address these risks.
BUSINESS
We were formed in 1992 to acquire a predecessor company that was formed
in 1970. Our original business was the design, manufacture and marketing of
top-weight fabrics for use in the production of sportswear, swimwear and
activewear. In 1995, we sold substantially all of our operating assets and until
November 1999 had not had an operating business.
In November 1999, we acquired eDiets.com, Inc., a Delaware corporation
through the merger of a newly created subsidiary into eDiets.com, Inc. Upon the
merger, eDiets.com, Inc. became our wholly owned subsidiary and we changed our
name to eDiets.com, Inc. We changed our subsidiary's name to eDiets, Inc.
Under the terms of the merger, we issued 7,814,065 shares of common
stock to David R. Humble, the sole stockholder of eDiets, Inc. and 985,935
shares were reserved for the exercise of stock options granted to several of the
current and former employees and consultants of eDiets, Inc. prior to the
merger.
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, which we call our eDiets program, that
is unique to each consumer and then deliver it directly to the consumer's home
or office via the Internet. We believe our personalization features, low cost
and centralized Internet distribution create a unique competitive advantage in a
market, where the market leader, Weight Watchers International, operates a
decentralized network of brick and mortar storefronts.
At our Online Diet Center, we offer programs for both women and men.
Women currently represent 90% of our customers. To enroll in a program, a
consumer completes a questionnaire and their personal profile is automatically
generated. We use this profile to create a private Internet diet site for the
consumer to access for meal plans and other professional advice and information.
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We also publish [email protected], an online diet information resource.
We currently email our newsletter twice a week to a community of over 1,213,000
consumers 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.
During 1999, our web site had 2,698,466 visitors and 33,379 consumers
from over 30 countries purchased subscriptions to our personalized diet program.
Based on our internally-developed numbers, we believe that our members spend on
the average 86 minutes per month on our site and have approximately 87
page-views a month.
Our revenues in 1999 were approximately $2,385,000. Approximately
92% of our revenues came from the sale of our programs. Approximately 8% came
from our sale of email addresses of visitors to our web site who have authorized
us to allow third party solicitations and from commissions from the sale of
third-party vendor products and advertising on our web site.
INDUSTRY OVERVIEW
According to federal clinical guidelines on obesity issued by the
National Heart, Lung and Blood Institute, in cooperation with the National
Institute of Diabetes and Digestive and Kidney Diseases, approximately 97
million adults in the United States are overweight or obese.
The weight-management industry consists of commercial weight-loss
centers and physician-directed programs. Programs that are provided by
physicians using prescription medication serve a relatively small segment of the
market and are relatively expensive. Magazines, books, periodicals and public
services offer unsupervised programs. The cost of these unsupervised programs
range from free to the cost of a book or tape. Supervised programs offered by
weight-loss clinics provide personal guidance and supervision, and cost
substantially more than the eDiets program. Typically, the cost to the consumers
for a program that provides personal guidance similar to the eDiets program
ranges from $10-$14 per week, excluding the cost of food. Specialty foods
offered by some weight-loss clinics cost approximately $60 per week.
EVOLUTION OF OUR BUSINESS.
eDiets was formed in March of 1996. In 1997:
/bullet/ we completed development of our proprietary software;
/bullet/ conducted a proof-of-concept test;
/bullet/ established price points;
/bullet/ created an Internet direct marketing campaign; and
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/bullet/ began to generate revenue.
In January 1998, we became the first company to market a customized
fee-based diet program exclusively on the Internet. We tested new site formats,
marketing messages and pricing options designed to increase the number of site
visitors and improve the ratio of subscribers to site visitors. During this
period, we also increased our Internet server and communications network
capacity to support a higher level of operations.
In mid-1998, we created [email protected], our online diet, fitness and
nutrition newsletter. During the second half of 1998, we began placing
advertisements with several major Internet portals, including several of the
America Online web sites, Yahoo and iVillage, to determine the most productive
media buys.
In February 1999, we completed development of proprietary software to
measure consumer response in real time to marketing, pricing and other elements
of a direct marketing campaign. This software uses certain elements of an
in-store marketing system. David Humble, our Chief Executive Officer, has filed
a patent application covering this system and licensed the rights to the
invention covered by the patent application to us for use in the scope of our
current business. Our system has allowed us to significantly improve the yield
on advertising expenditures.
OUR MARKET OPPORTUNITY
We believe consumers are becoming more interested in their general
health and appearance today. We see a growing trend towards natural solutions
for nutritional well-being and, accordingly, the potential to increase sales of
our current and future nutritional programs, products and services. We also
believe that many consumers find the conventional diet center experience to be
inconvenient and costly because of factors such as:
/bullet/ lack of privacy;
/bullet/ travel time to the diet center;
/bullet/ special food requirements; and
/bullet/ scheduling demands.
We created our online nutrition management center and personalized diet
programs to provide consumers with a convenient and productive experience in a
private and accessible online environment. The Internet provides a unique
opportunity for us to deliver our programs and services faster, more
conveniently and at less cost than Weight Watchers International, Jenny Craig,
Inc. and our other offline competitors. The key components of our solution
include:
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/bullet/ PERSONALIZATION. Consumers benefit from a diet program that is
personalized. Our system generates a custom diet for individuals based
on their individual characteristics, needs, likes and goals. Our
program allows the individual to make modifications and provides a way
for the individual to communicate their progress so that their program
can be updated periodically.
/bullet/ CONVENIENCE. Our Online Diet Center is available to consumers 24 hours
a day, 7 days a week, from their home or office. It provides a range of
services that is comparable to conventional offline centers that have
limited hours of operation and require travel to and from their
centers.
/bullet/ PRIVACY. Diet and weight-loss can be a sensitive subject that often
requires frank discussions regarding solutions. Our online meetings and
bulletin boards allow members to choose the option of being anonymous.
This leads to more open and productive discussions between members and
our staff, and within the eDiets community.
OUR STRATEGY
We believe there is an established need for conventional weight
management services internationally. Our primary positioning objective is to
establish personalization as a new and essential component of this service in
the mind of the consumer, and to identify eDiets as the originator of the
concept. In addition, we intend to establish nutrition management as a new
online category that includes not only consumers interested in weight
management, but also those interested in fitness, healthy living and the aging
process. We also intend to establish eDiets as a vertical Internet portal for
diets and the leading online provider of personalized nutrition management
services. The key elements of our strategy to reach these objectives include:
/bullet/ FOCUS ON ONLINE MARKETING AND DISTRIBUTION. Our primary advantage in
the market is the economics of the Internet, including the relative low
cost of customer acquisition, program distribution and customer
communications compared to offline weight management programs. We plan
to accelerate the online marketing of our current offerings and add
additional programs, services and products to become the primary online
destination for personalized diet-related advice, information and
products.
/bullet/ COMMENCE AN OFFLINE MARKETING CAMPAIGN. We intend to advertise in print
media, on radio and through billboards, and may utilize direct
mailings.
/bullet/ BUILD STRONG BRAND RECOGNITION. We are expanding our online and offline
public relations campaigns and creating relationships with other
Internet programs. As an integral component of our brand development,
we will seek to align with a celebrity spokesperson to assist us in our
branding campaign.
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/bullet/ REACH MORE CONSUMERS. We believe the growth of the Internet will
provide us with opportunities to expand our marketing and reach
consumers in markets, such as:
- medical offices;
- fitness centers;
- company intranets;
- nutrition stores; and
- related outlets at the retail level.
/bullet/ ENHANCE E-COMMERCE OPERATIONS. We are actively seeking to enhance and
expand our Diet Store. We plan to enter into arrangements with
third-party vendors to fulfill orders and ship products under our name.
/bullet/ PROMOTE REPEAT PURCHASES. We recognize the value of an acquired
customer. Therefore we plan to implement long-term nutritional
management programs to encourage the continued participation of eDiets
members.
/bullet/ EMPLOY NEW TECHNOLOGIES. As Internet streaming audio and video become
mainstream, we will seek to utilize these technologies to feature
recognized personalities to broadcast their advice, information and
motivational messages to our customer base.
THE EDIETS PROGRAM
Our eDiets program is a customized diet program based on a profile
provided by the user utilizing our proprietary software. To create an eDiets
program for the user, the software system analyzes personal goals, food
preferences and lifestyle, with nutrition content. It then creates a program
that varies by individual and by changes in the individual's needs. The
personalization feature eases the transition from the individual's current diet
to the eDiets diet, because it includes familiar food groups and is in a format
that fits the individual's lifestyle. The program includes a list of the "100
Best Supermarket Products", a personalized supermarket shopping list and weekly
email tips, advice and information.
To begin the program, consumers answer a series of profile questions
and select a food plan. The program offers three different food plans:
/bullet/ A convenience food plan, comprised of pre-packaged food products;
/bullet/ A recipe plan, which primarily contains food recommendations requiring
preparation; or
/bullet/ A combination convenience and recipe food preparation format.
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This information forms the individual's personal profile. Most
customers use a credit card on our secure server to subscribe, while a limited
number choose to subscribe by phone or fax and pay by check. Their first week's
program is delivered immediately after their credit card submission or check
payment has been received.
Prior to May 1999, subscribers had to log on and answer questions
regarding their personal weight management program and receive revised
personalized programs on a weekly basis. In May 1999, we introduced "My eDiets",
a means of creating a personal homepage for each eDiets member. With their My
eDiets custom page, members can visit their site at any time to receive progress
reports, access meal plans, shopping lists and hundreds of diet resources.
The current subscription term for the eDiets program is three months,
and the cost of the subscription is $35 if paid at the time of the subscription,
or $40 if paid over three months. After the three months, members may continue
their subscription on a monthly basis at a cost of $10 per month. Members have
unlimited access to services during this period. We continually evaluate the
cost of our program and expect price changes in the future.
Members are encouraged to attend regular online motivation meetings and
have access to chat rooms where they can receive community support 24 hours a
day, seven days a week. They receive guidance, have the opportunity to ask
questions and learn from others with the same goals. We believe that the online
meetings provide a more convenient and private means of sharing ideas and
experiences than traveling to conventional weight management storefronts, and
attending open meetings with strangers.
Women currently represent 90% of our customers. We recently began
testing a mens' version of the eDiets program. The mens' program is specifically
tailored to mens' emotional needs and physical considerations. We have not begun
to advertise the mens' program on other web sites.
The eDiets program was authored and is supervised by Donna M. De Cunzo,
R.D., L.D., our Director of Nutrition. The program consists exclusively of
professional advice and information and uses nutrition standards established by
the federal government. The program is designed around caloric intake. In our
program we only specify foods that can be purchased at the supermarket. We do
not recommend or market diet pills or other controversial products.
[email protected]
We publish [email protected], an online diet, fitness and nutrition
resource offered free to consumers. Currently, [email protected] generates
approximately two million page views per month and is mailed to a community of
over 1,213,000 consumers who have completed our questionnaire, received a
personal profile and
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provided us with an email address. The newsletter is delivered bi-weekly to each
subscriber. We obtain information for the newsletter from other Internet medical
and health information providers and we write and edit all material. The
newsletter also contains reference to certain health and nutrition related web
sites of other companies with which we have revenue sharing arrangements.
THE DIET STORE
Our web site includes a Diet Store in which we advertise a variety of
health, nutrition and fitness products offered by third-party vendors. The Diet
Store is a section of our web site which aggregates into one comprehensive
storefront most of the opportunities found in our site where users can find
specific products or services offered by outside parties. Currently, the primary
categories of products we advertise in the Diet Store are vitamins and minerals
and an array of fitness equipment and accessories. We receive commissions of
between 5% and 35% on third-party vendors' products sold through our web site.
We have only recently established the Diet Store and have received only
minimal commissions on sales of the products advertised in the Diet Store to
date. However, we are actively seeking to enhance and expand the Diet Store and
plan to enter into arrangements with third-party vendors to fulfill orders and
ship products under our name.
MARKETING AND PROMOTION
We are implementing a five part marketing plan to generate traffic to
our web site and attract customers. Our plan consists of:
/bullet/ INTERNET ADVERTISING. A majority of our sales are generated
from direct response advertising on the Internet. We place
advertising banners on several major Internet online portals
and sites that target female audiences with health and
nutrition interests. We estimate that from 1% to 15% of the
consumers who visit the sites on which we advertise on a
regular basis, and viewed our advertising banners, responded
by "clicking through" to the eDiets site. We have entered into
advertising agreements with iVillage and Yahoo which run
through the end of 2000. We have an advertising agreement with
America Online to carry our banners that runs through March
2001. We also advertise on other web sites. In 1999,
approximately 15% of our sales came from visitors who reached
our web site through America Online and approximately 12% came
from visitors arriving through iVillage. These percentages do
not include persons who initially visited our site through
America Online or iVillage but did not
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subscribe to the eDiets program until they received our
[email protected] newsletter.
/bullet/ [email protected]. Our newsletter, [email protected], is currently
our largest promotional tool. Approximately 33% of our sales
in 1999 came from consumers who received the newsletter and
decided to subscribe to the eDiets program.
/bullet/ SEARCH ENGINE LISTINGS. Approximately 7% of our sales in 1999
came from keywords on Internet search engines, such as Yahoo.
Consumers may find the eDiets program by typing in keywords
such as "diet" or "nutrition" on several of the leading
Internet search engines. They then "click-through" to the
eDiets site for complete details.
/bullet/ REVENUE SHARING. In December 1998, we signed an agreement with
Microsoft's Link-Share, an Internet company that arranges
affiliate programs. These affiliate programs allow other
Internet sites to offer the eDiets program on their sites in
exchange for a specified commission. We also pay an annual fee
and a commission for each sale to Link-Share. As of December
31, 1999, we had approximately 1,360 affiliates under the
Link-share program. In addition to this affiliate program, in
early 1999, we began seeking arrangements with other web sites
for the display of the eDiets banner in exchange for a share
of the revenue from sale of subscriptions. Among the sites
that we currently have revenue sharing arrangements with are
Greentree and Diets to Go.
/bullet/ OFFLINE MARKETING CAMPAIGN. We intend to commence an offline
marketing campaign, in which we plan to advertise in print
media, on radio and through billboards, and may utilize direct
mailings.
Our short-term marketing objective and strategy is to significantly increase
our customer base by rapidly expanding our advertising program. At the same
time, we will attempt to continually improve the ratio of sales to site
visitors. We will seek to do this by:
/bullet/ continually changing our selling messages;
/bullet/ modifying our site architecture;
/bullet/ changing our pricing strategy; and
/bullet/ introducing additional payment options.
Our longer term objective is to build a dominant Internet brand across
the diet, nutrition and fitness categories. To accomplish this, we believe we
will need to
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combine a broad-based Internet marketing advertising program, with print and
television campaign. We will also need to add a celebrity spokesperson and
increase our direct marketing management personnel.
COMPETITION
We currently compete with several non-Internet weight-loss companies.
Our major offline competitors are Weight Watchers International and Jenny Craig,
Inc.
We were one of the original marketers of customized fee-based diet
programs exclusively online. We believe we can successfully capture market share
from the established offline competitors for the following reasons:
/bullet/ CENTRAL POINT OF OPERATIONS. We market and distribute our programs from
a single facility via the Internet. This is a more efficient system
than operating a network of storefronts with fixed costs and staffing.
/bullet/ GEOGRAPHIC REACH. Conventional diet centers are typically located in
areas where the population is concentrated and their use is limited by
many convenience factors. As use of the Internet expands, eDiets will
be able to reach more consumers.
/bullet/ FRANCHISEES. Most conventional diet center companies have sold
territorial rights to their products and services to franchisees, and
may face difficulties adopting a direct-to-consumer sales strategy.
We believe that for our major offline competitors the challenge of an
Internet entry is their current investment in hard assets, lease commitments
and, more importantly, their franchised outlets. An Internet offer could
cannibalize sales from existing storefronts, including those of franchisees. At
this time, the non-Internet leaders have web sites, but they are limited to
providing information, or driving traffic to their conventional storefronts.
We also compete with a number of Internet sites, such as iVillage,
Thrive and America Online Health Channel, which provide free diet and nutrition
information. However, these major sites have an advertising model and do not
currently offer a fee-based program or provide any personalization features.
We know of two other online competitors aggressively marketing an
online program with similarities to our program. Cyberdiet.com, has had an
Internet presence for approximately three years offering free programs. It had
introduced a subscription fee-based diet program comparable to ours, but has
recently returned to a free program. In addition, we compete with
Nutrisystem.com, a newly launched online weight-loss program by NutriSystem,
Inc. that is very similar in design to our program. The NutriSystem program does
not charge a subscription fee; however, participation in its weight-loss plan
does require purchase of the NutriSystem pre-packaged product line,
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which is only available through the Nutrisystem.com web site. We believe that
there are also several additional web sites under construction that will offer
weight-loss programs that are very similar in design to our program.
