x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
Delaware
|
|
13-3714405
|
(State
or other jurisdiction
of
organization)
|
|
(I.R.S.
employer
Identification
no.)
|
Class
|
|
Outstanding at May 9,
2008 |
Common
stock, $.001 par value per share
|
|
13,814,098
shares
|
Part
I
|
|
Financial
Information:
|
|
Condensed
Consolidated Balance Sheets –
|
|
March
31, 2008 (unaudited) and December 31, 2007 (audited)
|
3
|
Condensed
Consolidated Statements of Income –
|
|
Three
Months Ended March 31, 2008 and 2007 (unaudited)
|
4
|
Condensed
Consolidated Statements of Cash Flows –
|
|
Three
Months Ended March 31, 2008 and 2007 (unaudited)
|
5
|
Notes
to Condensed Consolidated Financial Statements (unaudited)
|
6
|
Management
Discussion and Analysis of Financial Condition
|
|
And
Results of Operations
|
12
|
Part
II
|
|
Exhibits
|
17
|
EX
31.1
|
|
EX
32.1
|
March 31, 2008
|
December 31, 2007
|
||||||
(Unaudited)
|
(Audited)
|
||||||
ASSETS
|
|||||||
Current
assets:
|
|||||||
Cash
and cash equivalents
|
$
|
1,407,000
|
$
|
2,195,000
|
|||
Accounts
receivable-net of allowance for doubtful accounts of
$100,000
|
475,000
|
493,000
|
|||||
Inventory
|
9,973,000
|
9,181,000
|
|||||
Investment
securities
|
1,405,000
|
1,439,000
|
|||||
Deferred
compensation
|
723,000
|
814,000
|
|||||
Prepaid
expenses and other current assets
|
3,245,000
|
2,727,000
|
|||||
Prepaid
income tax
|
143,000
|
-
|
|||||
Note
receivable - current
|
180,000
|
180,000
|
|||||
Deferred
tax asset
|
82,000
|
100,000
|
|||||
Total
Current Assets
|
17,633,000
|
17,129,000
|
|||||
Property,
plant and equipment - net
|
19,150,000
|
17,031,000
|
|||||
Trademarks
and intangibles - net
|
6,897,000
|
7,356,000
|
|||||
Deferred
tax asset, net of current portion
|
897,000
|
897,000
|
|||||
Note
receivable, net of current portion
|
1,180,000
|
1,212,000
|
|||||
Other
assets
|
301,000
|
99,000
|
|||||
TOTAL
ASSETS
|
$
|
46,058,000
|
$
|
43,724,000
|
|||
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|||||||
Current
liabilities:
|
|||||||
Accounts
payable and accrued expenses
|
$
|
5,382,000
|
$
|
4,279,000
|
|||
Income
taxes payable
|
-
|
592,000
|
|||||
Line
of credit
|
2,176,000
|
1,599,000
|
|||||
Current
maturities of long-term debt
|
257,000
|
264,000
|
|||||
Total
Current Liabilities
|
7,815,000
|
6,734,000
|
|||||
Long-term
debt, net of current portion
|
4,505,000
|
4,570,000
|
|||||
Total
Liabilities
|
12,320,000
|
11,304,000
|
|||||
Stockholders'
Equity:
|
|||||||
Common
stock; par value $.001 per share; 20,000,000 authorized; 13,814,098
and
13,709,098 shares issued and outstanding, respectively
|
14,000
|
14,000
|
|||||
Additional
paid-in capital
|
27,225,000
|
26,953,000
|
|||||
Accumulated
other comprehensive income
|
154,000
|
321,000
|
|||||
Retained
Earnings
|
11,183,000
