x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
Delaware
|
|
13-3714405
|
(State
or other jurisdiction
of
organization)
|
|
(I.R.S.
employer
identification
no.)
|
Class
|
|
Outstanding at
November 7, 2007
|
Common
stock, $.001 par value per share
|
|
13,709,098
shares
|
Financial
Information:
|
||
Condensed
Consolidated Balance Sheets -
|
||
September
30, 2007 (unaudited) and December 31, 2006 (audited)
|
3
|
|
Condensed
Consolidated Statements of Income -
|
||
Three
and Nine Months Ended September 30, 2007 and 2006 (unaudited)
|
4
|
|
Condensed
Consolidated Statements of Cash Flows -
|
||
Nine
Months Ended September 30, 2007 and 2006 (unaudited)
|
5
|
|
Notes
to Condensed Consolidated Financial Statements
|
7
|
|
Management
Discussion and Analysis of Financial Condition
|
||
and
Results of Operations
|
14
|
|
Part
II
|
||
Exhibits
|
22
|
|
|
EX
31.1
|
|
EX
31.2
|
||
EX
32.1
|
MEDIFAST,
INC. AND SUBSIDIARIES
|
|||||||
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
|||||||
(Unaudited)
|
(Audited)
|
||||||
(Restated)
|
|||||||
September
30, 2007
|
December
31, 2006
|
||||||
ASSETS
|
|||||||
Current
assets:
|
|||||||
Cash
and cash equivalents
|
$
|
2,102,000
|
$
|
1,085,000
|
|||
Accounts
receivable-net of allowance for doubtful accounts
|
425,000
|
448,000
|
|||||
of
$100,000
|
|||||||
Inventory
|
8,471,000
|
8,255,000
|
|||||
Investment
securities
|
1,477,000
|
1,540,000
|
|||||
Deferred
compensation
|
830,000
|
673,000
|
|||||
Prepaid
expenses and other current assets
|
3,208,000
|
2,599,000
|
|||||
Note
receivable - current
|
174,000
|
174,000
|
|||||
Current
portion of deferred tax asset
|
91,000
|
90,000
|
|||||
Total
current assets
|
16,778,000
|
14,864,000
|
|||||
Property,
plant and equipment - net
|
16,005,000
|
14,020,000
|
|||||
Trademarks
and intangibles - net
|
5,749,000
|
5,874,000
|
|||||
Deferred
tax asset, net of current portion
|
807,000
|
517,000
|
|||||
Note
receivable, net of current assets
|
1,250,000
|
1,355,000
|
|||||
Other
assets
|
84,000
|
47,000
|
|||||
TOTAL
ASSETS
|
$
|
40,673,000
|
$
|
36,677,000
|
|||
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|||||||
Current
liabilities:
|
|||||||
Accounts
payable and accrued expenses
|
$
|
2,805,000
|
$
|
2,913,000
|
|||
Income
taxes payable
|
101,000
|
535,000
|
|||||
Line
of credit
|
-
|
1,256,000
|
|||||
Current
maturities of long-term debt
|
1,460,000
|
548,000
|
|||||
Total
current liabilities
|
4,366,000
|
5,252,000
|
|||||
Other
liabilities and deferred credits
|
|||||||
Long-term
debt, net of current portion
|
4,615,000
|
3,509,000
|
|||||
Total
liabilities
|
8,981,000
|
8,761,000
|
|||||
Stockholders'
Equity:
|
|||||||
Preferred
stock, $.001 par value (1,500,000 authorized, no shares issued
and
outstanding)
|
-
|
-
|
|||||
Common
stock; par value $.001 per share; 20,000,000 shares
authorized;
|
|||||||
13,709,098
and 13,631,898 shares issued and outstanding
|
14,000
|
14,000
|
|||||
Additional
paid-in capital
|
26,930,000
|
26,629,000
|
|||||
Accumulated
other comprehensive income
|
367,000
|
334,000
|
|||||
Retained