It is not possible for us to determine when or in what form the
industry's response to the eDiets' program will be once it becomes highly
visible. However, we anticipate that the industry leaders can be expected to
mount a meaningful form of Internet response. In addition, given the rapid
expansion of the Internet, other companies may develop similar programs or
health-related sites that compete vigorously with our programs and services.
Accordingly, we could experience increasingly intense competition in our
marketplace and our business and operations could suffer.
INTELLECTUAL PROPERTY, PROPRIETARY RIGHTS AND DOMAIN NAMES
Our success depends on the protection of our original interactive
proprietary software and systems and the goodwill associated with our trademarks
and other proprietary intellectual property rights. Our interactive personalized
diet programs are based on proprietary software that we have developed.
David R. Humble, our Chief Executive Officer and Chairman of the Board,
has filed a patent application covering the means of using the Internet to
provide an interactive link in a store for the purpose of providing retailers
and manufacturers with information to measure the response of the consumers to
sales and marketing information. He has granted us a royalty-free exclusive
perpetual license to use the aspects of the invention under the patent if a
patent is issued that relate to our Internet marketing program. We have
incorporated limited aspects of this software into our software to measure
consumer response in real time to marketing, pricing and other elements of our
program. For example, we can measure consumer response to changes in our page
format or the attractiveness of various payment options. We can receive real
time responses to these modifications and options.
We attempt to protect our intellectual property and proprietary rights
through a combination of trademark and copyright law, trade secret protection,
and confidentiality agreements with our employees, and marketing and advertising
partners. We pursue the registration of our domain names, trademarks and service
marks in the United States. A substantial amount of uncertainty exists
concerning the application of copyright and trademark laws to the Internet and
there can be no assurance that existing laws provide adequate protection of our
proprietary intellectual property or our domain names. The steps we take to
protect our proprietary rights may not be adequate and third parties may
infringe or misappropriate our copyrights, trademarks, service marks and similar
proprietary rights.
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INFRASTRUCTURE OPERATIONS AND TECHNOLOGY
We have designed our infrastructure to provide reliability and
scalability as it supports our operations. Our architecture currently consists
of several Dell Power Edge Servers running the Microsoft Windows NT Server
Operating System and Web Server Software from Microsoft and Netscape. The
servers are located in a secure third-party web hosting facility in Herndon,
Virginia. This facility provides us with:
/bullet/ ready access to increased network bandwidth;
/bullet/ improved redundancy and disaster recovery;
/bullet/ 24-hour onsite management and support; and
/bullet/ the security and protection of a reliable data center.
Although this facility provides us with increased security and reliability, we
can't assure you that there will be no interruption in service. To the extent
that service is interrupted or delayed, we could experience a decrease in
traffic, loss of customers, and harm to our reputation.
GOVERNMENT REGULATION
There are an increasing number of laws and regulations pertaining to
the Internet. In addition, a number of legislative and regulatory proposals are
under consideration by federal, state, local and foreign governments and
agencies. Laws or regulations may be adopted with respect to the Internet
relating to:
/bullet/ liability for information retrieved from or transmitted over
the Internet;
/bullet/ online content regulation;
/bullet/ visitor privacy; and
/bullet/ taxation and quality of products and services.
Moreover, the applicability to the Internet of existing laws governing issues
such as:
/bullet/ intellectual property ownership and infringement;
/bullet/ copyright;
/bullet/ trademark;
/bullet/ trade secret;
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/bullet/ obscenity;
/bullet/ libel;
/bullet/ employment; and
/bullet/ personal privacy
is uncertain and developing. Any new legislation or regulation, or the
application or interpretation of existing laws may have an adverse effect on our
business.
LIABILITY FOR INFORMATION RETRIEVED FROM OUR WEB SITE AND FROM THE INTERNET
Content may be accessed on our web site and this content may be
downloaded by visitors and subsequently transmitted to others over the Internet.
This could result in claims against us based on a variety of theories, including
negligence, copyright or trademark infringement. We could also be exposed to
liability with respect to third-party content that may be posted by visitors in
our chat rooms or bulletin boards. It is also possible that if any information
contains errors or false or misleading information, third parties could make
claims against us for losses incurred in reliance on such information. In
addition, we may be subject to claims alleging that, by directly or indirectly
providing links to other web sites, we are liable for copyright or trademark
infringement or the wrongful actions of third parties through their respective
web sites. The Communications Decency Act of 1996 provides that, under certain
circumstances, a provider of Internet services shall not be treated as a
publisher or speaker of any information provided by a third-party content
provider. This safe harbor has been interpreted to exempt certain activities of
providers of Internet services. Our activities may prevent us from being able to
take advantage of this safe harbor provision. Any claims brought against us in
this respect may have a material and adverse effect on our business.
PRIVACY CONCERNS
The Federal Trade Commission is considering adopting regulations
regarding the collection and use of personal identifying information obtained
from individuals when accessing web sites, with particular emphasis on access by
minors. Such regulations may include requirements that companies establish
certain procedures to, among other things:
/bullet/ give adequate notice to consumers regarding information
collection and disclosure practices;
/bullet/ provide consumers with the ability to have personally
identifiable information deleted from a company's database;
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/bullet/ provide consumers with access to their personal information
and with the ability to rectify inaccurate information;
/bullet/ clearly identify affiliations with third parties that may
collect information or sponsor activities on a company's web
site; and
/bullet/ obtain express parental consent prior to collecting and using
personal identifying information obtained from children under
13 years of age.
This regulation may also include enforcement and redress provisions. While we
have implemented and intend to continue to implement programs designed to
enhance the protection of the privacy of our visitors, we can't assure you that
such programs will conform with any regulations which may be adopted by the FTC.
The FTC's regulatory and enforcement efforts may adversely affect our ability to
collect personal information from visitors and customers and therefore limit our
marketing efforts.
TRADE PRACTICES REGULATIONS
The FTC and certain states regulate advertising and consumer matters
such as unfair and deceptive trade practices. The State of Florida, where our
corporate offices and operations center are located, regulates certain marketing
and disclosure requirements for weight loss providers. In addition, the nature
of our interactive Internet activities may subject us to similar legislation in
a number of other states. Although we intend to conduct our operations in
compliance with applicable regulatory requirements and continually review our
operations to verify compliance, we can't assure you that aspects of our
operations will not be reviewed and challenged by the regulatory authorities and
that if challenged that we would prevail. Furthermore, we can't give any
assurance that new laws or regulations governing weight loss and nutrition
services providers will not be enacted, or existing laws or regulations
interpreted or implied in the future in such way as to cause harm to our
business.
REGULATIONS OF OTHER JURISDICTIONS
Due to the global nature of the Internet, it is possible that, although
transmissions by us over the Internet originate primarily in the United States,
the governments of other foreign countries might attempt to regulate our
transmissions or prosecute us for violations of their laws. These laws may be
modified, or new laws enacted, in the future. Any of these developments could
cause our business to suffer. In addition, as our service is available over the
Internet in multiple states and foreign countries, these jurisdictions may claim
that we are required to qualify to do business as a foreign corporation in each
state or foreign country. We have not qualified to do business as a foreign
corporation in any jurisdiction, except Florida. This failure by us to qualify
as a foreign corporation in a jurisdiction where we are required to do so
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could subject us to taxes and penalties and could result in our inability to
enforce contracts in such jurisdictions.
EMPLOYEES
We currently have 26 full-time and five part-time employees. We have
an arrangement with a third-party professional employer service which provides
services, including payroll, human resources benefits and workers compensation
administration, for all of our employees, including our Chief Executive Officer,
David R. Humble. We believe our relationship with our employees is good.
FACILITIES
We currently lease approximately 2,600 square feet of office space in
Deerfield Beach, Florida, under a lease expiring on September 30, 2004. The
current monthly rental, including lessor leasehold improvements repayment
obligation and pro-rated share of common area facilities expenses, is $3,382.
LEGAL PROCEEDINGS
We are not a party to any pending legal proceedings.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Our Directors and Executive Officers are as follows:
NAME AGE POSITION
- ---- --- --------
David R. Humble 64 Chairman of the Board and
Chief Executive Officer
Robert T. Hamilton 36 Chief Financial Officer
Steven Johnson 35 Chief Technology Officer
Christine M. Brown 42 Director of Operations
Isaac Kier 47 Director
Matthew A. Gohd 43 Director
Dr. Bruce Yaffe 48 Director
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James M. Meyer 63 Director
Cary S. Fitchey 47 Director
Lee S. Isgur 62 Director
DAVID R. HUMBLE has served as our Chairman of the Board and Chief
Executive Officer since the closing of our merger in November 1999. Mr. Humble
has served as Chairman of the Board, President and Chief Executive Officer of
eDiets, Inc. since he founded that company in March 1996. From July 1995 to
August 1996, he was a consultant to Advanced Promotion Technologies, Inc., which
was engaged in the development and marketing of interactive electronic point of
sale marketing systems in supermarkets. From 1987 to July 1995, he had served as
Chairman of the Board of Advanced Promotion Technologies, Inc. and additionally
as the Chief Executive Officer until 1993. Advanced Promotion Technologies, Inc.
filed for bankruptcy protection in August 1996. From 1985 to 1987, he was the
President, Chief Executive Officer and Director of CheckRobot, Inc., which
developed a self-service checkout system for supermarkets. From 1968 to 1985, he
served in a number of marketing and operations capacities with Sensormatic
Electronics Corporation, which develops and markets electronic security and
surveillance products, including Vice President/Manufacturing and Vice
President/Future Products and was a member of its board of directors. Mr. Humble
holds a number of technology patents, including the original electronics
security tag found on garments in retail stores worldwide to protect against
shoplifting.
ROBERT T. HAMILTON has served as our Chief Financial Officer and
Treasurer since November 1999. From July 1995 to November 1999 he was Manager,
Financial Reporting for Equinox Systems Inc., a public company engaged in the
design and development of serial input/output communication devices. Prior to
July 1995, Mr. Hamilton was an audit manager with Arthur Andersen LLP. Mr.
Hamilton is also a certified public accountant.
STEVEN JOHNSON has served as our Chief Technology Officer since
November 1999. Mr. Johnson had served as the Chief Technology Officer of eDiets,
Inc. since November 1998 and prior to that had been its Director of Software
Development on a part-time basis. From November 1996 through November 1998, he
served as a Senior Principal Engineer for Sensormatic Electronics Corporation.
From April 1991 to November 1996, he was the Manager for Software Development
for Advanced Promotion Technologies, Inc.
CHRISTINE M. BROWN has served as our Director of Operations, and
Secretary since November 1999 and of eDiets, Inc. since July 1999. From February
1999 to July 1999, she was a financial consultant to eDiets, Inc.. From March
1997 through June 1999 she was the Manager for Financial Reporting for Iron
Mountain Records Management, Inc., a company engaged in the management of
off-site record storage.
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From June 1995 to March 1997, she was the Director of Business Development of
the Family Behavioral Center in Delray Beach, Florida. From March 1988 through
April 1995, she was the Director of Operations for Advanced Promotion
Technologies, Inc.
ISAAC KIER has served as our President, Chief Executive Officer and
Chairman of the Board since 1992 until November 1999. He was the President and
Chief Executive Officer since 1981 and Chairman of the Board since 1987 of Lida,
Inc., a predecessor company we acquired by merger in 1992. He was the Vice
President of Lida, Inc. from 1978 to 1981. Since our merger with eDiets, Inc. in
November 1999, he has served as a member of our board of directors and a member
of our executive committee. From April 1997, he has been a principal of First
Americas Partners, LLC, a $50 million investment partnership focusing on
investments in North and South America. From January 1998 to April 1998, he was
interim Chairman of the Board of Directors of Premier Cruises. From 1987 to
1997, he also served as the Managing Partner of Dana Communications Limited, a
non-wireline cellular licensee.
MATTHEW A. GOHD has served as a member of our board of directors and a
member of our executive committee since November 1999. Mr. Gohd has served as
Managing Director, Capital Markets of Whale Securities Co., L.P., our Placement
Agent, since 1989. Mr. Gohd is also a Director of OnStage Entertainment, Inc. a
publicly-held company engaged in concert promotions.
BRUCE YAFFE, M.D. has served as a member of our board of directors
since November 1999. Dr. Yaffe is a prominent physician with a private practice
in internal medicine in New York, New York. He has been a practicing physician
since 1982. Dr. Yaffe is a consultant to BOARD ROOM REPORTS NEWSLETTER and
BOTTOM LINE PERSONAL NEWSLETTER. He is also a member of the Editorial Board of
ENVIRONMENTAL NUTRITION NEWSLETTER.
JAMES M. MEYER has served as a member of our board of directors since
December 1999. Although currently retired, Mr. Meyer was the Agency Manager of
James M. Meyer Agency, a corporate planning and insurance agency he founded in
1967. The agency, which offered sales and services provided by The Equitable
Company/AXA, grew into one of the top ten agencies in the insurance industry,
with almost 400 employees.
CARY S. FITCHEY has served as a member of our board of directors since
December 1999. Since June 1998 Mr. Fitchey has been the Managing Partner of
British Pacific Partners, LLC which was formed in 1998 for investment consulting
services in potential industry consolidating opportunities and a variety of
advisory services to start-up organizations in turn-around situations. From June
1994 to June 1998 Mr. Fitchey was a partner with Dartford Partners, which
invested in branded products concentrating on the food and beverage categories
such as
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<PAGE>
Duncan Hines, Mrs. Buttersworth, Lenders Bagels and others. From 1985 through
1993, Mr. Fitchey was Managing Director of Triad Partners, Ltd., an advisory and
investment company.
LEE S. ISGUR has served as a member of our board of directors since
December 1999. Mr. Isgur has been the Managing Partner of Corporate Counselors,
a research and investment banking consulting firm since 1997. From 1994 to 1997,
he was Managing Director of Jeffries & Company, an investment banking firm. From
1991 to 1994, he was a partner at Volpe Welty Company, an investment banking
firm. From 1977 to 1991, he was employed by Paine Webber, an investment banking
firm, where he became a First Vice President. As an analyst and banker on Wall
Street for over 30 years, Mr. Isgur has participated in numerous public and
private offerings for both domestic and international companies over a broad
array of consumer, entertainment and technology industries.
Directors are elected at each annual meeting of our shareholders and
hold office until the next annual meeting of shareholders and the election and
qualification of their successors. Our executive officers serve at the
discretion of the board of directors. There are no family relationships among
any of our directors or executive officers.
KEY EMPLOYEE
DONNA M. DE CUNZO, R.D. L.D., age 32, has served as our Director of
Nutrition Services since November 1999. She has served as the Director of
Nutrition Services of eDiets, Inc. since May 1996. From September 1995 to May
1996, she was the Director of Nutrition Services for Wellness Centers of
America. From May 1994 to February 1995, she was the Director of Consumer
Affairs for the Fleming Companies, a food wholesaler and from August 1993 to May
1994, she had a private nutrition counseling practice. Ms. De Cunzo is a
registered dietitian, licensed by the State of Florida.
COMMITTEES OF THE BOARD
We have established three committees of the board of directors. They
are:
/bullet/ an executive committee which has all the authority which may be
delegated to such committee under Delaware Corporation Law. The
executive committee currently consists of David R. Humble, Isaac Kier
and Matthew A. Gohd.
/bullet/ an audit committee which reviews our internal accounting procedures and
consults with and reviews the services provided by our independent
accountants. The audit committee currently consists of Isaac Kier, Cary
S. Fitchey and James M. Meyer.
/bullet/ A compensation committee which reviews and recommends to the board the
compensation and benefits of all of our executive officers, administers
our stock
32
<PAGE>
option plan and establishes and reviews general policies relating to
compensation and benefits of our employees. The compensation committee
currently consists of Lee S. Isgur, James M. Meyer and Cary S. Fitchey.
DIRECTOR COMPENSATION
Our directors do not currently receive any cash compensation from us
for their services as members of the board of directors, although they are
reimbursed for travel and lodging expenses in connection with attendance at
board and committee meetings. Under our 1999 Stock Option Plan, non-employee
directors are eligible to receive nondiscretionary automatic grants of vested
options to purchase 25,000 shares of common stock per year at an exercise price
equal to the market price of our common stock on the date of grant. Upon their
appointment to the board, each of the current directors, except for Mr. Humble,
received 25,000 vested options exercisable at $2.00 per share. In addition,
Messrs. Humble, Gohd and Kier, the members of our Executive Committee, each
received on their appointment a one-time grant of options to purchase 100,000
shares of common stock at an exercise price of $2.00 per share.
