UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 2005 Commission File No. 0-23016
Medifast, Inc.
(Exact name of small business issuer in its charter)
Delaware 13-3714405
- -------------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
11445 Cronhill Drive, Owings Mills, MD 21117
- -------------------------------------- ------------------------------------
(Address of principal offices) (Zip Code)
Registrant's telephone number, including Area Code: (410) 581-8042
--------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|
Number of shares outstanding of Registrant's Common Stock, as of September 30,
2005: 12,771,791 shares
Index
Part I
Financial Information:
Condensed Consolidated Balance Sheets -
September 30, 2005 (unaudited) and December 31, 2004................... 3
Condensed Consolidated Statements of Income -
Three and Nine Months Ended September 30, 2005 and 2004 (unaudited).... 4
Condensed Consolidated Statements of Cash Flow -
Nine Months Ended September 30, 2005 and 2004 (unaudited).............. 5
Notes to Condensed Consolidated Financial Statements....................... 6
Management Discussion and Analysis of Financial Condition
and Results of Operations.............................................. 10
Part II
Signature Page............................................................. 13
Index to Exhibits.......................................................... 14
31.1
31.2
32.1
33.1
33.2
2
MEDIFAST, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, 2005 December 31, 2004
(Unaudited) (Audited)
ASSETS
Current assets:
Cash $ 2,641,000 $ 612,000
Accounts receivable-net of allowance for doubtful accounts of $100,000 1,517,000 1,063,000
Inventory 4,858,000 4,251,000
Investment securities 2,762,000 2,626,000
Deferred compensation 506,000 321,000
Prepaid expenses and other current assets 2,004,000 1,079,000
Deferred tax asset 24,000 19,000
-------------- --------------
Total Current Assets 14,312,000 9,971,000
Property, plant and equipment - net 8,984,000 8,698,000
Trademarks and intangibles, net 6,519,000 7,138,000
Deferred tax asset, net of current position 190,000 91,000
Other assets 58,000 70,000
-------------- --------------
TOTAL ASSETS $ 30,063,000 $ 25,968,000
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 2,091,000 $ 1,005,000
Income taxes payable 1,396,000 674,000
Line of credit 642,000 369,000
Current maturities of long-term debt 556,000 458,000
-------------- --------------
Total current liabilities 4,685,000 2,506,000
Long-term debt, net of current portion 4,120,000 4,256,000
-------------- --------------
Total Liabilities 8,805,000 6,762,000
-------------- --------------
Stockholders' Equity:
Series B Convertible Preferred Stock; par value $1.00;
600,000 shares authorized; -0- and 300,614 shares issued and outstanding -- 301,000
Series C Convertible Preferred Stock; stated value $1.00;
1,015,000 shares authorized; -0- and 200,000 shares issued and outstanding -- 200,000
Common stock; par value $.001 per share; 20,000,000 authorized;
12,771,791 and 11,001,070 shares issued and outstanding respectively 13,000 11,000
Additional paid-in capital 21,750,000 20,556,000
Accumulated comprehensive loss (22,000) (39,000)
Retained Earnings (deficit) 300,000 (1,287,000)
-------------- --------------
22,041,000 19,742,000
Less cost of common stock treasury; 111,902 and 78,160
shares, respectively (661,000) (536,000)
Less: Unearned compensation (122,000) --
-------------- --------------
Total Stockholders' Equity 21,258,000 19,206,000
-------------- --------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 30,063,000 $ 25,968,000
============== ==============
See accompanying notes to condensed consolidated financial statements.
3
MEDIFAST, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended September 30, Nine Months Ended September 30,
2005 2004 2005 2004
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Revenue 10,985,000 7,268,000 29,865,000 21,442,000
Cost of sales 2,675,000 1,886,000 7,370,000 5,182,000
-------------- -------------- -------------- --------------
Gross Profit 8,310,000 5,382,000 22,495,000 16,260,000
Selling, general, and administration 7,044,000 4,855,000 19,163,000 13,832,000
-------------- -------------- -------------- --------------
Income from operations 1,266,000 527,000 3,332,000 2,428,000
Other income/(expense)
Interest expense, net (47,000) (4,000) (97,000) (79,000)
Other income (expense) 7,000 (2,000) 10,000 (9,000)
-------------- -------------- -------------- --------------
Income before provision for income taxes 1,226,000 521,000 3,245,000 2,340,000
Provision for income tax benefit (expense) (609,000) (130,000) (1,367,000) (628,000)
-------------- -------------- -------------- --------------
Net income 617,000 391,000 1,878,000 1,712,000
Less: Stock dividend on preferred stock 10,000 -- 291,000 18,000
-------------- -------------- -------------- --------------
Net income attributable to common shareholders 607,000 $ 391,000 1,587,000 1,694,000
============== ============== ============== ==============
Basic earnings per share $ 0.05 $ 0.04 $ 0.13 $ 0.16
Diluted earnings per share $ 0.05 $ 0.03 $ 0.13 $ 0.14
Weighted average shares outstanding -
Basic 12,595,175 10,982,578 12,235,475 10,774,663
Diluted 12,989,147 12,412,265 12,438,531 12,118,790
See accompanying notes to condensed consolidated financial statements.
