UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September~~June 30, ~~2018~~2019

¨☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ~~_______to_______~~to .

Commission File Number: 001-31573

Medifast, Inc.

(Exact name of registrant as specified in its charter)

~~Delaware~~	~~13-3714405~~
Delaware		13-3714405
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

100 International Drive

Baltimore, Maryland21202

Telephone Number: ~~(410)~~ (410) 581-8042

(Address of Principal Executive Offices, Zip Code and Telephone Number, Including Area Code)

Indicate by checkmark 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.

Yesx⌧ No ¨◻

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yesx⌧ No ¨◻

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer¨⌧	Accelerated filerx◻	Non-accelerated filer¨◻	Smaller reporting company¨☐
Emerging growth company¨☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.¨☐

Indicate by checkmark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨☐ No x⌧

Securities registered pursuant to Section 12(b) of the Act:


Title of each class:	Trading Symbol	Name of each exchange on which registered:
Common Stock, par value $0.001 per share	MED	NYSE

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

The number of shares of the registrant’s common stock outstanding at ~~October 31, 2018~~July 26, 2019 was ~~11,964,966.~~11,836,334.

Table of Contents

Medifast, Inc. and subsidiaries

Index

~~Part 1 – Financial Information:~~


Part 1 – Financial Information:

Item 1 – Financial Statements

Condensed Consolidated Statements of Income (unaudited) for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2018~~2019 and ~~2017~~2018	3	2

Condensed Consolidated Statements of Comprehensive Income (unaudited) for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2018~~2019 and ~~2017~~2018	4	3

Condensed Consolidated Balance Sheets (unaudited) as of ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017~~2018	5	4

Condensed Consolidated Statements of Cash Flows (unaudited) for the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2018~~2019 and ~~2017~~2018	6	5

Condensed Consolidated Statements of Changes in Stockholders’ Equity (unaudited) for the ~~Nine~~Three and Six Months Ended ~~September~~June 30, 2019 and 2018	7	6

Notes to Condensed Consolidated Financial Statements (unaudited)	8	7

Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations	16	14

Item 3 – Quantitative and Qualitative Disclosures about Market Risk		20

Item 4 – Controls and Procedures		20

Part II – Other ~~Information:~~Information:

Item 1 – Legal Proceedings	21	20

Item 1A – Risk Factors		21

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds	22	21

Item 6 – Exhibits	22	21

Table of Contents

MEDIFAST, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(in thousands, except per share amounts & dividend data)


	Three months ended June 30,				Six months ended June 30,
	2019		2018		2019		2018

Revenue	$	187,103	$	117,324	$	352,979	$	215,920
Cost of sales		46,393		28,525		87,122		52,313
Gross profit		140,710		88,799		265,857		163,607

Selling, general, and administrative		113,355		71,689		213,787		131,814

Income from operations		27,355		17,110		52,070		31,793

Other income (expense)
Interest income, net		425		330		737		579
Other income (expense)		(2)		179		(8)		178
		423		509		729		757

Income from operations before income taxes		27,778		17,619		52,799		32,550

Provision for income taxes		6,395		3,486		10,666		6,195

Net income	$	21,383	$	14,133	$	42,133	$	26,355

Earnings per share - basic	$	1.80	$	1.17	$	3.55	$	2.19

Earnings per share - diluted	$	1.75	$	1.16	$	3.45	$	2.17

Weighted average shares outstanding -
Basic		11,861		12,037		11,870		12,032
Diluted		12,218		12,174		12,229		12,129

Cash dividends declared per share	$	0.75	$	0.48	$	1.50	$	0.96

Three months ended September 30, Nine months ended September 30,
2018 2017 2018 2017

Revenue $ 139,239 $ 77,205 $ 355,159 $ 223,556
Cost of sales 32,038 19,022 84,351 54,870
Gross profit 107,201 58,183 270,808 168,686

Selling, general, and administrative 89,734 47,956 221,548 138,540

Income from operations 17,467 10,227 49,260 30,146

Other income (expense)
Interest income, net 361 148 940 352
Other income (expense) - (4 ) 178 32
361 144 1,118 384

Income from operations before income taxes 17,828 10,371 50,378 30,530

Provision for income taxes 4,047 3,685 10,242 10,115

Net income $ 13,781 $ 6,686 $ 40,136 $ 20,415

Earnings per share - basic $ 1.15 $ 0.56 $ 3.34 $ 1.71

Earnings per share - diluted $ 1.14 $ 0.55 $ 3.31 $ 1.69

Weighted average shares outstanding -
Basic 11,954 11,930 12,006 11,920
Diluted 12,097 12,095 12,112 12,063

Cash dividends declared per share $ 0.48 $ 0.32 $ 1.44 $ 0.96

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

Table of Contents

MEDIFAST, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(in thousands)


	Three months ended June 30,				Six months ended June 30,
	2019		2018		2019		2018

Net income	$	21,383	$	14,133	$	42,133	$	26,355
Other comprehensive income (loss), net of tax:
Foreign currency translation		-		-		1		-
Unrealized gains (losses) on marketable securities		102		25		228		(59)

Other comprehensive income (loss)		102		25		229		(59)

Comprehensive income	$	21,485	$	14,158	$	42,362	$	26,296

Three months ended September 30, Nine months ended September 30,
2018 2017 2018 2017

Net income $ 13,781 $ 6,686 $ 40,136 $ 20,415
Other comprehensive income (loss), net of tax:
Foreign currency translation (2 ) 7 (2 ) 13
Unrealized gains (losses) on marketable securities:
Change in fair value of marketable securities (45 ) 26 (104 ) 189
Adjustment for net losses realized and included in net income - - - 10
Total change in unrealized gains (losses) on marketable securities (45 ) 26 (104 ) 199

Other comprehensive income (loss) (47 ) 33 (106 ) 212

Comprehensive income $ 13,734 $ 6,719 $ 40,030 $ 20,627

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

Table of Contents

MEDIFAST, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in thousands, except par value)


		June 30,		December 31,
		2019		2018

ASSETS
Current Assets
Cash and cash equivalents	$	96,311	$	81,364
Accounts receivable-net of doubtful accounts of $931 and $394 at
June 30, 2019 and December 31, 2018, respectively		978		1,011
Inventory		48,473		38,888
Investment securities		17,211		19,670
Income taxes, prepaid		1,365		-
Prepaid expenses and other current assets		7,638		4,586
Total current assets		171,976		145,519

Property, plant and equipment - net		24,984		19,747
Right-of-use asset		12,296		-
Other assets		710		1,183
Deferred tax assets		2,605		2,980


TOTAL ASSETS	$	212,571	$	169,429

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses	$	73,570	$	60,323
Current lease obligation		2,474		-
Total current liabilities		76,044		60,323

Lease obligation, less current lease obligation		10,504		-
Total liabilities		86,548		60,323

Stockholders' Equity
Common stock, par value $.001 per share: 20,000 shares authorized;
12,126 and 12,117 issued and 11,827 and 11,868 outstanding
at June 30, 2019 and December 31, 2018, respectively		12		12
Additional paid-in capital		11,070		8,802
Accumulated other comprehensive income (loss)		56		(173)
Retained earnings		155,762		131,344
Less: Treasury stock at cost, 264 and 193 shares at June 30, 2019 and December 31, 2018, respectively		(40,877)		(30,879)
Total stockholders' equity		126,023		109,106

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	212,571	$	169,429

September 30, December 31,
2018 2017

ASSETS
Current Assets
Cash and cash equivalents $ 82,307 $ 75,077
Accounts receivable-net of doubtful accounts of $405 at September 30, 2018 and allowance for sales returns and doubtful accounts of $597 at December 31, 2017 1,017 576
Inventory 43,845 19,328
Investment securities 20,912 23,757
Income taxes, prepaid - 2,272
Prepaid expenses and other current assets 3,851 4,188
Total current assets 151,932 125,198

Property, plant and equipment - net 18,760 18,611
Other assets 1,400 2,120
Deferred tax assets 2,355 -

TOTAL ASSETS $ 174,447 $ 145,929

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses $ 62,806 $ 37,140
Total current liabilities 62,806 37,140

Deferred tax liabilities - 208
Total liabilities 62,806 37,348

Stockholders' Equity
Common stock, par value $.001 per share: 20,000 shares authorized;
12,145 and 12,103 issued and 11,956 and 11,971 outstanding at September 30, 2018 and December 31, 2017, respectively 12 12
Additional paid-in capital 8,040 4,967
Accumulated other comprehensive loss (266 ) (160 )
Retained earnings 124,601 103,762
Less: Treasury stock at cost, 128 shares at September 30, 2018 (20,746 ) -
Total stockholders' equity 111,641 108,581

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 174,447 $ 145,929

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

Table of Contents

MEDIFAST, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)


	Six months ended June 30,
	2019		2018

Operating Activities
Net income	$	42,133	$	26,355
Adjustments to reconcile net income to cash provided by operating activities
Depreciation and amortization		2,156		2,689
Share-based compensation		2,245		1,635
Loss on sale of disposal of property, plant and equipment		17		50
Realized loss (gain) on investment securities, net		8		(21)
Amortization of premium on investment securities		249		298
Deferred income taxes		375		(1,036)
Change in operating assets and liabilities:
Accounts receivable		33		199
Inventory		(9,585)		(6,670)
Income taxes, prepaid		(1,365)		2,673
Prepaid expenses and other current assets		(3,052)		368
Other assets		35		33
Accounts payable and accrued expenses		13,963		11,958
Net cash flow provided by operating activities		47,212		38,531

Investing Activities
Sale and maturities of investment securities		2,430		1,200
Sale of property and equipment		-		184
Purchase of property and equipment		(6,972)		(2,094)
Net cash flow used in investing activities		(4,542)		(710)

Financing Activities
Options exercised by executives and directors		279		62
Net shares repurchased for employee taxes		(256)		(215)
Cash dividends paid to stockholders		(17,749)		(11,673)
Stock repurchases		(9,998)		(19,996)
Net cash flow used in financing activities		(27,724)		(31,822)

Foreign currency impact		1		-

Increase in cash and cash equivalents		14,947		5,999
Cash and cash equivalents - beginning of the period		81,364		75,077
Cash and cash equivalents - end of period	$	96,311	$	81,076

Supplemental disclosure of cash flow information:
Income taxes paid	$	11,338	$	4,380
Dividends declared included in accounts payable	$	9,102	$	5,914

Nine months ended September 30,
2018 2017

Operating Activities
Net income $ 40,136 $ 20,415
Adjustments to reconcile net income to cash provided by operating activities
Depreciation and amortization 3,519 3,204
Share-based compensation 2,352 3,418
Loss on sale of disposal of property, plant and equipment 50 93
Realized loss on investment securities, net 70 73
Amortization of premium on investment securities 434 547
Deferred income taxes (2,028 ) (991 )
Change in operating assets and liabilities:
Accounts receivable 116 683
Inventory (23,615 ) 2,287
Income taxes, prepaid 2,272 807
Prepaid expenses and other current assets 453 1,098
Other assets 64 (137 )
Accounts payable and accrued expenses 21,655 1,757
Net cash flow provided by operating activities 45,478 33,254