In addition, in February 2000 each member of the audit committee and
compensation committee received a grant of an option for 25,000 shares at an
exercise price of $2.00 per share. These options vest on a quarterly basis over
a period of two years from the date of grant.
EXECUTIVE COMPENSATION
CASH COMPENSATION
The following table summarizes all compensation paid by us during our
fiscal years ended December 31, 1999, December 31, 1998 and December 31, 1997 to
our Chief Executive Officer, our former Chief Executive Officer and each other
executive officer whose annual compensation exceeded $100,000 during the fiscal
year ended December 31, 1999.
33
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM AWARDS
------------------- ----------------
SECURITIES
NAME AND PRINCIPAL OTHER ANNUAL UNDERLYING ALL OTHER
POSITION YEAR SALARY($) BONUS($) COMPENSATION($) OPTIONS (#) COMPENSATION
---- --------- -------- --------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
David R. Humble, Chief 1999 $17,309 $0 $0 100,000 $0
Executive Officer 1998 0 0 0 0
1997 0 0 0 0
Isaac Kier, former Chief 1999 0 0 0 157,500 0
Executive Officer 1998 0 0 0 0
1997 0 0 0 0
</TABLE>
OPTION GRANTS IN THE LAST FISCAL YEAR
The following provides summary information regarding stock options
granted to our current and former Chief Executive Officer during 1999:
OPTION/SAR GRANTS IN LAST FISCAL YEAR
(INDIVIDUAL GRANTS)
NUMBER OF % OF TOTAL EXERCISE
SECURITIES OPTIONS/SARS OR
UNDERLYING GRANTED TO BASE
OPTIONS EMPLOYEES IN PRICE EXPIRATION
NAME GRANTED(#) FISCAL YEAR (2) ($/SH) DATE
---- ---------- --------------- --------- ----------
David R. Humble 100,000(1) 9.0% 2.00 11/17/04
Isaac Kier 125,000(1) 14.2% 2.00 11/17/04
32,500(1) 1.425 11/17/04
- ---------------
[FN]
(1)These options were exercisable as of the date we granted them.
(2)Also include options granted to members of our board of directors, members of
our executive committee and to a consultant.
</FN>
OPTION EXERCISES AND HOLDINGS
The following table provides summary information regarding option
exercises during 1999 and the value of options held as of that date by our
current and former Chief Executive Officer.
34
<PAGE>
AGGREGATE OPTION EXERCISES FOR FISCAL 1999 AND YEAR END
OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
DECEMBER 31, DECEMBER 31,
SHARES 1999(#) 1999($)
ACQUIRED VALUE($) EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
- ---- ----------- -------- ------------- -------------
<S> <C> <C> <C> <C>
David R. Humble 0 0 100,000/0 0
Isaac Kier 0 0 157,500/0 $18,687.50(1)
- ---------------
<FN>
(1)The total value of unexercised in-the-money options is based upon the
difference between the $2.00 price per share paid by investors in our recent
private placement and the exercise price of $1.425 of 32,500 of Mr. Kier's
options.
</FN>
</TABLE>
EMPLOYMENT AGREEMENTS
In November 1999, we entered into a three-year employment agreement
with Mr. Humble. He receives a base salary of $150,000 per year and a bonus to
be determined by the Compensation Committee, based on income before taxes. The
employment agreement contains a non-competition provision for the term of
employment and two years thereafter and a non-disclosure provision.
In November 1999, Robert T. Hamilton became our Chief Financial
Officer. We pay Mr. Hamilton an annual base salary of $100,000. We also granted
him 100,000 five-year stock options which vest in four semi-annual installments
over a two year period and are exercisable at $2.00 per share. In addition, we
agreed to grant him 15,000 additional options at the end of his first full year
at an exercise price equal to the fair market value at that time, if he achieves
agreed upon performance targets. While Mr. Hamilton does not have an employment
agreement for a fixed term, we have agreed that if we chose to terminate his
employment without cause, we shall provide him with four months of severance at
his then current salary.
35
<PAGE>
STOCK OPTIONS
PLAN OPTIONS
In November 1999, we established an option plan for our employees,
directors and consultants. We have reserved 1,830,000 shares of common stock for
issuance upon the exercise of stock options granted under the plan. The plan
provides for the grant of incentive stock options and non-statutory stock
options. Incentive stock options are options granted under the plan that meet
the definition of "incentive stock options" within the meaning of Section 422 of
the Internal Revenue Code 1986. Non-statutory stock options are options granted
under the plan that are not intended to qualify as incentive stock options under
the Code. The maximum term of options under the plan are ten years. The plan is
administered by our compensation committee. The plan provides for the grant of
discretionary options to key employees and non-employees. The plan also provides
for nondiscretionary automatic options to be granted to members of our board of
directors who receive 25,000 options on an annual basis at the fair market value
at the date of grant. As of the date of this prospectus, we have granted options
under the plan to purchase an aggregate of 1,041,498 shares, all exercisable at
$2.00 per share.
NON-PLAN OPTIONS.
In connection with our merger with eDiets, Inc., we granted Isaac Kier
vested options to acquire 32,500 shares of common stock at a purchase price of
$1.425 per share. Under a stock option program adopted in May of 1996, eDiets,
Inc. granted stock options to several employees and consultants, including
former employees and consultants. Under the program, an aggregate of 917,714
options were granted to 15 persons during the period from May 1996 through
February 1999. All of the options are exercisable over a period of five or ten
years at $ 0.01 per share and vest in monthly installments over a period of 1
year from the date of grant. As of January 31, 2000, 825,943 of these options
are vested and 91,771 have lapsed. In addition, in July 1999, eDiets, Inc.
granted an aggregate of 159,993 additional options to a key employee exercisable
over a period of ten years at a price of $2.00 per share. The options vest in
monthly installments over a period of two years from the date of grant. We
assumed all of the eDiets, Inc. stock options in connection with the merger.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
Our certificate of incorporation contains provisions eliminating the
personal liability of our directors for monetary damages for breach of fiduciary
duty as a director, except for liability
/bullet/ for any breach of such director's duty of loyalty to our
company or its stockholders; or
36
<PAGE>
/bullet/ for acts or omissions not in good faith or that involve
intentional misconduct or knowing violation of law; or
/bullet/ under Section 174 of the Delaware General Corporation Law
regarding unlawful dividends and stock purchases; or
/bullet/ for any transaction from which the director derived an
improper personal benefit.
These provisions offer our directors protection against awards of
monetary damages resulting from breaches of their duty of care, except as
indicated above, including grossly negligent business decisions made in
connection with takeover proposals. As a result of these provisions, our
stockholders' ability to successfully sue a director for a breach of his duty of
care has been limited. The Securities and Exchange Commission has taken the
position that the provisions will have no effect on claims arising under the
federal securities laws.
Section 145 of the Delaware Corporation Law permits indemnification of
directors, officers and employees of corporations under certain conditions
subject to certain limitations. Our certificate of incorporation provides that
we shall indemnify and shall advance expenses on behalf of our officers,
directors, employees and agents to the fullest extent permitted by law. In
addition, we are also a party to indemnification agreements with each of our
directors and officers.
To the extent we have the power to indemnify our directors, officers
and controlling persons under the provisions described above, we have been
advised that in the opinion of the SEC such indemnification is against public
policy and is, therefore, unenforceable.
PRINCIPAL STOCKHOLDERS
The following table presents certain information as of April 6, 2000
regarding beneficial ownership of our common stock by:
/bullet/ each person or entity known by us to own beneficially 5% or
more of our outstanding common stock;
/bullet/ each of our directors;
/bullet/ all of our directors and executive officers as a group.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting or investment power with
respect to the securities. The address for each listed director is: c/o
eDiets.com, Inc., 3467 W. Hillsboro Boulevard, Suite 2, Deerfield Beach, Florida
33442. Except as indicated by
37
<PAGE>
footnote, the persons named in the table have sole voting and investment power
with respect to all shares of common stock shown as beneficially owned by them.
The number of shares of common stock outstanding used in calculating the
percentage for each listed person includes the shares of common stock underlying
options or warrants held by such person that are exercisable within 60 days of
April 6, 2000, but exclude shares of common stock underlying options or warrants
held by any other person. The percentage of beneficial ownership is based on
12,645,296 shares of common stock outstanding as of April 6, 2000, before any
consideration is given to outstanding options, warrants or convertible
securities.
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF SHARES PERCENT
OF BENEFICIAL OWNERS BENEFICIALLY OWNED OF CLASS
-------------------- ------------------ --------
<S> <C> <C>
David R. Humble 7,905,065(1) 62.0%
FG II Management Co., LLC., 1,350,000(2) 10.31%
20 Dayton Avenue,
Greenwich, Connecticut 06430
Isaac Kier 921,179(3) 7.1%
Matthew Gohd 667,500(4) 5.1%
James M. Meyer 112,500(5) *
Dr. Bruce Yaffe 25,000(6) *
Cary S. Fitchey 37,500(6)(7) *
Lee S. Isgur 31,250(6)
All directors and executive 9,977,659(8) 73.1%
officers as a group (10 persons)
<FN>
*Less than 1%
(1) Includes 100,000 shares issuable upon exercise of vested stock options.
(2) Includes 450,000 shares issuable upon the exercise of warrants issued in the private placement.
FG II Management Co., LLC is the manager of FG-ED, LLC and holds the shares and warrants as
nominee for FG-ED, LLC.
(3) Includes: 163,750 shares issuable upon exercise of stock options that are vested or exercisable
within 60 days; 62,500 shares issuable upon exercise of warrants issued in private placement;
and 125,000 shares and 62,500 shares issuable upon the exercise of warrants issued
38
<PAGE>
in the private placement to Coqui Capital Partners, L.P., of which Mr. Kier is the general partner. Mr.
Kier disclaims beneficial ownership of shares held by Coqui Capital Partners, L.P. except for his
proportional interest therein.
(4) Includes: 280,000 shares issuable upon the exercise of warrants issued to our placement agent Whale
Securities Co., L.P. and transferred to Mr. Gohd; 125,000 shares issuable upon exercise of vested stock
options; and 62,500 shares issuable upon the exercise of warrants issued in the private placement. Does
not include 25,000 shares and 12,500 shares issuable upon the exercise of warrants issued in the private
placement to Porpoise Investors I, L.P. Mr. Gohd is the President of the general partner of the general
partner of Porpoise Investors I, L.P. and disclaims beneficial ownership of these shares.
(5) Includes: 37,500 shares issuable upon the exercise of stock options that are vested or exercisable within
60 days; and 25,000 shares issuable upon the exercise of warrants issued in the private placement.
(6) Represents shares issuable upon the exercise of stock options that are vested or exercisable within
60 days.
(7) Does not include 900,000 shares and 450,000 shares issuable upon the exercise of warrants held by FG II
Management Co., LLC., as nominee for FG-ED, LLC. Mr. Fitchey is a member of FG-ED, LLC and disclaims
beneficial ownership of these shares.
(8) Includes an aggregate of 277,665 additional shares issuable upon exercise of stock options that are vested
or exercisable within 60 days held by three executive officers.
</FN>
</TABLE>
CERTAIN TRANSACTIONS
LOAN BY STOCKHOLDER
Through the end of 1997, David R. Humble, our Chief Executive Officer,
advanced loans to us to finance our start-up development cost. The loans were
non-interest bearing and did not have a fixed due date. In 1998, we repaid
approximately $54,000 to Mr. Humble, and in 1999, we repaid approximately
$53,000 to him. In 1999, he also forgave $110,000 which was treated as an
additional equity investment.
In addition, during the second half of 1999, we advanced approximately
$88,000 to Mr. Humble. He has agreed to repay these advances by March 1, 2001
with interest at an annual rate of 7%.
PATENT LICENSE
Mr. Humble has filed a patent application covering the means of using
the Internet to provide an interactive link for the purpose of providing
retailers and manufacturers with information to measure the response of the
consumers to the sales and marketing information. He has granted us an exclusive
royalty-free perpetual
39
<PAGE>
license to use the aspects of the invention and improvements under the patent,
if a patent is issued, as it relates to our Internet marketing program.
SELLING SECURITY HOLDERS
The following table presents certain information regarding the
beneficial ownership of our shares of common stock and warrants by the selling
security holders as of April 6, 2000, and the number of shares of common stock
and warrants covered by this prospectus. None of the selling security holders
has, or within the past three years has had, any position, office or other
material relationship with us, except as noted below. Also, as noted below,
following the offering, and assuming all of the common stock offered by the
selling stockholders has been sold, none of the selling security holders will
beneficially own 1% or more of our common stock.
<TABLE>
<CAPTION>
NUMBER OF BENEFICIAL
NUMBER OF SHARES WARRANTS OWNED OWNERSHIP
BENEFICIALLY NUMBER OF PRIOR TO THE OF SHARES AFTER
NAME OF OWNED PRIOR TO SHARES BEING OFFERING AND OFFERING
SELLING SECURITY HOLDER THE OFFERING (1) OFFERED BEING OFFERED NUMBER PERCENT
----------------------- ---------------- ------- -------------- --------------- -------
<S> <C> <C> <C> <C> <C>
Warrants issued to our
advertising agency:
DiMassimo Brand Advertising,
Inc. (2) 41,250 41,250 0 0
--------- --------- --------- ---------
Total 41,250 41,250 0 0
Shares issued to our founder in
the merger (3)
David R. Humble (3) 7,905,065 535,800 0 7,349,265 58.1
--------- --------- --------- ---------
Total 7,905,065 535,800 0 7,349,265
Shares and warrants issued in
our private placement completed
in November and December 1999 (4)
Isaac Kier (5)(8)(9) 921,179 69,475 0 851,704 6.7
Whale Securities Co., L.P. (6) 385,625 75,000 0 320,625 2.8
Matthew Gohd (7)(9) 667,500 111,160 0 556,340 4.4
Murray & Renee Silverstein (8)(9) 18,750 18,750 6,250 -0-
Chet & Denise Gohd (8)(9) 18,750 18,750 6,250 -0-
Dr. Gabriel Golan (8)(9) 37,500 37,500 12,500 -0-
Robert Horwitz (8)(9) 75,000 75,000 25,000 -0-
Ricardo Koenigsberger (8)(9) 18,750 18,750 6,250 -0-
Robert A. Farmer (8)(9) 37,500 37,500 12,500 -0-
Raz Alon (8)(9) 37,500 37,500 12,500 -0-
Howard Park & June Y. Park (8)(9) 37,500 37,500 12,500 -0-
Ralph Kier (8)(9)(10) 115,760 37,500 12,500 78,260
Ilene Robbins (8)(9) 18,750 18,750 6,250 -0-
Jeffrey Davidson (8)(9)(11) 155,000 75,000 25,000 80,000
Edmondo Schwartz (8)(9) 37,500 37,500 12,500 -0-
James Meyer (8)(9)(12) 112,500 27,790 0 84,710
David E. Farber (8)(9) 18,750 18,750 6,250 -0-
Michael & Lynn Steinberg (8)(9) 37,500 37,500 12,500 -0-
Roger N. Gladstone (8)(9) 37,500 37,500 12,500 -0-
Mark Siegel (8)(9) 18,750 18,750 6,250 -0-
James A. Quella (8)(9) 56,250 56,250 18,750 -0-
40
<PAGE>
Lawrence S. Coben (8)(9) 37,500 37,500 12,500 -0-
Moshe Bamberger (8)(9) 37,500 37,500 12,500 -0-
Ronald Rotter (8)(9) 18,750 18,750 6,250 -0-
Elliott Broidy, IRA (8)(9) 300,000 300,000 100,000 -0-
Gross Foundation, Inc. (8)(9) 150,000 150,000 50,000 -0-
Ellis Enterprises (8)(9) 75,000 75,000 25,000 -0-
Marvin Weissman (8)(9) 18,750 18,750 6,250 -0-
David Weiss (8)(9) 28,125 28,125 9,375 -0-
BNY Clearing Services LLC
Cus FBO William G. Walters,
IRA (9)(13) 247,010 187,500 62,500 59,510
Martin Chopp (8)(9) 75,000 75,000 25,000 -0-
Shimshon Mandel (8)(9) 37,500 37,500 12,500 -0-
Talbiya B. Investments, Ltd. (8)(9) 37,500 37,500 12,500 -0-
Nesher, Ltd. (8)(9) 37,500 37,500 12,500 -0-
Balmore Funds, S.A. (8)(9) 375,000 375,000 125,000 -0-
Coqui Capital Partners,
L.P. (5)(8)(9) 187,500 187,500 62,500 -0-
Jay T. Snyder (8)(9) 18,750 18,750 6,250 -0-
John F. Cappiello (8)(9) 37,500 37,500 12,500 -0-
Overdrive Capital Corporation (8)(9) 75,000 75,000 25,000 -0-
John Pappajohn (8)(9) 75,000 75,000 25,000 -0-
Peter S. Knight (8)(9) 37,500 37,500 12,500 -0-
Lawrence W. Ruvo Living Trust (8)(9) 37,500 37,500 12,500 -0-
Vulcan Properties, Inc. (8)(9) 56,250 56,250 18,750 -0-
Mark Green (8)(9) 37,500 37,500 12,500 -0-
Porpoise Investors I, L.P. (7)(8)(9) 37,500 37,500 12,500 -0-
Magellan Acq. & Investment Co. (8)(9) 75,000 75,000 25,000 -0-
FG II Management Co., LLC (8)(9) 1,350,000 500,220 -0- 849,780 6.7
Fred & Wendy Ordower (8)(9) 18,750 18,750 6,250 -0-
Sherleig Assoc., Inc. Profit
Sharing, Jack Silver, Trustee (8)(9) 225,000 225,000 75,000 -0-
Leopard Aggressive Fund (8)(9) 75,000 75,000 25,000 -0-
Lewis Mitchell (8)(9) 37,500 37,500 12,500 -0-
Zakeni Limited (8)(9) 112,500 112,500 37,500 -0-
41
<PAGE>
David F. Chazen (8)(9) 75,000 75,000 25,000 -0-
Harry Mittelman (8)(9) 18,750 18,750 6,250 -0-
Fred and Wendy Ordower (8)(9) 18,750 18,750 6,250 -0-
Peter Vita (8)9) 37,500 37,500 12,500 -0-
Robert Kaplan (8)(9) 18,750 18,750 6,250 -0-
Allison Koffman (8)(9) 18,750 18,750 6,250 -0-
PC Consulting, Inc. (8)(9) 37,500 37,500 12,500 -0-
Akhil Gupta (8)(9) 75,000 75,000 25,000 -0-
Jonathan D. Eilian (8)(9) 75,000 75,000 25,000 -0-
Barry S. Sternlicht (8)(9) 37,500 37,500 12,500 -0-
Robert Torricelli (8)(9) 18,750 18,750 6,250 -0-
Ira Greenspan (8)(9) 18,750 18,750 6,250 -0-
Eugene Minsky (8)(9) 18,750 18,750 6,250 -0-
--------- --------- --------- ---------
Total 7,311,499 4,430,520 1,215,625 2,880,929
<FN>
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to the securities, and includes any
shares of common stock which a person has the right to acquire within
60 days of April 6, 2000.