4
MEDIFAST, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
Nine Months Ended September 30,
2005 2004
(Unaudited) (Unaudited)
Cash flows from operating activities:
Net income $ 1,878,000 $ 1,712,000
Adjustments to reconcile net income to net cash
provided by (used in) operating activities from
continuing operations:
Depreciation and amortization 1,385,000 910,000
Realized loss on investment securities 15,000 --
Common stock issued for services 103,000 83,000
Net change in other comprehensive income (loss) 17,000 (61,000)
Deferred income taxes (104,000) 629,000
Provision for bad debts 13,000 --
Changes in assets and liabilities:
(Increase) in accounts receivable (467,000) (485,000)
(Increase) in inventory (607,000) (1,105,000)
(Increase) in prepaid expenses & other current assets (925,000) (2,806,000)
Decrease (Increase) in other assets 12,000 (127,000)
(Increase) Decrease in deferred compensation (185,000) 312,000
Increase (decrease) in accounts payable and accrued expenses 1,085,000 (603,000)
Increase in income taxes payable 722,000 --
-------------- --------------
Net cash provided by (used in) operating activities $ 2,942,000 (1,541,000)
-------------- --------------
Cash Flow from Investing Activities:
(Purchase) sale of investment securities, net (151,000) 1,373,000
Purchase of equipment/leasehold/improvements (990,000) (1,363,000)
Purchase of intangible assets (62,000) (420,000)
-------------- --------------
Net cash (used in) investing activities (1,203,000) (410,000)
-------------- --------------
Cash Flow from Financing Activities:
Increase (decrease) in credit line, net 642,000 (55,000)
Issuance of common stock, options and warrants 66,000 6,000
Proceeds from long-term debt -- 475,000
Principal repayments of long-term debt (407,000) (516,000)
Dividends paid on preferred stock (11,000) (11,000)
-------------- --------------
Net cash provided by financing activities 290,000 (101,000)
-------------- --------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 2,029,000 (2,052,000)
Cash and cash equivalents - beginning of the period 612,000 2,524,000
-------------- --------------
Cash and cash equivalents - end of period $ 2,641,000 $ 472,000
============== ==============
Supplemental disclosure of cash flow information:
Interest paid $ 232,000 $ 51,000
============== ==============
Income taxes $ 1,426,000 $ --
============== ==============
Supplemental disclosure of non cash activity:
Conversion of preferred stock B and C to common stock $ 501,000 $ 170,000
============== ==============
Common stock for services $ 103,000 $ 55,000
============== ==============
Conversion of debt to equity $ -- $ 28,000
============== ==============
Preferred B and C stock dividends converted to common stock $ 279,000 $ 7,000
============== ==============
Line of Credit converted to long-term debt $ 369,000 $ --
============== ==============
Common stock issued for compensation to be earned upon vesting $ 122,000 $ --
============== ==============
See accompanying notes to condensed consolidated financial statements.
5
Notes to Condensed Consolidated Financial Statements
General
1. Basis of Presentation
The condensed consolidated financial statements have been prepared by Medifast,
Inc. (the Company), and are unaudited, pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and accounting
policies and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States have been condensed or omitted pursuant to such rules and
regulations. Although the management of the Company believes that the
disclosures contained herein are adequate to make the information presented not
misleading, these condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's annual report on Form 10-KSB for the year ended
December 31, 2004. The preparation of the condensed consolidated financial
statements requires management to make estimates and assumptions. These
estimates and assumptions affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date the condensed
consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates. The results of operations for interim periods are not necessarily
indicative of the results to be expected for the entire year.
