-------------------------------------------------------------------------------- -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _______________ FORM 10-QSB/A Amendment No. 1 _______________ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2001 Commission File Number 0-30559 eDiets.com, Inc. (Exact name of small business issuer as specified in its charter) Delaware 56-0952883 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 3801 W. Hillsboro Boulevard Deerfield Beach, Florida 33442 (Address of principal executive offices) (954) 360-9022 (Issuer's telephone number, including area code) _______________ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___ Indicate the number of shares outstanding of each issuer's classes of common equity, as of the latest practicable date. At August 6, 2001, there were 13,586,566 shares of common stock, par value $.001 per share, outstanding. Transitional Small Business Disclosure Format (check one): ____Yes X No --- Explanatory Note: This amendment on Form 10-QSB/A amends the registrant's quarterly report on Form 10-QSB for the quarterly period ended June 30, 2001 as filed by the registrant on August 8, 2001, and is being filed to reflect the restatement of the registrant's unaudited condensed consolidated financial statements. See Note 8 to the unaudited condensed consolidated financial statements. -------------------------------------------------------------------------------- Index to Items Page ---- Part I - Financial Information ------------------------------ Item 1. Financial Statements (Unaudited) Condensed Consolidated Balance Sheet (Restated) as of June 30, 2001 3 Condensed Consolidated Statements of Operations (Restated) - Three months and six months ended June 30, 2001 and 2000 4 Condensed Consolidated Statements of Cash Flows (Restated) - Six months ended June 30, 2001 and 2000 5 Notes to Condensed Consolidated Financial Statements (Restated) 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Part II - Other Information --------------------------- Item 6. Exhibits and Reports on Form 8-K 13 Signature Page 14 2 PART I. FINANCIAL INFORMATION Item 1. Financial Statements EDIETS.COM, INC. CONDENSED CONSOLIDATED BALANCE SHEET June 30, 2001 (In thousands) (Unaudited) ASSETS CURRENT ASSETS: (Restated) Cash and cash equivalents $ 1,867 Accounts receivable, net 442 Prepaid advertising costs 333 Prepaid expenses and other current assets 226 ---------- Total current assets 2,868 Restricted cash 238 Prepaid advertising costs 1,043 Property and equipment, net 930 ---------- Total assets $ 5,079 ========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 391 Accrued liabilities 1,593 Current portion of capital lease obligations 120 Deferred revenue 2,549 ---------- Total current liabilities 4,653 Capital lease obligations, net of current portion 141 STOCKHOLDERS' EQUITY: Common stock 14 Additional paid-in capital 7,308 Unearned compensation (5) Accumulated deficit (7,032) ---------- Total stockholders' equity 285 ---------- Total liabilities and stockholders' equity $ 5,079 ========== The accompanying notes are an integral part of these condensed consolidated financial statements. 3 EDIETS.COM, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) (Unaudited) Three Months Ended Six Months Ended June 30, June 30, ---------------------------- ------------------------------- 2001 2000 2001 2000 (Restated) (Restated) ------------- ---------- ------------ ------------ REVENUE $ 5,774 $ 2,266 $ 10,144 $ 3,400 COSTS AND EXPENSES: Cost of revenue 227 110 522 238 Product development 127 65 208 108 Sales and marketing 4,555 4,569 7,669 6,150 General and administrative 966 756 1,726 1,398 Depreciation and amortization 118 82 216 140 -------- -------- -------- -------- Total costs and expenses 5,993 5,582 10,341 8,034 -------- -------- -------- -------- Loss from operations (219) (3,316) (197) (4,634) Other income, net 3 37 7 111 Provision for income taxes (4) - (4) - -------- -------- -------- -------- Net loss $ (220) $ (3,279) $ (194) $ (4,523) ======== ======== ======== ======== Loss per common share Basic and diluted $ (0.02) $ (0.25) $ (0.01) $ (0.35) ======== ======== ======== ======== Weighted average common shares outstanding Basic and diluted 13,562 13,094 13,557 12,870 ======== ======== ======== ======== The accompanying notes are an integral part of these condensed consolidated financial statements. 