UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 2003 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
incorporation or organization) Identification No.)
11445 Cronhill Drive, Owings Mills, MD 21117
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(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 June 30, 2002: 9,315,662 shares
Index
Part I
Financial Information:
Condensed Consolidated Balance Sheet -
June 30, 2003 (unaudited) and December 31, 2002......................... 3
Condensed Consolidated Statement of Operations -
Three and Six Months Ended June 30, 2003 and 2002 (unaudited)........... 4
Condensed Consolidated Statement of Cash Flows -
Six Months Ended June 30, 2003 and 2002(unaudited)...................... 5
Notes to Condensed Consolidated Financial Statements...................... 6
Management Discussion and Analysis of Financial Condition
and Results of Operations............................................... 8
Part II
Signature Page........................................................... 12
CEO Certification ............................................................13
2
Medifast, Inc.
Condensed Consolidated Balance Sheets
June 30, 2003 December 31,
(Unaudited) 2002
----------- -----------
ASSETS
Current assets:
Cash ......................................................................... $2,002,000 $837,000
Certificates of Deposit....................................................... 421,000 418,000
Accounts receivable, net of allowance......................................... 628,000 284,000
Merchandise inventory......................................................... 1,725,000 1,259,000
Prepaid expenses and other current assets..................................... 581,000 249,000
Deferred tax asset............................................................ 829,000 1,079,000
Total Current Assets....................................................... 6,186,000 4,126,000
Property, plant and equipment - net............................................. 4,834,000 4,498,000
Goodwill ....................................................................... 1,763,000 0
Trademarks and intangibles...................................................... 1,251,000 608,000
Other assets.................................................................... 40,000 1,000
Deferred tax asset.............................................................. 0 655,000
----------- ----------
TOTAL ASSETS........................................................... $14,074,000 $9,888,000
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term obligations .................................. $ 333,000 304,000
Lines of Credit............................................................... 260,000 91,000
Dividends Payable............................................................. 43,000 25,000
Accounts payable and accrued expenses......................................... 2,554,000 1,189,000
----------- ---------
Total Current Liabilities..................................................... 3,190,000 1,609,000
Long-term obligations less current maturities................................. 2,712,000 2,701,000
----------- ---------
Total Liabilities........................................................ 5,902,000 4,310,000
----------- ---------
Commitments and contingencies:
Stockholders' Equity:
Series B Redeemable Convertible Preferred Stock; stated value $1.00;
600,000 shares authorized; 453,734 and 521,290 shares
issued and outstanding, respectively.......................................... 454,000 521,000
Series C Convertible Preferred Stock; stated value $1.00;
1,015,000 shares authorized; 367,000 and 985,000 shares
issued and outstanding, respectively.......................................... 367,000 985,000
Common stock; par value $.001 per share; 15,000,000 authorized;
9,315,662 and 7,204,693 shares issued and outstanding, respectively......... 9,000 7,000
Additional paid-in capital...................................................... 11,686,000 9,613,000
Accumulated deficit............................................................. (3,955,000) (5,381,000)
----------- ----------
.................................................................. 8,561,000 5,745,000
Less: Cost of Common Stock in treasury;63,393 and 30,178 shares, respectively... (389,000) (167,000)
----------- ----------
Total Stockholders' Equity...................................................... 8,172,000 5,578,000
----------- ----------
TOTAL LIABILITIES & STOCKHOLDER EQUITY ......................................... $14,074,000 $9,888,000
=========== ==========
3
Medifast, Inc.