|
9,818,000
|
|||||
38,576,000
|
37,106,000
|
||||||
Less:
cost of 270,534 and 270,534 shares of common stock in
treasury
|
(1,971,000
|
)
|
(1,971,000
|
)
|
|||
Less:
unearned compensation
|
(2,867,000
|
)
|
(2,715,000
|
)
|
|||
Total
Stockholders' Equity
|
33,738,000
|
32,420,000
|
|||||
TOTAL
LIABILITIES & STOCKHOLDERS' EQUITY
|
$
|
46,058,000
|
$
|
43,724,000
|
Three Months Ended March 31,
|
|||||||
(Restated)
|
|||||||
2008
|
2007
|
||||||
(Unaudited)
|
(Unaudited)
|
||||||
Revenue,
net
|
$
|
25,169,000
|
$
|
20,089,000
|
|||
Cost
of sales
|
6,100,000
|
5,058,000
|
|||||
Gross
Profit
|
19,069,000
|
15,031,000
|
|||||
Selling,
general, and administration
|
17,007,000
|
13,117,000
|
|||||
Income
from operations
|
2,062,000
|
1,914,000
|
|||||
Other
income/(expense)
|
|||||||
Interest
expense
|
(103,000
|
)
|
(95,000
|
)
|
|||
Interest
income
|
38,000
|
33,000
|
|||||
Other
expense
|
36,000
|
51,000
|
|||||
(29,000
|
)
|
(11,000
|
)
|
||||
Net
income before provision for income taxes
|
2,033,000
|
1,903,000
|
|||||
Provision
for income tax (expense)
|
(668,000
|
)
|
(530,000
|
)
|
|||
Net
income
|
$
|
1,365,000
|
$
|
1,373,000
|
|||
Basic
earnings per share
|
$
|
0.10
|
$
|
0.11
|
|||
Diluted
earnings per share
|
$
|
0.10
|
$
|
0.10
|
|||
Weighted
average shares outstanding -
|
|||||||
Basic
|
13,101,157
|
12,899,543
|
|||||
Diluted
|
13,799,293
|
13,690,788
|
Three
Months Ended March 31,
|
|||||||
(Restated)
|
|||||||
2008
|
2007
|
||||||
(Unaudited)
|
(Unaudited)
|
||||||
Cash
flows from operating activities:
|
|||||||
Net
income
|
$
|
1,365,000
|
$
|
1,373,000
|
|||
Adjustments
to reconcile net income to net cash provided by operating
activities from continuing
operations:
|
|||||||
Depreciation
and amortization
|
1,079,000
|
786,000
|
|||||
Realized
loss on investment securities
|
36,000
|
32,000
|
|||||
Common
stock issued for services
|
35,000
|
21,000
|
|||||
Stock
options vested during period
|
-
|
77,000
|
|||||
Stock
options cancelled during period
|
(77,000
|
)
|
-
|
||||
Excess
tax benefits from share-based payment arrangements
|
-
|
30,000
|
|||||
Vesting
of unearned compensation
|
148,000
|
164,000
|
|||||
Net
change in other comprehensive (loss) income
|
(167,000
|
)
|
14,000
|
||||
Deferred
income taxes
|
18,000
|
(88,000
|
)
|
||||
|
|||||||
Changes
in assets and liabilities:
|
|||||||
(Increase)
decrease in accounts receivable
|
18,000
|
(76,000
|
)
|
||||
(Increase)
in inventory
|
(792,000
|
)
|
(452,000
|
)
|
|||
(Increase)
in prepaid expenses & other current assets
|
(518,000
|
)
|
(885,000
|
)
|
|||
(Increase)
decrease in deferred compensation
|
91,000
|
(125,000
|
)
|
||||
(Increase)
in prepaid taxes
|
(143,000
|
)
|
-
|
||||
(Increase)
in other assets
|
(202,000
|
)
|
(6,000
|
)
|
|||
Increase
