SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________.
Commission File Number 0-30559
eDiets.com, Inc.
(Exact name of small business issuer as specified in its charter)
Delaware 65-0687110
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3467 W. Hillsboro Boulevard
Deerfield Beach, Florida 33342
(Address of principal executive offices)
(954) 360-9022
(Issuer's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ ] No [X]
Indicate the number of shares outstanding of each issuer's classes of common
equity, as of the latest practicable date.
At August 4, 2000, there were 13,553,109 shares of common stock, par value $.001
per share, outstanding.
Transitional Small Business Disclosure Format (check one): [ ] Yes [X] No
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Index to Items
Page
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Part I - Financial Information
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Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheet as of June 30, 2000 3
Condensed Consolidated Statements of Operations - Three months
and six months ended June 30, 2000 and 1999 4
Condensed Consolidated Statements of Cash Flows - Six months
ended June 30, 2000 and 1999 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 7
Part II - Other Information
---------------------------
Item 6. Exhibits and Reports on Form 8-K 11
Signature Page 12
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
EDIETS.COM, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
June 30, 2000
(In thousands)
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,599
Accounts receivable, net 253
Prepaid advertising costs 872
Prepaid expenses and other current assets 157
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Total current assets 3,881
Restricted cash 19
Property and equipment, net 753
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Total assets $ 4,653
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 804
Accrued liabilities 1,090
Current portion of capital lease obligations 63
Deferred revenue 1,321
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Total current liabilities 3,278
Capital lease obligations, net of current portion 125
STOCKHOLDERS' EQUITY:
Common stock 14
Additional paid-in capital 7,171
Unearned compensation (23)
Accumulated deficit (5,912)
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Total stockholders' equity 1,250
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Total liabilities and stockholders' equity $ 4,653
=======
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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EDIETS.COM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ---------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUE $ 2,266 $ 438 $ 3,400 $ 636
COSTS AND EXPENSES:
Cost of revenue 87 124 194 154
Product development 65 22 108 45
Sales and marketing 4,569 235 6,150 423
General and administrative 779 122 1,442 275
Depreciation and amortization 82 27 140 54
-------- -------- -------- --------
Total costs and expenses 5,582 530 8,034 951
-------- -------- -------- --------
Loss from operations (3,316) (92) (4,634) (315)
Other income, net 37 -- 111 --
-------- -------- -------- --------
Net loss $ (3,279) $ (92) $ (4,523) $ (315)
======== ======== ======== ========
LOSS PER COMMON SHARE - BASIC AND DILUTED $ (0.25) $ (0.01) $ (0.35) $ (0.04)
======== ======== ======== ========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 13,094 7,814 12,870 7,814
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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EDIETS.COM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months
Ended June 30,
-------------------
2000 1999
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(4,523) $ (315)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Depreciation and amortization 140 54
Provision for bad debt 34 --
Non-cash compensation 121 149
Changes in operating assets and liabilities:
Accounts receivable (179) 4
Prepaid expenses and other current assets (635) (38)
Accounts payable and accrued liabilities 1,029 (19)
Deferred revenue 868 372
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NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (3,145) 207
CASH FLOWS FROM INVESTING ACTIVITY:
Purchases property and equipment (343) (93)
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NET CASH USED IN INVESTING ACTIVITY (343) (93)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance costs of common stock (173) (16)
Repayment from shareholder -- (53)
Repayment of capital lease obligations (23) --
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NET CASH USED IN FINANCING ACTIVITIES (196) (69)
------- -------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (3,684) 45
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 6,283 44
------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,599 $ 89
======= =======
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES
Equipment acquired under capital leases $ 55 $ --
======= =======
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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EDIETS.COM, INC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000
(Unaudited)
1. Nature of Operations
eDiets.com, Inc. (the Company) was incorporated in the State of Delaware on
March 18, 1996 for the purpose of developing and marketing an Internet-based
diet and nutrition program. In addition to a personalized and regularly updated
plan, subscribers to the Company's program can also purchase related items and
attend online motivational meetings. The Company markets its program primarily
through advertising and other promotional arrangements on the World Wide Web.
2. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements included
herein, have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and note disclosures
normally included in annual financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted pursuant
to those rules and regulations. The Company believes that the disclosures made
are adequate to make the information presented not misleading. It is suggested
that these financial statements be read in conjunction with the financial
statements and the notes thereto for the year ended December 31, 1999 included
in the Company's Registration Statement on Form SB-2.
All the adjustments which, in the opinion of management, are considered
necessary for a fair presentation of the results of operations for the periods
shown are of a normal recurring nature and have been reflected in the unaudited
condensed consolidated financial statements.
Certain reclassifications have been made for consistent presentation.
Results of operations for the periods presented are not necessarily indicative
of the results that may be expected for the year ending December 31, 2000.