(2) DiMassimo Brand Advertising, Inc. serves as our advertising agency.
Under our agreement with DiMassimo, we issued 82,500 warrants to the
agency which vest in equal monthly installments of 6,875 over a period
of twelve months from November 15, 1999. The shares currently
beneficially owned prior to the offering and the number of shares being
offered represent those warrants that are vested or may vest within
sixty days of April 6, 2000. The number of shares beneficially owned,
and being offered under this prospectus, will include all the shares
underlying the warrants, up to 82,500, that are vested as of or within
sixty days of the date this registration statement becomes effective.
(3) David R. Humble has served as our Chairman of the Board and Chief
Executive Officer since November 1999 and was the Chairman of the
Board, President and Chief Executive Officer of eDiets, Inc. since
March 1996. The number of shares he currently owns includes 100,000
shares issuable upon exercise of vested stock options.
(4) Also includes shares underlying stock options granted to certain
investors who are our directors.
(5) Isaac Kier is a director of our company. He served as our President,
Chief Executive Officer and Chairman of the Board from 1992 until
November 1999. The shares he currently owns include 132,500
42
<PAGE>
shares issuable upon exercise of vested stock options and 62,500
issuable upon exercise of warrants he acquired in the private
placement. Included in the shares he currently owns are 125,000 shares
and 62,500 shares issuable upon the exercise of warrants issued in the
private placement to Coqui Capital Partners, L.P., of which Mr. Kier is
the general partner. These shares are being offered under this
prospectus by Coqui Capital Partners, L.P. Mr. Kier disclaims
beneficial ownership of these shares, except for his proportional
interest in Coqui Capital Partners, L.P.
(6) Whale Securities Co., L.P. was the placement agent in our private
placement. The shares owned by Whale include 310,625 shares issuable
upon the exercise of warrants Whale received as a placement agent fee
in our private placement, and 75,000 shares Whale received as an
advisory fee in connection with our merger. Whale is offering the
75,000 shares under this prospectus.
(7) Matthew Gohd has been a director of our company since November 1999.
The shares he owns include 100,000 shares issuable upon exercise of
vested stock options and 62,500 shares issuable upon the exercise of
warrants he acquired in the private placement. The shares he owns and
will offer under this prospectus also include 75,000 shares which Whale
Securities Co., L.P. received as an advisory fee in connection with our
merger and distributed to Mr. Gohd. Mr. Gohd is the President of the
general partner of the general partner of Porpoise Investors I, L.P.
Mr. Gohd is also the Managing Director, Capital Markets of Whale
Securities Co., L.P.
(8) Of the shares of common stock beneficially owned, two-thirds represent
shares of common stock owned and one-third represents shares of common
stock that may be immediately acquired pursuant to warrants.
(9) In the event that this registration statement has not become effective
and our common stock listed on the Nasdaq SmallCap Market by May 17,
2000, as a penalty to us we shall issue to each of these investors
shall be issued shares of our common stock in an amount equal to
one-half of the number of shares issuable upon exercise of the
warrants. The penalty shares are not included in the number of shares
beneficially owned prior to the offering, the number of shares being
offered and the beneficial ownership after the offering. Except for the
penalty shares that may be issued to Isaac Kier, Matthew Gohd, James
Meyer and FG II Management Co., LLC which are not covered by this
registration statement, if and when the penalty shares are issued, they
will be deemed included as shares offered under this prospectus.
(10) Ralph Kier served as a director and Secretary of our company from its
organization in 1992 until November 1999.
(11) Jeffrey Davidson has served as a consultant to our company since
November 1999. The shares currently owned by Mr. Davidson include
80,000 shares issuable upon the exercise of stock options that are
vested.
(12) James Meyer became a director of our company in December 1999.
43
<PAGE>
(13) William G. Walters is the Chairman of the general partner of Whale
Securities Co., L.P., the placement agent in our private placement. The
shares he owns and those to be offered under this prospectus include
62,500 shares issuable upon the exercise of warrants he acquired in the
private placement.
</FN>
</TABLE>
PLAN OF DISTRIBUTION
The selling security holders have advised us that they may offer the
shares of common stock and warrants registered under this prospectus to
purchasers from time to time:
/bullet/ in transactions on the Nasdaq SmallCap Market System or in any other
market on which the common stock and warrants may be quoted, in
negotiated transactions, or by a combination of these methods;
/bullet/ at fixed prices that may be changed;
/bullet/ at market prices prevailing at the time of the resale;
/bullet/ at prices related to such market prices; or
/bullet/ at negotiated prices.
At the date of this prospectus, the selling security holders have not entered
into any underwriting arrangements. The selling security holders may sell the
shares and warrants registered under this prospectus to or through:
/bullet/ ordinary brokers' transactions;
/bullet/ transactions involving cross or block trades;
/bullet/ purchases by brokers, dealers or underwriters as principal and resale
by such purchasers for their own accounts pursuant to this prospectus;
/bullet/ "at the market" to or through market makers or into an existing market
for our common stock and warrants;
44
<PAGE>
/bullet/ in other ways not involving market makers or established trading
markets, including direct sales to purchasers;
/bullet/ through transactions in options, swaps or other derivatives (whether
exchange-listed or otherwise);
/bullet/ privately negotiated transactions;
/bullet/ to cover short sales; or
/bullet/ combination of the foregoing.
From time to time, one or more of the selling security holders may
pledge, hypothecate or grant a security interest in some or all of the shares of
common stock registered under this prospectus owned by them, and the pledgees,
secured parties or persons to whom such shares have been hypothecated shall,
upon foreclosure in the event of default, be deemed to be selling security
holders under this prospectus. The number of shares of common stock registered
under this prospectus and beneficially owned by those selling security holders
who so transfer, pledge, donate or assign those shares will decrease as and when
they take such actions. The plan of distribution for shares sold under this
prospectus will otherwise remain unchanged, except that the transferees,
pledgees, donees or other successors will be selling security holders under this
prospectus. In addition, a selling security holder may, from time to time, sell
short shares of common stock. In such instances, this prospectus may be
delivered in connection with such short sales and the shares of common stock
offered hereby may be used to cover such short sales.
A selling security holder may enter into hedging transactions with
broker-dealers and the broker-dealers may engage in short sales of the common
stock in the course of hedging the positions they assume with that selling
security holder, including, without limitation, in connection with distributions
of the common stock by the broker-dealers. A selling security holder also may
enter into option or other transactions with broker-dealers that involve the
delivery of the shares of common stock registered under this prospectus to the
broker-dealers, who then may resell or otherwise transfer these shares. A
selling security holder also may loan or pledge the shares of common stock
registered under this prospectus to a broker-dealer and the broker-dealer may
sell the shares so loaned or upon a default may sell or otherwise transfer the
pledged shares.
Selling security holders may also resell all or a portion of the shares
in open market transactions in reliance upon Rule 144 under the Securities Act,
rather than pursuant to this prospectus.
Brokers, dealers, underwriters or agents participating in the
distribution of the shares of common stock or warrants registered under this
prospectus as agents may receive compensation in the form of commissions,
discounts or concessions from the
45
<PAGE>
selling security holders or purchasers of the common stock or warrants for whom
the broker-dealers may act as agent, or to whom they may sell as principal, or
both. The compensation a particular broker-dealer may receive may be less than
or more than the customary commissions.
The selling security holders and any broker-dealers who act in
connection with the sale of the shares of common stock or warrants under this
prospectus may be deemed to be "underwriters" within the meaning of the
Securities Act. In such event, any commissions they receive and proceeds of any
sale of the shares of common stock or warrants may be deemed to be underwriting
discounts and commissions under the Securities Act. Neither we nor any of the
selling security holders can presently estimate the amount of this compensation.
We know of no existing arrangements between any of the selling security holders
and any other shareholder, broker, dealer, underwriter or agent relating to the
sale or distribution of the shares of common stock or warrants registered under
this prospectus.
We will pay substantially all of the expenses relating to the
registration, offer and sale of the shares of common stock or warrants
registered under this prospectus to the public other than commissions or
discounts of underwriters, broker-dealers or agents. We also have agreed to
indemnify the selling security holders and certain related persons against any
losses, claims, damages or liabilities under the Securities Act that arise out
of, or are based upon, any untrue or alleged untrue statement of a material fact
or the omission or alleged omission in stating a material fact under this
registration statement or prospectus. To the extent that indemnification for
liabilities arising under the Securities Act may be permitted to our directors,
officers and controlling persons, we have been advised that, in the opinion of
the Securities and Exchange Commission, this indemnification is against the
public policy as expressed in the Securities Act and is therefore,
unenforceable.
The following selling security holders have agreed with the placement
agent of our private placement that they will not sell or otherwise dispose of
any of their shares without the written consent of the placement agent until at
least May 17, 2000:
/bullet/ David R. Humble
/bullet/ Isaac Kier
/bullet/ Matthew Gohd
/bullet/ William G. Walters
DESCRIPTION OF SECURITIES
We are authorized to issue 21,000,000 shares of capital stock,
comprised of 20,000,000 shares of common stock, with a par value of $.001 per
share, and 1,000,000 shares of preferred stock, with a par value of $ 0.01 per
share. As of April 6, 2000, there were 12,645,296 shares of common stock
outstanding and no shares of preferred stock outstanding.
46
<PAGE>
COMMON STOCK
Each holder of our common stock is entitled to one vote for each share
held of record on all matters we presented for a vote of stockholders, including
the election of directors. Holders of common stock have no cumulative voting
rights or preemptive rights to purchase or subscribe for any stock or other
securities, and there are no conversion rights or redemption or sinking fund
provisions with respect to the stock. All shares of common stock are entitled to
share equally in dividends from sources legally available when, as and if
declared by the board of directors. In addition, in the event of our liquidation
or dissolution, all shares of our common stock are entitled to share equally in
our assets available for distribution to stockholders.
PREFERRED STOCK
Our board of directors, without further approval of our stockholders,
is authorized to provide for the issuance of shares of preferred stock in one or
more series. In exercising its powers to provide for preferred stock, the board
has the power to fix:
/bullet/ the dividend rights and terms,
/bullet/ conversion rights,
/bullet/ voting rights,
/bullet/ redemption rights,
/bullet/ liquidation rights, and
/bullet/ other rights and restrictions relating to any series.
The issuances of shares of preferred stock, while providing us with flexibility
in connection with possible financings, acquisitions and other corporate
purposes, could, adversely affect the voting power of the holders of our other
securities. Also, issuance of preferred stock could and may, under certain
circumstances, have the effect of deterring hostile takeovers or delaying
changes in control of our management.
WARRANTS
In connection with our private placement, we issued 1,815,625 warrants
to investors in the offering. The warrants may be exercised at any time during a
period of three years ending on November 17, 2002. Each warrant entitles the
holder to purchase one share of common stock at a price of $2.50 per share,
subject to adjustment in certain circumstances. We may redeem the warrants on 30
days' prior written notice if certain conditions have occurred. The first
condition is that the closing sale price of our common stock on the Nasdaq
SmallCap Market on all 20 trading days ending on the third trading day prior to
the date on which we gave notice of redemption has been at least 200% of the
then-effective exercise price of the warrants. The second
47
<PAGE>
condition is that the warrant shares are publicly tradable under a registration
statement filed with and declared effective by the Securities and Exchange
Commission.
Under our placement agent agreement with Whale Securities Co., L.P., we
issued a total of 640,625 warrants to the placement agent. These warrants are
exercisable at any time until November 17, 2004 at a price of $2.50 per share,
subject to adjustment under certain circumstances. We may not redeem these
warrants. We have agreed with the placement agent that immediately prior to the
listing of the warrants on the Nasdaq SmallCap Market, a securities exchange or
the OTC Bulletin Board, we shall offer the holders of the placement agent
warrants the option to exchange these warrants for an equal number of warrants
which will be listed with the warrants.
DELAWARE ANTI-TAKEOVER LAW
Provisions of Delaware law could make our acquisition by a third-party
and the removal of our officers and directors more difficult. We are subject to
Section 203 of the Delaware General Corporation Law, which regulates corporate
acquisitions. In general, Section 203 prohibits a publicly held Delaware
corporation from engaging in a business combination with an interested
stockholder for a period of three years following the date the person became an
interested stockholder, unless:
/bullet/ the board of directors approved the transaction in which such
stockholder became an interested stockholder prior to the date the
interested stockholder attained such status;
/bullet/ upon consummation of the transaction that resulted in the stockholder's
becoming an interested stockholder, he or she owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced, excluding shares owned by persons who are directors and also
officers; or
/bullet/ on or subsequent to such date the business combination is approved by
the board of directors and authorized at an annual or special meeting
of stockholders.
TRANSFER AGENT
The transfer agent is American Stock Transfer and Trust Company, 40
Wall Street, New York, New York 10005.
LEGAL MATTERS
The validity of the shares of common stock and warrants offered by
selling security holders will be passed upon by the law firm of Nason, Yeager,
Gerson, White & Lioce, P.A., West Palm Beach, Florida.
48
<PAGE>
EXPERTS
Ernst & Young LLP, independent certified public accountants, have
audited the consolidated financial statements of eDiets.com, Inc. at December
31, 1999, and for each of the two years in the period ended December 31, 1999,
and the financial statements of Olas, Inc. at December 31, 1997 and 1998, and
for each of the two years in the period ended December 31, 1998, as set forth in
their reports. We have included these financial statements in the prospectus and
elsewhere in the registration statement in reliance on Ernst & Young LLP's
reports, given on their authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a
registration statement under the Securities Act with respect to the common stock
and warrants offered. This prospectus is part of that registration statement and
does not contain all the information included in the registration statement. For
further information with respect to us and our common stock and warrants, you
should refer to the registration statement and its exhibits. Portions of the
exhibits have been omitted as permitted by the rules and regulations of the
Securities and Exchange Commission. Statements made in this prospectus as to the
contents of any contract, agreement or other document referred to are not
necessarily complete. In each instance, we refer you to the copy of the contacts
or other documents filed as an exhibit to the registration statement, and these
statements are hereby qualified in their entirety by reference to the contract
or document.
The registration statement may be inspected and copied at the public
reference facilities maintained by the Securities and Exchange Commission at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and
the Regional Offices at the Commission located in the Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661, and at 7 World Trade
Center, 13th Floor, New York, New York 10048. Copies of those filings can be
obtained from the Commission's Public Reference Section, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates and may also be
obtained from the web site that the Commission maintains at http://www.sec.gov.