Investing Activities
Sale of investment securities 2,245 3,039
Purchase of investment securities - (4,093 )
Sale of property and equipment 184 59
Purchase of property and equipment (3,246 ) (2,379 )
Net cash flow used in investing activities (817 ) (3,374 )

Financing Activities
Options exercised by executives and directors 220 568
Net shares repurchased for employee taxes (249 ) (833 )
Cash dividends paid to stockholders (17,404 ) (11,511 )
Stock repurchases (19,996 ) -
Net cash flow used in financing activities (37,429 ) (11,776 )

Foreign currency impact (2 ) 13

Increase in cash and cash equivalents 7,230 18,117
Cash and cash equivalents - beginning of the period 75,077 52,436
Cash and cash equivalents - end of period $ 82,307 $ 70,553

Supplemental disclosure of cash flow information:
Income taxes paid $ 9,540 $ 10,083
Dividends declared included in accounts payable $ 5,981 $ 4,114

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

Table of Contents

MEDIFAST, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN ~~STOCKHOLDERS'~~STOCKHOLDERS’ EQUITY (UNAUDITED)

(in thousands)


	Six months ended June 30, 2019
	Number of Shares Issued		Common Stock		Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Treasury Stock		Total

Balance, December 31, 2018	12,117	$	12	$	8,802	$	(173)	$	131,344	$	(30,879)	$	109,106
Net income	-		-		-		-		20,750		-		20,750
Share-based compensation	-		-		990		-		-		-		990
Options exercised by executives and directors	10		-		269		-		-		-		269
Net shares repurchased for employee taxes	(1)		-		(256)		-		-		-		(256)
Other comprehensive income	-		-		-		127		-		-		127
Cash dividends declared to stockholders	-		-		-		-		(8,918)		-		(8,918)

Balance, March 31, 2019	12,126		12		9,805		(46)		143,176		(30,879)		122,068
Net income	-		-		-		-		21,383		-		21,383
Share-based compensation	-		-		1,255		-		-		-		1,255
Options exercised by executives and directors	-		-		10		-		-		-		10
Other comprehensive income	-		-		-		102		-		-		102
Treasury stock from stock repurchases	-		-		-		-		-		(9,998)		(9,998)
Cash dividends declared to stockholders	-		-		-		-		(8,797)		-		(8,797)

Balance, June 30, 2019	12,126	$	12	$	11,070	$	56	$	155,762	$	(40,877)	$	126,023

	Six months ended June 30, 2018
	Number of Shares Issued		Common Stock		Additional Paid-In Capital		Accumulated Other Comprehensive Loss		Retained Earnings		Treasury Stock		Total

Balance, January 1, 2018, as reported	12,103	$	12	$	4,967	$	(160)	$	103,762	$	-	$	108,581
Cumulative effect adjustments from changes
in accounting standards	-		-		-		-		(2,018)		-		(2,018)
Balance January 1, 2018, as adjusted	12,103		12		4,967		(160)		101,744		-		106,563
Net income	-		-		-		-		12,222		-		12,222
Share-based compensation	16		-		805		-		-		-		805
Options exercised by executives and directors	14		-		62		-		-		-		62
Net shares repurchased for employee taxes	(3)		-		(215)		-		-		-		(215)
Treasury stock from cashless options	9		-		750		-		-		(750)		-
Other comprehensive loss	-		-		-		(84)		-		-		(84)
Cash dividends declared to stockholders	-		-		-		-		(5,723)		-		(5,723)

Balance, March 31, 2018	12,139		12		6,369		(244)		108,243		(750)	$	113,630
Net income	-		-		-		-		14,133		-		14,133
Share-based compensation	-		-		830		-		-		-		830
Options exercised by executives and directors	2		-		-		-		-		-		-
Treasury stock from stock repurchases	-		-		-		-		-		(19,996)		(19,996)
Other comprehensive income	-		-		-		25		-		-		25
Cash dividends declared to stockholders	-		-		-		-		(5,759)		-		(5,759)

Balance, June 30, 2018	12,141	$	12	$	7,199	$	(219)	$	116,617	$	(20,746)	$	102,863

Nine months ended September 30, 2018

Number
of Shares
Issued

Common
Stock

Additional
Paid-In
Capital

Accumulated
other
comprehensive
loss

Retained
Earnings

Treasury
Stock
Total

Balance, January 1, 2018, as reported 12,103 $ 12 $ 4,967 $ (160 ) $ 103,762 $ - $ 108,581
Cumulative effect of adjustments from changes in accounting standards (Notes 1 and 2) - - - - (2,018 ) - (2,018 )
Balance January 1, 2018, as adjusted 12,103 12 4,967 (160 ) 101,744 - 106,563

Net income - - - - 40,136 - 40,136
Share-based compensation 16 - 2,352 - - - 2,352
Options exercised by executives and directors 20 - 220 - - - 220
Net shares repurchased for employee taxes (3 ) - (249 ) - - - (249 )
Treasury stock from cashless options 9 - 750 - - (750 ) -
Treasury stock from stock repurchases - - - - - (19,996 ) (19,996 )
Other comprehensive loss - - - (106 ) - - (106 )
Cash dividends declared to stockholders - - - - (17,279 ) - (17,279 )

Balance, September 30, 2018 12,145 $ 12 $ 8,040 $ (266 ) $ 124,601 $ (20,746 ) $ 111,641

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

Table of Contents

MEDIFAST, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation - The accompanying unaudited condensed consolidated financial statements of Medifast, Inc. and its wholly-owned subsidiaries (the “Company,” “we,” “us,” or “our”) included herein have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”), for interim reporting and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, certain information and ~~footnotes~~notes that are normally required by GAAP have been condensed or omitted. However, in the opinion of management, all adjustments consisting of normal, recurring adjustments considered necessary for a fair presentation of the financial position and results of operations have been included and management believes the disclosures that are made are adequate to make the information presented not misleading. The condensed consolidated balance sheet at December 31, ~~2017~~2018 has been derived from the audited consolidated financial statements at that date.

The results of operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 are not necessarily indicative of results that may be expected for the fiscal year ending December 31, ~~2018.~~2019. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the ~~2017~~2018 audited consolidated financial statements and notes thereto, which are included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, ~~2017~~2018 (“~~2017~~2018 Form 10-K”).

Presentation of Financial Statements - The unaudited condensed consolidated financial statements included herein include the accounts of the Medifast, Inc. and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.

Use of Estimates - The preparation of financial statements in conformity with GAAP 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 reported amounts of revenue and expenses during the reporting period. Actual results could differ materially from those estimates.

Accounting Pronouncements Adopted in ~~2018~~ 2019 –

In ~~May 2014, the FASB issued ASU 2014-09~~~~, Revenue from Contracts with Customers (Topic 606)~~. The new revenue recognition standard requires the Company to recognize revenue for the transfer of goods or services to customers for the amount the Company expects to be entitled to receive in exchange for those goods or services. The Company is required to identify the contract, identify the relevant performance obligations, determine the transaction price, allocate the transaction price to the performance obligations in the contract, and recognize the revenue when the entity satisfies a performance obligation. Companies have the option of using either a full retrospective or a modified retrospective approach to adopt the guidance. On January 1,February 2018, the Company adopted the new revenue standard on a modified retrospective basis and recorded an after-tax transition adjustment to reduce retained earnings as of January 1, 2018 by $2.0 million. This is comprised of $5.6 million of revenue offset by $3.6 million of inventory costs, deferred shipping expense, credit card fees and income taxes. The results of~~ASC 606~~ primarily impact the Company’s timing of revenue recognition for product shipments, as product revenue is recognized upon customer receipt instead of at the time of shipment. The new standard requires more extensive revenue-related disclosures.

As required by ASC 606, the impact of the adoption of the new revenue standard on our Condensed Consolidated Statements of Income and Condensed Consolidated Balance Sheets was as follows (in thousands):

Three months ended September 30, 2018 Nine months ended September 30, 2018
As Reported
Balances
without
adoption of
ASC 606

Effect of
Change
As Reported
Balances
without
adoption of
ASC 606

Effect of
Change

Revenue $ 139,239 $ 139,582 $ (343 ) $ 355,159 $ 356,442 $ (1,283 )
Cost of sales 32,038 32,071 33 84,351 84,544 193
Gross profit 107,201 107,511 (310 ) 270,808 271,898 (1,090 )

Selling, general, and administrative 89,734 89,831 97 221,548 221,908 360

Income from operations 17,467 17,680 (213 ) 49,260 49,990 (730 )

Other income (expense)
Interest income, net 361 361 - 940 940 -
Other income (expense) - - - 178 178 -
361 361 - 1,118 1,118 -

Income from operations before income taxes 17,828 18,041 (213 ) 50,378 51,108 (730 )

Provision for income taxes 4,047 4,092 45 10,242 10,396 154

Net income $ 13,781 $ 13,949 $ (168 ) $ 40,136 $ 40,712 $ (576 )

Earnings per share - basic $ 1.15 $ 1.17 $ (0.02 ) $ 3.34 $ 3.39 $ (0.05 )

Earnings per share - diluted $ 1.14 $ 1.15 $ (0.01 ) $ 3.31 $ 3.36 $ (0.05 )

Weighted average shares outstanding -
Basic 11,954 11,954 12,006 12,006
Diluted 12,097 12,097 12,112 12,112

September 30, 2018
As Reported
Balances without
adoption of ASC 606
Effect of Change

ASSETS
Accounts receivable, net $ 1,017 $ 118 $ 899
Inventory 43,845 42,793 1,052
Prepaid expenses and other current assets 3,851 3,711 140
Deferred tax assets 2,355 1,656 699

LIABILITIES
Accounts payable and accrued expenses 62,806 57,422 5,384

STOCKHOLDERS' EQUITY
Retained earnings 124,601 127,195 (2,594 )

~~The cumulative effect of the changes made to our January 1, 2018 Condensed Consolidated Balance Sheet from the modified retrospective adoption of ASC 606 was as follows (in thousands):~~

Balance at December 31,
2017 Adjustments due to ASC
606 Balance at January 1,
2018

ASSETS
Accounts receivable, net $ 576 $ 557 $ 1,133
Inventory 19,328 902 20,230
Prepaid expenses and other current assets 4,188 116 4,304
Deferred tax assets - 336 336

LIABILITIES
Accounts payable and accrued expenses 37,140 4,137 41,277
Deferred tax liabilities 208 (208 ) -

STOCKHOLDERS' EQUITY
Retained earnings 103,762 (2,018 ) 101,744

~~Recent~~Financial Accounting ~~Pronouncements –~~

We have considered all new accounting pronouncements and have concluded that there are no new pronouncements that may have a material impact on our results of operations, financial condition, or cash flows, based on current information, except for:

~~ASU 2016-02,~~~~Leases (Topic 842)~~ requires the rights and obligations of all leased assets with a term greater than 12 months to be presented on the balance sheet. The new guidance also changes the definition of a lease and requires expanded quantitative and qualitative disclosures for both lessees and lessors. The pronouncement is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. We plan to adopt ASU 2016-02 on January 1, 2019. The Company currently expects that upon adoption of ASU 2016-02 right-to-use assets and lease liabilities will be recognized in the Company’s Consolidated Balance Sheet in amounts that will be material. Management is currently evaluating the effect that the provisions of ASU 2016-02 will have on the Company’s financial statements.