Advertising production costs which benefit periods within the fiscal year beyond
the interim period in which the expenditure is incurred are deferred and
amortized over the interim periods benefited.
3. Loss Per Share Amounts
Loss per common share is computed using the weighted average number of common
shares outstanding during the period. Common equivalent shares consist of the
incremental common shares issuable upon exercise of stock options and warrants
(using the treasury stock method). These options and warrants have not been
included in the computation of diluted earnings per share because such
instruments would have been antidilutive for all periods presented.
4. Stockholders' Equity
In connection with a private placement financing in the fourth quarter of 1999,
the Company agreed to issue to investors in the private placement an aggregate
of 907,813 shares of common stock in the event that the Company's Registration
Statement on Form SB-2 had not become effective and its common stock listed for
trading on the Nasdaq Small Cap Market by May 17, 2000. The Company issued those
shares in June 2000 since the common stock was not yet listed on the Nasdaq
Small Cap Market.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Certain statements made herein that use the words "estimate", "project",
"intend", "expect", "believe" and similar expressions are intended to identify
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. These forward-looking statements involve known
and unknown risks and uncertainties which could cause the actual results,
performance or achievements of the Company to be materially different from those
which may be expressed or implied by such statements. These risks and
uncertainties include, among others, changes in general economic and business
conditions, changes in product acceptance by consumers, effectiveness of sales
and marketing efforts, loss of market share and pressure on prices resulting
from competition, and inability to obtain sufficient financing. For additional
information regarding these and other risks and uncertainties associated with
eDiets.com business, reference is made to the prospectus in the Company's
Registration Statement on Form SB-2 and other reports filed from time to time
with the Securities and Exchange Commission. The Company undertakes no
obligation to publicly release the result of any revisions to these
forward-looking statements, which may be made to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated events. The
following discussion also should be read in conjunction with the Company's
Condensed Consolidated Financial Statements and Notes thereto included elsewhere
in this report.
OUR BUSINESS
We are one of the original marketers of customized fee-based diet programs
exclusively online. We have developed a proprietary software engine that enables
us to create a diet program that is unique to each individual and then deliver
it directly to the individual's home or office via the Internet.
We also publish [email protected], a newsletter that is an online diet information
resource. We currently email our newsletter twice a week to a community of over
2.3 million subscribers who have completed our questionnaire, received a
personal profile and have provided us with an email address. Our web site also
includes our Diet Store where we advertise a variety of health, fitness and
nutrition products which our users can purchase from third-party vendors.
RESULTS OF OPERATIONS
The following table sets forth the results of operations for the Company
expressed as a percentage of total revenue:
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ---------------------
2000 1999 2000 1999
--------------------- ---------------------
Revenue 100% 100% 100% 100%
Cost of revenue 4 28 6 24
Product development 3 5 3 7
Sales and marketing 202 53 181 67
General and administrative 34 29 42 44
Depreciation and amortization 4 6 4 8
Other income, net 2 - 3 -
Net loss (145) (21) (133) (50)
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THREE AND SIX MONTHS ENDED JUNE 30, 2000 AS COMPARED TO THREE AND SIX MONTHS
ENDED JUNE 30, 1999
Revenue increased 417% for the three months ended June 30, 2000 compared to the
three months ended June 30, 1999 and 435% to $3,400,000 for the six months ended
June 30, 2000 compared to $636,000 for the same period in 1999. The increase in
revenue for the three and six months ended June 30, 2000 was primarily due to
increased member subscriptions, which increased 740% and 625%, respectively, and
was principally the result of the Company's expansion of its online and offline
advertising combined with a lower priced membership compared to that of the
prior year.
Opt-in email revenue of $157,000 and $268,000 was recorded in the three and six
months ended June 30, 2000, respectively, from the sale of email addresses of
visitors to our web site who have authorized us to allow third party
solicitations. No opt-in email was recorded in the comparable period in 1999.
Advertising revenue of $30,000 and $76,000 was recorded in the three and six
months ended June 30, 2000, respectively, from the sale of advertising on the
Company's web site and is included in total revenues. No advertising revenue was
recorded in the comparable period for 1999.
As of June 30, 2000, the Company had deferred revenue of $1,321,000 relating to
membership payments for which services had not yet been provided.
Cost of revenue consist primarily of Internet access and service charges,
revenue sharing costs, and salary payments to the Company's nutritional staff.
The dollar increase for the six months ended June 30, 2000 as compared to the
corresponding period in the prior year was primarily attributable to increased
revenue sharing costs and additional personnel costs incurred for the Company's
nutritional staff. The dollar decrease for the three months ended June 30, 2000
as compared to the corresponding period in the prior year was primarily due to
compensation expense related to options granted to nutritional staff employees
at prices less than fair market value during the second quarter of 1999.