You may also call the Commission at 1-800-SEC-0330 for more information.
As of the date of this prospectus, we will become subject to the
reporting requirements of the Securities and Exchange Act and, we will
therefore, file reports, proxy statements and other information with the
Commission. These reports, proxy statements and other information can be
inspected and copied at the public reference facilities of the Commission set
forth above, and copies of these materials can be obtained from the Commission's
Public Reference Section at prescribed rates. We intend to furnish our
stockholders with annual reports containing audited financial
49
<PAGE>
statements and any other periodic reports we deem appropriate or as may be
required by law.
50
<PAGE>
Index to Financial Statements
EDIETS.COM, INC.
Report of Independent Certified Public Accountants...........................F-2
Consolidated Balance Sheet as of December 31, 1999...........................F-3
Consolidated Statements of Operations for the two years ended
December 31, 1999.........................................................F-4
Consolidated Statements of Stockholders' Equity (Deficit)
for the two years ended December 31, 1999.................................F-5
Consolidated Statements of Cash Flows for the two years ended
December 31, 1999 ........................................................F-6
Notes to Consolidated Financial Statements...................................F-7
OLAS, INC.
Report of Independent Certified Public Accountants..........................F-22
Balance Sheets as of December 31, 1997 and 1998
and September 30, 1999 (Unaudited).......................................F-23
Statements of Operations and Accumulated Deficit for the two years
ended December 31, 1998 and for the nine months ended
September 30, 1998 and 1999 (Unaudited)..................................F-24
Statements of Cash Flows for the two years ended
December 31, 1998 and for the nine months ended
September 30, 1998 and 1999 (Unaudited)..................................F-25
Notes to Financial Statements...............................................F-26
EDIETS.COM, INC.
PRO FORMA CONDENSED FINANCIAL STATEMENTS (UNAUDITED) .......................F-32
Pro forma Condensed Balance Sheet as of September 30, 1999..................F-33
Pro forma Condensed Statement of Operations for the
nine months ended September 30, 1999.....................................F-34
Pro forma Condensed Statement of Operations for the
year ended December 31, 1998.............................................F-36
F-1
<PAGE>
Report of Independent Certified Public Accountants
Board of Directors
eDiets.com, Inc.
We have audited the accompanying consolidated balance sheet of eDiets.com, Inc.
(the Company) as of December 31, 1999 and the related consolidated statements of
operations, stockholders' equity (deficit) and cash flows for each of the two
years in the period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of eDiets.com, Inc.
at December 31, 1999, and the consolidated results of its operations and its
cash flows for each of the two years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
/s/Ernst & Young LLP
West Palm Beach, Florida
February 11, 2000, except
for the sixth paragraph of
Note 7, as to which the
date is February 22, 2000
F-2
<PAGE>
eDiets.com, Inc.
Consolidated Balance Sheet
December 31, 1999
(in thousands)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 6,283
Accounts receivable, net 109
Prepaid expenses 305
Other current assets 38
-------
Total current assets 6,735
Restricted cash 19
Receivable from stockholder 88
Property and equipment, net 495
-------
Total assets $ 7,337
=======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 449
Accrued liabilities 466
Current portion of capital lease obligations 44
Deferred revenue 453
-------
Total current liabilities 1,412
Capital lease obligations, net of current portion 113
COMMITMENTS AND CONTINGENCIES (Note 7)
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value-1,000
shares authorized, no shares issued and
outstanding -
Common stock, $.001 par value-20,000
shares authorized, 12,645 shares
issued and outstanding 13
Additional paid-in capital 7,195
Unearned compensation (7)
Accumulated deficit (1,389)
-------
Total stockholders' equity 5,812
-------
Total liabilities and stockholders' equity $ 7,337
=======
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-3
<PAGE>
eDiets.com, Inc.
Consolidated Statements of Operations
YEAR ENDED DECEMBER 31,
1999 1998
-----------------------
(in thousands, except
per share data)
REVENUE $ 2,385 $ 478
COSTS AND EXPENSES:
Cost of revenue 313 76
Sales and marketing 1,216 436
General and administrative 1,231 404
Depreciation and amortization 120 62
--------------------
Total costs and expenses 2,880 978
--------------------
LOSS FROM OPERATIONS (495) (500)
Interest income 33 -
--------------------
NET LOSS $ (462) $ (500)
====================
LOSS PER COMMON SHARE - BASIC AND DILUTED $ (0.06) $ (0.06)
====================
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 8,345 7,814
====================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-4
<PAGE>
eDiets.com, Inc.
Consolidated Statements of Stockholders' Equity (Deficit)
(in thousands)
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK ADDITIONAL STOCKHOLDERS'
----------------------- PAID-IN UNEARNED ACCUMULATED EQUITY
SHARES AMOUNT CAPITAL COMPENSATION DEFICIT (DEFICIT)
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1998, as
restated for reverse acquisition
accounting 7,814 $ 8 $ 207 $ (3) $ (427) $ (215)
Stock options granted - - 67 (67) - -
Stock options vested or forfeited - - (2) 15 - 13
In-kind services provided by
stockholder - - 100 - - 100
Net loss - - - - (500) (500)
--------------------------------------------------------------------------------
Balance at December 31, 1998 7,814 8 372 (55) (927) (602)
Stock options granted - - 206 (113) - 93
Stock options vested or forfeited - - - 161 - 161
In-kind services provided by
stockholder - - 119 - - 119
Contribution by stockholder - - 110 - - 110
Common stock issued in reverse
merger, net of transaction costs 1,050 1 349 - - 350
Common stock issued to placement
agent 150 - - - - -
Common stock issued in private
placement, net of issuance costs 3,631 4 6,039 - - 6,043
Net loss - - - - (462) (462)
--------------------------------------------------------------------------------
Balance at December 31, 1999 12,645 $13 $7,195 $ (7) $(1,389) $5,812
================================================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-5
<PAGE>
eDiets.com, Inc.
Consolidated Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998
-----------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (462) $ (500)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization 120 62
Provision for bad debt 25 -
Non-cash compensation 337 113
Changes in operating assets and liabilities:
Accounts receivable (115) (8)
Prepaid expenses and other current assets (303) (3)
Restricted cash (2) (7)
Accounts payable and accrued liabilities 692 134
Deferred revenue 5 405
--------------------
Net cash provided by operating activities 297 196
CASH FLOWS FROM INVESTING ACTIVITY
Purchases of property and equipment (310) (103)
--------------------
Net cash used in investing activity (310) (103)
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments and advances to stockholder, net (141) (54)
Net assets received for issuance of common stock
in reverse merger, net of transaction costs 350 -
Proceeds from issuance of common stock, net of issuance costs 6,043 -
--------------------
Net cash provided by (used in) financing activities 6,252 (54)
--------------------
Increase in cash and cash equivalents 6,239 39
Cash and cash equivalents, beginning of year 44 5
--------------------
Cash and cash equivalents, end of year $ 6,283 $ 44
====================
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES
Equipment acquired under capital leases $ 156 $ -
====================
Obligation to stockholder converted to equity $ 110 $ -
====================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-6
<PAGE>
eDiets.com, Inc.
Notes to Consolidated Financial Statements
December 31, 1999
1. ORGANIZATION AND BASIS OF PRESENTATION
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.
On February 23, 1999, the Company's name was changed from Self/Help
Technologies, Inc. to eDiets.com, Inc. (Original eDiets).
On November 17, 1999, Original eDiets merged with a wholly-owned subsidiary of
Olas, Inc. (Olas), a public "shell". In connection with the merger, Original
eDiets changed its name to eDiets, Inc. and became a wholly-owned subsidiary of
Olas, whose name was changed to eDiets.com, Inc. The transaction was executed as
a reverse merger whereby all of the issued and outstanding shares of common
stock and stock options of Original eDiets were exchanged for shares of common
stock and options representing 88% of the fully-diluted common stock of the
shell. For accounting purposes, the reorganization of Original eDiets and Olas
is regarded as an acquisition by Olas of all of the outstanding stock of
Original eDiets and was accounted for as a recapitalization of the Company with
Original eDiets as the acquirer (a reverse acquisition). See Note 6.
As a result, the historical financial statements presented for periods prior to
the date of the transaction are those of Original eDiets. The capital structure
has been retroactively restated to reflect the equivalent number of shares
received by Original eDiets in the acquisition.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary. All intercompany transactions and
balances have been eliminated in consolidation.
F-7
<PAGE>
eDiets.com, Inc.
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents. Cash equivalents at
December 31, 1999 include U.S. government debt securities with an aggregate fair
value of $5,527,000 and varying maturity dates through February 18, 2000. The
Company has classified these investments as held-to-maturity securities and
considers the interest rate risk to be low due to the short-term nature of the
investments.
RESTRICTED CASH
Restricted cash consists of funds held by a financial institution as collateral
for chargebacks related to credit card transactions.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at historical cost. Depreciation is computed
using the straight-line method over the estimated useful lives of the related
assets, which is approximately three years for equipment and computer hardware
and software, including internal-use software, and approximately seven years for
furniture and fixtures.
Expenditures for maintenance and repairs are charged to operations as incurred,
while major renewals and betterments are capitalized. The assets and related
depreciation are adjusted for asset retirements and disposals with the resulting
gain or loss included in operations. Capitalized leases are initially recorded
at the present value of the minimum payments at the inception of the lease.
In March 1998, the AICPA issued Statement of Position (SOP) 98-1, ACCOUNTING FOR
THE COSTS OF COMPUTER SOFTWARE DEVELOPED FOR OR OBTAINED FOR INTERNAL USE. The
SOP, which was adopted by the Company as of its inception, requires
capitalization of certain costs incurred in connection with developing or
obtaining internal-use software. Costs capitalized pursuant to SOP 98-1 are
included in property and equipment in the accompanying consolidated balance
sheet.
F-8
<PAGE>
eDiets.com, Inc.
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
The Company offers memberships to the proprietary content contained in its web
site. Revenues from customer subscriptions to the Company's program and paid in
advance are deferred and recognized on a straight-line basis over the period of
the subscription.
Opt-in email revenue is derived by the sale of email addresses of visitors to
the Company's web site who have authorized the Company to allow third party
solicitations. Revenues from the sale of email addresses are recognized when no
significant Company obligation remains and collection is probable.
Commission revenue is derived from third party vendors on products and services
advertised on the Company's web site, while advertising revenue is derived from
the sale of advertising on the Company's web site. Advertising revenue is
recognized in the period the advertisement is displayed, provided that no
significant Company obligation remains and collection is probable. Company
obligations typically include guarantees of a minimum number of "impressions" or
times that visitors to the Company's web site view an advertisement. Amounts
received or billed for which impressions have not yet been delivered are
reflected as deferred revenue.
Revenue by type for the years ended December 31, 1999 and 1998 is as follows (in
thousands):
1999 1998
---------------------------------
Membership $2,189 $478
Sale of opt-in email addresses 155 -
Advertising and commissions 41 -
---------------------------------
$2,385 $478
=================================
COST OF REVENUE
Cost of revenue consists primarily of internet access and service charges,
revenue sharing costs, and compensation expenses related to the Company's
nutritional staff.
F-9
<PAGE>
eDiets.com, Inc.
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK-BASED COMPENSATION
SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, defines a fair value
method of accounting for issuance of stock options and other equity instruments.
Under the fair value method, compensation cost is measured at the grant date
based on the fair value of the award and is recognized over the service period,
which is usually the vesting period. Pursuant to SFAS No. 123, companies are
encouraged, but not required, to adopt the fair value method of accounting for
employee stock-based transactions. Companies are also permitted to continue to
account for such transactions under Accounting Principles Board (APB) Opinion
No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, but are required to disclose
in a note to the financial statements pro forma net income amounts as if the
Company had applied the fair value method of accounting.
The Company accounts for employee stock-based compensation under APB No. 25 and
has complied with the disclosure requirements of SFAS No. 123.
LONG-LIVED ASSETS
The Company accounts for long-lived assets pursuant to SFAS No. 121, ACCOUNTING
FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED
OF, which requires impairment losses to be recorded on long-lived assets used in
operations when events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Management reviews long-lived assets
and the related intangible assets for impairment whenever events or changes in
circumstances indicate the assets may be impaired. An impairment loss is
recorded when the net book value of the assets exceeds their fair value, as
measured by projected undiscounted future cash flows.
INCOME TAXES
The Company accounts for income taxes under SFAS No. 109, ACCOUNTING FOR INCOME
TAXES. Deferred income tax assets and liabilities are determined based upon
differences between financial reporting and tax bases of assets and liabilities
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse. A valuation allowance is recorded
when it is more likely than not that some portion or all of a deferred tax asset
will not be realized.
F-10
<PAGE>
eDiets.com, Inc.
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ADVERTISING EXPENSE
The Company expenses advertising costs as incurred. Advertising expenses
incurred for the years ended December 31, 1999 and 1998 totaled approximately
$1,216,000 and $436,000, respectively.
At December 31, 1999, the Company had approximately $281,000 of prepaid
advertising costs representing future communication costs. Such costs are
included in prepaid expenses in the accompanying consolidated balance sheet.
LOSS PER COMMON SHARE
Loss per common share is calculated by dividing net loss by the weighted average
number of common shares outstanding during the period. Common equivalents
outstanding have not been included in the computation of diluted loss per share
as their effect is anti-dilutive for all periods presented.
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to concentrations of
credit risk consist principally of cash and cash equivalents, including
investments, accounts receivable from credit card transaction processing
companies, and receivables from third parties related to advertising and opt-in
email revenue. The Company has policies that limit its investments as to
maturity, liquidity, credit quality, concentration and diversification of
issuers and types of investments. The credit risk associated with cash and cash
equivalents and credit card receivables is considered low due to the credit
quality of the financial institution and issuers. The Company performs credit
evaluations of the third parties from which advertising and opt-in email revenue
is earned and generally does not require collateral. The Company maintains
allowances for potential credit losses for such event.
COMPREHENSIVE LOSS
There was no difference between the Company's net loss and its total
comprehensive loss for the periods presented.
F-11
<PAGE>
eDiets.com, Inc.
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amount of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
3. ACCOUNTS RECEIVABLE
Accounts receivable are shown in the accompanying consolidated balance sheet net
of an allowance for doubtful accounts of $25,000 at December 31, 1999.
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1999 (in
thousands):
Furniture and fixtures $ 25
Office and computer equipment 395
Software 297
---------------
717
Less accumulated depreciation and amortization (222)
---------------
$495
===============
Software includes approximately $278,000 of costs associated with internal-use
software projects which have been capitalized pursuant to SOP 98-1 as of
December 31, 1999. Included in property and equipment is equipment under capital
leases of approximately $150,000 as of December 31, 1999, less accumulated
amortization of $3,000. Depreciation expense includes amortization of equipment
under capital leases.
F-12
<PAGE>
eDiets.com, Inc.
Notes to Consolidated Financial Statements (continued)
5. ACCRUED LIABILITIES
Accrued liabilities consists of the following at December 31, 1999 (in
thousands):
Advertising $214
Professional fees 115
Payroll and related benefits 54
Other 83
-----------------
$466
=================
6. STOCKHOLDERS' EQUITY
COMMON STOCK
Original eDiets was initially capitalized through the issuance of 100 shares of
common stock , no par value, to its founder. In July 1999, Original eDiets'
Articles of Incorporation were amended, increasing the number of authorized
shares of common stock from 1,500 shares to 10,000,000 shares with a par value
of $.001 per share. In connection with the change in capital structure, a
62,157.33-for-1 stock split was declared, pursuant to which the founder's shares
were converted to an aggregate of 6,215,733 shares of new common stock, which
continued to represent 100% ownership of Original eDiets at such time.
In connection with the reverse merger transaction discussed in Note 1, a total
of 7,814,065 shares of the Company's common stock were issued in exchange for
all of the outstanding common stock of Original eDiets. All share and per share
amounts in the consolidated financial statements have been retroactively
adjusted to reflect the new capital structure. After the merger, the Company's
capital structure consisted of 20,000,000 authorized shares of common stock,
with a par value of $.001 per share and 1,000,000 shares of preferred stock,
with a par value of $.01 per share.
In connection with the reverse merger a total of 1,050,000 shares of common
stock were issued to the stockholders of Olas. The shares were recorded at a
value of approximately $385,000, representing the fair value of the net assets
of Olas at the date of the merger, net of cash transaction costs of $35,000. In
connection with the merger, options to purchase 32,500 shares of common stock at
an exercise price of $1.425 per share and with a fair value of approximately
$32,000 were granted to a stockholder of Olas and current Director of the
Company. In addition,
F-13
<PAGE>
eDiets.com, Inc.