Condensed Consolidated Statement of Operations
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- ---------------------------
2003 2002 2003 2002
---------- ------------ ----------- -----------
(Unaudited) (Unaudited)
Revenue ........................................... $6,417,000 $3,028,000 $12,764,000 $4,800,000
Cost of sales....................................... 1,628,000 973,000 3,311,000 1,632,000
---------- ---------- ----------- -----------
Gross Profit........................................ 4,789,000 2,055,000 9,453,000 3,168,000
Selling, general, and administration................ 3,818,000 1,378,000 7,038,000 2,189,000
---------- ---------- ----------- -----------
Income from operations.............................. 971,000 677,000 2,415,000 979,000
---------- ---------- ----------- -----------
Other income/(expenses)
Interest expense.................................. (31,000) (13,000) (64,000) (54,000)
Other income/(expense)............................ 19,000 (138,000) 9,000 (137,000)
---------- ---------- ----------- -----------
Income before provision for income taxes............ 959,000 526,000 2,360,000 788,000
Provision for income tax benefit/(expense)...... (368,000) 148,000 (905,000) 148,000
---------- ---------- ----------- -----------
Net income.......................................... 591,000 674,000 1,455,000 936,000
Less: Stock dividend on preferred stock.......... (11,000) (21,000) (30,000) (45,000)
---------- ---------- ----------- -----------
Net income attributable to common shareholders...... $580,000 $653,000 $1,425,000 $891,000
========== ========== =========== ===========
Basic earnings per share............................ $.06 $.10 $.17 $.14
Diluted earnings per share.......................... $.05 $.08 $.14 $.11
Weighted average shares outstanding -
Basic............................................. 9,207,119 6,619,121 8,486,681 6,591,977
Diluted........................................... 11,112,458 8,390,970 10,676,714 8,401,717
4
Medifast, Inc.
Condensed Consolidated Statement of Cash Flows
Six Months Ended June 30,
-------------------------------
2003 2002
------------ -----------
(Unaudited) (Unaudited)
Cash Flow from Operating Activities:
Net income....................................................... $1,455,000 $936,000
Depreciation & amortization.................................... 209,000 103,000
Issuance of Stock for services................................. 46,000 24,000
Deferred income taxes.......................................... 905,000 (148,000)
Changes in assets and liabilities:
(Increase) in accounts receivable.............................. (294,000) (78,000)
(Increase) in inventory........................................ (220,000) (291,000)
(Increase) in prepaid expenses & other current assets.......... (332,000) (39,000)
(Increase)/Decrease in other assets............................ (28,000) 61,000
(Decrease)/Increase in A/P and accrued expenses................ (195,000) 302,000
----------- ---------
Net Cash provided by Operating Activities........................ 1,546,000 870,000
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Cash Flow from Investing Activities:
Investment in certificates of deposit.......................... 0 (300,000)
Purchase of intangibles........................................ (119,000) 0
Purchase of equipment/leasehold improvements................... (411,000) (39,000)
----------- ---------
Net Cash (used in) Investing Activities.......................... (530,000) (339,000)
----------- ---------
Cash Flow from Financing Activities:
Redemption of Series A Redeemable Convertible Preferred......... 0 (150,000)
Increase/(Decrease) in line of credit........................... (18,000) 0
Repayment of capital lease obligations.......................... 0 (11,000)
Proceeds from long-term debt.................................... 200,000 0
Principal repayment of long-term debt........................... (185,000) (40,000)
Issuance of Common Stock........................................ 164,000 0
Issuance of Series C Convertible Preferred...................... 0 102,000
Dividends on preferred stock.................................... (12,000) (8,000)
----------- ---------
Net Cash provided by (used in) Financing Activities ............. 149,000 (107,000)
----------- ---------
Net Increase in Cash................................................ 1,165,000 424,000
Cash and cash equivalents at beginning of period.................... 837,000 270,000
----------- ---------
Cash and cash equivalents at end of period.......................... $2,002,000 $694,000
=========== =========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest................................................... $64,000 $50,000
=========== =========
Supplemental disclosures of Non Cash Investing
and Financing Activities:
Purchase of Consumer Choice Systems for stock, options,
warrants, and other liabilities............................ $1,766,000 $0
=========== =========
5
Notes to Condensed Consolidated Financial Statements
General
1. Basis of Presentation
The information contained herein with respect to the three month periods and six
month periods ended June 30, 2003 and 2002 has been reviewed by the independent
auditors and was prepared in conformity with generally accepted accounting
principles for interim financial information and instructions for Form 10-QSB
and Item 310(b) of Regulation S-B. Accordingly, the condensed consolidated
financial statements do not include information and footnotes required by
generally accepted accounting principles. Included are the adjustments, which,
in the opinion of management, are necessary for a fair presentation of the
financial information for the three-month periods and six-month periods ended
June 30, 2003 and 2002. The results are not necessarily indicative of results to
be expected for the year.