earnings
|
9,216,000
|
5,981,000
|
|||||
36,527,000
|
32,958,000
|
||||||
Less:
cost of 270,534 and 249,184 shares of common stock in
treasury
|
(1,971,000
|
)
|
(1,686,000
|
)
|
|||
Less:
Unearned compensation
|
(2,864,000
|
)
|
(3,356,000
|
)
|
|||
Total
stockholders' equity
|
31,692,000
|
27,916,000
|
|||||
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
|
$
|
40,673,000
|
$
|
36,677,000
|
MEDIFAST,
INC. AND SUBSIDIARIES
|
|||||||||||||
CONDENSED
CONSOLIDATED STATEMENTS OF INCOME
|
|||||||||||||
(Unaudited)
|
|||||||||||||
Three
Months Ended September 30,
|
Nine
Months Ended September 30,
|
||||||||||||
2007
|
2006
|
2007
|
2006
|
||||||||||
(Restated)
|
(Restated)
|
||||||||||||
Revenue
|
$
|
21,846,000
|
$
|
19,642,000
|
$
|
63,975,000
|
$
|
58,779,000
|
|||||
Cost
of sales
|
5,523,000
|
4,705,000
|
15,944,000
|
14,334,000
|
|||||||||
Gross
Profit
|
16,323,000
|
14,937,000
|
48,031,000
|
44,445,000
|
|||||||||
Selling,
general, and administration
|
14,766,000
|
13,166,000
|
43,116,000
|
37,362,000
|
|||||||||
|
|
|
|
||||||||||
Income
from operations
|
1,557,000
|
1,771,000
|
4,915,000
|
7,083,000
|
|||||||||
Other
income/(expense)
|
|||||||||||||
Interest
expense, net
|
(159,000
|
)
|
(42,000
|
)
|
(284,000
|
)
|
(134,000
|
)
|
|||||
Other
income
|
2,000
|
24,000
|
90,000
|
184,000
|
|||||||||
(157,000
|
)
|
(18,000
|
)
|
(194,000
|
)
|
50,000
|
|||||||
Income
before provision for income taxes
|
1,400,000
|
1,753,000
|
4,721,000
|
7,133,000
|
|||||||||
Provision
for income tax (expense)
|
(446,000
|
)
|
(298,000
|
)
|
(1,486,000
|
)
|
(2,219,000
|
)
|
|||||
Net
income
|
$
|
954,000
|
$
|
1,455,000
|
$
|
3,235,000
|
$
|
4,914,000
|
|||||
Basic
earnings per share
|
$
|
0.07
|
$
|
0.11
|
$
|
0.25
|
$
|
0.39
|
|||||
Diluted
earnings per share
|
$
|
0.07
|
$
|
0.11
|
$
|
0.24
|
$
|
0.36
|
|||||
Weighted
average shares outstanding -
|
|
|
|
|
|||||||||
Basic
|
12,982,730
|
12,767,629
|
12,939,562
|
12,657,842
|
|||||||||
Diluted
|
13,683,809
|
13,603,208
|
13,640,641
|
13,493,421
|
MEDIFAST,
INC. AND SUBSIDIARIES
|
|||||||
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|||||||
(Unaudited)
|
|||||||
Nine
Months Ended September 30,
|
|||||||
2007
|
2006
|
||||||
(Restated)
|
|||||||
Cash
flows from operating activities:
|
|||||||
Net
income
|
$
|
3,235,000
|
$
|
4,914,000
|
|||
Adjustments
to reconcile net income to net cash
|
|||||||
provided
by operating activities from
|
|||||||
continuing
operations:
|
|||||||
Depreciation
and amortization
|
2,536,000
|
1,633,000
|
|||||
Realized
(gain) loss on investment securities
|
43,000
|
(62,000
|
)
|
||||
Loss
on sale of Consumer Choice Systems
|
-
|
323,000
|
|||||
Common
stock issued for services
|
21,000
|
64,000
|
|||||
Stock
options vested during period
|
77,000
|
18,000
|
|||||
Excess
tax benefits from share-based payment arrangements
|
(30,000
|
)
|
6,000
|
||||
Vesting
of unearned compensation
|
492,000
|
346,000
|
|||||
Net
change in other comprehensive income (loss)
|
33,000
|
(74,000
|
)
|
||||
Deferred
income taxes
|
(291,000
|
)
|
(563,000
|
)
|
|||