4 EDIETS.COM, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) Six Months Ended June 30, ------------------------------------- 2001 2000 (Restated) --------------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (194) $ (4,523) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 216 140 Provision (recovery) for bad debt (6) 34 Non-cash compensation 121 121 Changes in operating assets and liabilities: Accounts receivable 224 (179) Prepaid expenses and other current assets (415) (635) Restricted cash (118) - Accounts payable and accrued liabilities 60 1,029 Deferred revenue 1,197 868 ------------------ ---------------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 1,085 (3,145) CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (249) (343) ------------------ ---------------- NET CASH USED IN INVESTING ACTIVITIES (249) (343) CASH FLOWS FROM FINANCING ACTIVITIES: Issuance costs of common stock (10) (173) Repayment of capital lease obligations (46) (23) ------------------ ---------------- NET CASH USED IN FINANCING ACTIVITIES (56) (196) ------------------ ---------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 780 (3,684) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,087 6,283 ------------------ ---------------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,867 $ 2,599 ================== ================= SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES Value of warrants issued for services $ 158 $ - ================== ================= Equipment acquired under capital leases $ 149 $ 55 ================== ================= The accompanying notes are an integral part of these condensed consolidated financial statements. 5 EDIETS.COM, INC NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS June 30, 2001 (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. All the adjustments which, in the opinion of management, are considered necessary for a fair presentation of the results of operations for the periods shown are of a normal recurring nature and have been reflected in the unaudited condensed consolidated financial statements. Results of operations for the three and six months ended June 30, 2001 are not necessarily indicative of the results that may be expected for the year ending December 31, 2001. The information included in these unaudited condensed consolidated financial statements should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations contained in this report and the consolidated financial statements and accompanying notes included in the Company's Annual Report on Form 10-KSB for the fiscal year ended December 31, 2000. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. While the Company believes that such estimates are fair when considered in conjunction with the condensed consolidated financial position and results of operations taken as a whole, the actual amount of such estimates, when known, may vary from these estimates. 3. Stockholders' Equity In connection with the Company's 1999 Private Placement, the Company had issued 640,625 warrants, each to purchase one share of common stock at an exercise price of $2.50 per share, to the placement agent. The quantity and price of such warrants were subject to adjustment in certain events. On March 28, 2001 an adjustment was made to the quantity and price of the placement agent warrants. Under the terms of the modified warrant agreement, the placement agent and its designees now hold 950,000 warrants, each to purchase one share of common stock at an exercise price of $1.38 per share. Such warrants remain exercisable through November 2004 and under the modified agreement are now redeemable at the option of the Company upon the occurrence of certain events. The excess of the fair value of the new warrants over the value of the original warrants at the date of modification was charged to equity during the quarter ended March 31, 2001. 6 EDIETS.COM, INC NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) In January 2001, the Company entered into a consulting agreement whereby the consultant is to work with management to strategize and coordinate all public, media and investor relations efforts of the Company for a one-year period. As compensation to the consultant, the Company issued 400,000 warrants with an exercise price of $0.75 per share. The warrants had immediate vesting and are exercisable through January 2004. The fair value of the warrants totaled approximately $160,000, of which approximately $80,000 has been recognized as compensation expense in the condensed consolidated statement of operations for the six months ended June 30, 2001. 4. Equity Investment The Company has an investment in a foreign joint venture that is accounted for under the equity method of accounting. Under the equity method of accounting, the Company's share of the investee's earnings or loss is included in consolidated operating results. To date, the Company's basis and current commitment in its investment accounted for under the equity method of accounting have not been significant. As a result, this investment has not significantly impacted the Company's results of operations or its financial position. 5. Loss Per Common Share Basic loss per common share is computed using the weighted average number of common shares outstanding during the period. Potential common shares consist of the incremental common shares issuable upon exercise of stock options and warrants (using the treasury stock method). Potential common shares outstanding have not been included in the computation of diluted loss per share for all periods presented, as their effect is anti-dilutive. 