Notes to Consolidated Financial Statements (continued)
6. STOCKHOLDERS' EQUITY (CONTINUED)
a total of 150,000 shares of common stock, with a fair value of $300,000, were
issued to the placement agent in connection with the transaction. The total
transaction costs of $367,000 associated with the merger have been charged
directly to equity to the extent of cash received from Olas in the merger.
Concurrent with the merger transaction discussed above, the initial closing of
an equity private placement by the Company was completed, and, in December 1999,
the final closing of the private placement took place. The private placement
totaled approximately $7.3 million and consisted of 145.25 units of 25,000
shares of common stock and 12,500 warrants, each to purchase one share of common
stock at an exercise price of $2.50 per share, subject to adjustment in certain
events. The warrants are exercisable through November 2002 and are redeemable at
the option of the Company upon the occurrence of certain events. Net proceeds to
the Company after placement commissions and other issuance costs totaled
approximately $6.0 million. In connection with the transaction, a total of
640,625 warrants, each to purchase one share of common stock at an exercise
price of $2.50 per share and with an aggregate fair value of approximately
$122,000, were issued to the placement agent. The warrants are exercisable
through November 2004, and the exercise price is subject to adjustment in
certain events.
The issuance costs related to the private placement, including the fair value of
the placement agent warrants, have been treated as a reduction of the proceeds
from the transaction and charged directly to equity.
In November 1999, the Company's advertising agency received 82,500 warrants with
an exercise price of $2.00 per share as a result of an agreement between the
Company and the advertising agency. The warrants vest over a period of 12 months
and are exercisable through November 2002. The fair value of the warrants
totaled approximately $29,000 as of December 31, 1999, of which approximately
$3,000 has been recognized as compensation expense in the accompanying
consolidated statement of operations for the year ended December 31, 1999.
At December 31, 1999, common shares reserved for future issuance are as follows:
Stock options 2,848,436
Warrants 2,538,750
----------------
Total 5,387,186
================
F-14
<PAGE>
eDiets.com, Inc.
Notes to Consolidated Financial Statements (continued)
6. STOCKHOLDERS' EQUITY (CONTINUED)
STOCK OPTIONS
In May 1996, the Company adopted the "Startup Equity Program" (the Startup
Program), pursuant to which the Company granted non-qualified stock options to
certain employees and consultants during the Company's start-up phase. Options
granted under the Start-up Program are exercisable over a five or ten-year
period from the date of grant at an exercise price of $0.01 per share and vested
in equal monthly installments over a period of 12 months from the date of grant.
In addition, through the first half of 1999, the Company granted additional
stock options to certain employees and non-employees, which were issuable at the
discretion of the Company's Board of Directors. All such additional options are
exercisable over a five-year period from the date of grant at an exercise price
of $0.01 per share and vest in equal monthly installments over a period of 12
months from the date of grant. A total of 917,714 options were granted under
these programs, of which 825,943 options remained outstanding as of December 31,
1999.
Certain options granted to employees during the periods discussed above were at
an exercise price lower than the estimated fair market value of the underlying
common stock at the grant date. Compensation expense has been recognized for the
excess of the estimated fair market value over the exercise price and totaled
approximately $161,000 and $13,000 for the years ended December 31, 1999 and
1998, respectively.
In July 1999, the Company granted an aggregate of 159,993 options to a key
employee exercisable over a period of ten years at an exercise price of $2.00
per share. The options vest in equal monthly installments over a period of two
years from the date of grant.
In connection with the merger transaction, discussed in Note 1, the eDiets.com,
Inc. 1999 Stock Option Plan (the Plan) was adopted. The Plan provides for the
grant of incentive stock options and non-qualified stock options to purchase up
to 1,830,000 shares of the Company's common stock to employees, directors and
consultants to the Company. Options granted to employees under the Plan
generally vest ratably over a two-year period and expire five years from the
date of grant. The Plan also provides for the automatic issuance of options to
non-employee directors of the Company on an annual basis. Such options have an
exercise price equal to the fair market value of the underlying common stock at
the grant date and are fully exercisable on the date of grant for a period of up
to ten years. Through December 31, 1999, 751,500 options have been granted under
the Plan.
F-15
<PAGE>
eDiets.com, Inc.
Notes to Consolidated Financial Statements (continued)
6. STOCKHOLDERS' EQUITY (CONTINUED)
A summary of the activity relating to the Company's stock options for the years
ended December 31, 1999 and 1998 is presented below (shares in thousands):
<TABLE>
<CAPTION>
1999 1998
---------------------------------------------------------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
--------------- ------------------ --------------- ------------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 662 $0.01 490 $0.01
Granted 1,108 1.69 195 0.01
Exercised - - - -
Forfeited - - (23) 0.01
--------------- ---------------
Outstanding at end of year 1,770 1.06 662 0.01
=============== ===============
Options exercisable at end of year 1,370 $0.79 500 $0.01
=============== ================== =============== ==================
Weighted average exercise price of
options granted during the year:
Issued at market price $2.00
==================
Issued below market price $0.24 $0.01
================== ==================
Weighted average fair value of options
granted during the year:
Issued at market price $0.55
==================
Issued below market price $0.78 $0.43
================== ==================
</TABLE>
F-16
<PAGE>
eDiets.com, Inc.
Notes to Consolidated Financial Statements (continued)
6. STOCKHOLDERS' EQUITY (CONTINUED)
The following table summarizes information about stock options outstanding at
December 31, 1999 (shares in thousands):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------------- ------------------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
OUTSTANDING AT REMAINING AVERAGE EXERCISABLE AT AVERAGE
EXERCISE DECEMBER 31, CONTRACTUAL LIFE EXERCISE DECEMBER 31, EXERCISE
PRICE(S) 1999 (IN YEARS) PRICE 1999 PRICE
- ----------------- -------------------- ------------------------ --------------- -------------------- ---------------
<S> <C> <C> <C> <C> <C>
$0.01 826 5.1 $0.01 804 $0.01
1.43 to 2.00 944 4.9 1.98 566 1.97
-------------------- --------------------
1,770 5.0 1.06 1,370 0.79
==================== ====================
</TABLE>
Pro forma information is required by SFAS No. 123 and has been determined as if
the Company had accounted for its stock-based compensation plans under the fair
value method. The fair value of each option grant was estimated at the date of
grant using the minimum value method with the following weighted average
assumptions: risk free interest rates of 6.4% for 1999 and 4.6% for 1998;
dividend yield of 0%; and expected life of 5.0 for 1999 and 1998. For purposes
of pro forma disclosures, the estimated fair value of the options is amortized
to expense over the options' vesting period. Because the determination of the
fair value of the Company's options is based on the assumptions described above,
and because additional option grants are expected to be made in future periods,
this pro forma information is not likely to be representative of the pro forma
effects on reported net income or loss for future years.
The Company's pro forma information for the year ended December 31, 1999 is as
follows (in thousands, except per share data):
Net loss-as reported $ (462)
===================
Pro forma net loss $ (783)
===================
Loss per share-as reported $(0.06)
===================
Pro forma loss per share $(0.09)
===================
F-17
<PAGE>
eDiets.com, Inc.
Notes to Consolidated Financial Statements (continued)
6. STOCKHOLDERS' EQUITY (CONTINUED)
The effect of applying the fair value method proscribed by SFAS No. 123 to the
Company's options did not have a significant impact on the Company's reported
results of operations for the year ended December 31, 1998.
7. COMMITMENTS, CONTINGENCIES AND RELATED PARTIES
The Company leases its office space under a non-cancelable operating lease,
which expires in September 2004. The Company also leases certain office and
computer equipment under non-cancellable capital leases expiring through 2004.
Commitments for minimum rentals under noncancellable leases at the end of 1999
are as follows (in thousands):
CAPITAL OPERATING
YEAR LEASES LEASES
-----------------------------------------------------------------------
2000 $ 54 $ 41
2001 54 43
2002 54 45
2003 10 47
2004 9 37
---------------------------
Total minimum lease payments 181 $213
=============
Less amount representing interest (25)
-------------
Present value of minimum lease payments $156
=============
Rental expense under operating leases was approximately $28,000 and $22,000 for
the years ended December 31, 1999 and 1998, respectively.
From time to time, the Company may be subject to legal proceedings and other
claims in the ordinary course of its business. The Company is not currently
party to any litigation, the outcome of which would have a material adverse
effect on its business or operations.
The Company has a $150,000 line of credit with its primary bank that expires in
March 2000. Assets held by the Company's Chief Executive Officer collateralize
outstanding borrowings under the line. At December 31, 1999 there were no
borrowings against the line.
F-18
<PAGE>
eDiets.com, Inc.
Notes to Consolidated Financial Statements (continued)
7. COMMITMENTS, CONTINGENCIES AND RELATED PARTIES (CONTINUED)
Through the end of 1997, the Company financed its cash requirements primarily
through advances from its Chief Executive Officer (the Original eDiets
stockholder). The obligation represented by the advances was non-interest
bearing and did not have a fixed or determinable due date. During 1999 and 1998,
net repayments to the stockholder totaled approximately $53,000 and $54,000,
respectively. In connection with the merger transaction discussed in Note 1, the
remaining outstanding obligation to the stockholder, totaling approximately
$110,000, was converted to equity.
During the second half of 1999, the Company advanced approximately $88,000 to
the Original eDiets stockholder. These advances, represented by a note
receivable entered into on February 22, 2000 which bears interest at 7% per
annum and is due on March 1, 2001, are reflected as a receivable from
stockholder in the accompanying consolidated balance sheet.
Since the Company's inception through the date of the reverse merger, the
Original eDiets stockholder did not receive compensation for his services as the
Company's Chief Executive Officer. The Company has recorded compensation expense
for the estimated fair market value of the in-kind services received and
reflected such amounts as a contribution to capital for the respective periods.
Compensation expense totaling $119,000 and $100,000 related to the value of the
in-kind services received has been included in general and administrative
expenses in the accompanying consolidated statements of operations for the years
ended December 31, 1999 and 1998, respectively.
F-19
<PAGE>
eDiets.com, Inc.
Notes to Consolidated Financial Statements (continued)
8. INCOME TAXES
The significant components of the Company's net deferred income taxes as of
December 31, 1999 are as follows (in thousands):
Deferred tax assets:
Deferred compensation $ 98
Start-up and organizational costs 11
Net operating loss carryforwards 268
Allowance for sales returns 13
----------------
390
Valuation allowance (359)
----------------
Total deferred tax assets 31
Deferred tax liabilities:
Fixed assets and software (31)
----------------
Net deferred income taxes $ -
================
Realization of the Company's deferred tax assets is not reasonably assured;
therefore, they are fully reserved with a valuation allowance. The change in the
valuation allowance for the years ended December 31, 1999 and 1998 was an
increase of approximately $121,000 and $140,000, respectively, resulting
primarily from net operating losses generated during the periods.
The Company has incurred net losses since inception. At December 31, 1999, the
Company had approximately $713,000 in net operating loss carryforwards for U.S.
federal income tax purposes that expire in various amounts through 2019.
In connection with the merger transaction discussed in Note 1, the Company
acquired approximately $19 million of net operating loss carryforwards from
Olas. Due to the Internal Revenue Code Section 382 change in ownership rules,
the Company does not expect to be able to utilize any of the Olas net operating
loss carryforwards. However, the Company continues to research its ability to
utilize some portion of the Olas net operating loss carryforwards.
F-20
<PAGE>
eDiets.com, Inc.
Notes to Consolidated Financial Statements (continued)
8. INCOME TAXES (CONTINUED)
The reconciliation of income tax computed at the U.S. federal statutory rate to
income tax expense for the years ended December 31, 1999 and 1998 is as follows:
1999 1998
-----------------------------
Tax at U.S. statutory rate (34.00)% (34.00)%
State taxes, net of federal benefit (2.44) (3.37)
Non-deductible items 11.19 2.45
Change in valuation allowance 25.25 34.92
-----------------------------
-% -%
=============================
F-21
<PAGE>
Report of Independent Certified Public Accountants
Board of Directors
eDiets.com, Inc.
We have audited the accompanying balance sheets of Olas, Inc. (the Company) as
of December 31, 1997 and 1998, and the related statements of operations and
accumulated deficit and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Olas, Inc. at December 31, 1997
and 1998, and the results of its operations and its cash flows for the years
then ended in conformity with accounting principles generally accepted in the
United States.
/s/Ernst & Young LLP
West Palm Beach, Florida
December 9, 1999
F-22
<PAGE>
Olas, Inc.
Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1998 1999
--------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 456,506 $ 423,619 $ 418,893
Restricted cash 70,000 - -
Accrued interest receivable 3,480 - -
Other current assets - 724 1,776
--------------------------------------------------------
Total current assets 529,986 424,343 420,669
Equipment held for disposal 18,000 18,000 -
--------------------------------------------------------
Total assets $ 547,986 $ 442,343 $ 420,669
========================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accrued liabilities $ 129,000 $ 34,000 $ 35,762
--------------------------------------------------------
Total current liabilities 129,000 34,000 35,762
Commitments
Stockholders' equity:
Preferred stock, $.01 par value--5,000,000 shares
authorized, no shares issued and outstanding - - -
Class A common stock, $.01 par value--10,000,000
shares authorized, 943,042 shares issued and
outstanding 9,430 9,430 9,430
Class B common stock, $.01 par value--10,000,000
shares authorized, 106,958 shares issued and
outstanding 1,070 1,070 1,070
Additional paid-in capital 14,457,200 14,457,200 14,457,200
Accumulated deficit (14,048,714) (14,059,357) (14,082,793)
--------------------------------------------------------
Total stockholders' equity 418,986 408,343 384,907
--------------------------------------------------------
Total liabilities and stockholders' equity $ 547,986 $ 442,343 $ 420,669
========================================================
</TABLE>
SEE ACCOMPANYING NOTES.
F-23
<PAGE>
<TABLE>
<CAPTION>
Olas, Inc.
Statements of Operations and Accumulated Deficit
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
1997 1998 1998 1999
--------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Costs and expenses:
General and administrative $ 97,000 $ 40,044 $ 36,875 $ 38,082
Bad debt expense 1,029,960 - - -
--------------------------------------------------------------------------
Total costs and expenses 1,126,960 40,044 36,875 38,082
Other income 31,246 29,401 22,817 14,646
--------------------------------------------------------------------------
Net loss (1,095,714) (10,643) (14,058) (23,436)
Accumulated deficit - beginning of
period (12,953,000) (14,048,714) (14,048,714) (14,059,357)
--------------------------------------------------------------------------
Accumulated deficit - end of period $(14,048,714) $(14,059,357) $(14,062,772) $(14,082,793)
==========================================================================
Loss per common share--
basic and diluted $ (1.05) $ (0.01) $ (0.01) $ (0.02)
==========================================================================
Weighted average number of common shares
outstanding 1,044,402 1,050,000 1,050,000 1,050,000
==========================================================================
</TABLE>
SEE ACCOMPANYING NOTES.
F-24
<PAGE>
Olas, Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
1997 1998 1998 1999
---------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $(1,095,714) $ (10,643) $ (14,058) $ (23,436)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Bad debt expense 1,029,960 - - -
Changes in operating assets and
liabilities:
Restricted cash 10,000 70,000 70,000 -
Accrued interest receivable 10,761 3,480 3,480 -
Other current assets - (724) (724) (1,052)
Accrued liabilities (132,102) (95,000) (95,000) 1,762
---------------------------------------------------------------------------
Net cash used in operating activities (177,095) (32,887) (36,302) (22,726)
INVESTING ACTIVITY
Proceeds from liquidation of property and
equipment 234,000 - - 18,000
---------------------------------------------------------------------------
Net cash provided by investing activity 234,000 - - 18,000
Increase (decrease) in cash and cash
equivalents 56,905 (32,887) (36,302) (4,726)
Cash and cash equivalents at beginning
of period 399,601 456,506 456,506 423,619
---------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 456,506 $ 423,619 $ 420,204 $ 418,893
===========================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Common stock issued in satisfaction of
obligation $ 20,000 $ - $ - $ -
===========================================================================
</TABLE>
SEE ACCOMPANYING NOTES
F-25
<PAGE>
Olas, Inc.
Notes to Financial Statements
December 31, 1998
(INFORMATION PERTAINING TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION
Olas, Inc., a Delaware corporation, is the successor company to Lida Inc.
(Lida), a designer, manufacturer and marketer of fabrics used primarily in the
production of women's sportswear, swimwear and activewear. Lida's operations
were divided into two primary areas - the Stretch Fabrics Business and the Print
Business. Lida's Print Business was discontinued with the closing of its
printing plant in July 1995. The Stretch Fabrics Business was sold as of August
31, 1995, at which time the name of the company was changed to Olas, Inc. (the
Company).