2. Presentation of Financial Statements
The Company's condensed consolidated financial statements include the accounts
of Medifast, Inc. and its wholly-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
3. Inventories
Inventories consist principally of finished packaged foods, packaging and raw
materials held in either the Company's manufacturing facility or distribution
warehouse. Inventories are valued at the lower of cost or market using the
first-in, first-out (FIFO) method.
4. Goodwill and Other Intangible Assets
In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement
No. 142 "Goodwill and Other Intangible Assets". This statement addresses
financial accounting and reporting for acquired goodwill and other intangible
assets and supercedes APB Opinion No. 17, "Intangible Assets". It addresses how
intangible assets that are acquired individually or with a group of other assets
(but not those acquired in a business combination) should be accounted for in
financial statements upon their acquisition. This Statement also addresses how
goodwill and other intangible assets should be accounted for after they have
been initially recognized in the financial statements. The Company, in its
acquisitions, recognized $893,850 of goodwill. The Company performs its annual
impairment test for goodwill at year-end. As of September 30, 2005, the Company
has determined that there is no impairment of its goodwill.
In addition, the Company has acquired other intangible assets, which include:
customer lists, non-compete agreements, trademarks and patents. The non-compete
agreements are being amortized over the legal life of the agreements ranging
between 3 to 7 years. The customer lists are being amortized over a period
ranging between 5 to 10 years based on management's best estimate of the
expected benefits to be consumed or otherwise used up. Trademarks and patents
are regularly reviewed to determine whether the facts and circumstances exist to
indicate that the useful life is shorter than originally estimated or the
carrying amount of the assets may not be recoverable. The Company assesses the
recoverability of its trademarks and patents by comparing the projected
discounted net cash flows associated with the related asset, over their
remaining lives, in comparison to their respective carrying amounts. Impairment,
if any, is based on the excess of the carrying amount over the fair value of
those assets.
6
As of September 30, 2005 As of December 31, 2004
-------------------------------- --------------------------------
Gross Carrying Accumulated Gross Carrying Accumulated
Amount Amortization Amount Amortization
-------------- -------------- -------------- --------------
Customer lists $ 4,356,000 $ 767,000 $ 4,355,000 $ 394,000
Non-compete agreements 840,000 484,000 840,000 248,000
Trademarks and patents 1,764,000 84,000 1,703,000 12,000
Goodwill 894,000 -- 894,000 --
-------------- -------------- -------------- --------------
Total $ 7,854,000 $ 1,335,000 $ 7,792,000 $ 654,000
============== ============== ============== ==============
Amortization expense for the nine months ended September 30, 2005 and 2004 was
as follows:
2005 2004
-------------- --------------
Customer lists $ 373,000 209,000
Non-compete agreements 270,000 127,000
Trademarks and patents 38,000 --
-------------- --------------
Total Trademarks and Intangibles $ 681,000 $ 336,000
============== ==============
Amortization expense is included in selling, general and administrative
expenses.
5. Fixed Assets
Fixed assets are stated at cost. Depreciation is provided using the
straight-line method over the estimated useful lives of the related assets,
which are generally three to seven years. Leasehold improvements and equipment
under capital leases are amortized on a straight-line basis over the lesser of
the estimated useful life of the asset or the related lease terms. Expenditures
for repairs and maintenance are charged to expense as incurred, while major
renewals and improvements are capitalized.
6. Income Per Common Share
Basic income per share is calculated by dividing net income by the weighted
average number of outstanding common shares during the year. Basic income per
share excludes any dilutive effects of options, warrants and other stock-based
compensation.
7
7. Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America 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 the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those estimates.
8. Reclassifications
Certain amounts for the quarter ended September 30, 2004 have been
reclassified to conform to the presentation of the September 30, 2005 amounts.
The reclassifications have no effect on net income for the three months and nine
months ended September 30, 2004.
9. Stock-Based Compensation
The Company has adopted Statement of Financial Accounting Standards No. 123,
"Accounting for Stock Based Compensation" ("SFAS 123"). The provisions of SFAS
123 allow companies to either expense the estimated value of stock options or to
continue to follow the intrinsic value method set forth in Accounting Principles
Bulletin Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"),
but disclose the pro forma effects on net income (loss) had the fair value of
the options been expensed. The Company has elected to continue to apply APB 25
in accounting for its employee stock option incentive plans. Under APB 25, where
the exercise price of the Company's employee stock options equals the market
price of the underlying stock on the date of grant, no compensation is
recognized.