~~ASU~~Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2018-02,Income Statement - Reporting - Comprehensive Income (Topic 220) ~~allows~~ to address a specific consequence of the Tax Cuts and Jobs Act (“TCJA”) by allowing a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from ~~tax effects resulting from~~ the ~~Tax Cuts and Jobs Act (TCJA) and will improve the usefulness of information reported to financial statement users. However, because the amendments only relate to the reclassification~~TCJA’s reduction of the U.S. federal corporate income tax ~~effects of the TCJA, the underlying guidance that requires that the effect of a change in tax laws or rates be included in income from continuing operations~~rate. This ASU is ~~not affected. The amendments in this pronouncement are~~ effective for all entities for ~~fiscal years~~annual periods beginning after December 15, 2018, with early adoption permitted, and ~~interim periods within those fiscal years. We plan to adopt ASU 2018-02 on January 1, 2019. Management~~ is ~~currently evaluating the effect that the provisions of ASU 2018-02 will have on the Company’s financial statements.~~

~~REVENUE~~

~~Revenue recognition~~

Our revenue is derived primarily from point of sale transactions executed over an e-commerce platform for weight loss, weight management, and other consumable health and nutritional products. Revenue is recognized upon receipt by customer and net of discounts, rebates, promotional adjustments, price adjustments, allocated consideration to loyalty programs and estimated returns.

~~Revenue is recognized when control of the promised products are transferred to our customers in an amount that reflects the consideration we expect~~ to be ~~entitled to in exchange for transferring those products. When determining whether the customer has obtained control of the products, we consider any future performance obligations.~~

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account in ASC 606. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Our contracts have performance obligations to fulfill and deliver products from the point of sale transaction along with the related customer reward programs.

Our performance obligations are satisfied at a point in time. Revenue from products transferred to customers at a point in time accounted for substantially all of our revenue for the three and nine month periods ended September 30, 2018 and 2017, respectively. Revenue on these contracts is recognized when obligations under the terms of the contract with our customers are satisfied. Generally, this occurs with the transfer of control upon receipt of products by our customers. Any consideration received prior to the fulfillment of the Company performance obligation is deferred and recognized as a liability.

~~Sales returns~~

Our return policy allows for customer returns within 30 days of purchase and upon our authorization. We adjust revenues based on our estimated expected returns and a liability is recognized for expected refunds to customers. We estimate expected returns based on historical levels and project this experience into the future.

~~Customer reward programs and sales incentives~~

Our sales contracts may give customers the option to purchase additional products priced at a discount. Options to purchase additional products at a discount come in a variety of forms, such as customer reward programs and incentive offerings including pricing arrangements and promotions.

We reduce the transaction price for certain customer reward programs and incentive offerings including pricing arrangements, promotions, incentives that represent variable consideration and separate performance obligations. The Company accounts for sales rewards as a separate performance obligation of the transactions, and therefore allocates consideration between the initial sale of products and the customer reward program and incentive offering.

~~Shipping and handling costs~~

~~Amounts billed to customers for shipping and handling activities are treated as a promised service performance obligation and recorded in revenue~~applied either in the ~~accompanying Condensed Consolidated Statements~~period of ~~Income upon fulfillment of the performance obligation. Shipping and handling costs incurred by the Company for the delivery of products~~adoption or retrospectively to ~~customers are considered a cost to fulfill the contract and are included in cost of sales in the accompanying Condensed Consolidated Statements of Income.~~

~~Contract costs~~

~~We expense sales commissions and credit card fees during the~~each period in which the ~~corresponding revenue is earned. These costs are deferred along with~~effect of the ~~revenues for goods that are in transit and not received by customers by period end. These costs are recorded in selling, general and administrative expense~~change in the ~~Condensed Consolidated Statements~~U.S. federal corporate income tax rate in the TCJA is recognized. The Company adopted this ASU in the first quarter of ~~Income.~~2019. There was no material impact on the Company's condensed consolidated results of operations or cash flows. The Company's policy for releasing disproportionate income tax effects from accumulated other comprehensive income utilizes the portfolio approach.

In February 2016, the FASB issued ASU 2016-02, ~~Disaggregated revenue~~Leases (Topic 842), which requires an entity to recognize a right-of-use (“ROU”) asset and ~~entity-wide revenue~~a lease liability on the balance sheet for all leases, including operating leases, and also requires disclosures

~~The nature,~~ about the amount, timing and uncertainty of ~~revenue~~cash flows arising from leases. Subsequent to the issuance of Topic 842, the FASB clarified the guidance through several ASUs; hereinafter the collection of lease guidance is referred to as “ASC 842”.

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On January 1, 2019, the Company adopted ASC 842 using the modified retrospective method for all lease arrangements at the beginning of the period of adoption. Results for reporting periods beginning January 1, 2019 are presented under ASC 842, while prior period amounts were not adjusted and continue to be reported in accordance with the Company’s historic accounting under ASC 840, Leases. The standard had a material impact on the Company’s Consolidated Condensed Balance Sheets, but did not have a significant impact on the Company’s consolidated net earnings and cash ~~flows from our revenues amongst contracts, product offerings~~flows. The most significant impact was the recognition of ROU assets and ~~customers~~lease liabilities for operating leases. For leases that commenced before the effective date of ASC 842, the Company elected the permitted practical expedients that do not ~~differentiate~~require the Company to reassess: (i) whether any expired or existing contracts contain leases; (ii) the lease classification for any expired or existing leases; and ~~are~~(iii) initial direct costs for any existing leases. The Company also elected to exclude leases with a term of 12 months or less in the recognized ~~consistently based on the policies discussed above. In addition, effective January 1, 2018, we changed how we internally~~ROU assets and ~~externally report our revenues to simplify and better align with changes in how we manage our business, review operating performance and allocate resources as~~lease liabilities.

As a result of the ~~shift in our primary focus to~~cumulative impact of adopting ASC 842, the~~OPTAVIA business~~ Company recorded ROU assets of $11.9 million, net of $686 thousand of accrued rent, and ~~the significance this business represents to the overall results~~lease liabilities of the Company. We considered the following factors in making this decision: the nature of business activities overlapping amongst previous defined sales channels, the management structure directly accountable to our chief operating decision maker for operating and administrative activities, and information presented to the Board of Directors and investors. We previously disclosed entity-wide disclosures for sales by channel:~~OPTA~~~~VIA, Medifast Direct, Franchise Medifast Weight Control Centers and Medifast Wholesale. Due to the interchangeable nature of these customers amongst sale channels, sales migration to~~~~OPTA~~~~VIA, and realignment of internal operations as discussed, our disclosures~~$12.6 million as of January 1, ~~2018~~2019, primarily related to office and warehouse space and certain equipment, based on the present value of the future lease payments on the date of adoption.

The Company determines if an arrangement is a lease at inception. The ROU assets represent the Company’s right to use an underlying asset for the lease term, and lease liabilities represent an obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. As most of the Company’s leases do not provide an implicit interest rate, the Company uses its incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments. The ROU asset also consists of any prepaid lease payments and lease incentives received. The lease terms used to calculate the ROU asset and related lease liability include options to extend or terminate the lease when it is reasonably certain that the Company will ~~not include revenues by sales channel.~~exercise that option. Lease expense for operating leases is recognized on a straight-line basis over the lease term as an operating expense. See Note 5 “LEASES” for additional information about this adoption.

2. INVENTORIES

Inventories consist principally of packaged meal replacements held in the Company’s warehouses. Inventory is stated at the lower of cost or net realizable value, utilizing the first-in, first-out method. The cost of finished goods includes the cost of raw materials, packaging supplies, direct and indirect labor and other indirect manufacturing costs. On a quarterly basis, management reviews inventory for unsalable or obsolete inventory.

Inventories consisted of the following (in thousands):


	June 30, 2019		December 31, 2018

Raw materials	$	11,204	$	11,156
Packaging		2,264		1,563
Non-food finished goods		5,186		2,391
Finished goods		32,474		25,509
Reserve for obsolete inventory		(2,655)		(1,731)
Total	$	48,473	$	38,888

September 30, 2018 December 31, 2017

Raw materials $ 13,273 $ 4,348
Packaging 1,762 1,185
Non-food finished goods 2,028 920
Finished goods 27,480 13,407
Reserve for obsolete inventory (698 ) (532 )
Total $ 43,845 $ 19,328

~~EARNING~~3. EARNINGS PER SHARE

Basic earnings per share (“EPS”) computations are calculated utilizing the weighted average number of shares of the Company’s common stock outstanding during the periods presented. Diluted EPS is calculated utilizing the weighted average number of shares of the Company’s common stock outstanding adjusted for the effect of dilutive common stock equivalents.

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The following table sets forth the computation of basic and diluted EPS (in thousands, except per share data):


	Three months ended June 30,				Six months ended June 30,
	2019		2018		2019		2018

Numerator:
Net income	$	21,383	$	14,133	$	42,133	$	26,355

Denominator:
Weighted average shares of common stock outstanding		11,861		12,037		11,870		12,032
Effect of dilutive common stock equivalents		357		137		359		97
Weighted average shares of common stock outstanding		12,218		12,174		12,229		12,129

Earnings per share - basic	$	1.80	$	1.17	$	3.55	$	2.19

Earnings per share - diluted	$	1.75	$	1.16	$	3.45	$	2.17

Three months ended September 30, Nine months ended September 30,
2018 2017 2018 2017

Numerator:
Net income $ 13,781 $ 6,686 $ 40,136 $ 20,415

Denominator:
Weighted average shares of common stock outstanding 11,954 11,930 12,006 11,920
Effect of dilutive common stock equivalents 143 165 106 143
Weighted average shares of common stock outstanding 12,097 12,095 12,112 12,063

Earnings per share - basic $ 1.15 $ 0.56 $ 3.34 $ 1.71

Earnings per share - diluted $ 1.14 $ 0.55 $ 3.31 $ 1.69

The calculation of diluted EPS excluded 0611 and ~~3,813~~56 antidilutive options outstanding for the three months ended ~~September~~June 30, ~~2018~~2019 and ~~2017,~~2018, respectively, and ~~214~~752 and ~~6,780~~6,220 antidilutive options outstanding for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017,~~2018, respectively. The calculation ~~for~~of diluted EPS also excluded 350 and 0 antidilutive restricted stock awards for the three ~~and nine~~ months ended ~~September~~June 30, 2019 and 2018, ~~also excluded 43~~respectively, and ~~297~~705 and 0 antidilutive restricted stock awards for the six months ended June 30, 2019 and 2018, respectively. EPS is computed independently for each of the ~~quarters presented;~~periods presented above, and accordingly, the sum of the quarterly earnings per common share may not equal the year-to-date total computed.