2. Income Per Common Share
Basic income per share is calculated by dividing net income attributable to
common stockholders 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.
3. 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 June, 30 Six months ended June 30,
--------------------------- --------------------------
2003 2002 2003 2002
--------- ----------- ---------- ----------
Net Income:
As reported $591,000 $674,000 $1,455,000 $936,000
Total stock based director compensation
Expense determined under fair value based
method for all awards, net of related tax effects (53,000) 0 (53,000) (1,000)
--------- ---------- ----------- ----------
Pro forma $538,000 $674,000 $1,402,000 $935,000
========= ========== =========== ==========
Net Income per share:
As reported:
Basic $.06 $.10 0.17 0.14
Diluted .05 .08 0.14 0.11
Pro forma:
Basic .06 .10 0.16 0.14
Diluted .05 .08 0.13 0.11
6
4. Business Combination
On June 16, 2003, the Company acquired substantially all of the assets and
significant liabilities of Consumer Choice Systems, Inc. The results of Consumer
Choice System, Inc.'s operations have been included in the consolidated
financial statements since that date. Consumer Choice Systems, Inc. is a
distributor of women's health products across the United States. As a result of
the acquisition, the Company is expected to be a significant provider of such
products. It also expects to reduce costs through economies of scale.
The aggregate purchase price was $1,148,000 including the value of common stock,
options and warrants issued to Consumer Choice System, Inc.'s shareholders.
Direct acquisition costs were an additional $618,000.
The following table summarizes the estimated fair values of the assets acquired
and liabilities assumed at the date of acquisition. The Company is in the
process of obtaining valuations of certain intangible assets; thus, the
allocation of the purchase price is subject to adjustment.
Current assets $ 307,000
Property and equipment 100,000
Intangible assets 558,000
Goodwill 1,763,000
Total assets acquired 2,728,000
Current liabilities (936,000)
Long-term debt
-
Total liabilities assumed (936,000)
Net assets acquired $ 1,792,000
Of the $558,000 of acquired intangible assets, $98,000 was assigned to
registered trademarks that are not subject to amortization. The remaining
intangible assets will be amortized over useful lives of between 1 and 7 years.
The $1,763,000 of goodwill was assigned to the new retail segment for purposes
of impairment testing. No determination has yet been made as to the amount of
goodwill that will be deductible for income tax purposes.
Unaudited pro forma consolidated results of operations for the six months ended
June 30, 2003 and 2002 as though Consumer Choice Systems, Inc. had been acquired
as of January 1, 2002 follow:
2003 2002
------------ -------------
Revenue $ 13,038,000 $ 5,294,000
Net income (loss) 409,000 (393,000)
Basic earnings (loss) per share .04 (.07)
Diluted earnings (loss) per share .04 (.05)
7
Management Discussion and Analysis of
Financial Condition and Results of Operations
General
Six Months Ended June 30, 2003 and June 30, 2002
Revenues for the first six months of 2003 were $12,764,000, representing an
increase of $7,964,000 (166%) from the $4,800,000 reported for the six-month
period ending June 30, 2002. This increase resulted from the increased sales
from the Company's consumer advertising campaign, increasing teleweb sales
directly to Lifestyles(R) program patients, its Take Shape For Life physician
directed Health network, export sales and increased sales of its disease
management products. Cost of sales for the first half of 2003 increased by
$1,679,000 (103%) from 2002. Gross profit for the first half of 2003 increased
by $6,285,000 (198%) from 2002 due to sales of higher margin products, such as
Medifast Plus(R) for Diabetics and its other disease management products.
Selling, general and administrative expenses for the first half of 2003 of
$7,038,000 increased by $4,849,000 (222%) over the same period of 2002. Income
from Operations was $2,415,000,an increase of $1,436,000 (147%), demonstrating
continued strength of the Company's business model. This was a result of
increased advertising, customer service improvements, expansion and
infrastructure investments. Despite the increase in SGA, the Company maintained
overall better cost controls, because of its disciplined logistics and financial
management systems and continued development of the management team operating
the Company.
