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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the Quarterly Period Ended March 31, 2004

For the Transition Period From              to             

Commission File Number 000-49871

HEALTHETECH, INC.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (303) 526-5085

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 by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

As of May 11, 2004, the number of shares outstanding of the registrant’s common stock, par value $0.001 per share, 7,086,215.

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PART I. FINANCIAL INFORMATION

ITEM 1. Unaudited Financial Statements

HEALTHETECH, INC.

Balance Sheets

Unaudited

The accompanying notes are an integral part of these unaudited financial statements.

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HEALTHETECH, INC.

Statements of Operations

Unaudited

The accompanying notes are an integral part of these unaudited financial statements.

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HEALTHETECH, INC.

Statements of Cash Flows

Unaudited

The accompanying notes are an integral part of these unaudited financial statements.

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HEALTHETECH, INC.

UNAUDITED NOTES TO FINANCIAL STATEMENTS

(1) Business and Basis of Financial Statement Presentation

HealtheTech, Inc. (the Company or HealtheTech) was incorporated in February 1998 under the laws of the State of Delaware. The Company operates in one segment and develops and markets health solutions designed to give consumers simple, informative ways to improve and maintain health and wellness.

The accompanying financial statements as of March 31, 2004 and for the three months ended March 31, 2004 and 2003 are unaudited and have been prepared in accordance with generally accepted accounting principles on a basis consistent with the December 31, 2003 audited financial statements and include normal recurring adjustments which are, in the opinion of management, necessary for a fair statement of the results of these periods. These statements should be read in conjunction with our financial statements and notes thereto included in our Form 10-K (Commission File No. 000-49871), filed on March 29, 2004. Operating results for the three months ended March 31, 2004 are not necessarily indicative of the results that may be expected for the full year.

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 consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ significantly from those estimates.

The Company’s financial statements are based on several significant estimates, including the reserve for warranty obligations and product returns, provision for excess and obsolete inventory, provision for doubtful accounts and the estimated useful lives of long-lived assets, as well as the recoverability of the investment in long-lived assets.

(2) Significant Accounting Policies

(a) Cash and Cash Equivalents and Restricted Cash

All highly liquid investments purchased with original maturities of three months or less are considered to be cash equivalents.

(b) Inventory

Inventory is stated at the lower of cost or market, using the first-in, first-out method and consists of purchased items or finished goods that were manufactured internally or for the Company by contract manufacturers. Our strategy utilizes both in-house and outsourced manufacturing, warehousing and shipping of our health monitoring devices, disposables and software to benefit from the resources of our contract manufacturers and fulfillment vendor where appropriate, in order to minimize the overall costs of our products. We rely on contractors for the manufacture, warehousing and shipping of the component parts for our devices. The Company is contractually required to purchase from a manufacturer raw materials and work-in-process that such manufacturer has purchased or processed based on the Company’s initial forecasts, but which will not be utilized within 90 days due to subsequently revised forecasts. The Company normally leaves such inventory at the manufacturer, but can request it to be shipped to another location, and bears risk of loss due to obsolescence and other general inventory risk other than pilferage or mishandling by the manufacturer.

(c) Intangible Assets

Intangible assets consist of purchased patents and legal fees to obtain patents and are recorded at cost. Amortization of intangible assets is calculated using the straight-line method over the estimated useful lives, generally five to ten years. Amortization expense was $144,246 and $48,945 for the three months ending March 31, 2003 and 2004, respectively. The large drop in amortization year over year is a result of a $1.7 million impairment charge taken in the second and third quarter of 2003. The Company periodically evaluates the recoverability of intangible assets and takes into account events and circumstances that warrant revised estimates of useful lives or that indicate that impairment exists.

(d) Accrued liabilities

Accrued liabilities consists of the following:

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(e) Deferred Revenue

Deferred revenue primarily consists of payments received upon sale of our BalanceLog Pro software product which are recognized ratably over the contract period.

(f) Fair Value of Financial Instruments

The carrying amounts of the Company’s financial instruments, including, cash and cash equivalents, restricted cash, short-term investments, accounts receivable, accounts payable and accrued expenses, approximate fair value due to their short-term nature.

(g) Research and Development Costs and Software Development Costs

Research and development costs are expensed as incurred and consist of salaries and other direct costs. SFAS No. 86, Accounting for the Costs of Computer Software to Be Sold, Leased or Otherwise Marketed, (SFAS No. 86) requires the capitalization of certain software development costs once technological feasibility is established. The Company’s software is deemed to be technologically feasible at the point a working model of the software product is developed. Through March 31, 2004, the period between achieving technological feasibility and general availability of such software has been short. Consequently, software development costs qualifying for capitalization have been insignificant.

(h) Revenue

The Company generates revenue from the sale of its products, software and licensing arrangements. Revenue from the sale of products is recognized when evidence of an arrangement exists, ownership transfers to the customer or distributor, the price is fixed and collectibility is probable. Revenue from the sale of measurements under the new sales model is recognized using the same criteria as product revenue. The software component of the Company’s products is considered incidental under Statement of Position (SOP) 97-2, Software Revenue Recognition.

Software fees are comprised of sales of prepackaged software that can be sold independently or in conjunction with product sales. Software fees are recognized according to the criteria of SOP 97-2, as amended. Revenue is recognized upon execution of a license agreement or signed written contract with fixed or determinable fees, shipment or electronic delivery of the product, and when collection of the receivable is probable. Software sales are to consumers who install the software themselves and pay via credit card prior to shipment.

Service revenue, including training and consulting services, is recognized as services are performed. Licensing fees are recognized ratably over the contract term.

Cost of product revenue consists primarily of purchases of products from contract manufacturers, warranty reserves, royalty payments, obsolescence reserves and costs of personnel directly related to managing the supply chain and related overhead. Cost of software revenue primarily consists of purchases of product. Additionally, costs of shipping are included in software and other costs of revenue.

The Company provides a 30 day right of return on software sales and a limited warranty on its software products for 90 days from the date of purchase. However, as returns and warranty claims have been insignificant, no reserve has been established.

In general, the Company does not provide price protection or a right of return on health monitoring devices. The Company provides a limited warranty on its devices for periods of 12 to 15 months.

(i) Stock-Based Charges

Through December 31, 2002, the Company accounted for its stock option plans in accordance with the provisions of Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. Generally, compensation expense was recorded for options issued to employees and directors on the date of grant only if the current estimated fair value of the underlying common stock exceeds the exercise price of the option using the intrinsic value method. In the fourth quarter of 2003, retroactive to January 1, 2003, the Company adopted the fair value recognition provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation (FASB 123,) prospectively to all employee awards granted, modified, or settled after January 1, 2003.

The Company has four stock-based employee compensation plans and presently utilizes only two of those to make current stock option grants. The following table illustrates the effect on net loss if the Company had applied the fair value based measurement and recognition provisions of SFAS No. 123 to stock-based employee compensation for the three months ended March 31, 2003 and 2004. Stock-based employee compensation costs exclude charges recognized for the issuance of warrants.

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The Company accounts for non-employee stock based awards in accordance with SFAS No. 123 and related interpretations. Stock options are valued using the Black-Scholes option-pricing model. Prior to the Compa