|
|||||||
Changes
in assets and liabilities:
|
|||||||
Decrease
in accounts receivable
|
23,000
|
56,000
|
|||||
(Increase)
in inventory
|
(216,000
|
)
|
(1,048,000
|
)
|
|||
(Increase)
in prepaid expenses & other current assets
|
(609,000
|
)
|
(2,886,000
|
)
|
|||
(Increase)
in deferred compensation
|
(157,000
|
)
|
346,000
|
||||
(
Increase) in prepaid taxes
|
-
|
(115,000
|
)
|
||||
(Increase)
decrease in other assets
|
(37,000
|
)
|
23,000
|
||||
(Decrease)
Increase in accounts payable and accrued expenses
|
(108,000
|
)
|
398,000
|
||||
(Decrease)
in income taxes payable
|
(434,000
|
)
|
(516,000
|
)
|
|||
Net
cash provided by operating activities
|
4,578,000
|
2,863,000
|
|||||
Cash
Flow from Investing Activities:
|
|||||||
Sales
of investment securities
|
30,000
|
341,000
|
|||||
(Purchase)
of property and equipment
|
(3,551,000
|
)
|
(2,745,000
|
)
|
|||
(Purchase)
of intangible assets
|
(844,000
|
)
|
(607,000
|
)
|
|||
Net
cash (used in) investing activities
|
(4,365,000
|
)
|
(3,011,000
|
)
|
|||
Cash
Flow from Financing Activities:
|
|||||||
Issuance
of common stock, options and warrants
|
216,000
|
658,000
|
|||||
Increase
(repayment) of long-term debt, net
|
(138,000
|
)
|
(433,000
|
)
|
|||
Increase
(Decrease) in line of credit, net
|
900,000
|
(21,000
|
)
|
||||
Decrease
in note receivable
|
105,000
|
-
|
|||||
Excess
tax benefits from share-based payment arrangements
|
30,000
|
(6,000
|
)
|
||||
(Purchase)
of treasury stock
|
(309,000
|
)
|
(420,000
|
)
|
|||
Net
cash provided by (used in) financing activities
|
804,000
|
(222,000
|
)
|
||||
NET
INCREASE (DECREASE) IN CASH AND
|
|||||||
CASH
EQUIVALENTS
|
1,017,000
|
(370,000
|
)
|
||||
Cash
and cash equivalents - beginning of the period
|
1,085,000
|
1,484,000
|
|||||
Cash
and cash equivalents - end of period
|
$
|
2,102,000
|
$
|
1,114,000
|
|||
Supplemental
disclosure of cash flow information:
|
|||||||
Interest
paid
|
$
|
313,000
|
$
|
271,000
|
|||
Income
taxes
|
$
|
1,435,000
|
$
|
3,403,000
|
|||
Supplemental
disclosure of non cash activity:
|
|||||||
Common
stock issued to executives over 6-year vesting period
|
|
$
|
3,373,000
|
||||
Common
shares issued for options and warrants
|
|
$
|
454,000
|
||||
Options
vested during period
|
$
|
77,000
|
$
|
18,000
|
|||
Common
stock issued for services
|
$
|
21,000
|
$
|
64,000
|
|||
Line
of credit converted to long-term debt
|
$
|
2,156,000
|
|
MEDIFAST,
INC. AND SUBSIDIARIES
|
|||||||
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONT.)
|
|||||||
(Unaudited)
|
|||||||
Nine
Months Ended September 30,
|
|||||||
2007
|
2006
|
||||||
(Restated)
|
|||||||
Supplemental
disclosure of non cash activity:
|
|||||||
Sale
of Consumer Choice Systems
|
|||||||
Inventory
|
$
|
-
|
$
|
358,000
|
|||
Accounts
Receivable
|
-
|
131,000
|
|||||
Intangible
assets, net
|
-
|
1,337,000
|
|||||
Note
receivable
|
-
|
(1,503,000
|
)
|
||||
Loss
on sale of Consumer Choice Systems
|
-
|
(323,000
|
)
|
||||
|
$ |
-
|
$
|
-
|
1.
|
Basis
of Presentation
|
2.
|
Presentation
of Financial Statements
|
3.
|
Inventories
|
4.