The income before provision for income taxes for the first six months of 2003
was $2,360,000, which is $1,572,000 (200%) greater than the same period last
year. The operating profit is attributable primarily to consumer advertising and
teleweb based sales and marketing strategy, its Take Shape For Life Health
Network, and higher margin new product sales. The Company continues to enjoy
increased sales because of the physician acceptance of the Company's business
model and Medifast patients going to their primary care physician, which helps
the Company to maintain operating margins of 19%. The provision for income taxes
for the six-month period was $905,000, which is $1,053,000 more than the
$148,000 tax benefit for the first half of 2002. Management significantly
improved the balance sheet and the Company's profitability by reducing
short-term debt, converting significant amounts of Series "C" and Series "B"
Preferred stock and restructuring the long-term debt on more favorable terms.
Interest expense was $64,000 during the six-month period ending June 30, 2003 as
compared to $54,000 for the same period in 2002. The Company increased
shareholder equity to $8,172,000, which is $4,578,000 (127%) greater than the
same period last year. Since January of 2000 the Company has increased
shareholders' equity by $8,990,000, which continues to absorb the dilution of
preferred stock, options/warrants and the recent sale of equity in a private
placement.
Three Months Ended June 30, 2003 and June 30, 2002
Second quarter revenues for 2003 of $6,417,000 increased by $3,389,000 (112%)
from $3,028,000 for the three-month period ended June 30, 2002. Cost of sales
for the period was $1,628,000, an increase of $655,000 (67%) from $973,000
during the same period of 2002. Gross profits of $4,789,000 for the second
quarter of 2003 increased by $2,734,000 (133%) from $2,055,000 in the second
quarter of 2002. During the quarter the Company experienced a profit from
operations of $971,000, an increase of $294,000 (43%) compared to a profit of
$677,000 for the second quarter of 2002. The income before provision for income
taxes for the second quarter of 2003 was $959,000 compared to $526,000 in the
second quarter of 2002. A provision for income tax of $368,000 was recognized in
the second quarter of 2003 compared to an income tax benefit of $148,000 to be
realized from net operating loss carry forwards in 2002. The Company is now
accruing for income tax; however, from a cash flow perspective taxes are
projected to be paid sometime in the first quarter of 2004
Seasonality
The Company's weight management products and programs are 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 may not experience the same
degree of seasonality in 2003 because of its robust and vigorous export
programs.
8
Liquidity and Capital Resources
On May 12, 2003 Jason Pharmaceuticals increased its secured line of credit with
Mercantile-Safe Deposit and Trust Company from $500,000 to $1,000,000, although
only $73,000 was advanced as of June 30, 2003.
On June 16, 2003, the Company's wholly owned subsidiary, Jason Enterprises,
Inc., acquired the assets of Consumer Choice Systems, Inc. (CCS) a Delaware
corporation. Consumer Choice Systems distributes its woman's health products to
over 18,000 chain food and drug stores across the United States. Its "Women's
Wellbeing" brand and products focus on menopausal women and UTI (Urinary Tract
Infection detection and treatment products) products for women in the age group
of 14 to 80, encompassing multiple product categories including: 1) Urinary
Tract Infection products that address detection, relief, and prevention and 2)
Menopause Relief products that address night sweats, hot flashes and vaginal
dryness. Additionally, Jason Enterprises, Inc. will develop cutting edge disease
and condition management supplements and skin care products under the Women's
Wellbeing trademark. The newly acquired company has an annualized 12-month
revenue of approximately $2 million.
Due to the continuing success of its national advertising and marketing
campaign, Medifast expanded its marketing efforts in the second quarter. The
Company delivered over 600 million consumer impressions through national print
media such as AARP's The Magazine and Parade Magazine. The campaign included the
launch of the new Fit! line, which is a revolutionary line of soy-based products
specially formulated to improve the health and general nutrition of adolescents,
aged 10-16. The Fit! line will provide Medifast with the opportunity to increase
its practitioner base to include a nationwide network of pediatricians and
school nurses through the aggressive marketing campaign.