4. SHARE-BASED COMPENSATION

Stock Options:

The Company has issued non-qualified and incentive stock options to employees and nonemployee directors. The fair value of these options are estimated on the date of grant using the Black-Scholes option pricing model, which requires estimates of the expected term of the option, the risk-free interest rate, the expected volatility of the price of the Company’s common stock, and dividend yield. Options outstanding as of ~~September~~June 30, ~~2018~~2019 generally vest over a period of three years and expire ten years from the date of grant. The exercise price of these options ranges from $26.52 to ~~$157.30.~~$171.68. Due to the Company’s lack of option exercise history, the expected term is calculated using the simplified method defined as the midpoint between the vesting period and the contractual term of each option. The risk free interest rate is based on the U.S. Treasury yield curve in effect on the date of grant that most closely corresponds to the expected term of the option. The expected volatility is based on the historical volatility of the Company’s common stock over the period of time equivalent to the expected term for each award. ~~The~~For the six months ended June 30, 2019, the Company did not grant stock options. For the six months ended June 30, 2018, the weighted average input assumptions used were as follows:

Nine months ended September 30,
2018 2017
Expected term (in years) 6.4 6.0
Risk-free interest rate 2.64 % 2.05 %
Expected volatility 33.30 % 38.33 %
Dividend yield 2.87 % 2.40 %

	12
	2018
Expected term (in years)	6.4
Risk-free interest rate	2.62%
Expected volatility	33.30%
Dividend yield	2.87%

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The following table is a summary of our stock option activity:

	Nine months ended September 30,
	2018					2017
	Shares			Weighted-Average Exercise Price		Shares			Weighted-Average Exercise Price

											Six months ended June 30,
											2019			2018
											Shares	Weighted-Average Exercise Price		Shares	Weighted-Average Exercise Price
(shares in thousands)
Outstanding at beginning of period		106		$	31.18		129		$	28.22	107	$	49.26	106	$	31.18
Granted		51			67.50		38			44.73	-		-	51		67.50
Exercised		(23	)		28.87		(21	)		27.38	(10)		28.21	(21)		28.87
Forfeited		(8	)		31.09		(17	)		37.09
Expired		-			-		(1	)		28.59
Outstanding at end of the period		126		$	46.51		128		$	32.00	97	$	52.53	136	$	45.17
Exercisable at end of the period		54		$	30.21		62		$	28.14	52	$	40.96	60	$	29.94

As of ~~September~~June 30, ~~2018,~~2019, the weighted-average remaining contractual life for outstanding stock options was ~~8.07~~7.61 years with an aggregate intrinsic value of ~~$22.1~~$7.5 million ~~for outstanding stock options~~ and the weighted-average remaining contractual life for exercisable stock options was ~~6.91~~6.85 years with an aggregate intrinsic value of ~~$10.4 million for exercisable~~$4.6 million. For the six months ended June 30, 2019, the Company did not grant stock options. The weighted-average grant date fair value of options granted during the ~~nine~~six months ended ~~September~~June 30, 2018 ~~and 2017~~ was ~~$18.08 and $13.73, respectively.~~$18.08. The unrecognized compensation expense calculated under the fair value method for ~~shares~~stock options expected to vest as of ~~September~~June 30, ~~2018~~2019 was ~~$0.9~~$0.7 million and is expected to be recognized over a weighted average period of ~~3.46~~2.92 years. The Company received ~~$220~~$279 thousand and ~~$568~~$62 thousand in cash proceeds from the exercise of stock options during the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017,~~2018, respectively. Upon exercising of stock options, the Company withheld shares of the Company’s common stock for employee taxes of 31 thousand and 193 thousand for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017,~~2018, respectively. The total intrinsic value for stock options exercised during the ~~nine~~six months ended ~~September~~June 30, 2019 and 2018 was $1.0 million and ~~2017 was~~ $1.4 million, ~~and $325 thousand,~~ respectively.

Restricted Stock:

The Company has issued restricted stock to employees and nonemployee directors generally with vesting terms up to five years after the date of grant. The fair value of the restricted stock is equal to the market price of the Company’s common stock on the date of grant. Expense for restricted stock is amortized ratably over the vesting period. The following table summarizes our restricted stock activity:


	Six months ended June 30,
	2019			2018
	Shares	Weighted-Average Grant Date Fair Value		Shares	Weighted-Average Grant Date Fair Value
(shares in thousands)
Outstanding at beginning of period	57	$	50.55	129	$	32.15
Granted	28		130.89	17		70.67
Vested	(31)		45.30	(85)		31.59
Forfeited	(2)		167.48	-		-
Outstanding at end of the period	52	$	92.36	61	$	43.71

Nine months ended September 30,
2018 2017
Shares
Weighted-Average
Grant Date
Fair Value
Shares
Weighted-Average
Grant Date
Fair Value

(shares in thousands)
Outstanding at beginning of period 129 $ 32.15 215 $ 27.69
Granted 18 79.80 44 44.73
Vested (86 ) 31.61 (58 ) 26.09
Forfeited - - (8 ) 36.37
Outstanding at end of the period 61 $ 46.90 193 $ 31.65

The total fair value of restricted stock awards vested during the ~~nine~~six months ended ~~September~~June 30, 2019 and 2018 ~~and 2017~~ was ~~$7.5~~$4.0 million and ~~$2.5~~$7.4 million, respectively.

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The total share-based compensation charged against income was ~~$717~~$1.3 million and $830 thousand ~~and $1.2 million~~ during the three months ended ~~September~~June 30, ~~2018~~2019 and ~~2017,~~2018, respectively, and ~~$2.4~~$2.2 million and ~~$3.4~~$1.6 million during the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017,~~2018, respectively. The total costs of the options and restricted stock awards charged against income was ~~$488~~$791 thousand and ~~$912~~$600 thousand during the three months ended ~~September~~June 30, ~~2018~~2019 and ~~2017,~~2018, respectively, and ~~$1.7~~$1.5 million and ~~$2.6~~$1.2 million during the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017,~~2018, respectively. Also included for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 was ~~$77~~$75 thousand and ~~$229~~$151 thousand, respectively, for 63,300 performance-based deferred shares and for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 was ~~$139~~$79 thousand and ~~$357~~$152 thousand, respectively, for ~~113,395~~63,300 performance-based deferred shares in expense for certain key executives. Included for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018 and 2017~~2019 was ~~$152~~$151 thousand and ~~$455~~$303 thousand, respectively, in expense for 210,000 performance-based ~~deferred~~contingent shares granted to our CEO that will vest based on the achievement of certain Company performance targets.

For the three and six months ended June 30, 2018, costs charged against income was $151 thousand and $303 thousand, respectively. Included for the three months and six months ended June 30, 2019 was $202 thousand and $292 thousand, respectively, for 17,780 performance-based contingent shares for certain other key executives granted in 2019.

The total income tax benefit recognized in the ~~condensed consolidated statements~~Condensed Consolidated Statements of ~~income~~Income for restricted stock awards was ~~$167~~$385 thousand and ~~$451~~$546 thousand for the three months ended ~~September~~June 30, ~~2018~~2019 and ~~2017,~~2018, respectively, and ~~$1.6~~was $1.2 million and $1.5 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017,~~2018, respectively.

There was ~~$2.1~~$3.9 million of total unrecognized compensation cost related to restricted stock awards as of ~~September~~June 30, ~~2018,~~2019, which is expected to be recognized over a weighted-average period of ~~1.88~~2.15 years. There was ~~$1.1~~$2.5 million of unrecognized compensation cost related to the ~~273,300 performance based deferred~~291,080 performance-based contingent shares discussed above as of ~~September~~June 30, ~~2018,~~2019, which is expected to be recognized over a weighted-average period of ~~1.25~~2.25 years.

5. LEASES

~~ACCUMULATED OTHER COMPREHENSIVE LOSS~~

The Company has operating leases for office and warehouse space and certain equipment. In certain of the Company’s lease agreements, the rental payments are adjusted periodically based on defined terms within the lease. The Company did not have any finance leases as of June 30, 2019 and for the six-month period then ended.

Our leases relating to office and warehouse space have terms of 63 months to 122 months. Our leases relating to equipment have lease terms of 60 to 203 months, with some of them having clauses relating to automatic renewal.

The Company’s warehouse agreement also contains non-lease components, in the form of payments towards logistics services and labor charges which the Company is obligated to pay based on the services consumed by it. Such amounts are not included in the measurement of the lease liability but will be recognized as expense when they are incurred.

For the three and six months ended June 30, 2019, the operating lease expense was $726 thousand and $1.4 million, respectively.

Supplemental cash flow information related to the Company’s operating leases were as follows (in thousands):


	Three months ended June 30,		Six months ended June 30,
	2019		2019

Cash paid for amounts included in the measurements of lease liabilities
Operating cash flow from operating leases	$	729	$	1,392

Right-of-use assets obtained in exchange for lease obligations
Operating leases	$	-	$	1,490

As of June 30, 2019, the weighted average remaining lease term was 5.2 years and the weighted average discount rate was 3.9%.

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The following table presents the maturity of the Company’s operating lease liabilities as of June 30, 2019 (in thousands):


2019 (excluding the six months ended June 30, 2019)	$	1,462
2020		2,951
2021		2,985
2022		2,641
2023		1,665
Thereafter		2,685
Total lease payments	$	14,389
Less: imputed interest		(1,411)
Total	$	12,978

As previously disclosed in our 2018 Form 10-K and under the previous lease accounting standard, future minimum lease commitments under non-cancelable operating leases with terms in excess of one year would have been as follows (in thousands):



2019	$	1,496
2020		1,528
2021		1,562
2022		1,222
2023		1,155
Thereafter		2,582
Total minimum lease payments	$	9,545

6. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following table sets forth the components of accumulated other comprehensive income (loss), net of tax where applicable (in thousands):


	June 30, 2019		December 31, 2018

Foreign currency translation	$	(1)	$	(2)
Unrealized losses on marketable securities		57		(171)
Accumulated other comprehensive income (loss)	$	56	$	(173)

September 30, 2018 December 31, 2017

Foreign currency translation $ (2 ) $ -
Unrealized losses on marketable securities (264 ) (160 )
Accumulated other comprehensive loss $ (266 ) $ (160 )

7. FINANCIAL INSTRUMENTS

Certain financial assets and liabilities are accounted for at fair value, which is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The following fair value hierarchy prioritizes the inputs used to measure fair value:

Level 1 – Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.

Level 2 – Pricing inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. Level 2 includes those financial instruments that are valued using models or other valuation methodologies.

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Level 3 – Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value from the perspective of a market participant.