in accounts payable and accrued expenses
|
1,103,000
|
701,000
|
|||||
Increase
(decrease) in income taxes payable
|
(592,000
|
)
|
154,000
|
||||
Net
cash provided by operating activities
|
1,402,000
|
1,720,000
|
|||||
Cash
Flow from Investing Activities:
|
|||||||
(Purchase)
sale of investment securities, net
|
(4,000
|
)
|
97,000
|
||||
(Purchase)
of property and equipment
|
(2,735,000
|
)
|
(1,044,000
|
)
|
|||
(Purchase)
of intangible assets
|
(2,000
|
)
|
(240,000
|
)
|
|||
Net
cash (used in) investing activities
|
(2,741,000
|
)
|
(1,187,000
|
)
|
|||
Cash
Flow from Financing Activities:
|
|||||||
Issuance
of common stock, options and warrants
|
12,000
|
24,000
|
|||||
(Repayment)
of long-term debt, net
|
(71,000
|
)
|
(137,000
|
)
|
|||
Increase
in line of credit
|
577,000
|
650,000
|
|||||
Decrease
in note receivable
|
33,000
|
41,000
|
|||||
Excess
tax benefits from share-based payment arrangements
|
-
|
(30,000
|
)
|
||||
(Purchase)
of treasury stock
|
-
|
(309,000
|
)
|
||||
Net
cash provided by financing activities
|
551,000
|
239,000
|
|||||
NET
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
(788,000
|
)
|
772,000
|
||||
Cash
and cash equivalents - beginning of the period
|
2,195,000
|
1,085,000
|
|||||
Cash
and cash equivalents - end of period
|
$
|
1,407,000
|
$
|
1,857,000
|
|||
Supplemental
disclosure of cash flow information:
|
|||||||
Interest
paid
|
$
|
103,000
|
$
|
95,000
|
|||
Income
taxes
|
$
|
1,489,000
|
$
|
464,000
|
|||
Supplemental
disclosure of non cash activity:
|
|||||||
Common
stock issued to Directors over 3-year vesting period
|
$
|
195,000
|
$
|
-
|
|||
Options
vested during period
|
$
|
-
|
$
|
77,000
|
|||
Options
cancelled during period
|
$
|
(77,000
|
)
|
$
|
-
|
||
Common
stock issued for services
|
$
|
35,000
|
$
|
21,000
|
As of March 31, 2008
|
As of December 31, 2007
|
||||||||||||
Gross Carrying
|
Accumulated
|
Gross Carrying
|
Accumulated
|
||||||||||
Amount
|
Amortization
|
Amount
|
Amortization
|
||||||||||
Customer
lists
|
$
|
8,332,000
|
$
|
3,467,000
|
$
|
8,332,000
|
$
|
3,065,000
|
|||||
Trademarks,
patents, and copyrights
|
|||||||||||||
finite
life
|
1,628,000
|
505,000
|
1,626,000
|
446,000
|
|||||||||
infinite
life
|
909,000
|
-
|
909,000
|
-
|
|||||||||
Total
|
$
|
10,869,000
|
$
|
3,972,000
|
$
|
10,867,000
|
$
|
3,511,000
|
|||||
Amortization
expense for the three months ended March 31, 2008 and 2007 was
as
follows:
|
|||||||||||||
|
|
|
(Restated)
|
|
|||||||||
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
||
Customer
lists
|
$
|
402,000
|
$
|
239,000
|
|||||||||
Trademarks
and patents
|
59,000
|
58,000
|
|||||||||||
Total
Trademarks and Intangibles
|
$
|
461,000
|
$
|
297,000
|
|||||||||
Amortization
expense is included in selling, general and administrative
expenses.