|
Goodwill and Other Intangible Assets |
As
of September 30, 2007
|
As
of December 31, 2006
|
||||||||||||
(Restated)
|
(Restated)
|
||||||||||||
Gross
Carrying
|
Accumulated
|
Gross
Carrying
|
Accumulated
|
||||||||||
Amount
|
Amortization
|
Amount
|
Amortization
|
||||||||||
Customer
lists
|
$
|
6,369,000
|
$
|
2,761,000
|
$
|
5,587,000
|
$
|
1,969,000
|
|||||
Non-compete
agreements
|
840,000
|
840,000
|
840,000
|
840,000
|
|||||||||
Trademarks,
patents, and copyrights
|
|||||||||||||
finite
life
|
1,619,000
|
387,000
|
1,557,000
|
210,000
|
|||||||||
infinite
life
|
909,000
|
-
|
909,000
|
-
|
|||||||||
Total
|
$
|
9,737,000
|
$
|
3,988,000
|
$
|
8,893,000
|
$
|
3,019,000
|
|||||
Amortization
expense for the nine months ended September 30, 2007 and 2006 was
as
follows:
|
|||||||||||||
|
(Restated)
|
||||||||||||
2007
|
2006
|
||||||||||||
Customer
lists
|
$
|
791,000
|
580,000
|
||||||||||
Non-compete
agreements
|
-
|
251,000
|
|||||||||||
Trademarks
and patents
|
178,000
|
102,000
|
|||||||||||
Total
Trademarks and Intangibles
|
$
|
969,000
|
$
|
933,000
|
5.
|
Fixed Assets |
6.
|
Note Receivable |
7.
|
Income Per Common Share |
8.
|
Estimates
|
9.
|
Deferred Compensation Plans |
10.
|
Share
Based Payments
|
September
30, 2007
|
||||||||||
Shares
|
Weighted
Average Exercise Price |
Weighted
Average Contractual Term (Years) |
||||||||
Outstanding,
December 31, 2006
|
321,579
|
3.76
|
||||||||
Options
granted
|
||||||||||
Options
reinstated
|
||||||||||
Options
exercised
|
(27,500
|
)
|
0.89
|
|||||||
Options
forfeited or expired
|
|
|
|
|||||||
Outstanding,
September 30, 2007
|
294,079
|
4.16
|
2.47
|
|||||||
Options
exercisable, September 30, 2007
|
204,077
|
3.36
|
2.11
|
|||||||
Options
available for grant at end of year
|
928,421
|
10.
|
Recent
Accounting Pronouncements
|
11.
|
Revenue
Recognition
|
12.
|
Restatements
|
14.
|
Business
Segments
|
Three
Months Ended September 30, 2007
|
||||||||||
Medifast
|
All
Other
|
Consolidated
|
||||||||
Revenues,
net
|
20,792,000
|
1,054,000
|
21,846,000
|
|||||||
Cost
of Sales
|
5,374,000
|
149,000
|
5,523,000
|
|||||||
Other
Selling, General and Adminstrative Expenses
|
12,712,000
|
1,172,000
|
13,884,000
|
|||||||
Depreciation
and Amortization
|
579,000
|
301,000
|
880,000
|
|||||||
Interest
(net)
|
30,000
|
129,000
|
159,000
|
|||||||
Provision
for income taxes
|
446,000
|
-
|
446,000
|
|||||||
Net
income (loss)
|
1,651,000
|
(697,000
|
)
|
954,000
|
||||||
Segment
Assets
|
21,917,000
|
18,756,000
|
40,673,000
|
|||||||
|
Three
Months Ended September 30, 2006
|
|||||||||
|
Medifast
|
All
Other
|
Consolidated
|
|||||||
|
(restated)
|
|||||||||
Revenues,
net
|
18,812,000
|
830,000
|
19,642,000
|
|||||||
Cost
of Sales
|
4,557,000
|
148,000
|
4,705,000
|
|||||||
Other
Selling, General and Adminstrative Expenses
|
10,907,000
|
1,476,000
|
12,383,000
|
|||||||
Depreciation
and Amortization
|
333,000
|
426,000
|
759,000
|
|||||||
Interest
(net)
|
39,000
|
3,000
|
42,000
|
|||||||
Provision
for income taxes
|
298,000
|
-
|
298,000
|
|||||||
Net
income (loss)
|
2,678,000
|
(1,223,000
|
)
|
1,455,000
|
||||||
Segment
Assets
|
18,869,000
|
16,259,000
|
35,128,000
|
|||||||
|
Nine
Months Ended September 30, 2007
|
|||||||||
|
Medifast