The following tables represent cash and the available-for-sale securities adjusted cost, gross unrealized losses and fair value by significant investment category recorded as cash and cash equivalents or investment securities (in thousands):


	June 30, 2019
		Cost		Unrealized Losses		Accrued Interest		Estimated Fair Value		Cash & Cash Equivalents		Investment Securities

Cash	$	32,632	$	-	$	-	$	32,632	$	32,632	$	-

Level 1:
Certificate of deposit		60,000		-		-		60,000		60,000		-
Money market accounts		3,679		-		-		3,679		3,679		-
Government & agency securities		2,833		(9)		23		2,847		-		2,847
		66,512		(9)		23		66,526		63,679		2,847

Level 2:
Municipal bonds		14,118		-		246		14,364		-		14,364

Total	$	113,262	$	(9)	$	269	$	113,522	$	96,311	$	17,211

September 30, 2018
Cost
Unrealized
Losses

Accrued
Interest

Estimated
Fair Value

Cash &
Cash
Equivalents

Investment
Securities

Cash $ 22,841 $ - $ - $ 22,841 $ 22,841 $ -

Level 1:
Certificate of deposit 55,000 - - 55,000 55,000 -
Money market accounts 4,466 - - 4,466 4,466 -
Government & agency securities 4,135 (116 ) 24 4,043 - 4,043
63,601 (116 ) 24 63,509 59,466 4,043

Level 2:
Municipal bonds 16,932 (248 ) 185 16,869 - 16,869

Total $ 103,374 $ (364 ) $ 209 $ 103,219 $ 82,307 $ 20,912

	December 31, 2017
	Cost		Unrealized Losses			Accrued Interest		Estimated Fair Value		Cash & Cash Equivalents		Investment Securities


														December 31, 2018
															Cost		Unrealized Losses		Accrued Interest		Estimated Fair Value		Cash & Cash Equivalents		Investment Securities

Cash	$	28,630	$	-		$	-	$	28,630	$	28,630	$	-	$	35,436	$	-	$	-	$	35,436	$	35,436	$	-


Level 1:
Certificate of deposit		45,000		-			-		45,000		45,000		-		40,000		-		-		40,000		40,000		-
Money market accounts		1,447		-			-		1,447		1,447		-		5,928		-		-		5,928		5,928		-
Government & agency securities		5,342		(67	)		13		5,288		-		5,288		2,835		(72)		-		2,763		-		2,763
		51,789		(67	)		13		51,735		46,447		5,288

															48,763		(72)		-		48,691		45,928		2,763

Level 2:
Municipal bonds		18,404		(201	)		266		18,469		-		18,469		16,791		(164)		280		16,907		-		16,907


Total	$	98,823	$	(268	)	$	279	$	98,834	$	75,077	$	23,757	$	100,990	$	(236)	$	280	$	101,034	$	81,364	$	19,670

The Company had ano realized loss ~~of $91 and $16 thousand~~or gains for the three and six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017, respectively, and a realized loss of $70 and $73 thousand for the nine months ended September 30,~~ 2018, ~~and 2017,~~ respectively. As of ~~September~~June 30, ~~2018~~2019 and ~~2017,~~2018, gross unrealized losses related to individual securities that had been in a continuous loss position for 12 months or longer were not significant. The maturities of the Company’s investment securities generally range up to 5 years for municipal bonds and for government and agency securities.

~~INCOME TAXES~~

~~The Company reflected the effects~~Table of the TCJA in its 2017 financial statements, including the effects of the change in the U.S. Corporate tax rate from 35% to 21% on deferred tax assets and liabilities. The Company’s tax expense for the three and nine month periods ended September 30, 2018 was $4.0 million and $10.2 million, respectively. This includes the reduction in the U.S. federal tax rate from 35% to 21%, effective for the Company’s 2018 tax year.Contents

The Company recognized the income tax effects of the TCJA in the financial statements included in its 2017 Annual Report on Form 10-K in accordance with Staff Accounting Bulletin No. 118, which provides SEC staff guidance for the application of ASC 740, Income Taxes, in the reporting period in which the TCJA was signed into law. During the three months ended September 30, 2018, the Company finalized its accounting for the income tax effects of the TCJA. There were no material adjustments to the provisional amounts recorded in the Company’s financial statements included in its 2017 Annual Report on Form 10-K.

~~Item 2.~~

~~MANAGEMENT'S~~

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Note Regarding Forward-Looking Statements

This report contains information that may constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Generally, the words “believe,” “expect,” “intend,” “estimate,” “anticipate,” “project,” “will,” and similar expressions, which are not historical in nature, identify forward-looking statements. However, the absence of these words or expressions does not necessarily mean that a statement is not forward-looking. All statements that address operating performance, events or developments that we expect or anticipate will occur in the future, including statements relating to future operating results, are forward-looking statements. Management believes that these forward-looking statements are reasonable as and when made. However, caution should be taken not to place undue reliance on any such forward-looking statements because such statements speak only as of the date when made. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. In addition, forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our historical experience and our present expectations or projections. These risks and uncertainties include, but are not limited to, those described in our ~~Annual Report on~~2018 Form 10-K, ~~for the fiscal year ended December 31, 2017 (the “2017 Annual Report”),~~ and those described from time to time in our future reports filed with the SEC.

The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and related notes appearing elsewhere herein.

Overview

~~Medifast, Inc. (together with its consolidated subsidiaries, “we,” “us,” “our,” the “Company,” or “Medifast”) is~~We are a leading ~~manufacturer~~health and ~~distributor~~wellness company that empowers people to transform their lives one healthy habit at a time. Through our rapidly growing community of ~~clinically proven~~independent wellness coaches, we seek to enrich the lives of our clients through programs that promote healthy living and through the manufacture and distribution of our proprietary health and wellness products. We believe we are building one of the most trusted, transparent and effective direct-sales health and wellness community in the world. Our operations are primarily conducted through our wholly owned subsidiaries, Jason Pharmaceuticals, Inc., OPTAVIA, LLC, Jason Enterprises, Inc., Jason Properties, LLC, Medifast Franchise Systems, Inc., Medifast Nutrition, Inc., Seven Crondall Associates, LLC, Corporate Events, Inc., OPTAVIA (Hong Kong) Limited and OPTAVIA (Singapore) PTE. LTD.

Since our founding, we have been an innovator in the development of nutritional weight-management products and programs. We ~~produce, distribute and~~ sell a variety of weight loss, weight management and ~~other~~healthy living products all based on our proprietary formulas under the Medifast^®, OPTAVIA^®, Thrive by Medifast, Optimal Health byTake Shape for Life, Flavors of Home^®, and Essential 1 brands. Our product line includes more than 145 consumable ~~health~~options, including, but not limited to, bars, bites, pretzels, puffs, cereal crunch, drinks, hearty choices, oatmeal, pancakes, pudding, soft serve, shakes, smoothies, soft bakes, and ~~nutritional products.~~soups. The ~~Company’s product~~Thrive by Medifast and Optimal Health byTake Shape for Life lines include a variety of specially formulated bars, shakes, and smoothies for those who are maintaining their weight for long-term healthy living. We identify opportunities to expand our product line by regularly surveying our clients and studying industry and consumer trends. This allows us to introduce new, high quality products that meet consumer demand.

Our nutritional products are formulated with high-quality, low-calorie, and low-fat ingredients. Products include individually portioned, calorie- and carbohydrate-controlled meal replacements that share a similar nutritional footprint and provide a balance of protein and good carbohydrates. Our meal replacements are also fortified to contain vitamins and minerals, as well as other nutrients essential for good health. We offer our OPTAVIA clients exclusive OPTAVIA-branded nutritional products, or “Fuelings” and also offer a variety of other weight loss, weight management, and healthy living ~~meal replacements, snacks, hydration~~ products under other brands. OPTAVIA Fuelings come in a variety of flavors that appeal to a broad variety of tastes. Our products are nutrient-dense, portion controlled, nutritionally interchangeable and ~~vitamins. Our product sales accounted for 98%~~simple to use. They are formulated with high-quality, low-calorie, and ~~97%~~low-fat ingredients.

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In March 2018, we announced a change in how our ~~revenues for~~business is managed, operating performance is reviewed and resources are allocated. As a result, beginning in the ~~nine months ended September 30, 2018 and 2017, respectively.~~

~~The nature, amount, timing, and uncertainty~~first quarter of revenue and cash flows from our revenues amongst contracts, product offerings and customers do not differentiate and are recognized consistently based on our policies. In addition, effective January 1, 2018, we changed how we ~~internally and externally~~ report ~~our revenues~~financial performance to ~~simplify and better~~ align with changes in ~~how~~the way we now manage ~~our~~the business ~~review operating performance~~ and ~~allocate resources~~now operate and report as a ~~result of the shift in our primary focus to the~~single sales segment,OPTAVIA business and the significance this business represents to the overall results of the Company. We considered the following factors in making this decision: the nature of business activities overlapping amongst previous defined sales channels, the management structure directly accountable to our chief operating decision maker for operating and administrative activities, and information presented to the Board of Directors and investors.VIA. We previously disclosed entity-wide ~~disclosures~~financial information for ~~sales by channel:~~multiple segments (e.g.OPTAVIA, Medifast Direct, Franchise Medifast Weight Control Centers and Medifast ~~Wholesale. Due~~Wholesale). Although we have one reportable segment we continue to ~~the interchangeable nature of these customers amongst sale channels, sales migration to~~market our products and programs through our Medifast Direct ecommerce platform and our Franchise Medifast Weight Control Center channels.

OPTAVIA encompasses our community of OPTAVIA Coaches, our OPTAVIA health and ~~realignment~~wellness programs, and our proprietary OPTAVIA-branded products. The OPTAVIA Integrated Coaching Model is centered around providing focused, individualized attention to our clients. Our OPTAVIA Coaches provide the support and encouragement for clients to successfully learn and adopt a more healthy lifestyle. This clinically-proven model translates into better client results when compared to programs that leave individuals to adopt and maintain healthy habits on their own. Our clients receive personalized attention from our OPTAVIA Coaches who share, educate, motivate and pass along their passion for healthy living. We believe this personal, direct-sales and service strategy is optimal for activating and supporting our clients.

Our OPTAVIA Coaches are independent contractors, not employees, who support our clients and market our products and services primarily through word of ~~internal~~mouth, email, direct mail and via social media channels such as Facebook, Instagram, Twitter or Zoom. As direct-sales entrepreneurs, OPTAVIA Coaches market our products to friends, family and other acquaintances with whom they have established strong relationships.

The entrepreneurial success of our OPTAVIA Coaches is the key to our success. We are focused on scaling our OPTAVIA Integrated Coaching Model by offering economic incentives that are attractive to independent entrepreneurs and reflective of the new “gig economy”. Our successful clients frequently become enthusiastic health and wellness advocates themselves and choose to become OPTAVIA Coaches. This process of clients becoming OPTAVIA Coaches underpins our growth.

As we have previously disclosed, global expansion is an important component of our long-term growth strategy. In July 2019, we commenced our international operations, ~~as discussed, our disclosure as~~entering into the Asia Pacific markets of ~~January 1, 2018 will not include revenues by sales channel.~~Hong Kong and Singapore. Our decision to enter these markets was based on industry market research that reflects a dynamic shift in how health care is being prioritized and consumed in those countries.