6. Income Taxes Income tax expense for the three and six months ended June 30, 2001 was $4,000 and relates to a provision for alternative minimum taxes as the Company expects to be able to offset substantially all taxable income for the current year with available net operating loss carryforwards from prior years. 7. Subsequent Event On July 6, 2001, the Company and DietSmart, Inc. a Delaware corporation ("DietSmart"), entered into a Letter Agreement (the "Letter Agreement"), pursuant to which the Company agreed to acquire all of the outstanding capital stock of DietSmart for (i) 2 million shares of common stock, par value $.001 per share, of the Company, and (ii) $2.5 million in cash, payable in installments with interest beginning on the closing date and continuing over a period of time not to exceed 15 months. The closing of the transaction is conditioned upon, among other things, satisfactory completion by each of the parties of a confirmatory due diligence review and the negotiation and execution of definitive documentation (including employment agreements with certain executive members of DietSmart), which the parties are obligated in good faith to negotiate, execute and deliver. In the event the definitive agreements are not entered into on or prior to August 20, 2001, under certain circumstances, the Company will be obligated to pay DietSmart a fee of $250,000 plus reimburse DietSmart for up to $50,000 of legal expenses incurred by DietSmart in connection with the transaction. Subsequent to the execution of the Letter Agreement, on July 11, 2001 eDiets loaned DietSmart $50,000. 7 EDIETS.COM, INC NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) 8. Restatement of Financial Statements On February 12, 2002 the Company announced the restatement of its results of operations for the three and six months ended June 30, 2001. The Company determined that certain diet and fitness subscription payment plans launched in the latter half of its second quarter had not been incorporated into the Company's deferred revenue calculations at June 30, 2001, and, as a result, the unaudited consolidated financial statements for the three and six months ended June 30, 2001 should be restated. The balance sheet as of June 30, 2001 and the statement of operations for the three and six months ended June 30, 2001 presented herein reflect the restatement as follows (in thousands, except per share data): As Previously Reported As Restated --------------- ------------ Balance Sheet as of June 30, 2001: Deferred revenue $ 2,174 $ 2,549 Accumulated deficit (6,657) (7,032) Stockholders' equity 660 285 As Previously Reported As Restated -------------- ------------ Statements of Operations: Three months ended June 30, 2001 -------------------------------- Revenue $ 6,149 $ 5,774 Net income (loss) 155 (220) Earnings (loss) per common share Basic and diluted 0.01 (0.02) Six months ended June 30, 2001 ------------------------------ Revenue $ 10,519 $ 10,144 Net income (loss) 181 (194) Earnings (loss) per common share Basic and diluted 0.01 (0.01) 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS Subsequent to the issuance of the Company's financial statements for the three and six months ended June 30, 2001 the Company concluded that the calculation for deferred revenue did not include all the necessary information to be complete, and, as a result, the unaudited consolidated financial statements for the three and six months ended June 30, 2001 should be restated. The information contained in this Current Report on Form 10-QSB/A, other than historical information may include forward-looking statements as defined in the Private Securities Reform Act of 1995. Words such as "may," "will," "expect," "anticipate," "believe," "estimate," "plan," "intend" and similar expressions in this report identify forward-looking statements. The forward-looking statements are based on current views with respect to future events and financial performance. Actual results may differ materially from those projected in the forward-looking statements. The forward-looking statements are subject to risks, uncertainties and assumptions, including, among other things those: - associated with the Company's ability to meet its' financial obligations; - associated with the relative success of marketing and advertising; - associated with the continued attractiveness of the Company's diets and fitness programs; - competition, including price competition and competition with self-help weight loss and medical programs; - adverse results in litigation and regulatory matters, more aggressive enforcement of existing legislation or regulations, a change in the interpretation of existing legislation or regulations, or promulgation of new or enhanced legislation or regulations; and - general economic and business conditions For additional information regarding these and other risks and uncertainties associated with our business, reference is made to the Company's Annual Report filed on Form 10-KSB for the fiscal year ended December 31, 2000 and other reports filed by the Company from time to time with the Securities and Exchange Commission. No obligation is undertaken by the Company 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 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, which we call our eDiets program, that is unique to each consumer and then deliver it directly to the individual's home or office via the Internet. 