Concurrent with the sale of the Stretch Fabric Business in 1995, management of
the Company commenced liquidation of the remaining Print Business net assets. As
a result, the Company had adopted the liquidation basis of accounting effective
September 1, 1995. The Company's financial statements were prepared under the
liquidation basis of accounting through December 31, 1996. Liquidation of the
Print Business net assets was substantially completed in 1997, and the Company
has continued in existence as a legal entity. On November 17, 1999, the Company
acquired an unrelated operating entity in a transaction accounted for as a
reverse merger (See Note 7). Accordingly, effective January 1, 1997 the Company
adopted the going concern basis of accounting. This change in basis of
accounting did not have an effect on the valuation of assets or liabilities or
on the Company's results of operations. The accompanying financial statements
for the periods presented reflect activities related primarily to maintaining
the legal entity.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, the Company considers all highly liquid
investments purchased with an original maturity of three months or less to be
cash equivalents.
RESTRICTED CASH
Restricted cash in the accompanying balance sheet as of December 31, 1997
consists of a certificate of deposit with a financial institution that serves as
collateral for a letter of credit established in connection with the Company's
workers' compensation plan.
F-26
<PAGE>
Olas, Inc.
Notes to Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EQUIPMENT HELD FOR DISPOSAL
Equipment held for disposal is stated at its net realizable value as a result of
its pending liquidation.
INCOME TAXES
The Company accounts for income taxes under SFAS No. 109, ACCOUNTING FOR INCOME
TAXES. Deferred income tax assets and liabilities are determined based upon
differences between financial reporting and tax bases of assets and liabilities
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse. A valuation allowance is recorded
when it is more likely than not that some portion or all of a deferred tax asset
will not be realized.
LOSS PER COMMON SHARE
Loss per common share is calculated based on the weighted average number of
common shares outstanding during the period. Loss per common share in the
accompanying statements of operations has been retroactively adjusted to reflect
the stock-split described in Note 6.
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to concentrations of
credit risk consist principally of cash and cash equivalents in banks. The
credit risk associated with cash and cash equivalents is considered low due to
the credit quality of the financial institutions.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain estimates and
assumptions. Actual results could differ from these estimates.
F-27
<PAGE>
Olas, Inc.
Notes to Financial Statements (continued)
3. NOTE RECEIVABLE
In connection with the sale of the Stretch Fabrics Business, the Company
received a note from the buyer that was originally due August 31, 2002 and
accrued interest at 7.75% per annum. In 1998, the buyer filed for protection
under U.S. bankruptcy laws. The Company has asserted an unsecured nonpriority
claim in the amount of the principal plus accrued interest as of the petition
date.
In August 1999, and as confirmed by the U.S. Bankruptcy Court in September 1999,
the Creditors' Committee filed an amended Plan of Liquidation, which projected a
distribution of approximately 4% on such unsecured nonpriority claims. As a
result of the uncertainty related to the Company's ultimate recovery, if any, on
its claim, the face amount of the note, plus interest accrued through December
31, 1996, was written off as of January 1, 1997 and is reflected as bad debt
expense in the accompanying statement of operations for the year ended December
31, 1997. No interest has been accrued on the note beyond December 31, 1996.
4. ACCRUED LIABILITIES
Accrued liabilities at December 31, 1997 and 1998 consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1998
----------------------------
<S> <C> <C>
Accrued workers' compensation $ 70,000 $ -
Accrued commissions on liquidation of property and
equipment 42,000 -
Liability for unclaimed outstanding checks - 24,000
Accrued professional fees and other 17,000 10,000
----------------------------
$129,000 $34,000
============================
</TABLE>
F-28
<PAGE>
Olas, Inc.
Notes to Financial Statements (continued)
5. INCOME TAXES
The Company's net deferred income taxes consist primarily of net operating loss
carryforwards of approximately $6,851,000 and $7,277,000 at December 31, 1997
and 1998, respectively. Realization of the resulting deferred tax assets is not
reasonably assured; therefore, they are fully reserved with a valuation
allowance, resulting in no net deferred income taxes.
The change in valuation allowance for the years ended December 31, 1997 and 1998
was an increase of approximately $41,000 and $426,000, respectively, resulting
primarily from net operating losses generated during the periods. The difference
between the benefit for income taxes and the amount which results from applying
the federal statutory rate of 34% is primarily due to the increase in valuation
allowance, resulting in no tax benefit reported in any of those periods.
At December 31, 1998, the Company had approximately $19,300,000 in net operating
loss carryforwards for U.S. federal income tax purposes that expire in various
amounts through 2018. As a result of the merger transaction discussed in Note 7,
utilization of the net operating loss carryforwards will be significantly
restricted under Internal Revenue Code Section 382 due to changes in ownership
of the Company's stock. Thus, the Company's ability to benefit from the net
operating loss carryforwards will be limited to an amount which has yet to be
determined.
6. STOCKHOLDERS' EQUITY
During 1997, 391,774 shares of the Company's Class B Common Stock were converted
to an equal number of shares of Class A Common Stock. At December 31, 1998, a
total of 106,958 shares of Class A Common Stock were reserved for the conversion
of the outstanding shares of Class B Common Stock. In connection with the merger
transaction discussed in Note 7, these outstanding shares of Class B Common
Stock were converted to an equal number of shares of Class A Common Stock.
During 1997, the Company issued 6,612 shares of Class A Common Stock in
satisfaction of an obligation of the Company. The shares issued were recorded at
a value of $20,000, representing the amount of the obligation satisfied.
F-29
<PAGE>
Olas, Inc.
Notes to Financial Statements (continued)
6. STOCKHOLDERS' EQUITY (CONTINUED)
In connection with the merger transaction discussed in Note 7, the Company's
Articles of Incorporation were amended, converting all of the Company's Class A
and Class B Common Stock into one class of common stock with a par value of
$.001 per share. In addition, the number of authorized shares of preferred stock
was decreased to 1,000,000 shares. In connection with the change in capital
structure, a 1-for-7.5618095 reverse stock split was declared. All share and per
share amounts in the financial statements have been retroactively adjusted to
reflect the reverse stock split.
7. SUBSEQUENT EVENTS
On November 17, 1999, the Company completed the merger of the Company with an
unrelated operating entity in a transaction accounted for as a reverse merger,
in which the acquired entity will continue the surviving corporation for
accounting purposes. Pursuant to the merger, the name of the Company was changed
to eDiets.com, Inc. Concurrent with the merger, the initial closing of a private
placement by the post-merger company was completed. The private placement
totaled approximately $6.2 million and consisted of 123.75 units of 25,000
shares of common stock and 12,500 warrants, each to purchase one share of common
stock at an exercise price of $2.50 per share. In connection with the
transaction, an additional 150,000 shares of common stock and 640,625 warrants,
each to purchase one share of common stock at an exercise price of $2.50 per
share, were issued to the placement agent, and options to purchase 32,500 shares
of common stock at an exercise price of $1.425 per share were granted to a
stockholder of the post-merger Company.
In connection with the merger transaction, the eDiets.com, Inc. 1999 Stock
Option Plan (the Plan) was adopted, subject to stockholder approval, providing
for the grant of options to purchase up to 1,830,000 shares of common stock.
Upon adoption of the Plan, options for the purchase of 469,000 shares of common
stock at an exercise price of $2.00 per share were granted to certain officers,
directors and employees of the post-merger company.
F-30
<PAGE>
Olas, Inc.
Notes to Financial Statements (continued)
8. EVENTS SUBSEQUENT TO DATE OF AUDITOR'S REPORT (UNAUDITED)
In December 1999, the final closing of the private placement by the post-merger
Company was completed. Total proceeds raised from the private placement
financing was $7,262,500 based on the sale of 145.25 units of 25,000 shares of
common stock and 12,500 warrants, each to purchase one share of common stock at
an exercise price of $2.50 per share.
In connection with the closing, the post-merger Company's advertising agency
received 82,500 warrants at an exercise price of $2.00 per share, as a result of
an agreement between the Company and the advertising agency. The fair value of
the warrants, which will be measured and expensed at the various vesting dates,
totaled approximately $29,000 at the date of issuance.
F-31
<PAGE>
Pro forma Condensed Financial Statements (Unaudited)
The following pro forma condensed balance sheet at September 30, 1999 gives
effect to the reverse acquisition of Olas, Inc. by eDiets.com, Inc. (the
Company) and the private offering of units of common stock and warrants (the
Offering) as if the transactions had occurred on September 30, 1999. The pro
forma condensed statements of operations for the year ended December 31, 1998
and the nine months ended September 30, 1999 give effect to the foregoing as if
the transactions had occurred on January 1, 1998.
On November 17, 1999, the Company executed a reverse merger of a subsidiary of
Olas, Inc., a public "shell", with and into the Company, whereby all of the
issued and outstanding shares of common stock and stock options of the Company
were exchanged for shares of common stock and options representing 88%
(8,800,000 shares) of the fully-diluted common stock of the shell. The
stockholders of the shell retained 1,050,000 shares (10.5%) of the common stock,
and 150,000 shares (1.5%) of the common stock were issued to the placement
agent. For accounting purposes, the reorganization of the Company and Olas, Inc.
is regarded as an acquisition by the public company of all of the outstanding
stock of the Company and was accounted for as a recapitalization of the Company
with the Company as the acquirer (a reverse acquisition). In connection with
this merger, during November and December of 1999, the Company completed the
Offering, consisting of 145.25 units of 25,000 shares of common stock and 12,500
warrants each to purchase one share of common stock, at a price of $50,000 per
unit, resulting in total gross proceeds of $7,262,500.
In connection with the above transactions, amounts owed to the Company's
stockholder were converted to equity. In addition, the Company entered into a
three-year employment agreement with its Chief Executive Officer providing for a
base salary of $150,000 per year. Since its inception, the Company's Chief
Executive Officer has not received any compensation for his services, although
the Company has recorded compensation expense for the estimated fair market
value of the in-kind services received and reflected such amounts as a
contribution to capital for the respective periods.
The pro forma financial data is presented for informational purposes only and
does not purport to project the financial position or results of operations for
any future period or as of any future date. The pro forma condensed financial
statements should be read in conjunction with the notes thereto and with the
financial statements and the notes thereto of the Company and the financial
statements and the notes thereto of Olas, Inc., all of which are included
elsewhere in the registration statement.
F-32
<PAGE>
eDiets.com, Inc.
Pro forma Condensed Balance Sheet (Unaudited)
September 30, 1999
<TABLE>
<CAPTION>
COMPANY PRO FORMA COMPANY
AS REPORTED OLAS, INC. ADJUSTMENTS PRO FORMA
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 157,728 $ 418,893 $ 6,298,962 (3) $ 6,840,583
(35,000) (1)
Accounts receivable 55,688 - - 55,688
Other current assets 30,265 1,776 - 32,041
------------------------------------------------------------------------
Total current assets 243,681 420,669 6,263,962 6,928,312
Restricted cash 16,998 - - 16,998
Receivable from stockholder 53,987 - - 53,987
Property and equipment, net 154,443 - - 154,443
Deferred offering costs 256,230 - (256,230) (3) -
------------------------------------------------------------------------
Total assets $ 725,339 $ 420,669 $ 6,007,732 $ 7,153,740
========================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 420,001 $ - $ - $ 420,001
Accrued liabilities 10,599 35,762 - 46,361
Deferred revenue 777,537 - - 777,537
------------------------------------------------------------------------
Total current liabilities 1,208,137 35,762 - 1,243,899
Due to stockholder 110,069 - (110,069) (4) -
Stockholders' equity (capital deficiency):
Common stock 7,814 10,500 (10,500) (1) 12,645
1,050 (1)
150 (2)
3,631 (3)
Additional paid-in capital 566,098 14,457,200 (14,072,293) (1) 7,063,975
(1,050) (1)
(35,000) (1)
31,525 (1)
(31,525) (1)
299,850 (2)
(300,000) (2)
7,258,869 (3)
(1,219,768) (3)
121,719 (3)
(121,719) (3)
110,069 (4)
Unearned compensation (24,363) - - (24,363)
Accumulated deficit (1,142,416) (14,082,793) 14,082,793 (1) (1,142,416)
------------------------------------------------------------------------
Total stockholders' equity (net capital
deficiency) (592,867) 384,907 6,117,801 5,909,841
------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 725,339 $ 420,669 $ 6,007,732 $ 7,153,740
========================================================================
</TABLE>
SEE ACCOMPANYING NOTES.
F-33
<PAGE>
eDiets.com, Inc.
Pro forma Condensed Statement of Operations (Unaudited)
Nine months ended September 30, 1999
<TABLE>
<CAPTION>
COMPANY PRO FORMA COMPANY
AS REPORTED OLAS, INC. ADJUSTMENTS PRO FORMA
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $1,413,995 $ - $ - $1,413,995
Costs and expenses:
Cost of revenues 160,915 - - 160,915
Sales and marketing 613,774 - - 613,774
General and administrative 790,123 38,082 15,000 (5) 843,205
Depreciation and amortization 64,477 - - 64,477
-----------------------------------------------------------------------
Total costs and expenses 1,629,289 38,082 15,000 1,682,371
Other income - 14,646 - 14,646
-----------------------------------------------------------------------
Net loss $ (215,294) $(23,436) $(15,000) $ (253,730)
=======================================================================
Loss per common share -
basic and diluted $ (0.03) $ (0.02)
================== ===================
Weighted average number of common shares
outstanding-basic and diluted 7,814,065 12,645,296
================== ===================
</TABLE>
F-34
<PAGE>
(1) Reflects elimination of the historical equity accounts of Olas, Inc. and
adjustment to record the 1,050,000 shares of common stock retained by the
stockholders of Olas Inc. at the fair value of the net assets of Olas, Inc.
at the date of the merger of $384,907, net of cash transaction costs of
$35,000. Also reflects the estimated fair value ($31,525) of options for
the purchase of 32,500 shares of common stock at an exercise price of
$1.425 per share granted to a stockholder of Olas, Inc. as consideration
for his efforts in structuring the merger transaction.
(2) Reflects the fair value ($300,000) of the 150,000 shares of common stock
issued to the placement agent in connection with the transaction.
(3) Reflects the net proceeds of the Offering, 145.25 units at $50,000 per
unit, calculated as follows:
Gross proceeds $7,262,500
Less:
Placement commission (10%) (726,250)
Legal, accounting and other costs, net of $256,230
paid prior to September 30, 1999 (237,288)
-------------
Net proceeds $6,298,962
=============
Also reflects the estimated fair value ($121,719) of warrants to purchase a
total of 640,625 shares of common stock at an exercise price of $2.50 per
share granted to the placement agent.
(4) Reflects the conversion of amounts due to stockholder to contributed
capital.
(5) Reflects nine months of annual salary of the Company's Chief Executive
Officer under new employment agreement, less $97,500 already reflected in
the statement of operations for the nine months ended September 30, 1999.
F-35
<PAGE>
eDiets.com, Inc.
Pro forma Condensed Statement of Operations (Unaudited)
Year ended December 31, 1998
<TABLE>
<CAPTION>
COMPANY PRO FORMA COMPANY
AS REPORTED OLAS, INC. ADJUSTMENTS PRO FORMA
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 477,626 $ - $ - $ 477,626
Costs and expenses:
Cost of revenues 75,551 - - 75,551
Sales and marketing 435,491 - - 435,491
General and administrative 404,427 40,044 50,000 (1) 494,471
Depreciation and amortization 61,807 - - 61,807
-----------------------------------------------------------------------
Total costs and expenses 977,276 40,044 50,000 1,067,320
Other income - 29,401 - 29,401
-----------------------------------------------------------------------
Net loss $ (499,650) $(10,643) $(50,000) $ (560,293)
=======================================================================
Loss per common share -
basic and diluted $ (0.06) $ (0.04)
================== ===================
Weighted average number of common shares
outstanding - basic and diluted 7,814,065 12,645,296
================== ===================
</TABLE>
SEE ACCOMPANYING NOTES.
F-36
<PAGE>
(1) Reflects annual salary of the Company's Chief Executive Officer under new
employment agreement, less $100,000 already reflected in the statement of
operations for the year ended December 31, 1998.
F-37
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of Delaware provides for the
indemnification of officers and directors under certain circumstances against
expenses incurred successfully defending against a claim and authorizes Delaware
corporations to indemnify their officers and directors under certain
circumstances against expenses and liabilities incurred in legal proceedings
involving such persons because of their being or having been an officer or
director. The Restated Certificate of Incorporation of the Company provides for
indemnification of its officers and directors to the full extent authorized by
law. The Company is also a party to indemnification agreements with each of its
directors and officers.