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with United States generally accepted accounting ~~principles (“GAAP”).~~principles. Our significant accounting policies are described in Note 1 ~~and Note 2~~ to the condensed consolidated financial statements included in this report.

The preparation of our financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Management develops, and changes periodically, these estimates and assumptions based on historical experience and on various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

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Overview of Results of Operations

Our product sales accounted for 98% of our revenues for the six months ended June 30, 2019 and 2018, respectively.

The following tables reflect our income statements (in thousands, except percentages):


	Three months ended June 30,
	2019		2018		$ Change		% Change

Revenue	$	187,103	$	117,324	$	69,779	59.5%
Cost of sales		46,393		28,525		(17,868)	-62.6%
Gross profit		140,710		88,799		51,911	58.5%

Selling, general, and administrative		113,355		71,689		(41,666)	-58.1%

Income from operations		27,355		17,110		10,245	59.9%

Other income (expense)
Interest income, net		425		330		95	28.8%
Other income (expense)		(2)		179		(181)	-101.1%
		423		509		(86)	-16.9%

Income from operations before income taxes		27,778		17,619		10,159	57.7%

Provision for income tax		6,395		3,486		(2,909)	-83.4%

Net income	$	21,383	$	14,133	$	7,250	51.3%

% of revenue
Gross profit		75.2%		75.7%
Selling, general, and administrative costs		60.6%		61.1%
Income from operations		14.6%		14.6%
Income from operations before income taxes		14.8%		15.0%

Three months ended September 30,
2018 2017 $ Change % Change

Revenue $ 139,239 $ 77,205 $ 62,034 80.3 %
Cost of sales 32,038 19,022 (13,016 ) -68.4 %
Gross profit 107,201 58,183 49,018 84.2 %

Selling, general, and administrative 89,734 47,956 (41,778 ) -87.1 %

Income from operations 17,467 10,227 7,240 70.8 %

Other income (expense)
Interest income, net 361 148 213 143.9 %
Other income (expense) - (4 ) 4 -100.0 %
361 144 217 150.7 %

Income from operations before income taxes 17,828 10,371 7,457 71.9 %

Provision for income tax 4,047 3,685 (362 ) -9.8 %

Net income $ 13,781 $ 6,686 $ 7,095 106.1 %

% of revenue
Gross profit 77.0 % 75.4 %
Selling, general, and administrative costs 64.4 % 62.1 %
Income from operations 12.5 % 13.2 %

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Nine months ended September 30,
2018 2017 $ Change % Change

Revenue $ 355,159 $ 223,556 $ 131,603 58.9 %
Cost of sales 84,351 54,870 (29,481 ) -53.7 %
Gross Profit 270,808 168,686 102,122 60.5 %

Selling, general, and administrative 221,548 138,540 (83,008 ) -59.9 %

Income from operations 49,260 �� 30,146 19,114 63.4 %

Other income (expense)
Interest income, net 940 352 588 167.0 %
Other income (expense) 178 32 146 456.3 %
1,118 384 734 191.1 %

Income from operations before income taxes 50,378 30,530 19,848 65.0 %

Provision for income tax expense 10,242 10,115 (127 ) -1.3 %

Net income $ 40,136 $ 20,415 $ 19,721 96.6 %

% of revenue
Gross Profit 76.2 % 75.5 %
Selling, general, and administrative costs 62.4 % 62.0 %
Income from Operations 13.9 % 13.5 %


	Six months ended June 30,
	2019		2018		$ Change		% Change

Revenue	$	352,979	$	215,920	$	137,059	63.5%
Cost of sales		87,122		52,313		(34,809)	-66.5%
Gross Profit		265,857		163,607		102,250	62.5%

Selling, general, and administrative		213,787		131,814		(81,973)	-62.2%

Income from operations		52,070		31,793		20,277	63.8%

Other income (expense)
Interest income, net		737		579		158	27.3%
Other income (expense)		(8)		178		(186)	-104.5%
		729		757		(28)	-3.7%

Income from operations before income taxes		52,799		32,550		20,249	62.2%

Provision for income taxes		10,666		6,195		(4,471)	-72.2%

Net income	$	42,133	$	26,355	$	15,778	59.9%

% of revenue
Gross Profit		75.3%		75.8%
Selling, general, and administrative costs		60.6%		61.0%
Income from Operations		14.8%		14.7%
Income from operations before income taxes		15.0%		15.1%

Revenue: Revenue increased ~~$62.0~~$69.8 million, or ~~80.3%~~59.5%, to ~~$139.2~~$187.1 million for the three months ended ~~September~~June 30, ~~2018~~2019 from ~~$77.2~~$117.3 million for the three months ended ~~September~~June 30, ~~2017.~~2018. This is the ~~sixth~~ninth consecutive quarter of year-over-year revenue growth and the ~~seventh~~tenth consecutive quarter of sequential revenue improvement. The number of active earningOPTAVIA Coaches for the three months ended ~~September~~June 30, ~~2018~~2019 increased to ~~22,600~~30,600 from ~~14,200~~19,700 for the corresponding period in ~~2017,~~2018, an increase of ~~59.2%~~55.3%. The quarterly revenue perOPTAVIA Coach increased ~~23.2%~~7.1% to ~~$5,781~~$5,863 for the three months ended ~~September~~June 30, ~~2018~~2019 from ~~$4,693~~$5,474 for the three months ended ~~September~~June 30, ~~2017.~~2018. Revenue increased $137.1 million, or 63.5%, to $353.0 million for the six months ended June 30, 2019 from $215.9 million for the six months ended June 30, 2018. This growth in revenue for the quarter and six months ended June 30, 2019 resulted in part from business initiatives accelerating newOPTAVIA Coach conversions ~~increased~~~~OPT~~~~AVIA client acquisition rates~~ and new clients starting our plans, aided by the ongoing transition of clients to higher pricedOPTAVIA branded products. ~~Total advertising spend, inclusive~~OPTAVIA-branded products represented 75% of ~~broker fees, was $1.3~~consumable units sold for the three months ended June 30, 2019 compared to 64% for the corresponding period in 2018 and 74% of consumable units sold for the six months ended June 30, 2019 compared to 62% for the corresponding period in 2018.

Costs of sales: Cost of sales increased $17.9 million, or 62.6%, to $46.4 million for the three months ended ~~September~~June 30, 2018 as compared to $1.7 million for the corresponding period in 2017. Revenue increased $131.6 million, or 58.9%, to $355.2 million for the nine months ended September 30, 2018 from $223.6 million for the nine months ended September 30, 2017. Total advertising spend, inclusive of broker fees, was $4.9 million for the nine months ended September 30, 2018 as compared to $6.1 million for the corresponding period in 2017.

~~Costs of sales:~~ ~~Cost of sales increased $13.0 million, or 68.4%, to $32.0 million for the three months ended September 30, 2018~~2019 from the corresponding period in ~~2017~~2018 and increased ~~$29.5~~$34.8 million, or ~~53.7%~~66.5%, to ~~$84.4~~$87.1 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 from the corresponding period in ~~2017.~~2018. The increase in cost of sales for the three months and ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 was primarily driven by increased product sales.

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Gross profit: For the three months ended ~~September~~June 30, ~~2018,~~2019, gross profit increased ~~$49.0~~$51.9 million, or ~~84.2%~~58.5%, to ~~$107.2~~$140.7 million from the corresponding period in ~~2017.~~2018. As a percentage of sales, gross margin ~~increased 160~~decreased 50 basis points to ~~77.0%~~75.2% for the three months ended ~~September~~June 30, ~~2018~~2019 from ~~75.4%~~75.7% for the corresponding period in ~~2017.~~2018. For the ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, gross profit increased ~~$102.1~~$102.3 million, or ~~60.5%~~62.5%, to ~~$270.8~~$265.9 million from the corresponding period in ~~2017.~~2018. As a percentage of sales, gross margin ~~increased 70~~decreased 50 basis points to ~~76.2%~~75.3% for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 from ~~75.5%~~75.8% for the corresponding period in ~~2017.~~2018. The ~~increase~~decrease in gross margin percentage for the quarter and year-to-date periods ~~was~~were primarily driven by higher ~~production volumes yielding favorable manufacturing absorption as~~product costs, obsolescence costs associated with a specific slow-moving product and the Company increased inventory to meet expected consumer demand. The Company anticipates this absorption benefit to be temporary as inventory levels normalize. In addition, the increase in the gross margin percentage resulted from reduced inventory obsolescencecosts of complying with new U.S. Food and ~~lower shipping expense.~~Drug Administration nutritional labeling requirements.

Selling, general and administrative:Selling, general and administrative (“SG&A”) expenses were ~~$89.7~~$113.4 million for the three months ended ~~September~~June 30, ~~2018,~~2019, an increase of $41.7 million, or ~~87.1%~~58.1%, as compared to ~~$48.0~~$71.7 million from the corresponding period in ~~2017.~~2018. As a percentage of sales, SG&A expenses were ~~64.4%~~60.6% as compared to ~~62.1%~~61.1% for the three months ended ~~September~~June 30, 2019 and 2018, respectively. SG&A expenses included research and ~~2017,~~development costs of $549 thousand and $561 thousand for the three months ended June 30, 2019 and 2018, respectively. ~~This~~For the six months ended June 30, 2019, SG&A expenses increased $82.0 million, or 62.2%, to $213.8 million from $131.8 million for the corresponding period in 2018. SG&A expenses included $1.2 million and $981 thousand in research and development costs for the six months ended June 30, 2019 and 2018, respectively. As a percentage of sales, SG&A expenses were 60.6% for the six months ended June 30, 2019 as compared to 61.0% for the corresponding period in 2018. The increase ~~was~~for the quarter and year-to-date were primarily the result of ~~higher~~increased OPTAVIA ~~commissions paid~~commission expense as a result of higher sales. In addition, SG&A expenses increased as a result of increased consulting costs related to information technology projects, increased salaries and benefits and increased credit card fees resulting from higher sales.

OPTAVIA commission expense, which is variable based upon product ~~sales.~~sales, increased $31.8 million, or 69.0%, for the three months ended June 30, 2019 from the corresponding period in 2018 and increased $63.0 million, or 75.5%, for the six months ended June 30, 2019 from the corresponding period in 2018. These increases were primarily the result of increased product sales and number of active earning OPTAVIA Coaches. AsOPTAVIA revenue increased as a portion of the Company’s total sales mix, the commission rate as a percentage of revenue increased ~~470~~240 basis points to ~~40.5%~~41.7% for the ~~third~~second quarter of ~~2018~~2019 compared to ~~35.8%~~39.3% for the ~~third~~second quarter last ~~year.~~year and increased 280 basis points to 41.5% for the six months ended June 30, 2019 compared to 38.7% for the corresponding period in 2018. This is an outcome of the success we are experiencing with ourOPTAVIA ~~integrated~~Integrated Coach Model. ~~SG&A expenses included research and development costs of $621 thousand and $343 thousand for~~

Income from operations: For the three months ended ~~September~~June 30, ~~2018 and 2017, respectively.~~

~~For the nine months ended September 30, 2018, SG&A expenses~~2019, income from operations increased ~~$83.0~~$10.3 million ~~or 59.9%,~~ to ~~$221.5~~$27.4 million from ~~$138.5~~$17.1 million for the corresponding period in ~~2017. As a percentage of sales, SG&A expenses was 62.4% for the nine months ended September 30,~~ 2018 as compared to 62.0% for the corresponding period in 2017. SG&A expenses included $1.6 million and $1.1 million in research and development costs for the nine months ended September 30, 2018 and 2017, respectively.