9 We also publish eDiets News, a newsletter that is an online diet information resource. We currently email our newsletter four times a week to a community of over 6.2 million consumers who have completed our questionnaire, received a personal profile and have provided us with an email address. In November 2000, we entered into a joint venture with Unislim Ireland, Limited, the leading weight loss center business in Ireland, to market our online weight loss programs in Europe, Australia and New Zealand. Under the terms of our joint venture agreement, we received a 60% interest in the joint venture primarily in return for the license of our international technology rights to the joint venture. The initial international launch occurred in the United Kingdom in March 2001. In January 2001, we launched a personalized exercise and fitness program to supplement our basic diet program. Our fitness model contains personalized workout schedules, complete with animated exercise instruction. 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, -------------------- ------------------ 2001 2000 2001 2000 (Restated) (Restated) -------------------- ------------------ Revenue 100% 100% 100% 100% Cost of revenue 4 5 5 7 Product development 2 3 2 3 Sales and marketing 79 202 76 181 General and administrative 17 33 17 41 Depreciation and amortization 2 4 2 4 Other income, net * 2 * 3 Income taxes * - * - Net loss (4) (145) (2) (133) * less than 1% THREE AND SIX MONTHS ENDED JUNE 30, 2001 AS COMPARED TO THREE AND SIX MONTHS ENDED JUNE 30, 2000 Revenue increased 155% for the three months ended June 30, 2001 compared to the three months ended June 30, 2000 and 198% to $10,144,000 for the six months ended June 30, 2001 compared to $3,400,000 for the same period in 2000. The increase in revenue for the three and six months ended June 30, 2001 was primarily due to the increased number of subscribers to our diet program and, to a lesser extent, an increase in membership prices in the first quarter. Unique members during the three months ended June 30, 2001 were approximately 275,000 as compared to 130,000 unique members for the same period in the prior year. Paying members as of June 30, 2001 were approximately 207,000 compared to 107,000 as of June 30, 2000. The principal reason for the increase in the number of our members was the expansion of our online advertising efforts and the continued success in the Company's internal marketing efforts via its newsletters. Approximately 8% and 7% of our revenues in the three and 10 six months ended June 30, 2001, respectively, came from additional sources of revenue such as opt-in email revenue, advertising revenue, affiliate or commission revenue and e-commerce revenue. As of June 30, 2001, the Company had deferred revenue of $2,549,000 relating to membership payments for which services had not yet been provided. Cost of revenue consists primarily of Internet access and service charges, revenue sharing costs, consulting costs for professionals that provide online meetings, and salary payments to the Company's nutritional staff. Cost of revenue increased to $227,000 and $522,000 for the three and six months ended June 30, 2001, respectively, as compared to $110,000 and $238,000 for the same periods in the prior year, respectively. The dollar increases were primarily attributable to increased revenue sharing costs and additional personnel costs incurred for our nutritional staff. Product development costs consist primarily of salary payments to our development staff and related expenditures for technology and software development. Product development expenses increased to $127,000 and $208,000 for the three and six months ended June 30, 2001, respectively, as compared to $65,000 and $108,000 for the corresponding periods in the prior year, respectively. The dollar increases 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 advertising expenses and are generally incurred prior to the recognition of revenues from sales generated from those efforts. Sales and marketing expenses decreased by $14,000 for the three months ended June 30, 2001, and increased by $1,519,000 for the six months ended June 30, 2001, as compared to the same periods in the prior year. The change in sales and marketing expenses was primarily due to the Company's more extensive advertising placements with major Internet portals, including several of the American Online websites, Women.com, iVillage, Microsoft and eUniverse offset by the minimal use of offline advertising in the current periods. Included in sales and marketing expenses