II-1
<PAGE>
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses payable by the
Company in connection with the issuance and distribution of the securities being
registered hereunder. No expenses shall be borne by the selling security
holders. All of the amounts shown are estimates, except for the SEC registration
fees.
SEC Registration Fee $3,157.72
Printing and Engraving Expenses* 20,000
Accounting Fees and Expenses* 80,000
Legal Fees and Expenses* 70,000
Fees and Expenses for Qualification Under State Securities Laws* 5,000
Miscellaneous* 2,500
-----------
TOTAL $180,657.72
===========
*Estimated
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
In March 1996, the Company's subsidiary, eDiets, Inc., acquired by the
Company in November 1999 ("Original eDiets") issued 100 shares of its no par
common stock to its founder David R. Humble in consideration for $40,000. In
July 1999, Original eDiets undertook a 62,157.33-for-1 forward stock split and a
recapitalization under which Mr. Humble received 6,215,733 shares of Original
eDiets common stock $.001 par value per share for his 100 shares of no par
common stock. In connection with the issuance to Mr. Humble, Original eDiets
relied on Section 4(2) under the Securities Act of 1933, as amended, (the
"Securities Act") as a transaction by an issuer not involving any public
offering. By virtue of his relationship to Original eDiets, Mr. Humble had
access to all relevant information relating to Original eDiets and represented
that he had the required investment intent. In addition, the securities bore
appropriate restrictive legends.
From June through October 1996 Original eDiets granted an aggregate of
484,000 stock options to nine employees in consideration of their employment.
These options have an exercise price of $0.01 per share and expire in either
five or ten years. The grant of the options was exempt from the registration
requirements of the Securities Act pursuant to either Section 4(2) of the
Securities Act or Rule 701 under the Securities Act. By virtue of their
relationships to Original eDiets, the employees
II-2
<PAGE>
had access to all relevant information regarding Original eDiets. In addition,
the grant of the options to each employee was made pursuant to a written
compensatory benefit plan or contract relating to compensation as provided under
Rule 701.
In July 1997, Original eDiets granted 75,429 stock options to an
employee in consideration of his employment. The options have an exercise price
of $0.01 per share and expire in 10 years. The grant of the options was exempt
from the registration requirements of the Securities Act pursuant to either
Section 4(2) of the Securities Act or Rule 701 under the Securities Act. By
virtue of his relationship to Original eDiets, the employee had access to all
relevant information regarding eDiets. In addition, the options granted to the
employee were pursuant to a written compensatory benefit plan or contract
relating to compensation as provided under Rule 701.
From January through November 1998, Original eDiets granted an
aggregate of 194,857 stock options to five employees in consideration of their
employment. These options are exercisable at a price of $0.01 per share and
expire in five years. The grant of the options was exempt from the registration
requirements of the Securities Act pursuant to either Section 4(2) of the
Securities Act or Rule 701 under the Securities Act. By virtue of their
relationship to Original eDiets, the employees had access to all relevant
information regarding Original eDiets. In addition, the options granted to the
employees were pursuant to a written compensatory benefit plan or contract as
provided under Rule 701.
In January and February 1999, Original eDiets granted an aggregate of
163,428 stock options to three employees in consideration of their employment.
These options are exercisable at a price of $0.01 per share and expire in five
years. The grant of these options was exempt from the registration requirements
of the Securities Act pursuant to Section 4(2) of the Securities Act or Rule 701
under the Securities Act. By virtue of their relationships to Original eDiets,
the employees had access to all available information regarding Original eDiets.
In addition, the grant of the options to each employee was made pursuant to a
written compensatory benefit plan or contract relating to compensation as
provided under Rule 701.
In July 1999, Original eDiets issued 159,993 stock options to its Chief
Technology Officer, Steven Johnson as compensation for his services to Original
eDiets. The options are exercisable at a price of $2.00 per share and expire in
10 years. The issuance of the options were exempt from the registration
requirements of the Securities Act pursuant to Section 4(2) of the Securities
Act or Rule 701 under the Securities Act. By virtue of his relationships to
Original eDiets, Mr. Johnson had access to all available information regarding
Original eDiets. In addition, the options granted to Mr. Johnson were made
pursuant to a written compensatory benefit plan or contract relating to
compensation as provided under Rule 701.
In November 1999, the Company issued 32,500 options to Isaac Kier, the
Company's former chief executive officer and a current director in consideration
of
II-3
<PAGE>
services rendered to the Company in connection with finding, structuring and
negotiating the merger with Original eDiets. The options are exercisable at a
price of $1.425 per share and expire in 5 years. The issuance of the options was
exempt from the registration requirements of the Securities Act pursuant to
Section 4(2) of the Securities Act. Mr. Kier is a sophisticated and accredited
investor who by virtue of his relationship to the Company had access to all
relevant information regarding the Company.
In November 1999, we acquired Original eDiets through the merger of our
wholly-owned subsidiary, eDiets Acquisition Corp., with and into Original
eDiets. Under the terms of the merger agreement, the Company issued 7,814,065
shares of common stock to David R. Humble, the sole stockholder of Original
eDiets. In connection with this issuance, the Company relied upon the exemption
from the registration requirements pursuant to the provisions of Section 4(2) of
the Securities Act as a transaction by an issuer not involving any public
offering. Mr. Humble had access to all relevant information relating to the
Company and represented that he had the required investment intent. In addition,
the securities issued to him bore an appropriate restrictive legend.
In November 1999, the Company issued 150,000 shares of common stock to
Whale Securities Co., L.P. in consideration of its services to the Company in
connection with the merger. In connection with the issuance, the Company relied
on Section 4(2) under the Securities Act as a transaction by an issuer not
involving any public offering. Whale Securities Co., L.P. is a sophisticated and
accredited investor and had access to all relevant information relating to the
Company and represented to the Company that it had the required investment
intent.
In November and December 1999, the Company issued an aggregate of
3,631,250 shares of common stock and 1,815,625 warrants to purchase common stock
to 64 investors, pursuant to the terms of a confidential private placement
memorandum dated September 1, 1999 (the "Private Placement"). Each investor
warranted and represented to the Company in connection with their subscriptions
that they were purchasing the securities for investment and not with a view
towards distribution. The offering was conducted without a general solicitation
or advertisement, was made solely to accredited investors (as defined in Rule
501 of Regulation D) and accordingly, the Company relied upon the exemption from
the registration requirements of Section 5 of the Securities Act, pursuant to
the provisions of Section 4(2) of the Securities Act and Regulation D.
In connection with the Private Placement, Whale Securities Co., L.P.
acted as the placement agent on a best efforts basis. The Company raised gross
proceeds of $7,262,500, paid the placement agent commissions of $726,250.
In November and December 1999, as additional compensation for acting as
the placement agent in the Private Placement, the Company issued to the
placement agent
II-4
<PAGE>
an aggregate of 640,625 warrants to purchase shares of the Company's common
stock. The warrants are exercisable during a period of five years at an exercise
price of $2.50 per share. In connection with the issuance, the Company relied on
Section 4(2) under the Securities Act as a transaction by an issuer not
involving any public offering. Whales Securities Co., L.P. was a sophisticated
and accredited investor with access to all relevant information relating to the
Company and represented to the Company that it had the required investment
intent.
In November and December 1999, the Company issued an aggregate of
150,000 stock options to six members of its board of directors and 300,000
options to members of its executive committee in return for service on the board
and the committee. The options are exercisable at a price of $2.00 per share and
expire in five years. The issuance of the shares was exempt from the
registration requirements of the Securities Act pursuant to Section 4(2) of the
Securities Act. By virtue of their relationship to the Company, each board and
committee member had access to all relevant information relating to the Company.
In November 1999, the Company issued 82,500 warrants to its advertising
agency, DiMassimo Brand Advertising, Inc. pursuant to an advertising agency
agreement, amended in January 2000. The warrants are exercisable through
November 2002 at an exercise price of $2.00 per share. The issuance of the
warrants was exempt from the registration requirements of the Securities Act
pursuant to Section 4(2) of the Securities Act. The agency was a sophisticated
and accredited investor which had access through its relationship to the Company
to all relevant information about the Company.
In November and December 1999, the Company granted an aggregate of
221,500 stock options to 11 officers and employees in consideration of their
employment. The options are exercisable at a price of $2.00 per share and expire
in five years. The issuance of the options was exempt from the registration
requirements of the Securities Act pursuant to Section 4(2) of the Securities
Act or Rule 701 under the Securities Act. By virtue of their relationship to the
Company, each of the optionees had access to all relevant information about the
Company. In addition, each grant was pursuant to a written compensatory benefit
plan or contract relating to compensation as provided under Rule 701.
In December 1999, the Company granted 80,000 stock options to a
consultant in consideration of consulting services. The options are exercisable
over a period of five years at an exercise price of $2.00 per share. The
issuance of the options was exempt from the registration of the Securities Act
pursuant to Section 4(2) of the Securities Act or Rule 701 under the Securities
Act. The consultant was a sophisticated and accredited investor and by virtue of
his relationship to the Company had access to all relevant information about the
Company. In addition, the options were granted pursuant to a written
compensatory benefit plan or contract relating to compensation as provided under
Rule 701.
From January through March 2000, the Company granted an aggregate of
139,998 stock options to 12 officers and employees in consideration of their
employment. The options are exercisable at a price of $2.00 per share and expire
in five years. The issuance of the options was exempt from the registration
requirements of the Securities Act pursuant to Section 4(2) of the Securities
Act or Rule 701 under the Securities Act. By virtue of their relationship to the
Company, each of the optionees had access to all relevant information about the
Company. In addition, each grant was pursuant to a written compensatory benefit
plan or contract relating to compensation as provided under Rule 701.
II-5
<PAGE>
In February 2000, the Company granted an aggregate of 150,000 stock
options to members of its audit committee and compensation committee in
consideration of services to be provided as committee members. The options are
exercisable at a price of $2.00 per share and expire in five years. The issuance
of the options was exempt from the registration requirements of the Securities
Act pursuant to Section 4(2) of the Securities Act. Each of the members were
sophisticated persons who by virtue of their relationship to the Company had
access to all relevant information about the Company.
II-6
<PAGE>
ITEM 27. EXHIBITS.
EXHIBIT NO. DESCRIPTION OF DOCUMENT
3.1 Restated Certificate of Incorporation (1)
3.2 By-Laws (1)
4.1 Form of Investors Warrant (1)
4.2 Warrant Certificate dated November 17, 1999 issued to Whale
Securities Co., L.P. for 570,625 warrants (1)
4.2.2 Warrant Certificate dated December 23, 1999 issued to Whale
Securities Co., L.P. for 70,000 warrants (1)
4.3 Form of Registrant's common stock Certificate (1)
4.4 Form of Registration Rights Agreement (1)
4.5 Warrant Agreement dated November 17, 1999 between Registrant and
Whale Securities Co., L.P. (1)
5.1 Opinion of Nason, Yeager, Gerson, White & Lioce, P.A. (1)
10.1 1999 Stock Option Plan (1)
10.2 Employment Agreement dated November 17, 1999 between Registrant and
David R. Humble (1)
10.3 Revised form of Indemnification Agreement between the Registrant
and each of its Directors and Executive Officers (1)
10.4 Agreement and Plan of Merger and Reorganization dated as of August
30, 1999 among the Registrant, eDiets Acquisition Corp.,
eDiets.com, Inc. and David R. Humble (1)
10.5 License Agreement dated August 3, 1999 between eDiets, Inc.
(formerly eDiets.com, Inc.) and David R. Humble (1)
10.6 Lease Agreement dated December 2, 1999 between The 3467 Partnership
and Registrant (1)
10.7 Placement Agent Agreement dated November 17, 1999 between the
Registrant and Whale Securities Co., L.P. (1)
10.8 Agreement dated December 22, 1999 between Registrant and iVillage,
Inc. (1)
II-7
<PAGE>
10.9 Advertising Insertion Order Agreement dated September 29, 1999
between Registrant and Yahoo!, Inc. (1)
10.10 Database Management and Direct Marketing Agreement dated August,
1999 between 24/7 Media, Inc. and Registrant (1)
10.11 Confidential Alliance Member Cancellation Agreement dated August 3,
1999 between 24/7 Media, Inc. and Registrant (1)
10.12 E-Mail Newsletter Management Agreement dated August 22, 1999
between 24/7 Media, Inc. and Registrant (1)
10.13 Co-locate Service Agreement dated October 1999 with PSIWeb, Inc.
and Registrant (1)
10.14 Equipment Lease Agreement between First Sierra Financial, Inc. and
Registrant (1)
10.15 Agreement dated as of November 15, 1999 between DiMassimo Brand
Advertising, Inc. and Registrant (1)
10.16 Letter Agreements dated November 1, 1999 and November 9, 1999
between Robert T. Hamilton and Registrant (1)
10.17 Advertising Insertion Order Agreement dated August 16, 1999 between
Registrant and America Online, Inc. (1)
10.18 Advertising Insertion Order Agreement dated March 20, 2000 between
Registrant and America Online, Inc. (1)
21.1 List of Subsidiaries (1)
23.1 Consent of Nason, Yeager, Gerson, White & Lioce, P.A. (included in
its opinion filed as Exhibit 5.1)(1)
23.2 Consent of Ernst & Young LLP - eDiets.com, Inc. (2)
23.3 Consent of Ernst & Young LLP - Olas, Inc. (2)
27.1 eDiets.com, Inc. - Financial Data Schedule - 1999 (1)
27.2 eDiets.com, Inc. - Financial Data Schedule - 1998 (1)
[FN]
(1) Previously filed.
(2) Filed herewith.
</FN>
II-8
<PAGE>
ITEM 28. UNDERTAKINGS.
The Company hereby undertakes that it will:
1. File, during any period in which it offers or sells securities, a
post-effective amendment to this Registration Statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the information in
the Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any deviation
from the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in the maximum aggregate offering price
set forth in the "Calculation of Registration Fee" table in the effective
Registration Statement; and
(iii) Include any additional or changed material information on
the plan of distribution.
2. For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
3. File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
4. File a prospectus supplement if over 5% of the securities subject to
the lock-ups described in the section "Plan of Distribution" in the prospectus
are released early and a post-effective amendment to this Registration Statement
if over 10% are released early.
5. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the small business issuer pursuant to the foregoing provisions, or otherwise,
the small business issuer has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
II-9
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant has duly caused this Amendment No. 3 to the Registration Statement to
be signed on its behalf by the undersigned, thereto duly authorized, in the City
of Deerfield Beach, Florida on May 11, 2000.
eDiets.com, Inc., a Delaware corporation
By: S/ DAVID R. HUMBLE
------------------------
David R. Humble
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 3 to the Registration Statement has been signed by the following
persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------- ---------------------------------------------- -------------------
<S> <C> <C>
S/ DAVID R. HUMBLE
- ---------------------
David R. Humble Chairman of the Board, Chief Executive
Officer (Principal Executive Officer) May 11, 2000
S/ ROBERT T. HAMILTON
- ---------------------
Robert T. Hamilton Chief Financial Officer (Principal
Financial Accounting Officer) May 11, 2000
*
- ---------------------
Isaac Kier Director May 11, 2000
*
- ---------------------
Matthew Gohd Director May 11, 2000
- ---------------------
Bruce Yaffe, M.D. Director
*
- ---------------------
James M. Meyer Director May 11, 2000
*
- ---------------------
Cary S. Fitchey Director May 11, 2000
II-10
<PAGE>
- ---------------------
Lee S. Isgur Director
*By: S/ DAVID R. HUMBLE
- ---------------------
David R. Humble
Attorney-in-Fact
</TABLE>
II-11
<PAGE>
EXHIBIT INDEX
EX # EXHIBIT DESCRIPTION
23.2 Consent of Ernst & Young LLP - eDiets.com, Inc.
23.3 Consent of Ernst & Young LLP - Olas, Inc.
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated February 11, 2000 (except for the sixth paragraph of
Note 7, as to which the date is February 22, 2000), with respect to the
consolidated financial statements of eDiets.com, Inc. included in Amendment No.
3 to the Registration Statement (Form SB-2 No. 333-93971) and related Prospectus
of eDiets.com, Inc. dated May 11, 2000.
/s/ Ernst & Young LLP
West Palm Beach, Florida
May 11, 2000
EXHIBIT 23.3
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated December 9, 1999 with respect to the financial
statements of Olas, Inc. included in Amendment No. 3 to the Registration
Statement (Form SB-2 No. 333-93971) and related Prospectus of eDiets.com, Inc.
dated May 11, 2000.
/s/ Ernst & Young LLP
West Palm Beach, Florida
May 11, 2000