The Company had stockholders' equity of $8,172,000 and working capital of
$2,996,000 on June 30, 2003 compared with $5,578,000 and $2,517,000 at December
31, 2002, respectively. The $2,594,000 net increase in stockholder's equity and
the $479,000 net increase in working capital reflects the profits and equity
contributions in the first six months from operations. The Company has
sufficient cash flow from operations to fund its current business plan.
Inflation
To date, inflation has not had a material effect on the Company's business.
Item 5. Other Information
-------------------------
Litigation: 1) The Company is a defendant in a lawsuit with its competitor
Robards, Inc. / Food Sciences Corporation, Inc. pertaining to what Robards, Inc.
/ Food Sciences Corporation alleged were slanderous and untrue statements made
to its customers. The Company through local counsel filed a Counterclaim and
Third Party Claim, alleging conspiracy to damage the Company business and
trademarks, trademark infringement, violations of the Millennium Copyright Act,
business defamation, as well as other claims. Robards and Medifast both claim
damages in excess of $75,000. The Company also claims that selected third party
defendants also conspired to damage the reputation and quality of the Medifast
brand. The Company intends to vigorously defend its reputation of ethical
integrity (integrity of its products and formulas) and its trademarks.
2) Consumer Choice Systems, Inc. (CCS), transferred the assets of accounts
receivable to Medifast Inc.. As part of the assets, CCS shipped Dexxus, an
export company out of Chile with a presence in the United States, over $150,000
of product, which was diverted into the U.S. market. The Company will vigorously
pursue Dexxus for failure to pay for the product according to the terms of the
agreement. If payment is not made promptly, the Company will pursue all legal
and/or criminal remedies available under the law.
Other: 1) During the quarter the Company's principal website was assaulted and
disrupted by an unidentified professional hacker. The Company estimated its
financial damage to infrastructure and sales to be in excess of $200,000. The
incident has been reported to law enforcement authorities as well as the
Company's insurance carrier. The Company has invested in additional security
measures and implemented a detailed security plan to prevent such instances from
occurring in the future.
2) On April 4, 2003 the Board of Directors authorized the Company to enter
into a consulting, investor relations and investment banking agreements with
both David Scheffler and the Augustinian Province of St. Thomas of Villanova,
represented by Rev. Anthony P. Burrascano, O.S.A and Rev. James D. Paradis,
O.S.A. The five-year agreements will call for the Consultants to advise the
Company and its management team on public relations, investment acquisitions,
development of joint ventures, subsidiary integration, marketing and
distribution strategies and the promotion of the Company with its stockholders,
prospective investors and the investment community throughout the United States
and in the International community. The Company shall pay each of the two
Consultants as compensation for being a consultant, 200,000 five year warrants,
priced at $4.80 a share, equal to the fair market value price on the date the
agreements were executed and the warrants were authorized by the Board. The
warrants are exercisable in five equal installments of 40,000 warrants per year
over the term of the agreement.
Compensation: The Compensation Committee of the Board of Directors and the Board
of Directors of Medifast, Inc. approved the Select Executive Retirement Plan for
Bradley T. MacDonald, its CEO. The Plan will be funded over two years. During
this period, Mr. MacDonald will contribute earned compensation and the
Corporation will match up to $100,000, on a dollar for dollar basis. Upon
retirement the plan will payout the accumulated principal and interest at the
age of sixty, or over a ten-year period at the option of the retiree. Currently
the Company has a 401K matching for its employees, which does not meet the
retirement needs of its highly compensated, key long-term executives.
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.
On May 15, 2003 the Board of Directors approved the grant of seventy six
thousand one hundred and twenty (76,120) shares of common stock to Consumer
Choice Systems, Inc., at a price equal to the fair market price on the date the
shares were authorized by the Board. The Board of Directors also approved the
issuance of fifty thousand (50,000) warrants to purchase Medifast's common
stock, at $10.00 per share, to Consumer Choice Systems, Inc.
Issuance of Common Stock: Due to the exercise of warrants and options by
investors, consultants, directors and employees, and the conversion of Series
"B" and "C" preferred stock, the Company issued 411,018 shares of common stock
throughout the second quarter of 2003.
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.
9
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 days after an earnings
or special announcement to include the 10-KSB, 10-QSB 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.