Product development costs consist primarily of salary payments to the Company's
development staff and related expenditures for technology, and software
development. Product development expenses dollar increases for the three and six
months ended June 30, 2000, as compared to the same periods in the prior year,
were primarily due to additional personnel costs related to creating and testing
new design concepts and tools to be used throughout the Company's web site.
Sales and marketing expenses consist primarily of internet and offline
advertising expenses and are generally incurred prior to the recognition of
revenues from sales generated from those efforts. Sales and marketing expenses
increased by $4,334,000 and $5,727,000 for the three and six months ended June
30, 2000 compared to the same periods in the prior year. The increase in sales
and marketing expenses was primarily due to the Company's more aggressive
advertising placements with major Internet portals, including American Online,
Yahoo, and iVillage and the commencement of an offline advertising campaign. At
June 30, 2000, the Company had approximately $460,000 of prepaid advertising
with these Internet portals.
Included in sales and marketing costs is $2,244,000, or 49% of total sales and
marketing expenses, expended as part of an offline advertising campaign that
began in the second quarter. This campaign, which was the first offline
advertising campaign for the Company, consisted of radio commercials and print
advertisements in magazines targeted to potential members. The results of the
offline campaign did not meet the Company's sales expectations as the Company's
internal reporting system reflected that only 13% of the new members acquired
during the quarter came from offline adverting. As a result of the poor offline
advertising campaign performance, the Company has
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terminated its agreement with its advertising agency and has halted any future
offline advertising spending not already committed. In connection with this, the
Company has accrued $154,000 for fees that may be required for early termination
under the agreement with its advertising agency. At June 30, 2000, the Company
had approximately $400,000 of prepaid advertising costs representing future
magazine advertisements committed to prior to the termination of the advertising
agency. These costs will be expensed in the third quarter.
General and administrative expenses consist primarily of salaries, overhead and
related costs for general corporate functions, including professional fees. The
dollar increases for the three and six months ended June 30, 2000 were primarily
due to the increases in personnel costs and general overhead.
Depreciation and amortization expenses increases for the three and six months
ended June 30, 2000 were primarily attributable to a greater amount of property
and equipment subject to depreciation and amortization as compared to the same
periods in the prior year.
Other income, net, which consist primarily of interest income, increased in the
current periods due to the investment of proceeds raised in the fourth quarter
of 1999 in connection with the Company's private placement financing.
As a result of the factors discussed above, the Company's net loss increased to
$3,279,000 and $4,523,000 for the three and six months ended June 30, 2000,
respectively, compared to $92,000 and $315,000 in the same periods in the prior
year.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2000, the Company had cash and cash equivalents of $2,599,000.
For the six months ended June 30, 2000, cash used in operating activities of
$3,145,000 related primarily to a net loss of $4,523,000 offset by a $1,029,000
increase in accounts payable and accrued expenses primarily due to internet and
offline advertising costs and an $868,000 increase in deferred revenue due to
the increase in subscriptions. Net cash used in investing activities was
$343,000 and was used for purchases of computer equipment. Net cash used in
financing activities was $196,000 and consisted primarily of costs incurred in
connection with the Company's private placement offering and subsequent
registration statement filed with the Securities and Exchange Commission.
Issuance costs have been treated as a reduction of proceeds from the transaction
and charged directly to equity.
As of June 30, 2000, the Company had no commitments for capital expenditures.
The Company has online advertising commitments with major Internet portals
totaling $15.3 million over the next two years, of which $9.1 million is payable
over the next twelve months. Management believes that cash and cash equivalents
will be sufficient to fund its working capital for at least the next twelve
months. To the extent the Company requires additional funds to support its
operations or the expansion of its business, the Company may seek to undertake
additional equity financing. There can be no assurance that additional
financing, if required, will be available to the Company in amounts or on terms
acceptable to the Company.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). SFAS 133 establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in
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other contracts) be recorded on the balance sheet as either an asset or
liability measured at its fair value. SFAS 133 requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. SFAS 133 cannot be applied retroactively and
was amended by SFAS 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of SFAS 133." The Company will adopt
SFAS 133 beginning January 1, 2001. Adoption of this statement is not expected
to have a material impact on the Company's consolidated financial position or
results of operations.
10
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PART II. OTHER INFORMATION
Items 1, 2, 3, 4 and 5 are omitted as they are either not applicable or have
been included in Part I.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27 - Financial Data Schedule
(b) During the three months ended June 30, 2000, the Company did not file any
reports on Form 8-K.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
eDiets.com, Inc.
/s/ DAVID R. HUMBLE
----------------------------------
DAVID R. HUMBLE
Chief Executive Officer
(Principal Executive Officer)
/s/ ROBERT T. HAMILTON
----------------------------------
ROBERT T. HAMILTON
Chief Financial Officer
(Principal Financial Officer)
DATE: August 9, 2000
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EXHIBIT INDEX
EXHIBIT DESCRIPTION
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27 Financial Data Schedule