|
All
Other
|
Consolidated
|
|||||||
Revenues,
net
|
60,977,000
|
2,998,000
|
63,975,000
|
|||||||
Cost
of Sales
|
15,566,000
|
378,000
|
15,944,000
|
|||||||
Other
Selling, General and Adminstrative Expenses
|
37,350,000
|
3,141,000
|
40,491,000
|
|||||||
Depreciation
and Amortization
|
2,060,000
|
475,000
|
2,535,000
|
|||||||
Interest
(net)
|
112,000
|
172,000
|
284,000
|
|||||||
Provision
for income taxes
|
1,486,000
|
-
|
1,486,000
|
|||||||
Net
income (loss)
|
4,403,000
|
(1,168,000
|
)
|
3,235,000
|
||||||
Segment
Assets
|
21,917,000
|
18,756,000
|
40,673,000
|
|||||||
|
Nine
Months Ended September 30, 2006
|
|||||||||
|
Medifast
|
All
Other
|
Consolidated
|
|||||||
|
(restated)
|
|||||||||
Revenues,
net
|
56,422,000
|
2,357,000
|
58,779,000
|
|||||||
Cost
of Sales
|
13,944,000
|
390,000
|
14,334,000
|
|||||||
Other
Selling, General and Adminstrative Expenses
|
31,178,000
|
4,210,000
|
35,388,000
|
|||||||
Depreciation
and Amortization
|
1,223,000
|
567,000
|
1,790,000
|
|||||||
Interest
(net)
|
123,000
|
11,000
|
134,000
|
|||||||
Provision
for income taxes
|
2,219,000
|
-
|
2,219,000
|
|||||||
Net
income (loss)
|
7,735,000
|
(2,821,000
|
)
|
4,914,000
|
||||||
Segment
Assets
|
18,869,000
|
16,259,000
|
35,128,000
|
2007
|
2006
|
||||||||||||
Segments
|
Sales
|
%
of Total
|
Sales
|
%
of Total
|
|||||||||
Medifast
|
20,792,000
|
95
|
%
|
18,812,000
|
96
|
%
|
|||||||
All
Other
|
1,054,000
|
5
|
%
|
830,000
|
4
|
%
|
|||||||
Eliminations
|
-
|
0
|
%
|
-
|
0
|
%
|
|||||||
Total
Sales
|
21,846,000
|
100
|
%
|
19,642,000
|
100
|
%
|
2007
|
2006
|
||||||||||||
Segments
|
Sales
|
%
of Total
|
Sales
|
%
of Total
|
|||||||||
Medifast
|
60,977,000
|
95
|
%
|
56,422,000
|
96
|
%
|
|||||||
All
Other
|
2,998,000
|
5
|
%
|
2,357,000
|
4
|
%
|
|||||||
Eliminations
|
-
|
0
|
%
|
-
|
0
|
%
|
|||||||
Total
Sales
|
63,975,000
|
100
|
%
|
58,779,000
|
100
|
%
|
2007
|
2006
|
||||||||||||
Segments
|
Profit
|
%
of Total
|
Profit
|
%
of Total
|
|||||||||
Medifast
|
1,651,000
|
173
|
%
|
2,678,000
|
184
|
%
|
|||||||
All
Other
|
(697,000
|
)
|
-73
|
%
|
(1,223,000
|
)
|
-84
|
%
|
|||||
Eliminations
|
-
|
0
|
%
|
-
|
0
|
%
|
|||||||
Total
Sales
|
954,000
|
100
|
%
|
1,455,000
|
100
|
%
|
2007
|
2006
|
||||||||||||
Segments
|
Profit
|
%
of Total
|
Profit
|
%
of Total
|
|||||||||
Medifast
|
4,403,000
|
136
|
%
|
7,735,000
|
157
|
%
|
|||||||
All
Other
|
(1,168,000
|
)
|
-36
|
%
|
(2,821,000
|
)
|
-57
|
%
|
|||||
Eliminations
|
-
|
0
|
%
|
-
|
0
|
%
|
|||||||
Total
Sales
|
3,235,000
|
100
|
%
|
4,914,000
|
100
|
%
|
|
|
|
|
|
|
|
BY:
|
|
/S/
MICHAEL S. MCDEVITT
|
|
November
8, 2007
|
|
|
|
|
Michael
S. McDevitt
|
|
|
|
|
|
|
Chief
Executive Officer and Chief Financial Officer
|
|
|
|
|
|
|
(principal
executive officer and principal financial officer)
|
|
|
|
|
|
|
|
|
31.1
|
Certification
of Chief Executive Officer pursuant to Item 601(b)(31) of Regulation
S-K,
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
31.2
|
Certification
of Chief Financial Officer pursuant to Item 601(b)(31) of Regulation
S-K,
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
32.1
|
Certification
of Chief Executive Officer and Chief Financial Officer pursuant to
Section
906 of the Sarbanes-Oxley Act of
2002
|