Significant Subsequent Events: 1) On July 18, 2003 Medifast, Inc. announced that
it reached an agreement with NewRoads, Inc. to purchase a 119,000 sq. foot
distribution facility located in Ridgely, Maryland. The new distribution
facility will initially be responsible for the storage and distribution of
Medifast and Woman's Wellbeing products to its vast network of medical
practitioners, patients, health advisors and retail drug stores. The facility
will also be responsible for the assembly and distribution of the newly acquired
Woman's Wellbeing product line, to be distributed to 18,000 drug stores
nationwide.
2) On July 24, 2003 Medifast, Inc. announced that its subsidiary,
Consumer's Choice Systems, Inc., has signed a contract with Amazon.com to market
its Woman's Wellbeing and UTI brands to Amazon's vast online customer base,
which currently exceeds more than 30 million customers around the world.
3) On July 25, 2003, the Company announced that it had sold an aggregate of
550,000 shares of common stock and warrants to purchase 82,500 shares of common
stock (the "PIPE Shares") to Mainfield Enterprises, Inc. and Portside Growth &
Opportunity Fund. The shares of common stock were sold for a cash consideration
of $12.40 per share, or a total of $6,820,000, and the warrants, exercisable for
a period of five years from the date of issuance, at an exercise price equal to
one hundred fifteen percent (115%) of the five-day volume weighted average price
(the "PIPE Transaction"), all pursuant to the terms of that certain Securities
Purchase Agreement by and between the Company and Mainfield Enterprises, Inc.
and Portside Growth & Opportunity Fund dated as of July 24, 2003 (the
"Securities Purchase Agreement"). The PIPE Shares were issued in a private
placement transaction pursuant to Section 4(2) and Regulation D under the
Securities Act of 1933, as amended (the "Securities Act"). 4) The Medifast
Annual Shareholder Meeting was held on July 25, 2003 at The American Stock
Exchange. The Shareholders voted in favor of the classification of the Board of
Directors into three classes consisting of Class I, Class II and Class III based
on seniority and to amend the Company bylaws accordingly . The shareholders
voted Bradley MacDonald (91%) and Donald Reilly (96%) into Class I, Scott Zion
(96%) and Michael MacDonald (91%) into Class II, and Mary Travis (96%) and
Michael J. McDevitt (96%) into Class III. Additionally, the shareholders
approved the reappointment of Wooden & Benson, Chartered, as the Company's
independent auditors for the fiscal year ending December 31, 2003. The Directors
elected Mr. Bradley T. MacDonald as Chairman of the Board, CEO, Treasurer and
Secretary, and Mr. Scott Zion as Assistant Secretary of the Corporation. The
stockholders approved and the Directors amended the Company's 1993 stock option
plan and increased the number of authorized stock options from one million
(1,000,000) to one million two hundred fifty thousand (1,250,000) in order to
provide incentives for employees, directors, and consultants performance.
10
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.
11
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
12
CEO Certification
I, Bradley T. MacDonald, the registrant, Chairman of the Board and Chief
Executive Officer certify that:
1. The registrant's certifying officer has reviewed this Form 10-QSB of
Medifast, Inc.
2. Based on the registrant's certifying officer's knowledge, this 10-QSB does
not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with
respect to the period covered by the Form 10-QSB.
3. Based on the registrant's certifying officer's knowledge, the financial
statements, and other financial information included in the Form 10-QSB,
fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for the periods
presented in this 10-QSB.
4. The registrant's certifying officer is responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and have:
a. Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period by which this Form 10-QSB is
being prepared;
b. Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this 10-QSB (the "Evaluation Date") and
c. Presented in this 10-QSB our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of
the Evaluation Date.
5. The registrant's certifying officer has disclosed, based on our most recent
evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors:
a. All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b. Any fraud, whether or not materials, that involves management or other
employees who have a significant role in the registrant's internal
controls.
6. The registrant's certifying officer indicated in the Form 10-QSB whether
there were significant changes in internal controls or in other factors
that could significantly affect internal controls subsequent to the date of
our most recent evaluation, including any corrective actions with regard to
significant deficiencies or material weaknesses, within the accounting
system.
August 12, 2003
Bradley T. MacDonald
Chairman of the Board & Chief Executive Officer
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