If compensation expense for the Company's stock-based compensation plans had
been determined consistent with SFAS 123, the Company's net income per share
including pro forma results would have been the amounts indicated below:
Three Months ended September, 30 Nine months ended September 30,
-------------------------------- --------------------------------
2005 2004 2005 2004
------------- ------------- ------------- -------------
Net Income:
As reported $ 617,000 $ 391,000 $ 1,587,000 $ 1,694,000
Total stock based director compensation
Expense determined under fair value based
method for all awards, net of related tax effects (0) (0) (287,000) (170,000)
------------- ------------- ------------- -------------
Pro forma $ 617,000 $ 391,000 $ 1,300.00 $ 1,524,000
============= ============= ============= =============
Net Income per share:
As reported:
Basic $ .05 $ .04 $ 0.13 0.16
Diluted .05 .03 0.13 0.14
Pro forma:
Basic .05 .04 0.11 0.14
Diluted .05 .03 0.10 0.13
8
10. Recent Accounting Pronouncements
Share Based Payments
In December 2004, the FASB issued Financial Accounting Standards No. 123
(revised 2004) (FAS 123R), "Share-Based Payment, " FAS 123R replaces FAS No.
123, "Accounting for Stock-Based Compenasation", and supersedes APB Opinion No.
25, "Accounting for Stock Issued to Employees." FAS 123R requires compensation
expense, measured as the fair value at the grant date, related to share-based
payment transactions to be recognized in the financial statements over the
period that an employee provides service in exchange for the award. The Company
intends to adopt FAS 123R using the "modified prospective" transition method as
defined in FAS 123R. Under the modified prospective method, companies are
required to 1) record compensation cost prospectively for the unvested portion,
as of the date of adoption, of previously issued and outstanding awards over the
remaining vesting period of such awards. FAS 123R is effective January 1, 2006.
The Company is evaluating the impact of FAS 123R on its' results and financial
position.
Inventory Costs
In November 2004, the FASB issued Financial Accounting Standards No. 151
(FAS 151), "Inventory Costs - an amendment of ARB No. 43, Chapter 4". FAS 151
clarifies the accounting for abnormal amounts of idle facility expense, freight,
handling costs and spoilage. In addition, FAS 151 requires companies to base the
allocation of fixed production overhead to the costs of conversion on the normal
capacity of production facilities. FAS 151 is effective for the Company in 2006.
The Company does not expect FAS 151 to have a material impact on its results or
financial statements.
11. Revenue Recognition
Revenue is recognized for product sales upon shipment and passing of risk to the
customer and when estimates of discounts, rebates, promotional adjustments,
price adjustments, returns, and other potential adjustments are reasonably
determinable, collection is reasonably assured and the Company has no further
performance obligations. These estimates are presented in the financial
statements as reductions to net revenues and accounts receivable. Estimated
sales returns, allowances and discounts are provided for.
Outbound shipping charges to customers and outbound shipping-related costs are
netted and included in "cost of sales."
Returns - Consistent with industry practice, the Company maintains a return
policy that allows its customers to return product within a specified period (30
days). Because the period of payment generally approximates the period revenue
was originally recognized, refunds are recorded as a reduction of revenue when
paid. The Company's estimate for returns is based upon its historical experience
with actual returns. While such experience has allowed for reasonable estimation
in the past, history may not always be an accurate indicator of future returns.
The Company continually monitors its estimates for returns and makes adjustments
when it believes that actual product returns may differ from the established
accruals.
9
Management Discussion and Analysis of
Financial Condition and Results of Operations
Except for the historical information contained herein, this Report on Form 10-Q
contains certain forward-looking statements that involve substantial risks and
uncertainties. When used in this Report, the words "anticipate," "believe,"
"estimate," "expect" and similar expressions, as they relate to Medifast, Inc.
or its management, are intended to identify such forward-looking statements. The
Company's actual results, performance or achievements could differ materially
from the results expressed in, or implied by, these forward-looking statements.
Accordingly, there is no assurance that the results in the forward-looking
statements will be achieved.