~~OPTA~~VIA commission expense, which is variable based upon product sales, increased $28.8 million, or more than 100.0%, for the three months ended September 30, 2018 from the corresponding period in 2017 and increased $62.0 million, or 79.2%, for the nine months ended September 30, 2018 from the corresponding period in 2017.

Coach event and incentive program costs increased $6.0 million and $6.7 million during the three and nine months ended September 30, 2018, respectively, from the corresponding periods in 2017 due to higher annual convention costs as more coaches attended this event and increased incentive program costs related to coaches who qualified during 2018 for our 2019 International Leadership Advancement Trip, an event designed to recognize and provide training to rising leaders and those who mentor them.

General and administrative expenses increased $4.8 million and $11.1 million during the three and nine months ended September 30, 2018, respectively, from the corresponding periods in 2017 primarily as a result of startup costs associated with the move of our distribution center from Texas to Nevada, as well as consulting costs related to information technology projects, and increased credit card fees resulting from higher sales.

Salaries and benefits increased $2.3 million and $4.2 million during the three and nine months ended September 30, 2018, respectively, from the corresponding periods in 2017 primarily as a result of higher contract labor costs related to the winding down of our internal call center and increased compensation costs.

~~Income from operations:~~~~For the three months ended September 30, 2018, income from operations increased $7.3 million to $17.5 million from $10.2 million for the corresponding period in 2017~~ primarily as a result of increased gross profits partially offset by increased SG&A expenses. Income from operations as a percentage of sales was 14.6% for the three months ended June 30, 2019 and 2018, respectively. For the ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, income from operations increased ~~$19.2~~$20.3 million to ~~$49.3~~$52.1 million from ~~$30.1~~$31.8 million for the corresponding period in ~~2017~~2018 primarily as a result of increased gross profits partially offset by increased SG&A expenses.

Income from operations as a percentage of sales was 14.8% and 14.7% for the six months ended June 30, 2019 and 2018, respectively.

Interest income, net:For the three and ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, interest income was ~~$361~~$425 thousand and ~~$940~~$737 thousand, respectively and for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, interest income was ~~$148~~$330 thousand and ~~$352~~$579 thousand, respectively.

Other income (expense):For the three months ended ~~September~~June 30, ~~2018~~2019 and ~~2017,~~2018, other income (expense) was ~~$0 and~~ an expense of $4$2 thousand and income of $179 thousand, respectively. For the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017,~~2018, other income (expense) was an expense of $8 thousand and income of $178 thousand, ~~and $32 thousand,~~ respectively.

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Income from operations before income taxes: Income from operations before income taxes was ~~$17.8~~$27.8 million for the three months ended ~~September~~June 30, ~~2018~~2019 as compared to ~~$10.4~~$17.6 million for the three months ended ~~September~~June 30, ~~2017,~~2018, an increase of ~~$7.4~~$10.2 million. ~~Pre-tax profit~~Income from operations before income taxes as a percentage of sales decreased to ~~12.8%~~14.8% for the three months ended ~~September~~June 30, ~~2018~~2019 from ~~13.4%~~15.0% for the three months ended ~~September~~June 30, ~~2017.~~2018. Income from operations before income taxes was ~~$50.4~~$52.8 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 as compared to ~~$30.5~~$32.6 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, an increase of ~~$19.9~~$20.2 million. ~~Pre-tax profit~~Income from operations before income taxes as a percentage of sales ~~increased~~decreased to ~~14.2%~~15.0% for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 from ~~13.7%~~15.1% for the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~

2018.

Provision for income tax:For the three months ended ~~September~~June 30, ~~2018,~~2019, the Company recorded ~~$4.0~~$6.4 million in income tax expense, an effective rate of ~~22.7%~~23.0%, as compared to ~~$3.7~~$3.5 million in income tax expense, an effective rate of ~~35.5%~~19.8%, for the three months ended ~~September~~June 30, ~~2017.~~2018. The ~~decrease~~increase in the effective tax rate ~~for the three month ended September 30, 2018 as compared to the three months ended September 30, 2017~~ was primarily driven by a 2.1% decrease ~~in the Federal statutory rate of 14.0% pursuant to the TCJA, a decrease in the state rate of 1.7% and a rate reduction of 0.4% attributable~~relating to the discrete accounting for taxes associated with share-based ~~compensation. The total decrease in the effective tax rate was offset~~compensation and by a ~~2.1% increase~~decrease of 1.2% benefit from the net operating loss due to our effective tax rate resulting from to the elimination of the Domestic Manufacturer Deduction and a 1.2% increase to our effective tax rate resulting from changes to the limitations imposed by Section 162(m) of the Internal Revenue Code pursuant to TCJA.state apportionment. For the ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, the Company recorded ~~$10.2~~$10.7 million in income tax expense, an effective rate of ~~20.3%~~20.2%, as compared to ~~$10.1~~$6.2 million in income tax expense, an effective rate of ~~33.1%~~19.0%, for the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2018. The ~~decrease~~increase in the effective tax rate for the ~~nine~~six month ended ~~September~~June 30, ~~2018~~2019 as compared to the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 was primarily driven by a 1.8% decrease ~~in the Federal statutory rate of 14.0% pursuant to the TCJA, a rate reduction of 1.1%~~ attributable to the discrete accounting for taxes associated with share-based compensation ~~and a decrease in the state rate of 0.4%. The total decrease in the effective tax rate was~~partially offset by ~~a 2.2% increase to our effective tax rate~~increased 0.8% resulting from the ~~elimination~~benefits of ~~the Domestic Manufacturer Deduction and a 0.5% increase~~net operating loss due to ~~our effective tax rate primarily resulting from changes to the limitations imposed by Section 162(m) of the Internal Revenue Code pursuant to the TCJA.~~state apportionment. The Company anticipates a full year tax rate of ~~21%~~21.5% to ~~23%~~22.5% in ~~2018.~~2019, exclusive of any discrete tax benefits from share-based compensation awards vesting in the fourth quarter.

Net income: Net income was ~~$13.8~~$21.4 million and ~~$40.1~~$42.1 million, or ~~$1.14~~$1.75 and ~~$3.31~~$3.45 per diluted share, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 as compared to ~~$6.7~~$14.1 million and ~~$20.4~~$26.4 million, or ~~$0.55~~$1.16 and ~~$1.69~~$2.17 per diluted share, for the three months and ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2018. The period-over-period changes were driven by the factors described ~~above.~~

above in the explanations from operations.

Liquidity and Capital Resources

The Company had stockholders’ equity of ~~$111.6~~$126.0 million and working capital of ~~$89.1~~$95.9 million at ~~September~~June 30, ~~2018~~2019 as compared with ~~$108.6~~$109.1 million and ~~$88.1~~$85.2 million at December 31, ~~2017,~~2018, respectively. The ~~$3.0~~$16.9 million net increase in stockholder’s equity reflects ~~$40.1~~$42.1 million in net income for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 offset by ~~$20.0~~$10.0 million spent on repurchases of common stock, and ~~$17.3~~$17.7 million for declared dividends paid to ~~our~~holders of the Company’s common stock ~~holders~~ as well as the other equity transactions described in the “Condensed Consolidated Statements of Changes in Stockholders’ Equity” included in our condensed consolidated financial statements included in this report. The Company declared a dividend of ~~$6.0~~$8.9 million, or ~~$0.48~~$0.75 per share, to common stockholders as of ~~September 21, 2018~~June 28, 2019 that will be paid in the ~~fourth~~third quarter of ~~2018.~~2019. While we intend to continue the dividend program and believe we will have sufficient liquidity to do so, we can provide no assurance that we will be able to continue to declare and pay dividends. The Company’s cash, cash equivalents, and investment securities increased from ~~$98.8~~$101.0 million at December 31, ~~2017~~2018 to ~~$103.2~~$113.5 million at ~~September~~June 30, ~~2018.~~

2019. The Company also repurchased approximately 71,000 shares during the second quarter of 2019.

Net cash provided by operating activities increased ~~$12.2~~$8.7 million to ~~$45.5~~$47.2 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 from ~~$33.3~~$38.5 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 primarily as a result of increased net income ~~partially~~ offset by an increase in working capital.

Net cash used in investing activities was ~~$817~~$4.5 million for the six months ended June 30, 2019 as compared to $710 thousand for the ~~nine~~six months ended ~~September~~June 30, ~~2018 as compared to $3.4 million for the nine months ended September 30, 2017.~~2018. This change resulted ~~primarily~~ from cash provided by net investment securities for the nine months ended September 30, 2018 as compared to cash used in net investment securities for the corresponding period in 2017. This was partially offset by an increase in cash used in capital expenditures for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 from the corresponding period in ~~2017.~~

2018 partially offset by a $1.2 million increase in sale and maturities of investment securities.

Net cash used in financing activities ~~increased $25.6~~decreased $4.1 million to ~~$37.4~~$27.7 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 from ~~$11.8~~$31.8 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2018. This ~~increase~~decrease was ~~primarily~~ due to a $10.0 million decrease in stock repurchases ~~and an~~partially offset by a $6.1 million increase in cash dividends paid to stockholders.

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In pursuing its business strategy, the Company may require additional cash for operating and investing activities. The Company expects future cash requirements, if any, to be funded from operating cash flow and financing activities.

The Company evaluates acquisitions from time to time as presented.

~~Item 3.~~

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Market risk is the potential loss arising from adverse changes in market rates and prices, such as interest rates and a decline in the stock market. The Company does not enter into derivatives, foreign exchange transactions or other financial instruments for trading or speculative purposes.

The Company is exposed to market risk related to changes in interest rates and market pricing impacting our investment portfolio. Its current investment policy is to maintain an investment portfolio consisting of municipal bonds, U.S. money market securities, and high-grade corporate securities, directly or through managed funds. Its cash is deposited in and invested through highly rated financial institutions in North America. Its marketable securities are subject to interest rate risk and market pricing risk and will fall in value if market interest rates increase or if market pricing decreases. If market interest rates were to increase and market pricing were to decrease immediately and uniformly by 10% from levels at ~~September~~June 30, ~~2018,~~2019, the Company estimates that the fair value of its investment portfolio would decline by an immaterial amount and therefore it would not expect its operating results or cash flows to be affected to any significant degree by the effect of a change in market conditions on our investments.

There have been no material changes to our market risk exposure since December 31, ~~2017.~~2018.