for the 2000 periods is a $3.0 million expense related to the offline advertising campaign that began in the second quarter of 2000. This campaign, which was the first offline advertising campaign for the Company, consisted of radio commercials and print advertisements in magazines targeted to potential members. New members from the campaign were less than expected and as a result the Company terminated its agreement with its advertising agency in June 2000 and halted any future offline advertising spending not already committed. At June 30, 2001, the Company had approximately $1,376,000 of prepaid advertising related to future advertising with these Internet portals. General and administrative expenses consist primarily of salaries, overhead and related costs for general corporate functions, including professional fees. General and administrative expenses increased to $966,000 and $1,726,000 for the three and six months ended June 30, 2001, respectively, from $756,000 and $1,398,000 for the same periods in the prior year, respectively. The dollar increases were primarily due to increases in personnel costs, professional fees and general overhead. Depreciation and amortization expenses increased to $118,000 and $216,000 for the three and six months ended June 30, 2001, respectively, from $82,000 and $140,000 for the corresponding periods in the prior year, respectively. The increases were primarily attributable to a greater amount of property and equipment subject to depreciation and amortization as compared to the same periods in the prior year. Other income, net, which consists primarily of interest income, decreased by $34,000 and $104,000 for the three and six months ended June 30, 2001, respectively, from the corresponding periods in the prior year. The decrease was primarily due to a lower average invested cash balance for the current periods as compared to the same periods in the prior year. 11 Income tax expense for the three and six months ended June 30, 2001 relate to a provision for alternative minimum taxes as the Company expects to be able to offset substantially all taxable income for the current year with available net operating loss carryforwards from prior years. As a result of the factors discussed above, we recorded a net loss of $220,000 and $194,000 for the three and six months ended June 30, 2001, respectively, compared to a net loss of $3,279,000 and $4,523,000 in the same periods in the prior year, respectively. LIQUIDITY AND CAPITAL RESOURCES As of June 30, 2001, the Company had cash and cash equivalents of $1,867,000. For the six months ended June 30, 2001, net cash provided by operating activities of $1,085,000 was primarily due to an increase in deferred revenue and a decrease in accounts receivable. Net cash used in investing activities was $249,000 and related to purchases of computer equipment and furniture. Net cash used in financing activities was $56,000 for the period and was principally used for the repayment of capital lease obligations. We have online advertising commitments with major Internet portals totaling approximately $7.5 million over the next two years, of which approximately $5.8 million is payable over the next twelve months. In December 2000, we obtained an irrevocable standby letter of credit from a bank in the amount of $75,000 that expires in January 2002. In March 2001, we increased the letter of credit to $200,000. The letter of credit is collaterized by our cash equivalents and is being used to guarantee the obligations under capital leases for computer servers. As of June 30, 2001 we had approximately $149,000 in leased equipment against the letter of credit. Management believes that cash on hand and cash flows from operations will be sufficient to fund its working capital and capital expenditures 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. 12 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) The following exhibits are included herein: 10.1 Amendment to Interactive Services Agreement dated May 23, 2001 between the Company and America Online, Inc. (1) (2) 10.2 Amendment to Master Advertising Agreement dated June 4, 2001 between the Company and Microsoft Corporation (1) (2) 10.3 Second Amendment to Content License Agreement dated June 25, 2001 between the Company and Yahoo! Inc. (1) (2) (1) Confidential treatment requested pursuant to Rule 24B-2 promulgated under the Securities Exchange Act of 1934. Confidential portions of this document have been redacted and have been filed separately with the SEC. (2) Incorporated by reference to the Registrant's Form 10-QSB for the quarterly period ended June 30, 2001 and filed with the SEC on August 8, 2001. (b) During the three months ended June 30, 2001, the Company did not file any reports on Form 8-K. 13 SIGNATURE --------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. eDiets.com, Inc. /s/ ROBERT T. HAMILTON ----------------------- ROBERT T. HAMILTON Chief Financial Officer (Principal Financial Officer) DATE: February 13, 2002 14