General
Nine Months Ended September 30, 2005 and September 30, 2004
Revenues for the first nine months of 2005 were $29,865,000, representing an
increase of $8,423,000 (39%) from the $21,442,000 reported for the nine-month
period ending September 30, 2004. The growth in revenues was a result of an
increase in direct sales to consumers, which experienced consistent sales growth
throughout the first nine months of the year. The increase in sales was
attributed to a direct marketing campaign via print, mail, web, and television
to drive new customers to the call center and website. In addition, the Company
expanded its remarketing campaign to increase current customer retention. The
Take Shape for Life division continued to experience strong sales growth due to
the beginning stages of expansion of the sales network into additional locations
as well as growth in current locations as a result of increased training and
recruitment initiatives.
Cost of sales for the first nine months of 2005 increased by $2.2 million (42%)
from 2004. Gross profit for the first nine months of 2005 increased by
$6,235,000 (38%). Selling, general and administrative expenses for the first
nine months of 2005 were $19,163,000, which increased by $5,331,000 (39%) over
the same period of 2004. The increase in SG&A is primarily due to higher costs
associated with increased revenues. The Company also increased its advertising
expense to include additional print advertising and increased strategic testing
of television advertising. Pre-tax income was $3,245,000 for the first nine
months of 2005, an increase of $905,000 (39%) from $2,340,000 for the 2004
nine-month period. This increase was due to increased sales volume in the first
nine months of 2005 as compared to 2004. The company reported net income of
$1,587,000, or $0.13 per basic share ($0.13 per diluted share), versus
$1,694,000 or $0.16 per basic share ($0.14 per diluted share), with a dilution
increase of 320,000 shares. Earnings per share were effected by the interest
associated with the conversion of the Series "B" preferred stock. This
conversion included a $260,000 stock dividend on Series "B" preferred stock and
a $19,000 stock dividend on Series "C" preferred stock. The Series "B" and
Series "C" dividends decreased basic and diluted earnings per share by $.02 for
the first nine months of 2005. As of September 30, 2005 all Series "B" and
Series "C" preferred stock have been converted to common stock and included in
the weighed average diluted shares. There will be no additional stock dividend
payments. In addition, our tax expense as a percentage of profit increased for
the first nine months of 2005 compared to 2004 as we no longer have a net
operating loss carry forward in 2005.
10
Three Months Ended September 30, 2005 and September 30, 2004
Third quarter revenues for 2005 of $10,985,000 increased by $3.7 million (51%)
from $7,268,000 for the three-month period ended September 30, 2004. Cost of
sales for the period were $2,675,000, an increase of $789,000 (42%) from
$1,886,000 during the same period of 2004. Gross profits of $8,310,000 for the
third quarter of 2005 increased by $2.9 million (54%) from $5,382,000 in the
third quarter of 2004. During the quarter the Company experienced income before
provision for income taxes of $1,226,000 compared to $521,000 in the third
quarter of 2004. Net income attributable to common shareholders was $607,000 for
the quarter ended September 30, 2005 as compared to $391,000 for the third
quarter of 2004. The Company had fully diluted earnings per share of $0.05 in
the third quarter of 2005, versus $0.03 in 2004.
Seasonality
The Company's weight management products and programs have historically been
subject to seasonality. Traditionally the holiday season in November/December of
each year is considered poor for diet control products and services. January and
February generally show increases in sales, as these months are considered the
commencement of the "diet season." The Company will not experience the same
degree of seasonality in 2005. This is largely due to the increase in the
consumer's awareness of the overall health and nutritional benefits accompanied
with the use of the Company's product line. As consumers continue to increase
their association of nutritional weight loss programs with overall health,
seasonality will continue to decrease.
Liquidity and Capital Resources
The Company had stockholders' equity of $21,258,000 and working capital of
$9,627,000 on September 30, 2005 compared with $18,807,000 and $10,634,000 at
September 30, 2004, respectively. The $2,943,000 net increase in stockholder's
equity is due to profits from operations. The $1,007,000 net decrease in working
capital is due to increased payables and short-term debt related to both
infrastructure improvements and the overall business growth in the first 9
months of 2005.
Inflation
To date, inflation has not had a material effect on the Company's business.
Item 5. Other Information
Litigation:
On December 16, 2003 John Donavin, on behalf of the General Public, filed suit,
against Jason Pharmaceuticals, Inc. in the Superior Court of the State of
California, City and County of San Francisco. The suit alleges that Medifast
bars contain Vitamin D3 or Vitamin D in violation of Federal laws and
regulations, and asks for equitable relief and damages. The Company's general
council believes that the Company's formulation used in its "meal replacement"
bars for over 20 years has been and is in conformity with current and past FDA
regulations. Medifast, Inc. has been informed by general counsel that the suit
is being dismissed due to a lack of merit.