~~Item 4.~~

Item 4. Controls and Procedures

Management, including our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, as of ~~September~~June 30, ~~2018.~~2019. Our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported accurately and on a timely basis. Based on this evaluation performed in accordance with the criteria established in the 2013 Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, our management concluded that the Company’s disclosure controls and procedures are effective at the reasonable assurance level as of the end of the period covered by this report.

Changes in Internal Control over Financial Reporting:

There have been no material changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Act) during the fiscal quarter ended ~~September~~June 30, ~~2018~~2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We implemented additional internal controls to ensure we properly assessed and accounted for the impact of the new accounting standard related to ~~revenue recognition~~leases on our financial statements which became effective on January 1, ~~2018.~~2019. There were no significant changes to our internal control over financial reporting related to the adoption of the new standard.

Part II Other Information

Item 1. Legal Proceedings

~~Legal Proceedings~~

The Company is, from time to time, subject to a variety of litigation and similar proceedings ~~incidental to~~that arise out of the ordinary course of its business. Based upon the Company’s experience, current information and applicable law, it does not believe that these proceedings and claims will have a material adverse effect on its results of operations, financial position or liquidity. However, the results of legal actions cannot be predicted with certainty. Therefore, it is possible that the Company’s results of operations, financial condition or cash flows could be materially adversely affected in any particular period by the unfavorable resolution of one or more legal actions.

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Item 1A. Risk Factors

~~Risk Factors~~

There have been no material changes to the risk factors set forth in Part I, Item 1A of the ~~2017 Annual Report.~~2018 Form 10-K.

~~Item 2.~~

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities


2019	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of a Publicly Announced Plan or Program	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
April 1 - April 30	-	$	-	-	664,817
May 1 - May 31	71,230		140.35	71,230	593,587
June 1 - June 30	-		-	-	593,587

2018 Total Number of Shares
Purchased Average Price Paid per
Share
Total Number of Shares
Purchased as Part of a
Publicly Announced Plan
or Program
Maximum Number
of Shares that May
Yet Be Purchased
Under the Plans or
Programs
July 1 - July 31 - $ - - 728,881
August 1 - August 31 200 169.47 - 728,881
September 1 - September 30 - - - 728,881

The Company, in accordance with, and as part of, the ~~repurchase program adopted in September 2014 (the “Stock~~Stock Repurchase ~~Program”)~~Plan implemented a Rule 10b5-1 repurchase plan to facilitate repurchases of the Company’s common stock under the Stock Repurchase ~~Program.~~Plan. As of ~~September~~June 30, ~~2018,~~2019, there were ~~728,881~~593,587 shares of the Company’s common stock eligible for repurchase under the Stock Repurchase ~~Program.~~Plan. There iscan be no ~~guarantee~~assurances as to the ~~exact number~~amount, timing or prices of ~~shares of the Company’s common stock, if any, that will be purchased under the~~repurchases, which may vary based on market conditions and other factors. The Stock Repurchase ~~Plan.~~Plan does not have an expiration date and can be modified or terminated by the Board of Directors at any time.

Item 6. Exhibits


Exhibit Number		Description of Exhibit

3.1		Restated and Amended Certificate of Incorporation of Medifast, Inc. (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form ~~8-K~~8K (File No. ~~001-31573)~~00131573) filed February 27, 2015).

3.2		Amended and Restated Bylaws of Medifast, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form ~~8-K~~8K (File No. ~~001-31573)~~00131573) filed on ~~April 6, 2015)~~June 13, 2019).

31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Chief Financial Officer 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.

101		The following financial statements from Medifast, Inc.’s Quarterly Report on Form 10-Q for the quarter ended ~~September~~June 30, ~~2018~~2019 filed ~~November 7, 2018,~~August 2, 2019, formatted in Inline XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Statements of Income, (ii) Condensed Consolidated Statements of Comprehensive Income, (iii) Condensed Consolidated Balance Sheets, (iv) Condensed Consolidated Statements of Cash Flows, (v) Condensed Consolidated Statements of Changes in Stockholders’ Equity, and (vi) Notes to the Condensed Consolidated Financial Statements (filed herewith).

In accordance with SEC Release No. 33-8238, Exhibit 32.1 is being furnished and not filed.

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SIGNATURES

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.

Medifast, Inc.


By:	/s/ DANIEL R. CHARD
	Daniel R. Chard
	Chief Executive Officer
	(Principal Executive Officer)

Dated:	~~November 7, 2018~~ August 2, 2019


	/s/ TIMOTHY G. ROBINSON
	Timothy G. Robinson
	Chief Financial Officer
	(Principal Financial and Accounting Officer)

Dated:	~~November 7, 2018~~ August 2, 2019

	Three months ended September 30,					Nine months ended September 30,
	2018		2017			2018		2017

Revenue	$	139,239	$	77,205		$	355,159	$	223,556
Cost of sales		32,038		19,022			84,351		54,870
Gross profit		107,201		58,183			270,808		168,686

Selling, general, and administrative		89,734		47,956			221,548		138,540

Income from operations		17,467		10,227			49,260		30,146

Other income (expense)
Interest income, net		361		148			940		352
Other income (expense)		-		(4	)		178		32
		361		144			1,118		384

Income from operations before income taxes		17,828		10,371			50,378		30,530

Provision for income taxes		4,047		3,685			10,242		10,115

Net income	$	13,781	$	6,686		$	40,136	$	20,415

Earnings per share - basic	$	1.15	$	0.56		$	3.34	$	1.71

Earnings per share - diluted	$	1.14	$	0.55		$	3.31	$	1.69

Weighted average shares outstanding -
Basic		11,954		11,930			12,006		11,920
Diluted		12,097		12,095			12,112		12,063

Cash dividends declared per share	$	0.48	$	0.32		$	1.44	$	0.96

	September 30,			December 31,
	2018			2017

ASSETS
Current Assets
Cash and cash equivalents	$	82,307		$	75,077
Accounts receivable-net of doubtful accounts of $405 at September 30, 2018 and allowance for sales returns and doubtful accounts of $597 at December 31, 2017		1,017			576
Inventory		43,845			19,328
Investment securities		20,912			23,757
Income taxes, prepaid		-			2,272
Prepaid expenses and other current assets		3,851			4,188
Total current assets		151,932			125,198

Property, plant and equipment - net		18,760			18,611
Other assets		1,400			2,120
Deferred tax assets		2,355			-


TOTAL ASSETS	$	174,447		$	145,929

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses	$	62,806		$	37,140
Total current liabilities		62,806			37,140

Deferred tax liabilities		-			208
Total liabilities		62,806			37,348

Stockholders' Equity
Common stock, par value $.001 per share: 20,000 shares authorized;
12,145 and 12,103 issued and 11,956 and 11,971 outstanding at September 30, 2018 and December 31, 2017, respectively		12			12
Additional paid-in capital		8,040			4,967
Accumulated other comprehensive loss		(266	)		(160	)
Retained earnings		124,601			103,762
Less: Treasury stock at cost, 128 shares at September 30, 2018		(20,746	)		-
Total stockholders' equity		111,641			108,581

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	174,447		$	145,929

	Nine months ended September 30, 2018
	Number of Shares Issued			Common Stock		Additional Paid-In Capital			Accumulated other comprehensive loss			Retained Earnings			Treasury Stock			Total

Balance, January 1, 2018, as reported		12,103		$	12	$	4,967		$	(160	)	$	103,762		$	-		$	108,581
Cumulative effect of adjustments from changes in accounting standards (Notes 1 and 2)		-			-		-			-			(2,018	)		-			(2,018	)
Balance January 1, 2018, as adjusted		12,103			12		4,967			(160	)		101,744			-			106,563

Net income		-			-		-			-			40,136			-			40,136
Share-based compensation		16			-		2,352			-			-			-			2,352
Options exercised by executives and directors		20			-		220			-			-			-			220
Net shares repurchased for employee taxes		(3	)		-		(249	)		-			-			-			(249	)
Treasury stock from cashless options		9			-		750			-			-			(750	)		-
Treasury stock from stock repurchases		-			-		-			-			-			(19,996	)		(19,996	)
Other comprehensive loss		-			-		-			(106	)		-			-			(106	)
Cash dividends declared to stockholders		-			-		-			-			(17,279	)		-			(17,279	)

Balance, September 30, 2018		12,145		$	12	$	8,040		$	(266	)	$	124,601		$	(20,746	)	$	111,641

	Three months ended September 30, 2018							Nine months ended September 30, 2018
	As Reported		Balances without adoption of ASC 606		Effect of Change			As Reported		Balances without adoption of ASC 606		Effect of Change

Revenue	$	139,239	$	139,582	$	(343	)	$	355,159	$	356,442	$	(1,283	)
Cost of sales		32,038		32,071		33			84,351		84,544		193
Gross profit		107,201		107,511		(310	)		270,808		271,898		(1,090	)

Selling, general, and administrative		89,734		89,831		97			221,548		221,908		360

Income from operations		17,467		17,680		(213	)		49,260		49,990		(730	)

Other income (expense)
Interest income, net		361		361		-			940		940		-
Other income (expense)		-		-		-			178		178		-
		361		361		-			1,118		1,118		-

Income from operations before income taxes		17,828		18,041		(213	)		50,378		51,108		(730	)

Provision for income taxes		4,047		4,092		45			10,242		10,396		154

Net income	$	13,781	$	13,949	$	(168	)	$	40,136	$	40,712	$	(576	)

Earnings per share - basic	$	1.15	$	1.17	$	(0.02	)	$	3.34	$	3.39	$	(0.05	)

Earnings per share - diluted	$	1.14	$	1.15	$	(0.01	)	$	3.31	$	3.36	$	(0.05	)

Weighted average shares outstanding -
Basic		11,954		11,954					12,006		12,006
Diluted		12,097		12,097					12,112		12,112

	September 30, 2018
	As Reported		Balances without adoption of ASC 606		Effect of Change

ASSETS
Accounts receivable, net	$	1,017	$	118	$	899
Inventory		43,845		42,793		1,052
Prepaid expenses and other current assets		3,851		3,711		140
Deferred tax assets		2,355		1,656		699

LIABILITIES
Accounts payable and accrued expenses		62,806		57,422		5,384

STOCKHOLDERS' EQUITY
Retained earnings		124,601		127,195		(2,594	)

	Balance at December 31, 2017		Adjustments due to ASC 606			Balance at January 1, 2018

ASSETS
Accounts receivable, net	$	576	$	557		$	1,133
Inventory		19,328		902			20,230
Prepaid expenses and other current assets		4,188		116			4,304
Deferred tax assets		-		336			336

LIABILITIES
Accounts payable and accrued expenses		37,140		4,137			41,277
Deferred tax liabilities		208		(208	)		-

STOCKHOLDERS' EQUITY
Retained earnings		103,762		(2,018	)		101,744

2018	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of a Publicly Announced Plan or Program		Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
July 1 - July 31		-	$	-		-		728,881
August 1 - August 31		200		169.47		-		728,881
September 1 - September 30		-		-		-		728,881