|
Assets
|
Level
I
|
Level II
|
Level III
|
Total
|
|||||||||
Investment
securities
|
$
|
1,405,000
|
-
|
-
|
$
|
1,405,000
|
|||||||
Cash
equivalents
|
1,407,000
|
-
|
-
|
1,407,000
|
|||||||||
Total
Assets
|
$
|
2,812,000
|
$
|
-
|
$
|
-
|
$
|
2,812,000
|
|||||
Liabilities
|
-
|
-
|
-
|
-
|
|||||||||
Total
Liabilities
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
Shares
|
Weighted
Average
Exercise Price
|
Weighted
Average
Contractual
Term (Years)
|
||||||||
Outstanding, December 31, 2007
|
291,300
|
4.19
|
||||||||
Options
granted
|
||||||||||
Options
reinstated
|
||||||||||
Options
exercised
|
(25,000
|
)
|
0.50
|
|||||||
Options
forfeited or expired
|
(100,000
|
)
|
6.25
|
|||||||
Outstanding
March 31, 2008
|
166,300
|
3.50
|
1.90
|
|||||||
Options
exercisable, March 31, 2008
|
166,300
|
3.50
|
1.90
|
|||||||
Options
available for grant at March 31, 2008
|
1,056,200
|
Three
Month Ended March 31, 2008
|
|||||||||||||
Medifast
|
All
Other
|
Eliminations
|
Consolidated
|
||||||||||
Revenues,
net
|
23,480,000
|
1,689,000
|
25,169,000
|
||||||||||
Cost
of Sales
|
5,727,000
|
373,000
|
6,100,000
|
||||||||||
Other
Selling, General and Adminstrative Expenses
|
14,415,000
|
1,607,000
|
16,022,000
|
||||||||||
Depreciation
and Amortization
|
842,000
|
237,000
|
1,079,000
|
||||||||||
Interest
(net)
|
(10,000
|
)
|
(55,000
|
)
|
(65,000
|
)
|
|||||||
Provision
for income taxes
|
668,000
|
668,000
|
|||||||||||
Net
income (loss)
|
1,838,000
|
($473,000
|
)
|
1,365,000
|
|||||||||
Segment
Assets
|
27,083,000
|
18,973,000
|
46,056,000
|
Three
Month Ended March 31, 2007 (Restated)
|
|||||||||||||
Medifast
|
All
Other
|
Eliminations
|
Consolidated
|
||||||||||
Revenues,
net
|
19,037,000
|
1,052,000
|
20,089,000
|
||||||||||
Cost
of Sales
|
4,827,000
|
231,000
|
5,058,000
|
||||||||||
Other
Selling, General and Adminstrative Expenses
|
11,082,000
|
1,198,000
|
12,280,000
|
||||||||||
Depreciation
and Amortization
|
657,000
|
129,000
|
786,000
|
||||||||||
Interest
(net)
|
(8,000
|
)
|
70,000
|
62,000
|
|||||||||
Provision
for income taxes
|
530,000
|
530,000
|
|||||||||||
Net
income (loss)
|
1,949,000
|
($576,000
|
)
|
1,373,000
|
|||||||||
Segment
Assets
|
23,831,000
|
15,581,000
|
39,412,000
|
Net
Sales by Segment as of March 31,
|
|||||||||||||
2008
|
2007
|
||||||||||||
Segments
|
Sales
|
%
of Total
|
Sales
|
%
of Total
|
|||||||||
Medifast
|
23,480,000
|
93
|
%
|
19,037,000
|
95
|
%
|
|||||||
All
Other
|
1,689,000
|
7
|
%
|
1,052,000
|
5
|
%
|
|||||||
Total
Sales
|
25,169,000
|
100
|
%
|
20,089,000
|
100
|
%
|
Net
Profit by Segment as of March 31,
|
|||||||||||||
2008
|
2007
|
||||||||||||
Segments
|
Profit
|
%
of Total
|
Profit
|
%
of Total
|
|||||||||
Medifast
|
1,838,000
|
135
|
%
|
1,949,000
|
142
|
%
|
|||||||
All
Other
|
(473,000
|
)
|
-35
|
%
|
(576,000
|
)
|
-42
|
%
|
|||||
Total
Net Profit
|
1,365,000
|
100
|
%
|
1,373,000
|
100
|
%
|
BY:
|
/S/
MICHAEL S. MCDEVITT
|
May
12, 2008
|
|
Michael
S. McDevitt
|
|
|
Chief
Executive Officer and Chief Financial Officer
|
|
|
(principal
executive officer and principal financial officer)
|
|
|
|
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 Regulation
S-K,
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
|
32.1
|
Certification
of Chief Executive Officer and Chief Financial Officer pursuant to
Section
906 of the Sarbanes-Oxley Act of
2002
|