11
A former consultant continues to claim that he transferred his personal Medifast
stock to a third party organization in 2000, in an attempt to keep these assets
out of his bankrupt estate and therefore outside the jurisdiction of the
Bankruptcy Court. The Company contests, and will vigorously defend, all such
claims made by him. The Trustee in Bankruptcy for the former consultant's
bankruptcy estate has determined that he had no authority to transfer these
shares from his estate, and has concluded that the attempted transfer was
therefore invalid. The Trustee has demanded that he produce the shares, and
intends to file a petition with the Bankruptcy Court requesting that the Court
order him to do so. A decision is pending on whether these assets will be made a
part of the bankrupt estate and will be used to pay creditors.
Other:
On August 31, 2005 Medifast announced it has signed a License and Distribution
agreement with Game Time, LLC on behalf of All-Pro NFL linebacker Ray Lewis. The
line includes a high-protein sports performance shake for men and women and a
low fat, balanced nutrition and energy shake and bar for weight management and
healthy living.
Earnings Per Share: The Company follows the provisions of Statement of Financial
Accounting Standards No. 128, "Earnings Per Share." The calculation of basic and
diluted earnings per share ("EPS") is reflected on the accompanying Consolidated
Statement of Operations.
Issuance of Common Stock: Due to the conversion of Series "C" preferred stock to
common stock and the exercising of options by employees, the Company issued
558,335 shares of common stock throughout the third quarter of 2005. Of these
shares issued, 400,000 were from the conversion of Series "C" convertible
preferred stock and 20,000 related to a stock dividend on the Series "C"
convertible preferred shares.
Code of Ethics: In September 2002, the Company implemented a Code of Ethics by
which directors, officers and employees commit and undertake to personal and
corporate growth, dedicate themselves to excellence, integrity and
responsiveness to the marketplace, and work together to enhance the value of the
Company for the shareholders, vendors, and customers.
Trading Policy: In March 2003, the Company implemented a Trading Policy whereby
if a director, officer or employee has material non-public information relating
to the Company, neither that person nor any related person may buy or sell
securities of the Company or engage in any other action to take advantage of, or
pass on to others, that information. Additionally, insiders may purchase or sell
MED securities if such purchase or sale is made within 30 business days after an
earnings or special announcement to include the 10-K, 10-Q and 8-K in order to
insure that investors have available the same information necessary to make
investment decisions as insiders.
Internal Control Policy: In April 2003, the Company implemented an Internal
Control Policy allowing for the confidential receipt and treatment of complaints
in regards to the Company's internal accounting controls and auditing matters. A
director, officer or employee may file a confidential and anonymous concern
regarding questionable accounting or auditing maters to an independent
representative of the Medifast Audit Committee through the provided
"Whistleblower Hotline". As of September 30, 2005, an evaluation was performed
under the supervision and with the participation of the Company's management,
including the Chief Executive Officer and the Chief Financial Officer, of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures. Based on that evaluation, the Company's management, including
the Chief Executive Officer and the Chief Financial Officer, concluded that the
Company's disclosure controls and procedures were effective as of September 30,
2005. There have been no significant changes in the Company's internal controls
or in other factors that could significantly affect internal controls subsequent
to September 30, 2005.
12
Forward Looking Statements: Some of the information presented in this quarterly
report constitutes forward-looking statements within the meaning of the private
Securities Litigation Reform Act of 1995. Statements that are not historical
facts, including statements about management's expectations for fiscal year 2003
and beyond, are forward-looking statements and involve various risks and
uncertainties. Although the Company believes that its expectations are based on
reasonable assumptions within the bounds of its knowledge, there can be no
assurance that actual results will not differ materially from the Company's
expectations. The Company cautions investors not to place undue reliance on
forward-looking statements which speak only to management's experience on this
date.
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.
(Registrant)
/s/ Bradley T. MacDonald
----------------------------------
Bradley T. MacDonald
Chairman & CEO
13
Index to Exhibits
Exhibit Number Description of Exhibit
- -------------- ----------------------
31.1 Certification of Chief Executive Officer pursuant to Item
601(b)(31) of Regulation S-K, as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer pursuant to Item
601(b)(31) of Regulations S-K, as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002
32.1.1 Certification of Chief Executive Officer and Chief Financial
Officer pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
33.1 Audit Committee Charter
33.2 Compensation Committee Charter
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